Document:

exv4w16

Exhibit 4.16

English Summary of CDMA Business Disposal Agreement

Part I — Key Particulars

	 	 	 	 	 	 	 
	Parties:

	 	 	(1	)	 	China Unicom Corporation Limited (“CUCL”), a
company incorporated in the People’s Republic of
China (the “PRC”) with limited liability and a
wholly-owned subsidiary of Unicom;
	 
	 

	 	 	(2	)	 	China Telecom Corporation Limited (“Telecom”), a
joint stock limited company incorporated in the PRC with limited
liability, whose shares are listed on the Hong Kong Stock Exchange and
whose American Depositary Shares (“ADSs”) are listed on the New York Stock
Exchange; and
	 
	 

	 	 	(3	)	 	China Unicom Limited (“Unicom”), a company
incorporated in Hong Kong with limited liability, whose shares are listed
on the Hong Kong Stock Exchange and whose ADSs are listed on the New York
Stock Exchange.

Date of Agreement: July 27, 2008

Part II — Material Terms

The following is a summary of the material terms of the CDMA Business Disposal Agreement:

(a)CDMA Business Disposal Agreement

     On June 2, 2008, Unicom, CUCL and Telecom entered into the CDMA Business Framework Agreement,
which sets out the terms and conditions on which Unicom, CUCL and Telecom will proceed with the
disposal of the CDMA Business (as defined below) whereby CUCL will sell, and Telecom will purchase,
certain CDMA business and its related assets and liabilities.

     On July 27, 2008, Unicom, CUCL and Telecom entered into the CDMA Business Disposal Agreement,
which sets out the detailed terms and conditions on which CUCL and Unicom will sell, and Telecom
will purchase, the CDMA Business. The CDMA Business Disposal Agreement supersedes the CDMA
Business Framework Agreement and all other previous oral or written agreements in connection with
the disposal of the CDMA Business (as defined below).

(b) CDMA Business

     Pursuant to the CDMA Business Disposal Agreement:

	 	(1)	 	CUCL has agreed to sell, and Telecom has agreed to purchase, the entire CDMA
business, which is owned and operated by CUCL, together with the assets of CUCL which
are relevant to the CDMA business and the rights and liabilities of CUCL relating to
its CDMA subscribers, immediately prior to October 1, 2008 or such other date as
Unicom, CUCL and Telecom may agree (the “Completion Date”), and comprising, amongst
others (Articles1.1(1) and 5.1 of the CDMA Business Disposal Agreement):

	 	(i)	 	CDMA business provided by CUCL immediately prior to the
Completion Date based on the existing network capacity and system support
capability (including relevant access channel and service functions) as well
as CDMA business

 

 

	 	 	 	operation services (Article 1.1 of Exhibit 2 to the CDMA Business Disposal Agreement);

	 	(ii)	 	all mobile subscribers with user code information of 133/153
numbers as at 12:00 a.m. on the Completion Date as recorded in CUCL’s billing
system and other relevant systems, as well as the rights and obligations
relating to such CDMA subscribers which are to be dealt with by way of cash
settlement on the Completion Date. The items to be included in such
settlement are (a) accounts receivable from subscribers (to be calculated
based on 2007 average recovery rate), (b) advance from customers, (c) prepaid
fees from customers in respect of CDMA rechargeable cards, (d) customers’
deposits, (e) accrued liabilities for subscribers’ bonus points (to be
calculated based on the bonus point conversion ratio set out in the CDMA
Business Disposal Agreement) and (f) the carrying amount in respect of the
deferred handset subsidies as at the Completion Date (to be calculated based
on a 50% split as set out in the CDMA Business Disposal Agreement) (Articles
2.1(1), 2.2(1) and 2.2(2) of Exhibit 2 to the CDMA Business Disposal
Agreement);

	 	(iii)	 	transferred assets relating to the CDMA business as set out
in the CDMA Business Disposal Agreement, comprising (a) assets exclusively
used by the CDMA business including, but not limited to, UIM cards,
rechargeable cards, terminals and network equipment, (b) information/data of
CDMA subscribers, (c) all self-owned sales offices at county level or below in
Beijing, Tianjin, Heilongjiang, Liaoning, Jilin, Inner Mongolia, Shanxi,
Henan, Hebei, and Shandong (including provinces, directly controlled
municipalities and autonomous regions) (the “Ten Northern Provinces”)
(including districts and counties located in the suburbs of Beijing and
Tianjin) and 50% of all self-owned sales offices at above (but excluding)
county level as well as 50% of leased self-operated sales offices in the Ten
Northern Provinces, (d) certain jointly used CDMA network base
stations/auxiliary facilities, (e) certain transmission assets relating to the
CDMA business and (f) other tangible and intangible assets relating to the
CDMA business as set out in the CDMA Business Disposal Agreement (Articles 3.2
to 3.23 of Exhibit 2 to the CDMA Business Disposal Agreement);

	 	(iv)	 	except for certain contracts as provided in the CDMA Business
Disposal Agreement, (a) for the rights and obligations under contracts
exclusively relating to the CDMA business, those formerly enjoyed and assumed
by CUCL before the Completion Date shall continue to be enjoyed and assumed by
CUCL, and on and after the Completion Date, all such rights and obligations
shall be enjoyed and assumed by Telecom; (b) for the rights and obligations
under contracts not exclusively relating to the CDMA business, all the rights
and obligations before the Completion Date shall continue to be enjoyed and
assumed by CUCL; and on and after the Completion Date, based on the principle
that liabilities should be borne consistent with rights and interests
allocation, Telecom and CUCL shall respectively enjoy and assume the rights
and obligations under such contracts in an honest, fair and bona fide manner;
and (c) with respect to the agreements and business arrangements relating to
sales channels and customer services in connection with the CDMA business,
CUCL shall be responsible for amending the original exclusivity contracts
entered into by CUCL with third parties before the Completion Date in such a
manner that Telecom will be able to enjoy or share the rights under such
contracts; and for the exclusivity contracts renewed by CUCL with third
parties within three years after the Completion Date, such exclusivity clause
included in

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	 	 	 	these contracts shall not apply to Telecom. If Telecom enters into any
new contract with the counterparty of any original exclusivity contract
within three years after the Completion Date, the exclusivity clause shall
not apply to CUCL (Article 4.2 of Exhibit 2 to the CDMA Business Disposal
Agreement);

	 	(v)	 	other business, rights or liabilities to be disposed of by
CUCL to Telecom in the following manner: (a) with respect to the amount to be
amortized for property leasing and line leasing, the balance to be amortized
from the Completion Date with respect to the CDMA business shall be assumed by
Telecom through a one-time purchase and be settled in cash on completion; (b)
the arrangements for the use rights relating to the CDMA business include, but
are not limited to, use right arrangements relating to computer rooms, use
right arrangements for the licensing of intellectual property rights relating
to the CDMA business, and other use right arrangements as agreed by the
parties in the CDMA Business Disposal Agreement; and (c) the number of
contracted employees to be transferred to Telecom represents 29.3% of the
total number of contracted employees of CUCL and Unicom Huasheng
Telecommunications Technology Company Limited. In addition, a certain number
of the employees who are employed by third parties and are working on
secondment for CUCL will be transferred to provide services to Telecom
(Article 5 of Exhibit 2 to the CDMA Business Disposal Agreement);

	 	(2)	 	Unicom (by itself and through its subsidiary) has agreed to sell, and Telecom
(by itself and through its subsidiary) has agreed to purchase, the entire equity
interest in China Unicom (Macau) Company Limited (Article 1.1(2)(a) of the CDMA
Business Disposal Agreement); and

	 	(3)	 	CUCL has agreed to sell, and Telecom has agreed to purchase, 99.5% of the
equity interest in Unicom Huasheng Telecommunications Technology Company Limited
(representing the entire equity interest in Unicom Huasheng Telecommunications
Technology Company Limited held by CUCL, and Unicom has been notified by Unicom Group
that the remaining 0.5% of the equity interest in Unicom Huasheng Telecommunications
Technology Company Limited will be sold by Unicom Group to Telecom Group) (Article
1.1(2)(b) of the CDMA Business Disposal Agreement).

     (1), (2) and (3) above are collectively referred to as the “CDMA Business”.

     The scope of the CDMA Business is set out in the CDMA Business Disposal Agreement and the
detailed items will be confirmed in a final list of the detailed items of the CDMA Business.
Within 20 days after the Completion Date (or such other date as agreed between the parties), CUCL,
Unicom and Telecom will commence the identification process of the detailed items of the CDMA
Business, and will prepare, acknowledge and sign a final list of such detailed items based on the
results of such identification work. After the parties have signed the final list, the final list
may still be adjusted by the agreement of the parties by no later than the date falling 60 days
after the Completion Date (or such other date as the parties may agree), being the date of actual
delivery of the CDMA Business and all relevant documentation by CUCL and Unicom to Telecom (the
“Delivery Date”). CUCL, Unicom and Telecom (or their respective provincial branches) will confirm
the adjusted final list by signing a confirmation letter once or by batches on or before the
Delivery Date (Article 1.2 of the CDMA Business Disposal Agreement).

     The CDMA Business Disposal Agreement also sets out the detailed principles and arrangements on
the identification, determination, segregation, verification and transfer mechanism for each type
of assets that constitutes the CDMA Business. In addition, as provided for under the CDMA Business
Disposal Agreement, CUCL and Telecom and their respective affiliated companies have also entered
into a number of ancillary agreements in relation to the detailed arrangements with respect to the
disposal of the

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CDMA Business, including an Employee Arrangement Agreement on the transfer of certain
employees (Article 1.3 of the CDMA Business Disposal Agreement).

(c) Consideration

     Pursuant to the CDMA Business Disposal Agreement, the consideration for the CDMA Business (the
“Consideration”) remains unchanged from the CDMA Business Framework Agreement and is RMB43.8
billion (approximately HK$50.1 billion), which is subject to adjustment in accordance with the
price adjustment mechanism as set out below:

     Adjusted consideration equals the Consideration as agreed in the CDMA Business
Disposal Agreement multiplied by “A”, where:

     R1 represents the CDMA service revenue for the six months ended June, 30 2008
to be disclosed in the 2008 interim report of Unicom; and

     R2 represents the CDMA service revenue for the six months ended June 30, 2007
disclosed in the 2007 interim report of Unicom,

     provided that:

     If (R1/R2 + 0.02) > or = 1, then A = 1; and

     If (R1/R2 + 0.02) < 1, then A = (R1/R2 + 0.02)

     The Consideration was reached through arm’s length negotiations and determined after taking
into account various relevant industry and market factors as well as the specific characteristics
of the business and assets of the CDMA Business being disposed, including the operating
capabilities and operating potential of the CDMA Business, their growth prospects, earnings
potential, competitive advantages in their respective markets and their prospective profit
contributions to Telecom, as well as by reference to other financial and operational factors
(Article 2.2 of the CDMA Business Disposal Agreement).

     The Consideration will be paid in instalments as follows. The first instalment, being 70% of
the Consideration, is payable in cash on the Completion Date or within three days after the
Completion Date. The second instalment, being 20% of the Consideration, is payable in cash within
three days after the Delivery Date. The Delivery Date will take place within 60 days after the
Completion Date or be such other date as agreed between the parties. The final instalment, being
the remaining 10% of the Consideration, is payable in cash before March 31, 2009 (the “Final Date”)
(Article 2.3 of the CDMA Business Disposal Agreement).

     Following the signing of the CDMA Business Disposal Agreement, Telecom will continue to
conduct due diligence on the CDMA service revenue of Unicom for the period from January to June of
each of 2007 and 2008 in accordance with an agreed plan. Such due diligence will be completed
within ten days after the date of the CDMA Business Disposal Agreement (Article 2.2 of the CDMA
Business Disposal Agreement).

(d) Conditions

     The conditions on which Unicom, CUCL and Telecom will complete the disposal of the CDMA
Business (the “CDMA Business Conditions”) are as follows:

	 	(1)	 	there being no material adverse change to the operation of the CDMA Business
(Article 3.1(1) of the CDMA Business Disposal Agreement);

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	 	(2)	 	the representations and warranties made by Unicom and CUCL on the date of the
CDMA Business Disposal Agreement remaining true, accurate and complete, and are not
misleading, inaccurate or incomplete in all material aspects (Article 3.1(2) of the
CDMA Business Disposal Agreement);

	 	(3)	 	the disposal of the CDMA Business having been approved by Unicom shareholders
(other than China Unicom (BVI) Limited and its associates) in accordance with
applicable laws, regulations and listing rules, and the Transfer Agreement between
China United Telecommunications Corporation Limited (“Unicom A Share Company”) and
CUCL, dated July 27, 2008, having been approved by independent Unicom shareholders
(Article 3.1(3) of the CDMA Business Disposal Agreement);

	 	(4)	 	the disposal of the CDMA Business having been approved by the shareholders of
Unicom A Share Company in accordance with applicable laws, regulations and listing
rules, and the Option Waiver and Lease Termination Agreement among China United
Telecommunications Corporation (“Unicom Group”), Unicom New Horizon Mobile
Telecommunications Company Limited (“Unicom New Horizon”) and Unicom A Share Company,
dated July 27, 2008, having been approved by the non-affiliated shareholders of Unicom
A Share Company (Article 3.1(4) of the CDMA Business Disposal Agreement);

	 	(5)	 	the disposal of the CDMA Business having been approved by CUCL in accordance
with applicable laws and regulations (Article 3.1(5) of the CDMA Business Disposal
Agreement);
	 
	 	(6)	 	the necessary procedures required by applicable laws and/or required by the
binding agreements or documents of CUCL (including relevant announcement/notice
procedures in relation to creditors or obtaining creditors’ consents) having been
performed in accordance with the requirements of the completion plan as set out in the
CDMA Business Disposal Agreement (Article 3.1(6) of the CDMA Business Disposal
Agreement);
	 
	 	(7)	 	the amendments to the articles of association and the changes of the business
scope of Telecom having been approved by Telecom shareholders in accordance with
applicable laws, regulations and listing rules, and the Telecom CDMA Lease between
Telecom and China Telecommunications Corporation (“Telecom Group”), dated July 27,
2008, and other connected transaction agreements (which require amendments as a result
of Telecom’s purchase of the CDMA Business) having been approved by independent
Telecom shareholders (Article 3.1(7) of the CDMA Business Disposal Agreement);
	 
	 	(8)	 	all authorizations in connection with the operation of the CDMA Business
having been obtained by Telecom and Telecom Group, which shall include, but are not
limited to, the approval of the Ministry of Industry and Information Technology for
Telecom Group to license to Telecom the operation of a mobile telecommunications
business and to use the relevant telecommunications resources, such as CDMA spectrum
and telecommunications network numbers (Article 3.1(8) of the CDMA Business Disposal
Agreement);
	 
	 	(9)	 	all authorizations in connection with the CDMA Business Disposal Agreement
and the CDMA Network Disposal Agreement among Unicom Group, Unicom New Horizon and
Telecom Group, dated July 27, 2008, having been obtained from the relevant
governmental and regulatory authorities in the PRC and any other relevant jurisdiction

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	 	 	 	and such authorizations remaining in full force and effect without modification
(Article 3.1(9) of the CDMA Business Disposal Agreement);

	 	(10)	 	(a) there being no dispute between CUCL and Telecom on the progress of the
completion preparatory work, and (b) detailed agreements in relation to the
implementation of the transactions contemplated under the CDMA Business Disposal
Agreement having been entered into by the corresponding provincial branches (including
branches of autonomous regions and municipalities directly under the central
government) of CUCL and Telecom before August 15, 2008 (Article 3.1(10) of the CDMA
Business Disposal Agreement); and
	 
	 	(11)	 	the business and assets identification and specific revenue due diligence
having been completed in accordance with the CDMA Business Disposal Agreement and the
results of such identification and due diligence having been jointly confirmed by CUCL
and Telecom (Article 3.1(11) of the CDMA Business Disposal Agreement).

     For the purpose of paragraph (1) above, there is a “material adverse change” if there occurs a
single event which results in a loss to the operation of the CDMA Business of RMB300 million or
above or there occur events which in aggregate result in a loss to the operation of the CDMA
Business of RMB1 billion or above.

     Each of Unicom, CUCL and Telecom will use its respective reasonable endeavours to procure the
satisfaction of the CDMA Business Conditions as soon as practicable before October 1, 2008. Once
the CDMA Business Conditions set out above are satisfied or waived (satisfaction of the conditions
under (1) to (6) is to be procured by CUCL and Unicom, satisfaction of the conditions under (7) and
(8) is to be procured by Telecom and satisfaction of the conditions under (9) to (11) is to be
jointly procured by CUCL, Unicom and Telecom), completion of the disposal of the CDMA Business will
take place on the Completion Date (Article 3.1 and 3.2 of the CDMA Business Disposal Agreement).

     If not all of the CDMA Business Conditions are satisfied or waived (as applicable) on or
before December 31, 2008 (or such other date as Unicom, CUCL and Telecom may agree), the CDMA
Business Disposal Agreement will automatically terminate (other than certain provisions which shall
survive after the termination of the CDMA Business Disposal Agreement). In this case, no party (or
its affiliated companies) shall make any claim against another party (or its affiliated companies)
under the CDMA Business Disposal Agreement, unless such claim is based on the rights or obligations
incurred prior to the termination of the CDMA Business Disposal Agreement or under the survived
provisions of the CDMA Business Agreement (Article 3.3 of the CDMA Business Disposal Agreement).

(e) Other Key Terms of the CDMA Business Disposal Agreement

(1) Pre-Completion Date Undertakings

     Each of CUCL and Unicom undertakes to Telecom that before the Completion Date (Article 4 of
the CDMA Business Disposal Agreement):

	 	(i)	 	it will not make any material change to the usual operation policies of the
CDMA Business (including, but not limited to, the operation, sales, usual pricing
procedures and policies of the CDMA Business) (Article 1.1(1) of Exhibit 5 to the CDMA
Business Disposal Agreement);

	 	(ii)	 	it will not make any material change to the usual financial policy of the
CDMA Business and will take all necessary and effective measures to ensure the
execution of the usual

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	 	 	 	financial policy (Articles 1.1(2) and (6) of Exhibit 5 to the CDMA Business
Disposal Agreement)’

	 	(iii)	 	it will actively maintain the CDMA subscriber base, and will develop the
subscriber base in accordance with its usual sales practice (Article 1.3 of Exhibit 5
to the CDMA Business Disposal Agreement);
	 
	 	(iv)	 	it will maintain the normal operations of the CDMA Business and will ensure
that services at the usual standards will be provided to the CDMA subscribers
(Articles 1.2 and 1.4 of Exhibit 5 to the CDMA Business Disposal Agreement);
	 
	 	(v)	 	it will not enter into any contract involving the CDMA Business with a value
in excess of RMB20 million, or make any investment or dispose of the relevant assets
and liabilities in connection with the CDMA Business with an amount exceeding RMB20
million (Articles 1.1(3), (4) and (5) of Exhibit 5 to the CDMA Business Disposal
Agreement);
	 
	 	(vi)	 	it will provide all necessary assistance to enable Telecom to identify the
assets that are within the scope of the CDMA Business and will complete the completion
preparatory work in accordance with the completion plan as set out in the CDMA
Business Disposal Agreement (Article 1.5 of Exhibit 5 to the CDMA Business Disposal
Agreement);
	 
	 	(vii)	 	it will allow Telecom access to, among others, the computer rooms and sales
offices for inspection that are within the scope of the CDMA Business and will provide
other information and records relating to the CDMA Business (Articles 1.6 and 1.7 of
Exhibit 5 to the CDMA Business Disposal Agreement);
	 
	 	(viii)	 	it will notify Telecom and consult with Telecom on any events or circumstances that
may have a material adverse effect on the CDMA Business (Article 1.8 of Exhibit 5 to
the CDMA Business Disposal Agreement); and
	 
	 	(ix)	 	it will maintain and will not make any material change to the information
technology supporting systems which record the CDMA subscribers’ rights and
liabilities attributable to the CDMA Business before (and excluding) the Completion
Date (Article 1.9 of Exhibit 5 to the CDMA Business Disposal Agreement).

(2) Completion Date and Delivery Date

     On and after the Completion Date, the CDMA Business shall become legally owned by Telecom.
Unless Unicom, CUCL and Telecom otherwise agree, any right, interest, obligation and liability in
relation to the CDMA Business before the Completion Date will be borne by CUCL; and on and after
the Completion Date, any right, interest, obligation or liability in relation to the CDMA Business
will be borne by Telecom. Since delivery of the CDMA Business will be completed by batches
commencing from the Completion Date, with regard to certain detailed items of the CDMA Business to
be transferred to Telecom, CUCL has agreed to hold such assets in good faith or as otherwise
requested by Telecom on a fair and reasonable basis (Article 5.2 of the CDMA Business Disposal
Agreement).

     CUCL and Telecom have agreed to ensure that until the Completion Date, the services provided
to the CDMA subscribers, service capabilities and network operating conditions will not be
materially affected. (Article 1.2 of Exhibit 3 to the CDMA Business Disposal Agreement)

     CUCL and Telecom have also agreed to cooperate with each other, within 60 days after the
Completion Date, to complete the relevant procedures and take the relevant actions in accordance
with certain methods and standards as set out in the CDMA Business Disposal Agreement to effect
delivery of

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certain detailed items of the CDMA Business as agreed in the final list on or before the
Delivery Date, including, but not limited to, subscribers, cash items, fixed and other assets,
business platform, information technology supporting systems, land use rights, information and data
of CDMA subscribers, files, vehicles, intellectual property rights, contracts and value-added
business platform, as set out in the CDMA Business Disposal Agreement (Article 5.4 of the CDMA
Business Disposal Agreement).

     Any assets or liabilities, which form part of the CDMA Business but the transfer of which has
not been completed by the Delivery Date, will be governed by the completion plan as set out in the
CDMA Business Disposal Agreement (Article 5.5 of the CDMA Business Disposal Agreement).

     After the Completion Date and before the actual delivery of certain items of the CDMA Business
set out in the final list, CUCL will indemnify or compensate Telecom for any loss or damage on such
items. After actual delivery of the items of the CDMA Business set out in the final list, CUCL
will have to exchange such items with material defects, or indemnify Telecom for any material
defect of such items, arising from activities conducted before the Completion Date (Article 5.6 of
the CDMA Business Disposal Agreement).

(3) Transitional Period Arrangements

     CUCL, Unicom and Telecom have agreed on the principles in relation to the arrangements during
the transitional period, which starts from the Completion Date and ends not later than the Final
Date, including, amongst others, preservation of operating conditions, customer and financial
services as necessary, and reciprocal use of the information technology system and the value-added
service platform during the transitional period (Article 1 of Exhibit 4 to the CDMA Business
Disposal Agreement).

     In relation to CDMA/GSM dual mode services, CUCL, Unicom and Telecom have agreed to cease the
development of new customers for such services but will maintain the services provided to the
existing CDMA/GSM dual mode customers. Telecom may develop international CDMA/GSM dual mode
services to customers and may do so with CUCL and Unicom on terms to be agreed. (Article 3.7 of
Exhibit 4 to the CDMA Business Disposal Agreement)

(4) Jointly Used Assets

     After completion of the disposal of the CDMA Business, CUCL and Telecom will each own certain
assets which are relevant to both the CDMA Business and/or network and the other business or
network of CUCL. In order to ensure the normal operation of the business and to maintain the
quality of services provided to subscribers, CUCL and Telecom will enter into separate agreement(s)
with respect to the operation of such assets in accordance with the principles set out in the CDMA
Business Disposal Agreement (Article 7 of the CDMA Business Disposal Agreement).

(5) Joint Working Committee

     The joint working committee that was established before the date of the CDMA Business Disposal
Agreement will continue to perform its obligations agreed by the relevant parties to ensure the
smooth operation and transfer of the CDMA Business by the Final Date (Article 8 of the CDMA
Business Disposal Agreement).

(6) Representations and Warranties

	 	(i)	 	In the CDMA Business Disposal Agreement, CUCL has made certain
representations and warranties in relation to, amongst others, the license and
authorization to operate the CDMA Business, the legal ownership of the CDMA Business,
the business operation and financial information in relation to the CDMA Business, the
consistency of the

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	 	 	 	amortization policies and methods adopted by CUCL in connection with deferred
handset subsidies, the information/data of the CDMA customers, insurance,
intellectual property and information technology rights, third party contracts,
employees, material litigation and investigations, taxation and legal compliance.
In addition, CUCL has represented that its execution of the CDMA Business Disposal
Agreement will not violate (a) any organizational and related documents, applicable
laws, regulations or rules or (ii) material contracts, agreements or permissions or
orders, rules or decrees of courts, government departments or supervisory
authorities (Article 9 of the CDMA Business Disposal Agreement).

	 	(ii)	 	In the CDMA Business Disposal Agreement, Unicom has made certain
representations and warranties, amongst others, that the information provided by CUCL
to Telecom and the representations and warranties made by CUCL are true, complete and
accurate. Unicom has further guaranteed all the obligations, liabilities and
indemnities of CUCL under the CDMA Business Disposal Agreement. In addition, Unicom
has represented that its execution of the CDMA Business Disposal Agreement will not
violate (a) any organizational and related documents, applicable laws, regulations or
rules or (ii) material contracts, agreements or permissions or orders, rules or
decrees of courts, government departments or supervisory authorities (Article 10 of
the CDMA Business Disposal Agreement).

	 	(iii)	 	In the CDMA Business Disposal Agreement, Telecom has made certain
representations and warranties in relation to, amongst others, its valid and legal
incorporation and existence under the PRC law and its having readily available cash to
pay each instalment of the Consideration on the respective due date. In addition,
Telecom has represented that its execution of the CDMA Business Disposal Agreement
will not violate (a) any organizational and related documents, applicable laws,
regulations or rules or (ii) material contracts, agreements or permissions or orders,
rules or decrees of courts, government departments or supervisory authorities (Article
11 of the CDMA Business Disposal Agreement).

     All the representations and warranties were made on the date of signing of the CDMA Business
Disposal Agreement and are to be repeated on the Completion Date, the Delivery Date and the date of
payment of the final instalment of the Consideration (Articles 9.1, 10.1 and 11.1 of the CDMA
Business Disposal Agreement).

(7) Non Waiver or Termination

     Unless otherwise provided in the CDMA Business Disposal Agreement, none of the parties has the
right to waive or terminate the CDMA Business Disposal Agreement under any circumstances (whether
prior to or after the Completion Date) (Article 12 of the CDMA Business Disposal Agreement).

(8) Indemnity

     As provided in the CDMA Business Disposal Agreement, any false, inaccurate or incomplete
representation and/or warranty, any misleading representation or omission, or breach of any
undertaking or any clause under the CDMA Business Disposal Agreement will constitute a breach of
the CDMA Business Disposal Agreement, in which case the party in breach is required to indemnify
the other party in accordance with the CDMA Business Disposal Agreement (Article 13.1 of the CDMA
Business Disposal Agreement).

     CUCL has agreed to indemnify Telecom against any actual loss suffered by Telecom as a result
of any actual or potential disputes, claims or litigation in connection with the CDMA Business
existing or

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taking place prior to (and excluding) the Completion Date, or as a result of such activities,
conducted prior to (and excluding) the Completion Date. Such indemnity shall be paid within fifteen
(15) working days after it is confirmed (Article 13.2 of the CDMA Business Disposal Agreement).

     CUCL and Unicom have agreed to use their best effort to notify Telecom in writing within
reasonable time after they realize that the occurrence of certain events would make any
representation or warranty regarding the assets or business of the CDMA Business false, inaccurate
or misleading (Article 13.3 of the CDMA Business Disposal Agreement).

     Telecom has agreed to use its best effort to notify CUCL and Unicom in writing within
reasonable time after it becomes aware of potential disputes, claims or litigation against it and
any right to seek compensation from CUCL and Unicom under the CDMA Business Disposal Agreement
(Article 13.4 of the CDMA Business Disposal Agreement).

     CUCL’s failure to satisfy the CDMA Business Conditions or to complete the disposal of the CDMA
Business by the required date may result in a default payment having to be made by CUCL under the
CDMA Business Disposal Agreement. Telecom’s failure to make any payment pursuant to the CDMA
Business Disposal Agreement on the respective due date may result in a late payment fine having to
be made by Telecom under the CDMA Business Disposal Agreement (Articles 13.5 and 13.6 of the CDMA
Business Disposal Agreement).

(9) Third-Party Claim

     In disputes and claims that occur on or after the Completion Date as a result of activities
conducted prior to (and excluding) the Completion Date, if Telecom becomes aware of potential
disputes, claims or litigation against it from third-parties and any right to seek compensation
from CUCL under the CDMA Business Disposal Agreement, Telecom shall, unless otherwise provided in
the CDMA Business Disposal Agreement:

	 	(i)	 	notify CUCL of the claims by third-parties within reasonable time and provide
CUCL and its representatives with reasonable information and assistance (Article
14.1(1) of the CDMA Business Disposal Agreement);

	 	(ii)	 	not make any admission of fault to, enter into any agreement with or make any
resolution with third-parties without prior written consent from CUCL. If CUCL does
not give written consent within fifteen (15) working days after it receives such
notification, CUCL shall be deemed to have given such consent and Telecom shall have
the right to make admission of fault to, enter into agreements with or make
resolutions with third-parties (Article 14.1(2) of the CDMA Business Disposal
Agreement); and

	 	(iii)	 	(a) take reasonable steps requested by CUCL to avoid, refuse or question the
claims made by third-parties or resolve, defend or appeal such claims; (b) allow CUCL
to take over all legal procedures and/or negotiation with respect to such third-party
claims to the extent permitted by law; and (c) provide reasonable information and
assistance (if necessary) requested by CUCL on the preparation for or conduct of such
legal procedures and/or negotiation, with all of the forgoing on the condition that
CUCL will reimburse Telecom’s reasonable expenses (Article 14.1(3) of the CDMA
Business Disposal Agreement).

Part III — Omitted Terms

The following is a description of the terms of the CDMA Business Disposal Agreement that have been
omitted from the summary above:

10

 

(a) Article 2.4 of the CDMA Business Disposal Agreement provides the details of the bank account
to which payments shall be transferred.

(b) Article 2.5 of the CDMA Business Disposal Agreement provides that payments shall be made in
cash which is immediately available for use and by wire transfers.

(c) Article 5.7 of the CDMA Business Disposal Agreement provides that, on the Completion Date, CUCL
and Telecom shall provide the legal opinions of their respective PRC counsels on the satisfaction
of conditions to and legality of the disposal of the CDMA Business.

(d) Article 5.8 of the CDMA Business Disposal Agreement provides that the party who deliberately or
negligently causes the failure of the disposal or operations of the CDMA Business shall bear the
liability accordingly.

(e) Article 15 of the CDMA Business Disposal Agreement provides that none of the parties shall make
any announcement or circular without prior written consent from the other parties. This provision
does not apply if such announcements and/or circulars are required by stock exchanges or other
supervisory authorities.

(f) Article 16 of the CDMA Business Disposal Agreement describes each party’s duties of
confidentiality and exceptions from such duties.

(g) Article 17 of the CDMA Business Disposal Agreement provides that, unless provided for under the
CDMA Business Disposal Agreement or by written consents from all parties, none of the parties shall
transfer, sell, mortgage or dispose of by other means any of its rights under the CDMA Business
Disposal Agreement.

(h) Article 18 of the CDMA Business Disposal Agreement provides that each party shall execute all
other agreements that may be necessary for the implementation of the CDMA Business Disposal
Agreement.

(i) Article 19 of the CDMA Business Disposal Agreement sets forth the principals governing the
taxes and expenses to be born by each party.

(j) Article 20 of the CDMA Business Disposal Agreement sets forth the proper methods for
notification and each party’s contact information.

(k) Article 21 of the CDMA Business Disposal Agreement sets forth the principles of resolving
conflicts between the CDMA Business Disposal Agreement and other agreements.

(l) Article 22 of the CDMA Business Disposal Agreement provides that, unless otherwise provided,
any party’s failure to exercise or delay in exercising any right shall not be deemed as a waiver of
such right.

(m) Article 23 of the CDMA Business Disposal Agreement provides that the CDMA Business Disposal
Agreement shall be signed in sixteen (16) copies with each party having four (4) copies. The
other copies shall be usedfor approval from and/or registration with governmental departments.

(n) Article 24 of the CDMA Business Disposal Agreement provides that the CDMA Business Disposal
Agreement shall become effective upon signing and stamping of seals by the representative of each
party. Any revision shall be made in writing and signed and stamped with seals by the
representative of each party.

11

 

(o) Article 25 of the CDMA Business Disposal Agreement provides that each article of the CDMA
Business Disposal Agreement and other related transactional documents is severable.

(p) Article 26 of the CDMA Business Disposal Agreement provides that the CDMA Business Disposal
Agreement is governed by PRC laws and shall be interpreted in accordance with PRC laws. The article
also sets forth the dispute resolution procedure.

(q) Article 27 of the CDMA Business Disposal Agreement sets forth the duration of CUCL and Unicom’s
representations and warranties (which survive the disposal of the CDMA business) and steps to be
taken in the events of force majeure.

(r) Exhibit 1 to the CDMA Business Disposal Agreement sets forth the definitions used in the CDMA
Business Disposal Agreement.

(s) Exhibit 2 to the CDMA Business Disposal Agreement sets forth the detailed scope of the CDMA
Business.

(t) Exhibit 3 to the CDMA Business Disposal Agreement sets forth detailed plan for the disposal of
the CDMA Business.

(u) Exhibit 4 to the CDMA Business Disposal Agreement sets forth the principles in relation to the
arrangements during the transitional period.

(v) Exhibit 6 to the CDMA Business Disposal Agreement sets forth the detailed representations and
warranties made by CUCL.

12exv4w26

Exhibit 4.26

Dated 12 September 2005

CHINA NETCOM GROUP CORPORATION (BVI) LIMITED

CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED

CHINA NETWORK COMMUNICATIONS GROUP CORPORATION

CONDITIONAL SALE AND PURCHASE

AGREEMENT

Linklaters

Linklaters Beijing Office

25th Floor China World Tower 1

No 1 Jian Guo Men Wei Avenue

Beijing 100004 China

Telephone (86-10) 6505 8590

Facsimile (86-10) 6505 8582

Ref: L-099151

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	Contents	 	Page
	 
	 	 	 	 	 	 
	1

	 	INTERPRETATION
	 	 	1	 
	 
	 	 	 	 	 	 
	2

	 	SALE OF THE TARGET BVI SHARES AND TOTAL PRICE
	 	 	5	 
	 
	 	 	 	 	 	 
	3

	 	CONDITIONS PRECEDENT
	 	 	7	 
	 
	 	 	 	 	 	 
	4

	 	PRE-COMPLETION UNDERTAKINGS
	 	 	8	 
	 
	 	 	 	 	 	 
	5

	 	COMPLETION
	 	 	9	 
	 
	 	 	 	 	 	 
	6

	 	WARRANTIES
	 	 	11	 
	 
	 	 	 	 	 	 
	7

	 	LIMITATIONS ON CLAIMS
	 	 	12	 
	 
	 	 	 	 	 	 
	8

	 	PURCHASER’S RIGHTS TO RESCISSION
	 	 	12	 
	 
	 	 	 	 	 	 
	9

	 	WITHHOLDING TAX AND GROSSING UP
	 	 	13	 
	 
	 	 	 	 	 	 
	10

	 	TAX INDEMNITY
	 	 	13	 
	 
	 	 	 	 	 	 
	11

	 	ENTIRE AGREEMENT
	 	 	15	 
	 
	 	 	 	 	 	 
	12

	 	VARIATION
	 	 	15	 
	 
	 	 	 	 	 	 
	13

	 	ASSIGNMENT
	 	 	15	 
	 
	 	 	 	 	 	 
	14

	 	ANNOUNCEMENTS
	 	 	16	 
	 
	 	 	 	 	 	 
	15

	 	COSTS
	 	 	16	 
	 
	 	 	 	 	 	 
	16

	 	CONFIDENTIALITY
	 	 	16	 
	 
	 	 	 	 	 	 
	17

	 	SEVERABILITY
	 	 	16	 
	 
	 	 	 	 	 	 
	18

	 	COUNTERPARTS
	 	 	17	 
	 
	 	 	 	 	 	 
	19

	 	WAIVER
	 	 	17	 
	 
	 	 	 	 	 	 
	20

	 	FURTHER ASSURANCE
	 	 	17	 
	 
	 	 	 	 	 	 
	21

	 	NOTICES
	 	 	17	 
	 
	 	 	 	 	 	 
	22

	 	GOVERNING LAW AND JURISDICTION
	 	 	19	 
	 
	 	 	 	 	 	 
	SCHEDULE 1 PART A Details of the Target BVI Company	 	 	20	 
	 
	 	 	 	 	 	 
	PART B Details of the Target Company	 	 	21	 
	 
	 	 	 	 	 	 
	SCHEDULE 2 THE WARRANTIES PART A: General	 	 	22	 

-i-

 

	 	 	 	 	 	 	 
	Contents	 	Page
	 
	 	 	 	 	 	 
	PART B: Tax and Property Warranties	 	 	34	 
	 
	 	 	 	 	 	 
	APPENDIX Continuing Connected Transactions	 	 	36	 
	 
	 	 	 	 	 	 
	SIGNATURE PAGE	 	 	37	 

-ii-

 

THIS AGREEMENT is made on 12 September 2005

BETWEEN:

	(1)	 	CHINA NETCOM GROUP CORPORATION (BVI) LIMITED a company incorporated under the laws of the
British Virgin Islands whose registered office is at P.O. Box 3140, Wickhams Cay I, Road Town,
Tortola, British Virgin Islands (the “Vendor”);
	 
	(2)	 	CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED a company incorporated under the laws of
Hong Kong whose registered office is at 46th Floor, Cheung Kong Center, 2 Queen’s Road
Central, Hong Kong (the “Purchaser”); and
	 
	(3)	 	CHINA NETWORK COMMUNICATIONS GROUP CORPORATION a company incorporated under the laws of the
PRC whose registered office is at Building C, No. 156 Fuxingmennei Avenue, Xicheng District,
Beijing, PRC (the “Warrantor”).

WHEREAS:

	(A)	 	China Netcom Group New Horizon Communications Corporation (BVI) Limited (the “Target BVI
Company”) is a private company limited by shares incorporated on 27 July 2005 in the British
Virgin Islands. The details of the Target BVI Company are set out in Part A of Schedule 1. The
Target BVI Company is the sole beneficial owner of China Netcom Group New Horizon
Communications Corporation Limited (           ) (the “Target Company” and shall, in
each case if the context so requires, include any predecessor entity or person carrying on its
business, whether before or after the Restructuring). The details of the Target Company are
set out in Part B of Schedule 1.
	 
	(B)	 	The Vendor is the sole legal and beneficial owner of the entire issued share capital of the
Target BVI Company.
	 
	(C)	 	The Warrantor has effected certain reorganisation in relation to its fixed-line
telecommunications assets and businesses in the Target Regions and such assets and businesses
were transferred to the Target Company. The Target Company became a wholly-owned subsidiary of
the Target BVI Company through certain transfers pursuant to an Equity Interest Injection
Agreement (the “Restructuring”).
	 
	(D)	 	The Vendor has agreed to sell, and the Purchaser has agreed to buy, the entire issued share
capital of the Target BVI Company upon the terms and conditions set out in this Agreement.
	 
	(E)	 	The Vendor and the Warrantor have agreed to make certain representations, warranties and
undertakings in relation to the Target Group and have agreed to provide certain tax indemnity
to the Purchaser.

IT IS AGREED as follows:

	1	 	INTERPRETATION

	 	1.1	 	In this Agreement, the following expressions shall have the following meanings:
	 
	 	 	 	“Accounts” means in relation to the Target Company:

	 	(a)	 	the audited balance sheets of the Target Company as of the
relevant Accounts Date; and

 

 

	 	(b)	 	the audited statements of income, owner’s equity and cash flows
of the Target Company for the financial period ended on the relevant Accounts
Date,

	 	 	 	together with any notes, reports or statements included in or annexed to them;
	 
	 	 	 	“Accounts Date” means 31 December 2002, 2003 or 2004 or 30 June 2005 (as the case
may be);
	 
	 	 	 	“Appraisal Report” means the appraisal report prepared by PRC appraisers in respect
of the Target Company;
	 
	 	 	 	“Business Day” means a day (excluding Saturdays) on which banks generally are open
in Hong Kong and the PRC for the transaction of normal banking business;
	 
	 	 	 	“Circular” means the shareholders’ circular to be issued by the Purchaser to its
shareholders and containing, among other things, the details of the acquisition
contemplated under this Agreement;
	 
	 	 	 	“Claim” means any claim for breach of a Warranty;
	 
	 	 	 	“Combined Group” means the Purchaser, its existing subsidiaries and the Target
Group;
	 
	 	 	 	“Companies Ordinance” means the Companies Ordinance, Chapter 32 of the Laws of Hong
Kong;
	 
	 	 	 	“Completion” means completion of the sale and purchase of the Target BVI Shares
under this Agreement pursuant to Clause 5;
	 
	 	 	 	“Conditions Precedent” means the conditions specified in Clause 3.1;
	 
	 	 	 	“Continuing Connected Transactions” means on-going transactions between any member
of the Vendor Group Company and the Combined Group which fall within the definition
of “continuing connected transactions” under the Listing Rules and those
transactions are to be effected pursuant to the agreements as listed in the
Appendix;
	 
	 	 	 	“Costs” means liabilities, losses, damages, costs (including legal costs) and
expenses (including taxation), in each case of any nature whatsoever;
	 
	 	 	 	“Deferred Consideration” means RMB 9,800,000,000, being the balance of the Total
Price after payment of the Initial Consideration, which is calculated in accordance
with Clause 2.2.2;
	 
	 	 	 	“Deferred Consideration Interest Rate” means the rate of 5.265% per annum, being 10
per cent. discount to the Renminbi lending rate of 5.85% per annum of commercial
banks in the PRC in respect of loans with tenure of five years as published by the
People’s Bank of China prevailing at 12:00 noon (Beijing time) on 8 September 2005,
being two Business Days immediately preceding the date of this Agreement;
	 
	 	 	 	“Encumbrance” means any claim, charge, mortgage, security, lien, option, equity,
power of sale, hypothecation or third party rights, retention of title, right of
pre-emption, right of first refusal or security interest of any kind;

-2-

 

	 	 	 	“Equity Interest Injection Agreement” means the equity interest injection agreement
among the Warrantor, the Vendor and the Target BVI Company pursuant to which the
entire equity interest in the Target Company was injected from the Warrantor to the
Vendor and then from the Vendor to the Target BVI Company;
	 
	 	 	 	“Financial Statements” means the audited balance sheets of the Target Company as of
31 December 2002, 2003 and 2004 and as of 30 June 2005, and the related statements
of income, owner’s equity and cash flows for each of the years in the three-year
period ended 31 December 2004 and for the six-month period ended 30 June 2005;
	 
	 	 	 	“holding company” shall be construed in accordance with section 2 of the Companies
Ordinance;
	 
	 	 	 	“Hong Kong” means the Hong Kong Special Administrative Region of the PRC;
	 
	 	 	 	“HK$” or “HK dollars” means Hong Kong dollars, the lawful currency of Hong Kong;
	 
	 	 	 	“Indebtedness” means any indebtedness in respect of all obligations to repay
borrowed money, all indebtedness evidenced by notes, bonds, loan stock, debentures
or similar obligations, acceptances or documentary credit facilities, all rental
obligations under finance leases, and hire purchase contracts, any other transaction
having the commercial effect of a borrowing or raising of money, the net amount of
any liability under any swap, hedging or other similar treasury instrument, and all
guarantees, sureties, indemnities, counter-indemnities or letters of comfort of
obligations of others of the foregoing types;
	 
	 	 	 	“Independent Shareholders” means the holders of Shares other than the Vendor and its
Associates (as defined in the Listing Rules);
	 
	 	 	 	“Initial Consideration” means such part of the Total Price to be paid by the
Purchaser to the Vendor on Completion in accordance with Clause 2.2.1;
	 
	 	 	 	“Intellectual Property Rights” means patents, trade marks, service marks, trade
names, design rights, copyright (including rights in computer software), rights in
know-how and other intellectual property rights, in each case whether registered or
unregistered and including applications for the grant of any such rights and all
rights or forms of protection having equivalent or similar effect anywhere in the
world;
	 
	 	 	 	“Intra-Group Guarantees” means all guarantees, indemnities, counter-indemnities and
letters of comfort of any nature whatsoever (a) given to any third party by any
member of the Target Group in respect of a liability of any Vendor Group Company,
and/or (as the context may require) (b) given to any third party by any Vendor Group
Company in respect of a liability of any member of the Target Group;
	 
	 	 	 	“Intra-Group Loans” means all debts outstanding between any member of the Target
Group and any Vendor Group Company;
	 
	 	 	 	“Last Accounts” means the Accounts of the Target Company in respect of the financial
period ended on the Last Accounts Date;
	 
	 	 	 	“Last Accounts Date” means 30 June 2005;
	 
	 	 	 	“Listing Rules” means the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited;

-3-

 

	 	 	 	“Payment Date” means, before the payment of the Deferred Consideration and any
unpaid accrued interest thereon in full, each of the following dates (or if that
date falls on a non-Business Day, then on the next Business Day): 30 April 2006, 31
October 2006, 30 April 2007, 31 October 2007, 30 April 2008, 31 October 2008, 30
April 2009, 31 October 2009, 30 April 2010 and 31 October 2010;
	 
	 	 	 	“PRC” means the People’s Republic of China;
	 
	 	 	 	“PRC Relevant Governmental Approvals” means the approvals, consents and
authorisations from all relevant regulatory authorities in the PRC including, but
not limited to, the State-owned Assets Supervision and Administration Commission,
the National Development and Reform Commission, the Ministry of Information
Industry, the Ministry of Commerce, the Ministry of Land and Resources and the China
Securities Regulatory Commission, which are necessary to effect the transactions
contemplated by the Reorganisation Agreement and this Agreement;
	 
	 	 	 	“Properties” means the properties and land use rights stated in the Property Legal
Opinions that are owned by the Target Company;
	 
	 	 	 	“Property Legal Opinions” means the legal opinions to be issued by Haiwen &
Partners, PRC counsel for the purposes of the acquisition contemplated hereunder in
relation to the properties and land use rights owned by the Target Company;
	 
	 	 	 	“Reorganisation Agreement” means the reorganisation agreement dated 9 August 2005
between the Warrantor and the Target Company pursuant to which the Warrantor
injected all interests, assets, liabilities, personnel and businesses in relation to
the Warrantor’s fixed-line telecommunications services in the Target Regions to the
Target Company;
	 
	 	 	 	“RMB ” or “Renminbi” means Renminbi, the lawful currency of the PRC;
	 
	 	 	 	“Schedules” means Schedules 1 and 2 to this Agreement and Schedule shall be
construed accordingly;
	 
	 	 	 	“Shares” means ordinary shares of par value US$0.04 each in the share capital of the
Purchaser;
	 
	 	 	 	“subsidiary” and “subsidiaries” shall be construed in accordance with section 2 of
the Companies Ordinance;
	 
	 	 	 	“Target Assets” means the fixed-line telecommunications assets and related
liabilities (other than the international gateway and related international network
assets, as well as the inter-provincial fiber-optic network and related assets and
liabilities) that are owned by or associated with the Target Company in the Target
Regions and are more particularly described in the Reorganisation Agreement;
	 
	 	 	 	“Target Regions” means Shanxi Province, Neimenggu Autonomous Region, Jilin Province
and Heilongjiang Province;
	 
	 	 	 	“Target BVI Shares” means all the issued shares in the capital of the Target BVI
Company;
	 
	 	 	 	“Target Group” means the Target BVI Company and the Target Company;

-4-

 

	 	 	 	“Total Price” means RMB 12,800,000,000, being the total price payable by the
Purchaser to the Vendor for the Target BVI Shares;
	 
	 	 	 	“US$” or “US dollars” means United States dollars, the lawful currency of the United
States of America;
	 
	 	 	 	“Vendor Group Company” means the Vendor, the Warrantor, any holding company from
time to time of the Vendor (including the Warrantor) and any subsidiary from time to
time of the Vendor or any of its holding company (but excluding the Purchaser, any
of the Purchaser’s subsidiaries, and the Target Group); and
	 
	 	 	 	“Warranties” means the representations and warranties set out in Schedule 2.
	 
	 	1.2	 	In this Agreement, unless the context otherwise requires:

	 	(a)	 	references to persons shall include individuals, bodies
corporate (wherever incorporated), unincorporated associations and
partnerships;
	 
	 	(b)	 	the headings are inserted for convenience only and shall not
affect the construction of this Agreement;
	 
	 	(c)	 	references to one gender include all genders;
	 
	 	(d)	 	any reference to an enactment or statutory provision is a
reference to it as it may have been, or may from time to time be, amended,
modified, consolidated or re-enacted;
	 
	 	(e)	 	any statement qualified by the expression “to the best
knowledge of the Vendor and the Warrantor” or “so far as the Vendor and the
Warrantor are aware” or any similar expression shall be deemed to include an
additional statement that it has been made after due and careful enquiry and
shall be deemed also to include the best of the knowledge of each Vendor Group
Company;
	 
	 	(f)	 	any reference to a document in the agreed form is to the form
of the relevant document agreed between the parties and for the purpose of
identification initialed by each of them or on their behalf (in each case with
such amendments as may be agreed by or on behalf of the Vendor and the
Purchaser); and
	 
	 	(g)	 	references to any Hong Kong legal term for any action, remedy,
method of judicial proceeding, legal document, legal status, court, official or
any other legal concept shall, in respect of any jurisdiction other than Hong
Kong, be deemed to include the legal concept which most nearly approximates in
that jurisdiction to the Hong Kong legal term.

	 	1.3	 	The Schedules and Appendix comprise schedules and appendix to this Agreement
and form part of this Agreement.

	2	 	SALE OF THE TARGET BVI SHARES AND TOTAL PRICE

	 	2.1	 	The Vendor agrees to sell as legal and beneficial owner, and the Purchaser
agrees to purchase, the Target BVI Shares. The Target BVI Shares shall be sold free
from all Encumbrances, together with all rights attaching to them.

-5-

 

	 	2.2	 	The consideration for the purchase of the Target BVI Shares shall be the Total
Price of RMB 12,800,000,000, which shall be satisfied by the payment of the Initial
Consideration and the Deferred Consideration by the Purchaser in accordance with
Clauses 2.2.1 and 2.2.2 respectively.

	 	2.2.1	 	On Completion, the Purchaser or at the discretion of the
Purchaser, any of its subsidiaries, shall pay to the Vendor or such entity as
designated by the Vendor at least two Business Days immediately prior to the
date of Completion the Initial Consideration of RMB 3,000,000,000 in cash, in
Renminbi.
	 
	 	2.2.2	 	The Deferred Consideration shall be RMB 9,800,000,000, which
is equivalent to the Total Price after deduction of RMB 3,000,000,000 as stated
in Clause 2.2.1.

	 	2.3	 	Without prejudice to the provisions in Clause 2.6, the Vendor and the Purchaser
agree that on each Payment Date, the Purchaser or at the discretion of the Purchaser,
any of its subsidiaries, shall pay the Vendor or such entity as designated by the
Vendor at least two Business Days immediately prior to the relevant Payment Date RMB
980,000,000 plus interest accrued on the unpaid portion of the Deferred Consideration
as calculated in accordance with Clause 2.4 and that the Deferred Consideration or the
unpaid portion of the Deferred Consideration, together with unpaid accrued interest
thereon, shall be paid in full on or before 31 October 2010, or if that date falls on a
non-Business Day, then on the next Business Day.
	 
	 	2.4	 	The Purchaser shall pay interest to the Vendor on the Deferred Consideration.
Interest shall accrue daily at the Deferred Consideration Interest Rate on the unpaid
portion of the Deferred Consideration from the date of Completion until full payment of
the Deferred Consideration, and shall be calculated on the basis of a year of 360 days.
Interest shall be paid on each Payment Date and on the day on which the Deferred
Consideration is paid in full.
	 
	 	2.5	 	The Purchaser may make payment under Clauses 2.3 and 2.4 in Renminbi or US
dollars. Where payments are made in US dollars, the amounts of Deferred Consideration
and accrued interest paid shall be determined using the Federal Reserve noon-buying
rate between US dollars and Renminbi which is quoted as of 12:00 noon (New York City
time) on the day which is two Business Days immediately prior to the relevant Payment
Date on the relevant page on the website of the Federal Reserve Bank of New York
(www.ny.frb.org) which displays the exchange rate between US dollars and Renminbi.
	 
	 	2.6	 	The Purchaser may make early payment of all or part of the Deferred
Consideration after Completion and in any amount in Renminbi or US dollars, without any
penalty. Where payments are made in US dollars, the amounts of Deferred Consideration
paid shall be determined using the Federal Reserve noon-buying rate between US dollars
and Renminbi which is quoted as of 12:00 noon (New York City time) on the day which is
two Business Days immediately prior to the date of payment on the relevant page on the
website of the Federal Reserve Bank of New York (www.ny.frb.org) which displays the
exchange rate between US dollars and Renminbi.
	 
	 	2.7	 	If the Purchaser does not pay the Deferred Consideration or any accrued
interest payable when due under Clauses 2.3 and 2.4, it shall pay interest on the
overdue amount for the period beginning on its due date and ending on the date of its
receipt by the Vendor (the “Relevant Period”). Interest under this Clause 2.7 shall
accrue daily at the rate of the Deferred Consideration Interest Rate and calculated on
the basis of a year of 360 days.

-6-

 

	 	 	 	For the avoidance of doubt, the Purchaser’s obligation to pay interest on the
Deferred Consideration under and in accordance with Clause 2.4 is not affected by
this Clause 2.7.
	 
	 	2.8	 	The transfer of the Target BVI Shares shall take effect immediately upon
Completion and the Purchaser shall be entitled to enjoy all rights attached to the
Target BVI Shares on Completion free from all Encumbrances irrespective of the Deferred
Consideration payable by the Purchaser to the Vendor. The Vendor hereby irrevocably
waives all rights, liens or other securities interest over the Target BVI Shares which
the Vendor may have under law arising from the Deferred Consideration or otherwise with
effect from Completion.

	3	 	CONDITIONS PRECEDENT

	 	3.1	 	Completion of the sale and purchase of the Target BVI Shares shall be
conditional upon the fulfillment of the following conditions:

	 	(a)	 	the passing of resolutions by the Independent Shareholders
approving the transactions contemplated by this Agreement and the Continuing
Connected Transactions which require the approval of the Independent
Shareholders under the Listing Rules;
	 
	 	(b)	 	there having been no material adverse change to the financial
conditions, business operations or prospects of the Target Company;
	 
	 	(c)	 	the receipt of the PRC Relevant Governmental Approvals; and
	 
	 	(d)	 	the completion of the transactions contemplated in the
Reorganisation Agreement and the Equity Interest Injection Agreement.

	 	3.2	 	Each of the Vendor and the Warrantor undertakes to use all reasonable
endeavours to ensure that the Conditions Precedent set out in Clauses 3.1(b), (c) and
(d) are fulfilled as soon as reasonably practicable and in any event by 31 December
2005 or such later date as may be agreed between the parties.
	 
	 	3.3	 	The Purchaser undertakes to use all reasonable endeavours to ensure that the
Conditions Precedent set out in Clause 3.1(a) is fulfilled as soon as reasonably
practicable and in any event by 31 December 2005 or such later date as may be agreed
between the parties.
	 
	 	3.4	 	The Purchaser shall be entitled in its absolute discretion, by written notice
to the Vendor, to waive the Condition Precedent set out in Clause 3.1(b) either in
whole or in part.
	 
	 	3.5	 	If any of the Conditions Precedent has not been fulfilled (or waived) on or
before the date specified in Clauses 3.2 and 3.3 or such other date as the parties to
this Agreement may agree in writing, this Agreement (other than Clauses 14, 16 and 22)
shall automatically terminate and no party shall have any claim of any nature
whatsoever against the other parties under this Agreement (save in respect of its
accrued rights arising from any prior breach of this Agreement).

-7-

 

	4	 	PRE-COMPLETION UNDERTAKINGS

	 	4.1	 	Pending Completion, each of the Vendor and the Warrantor shall ensure that:

	 	(a)	 	the Target Company shall carry on its business in the ordinary
and usual course and shall not make (or agree to make) any payment other than
payments in the ordinary and usual course of trading;
	 
	 	(b)	 	the Target Company shall take all reasonable steps to preserve
and protect its assets;
	 
	 	(c)	 	the Purchaser’s representatives shall be allowed, upon
reasonable notice and during normal business hours, access to the books and
records of each member of the Target Group (including, without limitation, all
statutory books, minute books, leases, contracts, supplier lists and .customer
lists) together with the right to take copies;
	 
	 	(d)	 	no member of the Target Group shall do, allow or procure any
act or omission which would constitute or give rise to a breach of any Warranty
if the Warranties were to be repeated on or at any time before Completion by
reference to the facts and circumstances then existing;
	 
	 	(e)	 	prompt disclosure is made to the Purchaser of all relevant
information which comes to the notice of the Vendor or the Warrantor in
relation to any fact or matter (whether existing on or before the date of this
Agreement or arising afterwards) which may constitute a breach of any Warranty
if the Warranties were to be repeated on or at any time before Completion by
reference to the facts and circumstances then existing;
	 
	 	(f)	 	save for the distribution by the Target Company of its profits
for the six-month period ended 30 June 2005 to its parent company, no dividend
or other distribution shall be declared, paid or made by any member of the
Target Group;
	 
	 	(g)	 	no share capital shall be allotted or issued or agreed to be
allotted or issued by any member of the Target Group;
	 
	 	(h)	 	all transactions between each member of the Target Group and
each Vendor Group Company shall be on arm’s length commercial terms and in
their respective ordinary and usual course of business;
	 
	 	(i)	 	otherwise than in the ordinary course of business, the amount
of any Indebtedness owed by each member of the Target Group or existing as at
the date of this Agreement shall not be increased or extended and no new
Indebtedness shall be entered into or assumed by any such company; and
	 
	 	(j)	 	no action is taken by any member of the Target Group or any
Vendor Group Company which is inconsistent with the provisions of this
Agreement or the consummation of the transactions contemplated by this
Agreement.

	 	4.2	 	Pending Completion, each of the Vendor and the Warrantor shall ensure that the
Target Group consults fully with the Purchaser in relation to any matters which may
have a material effect upon the Target Group. Without the prior written consent of the
Purchaser,

-8-

 

	 	 	 	the Target Group shall not, and each of the Vendor and the Warrantor shall ensure
that the Target Group does not:

	 	(a)	 	enter into any contract or commitment (or make a bid or offer
which may lead to a contract or commitment) having a material value or
involving material expenditure or which is of a long term or unusual nature or
which could involve an obligation of a material nature or which may result in
any material change in the nature or scope of the operations of such member of
the Target Group;
	 
	 	(b)	 	agree to any variation or termination of any existing contract
to which that member of the Target Group is a party and which may have a
material effect upon the nature or scope of the operations of such member of
the Target Group;
	 
	 	(c)	 	(whether in the ordinary and usual course of business or
otherwise) acquire or dispose of, or agree to acquire or dispose of, any
material business or any material asset; or
	 
	 	(d)	 	enter into any agreement, contract, arrangement or transaction
(whether or not legally binding) other than in the ordinary and usual course of
business.

	5	 	COMPLETION

	 	5.1	 	The sale and purchase of the Target BVI Shares shall be completed at 46th
Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong (or such other place as
the Vendor, the Purchaser and the Warrantor may agree upon) on:

	 	(a)	 	31 October 2005, or
	 
	 	(b)	 	such other date as may be agreed between the Vendor, the
Purchaser and the Warrantor,

	 	 	 	whichever is later, following notification by the Purchaser to the Vendor of the
fulfillment (or waiver) of all the Conditions Precedent.
	 
	 	5.2	 	On Completion, the Vendor shall deliver (or cause to be delivered) to the
Purchaser:

	 	(a)	 	duly executed transfers into the name of the Purchaser or such
wholly-owned subsidiary of the Purchaser as notified by the Purchaser to the
Vendor two days before Completion or their respective nominee in respect of all
of the Target BVI Shares, together with the related share certificates
evidencing the title and ownership of such shares;
	 
	 	(b)	 	the certificates of incorporation, common seal, share register,
share certificate book (with any unissued share certificates), business
licence, the documents evidencing the PRC Relevant Governmental Approvals (as
the case may be) and all minute books and other statutory books (which shall be
written up to but not including Completion) of each member of the Target Group;
	 
	 	(c)	 	all such other documents (including any necessary waivers of
pre-emption rights or other consents) as may be required to enable the
Purchaser and/or such wholly-owned subsidiary of the Purchaser as notified by
the Purchaser to the Vendor two days before Completion and/or their respective
nominee to be vested with the full beneficial ownership of the Target BVI
Shares and to enable the

-9-

 

	 	 	 	Purchaser and/or such wholly-owned subsidiary and/or their respective
nominee to be registered as the holder(s) of the Target BVI Shares;
	 
	 	(d)	 	a copy of a resolution of the board of directors (certified by
an officer of the Vendor duly appointed by the Vendor as true and correct) of
the Vendor, authorising the execution of and the performance by the Vendor of
its obligations under this Agreement and each of the other documents to be
executed by the Vendor;
	 
	 	(e)	 	a certified copy of the Equity Interest Injection Agreement
duly executed by each of the parties thereto; and
	 
	 	(f)	 	a legal opinion from Haiwen & Partners, PRC counsel, in form
and substance acceptable to the Purchaser.

	 	5.3	 	On Completion, the Warrantor shall deliver (or cause to be delivered) to the
Purchaser all such other documents (including any necessary waivers of pre-emption
rights or other consents) as may be required to enable the Purchaser and/or such
wholly-owned subsidiary of the Purchaser as notified by the Purchaser to the Vendor two
days before Completion and/or their respective nominee to be vested with the full
beneficial ownership of the Target BVI Shares and to enable the Purchaser and/or such
wholly-owned subsidiary and/or their respective nominee to be registered as the
holder(s) of the Target BVI Shares.
	 
	 	5.4	 	On Completion, the Vendor shall procure that resolutions of the board of
directors of the Target BVI Company are passed to approve the registration of the
transfers in respect of the Target BVI Shares referred to in Clause 5.2.
	 
	 	5.5	 	Against compliance by the Vendor and the Warrantor of their respective
obligations under Clauses 5.2, 5.3 and 5:4, the Purchaser shall:

	 	(a)	 	in satisfaction of its obligations under Clause 2.2.1, cause
the amounts set out in Clause 2.2.1 to be paid on Completion or such later date
as may be agreed between the Vendor and the Purchaser by electronic funds
transfer (or such other modes of payment as may be agreed between the Vendor
and the Purchaser) to the bank account(s) of the Vendor or such other party as
the Vendor may direct, details of which shall be notified in writing to the
Purchaser at least two Business Days prior to Completion;
	 
	 	(b)	 	deliver to the Vendor a copy of the board minutes (certified by
a duly appointed officer as true and correct) of the Purchaser authorising the
execution and performance by the Purchaser of its obligations under this
Agreement; and
	 
	 	(c)	 	deliver to the Vendor a copy of the resolutions (certified by a
duly appointed officer as true and correct) by the Independent Shareholders
approving the transactions contemplated by this Agreement and the Continuing
Connected Transactions which require the approval of the Independent
Shareholders under the Listing Rules.

	 	5.6	 	If the Vendor or the Warrantor fails or is unable to perform any material
obligations (including the transfer of all Target BVI Shares to the Purchaser and/or
such wholly-owned subsidiary of the Purchaser and/or their respective nominee
simultaneously upon Completion) required to be performed by the Vendor or the Warrantor
(as the case may

-10-

 

	 	 	 	be) pursuant to Clause 3.2, Clause 5.2 and Clause 5.3, respectively, by the last
date on which Completion is required to occur, the Purchaser shall not be obliged to
complete the sale and purchase of the Target BVI Shares and may, in its absolute
discretion, by written notice to the Vendor and the Warrantor:

	 	(a)	 	rescind this Agreement without liability on the part of the
Purchaser; or
	 
	 	(b)	 	elect to complete this Agreement on that date, to the extent
that the Vendor and the Warrantor are ready, able and willing to do so, and
specify a later date on which the Vendor and the Warrantor shall be obliged to
complete the outstanding obligations of the Vendor and the Warrantor; or
	 
	 	(c)	 	elect to defer the completion of this Agreement by not more
than 90 days to such other date as it may specify in such notice, in which
event the provisions of this Clause 5.6 shall apply, mutatis mutandis, if the
Vendor and/or the Warrantor fails or is unable to perform any such obligations
on such other date,

	 	 	 	provided that Clause 5.6(b) will not apply where the Vendor is unable or fails to
effect transfer of all Target BVI Shares to the Purchaser and/or such wholly-owned
subsidiary of the Purchaser and/or their respective nominee simultaneously upon
Completion.
	 
	 	5.7	 	Each of the Vendor and the Warrantor jointly and severally undertakes that it
shall pay in cash to the Purchaser by way of indemnity all Costs which the Purchaser
may suffer or incur and all Costs which the Purchaser has incurred in relation to the
preparation and execution of this Agreement if the Vendor or the Warrantor breaches any
of its obligations under this Agreement (including to effect the injection of all
Target BVI Shares to the Purchaser and/or such wholly-owned subsidiary of the Purchaser
and/or their respective nominee simultaneously upon Completion).

	6	 	WARRANTIES

	 	6.1	 	The Warrantor represents, warrants and undertakes to the Purchaser in the terms
of the representations, warranties and undertakings included in clause 4.1 of and
schedule 1 to the Reorganisation Agreement (the “Warranties under the Reorganisation
Agreement”) and that the Warranties under the Reorganisation Agreement are true and
accurate.
	 
	 	6.2	 	Each of the Vendor and the Warrantor jointly and severally represents, warrants
and undertakes to the Purchaser in the terms of the Warranties (save that the
Warranties set out in paragraphs 2.5 to 2.10 of Part A, Schedule 2 are given by each of
the Vendor and the Warrantor in respect of itself only) and that such Warranties are
true and accurate. Each of the Vendor and the Warrantor acknowledges that the Purchaser
has entered into this Agreement in reliance upon the Warranties and the Warranties
under the Reorganisation Agreement.
	 
	 	6.3	 	Each of the Vendor and the Warrantor jointly and severally undertakes (without
limiting any other rights of the Purchaser in any way including its rights to damages
in respect of a claim for breach of any Warranty or any Warranty under the
Reorganisation Agreement on any other basis) that it shall pay in cash to the Purchaser
(or, if so directed by the Purchaser, to the member of the Target Group in question)
(each an “Indemnified Person”) by way of indemnity on demand a sum equal to the
aggregate of (a) the amount which, if received by the Indemnified Person, would be
necessary to put that Indemnified Person into the financial position which would have
existed had there been no breach of

-11-

 

	 	 	 	the Warranty or the Warranty under the Reorganisation Agreement in question; and (b)
all Costs suffered or incurred by the Indemnified Person, directly or indirectly, as
a result of or in connection with such breach of Warranty or Warranty under the
Reorganisation Agreement.
	 
	 	6.4	 	Each of the Vendor and the Warrantor agrees to waive the benefit of all rights
(if any) which the Vendor or the Warrantor may have against any member of the Target
Group, or any present or former officer or employee of any such company, on whom the
Vendor or the Warrantor may have relied in agreeing to any term of this Agreement and
each of the Vendor and the Warrantor undertakes not to make any claim in respect of
such reliance.
	 
	 	6.5	 	Each of the Warranties and the Warranties under the Reorganisation Agreement
shall be construed as a separate Warranty and (save as expressly provided to the
contrary) shall not be limited or restricted by reference to or inference from the
terms of any other Warranty or any other Warranty under the Reorganisation Agreement or
any other term of this Agreement.
	 
	 	6.6	 	The Warranties and the Warranties under the Reorganisation Agreement shall be
deemed to be repeated on Completion with reference to the facts and circumstances then
existing.
	 
	 	6.7	 	Each of the Vendor and the Warrantor undertakes to notify the Purchaser in
writing promptly if it becomes aware of any circumstance arising after the date of this
Agreement which would cause any Warranty or any Warranty under the Reorganisation
Agreement (if the Warranties and the Warranties under the Reorganisation Agreement were
repeated with reference to the facts and circumstances then existing) to become untrue
or inaccurate or misleading in any respect which is material to the financial or
trading position of the Target Company.

	7	 	LIMITATIONS ON CLAIMS

	 	7.1	 	Subject to Clause 7.2, the aggregate amount of the liability of each of the
Vendor and the Warrantor for all Claims shall not exceed the Total Price.
	 
	 	7.2	 	The limitation contained in Clause 7.1 shall not apply to any breach of any
Warranty or any Warranty under the Reorganisation Agreement which (or the delay in
discovery of which) is the consequence of dishonest, deliberate or reckless
misstatement, concealment or other conduct by any Vendor Group Company or any officer
or employee, or former officer or employee, of any Vendor Group Company.

	8	 	PURCHASER’S RIGHTS TO RESCISSION
	 
	 	 	The Purchaser may by written notice given to the Vendor and the Warrantor at any time prior
to Completion rescind this Agreement without liability on the part of the Purchaser if any
fact, matter or event (whether existing or occurring on or before the date of this Agreement
or arising or occurring afterwards) comes to the notice of the Purchaser at any time prior
to Completion which:

	 	(a)	 	constitutes a breach by the Vendor or the Warrantor of this
Agreement (including, without limitation, any breach of the pre-Completion
undertakings in Clause 4); or
	 
	 	(b)	 	would constitute a breach of any Warranty or any Warranty under
the Reorganisation Agreement if the Warranties and the Warranties under the

-12-

 

	 	 	 	Reorganisation Agreement were repeated on or at any time before Completion
by reference to the facts and circumstances then existing; or
	 
	 	(c)	 	affects or is likely to affect in a materially adverse manner
the business, financial position or prospects of the Target Company.

	9	 	WITHHOLDING TAX AND GROSSING UP

	 	9.1	 	Each of the Vendor and the Warrantor shall pay all sums payable by it under
this Agreement free and clear of all deductions or withholdings unless the law requires
a deduction or withholding. If a deduction or withholding is so required the Vendor or
the Warrantor shall pay such additional amount as will ensure that the net amount the
payee receives equals the full amount which it would have received had the deduction or
withholding not been required.
	 
	 	9.2	 	If any tax authority charges taxation on any sum paid by the Vendor or the
Warrantor under or pursuant to this Agreement, then the Vendor or the Warrantor shall
pay such additional amount as will ensure that the total amount paid, less the tax
chargeable on such amount, is equal to the amount that would otherwise be payable under
this Agreement.

	10	 	TAX INDEMNITY

	 	10.1	 	For the Purpose of Clauses 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 and 10.7, the
expressions the “Vendor’’, the “Warrantor”, the “Target Group” and the “Purchaser”
shall, where the context permits, include their respective successors and assigns, and
unless the context requires otherwise:

	 	(a)	 	“taxation” means and includes all forms of tax, levy, duty,
charge, impost, fee, deduction or withholding of any nature now or hereafter
imposed, levied, collected, withheld or assessed by any taxing or other
authority in any part of the world and includes any interest, additional tax,
penalty or other charge payable or claimed in respect thereof,
	 
	 	(b)	 	“Relevant Claim” means any assessment, notice, demand, letter
or other document issued or action taken by or on behalf of any person,
authority or body whatsoever and of whatever country from which it appears that
any member of the Target Group is liable or is sought to be made liable to make
any payment or is deprived or is sought to be deprived of any relief or
allowance or credit or right to repayment of taxation;
	 
	 	(c)	 	“event” includes (without limitation) the death of any person,
any action, omission or transaction whether or not any member of the Target
Group is a party thereto and includes completion of the sale of the Target BVI
Shares to the Purchaser and references to the result of events on or before the
date of Completion shall include the combined result of two or more events one
or more of which shall have taken place before the date of Completion;
	 
	 	(d)	 	references to income or profits or gains earned, accrued or
received shall include income or profits or gains deemed to have been or
treated as or regarded as earned, accrued or received for the purposes of any
legislation; and

-13-

 

	 	(e)	 	references to a Relevant Claim shall include any Relevant Claim
whether made before or after the date of Completion and whether satisfied or
unsatisfied at the date of Completion and shall also include:

	 	(i)	 	the loss of any relief, allowance or credit
granted by or pursuant to any legislation or otherwise for taxation
purposes which could but for the Relevant Claim in question have been
available to the Purchaser or any member of the Target Group whether or
not the said loss results in any taxation being payable at the time of
such loss; and
	 
	 	(ii)	 	the nullifying or cancellation of a right to
repayment of taxation which would have been so available or is at the
date hereof assumed by the Vendor, the Warrantor or the Purchaser to be
available;

	 	 	 	and in such a case the amount of taxation which could otherwise have been
relieved, allowed or credited by the relief, allowance or credit so lost or
the amount of repayment which would otherwise have been obtained shall be
treated as an amount of taxation for which a liability has arisen.

	 	10.2	 	Subject as hereinafter provided, each of the Vendor and the Warrantor hereby
jointly and severally undertakes to indemnify and keep indemnified the Purchaser (for
itself and as trustee for the Target Group) against any loss or liability suffered by
the Purchaser or any member of the Target Group including, but not limited to, any
diminution in the value of the assets of or shares in any member of the Target Group,
any payment made or required to be made by the Purchaser or any member of the Target
Group and any costs and expenses incurred as a result of or in connection with any
Relevant Claim falling on any member of the Target Group resulting from or by reference
to any income, profits or gains earned, accrued or received on or before the date of
Completion or any event on or before the date of Completion whether alone or in
conjunction with other circumstances and whether or not such taxation is chargeable
against or attributable to any other person, firm or company.
	 
	 	10.3	 	The indemnities given pursuant to this Clause 10 does not cover any Relevant
Claim to the extent that provision or reserve in respect thereof has been made in the
Last Accounts or to the extent that payment or discharge of such Relevant Claim has
been taken into account therein.
	 
	 	10.4	 	The indemnities given pursuant to this Clause 10 shall cover all costs and
expenses incurred by the Purchaser or any member of the Target Group in connection with
any Relevant Claim, and any penalties, fines or interest payable by the Purchaser or
any member of the Target Group relating to any Relevant Claim for which the Vendor or
the Warrantor is liable pursuant to this Clause 10.
	 
	 	10.5	 	In the event that any Relevant Claim which is the subject of an indemnity
hereunder is or has been discharged (whether by payment or by the loss of any relief,
allowance, credit or right to repayment of taxation) or suffered by any member of the
Target Group, the indemnity given hereunder shall take effect as a covenant by the
Vendor and the Warrantor forthwith to reimburse the relevant member of the Target Group
(through the Purchaser) for any amount so paid or to compensate the relevant member of
Target Group for any loss of relief, allowance, credit or right to repayment so
suffered.
	 
	 	10.6	 	If the Purchaser becomes aware of a Relevant Claim, it shall as soon as
reasonably practicable give notice thereof to the Vendor and the Warrantor and shall
(subject to the

-14-

 

	 	 	 	Purchaser and the Target Group being indemnified to the Purchaser’s satisfaction
against any liability, costs, damages or expenses which may be incurred thereby)
take such action and procure that the Target Group shall take such action as the
Vendor and the Warrantor may reasonably request to avoid, resist, dispute, defend,
compromise or appeal against the Relevant Claim, provided that neither the Purchaser
nor any member of the Target Group shall be required to take any steps which would
require any admission of guilt or liability relating to matters connected with the
Relevant Claim in question or which would affect the future conduct of the business
of the Purchaser or any member of the Target Group or affect the rights or
reputations of any of them nor shall they be required to take any such action unless
the Vendor and the Warrantor shall have produced to them a leading barrister’s
opinion that such action is reasonable.
	 
	 	10.7	 	All payments to be made by the Vendor and the Warrantor pursuant to this Clause
10 shall be made in full without set-off or counterclaim or any restriction or
condition and free and clear of any present or future taxes, duties, charges or other
deductions or withholdings of any nature. If any deduction or withholding is required
to be made from any such payment the Vendor and the Warrantor shall, together with such
payment, pay such additional amount as is necessary to ensure that the recipient
receives the full amount due hereunder.

	11	 	ENTIRE AGREEMENT
	 
	 	 	
This Agreement constitutes the entire agreement and understanding between the parties in
connection with the sale and purchase of the Target BVI Shares. This Agreement supersedes
all prior agreements or understandings in connection with the subject matter hereof which
shall cease to have any further force or effect. No party has entered into this Agreement in
reliance upon any representation, warranty or undertaking which is not set out or referred
to in this Agreement.

	 
	12	 	VARIATION

	 	12.1	 	No variation of this Agreement (or of any of the legally binding agreements
referred to in this Agreement) shall be valid unless it is in writing and signed by or
on behalf of each of the parties to it. The expression “variation” shall include any
variation, supplement, deletion or replacement however effected.
	 
	 	12.2	 	Unless expressly agreed, no variation shall constitute a general waiver of any
provisions of this Agreement, nor shall it affect any rights, obligations or
liabilities under or pursuant to this Agreement which have already accrued up to the
date of variation, and the rights and obligations of the parties under or pursuant to
this Agreement shall remain in full force and effect, except and only to the extent
that they are so varied.

	13	 	ASSIGNMENT

	 	13.1	 	The Purchaser and any member of the Target Group may assign its respective
rights and benefits under Clause 10 of this Agreement.
	 
	 	13.2	 	Save and except as stipulated in Clause 13.1 above, no party shall be entitled
to assign the benefit of any provision of this Agreement without the prior written
approval of the other parties.

-15-

 

	14	 	ANNOUNCEMENTS

	 	14.1	 	Except as required by law or by any stock exchange or governmental or other
regulatory or supervisory body or authority of competent jurisdiction to whose rules
the party making the announcement or disclosure is subject, whether or not having the
force of law, no announcement or circular or disclosure in connection with the
existence or subject matter of this Agreement shall be made or issued by or on behalf
of any of the Vendor Group Companies or any member of the Target Group or any of them
without the prior approval of the Purchaser (such approval not to be unreasonably
withheld or delayed), or by or on behalf of the Purchaser without the prior approval of
the Vendor and the Warrantor (such approval not to be unreasonably withheld or
delayed).
	 
	 	14.2	 	Where any announcement or disclosure is made in reliance on the exception in
Clause 14.1, the party making the announcement or disclosure will so far as practicable
consult with the other parties in advance as to the form, content and timing of the
announcement or disclosure.

	15	 	COSTS
	 
	 	 	The Purchaser shall bear the Costs incurred in connection with the negotiation, preparation
and completion of this Agreement.

	16	 	CONFIDENTIALITY
	 
	 	 	Each of the Vendor and the Warrantor undertakes with the Purchaser that it shall keep
confidential (and to ensure that its directors, officers, employees, agents and professional
and other advisers keep confidential) any information in its possession (whether before or
after the date of this Agreement):

	 	(a)	 	in relation to the subscribers, business, assets or affairs of
the Target Group (including any data held by the Target Group); or
	 
	 	(b)	 	which relates to the contents of this Agreement (or any
agreement or arrangement entered into pursuant to this Agreement),

	 	 	provided that the undertakings contained in this Clause 16 shall not apply to any
information which is in or has entered the public domain (which shall include any public
filing or disclosure requirements of the United States Securities and Exchange Commission or
under applicable laws) otherwise than as a result of publication or disclosure by the Vendor
or the Warrantor or their respective directors, officers, employees, agents and professional
and other advisers without the prior written consent of the Purchaser.
	 
	 	 	Each of the Vendor and the Warrantor shall not use for its own business purposes or disclose
to any third party any such information (collectively, “Confidential Information”) without
the consent of the Purchaser.
	 
	17	 	SEVERABILITY
	 
	 	 	If any provision of this Agreement is held to be invalid or unenforceable, then such
provision shall (so far as it is invalid or unenforceable) be given no effect and shall be
deemed not to be included in this Agreement but without invalidating any of the remaining
provisions of this Agreement. The parties shall then use all reasonable endeavours to
replace the invalid or unenforceable

-16-

 

	 	 	provisions by a valid and enforceable substitute provision the effect of which is as close
as possible to the intended effect of the invalid or unenforceable provision.
	 
	18	 	COUNTERPARTS
	 
	 	 	This Agreement may be executed in any number of counterparts and by the parties to it on
separate counterparts, each of which is an original but all of which together constitute one
and the same instrument.
	 
	19	 	WAIVER

	 	19.1	 	No failure or delay by any parties hereto (and, for the purpose of Clause 10 of
this Agreement, any member of the Target Group) in exercising any right or remedy
provided by law under or pursuant to this Agreement shall impair such right or remedy
or operate or be construed as a waiver or variation of it or preclude its exercise at
any subsequent time and no single or partial exercise of any such right or remedy shall
preclude any other or further exercise of it or the exercise of any other right or
remedy.
	 
	 	19.2	 	The rights and remedies of the parties hereto under or pursuant to this
Agreement are cumulative, may be exercised as often as such party considers appropriate
and are in addition to its rights and remedies under general law.

	20	 	FURTHER ASSURANCE
	 
	 	 	Each of the Vendor and the Warrantor agrees to perform (or procure the performance of) all
further acts and things, and execute and deliver (or procure the execution and delivery of)
such further documents, as may be required by law or as the Purchaser may reasonably
require, whether on or after Completion, to implement and/or give effect to this Agreement
and the transaction contemplated by it and for the purpose of vesting in the Purchaser the
full benefit of the assets, rights and benefits to be transferred to the Purchaser under
this Agreement.
	 
	21	 	NOTICES

	 	21.1	 	Any notice or other communication to be given by one party to any other party
under, or in connection with, this Agreement shall be in writing and signed by or on
behalf of the party giving it. It shall be served by sending it by fax to the number
set out in Clause 21.2, or delivering it by hand, or sending it by pre-paid recorded
delivery or registered post, to the address set out in Clause 21.2 and in each case
marked for the attention of the relevant party set out in Clause 21.2 (or as otherwise
notified from time to time in accordance with the provisions of this Clause 21). Any
notice so served by hand, fax or post shall be deemed to have been duly given:

	 	(a)	 	in the case of delivery by hand, when delivered;
	 
	 	(b)	 	in the case of fax, upon confirmation of transmission;
	 
	 	(c)	 	in the case of prepaid recorded delivery or registered post, at
10:00 a.m. on the fifth Business Day following the date of posting,

	 	 	 	provided that in each case where delivery by hand or by fax occurs after 6:00 p.m.
on a Business Day or on a day which is not a Business Day, service shall be deemed
to occur at 9:00 a.m. on the next following Business Day.

-17-

 

	 	 	 	References to time in this Clause are to local time in the country of the addressee.
	 
	 	21.2	 	The addresses and fax numbers of the parties for the purpose of Clause 21.1 are
as follows:

	 	 	 
	The Vendor:	 	 
	 
	 	 
	Address:

	 	Building C,
	 

	 	No. 156 Fuxingmennei Avenue,
	 

	 	Xicheng District,
	 

	 	Beijing,
	 

	 	PRC
	 
	 	 
	Fax:

	 	(8610) 6642 9950
	 
	 	 
	For the attention of:

	 	The Legal Department
	 
	 	 
	The Purchaser:
	 	 
	 
	 	 
	Address:

	 	46th Floor
	 

	 	Cheung Kong Center
	 

	 	2 Queen’s Road Central
	 

	 	Hong Kong
	 
	 	 
	Fax:

	 	(852) 2626 8800
	 
	 	 
	For the attention of:

	 	The Joint Company Secretaries
	 
	 	 
	The Warrantor:
	 	 
	 
	 	 
	Address:

	 	Building C,
	 

	 	No. 156 Fuxingmennei Avenue
	 

	 	Xicheng District
	 

	 	Beijing
	 

	 	PRC
	 
	 	 
	Fax:

	 	(8610) 6642 9950
	 
	 	 
	For the attention of:

	 	The Legal Department

	 	21.3	 	A party may notify any other party to this Agreement of a change to its name,
relevant addressee, address or fax number for the purposes of this Clause 21, provided
that, such notice shall only be effective on:

	 	(a)	 	the date specified in the notice as the date on which the
change is to take place; or
	 
	 	(b)	 	if no date is specified or the date specified is less than five
Business Days after the date on which notice is given, the date following five
Business Days after notice of any change has been given.

	 	21.4	 	All notices under or in connection with this Agreement shall be in the English
language.

-18-

 

	22	 	GOVERNING LAW AND JURISDICTION

	 	22.1	 	This Agreement and the relationship between the parties shall be governed by,
and interpreted in accordance with, the laws of Hong Kong.
	 
	 	22.2	 	Any dispute arising out of or in connection with this Agreement shall be
resolved by arbitration in Hong Kong International Arbitration Centre by a single
arbitrator in accordance with the UNCITRAL Arbitration Rules in force from time to
time. The parties agree that the arbitral award will be final and binding.

AS WITNESS this Agreement has been signed on behalf of the parties the day and year first before
written.

-19-

 

SCHEDULE 1

PART A

Details of the Target BVI Company

	 	 	 	 	 
	1

	 	Name:
	 	China Netcom Group New Horizon
Communications Corporation (BVI) Limited
	 
	 	 	 	 
	2

	 	Date of Incorporation:
	 	27 July 2005
	 
	 	 	 	 
	3

	 	Place of Incorporation:
	 	British Virgin Islands
	 
	 	 	 	 
	4

	 	Registered Number:
	 	669445
	 
	 	 	 	 
	5

	 	Registered Office:
	 	Romasco Place, Wickhams Cay 1, P.O. Box
3140, Road Town, Tortola, British Virgin
Islands
	 
	 	 	 	 
	6

	 	Directors:
	 	Zhang Chunjiang

Tian Suning

Jiang Weiping
	 
	 	 	 	 
	7

	 	Registered Shareholder:
	 	China Netcom Group Corporation (BVI) Limited
	 
	 	 	 	 
	8

	 	Authorised Capital:
	 	US$50,000.00
	 
	 	 	 	 
	9

	 	Issued Capital:
	 	US$100.00
	 
	 	 	 	 
	10

	 	Subsidiaries:
	 	China Netcom Group New Horizon
Communications Corporation Limited (                                   )
	 
	 	 	 	 
	11

	 	Mortgages and Charges:
	 	None

-20-

 

PART B

Details of the Target Company

	 	 	 	 	 
	1

	 	Name:
	 	China Netcom Group New Horizon
Communications Corporation Limited (                                   )
	 
	 	 	 	 
	2

	 	Date of Incorporation:
	 	9 August 2005
	 
	 	 	 	 
	3

	 	Place of Incorporation:
	 	Beijing, PRC
	 
	 	 	 	 
	4

	 	Nature:
	 	Limited liability company
	 
	 	 	 	 
	5

	 	Scope of Business:
	 	To operate and carry on business with the
domestic fixed-line telecommunications
network and equipment (including the
wireless local network) in the provinces
and autonomous region of Shanxi,
Neimenggu, Jilin and Heilongjiang; to
carry on businesses of voice, data,
images, multi-media communications and
information services based on fixed-line
telecommunications network; settlement of
international telecommunications services
and develop international communications
market.
	 
	 	 	 	 
	6

	 	Registered Office:
	 	Building C,

No. 156 Fuxingmennei Avenue,

Xicheng District,

Beijing, PRC
	 
	 	 	 	 
	7

	 	Directors:
	 	Zhang Chunjiang

Tian Suning

Jiang Weiping
	 
	 	 	 	 
	8

	 	Shareholder:
	 	China Netcom Group New Horizon
Communications Corporation (BVI) Limited
	 
	 	 	 	 
	9

	 	Registered Capital:
	 	RMB 9,466,366,600
	 
	 	 	 	 
	10

	 	Subsidiaries:
	 	None

-21-

 

SCHEDULE 2

THE WARRANTIES

PART A: General

	1	 	INFORMATION

	 	1.1	 	All information relating to the Target Group provided to the Purchaser or its
representatives and advisers for the purposes of inclusion in the Circular or
preparation of the Financial Statements and the Appraisal Report is true, accurate and
not misleading and does not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the statements
therein not misleading.
	 
	 	1.2	 	Save as already disclosed in writing to the Purchaser, there are no other facts
or matters which might reasonably be expected to have a material adverse effect on the
financial or trading position or prospects of the Target Company.

	2	 	CORPORATE MATTERS
	 
	 	 	The Target Group

	 	2.1	 	(a)	 	All of the Target BVI Shares are fully-paid or properly
credited as fully-paid and the Vendor is the sole legal and beneficial owner of
them free from all Encumbrances. The Target BVI Shares constitute the entire
issued share capital of the Target BVI Company.

	 	(b)	 	The information in respect of the Target BVI Company set out in
Part A of Schedule 1 is true and accurate and not misleading.
	 
	 	(c)	 	The Target BVI Company has been duly incorporated and is
validly existing under the laws of the British Virgin Islands, with legal
right, power and authority (corporate and other) to own, use, lease and operate
its properties and conduct its business in the manner presently conducted and
as described in the Circular, and is duly qualified to transact business in any
jurisdiction in which it owns or leases properties or conducts any business and
such qualification is required, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction; the Memorandum of Association and Articles of Association of the
Target BVI Company comply with the requirements of applicable laws of the
British Virgin Islands and are in full force and effect.

	 	2.2	 	(a)	 	The Target BVI Company is. or will by Completion be, the
sole legal and beneficial owner of the whole of the registered capital of the
Target Company free from all Encumbrances.

	 	(b)	 	The information in respect of the Target Company set out in
Part B of Schedule 1 is true and accurate and not misleading.
	 
	 	(c)	 	The Target Company is (or a valid application has been made for
it to be registered as) a wholly-foreign owned enterprise with limited
liability and has been duly organised and is validly existing under the laws of
the PRC, and its business licence is in full force and effect; the Articles of
Association of the Target Company comply with the requirements of applicable
PRC law and are in full force and effect; the registered capital of the Target
Company has been duly paid up; the Target Company has all necessary consents,
approvals,

-22-

 

	 	 	 	authorisations, orders, registrations, clearances and qualifications of or
with any court, governmental agency or body having jurisdiction over the
Target Company or any of its properties in each jurisdiction in which the
ownership or lease of property by it or the conduct of its business (as
described in the Circular) requires such qualification, except for such
consents, approvals, authorizations, orders, registrations, clearances and
qualifications the absence of which is disclosed in the Circular or which is
not material to the Target Company, and has the legal right and authority to
own, use, lease and operate its assets and to conduct its business in the
manner presently conducted and as described in the Circular.

	 	2.3	 	Save for the interest of the Target BVI Company in the Target Company at
Completion, no member of the Target Group owns or has any interest of any nature
whatsoever in any shares, debentures or other securities issued by any undertaking.
	 
	 	2.4	 	The Target BVI Company does not carry on any business other than holding the
Target Company, or owns any material asset other than the registered capital of the
Target Company at Completion or has any liabilities.
	 
	 	The Vendor and the Warrantor
	 
	 	2.5	 	Each of the Vendor and the Warrantor is duly incorporated or established and is
validly existing under the laws of its jurisdiction of incorporation or establishment,
with full power and authority to own, lease and operate its properties and assets and
to execute and perform its obligations under this Agreement.
	 
	 	2.6	 	The execution, delivery and performance by each of the Vendor and the Warrantor
of this Agreement has been duly authorised by it and this Agreement constitutes a
legal, valid and binding obligation of the Vendor or the Warrantor enforceable in
accordance with its terms, subject to the laws of bankruptcy and other similar laws
affecting the rights of creditors generally.
	 
	 	2.7	 	All necessary regulatory, corporate and other approvals (including shareholder
approvals) and authorisations required by the Vendor and the Warrantor for the
execution and delivery of this Agreement and any agreement or instrument contemplated
hereby, the performance of the terms hereof and thereof and the sale of the Target BVI
Shares have been obtained, are unconditional and are in full force and effect.
	 
	 	2.8	 	All necessary consents, approvals and authorisations of any court, government
department or other regulatory body required with respect to the Vendor and the
Warrantor for the execution of this Agreement and the performance of its terms have
been obtained and are unconditional and in full force and effect.
	 
	 	2.9	 	The execution and delivery by the Vendor and the Warrantor of this Agreement,
and the performance and completion of the transactions herein contemplated: (a) will
not infringe any applicable laws or regulations; (b) will not result in any breach of
the terms of, or constitute. a default under, its constitutional documents and business
licence (as applicable) or any instrument, agreement or governmental, regulatory or
other judgement, decree or order to which the Vendor or the Warrantor is a party or by
which it or its property is bound; and (c) will not conflict with any of the
certificates, licences or permits of the Vendor or the Warrantor that enable it to
carry on the business or operations now operated by it.

-23-

 

	 	2.10	 	Each of the Vendor and the Warrantor is not: (a) in breach of the terms of, or
in default under, any instrument, agreement or order to which it is a party or by which
it or its property is bound to an extent which is material in the context of the
transactions herein contemplated; (b) involved in or the subject of any current or
pending investigation or proceedings (whether administrative, regulatory or otherwise),
whether in the PRC or elsewhere.

	3	 	FINANCIAL STATEMENTS
	 
	 	 	Financial Statements

	 	3.1	 	(a)	 	The Financial Statements give a true and fair view of the
state of affairs and financial results of the Target Company for the periods
and as at the dates stated therein.

	 	(b)	 	Without limiting the generality of paragraph (a):

	 	(i)	 	the Accounts either make full provision for or
disclose all liabilities (whether actual, contingent or disputed and
including financial lease commitments and pension liabilities), all
outstanding capital commitments and all bad or doubtful debts of the
Target Company as at the Accounts Dates, in each case in accordance
with applicable accounting principles;
	 
	 	(ii)	 	the Accounts for each of the periods ended on
the Accounts Dates were prepared under the historical convention,
complied with the requirements of all relevant laws and regulations
then in force and with all statements of standard accounting practice
(or financial reporting standards) and applicable accounting principles
then in force;
	 
	 	(iii)	 	except as stated in its Accounts, no changes
in the accounting policies were made by the Target Company in any of
the periods ended on the Accounts Dates; and
	 
	 	(iv)	 	the results shown by the Accounts for each of
the periods ended on’ the Accounts Dates were not (except as therein
disclosed) affected by any extraordinary or exceptional item or by any
other factor rendering such results for all or any of such periods
unusually high or low.

	 	3.2	 	None of the financial information provided to the Purchaser or its
representatives and advisers is misleading in any material respect nor materially
over-state the value of the assets nor materially under-state the liabilities of the
Target Company as at the dates to which they were drawn up and do not materially
over-state the profits nor under-state the losses of the Target Company in respect of
the periods to which they relate.

	 	 	Position since Last Accounts Date

	 	3.3	 	(a)	 	Since the Last Accounts Date and compared to the Last
Accounts, there has been no material adverse change in the financial or trading
position or in the prospects of the Target Company (other than as a result of
the Restructuring) and no event, fact or matter has occurred which is likely to
give rise to any such change.

-24-

 

	 	(b)	 	Since the Last Accounts Date and compared to the Last Accounts:

	 	(i)	 	the business of the Target Company has been
carried on in the ordinary and usual course and the Target Company has
not made or agreed to make any payment other than routine payments in
the ordinary and usual course of trading;
	 
	 	(ii)	 	save for any distribution in relation to the
Target Company’s profit for the six-month period ended 30 June 2005, no
dividend or other distribution has been declared, paid or made by the
Target Company;
	 
	 	(iii)	 	there has been no material change in the level
of borrowing or in the working capital requirements of the Target
Company;
	 
	 	(iv)	 	all transactions between the Target Company and
any Vendor Group Company have been on an arm’s length basis and
commercial terms and in their respective ordinary and usual course of
business;
	 
	 	(v)	 	save for the Reorganisation Agreement, the
Continuing Connected Transactions, any documentation or agreement
relating to the 2008 Beijing Olympics sponsorship and contracts entered
into in the usual and ordinary course of business of the Target
Company, no contract, liability or commitment has been entered into by
the Target Company which is of an unusual nature or which involved or
could involve an obligation of a material nature or magnitude;
	 
	 	(vi)	 	save as provided in the Reorganisation
Agreement or in the usual and ordinary course of business of the Target
Company, the Target Company has not acquired or disposed of, or agreed
to acquire or dispose of any material business or any material asset;
	 
	 	(vii)	 	no debtor has been released by the Target
Company on terms that it pays less than the book value of its debt and
no material debt owing to the Target Company has been deferred,
subordinated or written off or has proved to any extent irrecoverable;
	 
	 	(viii)	 	no change has been made in terms of employment and any benefits in
kind payable to employees and other employment related matters by the
Target Company or any Vendor Group Company (other than those required
by law) which could materially increase the total costs attributable to
employment and employee benefits of the Target Company;
	 
	 	(ix)	 	there has been no material increase or decrease
in the levels of debtors or creditors or in the average collection or
payment periods for the debtors and creditors respectively;
	 
	 	(x)	 	the Target Company has not repaid any borrowing
or indebtedness in advance of its stated maturity, which has a material
effect on the Target Company;
	 
	 	(xi)	 	there has been no material reduction in the
cash balances of the Target Company;

-25-

 

	 	(xii)	 	save for any resolution in connection with the
Reorganisation Agreement, no resolution of the Target Company has been
passed whether in general meeting or otherwise (other than resolutions
relating to the routine business of annual general meetings);
	 
	 	(xiii)	 	the business of the Target Company has not been affected by any
abnormal factor not affecting to a similar extent generally all
companies carrying on similar businesses; and
	 
	 	(xiv)	 	the Target Company has not agreed to any
variation or termination of any existing contract to which the Target
Company is a party and which may have a material effect upon the nature
or scope of the operations of the Target Company.

	 	 	Working Capital

	 	3.4	 	Having regard to existing bank and other financial facilities, the Target
Company has sufficient working capital available to it as at the date of this Agreement
to enable it to continue to carry on its business in its present form and at its
present level of turnover and for the purpose of performing in accordance with its
terms all orders, projects and other obligations and discharging all liabilities which
ought properly to be discharged during the period of 12 months after Completion.

	 	 	Accounting and other Records

	 	3.5	 	(a)	 	The books of account and other records of the Target Company:

	 	(i)	 	are up-to-date and have been maintained in
accordance with all applicable laws and generally accepted accounting
practices on a proper and consistent basis;
	 
	 	(ii)	 	comprise complete and accurate records of all
information required to be recorded therein;
	 
	 	(iii)	 	are in its possession or under its control
together with all documents of title and executed copies of all
existing agreements to which the Target Company is a party.

	 	(b)	 	All accounts, documents and returns required by law to be
delivered or made by the Target Company to any government authority or
regulatory body or any other authority have been duly and correctly delivered
or made.

	4	 	DEBT POSITION
	 
	 	 	Debts owed to the Target Company

	 	4.1	 	There are no outstanding debts owing to the Target Company other than trade
debts incurred in the ordinary and usual course of business.

	 	 	Debts owed by the Target Company

	 	4.2	 	(a)	 	The Target Company has no outstanding borrowing or
indebtedness in the nature of borrowing (including, without limitation, any
indebtedness for moneys

-26-

 

	 	 	 	borrowed or raised under any acceptance credit, bond, note, bill of exchange
or commercial paper, finance lease, hire purchase agreement, trade bills
(other than those on terms normally obtained), forward sale or purchase
agreement or conditional sale agreement or other transaction having the
commercial effect of a borrowing) other than the Intra-Group Loans.

	 	4.3	 	(b)	 	There has not occurred any event of default or any other
event or circumstance which would entitle any person to call for early
repayment under any agreement relating to any borrowing or indebtedness of the
Target Company or to enforce any security given by the Target Company (or, in
either case, any event or circumstance which with the giving of notice and/or
the lapse of time and/or a relevant determination would constitute such an
event or circumstance), which event or circumstance will have a material
adverse effect on the Target Company.

	5	 	REGULATORY MATTERS

	 	5.1	 	(a)	 	The Target Company has, or will by Completion have,
obtained all necessary licences, permissions, authorisations and consents
required for carrying on its business effectively in the places and in the
manner in which such business is now carried on.

	 	(b)	 	The licences, permissions, authorisations and consents referred
to in paragraph 5.1(a) are (or will by Completion be) in full force and effect,
not subject to any unusual or onerous conditions, have been (or will by
Completion have been) complied with in all respects.
	 
	 	(c)	 	There are no circumstances which indicate that any of the
licences, permissions, authorisations or consents referred to in paragraph
5.1(a) will or are likely to be revoked or not renewed, in whole or in part, in
the ordinary course of events (whether as a result of the acquisition of the
Target BVI Shares by the Purchaser or otherwise).

	 	5.2	 	(a)	 	The Target Company has conducted its business and corporate
affairs in accordance with its business licence and with all applicable laws
and regulations (whether of the PRC or any other jurisdiction).

	 	(b)	 	The Target Company is not in material default of any order,
decree or judgment of any court or any governmental or regulatory authority
(whether of the PRC or any other jurisdiction).

	6	 	THE RESTRUCTURING AND THE ASSETS
	 
	 	 	The Restructuring

	 	6.1	 	The property and other assets transferred into the Target Company pursuant to
the Reorganisation Agreement comprise all the assets necessary for the carrying on of
the business carried on or to be carried on by the Target Company in the manner it is
presently conducted and as described in the Circular and the liabilities assumed by the
Target Company pursuant to the Reorganisation Agreement represent the only liabilities
of the Target Company and are fully, fairly and accurately provided for in, the
Accounts.

-27-

 

	 	6.2	 	The events and transactions contemplated by the Restructuring do not contravene
any provision of applicable law, rule or regulation and do not contravene the Articles
of Association, other constitutional documents or the business licence of the Target
Company or contravene the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, note, lease or other agreement or
instrument binding upon the Target Company that, singly or in the aggregate, is
material to the Target Company, or any judgement, rule or regulation, order or decree
of any governmental body, agency or court having jurisdiction over the Target Company
and will not result in the creation or imposition of any Encumbrance or other
restriction upon any assets of the Target Company.
	 
	 	6.3	 	All necessary consents, approvals, authorisations, orders, registrations and
qualifications required in the PRC in connection with the events and transactions
contemplated by the Restructuring have been (or will by Completion have been) made or
unconditionally obtained in writing (including, without limitation, all PRC Relevant
Governmental Approvals), and no such consent, approval, authorisation, order,
registration or qualification has been withdrawn or is subject to any condition
precedent which has not been fulfilled or performed.
	 
	 	6.4	 	There are no legal or government proceedings pending against the Target Company
in the PRC challenging the effectiveness or validity of the events and transactions
contemplated by the Restructuring and, to the best knowledge of the Vendor and the
Warrantor, no such proceedings are threatened or contemplated by any governmental
agencies in the PRC or elsewhere.

	 	 	Ownership

	 	6.5	 	(a)	 	For the purpose of this paragraph 6.5, assets shall not
include the Properties, to which the provisions of Part B of this Schedule
shall apply.

	 	(b)	 	Each of the assets included in the Accounts or acquired by the
Target Company since the Last Accounts Date (other than assets disposed of in
the ordinary course of business) is the absolute property of the Target
Company. Save as disclosed in the Accounts, those assets are not the subject of
any security interest or any assignment, equity, option, right of pre-emption,
royalty, factoring arrangement, leasing or hiring agreement, hire purchase
agreement, conditional sale or credit sale agreement, agreement for payment on
deferred terms or any similar agreement or arrangement (or any agreement or
obligation, including a conditional obligation, to create or enter into any of
the foregoing).

	 	 	Possession and Third Party Facilities

	 	6.6	 	(a)	 	All of the assets owned by the Target Company, or in
respect of which the Target Company has a right of use, are in the possession
or under the control of the Target Company.

	 	(b)	 	Where any assets are used but not owned by the Target Company
or any facilities or services are provided to the Target Company by any third
party, there has not occurred any event of default or any other event or
circumstance which may entitle any third party to terminate any agreement or
licence in respect of the provision of such facilities or services (or any
event or circumstance which with the giving of notice and/or the lapse of time
and/or a relevant determination would constitute such an event or
circumstance).

-28-

 

	 	 	Adequacy of Assets

	 	6.7	 	(a)	 	The assets of the Target Company and the facilities and
services to which the Target Company has a contractual right include all
rights, properties, assets, facilities and services necessary or desirable for
the carrying on of the business of the Target Company in the manner in which it
is currently carried on.

	 	(b)	 	The assets of the Target Company and the facilities and
services to which the Target Company has a contractual right include all
assets, facilities and services necessary to enable the Target Company to
conduct its business after Completion in the same manner in all material
respects as described in the Circular.
	 
	 	(c)	 	Save as otherwise provided in the Continuing Connected
Transactions, the Target Company does not depend in any material respect upon
the use of assets owned by, or facilities or services provided by, any Vendor
Group Company.

	 	 	Condition

	 	6.8	 	All the property and assets transferred into the Target Company pursuant to the
Reorganisation Agreement including but not limited to infrastructure, plant, machinery,
systems, telecommunications networks, equipment, furniture, fixtures and vehicles used
by the Target Company:

	 	(a)	 	are in a good state of repair and have been regularly and
properly maintained in accordance with appropriate technical specifications,
safety regulations and the terms and conditions of any applicable agreement;
	 
	 	(b)	 	are capable of being efficiently and properly used for the
purposes for which they were acquired or are retained;
	 
	 	(c)	 	are not dangerous, inefficient, obsolete or in need of renewal
or replacement.

	7	 	INTELLECTUAL PROPERTY RIGHTS
	 
	 	 	Registered Rights

	 	7.1	 	(a)	 	The Target Company is the sole legal owner of all
Intellectual Property Rights registered or sought to be registered in any
jurisdiction which are held or beneficially owned by the Target Company.

	 	(b)	 	No act has been done or omitted to be done and no event has
occurred or is likely to occur which may render any of such Intellectual
Property Rights subject to revocation, compulsory licence, cancellation or
amendment or may prevent the grant or registration of a valid Intellectual
Property Right pursuant to a pending application.

	 	 	Infringement

	 	7.2	 	(a)	 	None of the operations of the Target Company infringe, or
are likely to infringe, any rights held by any third party or involve the
unauthorised use of confidential information disclosed to the Target Company
(or any Vendor Group Company) in

-29-

 

	 	 	 	circumstances which might entitle a third party to make a claim against the
Target Company.

	 	(b)	 	No claim has been made by any third party which alleges any
infringing act or process which would fall within paragraph 7.2(a) above or
which otherwise disputes the right of the Target Company to use any
Intellectual Property Rights relating to its business and the Vendor and the
Warrantor are not aware of any circumstances (including any act or omission to
act) likely to give rise to such a claim.
	 
	 	(c)	 	There exists no actual or threatened infringement by any third
party of any intellectual Property Rights held or used by the Target Company
(including misuse of confidential information) or any event likely to
constitute such an infringement nor has the Target Company (or any Vendor Group
Company) acquiesced in the unauthorised use by any third party of any such
Intellectual Property Rights.

	 	 	Intellectual Property Licences

	 	7.3	 	The Target Company is not in default under any licence, sub-licence or
assignment granted to it in respect of any Intellectual Property Rights used by it.

	 	 	Loss of Rights

	 	7.4	 	No Intellectual Property Rights owned or used by the Target Company and no
licence of Intellectual Property Rights of which the Target Company has the benefit
will be lost, or rendered liable to any right of termination or cessation by any third
party, by virtue of the acquisition by the Purchaser of the Target BVI Shares.

	 	 	Records and Software

	 	7.5	 	(a)	 	All the accounting records and systems (including but not
limited to computerised accounting systems) of the Target Company are recorded,
stored, maintained or operated or otherwise held by the Target Company and are
not wholly or partly dependent on any facilities or systems which are not under
the exclusive ownership or control of the Target Company.

	 	(b)	 	The Target Company is licensed to use all software necessary to
enable it to continue to use its computerised records for the foreseeable
future in the same manner in which they have been used prior to the date of
this Agreement and does not share any user rights in respect of such software
with any other person.

	8	 	CONTRACTUAL MATTERS
	 
	 	 	Material Contracts

	 	8.1	 	Save for the Reorganisation Agreement and the Continuing Connected
Transactions, there is not outstanding any agreement or arrangement to which the Target
Company is a party:

	 	(a)	 	which, by virtue of the acquisition of the Target BVI Shares by
the Purchaser or other performance of the terms of this Agreement, will result
in:

-30-

 

	 	(i)	 	any other party being relieved of any
obligation or becoming entitled to exercise any right (including any
right of termination or any right of pre-emption or other option); or
	 
	 	(ii)	 	the Target Company being in default under any
such agreement or arrangement or losing any benefit, right or licence
which it currently enjoys or in a liability or obligation of the Target
Company being created or increased;

	 	(b)	 	to which any Vendor Group Company is a party or in which any
Vendor Group Company or any connected person (as defined under the Listing
Rules) of the Company is interested or from which any such person takes
benefit, whether directly or indirectly;
	 
	 	(c)	 	entered into otherwise than by way of a bargain at arm’s length
and on commercial terms;
	 
	 	(d)	 	which establishes any guarantee, indemnity, suretyship, form of
comfort or support (whether or not legally binding) given by the Target Company
in respect of the obligations or solvency of any third party;
	 
	 	(e)	 	pursuant to which the Target Company has sold or otherwise
disposed of any company or business in circumstances such that it remains
subject to any liability (whether contingent or otherwise) which is not fully
provided for in the Accounts;
	 
	 	(f)	 	which, upon completion by the Target Company of its work or the
performance of its other obligations under it, is likely to result in a loss
for the Target Company which is not fully provided for in the Accounts or which
either is not expected to make a normal profit margin or involves an abnormal
degree of risk;
	 
	 	(g)	 	which establishes any joint venture, consortium, partnership or
profit (or loss) sharing agreement or arrangement to which the Target Company
is a party;
	 
	 	(h)	 	any power of attorney given by the Target Company or any other
authority which would enable any person not employed by the Target Company to
enter into any contract or commitment on behalf of the Target Company;
	 
	 	(i)	 	which involves or is likely to involve (i) material expenditure
by the Target Company or (ii) material obligations or restrictions of the
Target Company of an unusual or exceptional nature or magnitude and not in the
ordinary and usual course of business;
	 
	 	(j)	 	which establishes any material agency, distributorship,
marketing, purchasing, manufacturing or licensing agreement or arrangement to
which the Target Company is a party;
	 
	 	(k)	 	which is a currency and/or interest rate swap agreement, asset
swap, future rate or forward rate agreement, interest cap, collar and/or floor
agreement or other exchange or rate protection transaction or combination
thereof or any option with respect to any such transaction or any other similar
transaction to which the Target Company is a party;

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	 	(l)	 	which is any other agreement or arrangement having or likely to
have a material effect on the financial or trading position or prospects of the
Target Company;
	 
	 	(m)	 	which is a bid, tender, proposal or offer which, if accepted,
would result in the Target Company becoming a party to any agreement or
arrangement of a kind described in paragraphs 8.1(a) to (I) above.

	 	 	Defaults

	 	8.2	 	(a)	 	The Target Company is not in default under any agreement to
which it is a party, which agreement is material to the Target Company and
there are no circumstances likely to give rise to any such default.

	 	(b)	 	No party with whom the Target Company has entered into any
agreement or arrangement is in default under such agreement or arrangement and
there are no circumstances likely to give rise to any such default.

	9	 	LITIGATION AND INVESTIGATIONS
	 
	 	 	Litigation

	 	9.1	 	(a)	 	Except as plaintiff in the collection of debts arising in
the ordinary course of business, the Target Company is not a plaintiff nor a
defendant in or otherwise a party to any material litigation, arbitration or
administrative proceedings which are in progress or threatened or pending by or
against or concerning the Target Company or any of its assets.

	 	(b)	 	No governmental or official investigation or inquiry concerning
the Target Company in a material respect is in progress or pending.
	 
	 	(c)	 	The Vendor and the Warrantor are not aware of any circumstances
which are likely to give rise to any such proceeding, investigation or inquiry
as is referred to in paragraph 9.1(a) or paragraph 9.1(b).

	10	 	DIRECTORS AND EMPLOYEES
	 
	 	 	Employees

	 	10.1	 	The Target Company has not entered into any arrangements regarding any future
variation in any contract of employment in respect of any of its directors and
employees nor any agreement imposing a material obligation on the Target Company to
increase the basis and/or rates of remuneration and/or the provision of other benefits
in kind to or on behalf of any of its directors or employees at any future date.

	 	 	Compliance

	 	10.2	 	The Target Company has in relation to each of its employees (and so far as
relevant to each of its former employees) complied in all material respects with all
statutes, regulations, codes of conduct, collective agreements, terms and conditions of
employment, orders and awards relevant to their conditions of service or to the
relations between it and its employees (or former employees, as the case may be) or any
recognised trade union.

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	 	 	Incentive Schemes

	 	10.3	 	The Target Company does not have any share incentive scheme, share option
scheme or profit sharing scheme for all or any of its directors or employees.

	 	 	Payments on Termination

	 	10.4	 	Except to the extent (if any) to which provision or allowance has been made in
the Last Accounts:

	 	(a)	 	no outstanding liability has been incurred by the Target
Company for breach of any contract of employment or for services or for long
service or redundancy payments, protective awards, compensation for dismissal
or for any other liability accruing from the termination of any contract of
employment or for services, and no such liability will be incurred by the
Target Company as a result of the Restructuring or the acquisition of the
Target BVI Shares by the Purchaser or other performance of the terms of this
Agreement and the Reorganisation Agreement;
	 
	 	(b)	 	no gratuitous payment has been made or benefit given (or
promised to be made or given) by the Target Company in connection with the
actual or proposed termination or suspension of employment, or variation of any
contract of employment, of any present or former director or employee of the
Target Company.

	11	 	INSOLVENCY ETC.

	 	11.1	 	No order has been made, petition presented or meeting convened for the purpose
of considering a resolution for the winding up of any member of the Target Group or for
the appointment of any provisional liquidator. No petition has been presented for an
administration order to be made in relation to any member of the Target Group, and no
receiver (including any administrative receiver) has been appointed in respect of the
whole or any part of any of the property, assets and/or undertaking of any member of
the Target Group.
	 
	 	11.2	 	No composition in satisfaction of the debts of any member of the Target Group,
or scheme of arrangement of its affairs, or compromise or arrangement between it and
its creditors and/or members or any class of its creditors and/or members, has been
proposed, sanctioned or approved.
	 
	 	11.3	 	No distress, distraint, charging order, garnishee order, execution or other
process has been levied or applied for in respect of the whole or any part of any of
the property, assets and/or undertaking of any member of the Target Group.
	 
	 	11.4	 	No events or circumstances analogous to any of those referred to in paragraphs
11.1 to 11.3 have occurred in any jurisdiction outside the PRC.
	 
	 	11.5	 	No circumstances exist which are likely to give rise to the occurrence of any
events or circumstances described in paragraphs 11.1 to 11.4 if the Warranties were to
be repeated at any time on or before Completion.

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PART B: Tax and Property Warranties

	1	 	TAX

	 	1.1	 	The Target Company has all necessary tax registration certificates which are in
full force and effect and the Target Company has not established any place of business
or carried on any business and has not made any filing with any tax authority in any
part of the world other than the PRC.
	 
	 	1.2	 	The Target Company has complied in all material respects with all statutory
provisions, rules, regulations, orders and directions concerning profits or enterprise
income tax, foreign invested enterprise income tax, value-added tax, business tax and
stamp duty (and any similar applicable tax or taxation in the PRC).
	 
	 	1.3	 	No tax authority has agreed to operate any special arrangement (being an
arrangement which is not based on a uniform application of the relevant legislation
whether expressly provided for in the relevant legislation or operated by way of extra
statutory concession or otherwise) in relation to the Target Company.
	 
	 	1.4	 	The Target Company has duly, within all appropriate time limits, made all
returns, given all notices and supplied all information required to be supplied to all
relevant tax authorities. All such information was when provided and remain complete
and accurate and all such returns and notices were when provided and remain complete
and accurate and were made on a proper basis.
	 
	 	1.5	 	The Target Company has not received any notice or allegation from any tax
authorities that it has not complied with any relevant legal requirement relating to
registration or notification for taxation purposes, and the Target Company is not
involved in any dispute or investigation with any tax authority and there are no
evidence, facts or matters which it reasonably believes will cause any such dispute or
investigation or any liability for taxation (present or future).
	 
	 	1.6	 	The Target Company:

	 	(a)	 	has paid or accounted for all taxation (if any) due to be paid
or accounted for by it before the date of this Agreement;
	 
	 	(b)	 	is not under any liability to pay any penalty or interest in
connection with any taxation referred to in paragraph 1.6(a);
	 
	 	(c)	 	has made all deductions and withholdings in respect or on
account of taxation which it is required or entitled by any relevant
legislation to make from any payments made by it including, without limitation,
interest annuities or other annual payments, royalties, rent, remuneration
payable to employees or sub-contractors or payments to a non-resident and where
the Target Company has accounted in full to the relevant fiscal authority for
any taxation so deducted or withheld; and
	 
	 	(d)	 	has taken all necessary steps to obtain any repayment of or
relief from taxation available to it.

	 	1.7	 	All sums due and payable to any taxation authority in respect of emoluments
paid and benefits provided to the employees of the Target Company at the date of this
Agreement

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	 	 	 	have been paid and all such deductions and retentions as are required under the laws
of the PRC have been made.
	 
	 	1.8	 	All remuneration, compensation payments, payments on retirement or removal from
an office or employment and other sums paid or payable to employees or officers or
former employees or officers of the Target Company and all interest, annuities,
royalties, rent and other annual payments paid or payable by the Target Company
(whether before or after the date hereof) pursuant to any obligation in existence at
the date hereof are and will (on the basis of the taxation legislation in force at the
date hereof) be deductible for income tax purposes either in computing the profits of
the Target Company or as a charge on the income of the Target Company.
	 
	 	1.9	 	The Target Company has made or caused to be made the returns which ought to be
made by or in respect of each for any taxation purposes and no returns are the subject
of any dispute with any tax authority.

	2	 	PROPERTY

	 	2.1	 	The Target Company has legal right and authority to occupy and use all of the
Properties and legal right and authority to use all material personal property owned by
it, in each case free and clear of all Encumbrances, defects or any other restrictions
except such as are described in the Property Legal Opinions or such as do not
materially affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Target Company.
	 
	 	2.2	 	The Target Company does not own, operate, manage or has any other right or
interest, directly or indirectly, in any other material real property of any kind save
for those described in the Property Legal Opinions and the Property Leasing Agreement
and the Property Sub-leasing Agreement referred to in the Appendix.

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APPENDIX

Continuing Connected Transactions

	1.	 	Domestic Interconnection Settlement Agreement
	 
	2.	 	International Long Distance Voice Services Settlement Agreement
	 
	3.	 	Property Leasing Agreement
	 
	4.	 	Property Sub-leasing Agreement
	 
	5.	 	Master Sharing Agreement
	 
	6.	 	Engineering and Information Technology Services Agreement
	 
	7.	 	Materials Procurement Agreement
	 
	8.	 	Ancillary Telecommunications Services Agreement
	 
	9.	 	Support Services Agreement
	 
	10.	 	Telecommunications Facilities Leasing Agreement

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	SIGNATURE PAGE
	 	 	 	 
	 
	 	 	 	 
	SIGNED
by /s/ Zhang
Chunjiang  

	 	 	)	 
	 
	 	 	 	 
	for and on behalf of

	 	 	)	 
	 
	 	 	 	 
	CHINA NETCOM GROUP CORPORATION (BVI) LIMITED

	 	 	)	 
	 
	 	 	 	 
	in the presence of:

	 	 	)	 
	 
	 	 	 	 
	/s/
Celia Lam 

	 	 	 	 
	Celia C.L. Lam
	 	 	 	 
	Linklaters
	 	 	 	 
	Solicitor, Hong Kong SAR
	 	 	 	 
	 
	 	 	 	 
	SIGNED
by /s/ Zhang Chunjiang 

	 	 	)	 
	 
	 	 	 	 
	for and on behalf of

	 	 	)	 
	 
	 	 	 	 
	CHINA NETCOM GROUP CORPORATION (HONG KONG) LIMITED

	 	 	)	 
	 
	 	 	 	 
	in the presence of:

	 	 	)	 
	 
	 	 	 	 
	/s/
Celia Lam 

	 	 	 	 
	Celia C.L. Lam
	 	 	 	 
	Linklaters
	 	 	 	 
	Solicitor, Hong Kong SAR
	 	 	 	 
	 
	 	 	 	 
	SIGNED
by /s/ Zhang Chunjiang 

	 	 	)	 
	 
	 	 	 	 
	for and on behalf of

	 	 	)	 
	 
	 	 	 	 
	CHINA NETWORK COMMUNICATIONS GROUP

	 	 	)	 
	 
	 	 	 	 
	in the presence of:

	 	 	)	 
	 
	 	 	 	 
	/s/
Celia Lam 

	 	 	 	 
	Celia C.L. Lam
	 	 	 	 
	Linklaters
	 	 	 	 
	Solicitor, Hong Kong SAR
	 	 	 	 

-37-

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