china6k.htm
FORM
6-K
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Report
of Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16 of
the
Securities Exchange Act of 1934
For
the month of November, 2007
(Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F.)
(Indicate
by check mark whether the registrant by furnishing the information contained
in
this form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934. )
(If
"Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g3-2(b): 82-__________. )
N/A
China
Netcom Group Corporation (Hong Kong) Limited
Building
C, No. 156, Fuxingmennei Avenue
Xicheng
District
Beijing,
100031 PRC
This
Form 6-K consists of:
A
circular containing, amongst other things, further information relating to
the
continuing connected transactions, letter from the independent board committee,
letter from Rothschild and the proposed amendments to the articles and a notice
of the extraordinary general meeting of China Netcom Group Corporation (Hong
Kong) Limited (the “Registrant”), made by the Registrant in English on November
8, 2007.
THIS
CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTIONIf you are in any
doubt as to any aspect of this circular or as to the action to be
taken, you should consult your licensed securities dealer, bank manager,
solicitor, professional accountant or other professional adviser.
If
you have sold or transferred all your shares in China Netcom Group
Corporation (Hong Kong) Limited, you should at once hand this circular together
with the accompanying form of proxy to the purchaser or the transferee or to
the
bank, licensed securities dealer or other agent through whom the sale or
transfer was effected for transmission to the purchaser or the
transferee.
The
Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of
this circular, makes no representation as to its accuracy or completeness and
expressly disclaims any liability whatsoever for any loss howsoever arising
from
or in reliance upon the whole or any part of the contents of this
circular.
CHINA
NETCOM GROUP CORPORATION (HONG KONG) LIMITED
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
(Stock
Code: 906)
RENEWAL
OF CONTINUING CONNECTED TRANSACTIONS
AMENDMENTS
TO THE ARTICLES OF ASSOCIATION
Independent
Financial Adviser to the Independent Board Committee and the Independent
Shareholders
A
notice convening an extraordinary general meeting of the Company to be held
in
The Ballroom, Island Shangri-la, Hong Kong, on 6 December 2007 at 10:00 a.m.,
is
set out on pages 48 to 49 of this circular. Whether or not you are able to
attend the extraordinary general meeting, you are requested to complete the
accompanying form of proxy in accordance with the instructions printed thereon
and return the same to the Company’s registered office at Room 6701, The Center,
99 Queen’s Road Central, Hong Kong, as soon as practicable and in any event at
least 48 hours before the time appointed for holding the extraordinary general
meeting or any adjournment thereof. Completion and return of the form of proxy
will not preclude you from attending and voting in person at the extraordinary
general meeting or at any adjourned meeting should you so wish.
A
letter from the independent board committee of the Company containing its
recommendation to the independent shareholders of the Company is set out on
pages 27 to 28 of this circular. A letter from N M Rothschild & Sons (Hong
Kong) Limited, the independent financial adviser, containing its advice to
the
independent board committee and the independent shareholders of the Company
is
set out on pages 29 to 36 of this circular.
9
November 2007
CONTENTS
DEFINITIONS
|
1
|
|
|
LETTER
FROM THE CHAIRMAN
|
4
|
|
|
LETTER
FROM THE INDEPENDENT BOARD COMMITTEE
|
27
|
|
|
LETTER
FROM ROTHSCHILD
|
29
|
|
|
APPENDIX
I — PROPOSED AMENDMENTS TO ARTICLES
|
37
|
|
|
APPENDIX
II— GENERAL INFORMATION
|
42
|
|
|
NOTICE
OF THE EXTRAORDINARY GENERAL MEETING
|
48
|
DEFINITIONS
In
this circular, unless the context otherwise requires, the following expressions
have the following meanings:
“ADSs”
|
American
depositary shares issued by Citibank, N.A., each representing ownership
of
20 Shares, which are listed on the New York Stock Exchange,
Inc.
|
“Articles”
|
the
articles of association of the Company from time to
time
|
“Associates”
|
as
defined in the Hong Kong Listing Rules
|
“Board”
or “Board of Directors”
|
the
board of Directors
|
“Business
Day”
|
a
day (excluding Saturdays) on which banks are generally open in Hong
Kong
for the transaction of normal banking business
|
“China”
or “PRC”
|
the
People’s Republic of China (excluding, for the purpose of this circular,
Hong Kong, Macau and Taiwan)
|
“China
Netcom Group”
|
China
Network Communications Group Corporation (), a company established under the
laws of the PRC and
the ultimate controlling shareholder of the Company
|
“China
Netcom System Integration”
|
China
Netcom Group System Integration Limited Corporation (), a company established under the
laws of the PRC and
an indirect wholly-owned subsidiary of the Company
|
“CNC
China”
|
China
Netcom (Group) Company Limited (), formerly
known as China Netcom Corporation Limited, a company established
in the
PRC with limited liability as a wholly foreign owned enterprise and
a
wholly owned subsidiary of the Company
|
“Companies
Ordinance”
|
the
Companies Ordinance (Chapter 32 of the Laws of Hong
Kong)
|
“Company”
|
China
Netcom Group Corporation (Hong Kong) Limited (), a company incorporated in Hong
Kong whose Shares are
listed on the Hong Kong Stock Exchange and whose ADSs are listed
on the
New York Stock Exchange, Inc.
|
“Continuing
Connected Transactions”
|
the
connected transactions described in the section headed “Continuing
Connected Transactions” in the “Letter from the
Chairman”
|
“Directors”
|
the
directors of the Company
|
“Extraordinary
General Meeting” or “EGM”
|
the
extraordinary general meeting of the Company to be convened on 6
December
2007, notice of which is set out at the end of this circular, or
any
adjournment thereof
|
“Group”
|
the
Company and its existing subsidiaries
|
“HK$”
|
Hong
Kong dollars, the lawful currency of Hong Kong
|
“Hong
Kong”
|
Hong
Kong Special Administrative Region of the People’s Republic of
China
|
“Hong
Kong Listing Rules”
|
the
Rules Governing the Listing of Securities on The Stock Exchange of
Hong
Kong Limited
|
“Hong
Kong Stock Exchange”
|
The
Stock Exchange of Hong Kong Limited
|
“Independent
Board Committee”
|
the
committee of Directors, consisting of John Lawson Thornton, Victor
Cha Mou
Zing, Qian Yingyi, Hou Ziqiang and Timpson Chung Shui Ming being
all the
independent non-executive Directors, formed to advise the Independent
Shareholders in respect of the terms of the Non-exempt Continuing
Connected Transactions
|
“Independent
Shareholders”
|
Shareholders
other than China Netcom Group and its Associates
|
“Information
and Communications Technology Agreement”
|
the
Information and Communications Technology Agreement dated 7 November
2006
entered into between China Netcom System Integration and China Netcom
Group
|
“Latest
Practicable Date”
|
5
November 2007, being the latest practicable date prior to the printing
of
this circular for ascertaining certain information contained
herein
|
“New
Horizon Communications”
|
China
Netcom Group New Horizon Communications Corporation Limited (), a company incorporated in the
PRC and an indirect
wholly-owned subsidiary of the Company
|
“Non-exempt
Continuing Connected Transactions”
|
continuing
connected transactions contemplated under the Domestic Interconnection
Settlement Agreement 2008 - 2010, the International Long Distance
Voice
Services Settlement Agreement 2008 - 2010 and the Engineering and
Information Technology Services Agreement 2008 - 2010, such transactions
and agreements are further described in the section headed “Continuing
Connected Transactions” in the “Letter from the Chairman” and in respect
of the transactions contemplated under the Domestic Interconnection
Settlement Agreement 2008 - 2010 and the International Long Distance
Voice
Services Settlement Agreement 2008 - 2010, no caps are to be
proposed
|
“Option(s)”
|
option(s)
which have been granted under the Company’s share option scheme approved
and adopted by a resolution of the Shareholders passed on 30 September
2004 and as amended on 16 May 2006
|
“RMB”
|
Renminbi,
the lawful currency of the PRC
|
“Rothschild”
or “Independent Financial Adviser”
|
N
M Rothschild & Sons (Hong Kong) Limited, being the independent
financial adviser to the Independent Board Committee and the Independent
Shareholders in respect of the Non-exempt Continuing Connected
Transactions
|
“Securities
and Futures Ordinance”
|
the
Securities and Futures Ordinance (Chapter 571 of the laws of Hong
Kong)
|
“Share(s)”
|
ordinary
shares in the Company’s issued share capital with a par value of US$0.04
per share which are listed on the Hong Kong Stock
Exchange
|
“Shareholders”
|
holders
of Shares
|
“US
dollars” or “US$”
|
United
States dollars, the lawful currency of the United States of
America
|
For
your convenience and unless otherwise specified, this circular contains
translation between RMB and Hong Kong dollars at RMB0.9604 = HK$1.00, the
prevailing rate on 5 November 2007. The translation is not representations
that
the RMB and Hong Kong dollar amounts could actually be converted at those rates,
if at all.
LETTER
FROM THE CHAIRMAN
CHINA
NETCOM GROUP CORPORATION (HONG KONG) LIMITED
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
Executive
Directors :
ZHANG
Chunjiang (Chairman)
ZUO
Xunsheng (Chief Executive Officer)
LI
Jianguo
ZHANG
Xiaotie
LI
Fushen
Non-Executive
Directors:
YAN
Yixun
José
María ÁLVAREZ-PALLETE
Mauricio
SARTORIUS
Independent
Non-executive Directors:
John
Lawson THORNTON
Victor
CHA Mou Zing
QIAN
Yingyi
HOU
Ziqiang
Timpson
CHUNG Shui Ming
|
Registered
Office:
Room
6701,
The
Center
99
Queen’s Road Central
Hong
Kong
|
|
|
|
9
November 2007
|
To
the Shareholders
Dear
Sir or Madam,
RENEWAL
OF CONTINUING CONNECTED TRANSACTIONS
AND
AMENDMENTS
TO THE ARTICLES OF ASSOCIATION
INTRODUCTION
On
6 November 2007, the Board announced that CNC China, a wholly-owned subsidiary
of the Company, has on the same date entered into various connected transaction
agreements with China Netcom Group to, among other things, renew the term of
the
existing connected transaction agreements between CNC China, China Netcom Group
and New Horizon Communications, all of which have a term expiring on 31 December
2007. In addition, it is also announced that the Information and Communications
Technology Agreement has been terminated with effect from 31 December 2007,
and
a new agreement has been entered into between China Netcom System Integration,
an indirect wholly-owned subsidiary of the Company, and China Netcom Group
for a
term of three years commencing from 1 January 2008.
China
Netcom Group is the ultimate holding company of the Company. As such, China
Netcom Group is a connected person of the Company. Accordingly, any ongoing
transactions between the Company’s subsidiaries, namely CNC China and China
Netcom System Integration, and China Netcom Group constitute continuing
connected transactions of the Company.
An
Independent Board Committee has been established to advise the Independent
Shareholders in respect of the terms of the Non-exempt Continuing Connected
Transactions and the proposed annual caps (if applicable). In this respect,
Rothschild has been retained as the independent financial adviser to the
Independent Board Committee and the Independent Shareholders.
The
Board also proposes to make certain amendments to the Articles for the purpose
of enhancing corporate governance.
The
purpose of this circular is to provide you with further information relating
to
the Continuing Connected Transactions and the proposed amendments to the
Articles and to seek your approval of the resolutions set out in the Notice
of
Extraordinary General Meeting at the end of this circular. The recommendation
from the Independent Board Committee to the Independent Shareholders is set
out
on pages 27 to 28 of this circular and the letter from Rothschild is set out
on
pages 29 to 36 of this Circular.
BACKGROUND
In
order to facilitate the management of all continuing connected transactions
of
the Company, CNC China, China Netcom Group and New Horizon Communications
entered into certain connected transactions agreements on 12 September 2005
to
regulate the continuing connected transactions between China Netcom Group and
its subsidiaries or Associates (other than the Group) on the one hand and the
Group on the other, in respect of the Group’s operations in 12 provinces,
municipalities and autonomous region in China (excluding Guangdong Province
and
Shanghai Municipality after the Company’s disposal of its business operations in
these two regions in February 2007). These connected transaction agreements
were
approved by the then Independent Shareholders at the extraordinary general
meeting of the Company held on 25 October 2005. Reference is made to the
announcement and the circular of the Company dated 12 September 2005 and 23
September 2005, respectively, for the background and details of these connected
transaction agreements.
Each
of the connected transaction agreements entered into between CNC China, China
Netcom Group and New Horizon Communications in 2005 will expire on 31 December
2007. CNC China and China Netcom Group intend to continue their existing
continuing connected transactions under these agreements except the property
sub-leasing agreement. Therefore, CNC China and China Netcom Group entered
into
various renewal agreements on 6 November 2007 after 4:30 p.m. to, among other
things, renew the term of the existing connected transaction agreements other
than the property sub-leasing agreement.
Pursuant
to the property sub-leasing agreement dated 12 September 2005 and entered into
between CNC China, China Netcom Group and New Horizon Communications, China
Netcom Group agreed to sub-let to CNC China certain land and properties owned
by
and leased from independent third parties, for use as offices,
telecommunications equipment sites and other ancillary purposes. As it is
expected that the number of properties to be sublet from China Netcom Group
will
be substantially reduced, the property sub-leasing agreement will not be
renewed. Instead, sub-lease agreements in respect of individual properties
may
be entered into in the future. It is expected the aggregate rental payable
by
CNC China to China Netcom Group under these sub-lease agreements will be
minimal.
On
7 November 2006, China Netcom System Integration entered into the Information
and Communications Technology Agreement with China Netcom Group. Pursuant to
the
Information and Communications Technology Agreement, China Netcom System
Integration and its subsidiaries will provide information technology services
to
China Netcom Group and its subsidiaries (other than the Group). China Netcom
System Integration will also subcontract system installation and configuration
services to the subsidiaries and branches of China Netcom Group in China Netcom
Group’s southern service region in the PRC. Reference is made to the
announcement of the Company dated 28 November 2006 for the background and
details of the Information and Communications Technology Agreement.
For
the purpose of better management of the Company’s continuing connected
transactions, the Information and Communications Technology Agreement has been
terminated with effect from 31 December 2007 and on 6 November 2007 after 4:30
p.m., China Netcom System Integration and China Netcom Group entered into a
new
agreement on the same terms and conditions as the Information and Communications
Technology Agreement and such agreement shall take effect on 1 January 2008,
being the date on which all other connected transaction agreements of the
Company become effective.
New
Horizon Communications was established in 2005 in connection with the Group´s
acquisition of the assets and liabilities and business operations for the
provision of fixed-line telephone services, broadband and other Internet-related
services, and business and data communications services in Heilongjiang
Province, Jilin Province, Neimenggu Autonomous Region and Shanxi Province in
the
PRC. Subsequent to such acquisition, the assets and liabilities and business
operations acquired by New Horizon Communications have been transferred to
CNC
China so that CNC China holds all the assets and liabilities and business
operations of the Group in the PRC.
CONTINUING
CONNECTED TRANSACTIONS
Details
of the renewal agreements entered into between CNC China and China Netcom Group
on 6 November 2007 and the new information and communications technology
agreement entered into between China Netcom System Integration and China Netcom
Group on 6 November 2007 are summarised below:
Domestic
Interconnection Settlement Agreement 2008 - 2010
New
Horizon Communications, CNC China and China Netcom Group entered into the
Domestic Interconnection Settlement Agreement on 12 September 2005. The Domestic
Interconnection Settlement Agreement is valid until 31 December 2007 and can
be
renewed with the same terms for further periods of three years. On 6 November
2007 after 4:30 p.m., CNC China entered into a renewal agreement with China
Netcom Group (the “Domestic Interconnection Settlement Agreement 2008 -
2010”) whereby the parties agreed to continue the existing transactions
under the Domestic Interconnection Settlement Agreement for a term of three
years commencing on 1 January 2008. If CNC China notifies China Netcom Group
at
least three months prior to the expiration of the Domestic Interconnection
Settlement Agreement 2008 - 2010 of its intention to renew the Domestic
Interconnection Settlement Agreement 2008 - 2010, such agreement can be renewed
with the same terms for further periods of three years.
Pursuant
to the Domestic Interconnection Settlement Agreement 2008 - 2010, the parties
agreed to interconnect the network of China Netcom Group on the one hand and
that of CNC China on the other and settle the charges received in respect of
domestic long distance voice services within their respective service regions
on
a quarterly basis.
For
domestic long distance voice services between China Netcom Group and CNC China,
the telephone operator in the location of the calling party makes a settlement
payment to the telephone operator in the location of the called party at the
rate of RMB0.06 per minute, irrespective of whether the call terminates within
the network of either China Netcom Group or CNC China or outside the network
of
either China Netcom Group or CNC China.
The
rate of RMB0.06 per minute mentioned above shall be adjusted with reference
to
the relevant standards, tariffs or policies promulgated by the relevant
regulatory authorities in China from time to time.
In
case where the call terminates outside the network of either China Netcom Group
or CNC China, the settlement payment was at the rate of RMB0.09 per minute
under
the Domestic Interconnection Settlement Agreement dated 12 September 2005.
Pursuant to the Domestic Interconnection Settlement Agreement 2008 - 2010,
the
parties to the agreement agreed that such rate shall be reduced to RMB0.06
per
minute and that such reduction shall take retrospective effect from 1 April
2007. It is expected that such reduction will result in CNC China making less
settlement payment to China Netcom Group.
International
Long Distance Voice Services Settlement Agreement 2008 -
2010
CNC
China and China Netcom Group entered into the International Long Distance Voice
Services Settlement Agreement on 12 September 2005. The International Long
Distance Voice Services Settlement Agreement is valid until 31 December 2007
and
can be renewed with the same terms for further periods of three years. On 6
November 2007 after 4:30 p.m., CNC China entered into a renewal agreement with
China Netcom Group (the “International Long Distance Voice Services
Settlement Agreement 2008 - 2010”) whereby the parties agreed to
continue the existing transactions under the International Long Distance Voice
Services Settlement Agreement for a term of three years commencing on 1 January
2008. If CNC China notifies China Netcom Group at least three months prior
to
the expiration of the International Long Distance Voice Services Settlement
Agreement 2008 - 2010 of its intention to renew the International Long Distance
Voice Services Settlement Agreement 2008 - 2010, such agreement can be renewed
with the same terms for further periods of three years.
Pursuant
to the International Long Distance Voice Services Settlement Agreement 2008
-
2010, the parties agreed to interconnect the networks of China Netcom Group
and
CNC China and settle the charges received in respect of international long
distance voice services on a quarterly basis.
For
outbound international calls, China Netcom Group reimburses CNC China for any
amount it has paid to overseas telecommunications operators. The revenues
received by China Netcom Group less the amount paid to overseas
telecommunications operators are shared between China Netcom Group and CNC
China
in proportion to the estimated costs incurred by China Netcom Group and CNC
China in connection with the provision of outbound international long distance
voice services.
For
inbound international calls, the revenues received by CNC China from overseas
telecommunications operators (other than the Company and its controlled
entities) less the amount paid to China Netcom Group at the rate of RMB0.06
per
minute (irrespective of whether the call terminates within the network of China
Netcom Group or within the network of other operators) are shared between China
Netcom Group and CNC China in proportion to the estimated costs incurred by
China Netcom Group and CNC China in connection with the provision of inbound
international long distance voice services.
The
rate of RMB0.06 per minute mentioned above shall be adjusted with reference
to
the relevant standards, tariffs or policies promulgated by the relevant
regulatory authorities in China from time to time.
In
case where an inbound international call terminates within the network of
operators other than China Netcom Group, an amount calculated at the rate of
RMB0.09 per minute was paid to China Netcom Group under the International Long
Distance Voice Services Settlement Agreement dated 12 September 2005. Pursuant
to the International Long Distance Voice Services Settlement Agreement 2008
-
2010, the parties to the agreement agreed that such rate shall be reduced to
RMB0.06 per minute and that such reduction shall take retrospective effect
from
1 April 2007. It is expected that such reduction will result in CNC China
sharing a larger amount of revenue for inbound international calls.
The
transactions under the Domestic Interconnection Settlement Agreement 2008 -
2010
and the International Long Distance Voice Services Settlement Agreement 2008
-
2010 will be subject to reporting and announcement requirements set out in
Rules
14A.45 to 14A.47 of the Hong Kong Listing Rules and the independent
shareholders’ approval requirements under Rule 14A.48 of the Hong Kong Listing
Rules.
Property
Leasing Agreement 2008 - 2010
New
Horizon Communications, CNC China and China Netcom Group entered into the
Property Leasing Agreement on 12 September 2005. The Property Leasing Agreement
is valid until 31 December 2007 and can be renewed with the same terms for
further periods of three years. On 6 November 2007 after 4:30 p.m., CNC China
entered into a renewal agreement with China Netcom Group (the “Property
Leasing Agreement 2008 - 2010”) whereby the parties agreed to continue
the existing transactions under the Property Leasing Agreement for a term of
three years commencing on 1 January 2008. If CNC China notifies China Netcom
Group at least three months prior to the expiration of the Property Leasing
Agreement 2008 - 2010 of its intention to renew the Property Leasing Agreement
2008 - 2010, such agreement can be renewed with the same terms for further
periods of three years.
Pursuant
to the Property Leasing Agreement 2008 - 2010:
(a) CNC
China leases to China Netcom Group a total of 54 buildings and units with an
aggregate floor area of approximately 4,300 square metres located throughout
CNC
China’s service regions, for use as offices and other ancillary purposes;
and
(b) China
Netcom Group leases to CNC China a total of 22 parcels of land with an aggregate
site area of approximately 26,700 square metres and 42,097 buildings and units
with an aggregate floor area of approximately 9,264,000 square metres located
throughout CNC China’s service regions, for use as offices, telecommunications
equipment sites and other ancillary purposes.
The
charges payable by CNC China and by China Netcom Group under the Property
Leasing Agreement 2008 - 2010 are based on market rates or the depreciation
charges and taxes in respect of each property, provided such depreciation
charges and taxes shall not be higher than the market rates. The charges are
payable quarterly in arrears and are subject to review every year to take into
account the then prevailing market rates of the properties leased in that
year.
The
existing annual cap for the rental charges payable by CNC China to China Netcom
Group for each of the two years ended 31 December 2005 and 2006 and the year
ending 31 December 2007 is RMB1,250 million whereas the existing annual cap
for
the rental charges receivable by CNC China from China Netcom Group for each
of
the two years ended 31 December 2005 and 2006 and the year ending 31 December
2007 is RMB35 million. For the two years ended 31 December 2005 and 2006, the
rental charges that CNC China paid to China Netcom Group amounted to RMB655
million and RMB680 million, respectively. Based on CNC China’s management
accounts, the rental charge paid by CNC China to China Netcom Group for the
nine
months ended 30 September 2007 amounted to RMB478 million. For the year ended
31
December 2005, the rental charge paid by China Netcom Group to CNC China was
negligible and for the year ended 31 December 2006, the rental charges paid
by
China Netcom Group to CNC China amounted to RMB2 million. Based on CNC China’s
management accounts, the rental charge paid by China Netcom Group to CNC China
for the nine months ended 30 September 2007 amounted to RMB10
million.
The
total rental charges payable by CNC China to China Netcom Group in each of
the
three financial years ending 31 December 2008, 2009 and 2010 are not expected
to
exceed RMB1,050 million, and the total rental charges receivable by CNC China
from China Netcom Group in each of the three financial years ending 31 December
2008, 2009 and 2010 are not expected to exceed RMB10 million. Accordingly,
these
amounts have been set as the proposed caps for this connected
transaction.
China
Netcom Group is currently undergoing restructuring such that some of its
subsidiaries which are engaged in certain ancillary businesses may be disposed
of. As such, the number of properties that can be leased from China Netcom
Group
to CNC China will reduce, thus resulting in a decrease in the annual cap for
the
rental charges payable to China Netcom Group. For the same reason, the number
of
properties that are required to be leased from CNC China to China Netcom Group
will also be reduced.
Master
Sharing Agreement 2008 - 2010
New
Horizon Communications, CNC China and China Netcom Group entered into the Master
Sharing Agreement on 12 September 2005. The Master Sharing Agreement is valid
until 31 December 2007 and can be renewed with the same terms for further
periods of three years. On 6 November 2007 after 4:30 p.m., CNC China entered
into a renewal agreement with China Netcom Group (the “Master Sharing
Agreement 2008 - 2010”) whereby the parties agreed to continue the
existing transactions under the Master Sharing Agreement for a term of three
years commencing on 1 January 2008. If CNC China notifies China Netcom Group
at
least three months prior to the expiration of the Master Sharing Agreement
2008
- 2010 of its intention to renew the Master Sharing Agreement 2008 - 2010,
such
agreement can be renewed with the same terms for further periods of three
years.
Pursuant
to the Master Sharing Agreement 2008 - 2010:
(a) CNC
China will provide customer relationship management services for large
enterprise customers of China Netcom Group;
(b) CNC
China will provide network management services to China Netcom
Group;
(c) CNC
China will share with China Netcom Group the services provided by administrative
and managerial staff in respect of central management of the business
operations, financial control, human resources and other related matters of
both
CNC China and China Netcom Group;
(d) CNC
China will provide to China Netcom Group supporting services such as billing
and
settlement provided by the business support centre;
(e) China
Netcom Group will provide to CNC China supporting services, including telephone
card production, development and related services;
(f) China
Netcom Group will provide to CNC China certain other shared services, including
advertising, publicity, research and development, business hospitality,
maintenance and property management;
(g) China
Netcom Group will provide certain office space in its headquarters to CNC China
for use as its principal executive office; and
(h) CNC
China and China Netcom Group will share the revenues received by China Netcom
Group from other operators whose networks interconnect with the Internet
backbone network of China Netcom Group and will share the monthly connection
fee
that China Netcom Group pays to the State Internet Switching
Centre.
CNC
China and China Netcom Group own certain equipment and facilities forming the
Internet backbone network of China. This Internet backbone network interconnect
with the networks of other operators. Such interconnection generates revenues
which are settled with China Netcom Group and shared between China Netcom Group
and CNC China under the Master Sharing Agreement 2008 - 2010.
The
services set out in paragraphs (a) to (g) above and the revenue and fee set
out
in paragraph (h) above are shared between CNC China and China Netcom Group
on an
on-going basis from time to time. The costs of the services provided under
the
Master Sharing Agreement 2008 - 2010 are not directly related to the volumes
of
business or revenues of the parties. Accordingly, the aggregate costs incurred
by CNC China or China Netcom Group for the
provision
of the services set out in paragraphs (a) to (g) above and the revenue and
fee
receivable and payable by China Netcom Group as referred to in paragraph (h)
above are apportioned between CNC China and China Netcom Group according to
their respective total assets value as shown in their respective financial
statements on an annual basis.
The
existing annual cap for the amount receivable by CNC China from China Netcom
Group under the Master Sharing Agreement for each of the two years ended 31
December 2005 and 2006 and the year ending 31 December 2007 is RMB180 million
whereas the existing annual cap for the amount payable by CNC China to China
Netcom Group under the Master Sharing Agreement for each of the two years ended
31 December 2005 and 2006 and the year ending 31 December 2007 is RMB485
million. The total amounts received by CNC China from China Netcom Group in
respect of services set out in paragraphs (a) to (d) above and in respect of
revenue set out in paragraph (h) above for the two years ended 31 December
2005
and 2006 amounted to RMB89 million and RMB121 million, respectively. Based
on
CNC China’s management accounts, the total amounts received by CNC China from
China Netcom Group in respect of services set out in paragraphs (a) to (d)
above
and in respect of the revenue set out in paragraph (h) above for the nine months
ended 30 September 2007 amounted to RMB83 million. The total amounts paid by
CNC
China to China Netcom Group in respect of services set out in paragraphs (e)
to
(g) above and in respect of the fee set out in paragraph (h) above for the
two
years ended 31 December 2005 and 31 December 2006 amounted to RMB279 million
and
RMB448 million, respectively. Based on CNC China’s management accounts the total
amounts paid by CNC China to China Netcom Group in respect of services set
out
in paragraphs (e) to (g) above and in respect of the fee set out in paragraph
(h) above for the nine months ended 30 September 2007 amounted to RMB320
million.
Base
on the aggregate historical expenditures incurred for the provision of relevant
services described in paragraphs (a) to (g) above, the aggregate historical
revenue generated from the interconnection of the Internet backbone network
and
historical fee paid to the State Internet Switching Centre and the projected
total assets values of China Netcom Group and CNC China, respectively, the
aggregate amount receivable by CNC China from China Netcom Group in respect
of
services set out in paragraphs (a) to (d) above and in respect of the revenue
set out in paragraph (h) above in each of the three financial years ending
31
December 2008, 2009 and 2010 is not expected to exceed RMB200 million, and
the
total amount payable by CNC China to China Netcom Group in respect of services
set out in paragraphs (e) to (g) and in respect of the fee set out in paragraph
(h) above in each of the three financial years ending 31 December 2008, 2009
and
2010 is not expected to exceed RMB690 million. Accordingly, these amounts have
been set as the proposed caps for this connected transaction.
In
determining the proposed annual caps for this connected transaction, the
Directors have also taken into account the expected increase in the costs of
the
services to be provided under the Master Sharing Agreement 2008 - 2010 in the
next three years due to (i) the use of the new headquarters which is
considerably larger than the previous headquarters; (ii) the increase in the
number of the business units operating in the headquarters; and (iii) the
increase in advertising expenses due to the expected launch of new packages
or
services and the increase in expenses relating to business support systems
as a
result of increase in staff.
Engineering
and Information Technology Services Agreement 2008 -
2010
New
Horizon Communications, CNC China and China Netcom Group entered into the
Engineering and Information Technology Services Agreement on 12 September 2005.
The Engineering and Information Technology Services Agreement is valid until
31
December 2007 and can be renewed with the same terms for further periods of
three years. On 6 November 2007 after 4:30 p.m., CNC China entered into a
renewal agreement with China Netcom Group (the “Engineering and
Information Technology Services Agreement 2008 - 2010”) whereby the
parties agreed to continue the existing transactions under the Engineering
and
Information Technology Services Agreement for a term of three years commencing
on 1 January 2008. If CNC China notifies China Netcom Group at least three
months prior to the expiration of the Engineering and Information Technology
Services Agreement 2008 - 2010 of its intention to renew the Engineering and
Information Technology Services Agreement 2008 - 2010, such agreement can be
renewed with the same terms for further periods of three years.
The
Engineering and Information Technology Services Agreement 2008 - 2010 governs
the arrangements with respect to the provision of certain engineering and
information technology-related services to CNC China by China Netcom Group.
These services include:
(a) the
provision of planning, surveying and design services in relation to
telecommunications engineering projects;
(b) the
provision of construction services in relation to telecommunications engineering
projects;
(c) the
provision of supervision services in relation to telecommunications engineering
projects; and
(d) the
provision of information technology services, including office automation,
software testing, network upgrade, new business development and support system
development.
The
charges payable for engineering and information technology-related services
described above are determined with reference to market rates. In addition,
where the value of any single item of engineering design or supervision-related
service exceeds RMB0.5 million or where the value of any single item of
engineering construction-related service exceeds RMB2 million, the award of
such
services will be subject to tender. The charges are settled between CNC China
and China Netcom Group as and when the relevant services are
provided.
The
existing annual cap for the service charges payable by CNC China to China Netcom
Group under the Engineering and Information Technology Services Agreement for
each of the two years ended 31 December 2005 and 2006 and the year ending 31
December 2007 is RMB4,400 million. For the two years ended 31 December 2005
and
2006, the total service charges paid by CNC China to China Netcom Group in
respect of engineering and information technology-related services amounted
to
RMB2,649 million and RMB2,546 million, respectively. Based on CNC China’s
management accounts, the total service charges paid by CNC China to China Netcom
Group in respect of engineering and information technology-related services
for
the nine months ended 30 September 2007 amounted to RMB1,292
million.
The
Group’s strategic goal is that CNC China is to become the leading service
provider of broadband communications services and multi-media services in China
by 2010. Separately, in order to enhance the service quality of its network,
the
Company is planning to replace the copper cables in certain parts of its service
regions and install fiber optic cables for its new network. This project is
expected to commence in 2008 and will take three to five years to complete.
The
amount of assets investments involved in this project can be very substantial
and may reach RMB15 billion. As the subsidiaries of China Netcom Group are
very
experienced in telecommunications engineering construction projects, it is
expected that these entities will have a good chance of winning projects
involving the replacement of cables. Hence, the extent and volume of the
engineering and information technology-related services that CNC China expects
China Netcom Group to provide in the next three years will increase
substantially when compared with the volume of services provided in the last
two
years and in recent months, and based on the historical service charges paid
by
CNC China to China Netcom Group, the total amount payable by CNC China to China
Netcom Group for provision of engineering and information technology-related
services in each of the three financial years ending 31 December 2008, 2009
and
2010 is not expected to exceed RMB4,400 million, being the same as the existing
annual cap. Accordingly, this amount has been set as the proposed cap for this
connected transaction.
Materials
Procurement Agreement 2008 - 2010
New
Horizon Communications, CNC China and China Netcom Group entered into the
Materials Procurement Agreement on 12 September 2005. The Materials Procurement
Agreement is valid until 31 December 2007 and can be renewed with the same
terms
for further periods of three years. On 6 November 2007 after 4:30 p.m., CNC
China entered into a renewal agreement with China Netcom Group (the
“Materials Procurement Agreement 2008 - 2010”) whereby the
parties agreed to continue the existing transactions under the Materials
Procurement Agreement for a term of three years commencing on 1 January 2008.
If
CNC China notifies China Netcom Group at least three months prior to the
expiration of the Materials Procurement Agreement 2008 - 2010 of its intention
to renew the Materials Procurement Agreement 2008 - 2010, such agreement can
be
renewed with the same terms for further periods of three years.
Under
the Materials Procurement Agreement 2008 - 2010:
(a) CNC
China may request China Netcom Group to act as its agent for the procurement
of
imported and domestic telecommunications equipment and other domestic
non-telecommunications equipment;
(b) CNC
China may purchase from China Netcom Group certain products, including cables,
modems and yellow pages telephone directories; and
(c) China
Netcom Group will provide to CNC China storage and transportation services
related to the procurement and purchase of materials or equipment under the
agreement.
Commission
and/or charges for the domestic materials procurement services referred to
in
paragraph (a) above shall not exceed the maximum rate of 3% of the contract
value. Commission and/or charges for the above imported materials procurement
services shall not exceed the maximum rate of 1% of the contract value. The
price for the purchase of
China
Netcom Group´s products referred to in paragraph (b) above is determined with
reference to the following pricing principles and limits:
• the
government fixed price;
• where
there is no government fixed price but a government guidance price exists,
the
government guidance price;
• where
there is neither a government fixed price nor a government guidance price,
the
market price; or
• where
none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
Commission
charges for the storage and transportation services referred to in paragraph (c)
above are determined with reference to market rates.
Payments
under the Materials Procurement Agreement 2008 - 2010 will be made as and when
the relevant equipment or products have been procured and
delivered.
The
existing annual cap for the commission and/or charges payable by CNC China
to
China Netcom Group under the Materials Procurement Agreement for each of the
two
years ended 31 December 2005 and 2006 and the year ending 31 December 2007
is
RMB2,000 million. For the two years ended 31 December 2005 and 2006, the total
commission and/or charges paid by CNC China to China Netcom Group in respect
of
the domestic and imported materials procurement services amounted to RMB1,529
million and RMB1,292 million, respectively. Based on CNC China’s management
accounts, the total commission and/or charges paid by CNC China to China Netcom
Group in respect of domestic and imported materials procurement services for
the
nine months ended 30 September 2007 amounted to RMB500 million. The amount
of
total commission and/or charges paid by CNC China under the Materials
Procurement Agreement for the first nine months of 2007 has dropped by a far
margin as the Company has put in place effective measures to control its capital
expenditures, in particular in fixed assets investments. However, with the
2008
Beijing Olympic Games and the network quality enhancement project in the next
few years, it is expected that the commission and/or charges payable by CNC
China under the Materials Procurement Agreement 2008 - 2010 cannot be maintained
at the low level in the first nine months of 2007.
Based
on the historical commission and/or charges paid by CNC China to China Netcom
Group and with reference to the level of commission charges set out in the
Materials Procurement Agreement 2008 - 2010, the total amount payable by CNC
China to China Netcom Group, including both commissions and purchase prices,
for
each of the three financial years ending 31 December 2008, 2009 and 2010 is
not
expected to exceed RMB1,500 million. Accordingly, this amount has been set
as
the proposed cap for this connected transaction.
The
proposed annual cap has been decreased as certain companies which used to
provide materials procurement services to CNC China are no longer members of
China Netcom Group as a result of the restructuring of China Netcom Group.
Therefore, any transactions between these companies and CNC China do not
constitute connected transactions of the Company and it is not necessary to
take
into account the amount of the transactions between these companies and CNC
China for determination of the proposed annual cap.
Ancillary
Telecommunications Services Agreement 2008 - 2010
New
Horizon Communications, CNC China and China Netcom Group entered into the
Ancillary Telecommunications Services Agreement on 12 September 2005. The
Ancillary Telecommunications Services Agreement is valid until 31 December
2007
and can be renewed with the same terms for further periods of three years.
On 6
November 2007 after 4:30 p.m., CNC China entered into a renewal agreement with
China Netcom Group (the “Ancillary Telecommunications Services Agreement
2008 - 2010”) whereby the parties agreed to continue the existing
transactions under the Ancillary Telecommunications Services Agreement for
a
term of three years commencing on 1 January 2008. If CNC China notifies China
Netcom Group at least three months prior to the expiration of the Ancillary
Telecommunications Services Agreement 2008 - 2010 of its intention to renew
the
Ancillary Telecommunications Services Agreement 2008 - 2010, such agreement
can
be renewed with the same terms for further periods of three years.
The
Ancillary Telecommunications Services Agreement 2008 - 2010 governs the
arrangements with respect to the
provision
of ancillary telecommunications services to CNC China by China Netcom Group.
These services include certain telecommunications pre-sale, on-sale and
after-sale services such as assembling and repairing of certain
telecommunications equipment, sales agency services, printing and invoice
delivery services, maintenance of telephone booths, customers acquisition and
servicing and other customers’ services.
The
charges payable for the services described above are determined with reference
to the following pricing principles and limits:
• the
government fixed price;
• where
there is no government fixed price but a government guidance price exists,
the
government guidance price;
• where
there is neither a government fixed price nor a government guidance price,
the
market price; or
• where
none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
The
service charges are settled between CNC China and China Netcom Group as and
when
the relevant services are provided.
The
existing annual cap for the service charges payable by CNC China to China Netcom
Group under the Ancillary Telecommunications Services Agreement for each of
the
two years ended 31 December 2005 and 2006 and the year ending 31 December 2007
is RMB1,200 million. For the two years ended 31 December 2005 and 2006, the
total services charges paid by CNC China to China Netcom Group for ancillary
telecommunications services amounted to RMB486 million and RMB408 million,
respectively. Based on CNC China’s management accounts, the total service
charges paid by CNC China to CNC Netcom Group for ancillary telecommunications
services for the nine months ended 30 September 2007 amounted to RMB318
million.
Based
on the historical service charges paid and the estimated extent and volume
of
ancillary telecommunications services required from China Netcom Group, the
total amount payable by CNC China to China Netcom Group for provision of
ancillary telecommunications services in each of the three financial years
ending 31 December 2008, 2009 and 2010 is not expected to exceed RMB1,000
million. Accordingly, this amount has been set as the proposed cap for this
connected transaction.
The
proposed annual cap has been slightly decreased as certain companies which
used
to provide ancillary telecommunications services to CNC China are no longer
members of China Netcom Group as a result of the restructuring of China Netcom
Group. Therefore, any transactions between these companies and CNC China do
not
constitute connected transactions of the Company and it is not necessary to
take
into account the amount of the transactions between these companies and CNC
China for determination of the proposed annual cap.
Support
Services Agreement 2008 - 2010
New
Horizon Communications, CNC China and China Netcom Group entered into the
Support Services Agreement on 12 September 2005. The Support Services Agreement
is valid until 31 December 2007 and can be renewed with the same terms for
further periods of three years. On 6 November 2007 after 4:30 p.m., CNC China
entered into a renewal agreement with China Netcom Group (the “Support
Services Agreement 2008 - 2010”) whereby the parties agreed to continue
the existing transactions under the Support Services Agreement for a term of
three years commencing on 1 January 2008. If CNC China notifies China Netcom
Group at least three months prior to the expiration of the Support Services
Agreement 2008 - 2010 of its intention to renew the Support Services Agreement
2008 - 2010, such agreement can be renewed with the same terms for further
periods of three years.
Under
the Support Services Agreement 2008 - 2010, China Netcom Group provides CNC
China with various support services, including equipment leasing (other than
equipment covered under the Telecommunications Facilities Leasing Agreement
2008
- 2010) and maintenance services, motor vehicles services, security services,
basic construction agency services, research and development services, employee
training services and advertising services and other support
services.
The
charges payable for the services described above are determined with reference
to the following pricing principles and limits:
• the
government fixed price;
• where
there is no government fixed price but a government guidance price exists,
the
government guidance price;
• where
there is neither a government fixed price nor a government guidance price,
the
market price; or
• where
none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
The
service charges are settled between CNC China and China Netcom Group as and
when
relevant services are provided.
The
existing annual cap for the service charges payable by CNC China to China Netcom
Group under the Support Services Agreement for each of the two years ended
31
December 2005 and 2006 and the year ending 31 December 2007 is RMB1,610 million.
For the two years ended 31 December 2005 and 2006, the total support service
charges paid by CNC China to China Netcom Group amounted to RMB1,154 million
and
RMB737 million, respectively. Based on CNC China’s management accounts, the
total support service charges paid by CNC China to China Netcom Group for the
nine months ended 30 September 2007 amounted to RMB380 million.
Based
on the historical service charges paid and the estimated extent and volume
of
support services required from China Netcom Group, the total amount payable
by
CNC China to China Netcom Group for provision of support services in each of
the
three financial years ending 31 December 2008, 2009 and 2010 is not expected
to
exceed RMB1,500 million. Accordingly, this amount has been set as the proposed
cap for this connected transaction.
The
proposed annual cap has been slightly decreased as certain companies which
used
to provide support services to CNC China are no longer members of China Netcom
Group as a result of the restructuring of China Netcom Group. Therefore, any
transactions between these companies and CNC China do not constitute connected
transactions of the Company and it is not necessary to take into account the
amount of the transactions between these companies and CNC China for
determination of the proposed annual cap. However, as China Netcom Group is
an
official partner of the 2008 Beijing Olympic Games, it is expected that the
services required from China Netcom Group such as motor vehicles services,
security services and advertising services will substantially increase.
Furthermore, with the development of new businesses such as information and
communications technology services and other value-added services and the
strengthening of the Group’s efforts in promoting its various product brands,
the advertising services and the employee training services required from China
Netcom Group are expected to increase substantially.
Telecommunications
Facilities Leasing Agreement 2008 - 2010
New
Horizon Communications, CNC China and China Netcom Group entered into the
Telecommunications Facilities Leasing Agreement on 12 September 2005. The
Telecommunications Facilities Leasing Agreement is valid until 31 December
2007
and can be renewed with the same terms for further periods of three years.
On 6
November 2007 after 4:30 p.m., CNC China entered into a renewal agreement with
China Netcom Group (the “Telecommunications Facilities Leasing Agreement
2008 - 2010”) whereby the parties agreed to continue the existing
transactions under the Telecommunications Facilities Leasing Agreement for
a
term of three years commencing on 1 January 2008. If CNC China notifies China
Netcom Group at least three months prior to the expiration of the
Telecommunications Facilities Leasing Agreement 2008 - 2010 of its intention
to
renew the Telecommunications Facilities Leasing Agreement 2008 - 2010, such
agreement can be renewed with the same terms for further periods of three
years.
Under
the Telecommunications Facilities Leasing Agreement 2008 - 2010:
(a) China
Netcom Group leases inter-provincial fiber-optic cables within CNC China’s
service regions to CNC China;
(b) China
Netcom Group leases certain international telecommunications resources
(including international telecommunications channel gateways, international
telecommunications service gateways, international submarine cable capacity,
international land cables and international satellite facilities) to CNC China;
and
(c) China
Netcom Group leases certain other telecommunications facilities required by
CNC
China for its operations.
The
rental charges for the leasing of inter-provincial fiber-optic cables,
international telecommunications resources and other telecommunications
facilities are based on the annual depreciation charges of such fiber-optic
cables, resources and telecommunications facilities provided that such charges
shall not be higher than market rates. CNC China shall be responsible for the
on-going maintenance of such inter-provincial fiber-optic cables and
international telecommunications resources. CNC China and China Netcom Group
shall determine and agree which party is to provide maintenance service to
the
telecommunications facilities referred to in paragraph (c) above. Unless
otherwise agreed by CNC China and China Netcom Group, such maintenance service
charges shall be borne by CNC China. If China Netcom Group shall be responsible
for maintaining any telecommunications facilities referred to in paragraph
(c)
above, CNC China shall pay to China Netcom Group the relevant maintenance
service charges which maintenance charges shall be agreed between the parties
and determined on a cost-plus basis. The net rental charges and service charges
due to China Netcom Group under the Telecommunications Facilities Leasing
Agreement 2008 - 2010 will be settled between CNC China and China Netcom Group
on a quarterly basis.
The
existing annual cap for the charges payable by CNC China to China Netcom Group
under the Telecommunications Facilities Leasing Agreement for each of the two
years ended 31 December 2005 and 2006 and the year ending 31 December 2007
is
RMB600 million. For the two years ended 31 December 2005 and 2006, the total
charges paid by CNC China to China Netcom Group for the lease of
telecommunications facilities amounted to RMB300 million and RMB382 million,
respectively. Based on CNC China’s management accounts, the total charges paid
by CNC China to China Netcom Group for the lease of telecommunications
facilities for the nine months ended 30 September 2007 amounted to RMB246
million.
Given
the growth of the business of the Group, it is expected that the
telecommunications facilities to be leased from China Netcom Group will be
slightly increased. Based on the annual depreciation charges, the current market
rates and the expected telecommunications facilities required to be leased
from
China Netcom Group, the total amount payable by CNC China to China Netcom Group
under this leasing agreement in each of the three financial years ending 31
December 2008, 2009 and 2010 is not expected to exceed RMB600 million, being
the
same as the existing annual cap. Accordingly, this amount has been set as the
proposed cap for this connected transaction.
Information
and Communications Technology Agreement 2008 - 2010
China
Netcom System Integration and China Netcom Group entered into the Information
and Communications Technology Agreement on 7 November 2006. On 6 November 2007
after 4:30 p.m., the Information and Communications Technology Agreement has
been terminated with effect from 31 December 2007 and China Netcom System
Integration and China Netcom Group signed a new agreement (the
“Information and Communications Technology Agreement 2008 -
2010”) on the same terms and conditions as the Information and
Communications Technology Agreement.
Pursuant
to the Information and Communications Technology Agreement 2008 -
2010:
(a) China
Netcom System Integration (and its subsidiaries) provides information and
communications technology services to China Netcom Group (and its subsidiaries
(other than the Group)), which include system integration services, software
development services, operational maintenance services, consultancy services,
equipment leasing-related services and product sales and distribution related
services.
(b) China
Netcom System Integration will also subcontract services ancillary to the
provision of information and communications technology services, namely the
system installation and configuration services, to the subsidiaries and branches
of China Netcom Group in China Netcom Group’s southern service region in the
PRC.
The
charges payable for the services provided under the Information and
Communications Technology Agreement 2008 - 2010, are determined with reference
to the following pricing principles and limits:
• the
government fixed price;
• where
there is no government fixed price but a government guidance price exists,
the
government guidance price; or
• where
there is neither a government fixed price nor a government guidance price,
the
market price.
In
relation to the charges payable for the services provided under the Information
and Communications Technology Agreement 2008 - 2010 that are to be determined
with reference to the market price:
• if
the value of any single item of system installation and configuration services
provided by China Netcom Group (and its subsidiaries) to China Netcom System
Integration (and its subsidiaries) exceeds RMB0.3 million, the award of such
services will be subject to tender; or
• if
the value of any single item of system integration, software development,
operational maintenance, consultancy and equipment leasing-related services
exceeds RMB0.5 million, or where the value of any single item of product sales
and distribution related services exceeds RMB2 million, the award of such
services will be subject to tender.
The
Information and Communications Technology Agreement 2008 - 2010 is effective
from 1 January 2008 and expires after 31 December 2010. If the parties agree,
the Information and Communications Technology Agreement 2008 - 2010 can be
renewed with the same terms for further periods of three years.
The
existing annual caps for the consideration receivable by China Netcom System
Integration (and its subsidiaries) from China Netcom Group pursuant to the
Information and Communications Technology Agreement for the year ended 31
December 2006 and the two years ending 31 December 2007 and 2008 are RMB170
million, RMB520 million and RMB800 million, respectively, whereas the existing
annual caps for the consideration payable by China Netcom System Integration
(and its subsidiaries) to China Netcom Group pursuant to the Information and
Communications Technology Agreement for the year ended 31 December 2006 and
the
two years ending 31 December 2007 and 2008 are RMB60 million, RMB180 million
and
RMB270 million, respectively. For the year ended 31 December 2006, the total
consideration received by China Netcom System Integration (and its subsidiaries)
from China Netcom Group under the Information and Communications Technology
Agreement amounted to RMB36 million. Based on CNC China’s management accounts,
the total consideration received by China Netcom System Integration (and its
subsidiaries) from China Netcom Group under the Information and Communications
Technology Agreement for the nine months ended 30 September 2007 amounted to
RMB52 million. For the same periods, the total consideration paid by China
Netcom System Integration (and its subsidiaries) to China Netcom Group under
the
Information and Communications Technology Agreement was negligible.
The
Group witnessed a rapid increase in charges received from China Netcom Group
in
respect of the information and communications technology services in the past
11
months. In view of the growing demand for the information and communications
technology services, China Netcom System Integration has continued with its
expansion in the scope of its services. It is expected that by 2015, the
provision of information and communications technology services will contribute
up to 20% of the Group’s total revenue. In 2006, revenue from information and
communications technology services represents under 1% of the Group’s total
revenue. Based on the historical service charges received under the Information
and Communications Technology Agreement, the anticipated rapid growth of the
information and communications technology services and the estimated extent
and
volume of services required from and to be subcontracted to China Netcom Group,
the total consideration receivable by China Netcom System Integration (and
its
subsidiaries) from China Netcom Group in respect of the services set out in
paragraph (a) above in each of the three financial years ending 31 December
2008, 2009 and 2010 is not expected to exceed RMB800 million, RMB850 million
and
RMB850 million, respectively, and the total consideration payable by China
Netcom System Integration (and its subsidiaries) to China Netcom Group in
respect of the subcontracting work set out in paragraph (b) above in each of
the
three financial years ending 31 December 2008, 2009 and 2010 is not expected
to
exceed RMB270 million. Accordingly, these amounts have been set as the proposed
caps for this connected transaction.
GENERAL
INFORMATION
The
Company is a leading broadband communications and fixed-line telecommunications
operator in China. Its service regions cover the area of Beijing Municipality,
Tianjin Municipality, Hebei Province, Henan Province, Shandong Province,
Liaoning Province, Heilongjiang Province, Jilin Province, Neimenggu Autonomous
Region and Shanxi Province.
China
Netcom Group is a state-owned enterprise established under the laws of the
PRC
and is the ultimate holding company of the Company. China Netcom Group is the
second largest fixed-line telecommunications operator in China. China Netcom
Group owns and operates its fixed-line telecommunications networks, and provides
telecommunications services including fixed-line telephone, broadband and other
Internet-related services in all provinces, municipalities and autonomous
regions in China that are outside the Company’s existing service
regions.
COMPLIANCE
WITH THE HONG KONG LISTING RULES
China
Netcom Group is the ultimate holding company of the Company. As such, China
Netcom Group is a connected person of the Company. Accordingly, any ongoing
transactions between the Company’s subsidiaries, namely CNC China and China
Netcom System Integration, and China Netcom Group constitute continuing
connected transactions of the Company.
The
Directors (including the independent non-executive Directors) are of the opinion
that the terms of the Continuing Connected Transactions described in the section
headed “Continuing Connected Transactions” above (other than the Non-exempt
Continuing Connected Transactions) have been entered into, and will be carried
out, in the ordinary and usual course of business of the Group and on normal
commercial terms which are fair and reasonable so far as the interests of the
Shareholders are concerned and the Directors (including the independent
non-executive Directors) further consider that the proposed annual caps for
the
Continuing Connected Transactions (other than the Non-exempt Continuing
Connected Transactions) for each of the three years ending 31 December 2008,
2009 and 2010 are fair and reasonable. The Directors are of the opinion that
the
terms of the Non-exempt Continuing Connected Transactions have been entered
into, and will be carried out, in the ordinary and usual course of business
of
the Group and on normal commercial terms which are fair and reasonable so far
as
the interests of the Shareholders are concerned and the Directors further
consider that the proposed annual caps for the Non-exempt Continuing Connected
Transactions (other than those under the Domestic Interconnection Settlement
Agreement 2008 - 2010 and the International Long Distance Voice Services
Settlement Agreement 2008 - 2010) for each of the three years ending 31 December
2008, 2009 and 2010 are fair and reasonable.
It
is expected that each of the proposed annual caps for the years 2008 to 2010
for
each category of Continuing Connected Transactions under the Master Sharing
Agreement 2008 - 2010, the Materials Procurement Agreement 2008 - 2010, the
Ancillary Telecommunications Services Agreement 2008 - 2010, the Support
Services Agreement 2008 - 2010 and the Telecommunications Facilities Leasing
Agreement 2008 - 2010, the proposed annual caps for the years 2008 to 2010
for
charges payable by CNC China and charges payable by China Netcom Group under
the
Property Leasing Agreement 2008 - 2010 and the proposed annual caps for the
years 2008 to 2010 for charges payable by China Netcom System Integration (and
its subsidiaries) and charges payable by China Netcom Group under the
Information and Communications Technology Agreement 2008 - 2010, will be less
than the 2.5% threshold under Rule 14A.34 of the Hong Kong Listing Rules.
Accordingly, these transactions will be exempt from the independent
shareholders’ approval requirements under the Hong Kong Listing Rules, but such
transactions will still be subject to the reporting and announcement
requirements set out in Rules 14A.45 to 14A.47 of the Hong Kong Listing
Rules.
For
Continuing Connected Transactions under the Engineering and Information
Technology Services Agreement 2008 - 2010, as the proposed annual cap will
exceed the 2.5% threshold under Rule 14A.34 of the Hong Kong Listing Rules,
such
transactions will constitute non-exempt continuing connected transactions under
Rule 14A.35 of the Hong Kong Listing Rules and will be subject to the reporting
and announcement requirements set out in Rules 14A.45 to 14A.47 of the Hong
Kong
Listing Rules and the independent shareholders’ approval requirements under Rule
14A.48 of the Hong Kong Listing Rules. There are no prior transactions or
relationship with China Netcom Group and its ultimate beneficial owners which
require aggregation under Rule 14A.25 of the Hong Kong Listing
Rules.
Under
Rule 14A.35(2) of the Hong Kong Listing Rules, in respect of a continuing
connected transaction which is not fully exempted, a cap must be set and
disclosed. The caps for the Continuing Connected Transactions (other than those
under the Domestic Interconnection Settlement Agreement 2008 - 2010 and the
International Long Distance Voice Services Settlement Agreement 2008 - 2010)
for
each of the three years ending 31 December 2008, 2009 and 2010 are set out
below:
Continuing
Connected Transactions
|
Proposed
annual cap
|
|
(RMB
in millions)
|
|
|
Property
Leasing Agreement 2008 - 2010
|
payable
by CNC China — 1,050payable by China Netcom Group — 10
|
Master
Sharing Agreement 2008 - 2010
|
payable
by CNC China — 690payable by China Netcom Group — 200
|
Engineering
and Information Technology Services Agreement 2008 - 2010
|
4,400
|
Materials
Procurement Agreement 2008 - 2010
|
1,500
|
Ancillary
Telecommunications Services Agreement 2008 - 2010
|
1,000
|
Support
Services Agreement 2008 - 2010
|
1,500
|
Telecommunications
Facilities Leasing Agreement 2008 - 2010
|
600
|
Information
and Communications Technology Agreement 2008 - 2010
|
payable
by China Netcom System Integration (and its subsidiaries) — 270payable by
China Netcom Group — 800 (for 2008), 850 (for 2009), 850 (for
2010)
|
Special
circumstances exist for both the Domestic Interconnection Settlement Agreement
2008 - 2010 and the International Long Distance Voice Services Settlement
Agreement 2008 - 2010 and no cap is proposed in respect of the settlement of
domestic and international long distance voice services for the following
reasons:
(i) any
growth in the domestic and international long distance voice services will
necessarily result in increased transaction volumes under the Domestic
Interconnection Settlement Agreement 2008 - 2010 and the International Long
Distance Voice Services Agreement 2008 - 2010, which the Company will not be
able to control as it depends entirely on customer usage. Any caps on these
transactions will therefore potentially limit the Company’s ability to conduct
or expand its business in the ordinary course; and
(ii) the
settlement rates in respect of long distance voice services are determined
with
reference to the relevant standards, tariffs or policies promulgated by the
relevant regulatory authorities in China, which are subject to change from
time
to time, and the Company is not in a position to set the settlement rates at
its
discretion.
The
Company has applied to the Hong Kong Stock Exchange that no caps be proposed
for
the transactions contemplated under the Domestic Interconnection Settlement
Agreement 2008 - 2010 and the International Long Distance Voice Services
Settlement Agreement 2008 - 2010. Such transactions will be subject to the
reporting and announcement requirements set out in Rule 14A.45 to 14A.47 of
the
Hong Kong Listing Rules and the independent shareholders’ approval requirements
under Rule 14A.48 of the Hong Kong Listing Rules.
PROPOSED
AMENDMENTS TO THE ARTICLES
The
Company is dedicated to pursuing sound corporate governance and the Board is
convinced that measures on improving its corporate governance will enhance
the
core competitiveness and results of the Group and Shareholders’ value. In 2005,
the Company launched the “Corporate Governance Consultancy Project”. Based on
the findings of the consultancy project, certain amendments to the existing
Articles are proposed and the proposed amendments have also been reviewed by
the
Nominating and Corporate Governance Committee of the Board. The Committee
considers that the proposed amendments to the Articles are beneficial to the
Company and will enhance the level of corporate governance. The proposed
amendments cover the following areas:
(a) procedure
for appointment and removal of chief executive officer, senior vice presidents
and chief financial officer;
(b) term
of directors;
(c) participation
of employees in the management of the Company;
(d) minimum
number of Board members and quorum for meetings of the Board;
(e) election
of the chairman of the meetings of the Board; and
(f) other
minor housekeeping matters.
Details
regarding the proposed amendments to the Articles are set out in Appendix I
to
this circular.
The
Articles are written in English and there is no official Chinese translation
in
respect thereof. The translation into Chinese language is for reference only.
In
case of any inconsistency between the English and Chinese versions, the English
version shall prevail.
EXTRAORDINARY
GENERAL MEETING
A
notice of the Extraordinary General Meeting to be held in The Ballroom, Island
Shangri-la, Hong Kong on 6 December 2007 at 10:00 a.m., is set out on pages
48
to 49 of this circular. At the Extraordinary General Meeting, ordinary
resolutions will be proposed to approve the Engineering and Information
Technology Services Agreement 2008 - 2010 and the annual caps applicable
thereto, the Domestic Interconnection Settlement Agreement 2008 - 2010 and
the
International Long Distance Voice Services Settlement Agreement 2008 - 2010
for
which no annual caps are proposed, and a special resolution will be proposed
to
approve the proposed amendments to the Articles. The resolutions proposed at
the
Extraordinary General Meeting shall be taken by poll.
In
accordance with the Hong Kong Listing Rules, China Netcom Group, the ultimate
holding company of the Company which was beneficially interested in
approximately 69.73% of the issued share capital of the Company as at the Latest
Practicable Date, and its Associates, will abstain from voting on the
resolutions to approve the Non-exempt Continuing Connected Transactions at
the
Extraordinary General Meeting. China Netcom Group is deemed under the Securities
and Futures Ordinance to be interested in 297,698,985 Shares held by China
Netcom Group Corporation (BVI) Limited as trustee on behalf of certain
Shareholders (who are not Associates of China Netcom Group and hence eligible
to
vote at the Extraordinary General Meeting) representing a 4.47% of the issued
share capital of the Company.
A
form of proxy for use at the Extraordinary General Meeting is enclosed with
this
circular. Whether or not you are able to attend the Extraordinary General
Meeting, you are requested to complete the accompanying form of proxy in
accordance with the instructions printed thereon and return the same to the
Company’s registered office at Room 6701, The Center, 99 Queen’s Road Central,
Hong Kong, as soon as practicable and in any event at least 48 hours before
the
time appointed for holding the Extraordinary General Meeting or any adjournment
thereof. Completion and return of the form of proxy will not preclude a
Shareholder from attending and voting in person at the Extraordinary General
Meeting or any adjournment thereof should he so wishes.
RECOMMENDATION
Rothschild
has been retained as the independent financial adviser to advise the Independent
Board Committee and the Independent Shareholders in respect of the terms of
the
Non-exempt Continuing Connected Transactions. Rothschild considers that the
terms of the Non-exempt Continuing Connected Transactions to be on normal
commercial terms, in the ordinary and usual course of business, fair and
reasonable and in the interest of the Company and its Shareholders as a whole.
Accordingly, Rothschild advises the Independent Shareholders, as well as the
Independent Board Committee to recommend the Independent Shareholders, to vote
in favour of the relevant resolutions to be proposed at the Extraordinary
General Meeting. The text of the letter from Rothschild containing its advice
and the principal factors and reasons it has taken into consideration in
arriving at its advice is set out on pages 29 to 36 of this
circular.
The
Independent Board Committee, having taken into account the advice of Rothschild,
considers that the terms of the Non-exempt Continuing Connected Transactions
are
fair and reasonable so far as the Independent Shareholders are concerned, and
in
the interests of the Company and its Shareholders as a whole. Accordingly,
the
Independent Board Committee recommends that Independent Shareholders vote in
favour of the ordinary resolutions to be proposed at the Extraordinary General
Meeting to approve the Non-exempt Continuing Connected Transactions, as detailed
in the notice of the Extraordinary General Meeting set out on pages 48 to 49
of
this circular. The text of the letter from the Independent Board Committee
is
set out on pages 27 to 28 of this circular.
The
Directors consider that the proposed amendments to the Articles are in the
best
interest of the Company and its Shareholders. Accordingly, the Directors
recommend the Shareholders to vote in favour of the relevant special resolution
which will be proposed at the Extraordinary General Meeting.
ADDITIONAL
INFORMATION
Your
attention is also drawn to the letter from the Independent Board Committee
which
sets out its recommendation to the Independent Shareholders, the letter from
Rothschild which contains its advice to the Independent Board Committee and
the
Independent Shareholders, and the additional information set out in the
appendices to this circular.
|
By
Order of the Board
China
Netcom Group Corporation (Hong Kong) Limited
Zhang
Chunjiang
Chairman
|
LETTER
FROM THE INDEPENDENT BOARD COMMITTEE
CHINA
NETCOM GROUP CORPORATION (HONG KONG) LIMITED
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
9
November 2007
To
the Independent Shareholders
Dear
Sir or Madam,
NON-EXEMPT
CONTINUING CONNECTED TRANSACTIONS
We
refer to the circular (the “Circular”) dated 9 November 2007 issued by the
Company to its Shareholders of which this letter forms part. The terms defined
in the Circular shall have the same meanings when used in this letter, unless
the context otherwise requires.
On
6 November 2007, the Board announced that CNC China, a wholly-owned subsidiary
of the Company, has on the same date entered into various connected transaction
agreements with China Netcom Group to, among other things, renew the term of
the
existing connected transaction agreements between CNC China, China Netcom Group
and New Horizon Communications, which agreements are to expire on 31 December
2007. In addition, it is also announced that the Information and Communications
Technology Agreement has been terminated and a new agreement has been entered
into between China Netcom System Integration, an indirect wholly-owned
subsidiary of the Company, and China Netcom Group for a term of three years
commencing from 1 January 2008.
The
Independent Board Committee was formed on 22 August 2007 to make a
recommendation to the Independent Shareholders as to whether or not the terms
of
the Non-exempt Continuing Connected Transactions are fair and reasonable so
far
as the Independent Shareholders are concerned, and whether or not the Non-exempt
Continuing Connected Transactions are in the interests of the Company and the
Shareholders as a whole. Rothschild has been retained as independent financial
adviser to advise the Independent Board Committee and the Independent
Shareholders on the fairness and reasonableness of the terms of the Non-exempt
Continuing Connected Transactions.
The
terms and the reasons for the Non-exempt Continuing Connected Transactions
are
summarised in the Letter from the Chairman set out on pages 4 to 26 of the
Circular.
As
your Independent Board Committee, we have discussed with the management of
the
Company the reasons for the terms of the Non-exempt Continuing Connected
Transactions and the basis upon which their terms have been determined. We
have
also considered the principal factors and reasons taken into account by
Rothschild in arriving at its opinion regarding the terms of the Non-exempt
Continuing Connected Transactions as set out in the letter from Rothschild
on
pages 29 to 36 of the Circular, which we urge you to read
carefully.
The
Independent Board Committee, after taking advice from Rothschild, concurs with
the views of Rothschild and considers that the terms of the Non-exempt
Continuing Connected Transactions are fair and reasonable so far as the
Independent Shareholders are concerned and in the interests of the Company
and
its Shareholders as a whole, and it is fair and reasonable not to propose caps
for the transactions contemplated under the Domestic Interconnection Settlement
Agreement 2008 - 2010 and the International Long Distance Voice Services
Settlement Agreement 2008 - 2010. Accordingly, the Independent Board Committee
recommends that Independent Shareholders vote in favour of the ordinary
resolutions to approve the Non-exempt Continuing Connected Transactions, as
detailed in the notice of the Extraordinary General Meeting set out on pages
48
to 49 of the Circular.
|
Yours
faithfully
John
Lawson Thornton
|
|
Victor
Cha Mou Zing
Qian
Yingyi
Hou
Ziqiang
Timpson
Chung Shui Ming
Independent
Board Committee
|
N
M Rothschild & Sons (Hong Kong) Limited
16th
Floor, Alexandra House
18
Chater Road, Central
Hong
Kong SAR
|
Telephone
+852 2525 5333
Facsimile+852
2868 1728
|
LETTER
FROM ROTHSCHILD
The
following is the text of the letter from Rothschild in respect of the Non-exempt
Continuing Connected Transactions to the Independent Board Committee and the
Independent Shareholders prepared for inclusion in this
circular.
9
November 2007
To
the Independent Board Committee and
the
Independent Shareholders of
China
Netcom Group Corporation (Hong Kong) Limited
Dear
Sirs,
RENEWAL
OF
NON-EXEMPT
CONTINUING CONNECTED TRANSACTIONS
We
refer to the Non-exempt Continuing Connected Transactions, details of which
are
contained in the circular issued by the Company dated 9 November 2007 to the
Shareholders (the “Circular”) of which this letter forms a part. Rothschild has
been appointed as the independent financial adviser to advise the Independent
Board Committee and the Independent Shareholders as to whether or not the terms
of the Non-exempt Continuing Connected Transactions are on normal commercial
terms, in the ordinary and usual course of business, fair and reasonable and
in
the interests of the Company and its Shareholders taken as a whole.
The
terms used in this letter shall have the same meanings as defined elsewhere
in
the Circular unless the context otherwise requires.
The
Company and/or its wholly-owned subsidiaries had entered into certain agreements
with China Netcom Group in the past to facilitate the management of all
continuing connected transactions between China Netcom Group and its
subsidiaries or Associates (other than the Group) on the one hand and the Group
on the other. The Independent Shareholders had previously approved these
continuing connected transactions (namely, the Domestic Interconnection
Settlement Agreement, the International Long Distance Voice Services Settlement
Agreement and the Engineering and Information Technology Services Agreement
(all
as defined in the circular of the Company dated 23 September 2005)
(collectively, the “2005 Non-exempt Continuing Connected Transactions”)) at the
extraordinary general meeting of the Company held on 25 October 2005. As the
Company intends to continue the 2005 Non-exempt Continuing Connected
Transactions, the Company has entered into renewal agreements on 6 November
2007
to, among other things, renew the term of these existing connected transaction
agreements. Pursuant to the Hong Kong Listing Rules, the renewal of the
Non-exempt Continuing Connected Transactions and setting of the annual cap
is
subject to the approval of the Independent Shareholders at the Extraordinary
General Meeting by way of a poll.
China
Netcom Group (being the ultimate holding company of the Company with a
beneficial interest of approximately 69.73% of the issued share capital of
the
Company as at the Latest Practicable Date) and its Associates will abstain
from
voting on the resolutions to approve the Non-exempt Continuing Connected
Transactions at the Extraordinary General Meeting.
In
formulating our recommendation, we have relied on the information and facts
supplied to us by the Company and have assumed that any information and
representations made to us are true, accurate and complete in all material
respects as a the date hereof and that they may be relied upon. We have also
assumed that all information, representations and opinions contained or referred
to in the Circular are fair and reasonable and have relied on them.
We
have been advised by the Directors that no material facts have been omitted
and
we are not aware of any facts or circumstances which would render the
information provided and the representations made to us untrue, inaccurate,
incomplete or misleading. We have no reason to doubt the truth, accuracy and
completeness of the information and representations provided to us by the
Directors. The Directors have collectively and individually accepted full
responsibility for the accuracy of the information contained in the Circular
and
have confirmed, having made all reasonable enquiries, that to the best of their
knowledge and belief, opinions expressed in the Circular have been arrived
at
after due and careful consideration and there are no material facts the omission
of which would make any statement in the Circular misleading. We believe that
we
have reviewed sufficient information to reach an informed view in order to
provide a reasonable basis for our advice. We have not, however, conducted
any
independent in-depth
investigation
into the business and affairs of the Group.
PRINCIPAL
FACTORS AND REASONS
In
arriving at our opinion, we have taken into consideration the following
principal factors and reasons:
1. Background
The
agreements in respect of the 2005 Non-exempt Continuing Connected Transactions
entered into between the Company, CNC China, China Netcom Group and New Horizon
Communications in the Company’s ordinary and usual course of business on 12
September 2005 will expire on 31 December 2007. As the Company intends to
continue the 2005 Non-exempt Continuing Connected Transactions, the Company
has
entered into renewal agreements on 6 November 2007 to, among other things,
renew
the terms of these existing connected transaction agreements for a term of
three
years commencing on 1 January 2008.
The
Non-exempt Continuing Connected Transactions are Domestic Interconnection
Settlement Agreement 2008 - 2010, International Long Distance Voice Services
Settlement Agreement 2008 - 2010 and Engineering and Information Technology
Services Agreement 2008 - 2010. Discussion on each of the Non-exempt Continuing
Connected Transactions is set out below.
2. Domestic
Interconnection Settlement Agreement 2008 - 2010
On
6 November 2007, CNC China entered into the Domestic Interconnection Settlement
Agreement 2008 - 2010 with China Netcom Group whereby the parties agreed to
continue the existing transactions under the Domestic Interconnection Settlement
Agreement for a term of three years commencing on 1 January 2008. The Domestic
Interconnection Settlement Agreement 2008 - 2010 can be renewed with the same
terms for further periods of three years if CNC China notifies China Netcom
Group at least three months prior to 31 December 2010.
Pursuant
to the Domestic Interconnection Settlement Agreement 2008 - 2010, the parties
agreed to interconnect the network of China Netcom Group and CNC China and
settle the charges received in respect of domestic long distance voice services
within their respective service regions on a quarterly basis.
Consideration
For
domestic long distance voice services between China Netcom Group and CNC China,
the telephone operator in the location of the calling party makes a settlement
payment to the telephone operator in the location of the called party at the
rate of RMB0.06 per minute regardless of whether the call terminates within
or
outside of the network of either China Netcom Group or CNC China. The settlement
rate of RMB0.06 per minute shall be adjusted with reference to relevant
standards, tariffs or policies promulgated by the relevant regulatory
authorities in China from time to time. Pursuant to the “” (Notice concerning the issue of the measures
on settlement
of interconnection between the public telecommunications networks and sharing
of
relaying fees) promulgated by the Ministry of Information Industry of the PRC
on
28 October 2003 (the “Notice”), the telephone operator which originates the
outgoing calls should pay the telephone operator which receives the incoming
calls a settlement fee of RMB0.06 per minute. Therefore, the settlement
consideration set out in the Domestic Interconnection Settlement Agreement
2008
- 2010 is in line with the requirements under the Notice.
The
terms in the Domestic Interconnection Settlement Agreement 2008 - 2010 are
substantially the same as the Domestic Interconnection Settlement Agreement,
except for the reduction in settlement payment from RMB0.09 per minute to
RMB0.06 minute in the case where the call terminates outside the network of
either China Netcom Group or CNC China with retrospective effect from 1 April
2007. Based on our discussion with the management of the Company, we understand
that of the original rate of RMB0.09 per minute received by the telephone
operator in the location of the called party, RMB0.06 per minute was on-paid
to
the telephone operator outside the network of either China Netcom Group or
CNC
China (i.e. “within the network of a third party”) as a local termination
settlement fee and the balance of RMB0.03 per minute was kept by the telephone
operator in the location of the called party. We understand that the RMB0.03
per
minute served to (i) incentivise the development of the telephone operators
in
the location of the called party which are local subsidiary telephone operators
of China Netcom Group or CNC China; and (ii) incentivise the local subsidiary
telephone operators in constructing local network infrastructure, so that
domestic long distance calls did not need to terminate directly in the long
distance network of other telephone operators, such as China Telecom, in which
case a domestic long distance connection charge of RMB0.30 per minute had to
be
paid. As the development of these local subsidiary telephone operators matured
and the network infrastructure accomplished, the Company is of the
view
that it is no longer necessary to have a higher settlement rate and has decided
to reduce the settlement rate to RMB0.06 per minute, which is in line with
the
Notice. It is expected that such reduction will result in CNC China making
less
settlement payment to China Netcom Group.
We
consider the terms of the Domestic Interconnection Settlement Agreement 2008
-
2010 to be fair and reasonable because:
(i) The
settlement rate of RMB0.06 per minute is set in accordance with the relevant
standards, tariffs or policies promulgated by the relevant regulatory
authorities in China.
(ii) The
settlement rate is also in line with the settlement rate adopted by comparable
companies in the telecommunications industry in China.
(iii) The
material terms and conditions in this agreement are consistent with the terms
and conditions in the Domestic Interconnection Settlement
Agreement.
Annual
cap
The
Company has applied to the Hong Kong Stock Exchange that no annual caps be
proposed for the transactions contemplated under the Domestic Interconnection
Settlement Agreement 2008 - 2010. We concur with the Company’s reasons for not
imposing annual caps for this agreement and consider that it is fair and
reasonable for no annual cap to be proposed for the transactions contemplated
under the Domestic Interconnection Settlement Agreement 2008 - 2010 for the
following reasons:
(i) Growth
in the demand of the voice service of the Group will result in increased
transaction volumes and hence call revenue for the Group. Such growth is beyond
the control of the Group as it depends entirely on customer usage.
(ii) The
settlement rate is determined by reference to appropriate standards, tariffs
and
policies prescribed by the relevant regulatory authorities in China and are
subject to change from time to time, and the Company is not in position to
set
the settlement rates at its discretion.
(iii) Any
annual caps will therefore limit the Company’s ability to provide services to
its customers or expand its business in the ordinary course.
(iv) The
treatment of imposing no annual cap is consistent with similar interconnection
agreements in the telecommunication industry in China.
3. International
Long Distance Voice Services Settlement Agreement 2008 -
2010
On
6 November 2007, CNC China entered into the International Long Distance Voice
Services Settlement Agreement 2008 - 2010 with China Netcom Group whereby the
parties agreed to continue the existing transactions under the International
Long Distance Voice Services Settlement Agreement for a term of three years
commencing on 1 January 2008. The Long Distance Voice Services Settlement
Agreement 2008 - 2010 can be renewed with the same terms for further periods
of
three years if CNC China notifies China Netcom Group at least three months
prior
to 31 December 2010.
Pursuant
to the International Long Distance Voice Services Settlement Agreement 2008
-
2010, the parties agreed to interconnect the network of China Netcom Group
and
CNC China and settle the charges received in respect of international long
distance voice services on a quarterly basis.
Consideration
For
outbound international calls, China Netcom Group reimburses CNC China for any
amount it has paid to overseas telecommunications operators. The net revenue,
i.e. revenue less the amount paid to overseas telecommunications operators,
are
shared between China Netcom Group and CNC China in proportion to the estimated
costs incurred by China Netcom Group and CNC China in connection with the
provision of outbound international long distance voice services.
For
inbound international calls, the revenues received by CNC China from overseas
telecommunications operators (other than the Company and its controlled
entities) shall be shared with China Netcom Group after deducting
the
amount
paid to China Netcom Group at the rate of RMB0.06 per minute (irrespective
of
whether the call terminates within the network of China Netcom Group or within
the network of other operators) in proportion to the estimated costs incurred
by
CNC China and China Netcom Group respectively in connection with the provision
of inbound international long distance voice services. The rate of RMB0.06
per
minute shall be adjusted with reference to the relevant standards, tariffs
or
policies promulgated by the relevant regulatory authorities in China from time
to time.
Independent
Shareholders should note that as CNC China is the entity that has entered into
agreements with overseas telephone operators, CNC China is responsible for
receiving revenues from and paying expenses to overseas telephone operators
whenever international calls arise. Independent Shareholders should also note
that the outbound international calls are calls that originate outside the
network of CNC China but within the network of China Netcom Group whereas the
inbound international calls are calls that terminate outside the network of
CNC
China. As such, international calls will require the use of the networks of
both
CNC China and China Netcom Group and hence require settlement of revenues
between the two groups. We consider it is fair and reasonable to use reasonable
respective costs as the basis of sharing net revenue as this can reflect the
selling expense as well as costs of the infrastructure of the two
groups.
The
terms in the International Long Distance Voice Services Settlement Agreement
2008 - 2010 are substantially the same as the International Long Distance Voice
Services Settlement Agreement, except for the case when an inbound international
call terminates outside the network of China Netcom Group, the amount to be
paid
to China Netcom Group shall be calculated at the new rate of RMB0.06 per minute
instead of previous rate of RMB0.09 per minute. Based on our discussion with
the
management of the Company, we understand that the reason for the rate reduction
is the same as for the Domestic Interconnection Settlement Agreement 2008 -
2010
as discussed above.
We
consider the terms of the International Long Distance Voice Services Settlement
Agreement 2008 - 2010 to be fair and reasonable for the following
reasons:
(i) The
settlement rate of RMB0.06 per minute is set in accordance with the relevant
standards, tariffs and policies promulgated by the relevant regulatory
authorities in China.
(ii) The
settlement rate is also in line with the settlement rate adopted by comparable
companies in the telecommunications industry in China.
(iii) The
share of net revenue between China Netcom Group and CNC China is based on
reasonable respective costs as negotiated on an arm’s length basis between the
relevant parties.
(iv) The
material terms and conditions in this agreement are consistent with the terms
and conditions in the International Long Distance Voice Services Settlement
Agreement.
Annual
cap
The
Company has applied to the Hong Kong Stock Exchange that no annual caps be
proposed for the transactions contemplated under the International Long Distance
Voice Services Settlement Agreement 2008 - 2010. We concur with the Company’s
reasons for not imposing annual caps for this agreement and consider that it
is
reasonable for no annual cap to be proposed for the transactions contemplated
under the International Long Distance Voice Services Settlement Agreement 2008
-
2010 for the same reasons as for the Domestic Interconnection Settlement
Agreement 2008 - 2010.
4. Engineering
and Information Technology Services Agreement 2008 - 2010
On
6 November 2007, CNC China entered into the Engineering and Information
Technology Services Agreement 2008 - 2010 with China Netcom Group whereby the
parties agreed to continue the existing transactions under the Engineering
and
Information Technology Services Agreement for a term of three years commencing
on 1 January 2008. The Engineering and Information Technology Services Agreement
2008 - 2010 can be renewed with the same terms for further periods of three
years if CNC China notifies China Netcom Group at least three months prior
to 31
December 2010.
The
Engineering and Information Technology Services Agreement 2008 - 2010 governs
the arrangements with respect to the provision of certain engineering and
information technology-related services to CNC China by China Netcom Group.
The
terms in the Engineering and Information Technology Services Agreement 2008
-
2010 are the same as the Engineering and Information Technology Services
Agreement.
Consideration
The
charges payable for engineering and information technology-related services
rendered under the Engineering and Information Technology Services Agreement
2008 - 2010 will be determined by reference to market rates. In addition, where
the value of any single item of engineering design or supervision-related
service exceed RMB0.5 million or where the value of any single item of
engineering construction-related service exceeds RMB2 million, the award of
such
services will be subject to tender involving at least three bidders. In the
event of comparable tenders, China Netcom Group will be selected. In this
respect, we have reviewed a sample of transactions provided by the Company
in
relation to the services rendered under the Engineering and Information
Technology Services Agreement and note from our review that the rates charged
by
China Netcom Group were in accordance with the terms of the Engineering and
Information Technology Services Agreement.
We
consider the terms of the Engineering and Information Technology Services
Agreement 2008 - 2010 to be fair and reasonable for the following
reasons:
(i) The
award to China Netcom Group is determined with reference to market
rates.
(ii) When
the amount of transaction is significant (i.e. when a value of any single item
of engineering design or supervision-related service exceed RMB0.5 million
or
where the value of any single item of engineering construction-related service
exceeds RMB2 million), the award will be subject to tender involving at least
three bidders.
(iii) The
treatment of determining award of engineering services with reference to market
rate is consistent with similar engineering agreements in the telecommunications
industry in China.
(iv) The
terms and conditions in this agreement are the same as the terms and conditions
in the Engineering and Information Technology Services Agreement.
Annual
cap
For
the two years ended 31 December 2005 and 2006, the total service charges paid
by
CNC China to China Netcom Group in respect of engineering and information
technology-related services amounted to approximately RMB2,649 million and
RMB2,546 million, respectively. Based on CNC China’s management accounts for the
nine months ended 30 September 2007, the total service charges paid by CNC
China
to China Netcom in respect of engineering and information technology-related
services amounted to approximately RMB1,292 million.
We
understand that in determining the annual caps for the three years ending 31
December 2010, the Group has taken into consideration its plans to make
substantial investment in the next three to five years starting from 2008 with
a
view to enhancing the service quality of its network by (among others) replacing
the copper cables and installing fibre optic cables for its new network. The
Group anticipates that the total investment may reach RMB15,000 million in
the
next three to five years, with an annual investment of approximately RMB3,000
million to RMB5,000 million. As the subsidiaries of China Netcom Group have
extensive experience in telecommunications engineering construction projects,
the Group anticipates that these entities have a good chance of being awarded
the engineering and information technology-related services projects. As such,
the Company has proposed the annual caps for the three years ending 31 December
2008, 2009 and 2010 be maintained at not to exceed RMB4,400 million (which
is
the same as the annual caps under the Engineering and Information Technology
Services Agreement). Based on the aforementioned, we consider the basis and
factors that the Company has taken into account in determining the annual cap
for the Engineering and Information Technology Services Agreement 2008 - 2010
to
be fair and reasonable since the extent and volume of the engineering and
information technology-related services that China Netcom Group may provide
to
CNC China could increase substantially when compared to historical
volumes.
RECOMMENDATION
Having
considered the above principal factors and reasons, we consider (i) the terms
of
the Non-exempt Continuing Connected Transactions to be on normal commercial
terms, in the ordinary and usual course of business, fair and reasonable and
in
the interest of the Company and its Shareholders taken as a whole; (ii) it
is
fair and reasonable for no annual caps to be proposed for the transactions
contemplated under the Domestic Interconnection Settlement Agreement 2008 -
2010
and the International Long Distance Voice Services Settlement Agreement 2008
-
2010; and (iii) the annual cap for transactions contemplated under the
Engineering and Information Technology Services Agreement 2008 - 2010 of
RMB4,400 million for each the three years ending 31 December 2010 to be fair
and
reasonable.
Accordingly,
we advise the Independent Board Committee to recommend the Independent
Shareholders to vote in favour of the ordinary resolutions numbered 1 and 2
to
approve the Non-exempt Continuing Connected Transactions, as detailed in the
notice of the Extraordinary General Meeting set out at the end of the
Circular.
|
Yours
very truly,
For
and on behalf of
N
M Rothschild & Sons (Hong Kong) Limited
Catherine
Yien
Director
|
N
M Rothschild & Sons (Hong Kong) Limited
16th
Floor, Alexandra House
18
Chater Road, Central
Hong
Kong SAR
|
Telephone
+852 2525 5333
Facsimile+852
2868 1728
|
APPENDIX
I PROPOSED AMENDMENTS TO ARTICLES
Details
of the proposed amendments to the Articles are as follows (appropriate
consequential changes to the numbering and sequence of the relevant chapter,
article, paragraph and sub-paragraph will be made, if required, which will
not
be specifically described herein):
(1) Article
74 which reads:
”(a) Save
as expressly provided in these Articles, no person other than a member duly
registered and who shall have paid everything for the time being due from him
payable to the Company in respect of his shares shall be entitled to be present
or to vote (save as proxy for another member) either personally or by proxy,
or
to be reckoned in a quorum at any general meeting.
(b) No
objection shall be made to the validity of any vote except at a meeting at
which
such vote shall be tendered and every vote whether given personally or by proxy
not disallowed at such meeting shall be deemed valid for all purposes whatsoever
of such meeting or poll.
(c) In
case of any dispute as to voting the Chairman shall determine the same, and
such
determination shall be final and conclusive.”
be
amended so that it reads:
”(a) Save
as expressly provided in these Articles, no person other than a member duly
registered and who shall have paid everything for the time being due from him
payable to the Company in respect of his shares shall be entitled to be present
or to vote (save as proxy for another member) either personally or by proxy,
or
to be reckoned in a quorum at any general meeting.
(b) No
objection shall be made to the validity of any vote or the decision on any
resolution except at a meeting at which such vote shall be tendered or at which
such decision on a resolution shall be made and every vote whether given
personally or by proxy not disallowed at such meeting shall be deemed valid
for
all purposes whatsoever of such meeting or poll.
(c) In
case of any dispute as to voting or the decision on any resolution, irrespective
of when such dispute shall arise, the Chairman shall determine the same, and
such determination shall be final and conclusive.”
(2) Article
88 which reads “Unless and until otherwise determined by an ordinary resolution
of the Company, the Directors shall be not fewer than two in number, and there
shall be no maximum number of Directors.”
be
amended so that it reads:
“Unless
and until otherwise determined by an ordinary resolution of the Company, the
Directors shall be not fewer than three in number, and there shall be no maximum
number of Directors.”
(3) Article
103 which reads “The Directors shall have power, exercisable at any time and
from time to time, to appoint any other person as a Director, either to fill
a
casual vacancy or as an addition to the Board but so that the number of
Directors so appointed shall not exceed the maximum number determined from
time
to time (if any) by the shareholders in general meeting and any directors so
appointed shall hold office only until the next following annual general meeting
of the Company and shall then be eligible for re-election, but shall not be
taken into account in determining the Directors or the number of Directors
who
are to retire by rotation at each annual general meeting.”
be
amended so that it reads:
“The
Directors shall have power, exercisable at any time and from time to time,
to
appoint any other person as a Director, either to fill a casual vacancy or
as an
addition to the Board but so that the number of Directors so appointed shall
not
exceed the maximum number determined from time to time (if any) by the
shareholders in general meeting and any directors so appointed shall hold office
only until the next following general meeting of the Company and shall then
be
eligible for re-election. Directors who are so appointed and are eligible for
re-election at an annual general meeting (as opposed to a general meeting which
is not an annual general meeting) shall not be taken into account in determining
the Directors or the number of Directors who are to retire by rotation at such
annual general meeting.”
(4) Article
112 which reads “The Directors may, from time to time, appoint one or more of
their number to be Chief Executive Officer or Joint Chief Executive Officer
of
the Company, or to hold such office in the management, administration or conduct
of the business of the Company as they may decide, and for such period and
upon
such terms and for such remuneration as the Directors shall think fit, and
the
Directors may also, from time to time (subject to the provisions of any
agreement between him or them and the Company) remove him or them from office,
and appoint another or others in his or their place or places.”
be
amended so that it reads:
“The
Directors may, from time to time, approve by two-third or more of their number
present at a Board meeting the appointment of one or more of the Directors
to be
Chief Executive Officer or Joint Chief Executive Officer of the Company, and
the
Directors may also, from time to time, by two-third or more of their number
present at a Board meeting, remove him or them from office, and appoint another
or others in his or their place or places. The terms and remuneration of the
Chief Executive Officer or Joint Chief Executive Officer shall be those as
the
Directors shall think fit. A Chief Executive Officer or Joint Chief Executive
Officer shall ipso facto and immediately cease to be Chief Executive Officer
or
Joint Chief Executive Officer if he shall cease to hold the office of
Director.”
(5) Article
113 which reads “A Chief Executive Officer or a Joint Chief Executive Officer
(subject to the provisions of any agreement between him and the Company) shall
be subject to the same provisions as to resignation and removal as the other
Directors of the Company, and shall ipso facto and immediately cease to be
Chief
Executive Officer or Joint Chief Executive Officer if he shall cease to hold
the
office of Director.” be deleted in its entirety.
(6) The
following be added to the Articles as Article 114 thereof:
”The
Chief Executive Officer or a Joint Executive Officer may, from time to time,
nominate one or more persons who need not be Directors, to hold the office
of
Senior Vice-Presidents or Chief Financial Officer of the Company. Any Senior
Vice-President or Chief Financial Officer so nominated shall be appointed by
the
Directors as they shall think fit.”
(7) Article
115 which reads “The Directors may meet together for the despatch of business,
adjourn and otherwise regulate their meetings as they think fit, and determine
the quorum necessary for the transaction of business. Until otherwise determined
by the Board, two Directors shall constitute a quorum. For the purpose of this
Article an alternate Director shall be counted in a quorum but, notwithstanding
that an alternate Director is also a Director or is an alternate for more than
one Director, he shall for quorum purposes count as only one Director. Matters
arising at any meeting shall be decided by a majority of votes. In case of
an
equality of votes the Chairman of the meeting shall have a second or casting
vote. A Director or the Secretary may, at any time, summon a meeting of the
Directors. A meeting of the Board or any committee of the Board may be held
by
means of such telephone, electronic or other communication facilities as permit
all persons participating in the meeting to communicate with each other
simultaneously and instantaneously, and participation in such a meeting shall
constitute presence in person at such meeting.”
be
amended so that it reads:
“The
Directors may meet together for the despatch of business, adjourn and otherwise
regulate their meetings as they think fit, and determine the quorum necessary
for the transaction of business. Until otherwise determined by the Board, three
Directors shall constitute a quorum. For the purpose of this Article an
alternate Director shall be counted in a quorum but, notwithstanding that an
alternate Director is also a Director or is an alternate for more than one
Director, he shall for quorum purposes count as only one Director. Save as
expressly provided in these Articles, matters arising at any meeting shall
be
decided by a majority of votes. In case of an equality of votes the Chairman
of
the meeting shall have a second or casting vote. A Director or the Secretary
may, at any time, summon a meeting of the Directors. A meeting of the Board
or
any committee of the Board may be held by means of such telephone, electronic
or
other communication facilities as permit all persons participating in the
meeting to communicate with each other simultaneously and instantaneously,
and
participation in such a meeting shall constitute presence in person at such
meeting.”
(8) Article
116 which reads “Notice of a meeting of Directors shall be deemed to be duly
given to a Director if it is given to him personally, in writing or by word
of
mouth, or sent to him at his last known address or any other address given
by
him to the Company for this purpose provided that notice need not be given
to
any Director or alternate Director for the time being absent from Hong Kong.
A
Director may consent to short notice of and may waive notice of any meeting
and
any such waiver may be retrospective.”
be
amended so that it reads:
“Notice
of a meeting of Directors shall be deemed to be duly given to a Director if
it
is given to him personally, in writing or by word of mouth, or by any electronic
means, or sent to him at his last known address or any other address given
by
him to the Company for this purpose provided that notice need not be given
to
any Director or alternate Director for the time being absent from Hong Kong.
A
Director may consent to short notice of and may waive notice of any meeting
and
any such waiver may be retrospective.”
(9) Article
117 which reads “The Directors may elect a Chairman of the Board and determine
the period for which he is to hold office; but if no such Chairman be elected,
or if at any meeting the Chairman be not present within five minutes after
the
time appointed for holding the same, the Directors present shall choose one
of
their number to be Chairman of such meeting.”
be
amended so that it reads:
“The
Directors may elect a Chairman of the Board and determine the period for which
he is to hold office. Board meetings shall be chaired by the Chairman. If at
any
meeting the Chairman be not present within five minutes after the time appointed
for holding the same, and the Chairman has not appointed a Director to chair
the
meeting, any of the Vice-Chairmen (if any) shall be Chairman of such meeting;
or
if no Vice-Chairman is present, the Directors present shall choose one of their
number to be Chairman of such meeting. Meetings of board committees shall be
chaired by the chairman of the respective board committee. If at any meeting
of
a board committee, the chairman of the board committee be not present within
five minutes after the time appointed for holding the same, the board committee
members present shall choose one of their number to be chairman of such
meeting.”
(10) Article
118 which reads “A resolution in writing signed by all the Directors except such
as are absent from Hong Kong or temporarily unable to act through ill health
or
disability (or their alternate Directors) shall (so long as they constitute
a
quorum) be as effective for all purposes as a resolution of the Directors passed
at a meeting duly convened, held and constituted. A written notification of
confirmation of such resolution in writing signed by a Director shall be deemed
to be his signature to such resolution in writing for the purposes of this
Article. Such resolution in writing may consist of several documents, each
signed by one or more Directors.”
be
amended so that it reads:
“A
resolution in writing signed by all the Directors (or their alternate Directors)
except such as are absent from Hong Kong or temporarily unable to act through
ill health or disability shall (so long as they include the Chairman of the
Board and constitute a quorum) be as effective for all purposes as a resolution
of the Directors passed at a meeting duly convened, held and constituted. A
written notification of confirmation of such resolution in writing signed by
a
Director shall be deemed to be his signature to such resolution in writing
for
the purposes of this Article. Such resolution in writing may consist of several
documents, each signed by one or more Directors.”
(11) The
following be added to the Articles as Article 128 thereof:
”The
Company encourages and ensures that representatives of the employees of the
Company and its subsidiaries may, through holding meetings of such
representatives of the Company or the subsidiaries or any other appropriate
means, express their views and recommendations on issues relating to the
Company’s development and employee benefits to the Board or any board
committee.” APPENDIX II GENERAL INFORMATION
1 RESPONSIBILITY
STATEMENT
This
circular includes particulars given in compliance with the Hong Kong Listing
Rules for the purpose of giving information with regard to the Company. The
Directors collectively and individually accept full responsibility for the
accuracy of the information contained in this circular and confirm, having
made
all reasonable enquiries, that to the best of their knowledge and belief there
are no other facts the omission of which would make any statement herein
misleading.
2 DISCLOSURE
OF INTERESTS
As
at Latest Practicable Date, the following Directors and chief executive of
the
Company had, or were deemed to have, interests or short positions in the Shares,
underlying Shares or debentures of the Company or any of its associated
corporations (within the meaning of Part XV of the Securities and Futures
Ordinance) which were required to be
notified
to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and
8 of
Part XV of the Securities and Futures Ordinance (including interests and short
positions which they were deemed or taken to have under such provisions of
the
Securities and Futures Ordinance), or which are required, pursuant to section
352 of the Securities and Futures Ordinance to be entered in the register
referred to therein, or which are required, pursuant to the Model Code for
Securities Transactions by Directors of Listed Issuers contained in the Hong
Kong Listing Rules, to be notified to the Company and the Hong Kong Stock
Exchange.
Name
of Directors
|
Number
and description of equity derivatives
|
No.
of underlying Shares involved in the
Options
|
|
|
|
Zhang
Chunjiang
|
920,000
Options(1)
|
920,000
|
Zuo
Xunsheng (also the chief executive officer)
|
480,000
Options(1)(2)(3)
|
480,000
|
Li
Fushen
|
480,000
Options(1)(2)(3)
|
480,000
|
Zhang
Xiaotie
|
380,000
Options(1)(2)(3)
|
380,000
|
Yan
Yixun
|
354,000
Options(1)(2)(3)
|
354,000
|
|
|
-------
|
|
|
|
Total
|
|
2,614,000
|
|
|
=============
|
Notes:
1 The
Options were all granted on 22 October 2004 under the Share Option Scheme
approved and adopted by a resolution of the Shareholders passed on 30 September
2004 and subsequently amended by a resolution of the Shareholders passed on
16
May 2006. Grantees of such Options are entitled to exercise the Options at
a
price of HK$8.40 in the following periods:
(i) in
respect of 40 per cent. of the Options granted, from 17 May 2006 to 16 November
2010;
(ii) in
respect of a further 20 per cent. of the Options granted, from 17 May 2007
to 16
November 2010;
(iii) in
respect of a further 20 per cent. of the Options granted, from 17 May 2008
to 16
November 2010; and
(iv) in
respect of the remaining 20 per cent. of the Options granted, from 17 May 2009
to 16 November 2010.
2 The
following table sets out the number of Options exercised by the Directors
concerned from 22 October 2004 (being the date of granting of Options) up to
the
Latest Practicable Date and the number of Shares acquired by each of them as
a
result of such exercise of Options:
Name
of Director
|
Number
of Options exercised
|
Number
of Shares acquired
|
|
|
|
Zuo
Xunsheng
|
320,000
|
320,000
|
Zhang
Xiaotie
|
420,000
|
420,000
|
Li
Fushen
|
320,000
|
320,000
|
Yan
Yixun
|
236,000
|
236,000
|
3 The
Directors concerned have ceased to be interested in all the Shares acquired
by
them as a result of the exercise of Options as such Shares have been sold by
the
Directors concerned.
Save
as disclosed above, as at the Latest Practicable Date, none of the Directors
nor
the chief executive of the Company had or was deemed to have any interests
or
short positions in the Shares, underlying Shares or debentures of the Company
or
any of its associated corporations (within the meaning of Part XV of the
Securities and Futures Ordinance) which were required to be notified to the
Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part
XV of the Securities and Futures Ordinance (including interests and short
positions which they were deemed or taken to have under such provisions of
the
Securities and Futures Ordinance), or which were required, pursuant to section
352 of the Securities and Futures Ordinance to be entered in the register
referred to therein, or which are required, pursuant to the Model Code for
Securities Transactions by Directors of Listed Issuers contained in the Hong
Kong Listing Rules, to be notified to the Company and the Hong Kong Stock
Exchange.
China
Netcom Group is the ultimate holding company of the Company who, through China
Netcom Group Corporation (BVI) Limited (“CNC BVI”), was
beneficially interested in approximately 69.73% of the issued share capital
of
the Company as at the Latest Practicable Date. The executive Directors, namely
Mr. Zhang Chunjiang, Mr. Zuo Xunsheng,
Ms.
Li Jianguo, Mr. Zhang Xiaotie and Mr. Li Fushen, also hold executive positions
with China Netcom Group. Details of the shareholding of China Netcom Group
in
the Company are set out in the paragraph headed “Substantial Shareholders” in
this Appendix. Save as disclosed herein, none of the Directors is a director
or
employee of a company which has, or is deemed to have, an interest or short
position in the Shares or underlying Shares which would fall to be disclosed
to
the Company under the provisions of Divisions 2 and 3 of Part XV of the
Securities and Futures Ordinance.
None
of the Directors is materially interested in any contract or arrangement
subsisting as at the Latest Practicable Date which is significant in relation
to
the business of the Group taken as a whole.
Since
31 December 2006, the date to which the latest published audited consolidated
financial statements of the Group were made up, none of the Directors nor any
expert named in the paragraph headed “Qualification of expert” in this Appendix
has any direct or indirect interest in any assets which have been acquired
or
disposed of by or leased to any member of the Group, or are proposed to be
acquired or disposed of by or leased to any member of the Group.
3 SUBSTANTIAL
SHAREHOLDERS
So
far as is known to the Directors and the chief executive of the Company, as
at
the Latest Practicable Date, the following corporations had, or were deemed
to
have, interests or short positions in the Shares or underlying Shares which
would fall to be disclosed to the Company and the Hong Kong Stock Exchange
under
the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures
Ordinance, or who was, directly or indirectly, interested in 10% or more of
the
nominal value of any class of share capital carrying rights to vote in all
circumstances at general meetings of any member of the Group:
|
Capacity
|
Number
of
ordinary
Shares
held
|
Percentage
of
total
issued
Shares
|
|
|
|
|
China
Netcom Group
|
Interest
of controlled corporations
|
4,945,148,000(1)(2)
|
74.19%
|
CNC
BVI
|
Beneficial
owner
|
4,647,449,014
|
|
|
Interest
of controlled corporations
|
1
|
|
|
Trustee
|
297,698,985
|
|
|
|
-------
|
-------
|
|
|
|
|
Total
|
|
4,945,148,000(1)(2)
|
74.19%
|
|
|
=============
|
=============
|
|
|
|
|
AllianceBernstein
L.P.
|
Interest
of controlled corporations
|
41,514,400
|
|
|
Investment
manager
|
357,326,792
|
|
|
|
-------
|
-------
|
|
|
|
|
|
Total
|
398,841,192
|
5.98%
|
|
|
=============
|
=============
|
Notes:
(1) China
Netcom Group beneficially owns 4,647,449,014 Shares held by its wholly-owned
subsidiary, CNC BVI and one share held by CNC Cayman, Limited, a wholly-owned
subsidiary of CNC BVI. The percentage of total issued share capital of the
Company beneficially held by China Netcom Group is 69.73%.
(2) China
Netcom Group is deemed under the Securities and Futures Ordinance to be
interested in 297,698,985 Shares held by CNC BVI as trustee on behalf of certain
Shareholders representing a 4.47% of the issued share capital of the
Company.
(3) All
of the interests held by each of the substantial shareholders as listed in
the
table are long positions.
Save
as disclosed above, as at the Latest Practicable Date, the Directors and the
chief executive of the Company were not aware of any other person who had,
or
was deemed to have, an interest or short position in the Shares and underlying
Shares, which would fall to be disclosed to the Company and the Hong Kong Stock
Exchange under the provisions of Divisions 2 and 3 of Part XV of the Securities
and Futures Ordinance, or, who was, directly or indirectly, interested in 10%
or
more of the nominal value of any class of share capital carrying rights to
vote
in all circumstances at general meetings of any member of the Group, or any
options in respect of such capital.
4 SERVICE
CONTRACTS
As
at the Latest Practicable Date, none of the Directors had entered into, or
proposed to enter into, any service contract with the Company or any member
of
the Group (excluding contracts expiring or determinable by the employer within
one year without payment of compensations (other than statutory
compensation)).
5 MATERIAL
ADVERSE CHANGE
As
at the Latest Practicable Date, the Directors were not aware of any material
adverse change in the financial or trading position of the Group since 31
December 2006, being the date to which the latest published audited consolidated
financial statements of the Group were made up.
6 CONSENT
Rothschild
has given and has not withdrawn its written consents to the issue of this
circular with the inclusion of its letter and references to its name in the
form
and context in which they respectively appear.
Rothschild
is not beneficially interested in the share capital of any member of the Group
and it does not have any right, whether legally enforceable or not, to subscribe
for or to nominate persons to subscribe for securities in any member of the
Group.
7 QUALIFICATIONS
OF EXPERTS
The
following are the qualifications of the professional advisers who has given
opinions or advice contained in this circular:
Name
|
Qualifications
|
Rothschild
|
A
licensed corporation for type 1 (dealing in securities), type 4 (advising
on securities) and type 6 (advising on corporate finance) regulated
activities under the Securities and Futures
Ordinance
|
8 COMPETING
INTEREST
China
Netcom Group is engaged in fixed-line telecommunications business and other
related businesses in the PRC and Asia-Pacific which are similar to that of
the
Company. The executive Directors, namely Mr. Zhang Chunjiang, Mr. Zuo Xunsheng,
Ms. Li Jianguo, Mr. Zhang Xiaotie and Mr. Li Fushen, also hold executive
positions with China Netcom Group. On 6 September 2004, China Netcom Group,
the
Company and CNC China entered into a non-competition agreement, under which
China Netcom Group undertakes not to compete with the Company without the
Company’s prior written consent.
Apart
from the above, none of the Directors and their respective Associates is or
was
interested in any business, apart from the Company’s business, that competes or
competed or is or was likely to compete, either directly or indirectly, with
the
Company’s business.
9 PROCEDURES
FOR DEMANDING A POLL AT THE EXTRAORDINARY GENERAL MEETING
In
accordance with the Hong Kong Listing Rules, any vote taken at the Extraordinary
General Meeting to approve the Non-exempt Continuing Connected Transactions
must
be taken by poll. According to article 70 of the articles of association of
the
Company, a resolution put to the vote of the meeting shall be decided on a
show
of hands unless
(before
or on the declaration of the result of the show of hands or on the withdrawal
of
any other demand for a poll) a poll is demanded by:
(a) the
chairman of the meeting; or
(b) at
least three Shareholders present in person (or in the case of a member being
a
corporation, by its duly authorised representative) or by proxy and entitled
to
vote at the meeting; or
(c) any
Shareholder or Shareholders present in person (or in the case of a member being
a corporation, by its duly authorised representative) or by proxy and
representing in the aggregate not less than one-tenth of the total voting rights
of all Shareholders having the right to attend and vote at the meeting;
or
(d) any
Shareholder or Shareholders present in person (or in the case of a member being
a corporation, by its duly authorised representative) or by proxy and holding
shares conferring a right to attend and vote at the meeting on which there
have
been paid up sums in the aggregate equal to not less than one-tenth of the
total
sum paid up on all shares conferring that right.
A
poll shall be taken at such time (being not later than thirty days after the
date of the demand) and in such manner (including the use of ballot or voting
papers or tickets) as the chairman of the Extraordinary General Meeting may
appoint. On a poll, every Shareholder present at the Extraordinary General
Meeting shall be entitled to one vote for every fully paid-up Share of which
he
is the holder. The result of such poll shall be deemed for all purposes to
be
the resolution of the meeting at which the poll was so directed or
demanded.
10 DOCUMENTS
AVAILABLE FOR INSPECTION
Copies
of the following documents will be available for inspection at Linklaters,
10th
Floor, Alexandra House, Chater Road, Hong Kong during normal business hours
on
any Business Day from the date of this circular until 23 November 2007 and
at
the Extraordinary General Meeting:
(a) Domestic
Interconnection Settlement Agreement 2008 - 2010;
(b) International
Long Distance Voice Services Settlement Agreement 2008 - 2010;
(c) Property
Leasing Agreement 2008 - 2010;
(d) Master
Sharing Agreement 2008 - 2010;
(e) Engineering
and Information Technology Services Agreement 2008 - 2010;
(f) Materials
Procurement Agreement 2008 - 2010;
(g) Ancillary
Telecommunications Services Agreement 2008 - 2010;
(h) Support
Services Agreement 2008 - 2010;
(i) Telecommunications
Facilities Leasing Agreement 2008 - 2010;
(j) Information
and Communications Technology Agreement 2008 - 2010;
(k) the
existing memorandum and articles of association of the Company;
(l) the
letter of recommendation from the Independent Board Committee to the Independent
Shareholders, the text of which is set out on pages 27 to 28 of this
circular;
(m) the
letter of advice from Rothschild dated 9 November 2007, the text of which is
set
out on pages 29 to 36 of this circular; and
(n) the
letter of consent from Rothschild as referred to in the paragraph headed
“Consent” in this Appendix.
NOTICE
OF THE EXTRAORDINARY GENERAL MEETING
CHINA
NETCOM GROUP CORPORATION (HONG KONG) LIMITED
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
NOTICE
IS HEREBY GIVEN that an Extraordinary General Meeting of the
shareholders of China Netcom Group Corporation (Hong Kong) Limited (the
“Company”) will be held on 6 December 2007 at 10:00 a.m. in The
Ballroom, Island Shangri-la, Hong Kong for the purposes of considering and,
if
thought fit, passing, with or without modifications, the following resolutions
as ordinary resolutions and a special resolution, respectively:
Ordinary
Resolutions
1. “THAT
the continuing connected transactions contemplated under the
Engineering and Information Technology Services Agreement 2008 - 2010, as
described in the paragraph headed “Continuing Connected Transactions” under the
section “Letter from the Chairman” of the circular of the Company dated 9
November 2007, together with the relevant annual caps be and are hereby approved
and the directors of the Company be and are hereby authorised to do all such
further acts and things and execute such further documents and take all such
steps which in their opinion may be necessary, desirable or expedient to
implement and/or give effect to the terms of such continuing connected
transactions.”
2. “THAT
the continuing connected transactions contemplated under the Domestic
Interconnection Settlement Agreement 2008 - 2010 and the International Long
Distance Voice Services Settlement Agreement 2008 - 2010, as described in the
paragraph headed “Continuing Connected Transactions” under the section “Letter
from the Chairman” of the circular of the Company dated 9 November 2007 and for
which continuing connected transactions no annual caps have been proposed,
be
and are hereby approved and the directors of the Company be and are hereby
authorised to do all such further acts and things and execute such further
documents and take all such steps which in their opinion may be necessary,
desirable or expedient to implement and/or give effect to the terms of such
continuing connected transactions.”
Special
Resolution
3. “THAT
the amendments to the articles of association of the Company as set
out
in Appendix I to the circular of the Company dated 9 November 2007 be and are
hereby approved.”
|
By
Order of the Board
Li
Fushen Mok Kam Wan
Joint
Company Secretaries
|
Hong
Kong, 8 November 2007
Registered
office
Room
6701, The Center
99
Queen’s Road Central
Hong
Kong
Notes:
1. Details
of the proposed amendments to the articles of association of the Company are
set
out in Appendix I to the circular of the Company dated 9 November 2007. The
Articles are written in English and there is no official Chinese translation
in
respect thereof. The translation into Chinese language in Appendix I to the
circular is for reference only. In case of any inconsistency between the English
and Chinese versions, the English version shall prevail.
2. A
member entitled to attend and vote at the Extraordinary General Meeting is
entitled to appoint one or more proxies to attend and, on a poll, vote in his
stead. A proxy need not be a member of the Company.
3. A
form of proxy for use at the meeting is enclosed. In order to be valid, a form
of proxy together with any power of attorney or other authority, if any, under
which it is signed, or a notarially certified copy of such power of attorney
or
other authority, must be deposited at the Company’s registered office at Room
6701, The Center, 99 Queen’s Road Central, Hong Kong, at least 48 hours before
the time appointed for holding the Extraordinary General Meeting. Completion
and
return of the form of proxy will not preclude a member from attending and voting
in person at the meeting or at any adjourned meeting should a member so
wish.
4. In
accordance with the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited, voting on the above ordinary resolutions will
be
taken by poll.
CHINA
NETCOM GROUP CORPORATION (HONG KONG) LIMITED
(Incorporated
in Hong Kong with limited liability under the Companies
Ordinance)
Form
of proxy for the Extraordinary General Meeting
to
be held on 6 December 2007 at 10:00 a.m.
I
/ We (Note
1)____________________________________________________________________________________
of________________________________________________________________________
being
the registered holder(s)
of_______________________________________________________________________________________
Shares
(Note 2) of US$0.04 each in the share capital of the above-named
Company HEREBY APPOINT THE CHAIRMAN OF THE EXTRAORDINARY GENERAL MEETING
(Note 3)
or_______________________________________________________________________________________of_________________________________as
my/our proxy to attend and act for me/us at the Extraordinary General Meeting
(and any adjournment thereof) of the said Company to be held in The Ballroom,
Island Shangri-la, Hong Kong on 6 December 2007 at 10:00 a.m. for the purposes
of considering and, if thought fit, passing the Resolutions as set out in the
Notice of the Extraordinary General Meeting and at such Extraordinary General
Meeting (and at any adjournment thereof) to vote for me/us and in my/our name(s)
in respect of the Resolutions as indicated below (Note 4).
|
Ordinary
Resolutions
|
FOR
|
AGAINST
|
1
|
To
approve the Engineering and Information Technology Services Agreement
2008
- 2010 and the relevant annual caps
|
|
|
2
|
To
approve the Domestic Interconnection Settlement Agreement 2008 -
2010 and
the International Long Distance Voice Services Settlement Agreement
2008 -
2010 for which there are no annual caps
|
|
|
|
Special
Resolution
|
|
|
3
|
To
approve the amendments to the articles of association of the
Company
|
|
|
Dated
this ____________ day of ____________2007 ________________ Signed (Note
5)
Notes:
1. Full
name(s) and address(es) to be inserted in BLOCK
CAPITALS.
2. Please
insert the number of shares registered in your name(s) to which this proxy
relates. If no number is inserted, this form of proxy will be deemed to relate
to all the shares in the Company registered in your name(s).
3. If
any proxy other than the Chairman of the Extraordinary General Meeting is
preferred, strike out the words “THE CHAIRMAN OF THE EXTRAORDINARY
GENERAL MEETING” and insert the name and address of the proxy desired
in the space provided. A member may appoint one or more proxies to attend and
vote in his stead. ANY ALTERATION MADE TO THIS FORM OF PROXY MUST BE
INITIALLED BY THE PERSON WHO SIGNS IT.
4. IMPORTANT:
IF YOU WISH TO VOTE FOR THE RESOLUTION, TICK THE APPROPRIATE BOX MARKED “FOR”.
IF YOU WISH TO VOTE AGAINST THE RESOLUTION, TICK THE APPROPRIATE BOX MARKED
“AGAINST”. Failure to complete any or all the boxes will entitle your
proxy to cast his votes at his discretion. Your proxy will also be entitled
to
vote at his discretion on any resolution properly put to the Extraordinary
General Meeting other than those referred to in the Notice of the Extraordinary
General Meeting.
5. This
form of proxy must be signed by you or your attorney duly authorised in writing
or, in the case of a corporation, must be either executed under its common
seal
or under the hand of an officer or attorney or other person duly authorised
to
sign the same.
6. In
the case of joint holders of any shares, any one of such joint holders may
vote
at the Extraordinary General Meeting, either personally or by proxy, in respect
of such shares as if he were solely entitled thereto. However, if more than
one
of such joint holders is present at the Extraordinary General Meeting, either
personally or by proxy, the vote of the joint holder whose name stands first
in
the Register of Members and who tenders a vote, whether in person or by proxy,
will be accepted to the exclusion of the votes of the other joint
holder(s).
7. To
be valid, this form of proxy together with the power of attorney (if any) or
other authority under which it is signed (if any) or a notarially certified
copy
thereof, must be deposited at the registered office of the Company at Room
6701,
The Center, 99 Queen’s Road Central, Hong Kong not less than 48 hours before the
time for holding the Extraordinary General Meeting or any adjournment thereof
(as the case may be).
8. The
proxy need not be a member of the Company but must attend the Extraordinary
General Meeting in person to represent you.
9. Completion
and delivery of the form of proxy will not preclude you from attending and
voting at the Extraordinary General Meeting if you so wish. In such event,
the
instrument appointing a proxy shall be deemed to be revoked.
SIGNATURE
Pursuant
to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to
be signed on its behalf by the under-signed, thereunto duly
authorized.
CHINA
NETCOM GROUP CORPORATION (HONG
KONG) LIMITED
By /s/
Li
Fushen
By /s/
Mok
Kam Wan
Name: Li
Fushen and Mok Kam Wan
Title: Joint
Company Secretaries
Date:
November 9, 2007