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1. BASIC PRINCIPLES1.1 In respect of the materials procurement services and the related storage, warehousing andmaterials procurement services provided by Netcom Group to CNC China as well as the self-operatedmaterials sold directly from Netcom Group to CNC China under this Agreement, Netcom Group shallhave the right to receive reasonable service charges or payments for materials as priced inaccordance with the stipulations of this Agreement. CNC China shall fulfill its correspondingobligations of payment.1.2 The conditions of the materials procurement services and the related storage, warehousing andmaterials procurement services provided by Netcom Group to CNC China as well as the self-operatedmaterials sold directly from Netcom Group to CNC China shall not be inferior to the conditions ofthe same or similar services or materials that Netcom Group provides to any third party.1.3 If Netcom Group fails to provide the materials procurement services and the related storage,warehousing and transportation services or materials under this Agreement for reasons not becauseof its own fault or if it fails to provide such services or materials completely, Netcom Groupshall inform CNC China in writing immediately and Netcom Group shall make its best endeavour toassist CNC China in obtaining the same or similar services or materials through other channels.1.4 In providing the materials procurement services and the related storage, warehousing andtransportation services or materials provided by Netcom Group to CNC China as well as theself-operated materials sold directly from Netcom Group to CNC China under this Agreement mustcomply with the purposes agreed by both Parties and the relevant standards prescribed by the State.1.5 For any loss one Party causes to the other Party under this agreement due to breach of termsof this agreement, the Party in breach should bear the responsibility of making timely and completecompensation for breach of contract to the other Party, including, but not limit to, direct orindirect losses caused to the other Party due to breach of contract. However, the Party in breachis not responsible for loss caused to the other Party due to force majeure.1.6 In the course of either Party performing its duties under this Agreement, the other Partyshould provide reasonable and necessary assistance to that Party.2. BASIC CONTENT OF MATERIALS PROCUREMENT SERVICES, DIRECT MATERIALS PROCUREMENT AND RELATEDWAREHOUSING AND TRANSPORTATION SERVICES2.1 The materials procurement services provided by Netcom Group to CNC China under this Agreementinclude but are not limited to:(1) imported telecommunications materials procurement;(2) domestic telecommunications materials procurement;(3) domestic non-telecommunications materials procurement.The above-mentioned procurement services include tender management, technical specifications reviewand approval and installation services.2.2 The products Netcom Group sells directly to CNC China are mainly cables, modems and yellowpages telephone directories, etc.2.3 Netcom Group also provides CNC China with the storage, warehousing, transportation servicesrelated to materials procurement services and direct purchase of materials.
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3. PRICING PRINCIPLES3.1 The amount determined for the commissions for the domestic materials procurement services andthe standardized charges therefor under this Agreement shall not exceed 3% of the contract volumeof the relevant materials procurement.3.2 The amount determined for the commissions for the imported materials procurement services andthe standardized charges therefor under this Agreement shall not exceed 1% of the contract volumeof the relevant materials procurement.3.3 The pricing criteria in respect of part of the direct purchase of materials sold by NetcomGroup to CNC China as set forth under this Agreement shall be governed by the principle in thisprovision and in the following order: those that are fixed by the State shall follow thegovernment-fixed price; those that have the government guidance price shall follow the saidguidance price; those that have no fixed price nor government guidance price yet have a marketprice shall follow the market price; those that none of the above said is applicable shall followthe pricing method agreed upon by both Parties, however, the said pricing method should becalculated with regard to the reasonable cost and reasonable profit of the service, whereby“reasonable cost” means the cost agreed by both Parties.The “government-fixed price” follows the Pricing Law of the People’s Republic of China, which isset by the governmental pricing department or other related departments based on the pricing limitsand range.The “government guidance price” follows the Pricing Law of the People’s Republic of China, whichprovides guidance to business operators by the governmental pricing department or other relateddepartments based on the pricing limits, basic price range and its floating range.The “market price” means the rate determined by the business operator and attained through marketcompetition. The market price shall be determined by the following order: (1) the rate charged byany independent third party providing the same kind of service in the same or surrounding areaunder normal situation; or (2) the rate charged by any independent third party providing the samekind of service within the PRC under normal situation.3.4 The prices and/or criteria of pricing in respect of the commission for the related storage,warehousing and transportation in relation to the materials procurement services and the directmaterials procurement should be determined according to the market prices. The market pricesreferred herein means the prices set out by the business operators on their own through the marketcompetitions.and should be set out in the following sequence: (1) the prices charged by anindependent third party in respect of providing those services under normal circumstances oftransaction in its region of provision or other nearby regions; or (2) the prices charges by anindependent third party in respect of providing those service under normal circumstances oftransaction in the territory of PRC.3.5 The Parties can enter into a separate execution document, which should stipulate clearly theactual services or materials in which CNC China needs at that time and they should also stipulatethe binding principles, criteria and conditions under this Agreement.3.6 The specific amount of service charge agreed upon under this Agreement shall from time totime be calculated by the accounting principles applicable in the PRC (if applicable).3.7 Both Parties shall, before December 31 of every calendar year, conduct a review on the priceof every item of services and facilities stated in this Agreement for the next accounting year (ifnecessary).4. PAYMENT OF SERVICE CHARGES
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4.1 CNC China shall, based on the provisions of this Agreement, any supplementary agreement ofthis Agreement (if any), and in specific execution documents, pay Netcom Group or its trusteeservice charge in consideration for the services provided by Netcom Group or its trustee.4.2 If CNC China fails to pay on time the said service charge agreed upon under the provisions ofthis Agreement, any supplementary agreement of this Agreement (if any), and the specific executiondocuments, CNC China shall, for each 1 day (calendar day, and the same applies below) late, pay alate charge penalty of 0.05% of the outstanding balance to Netcom Group; and after 60 days of latepayment, Netcom Group is entitled to notify CNC China the termination of service; if CNC Chinastill fails to pay for the outstanding balance upon 30 days after receiving the written notice toterminate service, Netcom Group shall be entitled to terminate the service immediately. Thesuspension or termination of such service shall not in any way prejudice or affect the rights andobligations under this Agreement prior to such event.5. RIGHTS AND OBLIGATIONS OF BOTH PARTIES5.1 Rights and Obligations for CNC China5.1.1 Rights of CNC China(1) CNC China has the right to receive the agreed services provided by Netcom Group;(2) The auditor of the Listed Company has the right to inspect and examine the accounting booksof Netcom Group and its connected persons in relation to the connected transactions under thisAgreement.5.1.2 Obligations of CNC China(1) Guarantee and/or procure its subsidiaries, branches and all other controlled units to enterinto specific execution documents with Netcom Group and its subsidiaries, branches or controlledunits in relation to this Agreement and/or any supplementary agreement of this Agreement (ifany);(2) Coordinate with all relating matters with regard to the abovementioned specific executiondocuments;(3) Pay the service charge as stated in this Agreement and all other specific execution documents;(4) Guarantee to pay for any damage suffered by Netcom Group or counter Party of specific executiondocuments that is caused by the breach of CNC China of any provisions in this Agreement andspecific execution documents.5.2 Rights and Obligations of Netcom Group5.2.1 Rights of Netcom Group(1) Netcom Group is entitled to the service charge agreed upon under this Agreement;(2) Right to provide the same or similar service to a third party, on the condition that NetcomGroup continues to provide the same service agreed upon under this Agreement.5.2.2 Obligations of Netcom Group(1) Guarantee and/or prompt its subsidiaries, branches and all other controlled units to enterinto specific execution documents with CNC China and its subsidiaries, branches or its othercontrolled units in relation to this Agreement and/or any supplementary agreement of thisAgreement (if any);
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(2) Provide the services and monitor the services provided by its subsidiaries, branches andother controlled units at a good quality according to the provisions of this Agreement;(3) Coordinate with all relating matters with regard to the abovementioned specific executiondocuments;(4) Guarantee to pay for any damage suffered by CNC China or counter Party of specific executiondocuments that is caused by the breach of Netcom Group of any provisions in this Agreement and allother specific execution documents;(5) Agree to provide the auditor of the Listed Company the accounting books of Netcom Group andits connected persons in relation to the connections transactions under this Agreement.5.3 It is agreed that both Parties will take further actions to ensure the realization of theprinciples and provisions in this Agreement. It is further agreed that both Parties will ensurethat, CNC China, being a subsidiary of the Listed Company, shall comply with the Listing Rules ofthe Hong Kong Stock Exchange for connected transactions.6 PREFERENTIAL RIGHT6.1 For the same services or materials, if an independent third party cannot offer betterconditions and terms than Netcom Group, CNC China can grant Netcom Group preferential right.6.2 Netcom Group undertakes to CNC China that Netcom Group shall not offer the same or similarservices and materials stated under this Agreement to a third party terms more favorable than thoseoffered to CNC China.6.3 Netcom Group has the right to provide the same or similar service to a third party, on thecondition that Netcom Group continues to provide the same services and materials agreed upon underthis Agreement.7. TERM7.1 This Agreement shall come into effect once signed by the legal representatives or authorizedrepresentatives of both Parties and affixed with their official seals. This Agreement shall beeffective from January 1, 2008 to December 31, 2010. If CNC China wishes to renew this Agreementand notifies Netcom Group with 3 month’s notice, this Agreement shall be renewed automatically foranother 3 years on the same terms. There is no limit on the number of renewal.8. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS8.1 Each Party represents warrants and undertakes to the other Party that:(1) It is an independent legal person existing in accordance with the laws of PRC, and have thepower and authority (including but not limited to any approval, consents or permission granted bythe government departments to enter into and perform this Agreement);(2) No provision in this Agreement violates the constitutive documents or the laws andregulations of the PRC;(3) It will use its best endeavors to take all necessary and procure appropriate or advantageousmeasures to perform its obligations under this Agreement and to make this Agreement effective inaccordance with the law and regulations of the PRC and the terms of this Agreement.9. FORCE MAJEURE
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9.1 In the event of Force Majeure that causes both Parties or either Party to fail completely orpartially in performing the obligations under this Agreement, that said Party is not liable forbreach of agreement. However, in the event of such an incident, the affected Party shall inform theother Party by written notice within fifteen (15) days after the said incident and provide relevantproof and evidence to the other Party. At the same time, the affected Party shall use its bestendeavors to minimize the damage caused by the Force Majeure event. The affected Party or bothParties shall resume its obligations under this Agreement within a reasonable time once the ForceMajeure event has ended.9.2 Force Majeure in this Agreement means all objective situations that are unforeseeable,unavoidable and that cannot be overcome.10. CONFIDENTIALITY10.1 Unless with written approval by the other Party, neither Party can announce nor supply orreveal to any third party information regarding this Agreement or the business information of theother Party, with the exception of requests by the legal or governmental departments or any otherrelevant securities regulatory authorities or for the purpose of the Listing Company seekinglisting or retaining listing.11. TRANSFER OF RIGHTS AND OBLIGATIONS11.1 Without the written approval of the other Party, neither Party may transfer any single rightand obligation as agreed upon under this Agreement.12. NON-WAIVER12.1 Unless otherwise specified by law, the failure or delay of exercising the right, power orprivilege as endowed by this Agreement on the part of any Party cannot be deemed as the waiver ofsuch rights, power or privileges. Besides, the partial exercise of such rights, power or privilegesshould not hinder the exercise of such rights, power or privileges of this Party in the future.13. NOTICE13.1 All notices required to be delivered pursuant to this Agreement shall be in writing, anddelivered to the address as stated at the beginning part of this Agreement, or to addresses orfacsimile numbers designated by one Party to the other Party in writing from time to time.13.2 Any notice shall be delivered either by hand, registered mail, or facsimile. Any notice shallbe deemed to have been delivered at the time of actual receipt if delivered by hand; on the date ofreturn receipt if delivered by registered mail; and at the time of transmission if delivered byfacsimile.14. GOVERNING LAWS14.1 This Agreement shall be governed, interpreted and implemented in accordance with laws of thePRC.15. DISPUTE RESOLUTION15.1 In case of disputes as to the power, interpretation or implementation of this Agreement, bothParties shall seek to settle the matters of dispute by friendly negotiation. If the matters ofdispute cannot be settled by negotiation within thirty (30) days from the day the matters ofdispute arise, either Party has the right to resort to litigation at the people’s court which hasjurisdiction over where such Party situates.16. MISCELLANEOUS
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16.1 Without written confirmation from both Parties, no Party can change or amend this Agreement.Upon the agreement of both Parties, both Parties can amend this Agreement or enter intosupplementary agreement to this Agreement. The amendments or supplementary agreements of thisAgreement shall come into effect once signed by the legal representatives or authorizedrepresentatives of both Parties and affixed with their official seals.16.2 This Agreement is severable, that is, if any provision of this Agreement is held to be void,illegal, void or unenforceable at any time, the effectiveness and performance of other provisionsof this Agreement shall not be affected.16.3 This Agreement shall be governed and interpreted in accordance with the laws of the PRC.16.4 This Agreement is made into two (2) duplicate originals. Each Party holds one (1) copy, andeach copy shall have the same legal binding effect.IN WITNESS WHEREOF, the legal representatives or authorized representatives of the both Partieshereto have executed this Agreement as of the date and venue first written above.**SignaturePage**     **CHINA NETCOM (GROUP) COMPANY LIMITED (SEAL)**