o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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N/A
(Translation of Registrants Name Into English) |
Hong Kong
(Jurisdiction of Incorporation or Organization) |
Title of Each Class | Name of Each Exchange On Which Registered | |
Ordinary shares, par value HK$0.10 per share | The New York Stock Exchange, Inc.* |
* | Not for trading, but only in connection with the listing on The New York Stock Exchange, Inc. of American depositary shares, or ADSs, each representing 10 ordinary shares. |
Large accelerated filer þ | Accelerated filer o |
Non-accelerated filer
o
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EX-13.2 |
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| changes in the regulatory regime and policies for the PRC telecommunications industry, including changes in the structure or functions of the primary industry regulator, the Ministry of Industry and Information Technology, or the MIIT (which has assumed the regulatory functions of the former Ministry of Information Industry), or changes in the regulatory policies of the MIIT, the State-owned Assets Supervision and Administration Commission, or the SASAC, and other relevant government authorities of the PRC; | ||
| results of the ongoing restructuring of the PRC telecommunications industry; | ||
| changes in the PRC telecommunications industry resulting from the issuance of 3G licenses by the central government of the PRC; | ||
| effects of tariff reduction and other policy initiatives from the relevant PRC government authorities; | ||
| changes in telecommunications and related technologies and applications based on such technologies; | ||
| the level of demand for telecommunications services; | ||
| competitive forces from more liberalized markets and our ability to retain market share in the face of competition from existing telecommunications companies and potential new market entrants; | ||
| effects of competition on the demand and price of our telecommunications services; | ||
| the availability, terms and deployment of capital and the impact of regulatory and competitive developments on capital outlays; | ||
| effects of our restructuring and integration following the completion of our merger with China |
-iii-
Netcom Group Corporation (Hong Kong) Limited; | |||
| effects of our proposed adjustments in our business strategies relating to the personal handyphone system, or PHS, business; | ||
| effects of our acquisition from our parent companies of certain telecommunications business and assets, including the fixed-line business in 21 provinces in southern China, in January 2009; | ||
| changes in the assumptions upon which we have prepared our projected financial information and capital expenditure plans; | ||
| changes in the political, economic, legal and social conditions in the PRC, including the PRC Governments policies and initiatives with respect to economic development in light of the current global economic downturn, foreign exchange policies, foreign investment activities and policies, entry by foreign companies into the PRC telecommunications market and structural changes in the PRC telecommunications industry; and | ||
| the potential continued slowdown of economic activities inside and outside the PRC. |
| references to China or PRC mean the Peoples Republic of China, excluding, for purposes of this annual report, Hong Kong, Macau and Taiwan, and references to the central government or the PRC Government mean the central government of the PRC; | ||
| references to our fixed-line northern service region mean the 10 municipalities and provinces where we operate fixed-line business in northern China, consisting of Beijing and Tianjin Municipalities, and Hebei, Henan, Shandong, Liaoning, Heilongjiang, Jilin, and Shanxi Provinces, and the Inner Mongolia Autonomous Region; | ||
| references to the 21 provinces in southern China mean Shanghai Municipality, Jiangsu Province, Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province, Hubei Province, Hunan Province, Guangdong Province, Guangxi Zhuang Autonomous Region, Hainan Province, Chongqing Municipality, Sichuan Province, Guizhou Province, Yunnan Province, Tibet Autonomous Region, Shaanxi Province, Gansu Province, Qinghai Province, Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region. We completed the acquisitions of |
-iv-
certain telecommunications business and assets, including the fixed-line business in those 21 provinces in southern China, from Unicom Group and Netcom Group and/or their respective subsidiaries and branches in January 2009. See A. History and Development of the Company Recent Developments Acquisitions of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent Companies and Lease of Telecommunications Networks in 21 Provinces in Southern China under Item 4. | |||
| references to Hong Kong Stock Exchange, SEHK or HKSE mean The Stock Exchange of Hong Kong Limited, and references to NYSE or New York Stock Exchange mean The New York Stock Exchange, Inc; and | ||
| references to Renminbi or RMB are to the currency of the PRC, references to U.S. dollars or US$ are to the currency of the United States of America, and references to HK dollars or HK$ are to the currency of the Hong Kong Special Administrative Region of the PRC. |
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As of or for the year ended December 31
2007
2008
2008
RMB
RMB
US$
(1)
(in millions, except for per share data)
0.55
11.61
1.70
0.55
11.52
1.69
23,075
23,751
23,751
23,321
23,941
23,941
2,308
2,375
2,375
2,332
2,394
2,394
12,714
9,476
1,389
276,110
283,912
41,614
13,140
1,926
334,087
344,924
50,557
4,232
620
11,850
10,780
1,580
20,000
10,000
1,466
7,411
1,216
178
103
16,086
997
146
2,000
7,000
1,026
155,571
138,214
20,259
178,516
206,710
30,298
1,437
2,329
341
65,256
56,674
8,307
(47,641
)
(54,490
)
(7,987
)
(29,805
)
(35,070
)
(5,140
)
(12,190
)
(32,886
)
(4,820
)
1,225
656
96
3,078
29,489
4,322
4,303
30,145
4,418
(7,887
)
(2,741
)
(402
)
0.20
0.20
0.03
(1)
The translation of RMB into US dollars has been made at the rate of RMB6.8225 to US$1.00, the
noon buying rate in New York City for cable transfer in RMB as certified for customs purposes
by the Federal Reserve Bank of New York on December 31, 2008. The translations are solely for
the convenience of the reader.
(2)
Including fixed-line upfront connection fees for basic telephone access services that were
eliminated by order of the former Ministry of Information Industry in July 2001.
(3)
Results of the Guangdong and Shanghai service regions have been disclosed as discontinued
operations for the year ended December 31, 2007 and results of our CDMA business have been
disclosed as discontinued operations for the years ended December 31, 2007 and 2008.
(4)
See Note 35 to the financial statements included in this Form 20-F on how basic and diluted
earnings per share are calculated under IFRS/HKFRS.
(5)
Earnings per ADS is calculated by multiplying earnings per share by 10, which is the number
of shares represented by each ADS.
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RMB per US$1.00
HK$ per US$1.00
High
Low
High
Low
6.8842
6.8225
7.7522
7.7497
6.8403
6.8225
7.7618
7.7504
6.8470
6.8241
7.7551
7.7511
6.8438
6.8240
7.7593
7.7497
6.8361
6.8180
7.7508
7.7495
6.8326
6.8176
7.7526
7.7500
6.8364
6.8264
7.7516
7.7499
RMB per US$1.00
HK$ per US$1.00
8.2768
7.7899
8.1826
7.7755
7.9579
7.7685
7.5806
7.8008
6.9193
7.7814
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difficulties in integrating the operations of the two companies, including unifying
their operating and accounting policies and procedures as well as their information
systems, streamlining overlapping operations, consolidating subsidiaries and branch
networks, and allocating human resources;
unforeseen contingent risks or latent liabilities relating to the merger that may
not become apparent until in the future;
loss of personnel, including key management members;
increase in competition in the PRC telecommunications industry resulting from the
recent restructuring of the PRC telecommunications industry, which, among other things,
may require us to increase our marketing efforts;
the diversion of financial or other resources from our existing businesses; and
potential loss of, or harm to, relationships with customers.
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manage technology migration in an effective manner;
obtain adequate financing;
obtain relevant government licenses, permits and approvals;
obtain adequate network equipment and software;
retain experienced management and technical personnel;
obtain sufficient spectrum frequencies, network numbers and other telecommunications
resources controlled by the PRC Government;
gain access to the sites for network construction or upgrade; and
enter into interconnection and other arrangements with other operators.
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we will be able to gain access to sufficient sites for 3G network construction;
there will be sufficient demand for 3G services for us to deliver these services
profitably;
the commercial launch of our 3G services will proceed according to anticipated
schedules;
our 3G network and services will deliver the quality and levels of services as
expected;
we will be able to provide all planned 3G services or that we will be able to
provide such services on schedule, or that developing and providing such services will
not be more costly than expected;
our 3G services will be more popular among potential subscribers than those of our
competitors;
we will not encounter unexpected technological difficulties in implementing the
WCDMA technology; or
our 3G services will generate an acceptable or commercially viable rate of return.
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our financial condition and results of operations;
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our creditworthiness and relationship with lenders;
the condition of the economy and the telecommunications industry in China;
conditions in relevant financial markets in China and elsewhere in the world; and
our ability to obtain any required government approvals for our financings.
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the fixed-line business across 21 provinces in southern China operated by
Unicom Group and Netcom Group and/or their respective subsidiaries and branches (but
not the underlying fixed assets) and the local access telephone business in Tianjin
Municipality operated by Unicom Group and related fixed assets (other than land and
buildings) necessary for the operation of such local access telephone business and/or
respective subsidiaries and branches;
the backbone transmission assets in 10 provinces in northern China owned by Netcom
Group and/or its subsidiaries;
100% of the equity interest in Unicom Xingye, a limited liability company
incorporated under the laws of the PRC and a wholly-owned subsidiary of Unicom Group;
100% of the equity interest in China Information Technology Designing & Consulting
Institute Company Limited, or CITC, a limited liability company incorporated under the
laws of the PRC and a wholly-owned subsidiary of Unicom Group; and
100% of the equity interest in Unicom New Guoxin Telecommunications Corporation
Limited, or New Guoxin, a limited liability company incorporated under the laws of the
PRC and a wholly-owned subsidiary of Unicom Group.
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the closing of the initial agreement would be subject to (i) the successful transfer
of all rights and obligations of the A Share Company or Unicom BVI under the initial
agreement to us or our subsidiaries, and (ii) the approval of the further agreement by
our independent shareholders; and
Unicom Group or its subsidiaries (excluding the A Share Company and its
subsidiaries) would agree and acknowledge that all rights and obligations under the
initial agreement can be transferred to us or our subsidiaries without any further
consent requirements.
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As of or for
the year ended December 31,
2006
(4)
2007
(4)
2008
106,937
120,564
133,365
23.2
%
22.0
%
20.8
%
237.8
249.7
246.4
49.2
45.7
42.3
59.26
72.94
76.33
(1)
Market share in a given area is determined by dividing the number of our GSM subscribers in
the area by the total number of mobile subscribers in the area.
Source
: MIIT.
(2)
MOU is calculated by dividing the total minutes of usage during the period by the average
number of our GSM subscribers during the period, and dividing the result by the number of
months in the relevant period.
(3)
ARPU is calculated by dividing the sum of GSM revenue during the relevant period by the
average number of our GSM subscribers during the period, and dividing the result by the number
of months in the period.
(4)
Includes Unicom Guizhou, which merged into CUCL on December 31, 2007.
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Post-paid Services
Pre-paid Services
RMB
RMB
45-50
0
0.36-0.40
0.54-0.60
0.6 for caller
0.6 for caller
0.4 for receiver
0.4 for receiver
Source:
MIIT.
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fixed-line voice services (including PHS services), including local, domestic long
distance and international long distance services;
fixed-line value-added services;
fixed-line broadband services, including XDSL, LAN, broadband content and
applications services; and
data communications services, including managed data, leased line services and ICT
services.
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As of December 31,
2006
2007
2008
(in thousands, except percentages)
68,803
67,162
61,246
10,946
10,575
10,599
27,316
26,189
21,851
6,907
6,894
6,450
113,972
110,820
100,146
91.5
%
90.4
%
89.1
%
(1)
Fixed-line subscribers consist of all access lines in service as well as PHS subscribers. We
calculate PHS subscribers based on the number of active telephone numbers for our PHS
services. In cases where a PHS subscriber uses the same telephone number as an access line in
service, the designation as a PHS subscriber or access line in service depends on which
service is first activated. We increase our total number of fixed-line subscribers as soon as
practicable after activation of the service. We remove a fixed-line subscriber from the total
number of fixed-line subscribers as soon as practicable after the fixed-line subscriber
deactivates the service voluntarily or three months after the date on which the fixed-line
subscribers bill becomes overdue. Prepaid and postpaid telephone card customers are not
counted toward our fixed-line subscribers.
(2)
Calculated by dividing the number of our fixed-line subscribers by the total number of
fixed-line subscribers in our fixed-line northern service region published by the provincial
telecommunications administrations or the MIIT, as the case may be, as of each of December 31,
2006, 2007 and 2008, and March 31, 2009.
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For the Years Ended December 31,
2006
2007
2008
214,474
202,547
187,836
5,251
3,660
2,936
209,223
198,887
184,900
(1)
Pulses are the billing units for calculating local telephone usage fees. See B. Business
Overview Regulatory and Related Matters Tariff Setting and Price Controls under Item 4
for a discussion of pulses.
For the Years Ended December 31,
2006
2007
2008
17,327
18,482
17,519
11,482
10,315
8,051
28,809
28,797
25,570
(1)
Includes calls originated by prepaid phone cards users and VoIP subscribers that are carried
over our long distance networks.
For the Years Ended December 31,
2006
2007
2008
144
155
145
180
189
171
324
344
316
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(1)
Includes calls originated by prepaid phone cards users and VoIP subscribers that are carried
over our international long distance networks.
(2)
Includes long distance outbound calls made to Hong Kong, Macau and Taiwan.
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As of and for the Years Ended
December 31,
2006
2007
2008
11,288
15,777
20,508
3,141
3,985
4,789
0
6
119
14,429
19,768
25,416
87.5
%
80.7
%
(3)
82.1
%
(1)
We calculate DSL subscribers based on the number of active accounts. LAN subscribers consist
of end-users and dedicated line users. We calculate LAN end-users based on the number of ports
subscribed for. The number of LAN dedicated line users equals total monthly fees paid by such
users divided by set average revenue per unit. The current set revenue per unit is RMB 90. We
consider an account active or a service subscribed for as soon as practicable after activation
of the applicable service. We remove a subscriber from the total number of subscribers as soon
as practicable after that subscriber deactivates the service voluntarily or three months after
the date on which that subscribers bill becomes overdue.
(2)
Calculated by dividing the number of our own broadband subscribers by the total number of
broadband subscribers in our fixed-line northern service region, as published by the
provincial telecommunications administrations or the MIIT, as the case may be, as of each of
December 31, 2006, 2007 and 2008, and March 31, 2009.
(3)
Our market share of 2007 was adjusted to reflect a restated number of fixed-line broadband
users in 2007 published by the MIIT.
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equalize domestic roaming charges with charges for long distance calls made during
domestic roaming;
equalize the charges for pre-paid and post-paid mobile subscribers;
set different tariff caps for callers and receivers in the context of domestic
mobile roaming, with the tariff cap for callers being set at RMB0.6 per minute and the
tariff cap for receivers being set at RMB0.4 per minute; and
abolish the additional charge for use of the long distance network in the context of
domestic roaming.
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cell sites, which are physical locations, each equipped with a base station that
houses transmitters, receivers and other equipment used to communicate through radio
channels with subscribers mobile handsets within the range of a cell;
base station controllers, which connect to, and control, the base stations;
mobile switching centers, which control the base station controllers and the routing
of telephone calls; and
a transmission network, which links the mobile switching centers, base station
controllers, base stations and the public switched telephone network.
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). Unicom Group has granted us the right to use
these trademarks on a royalty-free basis, and licensed us any trademark that it registers in China
in the future which incorporates the word Unicom. In addition, prior to our merger with China Netcom,
China Netcom marketed their services under the CNC brand name and logo, which are registered trademarks
in China owned by Netcom Group, which merged with, and was absorbed by, our parent company, Unicom Group,
in January 2009.
formulating and enforcing industry policies and regulations, as well as technical
standards;
granting telecommunications service licenses;
supervising the operations and quality of services of telecommunications service
providers;
allocating and administering telecommunications resources such as spectrum and
number resources;
together with other relevant regulatory authorities, formulating tariff standards
for telecommunications services;
formulating interconnection and settlement policies between telecommunications
networks; and
maintaining fair and orderly market competition among service providers.
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basic telecommunications services are classified into Category I basic
telecommunications services and Category II basic telecommunications services. Category
I basic telecommunications services include fixed-line telecommunications services
(including fixed-line local, domestic long distance, international long distance and
IP telephone services and services related to maintaining international
telecommunications facilities), mobile telecommunications services (including
900/1800MHz GSM 2G, 800MHz CDMA 2G and 3G digital cellular mobile telecommunications
services), Category I satellite telecommunications services (including satellite mobile
telecommunications and international satellite private-line services) and Category I
data communications services (including Internet data transmission, international data
telecommunications, public telegraph and telex services). Category II basic
telecommunications services include trunking telecommunications services (including
analogue trunking telecommunications and digital trunking telecommunications services),
wireless paging services, Category II satellite telecommunications services (including
lease and sales of satellite transponders and very-small-aperture-terminal, or VSAT,
telecommunications services), Category II data telecommunications services (including
fixed-line domestic and wireless data transmission services), network access services
(including wireless network access services and network services from customer
premises), services related to maintaining domestic telecommunications facilities and
network hosting services.
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value-added telecommunications services are classified into Category I value-added
telecommunications services and Category II value-added telecommunications services.
Category I value-added telecommunications services include on-line data processing and
interchange, domestic multi-party telecommunications, IP-VPN and Internet data center,
or IDC, services. Category II value-added telecommunications services include
store-and-forward, call center, Internet access and information services.
for fixed-line services, there is no longer any geographic restriction and foreign
ownership may be no more than 49%;
for mobile voice and data services, there is no longer any geographic restriction
and foreign ownership may be no more than 49%; and
for value-added telecommunications services, there is no longer any geographic
restriction and foreign ownership may be no more than 50%.
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equalize domestic roaming charges with charges for long distance calls made during
domestic roaming;
equalize the charges for pre-paid and post-paid mobile subscribers;
set different tariff caps for callers and receivers in the context of domestic
mobile roaming, with the tariff cap for callers being set at RMB0.6 per minute and the
tariff cap for receivers being set at RMB0.4 per minute; and
abolish the additional charge for use of the long distance network in the context of
domestic roaming.
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Post-paid Services
Pre-paid Services
RMB
RMB
45-50
0
0.36-0.40
0.54-0.6
0.6 for caller
0.6 for caller
0.4 for receiver
0.4 for receiver
Tariff (in RMB)
20.00 to 25.00
12.00 to 18.00
10.00 to 15.00
25.00 to 35.00
0.18 to 0.22 for the first two pulses (first three
minutes or less) and 0.09 to 0.11 for each additional
pulse (one minute intervals)
up to 0.30 per pulse (one minute intervals)
(1)
0.02 per pulse (one minute intervals)
(1)
Prior to January 1, 2008, inter-district usage fee was up to 0.40 per pulse (one minute
intervals).
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Tariff (in RMB)
0.07 per six seconds
(1)
Subject to filing with the provincial telecommunications administrations, our provincial
level headquarters may apply a 10% to 50% discount rate to calls made during off-peak hours.
Tariff (in RMB)
0.20 per six seconds
0.80 per six seconds
(1)
Subject to filing with the provincial telecommunications administrations, our provincial
level headquarters may apply a 10% to 50% discount rate to calls made during off-peak hours.
Monthly Fee
64kbps
128kbps
512kbps
1Mbps
(RMB)
1,500
2,000
3,800
5,000
2,000
2,500
5,200
7,500
3,500
5,000
7,000
9,000
Monthly Fee
64kbps
256kbps
512kbps
1Mbps
(RMB)
260
400
500
750
550
800
1,000
1,250
800
1,150
1,450
2,000
1,700
2,200
2,500
3000
(1)
One-way tariff for PVCs frame relay services.
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Monthly Fee
2Mbps
8Mbps
34Mbps
155Mbps
(RMB)
2,000
6,000
16,000
44,000
4,000
11,000
31,000
88,000
6,000
17,000
47,000
132,000
(1)
Does not include the tariffs for local digital circuits and access lines.
Operator from Whose
Network Calls are
Operator at Whose Network
Current Main Settlement
Originated
Calls are Terminated
Arrangement
Local fixed-line operator
(1) Mobile operator collects the
usage fees from its subscribers;
(2) Mobile operator pays RMB0.06
per minute to local fixed-line
operator.
Mobile operator
No revenue sharing or settlement.
Local fixed-line operator B
(1) Operator A collects the
usage fees from its subscribers;
(2) In the case of
Intra-district calls, operator A
pays operator B 50% of the
intra-district usage fees;
(3) (i) In the case of local
inter-district calls from
operator A using operator Bs
local inter-district
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Operator from Whose
Network Calls are
Operator at Whose Network
Current Main Settlement
Originated
Calls are Terminated
Arrangement
trunk
circuit, operator A collects the
usage charge from its
subscribers and pay RMB0.15 per
minute to operator B; (ii) In
the case of local inter-district
calls from operator A not using
operator Bs local
inter-district
trunk circuit,
operator A collects the usage
charge from its subscribers and
pays operator B 50% of the
intra-district usage fees
Operator at Whose
Operator at Whose
Current Main
Network Calls are
Network Calls are
Settlement
Originated
Terminated
Arrangement
Local fixed-line or
mobile operator B
Operator A pays
RMB0.06 per minute to
operator B
Operator at Whose
Operator at Whose
Current Main
Network Calls are
Network Calls are
Settlement
Originated
Terminated
Arrangement
mobile operator A
Without using the
carrier identity code
of operator B,
through the domestic
and international
long distance network of operator B
(1) Operator A
collects the tariff
from the subscribers;
(2) If operator B is
a fixed-line
operator, operator A
retains RMB0.06 per
minute;
if operator B is a
mobile operator,
operator A retains
local usage fee and
RMB0.06 per minute;
(3) Operator B
receives the rest of
the international
long distance tariff.
Using the carrier
identity code of
operator B, through
the domestic and
international long
distance network of
operator B
(1) Operator B
collects the tariff
from the subscribers;
(2) Operator B pays
operator A RMB0.06
per minute, and
operator B retains
the rest of the
international long
distance tariff.
mobile operator A
Without using the
carrier identity code
of operator, through
domestic long
distance network of
operator A and
international gateway
of domestic operator
B to international
end users.
(1) If operator A is
a fixed-line
operator, operator A
retains a maximum
amount of RMB0.54 per
minute, and operator
B receives the rest
of the international
long distance tariff;
(2) If operator A is
a mobile operator,
operator A retains
local call tariff and
RMB0.54 per minute.
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Operator at Whose
Current Main
Operator from Whose Network
Network Calls are
Settlement
Calls are Originated
Terminated
Arrangement
Fixed-line or
mobile operator B
through the VoIP
network of operator
C
(1) Operator C
collects the VoIP
long distance usage
fees from its
subscribers;
(2) Operator C pays
RMB0.06 per minute
to operator B on
the terminating
end;
(3) No settlement
between operator C
and operator A on
the originating
end;
(4) Operator A
collects local
usage fees.
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domestic backbone transmission networks (including broadcasting and television
networks);
international telecommunications transmission circuits;
international gateways;
international telecommunications facilities for dedicated telecommunications
networks; and
other telecommunications infrastructure projects involving information security.
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Name of Subsidiary
Country of Incorporation
Ownership Interest
China
100
%
Hong Kong
100
%
Hong Kong
100
%
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For the Year Ended December 31,
2007
2008
RMB in millions
As % of Total
RMB in millions
As % of Total
14,273
9.6
18,114
12.2
940
0.6
1,654
1.1
*
Fixed-line upfront connection fees represent the amortization of deferred upfront connection
fees received from the customers before July 1, 2001. No upfront connection fee was received
from the customers since then. Therefore, we consider that analyses of our operating results
excluding upfront connection fees are more relevant to the readers of this report.
usage fees and monthly fees for our GSM mobile and fixed-line telephone services,
which are recognized when we render the service to our customers;
revenue from the provision of value-added services, which is recognized when we
render the services to our customers;
revenue from the provision of broadband and other
Internet-related services, mainly consisting of Internet access
services, and
managed data services, which is recognized when we render the service to our customers;
revenue from interconnection with other telecommunications operators, including
Unicom Group, for calls made from their networks to our networks. We recognize
interconnection revenue when the relevant calls are made by subscribers;
revenue from ICT services, which is recognized when goods are delivered to the
customers (which generally coincides with the time when the customers have accepted the
goods and the related risks and rewards of ownership have been transferred to the
customers) or when services are rendered to the customers using the percentage of
completion method when the outcome of the services provide can be estimated reliably;
If the outcome of the services provided cannot be estimated reliably, the treatment should be as follows:
(i) if it is probable that the costs incurred for the services provided is recoverable, service revenue should be
recognized only to the extent of recoverable costs incurred, and costs should be recognized as current expenses in the
period in which they are incurred; (ii) if it is probable that costs incurred will not be recoverable, costs should be recognized
as current expenses immediately and service revenue should not be recognized; and
rental income from leases of customer-end equipment and transmission lines on our networks to Unicom Group, business customers and other telecommunications
carriers in China. We recognize leased line rental revenue on a straight-line basis
over the relevant lease term.
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For the Year Ended December 31,
2007
2008
RMB in millions
% of Total
RMB in millions
% of Total
149,170
100.0
148,020
100.0
123,446
82.8
140,765
95.1
11,214
7.5
12,011
8.1
47,369
31.8
47,678
32.2
16,022
10.7
16,577
11.2
17,540
11.8
18,902
12.8
17,562
11.8
17,384
11.7
13,981
9.4
14,131
9.6
1,233
0.8
2,067
1.4
2,946
2.0
2,172
1.5
11,837
8.0
569
0.4
(4,990
)
(3.4
)
(1,994
)
(1.4
)
*
Fixed-line upfront connection fees represent the amortization of deferred upfront connection
fees received from the customers before July 1, 2001. No upfront connection fee was received
from the customers since then. Therefore, we consider that analyses of our operating results
excluding upfront connection fees are more relevant to the readers of this report.
interconnection expenses, representing amounts paid to other operators, including
Unicom Group and Netcom Group, for calls from our networks to their networks and for
calls made by our subscribers roaming in their networks;
depreciation and amortization expenses, mainly relating to our property, plant and
equipment and other assets;
networks, operations and support expenses, mainly relating to repair, maintenance
and operations of our networks;
employee benefit expenses, representing staff salaries and wages, bonuses and
medical benefits, contributions to defined contribution pension schemes, housing
benefits and share-based compensation costs amortized over the vesting period of share
options;
selling and marketing expenses, including commissions, promotion and advertising
expenses, amortization of direct incremental costs for activating subscriber services and customer
retention costs; and
general, administrative and other expenses, primarily including provision for
doubtful debts, utilities, general office expenses and travel expenses.
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Usage fees and monthly fees are recognized when the services are rendered;
Revenues from the provision of broadband and other Internet-related services and
managed data services are recognized when the services are provided to customers;
Revenue from telephone cards, which represents service fees received from customers
for telephone services, is recognized when the related service is rendered upon actual
usage of the telephone cards by customers;
Lease income from leasing of lines and customer-end equipment are treated as
operating leases with rental income recognized on a straight-line basis over the lease
term;
Value-added services revenue, which mainly represents revenue from the provision of
services such as short message, cool ringtone, personalized ring, wireless data
services, caller number display and secretarial services to subscribers, is recognized
when service is rendered;
Standalone sales of telecommunications products, which mainly represent handsets and
accessories, are recognized when title has been passed to the buyers;
For CDMA promotional packages where CDMA handsets are provided to subscribers for
their use during a specified contract period (see Note 4.2(a) to our consolidated
financial statements included in this annual report), since the commercial substance of
the transaction is to develop new contractual subscribers by offering handsets, the two
elements of CDMA cellular services and handsets are considered as a linked transaction.
Service revenues from such promotional packages are recognized based upon the actual
usage of cellular services at the tariff set out in the contracts.
Certain PHS bundled service contracts comprise the provision of PHS services and
handsets to customers, under which customers either prepay a certain amount of service
fee or commit to spend a minimum monthly service fee for a designated period in order
to receive a free handset. When all of the following criteria are met, PHS handsets and
related services are separately recognized as revenues according to their relative fair
values. When any one of the following criteria is not met, total revenues from PHS
bundled service contracts are recognized on a systematic basis to match the shorter of
the pattern of usage of the PHS services by customers and the minimum non-cancellable
contractual period.
(i)
PHS handsets and related services have value on a stand-alone basis;
(ii)
Reliable estimate for fair value of PHS handsets and related services
exists; and
(iii)
In arrangements that include a general right of refund for the
delivered item, performance of the undelivered item is considered probable and
substantially in our control.
Revenue from information communications technology services are recognized when
goods are delivered to the customers (which generally coincides with the time when the
customers have accepted the goods and the related risks and rewards of ownership have
been transferred to the customers) or when services are rendered to the customers using
the percentage of completion method when the outcome of the services provided can be
estimated reliably. If the outcome of the services provided cannot be estimated
reliably, the treatment should be as follows: (i) if it is probable that the costs
incurred for the services provided is recoverable, services revenue should be
recognized only to the extent of recoverable costs incurred, and costs should be
recognized as current expenses in the period in which they are incurred; (ii) if it is
probable that costs incurred will not be recoverable, costs should be recognized as
current expenses immediately and services revenue should not be recognized.
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Effective for
accounting period
beginning on or
after
January 1, 2009
January 1, 2009
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Effective for
accounting period
beginning on or
after
July 1, 2009
January 1, 2009
July 1, 2009
January 1, 2009
January 1, 2009
January 1, 2009
January 1, 2009
January 1, 2009
January 1, 2009
January 1, 2009
July 1, 2009
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2007
2008
RMB in million
As % of total
RMB in million
As % of total
62,559
100.0
%
65,254
100.0
%
62,547
100.0
%
64,704
99.2
%
42,077
67.3
%
40,464
62.0
%
13,528
21.6
%
16,263
24.9
%
5,851
9.4
%
6,858
10.5
%
1,091
1.7
%
1,119
1.8
%
12
0.0
%
550
0.8
%
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For the Years Ended December 31,
2007
2008
RMB in Million
As % of Total
RMB in Million
As % of Total
86,611
100.0
82,766
100.0
85,683
98.9
81,662
98.7
44,227
51.1
37,324
45.1
14,273
16.5
18,114
21.9
7,911
9.1
7,500
9.1
6,758
7.8
6,591
8.0
3,741
4.3
4,597
5.6
1,835
2.1
1,673
2.0
6,938
8.0
5,863
7.0
928
1.1
1,104
1.3
*
Fixed-line upfront connection fees represent the amortization of deferred upfront connection
fees received from the customers before July 1, 2001. No upfront connection fee was received
from the customers since then. Therefore, we consider that analyses of our operating results
excluding upfront connection fees are more relevant to the readers of this report.
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For the Year Ended December 31,
2007
2008
RMB in millions
% of Total
RMB in millions
% of Total
149,170
100.0
148,020
100.0
123,446
82.8
140,765
95.1
11,214
7.5
12,011
8.1
47,369
31.8
47,678
32.2
16,022
10.7
16,577
11.2
17,540
11.8
18,902
12.8
17,562
11.8
17,384
11.7
13,981
9.4
14,131
9.6
1,233
0.8
2,067
1.4
2,946
2.0
2,172
1.5
11,837
8.0
569
0.4
(4,990
)
(3.4
)
(1,994
)
(1.4
)
*
Fixed-line upfront connection fees represent the amortization of deferred upfront connection
fees received from the customers before July 1, 2001. No upfront connection fee was received
from the customers since then. Therefore, we consider that analyses of our operating results
excluding upfront connection fees are more relevant to the readers of this report.
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For the Year Ended December 31,
2007
2008
RMB in millions
RMB in millions
65,256
56,674
(47,641
)
(54,490
)
(29,805
)
(35,070
)
(12,190
)
(32,886
)
4,303
30,145
(7,887
)
(2,741
)
As of December 31,
2007
2008
(RMB in millions, except percentages)
12,714
9,476
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As of December 31,
2007
2008
(RMB in millions, except percentages)
334,087
344,924
47,390
21,996
11,850
10,780
20,000
10,000
7,411
1,216
8,129
18,086
7,997
2,000
7,000
16,086
997
178,516
206,710
26.8
%
12.7
%
36.7
%
14.5
%
(1)
Debt-to-capitalization ratio = (long-term interest-bearing debt + short-term interest-bearing
debt)/(long-term interest-bearing debt + short-term interest-bearing debt + shareholders
equity).
(2)
Debt-to-equity ratio = (long-term interest-bearing debt + short-term interest-bearing
debt)/shareholders equity.
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Less than 1
Between 1 and
Between 3 and
Total
year
3 years
5 years
Over 5 years
11,013
11,013
10,447
10,447
2,357
1,299
215
208
635
9,134
355
709
5,710
2,360
2,804
510
727
701
866
13,014
11,181
1,663
32
138
8,356
1,828
2,754
1,817
1,957
57,125
36,633
6,068
8,468
5,956
*
interest included
(1)
See Note 25 Short-Term Bank Loans Group to our consolidated financial statements.
(2)
See Note 24 Short-Term Commercial Paper Group to our consolidated financial statements.
(3)
See Note 19 Long-Term Bank Loans to our consolidated financial statements.
(4)
See Note 20 Corporate Bonds to our consolidated financial statements.
(5)
See Note 38 Contingencies and Commitments to our consolidated financial statements.
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For the Years Ended December 31,
2008
2009
(RMB in billions)
As percentage
(RMB in billions)
As percentage
38.70
35.2
%
32.95
46.7
%
23.70
21.5
%
9.05
12.8
%
18.00
16.4
%
0.73
1.0
%
0.70
0.6
%
4.13
5.9
%
3.00
2.7
%
2.40
3.4
%
4.00
3.6
%
18.18
25.8
%
19.70
17.9
%
3.05
4.4
%
2.20
2.1
%
70.49
100.0
%
110.00
100.0
%
(1)
Including the capital expenditure attributable to the initial preparation relating to the
development of the 3G business.
(2)
Other expenditures consist of procurement of miscellaneous assets, equipment and spare parts.
A.
Directors and Senior Management
Name
Age
Position
52
Chairman of the Board of Directors and Chief Executive Officer
45
Executive Director and President
58
Executive Director and Senior Vice President
51
Executive Director and Chief Financial Officer
64
Non-Executive Director
57
Non-Executive Director
79
Independent Non-Executive Director
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Name
Age
Position
61
Independent Non-Executive Director
51
Independent Non-Executive Director
55
Independent Non-Executive Director
57
Independent Non-Executive Director
55
Senior Vice President
58
Senior Vice President
58
Senior Vice President
46
Senior Vice President
51
Senior Vice President
52
Senior Vice President
52
Senior Vice President
(1)
Mr. Shang Bing, Mr. Yang Xiaowei, Mr. Li Zhengmao and Mr. Miao Jianhua resigned as Executive
Directors of our company on May 23, 2008. Mr. Li Gang and Mr. Zhang Junan resigned as
Executive Directors of our company on October 15, 2008. Mr. Lu Jianguo and Mr. Lee Suk Hwan
resigned as Non-Executive Directors of our company on October 15, 2008. Mr. Kim Shin Bae was
appointed as a Non-Executive Director of our company on October 15, 2008 and resigned on
January 22, 2009. Mr. Shan Weijian resigned as an Independent Non-Executive Director of our
company on October 15, 2008.
(2)
Mr. Lu Yimin was appointed as an Executive Director of our company in October 2008.
(3)
Mr. Zuo Xunsheng was appointed as an Executive Director of our company in October 2008.
(4)
Mr. Cesareo Alierta Izuel was appointed as a Non-Executive Director of our company in October
2008.
(5)
Mr. Jung Man Won was appointed as a Non-Executive Director of our company in January 2009.
(6)
Mr. John Lawson Thornton was appointed as an Independent non-Executive Director of our
company in October 2008.
(7)
Mr. Timpson Chung Shui Ming was appointed as an Independent Non-Executive Director of our
company in October 2008.
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Name
Appointment Date
Re-appointment Date
Resignation Date
December 21, 2004
May 12, 2006 and
May 26, 2009
October 15, 2008
May 26, 2009
October 15, 2008
May 26, 2009
February 1, 2004
May 12, 2004
May 12, 2006 and
May 16, 2008
October 15, 2008
May 26, 2009
January 22, 2009
May 26, 2009
April 20, 2000
May 13, 2002,
May 12, 2004,
May 12, 2005 and
May 11, 2007
May 12, 2004
May 12, 2006 and
May 16, 2008
January 19, 2006
May 12, 2006 and
May 26, 2009
October 15, 2008
May 26, 2009
October 15, 2008
May 26, 2009
November 5, 2004
May 12, 2005 and
May 11, 2007
May 23, 2008
April 1, 2006
May 12, 2006 and
May 11, 2007
May 23, 2008
April 1, 2006
May 12, 2006 and
May 16, 2008
May 23, 2008
July 12, 2007
May 16, 2008
May 23, 2008
April 1, 2006
May 12, 2006 and
May 16, 2008
October 15, 2008
April 1, 2006
May 12, 2006
October 15, 2008
October 15, 2008
January 22, 2009
April 1, 2006
May 12, 2006
October 15, 2008
October 23, 2007
May 16, 2008
October 15, 2008
May 12, 2003
May 12, 2005 and
May 11, 2007
October 15, 2008
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considering and approving the appointment, resignation and removal of our external
auditor and the auditors fees;
reviewing our interim and annual financial statements and disclosures before
submission to the board of directors;
discussing with the auditor any problems and reservations
arising from the review of
the interim and the audit of annual financial statements;
reviewing any correspondence from the auditor to our management and the responses of
our management;
reviewing the relevant reports concerning our internal controls and procedures;
discussing with our management our internal control system to ensure that our
management discharge their duties to have an effective internal control system in
place;
pre-approving the audit and non-audit services to be provided by the external
auditor, and determining whether any non-audit services would affect the independence
of the auditor;
discussing with our management the timing and procedures for the rotation of the
partner of the auditing firm responsible for the audit of our company and the partner
responsible for the review of audit-related documents;
supervising the internal audit department, which will directly report to the
committee; and
having the right to approve the appointment or removal of the head of internal audit
department.
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Number of
Number of
By Function
Employees
By Business Segment
Employees
35,154
GSM mobile
53,949
16,513
Fixed-Line
150,666
82,142
60,057
10,488
Total
204,615
261
204,615
Ordinary
Percentage of Total
Name
Capacity and Nature
Shares Held
Issued Shares
Beneficial Owner
(Personal)
6,000
0.0000
%
Compensation for
Number of
2008
Capacity and
Shares
Exercise
Consideration
(RMB in
Name
Nature
Covered
(1)
Expiration Date
Price
Paid
thousand)
Beneficial Owner
526,000
December 20, 2010
HK$6.20
HK$1.00
3,295
(Personal)
746,000
February 14, 2012
HK$6.35
HK$1.00
498
Beneficial Owner
686,894
November 16, 2010
HK$5.57
507
(Personal)
Beneficial Owner
292,000
June 22, 2010
HK$15.42
HK$1.00
2,465
(Personal)
92,000
July 19, 2010
HK$5.92
HK$1.00
460,000
February 14, 2012
HK$6.35
HK$1.00
Beneficial Owner
32,000
July 19, 2010
HK$5.92
HK$1.00
(Spouse)
40,000
February 14, 2012
HK$6.35
HK$1.00
57
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Compensation for
Number of
2008
Capacity and
Shares
Exercise
Consideration
(RMB in
Name
Nature
Covered
(1)
Expiration Date
Price
Paid
thousand)
Beneficial Owner
292,000
May 20, 2010
(6)
HK$4.30
HK$1.00
365
(Personal)
292,000
July 19, 2010
HK$5.92
HK$1.00
347
360
74
74
16,977,600
June 21, 2010
(5)
HK$15.42
HK$1.00
4,058,000
June 22, 2010
(5)
HK$15.42
HK$1.00
8,664,000
May 20, 2010
(6)
HK$4.30
HK$1.00
40,608,000
July 19, 2010
(5)
HK$5.92
HK$1.00
128,000
December 20, 2010
(5)
HK$6.20
HK$1.00
150,310,000
February 14, 2012
(5)
HK$6.35
HK$1.00
99,940,204
November 16, 2010
HK$5.57
HK$1.00
88,929,468
December 5, 2011
HK$8.26
HK$1.00
(1)
Each option gives the holder the right to subscribe for one share.
(2)
Include Mr. Shang Bing, Mr. Yang Xiaowei, Mr. Li Zhengmao and Mr. Miao Jianhua, who resigned
as Executive Directors on May 23, 2008. The number of options outstanding as of May 31, 2009
included a total of 2,909,000 options held by Mr. Shang Bing, Mr. Yang Xiaowei and Mr. Li
Zhengmao as beneficial owner (personal).
Mr. Shang Bing, Mr. Yang Xiaowei and Mr. Li Zhengmao were determined by the Board as
Transferred Personnel pursuant to the Pre-Global Offering Share Option Scheme and the Share
Option Scheme, and options held by them are subject to relevant terms of the Pre-Global Share
Option Scheme and the Share Option Scheme. The number of options outstanding as of May 31,
2009 includes the options held by Mr. Shang Bing, Mr. Yang Xiaowei and Mr. Li Zhengmao as
beneficial owner (personal).
(3)
Include Mr. Li Gang, Mr. Zhang Junan and Mr. Lu Jianguo, who resigned as
Executive Directors on October 15, 2008. Number of options outstanding as of May 31, 2009
included a total 2,084,600 options held by them as beneficial owners (personal).
(4)
According to the terms of the CDMA business disposal between our company and China Telecom,
some of our employees were transferred to China Telecom upon the CDMA business disposal
becoming effective. Pursuant to the Pre-Global Share Option Scheme and the Share Option
Scheme, the said transferred employees may exercise (a) all effective options (granted and
vested under those two share option schemes) to the extent such options had not been already
exercised and (b) all effective unvested options (options that had not vested by the time of
such transfer of employees according to the applicable vesting schedule but were nevertheless
vested by the Board pursuant to those two option schemes) at any time from the date of their
transfer to the earlier of (i) 12 months after the date of the transfer and (ii) the end of
applicable option period. All other options will lapse automatically on the date immediately
after the date of such transfer of employees. The number of options outstanding as of May 31,
2009 and held by our employees includes a total number of approximately 22,500,000 options
that are held by those transferred employees.
(5)
Include approximately 25,000,000 options, for which the Board extended the exercisable period
for one year pursuant to amendments of the Share Option Scheme and the Pre-Global Offering
Share Option Scheme approved by our shareholders on May 26, 2009, held by employees who were
(i) determined by the Board as Transferred Personnel under the applicable share option
scheme due to the transfers of those employees to other telecommunications operators as part
of the 2008 industry restructuring (including some ex-directors and employees discussed in
notes (2) and (4) above) and (ii) unable to exercise their options due to a Mandatory
Moratorium as set forth in the Share Option Scheme and the Pre-Global Offering Share Option
Scheme.
(6)
The original expiration date for these options was May 20, 2009, which was extended to May
20, 2010 by the Board pursuant to amendments of the Share Option Scheme and the Pre-Global
Offering Share Option Scheme approved by our shareholders on May 26, 2009, because those
options were not exercisable due to a Mandatory Moratorium as set forth in the Share Option
Scheme and the Pre-Global Offering Share Option Scheme.
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The subscription price of a share in respect of any particular option granted under
the pre-global offering share option scheme is HK$15.42, the offer price in the Hong
Kong public offering portion of our initial public offering, excluding brokerage fees
and transaction levy.
The period during which an option may be exercised commences two years from the date
of grant and ends 10 years from June 22, 2000.
A.
Major Shareholders
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(a)
CNC China agrees to provide customer relationship management services for large
enterprise customers of Netcom Group;
(b)
CNC China agrees to provide network management services to Netcom Group;
(c)
CNC China agrees to share with Netcom Group the services provided by
administrative and managerial staff in respect of central management of the business
operations, financial control, human resources and other related matters of both CNC
China and Netcom Group;
(d)
CNC China agrees to provide to Netcom Group supporting services, such as
billing and settlement provided by CNC Chinas business support center;
(e)
Netcom Group agrees to provide to CNC China supporting services, including
telephone card production, development and certain related services;
(f)
Netcom Group agrees to provide to CNC China certain other shared services,
including advertising, publicity, research and development, business hospitality,
maintenance and property management;
(g)
Netcom Group agrees to provide certain office space in its headquarters to CNC
China for use as CNC Chinas principal executive office; and
(h)
CNC China and Netcom Group agree to share the revenues received by Netcom Group
from other telecommunications operators whose networks interconnect with the Internet
backbone network of Netcom Group and share the monthly connection fee that Netcom Group
pays to the State Internet Switching Center.
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(a)
CNC China may request Netcom Group to act as its agent for the procurement of
imported and domestic telecommunications equipment and other domestic
non-telecommunications equipment;
(b)
CNC China may purchase from Netcom Group certain products, including cables,
modems and telephone directories; and
(c)
Netcom Group agrees to provide to CNC China storage and transportation services
related to the procurement and purchase of materials or equipment under the agreement.
the price fixed by the PRC Government;
where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
where there is neither a government-fixed price nor a government-recommended price,
the market
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price; or
where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
the price fixed by the PRC Government;
where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
where there is neither a government-fixed price nor a government-recommended price,
the market price; or
where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
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the price fixed by the PRC Government;
where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
where there is neither a government-fixed price nor a government-recommended price,
the market price; or
where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
(a)
Netcom Group agrees to lease certain inter-provincial fiber optic cables within
CNC Chinas service regions to CNC China;
(b)
Netcom Group agrees to lease certain international telecommunications resources
(including international telecommunications channel gateways, international
telecommunications service gateways, international submarine cable capacity,
international land cables and international satellite facilities) to CNC China; and
(c)
Netcom Group agrees to lease to CNC china certain other telecommunications
facilities required by CNC China for its operations.
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(a)
China Netcom System Integration (and its subsidiaries) agrees to provide
information and communications technology services to Netcom Group (and its
subsidiaries, other than China Netcom and its subsidiaries), which include system
integration services, software development services, operational maintenance services,
consultancy services, equipment leasing-related services and product sales-and
distribution-related services; and
(b)
China Netcom System Integration agrees to subcontract services ancillary to the
provision of information and communications technology services referred to in
paragraph (a) above, namely, system installation and configuration services, to the
subsidiaries and branches of Netcom Group (other than China Netcom and its
subsidiaries) in Netcom Groups southern service regions in the PRC.
the price fixed by the PRC Government;
where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price; or
where there is neither a government-fixed price nor a government-recommended price,
the market price.
if the value of any single item of system installation and configuration services
provided by Netcom Group (and its subsidiaries, other than China Netcom and its
subsidiaries) to China Netcom System Integration (and its subsidiaries) is expected to
exceed RMB0.3 million, the award of such services will be subject to competitive
bidding; or
if the value of any single item of system integration, software development,
operational maintenance, consultancy and equipment leasing-related services is expected
to exceed RMB0.5 million, or where the value of any single item of product sales and
distribution related services is expected to exceed RMB2 million, the award of such
services will be subject to competitive bidding.
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the price fixed by the PRC Government;
where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
where there is neither a government-fixed price nor a government-recommended price,
the market price; or
where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
the price fixed by the PRC Government;
where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
where there is neither a government-fixed price nor a government-recommended price,
the market price; or
where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
(a)
Netcom Group agrees to lease certain inter-provincial fiber optic cables within
CUCLs service regions to CUCL;
(b)
Netcom Group agrees to lease certain international telecommunications resources
(including
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international telecommunications channel gateways, international telecommunications
service gateways, international submarine cable capacity, international land cables
and international satellite facilities) to CUCL; and
(c)
Netcom Group agrees to lease certain other telecommunications facilities
required by CUCL for its operations.
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(a)
0.55% of the contract value of those procurement contracts up to and including
US$30 million and 0.35% of the contract value of those procurement contracts over US$30
million, in the case of imported equipment; and
(b)
0.25% of the contract value of those procurement contracts up to and including
RMB200 million and 0.15% of the contract value of those procurement contracts over
RMB200 million, in the case of domestic equipment.
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(a)
The cost per operator seat in economically developed metropolises, such as
Beijing, Shanghai and Guangdong, shall be the Actual Cost per Operator Seat (as defined
below) in such area for the previous year. The cost per operator seat in areas apart
from those economically developed metropolises shall be the lower of the Actual Cost
per Operator Seat in the same region and the nationwide (excluding Beijing, Shanghai
and Guangdong) average of Actual Cost per Operator Seat (as defined below) plus 10%, in
each case, for the previous year.
The Actual Cost per Operator Seat comprises wages, administration expenses,
operation and maintenance expenses, depreciation of equipment and leasing for
premises attributable to the customer services. The Actual Cost per Operator Seat
in a certain area shall be the product of dividing the costs of Unicom Group
providing 10010/10011 services (as confirmed in the audit report issued by an
external audit firm) in the same region for the previous year by the average number
of monthly operator seats of Unicom Group for the previous year. Such audit report
and relevant supporting documents shall be provided to each of CUCL, CNC China and
their auditors.
(b)
The number of effectively operating operator seats shall be determined in the
following way: Unicom Group shall notify the number of operator seats of the previous
month to CUCL and CNC China before the tenth day of each month. CUCL and CNC China
shall confirm the number of effectively operating operator seats within five working
days, based on the criteria as set out in the Service Standard for Telecommunications
Operations (for Trial Implementation) published by the former Ministry of Information
and Industry. The number of effectively operating operator seats will be subject to
final confirmation by CUCL and CNC China.
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Unicom Groups agreement to transfer to CUCL certain assets and liabilities;
mutual warranties and indemnities given by Unicom Group and CUCL in relation to the
assets and liabilities transferred to CUCL and in relation to the restructuring;
undertakings by Unicom Group in favor of CUCL, including, among other things:
to hold and maintain all licenses received from the former Ministry of
Information Industry in connection with any of our businesses for our benefit,
and to allocate spectrum and to provide other resources to us;
subject to applicable Chinese laws and regulations in effect at the relevant
time, to take all actions necessary to obtain, maintain, renew and otherwise
extend to or for our benefit such governmental or regulatory licenses,
consents, permits or other approvals as we shall require to continue to operate
our businesses;
to arrange for us to participate in its international roaming arrangements;
not to engage in any business that competes with our businesses, except for
the existing competing businesses of Unicom Group;
to grant us a right of first refusal in relation to any government
authorization, license or permit, or other business opportunity to develop any
new telecommunications technology, product or service;
to ensure that we can continue to use the premises for which title
documentation cannot be obtained at this time, for a period of three years
following the restructuring;
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not to dispose of any of our shares it beneficially owns or to take or
permit any other actions, including primary issuances of securities by us or
CUCL, which would result in us or CUCL no longer constituting majority-owned
subsidiaries of Unicom Group; and
not to seek an overseas listing for any of its businesses or the businesses
of its subsidiaries in which we are engaged or may engage in the future except
through us;
an option granted by Unicom Group to us to acquire Unicom Groups interest in any
telecommunications interest, such as Unicom Paging, Unicom Xingye and Unicom Groups
CDMA telephony license and business; and
a commitment by Unicom Group that it will provide continuous financial support to us
when necessary.
Unicom Groups agreement to transfer all of its equity interest in CUCL to us;
our agreement to issue shares to Unicom BVI, Unicom BVIs agreement to issue shares
to Unicom HK and Unicom HKs agreement to issue shares to Unicom Group;
Unicom Groups and our agreement that:
we shall be entitled to apply in Hong Kong, Macau, Taiwan and in all places
outside of China for all trademarks incorporating the word Unicom in English
and Chinese and for the Unicom logo; and
once these trademarks have been registered, we will sublicense these
trademarks to Unicom Group, CUCL, Guoxin Paging and Guoxin Pagings
subsidiaries on a royalty-free basis; and
warranties and indemnities given by Unicom Group to us in relation to CUCL.
), which are registered at
the PRC State Trademark Bureau. Under a PRC trademark license agreement entered into on May 25,
2000 between Unicom Group and CUCL, CUCL and our affiliates were granted the right to use these
trademarks on a royalty-free basis for an initial period of five years, renewable at the option of
CUCL. Under the terms of this agreement, we and our affiliates are the exclusive licensees of these
trademarks, provided that Unicom Group may also license these trademarks to any of its existing or
future subsidiaries. Unicom Group also agreed to license to CUCL any trademark that it registers in
China in the future that incorporates the word Unicom.
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The cellular subscribers using roaming services will pay roaming fees at the agreed
rate of RMB0.60 per minute of roaming usage for both incoming and outgoing calls, based
on the guidelines of the former Ministry of Information Industry.
If our cellular subscribers roam in the service areas of Unicom Group, we
will be entitled to receive the roaming fees, which will be apportioned in the
following way: (i) RMB0.40 per minute (the rate for local call charges under
the guidelines of the former Ministry of Information Industry) will be paid to
Unicom Group; and (ii) the remaining RMB0.20 per minute will be withheld by us;
If the cellular subscribers of Unicom Group roam in our service areas,
Unicom Group will be entitled to receive the roaming fees, which will be
apportioned in the following way: (i) RMB0.56 per minute will be paid to us;
and (ii) RMB0.04 per minute will be withheld by Unicom Group; and
If our cellular business expands to cover all regions throughout the PRC,
the arrangements set out above will be terminated automatically.
If the network of a third-party cellular network operator is made available to the
cellular subscribers of Unicom Group pursuant to the international roaming arrangements
of Unicom Group, or if the network of Unicom Group is made available to the subscribers
of any third-party cellular network operator pursuant to such arrangements, we will
receive 50% of all roaming revenue to be received under such international roaming
arrangements.
Unicom Groups agreement to sell and CUCLs agreement to purchase the GSM
telecommunications assets and business and CDMA telecommunications business held by
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Unicom Guizhou;
CUCLs agreement to pay Unicom Group a cash consideration in the amount of RMB880
million;
The profit or loss of Unicom Guizhou for the period from December 31, 2006 to
December 31, 2007, the effective date of the transfer, was transferred to Unicom Group;
and
Representations and warranties given Unicom Group in relation to Unicom Guizhou.
telecommunications businesses in its northern and southern service regions; and
international telecommunications services in the Asia-Pacific region.
provide telecommunications services in provinces, autonomous regions and
municipalities outside China Netcoms northern and southern service regions; and
own non-core businesses.
a breach of any provision of the restructuring agreement on the part of Netcom Group
or its subsidiaries (other than CNC China);
any matter occurring prior to the effective date of the restructuring relating to
assets and liabilities transferred to CNC China under the restructuring;
the assets retained or held by Netcom Group after the restructuring;
any rights and interests in relation to all employees of CNC China who were employed
by Netcom Group prior to the restructuring for the period of their employment by Netcom
Group; and
any defect in property titles in respect of properties transferred to China Netcom
under the restructuring.
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Netcom Group will extend its full support to China Netcoms operations and
development;
China Netcom will be the only basic telecommunications services provider operating
in China (through its PRC subsidiary) under Netcom Groups control that will have its
securities listed on a stock exchange in Hong Kong or outside of China;
to the extent within Netcom Groups control, China Netcom will be treated equally
with Netcom Group and/or any other operators controlled by Netcom Group in relation to
fixed-line telephone services, Internet services (including, but not limited to,
fixed-line broadband services), data services, leased line services, international
telecommunications services, value-added services or other related telecommunications
services with respect to all approvals, transactions and arrangements between China
Netcom and Netcom Group and/or such operators controlled by Netcom Group;
if Netcom Group obtains the license to operate any telecommunications business in
China outside the current business scope of China Netcoms PRC subsidiary (including,
but not limited to a mobile telecommunications license, new telecommunications services
and the testing and commercial operation of new technologies), Netcom Group will notify
China Netcom as soon as possible, and upon China Netcoms request, grant exclusively to
China Netcoms subsidiary conducting telecommunications business in China, through
licensing or otherwise, the right to conduct such telecommunications business within
the provinces, municipalities and autonomous regions where China Netcom conducts
business. If these arrangements require the approval of the relevant government
department, Netcom Group will use its best efforts to seek to obtain such approval;
to the extent within Netcom Groups control, China Netcom will have the preferential
right to acquire Netcom Groups interest in companies or other entities that provide
telecommunications services or their businesses; and
Netcom Group will fulfill the relevant universal services obligations for which it
is responsible under relevant regulations and projects by the MIIT. Netcom Group will
be responsible for the investment and construction of the network facilities required
to fulfill the universal obligations of Netcom Group and/or China Netcom (or its
subsidiary) in relation to obligations and other requirements. If China Netcom operates
or maintains such network facilities in the regions where it operates in China, Netcom
Group has agreed to provide China Netcom with reasonable compensation in respect of the
relevant expenses arising as a result of the operation and maintenance of such network
facilities, based on fair market value.
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Price per Ordinary Share
(HK$)
Price per ADS (US$)
High
Low
High
Low
8.00
3.92
10.55
5.02
10.20
5.20
13.18
6.78
7.20
5.65
9.19
7.30
12.44
6.25
15.46
8.03
18.80
9.18
24.25
11.75
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Price per Ordinary Share
(HK$)
Price per ADS (US$)
High
Low
High
Low
19.58
8.53
25.07
10.27
11.78
9.18
15.09
11.75
13.64
11.06
17.47
14.39
16.08
11.28
21.03
14.35
18.80
14.08
24.52
17.63
19.58
14.70
25.07
19.96
18.48
13.92
22.79
17.49
16.48
9.95
21.03
12.60
12.04
8.53
15.52
10.27
10.86
6.84
14.06
8.72
10.86
6.84
14.06
8.79
7.84
6.90
10.12
8.72
8.63
7.00
11.23
8.77
8.87
7.46
11.57
9.86
9.75
8.83
12.82
11.07
11.86
10.38
15.50
13.72
(1)
Trading was suspended from May 23, 2008 to and including June 2, 2008 on the HKSE and on the
NYSE.
the giving of any security or indemnity either (i) to the director or any of his
associates (as defined in the HKSE Listing Rules) in respect of money lent or
obligations incurred or undertaken by him or any of them at the request of or for the
benefit of Unicom or any of its subsidiaries or (ii) to a
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third-party in respect of a debt or obligation of Unicom or any of its subsidiaries
for which the director or any of his associates has assumed responsibility in whole
or in part and whether alone or jointly under a guarantee or indemnity or by the
giving of security;
an offer of shares or debentures or other securities of or by Unicom (or any other
company which Unicom may promote or be interested in) where the director or any of his
associates is or will be an interested participant in the underwriting or
sub-underwriting of the offer;
any other company in which the director or any of his associates is interested only,
whether directly or indirectly, as an officer or shareholder or in which the director
or any of his associates is beneficially interested in shares of that company, provided
that he, together with any of his associates, is not beneficially interested in 5% or
more of (i) the issued shares of any class of such company (or of any third company
through which such interest is derived), or (ii) the voting rights attached to such
issued shares or securities (excluding for the purpose of calculating such 5% interest,
any indirect interest of such director or any of his associates by virtue of Unicoms
interest in such company);
the benefit of employees of Unicom or any of its subsidiaries, including (i) the
adoption, modification or operation of any employee share scheme under which the
director or any of his associates may benefit or (ii) the adoption, modification or
operation of a pension fund or retirement, death or disability benefits scheme which
relates both to directors, their associates and employees of Unicom or any of its
subsidiaries and does not provide in respect of the director or any of his associates,
any privilege or advantage not generally accorded to the class of persons to which such
scheme or fund relates; or
any contract or arrangement in which the director or any of his associates is
interested in the same manner as other holders of shares or debentures or other
securities of Unicom by virtue only of his interest in shares or debentures or other
securities of Unicom.
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A director of Unicom is not required to hold any qualification shares.
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consolidate and divide all or any of our share capital into shares of a larger
amount than our existing shares;
divide our shares into several classes and attach to them any preferential,
deferred, qualified or special rights, privileges or conditions;
cancel any shares that at the date of the passing of the resolution have not been
taken or agreed to be taken by any person, and diminish the amount of our share capital
by the amount of the shares so cancelled;
sub-divide our shares or any of them into shares of a smaller amount than is fixed
by our Memorandum of Association, subject nevertheless to the provisions of the
Companies Ordinance; and
make provision for the issue and allotment of shares which do not carry any voting
rights.
CDMA Business Framework Agreement among us, CUCL and China Telecom, dated June 2,
2008,
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relating to the sale of our CDMA business and its related assets and liabilities to
China Telecom;
CDMA Business Disposal Agreement among us, CUCL and China Telecom, dated July 27,
2008, relating to the sale of our CDMA business and its related assets and liabilities
to China Telecom; and
Merger Agreement between CUCL and CNC China, dated October 15, 2008, relating to the
merger between CUCL and CNC China.
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a dealer in securities,
a trader in securities that elects to use a mark-to-market method of accounting for
your securities holdings,
a tax-exempt organization,
an insurance company,
a person liable for alternative minimum tax,
a person that actually or constructively owns 10% or more of our voting stock,
a person that holds shares or ADSs that are a hedge or that are hedged against
currency risks or as
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part of a straddle or a conversion transaction, or
a person whose functional currency is not the U.S. dollar.
a citizen or resident of the United States,
a corporation organized under the laws of the United States or any States,
an estate whose income is subject to United States federal income tax regardless of
its source, or
a trust if a United States court can exercise primary supervision over the trusts
administration and one or more United States persons are authorized to control all
substantial decisions of the trust.
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at least 75% of our gross income for the taxable year is passive income; or
at least 50% of the value, determined on the basis of a quarterly average, of our
assets is attributable to assets that produce or are held for the production of passive
income.
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any gain you realize on the sale or other disposition of your shares or ADSs; and
any excess distribution that we make to you (generally, any distributions to you
during a single taxable year that are greater than 125% of the average annual
distributions received by you in respect of the shares or ADSs during the three
preceding taxable years or, if shorter, your holding period for the shares or ADSs).
the gain or excess distribution will be allocated ratably over your holding period
for the shares or ADSs;
the amount allocated to the taxable year in which you realized the gain or excess
distribution will be taxed as ordinary income;
the amount allocated to each prior year, with certain exceptions, will be taxed at
the highest tax rate in effect for that year; and
the interest charge generally applicable to underpayments of tax will be imposed in
respect of the tax attributable to each such year.
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As of
December
Expected Maturity
31, 2008
2009
2010
2011
2012
2013
Thereafter
Total
Fair Value
(RMB equivalent in millions, except interest rates)
1,114
1,114
1,114
6.14
%
33
26
26
26
26
386
523
322
0.42
%
0.35
%
0.34
%
0.32
%
0.31
%
0.17
%
27
28
28
28
27
204
342
257
2.17
%
2.15
%
2.14
%
2.12
%
2.10
%
1.76
%
42
42
42
42
42
24
234
213
2.12
%
2.12
%
2.12
%
2.12
%
2.12
%
2.12
%
(1)
The average interest rates for variable rate loans are calculated based on the rates reported
as of December 31, 2008.
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As of
December
Expected Maturity
31, 2008
2009
2010
2011
2012
2013
Thereafter
Total
Fair Value
(RMB equivalent in millions)
1,051
1,051
1,051
197
197
197
4
4
4
43
43
43
20
20
20
33
26
26
26
26
386
523
322
27
28
28
28
27
204
342
257
42
42
42
42
42
24
234
213
159
159
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For the years ended
December 31,
2007
2008
(in RMB thousands)
122,578
106,850
5,989
23,347
591
111
435
165
129,593
130,473
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Exhibit
Number
Description of Exhibit
Memorandum of Association of Unicom, dated January 27, 2000
(1)
.
Amended Articles of Association of Unicom (as amended on September 16, 2008).
*
Deposit Agreement, among Unicom, The Bank of New York, as Depositary, and Owners and Beneficial
Owners of American Depositary Receipts issued thereunder, including the form of American Depositary
Receipt.
(2)
Form of specimen certificate for the shares.
(1)
Reorganization Agreement between Unicom Group and CUCL, dated April 21, 2000 (together with English
translation).
(1)
Equity Transfer Agreement among Unicom Group, Unicom HK, Unicom BVI and Unicom, dated April 21,
2000.
(1)
Trademark License Agreement between Unicom Group and CUCL, dated May 25, 2000 (together with English
translation).
(1)
Transmission Line Lease and Services Agreement between Unicom Group, CUCL and Guoxin Paging, dated
August 1, 2001 (together with English translation).
(1)
Reorganization Agreement between Unicom Group and Unicom New Century, dated November 18, 2002.
(English translation)
(3)
Conditional Sale and Purchase Agreement between Unicom BVI and us in connection with the sale of
Unicom New Century, dated November 20, 2002. (English translation)
(3)
Reorganization Agreement between Unicom Group and Unicom New World, dated November 4, 2003. (English
translation)
(4)
Conditional Sale and Purchase Agreement between Unicom BVI and us in connection with the sale of
Unicom New World, dated November 20, 2003. (English translation)
(4)
Conditional Sales and Purchase Agreement between China Unicom (Hong Kong) Group Limited and our
Company with respect to the acquisition of Unicom International, dated July 28, 2004.
(5)
Subscription Agreement between Unicom and SK Telecom Co., Ltd., dated June 20, 2006.
(6)
CDMA Network Capacity Lease Agreement among Unicom New Horizon, the A Share Company and Unicom
Group, dated October 26, 2006.
(7)
Transfer Agreement of the CDMA Network Capacity Lease Agreement between the A Share Company and
CUCL, dated October 26, 2006. (English translation)
(7)
Asset Transfer Agreement between CUCL and Unicom Group in connection with the acquisition of Unicom
Guizhou, dated November 16, 2007. (English translation)
(8)
Table of Contents
Exhibit
Number
Description of Exhibit
Supplement Agreement among Unicom New Horizon, Unicom Group, CUCL and the A Share Company in
connection with the acquisition of Unicom Guizhou and the 2006 CDMA Network Capacity Lease
Agreement, dated November 16, 2007.
(8)
CDMA Business Transfer Framework Agreement between us, CUCL and China Telecom dated as of June 2,
2008. (English translation)
(8)
CDMA Business Disposal Agreement among Unicom, CUCL and China Telecom, dated July 27, 2008. (English
summary)
*
Business and Assets Transfer Agreement among Unicom Parent, Netcom Parent and the A Share Company,
relating to acquisitions of certain business and assets, including the fixed-line business in 21
provinces in southern China, dated December 16, 2008. (English translation)
(9)
Transfer Agreement between the A Share Company and CUCL, relating to acquisitions of certain
business and assets, including the fixed-line business in 21 provinces in southern China, dated
December 16, 2008. (English translation)
(9)
Network Lease Agreement between CUCL and Unicom New Horizon, relating to the lease of
telecommunications networks in 21 provinces in southern China by CUCL from Unicom New Horizon, dated
December 16, 2008. (English translation)
(9)
Assets and Liabilities Transfer Agreement between CNC China and Netcom Group, dated June 23, 2004.
(English translation)
(10)
Asset Injection Agreement among Netcom Group, Netcom BVI, CNC China and China Netcom, dated June 29,
2004. (English translation)
(10)
Letter of Undertakings by Netcom Group, dated September 5, 2005. (English translation)
(10)
Restructuring Agreement among CNC China, Netcom Group and China Netcom, dated September 6, 2004.
(English translation)
(10)
Non-Competition Agreement among CNC China, Netcom Group and China Netcom, dated September 6, 2004.
(English translation)
(10)
Trademark Licensing Agreement among CNC China, Netcom Group and China Netcom, dated October 8, 2004.
(English translation)
(10)
Conditional Sale and Purchase Agreement among China Netcom, Netcom BVI and Netcom Group, relating to
the acquisition of CNC New Horizon BVI, dated September 12, 2005.
*
Asset Transfer Agreement between China Netcom and Netcom Group, relating to the sale of China
Netcoms telecommunications assets, liabilities and business operations in Guangdong Province and
Shanghai Municipality, dated January 15, 2007.
*
Domestic Interconnection Settlement Agreement between CNC China and Netcom Group, dated November 6,
2007. (English translation)
*
International Long Distance Voice Services Settlement Agreement between CNC China and Netcom Group,
dated November 6, 2007.
(English translation)
*
Engineering and Information Technology Services Agreement between CNC China and Netcom Group, dated
November 6, 2007.
(English translation)
*
Master Sharing Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)
*
Property Leasing Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)
*
Materials Procurement Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)
*
Table of Contents
Exhibit
Number
Description of Exhibit
Ancillary Telecommunications Services Agreement between CNC China and Netcom Group, dated November
6, 2007. (English translation)
*
Support Services Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)
*
Telecommunications Facilities Leasing Agreement between CNC China and Netcom Group, dated November
6, 2007. (English translation)
*
Information and Communications Technology Agreement between China Netcom System Integration and
Netcom Group, dated November 6, 2007. (English translation)
*
Equity Interest Transfer Agreement between China Netcom Group System Integration and China Netcom
Group Beijing Communications Corporation, relating to the acquisition of Design Institute, dated
December 5, 2007. (English translation)
(11)
Framework Agreement for Interconnection Settlement between CUCL and Netcom Group, dated August 12,
2008. (English translation)
*
Framework Agreement for Engineering and Information Technology Services between CUCL and Netcom
Group, dated August 12, 2008. (English translation)
*
Framework Agreement for Property Leasing Services between CUCL and Netcom Group, dated August 12,
2008. (English translation)
*
Framework Agreement for Ancillary Telecommunications Services between CUCL and Netcom Group, dated
August 12, 2008. (English translation)
*
Framework Agreement for Support Services between CUCL and Netcom Group, dated August 12, 2008.
(English translation)
*
Framework Agreement for Telecommunications Facilities Leasing between CUCL and Netcom Group, dated
August 12, 2008. (English translation)
*
Comprehensive Services Agreement between Unicom Group and the A Share Company, dated August 12,
2008. (English translation)
*
Transfer Agreement among the A Share Company, CUCL and CNC China, in connection with the
Comprehensive Services Agreement, dated August 12, 2008. (English translation)
*
Merger Agreement between CUCL and CNC China, relating to the merger between CUCL and CNC China,
dated October 15, 2008. (English translation)
*
Pre-Global Offering Share Option Scheme, adopted by ordinary resolution of the Company on June 1,
2000 and amended by ordinary resolutions of the Company on May 13, 2002, May 11, 2007
and
May 26, 2009.
*
Share Option Scheme, adopted by ordinary resolution of the Company on June 1, 2000 and amended by
ordinary resolutions of the Company on May 13, 2002, May 11, 2007 and May 26, 2009.
*
Special Purpose Share Option Scheme, adopted by ordinary resolution of the Company on September 16,
2008 and amended by ordinary resolutions of the Company on May 26, 2009.
*
List of our significant subsidiaries.
*
Code of Ethics for Senior Officers.
(4)
Employee Code of Ethics. (English translation)
(6)
Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
*
Certification of Chief Executive Officer pursuant to Rule 13a-14(b).
*
Certification of Chief Financial Officer pursuant to Rule 13a-14(b).
*
Table of Contents
(1)
Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-11938)
filed with the SEC in connection with our initial public offering in June 2000.
(2)
Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-11952)
filed with the SEC with respect to American Depositary Shares representing our shares.
(3)
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2002.
(4)
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2003.
(5)
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2004.
(6)
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year ended December 31, 2005.
(7)
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year ended December 31, 2006.
(8)
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year ended December 31, 2007.
(9)
Incorporated by reference to Schedule 13D/A (File No. 5-51154) filed by China Netcom Group
Corporation (BVI) Limited, China Network Communications Group Corporation, China United
Network Communications Group Company Limited, China United Telecommunications Corporation
Limited, and China Unicom (BVI) Limited, filed on December 24, 2008.
(10)
Incorporated by reference to China Netcoms Registration Statement on Form F-1 (File No.
333-119786) filed with the SEC in connection with its initial public offering in November
2004.
(11)
Incorporated by reference to China Netcoms Annual Report on Form 20-F (File No. 1-32332) for
the year ended December 31, 2007.
*
Filed herewith.
Table of Contents
CHINA UNICOM (HONG KONG) LIMITED
By:
/s/
Chang Xiaobing
Name:
Chang Xiaobing
Title:
Chairman and Chief Executive Officer
Table of Contents
CHINA UNICOM (HONG KONG) LIMITED
(FORMERLY KNOWN AS CHINA UNICOM LIMITED)
June 18, 2009
Table of Contents
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2008
(Expressed in millions)
Table of Contents
2007
As restated
Note
(Note 2.2)
2008
2008
RMB
RMB
US$
19
16,086
997
146
20
2,000
7,000
1,026
9
17
16
2
5,246
3,383
496
37.1
6,169
22
2,007
1,599
235
31,525
12,995
1,905
23
49,312
65,687
9,628
4,990
11,304
1,657
37.1
821
37.1
5,656
2,727
400
37.2
510
538
79
37.2
4,232
620
149
22
24
20,000
10,000
1,466
25
11,850
10,780
1,580
19
7,411
1,216
178
103
3,103
2,200
322
22
3,381
3,012
442
16,909
13,374
1,960
124,046
125,219
18,354
155,571
138,214
20,259
334,087
344,924
50,557
(91,871
)
(89,099
)
(13,060
)
210,041
219,705
32,203
Table of Contents
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
(Expressed in millions, except per share data)
2007
As restated
Note
(Note 2.2)
2008
2008
RMB
RMB
US$
5, 26
150,687
148,906
21,826
(11,214
)
(12,011
)
(1,761
)
(47,369
)
(47,678
)
(6,988
)
28
(16,022
)
(16,577
)
(2,430
)
31
(17,540
)
(18,902
)
(2,771
)
29
(32,776
)
(33,582
)
(4,922
)
30
(3,231
)
(2,411
)
(353
)
285
239
35
6
(11,837
)
(1,735
)
21
(569
)
27
4,990
1,994
292
27,241
8,141
1,193
9
(7,083
)
(1,801
)
(264
)
20,158
6,340
929
33
654
1,438
211
33
626
26,135
3,831
21,438
33,913
4,971
21,437
33,912
4,971
1
1
21,438
33,913
4,971
34
6,427
4,754
697
34
5,885
6,231
913
Table of Contents
2007
As restated
Note
(Note 2.2)
2008
2008
RMB
RMB
US$
35
0.93
1.43
0.21
35
0.92
1.42
0.21
35
0.87
0.27
0.04
35
0.86
0.27
0.04
35
0.06
1.16
0.17
35
0.06
1.15
0.17
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
(Expressed in millions of RMB)
Employee
share-based
Share
Share
compensation
Revaluation
Statutory
Other
Retained
Minority
Total
capital
premium
reserve
reserve
reserve
reserve
profits
Total
interest
equity
1,344
53,223
264
272
3,019
453
21,286
79,861
3
79,864
(8
)
(782
)
(790
)
(790
)
125
2,886
11,811
40,663
18,709
74,194
74,194
1,344
53,223
389
3,150
14,830
41,116
39,213
153,265
3
153,268
135
(664
)
(529
)
(529
)
(15
)
(15
)
(15
)
135
(679
)
(544
)
(544
)
20,158
20,158
20,158
1,279
1,279
1
1,280
135
(679
)
21,437
20,893
1
20,894
(2,103
)
(104
)
2,207
(69
)
20
49
(1,179
)
(1,179
)
(1,179
)
(101
)
(48
)
(149
)
(149
)
95
(95
)
17,295
(17,295
)
1,517
(1,517
)
1,586
(1,586
)
216
216
216
5
366
(89
)
250
532
532
88
10,731
10,819
10,819
(5,885
)
(5,885
)
(5,885
)
1,437
64,320
516
1,113
17,933
56,713
36,480
178,512
4
178,516
Table of Contents
Employee
share-based
Share
Share
compensation
Revaluation
Statutory
Other
Retained
Minority
Total
capital
premium
reserve
reserve
reserve
reserve
profits
Total
interest
equity
1,437
64,320
363
302
3,737
(433
)
27,488
97,214
4
97,218
(86
)
(668
)
(754
)
(754
)
153
897
14,196
57,146
9,660
82,052
82,052
1,437
64,320
516
1,113
17,933
56,713
36,480
178,512
4
178,516
(29
)
(29
)
(29
)
(29
)
(29
)
(29
)
6,340
6,340
6,340
27,572
27,572
1
27,573
(29
)
33,912
33,883
1
33,884
(977
)
(70
)
1,047
886
(886
)
3,542
(3,542
)
96
96
96
3
252
(72
)
267
450
450
889
102,212
(103,101
)
(5
)
(5
)
(6,231
)
(6,231
)
(6,231
)
2,329
166,784
540
136
22,361
(46,220
)
60,780
206,710
206,710
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
(Expressed in millions)
2007
As restated
Note
(Note 2.2)
2008
2008
RMB
RMB
US$
(a
)
76,608
67,204
9,850
287
246
36
(3,511
)
(3,011
)
(441
)
(8,128
)
(7,765
)
(1,138
)
65,256
56,674
8,307
1,225
656
96
66,481
57,330
8,403
(41,798
)
(47,747
)
(6,999
)
145
252
37
(3,139
)
(5,880
)
(862
)
(434
)
497
73
(2,415
)
(1,612
)
(236
)
(47,641
)
(54,490
)
(7,987
)
3,078
29,489
4,322
(44,563
)
(25,001
)
(3,665
)
Table of Contents
2007
As restated
Note
(Note 2.2)
2008
2008
RMB
RMB
US$
532
450
66
20,000
10,000
1,466
63,837
50,714
7,433
2,559
2,888
423
2,000
5,000
733
2,249
(16,646
)
(20,000
)
(2,931
)
(82,965
)
(51,784
)
(7,590
)
(13,416
)
(23,832
)
(3,493
)
(890
)
(101
)
(15
)
(2,222
)
(326
)
(1,180
)
(101
)
(15
)
34
(5,885
)
(6,082
)
(891
)
(29,805
)
(35,070
)
(5,140
)
(29,805
)
(35,070
)
(5,140
)
(12,190
)
(32,886
)
(4,820
)
33
4,303
30,145
4,418
(7,887
)
(2,741
)
(402
)
19,866
11,979
1,756
16
11,979
9,238
1,354
8
6
1
11,971
9,232
1,353
11,979
9,238
1,354
Table of Contents
(a)
The reconciliation of income from continuing operations before income tax to cash
generated from operations of continuing operations is as follows:
2007
As restated
(Note 2.2)
2008
2008
RMB
RMB
US$
27,241
8,141
1,193
47,369
47,678
6,988
(285
)
(239
)
(35
)
2,922
2,135
313
140
2
(386
)
(1,305
)
(191
)
170
84
12
2,200
2,900
425
11,837
1,735
569
(2,400
)
(1,683
)
(247
)
16
(109
)
(16
)
1,619
833
122
(1,028
)
669
98
(24
)
63
9
28
(49
)
(7
)
2,376
(991
)
(145
)
407
1,159
170
(2,899
)
(2,987
)
(437
)
(369
)
(735
)
(108
)
(797
)
(995
)
(146
)
(261
)
796
117
76,608
67,204
9,850
Table of Contents
(b)
Major non-cash transactions:
(i)
Payables to equipment suppliers for construction-in-progress during 2008 increased by
approximately
RMB19.7 billion (2007: approximately RMB1.3 billion).
(ii)
On August 20, 2007, convertible bonds of USD1 billion outstanding as of December 31,
2006 were fully converted into 899,745,075 ordinary shares of HKD0.10 each of the Company.
(iii)
On October 15, 2008, the Company issued 10,102,389,377 ordinary shares of HKD0.10 each
at a price of HKD11.60 per share with fair value or total price of approximately RMB103.1
billion (equivalent to approximately HKD117.2 billion) in exchange for the entire issued
share capital of China Netcom Group Corporation (Hong Kong) Limited. Please refer to Note 1
and Note 17 for details.
(iv)
For the years ended December 31, 2007 and 2008, the Group replaced copper cables in
some fixed-line network infrastructure with optical fibers and related equipment. Some of
this replacement was done through non-monetary assets exchanges with suppliers, through
which optical fibers and related equipment were received in exchange for the Groups own
copper cables. The cost of the assets received was recorded at the fair value of the assets
surrendered. In 2008, the net book value and fair value of copper cables surrendered were
RMB805 million (2007: RMB182 million) and RMB2,110 million (2007: RMB568 million),
respectively. A gain on the non-monetary assets exchange of RMB1,305 million (2007: RMB386
million) was recognized in the consolidated statement of income for the year ended December
31, 2008.
Table of Contents
(Amounts expressed in RMB millions unless otherwise stated)
1.
ORGANISATION AND PRINCIPAL ACTIVITIES
China Unicom (Hong Kong) Limited (the Company) was incorporated as a limited liability company
in the Hong Kong Special Administrative Region (Hong Kong), the Peoples Republic of China
(the PRC) on February 8, 2000. On October 15, 2008, the name of the Company was changed from
China Unicom Limited
to China Unicom (Hong Kong) Limited
. Prior to the disposal of the CDMA cellular business to
China Telecom Corporation Limited (China Telecom) and the merger with China Netcom Group
Corporation (Hong Kong) Limited (China Netcom) on October 1, 2008 and October 15, 2008,
respectively, as described below, the principal activities of the Company are investment holding
and the Companys subsidiaries were principally engaged in the provision of GSM and CDMA
cellular, long distance, data and Internet services in the PRC. Upon the merger with China
Netcom, the Companys subsidiaries also provide fixed- line voice and value-added services,
broadband and other Internet-related services, information communications technology services,
business and data communications services and advertising and media services (hereinafter
collectively referred to as the Fixed-line business) in the PRC. The GSM and CDMA businesses
are hereinafter collectively referred to as the Cellular Business. The Company and its
subsidiaries are hereinafter referred to as the Group. The address of its registered office is
75th Floor, The Center, 99 Queens Road Central, Hong Kong.
The shares of the Company were listed on the Stock Exchange of Hong Kong Limited (SEHK) on
June 22, 2000 and the American Depositary Shares (ADS) of the Company were listed on the New
York Stock Exchange on June 21, 2000.
The immediate holding company of the Company is China Unicom (BVI) Limited (Unicom BVI). The
majority of the equity interest in Unicom BVI is owned by China United Telecommunications
Corporation Limited (A Share Company, a joint stock company incorporated in the PRC on
December 31, 2001, with its A shares listed on the Shanghai Stock Exchange on October 9, 2002).
The majority of the equity interest in A Share Company is owned by China United Network
Communications Group Company Limited (formerly known as China United Telecommunications
Corporation, a state-owned enterprise established in the PRC, hereinafter referred to as Unicom
Group). In connection with the merger between the Company and China Netcom, Unicom BVI and
China Netcom Group Corporation (BVI) Limited (Netcom BVI, the immediate holding company of
China Netcom) entered into a concert party agreement on September 22, 2008, pursuant to which
each of Unicom BVI and Netcom BVI will become persons acting in concert under the Hong Kong
Takeovers Code in respect of their aggregate shareholding in the Company and agree, amongst
others, to cooperate actively to obtain or consolidate control of the Company following
completion of the merger. The directors of the Company consider Unicom Group to be the ultimate
holding company of the Company.
On November 15, 2008, the Company was notified by its substantial shareholders, Unicom BVI and
Netcom BVI, that their respective parent companies, namely, Unicom Group and China Network
Communications Group Corporation (a state-owned enterprise established in the PRC, the parent
company of Netcom BVI, hereinafter referred to as Netcom Group), have agreed to undertake a
merger (the Parent Merger). On January 6, 2009, the Company was notified by its substantial
shareholders that the Parent Merger, through the absorption of Netcom Group by Unicom Group has
been approved by the State-owned Assets Supervision and Administration Commission of the State
Council (SASAC) and has become effective. As a result of the Parent Merger, Unicom Group has
assumed all the rights and obligations of Netcom Group, all the assets, liabilities and business
of Netcom Group including the connected transaction agreements with the Group vested in Unicom
Group. Netcom Group will be deregistered and Unicom Group remains the ultimate holding company
of the Company.
Table of Contents
Disposal of the Groups CDMA business to China Telecom
On June 2, 2008, the Company, China United Network Communications Corporation Limited (CUCL,
formerly known as China Unicom Corporation Limited, a wholly-owned subsidiary of the Company)
and China Telecom entered into a CDMA business framework agreement (the Framework Agreement),
which set out the terms and conditions on which the Company, CUCL and China Telecom would
proceed with the CDMA business disposal whereby CUCL would sell, and China Telecom would
purchase, the CDMA business operated by the Group. The CDMA business was defined in the
Framework Agreement to include the CDMA mobile telecommunication operations, and its related
assets (including certain jointly used CDMA base stations to be agreed between CUCL and China
Telecom) and liabilities owned and operated by CUCL. Pursuant to the Framework Agreement, the
consideration for the proposed CDMA business disposal was RMB43.8 billion and was payable by
China Telecom to the Group in cash in three installments. The consideration was subject to a
price adjustment mechanism based on the CDMA service revenue generated by the Group for the six
months ended June 30, 2007 and June 30, 2008. Based on the CDMA service revenue generated by the
Group for the six months ended June 30, 2007 and June 30, 2008, and as agreed by the Company and
China Telecom, there was no subsequent adjustment to the consideration as a result of the price
adjustment mechanism. The completion of the proposed CDMA business disposal was subject to
various conditions as set forth in the Framework Agreement.
On July 27, 2008, the Company, CUCL and China Telecom further entered into a CDMA business
disposal agreement (the Disposal Agreement). Pursuant to the Disposal Agreement , the Company
and CUCL agreed to sell and China Telecom agreed to purchase: (i) the entire CDMA business,
which is owned and operated by CUCL, together with the assets of CUCL which are relevant to the
CDMA operations and the rights and liabilities of CUCL relating to its CDMA subscribers,
immediately prior to the completion date; (ii) the entire equity interest in China Unicom
(Macau) Company Limited (Unicom Macau, a subsidiary of the Company); and (iii) 99.5% of the
equity interest in Unicom Huasheng Telecommunications Technology Company Limited (Unicom
Huasheng, a subsidiary of CUCL) representing the entire equity interest in Unicom Huasheng held
by CUCL (collectively referred to as the CDMA Business). The scope of the CDMA Business was
set out in the Disposal Agreement and the detailed items were confirmed by the Company, CUCL and
China Telecom in a final list of the detailed items of the CDMA Business.
An extraordinary general meeting of the shareholders of the Company at which the above Disposal
Agreement was approved was held on September 16, 2008. As all of the conditions of the CDMA
Business disposal as specified in the Disposal Agreement were satisfied or were deemed to have
been satisfied, the CDMA Business disposal was completed on October 1, 2008 and the Group
recorded a gain on disposal of approximately RMB26.1 billion for the year ended December 31,
2008. For details, please refer to Note 33.
Table of Contents
Merger between the Company and China Netcom by way of a scheme of arrangement of China Netcom
(hereinafter referred to as the 2008 Business Combination)
On June 2, 2008, the Company and China Netcom jointly announced that the Company had formally
presented a share proposal, an ADS proposal, and an option proposal to the board of directors of
China Netcom, and requested China Netcoms board of directors to put forward the proposals to
the shareholders of China Netcom to consider a merger of the Company and China Netcom (Proposed
Merger) by way of a scheme of arrangement of China Netcom (the Scheme) under Section 166 of
the Hong Kong Companies Ordinance.
Pursuant to the aforementioned share proposal and ADS proposal, each holder of a China Netcom
share or China Netcom ADS was entitled to receive 1.508 new ordinary shares or 3.016 new ADSs of
the Company, respectively, for every China Netcom share and China Netcom ADS held. Under the
option proposal, the Company would establish a new option plan, and each holder of China Netcom
option would be entitled to receive new options of the Company to acquire the Companys shares
in exchange for their outstanding China Netcom options (whether vested or not). The grant of
these options would be based on a formula that valued the new options of the Company received by
a holder of China Netcom options equivalent to the see-through price of that holders
outstanding China Netcom options.
An extraordinary general meeting of the shareholders of the Company at which the resolutions
described above was approved was held on September 16, 2008 and the Scheme was sanctioned by the
Hong Kong High Court on October 14, 2008. The consideration for the 2008 Business Combination
was approximately HKD117.2 billion which was satisfied by the issuance of 10,102,389,377
ordinary shares of HKD0.10 each of the Company. As all of the conditions of the above proposals
and the Scheme as specified in the Scheme document had been satisfied, the Scheme became
effective on October 15, 2008.
Incorporation of Unicom Huakai Telecommunications Company Limited (Unicom Huakai)
On August 19, 2008, CUCL established a wholly-owned subsidiary, Unicom Huakai, which is
principally engaged in sales of handsets and telecommunications equipment and provision of
technical services. The paid-in capital of Unicom Huakai is RMB500 million.
On December 26, 2008, the name of Unicom Huakai was changed to Unicom Vsens Telecommunications
Company Limited.
Incorporation of China Unicom Mobile Network Company Limited (Unicom Mobile Network)
On December 31, 2008, CUCL established a wholly-owned subsidiary, Unicom Mobile Network, which
is principally engaged in construction and maintenance of the Groups networks. The paid-in
capital of Unicom Mobile Network is RMB500 million.
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Proposed merger between CUCL and China Netcom (Group) Company Limited (a wholly- owned foreign
enterprise established in the PRC, hereinafter referred to as CNC China, a wholly-owned
subsidiary of China Netcom)
On October 15, 2008, as part of the Companys integration with China Netcom, the Company
entered into an agreement with three of its wholly-owned subsidiaries, namely (i) China
Netcom; (ii) CUCL; and (iii) CNC China, pursuant to which CUCL would merge with, and
absorb, CNC China. The merged company would retain the name of China United Network
Communications Corporation Limited and would remain a wholly-owned subsidiary of the
Company. The merger between CUCL and CNC China became effective on January 1, 2009.
2007
disposal and business combination activities
Disposal of the fixed-line telecommunications operations in Guangdong province and
Shanghai municipality branches (Guangdong and Shanghai Branches)
On January 15, 2007, the Companys wholly-owned subsidiary, CNC China entered into an
assets transfer agreement with Netcom Group. Pursuant to the agreement, CNC China agreed to
sell its assets and liabilities in relation to its fixed-line telecommunications operations
in Guangdong and Shanghai Branches in the PRC to Netcom Group for cash consideration of
RMB3.5 billion. The disposal was completed on February 28, 2007 upon the approval granted
from the Ministry of Industry and Information Technology (MIIT, the former Ministry of
Information Industry has been consolidated into the MIIT).
Purchase of assets and business of Guizhou branch of Unicom Group
Pursuant to an asset transfer agreement entered between CUCL and Unicom Group on November 16,
2007, CUCL agreed to purchase the GSM cellular telecommunication assets and business, and
the CDMA cellular telecommunication business (operated through a leasing of CDMA network
capacity from Unicom New Horizon Mobile Telecommunications Company Limited (Unicom New
Horizon, a wholly-owned subsidiary of Unicom Group)) of Guizhou branch of Unicom Group
(Guizhou Business) at a cash consideration of RMB880 million. In addition, pursuant to
the asset transfer agreement, the income or loss of the Guizhou Business for the period
from December 31, 2006 to December 31, 2007 (i.e, the effective date of the acquisition)
was transferred to Unicom Group.
Acquisition of Beijing Telecommunications Planning and Designing Institute Corporation
Limited (Beijing Telecom P&D Institute)
On December 5, 2007, China Netcom Group System Integration Limited Corporation (System
Integration Corporation), a wholly-owned subsidiary of CNC China, entered into an equity
interest transfer agreement with China Netcom Group Beijing Communications Corporation
(Beijing Communications Corporation, a subsidiary of Netcom Group), pursuant to which
System Integration Corporation agreed to acquire the entire equity interest of Beijing
Telecom P&D Institute from Beijing Communications Corporation for a total consideration of
RMB299 million. The acquisition was completed on December 31, 2007.
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2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
2.1
First-time Adoption of International Financial Reporting Standards (IFRSs) and
Statement of Compliance
These financial statements have been prepared in accordance with all applicable
International Financial Reporting Standards issued by the International Accounting
Standards Board (IASB), which collective term includes all applicable individual
International Financial Reporting Standards, International Accounting Standards (IASs)
and Interpretations issued by the IASB. Hong Kong Financial Reporting Standards
(HKFRSs), which collective term includes all applicable individual Hong Kong Financial
Reporting Standards, Hong Kong Accounting Standards (HKASs) and Interpretations issued
by the Hong Kong Institute of Certified Public Accountants (HKICPA). These financial
statements also comply with HKFRSs, which are consistent with IFRSs, as well as the
applicable disclosure provisions of the Rules Governing the Listing of Securities on the
SEHK and the requirements of the Hong Kong Companies Ordinance.
Although HKFRSs have been fully converged with IFRSs in all material respects since
January 1, 2005, these financial statements are the first published financial statements
in which the Group makes an explicit and unreserved statement of compliance with IFRSs.
Therefore, in preparing these financial statements, management has given due consideration
to the requirements of IFRS 1, First-time Adoption of International Financial Reporting
Standards. As the Groups financial statements for the year ended December 31, 2008 are
the first annual financial statements that comply with IFRSs and HKFRSs, the Group is
required to establish its IFRS accounting policies for the year ended December 31, 2008
and except for the standard described below, apply these retrospectively to determine the
IFRS opening balance sheet at its date of transition, January 1, 2007, being the beginning
of the earliest period for which the Group presents full comparative information in these
financial statements.
With due regard to the Groups accounting policies in previous periods and the
requirements of IFRS 1, management has elected to apply the optional exemption to not
apply IFRS 3 Business Combinations retrospectively to past business combinations that
occurred prior to January 1, 2005. In addition, the Group has elected to apply IFRS 2
Share-based Payment to equity instruments that were granted after November 7, 2002 that
vested on or after January 1, 2005. As a result, the conversion from HKFRSs to IFRSs did
not result in any impact on the Groups accounts. As such, the Group makes an explicit and
unreserved statement of compliance with IFRSs in the first IFRS financial statements which
included amounts arising from business combinations in prior years in the comparatives.
Accordingly, these financial statements continue to include a statement of compliance with
HKFRSs as well as including for the first time a statement of compliance with IFRSs,
without adjustment to the Groups financial position, the Groups
financial performance or cash flows either at the date of transition to IFRSs or at the
end of latest period presented in accordance with HKFRSs.
The comparative amounts of the consolidated financial statements were restated in
accordance with HKFRSs. For details, please refer to Note 2.2. Under IFRSs, there is no
restatement as the same accounting policies are applied to the opening balance sheet and
throughout all periods presented.
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2.2
Basis of Preparation
The consolidated financial statements have been prepared under the historical cost
convention, modified by the revaluation of property, plant and equipment (other than
buildings and telecommunications equipment of the GSM business), and financial assets and
financial liabilities (including derivative financial instruments) at fair value through
profit or loss. The consolidated financial statements prepared by the PRC subsidiaries for
PRC statutory reporting purposes are based on the Chinese Accounting Standards for
Business Enterprises (CAS) issued by the Ministry of Finance, which became effective
from January 1, 2007 with certain transitional provisions. There are certain differences
between the Groups IFRS/HKFRS financial statements and PRC statutory financial
statements. The principal adjustments made to the PRC statutory financial statements to
conform to IFRS/HKFRS include the following:
reversal of the revaluation surplus or deficit and related depreciation and
amortization charges arising from the revaluation of assets (mainly property, plant
and equipment) performed by independent valuers for the purpose of reporting to
relevant PRC government authorities prior to January 1, 2007;
recognition of the revaluation surplus or deficit and related depreciation charges
for the purpose of reporting the property, plant and equipment (other than buildings
and telecommunications equipment of the GSM business) at revalued amounts under
IFRS/HKFRS;
recognition of goodwill associated with the acquisition of certain subsidiaries
prior to 2005;
capitalization of the direct costs associated with the acquisition of subsidiaries
prior to 2005;
additional capitalization of borrowing costs prior to the adoption of CAS on
January 1, 2007;
capitalization and amortization of upfront non-refundable revenue and the related
direct incremental costs for activating cellular subscribers prior to the adoption of
CAS on January 1, 2007; and
adjustments on deferred taxation in relation to IFRS/HKFRS adjustments.
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Discontinued Operations
On June 2, 2008, the Company, CUCL and China Telecom entered into the Framework Agreement
to dispose of the assets and liabilities in relation to the CDMA business and the disposal
was completed on October 1, 2008. In accordance with IFRS/HKFRS 5 Non-current Assets Held
for Sale and Discontinued Operations issued by the IASB/HKICPA (IFRS/HKFRS 5), the
results and cash flows of the operations of the CDMA business segment of the Group have
been presented as discontinued operations in the consolidated statement of income and
statement of cash flows of the Group for the year ended December 31, 2008, and the 2007
comparative figures for the consolidated statement of income and statement of cash flows
were also reclassified as discontinued operations accordingly. The difference between the
consideration received and receivable and the book value of net assets disposed of is
recorded as Gain on the disposal of discontinued operations in the consolidated
statement of income for the year ended December 31, 2008.
On January 15, 2007, CNC China entered into an assets transfer agreement with Netcom Group
to dispose of the assets and liabilities in relation to the telecommunications operations
of its Guangdong and Shanghai Branches in the PRC and the disposal was completed on
February 28, 2007. In accordance with IFRS/HKFRS 5, the results and cash flows of the
operations of the Guangdong and Shanghai Branches have been presented as discontinued
operations in the consolidated statement of income and statement of cash flows of the
Group for the year ended December 31, 2007.
For details, please refer to Note 33.
Business Combination of Entities and Business under Common Control
The merger between the Company and China Netcom is considered to be a business combination
of entities under common control as their respective ultimate holding companies, namely
Unicom Group and Netcom Group, are both under the common control of SASAC. Further, the
2008 Business Combination was carried out by reference to the Announcement on Deepening
the Reform of the Structure of the Telecommunications Sector dated May 24, 2008 jointly
issued by MIIT, the National Development and Reform Commission (NDRC) and the Ministry
of Finance of the PRC. As set out in Note 1, Unicom Group and Netcom Group had merged on
January 6, 2009 following the merger between the Company and China Netcom.
The acquisition of Beijing Telecom P&D Institute in 2007 was considered to be a business
combination of entities under common control of Netcom Group as Beijing Telecom P&D
Institute was a wholly-owned subsidiary of Beijing Communications Corporation, which is a
wholly-owned subsidiary of Netcom Group.
The acquisition of Guizhou Business in 2007 was also considered to be a business
combination of entity and business under common control as the Group and Guizhou Business
were both under the common control of Unicom Group.
Upon the adoption of HKFRSs in 2005 by the Group, the above transactions have been
accounted for using merger accounting in accordance with the Accounting Guideline 5
Merger Accounting for Common Control Combinations (AG 5) issued by the HKICPA. With
regard to IFRSs, the Group adopted the accounting policy to account for business
combinations of entities and businesses under common control using the predecessor values
method which is consistent with HKFRSs. The acquired assets and liabilities are stated at
predecessor values, and are included in the consolidated financial statements from the
beginning of the earliest period presented as if the entities and business acquired had
always been part of the Group.
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Change of Accounting Policies and Estimates
Since the 2008 Business Combination is accounted for as a business combination
of entities under common control, the Group has restated all its HKFRS 2007
comparative amounts as if the merger had been completed on the earliest date of the
periods being presented, i.e., January 1, 2007. In addition, to align the accounting
policies of the Group and China Netcom, the Group has adopted the following changes
solely to its HKFRS accounting policies:
(a)
Measurement of property, plant and equipment
Pursuant to a resolution passed by the Board of Directors on August 13, 2008, the
Group changed the following accounting policies for the property, plant and
equipment held by the Group prior to the merger with China Netcom:
1)
Buildings are stated at historical costs less accumulated
depreciation and accumulated impairment losses instead of at revalued amounts;
2)
Other property, plant and equipment (other than the
telecommunications equipment of GSM business) are stated at revalued amounts
instead of historical costs less accumulated depreciation and accumulated
impairment losses.
The change in accounting policy in relation to buildings has been
applied on a retrospective basis. The change in accounting policy for other
property, plant and equipment (other than the telecommunications equipment of
GSM business) to the revaluation basis has been treated as a revaluation
occurring at the beginning of the earliest period presented in these financial
statements. Accordingly, a revaluation of property, plant and equipment (other
than the telecommunications equipment of GSM business) as of January 1, 2007
was performed by an independent property valuation firm, using the replacement
cost or open market value approach, as appropriate.
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As of January 1,
As of December 31,
Year ended December 31,
2007
2007
2008
2007
2008
(349
)
(335
)
(324
)
104
76
73
273
301
304
(28
)
(42
)
(53
)
(14
)
(11
)
3
(814
)
(659
)
(504
)
269
164
125
(265
)
(215
)
(135
)
810
710
514
(155
)
(155
)
128
39
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(b)
Subscriber points reward program
The Group has implemented a subscriber points reward program, which is a bonus
points based scheme that rewards subscribers according to their service consumption,
loyalty and payment history. In prior years, the Group recognized the estimated
costs under the subscriber points reward program as other operating expenses. In
2008, the Group early adopted IFRIC/HK(IFRIC)-Int 13. Upon the early adoption of
IFRIC/HK(IFRIC)-Int 13, a portion of the consideration received or receivable from
customers is allocated to the bonus points by reference to their fair value. The
fair value of the subscriber points award is recorded as deferred revenue when the
rewards are granted and recognized as revenue when the points are redeemed or
expired. The deferred revenue is recognized based on (i) the value of each bonus
point awarded to subscribers, (ii) the number of bonus points related to subscribers
who are qualified or expected to be qualified to exercise their redemption right at
each balance sheet date; and (iii) the expected bonus points redemption rate. The
adoption of IFRIC/HK(IFRIC)-Int 13 represents a change solely in HKFRS accounting
policy which has been applied retrospectively so the comparatives presented have
been restated to conform with the changed policy.
The impact of changes of accounting policy is summarized as follows:
As of December 31, 2007
As of December 31, 2008
(634
)
(118
)
634
118
Year ended
Year ended
December 31, 2007
December 31, 2008
(55
)
264
55
(264
)
(23
)
118
23
(118
)
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CDMA
Business
Changes of
As previously
(discontinued
2008 Business
accounting
reported
operations)
Combination
policies
Eliminations
As restated
99,539
(31,197
)
84,005
(78
)
(1,582
)
150,687
9,301
(656
)
11,472
41
20,158
132,588
170,078
(754
)
301,912
16,834
15,508
(167
)
32,175
149,422
185,586
(754
)
(167
)
334,087
2,974
28,128
423
31,525
49,231
75,405
(423
)
(167
)
124,046
52,205
103,533
(167
)
155,571
97,217
82,053
(754
)
178,516
The Groups continuous net cash inflow from operating activities;
Unutilized banking facilities of approximately RMB92.0 billion; and
Other available sources of financing from domestic banks and other financial
institutions given the Groups credit history.
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(a)
The following interpretation is early adopted by the Group
IFRIC/HK(IFRIC)-Int 13, Customer loyalty programmes (effective from July 1,
2008). IFRIC/HK(IFRIC)-Int 13 clarifies that where goods or services are sold
together with a customer loyalty incentive (for example, loyalty points or free
products), the arrangement is a multiple-element arrangement and the
consideration receivable from the customer is allocated between the components of
the arrangement using fair values. Comparatives for 2007 have been restated upon
adoption of this new interpretation. For the financial impact of the early
adoption of IFRIC/HK(IFRIC)-Int 13 on the Groups financial statements, please
refer to point (b) Subscriber points reward program under the section headed
Change of Accounting Policies and Estimates of this Note.
(b)
The following new amendment and interpretation are effective in 2008 and
are relevant and are applicable to the Groups operations
IFRIC/HK(IFRIC)-Int 11, Group and treasury share transactions provides
guidance on whether share-based transactions involving treasury shares or
involving group entities (for example, options over parents shares) should be
accounted for as equity-settled or cash-settled share-based payment transactions
in the stand-alone accounts of the parent and group companies. In previous
years, the Company granted certain share options to its subsidiaries employees
and recognized the share-based compensation cost in accordance with the
transitional provision of IFRS/HKFRS 2. Upon the adoption of IFRIC/HK(IFRIC)-Int
11, equity-settled share-based compensation plan in which the Company grants
share options to subsidiaries employees are accounted for as an increase in the
value of investments in the subsidiaries in the Companys balance sheet which is
eliminated on consolidation. Accordingly, the share-based compensation cost
previously recognized by the Company in its unconsolidated financial statements
of approximately RMB151 million for the year ended December 31, 2007 was
allocated to the subsidiaries and the related business segments. The segment
information for the year ended December 31, 2007 has been restated to reflect
the effect of the adoption of IFRIC/HK(IFRIC)-Int 11.
IAS/HKAS 39, Financial instruments: Recognition and measurement, amendment
on reclassification of financial assets permits reclassification of certain
financial assets out of the held-for-trading and available-for-sale categories if
specified conditions are met. The related amendment to IFRS/HKFRS 7, Financial
instruments: Disclosures, introduces disclosure requirements with respect to
financial assets reclassified out of the held-for-trading and available-for-sale
categories. This amendment does not have any impact on the Groups financial
statements, as the Group has not reclassified any financial assets.
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(c)
The following interpretations to published standards are mandatory for
accounting periods beginning on or after January 1, 2008 but are not relevant to the
Groups operation
IFRIC/HK(IFRIC)-Int 12, Service concession arrangements.
IFRIC/HK(IFRIC)-Int 14, The limit on a defined benefit asset, minimum
funding requirements and their interaction.
(d)
Standards, amendments to standards and interpretations to existing
standards have been issued but not yet effective in 2008 and have not been early
adopted by the Group
IFRS/HKFRS 2 (Amendment), Share-based payment (effective from January 1,
2009). The amended standard deals with vesting conditions and cancellations. It
clarifies that vesting conditions are service conditions and performance
conditions only. Other features of a share-based payment are not vesting
conditions. As such these features would need to be included in the grant date
fair value for transactions with employees and others providing similar
services, that is, these features would not impact the number of awards
expected to vest or valuation thereof subsequent to grant date. All
cancellations, whether by the entity or by other parties, should receive the
same accounting treatment.
IFRS/HKFRS 8, Operating segments (effective from January 1, 2009). The
amended standard replaces IAS/HKAS 14, Segment reporting, and aligns segment
reporting with the requirements of the US standard SFAS 131, Disclosures about
segments of an enterprise and related information. The new standard requires a
management approach, under which segment information is presented on the same
basis as that used for internal reporting purposes.
IFRS/HKFRS 3 (Revised) Business combination (effective from July 1, 2009).
The revised standard continues to apply the acquisition method to business
combinations, with some significant changes. For example, all payments to
purchase a business are to be recorded at fair value at the acquisition date,
with contingent payments classified as debt subsequently re-measured through
the consolidated statement of income. There is a choice on an acquisition by
acquisition basis to measure the non-controlling interest in the acquiree
either at fair value or at the non-controlling interests proportionate share
of the acquirees net assets. All acquisition-related costs should be expensed.
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IAS/HKAS 1 (Revised), Presentation of financial statements (effective from
January 1, 2009). The revised standard will prohibit the presentation of items of
income and expenses (that is, non-owner changes in equity) in the statement of
changes in equity, requiring non-owner changes in equity to be presented
separately from owner changes in equity. All non-owner changes in equity will be
required to be shown in a performance statement, but entities can choose whether
to present one performance statement (the statement of comprehensive income) or
two statements (the consolidated statement of income and statement of
comprehensive income). Where entities restate or reclassify comparative
information, they will be required to present a restated balance sheet as of the
beginning comparative period in addition to the current requirement to present
balance sheets at the end of the current period and comparative period. It is
likely that both the consolidated statement of income and statement of
comprehensive income will be presented as performance statements.
IAS/HKAS 23 (Revised), Borrowing costs (effective from January 1, 2009). The
amendment requires an entity to capitalize borrowing costs directly attributable
to the acquisition, construction or production of a qualifying asset (one that
takes a substantial period of time to get ready for use or sale) as part of the
cost of that asset. The option of immediately expensing those borrowing costs
will be removed.
IAS/HKAS 27 (Revised), Consolidated and separate financial statements
(effective from July 1, 2009). The revised standard requires the effects of all
transactions with non-controlling interests to be recorded in equity if there is
no change in control and these transactions will no longer result in goodwill or
gains and losses. The standard also specifies the accounting when control is
lost. Any remaining interest in the entity is re-measured to fair value and a
gain or loss is recognized in income or loss.
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IASBs annual improvement project published in May 2008/HKICPAs improvements to
HKFRS published in October 2008
IAS/HKAS 1 (Amendment), Presentation of financial statements (effective
from January 1, 2009). The amendment clarifies that some rather than all
financial assets and liabilities classified as held for trading in accordance
with IAS/HKAS 39, Financial instruments: Recognition and measurement are
examples of current assets and liabilities respectively.
IAS/HKAS 19 (Amendment), Employee benefits (effective from January 1,
2009).
The amendment clarifies that a plan amendment that
results in a change in the extent to which benefit promises are affected
by future salary increases is a curtailment, while an amendment that
changes benefits attributable to past service gives rise to a negative
past service cost if it results in a reduction in the present value of
the defined benefit obligation.
The definition of return on plan assets has been
amended to state that plan administration costs are deducted in the
calculation of return on plan assets only to the extent that such costs
have been excluded from measurement of the defined benefit obligation.
The distinction between short term and long term
employee benefits will be based on whether benefits are due to be settled
within or after 12 months of employee service being rendered.
IAS/HKAS 37, Provisions, contingent liabilities
and contingent assets requires contingent liabilities to be disclosed,
not recognized. IAS/HKAS 19 has been amended to be consistent.
IAS/HKAS 23 (Amendment), Borrowing costs (effective from January 1,
2009). The definition of borrowing costs has been amended so that interest
expense is calculated using the effective interest method defined in IAS/HKAS
39 Financial instruments: Recognition and measurement. This eliminates the
inconsistency of terms between IAS/HKAS 39 and IAS/HKAS 23.
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IAS/HKAS 27 (Amendment), Consolidated and separate financial statements
(effective from January 1, 2009). Where an investment in a subsidiary that is
accounted for under IAS/HKAS 39, Financial instruments: recognition and
measurement, is classified as held for sale under IFRS/HKFRS 5, Non-current
assets held for sale and discontinued operations, IAS/HKAS 39 would continue
to be applied.
IAS/HKAS 36 (Amendment), Impairment of assets (effective from January 1,
2009). Where fair value less costs to sell is calculated on the basis of
discounted cash flows, disclosures equivalent to those for value-in-use
calculation should be made.
IAS/HKAS 40 (Amendment), Investment property (and consequential
amendments to IAS/HKAS 16) (effective from January 1, 2009). Property that is
under construction or development for future use as investment property is
within the scope of IAS/HKAS 40. Where the fair value model is applied, such
property is, therefore, measured at fair value. However, where fair value of
investment property under construction is not reliably measurable, the
property is measured at cost until the earlier of the date construction is
completed and the date at which fair value becomes reliably measurable.
IFRS/HKFRS 5 (Amendment), Non-current assets held for sale and
discontinued operations (and consequential amendment to IFRS/HKFRS 1,
First-time adoption) (effective from July 1, 2009). The amendment clarifies
that all of a subsidiarys assets and liabilities are classified as held for
sale if a partial disposal sale plan results in loss of control, and relevant
disclosure should be made for this subsidiary if the definition of a
discontinued operation is met. A consequential amendment to IFRS/HKFRS 1
states that these amendments are applied prospectively from the date of
transition to IFRS/HKFRSs.
There are a number of minor amendments to IFRS/HKFRS 7, Financial
instruments: Disclosures, IAS/HKAS 8, Accounting policies, changes in
accounting estimates and errors, IAS/HKAS 10, Events after the balance
sheet date, IAS/HKAS 18, Revenue and IAS/HKAS 34, Interim financial
reporting which are not addressed above.
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2.3
Consolidation
The consolidated financial statements include the financial statements of the Company and
all of its subsidiaries made up to December 31.
(a)
Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the
Group has the power to govern the financial and operating policies generally
accompanying a shareholding of more than one half of the voting rights. The existence
and effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to
the Group. They are deconsolidated from the date that control ceases. Upon the
disposal of subsidiaries, the difference between the consideration received and
receivable and the book value of net assets disposed of is recorded as gain/loss on
disposal in the consolidated statement of income in the year of disposal.
The Group has acquired the equity interests of certain subsidiaries prior to 2005
(refer to Note 8 for details). Prior to the adoption of HKFRSs in 2005, the Group
accounted for the acquisition of subsidiaries under common control in accordance with
the original HK SSAP 27 Accounting for Group Reconstructions (HK SSAP 27) under
the previous accounting principles generally accepted in Hong Kong and the
requirement of the Hong Kong Companies Ordinance. Since the criteria for applying
merger accounting under HK SSAP 27 was not satisfied, the purchase method of
accounting was used to account for the acquisitions of those subsidiaries (including
common control transactions) by the Group prior to 2005.
Under the purchase method of accounting, the cost of an acquisition is measured at
the fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent liabilities
assumed are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of
acquisition over the fair value of the Groups share of the identifiable net assets
acquired is recorded as goodwill. If the cost of acquisition is less than the fair
value of the Groups share of the identifiable net assets of the subsidiary acquired,
the difference is recognized directly in the statement of income.
Upon the adoption of HKFRSs in 2005, merger accounting is used by the Group to
account for the business combination of entities and businesses under common control
in accordance with AG 5 issued by the HKICPA. The results of operations and financial
position of such entities or businesses are included in the consolidated financial
statements as if the businesses were always part of the Group from the beginning of
the earliest period presented or since the date when the combining entities or
businesses first came under common control, where this is a shorter period,
regardless of the date of the common control combination.
Upon the adoption of IFRSs, the Group has elected not to apply IFRS 3 Business
Combination retrospectively to past business combination that occurred prior to
January 1, 2005. In addition, the Group adopted the accounting policy to account for
business combination of entities and businesses under common control using the
predecessor values method which is consistent with HKFRS.
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Inter-company transactions, balances and unrealized gains on transactions between
group companies are eliminated. Unrealized losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting
policies of subsidiaries would be changed where necessary in the consolidated
financial statements to ensure consistency with the policies adopted by the Group.
(b)
Minority interests
Minority interests at the balance sheet date, being the portion of the net assets of
subsidiaries attributable to interests that are not owned by the Company, whether
directly or indirectly through subsidiaries, are presented in the consolidated balance
sheets and statements of changes in equity within equity, separately from equity
attributable to the equity holders of the Company. Minority interests in the results
of the Group are presented on the face of the consolidated statement of income as an
allocation of the total income or loss for the year between minority shareholders and
the equity holders of the Company.
Where losses applicable to the minority exceed the minoritys interest in the equity
of a subsidiary, the excess, and any further losses applicable to the minority, are
charged against the Groups interest except to the extent that the minority has a
binding obligation to, and is able to, make additional investment to cover the losses.
If the subsidiary subsequently reports income, the Groups interest is allocated all
such income until the minoritys share of losses previously absorbed by the Group has
been recovered.
The Group applies a policy of treating transactions with minority interests as
transactions with parties external to the Group. Disposals to minority interests
result in gains or losses for the Group are recorded in the consolidated financial
statements. Purchases from minority interests result in goodwill, being the difference
of any consideration paid and the relevant share of the carrying value of the net
assets of the subsidiary acquired.
2.4
Segment Reporting
A business segment is a group of assets and operations engaged in providing products or
services that are subject to risks and returns that are different from those of other
business segments. For details of the Groups business segments, please refer to Note 5.
The Group has not presented geographical segments as the Group operates primarily in one
geographical segment. This is also consistent with the Groups internal financial
reporting.
Unallocated costs primarily represent corporate expenses, realized loss on changes in fair
value of derivative component of the convertible bonds and income tax expenses, whilst
unallocated income represents interest income and other gains (including the tax refund on
reinvestment in subsidiaries) that cannot be allocated to different operating segments.
Segment assets consist primarily of property, plant and equipment, other assets,
prepayments, inventories and consumables, receivables and operating cash. Segment
liabilities primarily comprise operating liabilities. Capital expenditure mainly comprises
additions to property, plant and equipment.
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2.5
Foreign Currency Translation
(a)
Functional and presentation currency
Items included in the financial statements of each of the Groups entities are
measured using the currency of the primary economic environment in which the entities
operate (the functional currency). The consolidated financial statements are
presented in RMB, which is the Companys functional and presentation currency.
(b)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognized in the statement of income.
(c)
Group companies
The results and financial position of all the Group entities (none of which has the
currency of a hyperinflationary economy) that have a functional currency different
from the presentation currency are translated into the presentation currency as
follows:
Assets and liabilities for each balance sheet presented are translated at the
closing rate at the date of that balance sheet;
Income and expenses for each statement of income are translated at average
exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the transactions); and
All resulting exchange differences are recognized as a separate component of
equity into other reserve.
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2.6
Property, Plant and Equipment
(i)
Construction-in-progress
Construction-in-progress (CIP) represents buildings, plant and equipment under
construction and pending installation, and is stated at cost less accumulated
impairment losses. Costs include construction and acquisition costs, and interest
charges arising from borrowings used to finance the assets during the construction
period. No provision for depreciation is made on construction-in-progress until such
time as the assets are completed and ready for use. When the asset being constructed
becomes available for use, the CIP is transferred to the appropriate category of
property, plant and equipment.
(ii)
Buildings
As discussed in Note 2.2, on January 1, 2007, the Group changed its accounting
policy such that buildings held by the Group are stated at cost, instead of revalued
amounts, less accumulated depreciation and accumulated impairment losses, and are
depreciated over their expected useful lives, which is consistent with the
accounting policy of China Netcom prior to the merger as discussed in Note 1.
(iii)
Other property, plant and equipment
Other property, plant and equipment comprise telecommunications equipment, leasehold
improvements, office furniture, fixtures, motor vehicles and others. The cost of an
asset, except for those acquired in exchange for a non-monetary asset or assets,
comprises its purchase price and any directly attributable costs of bringing the
asset to its working condition and location for its intended use.
If an item of property, plant and equipment is acquired in exchange for another item
of property, plant and equipment, the cost of such an item of property, plant and
equipment is measured at fair value unless (a) the exchange transactions lacks
commercial substance, or (b) the fair value of neither the asset received nor the
asset given up is reliably measurable. If the acquired item is not measured at fair
value, its cost is measured at the carrying amount of the asset given up.
Subsequent costs are included in the assets carrying amount or recognized as a
separate asset, as appropriate, only when it is probable at the time the costs are
incurred that future economic benefits associated with the item will flow to the
Group, and the cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognized. All other repairs and maintenance are charged to the
statement of income during the financial period in which they are incurred.
As discussed in Note 2.2, on January 1, 2007, the Group changed its accounting
policy such that all other property, plant and equipment (other than the
telecommunications equipment of the GSM business) held by the Group are stated at
revalued amounts, instead of historical costs, less accumulated depreciation and
accumulated impairment losses, which is consistent with the accounting policy of
China Netcom prior to the merger as discussed in Note 1.
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When an item of fixed asset is revalued, any accumulated depreciation at the date of
the revaluation is restated proportionately together with the change in the gross
carrying amount of the asset so that the carrying amount of the asset after
revaluation equals its revalued amount. Increases in valuation are credited to the
revaluation reserve. Decreases in valuation are first set off against any
revaluation surplus on earlier valuations in respect of the same item and thereafter
are debited to statement of income. Any subsequent increases are credited to the
statement of income up to the amount previously debited. Each year the difference
between depreciation based on the revalued carrying amount of the asset expensed in
the statement of income and depreciation based on the assets original cost is
transferred from the revaluation reserve to retained profits.
Revaluations on fixed assets will be performed with sufficient regularity by
independent valuers and in each of the intervening years, valuations are reviewed by
management of the Group. The revalued amount is the fair value at the date of
revaluation.
(iv)
Depreciation
Depreciation on property, plant and equipment is calculated using the straight-line
method to allocate their costs or revalued amounts less their residual values over
their estimated useful lives, as follows:
Depreciable life
Residual rate
3 - 50 years
3-5
%
5 - 15 years
3-5
%
5 - 15 years
3-5
%
5 - 18 years
3-5
%
Leasehold improvements are depreciated over the shorter of their estimated useful
lives and the lease periods.
The assets residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
An assets carrying amount is written down immediately to its recoverable amount if
the assets carrying amount is greater than its estimated recoverable amount (Note
2.10).
(v)
Gain or loss on disposal of property, plant or equipment
Gains or losses on disposal of a property, plant or equipment are determined by
comparing the net sales proceeds with the carrying amounts, and are recognized in
the statement of income. When revalued assets are sold, the residual amounts
included in the revaluation reserve are transferred to retained profits.
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2.7
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the
Groups share of the net identifiable assets of the acquired subsidiaries at the date of
acquisition. Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. Impairment losses on goodwill are not reversed. Gain or
loss on the disposal of an entity includes the carrying amount of goodwill relating to the
entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The
allocation is made to those cash-generating units or groups of cash-generating units that
are expected to benefit from the business combination in which the goodwill arose.
2.8
Lease prepayments
Lease prepayments represent payments for land use rights. Lease prepayments for land use
rights are stated at cost initially and expensed on a straight line basis over the lease
period.
2.9
Other Assets
Other assets mainly represent (i) capitalized direct incremental costs for activating GSM
and CDMA subscribers; (ii) installation costs of fixed-line services; (iii) customer
acquisition costs; (iv) computer software; and (v) prepaid rental for premises and leased
lines.
(i)
Capitalized direct incremental costs for activating GSM and CDMA
subscribers, including costs of SIM/UIM cards and commissions which are directly
associated with upfront non-refundable revenue received upon activation of cellular
services, are amortized over the expected customer service periods. The expected
customer service periods are estimated based on the expected stabilized churn rates
of subscribers.
(ii)
The direct incremental costs associated with the installation in relation
to Fixed-line business are deferred and expensed to the statement of income over the
expected customer relationship period of 10 years except when the direct incremental
costs exceed the corresponding upfront installation fees. In such cases, the excess
of the direct incremental costs over the installation fees are recorded immediately
as expenses in the statement of income.
(iii)
Customer acquisition costs
(a)
Customer acquisition costs under contractual CDMA
subscriber packages represent the cost of CDMA handsets given to contractual
subscribers under special promotional packages. Such customer acquisition
costs, to the extent recoverable, are amortized over the contractual period
(not exceeding 2 years) during which the minimum contract revenue is expected
to flow to the Group. Customer acquisition costs of contractual CDMA
subscribers are included in prepayment and other current assets when the
customer contract is within 1 year of expiry, whereas they are recorded as
other assets when the unexpired contract period is over 1 year.
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(b)
When certain bifurcation conditions as mentioned in Note
2.21 (a) of Personal Handy-phone System (PHS) bundled service contracts are
met, revenue attributable to handsets given to customers under bundled
service contracts is recognized separately in the statement of income of the
period the contracts are entered into. The costs of these handsets are
expensed immediately to the statement of income in the same period. When any
one of the bifurcation conditions is not met, the costs of handsets given to
customers under bundled service contracts are deferred as subscriber
acquisition costs, to the extent recoverable, as they meet the definition and
criteria for an asset and expensed to the statement of income on a systematic
basis over the customer service contract period.
(iv)
Acquired computer software licences are capitalized on the basis of the
costs incurred to acquire and bring to use the specific software. These costs are
amortized over their estimated useful lives on a straight-line basis.
(v)
Long-term prepaid rental for premises and leased lines are amortized using
a straight-line method over the lease period.
2.10
Impairment of Non-Financial Assets
Assets that have an indefinite useful life or are not yet available for use are not
subject to amortization and are tested for impairment at each balance sheet date. Assets
are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the assets carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of (i) an assets fair value less costs to sell and (ii) value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). Assets other than
goodwill that suffered from impairment are reviewed for possible reversal of the
impairment at each reporting date.
2.11
Inventories and Consumables
Inventories, which primarily comprise handsets, SIM cards, UIM cards and accessories, are
stated at the lower of cost and net realizable value. Cost is based on the
first-in-first-out method and comprises all costs of purchase and other costs incurred in
bringing the inventories to their present location and condition. Net realizable value
for all the inventories is determined on the basis of anticipated sales proceeds less
estimated selling expenses.
Consumables consist of materials and supplies used in maintaining the Groups
telecommunication network and are charged to the statement of income when brought into
use. Consumables are stated at cost less any provision for obsolescence.
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2.12
Accounts Receivable and Other Receivables
Accounts receivable and other receivables are recognized initially at fair value and
subsequently measured at amortized cost using the effective interest method, less
provision for impairment. A provision for impairment of accounts receivable and other
receivables is established when there is objective evidence that the Group will not be
able to collect all amounts due according to the original terms of the receivables. The
amount of the provision is the difference between the assets carrying amount and the
present value of estimated future cash flows which is discounted at the original effective
interest rate. The carrying amount of the assets is reduced through the use of a provision
account, and the amount of the loss is recognized in the statement of income. When a
receivable is proven to be uncollectible with sufficient evidence, it is written off
against the provision account for receivables. Subsequent recoveries of amounts previously
written off are credited in the statement of income.
2.13
Short-term Bank Deposits
Short-term bank deposits are cash invested in fixed-term deposits with original maturities
ranging from more than 3 months to 1 year.
2.14
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks and other
short-term highly liquid investments with original maturities of 3 months or less.
2.15
Convertible Bonds
As the functional currency of the Group is RMB, the conversion of the convertible bonds
denominated in Hong Kong Dollars would not result in settlement by the exchange of a fixed
amount of cash in RMB, the functional currency of the Group, for a fixed number of the
Companys shares. In accordance with the requirements of IAS/HKAS 39, Financial
Instruments Recognition and Measurement, the convertible bond contract must be
separated into two component elements: a derivative component consisting of the conversion
option and a liability component consisting of the straight debt element of the bonds.
On the issue of the convertible bonds, the fair value of the embedded conversion option
was calculated using the Binomial model. The derivative component, the embedded conversion
option, was carried at fair value on the balance sheet with any changes in fair value
being charged or credited to the statement of income in the period when the change
occurred. The remainder of the proceeds was allocated to the debt element of the bonds,
net of transaction costs, and was recorded as the liability component. The liability
component was subsequently carried at amortized cost until extinguished on conversion or
redemption. Interest expense was calculated using the effective interest method by
applying the effective interest rate to the liability component through the maturity date.
If the convertible bonds were converted, the carrying amounts of the derivative and
liability components were transferred to share capital and share premium as consideration
for the shares issued. If the convertible bonds were redeemed, any difference between the
amount paid and the carrying amounts of both components was recognized in the statement of
income.
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2.16
Deferred Revenue, Advances from Customers and Subscriber Points Reward Program
(a)
Deferred revenue
Deferred revenue mainly represents upfront non-refundable revenue, including
connection fees, installation fees and receipts from the activation of SIM/UIM cards
relating to the Cellular Business, which are deferred and recognized over the
expected customer service period.
(b)
Advances from customers
Advances from customers are amounts paid by customers for prepaid cards, other calling
cards and prepaid service fees, which cover future telecommunications services (over a
period of one to twelve months). Advances from customers are stated at the amount of
proceeds received less the amount already recognized as revenues upon the rendering of
services.
(c)
Subscriber points reward program
The fair value of providing telecommunications services and the subscriber points
reward are allocated based on their relative fair values. A portion of revenue equal
to the fair value of the subscriber points reward is recorded as deferred revenue when
the rewards are granted and recognized as revenue when the points are redeemed or
expired. The deferred revenue is recognized based on (i) the value of each bonus point
awarded to subscribers, (ii) the number of bonus points related to subscribers who are
qualified or expected to be qualified to exercise their redemption right at each
balance sheet date; and (iii) the expected bonus points redemption rate. The fair
value of the outstanding subscriber points reward is subject to review by management
on a periodic basis.
2.17
Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred.
Borrowings are subsequently stated at amortized cost, any difference between the proceeds
(net of transaction costs) and the redemption value is recognized in the statement of
income over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months after the balance sheet
date.
2.18
Employee Benefits
(a)
Retirement benefits
The Group participates in defined contribution pension schemes. For defined
contribution plans, the Group pays contributions to publicly or privately administered
pension insurance plans on a mandatory, contractual or voluntary basis. The Group has
no further payment obligations once the contributions have been paid. The
contributions are recognized as employee benefit expenses when they are due. Prepaid
contributions are recognized as an asset to the extent that a reduction in the future
payments is available.
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(b)
Early retirement benefits
Early retirement benefits are recognized as expenses when the Group reaches agreement
with the relevant employees for early retirement.
(c)
Housing benefits
One-off cash housing subsidies paid to the PRC employees are charged to the statement
of income in the year in which it is determined that the payment of such subsidies is
probable and the amounts can be reasonably estimated.
The Groups contributions to the housing fund, special monetary housing benefits and
other housing benefits are expensed as incurred. The Group has no further payment
obligations once the contributions have been paid.
(d)
Share-based compensation costs
The Group operates an equity-settled, share-based compensation plan. The fair value of
the employee services received in exchange for the grant of the share options is
recognized as an expense. The total amount to be expensed over the vesting period is
determined by reference to the fair value of the share options granted excluding the
impact of any non-market vesting conditions (for example, revenue and profit targets).
However, non-market vesting conditions are considered in determining the number of
options that are expected to vest. At each balance sheet date, the Group revises its
estimates of the number of share options that are expected to vest. The Group
recognizes the impact of the revision of original estimates, if any, in the statement
of income of the period in which the revision occurs, with a corresponding adjustment
to equity.
The proceeds received net of any directly attributable transaction costs are credited
to share capital (nominal value) and share premium when the share options are
exercised. The corresponding employee share-based compensation reserve is transferred
to share premium.
In connection with the 2008 Business Combination (Note 1), the exchange of China
Netcoms options to the Companys options was accounted for as a modification in
accordance with IFRS/HKFRS 2 Share-based Payment issued by the IASB/HKICPA
(IFRS/HKFRS 2). The incremental fair value of the exchanged options measured before
and after the modification is to be recognized as follows:
For vested options, the incremental share-based compensation costs are
recognized in the statement of income immediately;
For non-vested options, the incremental share-based compensation costs are
recognized in the statement of income over the remaining vesting period.
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2.19
Provisions
Provisions are recognized when the Group has present legal or constructive obligations as
a result of past events, it is probable that an outflow of resources will be required to
settle the obligation, and the amount has been reliably estimated. Where there are a
number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision
is recognized even if the likelihood of an outflow with respect to any one item included
in the same class of obligations may be small.
Provisions are measured at the present value of the pre-tax amount of expenditures
expected to be required to settle the obligation that reflects current market assessments
of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognized as interest expense.
2.20
Discontinued Operations
A discontinued operation is a component of the Group that may be a major line of business
or geographical area of operations that has been disposed of or is held for sale. The
results and cash flows of that component are separately reported as discontinued
operations in the statement of income and statement of cash flows, respectively. The
difference between the consideration received and receivable and the book value of net
assets disposed of is recorded as gain/loss on disposal in the consolidated statement of
income in the year of disposal. The comparative statement of income and statement of cash
flows are also reclassified as discontinued operations. The assets and liabilities of
such component classified as discontinued operations or held for sale is presented
separately in assets and liabilities, respectively, of the consolidated balance sheet,
from the date it is first determined to be discontinued operations or assets/liabilities
held for sale, and are de-recognized upon the completion of the disposal.
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2.21
Revenue Recognition
Revenue comprises the fair value of the consideration received or receivable for the
services and sales of goods or telecommunications products in the ordinary course of the
Groups activities. Revenue is shown net of business tax, government surcharges, returns
and discounts and after eliminating sales within the Group.
The Group recognizes revenue when the amount of revenue can be reliably measured, it is
probable that future economic benefits will flow to the entity and specific criteria have
been met for each of the Groups activities as described below. The amount of revenue is
not considered to be reliably measurable until all contingencies relating to the sale have
been resolved. The Group bases its estimates on historical results, taking into
consideration of the type of customer, the type of transaction and the specifics of each
arrangement.
(a)
Sales of services and goods
Usage fees and monthly fees are recognized when the service are rendered;
Revenues from the provision of broadband and other Internet-related services
and managed data services are recognized when the services are provided to
customers;
Revenue from telephone cards, which represents service fees received from
customers for telephone services, is recognized when the related service is
rendered upon actual usage of the telephone cards by customers;
Lease income from leasing of lines and customer-end equipment are treated as
operating leases with rental income recognized on a straight-line basis over the
lease term;
Value-added services revenue, which mainly represents revenue from the
provision of services such as short message, cool ringtone, personalized ring,
wireless data services, caller number display and secretarial services to
subscribers, is recognized when service is rendered;
Standalone sales of telecommunications products, which mainly represent
handsets and accessories, are recognized when title has been passed to the
buyers;
For CDMA promotional packages where CDMA handsets are provided to subscribers
for their use during a specified contract period (Note 4.2(a)), since the
commercial substance of the transaction is to develop new contractual subscribers
by offering handsets, the two elements of CDMA cellular services and handsets are
considered as a linked transaction. Service revenues from such promotional
packages are recognized based upon the actual usage of cellular services at the
tariff set out in the contracts.
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Certain PHS bundled service contracts comprise the provision of PHS services and
handsets to customers, under which customers either prepay a certain amount of
service fee or commit to spend a minimum monthly service fee for a designated
period in order to receive a free handset. When all of the following criteria are
met, PHS handsets and related services are separately recognized as revenues
according to their relative fair values. When any one of the following criteria is
not met, total revenues from PHS bundled service contracts are recognized on a
systematic basis to match the shorter of the pattern of usage of the PHS services
by customers and the minimum non-cancellable contractual period.
(i)
PHS handsets and related services have value on a
stand-alone basis;
(ii)
Reliable estimate for fair value of PHS handsets and
related services exists; and
(iii)
In arrangements that include a general right of refund for
the delivered item, performance of the undelivered item is considered
probable and substantially in the Groups control.
Revenue from information communications technology services are recognized
when goods are delivered to the customers (which generally coincides with the
time when the customers have accepted the goods and the related risks and rewards
of ownership have been transferred to the customers) or when services are
rendered to the customers using the percentage of completion method when the
outcome of the services provided can be estimated reliably. If the outcome of the
services provided cannot be estimated reliably, the treatment should be as
follows: (i) if it is probable that the costs incurred for the services provided
is recoverable, services revenue should be recognized only to the extent of
recoverable costs incurred, and costs should be recognized as current expenses in
the period in which they are incurred; (ii) if it is probable that costs incurred
will not be recoverable, costs should be recognized as current expenses
immediately and services revenue should not be recognized.
(b)
Interest income
Interest income from deposits in banks or other financial institutions is recognized
on a time proportion basis, using the effective interest method.
(c)
Dividend income
Dividend income is recognized when the right to receive payment is established.
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2.22
Leases (as the lessee)
(a)
Operating lease
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor), including long-term
prepayment for land use rights, are expensed in the statement of income on a
straight-line basis over the period of the lease.
(b)
Finance lease
Leases of assets where the Group has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases are capitalized at the
commencement of the lease at the lower of the fair value of the leased property and
the present value of the minimum lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate of interest
on the liability balance outstanding. The corresponding liabilities, net of finance
charges, are recorded as obligations under finance leases. The interest element
implicit in the lease payment is recognized in the statement of income over the lease
period so as to produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
2.23
Borrowing Costs
Borrowing costs are expensed as incurred, except for interest directly attributable to the
acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use, in which case they are capitalized as
part of the cost of that asset. Capitalization of borrowing costs commences when
expenditures for the asset and borrowing costs are being incurred and the activities to
prepare the asset for its intended use are in progress. Borrowing costs are capitalized up
to the date when the project is completed and ready for its intended use.
To the extent that funds are borrowed specifically for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization is determined
at the actual borrowing costs incurred on that borrowing during the period less any
investment income on the temporary investment of those borrowings.
To the extent that funds are borrowed generally and used for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization is determined
by applying a capitalization rate to the expenditures on that asset. The capitalization
rate is the weighted average of the borrowing costs applicable to the borrowings of the
Group that are outstanding during the period, other than borrowings made specifically for
the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized
during a period should not exceed the amount of borrowing cost incurred during that
period. Other borrowing costs are recognized as expenses when incurred.
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2.24
Taxation
(a)
Current income tax
The current income tax charge is calculated on the basis of the tax laws enacted or
substantially enacted at the balance sheet date in the countries where the Company and
its subsidiaries operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation and establishes provisions
where appropriate on the basis of the amount expected to be paid to the tax
authorities.
(b)
Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. However, if the deferred income tax
arises from initial recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither accounting
nor taxable income or loss, it is not accounted for. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the related deferred income tax
asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized to the extent that it is probable that
future taxable income will be available against which the temporary differences can be
utilized.
2.25
Government Grants
Government grants are recognized at their fair values where there is a reasonable
assurance that the grant will be received and the Group will comply with all attached
conditions. Grants relating to assets are included in non-current liabilities, which are
credited to the statement of income on a straight-line basis over the expected lives of
the related assets. Grants relating to costs are deferred and recognized in the statement
of income over the period necessary to match them with the costs that they are intended to
compensate.
2.26
Dividend Distribution
Dividend distribution to the Companys shareholders is recognized as a liability in the
Companys financial statements in the period in which the dividends are approved by the
Companys shareholders.
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2.27
Contingent Liabilities and Contingent Assets
A contingent liability is a possible obligation that arises from past events and whose
existence will only be confirmed by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the Group. It can also be a
present obligation arising from past events that is not recognized because it is not
probable that outflow of economic resources will be required or the amount of obligation
cannot be measured reliably.
A contingent liability is not recognized but is disclosed in the notes to the financial
statements. When a change in the probability of an outflow occurs so that outflow is
probable, the liability will then be recognized as a provision.
A contingent asset is a possible asset that arises from past events and whose existence
will be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Group.
Contingent assets are not recognized but are disclosed in the notes to the financial
statements when an inflow of economic benefits is probable. When an inflow is virtually
certain, an asset is recognized.
2.28
Earnings per Share and per American Depositary Share (ADS)
Basic earnings per share is computed by dividing the income attributable to equity holders
by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share is computed by dividing the income attributable to equity
holders by the weighted average number of ordinary shares, after adjusting for the effects
of the dilutive potential ordinary shares.
Basic and diluted earnings per ADS are computed by multiplying earnings per share by 10,
which is the number of shares represented by each ADS.
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3.
FINANCIAL RISK MANAGEMENT
3.1
Financial risk factors
The Groups activities expose it to a variety of financial risks: market risk (including
currency risk, cash flow interest rate risk and fair value interest rate risk), credit
risk and liquidity risk. The Groups overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on
the Groups financial performance.
Financial risk management is carried out by the Groups finance department at its
headquarters, following the overall direction determined by the Board of Directors. The
Groups finance department identifies and evaluates financial risks in close co-operation
with the Groups operating units.
(a)
Market risk
(i)
Foreign exchange risk
The Groups major operational activities are carried out in Mainland China and a
majority of the transactions are denominated in RMB. The Group is exposed to
foreign exchange risk arising from various currency exposures, primarily with
respect to US dollars and HK dollars. Exchange risk exists with respect to the
repayment of indebtedness to foreign lenders and payables to equipment suppliers
and contractors.
The Groups finance department at its headquarters is responsible for monitoring
the amount of monetary assets and liabilities denominated in foreign currencies to
minimise the exposure to the Group. From time to time, the Group may enter into
forward exchange contracts or currency swap contracts to mitigate the foreign
exchange risk. During the year, the Group and the Company had not entered into any
forward exchange contracts or currency swap contracts.
As of December 31, 2007 and 2008, the Group had cash and cash equivalents and
short-term bank deposits denominated in foreign currencies amounting to RMB1,673
million and RMB1,315 million, respectively (Note 36). As of December 31, 2007 and
2008, the Group had bank borrowings denominated in foreign currencies amounting to
RMB4,898 million and RMB1,099 million, respectively (Note 19).
As of December 31, 2008, if the RMB had strengthened/weakened by 10% against the
foreign currencies, primarily with respect to US dollars and HK dollars, while all
other variables are held constant, the Group would have recognized additional
exchange loss/gain of approximately RMB22 million (2007: exchange gain/loss
approximately RMB323 million) for foreign currencies denominated cash and cash
equivalents, short-term bank deposits and bank loans.
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(ii)
Cash flow and fair value interest rate risk
The Groups interest-bearing assets are mainly represented by bank deposits,
management does not expect the changes in market deposit interest rates will have
significant impact on the financial statements as the deposits are all short-term
in nature and the interest involved will not be significant.
The Groups interest rate risk arises from interest bearing borrowings including
bank loans, corporate bonds and short-term commercial paper. Borrowings issued at
floating rates expose the Group to cash flow interest rate risk. Borrowings issued
at fixed rates expose the Group to fair value interest rate risk. The Group
determines the amount of its fixed rate or floating rate borrowings depending on
the prevailing market conditions. During 2007 and 2008, the Groups borrowings
were mainly at fixed rates and were mainly denominated in RMB.
Increases in interest rates will increase the cost of new borrowing and the
interest expense with respect to the Groups outstanding floating rate borrowings,
and therefore could have a material adverse effect on the Groups financial
position. Management continuously monitors the interest rate position of the Group
and makes decisions with reference to the latest market conditions. From time to
time, the Group may enter into interest rate swap agreements designed to mitigate
its exposure to interest rate risks in connection with the floating rate
borrowings, although the Group did not consider it was necessary to do so in 2007
and 2008.
As of December 31, 2008, the Group had approximately RMB28,879 million (2007:
approximately RMB35,296 million) of bank loans, corporate bonds and short-term
commercial paper at fixed rates and approximately RMB1,114 million (2007:
approximately RMB22,051 million) of bank loans at floating rates.
For the year ended December 31, 2008, if interest rates on the floating rate
borrowings had been 10% higher/lower while all other variables are held constant,
the interest expenses would have increased/decreased by approximately RMB125
million (2007: approximately RMB131 million).
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(b)
Credit risk
Credit risk is managed on a group basis. Credit risk arises from cash and cash
equivalents and short-term bank deposits with banks, as well as credit exposures to
corporate customers, individual subscribers, related parties and other operators.
The table below shows the bank deposits and cash and cash equivalents balances held at
the major banks by the Group as of December 31, 2007 and 2008:
2007
(As restated)
2008
619
238
116
735
238
11,484
8,672
495
566
11,979
9,238
The Group expects that there is no significant credit risk associated with the bank
deposits and cash and cash equivalents since the state-owned banks have support from
the government and other banks are medium or large size listed banks. Management does
not expect that there will be any significant losses from non-performance by these
counterparties.
In addition, the Group has no significant concentrations of credit risk with respect
to corporate customers and individual subscribers. The extent of the Groups credit
exposure is mainly represented by the fair value of accounts receivable for services.
The Group has policies to limit the credit exposure on accounts receivable for
services. The Group assesses the credit quality of and sets credit limits on all its
customers by taking into account their financial position, the availability of
guarantee from third parties, their credit history and other factors such as current
market conditions. The normal credit period granted by the Group is on average between
30 days to 90 days from the date of billing. The utilization of credit limits and the
settlement pattern of the customers are regularly monitored by the Group.
Credit risk relating to amounts due from related parties and other operators is not
considered to be significant as these companies are reputable and their receivables
are settled on a regular basis.
(c)
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash and
availability of funds through short-term bank loans, short-term commercial paper and
the issuance of bonds. Due to the dynamic nature of the underlying businesses, the
Groups finance department at its headquarters maintains flexibility in funding
through having adequate amount of cash and cash equivalents and utilizing different
sources of financing when necessary.
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The following tables show the undiscounted balances of the financial liabilities
(including interest expense) categorized by time period from the balance sheet date to
the contractual maturity date.
Less than 1
Between 1
Between 2
Over 5
year
and 2 years
and 5 years
years
8,665
10,353
3,823
2,840
90
90
270
2,450
525
458
1,243
1,051
46,486
6,015
2,214
4,337
510
20,629
12,134
95,054
13,115
9,673
6,341
1,299
108
315
635
355
355
6,064
2,360
510
394
1,034
866
63,605
2,727
538
4,232
10,447
11,013
94,726
857
7,413
3,861
Regarding the Groups going concern basis of assumption for the preparation of its
financial statements, please refer the details to Note 2.2.
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3.2
Capital risk management
The Groups objectives when managing capital are:
To safeguard the Groups ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders.
To support the Groups stability and growth.
To provide capital for the purpose of strengthening the Groups risk management
capability.
In order to maintain or adjust the capital structure, the Group reviews and manages its
capital structure actively and regularly to ensure optimal capital structure and
shareholder returns, taking into account the future capital requirements of the Group and
capital efficiency, prevailing and projected profitability, projected operating cash
flows, projected capital expenditures and projected strategic investment opportunities.
The Group monitors capital on the basis of the debt-to-capitalization ratio. This ratio is
calculated as interest bearing debts plus minority interest over interest bearing debts
plus total equity. Interest bearing debts represent short-term commercial paper,
short-term bank loans, long-term bank loans, amounts due to related parties and corporate
bonds, as shown in the consolidated balance sheet. Total equity represents capital and
reserves attributable to the Companys equity holders plus minority interest as shown in
the consolidated balance sheet.
The Groups debt-to-capitalization ratios at December 31, 2007 and 2008 are as follows:
2007
(As restated)
2008
20,000
10,000
11,850
10,780
7,411
1,216
16,086
997
2,000
7,000
8,129
65,476
29,993
4
65,480
29,993
178,512
206,710
4
178,516
206,710
243,996
236,703
26.8
%
12.7
%
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The decrease in debt-to-capitalization ratio during 2008 resulted primarily from the
repayment of short-term commercial paper and long-term bank loans by utilizing the
proceeds from the sale of the CDMA Business by the Group and the issuance of new shares in
connection with the merger with China Netcom.
3.3
Fair value estimation
The estimate of fair value of the Companys options is determined by using valuation
techniques. The Group selects an appropriate valuation method and makes assumptions with
reference to market conditions existing at each valuation date.
The fair value of financial instruments that are actively traded is based on the market
price as of balance sheet date. The carrying value of trade receivables (net of impairment
provision) and payables are a reasonable approximation of their fair values. The fair
value of financial liabilities for disclosure purposes is estimated by discounting the
future contractual cash flows at the current market interest rate that is available to the
Group for similar financial instruments.
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4.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
4.1
Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting
estimates may not be equal to the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
(a)
Depreciation on property, plant and equipment
Depreciation on the Groups property, plant and equipment is calculated using the
straight-line method to allocate cost or revalued amounts up to residual values over
the estimated useful lives of the assets. The Group reviews the useful lives and
residual values periodically to ensure that the method and rates of depreciation are
consistent with the expected pattern of realization of economic benefits from
property, plant and equipment. The Group estimates the useful lives of property, plant
and equipment based on historical experience, taking into account anticipated
technological changes. If there are significant changes from previously estimated
useful lives, the amount of depreciation expenses may change.
(b)
Revaluation of property, plant and equipment
Property, plant and equipment other than buildings and telecommunications equipment of
the GSM business (Note 2.6 (iii)) is carried at revalued amounts, being the fair value
at the date of revaluation, less subsequent accumulated depreciation and impairment.
Such equipment was revalued on a replacement cost or open market value approach, as
appropriate, by an independent valuer. If the revalued amounts differ significantly
from the carrying amounts of the equipment in the future, the carrying amounts will be
adjusted to the revalued amounts. The key assumptions made to determine the revalued
amounts include the estimated replacement costs and the estimated useful lives of the
equipment. This will have an impact on the Groups future results, since any
subsequent decreases in valuation are first set off against increases on earlier
valuations in respect of the same item and thereafter are charged as an expense to the
statement of income and any subsequent increases are credited as income to the
statement of income up to the amount previously charged to the statement of income and
thereafter are credited to equity. In addition, the depreciation expenses in future
periods will change as the carrying amounts of such equipment change as a result of
the revaluation.
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(c)
Impairment of non-current assets
The Group tests whether non-current assets have suffered from any impairment, in
accordance with the accounting policy stated in Note 2.10. The recoverable amount of
an asset is the higher of its fair value less costs to sell and its value in use.
Management estimates value in use based on estimated discounted pre-tax future cash
flows of the cash generating unit at the lowest level to which the asset belongs. If
there is any significant change in managements assumptions, including discount rates
or growth rates in the future cash flow projection, the estimated recoverable amounts
of the non-current assets and the Groups results would be significantly affected.
Such impairment losses are recognized in the statement of income, except where the
asset is carried at valuation and the impairment loss does not exceed the revaluation
surplus for that same asset, in which case the impairment loss is treated as a
revaluation decrease and charged to the revaluation reserve. Accordingly, there will
be an impact to the future results if there is a significant change in the recoverable
amounts of the non-current assets.
For the year ended December 31, 2008, the Group recognized RMB11,837 million (2007:
Nil) of impairment loss on property, plant and equipment in relation to the PHS
services. 1% increase in the discount rate used would result in an increase in
impairment loss of approximately RMB11 million. For details, please refer to Note 6.
(d)
Provision for doubtful debts
Accounts receivables are recognized initially at fair value and subsequently measured
at amortized cost using the effective interest method, less provision for impairment.
The Group evaluates specific accounts receivable where there are indications that the
receivable may be doubtful or is not collectible. The Group records a provision based
on its best estimates to reduce the receivable balance to the amount that is expected
to be collected. For the remaining receivable balances as of each reporting date, the
Group makes a provision based on observable data indicating that there is a measurable
decrease in the estimated future cash flows from the remaining balances. The Group
makes such estimates based on its past experience, historical collection patterns,
subscribers creditworthiness and collection trends. For general subscribers, the
Group makes a full provision for receivables aged over 3 months, which is consistent
with its credit policy with respect to the relevant subscribers.
The Groups estimates described above are based on past experience, subscribers
creditworthiness and collection trends. If circumstances change (e.g. due to factors
including developments in the Groups business and the external market environment),
the Group may need to re-evaluate its policies on doubtful debts, and make additional
provisions in the future.
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(e)
Income tax and deferred taxation
The Group estimates its income tax provision and deferred taxation in accordance with
the prevailing tax rules and regulations, taking into account any special approvals
obtained from relevant tax authorities and any preferential tax treatment to which it
is entitled in each location or jurisdiction in which the Group operates. There are
many transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. The Group recognizes liabilities for
anticipated tax audit issues based on estimates of whether additional taxes will be
due. Where the final tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
For temporary differences which give rise to deferred tax assets, the Group has
assessed the likelihood that the deferred tax assets could be recovered. Major
deferred tax assets relate to impairment loss and revaluation deficit on property,
plant and equipment, provision for doubtful debts, deferred revenue and accruals of
expenses not yet deductible for tax purpose. Due to the effects of these temporary
differences on income tax, the Group has recorded deferred tax assets amounting to
approximately RMB5,326 million as of December 31, 2008 (2007: approximately RMB2,514
million). Deferred tax assets are recognized based on the Groups estimates and
assumptions that they will be recovered from taxable income arising from continuing
operations in the foreseeable future.
The Group believes it has recorded adequate current tax provision and deferred taxes
based on the prevailing tax rules and regulations and its current best estimates and
assumptions. In the event that future tax rules and regulations or related
circumstances change, adjustments to current and deferred taxation may be necessary
which would impact the Groups results or financial position.
(f)
Equity-settled share options
On October 15, 2008, the Company granted share options under the Special Purpose Share
Option Scheme. The fair value of this option which is not traded in an active market
is determined by using valuation techniques. The Group uses its judgment to select an
appropriate valuation method and makes assumptions that are mainly based on market
conditions existing at the grant date. The valuation model requires the input of
subjective assumptions, including the volatility of share price, dividend yield and
expected option life. Changes in subjective input assumptions can materially affect
the fair value estimate. For details, please refer to Note 32.
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4.2
Critical judgments in applying the Groups accounting policies
Recognition of upfront non-refundable revenue and direct incremental costs
(a)
Mobile telecommunications services
The Group defers and amortizes upfront non-refundable revenue, including connection
fees and activation fees of SIM cards or UIM cards from cellular subscribers over
the expected customer service period. Accordingly, the related direct incremental
costs of acquiring and activating GSM and CDMA subscribers, including costs of SIM
or UIM cards and commissions which are directly associated with upfront
non-refundable revenue received upon activation of cellular services, are also
capitalized and amortized over the same expected customer service period. The Group
only capitalized costs to the extent that they will generate future economic
benefits. The excess of the direct incremental costs over the corresponding upfront
non-refundable revenue, if any, are expensed to the statement of income
immediately. The weighted average customer service period of Cellular Business
based on current estimation after considering the prevailing market environment is
approximately 3 years (2007: approximately 3 years).
The expected customer service period for the Cellular Business is estimated based
on the expected stabilized churn rates of subscribers after taking into
consideration factors such as customer retention experience, the expected level of
competition, the risk of technological or functional obsolescence of our services
and the current regulatory environment. If the estimate of the expected stabilized
churn rate changes for future periods as a result of unexpected changes in
competition environment, telecommunications technology or regulatory environment,
the amount and timing of recognition of these deferred direct incremental costs and
deferred revenue would also be changed.
(b)
Fixed-line telecommunications services
The Group defers the recognition of upfront customer connection and installation
fees and amortizes them over the expected customer relationship period of 10 years.
The related direct incremental installation costs are deferred and amortized over
the same expected customer relationship period of 10 years, except when the direct
incremental costs exceed the corresponding installation fees, the excess amounts are
immediately written off as an expense to the statement of income.
The Group estimates the expected customer relationship period based on the
historical customer retention experience and after factoring in the expected level
of future competition, the risk of technological or functional obsolescence to the
Groups services, technological innovation, and the expected changes in the
regulatory and social environment. If the Groups estimate of the expected customer
relationship period changes as a result of increased competition, changes in
telecommunications technology or other factors, the amount and timing of recognition
of the deferred revenues may change for future periods.
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5.
SEGMENT INFORMATION
GSM business the provision of GSM telephone and related services in all 31 provinces,
municipalities and autonomous regions in Mainland China;
Fixed-line business the provision of fixed-line telecommunications and related
services in Liaoning, Jilin, Heilongjiang, Shandong, Shanxi, Henan and Hebei provinces,
Neimenggu autonomous region and Tianjin and Beijing municipalities and the provision of
domestic and international data and Internet related services and domestic and
international long distance and related services in all 31 provinces, municipalities and
autonomous regions in Mainland China previously separately reported by the Group.
CDMA business the provision of CDMA telephone and related services, through a leasing
arrangement for CDMA network capacity from Unicom New Horizon;
Fixed-line business the provision of fixed-line telecommunications and related
services in Guangdong and Shanghai Branches.
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5.1
Business Segments
2007
(As restated)
Discontinued operations (Up to effective date of disposal)
Fixed-line
business
Continuing operations
- Guangdong
Total
and
Total
GSM
Fixed-line
Unallocated
continuing
CDMA
Shanghai
discontinued
business
business
amounts
Elimination
operations
business
Branches
operations
Total
62,547
87,200
149,747
26,309
615
26,924
176,671
12
928
940
4,888
4,888
5,828
62,559
88,128
150,687
31,197
615
31,812
182,499
173
3,724
(3,897
)
62,732
91,852
(3,897
)
150,687
31,197
615
31,812
182,499
(10,022
)
(5,032
)
3,840
(11,214
)
(2,164
)
(151
)
(2,315
)
(13,529
)
(19,044
)
(28,325
)
(47,369
)
(632
)
(141
)
(773
)
(48,142
)
(6,256
)
(9,820
)
54
(16,022
)
(10,203
)
(91
)
(10,294
)
(26,316
)
(4,499
)
(12,996
)
(45
)
(17,540
)
(1,823
)
(57
)
(1,880
)
(19,420
)
(14,132
)
(18,619
)
(28
)
3
(32,776
)
(15,227
)
(154
)
(15,381
)
(48,157
)
134
(3,297
)
(724
)
656
(3,231
)
(15
)
(26
)
(41
)
(3,272
)
107
136
698
(656
)
285
15
15
300
(569
)
(569
)
(569
)
132
2,077
2,781
4,990
7
2
9
4,999
9,152
15,976
2,113
27,241
1,155
(3
)
1,152
28,393
(7,083
)
(498
)
(7,581
)
626
626
20,158
1,280
21,438
20,158
1,279
21,437
1
1
20,158
1,280
21,438
(1,258
)
(942
)
(2,200
)
(395
)
17
(378
)
(2,578
)
16,332
20,040
9,587
45,959
443
443
46,402
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2008
Discontinued
Continuing operations
operations (Up to
Total
effective date of
GSM
Fixed-line
Unallocated
continuing
disposal)
business
business
amounts
Elimination
operations
CDMA business
Total
64,704
82,548
147,252
19,077
166,329
550
1,104
1,654
3,253
4,907
65,254
83,652
148,906
22,330
171,236
157
3,314
(3,471
)
65,411
86,966
(3,471
)
148,906
22,330
171,236
(10,753
)
(4,603
)
3,345
(12,011
)
(1,692
)
(13,703
)
(18,786
)
(28,892
)
(47,678
)
(411
)
(48,089
)
(6,658
)
(10,038
)
119
(16,577
)
(7,780
)
(24,357
)
(5,137
)
(13,718
)
(47
)
(18,902
)
(1,600
)
(20,502
)
(15,976
)
(17,272
)
(341
)
7
(33,582
)
(8,966
)
(42,548
)
175
(2,632
)
(668
)
714
(2,411
)
(6
)
(2,417
)
309
105
539
(714
)
239
10
249
(11,837
)
(11,837
)
(11,837
)
110
1,884
1,994
22
2,016
8,695
(37
)
(517
)
8,141
1,907
10,048
(1,801
)
(469
)
(2,270
)
26,135
26,135
6,340
27,573
33,913
6,340
27,572
33,912
1
1
6,340
27,573
33,913
(1,371
)
(1,529
)
(2,900
)
(383
)
(3,283
)
33,852
26,957
9,676
70,485
70,485
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December 31, 2007 (As restated)
GSM
CDMA
Fixed-line
Unallocated
business
business
business
amounts
Elimination
Total
112,657
9,885
210,649
17,234
(16,338
)
334,087
49,118
9,101
109,891
3,799
(16,338
)
155,571
December 31, 2008
GSM
CDMA
Fixed-line
Unallocated
business
business
business
amounts
Elimination
Total
168,782
202,645
16,329
(42,832
)
344,924
82,027
98,699
320
(42,832
)
138,214
(a)
Capital expenditures classified under Unallocated amounts represent capital
expenditures on common facilities, which benefit all business segments.
5.2
Geographical Segments
The customers of the Groups services are mainly in Mainland China. There is no other
geographical segment with segment revenue from external customers equal to or greater than
10% of total revenue of the Group.
In addition, although the Group has its corporate headquarters in Hong Kong, a substantial
portion of the Groups non-current assets (including property, plant and equipment and other
assets) are situated in Mainland China, as the Groups principal activities are conducted in
Mainland China. For 2007 and 2008, substantially all capital expenditures incurred by the
Group were to acquire assets located in Mainland China and less than 10% of the Groups
assets and operations are located outside Mainland China. Accordingly, no geographical
segment information is presented.
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6.
PROPERTY, PLANT AND EQUIPMENT
The movement of property, plant and equipment for the years ended December 31, 2007 and 2008 are
as follows:
2007 (As restated)
Office
Tele-
furniture,
Tele-
communications
fixtures,
communications
equipment of
motor
equipment of
Fixed-line
vehicles
Leasehold
Construction-
Buildings
GSM business
business
and others
improvements
in-progress
Total
14,804
134,810
34,002
9,675
1,388
13,670
208,349
27,545
289,263
18,899
166
6,335
342,208
(377
)
(3,985
)
(4,362
)
41,972
134,810
319,280
28,574
1,554
20,005
546,195
221
154
849
1,089
8
42,880
45,201
2,422
18,793
17,356
3,777
437
(42,785
)
(413
)
(7,635
)
(344
)
(137
)
(1,134
)
(9,663
)
(108
)
(2,097
)
(2,139
)
(678
)
(205
)
(5,227
)
44,094
151,660
327,711
32,418
1,657
18,966
576,506
44,094
151,660
18,966
214,720
327,711
32,418
1,657
361,786
44,094
151,660
327,711
32,418
1,657
18,966
576,506
(3,568
)
(71,725
)
(14,413
)
(5,032
)
(802
)
(14
)
(95,554
)
(7,081
)
(151,127
)
(9,446
)
(78
)
(167,732
)
28
3,171
3,199
(10,621
)
(71,725
)
(162,369
)
(14,478
)
(880
)
(14
)
(260,087
)
(1,326
)
(15,684
)
(26,001
)
(3,695
)
(292
)
(10
)
(47,008
)
60
1,867
137
74
2,138
78
1,963
1,702
613
205
4,561
(11,809
)
(85,446
)
(184,801
)
(17,423
)
(893
)
(24
)
(300,396
)
32,285
66,214
142,910
14,995
764
18,942
276,110
31,351
63,085
156,911
14,096
674
19,991
286,108
Table of Contents
2008
Office
Tele-
furniture,
Tele-
communications
fixtures,
communications
equipment of
motor
equipment of
Fixed-line
vehicles
Leasehold
Construction-
Buildings
GSM business
business
and others
improvements
in-progress
Total
16,361
151,660
35,481
10,984
1,612
14,966
231,064
28,110
296,215
21,434
45
4,000
349,804
(377
)
(3,985
)
(4,362
)
44,094
151,660
327,711
32,418
1,657
18,966
576,506
200
194
1,272
1,067
7
67,745
70,485
2,039
17,931
21,797
3,788
350
(45,905
)
(1,077
)
(3,469
)
(284
)
(6
)
(23
)
(4,859
)
(306
)
(3,037
)
(5,637
)
(903
)
(381
)
(10,264
)
44,950
163,279
345,143
36,086
1,627
40,783
631,868
44,950
163,279
40,783
249,012
345,143
36,086
1,627
382,856
44,950
163,279
345,143
36,086
1,627
40,783
631,868
(3,827
)
(85,446
)
(18,230
)
(6,505
)
(878
)
(14
)
(114,900
)
(8,024
)
(169,897
)
(10,918
)
(15
)
(10
)
(188,864
)
42
3,326
3,368
(11,809
)
(85,446
)
(184,801
)
(17,423
)
(893
)
(24
)
(300,396
)
(1,612
)
(15,110
)
(25,589
)
(4,202
)
(269
)
(9
)
(46,791
)
(11,825
)
(12
)
(11,837
)
190
1,546
126
1,862
212
3,068
4,733
831
349
13
9,206
(13,019
)
(95,942
)
(217,482
)
(20,668
)
(813
)
(32
)
(347,956
)
31,931
67,337
127,661
15,418
814
40,751
283,912
32,285
66,214
142,910
14,995
764
18,942
276,110
Table of Contents
Table of Contents
7.
LEASE PREPAYMENTS
The Groups long-term prepayment for land use rights represents prepaid operating lease payments
for land use rights in Mainland China and their net book value is analyzed as follows:
2007
(As restated)
2008
7,998
7,734
65
65
8,063
7,799
2007
2008
3,144
3,144
(373
)
3,144
2,771
Goodwill arising from the acquisitions of Unicom New Century Telecommunications Co., Ltd. and
Unicom New World Telecommunications Co., Ltd. by the Company in 2002 and 2003, respectively,
represented the excess of the purchase consideration over the Groups shares of the fair values
of the separately identifiable net assets acquired prior to the adoption of HKFRS and AG 5 in
2005 (refer to Note 2.3(a)).
Goodwill is allocated to the Groups cash-generating units (CGU) identified according to
business segments. As of December 31, 2008, all the carrying value of goodwill was attributable
to the GSM business. The recoverable amount of goodwill is determined based on value in use
calculations. These calculations use pre-tax cash flow projections for 5 years based on
financial budgets approved by management, including revenue annual growth rate of 6% and the
applicable discount rate of 12%. Management determined expected operation results based on past
performance and its expectations in relation to market developments. The expected growth rates
used are consistent with the forecasts of the business segments. The discount rate used is
pre-tax and reflects specific risks relating to the CGU. Based on managements assessment
results, there was no impairment of goodwill as of December 31, 2007 and 2008 and no reasonable
change to the assumptions would lead to an impairment.
Upon disposal of the CDMA Business effective on October 1, 2008, goodwill of approximately
RMB373 million attributable to the CDMA business arising from the above acquisitions was
derecognized.
Table of Contents
9.
TAXATION
Hong Kong income tax has been provided at the rate of 16.5% (2007: 17.5%) on the estimated
assessable income for the year. Taxation on income from outside Hong Kong has been calculated on
the estimated assessable income for the year at the rates of taxation prevailing in the
countries in which the Group operates the Companys subsidiaries are mainly operated in PRC, the
applicable standard enterprise income tax rate is 25% (2007: 33%).
2007
(As restated)
2008
18
24
7,169
4,631
7,187
4,655
(104
)
(2,854
)
7,083
1,801
(a)
Pursuant to the new PRC enterprise income tax law passed by the Tenth National Peoples
Congress on March 16, 2007, the new enterprise income tax rates for domestic and foreign
enterprises are unified at 25% and are effective from January 1, 2008 (2007: 33%). However,
for entities operating in special economic zones that previously enjoyed preferential tax
rates, the applicable tax rate will be increased progressively to 25% over a five-year
period.
(b)
On December 6, 2007, the State Council issued the detailed implementation regulations
of the new PRC enterprise income tax law. Pursuant to the regulations, a 10% withholding
income tax will be levied on dividends declared on or after January 1, 2008 by foreign
investment enterprises to their foreign enterprise shareholders unless the enterprise
investor is deemed as a PRC Tax Resident Enterprise (TRE). The Company has made an
assessment as of December 31, 2008, based on existing laws and regulations at that time and
other factors such as sources of income, composition of the Board of Directors and the
location of major assets and accounting records, and concluded that it met the definition
of PRC TRE after assessment. Therefore, as of December 31, 2008, the Companys subsidiaries
in the PRC did not accrue withholding tax on dividends distributed to the Company and there
was no deferred tax liability accrued in the Groups consolidated financial statements for
the undistributed income of the Companys subsidiaries in the PRC for the year ended
December 31, 2008. On April 22, 2009, the PRC State
Administration of Taxation
issued a formal notice
regarding the determination of PRC TRE status and provided
implementation guidance in
withholding income tax for non-TRE enterprise shareholders. Accordingly, the Company performed a
reassessment and concluded that it continues to meet the definition of PRC TRE. However,
with respect to non-TRE enterprise shareholders, the Company will distribute the 2008 final
dividend payable to them after deducting the amount of Enterprise Income Tax
payable by these non-TRE enterprise shareholders thereon and will reclassify the related dividend payable to withholding
tax payable upon the declaration of such dividends. The requirement
to withhold tax does not apply to shareholders appearing as
individuals in the Companys share register.
Table of Contents
2007
Note
(As restated)
2008
33.0
%
25.0
%
0.7
%
3.0
%
0.7
%
27
(4.9
%)
(2.8
%)
(4.8
%)
(0.8
%)
(0.8
%)
(a
)
0.3
%
(0.2
%)
(0.3
%)
26.0
%
22.1
%
Table of Contents
2007
(As restated)
2008
2,994
2,514
106
2,853
(32
)
(35
)
(529
)
(25
)
(6
)
2,514
5,326
(15
)
(17
)
(2
)
1
(17
)
(16
)
Table of Contents
9.
TAXATION
Deferred taxation as of year-end represents the taxation effect of the following temporary
differences, taking into consideration the offsetting of balances related to the same tax
authority:
2007
Note
(As restated)
2008
742
788
6
20
2,924
i
2,061
1,991
ii
236
170
41
11
144
145
396
177
177
43
37.2
(b)
102
40
33
169
112
4,026
6,496
(322
)
(124
)
(830
)
(703
)
ii
(360
)
(343
)
(1,512
)
(1,170
)
2,514
5,326
(17
)
(16
)
(i)
Prior to the merger, the prepayments for the leasehold land and buildings held by China
Netcom were revalued for PRC tax purposes as of December 31, 2003 and 2004. However, the
resulting revaluations of the prepayments for the leasehold land and buildings were not
recognized under IFRS/HKFRS. Accordingly, deferred tax assets were recorded by the Group
under IFRS/HKFRS.
(ii)
The property, plant and equipment other than buildings and telecommunications equipment
of GSM business are carried at revalued amount under IFRS/HKFRS, which are not used for PRC
tax reporting purposes. As a result, the Group recorded the deferred tax assets or
liabilities arising from the revaluation deficit or surplus under IFRS/HKFRS.
Table of Contents
10.
OTHER ASSETS
2007
Note
(As restated)
2008
1,301
499
4.2
(a)
2,349
2,848
2,251
1,887
2,121
2,432
2,837
1,264
1,288
12,081
8,996
Table of Contents
11.
SUBSIDIARIES
Investments in subsidiaries
2007
(As restated)
2008
55,938
159,761
As of December 31, 2008, the details of the Companys subsidiaries are as follows:
Percentage of
Place and date of
equity interests
Particular of
Principal activities
incorporation and
held
issued share
and place of
Name
nature of legal entity
Direct
Indirect
capital
operation
Communications
Corporation Limited
(formerly known as
China Unicom
Corporation Limited)
The PRC,
April 21, 2000,
limited liability
company
100
%
RMB
64,721,120,000
Telecommunications
operation in the
PRC
British Virgin Islands,
November 5, 2003,
limited company
100
%
1,000 shares,
HKD1 each
Investment holding
in BVI
International Limited
Hong Kong,
May 24, 2000,
limited company
100
%
60,100,000
shares, HKD1 each
Telecommunications
service in Hong
Kong
Corporation
The United States of
America (the USA),
May 24, 2002,
corporation
100
%
USD
500,000
Telecommunications
service in the USA
Investments Limited
British Virgin Islands,
August 15, 2007,
limited company
100
%
1 share,
USD1 each
Investment holding
in BVI
(formerly known as
Central Link
Investment Limited)
Hong Kong,
August 31, 2007
limited company
100
%
2 shares,
HKD1 each
Dormant
Telecommunications
Company Limited
The PRC,
August 19, 2008,
Limited liability
company
100
%
RMB
500,000,000
Sales of handsets,
telecommunication
equipment and
provision of
technical services
in the PRC
Network Company
Limited
The PRC,
December 31, 2008,
Limited liability
company
100
%
RMB
500,000,000
Construction and
maintenance of the
network in the PRC
Table of Contents
Percentage of
Place and date of
equity interests
Particular of
Principal activities
incorporation and
held
issued share
and place of
Name
nature of legal entity
Direct
Indirect
capital
operation
Corporation (Hong
Kong) Limited
Hong Kong,
October 22, 1999,
limited company
100
%
6,699,197,200
shares, USD0.04 each
Investment holding
in Hong Kong
Company Limited
The PRC,
August 6, 1999,
limited liability
company
100
%
RMB
73,370,557,827.69
Provision of
network
communications
services in the PRC
Corporation
International Limited
Bermuda,
October 15, 2002,
limited company
100
%
USD
12,000
Investment holding
in Bermuda
System Integration
Limited Corporation
The PRC,
April 30, 2006,
limited liability
company
100
%
RMB
550,000,000
Provision of system
integration
services in the PRC
Broadband Online
Limited Corporation
The PRC,
March 29, 2006,
limited liability
company
100
%
RMB
30,000,000
Provision of
internet
information
services and
value-added
telecommunications
services in the PRC
The PRC,
June 1, 2007
limited liability
company
100
%
RMB
264,227,115.02
Provision of
telecommunications
network
construction,
planning and
technical
consulting services
in the PRC
Table of Contents
12.
INVENTORIES AND CONSUMABLES
2007
(As restated)
2008
1,753
302
585
403
449
422
28
44
2,815
1,171
13.
ACCOUNTS RECEIVABLE, NET
2007
(As restated)
2008
2,559
3,098
1,637
9,788
8,689
13,984
11,787
(1,028
)
(1,347
)
(442
)
(1,500
)
(1,853
)
11,014
8,587
The aging analysis of accounts receivable is as follows:
2007
(As restated)
2008
7,295
6,078
2,595
1,479
2,882
2,792
1,212
1,438
13,984
11,787
The normal credit period granted by the Group is on average between 30 days to 90 days from the
date of billing.
There is no significant concentration of credit risk with respect to individual customers
receivables, as the Group has a large number of customers.
Table of Contents
As of December 31, 2008, accounts receivable of approximately RMB2,039 million (2007:
approximately RMB2,726 million) were past due but not impaired. These relate to customers for
which there is no recent history of default. The aged analysis of these receivables is as
follows:
2007
(As restated)
2008
2,095
1,546
499
323
132
170
2,726
2,039
As of December 31, 2008, accounts receivable of approximately RMB3,200 million (2007:
approximately RMB2,970 million) were impaired. The individually impaired receivables mainly
relate to subscriber usage fees. The aging of these receivables is as follows:
2007
(As restated)
2008
2,054
2,023
916
1,177
2,970
3,200
Provision for doubtful debts is analyzed as follows:
2007
(As restated)
2008
4,386
2,970
2,200
2,900
378
383
(3,954
)
(2,393
)
(40
)
(660
)
2,970
3,200
The creation and release of provisions for impaired receivables have been recognized in the
statement of income. Amounts charged to the allowance account are generally written-off when
there is reliable evidence to indicate no expectation of recovering additional cash.
The maximum exposure to credit risk at the reporting date is the fair value of accounts
receivable mentioned above. The Group does not hold any collateral as security.
Table of Contents
14.
PREPAYMENTS AND OTHER CURRENT ASSETS
2007
Note
(As restated)
2008
526
670
915
800
225
226
4.2
(a)
508
27
1,459
681
731
4,314
2,427
The aging analysis of prepayments and other current assets is as follows:
2007
(As restated)
2008
3,989
2,106
325
321
4,314
2,427
As of December 31, 2007 and 2008, there was no impairment for the prepayments and other current
assets.
15.
SHORT-TERM BANK DEPOSITS
2007
(As restated)
2008
721
221
14
17
735
238
2007
(As restated)
2008
11,388
8,721
591
517
11,979
9,238
Table of Contents
17.
SHARE CAPITAL
2007
2008
HKD millions
HKD millions
3,000
3,000
Ordinary
shares,
Number of
par value of
Shares
HKD0.10 each
Share
Share
Issued and fully paid:
millions
HKD millions
capital
premium
Total
12,681
1,268
1,344
53,223
54,567
54
5
5
366
371
900
90
88
10,731
10,819
13,635
1,363
1,437
64,320
65,757
31
3
3
252
255
10,102
1,010
889
102,212
103,101
23,768
2,376
2,329
166,784
169,113
Note a :
Pursuant to an ordinary resolution passed at the extraordinary general meeting held
on September 16, 2008, the Company issued 10,102,389,377 ordinary shares of HKD0.10 each at
a price of HKD11.60 per share with fair value or total price of approximately RMB103.1
billion on October 15, 2008 in exchange for the entire issued share capital of China
Netcom. Please refer to Note 1 for details.
Table of Contents
18.
RESERVES
Nature and purpose of statutory reserves
CUCL and CNC China are registered as foreign investment enterprises in the PRC. In accordance
with the respective Articles of Association, they are required to provide for certain statutory
reserves, namely, general reserve fund and staff bonus and welfare fund, which are appropriated
from profit after tax and minority interests but before dividend distribution.
CUCL and CNC China are required to allocate at least 10% of their income after tax and minority
interests determined under the PRC Company Law to the general reserve fund until the cumulative
amounts reach 50% of the registered capital. The statutory reserve can only be used, upon
approval obtained from the relevant authority, to offset accumulated losses or increase capital.
Accordingly, CUCL and CNC China appropriated approximately RMB3,523 million and RMB19 million,
respectively (2007: approximately RMB718 million and RMB868 million, respectively), to the
general reserve fund for the year ended December 31, 2008.
Appropriation to the staff bonus and welfare fund is at the discretion of the directors. The
staff bonus and welfare fund can only be used for special bonuses or the collective welfare of
the employees and cannot be distributed as cash dividends. Under IFRS/HKFRS, the appropriations
to the staff bonus and welfare fund will be charged to the statement of income as expenses
incurred since any assets acquired through this fund belong to the employees. For the years
ended December 31, 2007 and 2008, no appropriation to staff bonus and welfare fund has been made
by CUCL or CNC China.
According to a PRC tax approval document issued by the Ministry of Finance and State
Administration of Taxation to the Group, the Groups upfront connection fees in respect of
Fixed-line business are not subject to PRC enterprise income tax and an amount equal to the
upfront connection fees recognized in the retained profits should be transferred from retained
profits to a statutory reserve. Up to December 31, 2008, the Group has made an accumulated
appropriation of approximately RMB11,592 million to the statutory reserve (Up to December 31,
2007: approximately RMB10,706 million).
Table of Contents
19.
LONG-TERM BANK LOANS
2007
Interest rates and final maturity
(As restated)
2008
denominated bank
loans
Fixed interest rates of 3.60%
per annum with maturity through
2010
200
200
denominated bank
loans
Floating interest rates ranging
from 4.86% to 6.80% (2007: 2.40%
to 10.08%) per annum with
maturity through 2009
(2007: maturity through 2009)
18,399
1,114
18,399
1,114
denominated
bank loans
Fixed interest rates ranging
from Nil to 5.65% (2007: Nil to
6.15%) per annum with maturity
through 2039 (2007: maturity
through 2039)
211
146
377
377
588
523
denominated
bank loans
Floating interest rates of USD
LIBOR plus interest margin 0.35%
to 0.44% for 2007 per annum with
maturity through 2010 (a)
3,652
3,652
denominated
bank loans
Fixed interest rates of 2.12%
(2007: 2.12%) per annum with
maturity through 2014
(2007: maturity through 2014)
234
234
234
234
denominated
bank loans
Fixed interest rates ranging
from 0.50% to 2.50% (2007: 1.10%
to 7.85%) per annum with
maturity through 2034
(2007: maturity through 2034)
415
342
415
342
denominated
bank loans
Fixed interest rates of 3.75%
for 2007 per annum with maturity
through 2010
9
9
23,497
2,213
(7,411
)
(1,216
)
16,086
997
Table of Contents
The repayment schedule of the long-term bank loans is as follows:
2007
(As restated)
2008
7,411
1,216
9,671
96
3,613
287
2,802
614
23,497
2,213
(7,411
)
(1,216
)
16,086
997
(a)
On September 26, 2003, the Company signed an agreement with 13 financial institutions
for a long-term syndicated loan of USD700 million. This facility was split into 3 tranches
(i) USD200 million 3-year loan; (ii) USD300 million 5-year loan; and (iii) USD200 million
7-year loan and carried an interest rate of 0.28%, 0.35% and 0.44% over US dollar LIBOR per
annum for each tranche, respectively. In October 2003, the Company and CUCL entered into an
agreement to re-lend such funds to CUCL with similar terms to finance the network
construction of CUCL. The Company fully repaid the USD200 million 3-year loan in 2006, the
USD300 million 5-year loan in September 2008 and the USD200 million 7-year loan in November
2008 after obtaining consent for repayment from the relevant lenders.
(b)
The fair values of the Groups non-current portion of long-term bank loans as of
December 31, 2007 and 2008 were as follows:
2007
(As restated)
2008
14,547
690
The fair value is calculated based on cash flows discounted using rates based on the market
rates ranging from 4.59% to 6.56% (December 31, 2007: 3.25% to 7.05%).
(c)
As of December 31, 2008, bank loans of approximately RMB146 million (2007:
approximately RMB163 million) were secured by corporate guarantees granted by third
parties.
(d)
As of December 31, 2008, there were no corporate guarantees granted by Netcom Group
(2007: RMB49 million).
Table of Contents
20.
CORPORATE BONDS
On June 8, 2007, the Group issued RMB2 billion 10-year corporate bonds, bearing interest at 4.5%
per annum. The corporate bonds are secured by a corporate guarantee granted by Bank of China
Limited.
On September 3, 2008, the Group issued another RMB5 billion 5-year corporate bonds, bearing
interest at 5.29% per annum. The corporate bonds are secured by a corporate guarantee granted by
State Grid Corporation of China.
21.
CONVERTIBLE BONDS
On August 20, 2007, the Company received a notice delivered by SK Telecom Co., Ltd. (SK
Telecom), the sole holder of outstanding zero coupon convertible bonds of USD1 billion, pursuant
to the terms and conditions of the convertible bonds for the conversion in full of the
convertible bonds into the Companys shares. Accordingly, on August 31, 2007, the Company
allotted and issued 899,745,075 ordinary shares of HKD0.10 each of the Company to SK Telecom.
Prior to the conversion, the change in the fair value of the conversion option from December 31,
2006 to August 20, 2007 resulted in a fair value loss of approximately RMB569 million, which has
been recorded in the Realized loss on changes in fair value of derivative component of the
convertible bonds in the statement of income for the year ended December 31, 2007.
The convertible bonds with carrying value of approximately RMB10,818 million as of August 20,
2007 were fully converted into 899,745,075 ordinary shares of HKD0.10 each of the Company. The
share conversion resulted in an increase in share capital and share premium by approximately
RMB88 million and RMB10,731 million, respectively (Note 17).
Table of Contents
22.
OTHER OBLIGATIONS
Contractual
obligations in
Provision made in
relation to early
relation to one-off
retirement
cash
benefits
housing subsidies
Note (b)
Note (a) & (b)
Total
3,137
3,185
6,322
(605
)
(329
)
(934
)
2,532
2,856
5,388
525
2,856
3,381
2,007
2,007
2,532
2,856
5,388
2,532
2,856
5,388
(423
)
(354
)
(777
)
2,109
2,502
4,611
510
2,502
3,012
1,599
1,599
2,109
2,502
4,611
(a)
Certain staff quarters, prior to 1998, have been sold to certain of the Groups
employees at preferential prices, subject to a number of eligibility requirements. In 1998,
the State Council issued a circular which stipulated that the sale of quarters to employees
at preferential prices should be terminated. In 2000, the State Council issued a further
circular stating that cash subsidies should be made to certain eligible employees following
the withdrawal of the allocation of staff quarters. However, the specific timetable and
procedures for the implementation of these policies were to be determined by individual
provincial or municipal governments based on the particular situation of the provinces or
municipality.
Based on the relevant detailed local government regulations promulgated, certain entities
within the Group have adopted cash housing subsidy plans. In accordance with these plans,
for those eligible employees who had not been allocated with quarters or who had not been
allocated with quarters up to the prescribed standards before the
discounted sales of quarters were terminated, the Group is required to pay them one-off cash housing subsidies
based on their years of service, positions and other criteria. Based on the available
information, the Group estimated the required provision for these cash housing subsidies
amounting to RMB4,142 million, which was charged to the statement of income for the year
ended December 31, 2000 (the year in which the Council circular in respect of cash subsidies
was issued).
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(b)
Pursuant to the reorganization undertaken on June 30, 2004 between China Netcom, China
Netcom (Holding) Company Limited and Netcom Group and the acquisition of the principal
telecommunications operations, assets and liabilities in the four Northern
provinces/autonomous region, namely Shanxi province, Neimenggu autonomous region, Jilin
province and Heilongjiang province from Netcom Group (the Acquisition of New Horizon), if
the actual payments required for these subsidies and early retirement benefits differ from
the amount provided as of June 30, 2004 and June 30, 2005,
Netcom Group would bear any
additional payments required or would be paid the difference if the actual payments are lower
than the amount provided. Upon the completion of Parent Merger, Unicom Group has assumed all
the rights and obligations of Netcom Group.
23.
PAYABLES AND ACCRUED LIABILITIES
2007
(As restated)
2008
32,700
52,389
2,949
1,491
2,826
2,082
1,774
1,511
1,311
949
468
263
1,256
961
3,534
3,064
2,494
2,977
49,312
65,687
The aging analysis of payables and accrued liabilities is as follows:
2007
(As restated)
2008
36,502
51,975
6,754
7,052
6,056
6,660
49,312
65,687
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24.
SHORT-TERM COMMERCIAL PAPER
CNC China issued unsecured commercial paper in the PRC
capital market in two lots of RMB10 billion each with repayment periods
of 365 days and 270 days on April 30, 2007 and September 18, 2007 respectively. The effective interest rates are 3.34% and 3.93% per annum respectively. The
aggregated net cash proceeds raised in these exercises was RMB20 billion. These commercial papers
were fully repaid on May 9, 2008 and June 16, 2008, respectively.
CNC China issued RMB10 billion unsecured commercial paper with repayment periods of 365 days on
October 6, 2008 in the PRC capital market. The effective interest rate is 4.47% per annum. The
net cash proceeds raised in the PRC capital market were RMB10 billion.
25.
SHORT-TERM BANK LOANS
2007
Interest rates and final maturity
(As restated)
2008
bank loans
Fixed interest rates ranging
from 4.54% to 6.80% (2007: 4.86%
to 6.72%) per annum with
maturity through 2009 (2007:
maturity through 2008)
11,850
10,780
11,850
10,780
The carrying values of short-term bank loans approximate their fair values as of the balance
sheet date.
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26.
REVENUE
The tariffs for the services provided by the Group are subject to regulations by various
government authorities, including the NDRC, the MIIT and the provincial price regulatory
authorities.
Revenue from continuing operations is presented net of business tax and government surcharges.
Relevant business tax and government surcharges amounted to approximately RMB4,164 million for
the year ended December 31, 2008 (2007: approximately RMB4,191 million).
The major components of revenue for continuing operations are as follows:
2007
(As restated)
2008
42,077
40,464
13,528
16,263
5,851
6,858
1,091
1,119
62,547
64,704
44,227
37,324
14,273
18,114
7,911
7,500
6,758
6,591
3,741
4,597
3,986
3,124
1,835
1,673
1,283
1,181
1,517
886
380
697
1,289
861
87,200
82,548
940
1,654
150,687
148,906
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27.
OTHER INCOME NET
2007
Note
(As restated)
2008
(a
)
4,001
(b
)
386
1,305
603
689
4,990
1,994
Note (a):
During 2007, the Company and China Netcom reinvested their undistributed profits
into the subsidiaries and were granted a refund of a portion of the taxes previously paid
by these subsidiaries as permitted under the tax law effective until December 31, 2007.
This tax refund on reinvestment in subsidiaries was recorded as other income.
Note (b):
Please refer to Note (b)(iii) to the consolidated statement of cash flows for
details.
2007
(As restated)
2008
5,466
5,431
4,952
5,451
3,453
3,613
1,524
1,384
627
698
16,022
16,577
29.
OTHER OPERATING EXPENSES
2007
(As restated)
2008
2,200
2,900
1,233
2,067
3,491
2,461
9,784
10,104
2,601
2,669
2,036
1,961
3,068
2,650
123
107
923
1,090
2,728
2,440
1,492
1,714
504
566
2,593
2,853
32,776
33,582
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30.
FINANCE COSTS
2007
Note
(As restated)
2008
2,992
2,367
198
144
242
375
224
6
(439
)
(260
)
3,368
2,475
(457
)
(270
)
320
206
3,231
2,411
31.
EMPLOYEE BENEFIT EXPENSES
2007
Note
(As restated)
2008
14,087
15,442
1,854
2,110
56
51
913
1,049
27
433
166
32
170
84
17,540
18,902
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32.
EQUITY-SETTLED SHARE OPTION SCHEMES
32.1
Fixed award pre-global offering share option scheme (the Pre-Global Offering Share
Option Scheme)
Pursuant to the resolution passed by the Board of Directors in June 2000, the Company
adopted the Pre-Global Offering Share Option Scheme on June 1, 2000 for the granting of
share options to qualified employees on the following terms:
(i)
the exercise price is equivalent to the share issue price of the Global
Offering of HKD15.42 per share (excluding the brokerage fee and SEHK transaction levy);
and
(ii)
the share options are vested and exercisable after 2 years from the grant date
and expire 10 years from the date of grant.
No further options can be granted under the Pre-Global Offering Option Scheme.
The Pre-Global Offering Option Scheme had been amended in conjunction with the amended terms
of the share option scheme (Note 32.2) on May 13, 2002 and May 11, 2007, respectively. Apart
from the above two terms, the principal terms are substantially the same as the amended
Share Option Scheme in all material aspects.
32.2
Share option scheme (the Share Option Scheme)
On June 1, 2000, the Company adopted the Share Option Scheme pursuant to which the directors
of the Company may, at their discretion, invite employees, including executive directors, of
the Company or any of its subsidiaries, to take up share options to subscribe for shares up
to a maximum aggregate number of shares (including those that could be subscribed for under
the Pre-Global Offering Share Option Scheme as described above) not exceeding 10% of the
total issued share capital of the Company. Pursuant to the Share Option Scheme, the nominal
consideration payable by a participant for the grant of share options will be HKD1.00. The
exercise price payable by a participant upon the exercise of an option will be determined by
the directors at their discretion at the date of grant, except that such price may not be
set below a minimum price which is the higher of:
(i)
the nominal value of the share; and
(ii)
80% of the average of the closing prices of shares on the SEHK on the five
trading days immediately preceding the date of grant of the option on which there were
dealings in the shares on the SEHK.
The period during which an option may be exercised will be determined by the directors at
their discretion, except that no option may be exercised later than 10 years from June 22,
2000.
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(i)
share option may be granted to employees including executive directors of
the Group or any of the non-executive directors;
(ii)
the option period commences on a day after the date on which an option is
offered but not later than 10 years from the offer date; and
(iii)
minimum subscription price shall not be less than the higher of:
the nominal value of the shares;
the closing price of the shares of the stock exchange as stated in the stock
exchanges quotation sheets on the offer date in respect of the share options;
and
the average closing price of the shares on the stock exchanges quotation
sheets for the five trading days immediately preceding the offer date.
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32.3
Special Purpose Unicom Share Option Scheme (the Special Purpose Share Option Scheme)
Prior to the 2008 Business Combination, China Netcom granted share options to its directors
and employees (including employees of its subsidiaries) in years 2004 and 2005 pursuant to a
shareholders resolution passed on September 30, 2004.
Pursuant to China Netcoms share option plan, China Netcom granted 158,640,000 options with
an exercise price of HKD8.40 each to certain of its directors and employees, immediately
prior to the closing of its global offering on October 22, 2004, to subscribe for its
ordinary shares at the initial public offering price under the Hong Kong public offering
(First Grant), excluding brokerage and trading fees, and transaction and investor
compensation levies. The First Grant had an exercise period of six years from the date of
grant. The grantees could exercise 40 percent of the options granted from May 17, 2006, a
further 20 percent of the options granted from May 17, 2007, a further 20 percent of the
options granted from May 17, 2008 and a further 20 percent of the options granted from May
17, 2009. All unexercised share options were to expire on November 16, 2010.
On December 6, 2005, the board of directors of China Netcom approved the grant of 79,320,000
shares of share options with an exercise price of HKD12.45 to certain management personnel
and other professional personnel designated by the Compensation Committee of the newly
acquired four Northern provinces/autonomous region (Second Grant). The grantees could
exercise 40 percent of the options granted from December 6, 2007, a further 20 percent of
the options granted from December 6, 2008, a further 20 percent of the options granted from
December 6, 2009 and a further 20 percent of the options granted from December 6, 2010. All
unexercised share options were to expire on December 5, 2011.
The grant date fair value of the share options granted in the First Grant and the Second
Grant was determined by the Black-Scholes model. The weighted average fair value of the First
Grant and the Second Grant on grant date was determined as HKD1.22 per share (RMB1.28 per
share) and HKD1.28 per share (RMB1.34 per share), respectively.
Modifications to certain clauses of the share options schemes of China Netcom were approved
on May 16, 2006, pursuant to a resolution of the extraordinary general meeting of China
Netcom. The modifications were mainly related to eligibility of the participants, number of
options and exercise vesting schedules, rights upon cessation of employment, death and loss
of capacity, performance targets, and cancellation of options. The modifications did not
have any significant impact on the financial statements.
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Pursuant to the ordinary resolution passed by the shareholders on September 16, 2008, the
Company adopted the Special Purpose Share Option Scheme in connection with the merger of the
Company and China Netcom by way of a scheme of arrangement of China Netcom under Section 166
of the Companies Ordinance for the granting of options to holders of China Netcom options
outstanding at October 14, 2008 (Eligible Participants). Pursuant to this scheme, no
fractional options can be granted and the maximum number of shares which may be issued upon
the exercise of all options granted under this scheme and any other share options schemes of
the Company must not in aggregate exceed 10% of the issued share capital of the Company as
of the date of approval of this scheme.
The number of options and exercise price of options granted under the Special Purpose Share
Option Scheme are as follows:
(i)
The exercise price of options under this scheme is equal to (a) the exercise
price of an outstanding China Netcom option held by the Eligible Participants, divided
by (b) the share exchange ratio 1.508.
(ii)
The total number of options granted by the Company to all Eligible Participants
under this scheme shall be equal to the product of (a) the share exchange ratio and (b)
the number of China Netcom options outstanding as of October 14, 2008.
The above formula ensures that the value of options which granted under this scheme received
by a holder of China Netcom options is equivalent to the see-through price of that
holders outstanding China Netcom options.
The period during which an option may be exercised will be determined by the directors at
their discretion, except that no option may be exercised later than September 30, 2014.
No further options can be granted under the Special Purpose Share Option Scheme.
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Details of share options granted by China Netcom, immediately prior to the merger between
the Company and China Netcom (i.e. October 14, 2008) and the share options outstanding,
immediately prior to the merger between the Company and China Netcom (i.e. October 14,
2008) are as follows:
For the period from January 1,
2007
2008 to October 14, 2008
Average
Average
exercise price
Number of
exercise price
Number of
in HKD per
share options
in HKD per
share options
share
involved
share
involved
10.21
176,646,900
10.32
150,844,560
8.40
(2,117,440
)
9.55
(139,620
)
10.30
(125,836,140
)
9.67
(23,684,900
)
10.45
(24,868,800
)
10.32
150,844,560
79,263,860
71,580,700
150,844,560
10.59
45,218,610
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Details of share options of China Netcom exercised during 2007 and the period from January
1, 2008 to October 14, 2008 are as follows:
For the year ended December 31, 2007:
Weighted average
closing price per
share at respective
days immediately
before date of
Exercise price
exercise of options
Proceeds received
Number of
Grant
HKD
HKD
HKD
shares involved
8.40
22.23
136,343,760
16,231,400
12.45
23.92
92,796,075
7,453,500
229,139,835
23,684,900
For the period from January 1, 2008 to October 14, 2008:
Weighted average
closing price per
share at respective
days immediately
before date of
Exercise price
exercise of options
Proceeds received
Number of
Grant
HKD
HKD
HKD
shares involved
8.40
26.17
103,316,640
12,299,600
12.45
25.46
156,486,540
12,569,200
259,803,180
24,868,800
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The Group accounted for the exchange of options based on the estimated fair value of share
options at the modification date by using the Black-Scholes valuation model. Because the
Black-Scholes valuation model requires the input of subjective assumptions, including the
volatility of share price, changes in subjective input assumptions can materially affect the fair
value estimate. Accordingly, the weighted average fair values of 2004 and 2005 Special Purpose
Share Options granted under the Special Purpose Share Option Scheme was HKD6.01 and HKD4.00,
respectively. The significant assumptions used and the numbers of options granted are as follows:
2004 Special Purpose
2005 Special Purpose
Share Option
Share Option
HKD11.60
HKD11.60
HKD5.57
HKD8.26
55
%
49
%
2
%
2
%
0.24-1.06
%
0.28-1.54
%
0.30-1.09 years
0.32-2.32 years
HKD6.01
HKD4.00
100,831,432
88,929,468
The volatility measured at the standard deviation of expected share price returns was based on
statistical analysis of daily share prices over the last 2 to 3 years. Expected dividends were
based on historical dividends. Risk-free rate was by reference to the yield of Hong Kong Exchange
Fund Notes with a term similar to the expected option life.
The total incremental fair value of the exchanged options was determined to be RMB21 million
which was measured by reference to the incremental fair value of the options granted under the
Special Purpose Share Option Scheme as of October 15, 2008 (the modification date) over the fair
value of China Netcom options as of October 15, 2008. For the year ended December 31, 2008,
share-based compensation expense of approximately RMB9 million was recorded by the Group as a
result of this modification.
Movements in the number of share options outstanding and their related weighted average
exercise prices are as follows:
2007
2008
Average exercise
Number of
Average exercise
Number of
price
share options
price
share options
in HKD per share
involved
in HKD per share
involved
6.95
314,256,000
7.12
257,279,600
6.83
189,760,900
8.43
(3,420,800
)
6.37
(2,720,334
)
6.03
(53,555,600
)
7.62
(31,246,000
)
7.12
257,279,600
6.95
413,074,166
8.48
92,713,600
7.14
245,359,027
Employee share options exercised for the year ended 31 December 2008 resulted in 31,246,000
shares being issued (2007: 53,555,600 shares), with exercise proceeds of approximately RMB216
million (2007: approximately RMB313 million).
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The options outstanding as of December 31, 2008 had a weighted average remaining contractual
life of 2.47 years (2007: 3.47 years).
Note i:
As all outstanding options granted on July 10, 2002 have been exercised, therefore
no options are expired under this grant.
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Details of share options exercised during 2007 and 2008 are as follows:
For the year ended December 31, 2007:
Weighted average
closing price per
share at respective
days immediately
before date of
exercise of options
Proceeds received
Number of
Grant
Exercise price HKD
HKD
HKD
shares involved
15.42
17.56
34,657,992
2,247,600
15.42
17.62
8,450,160
548,000
6.18
12.96
49,793,496
8,057,200
4.30
12.95
60,057,240
13,966,800
5.92
13.77
170,117,120
28,736,000
323,076,008
53,555,600
For the year ended December 31, 2008:
Weighted average
closing price per
share at respective
days immediately
before date of
exercise of options
Proceeds received
Number of
Grant
Exercise price HKD
HKD
HKD
shares involved
15.42
18.73
63,980,664
4,149,200
15.42
18.38
18,781,560
1,218,000
6.18
15.88
20,443,440
3,308,000
4.30
16.90
8,947,440
2,080,800
5.92
17.81
58,240,960
9,838,000
6.35
17.62
67,640,200
10,652,000
238,034,264
31,246,000
For the year ended December 31, 2008, employee share-based compensation expense recorded for
continuing operations amounted to approximately RMB84 million (2007: approximately RMB170
million).
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33.
DISPOSAL GROUP AND DISCONTINUED OPERATIONS
Discontinued operations
On June 2, 2008 and on June 27, 2008, the Company, CUCL and China Telecom entered into the
Framework Agreement and the Disposal Agreement, respectively, to sell the CDMA business to China
Telecom. The disposal was completed on October 1, 2008 (Note 1). The gain on disposal, net of
corresponding income tax of approximately RMB9.0 billion, amounted to approximately RMB26.1
billion.
The net assets of CDMA business as of the effective date of the disposal of the CDMA
Business were as listed below:
As of
Note
October 1, 2008
(a)
4,612
2,997
373
6
3,958
525
690
808
(444
)
(1,144
)
(4,428
)
(5
)
7,948
37.2(b)
517
184
9,016
26,135
43,800
(13,140
)
(1,148
)
29,512
Note (a):
The balance represented cash and cash equivalents of approximately RMB1,148 million
transferred and RMB3,464 million to be transferred to China Telecom in accordance with the Disposal
Agreement. For details, please refer to Note 37.2(b).
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On January 15, 2007, CNC China, entered into an assets transfer agreement with Netcom Group.
Pursuant to the agreement, CNC China agreed to dispose of its assets and liabilities in relation
to its telecommunications operations in Guangdong and Shanghai Branches. The disposal was
completed on February 28, 2007. The gain on disposal, net of corresponding income tax of
approximately RMB301 million, amounted to approximately RMB626 million.
The net assets of Guangdong and Shanghai Branches as of the completion date are as listed below:
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The results and cash flows of the CDMA business and the Fixed-line business-Guangdong and
Shanghai Branches for the years ended December 31, 2007 and 2008, respectively, are presented as
discontinued operations as follows:
Fixed-line business -
Guangdong and Shanghai
CDMA Business
Branches
Total
For the
For the period
period from
from
For the year
January 1,
January 1,
For the
For the
For the
ended
2008 to
2007 to
year ended
year ended
year ended
December 31,
September
February 28,
December
December
December
2007
30, 2008
2007
31, 2008
31, 2007
31, 2008
31,197
22,330
615
31,812
22,330
(30,042
)
(20,423
)
(618
)
(30,660
)
(20,423
)
1,155
1,907
(3
)
1,152
1,907
(499
)
(469
)
1
(498
)
(469
)
656
1,438
(2
)
654
1,438
35,151
927
927
35,151
(9,016
)
(301
)
(301
)
(9,016
)
26,135
626
626
26,135
656
27,573
624
1,280
27,573
Fixed-line business-
Guangdong and Shanghai
CDMA Business
Branches
Total
For the
For the period
period from
from
For the year
January 1,
January 1,
For the
For the
For the
ended
2008 to
2007 to
year ended
year ended
year ended
December 31,
September
February 28,
December
December
December
2007
30, 2008
2007
31, 2008
31, 2007
31, 2008
837
656
388
1,225
656
(25
)
(23
)
(374
)
(399
)
(23
)
29,512
3,477
3,477
29,512
(25
)
29,489
3,103
3,078
29,489
812
30,145
3,491
4,303
30,145
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34.
DIVIDENDS
At the annual general meeting held on May 16, 2008, the shareholders of the Company approved the
payment of a final dividend of RMB0.20 per ordinary share for the year ended December 31, 2007
totaling approximately RMB2,732 million which has been reflected as a reduction of retained
profits for the year ended December 31, 2008. As of December 31, 2008, such dividends have been
paid by the Company, except for dividends payable of approximately RMB149 million due to Unicom
BVI.
At a meeting held on March 31, 2009, the Board of Directors of the Company proposed the payment
of a final dividend of RMB0.20 per ordinary share to the shareholders for the year ended
December 31, 2008 totaling approximately RMB4,754 million. This proposed dividend has not been
reflected as a dividend payable in the financial statements as of December 31, 2008, but will be
reflected as an appropriation of retained profits in the financial statements for the year
ending December 31, 2009.
2007
(As restated)
2008
2,727
4,754
3,700
6,427
4,754
2,285
2,732
3,600
3,499
5,885
6,231
Note a :
Since the 2008 Business Combination is accounted for as a business combination of
entities under common control, accordingly, the proposed final dividend and dividend paid
are restated to include China Netcom as if it had always been part of the Group.
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35.
EARNINGS PER SHARE
Earnings per share and ADS:
Basic earnings per share for the years ended December 31, 2007 and 2008 were computed by
dividing the income attributable to equity holders by the weighted average number of ordinary
shares outstanding during the years, as adjusted by the number of ordinary shares in issue had
the merger with China Netcom been completed on January 1, 2007.
Diluted earnings per share for the years ended December 31, 2007 and 2008 were computed by
dividing the income attributable to equity holders by the weighted average number of ordinary
shares outstanding during the years, as adjusted by the number of ordinary shares in issue had
the merger with China Netcom been completed on January 1, 2007, after adjusting for the effects
of the dilutive potential ordinary shares. All potential ordinary shares arose from (i) share
options granted under the amended Pre-Global Offering Share Option Scheme; (ii) share options
granted under the amended Share Option Scheme; (iii) share options granted under the Special
Purpose Share Option Scheme; and (iv) the Convertible Bonds (for the year ended December 31,
2007 only). The potential ordinary shares which are not dilutive mainly arose from share options
granted under the amended Pre-Global Offering Share Option Scheme and are excluded from the
weighted average number of ordinary shares for the purpose of computation of diluted earnings
per share.
The following table sets forth the computation of basic and diluted earnings per share:
2007
(As restated)
2008
20,158
6,340
1,279
27,572
21,437
33,912
23,075
23,751
246
190
23,321
23,941
0.87
0.27
0.06
1.16
0.93
1.43
0.86
0.27
0.06
1.15
0.92
1.42
Basic and diluted earnings per ADS have been computed by multiplying the earnings per share by
10, which is the number of shares represented by each ADS.
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36.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets of the Group mainly include cash and cash equivalents, short-term bank
deposits, accounts receivable, amounts due from ultimate holding company, related parties and
domestic carriers. Financial liabilities of the Group mainly include payables and accrued
liabilities, short-term bank loans, short-term commercial paper, corporate bonds, long-term bank
loans and amounts due to ultimate holding company, related parties and domestic carriers.
Cash and cash equivalents and short-term bank deposits denominated in foreign currencies, as
summarized below, have been translated to RMB at the applicable rates quoted by the Peoples
Bank of China as of December 31, 2007 and 2008.
2007
(As restated)
2008
Original
RMB
Original
RMB
currency
equivalent
currency
equivalent
millions
Exchange rate
millions
millions
Exchange rate
millions
552
0.94
518
223
0.88
197
65
7.30
471
134
6.83
914
3
10.67
28
4
9.66
43
247
0.06
16
50
0.08
4
14.58
4
2
9.88
20
1,037
1,178
71
0.94
67
0.88
78
7.30
569
20
6.83
137
636
137
1,673
1,315
The Group did not have and does not believe it will have any difficulties in exchanging its
foreign currency cash into RMB at the exchange rates quoted by the Peoples Bank of China. The
carrying amounts of the Groups cash and cash equivalents, short-term bank deposits, other
current financial assets and liabilities approximated their fair values as of December 31, 2007
and 2008 due to the nature or short maturity of those instruments.
The carrying amounts of receivables and payables which are all subject to normal trade credit
terms approximated their fair value as of balance sheet date.
In connection with the fair value of the Groups non-current portion of long-term bank loans,
please refer to Note 19 (b) for details.
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37.
RELATED PARTY TRANSACTIONS
Unicom Group and Netcom Group are state-owned enterprises directly controlled by the PRC
government. The PRC government is the Companys ultimate controlling party. State-owned
enterprises and their subsidiaries, in addition to Unicom Group and Netcom Group, directly or
indirectly controlled by the PRC government are also considered to be related parties of the
Group. Neither Unicom Group and Netcom Group nor the PRC government publishes financial
statements available for public use.
The PRC government controls a significant portion of the productive assets and entities in the
PRC. The Group provides telecommunications services as part of its retail transactions, thus, is
likely to have extensive transactions with the employees of other state-controlled entities,
including their key management personnel and their close family members. These transactions are
carried out on commercial terms that are consistently applied to all customers.
Management considers other state-owned enterprises, including other telecommunications service
operators, equipment vendors, construction vendors, lessors of assets and state-owned banks in
the PRC, have material transactions with the Group in its ordinary course of business. These
transactions are carried out on terms similar to those obtained by other state-owned parties and
have been reflected in the financial statements.
The Groups telecommunications networks depend, in large part, on interconnection with the
network and on transmission lines leased from other domestic carriers. Management believes that
meaningful information relating to related party transactions has been adequately disclosed
below.
Table of Contents
37.1
Transactions with Unicom Group, Netcom Group and their subsidiaries
(a)
Significant recurring transactions
The following is a summary of significant recurring transactions carried out by the
Group with Unicom Group, Netcom Group and their subsidiaries. In the directors
opinion, these transactions were carried out in the ordinary course of business.
2007
Note
(As restated)
2008
(ii), (iv)
723
808
(iii), (iv)
742
768
(i),
(v)
19
18
(i), (vi)
7
36
(i), (vii)
23
80
(i), (viii)
259
297
(i), (ix)
683
713
(i),
(x)
92
150
(i), (xi)
37
153
(i), (xii)
31
35
(i), (xiii)
15
7
(i), (xiv)
618
549
(i), (xv)
18
20
(i), (xvi)
117
287
(xvii)
1,946
2,603
(xviii)
121
140
(xviii)
477
563
(xix)
1
10
(xix)
636
642
(xix)
11
1
(xx)
668
512
(xxi)
448
558
(xxii)
536
461
(xxiii)
309
306
(xxiv)
130
151
Table of Contents
2007
Note
(As restated)
2008
(ii), (iv)
26
17
(iii), (iv)
17
13
(i), (vii)
3
(i), (viii)
119
89
(i), (ix)
178
111
(i), (x)
23
24
(xxv)
8,382
6,009
(xxvi)
215
234
(i), (xi)
17
46
(i), (xiv)
79
40
(i), (xvi)
1
3
Table of Contents
(i)
On October 26, 2006, CUCL entered into a new agreement 2006
Comprehensive
Services Agreement to continue to carry out related party transactions.
The new agreement was approved by the independent shareholders of the Company
on December 1, 2006, and became effective from January 1, 2007. Upon
completion of the acquisition of Guizhou Business in 2007, the 2006
Comprehensive Services Agreement was amended where necessary so that the
service area of CUCL was extended to include Guizhou province. In addition,
the rights and obligations of Guizhou branch of Unicom Group under the
framework agreement entered into with Guizhou branch of Unicom Huasheng for
the procurement of CDMA mobile handsets on December 19, 2006 were assigned to
and assumed by CUCL.
Pursuant to the ordinary resolution passed at the extraordinary general
meeting held on September 16, 2008, the independent shareholders of the
Company approved the 2006 Comprehensive Services Agreement be amended with
effect from October 15, 2008 to include CNC China as a party (the Second 2006
Comprehensive Services Agreement).
Also, the independent shareholders of the Company approved the following
agreements:
Framework Agreement for Engineering and
Information Technology Services dated August 12, 2008
Engineering and Information Technology Services
Agreement 2008-2010
Domestic Interconnection Settlement Agreement
2008-2010
International Long Distance Voice Services
Settlement Agreement 2008-2010
Framework Agreement for Interconnection
Settlement dated August 12, 2008
(ii)
Interconnection revenues represent the amounts received or
receivable from Unicom Group and Netcom Group for calls from their networks to
the Groups networks.
(iii)
Interconnection charges are for calls made from the Groups
networks to Unicom Group and Netcom Group networks.
(iv)
Pursuant to the Framework Agreement for Interconnection
Settlement dated August 12, 2008 entered between CUCL and Netcom Group, CUCL
and Netcom Group agreed to interconnect the network of Netcom Group on the one
hand and that of CUCL on the other and settle charges in respect of domestic
long distance voice services within their respective service regions and
international long distance voice services.
Interconnection settlement between Unicom Group and Netcom Group networks and
the Groups network are based on standards established from time to time by
the MIIT.
Table of Contents
(v)
Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006
Comprehensive Services Agreement, the Group agreed to provide premises to
Unicom New Guoxin Telecommunications Corporation Limited (Unicom New
Guoxin). The rental amount is based on the lower of depreciation costs and
market price for similar premises in that locality.
(vi)
Pursuant to the agreement entered between the branches of CUCL
and 21 Provinces in Southern China of Netcom Group, revenue for leasing of
transmission line capacity is based on market rates.
(vii)
Pursuant to Framework Agreement for Telecommunications
Facilities Leasing dated August 12, 2008 entered between CUCL and Netcom Group,
the charges payable by CUCL are based on the annual depreciation charges of
such transmission line capacity (not higher than market rates).
(viii)
Pursuant to 2006 Comprehensive Services Agreement and the Second 2006
Comprehensive Services Agreement, the Group shall retain 40% of the actually
received revenue generated from the value-added services provided by New Guoxin
to the Groups subscribers and allocate 60% of such revenue to New Guoxin. The
settlement should be made among branches of the Group and New Guoxin
respectively.
(ix)
Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, New Guoxin provides business
inquiries, tariff inquiries, account maintenance, complaints handling, and
customer interview and subscriber retention services to the Groups customers.
The service fee payable by the Group shall be calculated on the basis of the
customer service costs plus a profit margin, which shall not exceed 10%. The
customer service costs were determined by the actual cost per operator seat and
the number of effective operator seats. In addition, Guangdong has been added
as one of the economically developed metropolises in determining the cost per
operator seat.
(x)
Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, New Guoxin provides subscriber
development services to the Group through telephone or other channels by
utilising its own network, equipment and operators. The agency fee chargeable
to the Group does not exceed the average of agency fees chargeable by any
independent third party agent in the same region.
Table of Contents
(xi)
Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006
Comprehensive Services Agreement, UNISK (Beijing) Information Technology
Corporation Limited (UNISK) and Unicom NewSpace Corporation Limited (Unicom
NewSpace) agreed to provide the cellular subscribers of CUCL with various
types of value-added services through its cellular communication network and
data platform. The Group retains a portion of the revenue generated from the
value-added services provided to the Groups subscribers (and actually
received by the Group) and allocates a portion of such fees to UNISK and
Unicom NewSpace for settlement, on the condition that such proportion
allocated to UNISK and Unicom NewSpace does not exceed the average proportion
allocated to independent value-added telecommunications content providers who
provide value-added telecommunications content to the Group in the same
region. The percentage of revenue to be allocated to UNISK and Unicom NewSpace
by the Group varies depending on the types of value-added service provided to
the Group.
(xii)
Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, CUCL and Unicom Group agreed to
mutually lease premises, equipment and facilities from each other. Rentals are
based on the lower of depreciation costs and market rates.
(xiii)
Pursuant to 2006 Comprehensive Services Agreement and the Second 2006
Comprehensive Services Agreement, charges for international gateway services
represent the amounts paid or payable to Unicom Group for international gateway
services provided for the Groups international long distance networks. The
charge for this service is based on the cost of operation and maintenance of
the international gateway facilities incurred by Unicom Group, including
depreciation, together with a margin of 10% over cost.
(xiv)
Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, the Group agreed to purchase
telephone cards from Unicom Group (to be imported by Unicom Xingye Science and
Technology Trade Company Limited (Unicom Xingye) at cost plus a margin to be
agreed from time to time, but not to exceed 20%, and subject to appropriate
volume discounts. Prices and volumes are subject to review by the parties on an
annual basis.
(xv)
Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, Unicom Import and Export Company
Limited (Unicom I/E Co) agreed to provide equipment procurement services to
the Group. Unicom I/E Co. charges the Group 0.55% (for contracts up to an
amount of USD30 million (inclusive)) and 0.35% (for contracts with an amount of
more than USD30 million) of the value of imported equipment, and 0.25% (for
contracts up to an amount of RMB200 million (inclusive)) and 0.15% (for
contracts with an amount of more than RMB200 million) of the value of domestic
equipment for such services.
(xvi)
Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006
Comprehensive Services Agreement, China Information Technology Designing &
Consulting Institute (CITDCI) agreed to provide engineering design and
technical services to the Group based on its demands and requirements. The
service fee standards for the engineering design and technical services are
determined based on standards promulgated by the relevant government
authorities. In addition, such prices should not be higher than those adopted
by an independent third party providing similar services in the same industry.
Table of Contents
(xvii)
Pursuant to Framework Agreement for Engineering and Information Technology
Services dated August 12, 2008 entered between CUCL and Netcom Group and
Engineering and Information Technology Services Agreement 2008-2010 entered
between CNC China and Netcom Group, the charges payable by CUCL and CNC China
for the above services are determined with reference to market rates and are
settled when the relevant services are provided.
(xviii)
Pursuant to Master Sharing Agreement 2008-2010 entered between CNC China and
Netcom Group, expenses associated with common corporate services is allocated
between CNC China and Netcom Group based on total assets as appropriate.
(xix)
Pursuant to Property Leasing Agreement 2008-2010 entered
between CNC China and Netcom Group and the Framework Agreement for Property
Leasing dated August 12, 2008 entered between CUCL and Netcom Group, the
charges payable by CNC China and CUCL are based on market rates or the
depreciation charges and taxes (only not higher than the market rates) in
respect of each property. The charges are subject to review every year.
(xx)
Pursuant to Materials Procurement Agreement 2008-2010 entered
between CNC China and Netcom Group, the charges payable by CNC China to Netcom
Group are based on market rates or cost-plus basis.
(xxi)
Pursuant to Ancillary Telecommunications Services Agreement
2008-2010
entered between CNC China and Netcom Group, and the Framework Agreement for
Ancillary Telecommunications Services dated August 12, 2008 entered between
CUCL and Netcom Group, Netcom Group agreed to provide services including
certain telecommunications pre-sale, on-sale and after-sale services,
certain sales agency services, the printing and delivery of invoice
services, the maintenance of certain air-conditioning, fire alarm equipment
and telephone booths and other customer services. The charges are based on
market rates and settled as and when the relevant services are provided.
(xxii)
Pursuant to Support Services Agreement 2008-2010 entered between CNC China
and Netcom Group and the Framework Agreement for Support Services dated August
12, 2008 entered between CUCL and Netcom Group, Netcom Group agreed to provide
services including equipment leasing services, motor vehicles services, safety
and security services, conference services, basic construction agency services,
equipment maintenance services, employee training services, advertising
services, printing services and other support services. The charges are based
on market rates and settled as and when the relevant services are provided.
(xxiii)
Pursuant to Telecommunications Facilities Leasing Agreement 2008-2010
entered between CNC China and Netcom Group and the Framework Agreement for
Telecommunications Facilities Leasing dated August 12, 2008 entered between
CUCL and Netcom Group, CNC China agreed to lease the international
telecommunications facilities and inter-provincial transmission optic fibers
from Netcom Group. The lease payment is based on the depreciation charge of the
leased assets.
Table of Contents
(xxiv)
Pursuant to Information and Communications Technology Agreement 2008-2010
entered between System Integration Corporation and Netcom Group, System
Integration Corporation, agreed to provide information communications
technology services to Netcom Group and also to subcontract services ancillary
to the provision of information communications technology services, namely, the
system installation and configuration services, to the subsidiaries and
branches of Netcom Group in Netcom Groups southern service region in the PRC.
The charges payable by Netcom Group are based on market value.
(xxv)
On October 26, 2006, CUCL entered into the new agreement 2006
CDMA
Lease Agreement with Unicom Group and Unicom New Horizon to continue
to carry out related party transactions. The new agreement was approved by
the independent shareholders of the Company on December 1, 2006, and became
effective from January 1, 2007. As disclosed in the announcement dated July
28, 2008, the Company, CUCL and China Telecom agreed on the CDMA Business
disposal and the Company agreed to waive the CDMA network purchase option
and terminate the 2006 CDMA Lease Agreement, in each case with effect from
the completion of the CDMA Business disposal. During the Companys
extraordinary general meeting of shareholders held on September 16, 2008,
the Companys independent shareholders approved the waiver of the CDMA
network purchase option and the termination of the 2006 CDMA Lease
Agreement. Upon the completion of the CDMA Business disposal on October 1,
2008, the 2006 CDMA Lease Agreement was terminated.
(xxvi)
Pursuant to 2006 CDMA Lease Agreement, the constructed capacity related costs
in connection with the CDMA network capacity used by the Group, including the
rentals for the exchange centers and the base stations, water and electricity
charges, heating charges and fuel charges for the relevant equipment etc., as
well as the maintenance costs of a non-capital nature, are charged to the
Group. The proportion of the constructed capacity related costs to be borne by
the Group is calculated on a monthly basis by reference to the actual number of
cumulative CDMA subscribers of the Group at the end of the month prior to the
occurrence of the costs divided by 90%, as a percentage of the total capacity
available on the CDMA network.
(xxvii)
Unicom Group is the registered proprietor of the Unicom trademark in
English and the trademark bearing the Unicom logo, which is registered at
the PRC State Trademark Bureau. Pursuant to an exclusive PRC trademark licence
agreement between Unicom Group and the Group, the Group is granted the right
to use these trademarks on a royalty free and renewal basis.
(b)
Other significant transaction
In 2008, the Company completed the merger with China Netcom by way of a scheme of
arrangement. For details, please refer to Note 1.
Table of Contents
(c)
Amounts due from and to Unicom Group, Netcom Group and their
subsidiaries
As of December 31, 2007, an amount due to Netcom Group of RMB5,880 million
represented the deferred payment arising from the Acquisition of New Horizon which
was unsecured, interest bearing at 5.265% per annum with final maturity through June
30, 2010. In 2008, the Group fully repaid the amount. The deferred payment as of
December 31, 2007 is analyzed as follows:
2007
2008
1,960
1,960
1,960
5,880
In addition, the balance as of December 31, 2007 included the payables to related
parties of approximately RMB2,249 million with interest rates ranging from 3.0% to
3.8% per annum, which was unsecured and repayable within 3 years. In 2008, the Group
fully repaid the amount.
Apart from these, amounts due from and to Unicom Group, Netcom Group and their
subsidiaries are unsecured, interest free, repayable on demand/on contract terms and
arise in the ordinary course of business in respect of the transactions with Unicom
Group, Netcom Group and their subsidiaries as described in (a) above.
37.2
Domestic carriers
(a)
Significant recurring transactions with domestic carriers
The following is a summary of significant transactions with domestic carriers in the
ordinary course of business:
2007
Note
(As restated)
2008
(i
)
11,000
11,816
(i
)
10,367
10,819
(ii)
539
500
(ii)
350
269
(i)
The interconnection revenue and charges mainly represent the
amounts due from or to domestic carriers for telephone calls made between the
Groups networks and the network of domestic carriers. The interconnection
settlements are calculated in accordance with interconnection agreements
reached between the branches of the Group and domestic carriers on a provincial
basis. The terms of these agreements are set in accordance with the standard
settlement arrangement stipulated by the MIIT.
(ii)
Leased line charges are paid or payable to domestic carriers by
the Group for the provision of transmission lines. At the same time, the Group
leases transmission lines to domestic carriers in return for leased line rental
income. The charges are calculated at a fixed charge per line, depending on the
number of lines being used by the Group and domestic carriers.
Table of Contents
(b)
Disposal of the Groups CDMA business to China Telecom
In 2008, the Company completed the disposal of the CDMA Business to China Telecom.
For details, please refer to Note 1 and Note 33.
Pursuant to the Disposal Agreement, the Group is committed to providing certain
supporting services to China Telecom at no consideration during the transitional
period. Such services include providing the use of certain telecommunications
equipment, properties and information technology services in certain regions. The
value of such services was estimated by the Group based on the costs of the
underlying equipment or properties plus a margin. A portion of the consideration for
the disposal of the CDMA Business equal to the estimated value of such services has
been deferred and will be recognized over the expected service period.
In addition, pursuant to the Disposal Agreement, upon the completion of the CDMA
Business disposal, CUCL and China Telecom would enter into agreements with respect
to the swapping and operation of certain jointly used network assets in accordance
with the terms set out in the Disposal Agreement. As of June 18,
2009, the
negotiation of the agreements is in progress. Based on the latest negotiations, the
Group estimated that the swapping and operation of these jointly used network assets
would not have a significant impact on the consolidated financial statements.
As of December 31, 2008, the balances due from/to China Telecom in relation to the
disposal of the CDMA Business were as follows:
13,140
(768
)
(3,464
)
Table of Contents
(c)
Amounts due from and to domestic carriers
2007
(As restated)
2008
894
914
(78
)
(49
)
816
865
510
538
(a)
Transactions with other major state-owned financial institutions in the
PRC
The following is a summary of significant transactions with other major state-owned
financial institutions in the PRC in the ordinary course of business:
2007
(As restated)
2008
278
238
2,250
2,008
63,125
50,614
20,000
10,000
2,559
2,888
2,000
5,000
81,685
51,184
10,000
20,000
9,583
20,524
Table of Contents
(b)
Amounts due from and to other major state-owned financial institutions in the PRC
The balances with other major state-owned financial institutions in the PRC in
various line items of the consolidated balance sheet are listed as follows:
2007
(As restated)
2008
619
238
11,484
8,672
14,625
997
2,000
7,000
20,000
10,000
7,411
1,216
38.
CONTINGENCIES AND COMMITMENTS
38.1
Capital commitments
As of December 31, 2007 and 2008, the Group had capital commitments, mainly in relation
to the construction of telecommunications networks, as follows:
2007
2008
(As restated)
Land and
Total
buildings
Equipment
Total
3,802
1,162
4,914
6,076
2,508
846
6,092
6,938
6,310
2,008
11,006
13,014
As of December 31, 2008, approximately RMB159 million (2007: approximately RMB153
million) of capital commitment outstanding was denominated in US dollars, equivalent to
approximately USD23 million (2007: approximately USD21 million). As of December 31,
2007, the capital commitments were mainly related to continuing operations.
Table of Contents
38.2
Operating lease commitments
As of December 31, 2007 and 2008, the Group had total future aggregate minimum lease
payments under non-cancellable operating leases as follows:
2007
2008
(As restated)
Land and
Total
buildings
Equipment
Total
9,096
1,438
390
1,828
3,287
3,876
695
4,571
2,031
1,764
193
1,957
14,414
7,078
1,278
8,356
As of December 31, 2007, the operating lease commitments included the leasing fees for
the CDMA network capacity based on the 2006 CDMA Lease Agreement of approximately
RMB7,543 million relating to discontinued operations. During the Companys Extraordinary
General Meeting of shareholders held on September 16, 2008, the Companys independent
shareholders approved the termination of the 2006 CDMA Lease Agreement. Upon the
completion of the CDMA Business disposal on October 1, 2008, the 2006 CDMA Lease
Agreement was terminated (see Note 37.1(a) (xxv)).
38.3
Contingent liabilities
As aforementioned in Note 26, the tariffs for the services provided by the Group
are subject to regulations by various government authorities. In 2008, the NDRC
investigated the compliance with tariffs regulations of several branches of CUCL and CNC
China. Based on managements assessment and preliminary discussions with MIIT and NDRC,
management considered that the Group had complied with the regulations issued by the
relevant government authorities for all periods covered by the investigation, and the
likelihood of a cash outflow as a result of the investigation is remote. Accordingly, no
contingent liabilities in relation to the investigation were recorded as of December 31,
2008.
Table of Contents
39.
EVENTS AFTER BALANCE SHEET DATE
(a)
Acquisitions of certain assets and business from Unicom Group and Netcom Group
On December 16, 2008, CUCL agreed to acquire from Unicom Group and Netcom Group (i) the
fixed-line business, but not the underlying property, plant and equipment, across the 21
provinces in Southern China and the local access telephone business and related assets in
Tianjin Municipality operated by Netcom Group and Unicom Group and/or their respective
subsidiaries and branches, (ii) the backbone transmission assets in Northern China owned by
Netcom Group and/or its subsidiaries (Target Assets), (iii) a 100% equity interest in
Unicom Xingye owned by Unicom Group, (iv) a 100% equity interest in CITDCI owned by Unicom
Group; and (v) a 100% equity interest in New Guoxin owned by Unicom Group at a consideration
of approximately RMB6.43 billion, subject to certain adjustments. The business and assets
described in (i), (iii), (iv) and (v) above are hereinafter collectively referred to as the
Target Business and the acquisition of the Target Business is referred to as 2009
Business Combination.
The aforementioned acquisitions of assets and businesses were approved by the independent
shareholders of the Company in an extraordinary general meeting held on January 14, 2009. As
all of the conditions to the acquisitions were satisfied (or if applicable, waived), the
2009 Business Combination and the acquisitions of the Target Assets were completed on
January 31, 2009.
(b)
Leasing of telecommunications networks in Southern China from Unicom New Horizon
In connection with the 2009 Business Combination, on December 16, 2008, CUCL, Unicom Group,
Netcom Group and Unicom New Horizon entered into an agreement (the Network Lease
Agreement) in relation to the lease (the Lease) of the telecommunications networks of 21
provinces in Southern China by CUCL from Unicom New Horizon on an exclusive basis
immediately following and subject to the completion of the 2009 Business Combination. Under
the Network Lease Agreement, CUCL shall pay annual leasing fees of RMB 2.0 billion and
RMB2.2 billion for the two financial years ending December 31, 2009 and December 31, 2010,
respectively. The initial term of the Lease is two years effective from January 1, 2009 and
the Lease is renewable at the option of CUCL with at least two months prior notice.
Moreover, in connection with the Lease, Unicom New Horizon has granted to CUCL an option to
purchase the telecommunications networks in Southern China.
(c)
Granting of the license to operate 3G digital cellular business with WCDMA technology
On January 7, 2009, MIIT has granted approval for Unicom Group to license CUCL to operate 3G
digital cellular business with WCDMA technology nationwide in China.
(d)
Proposed dividend
After the balance sheet date, the Board of Directors proposed a final dividend for 2008. For
details, see Note 34.
(e)
The issuance of formal notice regarding the definition of PRC
TRE
On April 22, 2009, the PRC State Administration of
Taxation issued a formal notice
regarding the determination of PRC TRE status and provided
implementation guidance in withholding income tax for non-TRE
enterprise shareholders. For details, please refer to
Note 9(b).
Table of Contents
40.
COMPARATIVE FIGURES
As stated in Note 2.2, 2007 comparative figures have been restated to reflect the effects
of the 2008 Business Combination under common control, which is accounted for using merger
accounting in accordance with HKFRS. In addition, the results and cash flows of the CDMA
business segment have been presented as discontinued operations and accordingly, the 2007
comparative figures of the consolidated statement of income and statement of cash flows had
been reclassified in accordance with HKFRS. For comparative purposes, certain comparative
figures have also been reclassified to conform with current year presentation to align the
financial statements presentation of the Group and China Netcom and the effect of the
change in accounting policies under HKFRS (Please refer to Note 2.2 for details).
41.
APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the Board of
Directors on June 18, 2009.
1. | The regulations in Table A in the First Schedule to the Ordinance shall not apply to the Company. |
2. | (a) | In these Articles save where the context otherwise requires: | |||
associate in relation to any Director, has the meaning ascribed to it under the Listing Rules; | |||||
Auditors means the Auditors of the Company for the time being; | |||||
Chairman means the Chairman presiding at any meeting of members or the Board; | |||||
Company means the above-named Company; | |||||
Board and Directors means the directors for the time being of the Company or the Directors present at a duly convened meeting of directors at which a quorum is present; | |||||
call includes any instalment of a call and, in the application of provisions of these Articles to forfeiture of shares, a sum which, by the terms of issue of a share, is payable at a fixed time either in respect of the nominal value of the share or by way of premium; | |||||
capital means the share capital from time to time of the Company; | |||||
Clearing House shall mean a recognised clearing house within the meaning of Schedule 1 to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong); | |||||
Dividend includes distributions in specie or in kind, capital distributions and capitalisation issues; | |||||
Dollars & $ means dollars in the lawful currency of Hong Kong; | |||||
Hong Kong means the Hong Kong Special Administrative Region of the Peoples Republic of China; |
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited; | |||||
month means calendar month; | |||||
Office means the registered office of the Company for the time being; | |||||
paid up includes credited as paid up; | |||||
Ordinance means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), and includes every other ordinance incorporated therewith or substituted therefor, and in the case of any such substitution the references in these Articles to the provisions of the Ordinance shall be read as references to the provisions substituted therefor in the new ordinance; | |||||
Register means the register of members of the Company kept pursuant to the Ordinance and includes any branch register kept pursuant to the Ordinance; | |||||
Seal means the common seal of the Company or any official seal that the Company may have as permitted by the Ordinance; | |||||
Secretary means the person or persons appointed for the time being to perform for the Company the duties of a secretary; | |||||
share means a share in the capital of the Company and includes stock except where a distinction between stock and shares is expressed or implied; | |||||
Stock Exchange means The Stock Exchange of Hong Kong Limited; | |||||
these Articles means these Articles of Association in their present form or as altered from time to time; | |||||
in writing and written shall include printing, lithograph, xerography, photography or other modes of representing or reproducing words in a permanent visible form or, to the extent permitted by and in accordance with the Ordinance and any other applicable laws, rules and regulations, any visible substitute for writing (including a communication sent by electronic transmission in any form through any medium), or modes of representing or reproducing words partly in one visible form and partly in another visible form. | |||||
(b) | In these Articles, if not inconsistent with the subject or context, words importing the singular number only shall include the plural number and vice versa, words importing any gender shall include all other genders and references to persons shall include corporations (acting, where applicable, by their duly authorised representatives). | ||||
(c) | Subject as aforesaid, any words defined in the Ordinance shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. |
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(d) | The headings and any marginal notes are inserted for convenience only and shall not affect the construction of these Articles. |
3. | The Office shall be at such place in Hong Kong as the Directors shall from time to time appoint. |
4. | Shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the Company and with a special, or without any right of voting. |
6(1)
9 |
||
5. | Without prejudice to any special rights, privileges or restrictions for the time being attached to any issued shares, any unissued or forfeited shares may be issued or re-issued upon such terms and conditions, and with such rights, privileges and restrictions attached thereto, whether in regard to dividends, voting, repayment or redemption of share capital, or otherwise, as the Company may, subject to the Ordinance, from time to time determine or, in the absence of any such determination, as the Directors shall determine. | |||
6. | The Board may, subject to the approval by the shareholders in general meeting, issue warrants to subscribe for any class of shares or securities of the Company on such terms as the Board may from time to time determine. Where warrants are issued to bearer, no certificate thereof shall be issued to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the original certificate thereof has been destroyed and the Company has received an indemnity in such form as the Board shall think fit with regard to the issue of any such replacement certificate. |
7. | Save as provided by contract or the Ordinance or these Articles to the contrary, all unissued shares shall be at the disposal of the Directors who may allot, grant options over or otherwise deal with or dispose of the same to such persons, at such times, for such consideration and generally upon such terms and conditions as they shall in their absolute discretion think fit, provided that no shares of any class shall be issued at a discount except in accordance with section 50 of the Ordinance. | 2(2) | ||
8. | The Company may make arrangements on the issue of shares for a difference between the holders of such shares in the amount of calls to be paid and the time of payment of such calls. | |||
9. | If by the conditions of allotment of any shares the whole or part of the issue price thereof shall be payable by instalments, every such instalment shall, when due, be paid to the Company by the person who for the time being and from time to time shall be the registered holder of the shares, or his legal personal representative. | |||
10. | Subject to the provisions of section 49 of the Ordinance, any preference share may, with the sanction of a special resolution, be issued on the terms that it is, or at the option of the Company is liable, to be redeemed. | |||
11. | Subject to the provisions of these Articles, except as required by law or ordered by a court of competent jurisdiction, no person shall be recognised by the Company as holding any share upon any trust, and except as aforesaid, the Company shall not be bound by or required in any way to recognise any contingent, future, partial or |
Page 3
equitable interest in any share or in any fractional part of a share or any other right in respect of any share or any other claim to or in respect of any such share on the part of any person (even when having notice thereof) except an absolute right to the entirety thereof in the registered holder. |
12. | The Company may in connection with the issue of any shares exercise all powers of paying interest out of capital and of paying commission and brokerage conferred or permitted by the Ordinance. | |||
13. | No person shall become a member until his name shall have been entered into the Register. | 1(1) |
13A. | Whenever any fractions arise as a result of an issue of shares by the Company, the Board may, on behalf of the members, deal with the fractional shares in such manner as it thinks fit. In particular, without limitation, the Board may sell the fractional share to which any members would otherwise become entitled to any person and may retain the net proceeds of sale for the benefit of the Company or distribute the net proceeds of sale in due proportion among those members so entitled. For this purpose, the Board may authorise any person to execute and deliver as transferor a form of transfer or other instrument or instruction of transfer of the fractional shares to the purchaser thereof, who shall not be bound to see to the application of the purchase money. |
14. | Where two or more persons are registered as the holders of any share they shall be deemed to hold the same as joint tenants with benefit of survivorship, subject to the following provisions: |
(a) | the Company shall not be bound to register more than four persons as the holders of any shares except in the case of the legal personal representatives of a deceased member; | 1(3) | |||
(b) | the joint holders of any shares shall be liable severally as well as jointly in respect of all payments which ought to be made in respect of such shares; | ||||
(c) | on the death of any one of such joint holders the survivor or survivors shall be the only person or persons recognised by the Company as having any title to such shares, but the Directors may require such evidence of death as they may deem fit; | ||||
(d) | any one of such joint holders may give effectual receipts for any dividend, bonus or return of capital payable to such joint holders; and | ||||
(e) | the Company shall be at liberty to treat the person whose name stands first in the Register as one of the joint holders of any shares as solely entitled to delivery of the certificate relating to such shares, or to receive notices from the Company, or to attend or vote at general meetings of the Company, and any notice given to such person shall be deemed notice to all the joint holders; but any one of such joint holders may be appointed the proxy of the persons entitled to vote on behalf of such joint holders, and as such proxy to attend and vote at general meetings of the Company, but if more than one of such |
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joint holders be present at any meeting personally or by proxy that one so present whose name stands first in the Register in respect of such shares shall alone be entitled to vote in respect thereof. |
15. | Every person whose name is entered as a member in the Register shall be entitled without payment to receive within two months after allotment or lodgment of an instrument of transfer duly stamped, or within such other period as the conditions of issue shall provide, one certificate for all his shares of any particular class, or if he shall so request, upon payment of a fee (not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit) for every certificate after the first, as the Directors shall from time to time determine, such number of certificates for shares in Stock Exchange board lots or multiples thereof as he shall request and one for the balance (if any) of the shares in question, provided that in the event of a member transferring part of the shares represented by a certificate in his name a new certificate in respect of the balance thereof shall be issued in his name without payment and, in the case of a share or shares held jointly by several persons the Company shall not be bound to issue a certificate or certificates to each such person, and the issue and delivery of a certificate or certificates to one of several joint holders shall be sufficient delivery to all such holders. | 1(1) | ||
16. | Every share certificate shall be issued under the Seal (which for this purpose may be any official seal as permitted by section 73A of the Ordinance) and shall specify the number and class of shares and, if required, the distinctive numbers thereof, to which the certificate relates, and the amount paid up thereon and may otherwise be in such form as the Board may from time to time determine. If at any time the share capital of the Company is divided into different classes of shares, every share certificate issued at that time shall comply with section 57A of the Ordinance, and no certificate shall be issued in respect of more than one class of shares. | 2(1) |
17. | Subject to section 71A of the Ordinance, if any share certificate shall be worn out, defaced, destroyed or lost, it may be replaced on payment of such fee, if any (not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit), on such evidence being produced as the Directors shall require, and in case of wearing out or defacement, on delivery up of the old certificate, and in case of destruction or loss, on the execution of such indemnity (if any), as the Directors may require. In case of destruction or loss, the person to whom such replacement certificate is given shall also bear and pay to the Company all expenses incidental to the investigation by the Company of the evidence of such destruction or loss and of the production of such indemnity. |
18. | (a) | The Directors may from time to time make calls upon the members in respect of all moneys unpaid on their shares whether on account of the nominal value of the shares or by way of premium but subject always to the terms of issue of such shares, and any such call may be made payable by instalments. |
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(b) | Each member shall, subject to receiving at least fourteen days notice specifying the time or times and place of payment, pay to the Company the amount called on his shares and at the time or times and place so specified. The non-receipt of a notice of any call by, or the accidental omission to give notice of a call to, any of the members shall not invalidate the call. |
19. | A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed. A call may be revoked, varied or postponed as to all or any of the members liable therefor as the Directors may determine. A person on whom a call is made will remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect whereof the call was made. | |||
20. | If any part of a call is not paid before or on the day appointed for payment thereof, the person from whom the payment is due shall be liable to pay all costs, charges and expenses that the Company may have incurred by reason of such non-payment together with interest on the outstanding part thereof at such rate as the Directors shall determine (not exceeding twenty per cent. per annum) from the day appointed for the payment of such call or instalment to the time of discharge thereof in full; but the Directors may, if they shall think fit, waive the payment of such costs, charges, expenses or interest or any part thereof. | |||
21. | If, by the terms of the issue of any shares or otherwise, any amount is made payable upon allotment or at any fixed time, whether on account of the nominal amount of the shares or by way of premium, every such amount shall be payable as if it were a call duly made and payable on the date on which by the terms of issue the same becomes payable; and all the provisions hereof with respect to the payment of calls and interest thereon, or to the forfeiture of shares for non-payment of calls shall apply to every such amount and the shares in respect of which it is payable in the case of non-payment thereof. | |||
22. | The Directors may, if they shall think fit, receive from any member willing to advance the same (either in money or moneys worth) all or any part of the moneys uncalled and unpaid or instalments payable upon any shares held by him; and upon all or any of the moneys so paid in advance the Directors may (until the same would, but for such payment in advance, become presently payable) pay interest at such rate as may be agreed upon between the member paying the moneys in advance and the Directors (not exceeding twenty per cent. per annum). But a payment in advance of a call shall not entitle the shareholder to receive any dividend or to exercise any other rights or privileges as a shareholder in respect of the share or the due portion of the shares upon which payment has been advanced by such shareholder before it is called. The Directors may also at any time repay the amount so advanced upon giving to such member one months notice in writing unless before the expiration of such notice the amount so advanced shall have been called up on the shares in respect of which it was advanced. | 3(1) |
23. | On the trial or hearing of any action for the recovery of any money due for any call, it shall be sufficient to prove that the name of the member sued is entered in the Register as the holder, or one of the holders, of the shares in respect of which such money is due; that the resolution making the call is duly recorded in the minute book of the Company; and that notice of such call was duly given to the member sued in pursuance of these Articles, and it shall not be necessary to prove the appointment of the Directors who made such call, nor any other matter whatsoever, |
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but the proof of the matters aforesaid shall be conclusive evidence that the money is due. |
24. | No member shall, unless the Directors otherwise determine, be entitled to receive any dividend or bonus, or to receive notice of or to be present or vote at any general meeting, either personally or (save as proxy for another member) by proxy, or to exercise any privileges as a member, or be reckoned in a quorum, until he shall have paid all calls or other sums for the time being due and payable on every share held by him, whether alone or jointly with any other person, together with interest and expenses (if any). |
25. | If any member fails to pay in full any call or any instalment of a call on the day appointed for payment thereof, the Directors may at any time thereafter, during such time as any part of the call remains unpaid without prejudice to the provisions of Article 24, serve a notice on him requiring him to pay so much of the call as is unpaid together with interest accrued and any expenses incurred by reason of such non-payment. | |||
26. | The notice shall name a further day (not being less than fourteen days from the date of the notice) on or before which such call or part thereof and all interest accrued and expenses incurred by reason of such non-payment are to be paid, and it shall also name the place where payment is to be made, such place being either the Office, or some other place at which calls of the Company are usually made payable. The notice shall also state that, in the event of non-payment at or before the time and at the place appointed, the shares in respect of which such call is payable will be liable to forfeiture. | |||
27. | If the requirements with regard to payment of any such notice as aforesaid be not complied with, any shares in respect of which such notice has been given may, at any time thereafter and before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect, and any such forfeiture shall extend to all dividends and bonuses declared in respect of the shares so forfeited but not payable until after such forfeiture. The Directors may accept surrender of any shares liable to be forfeited hereunder and in such cases references in the Articles to forfeiture shall include surrender. | |||
28. | Any shares so forfeited shall be deemed for the purposes of this Article to be the property of the Company and may be sold, re-allotted or otherwise disposed of either subject to or discharged from all calls made prior to the forfeiture, to any person, upon such terms as to subscription price and otherwise and in such manner and at such time or times as the Directors think fit. For the purpose of giving effect to any such sale or other disposition the Directors may authorise the transfer of the shares so sold or otherwise disposed of to the purchaser thereof or any other person becoming entitled thereto. The Directors shall account to the person whose shares have been forfeited with the balance (if any) of monies received by the Company in respect of those shares after deduction of expenses of forfeiture, sale or disposal of the shares and any amount due to the Company in respect of the shares. | |||
29. | The Directors may, at any time before any shares so forfeited shall have been sold, re-allotted or otherwise disposed of, annul the forfeiture thereof upon such conditions as they think fit or permit the share forfeited to be redeemed upon the |
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terms of payment of all calls and interest due thereon and all expenses incurred in respect of the share, and upon such further terms (if any) it thinks fit. |
30. | Any person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall notwithstanding the forfeiture be and remain liable to pay to the Company all moneys which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with interest thereon from the date of forfeiture until payment at such rate as the Directors may prescribe (not exceeding twenty per cent. per annum), and the Directors may enforce the payment of such moneys or any part thereof and without any deduction or allowance for the value of the shares at the date of forfeiture, but his liability shall cease if and when the Company shall have received payment in full of all such moneys in respect of the shares. For the purposes of this Article any sum which, by the terms of issue of a share payable thereon at a fixed time which is subsequent to the date of forfeiture, whether on account of the nominal value of the share or by way of premium, shall notwithstanding that that time has not yet arrived be deemed to be payable at the date of forfeiture, and the same shall become due and payable immediately upon the forfeiture, but interest thereon shall only be payable in respect of any period between the said fixed time and the date of actual payment. | |||
31. | When any shares have been forfeited, notice of the resolution shall be given to the member in whose name it stood immediately prior to the forfeiture and an entry shall be made in the Register recording the forfeiture and the date thereof but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice or make any such entry, and so soon as the shares so forfeited have been sold or otherwise disposed of an entry shall also be made of the manner and date of the sale or disposal thereof. |
32. | The Company shall have a first and paramount lien on every share (not being a fully paid-up share) for all moneys outstanding in respect of such share whether presently payable or not, and the Company shall also have a first and paramount lien on every share (other than fully paid-up shares) standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice has been given to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have already arrived or not, and notwithstanding that the same are joint debts or liabilities of such member or his estate and any other person, whether a member or not. The Companys lien on a share shall extend to all dividends payable thereon. The Directors may at any time either generally or in any particular case waive any lien that has arisen, or declare any share to be wholly or in part exempt from the provisions of this Article. | 1(2) | ||
33. | The Company may sell in such manner as the Directors think fit any share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable or the liability or engagement in respect of such lien exists is liable to be presently fulfilled or discharged, nor until the expiration of fourteen days after a notice in writing stating and demanding payment of the sum presently payable and giving notice of intention to sell in default shall have been given to the holder for the time being of the share or the person entitled |
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thereto by reason of his death, bankruptcy or winding-up or otherwise by operation of law or court order. |
34. | The net proceeds of such sale after payment of the costs of such sale shall be applied in or towards payment or satisfaction of the debts or liabilities in respect whereof the lien exists so far as the same are presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the shares prior to the sale) be paid to the person entitled to the shares at the time of the sale. For giving effect to any such sale the Directors may authorise some person to transfer the shares so sold to the purchaser thereof and may enter the purchasers name in the Register as holder of the shares, and the purchaser shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. | |||
35. | A statutory declaration in writing that the declarant is a Director or the Secretary of the Company and that a share has been duly forfeited or surrendered or sold on a date stated in the declaration shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. Such declaration and the receipt of the Company for the consideration (if any) given for the share on the sale, re-allocation or disposal thereof together with the share certificate delivered to a purchaser or allottee thereof shall (subject to the execution of a transfer if the same be required) constitute a good title to the share and the person to whom the share is sold, re-allotted or disposed of shall be registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, surrender, sale, re-allotment or disposal of the share. |
36. | The instrument of transfer of any shares in the Company shall be in writing in the usual common form or in such other form as the Board may accept and may be under hand only or, if the transferor or transferee is a Clearing House (or its nominee), by hand or by machine imprinted signature or by such other manner of execution as the Board may approve from time to time and shall be executed by or on behalf of the transferor and by or on behalf of the transferee. The transferor shall remain the holder of the shares concerned until the name of the transferee is entered in the Register in respect thereof. Nothing in these Articles shall preclude the Board from recognising a renunciation of the allotment or provisional allotment of any share by the allottee in favour of some other person. | |||
37. | Every instrument of transfer shall be lodged at the Office for registration (or at such other place the Board may appoint for such purpose) accompanied by the certificate relating to the shares to be transferred and such other evidence as the Directors may require in relation thereto. All instruments of transfer which shall be registered shall be retained by the Company, but save where fraud is suspected any instrument of transfer which the Directors may decline to register shall, on demand, be returned to the person depositing the same. | 1(1) | ||
38. | There shall be paid to the Company in respect of the registration of a transfer and of any Grant of Probate or Letters of Administration, Certificate of Marriage or Death, Power of Attorney or other document relating to or affecting the title to any share or for making of any entry in the Register affecting the title to any share such fee (if any) as the Directors may from time to time require or prescribe (but not exceeding HK$2.50 or such greater sum as the Stock Exchange may from time to time permit). | 1(1) |
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39. | The registration of transfers may be suspended at such times and for such periods as the Directors may, in accordance with section 99 of the Ordinance, from time to time determine and either generally or in respect of any class of shares. |
1(2) |
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40. | The Directors may, subject to section 69 of the Ordinance, at any time in their absolute discretion and without assigning any reason therefor decline to register any transfer of any share (not being a fully paid-up share). If the Directors refuse to register a transfer they shall, within two months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal. | |||
41. | The Directors may also decline to register any transfer unless: |
(a) | the instrument of transfer is in respect of only one class of share; | ||||
(b) | in the case of a transfer to joint holders, the number of transferees does not exceed four; | 1(3) | |||
(c) | the shares concerned are free of any lien in favour of the Company; | ||||
(d) | the instrument of transfer is properly stamped; | ||||
(e) | such other conditions as the Directors may from time to time impose for the purpose of guarding against losses arising from forgery are satisfied; | ||||
(f) | a fee not exceeding the maximum fee prescribed or permitted from time to time by the Stock Exchange is paid to the Company in respect thereof; | 1(1) | |||
(g) | the instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer. |
42. | No transfer may be made to an infant or to a person of unsound mind or under other legal disability. |
43. | In the case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole or only surviving holder, shall be the only persons recognised by the Company as having any title to his shares; but nothing herein contained shall release the estate of a deceased holder, whether sole or joint, from any liability in respect of any share solely or jointly held by him. | |||
44. | Any person becoming entitled to shares in the Company in consequence of the death, bankruptcy or winding-up of any member or otherwise by operation of law or by court order shall, upon procuring such evidence of his title as the Directors may require, have the right either to be registered himself as the holder of the shares upon giving to the Company notice in writing of such his desire or to transfer such shares to some other person. All the limitations, restrictions and provisions of these Articles and the Ordinance relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as if the same |
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were a transfer of shares by a member, including the Directors right to refuse or suspend registration. |
45. | A person becoming entitled to shares in the Company in consequence of the death, bankruptcy or winding-up of any member or otherwise by operation of law or by court order shall have the right to receive and give a discharge for any dividends or other moneys payable in respect of the shares, provided always that the Directors may at any time give notice requiring any such person to elect to be registered himself or to transfer the shares, and if the notice is not complied with within sixty days, the Directors may thereafter withhold payment of all dividends or other moneys payable in respect of the shares until the requirements of the notice have been complied with but subject to the requirements of Article 76 being met, such a person may vote at meetings. |
46. | The Company may from time to time by ordinary resolution convert any fully paid-up shares into stock and may reconvert any stock into fully paid-up shares of any denomination. After the passing of any resolution converting all the fully paid-up shares of any class in the capital of the Company into stock, any shares of that class which subsequently become fully paid-up and rank pari passu in all other respects with such shares shall, by virtue of this Article and such resolution, be converted into stock transferable in the same units as the shares already converted. | |||
47. | The holders of stock may transfer the same or any part thereof in the same manner and subject to the same regulations as the shares from which the stock arose might prior to conversion have been transferred or as near thereto as circumstances admit. The Directors may from time to time fix the minimum amount of stock transferable and restrict or forbid the transfer of fractions of such minimum, but the minimum shall not, without the sanction of an ordinary resolution of the Company, exceed the nominal amount of each of the shares from which the stock arose. No warrants to bearer shall be issued in respect of any stock. | |||
48. | The holders of stock shall, according to the amount of the stock held by them, have the same rights as regards dividends, participation in assets on a winding-up, voting at general meetings of the Company and other matters as if they held the shares from which the stock arose, but no such right (except as to participation in dividends, profits and in assets on a reduction of capital or a winding-up) shall be conferred by an amount of stock which would not, if existing in shares, have conferred such right. | |||
49. | Such of these Articles as are applicable to fully paid-up shares shall apply mutatis mutandis to stock, and the words share and shareholder shall include stock and stockholder. |
50. | The Company may, from time to time, by ordinary resolution increase its authorised capital by such sum divided into shares of such amounts as the resolution shall prescribe. |
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51. | The general meeting resolving upon the creation of any new shares may direct that the same or any of them shall be offered in the first instance, and either at par or at a premium or (subject to the provisions of the Ordinance) at a discount, to all the holders for the time being of any class of shares in the capital of the Company, in proportion to the number of shares of such class held by them respectively, or make any other provisions as to the issue and allotment of the new shares, and in default of any such direction, or so far as the same shall not extend, the new shares shall be at the disposal of the Directors, and Article 7 shall apply thereto. The Company may exercise any powers conferred or permitted by the Ordinance or any other ordinance from time to time to purchase or otherwise acquire its own shares and warrants (including any redeemable shares) at any price or to give, directly or indirectly, by means of a loan, guarantee, the provision of security or otherwise, financial assistance for the purpose of or in connection with a purchase or other acquisition made or to be made by any person of any shares or warrants in the Company and should the Company purchase or otherwise acquire its own shares or warrants neither the Company nor the Board shall be required to select the shares or warrants to be purchased or otherwise acquired ratably or in any other particular manner as between the holders of shares or warrants of the same class or as between them and the holders of shares or warrants of any other class or in accordance with the rights as to dividends or capital conferred by any class of shares provided always that (a) purchases not made through the market or by tender shall be limited to a maximum price, and (b) if purchases are by tender, tenders shall be available to all shareholders alike and provided further that any such purchase or other acquisition or financial assistance shall only be made or given in accordance with any relevant rules or regulations issued by the Stock Exchange or the Securities and Futures Commission from time to time in force. |
8(1) 8(2) |
||
52. | Subject to any direction or determination that may be given or made in accordance with the powers contained in these Articles, all new shares created pursuant to Article 50 shall be subject to the same provisions herein contained with reference to the payment of calls, transfer, transmission, forfeiture, lien and otherwise as the existing shares of the Company. |
53. | The Company may by ordinary resolution: |
(a) | subdivide its existing shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association of the Company, provided that in the subdivision of an existing share the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived, and so that the resolution whereby any share is subdivided may determine that as between the holders of the shares resulting from such subdivision one or more of the shares may, as compared with the others, have any such preferred, deferred or other special rights or be subject to any such restrictions as the Company has power to attach to unissued or new shares; | ||||
(b) | divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions; | ||||
(c) | consolidate and divide its capital or any part thereof into shares of larger amount than its existing shares; |
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(d) | cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person and diminish the amount of its authorised capital by the amount of the shares so cancelled; or | ||||
(e) | make provision for the issue and allotment of shares which do not carry any voting rights. |
54. | The Company may by special resolution reduce its share capital and any capital redemption reserve fund or any share premium account in any manner allowed by law. | |||
55. | Where any difficulty arises in regard to any consolidation and division under paragraph (c) of Article 53, the Directors may settle the same as they think expedient and in particular may arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale in due proportion amongst the members who would have been entitled to the fractions, and for this purpose the Directors may authorise some person to transfer the shares representing fractions to the purchaser thereof, who shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. |
56. | All or any of the special rights attached to any class or shares (unless otherwise provided for by the terms of issue of the shares of that class) for the time being in issue may subject to the provisions of the Ordinance, at any time, as well before as during liquidation, be altered or abrogated either with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of shares of that class, and all the provisions contained in these Articles relating to general meetings shall mutatis mutandis apply to every such meeting but so that the quorum thereof shall be not less than two persons holding or representing by proxy one-third in nominal value of the issued shares of the class, and that any holder of shares of that class present in person or by proxy may demand a poll. |
6(1)
6(2) |
||
57. | The provisions of the foregoing Article shall apply to the variation or abrogation of the special rights attached to some only of the shares of any class as if each group of shares of the class differently treated formed a separate class the rights whereof are to be varied. | |||
58. | The special rights concurred upon the holders of the shares or class of shares shall not unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be altered by the creation or issue of further shares ranking pari passu therewith. |
59. | The Company shall in each year hold a general meeting as its annual general meeting in addition to any other meetings in that year. The annual general meeting shall be held at such time (within a period of not more than fifteen months, or such longer period as the Registrar of Companies may authorise in writing, after the holding of the last preceding annual general meeting) and place as may be determined by the Directors. All other general meetings shall be called extraordinary general meetings. |
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60. | The Directors may wherever they think fit, and shall on requisition in accordance with the Ordinance, proceed to convene an extraordinary general meeting. |
61. | Subject to section 116C of the Ordinance, an annual general meeting and a meeting called for the passing of a special resolution shall be called by not less than twenty-one days notice in writing, and any other general meeting shall be called by not less than fourteen days notice in writing. The notice shall specify the place, date and time of meeting, and, in the case of special business, the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution. There shall appear on every such notice with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him and that a proxy need not be a member of the Company. | |||
62. | Notwithstanding that a meeting of the Company is called by shorter notice than that specified in these Articles or required by the Ordinance, it shall be deemed to have been duly called if it is so agreed: |
(a) | in the case of a meeting called as the annual general meeting, by all the members entitled to attend and vote thereat; and | ||||
(b) | in the case of any other meeting, by a majority in number of the members having the right to attend and vote at the meeting, being a majority together holding not less than 95 per cent. in nominal value of the shares giving that right. |
63. | The accidental omission to give notice of a meeting or (in cases where instruments of proxy are sent out with the notice) the accidental omission to send such instrument of proxy to, or the non-receipt of notice of a meeting or such instrument of proxy by, any person entitled to receive such notice shall not invalidate the proceedings at that meeting. |
64. | All business shall be deemed special that is transacted at an extraordinary general meeting and at an annual general meeting with the exception of: |
(a) | the receipt of the accounts and balance sheet and the reports of the Directors and other documents required to be annexed to the accounts; | ||||
(b) | the declaration and sanction of dividends; | ||||
(c) | the election of Directors in place of those retiring (if any); | ||||
(d) | the election or re-election of the Auditors of the Company; and | ||||
(e) | the fixing of, or the determination of the method of fixing, the remuneration or extra remuneration of the Directors and of the Auditors of the Company. |
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65. | No business save the election of a chairman of the meeting shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business. Two members present in person or by proxy and entitled to vote shall be a quorum for all purposes. | |||
66. | If, within thirty minutes from the time appointed for the meeting a quorum be not present, the meeting, if convened upon requisition in accordance with the Ordinance, shall be dissolved; but in any other case it shall stand adjourned to the same day in the next week at the same time and place, or to such other day, time and place as the Chairman of the meeting may determine. If at such adjourned meeting a quorum be not present within thirty minutes from the time appointed for the meeting, the member or members present in person or by proxy shall be a quorum and may transact the business for which the meeting is called. | |||
67. | The Chairman (if any) of the Board or, in his absence, a Deputy Chairman (if any) shall preside as Chairman at every general meeting. If there is no such Chairman or Deputy Chairman, or if at any meeting neither the Chairman nor a Deputy Chairman is present within fifteen minutes after the time appointed for holding the meeting, or if neither of them is willing to act as Chairman, the Directors present shall choose one of their number to act, or if one Director only is present he shall preside as Chairman if willing to act. If no Director is present, or if each of the Directors present declines to act as Chairman, the persons present and entitled to vote shall elect one of their number to be Chairman of the meeting. | |||
68. | The Chairman of any general meeting at which a quorum is present may, with the consent of the meeting, and shall, if so directed by the meeting, adjourn the meeting from time to time and from place to place or sine die; but no business shall be transacted at any adjourned meeting other than business which might have been transacted at the meeting from which the adjournment took place unless due notice thereof is given or such notice is waived in the manner prescribed by these Articles. When a meeting is adjourned for thirty days or more, or sine die, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjourned meeting or the business to be transacted thereat. Where a meeting is adjourned sine die the time and place for the adjourned meeting shall be fixed by the Directors. |
69. | (a) | At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by: |
(i) | the Chairman of the meeting; or | ||||
(ii) | at least three members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote at the meeting; or |
Page 15
(iii) | any member or members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or | ||||
(iv) | any member or members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all shares conferring that right. |
(b) | Unless a poll is so demanded and the demand is not withdrawn, a declaration by the Chairman that a resolution has, on a show of hands, been carried unanimously or by a particular majority or lost shall be final and conclusive, and an entry to that effect in the minute book of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded for or against such resolution. |
70. | A demand for a poll may be withdrawn only with the approval of the Chairman of the meeting, at any time before the close of the meeting or the taking of the poll, whichever is earlier. If a poll be directed or demanded in the manner (including the use of ballot or voting papers or tickets) above mentioned it shall (subject to the provisions of Article 72 hereof) be taken at such time (being not later than thirty days after the date of the demand) and in such manner as the Chairman of the meeting may appoint. No notice need be given of a poll not taken immediately. The result of such poll shall be deemed for all purposes to be the resolution of the meeting at which the poll was so directed or demanded. | |||
71. | In the case of an equality of votes at any general meeting, whether upon a show of hands or on a poll, the Chairman of the meeting shall be entitled to a second or casting vote. | |||
72. | A poll demanded upon the election of a Chairman or upon a question of adjournment shall be taken forthwith. Any business, other than that upon which a poll has been demanded, may be proceeded with pending the taking of the poll. |
73. | (a) | Save as expressly provided in these Articles, no person other than a member duly registered and who shall have paid everything for the time being due from him payable to the Company in respect of his shares shall be entitled to be present or to vote (save as proxy for another member) either personally or by proxy, or to be reckoned in a quorum at any general meeting. |
(b) | No objection shall be made to the validity of any vote except at a meeting at which such vote shall be tendered and every vote whether given personally or by proxy not disallowed at such meeting shall be deemed valid for all purposes whatsoever of such meeting or poll. | ||||
(c) | In case of any dispute as to voting the Chairman shall determine the same, and such determination shall be final and conclusive. |
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74. | Subject to the provisions of the Ordinance, a resolution in writing signed by all the members for the time being entitled to receive notice of and to attend and vote at general meetings shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. A written notice of confirmation of such resolution in writing signed by or on behalf of a member shall be deemed to be his signature to such resolution in writing for the purposes of this Article. Such resolution in writing may consist of several documents each signed by or on behalf of one or more members. |
75. | Subject to Article 85 and to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, every member who (being an individual) is present in person or (being a corporation) is present by a representative duly authorised under section 115 of the Ordinance at any general meeting shall be entitled, on a show of hands, to one vote only and, on a poll, to one vote for every fully paid-up share of which he is the holder. | |||
76. | Any person entitled under Article 45 to be registered as the holder of any shares may vote at any general meeting in respect thereof in the same manner as if he were the registered holder of such shares, provided that at least 48 hours before the time of the holding of the meeting or adjourned meeting (as the case may be) at which he proposes to vote, he shall satisfy the Board of his right to be registered as the holder of such shares or the Board shall have previously admitted his right to vote at such meeting in respect thereof. | |||
77. | On a poll, votes may be given either personally or by proxy and a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. | |||
78. | A member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, curator bonis or other person in the nature of a committee or curator bonis appointed by that court, and such committee, curator bonis or other person may on a poll, vote by proxy. If any member be a minor he may vote by his guardian or one of his guardians who may give their votes personally or by proxy. | |||
78A. | Where any member is, under the Listing Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted. |
79. | (a) | A proxy need not be a member of the Company. |
11(1) |
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(b) | An instrument appointing a proxy shall be in writing in any usual or common form or in any other form which the Directors may accept, and shall be deemed, subject to the proviso hereinafter contained, to confer authority upon the proxy to vote on any resolution (or amendment thereto) put to the meeting for which it is given as the proxy thinks fit. |
Provided that any form issued to a member for use by him for appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general meeting at which special business (determined as provided in Article 64) is to be transacted shall be such as to enable the member according to his intention to instruct the proxy to vote in favour of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any such special business and shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates. | ||||
80. | The instrument appointing a proxy shall be signed by the appointor, or his duly authorised attorney, of if such appointor be a corporation, under its common seal or signed by some officer, attorney or other person duly authorised in that behalf. | 11(2) | ||
81. | The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be deposited at the Office at least forty-eight hours before the time fixed for holding the meeting at which the person named in such instrument proposes to attend and vote or, in the case of a poll, at least thirty-six hours before the time appointed for the taking of the poll; otherwise the person so named shall not be entitled to vote at that meeting (or as the case may be) except with the approval of the Chairman of the meeting. No instrument appointing a proxy shall be valid after the expiration of twelve months from the date of its execution, except at an adjourned meeting or on a poll demanded at a meeting or an adjourned meeting in cases where the meeting was originally held within twelve months from such date. Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked. | |||
82. | Any member may by power of attorney appoint any person to be his attorney for the purpose of attending and voting at any meeting, and such power may be a special power limited to any particular meeting or a general power extending to all meetings at which such member is entitled to vote. Every such power shall be deposited at the Office at least thirty-six hours before the time fixed for holding the meeting at which such attorney proposes to attend and vote or, in the case of a poll, at least twenty-four hours before the time appointed for the taking of the poll; otherwise the attorney shall not be entitled to vote at that meeting (or as the case may be) except with the approval of the Chairman of the meeting. |
83. | (a) | An instrument of proxy may be revoked by forwarding to the Office written notification of such revocation signed by or on behalf of the person who issued or authorised the issue of the instrument of proxy. |
(b) | A vote given in accordance with the terms of an instrument of proxy or power of attorney or by the duly authorised representative of a corporation shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the proxy or power of attorney or other authority, or transfer of the shares in respect of which the proxy is given, provided no intimation in writing of the death, insanity, revocation or transfer shall have been received |
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at the Office twenty-four hours at least before the time fixed for holding the meeting, or adjourned meeting, or the taking of the poll, at which the instrument of proxy is used. |
84. | Any corporation which is a member of the Company may, by resolution of its Directors or other governing body or by power of attorney, authorise such persons at it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual member of the Company. References in these Articles to a member present in person at a meeting shall, unless the context otherwise requires, include a corporation which is a member represented at the meeting by such duly authorised representative. | |||
85. | Without prejudice to the generality of Article 84 if a Clearing House (or its nominee) is a member of the Company, it (or, as the case may be, its nominee) may authorise such person or persons as it thinks fit to act as its proxy and proxies or representative or representatives at any meeting of the Company or at any meeting of any class of member of the Company provided that, if more than one person is so authorised, the proxy form or authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person so authorised under the provisions of this Article shall be entitled to exercise the same powers on behalf of the Clearing House (or its nominee) which he represents as that Clearing House (or its nominee) could exercise if it were an individual member of the Company and, on a show of hands, each such person shall be entitled to a separate vote. |
86. | Unless and until otherwise determined by an ordinary resolution of the Company, the Directors shall be not fewer than two in number, and there shall be no maximum number of Directors. | |||
87. | The Company shall keep in accordance with the Ordinance a register containing the names and addresses and occupations of its Directors and shall from time to time notify to the Registrar of Companies any change that takes place in such Directors as required by the Ordinance. | |||
88. | A Director need not hold any shares in the Company. A Director who is not a member of the Company shall nevertheless be entitled to attend and speak at general meetings. |
89 | (a) | The Directors shall be entitled to receive by way of remuneration for their services such sum as is from time to time determined by the Company in general meeting, such sum (unless otherwise directed by resolution by which it is voted) is to be divided amongst the Directors in such proportions and in such manner as the Board may agreed, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. The foregoing shall not apply to a Director who holds any salaried employment or office in the Company in the case of sums paid in respect of directors fees. |
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(b) | The Directors shall also be entitled to be repaid their reasonable travelling, hotel and other expenses incurred by them in or about the performance of their duties as Directors, including their expenses of travelling to and from board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or on the discharge of their duties as directors. |
90. | The Directors may award special remuneration out of the funds of the Company (by way of salary, commission or otherwise as the Directors may determine) to any Director who performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director. |
91. | The Directors may establish any local boards or agencies for managing any of the affairs of the Company, either in Hong Kong or elsewhere, and may appoint any persons to be members of such local boards, or any managers or agents for the Company, and may fix their remuneration, and may delegate (with or without power to sub-delegate as the Directors shall determine) to any local board, manager or agent any of the powers, authorities and discretions vested in the Directors, and may authorise the members of any local boards, or any of them, to fill any vacancies therein, and to act notwithstanding vacancies, and such appointment or delegation may be made upon such terms and subject to such conditions as the Directors may think fit, and the Directors may remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. | |||
92. | The Directors may from time to time and at any time by power of attorney or other instrument appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other instrument may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. The Company may, by writing under its seal, empower any person, either generally or in respect of any specified matter, as its attorney to execute deeds and instruments on its behalf and to enter into contracts and sign the same on its behalf and every deed signed by such attorney on behalf of the Company and under his seal shall bind the Company and have the same effect as if it were under the seal of the Company. | |||
93. | Subject to and to the extent permitted by the Ordinance, the Company or the Directors on behalf of the Company, may cause to be kept in any territory a Branch Register of members resident in such territory, and the Directors may make and vary |
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such regulations as they may think fit respecting the keeping of any such Branch Register. | ||||
94. | All cheques, promissory notes, drafts, bills of exchange, and other negotiable or transferable instruments, and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed, or otherwise executed, as the case may be, in such manner as the Directors shall from time to time by resolution determine. The Companys bank accounts shall be kept with such banker or bankers as the Board shall from time to time determine. |
95. | (a) | The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures, debenture stocks, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. Debentures, debenture stocks, bonds and other securities of the Company may be made assignable free from any equities between the Company and the person to which the same may be issued, and may be issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of shares, attending and voting at general meetings of the Company, appointment of Directors and otherwise. |
(b) | The Directors shall cause a proper register to be kept, in accordance with the provisions of the Ordinance, of all mortgages and charges affecting the property of the Company and shall duly comply with the requirements of the Ordinance in regard to the registration of mortgages and charges therein specified and otherwise. Where any uncalled capital of the Company is charged, all persons taking any subsequent charge thereon shall take the same subject to such prior charge, and shall not be entitled, by notice to the members or otherwise, to obtain priority over such prior charge. |
96. | The Board may establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or superannuation funds for the benefit of, or give or procure the giving of donations, gratuities, pensions, allowances or emoluments to any persons who are or were at any time in the employment or service of the Company, or of any company which is a subsidiary of the Company, or is allied or associated with the Company or with any such subsidiary company, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid, and holding or who have held any salaried employment or office in the Company or such other company, and the wives, widows, families and dependants of any such persons. The Board may also establish and subsidise or subscribe to any institutions, associations, clubs or funds calculated to be for the benefit of or to advance the interests and well being of the Company or of any such other company as aforesaid or of any such persons as aforesaid, and may make payments for or towards the insurance of any such persons as aforesaid, and subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general or useful object. The Board may do any of the matters aforesaid, either alone or in conjunction with any such other company as aforesaid. Any Director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument. |
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97. | At each annual general meeting one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest one-third, shall retire from office by rotation save any Director holding office as Chairman or Chief Executive Officer. The Directors to retire in every year shall be those who have been longest in office since their last election but as between persons who became Directors on the same day shall (unless they otherwise agree between themselves) be determined by lot. The retiring Directors shall be eligible for re-election. The Company at any general meeting at which any Directors retire may fill the vacated offices. No person other than a Director retiring at the meeting shall, unless recommended by the Directors for election, be eligible for election as a Director at any general meeting unless during a period of not less than seven (7) days commencing no earlier than the day after the dispatch of the notice of the meeting appointed for such election and ending no later than seven (7) days before the date appointed for the meeting there shall have been lodged at the Office or at the head office of the Company a Notice signed by a Member (other than the person to be proposed) duly qualified to attend and vote at the meeting for which such notice is given of his intention to propose such person for election and also a Notice signed by the person to be proposed of his willingness to be elected. |
4(4)
4(5) |
||
98. | If at any general meeting at which an election of Directors ought to take place the places of the retiring Directors are not filled, the retiring Directors or such of them as have not had their places filled shall be deemed to have been re-elected and shall, if willing, continue in office until the next annual general meeting and so on from year to year until their places are filled, unless: |
(i) | it shall be determined at such meeting to reduce the number of Directors; | ||||
(ii) | it is expressly resolved at such meeting not to fill such vacated offices; | ||||
(iii) | in any such case the resolution for re-election of a Director is put to the meeting and lost; or | ||||
(iv) | such Director has given notice in writing to the Company that he is not willing to be re-elected. |
99. | The Company may, from time to time, by ordinary resolution elect any person to be a Director either to fill a casual vacancy or as an addition to the Board. | 4(2) | ||
100. | The Company may by ordinary resolution remove any Director notwithstanding anything in these Articles or in any agreement between him and the Company (but without prejudice to any right to damages for termination of such agreement not in accordance with the terms thereof), and may, if thought fit, by ordinary resolution appoint another person in his stead. Any person so elected shall hold office for such time only as the Director in whose place he is elected would have held the same if he had not been removed. | 4(3) | ||
101. | The Directors shall have power, exercisable at any time and from time to time, to appoint any other person as a Director, either to fill a casual vacancy or as an addition to the Board but so that the number of Directors so appointed shall not exceed the maximum number determined from time to time (if any) by the shareholders in general meeting and any directors so appointed shall hold office only until the next following annual general meeting of the Company and shall then | 4(2) |
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be eligible for re-election, but shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at each annual general meeting. | ||||
102. | The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as the number of Directors is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose. If there shall be no Directors able or willing to act, then any two members may summon a general meeting for the purpose of appointing Directors. | |||
103. | No person other than a retiring Director shall, unless recommended by the Board for re-election, be eligible for election to the office of Director at any annual general meeting unless notice in writing for the intention to propose that person for election as a Director and notice in writing by that person of his consent to be elected, shall have been lodged at the Office or head office of the Company at least seven days before the date of the annual general meeting. |
4(4)
4(5) |
104. | Each Director may by written notification to the Company nominate any other person to act as alternate Director in his place and at his discretion in similar manner remove such alternate Director. If such person is not another Director, such appointment, unless previously approved by the Board, shall have effect only upon and subject to being so approved. The alternate Director shall (except as regards the power to appoint an alternate) be subject in all respects to the terms and conditions existing with reference to the other Directors of the Company; and each alternate Director, whilst acting as such, shall exercise and discharge all the functions, powers and duties of the Director he represents, but shall look to such Director solely for his remuneration as alternate Director. Every person acting as an alternate Director shall (except when absent from Hong Kong) be entitled to receive notices of meetings of the Board and shall have one vote for each Director for whom he acts as alternate at any such meeting at which the Director appointing him is not personally present (in addition to his own vote if he is also a Director). The signature of an alternate Director to any resolution in writing of the Board or a committee of the Board shall, unless the notice of his appointment provides to the contrary, be as effective as the signature of his appointor. Any person appointed as an alternate Director shall vacate his office as such alternate Director if and when the Director by whom he has been appointed removes him or vacates office as Director. Every person acting as an alternate Director shall be deemed to be the agent of and for the Director appointing him and shall, without prejudice to any liability which he may cause to his appointor under the Ordinance or otherwise, be responsible to the Company for his own acts and defaults. To such extent as the Board may from time to time determine in relation to any committee of the Board, the foregoing provisions of this paragraph shall also apply mutatis mutandis to any meeting of any committee of which his appointor is a member. An alternate Director shall not, save as aforesaid, have power to act as a Director nor shall he be deemed to be a Director for the purposes of these Articles. |
105. | The office of a Director shall ipso facto be vacated: |
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(a) | if he becomes prohibited by law or court order from being a Director; | ||||
(b) | if a receiving order is made against him or he makes any arrangement or composition with his creditors; | ||||
(c) | if he becomes of unsound mind; | ||||
(d) | if he absents himself from the meetings of the Board during a continuous period of six months, without special leave of absence from the Board, and his alternate Director (if any) shall not during such period have attended in his stead, and the Board passes a resolution that he has by reason of such absence vacated his office; | ||||
(e) | if he shall be removed from office by notice in writing served upon him signed by all his co-directors; | ||||
(f) | if he resigns his office; | ||||
(g) | if he is removed by an ordinary resolution of the Company; or | ||||
(h) | if he is convicted of an indictable offence. |
106. | If a Director or any of his associates is in any way, whether directly or indirectly, interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with the Company, the Director shall declare the nature of his interest or the interest of any of his associates at the earliest meeting of the Board at which it is practicable for him so to do notwithstanding that the question of entering into the contract, transaction or arrangement is not taken into consideration at that meeting. A general notice given to the Board by a Director stating that, by reason of facts specified in the notice, he or any of his associates is to be regarded as interested in a contract, transaction or arrangement of any description which may subsequently be made by the Company, that notice shall be a sufficient declaration of his interest or the interest of such of his associates, so far as attributable to those facts, in relation to any contract, transaction or arrangement of that description which may subsequently be made by the Company; but no such general notice shall have effect in relation to any contract, transaction or arrangement unless it is given before the date on which the question of entering into the contract, transaction or arrangement is first taken into consideration on behalf of the Company. Without prejudice to the generality of the foregoing, a Director shall give notice to the Company of such matters relating to himself as may be necessary for the purposes of sections 155B, 158, 161 and 161B of the Ordinance. | |||
107. | A Director may hold any other office or place of profit under the Company (other than the office of Auditor), and he or any firm of which he is a member may act in a professional capacity for the Company in conjunction with his office of Director, for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Article. No Director or intended Director shall be disqualified by his office from contracting with the Company, nor shall any contract or arrangement entered into by or on behalf of the |
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Company with any Director or any firm or company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit, remuneration or other benefits realised by any such contract or arrangement by reason only of such Director holding that office or of any fiduciary relationship thereby established, provided that such Director shall disclose the nature of his interest in any contract or arrangement in which he is interested at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case at the first meeting of the Board after he knows that he is or has become so interested. | ||||
108. | A Director shall not vote (nor shall he be counted in the quorum) on any resolution of the Board approving any contract or arrangement or proposal in which he or any of his associates is to his knowledge materially interested, and if he shall do so his vote shall not be counted (nor shall he be counted in the quorum for that resolution), but this prohibition shall not apply to any of the following matters, namely: |
4(1)
Note 1 |
(i) | any contract or arrangement for the giving by the Company of any security or indemnity to the Director or any of his associates in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries; | ||||
(ii) | any contract or arrangement for the giving by the Company of any security to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or any of his associates has assumed responsibility in whole or in part and whether alone or jointly under a guarantee or indemnity or by the giving of security; | ||||
(iii) | any proposal concerning an offer of the shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase where the Director or any of his associates is or is to be interested as a participant in the underwriting or sub-underwriting of the offer; | ||||
(iv) | any contract or arrangement in which the Director or any of his associates is interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his or their interest in shares or debentures or other securities of the Company; | ||||
(v) | any proposal concerning any other company in which the Director or any of his associates is interested only, whether directly or indirectly, as an officer or a shareholder or in which the Director or any of his associates is beneficially interested in shares of that company other than a company in which the Director and any of his associates are in aggregate beneficially interested in five per cent. or more of the issued shares of any class of the equity share capital of such company (or of any third company through which such interest is derived) or of the voting rights (excluding for the purpose of calculating such five per cent. interest any indirect interest of such Director or any of his associates by virtue of an interest of the Company in such company); | ||||
(vi) | any proposal or arrangement for the benefit of employees of the Company or its subsidiaries including the adoption, modification or operation of a pension fund or retirement, death or disability benefit scheme which relates |
Page 25
to Directors, their associates and employees of the Company or of any of its subsidiaries and does not give in respect of any such Director or any of his associates any privilege or advantage not generally accorded to the class of persons to whom such scheme or fund relates; | |||||
(vii) | any proposal or arrangement concerning the adoption, modification or operation of any employees share scheme involving the issue or grant of options over shares or other securities by the Company to, or for the benefit of, the employees of the Company or its subsidiaries under which the Director or any of his associates may benefit. |
If any question shall arise at any meeting of the Board as to the materiality of the interest of a Director (other than the Chairman of the meeting) or any of his associates or as to the entitlement of any Director (other than such Chairman) to vote or be counted in the quorum and such question is not resolved by his voluntarily agreeing to abstain from voting or not to be counted in the quorum, such question shall be referred to the Chairman of the meeting and his ruling in relation to such other Director or any of his associates shall be final and conclusive except in a case where the nature or extent of the interest of the Director concerned or any of his associates as known to such Director has not been fairly disclosed to the Board. If any question as aforesaid shall arise in respect of the Chairman of the meeting or any of his associates such question shall be decided by a resolution of the Board (for which purpose such Chairman shall not be counted in the quorum and shall not vote thereon) and such resolution shall be final and conclusive except in a case where the nature or extent of the interest of such Chairman or any of his associates as known to such chairman has not been fairly disclosed to the Board. | ||||
109. | A Director may continue to be or become a director, managing director, joint managing director, executive director, chief executive officer or manager or other officer or member of any other company in which the Company is interested, and (unless otherwise agreed) shall not be liable to account to the Company for any remuneration or other benefits received by him as a director, managing director, joint managing director, executive director, chief executive officer, manager or other officer or member of any such other company. The Board may exercise the voting powers conferred by the shares in any other company held or owned by the Company or exercisable by it as directors of such other company in such manner as in all respects as the Board thinks fit (including the exercise thereof in favour of any resolution appointing themselves or any of them directors, chief executive officers, managing directors, joint managing directors, deputy managing directors, executive directors, managers or other officers of such company) and any director may vote in favour of the exercise of such voting rights in manner aforesaid notwithstanding that he may be, or be about to be, appointed a director, managing director, joint managing director, deputy managing director, executive director, chief executive officer, manager or other officer of such a company, and that as such he is or may become interested in the exercise of such voting rights in manner aforesaid. A Director of the Company may be or become a director of any company promoted by the Company or in which it may be interested as a vendor, shareholder or otherwise and no such Director will be accountable for any benefits received as a director or member of such company. A Director of the Company or his firm may not act as auditor of the Company. |
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110. | The Directors may, from time to time, appoint one or more of their number to be Chief Executive Officer or Joint Chief Executive Officer of the Company, or to hold such office in the management, administration or conduct of the business of the Company as they may decide, and for such period and upon such terms and for such remuneration as the Directors shall think fit, and the Directors may also, from time to time (subject to the provisions of any agreement between him or them and the Company) remove him or them from office, and appoint another or others in his or their place or places. | |||
111. | A Chief Executive Officer or a Joint Chief Executive Officer (subject to the provisions of any agreement between him and the Company) shall be subject to the same provisions as to resignation and removal as the other Directors of the Company, and shall ipso facto and immediately cease to be Chief Executive Officer or Joint Chief Executive Officer if he shall cease to hold the office of Director. | |||
112. | The Directors may, from time to time, entrust to and confer upon any Chief Executive Officer, Joint Chief Executive Officer or Director, holding any other office in the management, administration or conduct of the business of the Company, such of the powers exercisable under these Articles by the Directors as they may think fit, and may confer such powers for such time, and to be exercised for such objects and purposes, and upon such terms and conditions and with such restrictions as they may consider expedient, and may from time to time revoke, withdraw, alter or vary all or any of such powers. |
113. | The Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings as they think fit, and determine the quorum necessary for the transaction of business. Until otherwise determined by the Board, two Directors shall constitute a quorum. For the purpose of this Article an alternate Director shall be counted in a quorum but, notwithstanding that an alternate Director is also a Director or is an alternate for more than one Director, he shall for quorum purposes count as only one Director. Matters arising at any meeting shall be decided by a majority of votes. In case of an equality of votes the Chairman of the meeting shall have a second or casting vote. A Director or the Secretary may, at any time, summon a meeting of the Directors. A meeting of the Board or any committee of the Board may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting. | |||
114. | Notice of a meeting of Directors shall be deemed to be duly given to a Director if it is given to him personally, in writing or by word of mouth, or sent to him at his last known address or any other address given by him to the Company for this purpose provided that notice need not be given to any Director or alternate Director for the time being absent from Hong Kong. A Director may consent to short notice of and may waive notice of any meeting and any such waiver may be retrospective. |
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115. | The Directors may elect a Chairman of the Board and determine the period for which he is to hold office; but if no such Chairman be elected, or if at any meeting the Chairman be not present within five minutes after the time appointed for holding the same, the Directors present shall choose one of their number to be Chairman of such meeting. | |||
116. | A resolution in writing signed by all the Directors except such as are absent from Hong Kong or temporarily unable to act through ill health or disability (or their alternate Directors) shall (so long as they constitute a quorum) be as effective for all purposes as a resolution of the Directors passed at a meeting duly convened, held and constituted. A written notification of confirmation of such resolution in writing signed by a Director shall be deemed to be his signature to such resolution in writing for the purposes of this Article. Such resolution in writing may consist of several documents, each signed by one or more Directors. | |||
117. | A meeting of the Directors at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the Board generally. | |||
118. | The Directors may, from time to time, appoint committees consisting of such one or more persons as they think fit, and may delegate any of their powers to any such committee and, from time to time, revoke any such delegation and discharge any such committee wholly or in part. Any committee so appointed shall, in the exercise of the powers so delegated, conform to any regulations that may, from time to time, be imposed upon it by the Directors. All acts done by any such committee in conformity with such regulations and in fulfilment of the purposes for which it is appointed, but not otherwise, shall have the like force and effect as if done by the Board, and the Board shall have power, with the consent of the Company in general meeting, to remunerate the members of any special committee, and charge such remuneration to the current expenses of the Company. | |||
119. | The meetings and proceedings of any such committee consisting of two or more members shall be governed mutatis mutandis by the provisions of these Articles regulating the meetings and proceedings of the Directors, insofar as the same are not superseded by any regulations made by the Directors under the last preceding Article. | |||
120. | All acts done bona fide by any meeting of the Directors or of a committee of Directors, or by any persons acting as Directors, shall, notwithstanding that there was some defect in the appointment of any such Directors or persons acting as aforesaid, or that they or any of them were disqualified, or had vacated office, be as valid as if every such person had been duly appointed and was qualified and continued to be a Director. |
121. | The Directors shall cause to be entered and kept in books provided for the purpose minutes of the following: |
(a) | all appointments of officers; | ||||
(b) | all the names of the Directors and any alternate Director who is not also a Director present at each meeting of the Directors and of any committee; and |
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(c) | all resolutions and proceedings of general meetings and of meetings of the Directors and committees. |
Any such minutes of any meeting of the Directors, or of any committee, or of the Company, if purporting to be signed by the Chairman of such meeting, or by the Chairman of the next succeeding meeting shall be receivable as evidence of the proceedings of such meeting. |
122. | The Directors shall procure a common seal to be made for the Company, and shall provide for the safe custody thereof. The Seal shall not be affixed to any instrument except by the authority of the Directors or a committee authorised by the Board in that behalf, and every instrument to which the Seal shall be affixed shall be signed by one Director or some other person nominated by the Directors for the purpose, provided that the Board may either generally or in any particular case or cases resolve (subject to such restrictions as to the manner in which the seal may be affixed as the Board may determine) that such signature may be affixed to certificates for shares or debentures or representing any other form of security by some mechanical means other than autographic to be specified in such resolution or that such certificates needs not be signed by any person. Every instrument executed in manner provided by this Article shall be deemed to be sealed and executed with the authority of the Directors previously given. | 2(1) | ||
123. | The Company may have an official seal for use for sealing certificates for shares or other securities issued by the Company as permitted by section 73A of the Ordinance (and no signature of any Director, officer or other person and no mechanical reproduction thereof shall be required on any such certificates or other document to which such official seal is affixed and such certificates or other document shall be valid and deemed to have been sealed and executed with the authority of the Board notwithstanding the absence of any such signature or mechanical reproduction as aforesaid) and an official seal for use abroad under the provisions of the Ordinance where and as the Board shall determine, and the Company may be writing under the seal appoint any agents or agent, committees or committee abroad to be the duly authorised agents of the Company for the purpose of affixing and using such official seal and may impose such restrictions on the use thereof as may be thought fit. Wherever in these Articles reference is made to the seal, the reference shall, when and so far as may be applicable, be deemed to include any such official seal as aforesaid. | |||
124. | The Company may exercise all the powers of having official seals conferred by the Ordinance and such powers shall be vested in the Directors. |
125. | The Directors shall appoint such person, persons or entities to be Secretary or Joint Secretaries of the Company for such period, at such remuneration and upon such conditions as they may think fit, and any Secretary or Joint Secretaries so appointed may be removed by them. Anything by the Ordinance or these Articles required or authorised to be done by or to the Secretary or Joint Secretaries, if the office is vacant or there is for any other reason no person capable of acting in the capacity as Secretary or Joint Secretaries, may be done by or to any assistant or deputy Secretary, or if there is no assistant or deputy Secretary capable of acting, by or to any officer of the Company authorised generally or specially in that behalf by the Board. |
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126. | The Company may by ordinary resolution declare dividends but no such dividend shall exceed the amount recommended by the Directors. | |||
127. | Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide, all dividends shall (as regards any shares not fully paid throughout the period in respect of which the dividend is paid) be apportioned and paid pro rata according to the amounts paid on the shares during any portion or portions of the period in respect of which the dividend is paid. For the purposes of this Article no amount paid on a share in advance of calls shall be treated as paid on the share. | |||
128. | The Directors may retain any dividend or other monies payable on or in respect of a share on which the Company has a lien, and may apply the same in or towards satisfaction of the debts and liabilities in respect of which the lien exists. The Board may deduct from any dividend or bonus payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise. | |||
129. | Any resolution declaring a dividend on shares of any class, whether a resolution of the Company in general meeting or a resolution of the Directors, may specify that the same shall be payable to the persons registered as the holders of such shares at the close of business on a particular date, notwithstanding that it may be a date prior to that on which the resolution is passed, and thereupon the dividend shall be payable to them in accordance with their respective holdings so registered, but without prejudice to the rights inter se in respect of such dividend of transferors and transferees of any such shares. The provisions of this Article shall mutatis mutandis apply to capitalisations to be effected in pursuance of these Articles. | |||
130. | Any general meeting sanctioning a dividend may make a call on the members of such amount as the meeting fixes, but so that the call on each member shall not exceed the dividend payable to him, and so that the call shall be made payable at the same time as the dividend, and the dividend may, if so arranged between the Company and the member, be set off against the call. |
131. | (a) | In respect of any dividend which the Board has resolved to pay or any dividend declared or sanctioned or proposed to be declared or sanctioned by the Board or by the Company in general meeting, the Board may determine and announce, prior to or contemporaneously with the announcement, declaration or sanction of the dividend in question: | |||
either |
(i) | that shareholders entitled thereto will receive in lieu of such dividend (or such part thereof as the Board may think fit) an allotment of shares credited as fully paid provided that the shareholders are at the same time accorded the right to elect to receive such dividend (or part thereof as the case may be) in cash in lieu of such allotment. In such case, the following provisions shall apply: |
(A) | the basis of any such allotment shall be determined by the Board; |
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(B) | the Board, after determining the basis of allotment and notwithstanding that the number of shares to be allotted may not be calculated until after notice to the shareholders has been given as required by the provisions of this sub-paragraph and subject to the provisions of sub-paragraph (D) below, shall give notice in writing to the shareholders of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective which shall be not less than two weeks from the date on which the notice above referred to was despatched to the shareholders; | ||||
(C) | the right of election accorded to shareholders as aforesaid may be exercised in whole or in part; | ||||
(D) | the Board may resolve: |
(I) | that the right of election accorded to shareholders as aforesaid may be exercised so as to take effect on all future occasions (if any) when the Board makes a determination pursuant to sub-paragraph (i) of this paragraph (a); and/or | ||||
(II) | that a shareholder who does not exercise the right of election accorded to him as aforesaid either in whole or in part may notify the Company that he will not exercise the right of election accorded to him in respect of all future occasions (if any) when the Board makes a determination pursuant to sub-paragraph (i) of this paragraph (a) of this Article. |
Provided that a shareholder may exercise such election or give such notice in respect of all but not some of the shares held by him and may at any time give seven days notice in writing to the Company of the revocation of such an election or such a notice which revocation shall take effect at the expiry of such seven days, and until such revocation has taken effect, the Board shall not be obligated to give to such shareholder notice of the right of election accorded to him or send to him any form of election; | |||||
(E) | the dividend (or that part of the dividend in lieu of which an allotment of shares is to be made as aforesaid) shall not be payable in cash on shares in respect whereof the cash election has not been duly exercised (the Non-Elected Shares) and in lieu thereof shares shall be allotted credited as fully paid to the holders of the Non-Elected Shares on the basis of allotment determined as aforesaid and for such purpose the Board shall capitalise and apply out of the amount standing to the credit of share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) |
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as the Board may determine, a sum equal to the aggregate nominal amount of shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Non-Elected Shares on such basis; | |||||
(F) | the Board may resolve that the shares to be allotted shall be allotted at a premium provided that the premium is credited as fully paid up and in such case the Board shall in addition to the amount to be capitalised and applied pursuant to sub-paragraph (E) above, and for the purposes therein set out, capitalise and apply out of the amount standing to the credit of the share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Directors may determine, a sum equal to the aggregate amount of the premium on the shares to be allotted and shall apply the same together with the sum to be applied pursuant to sub-paragraph (E) above and on the basis therein set out in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Non-Elected Shares; |
or | |||||
(ii) | that shareholders entitled to such dividend be entitled to elect to receive an allotment of shares credited as fully paid in lieu of the whole or such part of the dividend as the Board may think fit. In such case, the following provisions shall apply: |
(A) | the basis of any such allotment shall be determined by the Board; | ||||
(B) | the Board, after determining the basis of allotment and notwithstanding that the number of shares to be allotted may not be calculated until after notice to the shareholders has been given as required by the provisions of this sub-paragraph and subject to the provisions of sub-paragraph (D) below, shall give notice in writing to the shareholders of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order to be effective which shall be not less than two weeks from the date on which the notice above referred to was despatched to the shareholders; | ||||
(C) | the right of election accorded to shareholders as aforesaid may be exercised in whole or in part; |
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(D) | the Board may resolve; |
(I) | that the right of election accorded to shareholders as aforesaid may be exercised so as to take effect on all future occasions (if any) when the Board makes a determination pursuant to sub-paragraph (ii) of this paragraph (a); and/or | ||||
(II) | that a shareholder who does not exercise the right of election accorded to him as aforesaid either in whole or in part may notify the Company that he will not exercise the right of election accorded to him in respect of all future occasions (if any) when the Board makes determination pursuant to sub-paragraph (ii) of paragraph (a). |
Provided that a shareholder may exercise such election or give such notice in respect of all but not some of the shares held by him and may at any time give seven days notice in writing to the Company of the revocation of such an election or such a notice which revocation shall take effect at the expiry of such seven days, and until revocation has taken effect, the Board shall not be obliged to give to such member notice of the right of election accorded to him or send to him any form of election; | |||||
(E) | the dividend (or that part of the dividend in respect of which a right of election has been accorded) shall not be payable on shares in respect whereof the share election has been duly exercised (the Elected Shares ) and in lieu thereof shares shall be allotted credited as fully paid to the holders of the Elected Shares on the basis of allotment determined as aforesaid and for such purpose the Board shall capitalise and apply out of the amount standing to the credit of share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Board may determine, a sum equal to the aggregate nominal amount of shares to be allotted on such basis and apply the same in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst the holders of the Elected Shares on such basis; | ||||
(F) | the Board may resolve that the shares to be allotted shall be allotted at a premium provided that the premium is credited as fully paid up and in such case the Board shall in addition to the amount to be capitalised and applied pursuant to sub-paragraph (E) above, and for the purpose therein set out, capitalise and apply out of the amount standing to the credit of the share premium account or out of any part of the undivided profits of the Company (including profits carried and standing to the credit of any reserve or reserves or other special account) as the Board may determine, a sum equal to the aggregate amount of the premium on the shares to be |
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allotted and shall apply the same together with the sum to be applied pursuant to sub-paragraph (E) above and on the basis therein set out in paying up in full the appropriate number of unissued shares for allotment and distribution to and amongst holders of the Elected Shares. |
(b) | The shares allotted pursuant to the provisions of paragraph (a) of this Article shall rank pari passu in all respects with the fully paid shares then in issue save only as regards participation: |
(i) | in the relevant dividend (or the right to receive or to elect to receive an allotment of shares in lieu thereof as aforesaid); or | ||||
(ii) | in any other distributions, bonuses or rights paid, made, declared or announced prior to or contemporaneously with the payment or declaration of the relevant dividend |
unless, contemporaneously with the announcement by the Board of its proposal to apply the provisions of sub-paragraph (i) or (ii) of paragraph (a) of this Article in relation to the relevant dividend or contemporaneously with their announcement of the distribution, bonus or rights in question, the Board shall specify that the shares to be allotted pursuant to the provisions of paragraph (a) of this Article shall rank for participation in such distribution, bonus or rights. | |||||
(c) | The Board may do all acts and things considered necessary or expedient to give effect to any capitalisation pursuant to the provisions of paragraph (a) of this Article with full power to the Board to make such provisions as they think fit in the case of shares becoming distributable in fractions (including provisions whereby, in whole or in part, fractional entitlements are aggregated and sold and the net proceeds distributed to those entitled, or are disregarded or rounded up or down or whereby the benefit of fractional entitlements accrues to the Company rather than to the members concerned). The Board may authorise any person to enter into on behalf of all members interested, an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made pursuant to such authority shall be effective and binding on all concerned. | ||||
(d) | The Company may upon the recommendation of the Board by ordinary resolution resolve in respect of any one particular dividend of the Company that notwithstanding the provisions of paragraph (a) of this Article a dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shares to elect such dividend in cash in lieu of such allotment. | ||||
(e) | The Board may on any occasion when it makes a determination pursuant to paragraph (a) of this Article, resolve that no allotment of shares or rights of election for shares to be issued pursuant to such determination shall be made available or made to any shareholders with registered addresses in any particular territory or territories or to a Depositary where the allotment of shares or the circulation of an offer of such rights of election would or might, in the opinion of the Board, be unlawful or would or might, in the opinion of the Board, be unlawful in the absence of a registration statement or other special formalities, and in such event the provision aforesaid shall be read |
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and construed subject to such resolution and the only entitlement of shareholders in any such territory or territories shall be to receive in cash the relevant dividend resolved to be paid or declared. Depositary means a custodian or other person (or a nominee for such custodian or other person) appointed under contractual arrangements with the Company or other arrangements approved by the Board whereby such custodian or other person or nominee holds or is interested in shares of the Company or rights or interests in shares of the Company and issues securities or other documents of title or otherwise evidencing the entitlement of the holder thereof to or to receive such shares, rights or interests, provided and to the extent that such arrangements have been approved by the Board for the purpose of these Articles and shall include, where approved by the Board, the trustees (acting in their capacity as such) of any employees share scheme established by the Company or any other scheme or arrangements principally for the benefit of employees of the Company and/or its subsidiaries which have been approved by the Board. | |||||
(f) | The Board may at any time resolve to cancel all (but not some only) of the elections made and the notices given by the shareholders pursuant to sub-paragraphs (i)(D) and (ii)(D) of paragraph (a) of this Article by giving seven days notice in writing to the relevant shareholders. | ||||
(g) | The Board may on any occasion determine that rights of election under paragraph (a) of this Article shall not be made available to shareholders who are registered in the register of shareholders, or in respect of shares the transfer of which is registered, after a date fixed by the Board and in such event the provisions aforesaid shall be read and construed subject to such determination. |
132. | No dividend shall be payable except out of the profits or other distributable reserves of the Company, and no dividend shall bear interest as against the Company. | |||
133. | The Directors may, if they think fit, from time to time, resolve to pay to the members such interim dividends as appear to the Directors to be justified by the reserves of the Company. If at any time the share capital of the Company is divided into different classes the Directors may resolve to pay such interim dividends in respect of those shares in the capital of the Company which confer on the holders thereof deferred or non-preferred rights as well as in respect of those shares which confer on the holders thereof preferential or special rights in regard to dividend, and provided that the Directors act bona fide they shall not incur any responsibility to the holders of shares conferring a preference for any damage that they may suffer by reason of the payment of an interim dividend on any shares having deferred or non-preferred rights. The Directors may also resolve to pay at half-yearly or at other suitable intervals to be settled by them any dividend which may be payable at a fixed rate if they are of the opinion that the reserves of the Company justify the payment. | |||
134. | All dividends unclaimed for one year after having become payable may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed, and all dividends unclaimed for six years after having become payable may be forfeited by the Directors and shall revert to the Company. The payment into a separate account of any monies payable in respect of a dividend shall not constitute the Company a trustee in respect thereof for any person. | 3(2) |
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135. | Unless otherwise directed any dividend or other monies payable in cash on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the member or person entitled, or, in the case of joint holders, to the registered address of that one whose name stands first on the Register in respect of the joint holding, or addressed to such person at such address as the holder or joint holders shall direct. The Company shall not be liable or responsible for any cheque or warrant lost in transmission nor for any dividend or other monies lost to the member or person entitled thereto by the forged endorsement of any cheque or warrant. Payment of the cheque or warrant by the banker on whom it is drawn shall be a good discharge to the Company. | |||
136. | The Directors may distribute in specie or in kind among the members in satisfaction in whole or in part of any dividend any of the assets of the Company, and in particular any shares or securities of other companies to which the Company is entitled and where any difficulty arises in regard to the distribution the Board may settle the same as it thinks expedient, and in particular may issue fractional certificates, disregard fractional entitlements or round the same up or down, and may fix the value for distribution of such specific assets, or any part thereof, and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Board and may appoint any person to sign any requisite instruments of transfer and other documents on behalf of the persons entitled to the dividend and such appointment shall be effective. Where required, a contract shall be filed in accordance with the provisions of the Ordinance and the Board may appoint any person to sign such contract on behalf of the persons entitled to the dividend and such appointment shall be effective. | |||
137. | Before recommending a dividend the Directors may set aside any part of the net profits of the Company to one or more reserves, and may apply the same either by employing it in the business of the Company or by investing it in such manner as they shall think fit and the income arising from such reserves shall be treated as part of the profits of the Company. Such reserves may be applied for the purpose of maintaining the property of the Company, replacing wasting assets, meeting contingencies, forming an insurance fund, equalising dividends, paying special dividends, or for any other purpose for which the undivided profits of the Company may lawfully be used, and until the same shall be so applied it shall be deemed to remain undivided profit. The Directors may also carry forward as undivided profit any profit or balance of profit which they shall not think fit to recommend as dividend or to place to reserve. |
138. | Any Director or the Secretary or other authorised officer of the Company shall have power to authenticate any documents affecting the constitution of the Company and any resolutions passed by the Company or the Directors or any committee, and any books, records, documents and accounts relating to the business of the Company, and to certify copies thereof or extracts therefrom as true copies of extracts; and where any books, records, documents or accounts are elsewhere than at the Office, the local manager or such other officer of the Company having the custody thereof shall be deemed to be the authorised officer of the Company as aforesaid. A document purporting to be a copy of a resolution or an extract from the minutes of a meeting of the Company or of the Directors or any local board or committee which is certified as aforesaid shall be conclusive evidence in favour of all persons dealing |
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with the Company upon the faith thereof that such resolution has been duly passed or, as the case may be, that any minute so extracted is a true and accurate record of proceedings at a duly constituted meeting. |
139. |
The Company in general meeting may upon the recommendation of the Directors resolve to
capitalise any part of the Companys reserves or undivided profits not required for the
payment or provision of the dividend on any shares with a preferential right to a dividend,
and accordingly that such part be divided amongst the members who would have been entitled
thereto if distributed by way of dividend and in the same proportions, on condition that the
same be not paid in cash but be applied as a capitalisation issue either in or towards paying
up any amounts for the time being unpaid on any shares held by such members respectively or
paying up in full unissued shares or debentures or other securities of the Company to be
allotted and distributed credited as fully paid to and amongst such members in the proportion
aforesaid, or partly in one way and partly in the other:
provided that any amount standing to the credit of a share premium account or a capital redemption reserve fund may, for the purposes of this Article, only be applied in the paying up of unissued shares to be issued to members of the Company as fully paid-up shares. |
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140. | Whenever such a resolution as aforesaid shall have been passed the Directors shall make all appropriations and applications of the reserves and undivided profits resolved to be capitalised thereby, and all allotments and issues of fully paid-up shares, debentures or other securities and generally shall do all acts and things required to give effect thereto. | |||
141. | For the purpose of giving effect to any resolution under Articles 136 and 139 hereof the Directors may settle any difficulty which may arise in regard to the distribution or capitalisation issue as they think expedient, and in particular may issue fractional certificates, and may fix the value for distribution of any specific assets, and may determine that cash payments shall be made to any members based upon the value so fixed or that fractions of such value as the Directors may determine may be disregarded in order to adjust the rights of all parties, and may vest any such cash or specific assets in trustees upon such trusts for the persons entitled to the distribution or capitalisation issue as may seem expedient to the Directors. The provisions of the Ordinance in relation to the filing of contracts for allotment shall be observed, and the Directors may appoint any person to sign such contract on behalf of the persons entitled to share in the distribution or capitalisation issue, and such appointment shall be effective and binding upon all concerned, and the contract may provide for the acceptance by such persons of the shares, debentures or other securities to be allotted and distributed to them respectively in satisfaction of their claims in respect of the sum so capitalised. |
142. | The Directors shall cause proper books of account to be kept with respect to: |
(a) | all sums of money received and expended by the Company and the matters in respect of which such receipt and expenditure take place; and | ||||
(b) | the assets and liabilities of the Company. |
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Proper book shall not be deemed to be kept if there are not kept such books of accounts as are necessary to give a true and fair view of the transactions. |
143 | (A) | The Directors shall, from time to time, in accordance with the Ordinance, cause to be prepared and to be laid before its annual general meeting the relevant financial documents required by the Ordinance. The Directors may also cause to be prepared a summary financial report if they think fit, which may be provided to members and/or debenture holders instead of the relevant financial documents in circumstances permitted by the Ordinance, the Listing Rules and any other applicable laws, rules and regulations. |
(B) | Subject to paragraph (C) below, a copy of the relevant financial documents or the summary financial report shall, not less than 21 days before the meeting, be delivered or sent by post to the registered address of every member and debenture holder of the Company, or in the case of a joint holding to the member or debenture holder (as the case may be) whose name stands first in the appropriate Register in respect of the joint holding. No accidental non-compliance with the provisions of this Article shall invalidate the proceedings at the meeting. | ||||
(C) | Where a member or debenture holder of the Company has, in accordance with the Ordinance, the Listing Rules and any other applicable laws, rules and regulations, consented to treat the publication of the relevant financial documents and/or the summary financial report on the Companys computer network as discharging the Companys obligation under the Ordinance to send a copy of the relevant financial documents and/or the summary financial report, then subject to compliance with the Ordinance, the Listing Rules and any other applicable laws, rules and regulations, publication by the Company on the Companys computer network of the relevant financial documents and/or the summary financial report at least 21 days before the date of the meeting shall, in relation to each such member or debenture holder of the Company, be deemed to discharge the Companys obligations under paragraph (B) above. |
144. | For the purpose of Article 143, relevant financial documents and summary financial report shall have the meaning ascribed to them in the Ordinance. | |||
145. | Auditors shall be appointed and their duties regulated in the manner provided by the Ordinace. | |||
146. | Subject as otherwise provided by the Ordinance the remuneration of the Auditors shall be fixed by the Company in general meeting provided always that in respect of any particular year the Company in general meeting may delegate the fixing of such remuneration to the Board. | |||
147. | Every statement of accounts audited by the Companys Auditors and presented by the Board at a general meeting shall after approval at such meeting be conclusive except as regards any error discovered therein within three months of the approval thereof. Whenever any such error is discovered within that period, it shall forthwith be corrected, and the statement of accounts amended in respect of the error shall be conclusive. |
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148 | Any notice or document to be given or issued under these Articles shall be in writing, except that any such notice or document to be given or issued by or on behalf of the Company under these Articles (including any corporate communication within the meaning ascribed thereto in the Listing Rules) shall be in writing which may or may not be in a transitory form and may be recorded or stored in any digital, electronic, electrical, magnetic or other retrievable form or medium and information in visible form (including an electronic communication and publication on a computer network) whether having physical substance or not may be served or delivered by the Company by any of the following means subject to and to such extent permitted by and in accordance with the Ordinance, the Listing Rules and any other applicable laws, rules and regulations: | 7(3) |
(i) | personally; | ||||
(ii) | by sending it through the post in a properly prepaid letter, envelope or wrapper addressed to a member at his registered address as appearing in the Register of Members or in the case of another entitled person, to such address as he may provide; | ||||
(iii) | by delivering or leaving it at such address as aforesaid; | ||||
(iv) | by advertisement in an English language newspaper and a Chinese language newspaper in Hong Kong in accordance with the Listing Rules; | ||||
(v) | by transmitting it as an electronic communication to the entitled person at such electronic address as he may have provided; or | ||||
(vi) | by publishing it on a computer network. |
149. | Any notice or document (including any corporate communication within the meaning ascribed thereto in the Listing Rules) given or issued by or on behalf of the Company: |
(i) | if sent by post, shall be deemed to have been served on the day following that on which the envelope or wrapper containing the same is put into a post office situated within Hong Kong and in proving such service it shall be sufficient to prove that the envelope or wrapper containing the notice or document was properly prepaid, addressed and put into such post office (airmail if posted from Hong Kong to an address outside Hong Kong) and a certificate in writing signed by the Secretary or other person appointed by the Board that the envelope or wrapper containing the notice or document was so properly prepaid, addressed and put into such post office shall be conclusive evidence thereof; | ||||
(ii) | if not sent by post but delivered or left at a registered address by the Company, shall be deemed to have been served on the day it was so delivered or left; | ||||
(iii) | if published by way of a newspaper advertisement, shall be deemed to have been served on the date on which it is advertised in one English language newspaper and one Chinese language newspaper in Hong Kong; |
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(iv) | if sent as an electronic communication, shall be deemed to have been served at the time when the notice or document is transmitted electronically provided that no notification that the electronic communication has not reached its recipient has been received by the sender, except that any failure in transmission beyond the senders control shall not invalidate the effectiveness of the notice or document being served; and | ||||
(v) | if published on the Companys computer network, shall be deemed to have been served on the day on which the notice or document is published on the Companys computer network to which the entitled person may have access. |
149A. | Subject to any applicable laws, rules and regulations, any notice or document, including but not limited to the documents referred to in Article 143 and any corporate communication within the meaning ascribed thereto in the Listing Rules, may be given in the English language only, in the Chinese language only or in both the English language and the Chinese language. | |||
149B. | For the purpose of Article 148 and 149, entitled person shall have the meaning ascribed to them in the Ordinance. | |||
150. | Any person who, by operation of law, transfer or other means whatsoever, shall become entitled to any share shall be bound by every notice in respect of such share which, previously to his name and address being entered in the Register, shall be duly given to the person from whom he derives his title to such share. | |||
151. | Any notice or document served in accordance with these Articles shall, notwithstanding such member be then deceased or bankrupt, and whether or not the Company has notice of his decease or bankruptcy, be deemed to have been duly served in respect of any shares held by such member, whether held solely or jointly with other persons by such member, until some other person be registered in his stead as the holder or joint holder thereof, and such service shall for all purposes of these Articles be deemed a sufficient service of such notice or document on his executors, administrators or assigns and all persons (if any) jointly interested with him in any such share. | |||
152. | Any summons, notice, order or other document required to be sent to or served upon the Company, or upon any officer of the Company, may be sent or served by leaving the same or sending it through the post in a prepaid letter, envelope or wrapper, addressed to the Company or to such officer at the Office. | |||
153. | The signature to any notice to be given by the Company may be written, typed, printed or made electronically. | |||
154. | Subject to any special provisions contained in these Articles or in the Ordinance, all notices required to be given by advertisement shall be advertised in at least one daily Chinese and one daily English newspaper circulating in Hong Kong. | 7(1) | ||
155. | In reckoning the period for any notice given under these Articles, the day on which notice is served, or deemed to be served, and the day for which such notice is given shall be excluded. |
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156. | If the Company shall be wound up, the surplus assets remaining after payment to all creditors shall be divided among the members in proportion to the capital paid up on the shares held by them respectively, and if such surplus assets shall be insufficient to repay the whole of the paid-up capital, they shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid upon on the shares held by them respectively. This Article is, however, subject to the rights of the holders of any shares which may be issued on special terms or conditions. | |||
157. | If the Company shall be wound up, the liquidator (whether voluntary or official) may, with the sanction of a special resolution, divide among the members in specie or kind the whole or any part of the assets of the Company or vest any part of the assets of the Company in trustees upon such trusts for the benefit of the members or any of them as the resolution shall provide. Any such resolution may provide for and sanction a distribution of any specific assets amongst different classes of members otherwise than in accordance with their existing rights, but each member shall in that event have a right of dissent and other ancillary rights in the same manner as if such resolution were a special resolution passed pursuant to section 237 of the Ordinance. | |||
158. | In the event of a winding-up of the Company in Hong Kong, every member of the Company who is not for the time being in Hong Kong shall be bound, within fourteen days after the passing of an effective resolution to wind up the Company voluntarily, or within the like period after the making of an order for the winding up of the Company, to serve notice in writing on the Company appointing some person resident in Hong Kong upon whom all summonses, notices, processes, orders and judgements in relation to or under the winding up of the Company may be served and, in default of such nomination, the liquidator of the Company shall be at liberty on behalf of such member to appoint some such person, and service upon any such appointee shall be deemed to be a good personal service on such member for all purposes, and where the liquidator makes any such appointment he shall, with all convenient speed, give notice thereof to such member by advertising in such English language daily newspaper circulating in Hong Kong as he shall deem appropriate or by a registered letter sent through the post and addressed to such member at his address as appearing in the Register, and such notice shall be deemed to be served on the day on which the advertisement appears or the letter is posted. |
159. | Subject to the provisions of the Ordinance, every Director or other officer of the Company shall be indemnified out of the assets of the Company against all costs, charges, expenses, losses and liabilities which he may sustain or incur in or about the execution of his office or otherwise in relation thereto and in particular and without prejudice to the generality of the foregoing every Director and other officer of the Company shall be indemnified by the Company against, and it shall be the duty of the Directors out of the funds of the Company to pay all costs, losses and expenses which any such Director and other officer may incur or become liable for by reason of any contract entered into, or act or thing done by him or them as such Director and other officer, or in any way in the discharge of their or his duties, including travelling expenses; and the amount for which such indemnity is provided shall immediately attach as a lien on the property of the Company, and have priority as |
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between the members over all other claims. Any person who is a Director or other officer of the Company shall not be liable (except in consequence of his own dishonesty) for the acts, receipts, neglects or defaults of any other Director or other officer of the Company or for any losses or expenses incurred by the Company through the insufficiency or deficiency of title to any property acquired by order of the Directors for or on behalf of the Company, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Company shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person with whom any moneys, securities or effects of the Company shall be deposited or for any loss occasioned by any error of judgement, omission, default or oversight on their or his part, or for any other loss, damage or misfortune whatever which shall happen in the execution of the duties of his office or in relation thereto. |
160. | Subject to the Ordinance, the Company may destroy: |
(a) | any share certificate which has been cancelled at any time after the expiry of one year from the date of such cancellation; | ||||
(b) | any dividend mandate or any variation or cancellation thereof or any notification of change of name or address at any time after the expiry of two years from the date on which such mandate, variation, cancellation or notification was recorded by the Company; | ||||
(c) | any instrument of transfer of shares which has been registered at any time after the expiry of six years from the date of registration; and | ||||
(d) | any other document, on the basis of which any entry in the register is made, at any time after the expiry of six years from the date on which an entry in the register was first made in respect of it; |
and it shall conclusively be presumed in favour of the Company that every share certificate so destroyed was a valid certificate duly and properly cancelled and that every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and that every other document destroyed hereunder was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company. Provided always that: |
(i) | the foregoing provisions of this Article shall apply only to the destruction of a document in good faith and without express notice to the Company that the preservation of such document was relevant to a claim; | ||||
(ii) | nothing contained in this Article shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any case where the conditions of proviso (i) above are not fulfilled; and | ||||
(iii) | references in this Article to the destruction of any document include reference to its disposal in any manner. |
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161. | Without prejudice to the rights of the Company, the Company may cease sending such cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two consecutive occasions. However, the Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered. | 13(1) | ||
162. | The Company shall have the power to sell, in such manner as the Board thinks fit, any shares of a shareholder who is untraceable, but no such sale shall be made unless: | 13(2)(a) |
(i) | all cheques or warrants, being not less than three in total number, for any sum payable in cash to the holder of such shares in respect of them sent during the relevant period in the manner authorised by the Articles of Association of the Company have remained uncashed; | ||||
(ii) | so far as it is aware at the end of the relevant period, the Company has not at any time, during the relevant period received any indication of the existence of the shareholder who is the holder of such shares or of a person entitled to such shares by death, bankruptcy or operation of law; | ||||
(iii) | the Company has caused an advertisement to be inserted in English in one English language daily newspaper and in Chinese in one Chinese language daily newspaper (provided that the aforesaid daily newspapers shall be included in the list of newspaper issued and published in the Hong Kong Government Gazette for the purpose of section 71A of the Ordinance) advertising its intention to sell such shares and a period of three months has elapsed since the date of such advertisement; and | 13(2)(b) | |||
(iv) | the Company has notified the stock exchange in the relevant territory of its intention to effect such sale. |
For the purpose of the foregoing, relevant period means the period commencing twelve years before the date of publication of the advertisement referred to in paragraph (iii) of this Article and ending at the expiry of the period referred to in that paragraph. | 13(2) | |||
The manner, timing and terms of any sale of shares pursuant to this Article (including but not limited to the price or prices at which the same is made) shall be such as the Board determines, based upon advice from such bankers, brokers or other persons as the Board considers appropriate consulted by it for the purposes, to be reasonably practicable having regard to all the circumstances including the number of shares to be disposed of and the requirement that the disposal be made without delay and the Board shall not be liable to any person for any of the consequences of reliance on such advice. | ||||
163. | To give effect to any such sale pursuant to Article 162 the Board may authorise any person to transfer the said shares and the instrument of transfer signed or otherwise executed by or on behalf of such person shall be as effective as if it had been executed by the registered holder or the person entitled by transmission to such shares, and the purchaser shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in |
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the proceedings relating to the sale. The net proceeds of the sale will belong to the Company and, upon receipt by the Company of such proceeds, it shall become indebted to the former shareholder by carrying all moneys in respect thereof to a separate account for an amount equal to such net proceeds. No trusts shall be created in respect of such debt and no interest shall be payable in respect of it and the Company shall not be required to account for any money earned from the net proceeds which may be employed in the business of the Company or as it thinks fit. Any sale under this Article shall include any additional shares which during the relevant period or during any period ending on the date when all the requirements of sub-paragraphs (i) to (iii) of Article 162 have been satisfied have been issued in respect of those held at the beginning of such relevant period and shall be valid and effective notwithstanding that the shareholder holding the shares sold is dead, bankrupt or otherwise under any legal disability or incapacity. |
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Parties:
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(1 | ) | China Unicom Corporation Limited (CUCL), a company incorporated in the Peoples Republic of China (the PRC) with limited liability and a wholly-owned subsidiary of Unicom; | |||
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(2 | ) | China Telecom Corporation Limited (Telecom), a joint stock limited company incorporated in the PRC with limited liability, whose shares are listed on the Hong Kong Stock Exchange and whose American Depositary Shares (ADSs) are listed on the New York Stock Exchange; and | |||
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(3 | ) | China Unicom Limited (Unicom), a company incorporated in Hong Kong with limited liability, whose shares are listed on the Hong Kong Stock Exchange and whose ADSs are listed on the New York Stock Exchange. |
(1) | CUCL has agreed to sell, and Telecom has agreed to purchase, the entire CDMA business, which is owned and operated by CUCL, together with the assets of CUCL which are relevant to the CDMA business and the rights and liabilities of CUCL relating to its CDMA subscribers, immediately prior to October 1, 2008 or such other date as Unicom, CUCL and Telecom may agree (the Completion Date), and comprising, amongst others (Articles1.1(1) and 5.1 of the CDMA Business Disposal Agreement): |
(i) | CDMA business provided by CUCL immediately prior to the Completion Date based on the existing network capacity and system support capability (including relevant access channel and service functions) as well as CDMA business |
operation services (Article 1.1 of Exhibit 2 to the CDMA Business Disposal Agreement); |
(ii) | all mobile subscribers with user code information of 133/153 numbers as at 12:00 a.m. on the Completion Date as recorded in CUCLs billing system and other relevant systems, as well as the rights and obligations relating to such CDMA subscribers which are to be dealt with by way of cash settlement on the Completion Date. The items to be included in such settlement are (a) accounts receivable from subscribers (to be calculated based on 2007 average recovery rate), (b) advance from customers, (c) prepaid fees from customers in respect of CDMA rechargeable cards, (d) customers deposits, (e) accrued liabilities for subscribers bonus points (to be calculated based on the bonus point conversion ratio set out in the CDMA Business Disposal Agreement) and (f) the carrying amount in respect of the deferred handset subsidies as at the Completion Date (to be calculated based on a 50% split as set out in the CDMA Business Disposal Agreement) (Articles 2.1(1), 2.2(1) and 2.2(2) of Exhibit 2 to the CDMA Business Disposal Agreement); |
(iii) | transferred assets relating to the CDMA business as set out in the CDMA Business Disposal Agreement, comprising (a) assets exclusively used by the CDMA business including, but not limited to, UIM cards, rechargeable cards, terminals and network equipment, (b) information/data of CDMA subscribers, (c) all self-owned sales offices at county level or below in Beijing, Tianjin, Heilongjiang, Liaoning, Jilin, Inner Mongolia, Shanxi, Henan, Hebei, and Shandong (including provinces, directly controlled municipalities and autonomous regions) (the Ten Northern Provinces) (including districts and counties located in the suburbs of Beijing and Tianjin) and 50% of all self-owned sales offices at above (but excluding) county level as well as 50% of leased self-operated sales offices in the Ten Northern Provinces, (d) certain jointly used CDMA network base stations/auxiliary facilities, (e) certain transmission assets relating to the CDMA business and (f) other tangible and intangible assets relating to the CDMA business as set out in the CDMA Business Disposal Agreement (Articles 3.2 to 3.23 of Exhibit 2 to the CDMA Business Disposal Agreement); |
(iv) | except for certain contracts as provided in the CDMA Business Disposal Agreement, (a) for the rights and obligations under contracts exclusively relating to the CDMA business, those formerly enjoyed and assumed by CUCL before the Completion Date shall continue to be enjoyed and assumed by CUCL, and on and after the Completion Date, all such rights and obligations shall be enjoyed and assumed by Telecom; (b) for the rights and obligations under contracts not exclusively relating to the CDMA business, all the rights and obligations before the Completion Date shall continue to be enjoyed and assumed by CUCL; and on and after the Completion Date, based on the principle that liabilities should be borne consistent with rights and interests allocation, Telecom and CUCL shall respectively enjoy and assume the rights and obligations under such contracts in an honest, fair and bona fide manner; and (c) with respect to the agreements and business arrangements relating to sales channels and customer services in connection with the CDMA business, CUCL shall be responsible for amending the original exclusivity contracts entered into by CUCL with third parties before the Completion Date in such a manner that Telecom will be able to enjoy or share the rights under such contracts; and for the exclusivity contracts renewed by CUCL with third parties within three years after the Completion Date, such exclusivity clause included in |
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these contracts shall not apply to Telecom. If Telecom enters into any new contract with the counterparty of any original exclusivity contract within three years after the Completion Date, the exclusivity clause shall not apply to CUCL (Article 4.2 of Exhibit 2 to the CDMA Business Disposal Agreement); |
(v) | other business, rights or liabilities to be disposed of by CUCL to Telecom in the following manner: (a) with respect to the amount to be amortized for property leasing and line leasing, the balance to be amortized from the Completion Date with respect to the CDMA business shall be assumed by Telecom through a one-time purchase and be settled in cash on completion; (b) the arrangements for the use rights relating to the CDMA business include, but are not limited to, use right arrangements relating to computer rooms, use right arrangements for the licensing of intellectual property rights relating to the CDMA business, and other use right arrangements as agreed by the parties in the CDMA Business Disposal Agreement; and (c) the number of contracted employees to be transferred to Telecom represents 29.3% of the total number of contracted employees of CUCL and Unicom Huasheng Telecommunications Technology Company Limited. In addition, a certain number of the employees who are employed by third parties and are working on secondment for CUCL will be transferred to provide services to Telecom (Article 5 of Exhibit 2 to the CDMA Business Disposal Agreement); |
(2) | Unicom (by itself and through its subsidiary) has agreed to sell, and Telecom (by itself and through its subsidiary) has agreed to purchase, the entire equity interest in China Unicom (Macau) Company Limited (Article 1.1(2)(a) of the CDMA Business Disposal Agreement); and |
(3) | CUCL has agreed to sell, and Telecom has agreed to purchase, 99.5% of the equity interest in Unicom Huasheng Telecommunications Technology Company Limited (representing the entire equity interest in Unicom Huasheng Telecommunications Technology Company Limited held by CUCL, and Unicom has been notified by Unicom Group that the remaining 0.5% of the equity interest in Unicom Huasheng Telecommunications Technology Company Limited will be sold by Unicom Group to Telecom Group) (Article 1.1(2)(b) of the CDMA Business Disposal Agreement). |
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(1) | there being no material adverse change to the operation of the CDMA Business (Article 3.1(1) of the CDMA Business Disposal Agreement); |
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(2) | the representations and warranties made by Unicom and CUCL on the date of the CDMA Business Disposal Agreement remaining true, accurate and complete, and are not misleading, inaccurate or incomplete in all material aspects (Article 3.1(2) of the CDMA Business Disposal Agreement); |
(3) | the disposal of the CDMA Business having been approved by Unicom shareholders (other than China Unicom (BVI) Limited and its associates) in accordance with applicable laws, regulations and listing rules, and the Transfer Agreement between China United Telecommunications Corporation Limited (Unicom A Share Company) and CUCL, dated July 27, 2008, having been approved by independent Unicom shareholders (Article 3.1(3) of the CDMA Business Disposal Agreement); |
(4) | the disposal of the CDMA Business having been approved by the shareholders of Unicom A Share Company in accordance with applicable laws, regulations and listing rules, and the Option Waiver and Lease Termination Agreement among China United Telecommunications Corporation (Unicom Group), Unicom New Horizon Mobile Telecommunications Company Limited (Unicom New Horizon) and Unicom A Share Company, dated July 27, 2008, having been approved by the non-affiliated shareholders of Unicom A Share Company (Article 3.1(4) of the CDMA Business Disposal Agreement); |
(5) | the disposal of the CDMA Business having been approved by CUCL in accordance with applicable laws and regulations (Article 3.1(5) of the CDMA Business Disposal Agreement); | ||
(6) | the necessary procedures required by applicable laws and/or required by the binding agreements or documents of CUCL (including relevant announcement/notice procedures in relation to creditors or obtaining creditors consents) having been performed in accordance with the requirements of the completion plan as set out in the CDMA Business Disposal Agreement (Article 3.1(6) of the CDMA Business Disposal Agreement); | ||
(7) | the amendments to the articles of association and the changes of the business scope of Telecom having been approved by Telecom shareholders in accordance with applicable laws, regulations and listing rules, and the Telecom CDMA Lease between Telecom and China Telecommunications Corporation (Telecom Group), dated July 27, 2008, and other connected transaction agreements (which require amendments as a result of Telecoms purchase of the CDMA Business) having been approved by independent Telecom shareholders (Article 3.1(7) of the CDMA Business Disposal Agreement); | ||
(8) | all authorizations in connection with the operation of the CDMA Business having been obtained by Telecom and Telecom Group, which shall include, but are not limited to, the approval of the Ministry of Industry and Information Technology for Telecom Group to license to Telecom the operation of a mobile telecommunications business and to use the relevant telecommunications resources, such as CDMA spectrum and telecommunications network numbers (Article 3.1(8) of the CDMA Business Disposal Agreement); | ||
(9) | all authorizations in connection with the CDMA Business Disposal Agreement and the CDMA Network Disposal Agreement among Unicom Group, Unicom New Horizon and Telecom Group, dated July 27, 2008, having been obtained from the relevant governmental and regulatory authorities in the PRC and any other relevant jurisdiction |
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and such authorizations remaining in full force and effect without modification (Article 3.1(9) of the CDMA Business Disposal Agreement); |
(10) | (a) there being no dispute between CUCL and Telecom on the progress of the completion preparatory work, and (b) detailed agreements in relation to the implementation of the transactions contemplated under the CDMA Business Disposal Agreement having been entered into by the corresponding provincial branches (including branches of autonomous regions and municipalities directly under the central government) of CUCL and Telecom before August 15, 2008 (Article 3.1(10) of the CDMA Business Disposal Agreement); and | ||
(11) | the business and assets identification and specific revenue due diligence having been completed in accordance with the CDMA Business Disposal Agreement and the results of such identification and due diligence having been jointly confirmed by CUCL and Telecom (Article 3.1(11) of the CDMA Business Disposal Agreement). |
(i) | it will not make any material change to the usual operation policies of the CDMA Business (including, but not limited to, the operation, sales, usual pricing procedures and policies of the CDMA Business) (Article 1.1(1) of Exhibit 5 to the CDMA Business Disposal Agreement); |
(ii) | it will not make any material change to the usual financial policy of the CDMA Business and will take all necessary and effective measures to ensure the execution of the usual |
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financial policy (Articles 1.1(2) and (6) of Exhibit 5 to the CDMA Business Disposal Agreement) |
(iii) | it will actively maintain the CDMA subscriber base, and will develop the subscriber base in accordance with its usual sales practice (Article 1.3 of Exhibit 5 to the CDMA Business Disposal Agreement); | ||
(iv) | it will maintain the normal operations of the CDMA Business and will ensure that services at the usual standards will be provided to the CDMA subscribers (Articles 1.2 and 1.4 of Exhibit 5 to the CDMA Business Disposal Agreement); | ||
(v) | it will not enter into any contract involving the CDMA Business with a value in excess of RMB20 million, or make any investment or dispose of the relevant assets and liabilities in connection with the CDMA Business with an amount exceeding RMB20 million (Articles 1.1(3), (4) and (5) of Exhibit 5 to the CDMA Business Disposal Agreement); | ||
(vi) | it will provide all necessary assistance to enable Telecom to identify the assets that are within the scope of the CDMA Business and will complete the completion preparatory work in accordance with the completion plan as set out in the CDMA Business Disposal Agreement (Article 1.5 of Exhibit 5 to the CDMA Business Disposal Agreement); | ||
(vii) | it will allow Telecom access to, among others, the computer rooms and sales offices for inspection that are within the scope of the CDMA Business and will provide other information and records relating to the CDMA Business (Articles 1.6 and 1.7 of Exhibit 5 to the CDMA Business Disposal Agreement); | ||
(viii) | it will notify Telecom and consult with Telecom on any events or circumstances that may have a material adverse effect on the CDMA Business (Article 1.8 of Exhibit 5 to the CDMA Business Disposal Agreement); and | ||
(ix) | it will maintain and will not make any material change to the information technology supporting systems which record the CDMA subscribers rights and liabilities attributable to the CDMA Business before (and excluding) the Completion Date (Article 1.9 of Exhibit 5 to the CDMA Business Disposal Agreement). |
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(i) | In the CDMA Business Disposal Agreement, CUCL has made certain representations and warranties in relation to, amongst others, the license and authorization to operate the CDMA Business, the legal ownership of the CDMA Business, the business operation and financial information in relation to the CDMA Business, the consistency of the |
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amortization policies and methods adopted by CUCL in connection with deferred handset subsidies, the information/data of the CDMA customers, insurance, intellectual property and information technology rights, third party contracts, employees, material litigation and investigations, taxation and legal compliance. In addition, CUCL has represented that its execution of the CDMA Business Disposal Agreement will not violate (a) any organizational and related documents, applicable laws, regulations or rules or (ii) material contracts, agreements or permissions or orders, rules or decrees of courts, government departments or supervisory authorities (Article 9 of the CDMA Business Disposal Agreement). |
(ii) | In the CDMA Business Disposal Agreement, Unicom has made certain representations and warranties, amongst others, that the information provided by CUCL to Telecom and the representations and warranties made by CUCL are true, complete and accurate. Unicom has further guaranteed all the obligations, liabilities and indemnities of CUCL under the CDMA Business Disposal Agreement. In addition, Unicom has represented that its execution of the CDMA Business Disposal Agreement will not violate (a) any organizational and related documents, applicable laws, regulations or rules or (ii) material contracts, agreements or permissions or orders, rules or decrees of courts, government departments or supervisory authorities (Article 10 of the CDMA Business Disposal Agreement). |
(iii) | In the CDMA Business Disposal Agreement, Telecom has made certain representations and warranties in relation to, amongst others, its valid and legal incorporation and existence under the PRC law and its having readily available cash to pay each instalment of the Consideration on the respective due date. In addition, Telecom has represented that its execution of the CDMA Business Disposal Agreement will not violate (a) any organizational and related documents, applicable laws, regulations or rules or (ii) material contracts, agreements or permissions or orders, rules or decrees of courts, government departments or supervisory authorities (Article 11 of the CDMA Business Disposal Agreement). |
9
(i) | notify CUCL of the claims by third-parties within reasonable time and provide CUCL and its representatives with reasonable information and assistance (Article 14.1(1) of the CDMA Business Disposal Agreement); |
(ii) | not make any admission of fault to, enter into any agreement with or make any resolution with third-parties without prior written consent from CUCL. If CUCL does not give written consent within fifteen (15) working days after it receives such notification, CUCL shall be deemed to have given such consent and Telecom shall have the right to make admission of fault to, enter into agreements with or make resolutions with third-parties (Article 14.1(2) of the CDMA Business Disposal Agreement); and |
(iii) | (a) take reasonable steps requested by CUCL to avoid, refuse or question the claims made by third-parties or resolve, defend or appeal such claims; (b) allow CUCL to take over all legal procedures and/or negotiation with respect to such third-party claims to the extent permitted by law; and (c) provide reasonable information and assistance (if necessary) requested by CUCL on the preparation for or conduct of such legal procedures and/or negotiation, with all of the forgoing on the condition that CUCL will reimburse Telecoms reasonable expenses (Article 14.1(3) of the CDMA Business Disposal Agreement). |
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Contents | Page | |||||
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1
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INTERPRETATION | 1 | ||||
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2
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SALE OF THE TARGET BVI SHARES AND TOTAL PRICE | 5 | ||||
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3
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CONDITIONS PRECEDENT | 7 | ||||
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4
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PRE-COMPLETION UNDERTAKINGS | 8 | ||||
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5
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COMPLETION | 9 | ||||
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6
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WARRANTIES | 11 | ||||
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7
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LIMITATIONS ON CLAIMS | 12 | ||||
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8
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PURCHASERS RIGHTS TO RESCISSION | 12 | ||||
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9
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WITHHOLDING TAX AND GROSSING UP | 13 | ||||
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10
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TAX INDEMNITY | 13 | ||||
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11
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ENTIRE AGREEMENT | 15 | ||||
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12
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VARIATION | 15 | ||||
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13
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ASSIGNMENT | 15 | ||||
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14
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ANNOUNCEMENTS | 16 | ||||
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15
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COSTS | 16 | ||||
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16
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CONFIDENTIALITY | 16 | ||||
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17
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SEVERABILITY | 16 | ||||
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18
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COUNTERPARTS | 17 | ||||
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19
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WAIVER | 17 | ||||
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20
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FURTHER ASSURANCE | 17 | ||||
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21
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NOTICES | 17 | ||||
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22
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GOVERNING LAW AND JURISDICTION | 19 | ||||
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SCHEDULE 1 PART A Details of the Target BVI Company | 20 | |||||
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PART B Details of the Target Company | 21 | |||||
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SCHEDULE 2 THE WARRANTIES PART A: General | 22 |
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Contents | Page | |||||
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PART B: Tax and Property Warranties | 34 | |||||
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APPENDIX Continuing Connected Transactions | 36 | |||||
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SIGNATURE PAGE | 37 |
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(1) | CHINA NETCOM GROUP CORPORATION (BVI) LIMITED a company incorporated under the laws of the British Virgin Islands whose registered office is at P.O. Box 3140, Wickhams Cay I, Road Town, Tortola, British Virgin Islands (the Vendor ); | |
(2) | CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED a company incorporated under the laws of Hong Kong whose registered office is at 46th Floor, Cheung Kong Center, 2 Queens Road Central, Hong Kong (the Purchaser ); and | |
(3) | CHINA NETWORK COMMUNICATIONS GROUP CORPORATION a company incorporated under the laws of the PRC whose registered office is at Building C, No. 156 Fuxingmennei Avenue, Xicheng District, Beijing, PRC (the Warrantor ). |
(A) | China Netcom Group New Horizon Communications Corporation (BVI) Limited (the Target BVI Company ) is a private company limited by shares incorporated on 27 July 2005 in the British Virgin Islands. The details of the Target BVI Company are set out in Part A of Schedule 1. The Target BVI Company is the sole beneficial owner of China Netcom Group New Horizon Communications Corporation Limited ( ) (the Target Company and shall, in each case if the context so requires, include any predecessor entity or person carrying on its business, whether before or after the Restructuring). The details of the Target Company are set out in Part B of Schedule 1. | |
(B) | The Vendor is the sole legal and beneficial owner of the entire issued share capital of the Target BVI Company. | |
(C) | The Warrantor has effected certain reorganisation in relation to its fixed-line telecommunications assets and businesses in the Target Regions and such assets and businesses were transferred to the Target Company. The Target Company became a wholly-owned subsidiary of the Target BVI Company through certain transfers pursuant to an Equity Interest Injection Agreement (the Restructuring ). | |
(D) | The Vendor has agreed to sell, and the Purchaser has agreed to buy, the entire issued share capital of the Target BVI Company upon the terms and conditions set out in this Agreement. | |
(E) | The Vendor and the Warrantor have agreed to make certain representations, warranties and undertakings in relation to the Target Group and have agreed to provide certain tax indemnity to the Purchaser. |
1 | INTERPRETATION |
1.1 | In this Agreement, the following expressions shall have the following meanings: | ||
Accounts means in relation to the Target Company: |
(a) | the audited balance sheets of the Target Company as of the relevant Accounts Date; and |
(b) | the audited statements of income, owners equity and cash flows of the Target Company for the financial period ended on the relevant Accounts Date, |
together with any notes, reports or statements included in or annexed to them; | |||
Accounts Date means 31 December 2002, 2003 or 2004 or 30 June 2005 (as the case may be); | |||
Appraisal Report means the appraisal report prepared by PRC appraisers in respect of the Target Company; | |||
Business Day means a day (excluding Saturdays) on which banks generally are open in Hong Kong and the PRC for the transaction of normal banking business; | |||
Circular means the shareholders circular to be issued by the Purchaser to its shareholders and containing, among other things, the details of the acquisition contemplated under this Agreement; | |||
Claim means any claim for breach of a Warranty; | |||
Combined Group means the Purchaser, its existing subsidiaries and the Target Group; | |||
Companies Ordinance means the Companies Ordinance, Chapter 32 of the Laws of Hong Kong; | |||
Completion means completion of the sale and purchase of the Target BVI Shares under this Agreement pursuant to Clause 5; | |||
Conditions Precedent means the conditions specified in Clause 3.1; | |||
Continuing Connected Transactions means on-going transactions between any member of the Vendor Group Company and the Combined Group which fall within the definition of continuing connected transactions under the Listing Rules and those transactions are to be effected pursuant to the agreements as listed in the Appendix; | |||
Costs means liabilities, losses, damages, costs (including legal costs) and expenses (including taxation), in each case of any nature whatsoever; | |||
Deferred Consideration means RMB 9,800,000,000, being the balance of the Total Price after payment of the Initial Consideration, which is calculated in accordance with Clause 2.2.2; | |||
Deferred Consideration Interest Rate means the rate of 5.265% per annum, being 10 per cent. discount to the Renminbi lending rate of 5.85% per annum of commercial banks in the PRC in respect of loans with tenure of five years as published by the Peoples Bank of China prevailing at 12:00 noon (Beijing time) on 8 September 2005, being two Business Days immediately preceding the date of this Agreement; | |||
Encumbrance means any claim, charge, mortgage, security, lien, option, equity, power of sale, hypothecation or third party rights, retention of title, right of pre-emption, right of first refusal or security interest of any kind; |
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Equity Interest Injection Agreement means the equity interest injection agreement among the Warrantor, the Vendor and the Target BVI Company pursuant to which the entire equity interest in the Target Company was injected from the Warrantor to the Vendor and then from the Vendor to the Target BVI Company; | |||
Financial Statements means the audited balance sheets of the Target Company as of 31 December 2002, 2003 and 2004 and as of 30 June 2005, and the related statements of income, owners equity and cash flows for each of the years in the three-year period ended 31 December 2004 and for the six-month period ended 30 June 2005; | |||
holding company shall be construed in accordance with section 2 of the Companies Ordinance; | |||
Hong Kong means the Hong Kong Special Administrative Region of the PRC; | |||
HK$ or HK dollars means Hong Kong dollars, the lawful currency of Hong Kong; | |||
Indebtedness means any indebtedness in respect of all obligations to repay borrowed money, all indebtedness evidenced by notes, bonds, loan stock, debentures or similar obligations, acceptances or documentary credit facilities, all rental obligations under finance leases, and hire purchase contracts, any other transaction having the commercial effect of a borrowing or raising of money, the net amount of any liability under any swap, hedging or other similar treasury instrument, and all guarantees, sureties, indemnities, counter-indemnities or letters of comfort of obligations of others of the foregoing types; | |||
Independent Shareholders means the holders of Shares other than the Vendor and its Associates (as defined in the Listing Rules); | |||
Initial Consideration means such part of the Total Price to be paid by the Purchaser to the Vendor on Completion in accordance with Clause 2.2.1; | |||
Intellectual Property Rights means patents, trade marks, service marks, trade names, design rights, copyright (including rights in computer software), rights in know-how and other intellectual property rights, in each case whether registered or unregistered and including applications for the grant of any such rights and all rights or forms of protection having equivalent or similar effect anywhere in the world; | |||
Intra-Group Guarantees means all guarantees, indemnities, counter-indemnities and letters of comfort of any nature whatsoever (a) given to any third party by any member of the Target Group in respect of a liability of any Vendor Group Company, and/or (as the context may require) (b) given to any third party by any Vendor Group Company in respect of a liability of any member of the Target Group; | |||
Intra-Group Loans means all debts outstanding between any member of the Target Group and any Vendor Group Company; | |||
Last Accounts means the Accounts of the Target Company in respect of the financial period ended on the Last Accounts Date; | |||
Last Accounts Date means 30 June 2005; | |||
Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited; |
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Payment Date means, before the payment of the Deferred Consideration and any unpaid accrued interest thereon in full, each of the following dates (or if that date falls on a non-Business Day, then on the next Business Day): 30 April 2006, 31 October 2006, 30 April 2007, 31 October 2007, 30 April 2008, 31 October 2008, 30 April 2009, 31 October 2009, 30 April 2010 and 31 October 2010; | |||
PRC means the Peoples Republic of China; | |||
PRC Relevant Governmental Approvals means the approvals, consents and authorisations from all relevant regulatory authorities in the PRC including, but not limited to, the State-owned Assets Supervision and Administration Commission, the National Development and Reform Commission, the Ministry of Information Industry, the Ministry of Commerce, the Ministry of Land and Resources and the China Securities Regulatory Commission, which are necessary to effect the transactions contemplated by the Reorganisation Agreement and this Agreement; | |||
Properties means the properties and land use rights stated in the Property Legal Opinions that are owned by the Target Company; | |||
Property Legal Opinions means the legal opinions to be issued by Haiwen & Partners, PRC counsel for the purposes of the acquisition contemplated hereunder in relation to the properties and land use rights owned by the Target Company; | |||
Reorganisation Agreement means the reorganisation agreement dated 9 August 2005 between the Warrantor and the Target Company pursuant to which the Warrantor injected all interests, assets, liabilities, personnel and businesses in relation to the Warrantors fixed-line telecommunications services in the Target Regions to the Target Company; | |||
RMB or Renminbi means Renminbi, the lawful currency of the PRC; | |||
Schedules means Schedules 1 and 2 to this Agreement and Schedule shall be construed accordingly; | |||
Shares means ordinary shares of par value US$0.04 each in the share capital of the Purchaser; | |||
subsidiary and subsidiaries shall be construed in accordance with section 2 of the Companies Ordinance; | |||
Target Assets means the fixed-line telecommunications assets and related liabilities (other than the international gateway and related international network assets, as well as the inter-provincial fiber-optic network and related assets and liabilities) that are owned by or associated with the Target Company in the Target Regions and are more particularly described in the Reorganisation Agreement; | |||
Target Regions means Shanxi Province, Neimenggu Autonomous Region, Jilin Province and Heilongjiang Province; | |||
Target BVI Shares means all the issued shares in the capital of the Target BVI Company; | |||
Target Group means the Target BVI Company and the Target Company; |
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Total Price means RMB 12,800,000,000, being the total price payable by the Purchaser to the Vendor for the Target BVI Shares; | |||
US$ or US dollars means United States dollars, the lawful currency of the United States of America; | |||
Vendor Group Company means the Vendor, the Warrantor, any holding company from time to time of the Vendor (including the Warrantor) and any subsidiary from time to time of the Vendor or any of its holding company (but excluding the Purchaser, any of the Purchasers subsidiaries, and the Target Group); and | |||
Warranties means the representations and warranties set out in Schedule 2. | |||
1.2 | In this Agreement, unless the context otherwise requires: |
(a) | references to persons shall include individuals, bodies corporate (wherever incorporated), unincorporated associations and partnerships; | ||
(b) | the headings are inserted for convenience only and shall not affect the construction of this Agreement; | ||
(c) | references to one gender include all genders; | ||
(d) | any reference to an enactment or statutory provision is a reference to it as it may have been, or may from time to time be, amended, modified, consolidated or re-enacted; | ||
(e) | any statement qualified by the expression to the best knowledge of the Vendor and the Warrantor or so far as the Vendor and the Warrantor are aware or any similar expression shall be deemed to include an additional statement that it has been made after due and careful enquiry and shall be deemed also to include the best of the knowledge of each Vendor Group Company; | ||
(f) | any reference to a document in the agreed form is to the form of the relevant document agreed between the parties and for the purpose of identification initialed by each of them or on their behalf (in each case with such amendments as may be agreed by or on behalf of the Vendor and the Purchaser); and | ||
(g) | references to any Hong Kong legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any other legal concept shall, in respect of any jurisdiction other than Hong Kong, be deemed to include the legal concept which most nearly approximates in that jurisdiction to the Hong Kong legal term. |
1.3 | The Schedules and Appendix comprise schedules and appendix to this Agreement and form part of this Agreement. |
2 | SALE OF THE TARGET BVI SHARES AND TOTAL PRICE |
2.1 | The Vendor agrees to sell as legal and beneficial owner, and the Purchaser agrees to purchase, the Target BVI Shares. The Target BVI Shares shall be sold free from all Encumbrances, together with all rights attaching to them. |
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2.2 | The consideration for the purchase of the Target BVI Shares shall be the Total Price of RMB 12,800,000,000, which shall be satisfied by the payment of the Initial Consideration and the Deferred Consideration by the Purchaser in accordance with Clauses 2.2.1 and 2.2.2 respectively. |
2.2.1 | On Completion, the Purchaser or at the discretion of the Purchaser, any of its subsidiaries, shall pay to the Vendor or such entity as designated by the Vendor at least two Business Days immediately prior to the date of Completion the Initial Consideration of RMB 3,000,000,000 in cash, in Renminbi. | ||
2.2.2 | The Deferred Consideration shall be RMB 9,800,000,000, which is equivalent to the Total Price after deduction of RMB 3,000,000,000 as stated in Clause 2.2.1. |
2.3 | Without prejudice to the provisions in Clause 2.6, the Vendor and the Purchaser agree that on each Payment Date, the Purchaser or at the discretion of the Purchaser, any of its subsidiaries, shall pay the Vendor or such entity as designated by the Vendor at least two Business Days immediately prior to the relevant Payment Date RMB 980,000,000 plus interest accrued on the unpaid portion of the Deferred Consideration as calculated in accordance with Clause 2.4 and that the Deferred Consideration or the unpaid portion of the Deferred Consideration, together with unpaid accrued interest thereon, shall be paid in full on or before 31 October 2010, or if that date falls on a non-Business Day, then on the next Business Day. | ||
2.4 | The Purchaser shall pay interest to the Vendor on the Deferred Consideration. Interest shall accrue daily at the Deferred Consideration Interest Rate on the unpaid portion of the Deferred Consideration from the date of Completion until full payment of the Deferred Consideration, and shall be calculated on the basis of a year of 360 days. Interest shall be paid on each Payment Date and on the day on which the Deferred Consideration is paid in full. | ||
2.5 | The Purchaser may make payment under Clauses 2.3 and 2.4 in Renminbi or US dollars. Where payments are made in US dollars, the amounts of Deferred Consideration and accrued interest paid shall be determined using the Federal Reserve noon-buying rate between US dollars and Renminbi which is quoted as of 12:00 noon (New York City time) on the day which is two Business Days immediately prior to the relevant Payment Date on the relevant page on the website of the Federal Reserve Bank of New York (www.ny.frb.org) which displays the exchange rate between US dollars and Renminbi. | ||
2.6 | The Purchaser may make early payment of all or part of the Deferred Consideration after Completion and in any amount in Renminbi or US dollars, without any penalty. Where payments are made in US dollars, the amounts of Deferred Consideration paid shall be determined using the Federal Reserve noon-buying rate between US dollars and Renminbi which is quoted as of 12:00 noon (New York City time) on the day which is two Business Days immediately prior to the date of payment on the relevant page on the website of the Federal Reserve Bank of New York (www.ny.frb.org) which displays the exchange rate between US dollars and Renminbi. | ||
2.7 | If the Purchaser does not pay the Deferred Consideration or any accrued interest payable when due under Clauses 2.3 and 2.4, it shall pay interest on the overdue amount for the period beginning on its due date and ending on the date of its receipt by the Vendor (the Relevant Period ). Interest under this Clause 2.7 shall accrue daily at the rate of the Deferred Consideration Interest Rate and calculated on the basis of a year of 360 days. |
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For the avoidance of doubt, the Purchasers obligation to pay interest on the Deferred Consideration under and in accordance with Clause 2.4 is not affected by this Clause 2.7. | |||
2.8 | The transfer of the Target BVI Shares shall take effect immediately upon Completion and the Purchaser shall be entitled to enjoy all rights attached to the Target BVI Shares on Completion free from all Encumbrances irrespective of the Deferred Consideration payable by the Purchaser to the Vendor. The Vendor hereby irrevocably waives all rights, liens or other securities interest over the Target BVI Shares which the Vendor may have under law arising from the Deferred Consideration or otherwise with effect from Completion. |
3 | CONDITIONS PRECEDENT |
3.1 | Completion of the sale and purchase of the Target BVI Shares shall be conditional upon the fulfillment of the following conditions: |
(a) | the passing of resolutions by the Independent Shareholders approving the transactions contemplated by this Agreement and the Continuing Connected Transactions which require the approval of the Independent Shareholders under the Listing Rules; | ||
(b) | there having been no material adverse change to the financial conditions, business operations or prospects of the Target Company; | ||
(c) | the receipt of the PRC Relevant Governmental Approvals; and | ||
(d) | the completion of the transactions contemplated in the Reorganisation Agreement and the Equity Interest Injection Agreement. |
3.2 | Each of the Vendor and the Warrantor undertakes to use all reasonable endeavours to ensure that the Conditions Precedent set out in Clauses 3.1(b), (c) and (d) are fulfilled as soon as reasonably practicable and in any event by 31 December 2005 or such later date as may be agreed between the parties. | ||
3.3 | The Purchaser undertakes to use all reasonable endeavours to ensure that the Conditions Precedent set out in Clause 3.1(a) is fulfilled as soon as reasonably practicable and in any event by 31 December 2005 or such later date as may be agreed between the parties. | ||
3.4 | The Purchaser shall be entitled in its absolute discretion, by written notice to the Vendor, to waive the Condition Precedent set out in Clause 3.1(b) either in whole or in part. | ||
3.5 | If any of the Conditions Precedent has not been fulfilled (or waived) on or before the date specified in Clauses 3.2 and 3.3 or such other date as the parties to this Agreement may agree in writing, this Agreement (other than Clauses 14, 16 and 22) shall automatically terminate and no party shall have any claim of any nature whatsoever against the other parties under this Agreement (save in respect of its accrued rights arising from any prior breach of this Agreement). |
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4 | PRE-COMPLETION UNDERTAKINGS |
4.1 | Pending Completion, each of the Vendor and the Warrantor shall ensure that: |
(a) | the Target Company shall carry on its business in the ordinary and usual course and shall not make (or agree to make) any payment other than payments in the ordinary and usual course of trading; | ||
(b) | the Target Company shall take all reasonable steps to preserve and protect its assets; | ||
(c) | the Purchasers representatives shall be allowed, upon reasonable notice and during normal business hours, access to the books and records of each member of the Target Group (including, without limitation, all statutory books, minute books, leases, contracts, supplier lists and .customer lists) together with the right to take copies; | ||
(d) | no member of the Target Group shall do, allow or procure any act or omission which would constitute or give rise to a breach of any Warranty if the Warranties were to be repeated on or at any time before Completion by reference to the facts and circumstances then existing; | ||
(e) | prompt disclosure is made to the Purchaser of all relevant information which comes to the notice of the Vendor or the Warrantor in relation to any fact or matter (whether existing on or before the date of this Agreement or arising afterwards) which may constitute a breach of any Warranty if the Warranties were to be repeated on or at any time before Completion by reference to the facts and circumstances then existing; | ||
(f) | save for the distribution by the Target Company of its profits for the six-month period ended 30 June 2005 to its parent company, no dividend or other distribution shall be declared, paid or made by any member of the Target Group; | ||
(g) | no share capital shall be allotted or issued or agreed to be allotted or issued by any member of the Target Group; | ||
(h) | all transactions between each member of the Target Group and each Vendor Group Company shall be on arms length commercial terms and in their respective ordinary and usual course of business; | ||
(i) | otherwise than in the ordinary course of business, the amount of any Indebtedness owed by each member of the Target Group or existing as at the date of this Agreement shall not be increased or extended and no new Indebtedness shall be entered into or assumed by any such company; and | ||
(j) | no action is taken by any member of the Target Group or any Vendor Group Company which is inconsistent with the provisions of this Agreement or the consummation of the transactions contemplated by this Agreement. |
4.2 | Pending Completion, each of the Vendor and the Warrantor shall ensure that the Target Group consults fully with the Purchaser in relation to any matters which may have a material effect upon the Target Group. Without the prior written consent of the Purchaser, |
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the Target Group shall not, and each of the Vendor and the Warrantor shall ensure that the Target Group does not: |
(a) | enter into any contract or commitment (or make a bid or offer which may lead to a contract or commitment) having a material value or involving material expenditure or which is of a long term or unusual nature or which could involve an obligation of a material nature or which may result in any material change in the nature or scope of the operations of such member of the Target Group; | ||
(b) | agree to any variation or termination of any existing contract to which that member of the Target Group is a party and which may have a material effect upon the nature or scope of the operations of such member of the Target Group; | ||
(c) | (whether in the ordinary and usual course of business or otherwise) acquire or dispose of, or agree to acquire or dispose of, any material business or any material asset; or | ||
(d) | enter into any agreement, contract, arrangement or transaction (whether or not legally binding) other than in the ordinary and usual course of business. |
5 | COMPLETION |
5.1 | The sale and purchase of the Target BVI Shares shall be completed at 46th Floor, Cheung Kong Center, 2 Queens Road Central, Hong Kong (or such other place as the Vendor, the Purchaser and the Warrantor may agree upon) on: |
(a) | 31 October 2005, or | ||
(b) | such other date as may be agreed between the Vendor, the Purchaser and the Warrantor, |
whichever is later, following notification by the Purchaser to the Vendor of the fulfillment (or waiver) of all the Conditions Precedent. | |||
5.2 | On Completion, the Vendor shall deliver (or cause to be delivered) to the Purchaser: |
(a) | duly executed transfers into the name of the Purchaser or such wholly-owned subsidiary of the Purchaser as notified by the Purchaser to the Vendor two days before Completion or their respective nominee in respect of all of the Target BVI Shares, together with the related share certificates evidencing the title and ownership of such shares; | ||
(b) | the certificates of incorporation, common seal, share register, share certificate book (with any unissued share certificates), business licence, the documents evidencing the PRC Relevant Governmental Approvals (as the case may be) and all minute books and other statutory books (which shall be written up to but not including Completion) of each member of the Target Group; | ||
(c) | all such other documents (including any necessary waivers of pre-emption rights or other consents) as may be required to enable the Purchaser and/or such wholly-owned subsidiary of the Purchaser as notified by the Purchaser to the Vendor two days before Completion and/or their respective nominee to be vested with the full beneficial ownership of the Target BVI Shares and to enable the |
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Purchaser and/or such wholly-owned subsidiary and/or their respective nominee to be registered as the holder(s) of the Target BVI Shares; | |||
(d) | a copy of a resolution of the board of directors (certified by an officer of the Vendor duly appointed by the Vendor as true and correct) of the Vendor, authorising the execution of and the performance by the Vendor of its obligations under this Agreement and each of the other documents to be executed by the Vendor; | ||
(e) | a certified copy of the Equity Interest Injection Agreement duly executed by each of the parties thereto; and | ||
(f) | a legal opinion from Haiwen & Partners, PRC counsel, in form and substance acceptable to the Purchaser. |
5.3 | On Completion, the Warrantor shall deliver (or cause to be delivered) to the Purchaser all such other documents (including any necessary waivers of pre-emption rights or other consents) as may be required to enable the Purchaser and/or such wholly-owned subsidiary of the Purchaser as notified by the Purchaser to the Vendor two days before Completion and/or their respective nominee to be vested with the full beneficial ownership of the Target BVI Shares and to enable the Purchaser and/or such wholly-owned subsidiary and/or their respective nominee to be registered as the holder(s) of the Target BVI Shares. | ||
5.4 | On Completion, the Vendor shall procure that resolutions of the board of directors of the Target BVI Company are passed to approve the registration of the transfers in respect of the Target BVI Shares referred to in Clause 5.2. | ||
5.5 | Against compliance by the Vendor and the Warrantor of their respective obligations under Clauses 5.2, 5.3 and 5:4, the Purchaser shall: |
(a) | in satisfaction of its obligations under Clause 2.2.1, cause the amounts set out in Clause 2.2.1 to be paid on Completion or such later date as may be agreed between the Vendor and the Purchaser by electronic funds transfer (or such other modes of payment as may be agreed between the Vendor and the Purchaser) to the bank account(s) of the Vendor or such other party as the Vendor may direct, details of which shall be notified in writing to the Purchaser at least two Business Days prior to Completion; | ||
(b) | deliver to the Vendor a copy of the board minutes (certified by a duly appointed officer as true and correct) of the Purchaser authorising the execution and performance by the Purchaser of its obligations under this Agreement; and | ||
(c) | deliver to the Vendor a copy of the resolutions (certified by a duly appointed officer as true and correct) by the Independent Shareholders approving the transactions contemplated by this Agreement and the Continuing Connected Transactions which require the approval of the Independent Shareholders under the Listing Rules. |
5.6 | If the Vendor or the Warrantor fails or is unable to perform any material obligations (including the transfer of all Target BVI Shares to the Purchaser and/or such wholly-owned subsidiary of the Purchaser and/or their respective nominee simultaneously upon Completion) required to be performed by the Vendor or the Warrantor (as the case may |
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be) pursuant to Clause 3.2, Clause 5.2 and Clause 5.3, respectively, by the last date on which Completion is required to occur, the Purchaser shall not be obliged to complete the sale and purchase of the Target BVI Shares and may, in its absolute discretion, by written notice to the Vendor and the Warrantor: |
(a) | rescind this Agreement without liability on the part of the Purchaser; or | ||
(b) | elect to complete this Agreement on that date, to the extent that the Vendor and the Warrantor are ready, able and willing to do so, and specify a later date on which the Vendor and the Warrantor shall be obliged to complete the outstanding obligations of the Vendor and the Warrantor; or | ||
(c) | elect to defer the completion of this Agreement by not more than 90 days to such other date as it may specify in such notice, in which event the provisions of this Clause 5.6 shall apply, mutatis mutandis , if the Vendor and/or the Warrantor fails or is unable to perform any such obligations on such other date, |
provided that Clause 5.6(b) will not apply where the Vendor is unable or fails to effect transfer of all Target BVI Shares to the Purchaser and/or such wholly-owned subsidiary of the Purchaser and/or their respective nominee simultaneously upon Completion. | |||
5.7 | Each of the Vendor and the Warrantor jointly and severally undertakes that it shall pay in cash to the Purchaser by way of indemnity all Costs which the Purchaser may suffer or incur and all Costs which the Purchaser has incurred in relation to the preparation and execution of this Agreement if the Vendor or the Warrantor breaches any of its obligations under this Agreement (including to effect the injection of all Target BVI Shares to the Purchaser and/or such wholly-owned subsidiary of the Purchaser and/or their respective nominee simultaneously upon Completion). |
6 | WARRANTIES |
6.1 | The Warrantor represents, warrants and undertakes to the Purchaser in the terms of the representations, warranties and undertakings included in clause 4.1 of and schedule 1 to the Reorganisation Agreement (the Warranties under the Reorganisation Agreement ) and that the Warranties under the Reorganisation Agreement are true and accurate. | ||
6.2 | Each of the Vendor and the Warrantor jointly and severally represents, warrants and undertakes to the Purchaser in the terms of the Warranties (save that the Warranties set out in paragraphs 2.5 to 2.10 of Part A, Schedule 2 are given by each of the Vendor and the Warrantor in respect of itself only) and that such Warranties are true and accurate. Each of the Vendor and the Warrantor acknowledges that the Purchaser has entered into this Agreement in reliance upon the Warranties and the Warranties under the Reorganisation Agreement. | ||
6.3 | Each of the Vendor and the Warrantor jointly and severally undertakes (without limiting any other rights of the Purchaser in any way including its rights to damages in respect of a claim for breach of any Warranty or any Warranty under the Reorganisation Agreement on any other basis) that it shall pay in cash to the Purchaser (or, if so directed by the Purchaser, to the member of the Target Group in question) (each an Indemnified Person ) by way of indemnity on demand a sum equal to the aggregate of (a) the amount which, if received by the Indemnified Person, would be necessary to put that Indemnified Person into the financial position which would have existed had there been no breach of |
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the Warranty or the Warranty under the Reorganisation Agreement in question; and (b) all Costs suffered or incurred by the Indemnified Person, directly or indirectly, as a result of or in connection with such breach of Warranty or Warranty under the Reorganisation Agreement. | |||
6.4 | Each of the Vendor and the Warrantor agrees to waive the benefit of all rights (if any) which the Vendor or the Warrantor may have against any member of the Target Group, or any present or former officer or employee of any such company, on whom the Vendor or the Warrantor may have relied in agreeing to any term of this Agreement and each of the Vendor and the Warrantor undertakes not to make any claim in respect of such reliance. | ||
6.5 | Each of the Warranties and the Warranties under the Reorganisation Agreement shall be construed as a separate Warranty and (save as expressly provided to the contrary) shall not be limited or restricted by reference to or inference from the terms of any other Warranty or any other Warranty under the Reorganisation Agreement or any other term of this Agreement. | ||
6.6 | The Warranties and the Warranties under the Reorganisation Agreement shall be deemed to be repeated on Completion with reference to the facts and circumstances then existing. | ||
6.7 | Each of the Vendor and the Warrantor undertakes to notify the Purchaser in writing promptly if it becomes aware of any circumstance arising after the date of this Agreement which would cause any Warranty or any Warranty under the Reorganisation Agreement (if the Warranties and the Warranties under the Reorganisation Agreement were repeated with reference to the facts and circumstances then existing) to become untrue or inaccurate or misleading in any respect which is material to the financial or trading position of the Target Company. |
7 | LIMITATIONS ON CLAIMS |
7.1 | Subject to Clause 7.2, the aggregate amount of the liability of each of the Vendor and the Warrantor for all Claims shall not exceed the Total Price. | ||
7.2 | The limitation contained in Clause 7.1 shall not apply to any breach of any Warranty or any Warranty under the Reorganisation Agreement which (or the delay in discovery of which) is the consequence of dishonest, deliberate or reckless misstatement, concealment or other conduct by any Vendor Group Company or any officer or employee, or former officer or employee, of any Vendor Group Company. |
8 | PURCHASERS RIGHTS TO RESCISSION | |
The Purchaser may by written notice given to the Vendor and the Warrantor at any time prior to Completion rescind this Agreement without liability on the part of the Purchaser if any fact, matter or event (whether existing or occurring on or before the date of this Agreement or arising or occurring afterwards) comes to the notice of the Purchaser at any time prior to Completion which: |
(a) | constitutes a breach by the Vendor or the Warrantor of this Agreement (including, without limitation, any breach of the pre-Completion undertakings in Clause 4); or | ||
(b) | would constitute a breach of any Warranty or any Warranty under the Reorganisation Agreement if the Warranties and the Warranties under the |
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Reorganisation Agreement were repeated on or at any time before Completion by reference to the facts and circumstances then existing; or | |||
(c) | affects or is likely to affect in a materially adverse manner the business, financial position or prospects of the Target Company. |
9 | WITHHOLDING TAX AND GROSSING UP |
9.1 | Each of the Vendor and the Warrantor shall pay all sums payable by it under this Agreement free and clear of all deductions or withholdings unless the law requires a deduction or withholding. If a deduction or withholding is so required the Vendor or the Warrantor shall pay such additional amount as will ensure that the net amount the payee receives equals the full amount which it would have received had the deduction or withholding not been required. | ||
9.2 | If any tax authority charges taxation on any sum paid by the Vendor or the Warrantor under or pursuant to this Agreement, then the Vendor or the Warrantor shall pay such additional amount as will ensure that the total amount paid, less the tax chargeable on such amount, is equal to the amount that would otherwise be payable under this Agreement. |
10 | TAX INDEMNITY |
10.1 | For the Purpose of Clauses 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 and 10.7, the expressions the Vendor , the Warrantor , the Target Group and the Purchaser shall, where the context permits, include their respective successors and assigns, and unless the context requires otherwise: |
(a) | taxation means and includes all forms of tax, levy, duty, charge, impost, fee, deduction or withholding of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing or other authority in any part of the world and includes any interest, additional tax, penalty or other charge payable or claimed in respect thereof, | ||
(b) | Relevant Claim means any assessment, notice, demand, letter or other document issued or action taken by or on behalf of any person, authority or body whatsoever and of whatever country from which it appears that any member of the Target Group is liable or is sought to be made liable to make any payment or is deprived or is sought to be deprived of any relief or allowance or credit or right to repayment of taxation; | ||
(c) | event includes (without limitation) the death of any person, any action, omission or transaction whether or not any member of the Target Group is a party thereto and includes completion of the sale of the Target BVI Shares to the Purchaser and references to the result of events on or before the date of Completion shall include the combined result of two or more events one or more of which shall have taken place before the date of Completion; | ||
(d) | references to income or profits or gains earned, accrued or received shall include income or profits or gains deemed to have been or treated as or regarded as earned, accrued or received for the purposes of any legislation; and |
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(e) | references to a Relevant Claim shall include any Relevant Claim whether made before or after the date of Completion and whether satisfied or unsatisfied at the date of Completion and shall also include: |
(i) | the loss of any relief, allowance or credit granted by or pursuant to any legislation or otherwise for taxation purposes which could but for the Relevant Claim in question have been available to the Purchaser or any member of the Target Group whether or not the said loss results in any taxation being payable at the time of such loss; and | ||
(ii) | the nullifying or cancellation of a right to repayment of taxation which would have been so available or is at the date hereof assumed by the Vendor, the Warrantor or the Purchaser to be available; |
and in such a case the amount of taxation which could otherwise have been relieved, allowed or credited by the relief, allowance or credit so lost or the amount of repayment which would otherwise have been obtained shall be treated as an amount of taxation for which a liability has arisen. |
10.2 | Subject as hereinafter provided, each of the Vendor and the Warrantor hereby jointly and severally undertakes to indemnify and keep indemnified the Purchaser (for itself and as trustee for the Target Group) against any loss or liability suffered by the Purchaser or any member of the Target Group including, but not limited to, any diminution in the value of the assets of or shares in any member of the Target Group, any payment made or required to be made by the Purchaser or any member of the Target Group and any costs and expenses incurred as a result of or in connection with any Relevant Claim falling on any member of the Target Group resulting from or by reference to any income, profits or gains earned, accrued or received on or before the date of Completion or any event on or before the date of Completion whether alone or in conjunction with other circumstances and whether or not such taxation is chargeable against or attributable to any other person, firm or company. | ||
10.3 | The indemnities given pursuant to this Clause 10 does not cover any Relevant Claim to the extent that provision or reserve in respect thereof has been made in the Last Accounts or to the extent that payment or discharge of such Relevant Claim has been taken into account therein. | ||
10.4 | The indemnities given pursuant to this Clause 10 shall cover all costs and expenses incurred by the Purchaser or any member of the Target Group in connection with any Relevant Claim, and any penalties, fines or interest payable by the Purchaser or any member of the Target Group relating to any Relevant Claim for which the Vendor or the Warrantor is liable pursuant to this Clause 10. | ||
10.5 | In the event that any Relevant Claim which is the subject of an indemnity hereunder is or has been discharged (whether by payment or by the loss of any relief, allowance, credit or right to repayment of taxation) or suffered by any member of the Target Group, the indemnity given hereunder shall take effect as a covenant by the Vendor and the Warrantor forthwith to reimburse the relevant member of the Target Group (through the Purchaser) for any amount so paid or to compensate the relevant member of Target Group for any loss of relief, allowance, credit or right to repayment so suffered. | ||
10.6 | If the Purchaser becomes aware of a Relevant Claim, it shall as soon as reasonably practicable give notice thereof to the Vendor and the Warrantor and shall (subject to the |
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Purchaser and the Target Group being indemnified to the Purchasers satisfaction against any liability, costs, damages or expenses which may be incurred thereby) take such action and procure that the Target Group shall take such action as the Vendor and the Warrantor may reasonably request to avoid, resist, dispute, defend, compromise or appeal against the Relevant Claim, provided that neither the Purchaser nor any member of the Target Group shall be required to take any steps which would require any admission of guilt or liability relating to matters connected with the Relevant Claim in question or which would affect the future conduct of the business of the Purchaser or any member of the Target Group or affect the rights or reputations of any of them nor shall they be required to take any such action unless the Vendor and the Warrantor shall have produced to them a leading barristers opinion that such action is reasonable. | |||
10.7 | All payments to be made by the Vendor and the Warrantor pursuant to this Clause 10 shall be made in full without set-off or counterclaim or any restriction or condition and free and clear of any present or future taxes, duties, charges or other deductions or withholdings of any nature. If any deduction or withholding is required to be made from any such payment the Vendor and the Warrantor shall, together with such payment, pay such additional amount as is necessary to ensure that the recipient receives the full amount due hereunder. |
11 | ENTIRE AGREEMENT | |
This Agreement constitutes the entire agreement and understanding between the parties in connection with the sale and purchase of the Target BVI Shares. This Agreement supersedes all prior agreements or understandings in connection with the subject matter hereof which shall cease to have any further force or effect. No party has entered into this Agreement in reliance upon any representation, warranty or undertaking which is not set out or referred to in this Agreement. | ||
12 | VARIATION |
12.1 | No variation of this Agreement (or of any of the legally binding agreements referred to in this Agreement) shall be valid unless it is in writing and signed by or on behalf of each of the parties to it. The expression variation shall include any variation, supplement, deletion or replacement however effected. | ||
12.2 | Unless expressly agreed, no variation shall constitute a general waiver of any provisions of this Agreement, nor shall it affect any rights, obligations or liabilities under or pursuant to this Agreement which have already accrued up to the date of variation, and the rights and obligations of the parties under or pursuant to this Agreement shall remain in full force and effect, except and only to the extent that they are so varied. |
13 | ASSIGNMENT |
13.1 | The Purchaser and any member of the Target Group may assign its respective rights and benefits under Clause 10 of this Agreement. | ||
13.2 | Save and except as stipulated in Clause 13.1 above, no party shall be entitled to assign the benefit of any provision of this Agreement without the prior written approval of the other parties. |
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14 | ANNOUNCEMENTS |
14.1 | Except as required by law or by any stock exchange or governmental or other regulatory or supervisory body or authority of competent jurisdiction to whose rules the party making the announcement or disclosure is subject, whether or not having the force of law, no announcement or circular or disclosure in connection with the existence or subject matter of this Agreement shall be made or issued by or on behalf of any of the Vendor Group Companies or any member of the Target Group or any of them without the prior approval of the Purchaser (such approval not to be unreasonably withheld or delayed), or by or on behalf of the Purchaser without the prior approval of the Vendor and the Warrantor (such approval not to be unreasonably withheld or delayed). | ||
14.2 | Where any announcement or disclosure is made in reliance on the exception in Clause 14.1, the party making the announcement or disclosure will so far as practicable consult with the other parties in advance as to the form, content and timing of the announcement or disclosure. |
15 | COSTS | |
The Purchaser shall bear the Costs incurred in connection with the negotiation, preparation and completion of this Agreement. |
16 | CONFIDENTIALITY | |
Each of the Vendor and the Warrantor undertakes with the Purchaser that it shall keep confidential (and to ensure that its directors, officers, employees, agents and professional and other advisers keep confidential) any information in its possession (whether before or after the date of this Agreement): |
(a) | in relation to the subscribers, business, assets or affairs of the Target Group (including any data held by the Target Group); or | ||
(b) | which relates to the contents of this Agreement (or any agreement or arrangement entered into pursuant to this Agreement), |
provided that the undertakings contained in this Clause 16 shall not apply to any information which is in or has entered the public domain (which shall include any public filing or disclosure requirements of the United States Securities and Exchange Commission or under applicable laws) otherwise than as a result of publication or disclosure by the Vendor or the Warrantor or their respective directors, officers, employees, agents and professional and other advisers without the prior written consent of the Purchaser. | ||
Each of the Vendor and the Warrantor shall not use for its own business purposes or disclose to any third party any such information (collectively, Confidential Information ) without the consent of the Purchaser. | ||
17 | SEVERABILITY | |
If any provision of this Agreement is held to be invalid or unenforceable, then such provision shall (so far as it is invalid or unenforceable) be given no effect and shall be deemed not to be included in this Agreement but without invalidating any of the remaining provisions of this Agreement. The parties shall then use all reasonable endeavours to replace the invalid or unenforceable |
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provisions by a valid and enforceable substitute provision the effect of which is as close as possible to the intended effect of the invalid or unenforceable provision. | ||
18 | COUNTERPARTS | |
This Agreement may be executed in any number of counterparts and by the parties to it on separate counterparts, each of which is an original but all of which together constitute one and the same instrument. | ||
19 | WAIVER |
19.1 | No failure or delay by any parties hereto (and, for the purpose of Clause 10 of this Agreement, any member of the Target Group) in exercising any right or remedy provided by law under or pursuant to this Agreement shall impair such right or remedy or operate or be construed as a waiver or variation of it or preclude its exercise at any subsequent time and no single or partial exercise of any such right or remedy shall preclude any other or further exercise of it or the exercise of any other right or remedy. | ||
19.2 | The rights and remedies of the parties hereto under or pursuant to this Agreement are cumulative, may be exercised as often as such party considers appropriate and are in addition to its rights and remedies under general law. |
20 | FURTHER ASSURANCE | |
Each of the Vendor and the Warrantor agrees to perform (or procure the performance of) all further acts and things, and execute and deliver (or procure the execution and delivery of) such further documents, as may be required by law or as the Purchaser may reasonably require, whether on or after Completion, to implement and/or give effect to this Agreement and the transaction contemplated by it and for the purpose of vesting in the Purchaser the full benefit of the assets, rights and benefits to be transferred to the Purchaser under this Agreement. | ||
21 | NOTICES |
21.1 | Any notice or other communication to be given by one party to any other party under, or in connection with, this Agreement shall be in writing and signed by or on behalf of the party giving it. It shall be served by sending it by fax to the number set out in Clause 21.2, or delivering it by hand, or sending it by pre-paid recorded delivery or registered post, to the address set out in Clause 21.2 and in each case marked for the attention of the relevant party set out in Clause 21.2 (or as otherwise notified from time to time in accordance with the provisions of this Clause 21). Any notice so served by hand, fax or post shall be deemed to have been duly given: |
(a) | in the case of delivery by hand, when delivered; | ||
(b) | in the case of fax, upon confirmation of transmission; | ||
(c) | in the case of prepaid recorded delivery or registered post, at 10:00 a.m. on the fifth Business Day following the date of posting, |
provided that in each case where delivery by hand or by fax occurs after 6:00 p.m. on a Business Day or on a day which is not a Business Day, service shall be deemed to occur at 9:00 a.m. on the next following Business Day. |
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References to time in this Clause are to local time in the country of the addressee. | |||
21.2 | The addresses and fax numbers of the parties for the purpose of Clause 21.1 are as follows: |
The Vendor: | ||
|
||
Address:
|
Building C, | |
|
No. 156 Fuxingmennei Avenue, | |
|
Xicheng District, | |
|
Beijing, | |
|
PRC | |
|
||
Fax:
|
(8610) 6642 9950 | |
|
||
For the attention of:
|
The Legal Department | |
|
||
The Purchaser:
|
||
|
||
Address:
|
46th Floor | |
|
Cheung Kong Center | |
|
2 Queens Road Central | |
|
Hong Kong | |
|
||
Fax:
|
(852) 2626 8800 | |
|
||
For the attention of:
|
The Joint Company Secretaries | |
|
||
The Warrantor:
|
||
|
||
Address:
|
Building C, | |
|
No. 156 Fuxingmennei Avenue | |
|
Xicheng District | |
|
Beijing | |
|
PRC | |
|
||
Fax:
|
(8610) 6642 9950 | |
|
||
For the attention of:
|
The Legal Department |
21.3 | A party may notify any other party to this Agreement of a change to its name, relevant addressee, address or fax number for the purposes of this Clause 21, provided that, such notice shall only be effective on: |
(a) | the date specified in the notice as the date on which the change is to take place; or | ||
(b) | if no date is specified or the date specified is less than five Business Days after the date on which notice is given, the date following five Business Days after notice of any change has been given. |
21.4 | All notices under or in connection with this Agreement shall be in the English language. |
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22 | GOVERNING LAW AND JURISDICTION |
22.1 | This Agreement and the relationship between the parties shall be governed by, and interpreted in accordance with, the laws of Hong Kong. | ||
22.2 | Any dispute arising out of or in connection with this Agreement shall be resolved by arbitration in Hong Kong International Arbitration Centre by a single arbitrator in accordance with the UNCITRAL Arbitration Rules in force from time to time. The parties agree that the arbitral award will be final and binding. |
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1
|
Name: | China Netcom Group New Horizon Communications Corporation (BVI) Limited | ||
|
||||
2
|
Date of Incorporation: | 27 July 2005 | ||
|
||||
3
|
Place of Incorporation: | British Virgin Islands | ||
|
||||
4
|
Registered Number: | 669445 | ||
|
||||
5
|
Registered Office: | Romasco Place, Wickhams Cay 1, P.O. Box 3140, Road Town, Tortola, British Virgin Islands | ||
|
||||
6
|
Directors: |
Zhang Chunjiang
Tian Suning Jiang Weiping |
||
|
||||
7
|
Registered Shareholder: | China Netcom Group Corporation (BVI) Limited | ||
|
||||
8
|
Authorised Capital: | US$50,000.00 | ||
|
||||
9
|
Issued Capital: | US$100.00 | ||
|
||||
10
|
Subsidiaries: | China Netcom Group New Horizon Communications Corporation Limited ( ) | ||
|
||||
11
|
Mortgages and Charges: | None |
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1
|
Name: | China Netcom Group New Horizon Communications Corporation Limited ( ) | ||
|
||||
2
|
Date of Incorporation: | 9 August 2005 | ||
|
||||
3
|
Place of Incorporation: | Beijing, PRC | ||
|
||||
4
|
Nature: | Limited liability company | ||
|
||||
5
|
Scope of Business: | To operate and carry on business with the domestic fixed-line telecommunications network and equipment (including the wireless local network) in the provinces and autonomous region of Shanxi, Neimenggu, Jilin and Heilongjiang; to carry on businesses of voice, data, images, multi-media communications and information services based on fixed-line telecommunications network; settlement of international telecommunications services and develop international communications market. | ||
|
||||
6
|
Registered Office: |
Building C,
No. 156 Fuxingmennei Avenue, Xicheng District, Beijing, PRC |
||
|
||||
7
|
Directors: |
Zhang Chunjiang
Tian Suning Jiang Weiping |
||
|
||||
8
|
Shareholder: | China Netcom Group New Horizon Communications Corporation (BVI) Limited | ||
|
||||
9
|
Registered Capital: | RMB 9,466,366,600 | ||
|
||||
10
|
Subsidiaries: | None |
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1 | INFORMATION |
1.1 | All information relating to the Target Group provided to the Purchaser or its representatives and advisers for the purposes of inclusion in the Circular or preparation of the Financial Statements and the Appraisal Report is true, accurate and not misleading and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. | ||
1.2 | Save as already disclosed in writing to the Purchaser, there are no other facts or matters which might reasonably be expected to have a material adverse effect on the financial or trading position or prospects of the Target Company. |
2 | CORPORATE MATTERS | |
The Target Group |
2.1 | (a) | All of the Target BVI Shares are fully-paid or properly credited as fully-paid and the Vendor is the sole legal and beneficial owner of them free from all Encumbrances. The Target BVI Shares constitute the entire issued share capital of the Target BVI Company. |
(b) | The information in respect of the Target BVI Company set out in Part A of Schedule 1 is true and accurate and not misleading. | ||
(c) | The Target BVI Company has been duly incorporated and is validly existing under the laws of the British Virgin Islands, with legal right, power and authority (corporate and other) to own, use, lease and operate its properties and conduct its business in the manner presently conducted and as described in the Circular, and is duly qualified to transact business in any jurisdiction in which it owns or leases properties or conducts any business and such qualification is required, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; the Memorandum of Association and Articles of Association of the Target BVI Company comply with the requirements of applicable laws of the British Virgin Islands and are in full force and effect. |
2.2 | (a) | The Target BVI Company is. or will by Completion be, the sole legal and beneficial owner of the whole of the registered capital of the Target Company free from all Encumbrances. |
(b) | The information in respect of the Target Company set out in Part B of Schedule 1 is true and accurate and not misleading. | ||
(c) | The Target Company is (or a valid application has been made for it to be registered as) a wholly-foreign owned enterprise with limited liability and has been duly organised and is validly existing under the laws of the PRC, and its business licence is in full force and effect; the Articles of Association of the Target Company comply with the requirements of applicable PRC law and are in full force and effect; the registered capital of the Target Company has been duly paid up; the Target Company has all necessary consents, approvals, |
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authorisations, orders, registrations, clearances and qualifications of or with any court, governmental agency or body having jurisdiction over the Target Company or any of its properties in each jurisdiction in which the ownership or lease of property by it or the conduct of its business (as described in the Circular) requires such qualification, except for such consents, approvals, authorizations, orders, registrations, clearances and qualifications the absence of which is disclosed in the Circular or which is not material to the Target Company, and has the legal right and authority to own, use, lease and operate its assets and to conduct its business in the manner presently conducted and as described in the Circular. |
2.3 | Save for the interest of the Target BVI Company in the Target Company at Completion, no member of the Target Group owns or has any interest of any nature whatsoever in any shares, debentures or other securities issued by any undertaking. | ||
2.4 | The Target BVI Company does not carry on any business other than holding the Target Company, or owns any material asset other than the registered capital of the Target Company at Completion or has any liabilities. | ||
The Vendor and the Warrantor | |||
2.5 | Each of the Vendor and the Warrantor is duly incorporated or established and is validly existing under the laws of its jurisdiction of incorporation or establishment, with full power and authority to own, lease and operate its properties and assets and to execute and perform its obligations under this Agreement. | ||
2.6 | The execution, delivery and performance by each of the Vendor and the Warrantor of this Agreement has been duly authorised by it and this Agreement constitutes a legal, valid and binding obligation of the Vendor or the Warrantor enforceable in accordance with its terms, subject to the laws of bankruptcy and other similar laws affecting the rights of creditors generally. | ||
2.7 | All necessary regulatory, corporate and other approvals (including shareholder approvals) and authorisations required by the Vendor and the Warrantor for the execution and delivery of this Agreement and any agreement or instrument contemplated hereby, the performance of the terms hereof and thereof and the sale of the Target BVI Shares have been obtained, are unconditional and are in full force and effect. | ||
2.8 | All necessary consents, approvals and authorisations of any court, government department or other regulatory body required with respect to the Vendor and the Warrantor for the execution of this Agreement and the performance of its terms have been obtained and are unconditional and in full force and effect. | ||
2.9 | The execution and delivery by the Vendor and the Warrantor of this Agreement, and the performance and completion of the transactions herein contemplated: (a) will not infringe any applicable laws or regulations; (b) will not result in any breach of the terms of, or constitute. a default under, its constitutional documents and business licence (as applicable) or any instrument, agreement or governmental, regulatory or other judgement, decree or order to which the Vendor or the Warrantor is a party or by which it or its property is bound; and (c) will not conflict with any of the certificates, licences or permits of the Vendor or the Warrantor that enable it to carry on the business or operations now operated by it. |
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2.10 | Each of the Vendor and the Warrantor is not: (a) in breach of the terms of, or in default under, any instrument, agreement or order to which it is a party or by which it or its property is bound to an extent which is material in the context of the transactions herein contemplated; (b) involved in or the subject of any current or pending investigation or proceedings (whether administrative, regulatory or otherwise), whether in the PRC or elsewhere. |
3 | FINANCIAL STATEMENTS | |
Financial Statements |
3.1 | (a) | The Financial Statements give a true and fair view of the state of affairs and financial results of the Target Company for the periods and as at the dates stated therein. |
(b) | Without limiting the generality of paragraph (a): |
(i) | the Accounts either make full provision for or disclose all liabilities (whether actual, contingent or disputed and including financial lease commitments and pension liabilities), all outstanding capital commitments and all bad or doubtful debts of the Target Company as at the Accounts Dates, in each case in accordance with applicable accounting principles; | ||
(ii) | the Accounts for each of the periods ended on the Accounts Dates were prepared under the historical convention, complied with the requirements of all relevant laws and regulations then in force and with all statements of standard accounting practice (or financial reporting standards) and applicable accounting principles then in force; | ||
(iii) | except as stated in its Accounts, no changes in the accounting policies were made by the Target Company in any of the periods ended on the Accounts Dates; and | ||
(iv) | the results shown by the Accounts for each of the periods ended on the Accounts Dates were not (except as therein disclosed) affected by any extraordinary or exceptional item or by any other factor rendering such results for all or any of such periods unusually high or low. |
3.2 | None of the financial information provided to the Purchaser or its representatives and advisers is misleading in any material respect nor materially over-state the value of the assets nor materially under-state the liabilities of the Target Company as at the dates to which they were drawn up and do not materially over-state the profits nor under-state the losses of the Target Company in respect of the periods to which they relate. |
Position since Last Accounts Date |
3.3 | (a) | Since the Last Accounts Date and compared to the Last Accounts, there has been no material adverse change in the financial or trading position or in the prospects of the Target Company (other than as a result of the Restructuring) and no event, fact or matter has occurred which is likely to give rise to any such change. |
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(b) | Since the Last Accounts Date and compared to the Last Accounts: |
(i) | the business of the Target Company has been carried on in the ordinary and usual course and the Target Company has not made or agreed to make any payment other than routine payments in the ordinary and usual course of trading; | ||
(ii) | save for any distribution in relation to the Target Companys profit for the six-month period ended 30 June 2005, no dividend or other distribution has been declared, paid or made by the Target Company; | ||
(iii) | there has been no material change in the level of borrowing or in the working capital requirements of the Target Company; | ||
(iv) | all transactions between the Target Company and any Vendor Group Company have been on an arms length basis and commercial terms and in their respective ordinary and usual course of business; | ||
(v) | save for the Reorganisation Agreement, the Continuing Connected Transactions, any documentation or agreement relating to the 2008 Beijing Olympics sponsorship and contracts entered into in the usual and ordinary course of business of the Target Company, no contract, liability or commitment has been entered into by the Target Company which is of an unusual nature or which involved or could involve an obligation of a material nature or magnitude; | ||
(vi) | save as provided in the Reorganisation Agreement or in the usual and ordinary course of business of the Target Company, the Target Company has not acquired or disposed of, or agreed to acquire or dispose of any material business or any material asset; | ||
(vii) | no debtor has been released by the Target Company on terms that it pays less than the book value of its debt and no material debt owing to the Target Company has been deferred, subordinated or written off or has proved to any extent irrecoverable; | ||
(viii) | no change has been made in terms of employment and any benefits in kind payable to employees and other employment related matters by the Target Company or any Vendor Group Company (other than those required by law) which could materially increase the total costs attributable to employment and employee benefits of the Target Company; | ||
(ix) | there has been no material increase or decrease in the levels of debtors or creditors or in the average collection or payment periods for the debtors and creditors respectively; | ||
(x) | the Target Company has not repaid any borrowing or indebtedness in advance of its stated maturity, which has a material effect on the Target Company; | ||
(xi) | there has been no material reduction in the cash balances of the Target Company; |
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(xii) | save for any resolution in connection with the Reorganisation Agreement, no resolution of the Target Company has been passed whether in general meeting or otherwise (other than resolutions relating to the routine business of annual general meetings); | ||
(xiii) | the business of the Target Company has not been affected by any abnormal factor not affecting to a similar extent generally all companies carrying on similar businesses; and | ||
(xiv) | the Target Company has not agreed to any variation or termination of any existing contract to which the Target Company is a party and which may have a material effect upon the nature or scope of the operations of the Target Company. |
Working Capital |
3.4 | Having regard to existing bank and other financial facilities, the Target Company has sufficient working capital available to it as at the date of this Agreement to enable it to continue to carry on its business in its present form and at its present level of turnover and for the purpose of performing in accordance with its terms all orders, projects and other obligations and discharging all liabilities which ought properly to be discharged during the period of 12 months after Completion. |
Accounting and other Records |
3.5 | (a) | The books of account and other records of the Target Company: |
(i) | are up-to-date and have been maintained in accordance with all applicable laws and generally accepted accounting practices on a proper and consistent basis; | ||
(ii) | comprise complete and accurate records of all information required to be recorded therein; | ||
(iii) | are in its possession or under its control together with all documents of title and executed copies of all existing agreements to which the Target Company is a party. |
(b) | All accounts, documents and returns required by law to be delivered or made by the Target Company to any government authority or regulatory body or any other authority have been duly and correctly delivered or made. |
4 | DEBT POSITION | |
Debts owed to the Target Company |
4.1 | There are no outstanding debts owing to the Target Company other than trade debts incurred in the ordinary and usual course of business. |
Debts owed by the Target Company |
4.2 | (a) | The Target Company has no outstanding borrowing or indebtedness in the nature of borrowing (including, without limitation, any indebtedness for moneys |
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borrowed or raised under any acceptance credit, bond, note, bill of exchange or commercial paper, finance lease, hire purchase agreement, trade bills (other than those on terms normally obtained), forward sale or purchase agreement or conditional sale agreement or other transaction having the commercial effect of a borrowing) other than the Intra-Group Loans. |
4.3 | (b) | There has not occurred any event of default or any other event or circumstance which would entitle any person to call for early repayment under any agreement relating to any borrowing or indebtedness of the Target Company or to enforce any security given by the Target Company (or, in either case, any event or circumstance which with the giving of notice and/or the lapse of time and/or a relevant determination would constitute such an event or circumstance), which event or circumstance will have a material adverse effect on the Target Company. |
5 | REGULATORY MATTERS |
5.1 | (a) | The Target Company has, or will by Completion have, obtained all necessary licences, permissions, authorisations and consents required for carrying on its business effectively in the places and in the manner in which such business is now carried on. |
(b) | The licences, permissions, authorisations and consents referred to in paragraph 5.1(a) are (or will by Completion be) in full force and effect, not subject to any unusual or onerous conditions, have been (or will by Completion have been) complied with in all respects. | ||
(c) | There are no circumstances which indicate that any of the licences, permissions, authorisations or consents referred to in paragraph 5.1(a) will or are likely to be revoked or not renewed, in whole or in part, in the ordinary course of events (whether as a result of the acquisition of the Target BVI Shares by the Purchaser or otherwise). |
5.2 | (a) | The Target Company has conducted its business and corporate affairs in accordance with its business licence and with all applicable laws and regulations (whether of the PRC or any other jurisdiction). |
(b) | The Target Company is not in material default of any order, decree or judgment of any court or any governmental or regulatory authority (whether of the PRC or any other jurisdiction). |
6 | THE RESTRUCTURING AND THE ASSETS | |
The Restructuring |
6.1 | The property and other assets transferred into the Target Company pursuant to the Reorganisation Agreement comprise all the assets necessary for the carrying on of the business carried on or to be carried on by the Target Company in the manner it is presently conducted and as described in the Circular and the liabilities assumed by the Target Company pursuant to the Reorganisation Agreement represent the only liabilities of the Target Company and are fully, fairly and accurately provided for in, the Accounts. |
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6.2 | The events and transactions contemplated by the Restructuring do not contravene any provision of applicable law, rule or regulation and do not contravene the Articles of Association, other constitutional documents or the business licence of the Target Company or contravene the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, note, lease or other agreement or instrument binding upon the Target Company that, singly or in the aggregate, is material to the Target Company, or any judgement, rule or regulation, order or decree of any governmental body, agency or court having jurisdiction over the Target Company and will not result in the creation or imposition of any Encumbrance or other restriction upon any assets of the Target Company. | ||
6.3 | All necessary consents, approvals, authorisations, orders, registrations and qualifications required in the PRC in connection with the events and transactions contemplated by the Restructuring have been (or will by Completion have been) made or unconditionally obtained in writing (including, without limitation, all PRC Relevant Governmental Approvals), and no such consent, approval, authorisation, order, registration or qualification has been withdrawn or is subject to any condition precedent which has not been fulfilled or performed. | ||
6.4 | There are no legal or government proceedings pending against the Target Company in the PRC challenging the effectiveness or validity of the events and transactions contemplated by the Restructuring and, to the best knowledge of the Vendor and the Warrantor, no such proceedings are threatened or contemplated by any governmental agencies in the PRC or elsewhere. |
Ownership |
6.5 | (a) | For the purpose of this paragraph 6.5, assets shall not include the Properties, to which the provisions of Part B of this Schedule shall apply. |
(b) | Each of the assets included in the Accounts or acquired by the Target Company since the Last Accounts Date (other than assets disposed of in the ordinary course of business) is the absolute property of the Target Company. Save as disclosed in the Accounts, those assets are not the subject of any security interest or any assignment, equity, option, right of pre-emption, royalty, factoring arrangement, leasing or hiring agreement, hire purchase agreement, conditional sale or credit sale agreement, agreement for payment on deferred terms or any similar agreement or arrangement (or any agreement or obligation, including a conditional obligation, to create or enter into any of the foregoing). |
Possession and Third Party Facilities |
6.6 | (a) | All of the assets owned by the Target Company, or in respect of which the Target Company has a right of use, are in the possession or under the control of the Target Company. |
(b) | Where any assets are used but not owned by the Target Company or any facilities or services are provided to the Target Company by any third party, there has not occurred any event of default or any other event or circumstance which may entitle any third party to terminate any agreement or licence in respect of the provision of such facilities or services (or any event or circumstance which with the giving of notice and/or the lapse of time and/or a relevant determination would constitute such an event or circumstance). |
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Adequacy of Assets |
6.7 | (a) | The assets of the Target Company and the facilities and services to which the Target Company has a contractual right include all rights, properties, assets, facilities and services necessary or desirable for the carrying on of the business of the Target Company in the manner in which it is currently carried on. |
(b) | The assets of the Target Company and the facilities and services to which the Target Company has a contractual right include all assets, facilities and services necessary to enable the Target Company to conduct its business after Completion in the same manner in all material respects as described in the Circular. | ||
(c) | Save as otherwise provided in the Continuing Connected Transactions, the Target Company does not depend in any material respect upon the use of assets owned by, or facilities or services provided by, any Vendor Group Company. |
Condition |
6.8 | All the property and assets transferred into the Target Company pursuant to the Reorganisation Agreement including but not limited to infrastructure, plant, machinery, systems, telecommunications networks, equipment, furniture, fixtures and vehicles used by the Target Company: |
(a) | are in a good state of repair and have been regularly and properly maintained in accordance with appropriate technical specifications, safety regulations and the terms and conditions of any applicable agreement; | ||
(b) | are capable of being efficiently and properly used for the purposes for which they were acquired or are retained; | ||
(c) | are not dangerous, inefficient, obsolete or in need of renewal or replacement. |
7 | INTELLECTUAL PROPERTY RIGHTS | |
Registered Rights |
7.1 | (a) | The Target Company is the sole legal owner of all Intellectual Property Rights registered or sought to be registered in any jurisdiction which are held or beneficially owned by the Target Company. |
(b) | No act has been done or omitted to be done and no event has occurred or is likely to occur which may render any of such Intellectual Property Rights subject to revocation, compulsory licence, cancellation or amendment or may prevent the grant or registration of a valid Intellectual Property Right pursuant to a pending application. |
Infringement |
7.2 | (a) | None of the operations of the Target Company infringe, or are likely to infringe, any rights held by any third party or involve the unauthorised use of confidential information disclosed to the Target Company (or any Vendor Group Company) in |
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circumstances which might entitle a third party to make a claim against the Target Company. |
(b) | No claim has been made by any third party which alleges any infringing act or process which would fall within paragraph 7.2(a) above or which otherwise disputes the right of the Target Company to use any Intellectual Property Rights relating to its business and the Vendor and the Warrantor are not aware of any circumstances (including any act or omission to act) likely to give rise to such a claim. | ||
(c) | There exists no actual or threatened infringement by any third party of any intellectual Property Rights held or used by the Target Company (including misuse of confidential information) or any event likely to constitute such an infringement nor has the Target Company (or any Vendor Group Company) acquiesced in the unauthorised use by any third party of any such Intellectual Property Rights. |
Intellectual Property Licences |
7.3 | The Target Company is not in default under any licence, sub-licence or assignment granted to it in respect of any Intellectual Property Rights used by it. |
Loss of Rights |
7.4 | No Intellectual Property Rights owned or used by the Target Company and no licence of Intellectual Property Rights of which the Target Company has the benefit will be lost, or rendered liable to any right of termination or cessation by any third party, by virtue of the acquisition by the Purchaser of the Target BVI Shares. |
Records and Software |
7.5 | (a) | All the accounting records and systems (including but not limited to computerised accounting systems) of the Target Company are recorded, stored, maintained or operated or otherwise held by the Target Company and are not wholly or partly dependent on any facilities or systems which are not under the exclusive ownership or control of the Target Company. |
(b) | The Target Company is licensed to use all software necessary to enable it to continue to use its computerised records for the foreseeable future in the same manner in which they have been used prior to the date of this Agreement and does not share any user rights in respect of such software with any other person. |
8 | CONTRACTUAL MATTERS | |
Material Contracts |
8.1 | Save for the Reorganisation Agreement and the Continuing Connected Transactions, there is not outstanding any agreement or arrangement to which the Target Company is a party: |
(a) | which, by virtue of the acquisition of the Target BVI Shares by the Purchaser or other performance of the terms of this Agreement, will result in: |
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(i) | any other party being relieved of any obligation or becoming entitled to exercise any right (including any right of termination or any right of pre-emption or other option); or | ||
(ii) | the Target Company being in default under any such agreement or arrangement or losing any benefit, right or licence which it currently enjoys or in a liability or obligation of the Target Company being created or increased; |
(b) | to which any Vendor Group Company is a party or in which any Vendor Group Company or any connected person (as defined under the Listing Rules) of the Company is interested or from which any such person takes benefit, whether directly or indirectly; | ||
(c) | entered into otherwise than by way of a bargain at arms length and on commercial terms; | ||
(d) | which establishes any guarantee, indemnity, suretyship, form of comfort or support (whether or not legally binding) given by the Target Company in respect of the obligations or solvency of any third party; | ||
(e) | pursuant to which the Target Company has sold or otherwise disposed of any company or business in circumstances such that it remains subject to any liability (whether contingent or otherwise) which is not fully provided for in the Accounts; | ||
(f) | which, upon completion by the Target Company of its work or the performance of its other obligations under it, is likely to result in a loss for the Target Company which is not fully provided for in the Accounts or which either is not expected to make a normal profit margin or involves an abnormal degree of risk; | ||
(g) | which establishes any joint venture, consortium, partnership or profit (or loss) sharing agreement or arrangement to which the Target Company is a party; | ||
(h) | any power of attorney given by the Target Company or any other authority which would enable any person not employed by the Target Company to enter into any contract or commitment on behalf of the Target Company; | ||
(i) | which involves or is likely to involve (i) material expenditure by the Target Company or (ii) material obligations or restrictions of the Target Company of an unusual or exceptional nature or magnitude and not in the ordinary and usual course of business; | ||
(j) | which establishes any material agency, distributorship, marketing, purchasing, manufacturing or licensing agreement or arrangement to which the Target Company is a party; | ||
(k) | which is a currency and/or interest rate swap agreement, asset swap, future rate or forward rate agreement, interest cap, collar and/or floor agreement or other exchange or rate protection transaction or combination thereof or any option with respect to any such transaction or any other similar transaction to which the Target Company is a party; |
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(l) | which is any other agreement or arrangement having or likely to have a material effect on the financial or trading position or prospects of the Target Company; | ||
(m) | which is a bid, tender, proposal or offer which, if accepted, would result in the Target Company becoming a party to any agreement or arrangement of a kind described in paragraphs 8.1(a) to (I) above. |
Defaults |
8.2 | (a) | The Target Company is not in default under any agreement to which it is a party, which agreement is material to the Target Company and there are no circumstances likely to give rise to any such default. |
(b) | No party with whom the Target Company has entered into any agreement or arrangement is in default under such agreement or arrangement and there are no circumstances likely to give rise to any such default. |
9 | LITIGATION AND INVESTIGATIONS | |
Litigation |
9.1 | (a) | Except as plaintiff in the collection of debts arising in the ordinary course of business, the Target Company is not a plaintiff nor a defendant in or otherwise a party to any material litigation, arbitration or administrative proceedings which are in progress or threatened or pending by or against or concerning the Target Company or any of its assets. |
(b) | No governmental or official investigation or inquiry concerning the Target Company in a material respect is in progress or pending. | ||
(c) | The Vendor and the Warrantor are not aware of any circumstances which are likely to give rise to any such proceeding, investigation or inquiry as is referred to in paragraph 9.1(a) or paragraph 9.1(b). |
10 | DIRECTORS AND EMPLOYEES | |
Employees |
10.1 | The Target Company has not entered into any arrangements regarding any future variation in any contract of employment in respect of any of its directors and employees nor any agreement imposing a material obligation on the Target Company to increase the basis and/or rates of remuneration and/or the provision of other benefits in kind to or on behalf of any of its directors or employees at any future date. |
Compliance |
10.2 | The Target Company has in relation to each of its employees (and so far as relevant to each of its former employees) complied in all material respects with all statutes, regulations, codes of conduct, collective agreements, terms and conditions of employment, orders and awards relevant to their conditions of service or to the relations between it and its employees (or former employees, as the case may be) or any recognised trade union. |
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Incentive Schemes |
10.3 | The Target Company does not have any share incentive scheme, share option scheme or profit sharing scheme for all or any of its directors or employees. |
Payments on Termination |
10.4 | Except to the extent (if any) to which provision or allowance has been made in the Last Accounts: |
(a) | no outstanding liability has been incurred by the Target Company for breach of any contract of employment or for services or for long service or redundancy payments, protective awards, compensation for dismissal or for any other liability accruing from the termination of any contract of employment or for services, and no such liability will be incurred by the Target Company as a result of the Restructuring or the acquisition of the Target BVI Shares by the Purchaser or other performance of the terms of this Agreement and the Reorganisation Agreement; | ||
(b) | no gratuitous payment has been made or benefit given (or promised to be made or given) by the Target Company in connection with the actual or proposed termination or suspension of employment, or variation of any contract of employment, of any present or former director or employee of the Target Company. |
11 | INSOLVENCY ETC. |
11.1 | No order has been made, petition presented or meeting convened for the purpose of considering a resolution for the winding up of any member of the Target Group or for the appointment of any provisional liquidator. No petition has been presented for an administration order to be made in relation to any member of the Target Group, and no receiver (including any administrative receiver) has been appointed in respect of the whole or any part of any of the property, assets and/or undertaking of any member of the Target Group. | ||
11.2 | No composition in satisfaction of the debts of any member of the Target Group, or scheme of arrangement of its affairs, or compromise or arrangement between it and its creditors and/or members or any class of its creditors and/or members, has been proposed, sanctioned or approved. | ||
11.3 | No distress, distraint, charging order, garnishee order, execution or other process has been levied or applied for in respect of the whole or any part of any of the property, assets and/or undertaking of any member of the Target Group. | ||
11.4 | No events or circumstances analogous to any of those referred to in paragraphs 11.1 to 11.3 have occurred in any jurisdiction outside the PRC. | ||
11.5 | No circumstances exist which are likely to give rise to the occurrence of any events or circumstances described in paragraphs 11.1 to 11.4 if the Warranties were to be repeated at any time on or before Completion. |
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1 | TAX |
1.1 | The Target Company has all necessary tax registration certificates which are in full force and effect and the Target Company has not established any place of business or carried on any business and has not made any filing with any tax authority in any part of the world other than the PRC. | ||
1.2 | The Target Company has complied in all material respects with all statutory provisions, rules, regulations, orders and directions concerning profits or enterprise income tax, foreign invested enterprise income tax, value-added tax, business tax and stamp duty (and any similar applicable tax or taxation in the PRC). | ||
1.3 | No tax authority has agreed to operate any special arrangement (being an arrangement which is not based on a uniform application of the relevant legislation whether expressly provided for in the relevant legislation or operated by way of extra statutory concession or otherwise) in relation to the Target Company. | ||
1.4 | The Target Company has duly, within all appropriate time limits, made all returns, given all notices and supplied all information required to be supplied to all relevant tax authorities. All such information was when provided and remain complete and accurate and all such returns and notices were when provided and remain complete and accurate and were made on a proper basis. | ||
1.5 | The Target Company has not received any notice or allegation from any tax authorities that it has not complied with any relevant legal requirement relating to registration or notification for taxation purposes, and the Target Company is not involved in any dispute or investigation with any tax authority and there are no evidence, facts or matters which it reasonably believes will cause any such dispute or investigation or any liability for taxation (present or future). | ||
1.6 | The Target Company: |
(a) | has paid or accounted for all taxation (if any) due to be paid or accounted for by it before the date of this Agreement; | ||
(b) | is not under any liability to pay any penalty or interest in connection with any taxation referred to in paragraph 1.6(a); | ||
(c) | has made all deductions and withholdings in respect or on account of taxation which it is required or entitled by any relevant legislation to make from any payments made by it including, without limitation, interest annuities or other annual payments, royalties, rent, remuneration payable to employees or sub-contractors or payments to a non-resident and where the Target Company has accounted in full to the relevant fiscal authority for any taxation so deducted or withheld; and | ||
(d) | has taken all necessary steps to obtain any repayment of or relief from taxation available to it. |
1.7 | All sums due and payable to any taxation authority in respect of emoluments paid and benefits provided to the employees of the Target Company at the date of this Agreement |
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have been paid and all such deductions and retentions as are required under the laws of the PRC have been made. | |||
1.8 | All remuneration, compensation payments, payments on retirement or removal from an office or employment and other sums paid or payable to employees or officers or former employees or officers of the Target Company and all interest, annuities, royalties, rent and other annual payments paid or payable by the Target Company (whether before or after the date hereof) pursuant to any obligation in existence at the date hereof are and will (on the basis of the taxation legislation in force at the date hereof) be deductible for income tax purposes either in computing the profits of the Target Company or as a charge on the income of the Target Company. | ||
1.9 | The Target Company has made or caused to be made the returns which ought to be made by or in respect of each for any taxation purposes and no returns are the subject of any dispute with any tax authority. |
2 | PROPERTY |
2.1 | The Target Company has legal right and authority to occupy and use all of the Properties and legal right and authority to use all material personal property owned by it, in each case free and clear of all Encumbrances, defects or any other restrictions except such as are described in the Property Legal Opinions or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Target Company. | ||
2.2 | The Target Company does not own, operate, manage or has any other right or interest, directly or indirectly, in any other material real property of any kind save for those described in the Property Legal Opinions and the Property Leasing Agreement and the Property Sub-leasing Agreement referred to in the Appendix. |
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1. | Domestic Interconnection Settlement Agreement | |
2. | International Long Distance Voice Services Settlement Agreement | |
3. | Property Leasing Agreement | |
4. | Property Sub-leasing Agreement | |
5. | Master Sharing Agreement | |
6. | Engineering and Information Technology Services Agreement | |
7. | Materials Procurement Agreement | |
8. | Ancillary Telecommunications Services Agreement | |
9. | Support Services Agreement | |
10. | Telecommunications Facilities Leasing Agreement |
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SIGNATURE PAGE
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SIGNED
by /s/ Zhang
Chunjiang
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) | |||
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for and on behalf of
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) | |||
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CHINA NETCOM GROUP CORPORATION (BVI) LIMITED
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) | |||
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in the presence of:
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) | |||
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/s/
Celia Lam
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Celia C.L. Lam
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Linklaters
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Solicitor, Hong Kong SAR
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SIGNED
by /s/ Zhang Chunjiang
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) | |||
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for and on behalf of
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) | |||
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CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED
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) | |||
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in the presence of:
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) | |||
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/s/
Celia Lam
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Celia C.L. Lam
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Linklaters
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Solicitor, Hong Kong SAR
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SIGNED
by /s/ Zhang Chunjiang
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) | |||
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for and on behalf of
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CHINA NETWORK COMMUNICATIONS GROUP
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) | |||
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in the presence of:
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) | |||
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/s/
Celia Lam
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Celia C.L. Lam
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Linklaters
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Solicitor, Hong Kong SAR
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Rule | Page | |||||
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1 |
DEFINITIONS AND INTERPRETATION
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2 |
ASSET TRANSFER
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3 |
ASSET DELIVERY
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4 |
PROFIT AND LOSS BEFORE AND AFTER COMPLETION
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5 |
EXPENSES AND TAXATION
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6 |
LABOUR ARRANGEMENT
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7 |
STATEMENTS, REPRESENTATIONS AND WARRANTIES
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8 |
CONDITIONS PRECEDENT
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9 |
EVENTS OF BREACH AND COMPENSATION
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10 |
PRE-EMPTIVE RIGHT
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11 |
FORCE MAJEURE
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12 |
INFORMATION DISCLOSURE AND CONFIDENTIALITY
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13 |
SURVIVAL
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14 |
RESOLUTION OF DISPUTES
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15 |
NOTICES
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16 |
CONFLICTS
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17 |
NO ASSIGNMENT
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18 |
SEVERABILITY
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10 | ||||
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19 |
NO WAIVER
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10 | ||||
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20 |
GOVERNING LAW
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10 | ||||
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21 |
LANGUAGE AND COUNTERPARTS
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10 | ||||
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22 |
APPENDIX TO THIS AGREEMENT
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10 | ||||
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23 |
EFFECTIVENESS OF THIS AGREEMENT
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10 |
APPENDIX | PARTICULARS OF TARGET ASSETS AND DESCRIPTION OF RELEVANT INFORMATION |
BETWEEN:
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Transferor:
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CHINA NETCOM (GROUP) COMPANY LIMITED | |
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(the Transferor or CNC China ) | |
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Address: Rm. 1020, China Netcom Tower, No. 21 Financial Street, Xicheng District, Beijing | |
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Legal Representative: Zhang Chunjiang | |
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Transferee:
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CHINA NETWORK COMMUNICATIONS GROUP CORPORATION | |
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(the Transferee or China Netcom Group ) | |
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Address: Rm. 1207, China Netcom Tower, No. 21 Financial Street, Xicheng District, Beijing | |
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Legal Representative: Zhang Chunjiang | |
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WHEREAS:
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(1) | CNC China is a limited liability company established and existing in accordance with the laws of the PRC. CNC China engages in the businesses of domestic fixed telecommunications networks and facilities (including local wireless loops), voice, data, video and multi-media communications and information services based on fixed telecommunications networks in twelve provinces, autonomous regions and municipalities including Beijing, Tianjin, Hebei, Liaoning, Shandong, Henan, Shanghai, Guangdong, Shanxi, Neimenggu, Jilin and Heilongjiang, international telecommunications settlement and the development of international telecommunications market. CNC China also engages in system integration, technical development, technical service, information consultancy services, equipment manufacture and sales, design and construction in relation to communications and information services. CNC China Is a wholly-owned subsidiary of China Netcom Group Corporation (Hong Kong) Limited ( CNC HK ). | |
(2) | China Netcom Group is a State-owned enterprise established and existing in accordance with the laws of the PRC, and an entity in which the investment is made with the authorisation of the State. China Netcom Group currently holds 69.88% of the shares of CNC HK. | |
(3) | CNC HK is a corporation incorporated and existing in accordance with the laws of Hong Kong. Its shares were listed on the SEHK on 17 November 2004, and its American Depository Shares were listed on the New York Stock Exchange on 16 November 2004. | |
(4) | CNC China engages in the businesses of domestic fixed telecommunications networks and facilities (including local wireless loops), voice, data, video and multi-media communications and information services based on fixed telecommunications networks in Shanghai and Guangdong through its branches in Shanghai and Guangdong, and owns the relevant telecommunications assets. | |
(5) | CNC China intends to transfer to China Netcom Group, and China Netcom Group intends to accept the transfer of, the Target Assets (the Asset Transfer ). |
1 | DEFINITIONS AND INTERPRETATION | |
1.1 | Unless otherwise specified therein, the following expressions shall have the following meanings in this Agreement, including the recitals hereof and the appendix hereto: |
Transferor
or
CNC China
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means China Netcom (Group) Company Limited. | |
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Transferee
or
China Netcom Group
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means China Network Communications Group Corporation. | |
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CNC HK
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means China Netcom Group Corporation (Hong Kong) Limited. | |
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Shanghai Branch
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means China Netcom (Group) Company Limited, Shanghai Branch. | |
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Guangdong Branch
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means China Netcom (Group) Company Limited, Guangdong Branch. | |
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Target Assets
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means the businesses owned by CNC China in Shanghai and Guangdong in respect of the local domestic fixed telecommunications networks and facilities (including local wireless loops), voice, data, video and multi-media communications and Information services based on fixed telecommunications network, and the relevant core communications assets and liabilities in connection with telecommunications services owned by CNC China. | |
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Asset Transfer
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means the transfer of the Target Assets by the Transferor to the Transferee under Clause 2.1 hereof. | |
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Asset Transfer Price
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means the aggregate amount of the cash consideration for the Asset Transfer as provided in Clause 2.2 hereof. | |
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Completion Date
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means the end of the month in which all the conditions precedent to the Asset Transfer set out in Clause 8.1 hereof have been satisfied or waived in writing by the parties to the extent permitted by applicable laws, whichever is later, or another date agreed upon by the parties hereto. | |
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Agreements pending Assignment
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mean the agreements as defined in Clause 3.2 hereof. | |
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Compensation Period
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means a period of two years from the Completion Date as provided in Clause 9.5 hereof. | |
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Pre-emptive Right
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means the right granted by China Netcom Group to CNC HK and CNC China as defined in Clause 10.1 hereof. |
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MII
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means the Ministry of Information Industry of the PRC. | |
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MOC
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means the Ministry of Commerce of the PRC. | |
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SEHK
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means The Stock Exchange of Hong Kong Limited. |
1.2 | Unless otherwise expressly provided, all references to a clause or article in this Agreement shall refer to a clause or article of this Agreement. | |
1.3 | The term including used in this Agreement shall refer to including but not limited to. | |
1.4 | All references to a party to this Agreement or any other agreement or document in this Agreement shall include any successor or authorised assignee of such party. | |
1.5 | All references to any law or any provision of any law in this Agreement shall include any amendment to or re-enactment of such law or provision, any legal provision replacing such law or provision, and all regulations and legal documents promulgated pursuant thereto. | |
1.6 | The headings in this Agreement and the appendix hereto are inserted for convenience only and shall not have any effect on the construction of this Agreement. | |
2 | ASSET TRANSFER | |
2.1 | The Transferor agrees to transfer the Target Assets owned by the Transferor to the Transferee (particulars of which are specified in Appendix 1) on the Completion Date as stipulated in this Agreement, and the Transferee agrees to accept the transfer of the Target Assets, in accordance with the terms and conditions as set forth herein. | |
2.2 | The Transferor agrees to sell the Target Assets to the Transferee for a consideration in cash of RMB 3,500 million (the Asset Transfer Price ). In addition, the Transferee will assume an aggregate principal amount of RMB 3,000 million of debt which is due and owing from the Shanghai Branch and the Guangdong Branch to independent third parties upon completion of the Asset Transfer. | |
2.3 | The parties hereto agree that the Transferee shall pay RMB 1,050 million in cash to the Transferor (equivalent to thirty per cent. (30%) of the Asset Transfer Price) in full within one (1) business day after the Completion Date and the Transferee shall pay the remaining RMB 2,450 million in cash to the Transferor (equivalent to seventy per cent. (70%) of the Asset Transfer Price) in full within thirty (30) days after the Completion Date. | |
The Transferee agrees to transmit the aforesaid Asset Transfer Price to a bank account as designated by the Transferor. | ||
2.4 | Except as provided in Clause 9.1 hereof, the Transferee shall be the owner of the Target Assets immediately after the Completion Date. |
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3 | ASSET DELIVERY | |
3.1 | Except as otherwise provided by this Agreement, the Target Assets shall be deemed to have been legally owned by China Netcom Group on the Completion Date, and China Netcom Group shall not bring any claims against CNC China in respect of the delivery of the Target Assets other than those as agreed upon herein, except in the case of any breach hereof by CNC China existing prior to the Completion Date. All assets, liabilities, responsibilities and obligations concerning the Target Assets existing prior to the Completion Date shall be borne by CNC China; and any debts concerning the Target Assets and other forms of assets, liabilities, responsibilities and obligations arising after the Completion Date shall be borne by China Netcom Group. | |
3.2 | For the purpose of the transfer of the Target Assets, contracts and agreements executed in the name of Shanghai Branch or Guangdong Branch or any of their sub-branches in connection with the Target Assets and interests which are effective shall belong to China Netcom Group commencing from the Completion Date, and the parties hereto have entered into deed of novation and/or consent letter with other relevant parties to some of such contracts and agreements. Due to the time limit and the amount of such contracts and agreements, there are a certain number of such contracts and agreements the assignment of which from CNC China to China Netcom Group has not been approved by other relevant parties thereto (the Agreements Pending Assignment ). With reference to the Agreements Pending Assignment, the parties hereto specifically agrees as follows: |
(1) | unless otherwise provided herein, any rights, obligations, profits or losses held by CNC China under the Agreements Pending Assignment shall belong to China Netcom Group commencing from the Completion Date. CNC China agrees that any interests received or held by CNC China in respect of the Agreements Pending Assignment shall be deemed to have been received or held by CNC China in the capacity as a trustee of China Netcom Group, and the ownership of such interests shall belong to China Netcom Group. CNC China shall transfer such interests to China Netcom Group as requested by China Netcom Group from time to time. | ||
(2) | CNC China shall exercise and perform the rights and obligations under the Agreements Pending Assignment strictly in accordance with the instructions given by China Netcom Group from time to time, and may not amend any provisions of the Agreements Pending Assignment or terminate any of the Agreements Pending Assignment. | ||
(3) | China Netcom Group shall indemnify CNC China against any actual costs and expenses reasonably incurred due to the performance by CNC China of its obligations under Clause 3.2.1 above, except those caused by an act of negligence or willful default on the part of CNC China. | ||
(4) | if it is required to enforce any of the rights of China Netcom Group under the Agreements Pending Assignment in the name of CNC China, including to bring or conduct legal or arbitration proceedings or other necessary actions, CNC China shall assist China Netcom Group in enforcing such rights in the name of CNC China. | ||
(5) | the parties hereto shall use their best endeavours to complete the formalities for the assignment of the Agreements Pending Assignment as soon as practicable, and/or to obtain the approval letters from other relevant parties to the Agreements Pending Assignment. |
3.3 | Due to the reason that some of the Target Assets, such as land use rights, buildings, structures and vehicles, the transfer and registration formalities of which needs to be completed, and that |
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only the de facto delivery (transfer of ownership) of such assets and not the transfer of legal ownership of such assets (completion of the transfer formalities) can be completed on the Completion Date, CNC China agrees to assume the obligations to assist the transfer of the ownership of such assets to China Netcom Group or its local branch or sub-branch after the Completion Date. | ||
3.4 | The Transferor and the Transferee agree that the account receivables and the account payables between the Shanghai Branch and the Guangdong Branch on the one hand and the Transferor on the other hand shall be settled in cash within one (1) business day after the Completion Date. | |
3.5 | The parties hereto agree to use their best endeavours to complete the completion formalities that have not been completed on the Completion Date. The parties hereto agree to take all necessary steps to ensure the full implementation of the completion, including but not limited to the entering into or procuring other relevant parties to enter into any document, applying for and obtaining any approval, consent and permit, and handling the registration, recording and filing of the relevant procedural documents. The parties hereto shall negotiate in an amicable manner and handle properly any relevant matters not referred to herein. | |
4 | PROFIT AND LOSS BEFORE AND AFTER COMPLETION | |
4.1 | The parties hereto agree that the profit and loss generated from the Target Assets prior to the Completion Date (and including the Completion Date) shall be borne and owned by the Transferor. | |
4.2 | The parties hereto agree that the profit and loss generated from the Target Assets after the Completion Date shall be borne and owned by the Transferee. | |
5 | EXPENSES AND TAXATION | |
The parties hereto shall pay their respective taxes arising in connection with the Asset Transfer in accordance with the requirements under the laws, regulations and regulatory documents of the PRC. All expenses incurred as a result of the negotiation, preparation and implementation of this Agreement shall also be borne by the respective parties. | ||
6 | LABOUR ARRANGEMENT | |
6.1 | The parties hereto acknowledge that the Transferor shall determine a list of employees who are to be transferred to the Transferee together with the Target Assets and such employees shall include all members of the senior management and ordinary employees. | |
6.2 | The parties hereto acknowledge that the labour relationships of all the employees relating to the Target Assets and their social security (including pension insurance, medical insurance, and unemployment insurance) prior to the Completion Date shall be handled and arranged by the Transferor; and that the labour relationships of all the employees relating to the Target Assets and their social security (including pension insurance, medical insurance, and unemployment insurance) from the Completion Date shall be handled and arranged by the Transferor. | |
6.3 | The Transferor and the Transferee shall be jointly responsible and shall jointly settle any labour dispute arising from causes occurred before the date on which the labour contracts are amended and from the amendments to the labour contracts. |
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7 | STATEMENTS, REPRESENTATIONS AND WARRANTIES | |
7.1 | Each of the parties hereto represent to each other that: |
(1) | such party has full legal right, power and authority to execute this Agreement and perform its obligations hereunder, which constitute valid obligations binding upon such party pursuant to the provisions of this Agreement; | ||
(2) | the performance of the provisions of this Agreement will not result in: |
(i) | any breach of any provision of such partys incorporation documents or other relevant documents, or breach of any law, regulation and rule applicable to such corporation; or | ||
(ii) | any breach of any important contract, agreement, permit or other instrument, or any order, judgement or decree issued by any court, governmental department and regulatory authority; |
(3) | such party will provide full consultation, close collaboration and active support to the other party in the process of the Asset Transfer, especially in satisfying or fulfilling the conditions precedent and handling the completion formalities of the Asset Transfer; | ||
(4) | such party has executed and processed or will execute and process all necessary documents and approvals, and has taken or will take all necessary steps pursuant to relevant laws, regulations and rules to ensure the legality and validity of the Asset Transfer contemplated herein; | ||
(5) | such party will handle or assist the other party in the mutual handling of any matter in respect of the Asset Transfer, including without limitation providing information in respect of the Transferor, drafting and executing relevant documents, and handling relevant approval and registration formalities in accordance with the provisions of applicable law and this Agreement. |
7.2 | Except as provided in Clause 7.1 above, the Transferor undertakes to the Transferee in respect of the Target Assets as follows: |
(1) | the Transferor will operate and manage the Target Assets and the businesses relating thereto in the ordinary manner from the date hereof till the Completion Date; | ||
(2) | the Target Assets are lawfully owned by the Transferor with a clear and legal title and free from any dispute; | ||
(3) | except as disclosed to the Transferee by the Transferor, the Transferor has not created any mortgage, pledge, lien, or any third party right over such telecommunications assets which may materially affect the right of the Transferee in respect of the Target Assets; | ||
(4) | other than the liabilities as disclosed and/or the liabilities arising in the ordinary course of business, the Target Assets are free and clear of, and/or will not be affected by any actual and/or contingent liabilities or obligations prior to the Completion Date; | ||
(5) | the transfer of the Target Assets from the Transferor to the Transferee hereunder does not constitute any breach of any contract and agreement to which the Transferor is a |
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party or any applicable law, administrative regulations and rules, nor does it constitute any infringement of any right of any third party; | |||
(6) | there is no litigation, arbitration or administrative punishment which will materially and adversely affect the Target Assets or any threat of such litigation, arbitration and administrative punishment. |
7.3 | The Transferor and Transferee undertake that in the event that a party hereto breaches any statement, representation and warranty set out in this Clause 7, the party in breach shall indemnify the other party in full against any claim, loss, expense or other liability resulting from the breach. | |
8 | CONDITIONS PRECEDENT | |
8.1 | The parties hereto agree that the completion of the following matters by the parties hereto shall constitute the conditions precedent to the Asset Transfer: |
(1) | The approval by the shareholders of CNC HK in general meeting in relation to the implementation of the Asset Transfer in accordance with applicable laws, regulations and listing rules; | ||
(2) | MIl, MOC and other relevant government and regulatory authorities approving matters relating to the Asset Transfer such as the change of the business scope of CNC China. |
8.2 | The parties hereto shall use their best endeavours to cooperate to satisfy or procure the satisfaction of each of the conditions precedent following the execution of this Agreement. Neither party may engage in any act that may preclude or restrict the satisfaction of any condition precedent as set forth in Clause 8.1 above. | |
9 | EVENTS OF BREACH AND COMPENSATION | |
9.1 | In the event that the Transferee fails to pay to the Transferor the Asset Transfer Price as scheduled in accordance with the provisions of Clause 2.3 hereof, the Transferee shall pay to the Transferor a daily fine in an amount equal to 0.05% of the overdue payment, and the Transferor may suspend the Asset Transfer by a written notice to the Transferee sixty (60) days after the date on which the payment is due if such amount remains unpaid. If the Transferee does not pay the Asset Transfer Price and the accrued overdue fine within thirty (30) days after receipt of the notice of payment from the Transferor, the Transferor may declare to terminate this Agreement. | |
Any suspension or termination of this Agreement and the Asset Transfer as set forth hereinabove shall not affect the rights and obligations of the parties hereto which have already been created or accrued under this Agreement (except as provided in Clause 2.4). | ||
9.2 | Any non-performance or partial performance of this Agreement or any performance hereof not in compliance with the manner or terms as agreed herein shall constitute a breach of this Agreement, the party in breach shall be liable to the non-defaulting party for such breach. In case there is breach by each of the parties, their respective liabilities for such breach shall be ascertained. | |
9.3 | After the formal execution of this Agreement, any non-performance or partial performance by either party of any obligation, statement, warranty or undertaking provided in this Agreement shall constitute a breach hereof by such party. The party in breach shall make full and adequate compensation to the other party, including but not limited to the costs of any legal action against |
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authorities, no party to this Agreement shall publish or permit any person to publish any announcement relating to this Agreement or any matter ancillary to this Agreement without the prior written consent of the other party (such consent shall not be unreasonably withheld). |
China Network Communications | ||
China Netcom (Group) Company Limited | Group Corporation | |
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Addressee: Liu Haiqiang
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Addressee: Luo Gang | |
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Address: Rm. 1020, China Netcom Tower, No.
21 Financial Street, Xicheng District,
Beijing
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Address: Rm. 1207, China Netcom Tower, No. 21 Financial Street, Xicheng District, Beijing | |
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Postal Code: 100032
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Postal Code: 100032 | |
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Fax: 010 6625 9544
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Fax: 010 6625 9950 |
16 | CONFLICTS | |
In the event that there is any apparent conflict or discrepancy with the provisions of any other relevant documents in connection with the Asset Transfer, the provisions of such documents shall |
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(There is no text below and the next page is the signing page.) |
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1. | Assets and related liabilities of China Netcom (Group) Company Limited, Shanghai Branch | |
The specific relevant assets include: current assets, machinery and equipment, land and buildings, construction in progress, construction materials, other intangible assets, long-term amortisation expenses, deferred tax debits and current liabilities. | ||
2. | Assets and related liabilities of China Netcom (Group) Company Limited, Guangdong Branch | |
The specific relevant assets include: current assets, machinery and equipment, land and buildings, construction in progress, construction materials, land use rights, other intangible assets, deferred assets and current liabilities of the 21 sub-branches of Guangdong Branch in Guangzhou, Shenzhen, Dongguan, Zhuhai, Zhongshan, Foshan, Huizhou, Jiangmen, Jieyang, Shunde, Zhanjiang, Maoming, Zhaoqing, Shantou and Chaozhou. |
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(1)
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Party A: | China Network Communications Group Corporation (Netcom Group) | ||
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Address: | No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC | ||
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(2)
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Party B: | China Netcom (Group) Company Limited (CNC China) | ||
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Address: | Building C, No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC |
1
2
3
4
5
CHINA NETWORK COMMUNICATIONS GROUP CORPORATION (SEAL)
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By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative | ||||
CHINA NETCOM (GROUP) COMPANY LIMITED (SEAL)
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By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative | ||||
(1)
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Party A: | China Network Communications Group Corporation (Netcom Group) | ||
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Address: | No. 156, Fuxingmennei Avenue, Xicheng District, | ||
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Beijing, PRC | |||
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(2)
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Party B: | China Netcom (Group) Company Limited (CNC China) | ||
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Address: | Building C, No. 156, Fuxingmennei Avenue, Xicheng | ||
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District, Beijing, PRC |
1
2
3
4
CHINA NETWORK COMMUNICATIONS GROUP CORPORATION (SEAL)
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By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative | ||||
CHINA NETCOM (GROUP) COMPANY LIMITED (SEAL)
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By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative | ||||
5
6
(1)
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Party A: | China Network Communications Group Corporation (Netcom Group) | ||
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Address: | No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC | ||
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(2)
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Party B: | China Netcom (Group) Company Limited (CNC China) | ||
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Address: | Building C, No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC |
1
2
3
4
5
6
By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative |
By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative | ||||
7
(1)
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Party A: | China Network Communications Group Corporation (Netcom Group) | ||
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Address: | No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC | ||
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(2)
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Party B: | China Netcom (Group) Company Limited (CNC China) | ||
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Address: | Building C, No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC |
1
2
3
4
5
6
7
By: | /s/ Zuo Xunsheng | |||
Legal representative or Authorized representative |
By: | /s/ Zuo Xunsheng | |||
Legal representative or Authorized representative | ||||
8
(1)
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Party A: | China Network Communications Group Corporation (Netcom Group) | ||
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Address: | No. 156, Fuxingmennei Avenue, Xicheng District, | ||
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Beijing, PRC | |||
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(2)
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Party B: | China Netcom (Group) Company Limited (CNC China) | ||
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Address: | Building C, No. 156, Fuxingmennei Avenue, Xicheng | ||
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District, Beijing, PRC |
CHINA NETWORK COMMUNICATIONS GROUP CORPORATION (SEAL)
|
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By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative | ||||
CHINA NETCOM (GROUP) COMPANY LIMITED (SEAL)
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By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative | ||||
NO. |
NAME OF THE
PROPERTY |
USAGE |
FULL
ADDRESS |
AREA
LEASED |
RENTALS
(TOTAL) |
NOTE | ||||||||||||||||||
* | Please indicate in the Note column if there are other special articles as applicable. |
NO. |
NAME OF THE
PROPERTY |
USAGE |
FULL
ADDRESS |
AREA
LEASED |
RENTALS
(TOTAL) |
NOTE | ||||||||||||||||||
* | Please indicate in the Note column if there are other special articles as applicable. |
(1)
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Party A: | China Network Communications Group Corporation (Netcom Group) | ||
|
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Address: |
No. 156, Fuxingmennei Avenue, Xicheng District,
Beijing, PRC |
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(2)
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Party B: | China Netcom (Group) Company Limited (CNC China) | ||
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Address: |
Building C, No. 156, Fuxingmennei Avenue, Xicheng
District, Beijing, PRC |
1
2
3
4
5
6
CHINA NETCOM (GROUP) COMPANY LIMITED (SEAL)
|
||||
By: | /s/ Zuo Xunsheng | |||
Legal representative or Authorized representative | ||||
CHINA NETWORK COMMUNICATIONS GROUP CORPORATION (SEAL)
|
||||
By: | /s/ Zuo Xunsheng | |||
Legal representative or Authorized representative | ||||
7
(1)
|
Party A: | China Network Communications Group Corporation (Netcom Group) | ||
|
||||
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Address: | No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC | ||
|
||||
(2)
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Party B: | China Netcom (Group) Company Limited (CNC China) | ||
|
||||
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Address: | Building C, No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC |
1
2
3
4
5
By: | /s/ Zuo Xunsheng |
By: | /s/ Zuo Xunsheng |
6
(1)
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Party A: | China Network Communications Group Corporation (Netcom Group) | ||
|
||||
|
Address: | No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC | ||
|
||||
(2)
|
Party B: | China Netcom (Group) Company Limited (CNC China) | ||
|
||||
|
Address: | Building C, No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC |
By: | /s/ Zuo Xunsheng | |||
Legal representative or Authorized representative |
By: | /s/ Zuo Xunsheng | |||
Legal representative or Authorized representative |
(1)
|
Party A: | China Network Communications Group Corporation (Netcom Group) | ||
|
||||
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Address: | No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC | ||
|
||||
(2)
|
Party B: | China Netcom (Group) Company Limited (CNC China) | ||
|
||||
|
Address: | Building C, No. 156, Fuxingmennei Avenue, Xicheng District, Beijing, PRC |
By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative |
By: | /s/ Zuo Xunsheng | |||
Legal Representative or Authorized Representative |
Party A:
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China Network Communications Group Corporation, a state owned enterprise organized existing under the laws of the Peoples Republic of China (PRC) | |
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Address:
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Building C, No.156, Fuxingmennei Avenue, Xicheng | |
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District, Beijing, PRC | |
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Party B:
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China Netcom Group System Integration Limited Corporation, a limited liability company organized existing under the laws of the PRC | |
|
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Address:
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No.1, Zhonghe Street, Beijing Economic and Technology Development District, Beijing, PRC |
1
2
3
4
5
6
7
PARTY A: CHINA NETWORK COMMUNICATIONS GROUP CORPORATION (SEAL)
|
||||
By: | /s/ Zuo Xunsheng | |||
Legal representative or Authorized representative | ||||
PARTY B: CHINA NETCOM GROUP SYSTEM INTEGRATION LIMITED CORPORATION (SEAL)
|
||||
By: | /s/ Sun Shizhen | |||
Legal representative or Authorized representative | ||||
8
(1) | Netcom Group is a state owned enterprise duly incorporated and validly existing under the laws of the PRC; | |
(2) | CUCL is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, whose equity is 100% held by China United Telecommunications Corporation Limited (the Unicom Red-chip Company, a company duly incorporated and validly existing under the laws of the Hong Kong Special Administration Region and dually listed on the Hong Kong Stock Exchange). Approved by the former Ministry of Information Industry (MII) of the PRC, CUCL is mainly engaged in nationwide provision of international and domestic long-distance communications services (excluding international telecommunications facilities services); Internet services and IP Telephony services; as well as mobile communications services in 31 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Hubei, Anhui, Sichuan, Guizhou, Xinjiang, Chongqing, Shaanxi, Guangxi, Henan, Heilongjiang, Jilin, Jiangxi, Shanxi, Inner Mongolia, Hunan, Hainan, Yunnan, Ningxia, Gansu, Qinghai and Tibet; | |
(3) | On May 24, 2008, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Deepening the Reform of Chinas Telecommunications System, which is seen as the guidepost for the Chinese government to deepen the reform of its telecommunications system by endorsing the formation of three leading competitive carriers with nationwide network resources, similar size and strength and |
1
the capacity of full service operation. In the above notice, China Telecom is encouraged to buy China Unicoms CDMA network and China Unicom is encouraged to merge with China Netcom. As a response to the call for deepening the reform in regard to telecommunications restructuring, the Unicom Red-chip Company is to merge with Netcoms red-chip counterpart via an agreement (the Merger Transaction). Following the merger, the Netcom Red-chip Company will withdraw from the Hong Kong Stock Exchange and the New York Stock Exchange to become a wholly owned subsidiary of the Unicom Red-chip Company; | ||
(4) | In its operations of telecommunications services, Party B needs to make the interconnection settlement to Netcom Group. | |
On the basis of equity and fairness and following friendly consultation, Party A (including Party As branches, subsidiaries and other units under its control, but excluding the Netcom Red-chip Company and its affiliates, subsidiaries and other units under its control, the same below) and Party B (including Party Bs branches, subsidiaries and other units under its control, the same below) enters into this Framework Agreement on interconnection settlement and other related matters as follows: | ||
1. | Basic principles |
1.1 | The services and/or facilities from one party to the other pursuant to this Framework Agreement are regarded as paid business transactions between the two parties. Based on the principle of equity and fairness, the party is entitled to charge the other party a reasonable amount of service fees for the services and/or facilities. The other party shall honour the obligation of payment. | ||
1.2 | The services and/or facilities from one party to the other pursuant to this Framework Agreement shall be no less favourable than those granted to any other third-party as and when the same or similar services and/or facilities are provided. | ||
1.3 | If one party requests the other to provide more services and/or facilities under this Framework Agreement, the other party shall make its best efforts to provide extra services and/or facilities as required. The conditions governing the services and/or facilities shall be no less favourable than those granted to any other third-party as and when the same or similar services and/or facilities are provided. | ||
1.4 | The provision of services and/or facilities under this Framework Agreement shall comply with the purpose of use provided in this Framework Agreement as well as relevant state standards. | ||
1.5 | In the event of losses incurred to either party as a result of breach of this Framework Agreement, the party in breach shall claim in time full responsibilities with regard to the breach (including but not limited to direct or indirect losses inflicted upon the other party). However, if the loss in question is caused by force majeure, no party shall be held responsibilities. | ||
1.6 | During implementation of the obligations prescribed in this Framework Agreement by either party, the other party shall undertake to provide assistances where necessary. | ||
1.7 | It is confirmed that the two parties are obligated to take further actions and measures where necessary to ensure the realization of the purposes and provisions prescribed in this Framework Agreement. Moreover, the provisions relating to connected transactions in the listing rules of the Hong Kong Stock Exchange will be observed when Party B emerges as a subsidiary of the Unicom Red-chip Company. |
2. | Interconnection and settlement types |
2.1 | The two parties agree to realize interconnection of various telecommunications networks. | ||
2.2 | The two parties agree to make settlement of domestic and international voice services in accordance with the provisions of the Agreement. |
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3. | Rules of the Internet technology, technical specifications, Internet access charges sharing and project construction |
3.1 | The above-mentioned interconnection of the two parties shall comply with the Internet technical rules and technical specifications of the state telecommunications administration. | ||
3.2 | The two parties should refer to the relevant regulations of the state telecommunications administrator and determine the settlement methods of the interconnection cost and project construction through negotiation. |
4. | Obligations of the two parties |
4.1 | The two parties shall ensure the quality of inter-network communications is not poorer than that of their respective intra-network communications. | ||
4.2 | Where technically feasible, any party to this Framework Agreement that provides a variety of telecommunications services to its intra-network subscribers, shall upon the other partys request, provide the same services to the other partys subscribers unconditionally and timely and ensure quality of service. | ||
4.3 | Party A has the obligation to provide the auditor of Unicom Red-chip Company with accounting records of Party A and its connected persons on the transaction details. |
5. | Network management and maintenance |
5.1 | In case network expansion or transformation by any party to this Framework Agreement is likely to affect the user communications on the other party, it should notify the other party six (6) months in advance. | ||
5.2 | Except in case of the force majeure, any party to this Framework Agreement makes adjustment in routers, relay circuit, signal mode, Bureau data and software version in its network, which might affect the user communications on the other party, it should notify the other party thirty (30) days in advance. | ||
5.3 | Any party to this Framework Agreement, upon request, should timely cooperate with the other party on its adjustment in routers, relay circuit, signal mode, Bureau data and software version to ensure quality of the inter-network communications. | ||
5.4 | The two parties agree to maintain their respective networks in accordance with the relevant regulations promulgated by the national telecommunications administrator to ensure the normal operation of the entire network. | ||
5.5 | When the inter-network communications is disrupted or ineffective, the two parties shall take immediate and effective measures to restore communications. |
6. | Settlement principles and methods |
6.1 | Local network call charges settlement |
(1) | Within the local networks, when Party B mobile telephone customer calls a Party A fixed-line customer, Party B makes a settlement payment to Party A at the rate of RMB0.06 per minute. | ||
(2) | Within the local networks, when Party A fixed-line customer calls a Party B mobile telephone customer, the settlement is suspended. | ||
(3) | Within the local networks, when customers of the two parties make inter-network calls to various call centres, the telephone operator in the location of the calling party collects local network call charges and makes a settlement payment to the telephone operator in the location of the called party at the rate of RMB0.06 per minute. |
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(4) | When the phone customers of one party choose the dial-up access to the Internet service of the other party, the operator in the location of the calling party collects the communications charges for the Internet service from the customers. The Internet service provider collects the network use charges from the customers. There is no settlement between Party A and Party B. |
6.2 | Charge settlement of domestic long distance calls, international calls and calls to Hong Kong, Macao and Taiwan, and IP call. |
(1) | While Party Bs mobile subscribers choose to use Party As domestic long distance call services or the international telephone services for calling, Party B shall collect the local calling charges (additional roaming charges for roaming customers) from the callers and Party A shall collect domestic or international call charges from the callers. In the local network at the callers location, Party A shall make a settlement payment to Party B at the rate of RMB0.06 per minute. | ||
When Party As local fixed-line phone users choose to use Party Bs domestic long-distance call or international call services for long-distance or international calling, the calling party is free from charge by Party A, and is charged by Party B for domestic and international calling services. In the local network of the calling party, Party B shall make a settlement payment to the calling party at the rate of RMB0.06 per minute. | |||
(2) | The user of either party does not choose the domestic long-distance network to call the user of the other party or other call centres in other places: when the calling party in the location of the calling party sends the calling into the phone network of the other party via the connection points, the settlement payment rate will be RMB0.34 per minute if the call is made between 0:00 and 07:00 hours and RMB0.54 per minute if the call is made between 07:00 and 24:00 hours. | ||
(3) | The user does not choose the international phone service for calling: when the calling party in the local network sends the calling into the phone network of the other party via the connection points, the calling party shall make a settlement to the international service provider at the rate of RMB B per minute. If the calling party uses the domestic long-distance circuit to send the calling to the network of the other party in the location of the international inbound and outbound bureau (not the location of the calling party), the calling party shall make a settlement to the international service provider at the rate of RMB C per minute. On holidays and during the hours of discount, the settlement is based on the preferential price (B and C: B is RMB0.06 per minute, which is the rate for the international service on the side of the international service providers approved by the former Ministry of Information Technology. And C is RMB0.54 per minute, which is the rate for the international service on the side of the international service providers approved by the former Ministry of Information Technology. The preferential price refers to the price during holidays and the hours of discount which is released to the public by the international service provider). | ||
The control over the proportion of poor international calls shall be negotiated by the international service departments of the two parties. Before reaching any consensus, the settlement shall be made in accordance with the international service charge standards of the two parties. | |||
The two parties agree to realize direct connection of the international inbound and outbound bureau in Beijing. | |||
(4) | When phone users of either party choose the other partys IP phone network for calling, the telephone operator in the location of the calling party collects the local call charges from the calling party (local call charges for mobile users and additional roaming charges for roaming users). The IP service provider collects the IP phone charges. On the calling side, the two parties do not make a settlement. |
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(5) | For the long-distance calling from the long-distance phone network or the IP phone network of one party to the phone user or call centres of the other party, the long-distance service provider shall make a settlement to the other party at the rate of RMB0.06 per minute as it sends the call into the phone network of the other party in the location of the called party. | ||
(6) | For the international calling from the international phone network or IP phone international gateway of one party to the phone user of the other party, the long-distance service provider shall make a settlement to the other party at the rate of RMB0.06 per minute as it sends the call into the phone network of the called party in the location of the called party. When the international service provider sends the call to the phone network of the called party via the connection point out of the location of the called party, it shall make a settlement to the called party at the rate of RMB0.54 per minute in the location of the connection point. | ||
For the international calling from Party As international phone network or the IP international gateway to Party Bs international roaming visiting users, Party A sends the calling to Party Bs phone network via the connection point in the location of Party As international inbound and outbound bureau, where Party A makes a settlement to Party B at the rate of RMB 0.06 per minute. | |||
(7) | For the transmission of calling number that does not comply with the Agreement, the calling party is considered non-local domestic user by the two parties in the inter-network settlement. In case either party fails to send the real calling number due to the equipment or the technical problems, the transmission format of the calling number shall be determined by the headquarters of the two parties through negotiation. |
6.3 | Transfer settlement |
(1) | When the phone user of either party calls the local customer of the third party or the call centres affiliated to the network of the third party and transferred via the network of the other party, the calling party shall make a settlement to the transferring party at the rate of RMB0.03 per minute. Whether the settlement between the calling party and the called party will be made by the transferring party is determined by the provincial agencies of the two parties or the third party at the provincial level through negotiation. | ||
(2) | When the phone user of the third party calls the local customer of either party or the call centres affiliated to the network of either party and transferred via the network of the other party, the third party shall make a settlement to the transferring party at the rate of RMB0.03 per minute. Whether the settlement between the calling party and the called party will be made by the transferring party is determined by the provincial agencies of the two parties or the third party at the provincial level through negotiation. | ||
(3) | When the phone user of either party chooses the domestic long-distance call, IP phone service or the phone card by the third party or vice versa, the calling party if transferred by the other party, the transferring party shall send the calling in the location of the calling party to the network of the service supplier, which shall make the settlement to the transferring party at the rate of RMB0.03 per minute. Whether the settlement between the calling party and the called party will be made by the transferring party is determined by the provincial agencies of the two parties or the third party at the provincial level through negotiation. | ||
(4) | When the long-distance call between the user of either party and the user of the third party is transferred at the receiving side, the long-distance service supplier shall pay the transferring charges to the transferring party at the rate of RMB0.03 per minute plus the settlement charges of RMB0.06 per minute. The transferring party then makes the settlement to the called party at the rate of RMB0.06 per minute. | ||
(5) | When the calling from the user of Party B to the user of the third party is transferred by Party A, if Party A uses the switch invested by Party B, Party A and Party B does not |
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make settlement of the transferring charges; if Party A uses its own switch, Party B shall make the settlement to Party A at the rate of RMB0.03 per minute. |
6.4 | Settlement of calling forwarding | ||
When user A calls user B, who forwards the calling to user C, it is considered calling twice. The first calling is from user A to user B and the second calling is from user B to user C. If either calling is relayed through the inter-network connection point of Party A and Party B, the two parties shall make the settlement according to relevant provisions of this Agreement. | |||
6.5 | Settlement of international roaming of mobile users |
(1) | Settlement of international roaming and roaming in Hong Kong, Macao and Taiwan of Party Bs mobile users: | ||
When user A calls Party Bs mobile user B, who is roaming in foreign countries or Hong Kong, Macao and Taiwan, the calling is considered twice. The first calling is from user A to user B and the second calling is user Bs calling to the roaming place. If either calling is relayed through the inter-network connection point of Party A and Party B, the two parties shall make the settlement according to relevant provisions of this Agreement. | |||
(2) | The calling by the roaming user from foreign countries or Hong Kong, Macao and Taiwan is considered the calling by Party Bs local mobile user. Party A and Party B shall make the settlement according to relevant provisions of this Agreement. |
6.6 | Other provisions on inter-network settlement |
(1) | Access to the network half-way is considered access to the network at the starting point and settlement shall be made according to article 6.2. | ||
(2) | When Party Bs mobile user makes calling or is called, settlement shall be made according to the location of the calling party or the called party, except the mobile user originates a long distance calling through the network of his own selection. | ||
(3) | When one party uses the same access code to open local, long-distance and IP services, and the user of the other party uses the service access code for calling, the settlement shall be made according to the standard for long-distance service. The service supplier shall make the settlement to the calling party at the rate of RMB0.06 per minute. |
6.7 | Settlement time unit, cycle and location |
(1) | The settlement of domestic long-distance call, international call and IP call is made by 6 seconds. Less than 6 seconds is counted as 6 seconds. The call length of all phone bills in the settlement cycle is totalled, if its less than minute, it shall be counted as minute. The call length which is less than three seconds (including three seconds) shall be taken into account. | ||
(2) | When user of either party chooses the smart phone card of the other party for calling, the settlement shall be made by 6 seconds. Less than 6 seconds is considered 6 seconds. The call length of all phone bills in the settlement cycle is totalled, if its less than minute, it shall be counted as minute. | ||
(3) | Settlement billing cycle (subject to the end of the call) is 0:00:00 (included) of the first day of each month to 24:00:00 (excluded) of the last day of the same month. | ||
(4) | The settlement location is in principle at the provincial level. Where conditions do not permit, the provincial-level agencies may make the local network settlement. The details shall be determined by the provincial agencies of the two parties. |
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7. | Representations, assurances and commitments | |
Each party of this Framework Agreement makes the following representations, assurances and commitments to the other party: |
(1) | Each party is an independent legal person incorporated for effective duration in accordance with Chinese laws, with full power and authority (including but not limited to the approval, permission or consent given by competent government departments) to sign and implement this Framework Agreement; | ||
(2) | No provision contained in this Framework Agreement is in violation of either partys association documents or Chinese laws and regulations; | ||
(3) | Each party will do its utmost to take or cause other people to take any necessary, appropriate or desirable action in line with Chinese laws, regulations as well as this Framework Agreement, with a view to enabling the effective implementation of those matters prescribed in this Framework Agreement. |
8. | Effectiveness |
8.1 | This Framework Agreement is valid for 3 years and enters into force on the next day after all conditions of this Framework Agreement are fully met: |
(1) | This Framework Agreement is ratified by the general meeting of shareholders of the China United Communications Co. Ltd. (Unicom A share Company). | ||
(2) | This Framework Agreement is approved at the general meeting of shareholders of Unicom Red-chip Company. | ||
(3) | The Merger Transaction is executed and completed. |
8.2 | Unless Party B sends a written notice to Party A not to renew the Agreement 60 days in advance, when this Framework Agreement expires the duration or the extended duration, the two parties will extend the Agreement for an agreed duration with the written consent in compliance with relevant laws, regulations and other rules. |
9. | Force majeure |
9.1 | If a party is unable to implement or fully implement the obligations prescribed in this Framework Agreement as a result of force majeure, then it will not undertake any liability for breach of the agreement, in which case it shall, within fifteen (15) days following the occurrence of force majeure, inform the case to the other party in writing and provide proof therewith, and at the same time make every effort to minimise the losses incurred by force majeure. Within a reasonable period of time in the wake of force majeure, the party falling victim to force majeure shall undertake to continue implementation of this Framework Agreement. | ||
9.2 | Force majeure in this Framework Agreement means all objective situations that are unforeseeable, unavoidable and that cannot be overcome. |
10. | Confidentiality | |
Without the written permission of the other party, neither party shall make any announcement in regard to, or provide or disclose to a third party any data or information in relation to the businesses of the other party or items under this Framework Agreement, unless otherwise required by legal or government departments or securities regulatory bodies, or for the purpose of maintaining the listing status of the Unicom Red-chip Company. |
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11. | Transfer | |
Without the written consent of the other party, neither party shall proceed to transfer any right and obligation prescribed in this Framework Agreement. | ||
12. | Non-waiver | |
Unless otherwise provided by laws, non-exercise or delayed exercise of the rights, powers or privileges prescribed in this Framework Agreement by either party shall not be regarded as a waiver of such rights, powers or privileges. Moreover, the exercise in part of such rights, powers or privilege shall not keep the party from exercising such rights, powers or privileges in the future. | ||
13. | Notification | |
Any notification relating to this Framework Agreement shall be made in writing by one party to the other party via personal delivery, fax or mail. A notification shall be regarded as issued upon delivery by hand, or the sent indication is displayed on the senders fax machine, or on the third working day (subject to extension in case of statutory holidays) after sending of the mail. Any notification upon issuance shall be regarded as entering into force. | ||
14. | Applicable laws | |
This Framework Agreement is governed by PRC laws and shall be interpreted and implemented in accordance with PRC laws. | ||
15. | Dispute settlement | |
In the event of a dispute between the two parties regarding the effectiveness, interpretation or execution of this Framework Agreement, friendly consultation shall be sought in the first place. If a case can not be settled through negotiation within thirty (30) days after the dispute arises, either party is entitled to file a lawsuit with the peoples court of the corresponding jurisdiction. | ||
16. | Miscellaneous |
(1) | On condition that the Unicom Red-chip Company complies with or meets the regulatory requirements on connected transactions, the two parties can proceed to amend or supplement this Framework Agreement based upon consensus. | ||
(2) | Upon signing of this Framework Agreement, in case of conflict with any agreement reached prior to this Framework Agreement on any matter relating to the provisions established in this Framework Agreement, the contents of this Framework Agreement shall prevail. | ||
(3) | This Framework Agreement is divisible, i.e., if any provision of this Framework Agreement is identified as illegal or unenforceable at any time, the validity and execution of other provisions of this Framework Agreement shall not be affected. | ||
(4) | The original Framework Agreement is produced in four (4) copies, with each party holding two (2) copies and all the original copies being equally authentic. |
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(1) | Netcom Group is a state owned duly enterprise incorporated and validly existing under the laws of the PRC; | |
(2) | CUCL is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, whose equity is 100% held by China United Telecommunications Corporation Limited (the Unicom Red-chip Company, a company duly incorporated and validly existing under the laws of the Hong Kong Special Administration Region and dually listed on the Hong Kong Stock Exchange). Approved by the former Ministry of Information Industry (MII) of the PRC, CUCL is mainly engaged in nationwide provision of international and domestic long-distance communications services (excluding international telecommunications facilities services); Internet services and IP Telephony services; as well as mobile communications services in 31 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Hubei, Anhui, Sichuan, Guizhou, Xinjiang, Chongqing, Shaanxi, Guangxi, Henan, Heilongjiang, Jilin, Jiangxi, Shanxi, Inner Mongolia, Hunan, Hainan, Yunnan, Ningxia, Gansu, Qinghai and Tibet; | |
(3) | On May 24, 2008, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Deepening the Reform of Chinas Telecommunications System, which is seen as the guidepost for the Chinese government to deepen the reform of its telecommunications system by endorsing the formation of three leading competitive carriers with nationwide network resources, similar size and strength and |
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the capacity of full service operation. In the above notice, China Telecom is encouraged to buy China Unicoms CDMA network and China Unicom is encouraged to merge with China Netcom. As a response to the call for deepening the reform in regard to telecommunications restructuring, the Unicom Red-chip Company is to merge with Netcoms red-chip counterpart via an agreement (the Merger Transaction). Following the merger, the Netcom Red-chip Company will withdraw from the Hong Kong Stock Exchange and the New York Stock Exchange to become a wholly owned subsidiary of the Unicom Red-chip Company; | ||
(4) | In operation of related telecommunications services, Party B needs China Netcom Group to provide corresponding engineering and IT services. | |
On the basis of equity and fairness and following friendly consultation, the following framework agreement concerning the provision of engineering and IT services was entered into between Party A (including the subsidiaries and affiliates and other entities under the control of Party A, but excluding subsidiaries and affiliates and other entities under the control of Unicom Red-chip Company, the same below) and Party B (including the subsidiaries and affiliates and other entities under the control of Party B, the same below): | ||
1. | Basic principles |
1.1 | In accordance with the stipulations of this Framework Agreement, Party A is entitled to impose reasonable service charges over the engineering and IT services provided to Party B under this Framework Agreement, and Party B shall fulfil its responsibility in making the related payment. | ||
1.2 | The terms of the engineering and IT services provided by Party A under this agreement, shall be no worse than the terms offered by Party A in identical or similar services provided to any other third party. | ||
1.3 | If, due to reasons other than its own fault, Party A can not provide or fully provide the engineering and IT services under this Framework Agreement, Party A shall timely notify Party B in writing, and try its best to assist Party B in obtaining identical or similar services from other channels. | ||
1.4 | When Party A provides the engineering and IT services under this Framework Agreement to Party B, it must be restricted to the usage agreed by both parties and complies with the appropriate national rules. | ||
1.5 | Any Party under this Framework Agreement, which causes damage to the other Party by a breach of this Framework Agreement, shall compensate the other Party timely and in full. | ||
1.6 | Any Party under this Framework Agreement, in fulfilling its obligations thereof, shall provide justifiable and necessary assistance to the other Party. |
2. | The basic contents of engineering and IT services |
2.1 | The engineering and IT services under this Framework Agreement provided by Party A to Party B mainly includes: |
(1) | Engineering design, which includes: | ||
Planning and design, engineering survey, communications circuit engineering (including channel engineering, optical and cable engineering, pole line engineering, etc.), communications equipment engineering (including telephone switching engineering, transmission engineering, data and multimedia engineering, communications power and air conditioner engineering, microwave communications engineering, technical support system engineering), enterprise communications engineering; |
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(2) | Engineering implementation, which includes: | ||
Communications equipment, communication lines, communication power (including air conditioner for communications purposes), communication pipes, and technical services support system; | |||
(3) | Engineering supervision. |
2.2 | The IT services provided by Party A to Party B under this Framework Agreement includes: office automation, software testing, network upgrade, new business R&D and support system development, etc. |
3. | Pricing principles |
3.1 | Except in cases as provided in provision 3.2 of this article, the pricing of services and/or charging rate under this Framework Agreement, shall be determined with reference to the relevant market rates. The market rate mentioned in this provision refers to the rate made by the operator itself and finally fixed in the process of market competition. The market rate is determined in the following order: (1) in and around the areas where the services are provided, and while under normal conditions of trading, the rate charged by an independent third party in providing such services; or (2) the rate charged by an independent third party to the provision of such services under normal trading conditions in the PRC. | ||
3.2 | Both parties have agreed unanimously that the receiving party shall determine the service providing party, which will provide the engineering design and technical services, by way of bidding. The service providing partys qualification and terms for service provision shall not be inferior to that of an independent third party, and this party shall attend the bidding process in equal status as the independent third party. | ||
3.3 | The specific amount of service charge under this Framework Agreement, shall be calculated in accordance with related accounting principles of the PRC (if applicable), that are applicable from time to time. | ||
3.4 | Both parties shall conduct a review on the pricing standard of next fiscal year for each service and facility which are provided under this Framework Agreement before December 31 of each year (if necessary). |
4. | Payment of service charge |
4.1 | Party B shall, in accordance with pricing and charging standards set forth in this Framework Agreement, the supplement agreement to this Framework Agreement (if there is any) and the concrete implementation documents, pay Party A or its trustee in a timely manner for the services provided. | ||
4.2 | If Party B fails to pay in time the corresponding service charge stipulated in this Framework Agreement, the supplement agreement to this Framework Agreement (if there is any) and the concrete implementation documents, it shall pay Party A the late fee which is 0.05% of the unpaid amount due for each (1) day (refers to calendar day, and similarly hereinafter); if it is late for sixty (60) days, Party A may notify Party B in writing the termination of corresponding services; if Party B still fails to pay the corresponding service fee after receiving the written notification for thirty (30) days, Party A could declare the termination of such services. However, the suspension or termination of these services shall not affect the rights and obligations of both parties already in effect under this Framework Agreement. |
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5. | Rights and obligations of both parties |
5.1 | Rights and obligations of Party B |
5.1.1 | Rights of Party B |
(1) | Party B is entitled to obtain services provided by Party A under this Framework Agreement; | ||
(2) | Concerning the connected transactions under this Framework Agreement, the auditors of Unicom Red-chip Company are entitled to audit the accounting records of Party A and the related parties. |
5.1.2 | Obligations of Party B |
(1) | Guarantee and/or promote its subsidiaries or affiliates or other entities under its control to sign the concrete implementation documents with Party A, in accordance with this Framework Agreement or supplement agreement to this Framework Agreement (if there is any) ; | ||
(2) | Coordinate issues in connection with the concrete implementation documents; | ||
(3) | Pay related service fee in accordance with this Framework Agreement and the concrete implementation documents; | ||
(4) | Guarantee the compensation for any damage caused to Party A or the targeting Party in the concrete implementation documents due to the violation of a provision under this Framework Agreement or that under the concrete implementation documents. |
5.2 | Rights and obligations of Party A |
5.2.1 | Rights of Party A |
(1) | Party A is entitled by law to obtain the service fee under this Framework Agreement; | ||
(2) | Under the prerequisite that services under this Framework Agreement are provided to Party B, it has the option to provide similar services to a third party. |
5.2.2 | Obligations of Party A |
(1) | Guarantee and/or promote its subsidiaries or affiliates or other entities under its control to sign the concrete implementation documents with Party B, in accordance with this Framework Agreement or supplement agreement to this Framework Agreement (if there is any); | ||
(2) | Provide high quality service and supervise its subsidiaries or affiliates or other entities under its control to provide high quality services in accordance with the rules of this Framework Agreement; | ||
(3) | Coordinate issues in connection with the concrete implementation documents; | ||
(4) | Guarantee the compensation for any damage caused to Party B or the targeting Party in the concrete implementation documents due to the violation of a provision under this Framework Agreement or that under the concrete implementation documents. |
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5.3 | Both parties confirm hereby, that they are obliged to take further necessary actions and measures, to guarantee the achievement of the its purpose and the successful implementation of this Framework Agreement, and ensure those rules of Hong Kong Stock Exchange concerning connected transactions are followed in the event that Party B is a subsidiary of Unicom Red-chip Company. |
6. | Priorities |
6.1 | Unless otherwise provided in this Framework Agreement, and if the terms and conditions proposed by an independent third party to Party B are no better than those of offered by Party A for the same services, Party B shall give preference to Party A. | ||
6.2 | Party A undertakes to Party B that the terms provided by Party A to a third party on same or similar services under this Framework Agreement shall not be better than those conditions provided by Party A to Party B. | ||
6.3 | Party A is entitled to provide related services to a third party under the condition that the services provided by Party A to Party B under this Framework Agreement are not affected. |
7. | Representations, warranties and commitments | |
Each party of this Framework Agreement makes the following representations, assurances and commitments to the other party: |
7.1 | Each party is an independent legal person incorporated for effective duration in accordance with Chinese laws, with full power and authority (including but not limited to the approval, permission or consent given by competent government departments) to sign and implement this Framework Agreement; | ||
7.2 | No provision contained in this Framework Agreement is in violation of either partys association documents or Chinese laws and regulations; | ||
7.3 | Each party will do its utmost to take or cause other people to take any necessary, appropriate or desirable action in line with Chinese laws, regulations as well as this Framework Agreement, with a view to enabling the effective implementation of those matters prescribed in this Framework Agreement. |
8. | Effective date and term of this Framework Agreement |
8.1 | This Framework Agreement shall come into effect since the next day when all of the following conditions are met, and will be valid for 3 years; |
(1) | The general shareholder meeting of China United Telecommunications Corporation Limited (China Unicom A Share Corporation) has approved this Framework Agreement; | ||
(2) | The general shareholder meeting of Unicom Red-chip Company has approved this Framework Agreement; | ||
(3) | The Merger Transaction is executed and completed. |
8.2 | Unless Party B notifies Party A in writing 60 days in advance, that it does not want to continue the contract, this Framework Agreement could be extended to a term agreed by both parties in writing in accordance with appropriate laws, regulations or other supervision rules, when this Framework Agreement or its extension expires. |
9. | Force majeure |
9.1 | If a party is unable to implement or fully implement the obligations prescribed in this Framework Agreement as a result of force majeure, then it will not undertake any liability for |
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breach of the agreement, in which case the it shall, within fifteen (15) days following the occurrence of force majeure, inform the case to the other party in writing and provide proof therewith, and at the same time make every effort to minimize the losses incurred by force majeure. Within a reasonable period of time in the wake of force majeure, the party falling victim to force majeure shall undertake to continue implementation of this Framework Agreement. | |||
9.2 | Force majeure in this Framework Agreement means all objective situations that are unforeseeable, unavoidable and that cannot be overcome. |
10. | Confidentiality | |
Without the written permission of the other party, neither party shall make any announcement in regard to, or provide or disclose to a third party any data or information in relation to the businesses of the other party or items under this Framework Agreement, unless otherwise required by legal or government departments or securities regulatory bodies, or for the purpose of maintaining the listing status of the Unicom Red-chip Company. | ||
11. | Transfer of the rights and obligations | |
Without the written consent of the other party, neither party shall proceed to transfer any right and obligation prescribed in this Framework Agreement. | ||
12. | Non-waiver | |
Unless otherwise provided by laws, non-exercise or delayed exercise of the rights, powers or privileges prescribed in this Framework Agreement by either party shall not be regarded as a waiver of such rights, powers or privileges. Moreover, the exercise in part of such rights, powers or privilege shall not keep the party from exercising such rights, powers or privileges in the future. | ||
13. | Notification | |
Notices concerning this Framework Agreement shall be in written form and may be delivered personally from one party to the other or sent by facsimile or mail. Notices given by personal delivery shall be deemed effectively given on the date of personal delivery; notices sent by facsimile transmission shall be deemed effectively given on the date of transmission as indicated on the fax machine of the sender; notices sent by mail shall be deemed effectively given on the third (3rd) day (not including statutory holidays) after they were sent. The notice will become effective once it is delivered. | ||
14. | Applicable laws | |
This Framework Agreement is governed by PRC laws and shall be interpreted and implemented in accordance with PRC laws. | ||
15. | Dispute settlement | |
In the event of a dispute between the two parties regarding the effectiveness, interpretation or execution of this Framework Agreement, friendly consultation shall be sought in the first place. If a case can not be settled through negotiation within thirty (30) days after the dispute arises, either party is entitled to file a lawsuit with the peoples court of the corresponding jurisdiction. | ||
16. | Miscellaneous |
16.1 | On condition that the Unicom Red-chip Company complies with or meets the regulatory requirements on connected transactions, the two parties can proceed to amend or supplement this Framework Agreement based upon consensus. |
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16.2 | Upon signing of this Framework Agreement, in case of conflict with any agreement reached prior to this Framework Agreement on any matter relating to the provisions established in this Framework Agreement, the contents of this Framework Agreement shall prevail. | ||
16.3 | This Framework Agreement is divisible, i.e., if any provision of this Framework Agreement is identified as illegal, invalid or unenforceable at any time, the validity and execution of other provisions of this Framework Agreement shall not be affected. | ||
16.4 | This Framework Agreement is produced in four (4) copies, with each party holding two (2) copies and all the original copies being equally authentic. |
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(1) | Netcom Group is a state owned enterprise duly incorporated and validly existing under the laws of the PRC; | |
(2) | CUCL is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, whose equity is 100% held by China United Telecommunications Corporation Limited (the Unicom Red-chip Company, a company duly incorporated and validly existing under the laws of the Hong Kong Special Administration Region and dually listed on the Hong Kong Stock Exchange). Approved by the former Ministry of Information Industry (MII) of the PRC, CUCL is mainly engaged in nationwide provision of international and domestic long-distance communications services (excluding international telecommunications facilities services); Internet services and IP Telephony services; as well as mobile communications services in 31 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Hubei, Anhui, Sichuan, Guizhou, Xinjiang, Chongqing, Shaanxi, Guangxi, Henan, Heilongjiang, Jilin, Jiangxi, Shanxi, Inner Mongolia, Hunan, Hainan, Yunnan, Ningxia, Gansu, Qinghai and Tibet; | |
(3) | On May 24, 2008, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Deepening the Reform of Chinas Telecommunications System, which is seen as the guidepost for the Chinese government to deepen the reform of its telecommunications system by endorsing the formation of three leading competitive carriers with nationwide network resources, similar size and strength and the capacity of full service operation. In the above notice, China Telecom is encouraged to buy China Unicoms CDMA network and China Unicom is encouraged to merge with China Netcom. As a response to the call for deepening the reform in regard to telecommunications restructuring, the Unicom Red-chip Company is to merge with Netcoms red-chip counterpart via an agreement (the |
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Merger Transaction). Following the merger, the Netcom Red-chip Company will withdraw from the Hong Kong Stock Exchange and the New York Stock Exchange to become a wholly owned subsidiary of the Unicom Red-chip Company; | ||
(4) | Party B needs to establish building rental arrangement with Netcom Group in the service operation. | |
According to the particular context, the Lessee and the Lessor refer to Party A (including Party As branches, subsidiaries and other units under its control, but excluding Netcom Red-chip Company and its affiliates, subsidiaries and other units under its control, the same below) or Party B (including Party Bs branches, subsidiaries and other units under its control) or Party A and Party B. | ||
According to the Contract Law of the Peoples Republic of China and other laws and regulations, in order to define the rights and obligations of the two parties, the two parties sign this Framework Agreement as below through friendly consultation: | ||
1. | Lease Scope and Purpose |
1.1 | For the need of production and operation, the two parties agreed to lease the buildings owned by its branch companies, subsidiary companies, affiliated companies or enterprises or units under its control (subordinate companies) to each other. The two parties confirm that their subordinate companies have agreed to commission the two parties to exert the building lease rights under this Framework Agreement. | ||
Party A agreed to lease the buildings owned by itself (Buildings of Party A) under items of this Framework Agreement to Party B; Party B agreed to rent buildings owned by Party A and pay the consideration according to this Framework Agreement. At the same time, Party B agreed to lease the buildings owned by itself (Buildings of Party B) under items of this Framework Agreement to Party A; Party A agreed to rent buildings owned by Party B and pay the consideration according to this Framework Agreement. | |||
1.2 | The two parties agreed that the buildings rented by either party are used for legal service operation in the licensed scope of the buildings. With the written consent by either party of this Framework Agreement, the other party could sublease the buildings to the third party, but the sublessor still assumes the rights and obligations under this Framework Agreement for the buildings. |
2. | Leasehold |
2.1 | The leasehold of the buildings under this Framework Agreement is determined by the two parties according to the specific conditions of these rental buildings, but it is subjected to Article 2.2 of this Framework Agreement. | ||
2.2 | The Lessor may terminate the lease of building under this Framework Agreement immediately if: |
(1) | without the consent of the Lessor, the Lessee subleases or lends buildings owed by the Lessor to others (except for subleasing or lending to affiliated or associated companies of the Lessee ); | ||
(2) | The Lessee violates regulations of the rental purpose agreed by the two parties, or uses buildings owned by the Lessor for any unlawful purpose and damages public interests. |
2.3 | If the Lessee does not execute renewal rights according to this Framework Agreement but can not return the buildings to the Lessor owing to business operations, the Lessor shall extend the leasehold as appropriate and is entitled to charge the Lessee rentals for the extended leasehold. |
3. | Rental and Method of Payment |
3.1 | The two parties have agreed that the specific rental of the buildings rented by each other will be determined on the basis of the market price or depreciation and tax and refer to the rental |
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standard prescribed by local commodity price departments, and take into account the specific needs of the two parties. The rental determined could not be higher than the market price. | |||
3.2 | The two parties have agreed that the specific executing documents for the rental of individual building can be signed to set forth terms and conditions applicable to the individual building, but the executing documents shall conform to the principle, compendium and terms and conditions stipulated in this Framework Agreement. | ||
3.3 | The rents stated in the term shall be re-examined once every year. The two parties shall consult to determine whether to adjust and the specific rents after adjustment, but the rents after adjustment shall not be higher than the market price. | ||
3.4 | The rents shall be charged quarterly. The settlement day is the last day of each quarter. In case of Saturday, Sunday or public holidays, the settlement day shall be extended to the first working day after holidays. | ||
3.5 | All the overhead expenses and other expenditure charged by the State or local government for the rental buildings caused by the rental of buildings owned by Party A or Party B shall be born by the Lessor, except as otherwise set forth in this Framework Agreement. |
4. | Building Repair During the Leasehold | |
The Lessor shall be responsible for repairing the buildings it rents out and bear the resulting costs. The Lessee shall carry out necessary maintenance of the rented buildings including the reconstruction of main structure after getting the Lessors consent and reaching written framework agreement, except as set forth in this Framework Agreement. But the Lessor shall not refuse or delay the main structure reconstruction required by the Lessee except for legitimate reasons. For the modification and addition not touching upon the main structure, the Lessee may carry out the maintenance at its own expense without giving notification to and getting consent of the Lessor. If the Lessee or Lessor conducts maintenance, modification or addition during the leasehold, the additions or value added to the buildings shall be granted to the Lessor. | ||
5. | The Alteration of the Lessor |
5.1 | If the Lessor transfers buildings owned by itself to the third party, this Framework Agreement shall be valid to the new building owner. | ||
5.2 | If the Lessor sells its building ownership, it is required to notify the Lessee three months in advance. The Lessee has, under equal conditions, the right of first refusal to purchase. |
6. | Representations, Assurances and Commitments |
6.1 | Each party makes the following statement and assurance to the other party that each party is the enterprise or organization incorporated for effective duration in accordance with PRC laws, with full power and authority (including laws, rights and warrant inside the company or in other fields): |
(1) | holds, leases, rents and operates its property; | ||
(2) | signs and implements this Framework Agreement. |
6.2 | The Lessor makes the statement and promise to the Lessee as below: |
(1) | The Lessor is the only legitimate possessor of the ownership of its rental buildings and entitled to lease the buildings to the Lessee for payment by itself under regulations set forth in this Framework Agreement; | ||
(2) | The rented buildings are with complete structure and in good condition when delivered to the Lessee. The purpose of the Lessee stated in this Framework Agreement could be fulfilled; |
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(3) | The Lessor promises that if any inaccuracy lies in the guarantee, the Lessee has rights to terminate this Framework Agreement at any moment. At the same time; the Lessor agrees to hold the liability for all the economic losses of the Lessee. |
6.3 | The Lessee makes the statement and promise to the Lessee as below: |
(1) | The Lessee shall pay rents to the Lessor pursuant to Article 3 in this Framework Agreement. If the Lessee fails to pay the rents by the due date, then the Lessee shall pay the delaying payment at the rate of 0.05% on a daily basis (calendar day, the same hereinafter). | ||
(2) | During the leasehold, the Lessee shall abide by corresponding laws and regulations of the PRC. In case of problems such as security, fire prevention, environment protection etc., the Lessee shall hold the liability by itself. |
6.4 | Party B promises to provide the accounting records of Party B and its connected persons about connected transaction to auditors of Unicom Red Chip Company. | ||
6.5 | The two parties make a statement and promise to each other that any terms and conditions in this Framework Agreement does not violate its constitution or laws and regulations of the PRC. | ||
6.6 | The two parties affirm that each party is obligated to take further necessary actions or measures in order to achieve the tenet of this Framework Agreement and its content and provisions of connected transactions in the listing rules stipulated by the Stock Exchange of Hong Kong in the case of Party B as the subsidiary of the listed company. |
7. | Effectiveness | |
This Framework Agreement will take effect on the next day following the final implementation of the Merger Transaction. | ||
8. | Force Majeure |
8.1 | If a party is unable to implement or fully implement the obligations prescribed in this Framework Agreement as a result of force majeure, then it will not undertake any liability for breach of the agreement, in which case the it shall, within fifteen (15) days following the occurrence of force majeure, inform the case to the other party in writing and provide proof therewith, and at the same time make every effort to minimise the losses incurred by force majeure. Within a reasonable period of time in the wake of force majeure, the party falling victim to force majeure shall undertake to continue implementation of this Framework Agreement. | ||
8.2 | Force majeure in this Framework Agreement means all objective situations that are unforeseeable, unavoidable and that cannot be overcome. |
9. | Confidentiality | |
Without the written permission of the other party, neither party shall make any announcement in regard to, or provide or disclose to a third party any data or information in relation to the businesses of the other party or items under this Framework Agreement, unless otherwise required by legal or government departments or securities regulatory bodies, or for the purpose of maintaining the listing status of the Unicom Red-chip Company. | ||
10. | Transfer | |
Without the written consent of the other party, neither party shall proceed to transfer any right and obligation prescribed in this Framework Agreement. |
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11. | Non-Waiver | |
Unless otherwise provided by laws, non-exercise or delayed exercise of the rights, powers or privileges prescribed in this Framework Agreement by either party shall not be regarded as a waiver of such rights, powers or privileges. Moreover, the exercise in part of such rights, powers or privilege shall not keep the party from exercising such rights, powers or privileges in the future. | ||
12. | Notification | |
Any notification relating to this Framework Agreement shall be made in writing by one party to the other party via personal delivery, fax or mail. A notification shall be regarded as issued upon delivery by hand, or the sent indication is displayed on the senders fax machine, or on the third working day (subject to extension in case of statutory holidays) after sending of the mail. Any notification upon issuance shall be regarded as entering into force. | ||
13. | Liability for Breach of Contract |
13.1 | Failure in performing any of its obligations by either party shall be deemed as breach of this Framework Agreement. The party in breach shall rectify such default within five (5) days following the receipt of notice of setting forth the specifics of such default (except for the case agreed in Paragraph 1 of Article 6.3). If the default has not been cured after five (5) days, the party in breach shall hold the liability for all the direct and predictable losses arising from the default. | ||
13.2 | If the extension of use of rental buildings is caused by the Lessor as a result of negligence, the leasehold under this Framework Agreement shall be extended. |
14. | Applicable Laws and Disputes Settlement |
14.1 | This Framework Agreement is governed by PRC laws and shall be interpreted and implemented in accordance with PRC laws. | ||
14.2 | All the disputes arising from the execution of or related with this Framework Agreement shall be settled through friendly consultation between the two parties. In case of failure to settle such disputes through consultation, either party is entitled to file a lawsuit with the peoples court of the corresponding jurisdiction. |
15. | Miscellaneous |
15.1 | On condition that the Unicom Red-chip Company complies with or meets the regulatory requirements on connected transactions, the two parties can proceed to amend or supplement this Framework Agreement based upon consensus. | ||
15.2 | Upon signing of this Framework Agreement, in case of conflict with any agreement reached prior to this Framework Agreement on any matter relating to the provisions established in this Framework Agreement, the contents of this Framework Agreement shall prevail. | ||
15.3 | This Framework Agreement is divisible, i.e., if any provision of this Framework Agreement is identified as illegal, invalid or unenforceable at any time, the validity and execution of other provisions of this Framework Agreement shall not be affected. | ||
15.4 | The original Framework Agreement is produced in four (4) copies, with each party holding two (2) copies and all the original copies being equally authentic. |
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Party A:
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China Network Communications Group Corporation (hereinafter referred to as Netcom Group) | |
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Registered address: No. 156, Fu Xing Men Nei Street, Xicheng District, Beijing | |
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Legal representative: Zhang Chunjiang | |
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Party B:
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China Unicom Corporation Limited (hereinafter referred to as CUCL) | |
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Registered address: 12/F, Tower A, Henderson Center, No. 18, Jian Guo Men Nei Avenue, Beijing | |
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Legal representative: Chang Xiaobing |
(1) | Netcom Group is a state owned enterprise duly incorporated and validly existing under the laws of the PRC; | |
(2) | CUCL is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, whose equity is 100% held by China United Telecommunications Corporation Limited (the Unicom Red-chip Company, a company duly incorporated and validly existing under the laws of the Hong Kong Special Administration Region and dually listed on the Hong Kong Stock Exchange). Approved by the former Ministry of Information Industry (MII) of the PRC, CUCL is mainly engaged in nationwide provision of international and domestic long-distance communications services (excluding international telecommunications facilities services); Internet services and IP Telephony services; as well as mobile communications services in 31 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Hubei, Anhui, Sichuan, Guizhou, Xinjiang, Chongqing, Shaanxi, Guangxi, Henan, Heilongjiang, Jilin, Jiangxi, Shanxi, Inner Mongolia, Hunan, Hainan, Yunnan, Ningxia, Gansu, Qinghai and Tibet; | |
(3) | On May 24, 2008, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Deepening the Reform of Chinas Telecommunications System, which is seen as the guidepost for the Chinese government to deepen the reform of its telecommunications system by endorsing the formation of three leading competitive carriers with nationwide network resources, similar size and strength and the capacity of full service operation. In the above notice, China Telecom is encouraged to buy China Unicoms CDMA network and China Unicom is encouraged to merge with China Netcom. As a response to the call for deepening the reform in regard to telecommunications restructuring, the Unicom Red-chip Company is to merge with Netcoms red-chip counterpart via an agreement (the Merger Transaction). Following the merger, the Netcom Red-chip Company will withdraw from the Hong Kong Stock |
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Exchange and the New York Stock Exchange to become a wholly owned subsidiary of the Unicom Red-chip Company; |
(4) | Netcom Group shall provide corresponding ancillary telecommunications services to Party B in operation of related telecommunications services. | |
On the basis of equity and fairness and following friendly consultation, Party A (including Party As branches, subsidiaries and other units under its control, but excluding the Netcom Red-chip Company and its affiliates, subsidiaries and other units under its control, the same below) and Party B (including Party Bs branches, subsidiaries and other units under its control, the same below) enters into the following Framework Agreement concerning the provision of ancillary telecommunications services: | ||
1. | Basic principles |
1.1 | In accordance with the stipulations of this Framework Agreement, Party A is entitled to impose reasonable service charges over the ancillary telecommunications services provided to Party B under this Framework Agreement, and Party B shall fulfil its obligations in making the related payment. | ||
1.2 | The terms of the ancillary telecommunications services provided by Party A under this Framework Agreement shall be no inferior to the terms of the same or similar services provided to any other third party. | ||
1.3 | If, due to reasons other than its own fault, Party A can not provide or fully provide the ancillary telecommunications services under this Framework Agreement, Party A shall notify Party B in writing in a timely manner, and try its best to assist Party B in obtaining the same or similar services from other channels. | ||
1.4 | The ancillary telecommunications services provided under this Framework Agreement by Party A to Party B shall comply with the usage agreed by both parties and the related national standards. | ||
1.5 | For the damages caused by any Party to the other under this Framework Agreement due to the breach of this agreement, the defaulting Party shall be responsible to make timely and full compensation to the other for the breach. | ||
1.6 | Any Party under this Framework Agreement, in fulfilling its obligations under this agreement, shall be provided with reasonable and necessary assistance by the other Party. |
2. | The basic contents of the ancillary telecommunications services |
2.1 | The ancillary telecommunications services under this Framework Agreement provided by Party A to Party B includes: various pre-sale, on-sale and after-sale telecommunications services such as assembling, dismantling, removing and repairing of telecommunications equipments in the customer end, sales agency services of some of the communications products, printing and invoice delivery services, collection of phone bills, production of phone cards, and development of customers, etc.; collection and feedback of the market and customer information; maintenance of the ancillary facilities (such as the air-conditioner and fire control equipments) in the communications equipment rooms, and maintenance of the telephone booths, etc. |
3. | Pricing principles |
3.1 | The pricing of the ancillary telecommunications services and/or charging rate under this Framework Agreement shall be determined with reference to the principles and order set forth in this article: follow the government-fixed price if there is any; follow the government-recommended price if there is any; follow the market price if there is no government-fixed price nor government-recommended price; if there is no government-fixed price, government-recommended price nor market price, the price shall be determined through consultation by both parties. However, the agreed price should be composed of the reasonable costs and the reasonable profits, among which the reasonable costs refers to the costs agreed by both parties after consultation. | ||
The government-fixed price in this article refers to the price set up by the price administrations or other related departments according to the Price Law of the Peoples Republic of China, and the authority and scope of the pricing. |
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The government-recommended price in this article refers to the price set up by the operators according to the Price Law of the Peoples Republic of China, and guided by the benchmark price and its floating rate provided by the price administrations or other related departments according to the pricing authority and scope. | |||
The market price in this article refers to the price set up by the operators and formed through market competition. The market price is determined according to the following order: (1) the price charged by an independent third party in providing the service under normal trading conditions in the service provision areas or the neighborhoods; or (2) the price charged by an independent third party in providing the service under normal trading conditions in the PRC. | |||
3.2 | The specific amount of service charge under this Framework Agreement, shall be calculated in accordance with related accounting principles of the PRC (if applicable) which are applicable from time to time. | ||
3.3 | Both parties shall conduct a review on the pricing standard of next fiscal year for each service and facility which are provided under this Framework Agreement before December 31 of each year (if necessary). | ||
3.4 | It is estimated that both parties will formulate concrete implementation document from time to time on providing related service according to the needs; this concrete implementation document should record the specific service needed by Party B at that time, as well as the binding principles, guide lines, terms and conditions of this Framework Agreement. |
4. | Payment of service charge |
4.1 | Party B shall, in accordance with pricing and charging standards set forth in this Framework Agreement, the supplement agreement to this Framework Agreement (if there is any) and the concrete implementation documents, pay Party A or its trustee in a timely manner for the service provision. | ||
4.2 | If Party B fails to pay in time the corresponding service charge stipulated in this Framework Agreement, the supplement agreement to this Framework Agreement (if there is any) and the concrete implementation documents, it shall pay Party A the penalty fee which is 0.05% of the unpaid amount due for each (1) day (refers to calendar day, and similarly hereinafter), if it is late for sixty (60) days, Party A may notify Party B in writing the termination of corresponding services; if Party B still fails to pay the corresponding service fee after receiving the written notification for thirty (30) days, Party A could declare the termination of such services. However, the suspension or termination of these services, shall not affect the rights and obligations of both parties already in effect under this Framework Agreement. |
5. | Rights and obligations of both parties |
5.1 | Rights and obligations of Party B |
5.1.1 | Rights of Party B |
(1) | Party B is entitled to obtain services provided by Party A under this Framework Agreement; | ||
(2) | Concerning the connected transactions under this Framework Agreement, the auditors of Unicom Red-chip Company are entitled to audit the accounting records of Party A and the connected parties. |
5.1.2 | Obligations of Party B |
(1) | Guarantee and/or promote its subsidiaries or affiliates or other entities under its control to sign the concrete implementation documents with Party A, in accordance with this Framework Agreement or supplement agreement to this Framework Agreement (if there is any); | ||
(2) | Coordinate issues in connection with the concrete implementation documents; | ||
(3) | Pay related service fees in accordance with this Framework Agreement and the concrete implementation documents; |
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(4) | Guarantee the compensation for any damage caused to Party A or the targeting Party in the concrete implementation documents due to the violation of a provision under this Framework Agreement or that under the concrete implementation documents. |
5.2 | Rights and obligations of Party A |
5.2.1 | Rights of Party A |
(1) | Party A is entitled by law to obtain the service fees under this Framework Agreement; | ||
(2) | Under the prerequisite that services under this Framework Agreement are provided to Party B, it has the option to provide similar services to a third party. |
5.2.2 | Obligations of Party A |
(1) | Guarantee and/or promote its subsidiaries or affiliates or other entities under its control to sign the concrete implementation documents with Party B, in accordance with this Framework Agreement or supplement agreement to this Framework Agreement (if there is any); | ||
(2) | Provide and supervise its subsidiaries or affiliates or other entities under its control to provide high quality service in accordance with the rules of this Framework Agreement; | ||
(3) | Coordinate issues in connection with the concrete implementation documents; | ||
(4) | Guarantee the compensation for any damage caused to Party B or the targeting Party in the concrete implementation documents due to the violation of a provision under this Framework Agreement or that under the concrete implementation documents. |
5.3 | Both parties confirm hereby, that they are obliged to take further necessary actions and measures, to guarantee the achievement of the purpose and successful implementation of this Framework Agreement, and ensure the rules of Hong Kong Stock Exchange concerning connected transactions are followed in the event that Party B is a subsidiary of the listed company. |
6. | Priorities |
6.1 | If the terms and conditions proposed by an independent third party to Party B are no better than those of offered by Party A for the same service, Party B shall give preference to Party A. | ||
6.2 | Party A undertakes to Party B that the conditions provided by Party A to a third party concerning the same or similar service in this Framework Agreement shall not be better to those conditions provided by Party A to Party B. | ||
6.3 | Party A is entitled to provide related service to a third party under the condition that the service provided by Party A to Party B according to this Framework Agreement shall not be affected. |
7. | Representations, Assurances and Commitments | |
Each party of this Framework Agreement makes the following statements, assurances and commitments to the other party: |
7.1 | Each party is an independent legal person incorporated for effective duration in accordance with Chinese laws, with full power and authority (including but not limited to the approval, permission or consent given by competent government departments) to sign and implement this Framework Agreement; | ||
7.2 | No provision contained in this Framework Agreement is in violation of either partys association documents or Chinese laws and regulations; |
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7.3 | Each party will do its utmost to take or cause other people to take any necessary, appropriate or desirable action in line with Chinese laws, regulations as well as this Framework Agreement, with a view to enabling the effective implementation of those matters prescribed in this Framework Agreement. |
8. | Effectiveness | |
This Framework Agreement will take effect on the next day following the final implementation of the Merger Transaction. | ||
9. | Force majeure |
9.1 | If a party is unable to implement or fully implement the obligations prescribed in this Framework Agreement as a result of force majeure, then it will not undertake any liability for breach of the agreement, in which case the it shall, within fifteen (15) days following the occurrence of force majeure, inform the case to the other party in writing and provide proof therewith, and at the same time make every effort to minimise the losses incurred by force majeure. Within a reasonable period of time in the wake of force majeure, the party falling victim to force majeure shall undertake to continue implementation of this Framework Agreement. | ||
9.2 | Force majeure in this Framework Agreement means all objective situations that are unforeseeable, unavoidable and that cannot be overcome. |
10. | Confidentiality | |
Without the written permission of the other party, neither party of this Framework Agreement shall make any announcement in regard to, or provide or disclose to a third party any data or information in relation to the businesses of the other party or items under this Framework Agreement, unless otherwise required by legal or government departments or securities regulatory bodies, or for the purpose of maintaining the listing status of the Unicom Red-chip Company. | ||
11. | Transfer of rights and obligations | |
Without the written consent of the other party, neither party shall proceed to transfer any right and obligation prescribed in this Framework Agreement. | ||
12. | Non-waiver | |
Unless otherwise provided by laws, non-exercise or delayed exercise of the rights, powers or privileges prescribed in this Framework Agreement by either party shall not be regarded as a waiver of such rights, powers or privileges. Moreover, the exercise in part of such rights, powers or privilege shall not keep the party from exercising such rights, powers or privileges in the future. | ||
13. | Notification | |
Any notification relating to this Framework Agreement shall be made in writing by one party to the other party via personal delivery, fax or mail. A notification shall be regarded as issued upon delivery by hand, or the sent indication is displayed on the senders fax machine, or on the third working day (subject to extension in case of statutory holidays) after sending of the mail. Any notification upon issuance shall be regarded as entering into force. | ||
14. | Applicable laws | |
This Framework Agreement is governed by PRC laws and shall be interpreted and implemented in accordance with PRC laws. | ||
15. | Dispute settlement | |
Any dispute between the two parties concerning the effectiveness, interpretation or implementation of this Framework Agreement shall be settled through friendly consultation. If a case can not be settled through negotiation within thirty (30) days after the dispute arises, either party is entitled to file a lawsuit with the peoples court of the corresponding jurisdiction. |
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16. | Miscellaneous |
16.1 | On condition that the Unicom Red-chip Company complies with or meets the regulatory requirements on connected transactions, the two parties can proceed to amend or supplement this Framework Agreement based upon consensus. | ||
16.2 | Upon signing of this Framework Agreement, in case of conflict with any agreement reached prior to this Framework Agreement on any matter relating to the provisions established in this Framework Agreement, the contents of this Framework Agreement shall prevail. | ||
16.3 | This Framework Agreement is divisible, i.e., if any provision of this Framework Agreement is identified as illegal, invalid or unenforceable at any time, the validity and execution of other provisions of this Framework Agreement shall not be affected. | ||
16.4 | This Framework Agreement is produced in four (4) copies, with each party holding two (2) copies and all the original copies being equally authentic. |
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(1) | Netcom Group is a state owned enterprise duly incorporated and validly existing under the laws of the PRC; | |
(2) | CUCL is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, whose equity is 100% held by China United Telecommunications Corporation Limited (the Unicom Red-chip Company, a company duly incorporated and validly existing under the laws of the Hong Kong Special Administration Region and dually listed on the Hong Kong Stock Exchange). Approved by the former Ministry of Information Industry (MII) of the PRC, CUCL is mainly engaged in nationwide provision of international and domestic long-distance communications services (excluding international telecommunications facilities services); Internet services and IP Telephony services; as well as mobile communications services in 31 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Hubei, Anhui, Sichuan, Guizhou, Xinjiang, Chongqing, Shaanxi, Guangxi, Henan, Heilongjiang, Jilin, Jiangxi, Shanxi, Inner Mongolia, Hunan, Hainan, Yunnan, Ningxia, Gansu, Qinghai and Tibet; | |
(3) | On May 24, 2008, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Deepening the Reform of Chinas Telecommunications System, which is seen as the guidepost for the Chinese government to deepen the reform of its telecommunications system by endorsing the formation of |
1
three leading competitive carriers with nationwide network resources, similar size and strength and the capacity of full service operation. In the above notice, China Telecom is encouraged to buy China Unicoms CDMA network and China Unicom is encouraged to merge with China Netcom. As a response to the call for deepening the reform in regard to telecommunications restructuring, the Unicom Red-chip Company is to merge with Netcoms red-chip counterpart via an agreement (the Merger Transaction). Following the merger, the Netcom Red-chip Company will withdraw from the Hong Kong Stock Exchange and the New York Stock Exchange to become a wholly owned subsidiary of the Unicom Red-chip Company; | ||
(4) | Party B is in need of the support services provided by Netcom Group in the operations of its telecommunications business. | |
On the basis of equality and reasonableness and through friendly consultations, Party A and Party B reach the following framework agreements on the matters with respect to the provision of support services by Party A (including subsidiaries and branches of Party A and other entities controlled by Party A and excluding Netcom Red Chip, subsidiaries and branches of Netcom Red Chip, and other entities controlled by Netcom Red Chip, the same below) to Party B (including subsidiaries and branches of Party B and other entities controlled by Party B, the same below). | ||
1. | Basic Principles |
1.1 | With respect to the support services provided by Party A for Party B pursuant to this Framework Agreement, Party A has the right to charge reasonable service fees pursuant to this Framework Agreement and Party B has the obligation to make such payments. | ||
1.2 | The terms and conditions for the provision of support services under this Framework Agreement by Party A shall be no worse than the terms and conditions offered by Party A for any third party for the provision of identical or similar services. | ||
1.3 | In the event that Party A fails to perform all or part of its obligations to provide the support services under this Framework Agreement due to any reasons other than its own fault, Party A shall promptly inform Party B in writing and make the utmost efforts to assist Party B in obtaining identical or similar services from other channels. | ||
1.4 | The support services provided by Party A for Party B shall comply with the purposes agreed by the Parties and related standards of the State. | ||
1.5 | In the event that one party suffers loss as a result of the violation against the provisions of this Framework Agreement by the other party, the breaching party shall undertake timely and full liability to pay compensation for the breach of contract. | ||
1.6 | When one party performs the obligations under this Framework Agreement, the other party shall provide reasonable and necessary assistance. |
2. | Basic Contents of Support Services | |
The compressive services provided by Party A under this Framework Agreement include: | ||
dining services, equipment leasing services (excluding the facilities/equipment covered in this Framework Agreement for Telecommunications Facilities Leasing), motor vehicles services, medical and healthcare services, labour services, security services, hotel services, conference services, flower and gardening services (landscaping), decoration services, commodity sales services, basic construction agency services, equipment maintenance services, market development services, technical support services, research and development services, hospitality services, parking services, employee training services, warehousing services (such as warehousing telecommunications-related equipment, including spare parts and circuits), advertising (such as the production and publication of Party Bs advertisements on Party As media) and publicity/printing services, and property management services. |
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3. | Pricing Principles |
3.1 | The pricing and/or charging standards for the support services under this Framework Agreement shall follow the principles and procedures stipulated in this clause. Where the Government fixes a price for such a service, the price fixed by the Government shall be followed. Where the Government recommends (or sets a guidance price) a price for such a service, the price shall be determined with the reference to the price recommended by the Government. Where there is neither a government-fixed price nor a government-recommended price but there is a market-based price for such a service, the price shall be determined with reference to the market-based price. Where there is neither a government-fixed price nor a government-recommended price, nor the market-based price, the price shall be determined by the Parties through negotiations. The negotiated price shall be determined on a reasonable cost plus reasonable profit basis. The reasonable cost shall be the cost agreed by the Parties through negotiations. | ||
The government-fixed price referred in this clause is the price fixed by the price administration authorities of the Government or other related agencies within their pricing purview and scope in accordance with the provisions of the Price Law of the PRC. | |||
The government-recommended price (or government-guidance price) referred in this clause is a basic price and floating ranges set by the price administration authorities of the Government or other related agencies within their pricing purview and scope in accordance with the provisions of the Price Law of the PRC. The enterprises could, within the limits of the guidance, make their own decisions on prices. | |||
The market-based price referred in this clause is the price set by the enterprises with consideration to the competition in the market. The market-based price shall be determined in the follow procedures: (1) the price charged by the independent third party for providing such a service at the same place or in the neighbouring areas under normal market conditions; or (2) the price charged by the independent third party for providing such a service in the territory of China under normal market conditions; | |||
3.2 | The specific amount of service fees under this Framework Agreement shall be calculated in accordance with the accounting standards of the PRC (if applicable) from time to time. | ||
3.3 | Party A and Party B shall audit the pricing standards for the next financial year for every service and facility provided under this Framework Agreement before December 31 of the year (if necessary). | ||
3.4 | It is expected that Party A and Party B shall conclude specific implementation agreements for related services from time to time as necessary. This specific implementation agreements shall identify the specific services required by Party B and contain provisions in relation to the binding principles, standards, terms and conditions of this Framework Agreement. |
4. | Payment of Service Fees |
4.1 | Party B shall pay service fees for related services it obtains from Party A or Party As consignee in accordance with the pricing and charging standards stipulated in this Framework Agreement, the supplementary agreements to this Framework Agreement (if any) and the specific implementation agreement. | ||
4.2 | In case that Party B fails to pay service fees for related services on time in accordance with this Framework Agreement, the supplementary agreements to this Framework Agreement (if any) and the specific implementation agreements, Party B shall pay a late fee of 0.05% of the amount of the outstanding amount per day (calendar day, the same below) as of the day when the payment is overdue. When the overdue days exceed 60 (sixty) days, Party A may inform Party B in writing of terminating related services. If Party B fails to make payment for related services 30 (thirty) days after it receives the notice, Party A may declare the termination of related services. When such services are terminated or suspended, it shall not |
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affect the rights and obligations of both Party A and Party B arising out of this Framework Agreement. |
5. | Rights and Obligations of the Parties |
5.1 | Rights and Obligations of Party B |
5.1.1 | Rights of Party B |
(1) | Party B has the right to obtain services from Party A pursuant to the provisions of this Framework Agreement; | ||
(2) | With respect to the connected transactions under this Framework Agreement, the auditor of Unicom Red-chip Company has the right to examine the accounting records of Party A and Party As connected parties. |
5.1.2 | Obligations of Party B |
(1) | Party B shall ensure that its subsidiaries, branches and other controlled entities will sign specific implementation agreement with Party A pursuant to this Framework Agreement and the supplementary agreements to this Framework Agreement (if any) and/or urge its subsidiaries, branches and other controlled entities to do so; | ||
(2) | Party B is obliged to coordinate the matters in relation to the specific implementation agreement; | ||
(3) | Party B is obliged to pay related service fees pursuant to the provisions of this Framework Agreement and the specific implementation agreements; | ||
(4) | Party B pledges to compensate for any loss caused upon Party A or the other party of the specific implementation agreement by its violation against any of the provisions of this Framework Agreement or the specific implementation agreement. |
5.2 | Rights and Obligations of Party A |
5.2.1 | Rights of Party A |
(1) | Party A has the right to obtain service fees from Party B pursuant to the provisions of this Framework Agreement; | ||
(2) | Party A has the right to provide the same type of services to the third party on the conditions of guaranteeing the offering of the services stipulated in this Framework Agreement to Party B. |
5.2.2 | Obligations of Party A |
(1) | Party A shall ensure that its subsidiaries, branches and other controlled entities will sign specific implementation agreement with Party B pursuant to this Framework Agreement, the supplementary agreements to this Framework Agreement (if any) and/or urge its subsidiaries, branches and other controlled entities to do so; | ||
(2) | Party A is obligated to provide services of outstanding quality for Party B and supervise its subsidiaries, branches and other controlled entities to provide services of outstanding quality for Party B; | ||
(3) | Party A is obliged to coordinate the matters in relation to the specific implementation agreement; |
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(4) | Party A pledges to compensate for any loss caused upon Party B or the other party of the specific implementation agreement by its violation against any of the provisions of this Framework Agreement or the specific implementation agreement. |
5.3 | Party A and Party B hereby confirm that they have the obligation to further take other necessary actions and measures for the fulfilment of the purposes and agreed contents of this Framework Agreement and that under the conditions that Party B is a subsidiary of Unicom Red-chip Company, this Framework Agreement is in compliance with the rules governing connected transactions in the Listing Rules of Hong Kong Stock Exchange. |
6. | Priorities |
6.1 | For the same service, Party B shall grant preference to Party A if terms and conditions offered by the third party are no better than those offered by Party A. | ||
6.2 | Party A pledges that the conditions offered by Party A for the same or similar services under this Framework Agreement to the third party will not be better than the terms offered to Party B. | ||
6.3 | Party A has the right to provide the same type of services to third parties on the condition of not affecting the offering of the services pursuant to this Framework Agreement to Party B. |
7. | Representations, Warranties and Commitments | |
Each party of this Framework Agreement makes the following representations, warranties and commitments to the other party: |
7.1 | Each party is independent legal person duly established and existing under the laws of China and it has full power and authorization (including but not limited to obtaining the approval, agreement or license from related government authorities) to make and execute this Framework Agreement; | ||
7.2 | No provision in this Framework Agreement shall constitute a violation against the Articles of Association, documents of such nature or the laws and regulations of the PRC; | ||
7.3 | Each party shall make the utmost efforts to adopt or urge others to adopt any necessary, appropriate or possible actions in accordance with the laws and regulations of China and this Framework Agreement. |
8. | Effectiveness | |
This Framework Agreement will take effect on the next day following the final implementation of the Merger Transaction. | ||
9. | Force Majeure |
9.1 | In the event that either party of this Framework Agreement fails to perform part or all of the obligations stipulated in this Framework Agreement owing to a Force Majeure event, the prevented party shall be exempted from the breach of contract liabilities. But the prevented party shall inform the other party and provide authoritative proof regarding the Force Majeure event in writing within 15 (fifteen) days when the Force Majeure event happens and make the utmost efforts to minimize the loss caused by the Force Majeure event. Within a reasonable period time after the influence of the Force Majeure event is eliminated, the prevented party shall continue to execute this Framework Agreement. | ||
9.2 | Force majeure in this Framework Agreement means all objective situations that are unforeseeable, unavoidable and that cannot be overcome. |
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10. | Confidentiality | |
Without the written agreement of the other party, one party shall not make public announcement regarding the materials and information in relation to the business of the other party or the matters of this Framework Agreement or provide or disclose such materials and information for or to the third party, except as otherwise required by the laws of China, government authorities, or securities regulatory authorities or for the purpose of maintaining Unicom Red-chip Company. | ||
11. | Transfer of Rights and Obligations | |
Without the written consent of the other party, neither party shall transfer any rights and obligations under this Framework Agreement. | ||
12. | Non-Waiver | |
Unless otherwise stipulated by the laws, failure or delay on the part of any party to exercise any right, power or privilege under this Framework Agreement shall not operate as the waiver of such right, power or privilege thereof and the exercise of such right, power or privilege in part by one party shall not affect the exercise of such right, power or privilege in the future. | ||
13. | Governing Laws | |
This Framework Agreement is governed by PRC laws and shall be interpreted and implemented in accordance with PRC laws. | ||
14. | Notification | |
Notifications required to be given by one party pursuant to this Framework Agreement shall be made in writing and may be delivered personally, by facsimile transmission or by courier service. Notices given by personal delivery shall be deemed effectively given on the date of personal delivery. Notices sent by facsimile transmission shall be deemed effectively given at the time as indicated by the printer. Notices sent by courier service shall be deemed effectively given on the third working day (to be extended to the next day in case of statutory holidays) after they are posted. The notice shall come into effect since the date of delivery. | ||
15. | Dispute Settlement | |
Any dispute over the effect, interpretation or exercise of this Framework Agreement shall be first resolved through friendly consultations by both parties. In the event that the dispute is not resolved within 30 (thirty) days since the start of the dispute, either party can submit the dispute case to the local peoples court that have jurisdiction over the case for legal proceedings. | ||
16. | Miscellaneous |
16.1 | Unicom Red-chip Company, for the purpose of complying with or satisfying the regulatory requirements on connected transactions, may amend and supplement this Framework Agreement after the friendly consultations. | ||
16.2 | In case of any discrepancy between this Framework Agreement and the agreements made by the Parties prior to the signing of this Framework Agreement, this Framework Agreement shall prevail after being signed by the Parties. | ||
16.3 | This Framework Agreement is severable. If any provision of this Framework Agreement is held illegal, invalid or unenforceable, the effect and exercise of other provisions of this Framework Agreement shall not be affected. | ||
16.4 | This Framework Agreement is made in 4 (four) original copies, with each party holding two copies. All the copies are equally binding. |
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(1) | Netcom Group is a state owned enterprise duly incorporated and validly existing under the laws of the PRC; | |
(2) | CUCL is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, whose equity is 100% held by China United Telecommunications Corporation Limited (the Unicom Red-chip Company, a company duly incorporated and validly existing under the laws of the Hong Kong Special Administration Region and dually listed on the Hong Kong Stock Exchange). Approved by the former Ministry of Information Industry (MII) of the PRC, CUCL is mainly engaged in nationwide provision of international and domestic long-distance communications services (excluding international telecommunications facilities services); Internet services and IP Telephony services; as well as mobile communications services in 31 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Hubei, Anhui, Sichuan, Guizhou, Xinjiang, Chongqing, Shaanxi, Guangxi, Henan, Heilongjiang, Jilin, Jiangxi, Shanxi, Inner Mongolia, Hunan, Hainan, Yunnan, Ningxia, Gansu, Qinghai and Tibet; | |
(3) | On May 24, 2008, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Deepening the Reform of Chinas Telecommunications System, which is seen as the guidepost for the Chinese government to deepen the reform of its telecommunications system by endorsing the formation of three leading competitive carriers with nationwide network resources, similar size and strength and the capacity of full services operation. In the above notice, China Telecom is encouraged to buy China Unicoms CDMA network and China Unicom is encouraged to merge with China Netcom. As a response to the call for deepening the reform in regard to telecommunications restructuring, the Unicom Red-chip Company is to merge with Netcoms red-chip counterpart via an agreement (the Merger Transaction). Following the merger, the Netcom Red-chip Company will withdraw from the Hong Kong Stock Exchange and the |
1
New York Stock Exchange to become a wholly owned subsidiary of the Unicom Red-chip Company; | ||
(4) | In its operations of telecommunications services, Party B desires to use Netcom Groups telecommunications facilities. | |
On the basis of equity and fairness and following friendly consultation, Party A (including Party As branches, subsidiaries and other units under its control, but excluding the Netcom Red-chip Company and its affiliates, subsidiaries and other units under its control, the same below) and Party B (including Party Bs branches, subsidiaries and other units under its control, the same below) enters into a Framework Agreement on telecommunications facilities leasing and other related matters as follows: | ||
1. | Telecommunications Facilities Leasing | |
The two parties agree that Party B can lease Party As international communications channel gateways (including international submarine cable landing stations, international land cable entry points, stations or entry extension terminal stations, as well as international satellite earth stations), international communications services gateways (including international telephone exchanges, the STPs of the international telephone network, ATM/FR, DDN, international IP exchanges), the international submarine cable capacity, international land cables and international satellite transponders and other international telecommunications resources (International Telecommunications Resources); the inter-provincial optical fiber facilities (Inter-Provincial Transmission Fibers) owned by Party A but located within Party Bs business areas; as well as other telecommunications facilities owned by Party A but needed by Party B in its services operations (Telecommunications Resources and Facilities). | ||
2. | Basic Principles |
2.1 | The leasing of Telecommunications Resources and Facilities from Party A to Party B pursuant to this Framework Agreement is regarded as a paid business transaction between the two parties. Based on the principle of equity and fairness, Party A is entitled to charge Party B a reasonable amount of rental fees for the resources and facilities to be leased. | ||
2.2 | The conditions governing the leasing of Telecommunications Resources and Facilities from Party A to Party B pursuant to this Framework Agreement shall be no less favourable than those granted to any other third-party from Party A as and when the same or similar facilities are provided. | ||
2.3 | If Party B requests Party A to provide more resources and/or facilities under this Framework Agreement, Party B shall make its best efforts to provide such facilities as required by Party B. The conditions governing the leasing of such resources and/or facilities shall be no less favourable than those granted to any other third parties as and when the same or similar resources and/or facilities are provided. | ||
2.4 | If the resources and/or facilities under this Framework Agreement could not be provided in part or in full as a result of Party As oversight, Party A shall notify Party B promptly in writing, and make its best efforts to assist Party B in receiving the same or similar resources and/or facilities from other sources. | ||
2.5 | The provision of resources and/or facilities under this Framework Agreement shall comply with the purpose of use provided in this Framework Agreement as well as relevant state standards. | ||
2.6 | Party A undertakes to provide to the auditor of the Unicom Red-chip Company the accounting records between Party A and its connected persons in respect of the connected transaction. | ||
2.7 | In the event of losses incurred to either party as a result of breach of this Framework Agreement, the party in breach shall claim in time full responsibilities with regard to the breach (including but not limited to direct or indirect losses inflicted upon the other party). However, if the loss in question is caused by force majeure, no party shall be held responsible. | ||
2.8 | During implementation of the obligations prescribed in this Framework Agreement by either party, the other party shall undertake to provide assistances where necessary. |
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2.9 | It is confirmed that the two parties are obligated to take further actions and measures where necessary to ensure the realization of the purposes and provisions prescribed in this Framework Agreement. Moreover, the provisions relating to connected transactions in the listing rules of the Hong Kong Stock Exchange will be observed if Party B is a subsidiary of the Unicom Red-chip Company. |
3. | Basic Contents about Leasing of Telecommunications Resources and Facilities |
3.1 | Party B can lease Party As International Telecommunications Resources. | ||
3.2 | Party B can lease Party As Inter-Provincial Transmission Fibers. | ||
3.3 | Party B can lease other Telecommunications Resources and Facilities owned by Party A. | ||
3.4 | The two parties can make adjustments where necessary to the scope, type and quantity of Telecommunications Resources and Facilities at any time. Such adjustments shall be mutually confirmed once a year. |
4. | Obligations |
4.1 | Party B is responsible for maintaining the rented International Telecommunications Resources and Inter-Provincial Transmission Fibers at its own expense in accordance with relevant regulations and specifications. | ||
4.2 | The two parties can determine through consultation which party is to undertake the maintenance task in part or in full of the telecommunications facilities, in which case the relevant costs shall be borne by Party B (unless otherwise agreed by the two parties); if Party A undertakes the maintenance task in part or in full of the telecommunications facilities, Party B shall make compensations to Party A for the costs arising therefrom. | ||
4.3 | Party B shall make good use of the leased Telecommunications Resources and Facilities. In the life of this Framework Agreement and to the extent permitted by the laws where applicable, Party B is entitled to lease the Telecommunications Resources and Facilities to third parties as part of its normal Network Element (NE) leasing services, for which the rates shall be based on relevant state regulations and the principles of equity and fairness. | ||
4.4 | If Party B deems it necessary to cut off the Telecommunications Resources and Facilities for the sake of maintenance and other reasons, a prior notice shall be issued to Party A within a reasonable period of time. |
5. | Quality Assurance |
5.1 | Party A shall ensure that the quality of its Telecommunications Resources and Facilities to be leased are in line with national standards and regulations. | ||
5.2 | Party B shall ensure that its telecommunications equipment to be connected to the Telecommunications Resources and Facilities is in line with the quality standards and technical requirements provided by the competent national authorities. |
6. | Fees and Payment |
6.1 | The rental fee to be paid by Party B for the Telecommunications Resources and Facilities shall be equal to the annual depreciation of such resources and facilities and no higher than the market price. | ||
6.2 | Within three months following the end of each year, the two parties shall carry out a review of the rental fee of the Telecommunications Resources and Facilities (if necessary) provided pursuant to this Framework Agreement. Adjustments shall be made in the next year with regard to the rental fee errors (if any) identified in the review process. |
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6.3 | The expenses to be paid under 4.2 of this Framework Agreement shall be determined with reference to the market price. In case that no market price is available, the price shall be worked out by the two parties through negotiation. However, the price shall be negotiated on a cost-plus basis, and the cost acceptable to the two parties shall also be determined through negotiation. | ||
6.4 | Within ten working days following the end of each quarter, Party B shall provide to Party A a list of rental charges of the previous quarter, as well as a list of the charges and fees provided pursuant to Article 6.3 of this Framework Agreement. Meanwhile, Party B shall pay Party A the balance of rental charges after deduction of the relevant charges provided pursuant to Article 6.3 of this Framework Agreement. After receipt of the payment, Party A shall issue a statement of payment to Party B. Where dispute arises, adjustments can be made in the next quarter upon confirmation by the two parties. | ||
6.5 | The two parties shall pay rental charges and fees therewith in light of the articles heretofore. In the event of overdue payment, a penalty charge of 0.05% of the amount due will be imposed on the party owing the payment for each day (1 day) of outstanding payment. |
7. | Representations, Assurances and Commitments | |
Each party of this Framework Agreement makes the following representations, assurances and commitments to the other party: |
7.1 | Each party is an independent legal person incorporated for effective duration in accordance with Chinese laws, with full power and authority (including but not limited to the approval, permission or consent given by competent government departments) to sign and implement this Framework Agreement; | ||
7.2 | No provision contained in this Framework Agreement is in violation of either partys association documents or Chinese laws and regulations; | ||
7.3 | Each party will do its utmost to take or cause other people to take any necessary, appropriate or desirable action in line with Chinese laws, regulations as well as this Framework Agreement, with a view to enabling the effective implementation of those matters prescribed in this Framework Agreement. |
8. | Effectiveness | |
This Framework Agreement will take effect on the next day following the final implementation of the Merger Transaction. | ||
9. | Force Majeure |
9.1 | If a party is unable to implement or fully implement the obligations prescribed in this Framework Agreement as a result of force majeure, then it will not undertake any liability for breach of the agreement, in which case the it shall, within fifteen (15) days following the occurrence of force majeure, inform the case to the other party in writing and provide proof therewith, and at the same time make every effort to minimise the losses incurred by force majeure. Within a reasonable period of time in the wake of force majeure, the party falling victim to force majeure shall undertake to continue implementation of this Framework Agreement. | ||
9.2 | Force majeure in this Framework Agreement means all objective situations that are unforeseeable, unavoidable and that cannot be overcome. |
10. | Confidentiality | |
Without the written permission of the other party, neither party shall make any announcement in regard to, or provide or disclose to a third party any data or information in relation to the businesses of the other party or items under this Framework Agreement, unless otherwise required by legal or government departments or securities regulatory bodies, or for the purpose of maintaining the listing |
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status of the Unicom Red-chip Company. | ||
11. | Transfer of Rights and Obligations | |
Without the written consent of the other party, neither party shall proceed to transfer any right and obligation prescribed in this Framework Agreement. | ||
12. | Non-Waiver | |
Unless otherwise provided by laws, non-exercise or delayed exercise of the rights, powers or privileges prescribed in this Framework Agreement by either party shall not be regarded as a waiver of such rights, powers or privileges. Moreover, the exercise in part of such rights, powers or privilege shall not keep the party from exercising such rights, powers or privileges in the future. | ||
13. | Notification | |
Any notification relating to this Framework Agreement shall be made in writing by one party to the other party via personal delivery, fax or mail. A notification shall be regarded as issued upon delivery by hand, or the sent indication is displayed on the senders fax machine, or on the third working day (subject to extension in case of statutory holidays) after sending of the mail. Any notification upon issuance shall be regarded as entering into force. | ||
14. | Applicable Laws | |
This Framework Agreement is governed by PRC laws and shall be interpreted and implemented in accordance with PRC laws. | ||
15. | Dispute Settlement | |
In the event of a dispute between the two parties regarding the effectiveness, interpretation or execution of this Framework Agreement, friendly consultation shall be sought in the first place. If a case can not be settled through negotiation within thirty (30) days after the dispute arises, either party is entitled to file a lawsuit with the peoples court of the corresponding jurisdiction. | ||
16. | Miscellaneous |
16.1 | On condition that the Unicom Red-chip Company complies with or meets the regulatory requirements on connected transactions, the two parties can proceed to amend or supplement this Framework Agreement based upon consensus. | ||
16.2 | Upon signing of this Framework Agreement, in case of conflict with any agreement reached prior to this Framework Agreement on any matter relating to the provisions established in this Framework Agreement, the contents of this Framework Agreement shall prevail. | ||
16.3 | This Framework Agreement is divisible, i.e., if any provision of this Framework Agreement is identified as illegal, invalid or unenforceable at any time, the validity and execution of other provisions of this Framework Agreement shall not be affected. | ||
16.4 | This Framework Agreement is produced in four (4) copies, with each party holding two (2) copies and all the original copies being equally authentic. |
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1. Basic principles
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2. Basic contents of the comprehensive services
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4 | |||
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3. Principles of pricing and payments
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5 | |||
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4. Terms
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5. Statements, warranties and undertakings
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5 | |||
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6. Transfer
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7. Effectiveness
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8. Force majeure
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7 | |||
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9. Confidentiality
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10. Non-waiver
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11. Notification
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12. Governing laws
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13. Disputes settlement
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14. Miscellaneous
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Annex 1: Interconnection Arrangements
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Annex 2: Supply of Telephone Cards
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12 | |||
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Annex 3: Equipment Procurement Services
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14 | |||
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Annex 4: Premises
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15 | |||
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Annex 5: International Telecommunications Network Gateways Services
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17 | |||
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Annex 6: Operator-Based Value-Added Services
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19 | |||
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Annex 7: Value-Added Telecommunications Services
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20 | |||
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Annex 8: 10010/10011 Customer Services
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21 | |||
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Annex 9: Agency Services
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Annex 10: Engineering Design and Technical Services
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24 |
1
(1) |
Party A:
China Unicom Corporation Limited
(hereinafter referred to as the Unicom Group)
Address: Room 615, Office Tower 3, Henderson Center, 18 Jianguomen Neidajie, Beijing Legal Representative: Chang Xiaobing |
|
(2) |
Party B:
China United Telecommunications Corporation Limited
(hereinafter referred to as
Unicom A Share Company)
Address: 29/F, No. 1033, Changning Road, Shanghai Legal Representative: Chang Xiaobing |
(1) | Unicom Group is a limited liability company duly incorporated and validly existing under the laws of PRC and engages in the operation of comprehensive telecommunications business. Unicom A Share Company is a joint stock limited company duly incorporated and validly existing under the laws of PRC and its shares have been listed and traded on the Shanghai Stock Exchange (hereinafter referred to as the SSE) since October 9, 2002. Unicom Group is the controlling shareholder of Unicom A Share Company; | |
(2) | Unicom A Share Company indirectly controls China Unicom Limited (hereinafter referred to as Unicom Red Chip) through China Unicom (BVI) Limited (hereinafter referred to as Unicom BVI). Unicom Red Chip is a limited liability company duly incorporated and validly existing under the laws of the Hong Kong Special Administrative Region (hereinafter referred to as Hong Kong) and its shares are listed and traded in Hong Kong and the U.S. respectively; | |
(3) | China Unicom Corporation Limited (hereinafter referred to as Unicom Operating Company) is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, whose equity is 100% held by Unicom Red Chip. Unicom Operating Company is mainly engaged in nationwide provision of international and domestic long-distance communications services (excluding international telecommunications facilities services); Internet services and IP Telephony services; as well as mobile communications services in 31 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Hubei, Anhui, Sichuan, Guizhou, Xinjiang, Chongqing, Shaanxi, Guangxi, Henan, Heilongjiang, Jilin, Jiangxi, Shanxi, Inner Mongolia, Hunan, Hainan, Yunnan, Ningxia, Gansu, Qinghai and Tibet; | |
(4) | China Netcom (Group) Company Limited (hereinafter referred to as Netcom Operating Company) is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, and is wholly owned by China Netcom Group (Hong Kong) Limited (a company duly incorporated and validly existing under the laws of Hong Kong with its shares listed on the Stock Exchange of Hong Kong Limited and New York Stock Exchange, hereinafter referred to as Netcom Red Chip). Netcom Operating Company mainly engages in the operation of related telecommunications business in 10 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Hebei, Henan, Shandong, Liaoning, Heilongjiang, Jilin, Inner Mongolia and Shanxi; | |
(5) | On August 22, 2002, Unicom Group and Unicom A Share Company signed a Memorandum in respect to transactions between Unicom Group or its subsidiaries (excluding Unicom A Share Company and subsidiaries controlled by Unicom A Share Company) and Unicom Red Chip indirectly controlled by Unicom A Share Company and its subsidiaries after the listing of the shares of Unicom A Share Company (hereinafter referred to as Memorandum on Connected Transactions). According to the understanding reached under the Memorandum on Connected Transactions, if based on the Rules Governing the Listing of Shares on Shanghai Stock Exchange (hereinafter referred to as the SSE Listing Rules) applicable from time to time, |
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transactions between Unicom Red Chip Company or its subsidiaries and Unicom Group or its subsidiaries (excluding Unicom A Share Company and its subsidiaries) are subject to the approval of minority shareholders of Unicom A Share Company, and at the same time, based on the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (hereinafter referred to as the HKSE Listing Rules) applicable from time to time, they are deemed to be connected transactions that are subject to the approval of the minority shareholders of Unicom Red Chip, such connected transactions shall be conducted in two steps. First step: an agreement shall be entered into between Unicom Group or its subsidiaries (excluding Unicom A Share Company and subsidiaries controlled by it) and Unicom A Share Company or Unicom BVI in respect of any proposed transaction to specify the rights and obligations of the parties under this Agreement (including but not limited to Unicom Group agreeing to the transfer of rights and obligations of Unicom A Share Company or Unicom BVI under agreement to Unicom Red Chip or its subsidiaries); Second step: the transfer of the rights and obligations under the above-mentioned agreement by Unicom A Share Company or Unicom BVI to Unicom Red Chip or its subsidiaries; | ||
(6) | On May 24, 2008, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Deepening the Reform of Chinas Telecommunications System, which is seen as the guidepost for the Chinese government to deepen the reform of its telecommunications system by endorsing the formation of three leading competitive carriers with nationwide network resources, similar size and strength and the capacity of full services operation. In the above notice, China Telecom is encouraged to buy China Unicoms CDMA network and China Unicom is encouraged to merge with China Netcom. As a response to the call for deepening the reform in regard to telecommunications restructuring, the Unicom Red Chip is to merge with Netcom Red Chip via an agreement (the Merger Transaction). Following the merger, the Netcom Red-chip Company will withdraw from the Hong Kong Stock Exchange and the New York Stock Exchange to become a wholly owned subsidiary of the Unicom Red Chip; | |
(7) | For the purpose of the operation of telecommunications business by Unicom Red Chip and its subsidiaries, pursuant to the relevant provisions under the SSE Listing Rules, HKES Listings Rules and Memorandum on Connected Transactions, Unicom Group and its subsidiaries (excluding Unicom A Share Company and subsidiaries controlled by it), through Unicom A Share Company, entered into the Comprehensive Services Agreement, the Comprehensive Services Agreement based on the Artificial Platform and the Building Lease Agreement (hereinafter referred to as the Original Comprehensive Services Agreement) with Unicom Operating Company in 2006 and pursuant to the above agreements, arrangements have been made for a series of continuing connected transactions (hereinafter referred to as Continuing Connected Transaction Arrangements), which have been announced in accordance with the respective listing rules applicable to Unicom A Share Company and Unicom Red Chip and approved by their respective independent shareholders. The above Continuing Connected Transaction Arrangements have a term of 3 years, commencing on January 1, 2007 and ending on December 31, 2009. | |
Based on the actual implementation of the relevant Continuing Connected Transaction Arrangements, after the joint review and negotiations and on the basis of equality and mutual benefit, the Parties hereby agree on the followings: | ||
1. | Basic principles | |
1.1 | The Comprehensive Services under this Agreement refers to certain services and facilities provided by one Party hereto to the other Party or provided by the Parties hereto to each other and the related expenses (hereinafter referred to as the Service Fees) are to be paid by the recipient to the provider. Unless otherwise agreed, each Party shall be entitled to arrange any of its subsidiary (as determined under the Enterprise Accounting Standards revised from time to time by the Ministry of Finance) to provide or receive any related services in accordance with the terms and conditions stipulated in this Agreement and receive or pay the Service Fees. | |
1.2 | Services and/or facilities provided by either Party hereto to the other Party under this Agreement are non-gratuitous transactions based on the economic relationship between enterprises. One |
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party shall be entitled to charge reasonable Service Fees for the services and/or facilities it provides based on the fair market principles and the other party shall perform its corresponding payment obligations. | ||
1.3 | Conditions and quality of the services and/or facilities provided under this Agreement by any Party hereto to the other Party shall not be inferior to the condition and quality of the same or similar services and/or facilities provided by such party to any third party. The exercise of the rights under this Agreement or the performance of the obligations under this Agreement by any Party hereto shall be conducted on an arm length basis. | |
1.4 | If any Party hereto requires the other Party to increase the supply of any of the services and/or facilities under this Agreement, the other Party shall make its best efforts to provide such requested services and/or facilities, of which the conditions and quality shall not be inferior to the conditions and quality of the services and/or facilities provided to any third party. | |
1.5 | In the event that any Party hereto is unable to provide, in whole or in part, the services and/or facilities under this Agreement due to any reasons other than its own fault, such Party shall notify the other Party in a timely manner, and make its best efforts to assist the other Party in obtaining the same or similar services and/or facilities through other channels. | |
1.6 | The supply of any services and/or facilities under this Agreement shall comply with the use purposes as agreed by the Parties and relevant national standards. | |
1.7 | In case that either Party breaches this Agreement, which has caused the other Party to incur any damages, such Party shall bear the corresponding liabilities for such breach (including but not limited to the direct and indirect damages caused to the other Party due to such breach). However, either Party shall be liable for any damages caused to the other Party due to force majeure. | |
1.8 | When either Party hereto performs its obligations under this Agreement, the other Party shall provide reasonable and necessary assistance to such Party. | |
1.9 | Subject to Article 1.3 under this Agreement and on condition that the fee standards of the provider not higher than those of any independent third parties, the recipient agrees to select the services provided by the provider. | |
1.10 | In the event that there is an independent third party in the area where the provider provides its services, and if (i) the quality of the services provided by such third party is better than that provided by the provider; or (ii) the fee standards for supplying services of the same standards are lower than the fee standards of the provider, the recipient shall, after giving a notice in writing to the provider, be entitled to terminate the supply of the related services provided by the provider within such area, and the recipient shall not be liable for any compensation. | |
2. | Basic contents of the comprehensive services | |
2.1 | The comprehensive services to be provided by the Parties hereto to each other under this Agreement and the related agreements are set out in the following annexes: |
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3. | Principles of pricing and payments | |
3.1 | The principles of pricing and/or fee standards for the services under this Agreement are set out in various annexes to this Agreement. | |
3.2 | The specific amounts of the service fees under this Agreement shall be calculated pursuant to the relevant PRC accounting principles as applicable from time to time. | |
3.3 | If the Parties fail to agree upon the amount of any service fees under this Agreement, it shall be submitted to the relevant authority, which shall make a decision with the reference to the spirits and terms of this Agreement and pursuant to the relevant national pricing policies and regulations. The decision made by such authority shall be final and binding on both Parties. | |
3.4 | Either Party shall comply with the principles of pricing and fee standards as set out in this Agreement and its annexes, and pay the service fees in a timely manner in respect of the services provided by the other Party. | |
3.5 | Either Party hereto, if failing to pay the relevant service fees in a timely manner as agreed, shall pay to the other Party an overdue fine of 0.05% of the outstanding amount for each overdue day. If any amount has been overdue for 60 days, the other Party may terminate the relevant services by giving a notice in writing to such Party. If such Party fails to pay the relevant service fees after 30 days of receipt of such written notice, the other Party shall be entitled to announce the immediate termination of the relevant services. However, the suspension or termination of such services shall not prejudice the rights and obligations previously generated or incurred by both Parties under this Agreement. | |
3.6 | In October every year, the Parties shall review the pricing standards and other terms for each service and facility to be provided in the next accounting year under this Agreement and enter into a supplemental agreement. If the Parties fail to reach any agreements on the terms of the supplemental agreement before the specified time, the pricing standards and related terms of the current year shall apply in the next accounting year until the Parties reach an agreement or the dispute can be solved pursuant to Article 3.3. | |
4. | Terms | |
4.1 | This Agreement shall be valid for a term of 3 years (the Valid Term), commencing on the next day subject to the fulfillment of the conditions under Article 7 of this Agreement. | |
4.2 | Unless Party B gives a notice for not renewing this Agreement in writing to Party A 60 days in advance, this Agreement shall be extended for another Valid Term upon the expiry of its Valid Term or the expiry of its extended term subject to the relevant applicable laws, regulations or other regulatory requirements. | |
5. | Statements, warranties and undertakings | |
5.1 | Statements, warranties and undertakings of the Parties | |
The Parties hereto have made the following statements, warranties and undertakings to each other: |
5.1.1 | that it has full power and authority (including but not limited to obtaining the relevant approvals, consents or permits from the relevant government authorities) to sign this Agreement and its annexes; | ||
5.1.2 | that after executed and sealed with the common seal in the required manner, this Agreement and its annexes shall become valid and binding, and enforceable pursuant to its terms; and | ||
5.1.3 | that any terms of this Agreement and its annexes shall under no circumstances be in validation of the PRC laws and regulations. |
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5.2 | As required by the relevant laws, regulations and listing rules, Unicom Group agrees to continue to support the sustained development of Unicom A Share Company and its subsidiaries (collectively the Related Operating Subsidiaries), including: |
5.2.1 | All the business licenses, consents, permits and approvals (including the business license of Unicom Group for engaging in the related telecommunications business and similarly hereinafter) obtained from the national communications industry authorities such as the Ministry of Industry and Information Technology and other authorities currently or in the future and related to the listed businesses of Unicom Operating Company, as well as any other resources allocated and/or obtained (including but not limited to spectrum, frequency, phone numbers, trade marks and names, and similarly hereinafter) shall be usable by its Related Operating Subsidiaries. For the sake of the exclusive interests of the Related Operating Subsidiaries engaging in the listed businesses, Unicom Group shall obtain, maintain, retain and renew such business licenses, consents, permits, approvals and other resources pursuant to the laws, and shall not conduct any acts or omissions that may impair the legality, validity and renewability of such licenses, consents, permits and approvals and other resources or the capacity of the Related Operating Subsidiaries in conducting the listed businesses in accordance with the related laws and regulations. Unicom Group shall conduct any acts or not to act so as to obtain, maintain, retain, renew or extend such licenses, consents, permits and approvals as well as other resources and allow the Related Operating Subsidiaries to conduct their businesses in accordance with the related laws and regulations; | ||
5.2.2 | In order to satisfy the needs of the Related Operating Subsidiaries in the operation of the listed businesses, Unicom Group shall arrange the Related Operating Subsidiaries to participate in its existing or future roaming arrangements with third parties under normal commercial terms; | ||
5.2.3 | Unicom Group shall not conduct any acts in respect to the shareholding/shares it beneficially owns in the listed group that may lead to the possible loss of its control over the Related Operating Subsidiaries. In order to avoid doubts, the determination of the aforesaid control shall be based on the Enterprise Accounting Standards issued by the Ministry of Finance, as revised from time to time. Subject to the requirements under the related laws, regulations and listing rules, Unicom Group shall also not approve or agree with the occurrence and implementation of the aforesaid acts; | ||
5.2.4 | If there are any connected transactions between the Related Operating Subsidiaries and Unicom Group and pursuant to the related laws or listing rules of the place where the listed companys shares are listed, the relevant accounting records in respect of such connected transactions are required to be audited by the accountants (or auditors and similarly hereinafter) appointed by the Related Operating Subsidiaries, Unicom Group shall agree, for the purpose of such audits, to offer any convenience to the accountants appointed by the Related Operating Subsidiaries to have full access to the relevant accounting records (including the accounting records of Unicom Group and/or its associates); | ||
5.2.5 | Unicom Group shall not seek an overseas listing of its businesses or any businesses of its subsidiaries that are similar to the list groups existing or future businesses unless through Unicom Red Chip; | ||
5.2.6 | Unicom Group undertakes that as long as the shares of Unicom A Share Company and Unicom Red Chip are listed and traded and pursuant to the laws or listing rules of the place where the shares are listed, Unicom Group is deemed to be the controlling shareholder and an associate of the controlling shareholder of Unicom A Share Company and Unicom Red Chip, save for the CDMA mobile communications business, Unicom Group shall not engage or participate in, and shall prevent and avoid any of its other subordinate enterprises from engaging or participating in any businesses within the territory of PRC in any way (including but not limited to a wholly owned enterprise, |
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equity joint venture or cooperative joint venture and directly or indirectly owing the shares or other interest of other companies or enterprises, except through the Related Operating Subsidiaries, and similarly hereinafter), that may compete with Unicom A Share Company or Unicom Red Chip. In case that Unicom Group and/or any of its other subordinate enterprises participate in or conduct any business or activities in any place within the territory of the PRC in any way and at any time which transform into a business that may compete with Unicom A Share Company or Unicom Red Chip, Unicom Group shall immediately stop and/or procure its relevant subordinate enterprises to stop participating in, managing or operating such competing business; | |||
5.2.7 | If Unicom Group or any of its other subordinate enterprises obtain any governmental approval, authorization or permit to develop any new telecommunications technologies, products or services, or intend to develop any new telecommunications technologies, products or services, or have secured any other operating opportunities, Unicom Group shall directly, and/or procure its relevant subordinate enterprises to immediately inform the Related Operating Subsidiaries of the relevant situation, and shall first provide such governmental approval, authorization or permit and the rights for the development of such new telecommunications technologies, products and services as well as the rights for leveraging on any such operating opportunities to Unicom Operating Company or its subsidiaries in accordance with the needs of the Related Operating Subsidiaries after the completion of the requisite formalities. | ||
5.2.8 | The Parties hereby agree that the above statements, warranties and undertakings of Unicom Group shall supersede the relevant statements, warranties and undertakings under Section 13, 14, 16, 17 and 18 of Article 3.2 and Article 5.1 and Article 5.2 in the Reorganization Agreement it entered into with Unicom Operating Company on April 21, 2000 while the other terms under the Reorganization Agreement shall remain unchanged. |
6. | Transfer | |
6.1 | Subject to the terms and conditions as stipulated in this Agreement and those as agreed in the Memorandum on Connected Transactions, Party A irrevocably agrees that Party B may transfer its rights and obligations under this Agreement to any of its Related Operating Subsidiaries, and no other consents from Party A is required in respect of the transfer by Party B of its rights and obligations under this Agreement to any of its Related Operating Subsidiaries. | |
6.2 | Once Party B has transferred its rights and obligations under this Agreement to any of its Related Operating Subsidiaries, such Related Operating Subsidiaries shall immediately succeed to all the rights and obligations of Party B under this Agreement and Party B shall immediately be released from the relevant rights and obligations to which the Related Operating Subsidiaries have succeeded. | |
7. | Effectiveness | |
This Agreement shall take effect upon the fulfillment of the following conditions and on the date agreed by the Parties: | ||
7.1 | The shareholders general meeting of Party B approves the execution of this Agreement in compliance with the applicable laws, regulations and listing rules; | |
7.2 | The shareholders general meeting of Unicom Red Chip approves the transfer by Party B of its rights and obligations under this Agreement to the Related Operating Subsidiaries in compliance with the applicable laws, regulations and listing rules; | |
7.3 | The Merger Transaction is executed and completed. | |
8. | Force majeure | |
If either Party is unable to perform the relevant obligations under this Agreement or its relevant |
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14.3 | Upon reaching an agreement by the Parties through negotiation, the Parties may amend or supplement this Agreement and its annexes and all amendments or supplements shall take effect after executed in writing by the legal or authorized representatives of the Parties and sealed with their common seals. | |
14.4 | This Agreement is severable, that is, if any provisions under this Agreement and its annexes is confirmed to be in violation of the laws or unenforceable, this shall not affect the validity and enforceability of any other articles of this Agreement and its annexes. | |
14.5 | This Agreement is signed in four copies with each party holding two copies. All copies shall have the same legal force. |
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1. | Types of interconnection | |
Party B and Party A agree to accomplish the interconnection of the various telecommunications networks between them for the purpose of operating the communications business in relation to their various telecommunications networks. | ||
2. | Interconnection technical rules, technical standards, interconnection fee sharing and project construction | |
2.1 | The various types of interconnection between the Parties specified in the above shall comply with the interconnection technical rules and technical standards promulgated by the relevant national communications authorities. | |
2.2 | The Parties shall determine the issues, such as the method for interconnection fee sharing and project construction, through negotiation with reference to the relevant requirements of the national communications authorities. | |
3. | Obligations of the Parties | |
3.1 | The Parties shall ensure that the communications quality between their networks shall not be lower than the communications quality of the similar operations within their respective networks. | |
3.2 | As for the telecommunications businesses (including special businesses and intelligent businesses) provided by either Party hereto to subscribers of its own network, the Party shall, at the request of the other Party, provide the same services to subscribers of the relevant telecommunications network of the other Party unconditionally and promptly, and shall ensure the service quality provided that it is technically feasible. | |
4. | Network management and adjustment | |
4.1 | If any network capacity expansion implemented by either Party might affect the communications of the other Party, the Party shall inform the other Party of such situation six months in advance. | |
4.2 | In case of any adjustment made by either Party to the route system, trunk circuit, signaling mode, cell data and software in its network might affect the communications of the other Partys subscribers, the Party shall inform the other Party of such situation thirty days in advance. | |
4.3 | Either Party shall, at the request of the other Party, offer timely cooperation in any adjustment made by the other Party to the route system, trunk circuit, signaling mode, cell data and software in the network of the other Party and ensure the quality of interconnection. | |
5. | Maintenance, technical failure and failure recovery | |
5.1 | The Parties shall conduct network maintenance in accordance with the relevant regulations promulgated by the relevant national communications authorities from time to time so as to ensure the normal operation of the entire network. | |
5.2 | Either Party shall not terminate the interconnection between the networks without the consent from the other Party. | |
5.3 | In case of any network breakdown or extremely heavy communication traffic, the Parties shall immediately take effective measures to restore the smooth operation. | |
6. | Settlement and payment of the fees | |
6.1 | Settlement principles |
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(1) | Settlement of all the interconnections of the Parties | ||
The Parties agree that settlement shall be made in accordance with the relevant provisions stipulated in the Notice Concerning the Distribution of Settlement for Interconnections and Sharing of Relaying Fees (Xin Bu Dian [2003] No. 454) promulgated by the former Ministry of Information Industry on October 28, 2003. | |||
(2) | The Parties further agree that if the settlement made with reference to the settlement method (and its amendments from time to time) promulgated by the relevant national authorities in respect of the similar settlement for interconnection is more favorable for Party B than the above interconnection settlement arrangements, settlement shall be made with reference to such settlement method. |
6.2 | Fee standards | |
Interconnection settlement shall be based on Party Bs billing information. In case of any discrepancy of more than 3% between the billing information of the Parties, the Parties shall separately determine the settlement basis through negotiations. | ||
6.3 | Transmission of billing information and settlement | |
Any other types of settlements for the interconnection of mobile networks and fixed networks of the Parties | ||
The Parties agree that settlement shall be made directly by their respective subordinate entities in accordance with the settlement principles stipulated in this annex on a monthly basis. |
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1. | Scope of the special-purpose telecommunications card supply services | |
Based on its actual needs, Party B may request Party A to supply special-purpose cards (collectively referred to as special-purpose telecommunications cards in this annex), including SIM cards, UIM cards, IP phone cards, long-distance cards and rechargeable cards to Party B. | ||
2. | Quantity of special-purpose telecommunications cards | |
2.1 | Confirmation of annual and regular card ordering plans |
(1) | Party B shall submit its annual plan for ordering special-purpose telecommunications cards for the next year in October each year to Party A pursuant to its annual business development plan. | ||
(2) | Party B shall confirm to Party A its card ordering plans for the periods of May to August, September to December of the current year and January to April of the next year respectively in February, May and September each year. Except for the reasons of force majeure, Party A shall supply special-purpose telecommunications cards in accordance with the card ordering plans confirmed by Party B. |
2.2 | Rush order/temporary order | |
Party B shall be entitled to make any adjustments to the aforesaid card ordering plans. As to the rush orders/temporary orders, Party A shall try all its best efforts to satisfy the orders and confirm to Party B within 3 days upon receiving Party Bs request whether it can provide the relevant special-purpose telecommunications cards according to Party Bs requirements. | ||
3. | Price of special-purpose telecommunications cards | |
3.1 | The Parties agree that the price of special-purpose telecommunications cards shall be determined in accordance with the actual costs (including the cost for importing special-purpose telecommunications cards, costs of production and costs for supplying special-purpose telecommunications cards to Party B) incurred by Party A in providing special-purpose telecommunications cards, plus a profit margin of not more than 20% of the costs as agreed by the Parties from time to time. The Parties agree that certain discounts shall be offered through consultation based on the quantity of special-purpose telecommunications cards ordered by Party B. | |
3.2 | For any rush orders /temporary orders made by Party B in addition to the normal card orders, Party A may, at its discretion, charge an additional fee of not more than 10% on the basis of the price of special-purpose telecommunications cards as set forth in the above. | |
3.3 | The Parties agree to make a review and determine the exact sale price for each kind of special-purpose telecommunications cards for the next year in December each year. | |
4. | Time and venue for the delivery of special-purpose telecommunications cards | |
Party A shall deliver special-purpose telecommunications cards to the locations specified by Party B in accordance with the time stipulated in the card ordering plans and the arrangements for rush orders/temporary orders. | ||
5. | Quality of special-purpose telecommunications cards | |
5.1 | Party A guarantees that the quality of special-purpose telecommunications cards supplied by it complies with the standards formulated by the relevant national authorities and any requisite evidencing certificates would be provided. |
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5.2 | Party A guarantees that all the numbers and passwords of the special-purpose telecommunications cards supplied by it shall be produced under a secure and reliable environment. Party A also guarantees the technology, security and confidentiality of such numbers and passwords. | |
5.3 | If Party B raises any question about the quality of special-purpose telecommunications cards within 5 days upon receipt of the special-purpose telecommunications cards supplied by Party A, Party A shall be responsible for the replacement and/or repair of any defective special-purpose telecommunications cards, so that they will meet the relevant standards and the requirements of Party B, unless the defect is caused by Party B. | |
5.4 | If Party B suffers any losses due to the quality problems of special-purpose telecommunications cards not identified by it after it has made reasonable efforts, Party A shall indemnify Party B for all direct losses incurred by Party B due to those quality problems. | |
6. | Payment | |
6.1 | Party B shall make an advance payment of the amount equivalent to 15% of the aggregate purchase price for the special-purpose telecommunications cards ordered by it to Party A when confirming the card order; | |
Party B shall make a payment of the remaining balance equivalent to 85% of the aggregate purchase price for the special-purpose telecommunications cards ordered by it to Party A when Party A delivers all the special-purpose telecommunications cards in accordance with the relevant card order placed by Party B; | ||
6.2 | Payment for rush orders/temporary orders | |
Upon confirmation of any rush orders/temporary orders placed by Party B, Party B shall promptly make a full payment (including the rush order charge) to Party A and request Party A to deliver the relevant special-purpose telecommunications cards in a timely manner. | ||
7. | Other telephone cards | |
Party B may request Party A to supply any other special-purpose telecommunications cards according to its business development needs. Party A shall supply such cards if there is a feasible plan after making an overall consideration of certain factors, such as specific technologies and operation conditions. | ||
The Parties agree to negotiate with each other on issues such as the quantity, price and payment of any other special-purpose telecommunications cards. The price of the relevant special-purpose telecommunications cards shall be determined on the basis of the actual costs incurred by Party A in providing such cards, plus a profit margin of not more than 20%. |
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1. | Scope of equipment procurement services | |
In accordance with its actual needs, Party B requests Party A (through any subsidiaries controlled by it) to act as its agent responsible for purchasing telecommunications equipment and other materials from the overseas. | ||
Party A shall, in accordance with the requirements of Party B, provide comprehensive procurement services including tender invitation, consultation and agency. | ||
2. | Procedures for equipment procurement services | |
The Parties agree that Party A shall provide equipment procurement services to Party B in accordance with the Notice on the Provisions for the Procurement of Communications Equipment by China United Telecommunications Corporation Limited (China Unicom Mao Zi [2003] No.754), Notice on the Administrative Measures for the Import of Communications Equipment by China United Telecommunications Corporation (China Unicom Mao Zi [2004] No.8) and the provisions stipulated in other relevant documents as agreed by the Parties to be applicable. | ||
3. | Equipment procurement service fees and payment | |
3.1 | Party B shall pay service fees for equipment procurements to Party A: |
(1) | For foreign trade contracts for equipment procurements with a contract price of less than US$30 million (including US$30 million), the service fees shall be charged at 0.55% of the contract price. For contracts with a contract price more than US$30 million, the service fees (including bank charges) shall be charged at 0.35% of the contract price; | ||
(2) | For domestic trade contracts for equipment procurements signed by Party A as the agent with a contract price of less than RMB200 million (including RMB200 million), the service fees shall be charged at 0.25% of the contract price. For contracts with a contract price of more than RMB200 million, the service fees shall be charged at 0.15% of the contract price. |
3.2 | Party B agrees to pay service fees to Party A on a monthly basis. | |
For any overdue service fees, Party B shall pay an overdue fine to Party A at 0.5% of any outstanding amount for each day. |
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1. | Use and purpose of property | |
1.1 | Any Party hereto agrees that it (or any subsidiaries controlled by it) (hereinafter referred to as the Provider) shall provide certain property owned by itself (hereinafter referred to as Self-owned Property) and certain property the use rights of which are obtained from third parties (hereinafter referred to as Third-party Property) (including sites, buildings, air conditioners, power supply, power equipment and related ancillary facilities) to the other Party (hereinafter referred to as the Recipient) for its use in accordance with any request made by the other Party from time to time. | |
1.2 | The Recipient shall use the aforesaid property of the Provider for the purpose of offices, business premises, retail stores and business operation. | |
1.3 | The Provider shall make the relevant property available for examination by the Recipient before signing a formal use or lease agreement. The property shall be in good condition and meet the requirements of the Recipient. | |
2. | Fees and payment | |
2.1 | For the use of any Self-owned Property as provided by the Provider, the fees or rentals to be paid by the Recipient shall be determined in accordance with the lower of the depreciation costs of such property or the market price for using similar property in the place where such property is located. Notwithstanding the above provisions, the Provider may choose to charge the fees according to the market price of the place where the relevant property is located. | |
2.2 | For the lease of buildings, apart from paying the building rentals, the Recipient shall separately pay the expenses (hereinafter referred to as Miscellaneous Expenses) for water, electricity and air conditioning actually consumed or used by the Recipient and the property management fees for the leased buildings on schedule pursuant to the price or charge standards set by the relevant pricing authorities. Except the aforesaid rentals, Miscellaneous Expenses, property management fees and any other expenses incurred as a result of the violation of this provision by the Recipient, the Provider guarantees that is shall not ask the Recipient to bear and/or pay any other fees (including any taxes payable by the Provider) in connection with the building lease. | |
2.3 | For the use of any Third-party Property by the Recipient, the Parties shall share the fees actually paid to any third parties proportionally based on their respective use of the relevant property. | |
2.4 | For any building leases, the relevant rentals, Miscellaneous Expenses and property management fees shall be paid as follows: |
2.4.1 | During the valid term of a lease agreement, the Recipient shall pay the rentals to the Provider on a quarterly basis. The rentals shall be paid within 5 days after the end of each quarter. | ||
2.4.2 | During the valid term of a lease agreement, the Miscellaneous Expenses shall be paid on a monthly basis. Upon the receipt the voice of the Miscellaneous Expenses from the relevant property management company, the Provider shall submit the invoice to the Recipient within five days. The Recipient may pay the Miscellaneous Expenses directly to the property management company pursuant to the requirements of the property management company or make a payment to the Provider who will pay on its behalf. If the Provider is to make the payment on behalf of the Recipient, the Provider shall submit the relevant receipt to the Recipient for filing. | ||
2.4.3 | During the valid term of a lease agreement, the property management fees for the leased buildings shall be paid on a monthly basis. The property management fees shall be paid by the Recipient at the end of each month pursuant to the requirements of the relevant property management company to the property management company through |
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the Provider or directly. If the Provider is to make the payment on behalf of the Recipient, the Provider shall submit the relevant receipt to the Recipient for filing. |
2.5 | For the use of any other property other than buildings, the Recipient shall pay the fees to the Provider within 15 days after the end of each month on a monthly basis. | |
2.6 | For any overdue fees or rentals, the Recipient shall pay an overdue fine to the Provider at 0.05% of any outstanding amount for each day overdue. | |
3. | Undertakings and warranties | |
The Provider guarantees that it has the right to provide the aforesaid Self-owned Property and Third-party Property (including sites, buildings and related ancillary facilities) for use by the Recipient. In the event that under any circumstances or for any reasons, there is any dispute on the Providers ownership and/or use right of such property, that has prevent the Recipient from exercising its rights under this annex or has caused the Recipient to have incurred any other damages, the Provider agrees to indemnify the Recipient for all the losses incurred. | ||
4. | Matters that have not been dealt with in this annex shall be agreed on by the Provider and the Recipient through any other premises agreements. |
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1. | Scope of the international telecommunications network gateways services | |
Party A owns and operates the international gateways in Guangzhou, Shanghai and Beijing (under construction). | ||
If Party B requires the international gateways to provide any corresponding services (such as mobile phone international automatic roaming signaling transfer service) for operating the relevant businesses, Party A agrees to provide the relevant services in accordance with the requirements of Party B. | ||
All revenue derived by Party B from operating businesses on the basis of the gateway services shall be vested in Party B. | ||
Party A undertakes not to provide international gateway services to any other operators. | ||
2. | Service fee rates and payment |
2.1 | The service fees charged by Party A to Party B is calculated according to the following formula: | ||
All the actual expenses incurred by Party A in the reasonable operation and maintenance of the international gateways (including depreciation expenses)×(1+10%) | |||
2.2 | Payment | ||
Party B shall pay the relevant service fees to Party A within fifteen days after the end of each month on a monthly basis. | |||
2.3 | For any overdue amount of the service fees, Party B shall pay an overdue fine to Party A at 0.05% of any outstanding amount for each day overdue. |
3. | Quality assurance and failure recovery | |
Party A guarantees that the relevant equipment of its international gateways complies with the standards and regulations formulated by the relevant national authorities and it shall operate and maintain the international gateways in accordance with the technical standards formulated by the relevant national authorities from time to time. | ||
Party B guarantees that its relevant communications equipment connected to the international gateways complies with the quality standards and technical requirements stipulated by the relevant national authorities. | ||
If there is a reasonable ground for Party A to restructure its international gateways, Party A shall give an advance notice to Party B to make appropriate arrangements to ensure the normal operation of Party B as much as possible. | ||
Party A shall have a department dedicated to handling any failure reports submitted by Party B on a ground-the-clock basis and make appropriate arrangements to handle any such failures. Upon identifying any failure or receiving the failure report from Party B, Party A shall immediately arrange for handling the failure and Party B shall send its personnel to offer assistance. Party A guarantees that it shall fix any such failures related to the international gateways within the recovery time frame stipulated in the relevant national maintenance procedures. | ||
In the event that any businesses operated by Party B are affected due to any reasons related to the international gateways, Party A shall be responsible for the direct losses and reasonable indirect losses caused to Party B. |
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4. | Party A agrees that it shall transfer its international gateways to Party B at the request of Party B when Party B is entitled to own any international gateways pursuant to the laws in the future. |
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1. | Overview | |
Party A (or any subsidiaries controlled by it), acting as the provider, offers various value-added services, including but not limited to Unicom secretarial and artificial information services, to the subscribers of Party B through the artificial integrated platform. | ||
2. | Settlement |
2.1 | The actual cash revenue generated from the provision of the value-added services referred to in this annex as provided by Party A to Party B shall be settled by Party B and the respective branches of the provider at the proportion of 4:6. The settlement proportion shall not exceed the average level of the proportions used by Party B for any other similar value-added telecommunications services provided by any other CP/SPs independent of the provider in the same region. | ||
2.2 | Settlement shall be based on the billing information collected by Party B. | ||
2.3 | The Parties agree that the settlement shall be made directly by their respective subordinate entities in accordance with the settlement principles stipulated in this annex on a monthly basis. |
3. | Obligations of the Parties concerned |
3.1 | In the event that the network construction (including but not limited to capacity expansion or renovation) carried out by either Party hereto, such Party shall inform the other Party six months in advance. | ||
3.2 | The Parties concerned shall carry out the maintenance of the network in accordance with the relevant regulations promulgated by the relevant national communications authorities from time to time so as to ensure the normal operation of the entire network. | ||
3.3 | The Parties hereto shall not suspend communications arising from the service businesses under this annex without the consent from the other Party. In case of any suspended communications or seriously impeded communications, the Parties shall take effective measures to restore communications. |
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1. | Overview | |
Party A (or any subsidiaries controlled by it), acting as the provider, provides various value-added services to the subscribers of Party B through the telecommunications network and information platform. | ||
2. | Settlement |
2.4 | The actual cash revenue generated from the provision of the value-added services referred to in this annex as provided by Party A to Party B shall be settled by Party B and the respective branches of the provider according to the average level of the proportions used by Party B for any other similar value-added telecommunications services provided by any other CP/SPs independent of the provider in the same region. | ||
2.5 | Settlement shall be based on the billing information collected by Party B. | ||
2.6 | The Parties agree that the settlement shall be made directly by their respective subordinate entities in accordance with the settlement principles stipulated in this annex on a monthly basis. |
3. | Obligations of the Parties concerned |
3.4 | In the event that the network construction (including but not limited to capacity expansion or renovation) carried out by either Party hereto, such Party shall inform the other Party six months in advance. | ||
3.5 | The Parties concerned shall carry out the maintenance of the network in accordance with the relevant regulations promulgated by the relevant national communications authorities from time to time so as to ensure the normal operation of the entire network. | ||
3.6 | The Parties hereto shall not suspend communications arising from the service businesses under this annex without the consent from the other Party. In case of any suspended communications or seriously impeded communications, the Parties shall take effective measures to restore communications. |
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1. | Services | |
Party A (or any subsidiaries controlled by it), acting as the provider, offers artificial customer services, such as service consultation, call fee inquiry, service acceptance, complaint handling (hereinafter referred to as 10010 Basic Services), as well as customer callback and subscriber retention (hereinafter referred to as 10010 Value-added Services) to Party B through its 10010/10011 services platform and charges a fee to Party B. | ||
2. | Fee standards |
2.1 | The standards of the service fees referred to in this annex: the costs for rendering the above customer services (Customer Services Costs) plus a profit margin of not more than 10%. | ||
2.2 | The above Customer Services Costs shall be determined by multiplying the cost per agent with the actual effective agents: |
(a) | For economically developed major cities (such as Beijing, Shanghai and Guangdong), the cost per agent is the actual cost per agent (defined as follows) for the region in the previous year. For regions other than these economically developed major cities, the cost per agent is the actual cost per agent for the region in the previous year or the average actual cost per agent (defined as follows) for the whole country (excluding Beijing and Shanghai) with a premium of 10%, whichever is lower. | ||
The actual cost per agent includes staff wages, management fees, operation and maintenance fees, equipment depreciation and site rentals related to 10010 Customer Services Business. The actual cost per agent for each region is determined by dividing the 10010/10011 customer services agent cost for the region incurred by the provider as recognized in the auditors report issued by an independent auditing institution in the previous year by the annual average monthly agents in the previous year. The auditors report and the relevant supporting documents shall be submitted to the auditors of Party B. | |||
(b) | The determination of the actual effective agents: The provider shall provide the agent number of the previous year to Party B before the 10 th day of each month. Party B shall confirm the effective agent number with reference to the service standards of customer service centers stipulated in Standards for Telecommunications Services (Trial) issued by the former Ministry of Information Industry within 5 working days. The effective agent number shall be based on the number finally confirmed by Party B. |
2.3 | The Parties agree that the settlement shall be made directly by their respective subordinate entities in accordance with the settlement principles stipulated in this annex on a monthly basis. |
3. | Obligations of the Parties concerned |
3.1 | Party A shall, in accordance with Party Bs needs, properly increase the service agent number or service content, including but not limited to establishing designated agents for the purpose of offering 10010 value-added services pursuant to the written instruction of Party B. The cost per agent shall be confirmed in accordance with the reference to Item 2 (a) above. | ||
3.2 | Party B shall provide the information on any new businesses undertaken by Party B for its subscribers to the provider from time to time, and provide the information on various businesses undertaken by Party B for its subscribers to the provider from time to time in accordance with the needs of the provider. |
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3.3 | The Parties hereto shall not suspend communications arising from the service businesses under this annex without the consent from the other Party. In case of any suspended communications or seriously impeded communications, the Parties shall take effective measures to restore communications. |
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1. | Services | |
Party A (or any subsidiaries controlled by it), acting as the provider, launches product/service promotion and marketing activities in accordance with the market conditions and the needs and requirements of Party B. | ||
2. | Fee standards | |
The standards of the agency services provided by the provider shall not be lower than the service standards of any independent third party agents responsible for expanding subscriber base in the same region. The agency fees charged to Party B shall not be higher than the average agency fees charged by the independent third party agents responsible for expanding subscriber base in the same region. | ||
3. | Other settlement issues |
3.1 | Settlement shall be based on the billing information collected by Party B. | ||
3.2 | The Parties agree that the settlement shall be made directly by their respective subordinate entities in accordance with the settlement principles stipulated in this annex on a monthly basis. |
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1. | Services | |
Party A (or any subsidiaries controlled by it), acting as the provider, provides engineering and technical services to Party B (the Recipient) in accordance with the needs and requirements of Party B. | ||
2. | Method for determining the provider | |
The Parties agree that the Recipient shall determine the provider for engineering and technical services through tender invitation. The provider shall have the qualifications and conditions not inferior to that of any independent third parties, and shall participate in the tender invitation procedure equally with any independent third parties. | ||
3. | Service standards | |
The service standards for providing the above services to the Recipient by the provider shall not be lower than the service standards for providing similar services to the Recipient by any other independent third parties. | ||
4. | Fee standards |
4.1 | The fee standards for the engineering services shall be determined with the reference to and shall not be higher than the Fee Standards for Survey and Engineering promulgated by the former State Planning Commission and the Ministry of Construction in 2002 and other relevant national standards, and shall not be higher than the fee standards adopted by any other independent third parties providing similar services in the industry. | ||
4.2 | The fee standards for technical services shall be determined with the reference to and shall not be higher than that stipulated in the Circular of the State Planning Commission on Printing and Distributing the Interim Provisions on Construction Project Preliminary Work Consultation Fees promulgated by the former State Planning Commission in 1999 and other relevant national standards, and shall not be higher than the fee standards adopted by any other independent third parties providing similar services in the industry. |
5. | Other settlement issues | |
The Parties agree that the settlement shall be made directly by their respective subordinate entities in accordance with the settlement principles stipulated in this annex and the payment shall be made according to the progress of the actual contract performance. |
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(1) | Transferor: | |
China United Telecommunications Corporation Limited
(hereinafter referred to as Unicom A
Share Company)
Address: 29/F, No.1033, Changning Road, Shanghai Legal Representative: Chang Xiaobing |
||
(2) | Transferee: | |
China Unicom Corporation Limited
(hereinafter referred to as Unicom Operating Company)
Address: Level 12, Tower A, Henderson Center, No. 18 Jian Guo Men Nei Avenue, Beijing Legal Representative: Chang Xiaobing |
||
China Netcom (Group) Corporation Limited
(hereinafter referred to as Netcom Operating
Company)
Address: Tower C, No. 156, Fu Xing Men Nei Street, Xicheng District, Beijing Legal Representative: Zuo Xunsheng |
(1) | China United Telecommunications Corporation (hereinafter referred to as Unicom Group) is a limited liability company duly incorporated and validly existing under the laws of PRC and engages in the operation of comprehensive telecommunications business. Unicom A Share Company is a joint stock limited company duly incorporated and validly existing under the laws of PRC and its shares have been listed and traded on the Shanghai Stock Exchange (hereinafter referred to as the SSE) since October 9, 2002. Unicom Group is the controlling shareholder of Unicom A Share Company; | |
(2) | Unicom A Share Company indirectly controls China Unicom Limited (hereinafter referred to as Unicom Red Chip) through China Unicom (BVI) Limited (hereinafter referred to as Unicom |
1
BVI). Unicom Red Chip is a limited liability company duly incorporated and validly existing under the laws of the Hong Kong Special Administrative Region (hereinafter referred to as Hong Kong) and its shares are listed and traded in Hong Kong and the U.S. respectively; | ||
(3) | Unicom Operating Company is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, whose equity is 100% held by Unicom Red Chip. Unicom Operating Company is mainly engaged in nationwide provision of international and domestic long-distance communications services (excluding international telecommunications facilities services); Internet services and IP Telephony services; as well as mobile communications services in 31 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Hubei, Anhui, Sichuan, Guizhou, Xinjiang, Chongqing, Shaanxi, Guangxi, Henan, Heilongjiang, Jilin, Jiangxi, Shanxi, Inner Mongolia, Hunan, Hainan, Yunnan, Ningxia, Gansu, Qinghai and Tibet; | |
(4) | Netcom Operating Company is a foreign funded enterprise duly incorporated and validly existing under the laws of PRC, and is wholly owned by China Netcom Group (Hong Kong) Limited (a company duly incorporated and validly existing under the laws of Hong Kong with its shares listed on the Stock Exchange of Hong Kong Limited and New York Stock Exchange, hereinafter referred to as Netcom Red Chip). Netcom Operating Company mainly engages in the operation of related telecommunications business in 10 provinces, autonomous regions and municipalities, including Beijing, Tianjin, Hebei, Henan, Shandong, Liaoning, Heilongjiang, Jilin, Inner Mongolia and Shanxi; | |
(5) | On August 22, 2002, Unicom Group and Unicom A Share Company signed a Memorandum in respect to transactions between Unicom Group or its subsidiaries (excluding Unicom A Share Company and subsidiaries controlled by Unicom A Share Company) and Unicom Red Chip indirectly controlled by Unicom A Share Company and its subsidiaries after the listing of the shares of Unicom A Share Company (hereinafter referred to as Memorandum on Connected Transactions). According to the understanding reached under the Memorandum on Connected Transactions, if based on the Rules Governing the Listing of Shares on Shanghai Stock Exchange (hereinafter referred to as the SSE Listing Rules) applicable from time to time, transactions between Unicom Red Chip Company or its subsidiaries and Unicom Group or its subsidiaries (excluding Unicom A Share Company and its subsidiaries) are subject to the approval of minority shareholders of Unicom A Share Company, and at the same time, based on the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (hereinafter referred to as the HKSE Listing Rules) applicable from time to time, they are deemed to be connected transactions that are subject to the approval of the minority shareholders of Unicom Red Chip, such connected transactions shall be conducted in two steps. First step: an agreement shall be entered into between Unicom Group or its subsidiaries (excluding Unicom A Share Company and subsidiaries controlled by it) and Unicom A Share Company or Unicom BVI in respect of any proposed transaction to specify the rights and obligations of the parties under the agreement (including but not limited to Unicom Group agreeing to the transfer of rights and obligations of Unicom A Share Company or Unicom BVI under agreement to Unicom Red Chip or its subsidiaries); Second step: the transfer of the rights and obligations under the above-mentioned agreement by Unicom A Share Company or Unicom BVI to Unicom Red Chip or its subsidiaries; | |
(6) | On May 24, 2008, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Deepening the Reform of Chinas Telecommunications System, which is seen as the guidepost for the Chinese government to deepen the reform of its telecommunications system by endorsing the formation of three leading competitive carriers with nationwide network resources, similar size and strength and the capacity of full services operation. In the above notice, China Telecom is encouraged to buy China Unicoms CDMA network and China Unicom is encouraged to merge with China Netcom. As a response to the call for deepening the reform in regard to telecommunications restructuring, the Unicom Red Chip is to merge with Netcom Red Chip via an agreement (the Merger Transaction). Following the merger, the Netcom Red-chip Company will withdraw from the Hong Kong Stock Exchange and the New York Stock Exchange to become a wholly owned subsidiary of the Unicom Red Chip; |
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(7) | For the purpose of the operation of telecommunications business by Unicom Red Chip and its subsidiaries, pursuant to the relevant provisions under the SSE Listing Rules, HKES Listings Rules and Memorandum on Connected Transactions, Unicom Group and its subsidiaries (excluding Unicom A Share Company and subsidiaries controlled by it), through Unicom A Share Company, entered into the Comprehensive Services Agreement, the Comprehensive Services Agreement based on the Artificial Platform and the Building Lease Agreement (hereinafter referred to as the Original Comprehensive Services Agreement) with Unicom Operating Company in 2006 and pursuant to the above agreements, arrangements have been made for a series of continuing connected transactions (hereinafter referred to as Continuing Connected Transaction Arrangements), which have been announced in accordance with the respective listing rules applicable to Unicom A Share Company and Unicom Red Chip and approved by their respective independent shareholders. The above Continuing Connected Transaction Arrangements have a term of 3 years, commencing on January 1, 2007 and ending on December 31, 2009. | |
(8) | On October 26, 2006, Unicom Group and Unicom A Share Company entered into the Comprehensive Services Agreement. |
1. | Subject to the fulfillment of the conditions specified in Article 6 of this Transfer Agreement, the Transferor hereby agrees to transfer all its rights and obligations under the Comprehensive Services Agreement and its annexes to the Transferee, and the Transferee hereby agrees to accept the transfer of the rights and obligations of the Transferor under the Comprehensive Services Agreement. | |
2. | Once the Transferor has transferred its rights and obligations under the Comprehensive Services Agreement to the Transferee, the Transferee shall immediately assume all the rights and obligations of the Transferor under the Comprehensive Services Agreement. The Transferor shall immediately terminate such rights and obligations under the Comprehensive Services Agreement that have been assumed by the Transferee. | |
3. | The Transferor hereby confirms that pursuant to Article 6 of the Comprehensive Services Agreement, Unicom Group has irrevocably agreed that the Transferor may transfer its rights and obligations under the Comprehensive Services Agreement to the Transferee, and the transfer of the Transferors rights and obligations under the Comprehensive Services Agreement to the Transferee is not subject to any further consent from Unicom Group. | |
4. | Each of the parties hereto warrants that it has the rights, powers and authority to enter into and perform this Transfer Agreement. Upon execution, this Transfer Agreement shall constitute legal, valid and binding obligations of the parties. | |
5. | The Transferee agrees to retain and perform the past and future rights and obligations of the Transferor under the Comprehensive Services Agreement in accordance with the terms and conditions specified in the Comprehensive Services Agreement within the effective term of the Comprehensive Services Agreement. | |
6. | Effectiveness | |
Subject to the fulfillment of the following conditions, this Transfer Agreement shall become effective simultaneously with the Comprehensive Services Agreement: |
6.1 | The shareholders general meeting of Unicom Red Chip approves the transfer by the Transferor of its rights and obligations under the Comprehensive Services Agreement to the Transferee pursuant to the applicable laws, regulations and listing rules; |
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6.2 | The shareholders general meeting of the Transferor approves the execution and performance of the Comprehensive Services Agreement pursuant to the applicable laws, regulations and listing rules; | ||
6.3 | The Merger Transaction is executed and completed. |
7. | Force Majeure | |
If any party is unable to perform the relevant obligations under this Transfer Agreement in accordance with the applicable provisions as a result of any force majeure events, the occurrence and consequence of which is unforeseeable or unavoidable and cannot be overcome, such party shall immediately inform the other party of the situation and within fifteen (15) days of such occurrence, provide the relevant details and valid supporting documents for the failure or partial failure in performing or the reasons for the postponement of the performance of the relevant obligations under this Transfer Agreement and the related annexes. The parties shall negotiate with each other and decide whether to terminate, partly waive or postpone the performance of such obligations according to the extent of impact of the force majeure events on the performance of the obligations. | ||
8. | Confidentiality | |
Save as otherwise required by the laws or relevant regulatory authorities, or for the purpose of any disclosures to be made by the Transferor to the SSE, or Unicom Red Chip to the HKSE, neither party shall be entitled to provide or disclose any data or information relating to the operation of the other party to any companies, enterprises, organizations or individuals without the permission in writing from the other party. | ||
9. | Non-Waiver | |
Unless otherwise required by the laws, no failure or delay by either party in exercising any of its rights, powers or privileges shall be deemed to be a waiver of such rights, powers or privileges, and any partial exercise of the rights, powers or privileges shall not prejudice the future exercise of such rights, powers or privileges. | ||
10. | Notification | |
Any notice relating to this Transfer Agreement shall be made in writing and delivered by one party hereto to the other party by hand, by way of facsimile or by mail. If such notice is delivered by hand, it shall be deemed to have been served upon delivery. If it is sent by facsimile, it shall be deemed to have been serviced when the fax machine indicates the fax has been sent. If such notice is sent by mail, it shall be deemed to have been served on the third working day (extended in the event of any statutory holidays) after dispatch of the mail. Any notice shall take effect once served. | ||
11. | Applicable Laws | |
This Framework Agreement is governed by PRC laws and shall be interpreted and implemented in accordance with PRC laws. | ||
12. | Disputes Settlement | |
All disputes resulting from the execution of this Transfer Agreement or relating to this Transfer Agreement shall be settled by the parties through friendly negotiations. If an agreement for the settlement of the dispute cannot be reached within thirty (30) days upon the request by one party for settling the dispute through negotiation, either party shall be entitled to refer the dispute to China International Economic and Trade Arbitration Commission to be solved through arbitration in Beijing by three (3) arbitrators pursuant to the then effective arbitration rules. The language for arbitration shall be Chinese. The arbitration decision shall be final and binding on both parties. Unless otherwise required by the arbitration tribunal, the arbitration fees shall be born by the losing party. |
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13. | Miscellaneous |
13.1 | Upon reaching agreements through negotiation, the parties may amend or supplement this Transfer Agreement and any such amendments or supplements shall take effect after executed in writing by the legal or authorized representatives of the parties and sealed with their common seals. | ||
13.2 | This Transfer Agreement is severable, that is, if any articles under this Transfer Agreement is confirmed to be in violation of the laws or unenforceable, this shall not affect the validity and enforceability of any other articles of this Transfer Agreement. | ||
13.3 | This Transfer Agreement is signed in six copies with each party holding two copies. All copies shall have equal legal force. |
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1. FORM OF MERGER
|
5 | |||
2. MERGER REFERENCE DATE AND EFFECTIVE DATE OF MERGER
|
5 | |||
3. PROFILE OF UNICOM OPERATING COMPANY AFTER COMPLETION OF MERGER
|
6 | |||
4. MERGER OF ASSETS
|
7 | |||
5. SCHEME FOR SUCCESSION OF CREDITORS RIGHTS AND LIABILITIES
|
8 | |||
6. INSTITUTIONAL MERGER
|
8 | |||
7. ALLOCATION OF EMPLOYEES
|
8 | |||
8. AGREEMENT AND THE UNDERTAKING OF AGREEMENT
|
8 | |||
9. SUCCESSION OF LITIGATION
|
9 | |||
10. TAXES AND EXPENSES
|
9 | |||
11. PREREQUISITE FOR MERGER TO TAKE EFFECT
|
9 | |||
12. REPRESENTATIONS AND WARRANTIES
|
9 | |||
13. APPLICABLE LAWS AND RESOLUTION OF DISPUTES
|
10 | |||
14. NOTICE
|
10 | |||
15. INTEGRAL AGREEMENT
|
11 | |||
16. SEVERABILITY
|
11 | |||
17. AMENDMENT
|
11 | |||
18. COPY OF AGREEMENT
|
12 | |||
19. FORCE MAJEURE
|
12 | |||
20. SUCCESSION AND TRANSFER OF RESPONSIBILITIES AND RIGHTS UNDER THE AGREEMENT
|
12 | |||
21. DEFAULT AND REMEDIES
|
12 | |||
22. TITLES AND HEADINGS
|
12 |
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(1) | On May 24, 2008, the Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission (NDRC) and the Ministry of Finance jointly issued the Announcement on Deepening the Reform of the Structure of the Telecommunications Sector. Pursuant to such Announcement, the Chinese Government will continue to deepen the reform of the structure of the telecommunications sector, supporting the formation of three telecommunications services providers of comparable scale and standing, each with nationwide network resources, full-service capabilities and competitive strength, in order to help optimize the allocation of telecommunications resources and foster market competition. As a part of the restructuring in the telecommunication sector, China Unicom Limited (hereinafter referred to Unicom Red-chip Company) and Netcom Red-chip Company merged (hereinafter referred to Red-chip Company Merger) by way of agreement arrangement. After the completion of the Red-chip Company Merger, China Unicom Limited is changed to China Unicom (Hong Kong) Limited (namely New Unicom Red-chip Company). The Red-chip Company Merger took effect on October 15, 2008. | |
(2) | After the Red-chip Company Merger took effect, New Unicom Red-chip Company holds 100% of the equity interest of Netcom Red-chip Company, which holds 100% of |
3
the equity interest of Netcom Operating Company, and New Unicom Red-chip Company holds 100% of the equity interest of Unicom Operating Company; | ||
(3) | Unicom Operating Company is a foreign invested enterprise incorporated under the PRC law and legally continuing its operations. Its business scope is as follows: operating fixed-line local telephone service (including local wireless loop), public telegraphy and user telegraphy service, domestic communications facilities service in 10 provinces, cities and autonomous regions including Beijing, Tianjin, Liaoning, Hebei, Shandong, Henan, Shanxi, Jilin, Inner Mongolia and Heilongjiang; operating nationwide fixed-line domestic long distance telephone service, fixed-line international long distance telephone service, IP telephone service (limited to Phone-Phone service), 900/1800MHz GSM 2G digital cellular mobile communications service, Internet data transmission service, international data communications service, and 26GHz wireless access service; and operating 3.5GHz wireless access service in Beijing, Shanghai, Tianji, Hebei (excluding Shijiazhuang), Shanxi, Inner Mongolia, Liaoning, Jilin, Harbin, Hefei, Nanchang, Shandong (excluding Jinan and Qingdao), Zhengzhou, Hunan, Guangdong, Guangxi, Haikou, Sichuan, Guizhou, Yunnan (excluding Kunming), Shaanxi, Xining, Ningxia and Xinjiang. It operates domestic Very Small Aperture Terminal (VSAT) communications service, fixed-line domestic data transmission service, Customer Premises Network (CPN) service, network hosting service, online data processing and transaction processing service, domestic Internet virtual private network (VPN) service, Internet data center service, voice mailbox service, facsimile store and forward service, Internet access service and information service across the country. It operates wireless data transmission service, X.400 e-mail service and electronic notice service in Internet information service in 10 provinces, cities and autonomous regions including Beijing, Tianjin, Liaoning, Hebei, Shandong, Henan, Shanxi, Jilin, Inner Mongolia and Heilongjiang. It operates communications and information service related system integration, equipment manufacturing and sales, design and engineering service, technical development, technical service, technical consulting, technical training; sales and maintenance of pagers and handset accessories; preparation and sales of telecommunications cards; customer service; property leasing; and editing, publishing and distributing telephone directories. (As for those services related with license or special regulations of the country, they must be operated with license or relevant formalities have to be handled according to such special regulations). | |
(4) | Netcom Operating Company is a foreign invested enterprise incorporated under the PRC law and legally continuing its operations. Its business scope is as follows: As authorized by China Netcom (Group) Co., Limited, it operates domestic fixed-line telecommunications network and facilities (including wireless local loop) service, fixed-line telecommunications network based voice, data, image, multimedia communications and information service; external settlement in international telecommunications service and exploration in the international communications market in 10 provinces, cities and autonomous regions including Beijing, Tianjin, Hebei, Henan, Liaoning, Shandong, Shanxi, Inner Mongolia, Jilin and Heilongjiang. It operates communications and information service related system integration, |
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technical development, technical service, information consulting, equipment manufacturing and sales, design and engineering service; property leasing; design, preparation, release and agency service of various domestic and foreign advertisements; and editing, publishing and distributing telephone directories. | ||
(5) | In order to integrate the telecommunications services of New Unicom Red-chip Company in the territory of China, Unicom Operating Company will merge with Netcom Operating Company by means of absorption and merger. After such merger, Unicom Operating Company will continue its operations, Netcom Operating Company will de dissolved and its legal status will be cancelled. |
1. | FORM OF MERGER | |
1.1 | According to terms and conditions of this Agreement, Unicom Operating Company and Netcom Operating Company agree to conduct this merger by means of absorption and merger, namely Unicom Operating Company will merge with and absorb Netcom Operating Company. After completion of this merger, as the absorbing party and continuing party of this merger, Unicom Operating Company should handle relevant modification registration formalities; as the absorbed party and discontinuing party of this merger, all the assets, liabilities, rights, businesses and employees and so on of Netcom Operating Company will enter Unicom Operating Company meanwhile Unicom Operating Company will handle cancellation registration formalities of Netcom Operating Company; | |
1.2 | As a wholly-owned subsidiary of New Unicom Red-chip Company, Netcom Red-chip Company agrees to transfer all its rights in Unicom Operating Company after this merger to New Unicom Red-chip Company or vest them in New Unicom Red-chip Company without obligation. Namely after completion of this merger, New Unicom Red-chip Company will hold all equity interests of Unicom Operating Company after this merger, and Unicom Operating Company will become a wholly-owned subsidiary of New Unicom Red-chip Company. | |
2. | MERGER REFERENCE DATE AND EFFECTIVE DATE OF MERGER | |
2.1 | The merger reference date for this merger is December 31, 2008, all the parties agree to handle property transfer formalities and handover of this merger on the basis of the audited financial statements on the same day of the merger reference date. | |
2.2 | On the merger reference date and prior to such date, all businesses, assets and all their resulting gains and losses of Unicom Operating Company and Netcom Operating Company will be shared and undertaken respectively by them. Following the merger reference date, all businesses, assets and all their resulting gains and losses of Unicom Operating Company and Netcom Operating Company will be shared and undertaken by Unicom Operating Company according to law. | |
2.3 | All the parties under this Agreement hereby confirm that the effective date of the merger is January 1, 2009 subject to satisfaction of all prerequisites specified in Article |
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3. | PROFILE OF UNICOM OPERATING COMPANY AFTER COMPLETION OF MERGER |
Company Name
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China United Telecommunications Corporation Limited | |
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Operating Duration
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From April 21, 2000 to April 20, 2050 | |
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Legal Representative
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Chang Xiaobing | |
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Registered Address
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Floor 12, Building 1, Henderson Center, 18 Jianguomennei Street, Beijing | |
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Registration Number
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100000400008460 | |
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Total Amount of
Investment
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RMB 285,422,055,252 yuan | |
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Registered Capital
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RMB 138,091,677,827.69 yuan | |
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Scope of Business
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It operates fixed-line local telephone service (including local wireless loop), public telegraphy and user telegraphy service, domestic communications facilities service in 10 provinces, cities and autonomous regions including Beijing, Tianjin, Liaoning, Hebei, Shandong, Henan, Shanxi, Jilin, Inner Mongolia and Heilongjiang; operating nationwide fixed-line domestic long distance telephone service, fixed-line international long distance telephone service, IP telephone service (limited to Phone-Phone service), 900/1800MHz GSM 2G digital cellular mobile communications service, Internet data transmission service, international data communications service, and 26GHz wireless access service; and operating 3.5GHz wireless access service in Beijing, Shanghai, Tianji, Hebei (excluding Shijiazhuang), Shanxi, Inner Mongolia, Liaoning, Jilin, Harbin, Hefei, Nanchang, Shandong (excluding Jinan and Qingdao), Zhengzhou, Hunan, Guangdong, Guangxi, Haikou, Sichuan, Guizhou, Yunnan (excluding Kunming), Shaanxi, Xining, Ningxia and Xinjiang. It operates domestic Very Small Aperture Terminal (VSAT) communications service, fixed-line domestic data transmission service, Customer Premises Network (CPN) service, network hosting service, online data processing and transaction processing service, domestic Internet virtual private network (VPN) service, Internet data center service, voice mailbox service, facsimile store and forward service, Internet access service and information service across the country. It operates wireless data transmission service, X.400 e-mail service and electronic notice service in Internet information service in 10 provinces, cities and autonomous regions including Beijing, Tianjin, Liaoning, Hebei, Shandong, Henan, Shanxi, Jilin, Inner Mongolia and Heilongjiang. It operates communications and information service related system integration, equipment manufacturing and sales, design |
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and engineering service, technical development, technical service, technical consulting, technical training; sales and maintenance of pagers and handset accessories; preparation and sales of telecommunications cards; customer service; property leasing; and editing, publishing and distributing telephone directories. (As for those services related with license or special regulations of the country, they must be operated with license or relevant formalities have to be handled according to such special regulations). |
4. | MERGER OF ASSETS | |
4.1 | All assets, including but not limited to fixed assets, current assets and so on owned by, possessed by or used by Netcom Operating Company will be completely given to Unicom Operating Company. | |
4.2 | Fixed assets |
4.3 | Current assets | |
(1) | Current assets of Netcom Operating Company mainly include monetary funds, short-term investment, receivables and prepaid money and so on shall be given to Unicom Operating Company. | |
(2) | Specific items in the current assets of Netcom Operating Company are subject to those current asset items confirmed in the audit report. |
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5. | SCHEME FOR SUCCESSION OF CREDITORS RIGHTS AND LIABILITIES | |
5.1 | After respectively obtaining the approval of Ministry of Commerce in principle on this merger scheme by Unicom Operating Company and Netcom Operating Company, they shall implement the announcement and notice procedure of creditor according to provisions of relevant laws and regulations, liquidate debts or provide guarantee in advance in accordance with the requirements of their respective creditors raised within the statutory period (of which, as for those corresponding rights of holders of enterprise coupons and short term fund-raising coupons issued by Netcom Operating Company that are still within continuing operations period, they will be executed according to relevant laws, regulations and procedures specified in prospectus). | |
5.2 | Creditors rights and liabilities of Unicom Operating Company and Netcom Operating Company will be undertaken by the continuing party after the absorption and merger following the effective date of the merger namely Unicom Operating Company. | |
5.3 | Creditors rights and liabilities of subsidiaries of Unicom Operating Company and Netcom Operating Company will still be undertaken by their respective subsidiaries. | |
6. | INSTITUTIONAL MERGER | |
6.1 | After the effective date of the merger, all functional departments and their branch institutions of Netcom Operating Company will be merged with corresponding functional departments of Unicom Operating Company. | |
6.2 | Various parties in this merger hereby agree that Netcom Operating Company following this merger shall make adjustments according to the actual condition of its business development. | |
7. | ALLOCATION OF EMPLOYEES |
8. | AGREEMENT AND THE UNDERTAKING OF AGREEMENT | |
8.1 | Agreement in which Netcom Operating Company acts as one party before the effective date of this Agreement will be undertaken by Unicom Operating Company from the effective date of this Agreement. | |
8.2 | Within 30 days from Unicom Operating Company receives the modified operating license, Unicom Operating Company shall issue a notice of changing agreement mainbody to all the other parties in an agreement entered by Netcom Operating Company in accordance with the requirements of relevant laws and regulations and implement corresponding notice procedure. | |
8.3 | During the period from the signature date of this Agreement to the effective date of the |
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merger, rights and obligations under relevant contracts signed in the name of Unicom Operating Company but actually implemented by Netcom Operating Company will be shared and undertaken by Netcom Operating Company. |
10.1 | Taxes and expenses payable irrespective of the effective date of this Agreement that are related to transferred businesses and assets of Unicom Operating Company. | |
10.2 | Taxes and expenses related to operating actives and properties undertaken by Unicom Operating Company after the effective date of this Agreement. | |
11. | PREREQUISITE FOR MERGER TO TAKE EFFECT |
11.1 | New Unicom Red-chip Company and Netcom Red-chip Company have made decision on this merger in accordance with applicable laws, regulations and rules; | |
11.2 | Unicom Operating Company and Netcom Operating Company have executed internal approval procedures in accordance with applicable laws, regulations and rules; | |
11.3 | All parties under this Agreement have implemented the required necessary procedure of applicable laws and/or binding agreements and documents, including but not limited to the consent of relevant creditors (if applicable); | |
11.4 | Approval of related issues about this merger by Ministry of Commerce and other related governmental departments. | |
12. | REPRESENTATIONS AND WARRANTIES |
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1. | Definitions | |
1.1 | In the Scheme the following expressions have the following meanings: |
associate
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has the meaning ascribed to it in the Listing Rules | |
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Auditors
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means the auditors for the time being of the Company; | |
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Board
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means the board of directors from time to time of the Company or a duly authorised committee thereof; | |
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Board Lot
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means the board lot in which Shares are traded on the Stock Exchange from time to time; | |
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Companies Ordinance
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means the Hong Kong Companies Ordinance (Chapter 32 of the laws of Hong Kong (as amended from time to time)); | |
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Company
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means China Unicom (Hong Kong) Limited
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Effective Date
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means the date on which the Scheme becomes unconditional; | |
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Effective Options
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Options granted pursuant to the Scheme and vested in the Grantee according to the relevant Vesting Schedule; | |
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Employee
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means any employee of the Company or any Subsidiary including (without limitation) any executive director in the employment of the Company or any Subsidiary; | |
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financial year
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means a year or other period for which the Companys consolidated accounts are made up; | |
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Grantee
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means any Employee who accepts the offer of the grant of any Option in accordance with the terms of the Scheme or (where the context so permits) a person who is entitled to |
SYYN
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exercise any such Option in consequence of the death of the original Grantee or, if necessary, in the case of Incapacity, the Employees legal successors, lawful attorney or legal representative; | |
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HK$
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means Hong Kong dollars. | |
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Incapacity
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means permanent and entire incapacity, whether or not caused during work, as determined in accordance with the standard formulated by the Company; | |
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Issue Price
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means the final price per Share (exclusive of brokerage and Stock Exchange transaction levy) to be agreed between the Company, Morgan Stanley Dean Witter Asia Limited and China International Capital Corporation Limited at which Shares are to be sold under the proposed public offering of the Shares in Hong Kong; | |
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Listing Rules
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means the Rules Governing the Listing of Securities on the Stock Exchange | |
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Mandatory Moratorium
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means any prohibition on the exercise of any Effective Option, the imposition of which is not made by nor within the control of the Company. For the avoidance of doubt and by way of illustration, this includes any mandatory prohibition on the exercise of any Option imposed by the central government of the Peoples Republic of China; | |
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Mandatory Moratorium
Period |
means the period of time during which an Effective Option is subject to a Mandatory Moratorium; | |
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Mandatory Transfer
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means a termination of employment by a member of the Group of a Transferred Personnel; | |
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Offer Date
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means the date on which an Option is offered to an Employee; | |
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Option
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means a right to subscribe for Shares granted pursuant to the terms of the Scheme; | |
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Option Period
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means, in respect of any particular Option, the period to be determined and notified by the Board to each Grantee during which the Grantee may exercise such Option in accordance with the terms of the Scheme. Such period may commence on a day after the second anniversary of the Offer Date and in any event shall end not later than 10 years from the Offer Date but subject to the provisions for early termination thereof contained herein; |
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Scheme
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means this share option scheme in its present form or as amended from time to time (except that references to the Scheme in Clause 2 shall only refer to the original pre-global offering share option scheme as adopted on 1 June 2000); | |
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Shares
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means shares of HK$0.10 each in the share capital of the Company (or of such other nominal amount as may result from a sub-division, consolidation, reclassification or reconstruction of such share capital from time to time); | |
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Stock Exchange
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means The Stock Exchange of Hong Kong Limited; | |
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Subscription Price
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means the price per Share at which a Grantee may subscribe for Shares on the exercise of an Option as described in Clause 5; | |
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Subsidiary
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means a company which is for the time being and from time to time a subsidiary (within the meaning of section 2(4) of the Companies Ordinance) of the Company whether incorporated in Hong Kong or elsewhere; | |
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Transferred Personnel
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means such personnel who are transferred due to reasons which are beyond their control, and in respect of whom such transfer is mandatory. This includes a transfer to entities outside the Group which is initiated by the central government of the Peoples Republic of China. All the other personnel who are transferred shall not be regarded as Transferred Personnel but will be regarded as a personnel who has left the service, and will be treated in accordance with Clause 6.3(a) of this Scheme. The Board shall be responsible for the determination of the Transferred Personnel; and | |
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Vesting Schedule
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means the arrangement whereby Options granted at a particular time can be exercised in one lot or in batches in accordance with a pre-determined timetable as set out in the relevant grant letter. |
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2. | Conditions |
3. | Duration and Administration |
4. | Grant of Option |
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5. | Subscription Price |
6. | Exercise of Options |
(a) | in the event of the Grantee ceasing to be an Employee for any reason other than his death, retirement, Incapacity, Mandatory Transfer or on one or more of the grounds specified in Clause 7.1(d) leading to a lapse of the Option, the Grantee may exercise all the Effective Options granted to him at the date of cessation of his employment or office (to the extent not already exercised) on the date of such cessation, which date shall be the last actual working day with the Company or the relevant Subsidiary whether salary is paid in lieu of notice or not. All the Effective Options which have not been exercised on the date of cessation of employment will lapse automatically on the date immediately after such cessation and such Options shall in no circumstances be exercisable. For the avoidance of doubt, a Grantee does not cease to be an Employee only for the reason of an internal transfer to a Subsidiary; | |
(b) | in the event of the death of the original Grantee and none of the events under Clause 7.1(d) has occurred, all the Options granted to the Grantee shall be vested in the Grantee automatically on the date of death, and the lawful |
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successors of the Grantee shall be entitled within anytime from the date of death to the earlier of (i) 12 months after the date of death and (ii) the end of the Option Period to exercise all the Options in full (to the extent not already exercised, PROVIDED THAT where the Board has exercised its power under Clause 6.3(h) below to extend the Option Period of any such Option, then the successors of the Grantee may exercise the affected Option(s) for an additional period, being that notified by the Board under Clause 6.3(h)). Any such Options which are not exercised within the applicable time determined as aforesaid shall lapse automatically. The legal successors to the above Options shall be limited to legal representatives of the deceased Grantee or persons who are entitled to inherit the rights of exercise of the deceased Grantee under this Scheme by will or by law of succession; | ||
(c) | if a general offer (whether by way of take-over offer, share repurchase offer or scheme of arrangement or otherwise in like manner) is made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in association or in concert with the offeror) the Company shall use its best endeavours to procure that such offer is extended to all the Grantees (on the same terms mutatis mutandis, and assuming that they will become, by the exercise in full of the Options granted to them, shareholders of the Company). If such offer, having been approved in accordance with applicable laws and regulatory requirements becomes or is declared unconditional, the Grantee shall be entitled to exercise the Option in full (to the extent not already exercised) at any time within 21 days after the date on which such general offer becomes or is declared unconditional; | |
(d) | in the event of an effective resolution being passed for the voluntary winding-up of the Company or an order of Court is made for the winding-up of the Company, the Grantee may by notice in writing to the Company within 21 days after the date of such resolution elect to be treated as if the Option (to the extent not already exercised) had been exercised immediately before the passing of such resolution either to its full extent or to the extent specified in the notice, such notice to be accompanied by a remittance for the full amount of the aggregate Subscription Price for the Shares in respect of which the notice is given, whereupon the Grantee will be entitled to receive out of the assets available in the liquidation pari passu with the holders of Shares such sum as would have been received in respect of the Shares the subject of such election; | |
(e) | if, pursuant to the Companies Ordinance, a compromise or arrangement between the Company and its members or creditors is proposed for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies, the Company shall give notice thereof to all Grantees (together with a notice of the existence of the provisions of this Clause) on the same date as it despatches to each member or creditor of the Company a notice summoning the meeting to consider such a compromise or arrangement, and thereupon each Grantee shall be entitled to exercise all or any of his Options in whole or |
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in part at any time prior to 12 noon on the day immediately preceding the date of the meeting directed to be convened by the Court for the purposes of considering such compromise or arrangement. With effect from the date of such meeting, the rights of all Grantees to exercise their respective Options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all Options shall, to the extent that they have not been exercised, lapse and determine. The Board shall endeavour to procure that the Shares issued as a result of the exercise of Options under this Clause 6.3(e) shall for the purposes of such compromise or arrangement form part of the issued share capital of the Company on the effective date thereof and that such Shares shall in all respects be subject to such compromise or arrangement. If for any reason such compromise or arrangement is not approved by the Court (whether upon the terms presented to the Court or upon any other terms as may be approved by such Court) the rights of Grantees to exercise their respective Options shall with effect from the date of the making of the order by the Court be restored in full and shall thereupon become exercisable (but subject to the other terms of the Scheme) as if such compromise or arrangement had not been proposed by the Company and no claim shall lie against the Company or any of its officers for any loss or damage sustained by any Grantee as a result of the aforesaid suspension; | ||
(f) | in the event of the retirement or Incapacity of the Grantee and none of the events under Clause 7.1(d) has occurred, all the Options granted to the Grantee shall continue to vest in the Grantee according to the relevant Vesting Schedule, and the Grantee may exercise all Effective Options vested in him according to the Vesting Schedule within the Option Period; | |
(g) | in the event of a Mandatory Transfer and none of the events under Clause 7.1(d) has occurred: |
(i) | the Transferred Personnel may exercise all Effective Options vested in him on or before the date of the Mandatory Transfer (which date shall be the last actual working day of the Transferred Personnel with the relevant member of the Group whether salary is paid in lieu of notice or not); and | ||
(ii) | in relation to Options granted to the Transferred Personnel which have not vested in him on or before the date of the Mandatory Transfer ( Unvested Options ), the Board shall have the right to vest such number of Unvested Options in the Transferred Personnel ( Effective Unvested Options ) on the date of the Mandatory Transfer as the Board may decide in its absolute discretion, |
and the Transferred Personnel may exercise all the Effective Options (to the extent not already exercised) and the Effective Unvested Options at any time from the date of the Mandatory Transfer to the earlier of (i) 12 months after the date of the Mandatory Transfer and (ii) the end of the Option Period, PROVIDED THAT where the Board has exercised its power under Clause 6.3(h) below to extend the Option Period of any such Effective Option or |
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Effective Unvested Option, then the Transferred Personnel may exercise the affected Effective Option(s) and/or Effective Unvested Option(s) for an additional period, being that notified by the Board under Clause 6.3(h). All the Options which are not Effective Options or not Effective Unvested Options will lapse automatically on the date immediately after the date of such Mandatory Transfer. All the Effective Options and Effective Unvested Options which have not been exercised by the applicable time determined as aforesaid shall lapse automatically; and | ||
(h) | in the event that a Mandatory Moratorium is imposed in respect of any Effective Option during its Option Period (being the Option Period notified by the Board to the Grantee at the time of grant pursuant to Clause 4.3 and as may be subsequently modified in accordance with other terms of this Scheme), the Board shall have the power to extend the Option Period of the affected Effective Option by such period (which shall not exceed the aggregate Mandatory Moratorium Period to which the relevant Effective Option is at that time known to the Board to have been and/or will be subject) as the Board shall in its absolute discretion determine, by giving notice thereof to the relevant Grantee. |
7. | Lapse of Option |
(a) | the expiry of the Option Period (as extended pursuant to Clause 6.3(h), if applicable); | |
(b) | the expiry of any of the periods referred to in Clause 6.3 (a), (b), (c), (e) and (g); | |
(c) | subject to Clause 6.3(d), the date of the commencement of the winding- up of the Company (as determined in accordance with the Companies Ordinance); |
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(d) | the date on which the Board resolves that the Option of the Grantee shall lapse and not be exercisable as a result of the Grantee ceasing to be an Employee by reason of the summary termination of his employment on any one or more of the grounds that he has been guilty of misconduct, or has been convicted of any criminal offence involving his integrity or honesty. A resolution of the Board or the board of directors of the relevant Subsidiary to the effect that the employment of a Grantee has or has not been terminated on one or more of the grounds specified in this Clause 7.1(d) shall be conclusive for the purpose of determining whether the employment of the Grantee will be terminated; or | |
(e) | the date on which the Grantee commits a breach of Clause 6.1. |
8. | Maximum number of Shares available for Subscription |
9. | Cancellation |
10. | Reorganisation of Capital Structure |
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(a) | the number or nominal amount of Shares, the subject matter of the Option (insofar as it is unexercised); and/or | |
(b) | the aggregate number of Shares subject to outstanding Options; and/or | |
(c) | the Subscription Price; and/or | |
(d) | the method of exercise of the Option, |
11. | Share Capital |
12. | Disputes |
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(a) | The appointing authority shall be the Hong Kong International Arbitration Centre ( HKIAC ). | |
(b) | The place of arbitration shall be in Hong Kong at the HKIAC. | |
(c) | There shall be only one arbitrator. | |
(d) | The language(s) to be used in the arbitral proceedings shall be English. |
13. | Alteration of the Scheme |
14. | Termination |
15. | Miscellaneous |
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(a) | by the Company shall be deemed to have been served 24 hours after the same was put in the post; and | |
(b) | by the Grantee shall not be deemed to have been received until the same shall have been received by the Company. |
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Clause | Page | |||
1.
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Definitions | 1 | ||
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2.
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Conditions | 4 | ||
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3.
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Duration and Administration | 4 | ||
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4.
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Grant of Option | 4 | ||
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5.
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Subscription Price | 5 | ||
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6.
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Exercise of Options | 5 | ||
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7.
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Lapse of Option | 8 | ||
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8.
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Maximum number of Shares available for Subscription | 9 | ||
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9.
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Cancellation | 9 | ||
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10.
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Reorganisation of Capital Structure | 9 | ||
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11.
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Share Capital | 10 | ||
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12.
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Disputes | 10 | ||
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13.
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Alteration of the Scheme | 11 | ||
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14.
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Termination | 11 | ||
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15.
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Miscellaneous | 11 |
associate
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has the meaning ascribed to it in the Listing Rules | |
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Auditors
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means the auditors for the time being of the Company; | |
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Board
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means the board of directors from time to time of the Company or a duly authorised committee thereof; | |
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Board Lot
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means the board lot in which Shares are traded on the Stock Exchange from time to time; | |
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Connected Persons
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has the meaning ascribed to it in the Listing Rules; | |
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Companies Ordinance
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means the Hong Kong Companies Ordinance (Chapter 32 of the laws of Hong Kong (as amended from time to time)); | |
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Company
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means China Unicom (Hong Kong) Limited
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Effective Date
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means the date on which the Scheme becomes unconditional; | |
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Effective Options
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Options granted pursuant to the Scheme and vested in the Grantee according to the relevant Vesting Schedule; | |
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Eligible Participant
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means any employee of the Company or any subsidiary including (without limitation) any executive director in the employment of the Company or any subsidiary, or any of the Non-executive Directors; | |
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Group
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means the Company and its subsidiaries; |
financial year
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means a year or other period for which the Companys consolidated accounts are made up; | |
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Grantee
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means any Eligible Participant who accepts the offer of the grant of any Option in accordance with the terms of the Scheme or (where the context so permits) a person who is entitled to exercise any such Option in consequence of the death of the original Grantee or, if necessary, in the case of Incapacity, the Eligible Participants legal successors, lawful attorney or legal representative; | |
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HK$
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means Hong Kong dollars; | |
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Incapacity
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means permanent and entire incapacity, whether or not caused during work, as determined in accordance with the standard formulated by the Company; | |
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Listing Rules
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means the Rules Governing the Listing of Securities on the Stock Exchange; | |
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Mandatory Moratorium
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means any prohibition on the exercise of any Effective Option, the imposition of which is not made by nor within the control of the Company. For the avoidance of doubt and by way of illustration, this includes any mandatory prohibition on the exercise of any Option imposed by the central government of the Peoples Republic of China; | |
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Mandatory Moratorium Period
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means the period of time during which an Effective Option is subject to a Mandatory Moratorium; | |
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Mandatory Transfer
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means a termination of employment by a member of the Group of a Transferred Personnel; | |
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Non-executive Director(s)
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means the non-executive directors of the Company which include the independent non-executive directors of the Company; | |
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Offer Date
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means the date on which an Option is offered to an Eligible Participant; | |
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Option
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means a right to subscribe for Shares granted pursuant to the terms of the Scheme; | |
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Option Period
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means, in respect of any particular Option, the period to be determined and notified by the Board to each Grantee during which the Grantee may exercise such Option in accordance with the terms of the Scheme. Such period may commence on a day after the Offer Date and in any event shall end not later than 10 years from the Offer Date but subject to the provisions for early termination thereof contained herein; |
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Scheme
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means this share option scheme in its present form or as amended from time to time (except that references to the Scheme in Clause 3 shall only refer to the original share option scheme as adopted on 1 June 2000); | |
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Shares
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means shares of HK$0.10 each in the share capital of the Company (or of such other nominal amount as may result from a sub-division, consolidation, reclassification or reconstruction of such share capital from time to time); | |
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Stock Exchange
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means The Stock Exchange of Hong Kong Limited; | |
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Subscription Price
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means the price per Share at which a Grantee may subscribe for Shares on the exercise of an Option as described in Clause 6; | |
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substantial shareholder
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has the meaning ascribed to it under the Listing Rules; | |
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subsidiary
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means a company which is for the time being and from time to time a subsidiary (within the meaning of section 2(4) of the Companies Ordinance) of the Company whether incorporated in Hong Kong or elsewhere; | |
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Transferred Personnel
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means such personnel who are transferred due to reasons which are beyond their control, and in respect of whom such transfer is mandatory. This includes a transfer to entities outside the Group which is initiated by the central government of the Peoples Republic of China. All the other personnel who are transferred shall not be regarded as Transferred Personnel but will be regarded as a personnel who has left the service, and will be treated in accordance with Clause 7.3(a) of this Scheme. The Board shall be responsible for the determination of the Transferred Personnel; and | |
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Vesting Schedule
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means the arrangement whereby Options granted at a particular time can be exercised in one lot or in batches in accordance with a pre-determined timetable as set out in the relevant grant letter. |
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(a) | after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision, until such price sensitive information has been published in the newspapers; or | |
(b) | during the period of one month immediately preceding the earlier of: |
(i) | the date of the board meeting (as such date is first notified to the Stock Exchange in accordance with paragraph 12 of the Companys Listing |
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Agreement with the Stock Exchange) for the approval of the Companys interim or annual results; and | |||
(ii) | the deadline for the Company to publish its interim or annual results under the Listing Agreement, |
and ending on the date of the results announcement. |
(a) | the closing price of the Shares on the Stock Exchange as stated in the Stock Exchanges quotation sheets on the relevant Offer Date in respect of such Option; | |
(b) | the average closing price of the Shares on the Stock Exchange as stated in the Stock Exchanges quotation sheets for the five trading days immediately preceding the relevant Offer Date; and | |
(c) | the nominal value of the Shares. |
Page 5
(a) | in the event of the Grantee ceasing to be an Eligible Participant for any reason other than his death, retirement, Incapacity, Mandatory Transfer or on one or more of the grounds specified in Clauses 8.1(d) or 8.1(e) leading to a lapse of the Option, the Grantee may exercise all the Effective Options granted to him at the date of cessation of his employment or office (to the extent not already exercised) on the date of such cessation, which date shall be the last actual working day with the relevant member of the Group whether salary is paid in lieu of notice or not. All the Effective Options which have not been exercised on or before the date of cessation of employment will lapse automatically on the date immediately after such cessation and such Options shall in no circumstances be exercisable. For the avoidance of doubt, a Grantee does not cease to be an Eligible Participant only for the reason of an internal transfer to another member of the Group; | |
(b) | in the event of the death of the original Grantee and none of the events under Clauses 8.1(d) or 8.1(e) has occurred, all the Options granted to the Grantee shall be vested in the Grantee automatically on the date of death, and the lawful successors of the Grantee shall be entitled within anytime from the date of death to the earlier of (i) 12 months after the date of death and (ii) the end of the Option Period to exercise all the Options in full (to the extent not already exercised), PROVIDED THAT where the Board has exercised its power under Clause 7.3(h) below to extend the Option Period of any such Option, then the successors of the Grantee may exercise the affected Option(s) for an additional period, being that notified by the Board under Clause 7.3(h). Any such Options which have not been exercised by the applicable time determined as aforesaid shall lapse automatically. The legal successors to the above Options shall be limited to legal representatives of the deceased Grantee |
Page 6
or persons who are entitled to inherit the rights of exercise of the deceased Grantee under this Scheme by will or by law of succession; | ||
(c) | if a general offer (whether by way of take-over offer, share repurchase offer or scheme of arrangement or otherwise in like manner) is made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in association or in concert with the offeror) the Company shall use its best endeavours to procure that such offer is extended to all the Grantees (on the same terms mutatis mutandis, and assuming that they will become, by the exercise in full of the Options granted to them, shareholders of the Company). If such offer, having been approved in accordance with applicable laws and regulatory requirements becomes or is declared unconditional, the Grantee shall be entitled to exercise the Option in full (to the extent not already exercised) at any time within 21 days after the date on which such general offer becomes or is declared unconditional; | |
(d) | in the event of an effective resolution being passed for the voluntary winding-up of the Company or an order of Court is made for the winding-up of the Company, the Grantee may by notice in writing to the Company within 21 days after the date of such resolution elect to be treated as if the Option (to the extent not already exercised) had been exercised immediately before the passing of such resolution either to its full extent or to the extent specified in the notice, such notice to be accompanied by a remittance for the full amount of the aggregate Subscription Price for the Shares in respect of which the notice is given, whereupon the Grantee will be entitled to receive out of the assets available in the liquidation pari passu with the holders of Shares such sum as would have been received in respect of the Shares the subject of such election; | |
(e) | if, pursuant to the Companies Ordinance, a compromise or arrangement between the Company and its members or creditors is proposed for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies, the Company shall give notice thereof to all Grantees (together with a notice of the existence of the provisions of this Clause) on the same date as it despatches to each member or creditor of the Company a notice summoning the meeting to consider such a compromise or arrangement, and thereupon each Grantee shall be entitled to exercise all or any of his Options in whole or in part at any time prior to 12 noon on the day immediately preceding the date of the meeting directed to be convened by the Court for the purposes of considering such compromise or arrangement. With effect from the date of such meeting, the rights of all Grantees to exercise their respective Options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all Options shall, to the extent that they have not been exercised, lapse and determine. The Board shall endeavour to procure that the Shares issued as a result of the exercise of Options under this Clause 7.3(e) shall for the purposes of such compromise or arrangement form part of the issued share capital of the Company on the effective date thereof and that such |
Page 7
Shares shall in all respects be subject to such compromise or arrangement. If for any reason such compromise or arrangement is not approved by the Court (whether upon the terms presented to the Court or upon any other terms as may be approved by such Court) the rights of Grantees to exercise their respective Options shall with effect from the date of the making of the order by the Court be restored in full and shall thereupon become exercisable (but subject to the other terms of the Scheme) as if such compromise or arrangement had not been proposed by the Company and no claim shall lie against the Company or any of its officers for any loss or damage sustained by any Grantee as a result of the aforesaid suspension; | ||
(f) | in the event of the retirement or Incapacity of the Grantee and none of the events under Clauses 8.1(d) or 8.1(e) has occurred, all the Options granted to the Grantee shall continue to vest in the Grantee according to the relevant Vesting Schedule, and the Grantee may exercise all Effective Options vested in him according to the Vesting Schedule within the Option Period; | |
(g) | in the event of a Mandatory Transfer and none of the events under Clauses 8.1(d) or 8.1(e) has occurred: |
(i) | the Transferred Personnel may exercise all Effective Options vested in him on or before the date of the Mandatory Transfer (which date shall be the last actual working day of the Transferred Personnel with the relevant member of the Group whether salary is paid in lieu of notice or not); and | ||
(ii) | in relation to Options granted to the Transferred Personnel which have not vested in him on or before the date of the Mandatory Transfer ( Unvested Options ), the Board shall have the right to vest such number of Unvested Options in the Transferred Personnel ( Effective Unvested Options ) on the date of the Mandatory Transfer as the Board may decide in its absolute discretion, |
and the Transferred Personnel may exercise all the Effective Options (to the extent not already exercised) and the Effective Unvested Options at any time from the date of the Mandatory Transfer to the earlier of (i) 12 months after the date of the Mandatory Transfer and (ii) the end of the Option Period, PROVIDED THAT where the Board has exercised its power under Clause 7.3(h) below to extend the Option Period of any such Effective Option or Effective Unvested Option, then the Transferred Personnel may exercise the affected Effective Option(s) and/or Effective Unvested Option(s) for an additional period, being that notified by the Board under Clause 7.3(h). All the Options which are not Effective Options or not Effective Unvested Options will lapse automatically on the date immediately after the date of such Mandatory Transfer. All the Effective Options and Effective Unvested Options which have not been exercised by the applicable time determined as aforesaid shall lapse automatically; and |
Page 8
(h) | in the event that a Mandatory Moratorium is imposed in respect of any Effective Option during its Option Period (being the Option Period notified by the Board to the Grantee at the time of grant pursuant to Clause 5.3 and as may be subsequently modified in accordance with the other terms of this Scheme), the Board shall have the power to extend the Option Period of the affected Effective Option by such period (which shall not exceed the aggregate Mandatory Moratorium Period to which the relevant Effective Option is at that time known to the Board to have been and/or will be subject) as the Board shall in its absolute discretion determine, by giving notice thereof to the relevant Grantee. |
(a) | the expiry of the Option Period (as extended pursuant to Clause 7.3(h), if applicable); | |
(b) | the expiry of any of the periods referred to in Clause 7.3 (a), (b), (c), (e) and (g); | |
(c) | subject to Clause 7.3(d), the date of the commencement of the winding-up of the Company (as determined in accordance with the Companies Ordinance); | |
(d) | the date on which the Board resolves that the Option of the Grantee shall lapse and not be exercisable as a result of the Grantee, being an employee (including an executive director) of any member of the Group, ceasing to be such an employee by reason of the summary termination of his employment on any one or more of the grounds that he has been guilty of misconduct, or has been convicted of any criminal offence involving his integrity or honesty. A resolution of the board of directors of the relevant member of the Group to the effect that the employment of a Grantee has or has not been terminated on |
Page 9
one or more of the grounds specified in this Clause 8.1(d) shall be conclusive for the purpose of determining whether the employment of the Grantee will be terminated; | ||
(e) | the date on which the Board resolves that the Option of the Grantee shall lapse as a result of the Board or meeting of the shareholders of the Company having resolved, in accordance with their respective powers granted under the Articles of Association of the Company or relevant laws or regulation, that the Grantee, being a Non-executive Director, shall cease to hold the office of Non-executive Director on any one or more of the grounds that he has been guilty of misconduct, or has been convicted of any criminal offence involving his integrity or honesty, or being prohibited by laws or regulation or court order from being a director, or being reprimanded by the Stock Exchange or the stock exchanges or relevant government authorities of other jurisdictions outside Hong Kong; or | |
(f) | the date on which the Grantee commits a breach of Clause 7.1. |
Page 10
(a) | representing in aggregate over 0.1 per cent. of the issued share capital of the Company from time to time; and | |
(b) | having an aggregate value, based on the closing price of the Shares as stated in the Stock Exchanges daily quotations sheet at the date of each grant, in excess of HK$5 million, |
Page 11
(a) | the number or nominal amount of Shares, the subject matter of the Option (insofar as it is unexercised); and/or | |
(b) | the aggregate number of Shares subject to outstanding Options; and/or | |
(c) | the Subscription Price; and/or | |
(d) | the method of exercise of the Option with respect to the Board Lot if the Option is being exercised in part, |
Page 12
(a) | The appointing authority shall be the Hong Kong International Arbitration Centre ( HKIAC ). | |
(b) | The place of arbitration shall be in Hong Kong at the HKIAC. | |
(c) | There shall be only one arbitrator. | |
(d) | The language(s) to be used in the arbitral proceedings shall be English. |
Page 13
(a) | by the Company shall be deemed to have been served 24 hours after the same was put in the post; and | |
(b) | by the Grantee shall not be deemed to have been received until the same shall have been received by the Company. |
Page 14
Clause | Page | |||||
|
||||||
1. |
Definitions
|
1 | ||||
|
||||||
2. |
Purpose
|
4 | ||||
|
||||||
3. |
Conditions
|
4 | ||||
|
||||||
4. |
Duration and Administration
|
4 | ||||
|
||||||
5. |
Grant of Options
|
4 | ||||
|
||||||
6. |
Subscription Price
|
5 | ||||
|
||||||
7. |
Exercise of Options
|
6 | ||||
|
||||||
8. |
Lapse of Option
|
9 | ||||
|
||||||
9. |
Maximum number of Shares available for Subscription
|
10 | ||||
|
||||||
10. |
Grant of Options to Connected Persons
|
11 | ||||
|
||||||
11. |
Cancellation
|
11 | ||||
|
||||||
12. |
Reorganisation of Capital Structure
|
11 | ||||
|
||||||
13. |
Share Capital
|
12 | ||||
|
||||||
14. |
Disputes
|
12 | ||||
|
||||||
15. |
Alteration of the Scheme
|
13 | ||||
|
||||||
16. |
Termination
|
13 | ||||
|
||||||
17. |
Miscellaneous
|
13 |
Page | ||||
|
||||
1. Definitions
|
1 | |||
|
||||
2. Eligibility of Participants
|
4 | |||
|
||||
3. Number of Shares Subject to this Scheme
|
4 | |||
|
||||
4. Grant of Options
|
5 | |||
|
||||
5. Exercise of Options and Proceeds
|
5 | |||
|
||||
6. Rights on Cessation of Employment
|
8 | |||
|
||||
7. Rights on Death
|
9 | |||
|
||||
8. Rights on Loss of Capacity
|
9 | |||
|
||||
9. Change of Control
|
9 | |||
|
||||
10. Amendments to and Termination of this Scheme
|
10 | |||
|
||||
11. Cancellation of the Options
|
10 | |||
|
||||
12. Ranking of Shares
|
10 | |||
|
||||
13. Duration of this Scheme
|
11 | |||
|
||||
14. General
|
11 |
2004 Netcom Options
|
means the Netcom Options granted by Netcom on 22 October 2004 pursuant to the Netcom Share Option Scheme; | |
|
||
2005 Netcom Options
|
means the Netcom Options granted by Netcom on 6 December 2005 pursuant to the Netcom Share Option Scheme; | |
|
||
Adjustable Options
|
has the meaning given to it in Clause 5(3); | |
|
||
Board
|
means the board of directors of the Company; | |
|
||
change of control
|
has the meaning given to it in Clause 9; | |
|
||
Companies Ordinance
|
means the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), as amended from time to time; | |
|
||
Company
|
means China Unicom (Hong Kong) Limited, a company incorporated in Hong Kong whose Shares are listed on the Hong Kong Stock Exchange and whose American depositary shares are listed on the New York Stock Exchange, Inc.; | |
|
||
County Branch
Companies
|
means the branch companies of the Provincial Companies located in various counties; | |
|
||
Effective Options
|
means Options granted pursuant to this Scheme, irrespective of whether such Options are exercisable in accordance with the relevant Vesting Schedule; | |
|
||
Eligible Participants
|
means the holders of Netcom Options outstanding as at the Netcom Scheme Record Time, being directors, chief executives or Middle-to-Senior Management or Specialised Professionals of Netcom or its Subsidiaries; |
Page 1
Exercise Date
|
means the calendar day on which Shares can be subscribed for where the requirements under this Scheme are satisfied. If Shares are not traded on the Hong Kong Stock Exchange on a particular Exercise Date, the Exercise Date shall be postponed to the next calendar day on which Shares are traded on the Hong Kong Stock Exchange; | |
|
||
Exercise Price
|
means the price per Share, determined in accordance with Clause 4(3) of this Scheme, which is payable by a grantee for the subscription of Shares as a result of an exercise of Options in accordance with this Scheme; | |
|
||
First Tier
|
has the meaning given to it in Clause 5(1)(a) or Clause 5(2)(a) (as the case may be); | |
|
||
Fourth Tier
|
has the meaning given to it in Clause 5(1)(d) or Clause 5(2)(d) (as the case may be); | |
|
||
HK$
|
means Hong Kong dollars, the lawful currency of Hong Kong; | |
|
||
Hong Kong
|
means the Hong Kong Special Administrative Region of the Peoples Republic of China; | |
|
||
Hong Kong Stock
Exchange
|
means The Stock Exchange of Hong Kong Limited; | |
|
||
Listing Rules
|
means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited; | |
|
||
Mandatory Moratorium
|
means any prohibition on the exercise of any Option which would otherwise be exercisable, the imposition of which is not made by nor within the control of the Company. For the avoidance of doubt and by way of illustration, this includes any mandatory prohibition on the exercise of any Option imposed by the central government of the Peoples Republic of China; | |
|
||
Mandatory Moratorium
Period
|
means the period of time during which an Option is subject to a Mandatory Moratorium; | |
|
||
Middle-to-Senior
Management
|
means general manager or management staff with equivalent rank or above at various Provincial Companies or County Branch Companies of Netcom; | |
|
||
Netcom
|
means China Netcom Group Corporation (Hong Kong) Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company with effect from the Netcom Scheme Effective Date; |
Page 2
Netcom Options
|
means the right to subscribe for shares in the capital of Netcom in accordance with the Netcom Share Option Scheme and comprise the 2004 Netcom Options and the 2005 Netcom Options; | |
|
||
Netcom Scheme
Effective Date
|
means the date on which the Netcom Scheme of Arrangement becomes effective in accordance with its terms; | |
|
||
Netcom Scheme of
Arrangement
|
means the scheme of arrangement under Section 166 of the Companies Ordinance between Netcom and its shareholders involving, among other things, the cancellation of all the issued shares of Netcom; | |
|
||
Netcom Scheme Record
Time
|
means 5:00 p.m. (Hong Kong time) on 14 October 2008; | |
|
||
Netcom Share Option
Scheme
|
means the Share Option Scheme for Middle-to-Senior Management of China Netcom Group Corporation (Hong Kong) Limited adopted by Netcom on 30 September 2004, as amended from time to time; | |
|
||
Options
|
means the right to subscribe for Shares at the Exercise Price in accordance with this Scheme, granted pursuant to this Scheme; | |
|
||
Options Effective Term
|
means the period commencing from the Netcom Scheme Effective Date to the date on which Options lapse in accordance with the terms of this Scheme; | |
|
||
Provincial Companies
|
means the subsidiaries or branch companies of Netcom located in various provinces, autonomous regions and municipalities of the Peoples Republic of China; | |
|
||
Remuneration Committee
|
means the committee established by the Board, with primary duties to formulate remuneration policies and is responsible for dealing with all matters relating to this Scheme as authorised by the Board; its members are appointed by the Board with terms of office determined by the Board and the Board has the power to remove any member at any time; | |
|
||
this Scheme
|
means the Special Purpose Unicom Share Option Scheme of China Unicom (Hong Kong) Limited; | |
|
||
Scheme Effective Term
|
means the period commencing on the Netcom Scheme Effective Date and ending on 30 September 2014 (inclusive), being the date falling 10 years after the date on which the Netcom Share Option Scheme was adopted, unless the Board terminates this Scheme in accordance with its power under the terms of this Scheme; | |
|
||
Second Tier
|
has the meaning given to it in Clause 5(1)(b) or Clause 5(2)(b) (as the case may be); |
Page 3
Share Exchange Ratio
|
means the exchange ratio of 1.508 Shares for each share of Netcom under the Netcom Scheme of Arrangement; | |
|
||
Shares
|
means ordinary shares of HK$0.10 each in the share capital of the Company; | |
|
||
Special Purpose 2004
Unicom Options
|
has the meaning given to it in Clause 5(1); | |
|
||
Special Purpose 2005
Unicom Options
|
has the meaning given to it in Clause 5(2); | |
|
||
Specialised
Professionals
|
means professionals or management staff or technical or marketing staff holding important positions of Netcom or its Subsidiaries who are important to the development of Netcoms business; | |
|
||
Subsidiaries
|
means the branch companies or subsidiaries of Netcom or joint venture companies with legal person status in which Netcom has invested. The definitions of subsidiaries in the Companies Ordinance shall govern the relevant percentages of shareholding or voting right control that Netcom shall have in these companies; | |
|
||
Third Tier
|
has the meaning given to it in Clause 5(1)(c) or Clause 5(2)(c) (as the case may be); and | |
|
||
Vesting Schedule
|
means the arrangement whereby Options granted at a particular time can be exercised in one lot or in batches in accordance with a pre-determined timetable. |
Page 4
(a) | 100% of the Special Purpose 2004 Unicom Options granted in respect of the outstanding 2004 Netcom Options held by the Eligible Participants at the Netcom Scheme Record Time which are exercisable from 17 May 2006 to 16 November 2010 may be exercised at any time from the Netcom Scheme Effective Date to 16 November 2010 (the First Tier ); |
Page 5
(b) | 100% of the Special Purpose 2004 Unicom Options granted in respect of the outstanding 2004 Netcom Options held by the Eligible Participants at the Netcom Scheme Record Time which are exercisable from 17 May 2007 to 16 November 2010 may be exercised at any time from the Netcom Scheme Effective Date to 16 November 2010 (the Second Tier ); | ||
(c) | 100% of the Special Purpose 2004 Unicom Options granted in respect of the outstanding 2004 Netcom Options held by the Eligible Participants at the Netcom Scheme Record Time which are exercisable from 17 May 2008 to 16 November 2010 may be exercised at any time from the Netcom Scheme Effective Date to 16 November 2010 (the Third Tier ); and | ||
(d) | 100% of the Special Purpose 2004 Unicom Options granted in respect of the outstanding 2004 Netcom Options held by the Eligible Participants at the Netcom Scheme Record Time which are exercisable from 17 May 2009 to 16 November 2010 may be exercised at any time from 17 May 2009 to 16 November 2010 (the Fourth Tier ). |
(a) | 100% of the Special Purpose 2005 Unicom Options granted in respect of the outstanding 2005 Netcom Options held by the Eligible Participants at the Netcom Scheme Record Time which are exercisable from 6 December 2007 to 5 December 2011 may be exercised at any time from the Netcom Scheme Effective Date to 5 December 2011 (the First Tier ); | ||
(b) | 100% of the Special Purpose 2005 Unicom Options granted in respect of the outstanding 2005 Netcom Options held by the Eligible Participants at the Netcom Scheme Record Time which are exercisable from 6 December 2008 to 5 December 2011 may be exercised at any time from 6 December 2008 to 5 December 2011 (the Second Tier ); | ||
(c) | 100% of the Special Purpose 2005 Unicom Options granted in respect of the outstanding 2005 Netcom Options held by the Eligible Participants at the Netcom Scheme Record Time which are exercisable from 6 December 2009 to 5 December 2011 may be exercised at any time from 6 December 2009 to 5 December 2011 (the Third Tier ); and |
Page 6
(d) | 100% of the Special Purpose 2005 Unicom Options granted in respect of the outstanding 2005 Netcom Options held by the Eligible Participants at the Netcom Scheme Record Time which are exercisable from 6 December 2010 to 5 December 2011 may be exercised at any time from 6 December 2010 to 5 December 2011 (the Fourth Tier ). |
(a) | the annual performance review of the Company for the year preceding the commencement of the relevant tier shows that the Company is unable to meet the performance review targets; | ||
(b) | the issuance of a negative opinion by the Companys accountants or the Companys accountants being unable to issue an opinion on the financial reports in respect of the year preceding the commencement of the relevant tier; or | ||
(c) | where the Supervisory Panel or the audit authorities for State-owned enterprises of the State Council have raised material objections to the results or the annual report of the Company in respect of the year preceding the commencement of the relevant tier. |
Page 7
Page 8
| the acquiring person(s), entity(ies) or organisation(s) is/are connected with the Company within the definition of the Companies Ordinance; | ||
| the Shares or the voting rights, as the case may be, are acquired by the Company; | ||
| the Shares or the voting rights, as the case may be, are acquired by the employee share option scheme established or supervised by the Company (or by the related trust funds); |
Page 9
Page 10
Page 11
Name of Subsidiary | Country of Incorporation | Ownership Interest | ||
China United Network
Communications Corporation
Limited
|
China | 100% | ||
China Netcom Group Corporation
(Hong Kong) Limited
|
Hong Kong | 100% | ||
China Unicom International Limited
|
Hong Kong | 100% |
1. | I have reviewed this annual report on Form 20-F of China Unicom (Hong Kong) Limited; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and |
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
Date: June 23, 2009 | By: | /s/ Chang Xiaobing | ||
Name: | Chang Xiaobing | |||
Title: | Chief Executive Officer |
1. | I have reviewed this annual report on Form 20-F of China Unicom (Hong Kong) Limited; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and |
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
Date: June 23, 2009 | By: | /s/ Tong Jilu | ||
Name: | Tong Jilu | |||
Title: | Chief Financial Officer |
Dated: June 23, 2009 | By: | /s/ Chang Xiaobing | ||
Name: | Chang Xiaobing | |||
Title: | Chief Executive Officer | |||
Dated: June 23, 2009 | By: | /s/ Tong Jilu | ||
Name: | Tong Jilu | |||
Title: | Chief Financial Officer | |||