EXHIBIT 10.4
RESTRUCTURING AGREEMENT
BY AND AMONG
CHINA NETWORK COMMUNICATIONS GROUP CORPORATION
CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED
AND
CHINA NETCOM (GROUP) COMPANY LIMITED
CONTENTS
1 Definitions 2
2 Restructuring 6
3 Assets Injection 8
4 Representations and Warranties 8
5 Implementation of the Restructuring 11
6 Indemnification 15
7 Survival 18
8 Dispute Resolution 19
9 Public Announcement 19
10 Notices 19
11 Conflicts 19
12 Non-Assignment 19
13 Severability 20
14 Non-waiver 20
15 Governing Laws 20
16 Languages and Copies 20
17 Appendices to this Agreement 20
18 Fees and Expenses 21
19 Effectiveness of this Agreement 21
Appendix [ ] The Warranties 23
Appendix [ ] Related Agreements 45
Appendix [ ] Restructuring Approvals 46
Appendix [ ] Asset Valuation Report 47
Appendix [ ] Accountant's Report 48
Appendix [ ] Letter of Undertaking by the Group Corporation 49
RESTRUCTURING AGREEMENT
This Restructuring Agreement ("THIS AGREEMENT") is made and entered into on [-],
2004 in Beijing, People's Republic of China ( "PRC") by and among the following
parties:
CHINA NETWORK COMMUNICATIONS GROUP CORPORATION (the "GROUP CORPORATION"), a
state-owned enterprise established under the laws of PRC (Business License
Number of Legal Enterprise Person: 1000001003669), with its registered address
at: Xx.000, Xxxxxxxxxxxx Xxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxxx, XXX.
CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED ("CNC (HK)"), a company duly
incorporated and validly existing under the laws of Hong Kong Special
Administrative Region ("Hong Kong") with limited liability, with its registered
address at: 00/X, Xxxx xx Xxxxx Xxxxx, Xxxxxx Xxxx, Xxxx Xxxx.
CHINA NETCOM (GROUP) COMPANY LIMITED ("NEW CNC"), a company duly incorporated
and validly existing under the laws of PRC with limited liability as a wholly
foreign-owned enterprise ("WFOE") (Business License Number of Legal Enterprise
Person: [-]), with its registered address at: Xxxxxxxx X, Xx.000, Xxxxxxxxxxxx
Xxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxxx, XXX.
WHEREAS:
(1) As an institution authorized for investments by the state and a
designated trial of state ownership, the Group Corporation lawfully
holds or obtains through transfer/assignment major
telecommunications assets located in Beijing Municipality, Tianjin
Municipality, Hebei Province, Liaoning Province, Henan Province,
Shandong Province, Shanghai Municipality and Guangdong Province and
such telecommunications assets relating to international businesses
(the "INJECTED ASSETS") as set forth in the Asset Evaluation Report
(see below for the definition).
(2) Upon approval of relevant government authorities and in accordance
with the Asset Injection
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Agreement (see below for the definition), the Group Corporation will
inject the evaluated and SASAC verified Injected Assets into China
Netcom Corporation Limited, a company wholly-owned by CNC (HK) and
registered in mainland China as a wholly foreign-owned enterprise
registered in mainland China, through CNC BVI (see below for the
definition) and CNC (HK).
(3) Based on the above Asset Injection, China Netcom Corporation Limited
will convert correspondingly into China Netcom (Group) Company
Limited (namely the "New CNC").
(For the purpose of this Agreement, the above (1), (2) and (3) are
collectively referred to as the "RESTRUCTURING".)
(4) Prior to the Restructuring, China Netcom Corporation Limited has
transferred all of its assets, liabilities, interests and businesses
to the Group Corporation and/or its Subsidiaries.
(5) After the Restructuring, CNC (HK) will issue red chip shares and
American Depository Receipts (ADSs) in both Hong Kong and overseas
markets (collectively the "Shares") and apply for listings on both
The Hong Kong Stock Exchange Limited and New York Stock Exchange,
Inc..
(6) In order to ensure that the Restructuring is carried out per its
purpose and to protect the respective interests of New CNC, CNC (HK)
and the Group Corporation, these three parties have agreed to enter
into this Agreement so as to make proper arrangements for the
Restructuring and the related issues.
The Parties hereby agree as follows:
1 DEFINITIONS
1.1 Unless otherwise stipulated by this Agreement, the following terms have
the meanings set out below in this Agreement:
2
CNC BVI China Netcom Holdings (BVI) Limited, a company
incorporated in the British Virgin Islands.
Asset Injection Agreement The Asset Injection Agreement entered into among the
Group Corporation, CNC BVI, CNC (HK) and China
Netcom Corporation Limited on June 29, 2004,
outlining Asset Injections into New CNC through CNC
BVI and CNC (HK) from the Group Corporation.
Evaluation Base Date December 31, 2003.
the New CNC Conversion The date on which China Netcom Corporation Limited
Registration Date completed the following conversion registrations or
filings:
(i) The Ministry of Commerce has approved the
Articles of Association of China Netcom
(Group) Company Limited, which has been filed
at the State Administration for Industry and
Commerce ("SAIC").
(ii) The Ministry of Commerce has approved the
issuance of Certificate of Approval for
Establishment of Enterprises with Foreign
Investments for the China Netcom (Group)
Company Limited.
(iii) SAIC has approved the issuance of Business
License for the China Netcom (Group) Company
Limited, outlining information as follows:
(a) Registered capital, changes incorporated
according to the Evaluated Value.
(b) Business scope, changes incorporated
according to authorization from the Group
Corporation and approval from the Ministry
of Information Industry.
(c) Company name changed from China Netcom
Corporation Limited to China Netcom
(Group) Company Limited.
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Restructuring Effective Date December 31, 2003
Relevant Period Namely the period from the Evaluation Base Date
(exclusive) to the New CNC Conversion
Registration Date (exclusive).
Evaluated Value The net asset value approved by the State-owned
Assets Supervision and Administration Commission
of the State Council (SASAC) and injected into
New CNC pursuant to the Restructuring, namely RMB
43.0115756 billion.
Restructured Enterprises CNC Beijing Communications Corporation, CNC
Tianjin Communications Corporation, CNC Hebei
Communications Corporation, CNC Liaoning
Communications Corporation, CNC Henan
Communications Corporation, CNC Shandong
Communications Corporation and CNC Guangdong
Communications Corporation prior to the New CNC
Conversion Registration Date (exclusive). For the
purpose of this Agreement, China Netcom
Corporation Limited is not included in
enterprises to be restructured.
Surviving Enterprises CNC Beijing Communications Corporation, CNC
Tianjin Communications Corporation, CNC Hebei
Communications Corporation, CNC Liaoning
Communications Corporation, CNC Henan
Communications Corporation, CNC Shandong
Communications Corporation and CNC Guangdong
Communications Corporation after the New CNC
Conversion Registration Date (inclusive).
Related Agreements Various Restructuring-Related Agreements listed
in Appendix II to this Agreement.
Restructuring Approvals Approval documents relating to the Restructuring
such as the agreements, authorizations, approvals
and waivers and other approval documents, as
listed in Appendix III.
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Warranty Terms of presentations, warranties and
undertakings as listed in Appendix I to
this Agreement, made by the Group Corporation to
New CNC.
Asset Evaluation Report The Asset Evaluation Report compiled by China
Enterprise Appraisals, Beijing Branch, submitted
to the SASAC and approved on July 3, 2004, as set
forth in Appendix IV to this Agreement.
Accountant's Report The consolidated income statement, consolidated
balance sheet and consolidated statement of cash
flow for each of these consecutive year as of
December 31st, 2003, which have been compiled in
line with the Chinese "Enterprise Accounting
Standard" and "Enterprise Accounting System" and
audited by PricewaterhouseCoopers Xxxxx Xxxx CPAs
Limited Company.
Subsidiaries Any company, enterprise or other entity with
legal person qualification directly or indirectly
controlled by any party to this Agreement, if (1)
over 50% of the voting power is directly or
indirectly controlled by this party; or (2) over
50% of the distributable profits is directly or
indirectly enjoyed by this party; or (3) the
constitution of the board of directors is
directly or indirectly controlled by this party;
or (4) over 50% of the registered capital is
directly or indirectly held by this party.
Injected Assets All assets listed in the Asset Evaluation Report,
including telecommunications assets located in
Beijing Municipally, Tianjin Municipality, Hebei
Province, Liaoning Province, Henan Province,
Shandong Province, Shanghai Municipality and
Guangdong Province, as well as telecommunications
assets related to international business.
Restructuring Documents This Agreement, Asset Injection Agreement, all
Related Agreements, Restructuring approvals,
Accountant's Report and Asset Evaluation Report.
Prospectus Any prospectus issued by CNC (HK) in relation to
Initial Public Offering.
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Tax Items All tax items, costs or related funds collected
by either state and local level tax
administrations, or state and local level
people's governments, as well as tax items, costs
or related funds payable pursuant to other laws
and regulations, including but not limited to:
income tax, value-added tax, sales tax, resource
tax, interest tax, consumption tax, stamp tax,
contract tax, tariff, telecommunication resource
tax, cost compensation for telecommunication
universal service and any additional or added tax
expenses, regardless whether such tax expenses
result from insufficiency of tax already
collected or paid, inappropriate exemptions or
discounts enjoyed during the collection or
payment process, or any possible penalties, late
fees, interests or other payables related to
taxation. The word "tax" should also be
interpreted as such.
1.2 In this Agreement:
1.2.1 Agreements or other documentation herein should refer to Related
Agreements or the Restructuring Documents, as well as amendments,
supplements, substitutions or successions from other agreements as
occurred from time to time in accordance with relevant terms and
conditions.
1.2.2 Unless specifically stated otherwise, all Articles and Appendices
mentioned herein all refer to those contained in this Agreement; all
clauses mentioned herein refer to those contained in their
respective Articles and all Paragraphs mentioned herein refer to
those contained in their Respective clause.
1.2.3 The captions for the Articles and Appendices are used for reading
convenience only and are not to be considered in construing or
interpreting this Agreement.
2 RESTRUCTURING
2.1 The Group Corporation hereby confirms that the Restructuring has been
approved by relevant
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Chinese regulatory authorities on the date this Agreement is executed. All
such approvals have been listed in APPENDIX III to this Agreement. Each
party hereto agrees that the Restructuring shall come into force on the
Restructuring Effective Date.
2.2 Unless otherwise specified in this Agreement, the Group Corporation and
New CNC agree that New CNC shall obtain all rights and interests under the
Injected Assets from the Restructuring Effective Date (exclusive), and
undertake all debts, liabilities and obligations under the Injected
Assets, which have been disclosed to New CNC in writing in the Asset
Evaluation Report. The New CNC shall not be entitled to any other assets,
interests, debts, liabilities and obligations (including but not limited
to potential debts, liabilities and obligations) retained by the Group
pursuant to the Restructuring Documents, nor shall it undertake any debts,
liabilities and obligations thereof. The Group Corporation shall continue
to enjoy the rights as well as undertake the obligations with respect to
other related assets, interests, debts, liabilities, obligations and
relevant businesses.
2.3 Each party hereto hereby confirms to implement the Restructuring according
to relevant requirements in the Restructuring Documents and enter into
agreements in connection with the Restructuring.
2.4 The Group Corporation will enter into the following agreements and/or take
the following actions in connection with the Restructuring with CNC (HK)
and/or New CNC:
2.4.1 Unless otherwise specified in this Agreement, the Group Corporation
will, according to the requirements of the Restructuring Documents,
transfer and deliver the Injected Assets to New CNC as they are,
legally, effectively and completely through CNC BVI and then CNC
(HK) on the New CNC Conversion Registration Date;
2.4.2 Obtain each Restructuring Approval as listed in APPENDIX III to this
Agreement;
2.4.3 Enter into each agreement listed in the APPENDIX II to this
Agreement in connection with various transactions between New CNC
and/or CNC (HK) and the Group;
2.4.4 Finalize other issues in connection with the Restructuring according
to the requirements of
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the Restructuring Documents.
3 ASSET INJECTION
3.1 The value of the assets eventually injected into New CNC through CNC BVI
and CNC (HK) by the Group according to the Asset Injection Agreement shall
be a sum equivalent to the Evaluated Value.
3.2 The Group Corporation and New CNC confirm that the Injected Assets with a
net asset value of RMB 43,011,575,600 will be injected into New CNC on the
New CNC Conversion Registration Date pursuant to the Restructuring
Documents.
3.3 Except otherwise specified in Section 5 herein, the Injected Assets have
been transferred and delivered to New CNC legally and effectively as they
are on the New CNC Conversion Registration Date.
4 REPRESENTATIONS AND WARRANTIES
4.1 The Group Corporation hereby makes to New CNC the Warranties as listed in
the APPENDIX [ ] to this Agreement and the following representations,
warranties and undertakings:
As of the New CNC Conversion Registration Date (inclusive),
4.1.1 The Group Corporation shall be entitled to eventually inject the
Injected Assets into New CNC through CNC BVI and CNC (HK) according
to the laws of PRC;
4.1.2 Unless otherwise disclosed in the prospectus and/or specified in
this Agreement, the Group has obtained or completed all approvals,
permissions, authorizations, consents, confirmations, exemptions and
registrations that are necessary for injecting assets into New CNC,
and such approvals, permissions, authorizations, consents,
confirmations, exemptions and registrations are valid;
4.1.3 Except for the liabilities disclosed in the Asset Evaluation Report
and the liabilities
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occurring in the ordinary course of business relating to the assets
injected during the Relevant Period, New CNC has no other
liabilities on the Restructuring Effective Date (including
contingent liabilities);
4.1.4 The Group Corporation and/or the Restructured Enterprises have no
behaviors seriously in violation of laws or regulations, which may
cause New CNC to suffer significant economic losses;
4.1.5 The Group Corporation and/or the Restructured Enterprises have no
behaviors infringing any third-party patents, copy rights,
proprietary technologies, designs, trade marks, domains, goodwill or
any other intellectual properties protected by laws , which may
cause New CNC to suffer significant economic losses;
4.1.6 Except for those disclosed in the prospectus, there are no any
ongoing or pending or threatened material or major suits,
arbitrations, claims or other legal proceedings against the Group
and/or the Restructured Enterprises (as plaintiff or defendant or
others) in connection with the businesses or assets of New CNC,
which may have material adverse effects on the operations of New CNC
and/or Asset Injection, nor are there any claims that may have
material adverse effects on the operations and/or Asset Injection of
New CNC, or any facts that may cause such claims;
4.1.7 Unless otherwise disclosed in the prospectus or disclosed to New CNC
in writing by the Group prior to the execution of this Agreement,
all representations, warranties and undertakings under this section
and the Warranties listed in Appendix II to this Agreement are true,
complete and accurate without any misleading contents in all
aspects;
4.1.8 Provided relevant approvals (if necessary) have been obtained on and
after the New CNC Conversion Registration Date, the Group shall
ensure that all operation licenses, consents, permissions and
approvals (herein and hereinafter including the Group's license for
relevant telecommunications businesses) in connection with the
businesses of New CNC and/or its Subsidiaries that the Group is
obtaining and will obtain from national telecommunication regulatory
authorities such as Ministry of Information Industry and
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other authorities and its assigned and/or obtained telecommunication
resources and other resources (herein and hereinafter including but
not limited to spectrums, frequencies and numbers) shall be applied
to New CNC and/or its Subsidiaries; the Group shall obtain, hold,
retain and update such operation licenses, consents, permissions and
approvals and telecommunication resources and other resources in
accordance with laws without implementing act or omission that may
adversely affect the legality, validity and extensibility of such
licenses, consents, permissions and approvals and telecommunication
resources and other resources or the ability of New CNC and/or its
Subsidiaries to carry out businesses in accordance with laws and
regulations of PRC; and shall implement all acts and omissions to
obtain, maintain, retain, update or extend the legality, validity
and extensibility of such licenses, consents, permissions and
approvals and telecommunications resources and other resources and
the ability of New CNC and/or its Subsidiaries to carry out
businesses in accordance with laws and regulations of PRC;
4.2 The Group Corporation agrees to compensate New CNC and/or its
Subsidiaries, upon request by New CNC and in accordance with provisions of
section 6 herein, in a complete, full, timely and effective manner for all
losses, costs and expenses (including but not limited to expenses on legal
service) arisen, suffered or incurred by New CNC as a result of infidelity
or misleading of any the above representations and warranties and any part
thereof.
4.3 The Group Corporation agrees that the claimed amount against New CNC shall
not be compromised for the reason that New CNC or any of its agents or
professional consultants may have been informed of the information about
the Injected Assets in any time (excluding the information detailed and
explicitly listed in this Agreement, the Accountant's Report or the
Restructuring Documents); also, the Group shall not defend against
relevant claims for the reason that New CNC has known or should have known
or is concluded to have known any situations or relevant information
(excluding foregoing information) that cause the said claim.
4.4 The Group Corporation agrees that the above representations and warranties
and each clause of the Warranties shall not compromise any other clauses
of the above representations and warranties; and this Agreement has no
provision restricting the scope or application of the above
representations and
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warranties and each clause of the Warranties, except those explicitly
otherwise specified in this Agreement.
4.5 The Group Corporation agrees that, unless New CNC signs an explicit and
duly authorized written exemption or relief document, (1) the completion
of Restructuring, or (2) any investigation against the Injected Assets by
New CNC or through any third party, or (3) New CNC terminates (or not)
this Agreement, or (4) New CNC has not or delays the exercise of any
rights or remedies, or (5) any other things or matters (regardless their
natures) shall not affect New CNC's exercise of relevant rights and
remedies against the Group's breaches of such representations and
warranties. The exercise of any rights or remedies, solely or partly,
shall not eliminate the exercise of any further or other rights or
remedies. Any written exemption or relief documents signed by New CNC
shall not constitute waiver of New CNC for any other rights, authorities
or remedies.
4.6 The Group Corporation agrees that the above representations and warranties
and the Warranties shall remain in full force upon completion of all
arrangements under this Agreement and relevant agreements.
4.7 The Group Corporation agrees that the above representations and warranties
and the Warranties shall not affect or compromise the representations and
warranties under relevant agreements, which shall be valid for the Group
and/or the Surviving Enterprises pursuant to the clauses of relevant
agreements..
4.8 The Group Corporation agrees that the above representations and warranties
and the Warranties shall be binding upon the successors of the Group and
have been made for the benefits of the successors and assignees of each
party.
5 IMPLEMENTATION OF THE RESTRUCTURING
5.1 Without affecting the Group's representations and warranties under section
4 herein and the Warranties, each party hereto shall make all efforts to
complete any Restructuring affairs, procedures and processes that are not
finished on the New CNC Conversion Registration Date, so as to make the
Restructuring fully effective and completed.
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5.2 Each party hereto agrees to take all efforts and actions (including but
not limited to signing or urging a third party to sign any documents,
applying to governmental authorities or a third party to obtain any
relevant approvals, consents or permissions, authorizations, confirmations
or exemptions, enabling New CNC and its Subsidiaries to obtain all
relevant permissions and licenses necessary for their business operation
or in connection with Asset Injection, or completing any relevant
registration, enrollment and filing procedures) to ensure that the
Restructuring and the provisions of the Restructuring Documents and this
Agreement will be performed effectively and completely.
5.3 Each Restructured Enterprise shall own some trademarks with trademark
registration certificates issued by Trademark Office of State
Administration for Industry and Commerce ("TRADEMARK OFFICE") and the
logos under registration with the Trademark Office but pending for
trademark registration certificates (collectively the "LOCAL BUSINESS
BRANDS"). The Group Corporation and New CNC agree that New CNC may obtain
non-exclusive license for use of such Local Business Brands free of
charge. For this purpose, the Group shall make explicit arrangements on
the license for such Local Business Brands in its Trademark License
Agreement with CNC (HK) and New CNC, and procure each Restructured
Enterprise (the Surviving Enterprise) to duly sign necessary execution
documents with New CNC.
5.4 Each party hereto agrees that the Group shall be responsible for the
investment and construction of necessary telecommunication network
facilities for relevant universal Telecommunications Service obligations
that should be undertaken by the Group and/or CNC (HK)(or its
Subsidiaries) pursuant to regulations of Rural Universal
Telecommunications Service-Implementation Program for Village Connection
Project and other transitional measures on universal Telecommunications
Service. As for the telecommunication network facilities invested and
constructed by the Group for the above purpose in the operation regions of
New CNC, the Group Corporation agrees to lease them to New CNC and allow
it to operate relevant businesses with all business incomes therefrom
attributable to New CNC. the Group Corporation shall provide reasonable
compensation at market price for all relevant expenses of New CNC for
operating and maintaining such telecommunication network facilities in its
operation regions.
5.5 Each party hereto agrees that all incomes and expenses arising from the
settlement of long distance
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networks in southern/northern service regions between the Group
Corporation and China Telecommunications Group Corporation, (regardless
whether or not the operation regions of New CNC is involved), which has
been carried over from the separation of the Group from China
Telecommunications Group Corporation during telecommunication reform,
shall be enjoyed or borne by the Group.
5.6 Each party hereto agrees to resort to sincere negotiations for fair and
proper arrangements for matters that are not covered by this Agreement but
are necessary for proper and full Implementation of the Restructuring
and/or performance of this Agreement, thus to satisfy all parties hereto.
5.7 To implement the Restructuring, the Group and New CNC agree that:
5.7.1 Without affecting relevant provisions under section 4 herein, New
CNC shall participate in relevant suits and arbitrations in
connection with Asset Injection after the Restructuring Effective
Date (excluding that day) as litigant to exercise relevant rights
and perform relevant obligations; the Group shall provide timely
assistance upon request of New CNC, including but not limited to
providing documents required by New CNC and signing or procuring
third party to sign relevant documents, so that New CNC may become
an valid litigant in such suits or arbitrations and exercise its due
rights as litigant;
5.7.2 If the properties of New CNC and its Subsidiaries are arrested or
detained or threatened to be arrested or detained for such debts and
liabilities, the Group shall undertake to provide necessary guaranty
or other security for New CNC and its Subsidiaries in a timely
manner to ensure the interests of New CNC and its Subsidiaries stay
unharmed; in addition, regardless the above arrest or detention is
reasonable or not, the Group shall commit itself to undertake any
resultant losses and relevant expenses suffered by New CNC and its
Subsidiaries. The Group Corporation undertakes to pay off all
expenses within seven (7) days after receipt of losses and expenses
list from New CNC and its Subsidiaries;
5.7.3 Except for the debts and liabilities that should be undertaken by
New CNC under this Agreement, all other debts and liabilities shall
still be undertaken by the Group. Any adjudications, verdicts and/or
arbitration liabilities arising out of these affairs and all suits,
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arbitrations and other costs and expenses incurred by New CNC shall
be at the expense of the Group;
5.7.4 In case the prior authorizations, approvals, permissions,
confirmations or exemptions from any third parties that are
necessary for injection of any assets, interests or liabilities
under the Injected Assets into New CNC are not obtained before the
New CNC Conversion Registration Date, in addition to taking actions
in accordance with this section, the Group and/or the Surviving
Enterprises shall continue to hold such assets, interests and
liabilities on behalf of and for the benefit of New CNC until such
assets, interests and liabilities may be legally, effectively and
completely injected into New CNC in accordance with this Agreement;
5.7.5 During the period in which the Group and/or the Surviving
Enterprises continue to hold the assets, interests and liabilities
under the Injected Assets on behalf of and for the benefit of New
CNC in accordance with section 5.7.4, all rights, interests, profits
and all obligations, losses and claims (excluding the obligations,
losses and claims due to the Group and/or the Surviving Enterprises'
nonperformance of the obligations under section 5.7.4) arising from
or in connection with such assets, interests and liabilities shall
be attributed to or undertaken by New CNC. However, the Group and/or
the Surviving Enterprises shall be held liable for any losses and
claims due to their own negligence or misconduct;
5.7.6 For the period from the Evaluation Base Date to Jun 30, 2004, all
profits generated by the Injected Assets shall be attributable to
the Group.
5.7.7 During the Implementation of the Restructuring, the specific
assets/liabilities listed in the Asset Evaluation Report and the
Accountant's Report and the provisions of this Agreement shall
prevail if there is any uncertainty in division of
assets/liabilities between the Group and New CNC. If necessary, the
assets/liabilities adjustment calculation formula used in the
preparation of Asset Evaluation Report and Accountant's Report and
other working documents may be taken into account;
5.7.8 The Group Corporation and New CNC undertakes to each other that if
either party receives
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any accounts receivable by another party after the Restructuring
Effective Date, it will pay the account to another party within
seven (7) days after it receives and acknowledges such accounts;
5.7.9 The Group Corporation shall transfer all business information,
accounting records, operation records, operation data, operation
statistical data, user manuals, maintenance manuals, training
manuals, technical information, records, data, drawings and manuals
and information of R & D projects that are necessary for normal
operation of New CNC or in connection with Injected Assets to New
CNC. In case such information is not delivered before the New CNC
Conversion Registration Date, in addition to that the Group and New
CNC shall take all necessary measures and actions to procure such
delivery to be completed as soon as possible, the Group shall
continue to hold and properly keep such information under security
and confidentiality on behalf of and for the benefit of New CNC
until such information is legally and safely transferred to New CNC.
During the period the Group holds and keeps such information
pursuant to this section, New CNC may have access to such
information free of charge and the Group shall provide all
convenience for New CNC's access.
5.7.10 The Group Corporation is committed to undertake all taxes in
connection with Injected Assets occurred before the Restructuring
Effective Date, regardless whether such taxes are imposed or paid on
or before or after the Restructuring Effective Date. In addition,
the Group will undertake all taxes in connection with or arising
from the assets, interests, liabilities and relevant businesses
retained in the Group in accordance with the Restructuring
Documents;
5.7.11 The Group Corporation is committed to undertake all taxes arising
from appraisal increment of Injected Assets that should be
undertaken by the Group as stipulated by laws;
5.7.12 Unless otherwise specified in this Agreement, New CNC shall
undertake all taxes occurred after the Restructuring Effective Date
in connection with the holding, management or operation of Injected
Assets;
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5.7.13 Unless otherwise specified in this Agreement, all taxes arising
from or in connection with the Asset Injection into New CNC by the
Group in accordance with the Restructuring Documents shall be
undertaken by the Group and New CNC respectively in accordance with
the law.
6 INDEMNIFICATION
6.1 The Group Corporation hereby warrants to indemnify New CNC, per the
request of New CNC, and at any time hold New CNC completely, sufficiently,
timely, effectively and adequately indemnified against the following:
6.1.1 unless otherwise specified herein, any prosecution, claim,
litigation, loss, indemnity, disbursement, expense and fee
(including but without limitation to specialty service fee and
expense) that New CNC may incur or suffer as a result of the assets
transfer into New CNC and any event before the Restructuring
Effective Date in relation to the transferred assets (including but
without limitation to penalties imposed by relevant governmental
authorities);
6.1.2. After the Restructuring Effective Date, in the event that the Group
Corporation - and/or the Surviving Enterprises hold the assets of
New CNC on behalf of and in the interests of New CNC pursuant to
Sections 5.7.4. and 5.7.5. above, any prosecution, claim,
litigation, loss, indemnity, disbursement, expense and fee
(including but without limitation to specialty service fee and
expense) that New CNC may incur or suffer as a result of the errors
or mistakes of the Group Corporation and/or the Surviving
Enterprises ;
6.1.3. Any prosecution, claim, litigation, loss, indemnity, disbursement,
expense and fee (including but without limitation to specialty
service fee and expense) that New CNC may incur or suffer before
the Restructuring Effective Date as a result of any interest,
liability or obligation of the Group Corporation or its
Subsidiaries (excluding New CNC and its Subsidiaries);
6.1.4. Any prosecution, claim, litigation, loss, indemnity, disbursement,
expense and fee(including but without limitation to specialty
service fee and expense)that New CNC may incur or
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suffer at any time as a result of the breach of any provision
(including but without limitation to this warranty ) set forth
herein by the Group Corporation or its Subsidiaries ( excluding New
CNC and its Subsidiaries);
6.1.6 Any prosecution, claim, litigation, loss, indemnity, disbursement,
expense and fee(including but without limitation to specialty
service fee and expense)that New CNC may incur or suffer after the
Restructuring Effective Date (inclusive) as a result of the assets
that the Group Corporation continues to retain of hold;
6.1.6 Interests, penalties and other expenses incurred before the
Restructuring Effective Date, arising out of the liabilities
contained in the assets which are transferred to New CNC by the
Group Corporation, shall be borne by the Group Corporation. In the
event that New CNC incurs losses as a result of these interests,
penalties and other expenses, the Group Corporation shall hold New
CNC adequately indemnified;
6.1.7 Except for those listed in the Accountant's Report, New CNC will
have no obligations whatsoever to any compensation, benefit,
allowance and any other form of rights and interests pursuant to
laws, contracts, judgments, decisions and other binding documents
(including but without limitation to once-off housing allowances,
early retirees expenses, and additional allowances to retirees in
addition to social pension insurance) which were enjoyed by all its
employees who were formerly employed by the Group Corporation
within their duration of employment prior to the Restructuring
Effective Date, and. In the event that New CNC incurs losses as a
result of claims brought against it by any such employee in
relation to the above rights and interests, the Group Corporation
shall hold New CNC adequately indemnified against such losses; if
the final amount New CNC pays for once-off housing allowances and
early retirement expenses is lower than the amount provided, New
CNC shall return the balance to the Group Corporation;
6.1.7 Unless otherwise specified by applicable laws, except for those
listed in the Accountant's Report, New CNC will have no liabilities
under any circumstance to any obligation and/or expense of the
employees of the Group Corporation employed on or before the
Restructuring Effective Date but not employed by New CNC (including
but without
17
limitation to employees who were employed by the Group Corporation
on or before the Restructuring Effective Date but have retired
early than, been laid off, or retired on the execution date of this
Agreement) . In the event that New CNC incurs losses as a result of
claims brought against New CNC by any such employee based on the
fact that they had been employed by the Group Corporation, the
Group Corporation shall hold New CNC adequately indemnified against
such losses, as if such claims had never been brought against New
CNC;
6.1.9 Any claim New CNC may incur before, on or after the Restructuring
Effective Date, arising out of or in relation to the Group
Corporation's failure to transfer assets into New CNC pursuant to
the Accountant's Report, the Restructuring Documents and this
Agreement.
6.2 The Group Corporation hereby warrants to CNC (HK) that: (1) In the event
that CNC (HK) or its Subsidiaries suffer any litigation or other claim as
a result of events or circumstances occurred or existed before the listing
of CNC(HK) but not disclosed in the Accountant's Report as of June 30,
2004,upon the request by CNC (HK), the Group Corporation will indemnify
CNC (HK) against any such loss, expense, or liability resulted
hereof; (2) In the event that CNC (HK) suffers any penalty, loss or
other obligation as a result of the auditing result of the National Audit
Office with regard to the accounting periods prior to the Prospectus
Issuance, upon the request by CNC (HK), the Group Corporation will assume
such obligations.
6.3 The Parties to this Agreement agree that, notwithstanding the provision
set forth in Section 6.2 above, in the event that the Group Corporation
has already indemnified New CNC because of the same matter pursuant to
other provisions of this Agreement, the obligations of the Group
Corporation to indemnify CNC (HK) pursuant to Section 6.2 above shall be
offset accordingly, i.e., the indemnity amount by the Group Corporation to
CNC (HK) shall only be limited to the amount of the actual losses or
expenses which is in excess of the amount which has already been
indemnified to New CNC.
6.4 The New CNC hereby warrants to indemnifying any actual loss the Group
Corporation may incur as a result of any breach of the provisions set
forth herein by New CNC.
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6.5 Any indemnity claim by any party to the other parties pursuant to this
Agreement shall be made in writing, and shall describe in reasonable
detail the facts and circumstances in relation to such claim. However, the
failure of any party to bring claims in writing pursuant to this section
shall not affect its rights in relation to such claims.
7 SURVIVAL
Any representations, warranties, agreements and indemnities set forth in
this Agreement shall survive the completion of the Restructuring arrangement.
8 DISPUTE RESOLUTION
If any disputes develop among the parties in respect of the validity,
interpretations or performance of this Agreement, the parties should resolve the
disputes in question through friendly negotiation first. If the negotiation in
respect of the disputes fails within thirty (30) days as from the date when such
dispute arose, any party shall have the right resort to litigations to the
People's Court with proper jurisdiction.
9 PUBLIC ANNOUNCEMENT
Apart from required by the PRC laws or the laws and listing rules of the
listing place of CNC (HK) or the Stock Exchange of Hong Kong Limited or any
other regulatory body, any party to this Agreement cannot make or permit others
to make any public announcement about matters pertaining to or contained in this
Agreement without prior written consent by the other parties (and such consent
shall not be unreasonably withheld).
10 NOTICES
10.1 All notices required to be delivered pursuant to this Agreement shall be
in writing, and delivered to the address as stated at the beginning part
of this Agreement, or to addresses or facsimile numbers designated by one
party to the other parties in writing from time to time.
10.2 Any notice above shall be delivered either by hand, registered mail, or
facsimile. Any notice shall be deemed to have been delivered at the time
of actual receipt if delivered by hand; on the date of
19
return receipt if delivered by registered mail; and at the time of
transmission if delivered by facsimile.
11 CONFLICTS
In case of any obvious inconsistencies among the provisions of the
Restructuring Documents, subject to PRC laws, the provisions in the
Restructuring Documents shall be interpreted with appropriate references to the
provisions herein.
12 NON-ASSIGNMENT
Without prior written consent of the other parties to this Agreement, no
party is permitted to assign, transfer by other means or proclaim to assign all
or any of its rights, interests, liabilities or obligations under this
Agreement.
13 SEVERABILITY
If one or more provisions of this Agreement are held to be void, illegal,
or unenforceable under any applicable law in any regard, validity, legality and
enforceability of remaining regulations shall not be affected or impaired in any
form.
14 NON-WAIVER
The omission, failure or delay of exercising any rights, powers, or
remedies pursuant to or bestowed by this Agreement by any party shall not
constitute waiver of such or any or other rights, powers or remedies by such
party.
15 GOVERNING LAWS
This Agreement shall be governed, interpreted and enforced in accordance
with the laws of the PRC.
20
16 LANGUAGES AND COPIES
This Agreement is made in Chinese. It is made into twelve (12) duplicate
originals. Each party holds four (4) copies, and each original shall have the
same legal binding effect.
17 APPENDICES TO THIS AGREEMENT
17.1 Appendices to this Agreement are part of this Agreement, and have the same
legal binding force as the main body, as if they were incorporated into
main body of this Agreement.
17.2 Any amendment to this Agreement or its appendixes shall only be made
through written agreement, which shall be executed by the legal
representatives or authorized representatives of the parties, affixed with
their official seals, and with required approvals in accordance with the
constitutive documents of the parties.
18 FEES AND EXPENSES
Unless otherwise specified herein, all fees and expenses incurred in
connection with the negotiation, drafting, and fulfillment of this Agreement
shall be borne by the party incurring such expenses.
19 EFFECTIVENESS OF THIS AGREEMENT
This Agreement shall come into effect once signed by the legal
representatives or authorized representatives of the parties or affixed with
their official seals.
IN WITNESS WHEREOF, the authorized representatives of the parties hereto
have executed this Agreement as of the date first written above.
21
Signature page:
CHINA NETWORK COMMUNICATIONS GROUP CORPORATION
By: __________________________________
Legal Representative or Authorized Representative
CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED
By: __________________________________
Legal Representative or Authorized Representative
CHINA NETCOM (GROUP) COMPANY LIMITED
By: __________________________________
Legal Representative or Authorized Representative
22
APPENDIX I
THE WARRANTIES
The Group Corporation as the ultimate controlling shareholder of New CNC
hereby makes the following presentations, warranties and undertakings to New CNC
in relation to the conditions of the Restructuring and Injected Assets on the
Restructuring Effective Date, the execution date of this Agreement and the New
CNC Conversion Registration Date:
1. GENERAL MATTERS
1.1 The Group Corporation is an enterprise as a legal person that is duly
incorporated and validly existing under the laws of PRC (a State-owned
enterprise), while New CNC is a foreign invested enterprise duly
incorporated and validly existing under the laws of PRC and it is wholly
owned by CNC (HK).
1.2 Pursuant to China's laws and regulations, and Articles of Associations
and/or other constitutive documents of the two parties, the Group
Corporation and New CNC have the right, power and capability to lawfully
and effectively conclude this Agreement and fulfill all the obligations
under its clauses. Once signed, this Agreement will constitute a lawful
and effective obligation that is binding on the Group Corporation and New
CNC in accordance with the respective terms.
2. SHARE CAPITAL
2.1 The Group Corporation guarantees that, as of the date when this Agreement
is signed, except the Group Corporation's rights disclosed under this
Agreement and in the Prospectus, no third party other than CNC (HK)
possesses share subscription rights and preemptive rights relating to or
arising from the share capital of New CNC, and that there are no
mortgages, pledges, liens, commitments or other third party rights on New
CNC's share capital. Furthermore, there are no agreements to assume or set
up any of the above third party rights, and no agreements or other
arrangements requiring or potentially requiring New CNC to issue
additional equities exceeding
23
the currently issued equities. Nobody who is entitled or claims to be
entitled to hold any third party rights makes any claims.
2.2 Unless disclosed in the Prospectus, there are no effective agreements in
relation to the current or future issue, allotment or transfer of New
CNC's shares or equities or loan capitals, and no rights have been given
to anyone to request conditionally or unconditionally the current or
future issue, allotment or transfer of New CNC's shares or equities or
loan capitals (including any share subscription rights or preemptive
rights or conversion rights).
3. THE INJECTED ASSETS
3.1 As of the Restructuring Effective Date (exclusive) and the New CNC
Conversion Registration Date, the Group Corporation and the Restructured
Enterprises lawfully possess and have the right to operate the Injected
Assets according to China's laws, have obtained all the required approvals
from the relevant governmental authorities, and are entitled to inject the
assets into New CNC pursuant to the Asset Injection Agreement.
3.2 Starting from the New CNC Conversion Registration Date (inclusive), New
CNC is entitled to own, use and operate the Injected Assets in accordance
with China's laws and its Articles of Association.
3.4 The Injected Assets to be possessed by New CNC as specified by this
Agreement:
3.3.1 From the Restructuring Effective Date to the date when the Injected
Assets are actually, lawfully, effectively and completely
transferred to New CNC in accordance with China's laws, the Group
Corporation and/or the Restructured Enterprises and/or the Surviving
Enterprises shall, on behalf of and in the interests of New CNC,
continue to hold these assets, interests and liabilities until such
assets, interests and liabilities can be lawfully, effectively and
completely injected into New CNC in accordance with this Agreement;
3.3.2 When the Group Corporation and/or the Restructured Enterprises
and/or the Surviving Enterprises, on behalf of and in the interests
of New CNC, continue to hold these assets,
24
interests and liabilities according to the previous provisions, all
rights, benefits and interests produced by or arising from or
relating to such assets, interests and liabilities shall belong to
New CNC and all the obligations, losses and indemnifications shall
be assumed by New CNC, unless otherwise specified in this Agreement;
3.3.3 Unless otherwise specified in this Agreement, or disclosed in the
Prospectus and recorded in the Accountant's Report, all the
approvals, licenses, authorizations, consents, confirmations,
releases, registrations and lodgments required for the Group
Corporation to inject the Injected Assets into New CNC have been
obtained or completed, and such approvals, licenses, authorizations,
consents, confirmations, releases, registrations and lodgments are
valid;
3.3.4 Unless otherwise specified in this Agreement, or disclosed in the
Prospectus and recorded in the Accountant's Report, on the
Restructuring Effective Date and the date when the Injected Assets
are actually transferred to New CNC in accordance with China's laws,
the Injected Assets are subject to no restrictions by any liens,
mortgages, hypothecation, pledges, leases (including but not limited
to finance leases), licenses or other third party rights, or
influences by any mortgages or other burdens or third party rights,
conditions, instructions, rules or other limits or other unfavorable
claims that will or may exert adverse impacts on the value of the
above assets or New CNC's capability to use, transfer, sell or
otherwise dispose the above assets.
3.3.5 The Injected Assets provide New CNC with all the necessary and
sufficient assets, rights, properties, contracts, interests,
equipment and inventories to effectively and completely engage in
telecommunications businesses in connection to the Injected Assets.
All the employees intended to enter New CNC under the Restructuring
are sufficient to enable New CNC to continue to effectively operate
in the existing method all the businesses injected into New CNC;
3.3.6 During the Relevant Period, the Group Corporation and/or the
Restructured Enterprises operate, manage, use and maintain the
Injected Assets in the normal way during their normal operational
activities. The value of the Injected Assets is subject to no
material
25
unfavorable changes starting from the Evaluation Base Date;
3.3.7 During the Relevant Period and on the New CNC Conversion
Registration Date, the machine rooms, tools and equipment (including
various vehicles) of the Injected Assets are under good maintenance
and operation conditions, and are maintained periodically and
appropriately.
4. ACCOUNTS AND BUSINESSES
4.1 Under the assumption that New CNC has been existing since January 1 2001,
the Accountant's Report (including the attached notes. The complete copies
of the Accountant's Report have been delivered to New CNC) and it
4.1.1 have been prepared in accordance with Enterprise Accounting
Standards and Enterprise Accounting System;
4.1.2 fairly and justly reflect in the major aspects the assets,
liabilities and shareholder's equities of New CNC for each of the
three years ended December 31 2003.
4.1.3 has made sufficient provisions or reserves or disclosures for all
the outstanding liabilities and capital commitments (including
contingent, unquantifiable or disputed liabilities) as of the
relevant dates in conformity with China's accounting principles.
4.1.4 , in accordance with the related tax laws and other regulations, has
made provisions or reserves for all the taxations imposed on New CNC
or required for payment for each of the three years ended December
31, 2003. The above provisions or reserves will be sufficient to pay
all the taxations already or to be imposed on New CNC, or all the
taxations that New CNC must, may or will bear in connection with
profits, incomes, earnings, transfers, events and transactions as of
the related last dates (inclusive);
4.1.5 are not adversely affected by any undisclosed special or particular
conditions;
26
4.1.6 in all the major aspects fairly reflect New CNC's capitals, assets,
liabilities (including contingent liabilities) as of the Evaluation
Base Date and the profits as of the current financial date;
4.1.7 have not been influenced by any non-operational, special or
extraordinary items;
4.1.8 in all the major aspects fairly reflect the financial conditions of
New CNC as of the Evaluation Base Date;
4.1.9 disclose various assets and liabilities of New CNC as of the
preparation date of the Accountant's Report.
4.2 New CNC has established provisions for the depreciations of fixed assets
in conformity with China's Enterprise Accounting Standards and Enterprise
Accounting System;
4.3 In comparison with the financial conditions as of December 31, 2003
disclosed in the Accountant's Report, there is no and will be no material
adverse changes in New CNC's overall financial conditions on the New CNC
Conversion Registration Date.
4.4 On the New CNC Conversion Registration Date, all of the accounts, account
books, ledgers, and financial and any other types of records:
4.4.1 are possessed by New CNC;
4.4.2 have been sufficiently, appropriately and accurately recorded and
completed;
4.4.3 do not contain any type of any major error and deviation; and
4.4.4 truly and fairly reflect all the related transactions as well as the
conditions of finance, agreement and trade.
4.5 Prior to the Restructuring Effective Date, the Group Corporation managed
its businesses under the
27
normal, consistent and continuous environment. No major unfavorable
changes took place in any of the Group Corporation's businesses.
4.6 Archived Documents
4.6.1 All the application forms, detailed materials, resolutions and
documents which are required to be filed by New CNC with any
governmental agency in any place in accordance with the laws,
regulations and/or legislations applicable to New CNC have been
filed appropriately and correctly in conformity with all the related
laws, regulations and/or legislations applicable to New CNC.
4.6.2 All the mortgages and pledges (if any) given to or set by New CNC
have been registered according to the related rules and regulations
applicable to New CNC.
4.7 All the title proofs in connection with New CNC's assets, all the signed
copies of agreements in which New CNC is one of the signatories, and the
originals of all the other documents possessed or should be possessed by
New CNC shall be possessed by New CNC individually.
4.8 Unless disclosed in the Prospectus, there are no major investigations or
inquiries initiated by any government or other institutions in connection
to New CNC's matters which are not yet resolved or still in progress.
5. CONTRACTS
5.1 While signing this Agreement, the Group Corporation shall send New CNC a
contract list including the contracts, agreements and arrangements
relating to the Injected Assets (including loan and insurance agreements):
5.1.1 The Group Corporation shall continue to update this contract list
("THIS CONTRACT LIST", as amended from time to time) , to make sure
that this contract list is related to the Injected Assets and is a
complete list of all the contracts to which the Group Corporation
and/or its Subsidiaries are a party.
28
5.1.2 Upon reasonable request of New CNC, the Group Corporation shall take
related actions to cause the contractors in this contract list (the
"RENAMED CONTRACT") agree to replace New CNC as one party of these
contracts (starting from the change registration date). These
replacements shall be conducted through amendment agreements or
consent letters concluded between all the contractors in this
contract list and New CNC.
5.1.3 From the Restructuring Effective Date to the date when the amendment
agreements are concluded or letters of agreement are obtained as
expected in 5.1.2, in terms of the interests of each Renamed
Contract, the Group Corporation and/or the Restructured Enterprises
and/or the Surviving Enterprises shall fulfill or cause other
parties to the contracts to appropriately fulfill the interests
under these contracts completely for the interests of New CNC.
5.1.4 The Group Corporation neither violates any Renamed Contract to which
it is one party, nor assumes any significant responsibility possibly
arising from any presentations, commitments, compensations
(explicitly or implicitly) or other matters that it has made.
5.2 Clause 5.1 shall not be interpreted as that New CNC is required to assume
any obligations under any Renamed Contracts arising from any facts or
situations taking place prior to the Restructuring Effective Date, and
such obligations shall not become part of the liabilities of the Injected
Assets.
5.3 On the date when this Agreement is signed, in connection with the
contracts to which the Group Corporation and/or the Restructured
Enterprises are the major party relating to the Injected Assets, the Group
Corporation has already conducted due diligence, the result of which has
been sufficiently and accurately disclosed to New CNC.
5.3.1 All these contracts are lawful and valid, not cancelled or annulled,
and will not be terminated or unfavorably influenced because of the
Restructuring, CNC (HK) share listing and conclusion of this
Agreement or any other conditions.
29
5.3.2 As of the execution date of this Agreement, there is no claim or
significant obligation against or to be assumed by New CNC arising
from the breach, violation, negligence, inappropriate execution or
otherwise of such agreements, documents, or arrangements. After the
New CNC Conversion Registration Date, there will be neither claim
nor significant responsibility that may results in connection to
these agreements, documents or arrangements.
5.3.3 As of the execution date of this Agreement, the Group Corporation
receives no breach notice relating to any such agreements sent by
any other parties to these agreements to New CNC, purporting to
terminate or otherwise to terminate these agreements, and there is
no dispute regarding the performance of obligations promised between
New CNC and any third party.
5.3.4 On the date when this Agreement is concluded, all the contracts,
agreements and arrangements transferred to New CNC have been fairly
concluded or arranged without violating the principle of equity, and
the earnings and financial conditions prior to the New CNC
Conversion Registration Date are not materially affected by any
contracts or arrangements concluded not completely in accordance
with the principle of equity.
5.4 Unless otherwise specified in this Agreement, any significant contracts,
transactions or arrangements transferred to New CNC in connection with its
business:
5.4.1 are not of abnormal or uncommon nature or beyond the general and
appropriate business scope;
5.4.2 do not cost disproportionate or abnormal money, resources or
manpower to smoothly complete or implement as scheduled;
5.4.3 do not fall into the situation of long-term nonperformance, i.e.,
cannot be implemented over 6 months after the agreed or promised
date specified by relevant terms.
5.5 The Group Corporation warrants and undertakes that on the New CNC
Conversion Registration
30
Date the Surviving Enterprise have already terminated the concluded but
not fulfilled contracts or agreements with their branches, Subsidiaries
and other controlled units with respect to engineering design and
construction and IT service, material procurement, ancillary
Telecommunications Service and support services.
5.6 On the date when this Agreement is signed, all the contracts concluded
between New CNC and the Group Corporation are lawful and valid, not
cancelled or terminated.
6. EMPLOYEES
6.1 The Group Corporation is required to cause each employee of the former
Group Corporation or its Restructured Enterprises joining New CNC to meet
its business demands (the "TRANSFERRED EMPLOYEE") to enter into with New
CNC an employment agreement containing terms reasonably proposed by New
CNC (in the event that the Transferred Employee has not signed the
employment agreement with New CNC before the date of signing of this
Agreement). Except the provisions in the Accountant's Report, New CNC is
required neither to assume any responsibility for the provision of
services by the Transferred Employee to the Group Corporation or its
Subsidiaries prior to the transfer, nor assume any responsibility for the
services provided in any previous service periods. The Group Corporation
shall fully compensate New CNC for any liabilities incurred consequently
at any time.
6.2 Within the scope permitted by the national laws, regulations or local
statutes and rules relating to the Restructuring, the Group Corporation
itself shall or causes the Surviving Enterprise to undertake that the
Transferred Employees can now and in the future continue to rent, purchase
or otherwise use the houses rented or used prior to their entry into New
CNC from the Group Corporation or the Surviving Enterprise in the same
methods and standards received by the incumbent employees of the Group
Corporation or the Surviving Enterprises.
6.3 The New CNC has concluded no agreements or other arrangements (whether
legally binding or not) with any trade unions, or other groups
representing any employees or members of New CNC.
6.4 The New CNC has no liability or practice to make other payments other than
normal salaries,
31
remunerations, bonuses or wages or other benefits to any senior staff or
employee.
6.5 The New CNC or any employee is not involved in any labor dispute that
might subject New CNC to seriously unfavorable influence. Furthermore,
based on the facts already known to New CNC or its directors or the Group
Corporation or facts obtainable through reasonable investigation, there is
no indication that New CNC might get involved in any such dispute, or that
any agreed provisions or any documents signed in accordance with the
Restructuring and/or CNC (HK) share listing or any matters expected to
occur due to the Restructuring or CNC (HK) share listing might result in
such labor dispute.
6.6 The Group Corporation has no unpaid contributions required by laws and
regulations to the related government departments or their authorized
agents in connection with the Transferred Employees, including but not
limited to various insurances and funds.
7. Tax items
7.1 Accounts
The Accountant's Report have made preparations or reserves for all tax
items that will be levied to New CNC or should be paid by New CNC,
including deferred taxes as of the Evaluation Base Date. The Group
Corporation will bear any tax that incurred before the Restructuring
Effective Date but not listed in the Accountant's Report.
7.2 The Group Corporation and the Restructured Enterprises have fulfilled
their tax obligations to relevant government authorities and all other
agencies before the New CNC Conversion Registration Date for all taxes
that they are obliged to bear or may need to bear as a result of the
assets received by New CNC in accordance with the Restructuring Documents
and this Agreement or associated therewith. If there are any taxes that
have not been paid up on the New CNC Conversion Registration Date causing
New CNC to bear the liability to pay such taxes, including fines and/or
interests, then the Group Corporation should hold New CNC timely and
adequately indemnified.
7.3 All tax declaration statements for the taxes incurred by, or associated
with the assets received by
32
New CNC in accordance with the Restructuring Documents and this Agreement
that should be completed by the Group Corporation and/or the Restructured
Enterprises before the New CNC Conversion Registration Date have been
submitted and correctly completed by the Group Corporation and/or the
Restructured Enterprises, which have not and shall not cause any disputes.
There have been no events taking place within the specified time frame, to
the knowledge of the Group Corporation or it should be aware of after
reasonable inquiries, which may result in the foregoing disputes or any
claims for taxes, or cause the loss of tax reduction or exemption or
preferences that originally existed
7.4 On the New CNC Conversion Registration Date, New CNC has complied in all
aspects with all relevant laws, regulations, rules, statutes or orders
that are applicable to its taxation situation.
7.5 The Group Corporation and/or Restructured Enterprises have paid up in
accordance with the law various financial charges that are associated with
the usage of the Injected Assets by the Group Corporation and/or the
Restructured Enterprises before the New CNC Conversion Registration Date
and that should be paid by the Group Corporation and/or the Restructured
Enterprises to relevant government authorities. Where there is any tax
delinquency, the Group Corporation shall be responsible to make up in full
and in a timely manner. In case New CNC suffers any losses from such
delinquency, the Group Corporation shall hold New CNC or newly established
enterprise fully and timely indemnified.
7.6 Unusual and Unfair Transactions
7.6.1 Except for those disclosed in the prospectus and recorded in the
Accountant's Report, the Group Corporation hasn't caused New CNC to
own, agree to purchase any of the assets, or agree to accept any of
the services or equipments whose expenses are or will be higher than
their market values, or haven't been valued on a fair basis;
7.6.2 Except for those disclosed in the prospectus and recorded in the
Accountant's Report, the Group Corporation hasn't caused New CNC to
own, agree to purchase any of the assets, or agree to accept any of
the services or equipments whose prices are or will be lower than
their market values, or haven't been evaluated on a fair basis;
33
7.6.3 Except for those disclosed in the prospectus and recorded in the
Accountant's Report, the Group Corporation hasn't caused New CNC to
engage in transactions that have substituted for or deviated from
the actual payables or receivables due to tax duties.
7.7 The signing and fulfillment of this Agreement and any other agreements
signed pursuant to the Restructuring will not cause New CNC to be deemed
to have gained earnings or other payments that are taxable from a taxation
perspective.
8. FURTHER ASSURANCES
8.1 Compliance with terms and conditions of this Agreement and the
Restructuring Documents will not and shall not:
8.1.1 conflict with, cause to violate or constitute a failure to perform
any terms, conditions or regulations of the Injected Assets related
agreements or documents, of which the Group Corporation and/or the
Restructured Enterprises were or currently are one of the parties
and whose subject has been or shall be changed as a result of the
Restructuring; and/or
8.1.2 relieve any one from any obligations under this Agreements or
documents mentioned in Clause 8.1.1 above or cause anyone to
terminate obligations under this Agreements or documents mentioned
in Clause 8.1.1 or terminate New CNC's rights or interests provided
under this Agreements or documents mentioned in Clause 8.1.1 above.
9. LAW COMPLIANCE
9.1 Upon changes registration of New CNC, it complies in all aspects with any
applicable laws, statues and working rules of both China and other
regions, nor does it commit any violations or offences that may cause
serious impact on the financial conditions or business prospects of New
CNC against any acts, regulations, rules, decrees, orders or judgments of
any courts or government authorities of China or any other countries.
9.2 Upon changes registration of New CNC, all licenses, permits,
authorizations, consents and exemptions that New CNC has to obtain from
any individuals, organizations or groups in order
34
to operate its various businesses have all been obtained by New CNC and/or
its appropriate branches, Subsidiaries or authorized units. Such
authorizations have full efficacy and there are no circumstances,
including the Restructuring process and signing of this Agreement, will
cause the cancellation in whole or in part or the inability to renew such
licenses, permits, authorizations, consents and exemptions.
9.3 Upon changes registration of New CNC, New CNC provides no commitments or
guarantees to any courts with jurisdictions or government authorities.
10. LAWSUITS
10.1 The Group Corporation and/or the Restructured Enterprises have no
activities severely against the laws and regulations that might cause
significant economic losses to New CNC or impact the operation of New
CNC's businesses.
10.2 Except for the associated lawsuits that have been formally disclosed to
New CNC, there are no significant on-going, pending or potential
arbitrations, lawsuits, claims or other legal proceedings related to the
Injected Assets against the Group Corporation and/or the Restructured
Enterprises whether as a prosecutor, defendant or with other identity, nor
are there any claim demands that would cause significant adverse impact on
the operation of New CNC's businesses and/or the Injected Assets, or any
facts that may lead to such claim demands.
11. INTELLECTUAL PROPERTY RIGHTS
11.1 The intellectual property rights required or used by New CNC:
11.1.1 Are effectively existent and enforceable;
11.1.2 Do not violate any other agreements or infringe on others'
intellectual property rights;
11.1.3 Do not have any lawsuits, disputes or other legal proceedings on
going or impending, concerning or affecting the ownerships,
utilization or effectiveness of such intellectual property rights;
35
11.1.4 Have been granted utilization permissions for New CNC and have no
liens, mortgage, impawn or other interests of a third party except
for those disclosed in the prospectus.
11.2 Except for those that have been disclosed, the Group Corporation has not
permitted others to use or transfer its intellectual property rights
11.3 Except for those that have been disclosed, the Group Corporation has not
infringed or violated any of intellectual property rights.
11.4 The Group Corporation has not, except in normal and general business
operations, disclosed to any one or permitted, promised or arranged any
disclosure of the proprietary technologies, business secrets, confidential
materials, cost statements, lists of customers or suppliers.
11.5 The Group Corporation has not left out any significant issues that may
cause the foregoing permits or the permits granted to New CNC to be
terminated or constitute any violation of the clauses of such permits.
11.6 The Group Corporation has not involved in any agreements that may restrict
the application of the foregoing New CNC's proprietary technologies,
business secrets, confidential materials, cost statements, lists of
customers or suppliers or disclose to the other party.
12. RESTRUCTURING APPROVALS
12.1 The Restructuring Approvals listed in APPENDIX III to this Agreement are
all applicable approvals, permits or consents required by this Agreement,
associated agreements and the Restructuring arrangement thereunder and the
Restructuring will not be adversely impacted due to the lack of any
approvals, ratifications, consents or permits.
13. OPERATING BUSINESSES
13.1 The impact of the IPO and the Restructuring of CNC (HK)
13.1.1 The Group Corporation believes, after prudent and detailed
inquiries, that there are no data, except those disclosed, that
indicate, and it is not aware of or does not
36
believe that the Restructuring or the IPO of CNC (HK) or the signing
of this Agreement, or any other issues contained thereof have
caused:
(1) Any suppliers of New CNC to cease or have the rights to cease
or dramatically reduce their supplies;
(2) Any clients of New CNC to cease or have the rights to cease or
dramatically reduce their business dealings;
(3) Any significant changes in the management and/or the Injected
Assets of New CNC.
13.1.2 Except for those disclosed in the prospectus or unless otherwise
specified in this Agreement, the Restructuring or the IPO of CNC
(HK), the signing of this Agreement, or any other issues contained
thereof will not cause:
(1) Conflicts, defaults or failure to perform the obligations of
any terms and conditions or regulations of any agreements or
contracts in which New CNC is a party, or against the Articles
of Association of New CNC and/or any regulations of laws,
acts, legislations, decrees or orders that are applicable to
New CNC, or violate any creditor's rights, impawns, leases,
rents, contractual orders, judgments, verdicts, injunctive,
rules or other restrictions or responsibilities that have
binding or controlling force against any assets of New CNC;
(2) To relieve anyone from any obligations to New CNC, authorize
anyone to determine any such or any rights or interests
enjoyed by New CNC or exercise any rights in accordance with
this Agreement reached with New CNC
(3) To constitute or exercise the creditor's rights in any form to
the setup, imposure or prospects of New CNC; and
(4) The New CNC's any existing or future liabilities to become due
and payable or to be claimed as due and payable before the
specified due date.
13.2 Operating Businesses
13.2.1 The New CNC has the right and is fully qualified to operate
businesses in the business operating areas as provided in its
business license and the international business field;
37
13.2.2 The New CNC has no ultra xxxxx, unauthorized or invalid activities,
contracts and rights. All documents with New CNC as the principal
party or the executing party have been properly signed and stamped
and retained by New CNC.
13.3 There is absolutely no possibility for New CNC and associated executives,
representatives and employees, during their tenure, to cause New CNC to
suffer significant fines, penalties, lawsuits or other liabilities due to
violation of any laws, regulations, rules or orders.
13.4 Unless otherwise specified in this Agreement and per request of New CNC's
normal operations, the Group Corporation or New CNC have not authorized
any individuals (implied or expressed) to sign any contracts or make any
commitments on behalf of New CNC, nor have they granted any individuals
any other proxies or power of attorney.
13.5 Unless otherwise disclosed in the prospectus and specified in this
Agreement, New CNC has obtained the authorization and has been qualified
to operate in all regions approved by the Restructuring Approvals to
operates and in international businesses, and has obtained from any
individuals, organizations or groups all necessary permits and consents
required to properly operate such businesses in order to legally and
properly operate its businesses and all such permits and consents are
valid and continue to be valid as of the New CNC Conversion Registration
Date. Both the Group Corporation and New CNC have not violated any term or
condition of the permits or consents it obtained, nor have they any
factors that suffice to affect the continuity or renewal of such letters
of permits or consents they hold.
14. CAPITALIZED COMMITMENTS, DIVIDENDS AND DISTRIBUTION
14.1 Except for those disclosed in the prospectus and the Accountant's Report,
there are no capitalized commitments in New CNC's capital accounts. During
the Relevant Period, the Group Corporation has not caused New CNC to bear
any significant burdens of capital expenditures, endorse any such
significant capital expenditures, or agree to sell or alter any
significant capital assets or any related equities.
14.2 Except for those that have been disclosed, starting from the New CNC
Conversion Registration Date, New CNC has not paid or announced any
dividends, or distribute any other allocations in
38
the form of cash or materials, or distribute the interests, other incomes,
benefits or rights obtained from the stock or stock equity of New CNC.
15. BANK AND OTHER LOANS
15.1 Except those disclosed in the Prospectus or recorded in the Accountant's
Report, the aggregate amount of loans of New CNC does not exceed the
limits stipulated in its article of association and/or any law,
regulation, decree, and ordinance or applicable order, or the loan limits
stipulated in contracts or documents which have binding force over New
CNC.
15.2 Except those disclosed in the Prospectus or recorded in the Accountant's
Report, New CNC has no outstanding bonds, and has not agreed upon setting
up or issuing any bonds.
15.3 Except those disclosed in the Prospectus and recorded in the Accountant's
Report, as to the date of signing this Agreement, the Group Corporation
has not received notice from any creditor (no matter formally or not)
demanding it to repay debts or begin compulsory disposal of any of New
CNC's assets held by the creditor; Also there is not any situation which
will result in the above notices.
15.4 Except those disclosed in the Prospectus and recorded in the Accountant's
Report, since the New CNC Conversion Registration Date, New CNC has not
repaid or incurred responsibilities to repay any immature major loan or
other major debts, also there is not any situation that may lead to the
occurrence of the above situations.
15.5 Except those disclosed in the Prospectus and recorded in the Accountant's
Report, there is no mortgage, lien or any other kinds of mortgage, rights
and interests or creditor's rights on the assets transferred to New CNC
which relate to or affect all or part of New CNC's business, property or
assets; nor is there any other agreement, arrangement or commitment which
may cause or lead to the above situations, excluding bank financings
obtained fairly by New CNC according to normal commercial terms.
15.6 Except those disclosed in the Prospectus and recorded in the Accountant's
Report, before the execution date of this Agreement, the Group Corporation
had not exercised or claimed to exercise lien, creditor's rights or other
rights and interests or demanded any debt on any fixed
39
assets, and there is not a direct or indirect dispute related to such
fixed assets.
15.7 Except those disclosed in the Prospectus and recorded in the Accountant's
Report, as to the existing bank financing and other financing channels,
New CNC has the ability to raise sufficient working capital to continue
its business by current method and business scope in 12 months from the
New CNC Conversion Registration Date, and to implement, carry out and
finish, according to the existing clauses and terms, all unfulfilled
orders, projects and contract responsibility which have binding force over
New CNC.
15.8 Except those disclosed in the Prospectus and recorded in the Accountant's
Report, regarding any bond, acceptance credit, overdrawing, loan and
credit or other financial financing (referred to as "financing" in this
article) that is outstanding or can be obtained by New CNC:
15.8.1 there is no stipulation that violates or is inconsistent with any
documents about such financing;
15.8.2 there is no practical action or threat for the acceleration of any
debts;
15.8.3 no unfavorable situation has occurred which will affect the
continuing obtaining of the said financing, or may cause
unfavorable change in any of these financing terms and conditions;
15.8.4 this financing does not depend on guarantee or warrant by way of
mortgage provided by a third party; and
15.8.5 The Restructuring and the public offering of the Shares of CNC
(HK), or results of other matters included in the Restructuring
and/or this public offering cannot affect such financing
adversely, including but not limited to the termination of any of
such financing or the acceleration of such financing or the
termination of existing mortgage of any such financing.
15.9 Unless otherwise stipulated in this Agreement, New CNC has no obstacle in
obtaining or has already obtained third party consent required by the
Restructuring.
16. ENVIRONMENTAL PROTECTION
16.1 The Group Corporation and New CNC have abided by all applicable
environmental laws and
40
regulations in China, and there is no serious violation of such laws and
regulations.
16.2 The Injected Assets and business are free from any threat of major civil,
criminal or administrative claims, investigations, complaints or
litigations related to environmental protection, and also there is not any
situation that may cause such claims, investigations, complaints or
litigations.
17. INSURANCE
17.1 All insurances enjoyed by New CNC are valid, and there are no actions or
omissions that can make such insurances void, or lead to increase of
premiums.
17.2 All insurances accepted by New CNC are not restricted by any special,
abnormal clauses, and New CNC needs not to pay any additional fees except
the normal premiums.
17.3 Except those disclosed in the Prospectus and other documents, in
accordance with the above policies, New CNC has not made or is not likely
to make any claims, and there are no such circumstances that can bring
about such claims.
18. LANDS AND PROPERTIES
18.1 The Group Corporation warrants that the right-of-use and ownership of the
lands and properties included in the transferred assets is legal and
complete, and that, except those disclosed in this Agreement and the
Prospectus, there is no mortgage or third party right on the right-of-use
of the said lands or the ownership of the said properties.
18.2 The Group Corporation warrants that all the lands and properties in the
Injected Assets can be legally used according to their current usage;
Properties constructed on the lands that it has the right-of-use are in
compliance with national laws, regulations and planning programs and usage
approved by the government.
18.3 As to the land use right of the Injected Assets and the newly transferred
land use right in this period, the Group Corporation warrants that: within
6 months after the global offering of CNC (HK) (as to the lands for which
the Group Corporation has not obtained Land Use Rights
41
Certificates yet, but possesses title proofs accepted by the Ministry of
Land and Resources, it should be within the validity period stipulated in
relevant title proofs, and in no case later than 6 months after the global
offering of CNC (HK), the Group Corporation shall make every effort to or
urge the Surviving Enterprises to make every effort to apply for Land Use
Rights Certificates from relevant land administrative departments; New CNC
shall be the user in the said Land Use Rights Certificates; the Group
Corporation shall bear all fees, expenses, and claims incurred in or
related to the handling of the above matters, and indemnify New CNC
against losses, claims, expenses and fees New CNC suffers from the lack of
Land Use Rights Certificates in which New CNC is the user at the
completion of the global offering of CNC (HK) . the Group Corporation
further warrants that, as to the newly transferred land use right
allocated to New CNC within 2 years after the global offering of CNC (HK),
the Group Corporation shall help New CNC go through formality to transfer
allocated land to remised land, and indemnify New CNC against all losses,
claims, fees and expenses due to land use right of the allocated lands for
which the formality of transferring allocated land to remised land has not
been finished by the time of the completion of CNC (HK)'s global offering.
18.4 As to the properties and properties under construction of the Injected
Assets and the newly transferred properties and properties under
construction on the remised land in this period, the Group Corporation
warrants that: within 6 months after the global offering of CNC (HK) (as
to the properties for which the Group Corporation has not obtained
property ownership certificates yet, but possesses valid title proofs or
properties under construction licenses, it should be within the validity
period stipulated in relevant title proofs, but in no case later than 6
months after the global offering of CNC (HK), or the completion of the
constructing project; as to the constructing project for which the Group
Corporation has not obtained permission, written reply or verification
document, it should be after the completion of the said constructing
project), the Group Corporation shall make every effort to or urge the
Surviving Enterprises to make every effort to apply for property ownership
certificates from relevant property administrative departments; New CNC
shall be the user in the said property ownership certificates; the Group
Corporation shall bear all fees, expenses, and claims incurred in or
related to the handling of the above matters, and indemnify New CNC
against losses, claims, expenses and fees suffered from the lack of
property ownership certificates in which New CNC is the user by the time
of the completion of the global offering of CNC (HK). As to properties
under construction in the Injected Assets which have not obtained
permissions, written replies or verification documents
42
from relevant government departments yet, the Group Corporation confirms
that Land Use Rights Certificates or land authority certificates
corresponding to the said properties under construction have been
obtained, that the said properties under construction meet all conditions
required to obtain relevant permissions, written replies or verification
documents, and the relevant permissions, written replies or verification
documents are under processing and free from any legal obstacle, and that
there is no penalties imposed by relevant government departments due to
the lack of the said permissions, written replies or verification
documents of the said constructing projects. The Group Corporation further
warrants that, as to the newly transferred properties and properties under
construction on the allocated land of New CNC within 2 years after the
global offering of CNC (HK), the Group Corporation shall assist New CNC go
through the formality related to the registration or change registration
of property ownership certificates, and indemnify New CNC against all
losses, claims, fees and expenses resulted from the properties and
properties under construction for which registration or change
registration of property ownership certificates has not completed by the
time of the completion of CNC (HK)'s global offering.
18.5 Pursuant to the property leasing agreement separately entered into by the
Group Corporation and/or the Surviving Enterprises with New CNC in
APPENDIX TWO to this Agreement, the Group Corporation agrees or urges the
Surviving Enterprises to lease or sublease all:
(1) Properties owned by the Group Corporation;
(2) Properties owned by the Surviving Enterprises;
(3) Properties under leasing agreements or other effective arrangements
entered into by the Surviving Enterprises ("SUBLEASED PROPERTIES")
listed in the said property leasing agreement to New CNC to use.
18.6 The Group Corporation and/or the Surviving Enterprises are the only legal
user of the Subleased Properties, and have obtained written consent of
sublease of the said properties from the Lessor of the said leasing
agreement, or are going through the relevant formality for obtaining
consent from the original Lessor. The Group Corporation undertakes to urge
the Surviving Enterprises to get as soon as possible the written consent
from the Lessor. The Group Corporation shall bear all fees, expenses, and
claims incurred in or related to the handling of the above matters, and
indemnify New CNC against losses, claims thereby.
43
18.7 The Group Corporation undertakes that the right-of-use of the above
properties leased under this Agreement are obtained in accordance with
laws, and have already finished or are going through registration and
filing formalities in the relevant real estates administrative
departments. The Group Corporation undertakes to go through the
registration and filing formalities of the said leasing agreement and
property leasing agreement as soon as possible after this Agreement comes
into force. The Group Corporation shall bear all fees, expenses, and
claims incurred in or related to the handling of the above matters, and
indemnify New CNC against losses, claims thereby.
18.8 In the event that New CNC or the Restructuring incurs any loss due to
property owner's lacking of leasing permission or qualification to the
said properties, or due to the Group Corporation's failure in maintaining
the warranties in Clauses 18.1 and 18.2, the Group Corporation is willing
to assume full indemnification obligations against such loss.
18.9 The Group Corporation warrants that should any party make claim or demand
indemnity on the bases that the contents in this Article are not true,
Group the Corporation shall take reasonable measures or actions to protect
the rights and interests of New CNC, and fully indemnify New CNC against
losses incurred thereof.
19 MATERIALS
19.1 All materials in this Agreement and its appendixes are true,
complete and accurate.
44
APPENDIX II
RELATED AGREEMENTS
1. NON-COMPETITION AGREEMENT
2. INTERCONNECTION SETTLEMENT AGREEMENT
3. MASTER SERVICES SHARING AGREEMENT
4. TRADEMARK LICENSING AGREEMENT WITH
5. TELECOMMUNICATIONS FACILITIES LEASING AGREEMENT
6. ENGINEERING & IT SERVICES AGREEMENT
7. MATERIALS PROCUREMENT AGREEMENT
8. ANCILLARY TELECOMMUNICATIONS SERVICES AGREEMENT
9. SUPPORT SERVICES AGREEMENT
10. PROPERTY LEASING AGREEMENT
11. PROPERTY SUB-LEASING AGREEMENT
45
APPENDIX III
RESTRUCTURING APPROVALS
1. "Reply on Approval of the Overall Plan for the Disposal of Land Assets of
the Restructuring of China Network Communications Group Corporation in the
Process of Listing" (MLR letter, file no. [2004] 79) by the Ministry of
Land and Resources on March 23, 2004;
2. "Reply Regarding the Disposal of Land Assets in the Restructuring and
Reorganization of China Network Communications Group Corporation" (MLR
letter, file no. [2004] 172) by the Ministry of Land and Resources on June
4, 2004;
3. "Reply on Approval of China Netcom Telecommunications Business
Authorization and Universal Service Obligations Issues" (MII letter, file
no. [2004] 273) by the Ministry of Information on June 8, 2004;
4. "Reply on Approval of the Assets Valuation Projects of the Restructuring
of China Network Communications Group Corporation for Global Offering"
(SASAC, file no. [2004] 527) by State-Owned Assets Supervision and
Administration Commission of the State Council on July 3, 2004;
5. "Reply on Approval of Asset Injection from China Network Communications
Group Corporation to China Netcom Communication (Hong Kong) Co., Ltd"
(MOFCOM reply, file no. [2004] 445) by the Ministry of Commerce on July
12, 2004;
6. "Reply on Approval of the Increase of Registered Capital and Other Matters
Relating to the Conversion of China Network Communications Group
Corporation" (MOFCOM reply [2004] 1292) by the Ministry of Commerce on
August 30 , 2004.
46
APPENDIX IV
Asset Valuation Report
47
APPENDIX V
ACCOUNTANT'S REPORT
1. China Netcom (Group) Company Limited [Consolidated Balance Sheet]
2. China Netcom (Group) Company Limited [Consolidated Profit and Loss
Account]
3. China Netcom (Group) Company Limited [Consolidated Statement of Cash
Flows]
48
APPENDIX VI
LETTER OF UNDERTAKINGS BY THE GROUP CORPORATION
49
