Nanjing Panda Electronics Company Limited — Proxy Solicitation & Information Statement 2002

Dec 23, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional advisor.

If you have sold or transferred all your shares in Nanjing Panda Electronics Company Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker 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.

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�� ! " # $ % & ' ( ) Nanjing Panda Electronics Company Limited

(a joint stock limited company incorporated in the People's Republic of China)

DISCLOSEABLE TRANSACTION

Acquisition and Disposal of Assets

This circular includes particulars given in compliance with the 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.

23 December 2002

CONTENTS

	Pages
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7

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DEFINITIONS

In this circular, unless otherwise requires, the following expressions have the following meanings:

"Acquisition"	the acquisition of a 20% shareholding interest in BMC;
"BMC"	�� !"#$%"&'()(Beijing Ericsson Mobile
	Communication Limited), a Sino-foreign joint venture enterprise
	incorporated in the PRC;
"Board"	The board of directors of the Company;
"China PTIC"	�� ! " # $ % & ' ( ) (China PTIC Information
	Corporation), a state-owned enterprise incorporated in the PRC;
"Company"	�� ! " # $ % & ' ( ) (Nanjing Panda Electronics
	Company Limited), a joint stock limited company incorporated in
	the PRC whose A shares and H shares are listed on the Shanghai
	Stock Exchange and the Stock Exchange of Hong Kong Limited
	respectively;
"Directors"	The directors of the Company;
"Disposal"	the disposal of a 16% shareholding interest in ENC;
"ENC"	�� ! " # $ % " & ' ( ) (Nanjing Ericsson Panda
	Communication Company Limited), a Sino-foreign joint venture
	enterprise incorporated in the PRC;
"Ericsson"	Telefonaktiebolaget L M Ericsson, a Sweden company;
"Ericsson (China) "	Ericsson (China) Company Limited, a wholly-owned subsidiary of
	Ericsson registered in the PRC;
"JTIGC"	�� !"#$%&'()*+,(Jiangsu Telecom Industrial
	Group Corporation), a company incorporated in the PRC;
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock
	Exchange;
"PRC"	the People's Republic of China;
"Reorganization"	the consolidation by Ericsson of all business relating to mobile
	communications base stations in ENC, and all business relating to
	the manufacturing of mobile phones in BMC;
"RMB"	Renminbi, the lawful currency of the PRC;
"Stock Exchange"	The Stock Exchange of Hong Kong Limited;
"Sony Ericsson"	Sony Ericsson Mobile Communication Limited, a company
	incorporated in the United Kingdom; and
"Yung Shing"	Yung Shing Enterprise Company, a company incorporated in Hong
	Kong .

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LETTER FROM THE BOARD

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�� ! " # $ % & ' ( ) Nanjing Panda Electronics Company Limited

(a joint stock limited company incorporated in the People's Republic of China)

Executive Directors Li Anjian (Chairman, General Manager) Zhang Zuzhong (Vice-chairman) Non-executive Directors Zhou Zhenyu Liu Ailian Yang Huiqian He Zaiding Deng Weiming Xu Guofei Zhu Lifeng Tang Hongqing

Registered Address: Floor 1-2 Block 5, North Wing Nanjing High and New Technology Development Zone Nanjing The PRC

Principal Office: 301 Zhong Shan Road East Nanjing The PRC Postal Code: 210002

Independent Non-executive Directors Wan Hui Ada Ying Kay Wong

23 December 2002

Dear Sir or Madam,

INTRODUCTION

The Board announced on 4 December 2002 that the Company has agreed with China PTIC to enter into the Acquisition for a consideration of RMB93,108,000 and the Disposal for a consideration of RMB108,369,889.

Each of the Acquisition and Disposal constitutes a discloseable transaction for the Company. The purpose of this circular is to provide you with further details regarding the Acquisition and the Disposal.

THE ACQUISITION

Date of Agreement: 28 November, 2002

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LETTER FROM THE BOARD

Parties

• (1) Vendor: China PTIC

• (2) Purchaser: The Company

Asset to be acquired

The Company has agreed to acquire a 20% interest in the shareholding of BMC from China PTIC.

Prior to the Acquisition, BMC was held as to 49% by Ericsson, 49% by China PTIC and 2% by Yung Shing. BMC is a Sino-foreign joint venture enterprise incorporated in the PRC and engages in the manufacturing of mobile communications base stations, systems equipment and mobile phones.

Consideration

The consideration for the Acquisition is RMB93,108,000, as determined using the replacement costing method with reference to BMC’s (ex-dividend) audited accounts for the financial year ended 31 December 2001 prepared in accordance with the PRC accounting standards. The parties agree that the consideration of the Acquisition payable by the Company will be set off against the consideration of the Disposal receivable by the Company from China PTIC, as set out on page 3 under the heading Disposal.

The audited net profit of BMC before and after taxation and extraordinary items prepared in accordance with the PRC accounting standards is RMB 370,531,159 and RMB 349,858,731 for the year ended 31 December 2001, and RMB 361,537,004 and RMB 304,142,486 for the year ended 31 December 2000. The audited net tangible assets of BMC as at 31 December 2001 and 2000 are RMB 808,245,891 and RMB 632,591,035 respectively.

The Acquisition, as a result of the Reorganization to realign the businesses of ENC and BMC to achieve greater competitive edge, will enable the Company to participate in both ENC and BMC whose sales and profit margin are expected to improve after the Reorganization. The Company will benefit from BMC's profit contribution to its earnings.

Completion

15 December, 2002

Condition

There is no condition precedent to the completion of the Acquisition.

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LETTER FROM THE BOARD

THE DISPOSAL

Date of Agreement: 28 November, 2002

Parties

• (1) Vendor: The Company

• (2) Purchaser: China PTIC

Asset to be disposed

The Company has agreed to dispose a 16% interest in the shareholding of ENC.

Prior to the Disposal, ENC was held as to 51% by Ericsson, 43% by the Company, 3% by JTIGC and 3% by Yung Shing, both independent third parties. ENC is a Sino-foreign joint venture enterprise incorporated in the PRC and is mainly engaged in the manufacturing of mobile communications base stations and systems equipment. ENC has harmonised and combined mobile telecommunication facility hardware, software, research and development and service into a comprehensive system supply center.

Consideration

The consideration for the Disposal is RMB108,369,889, as determined using the replacement costing method with reference to ENC’s audited accounts for the financial year ended 31 December 2001 prepared in accordance with the PRC accounting standards and after adjusting for the amount of dividend distributed in July 2002 as described below. The Board considers the replacement costing method a fair and more appropriate valuation method for calculating the consideration of the Disposal.

The net asset value of ENC as at 31 December 2001 is RMB1,230,072,060. The amount of dividend (for profits earned in the year 2001) distributed to the shareholders of ENC in July 2002 amounted to RMB605,017,796. After adjustment of the dividend paid out to the shareholders of ENC, the adjusted net asset value of ENC as at 31 December 2001 is RMB625,054,264, 16% of which is RMB100,008,682. Therefore, the consideration for the Disposal, RMB108,369,889, represents an excess of RMB8,361,207 above the adjusted net asset value of ENC as at 31 December 2001.

The Disposal constitutes an important part to the Reorganization and ENC will benefit from greater future earning opportunities as a result of the Reorganization. After the Reorganization, ENC will specialize in mobile communications base stations and leverage on its comparative advantage. It is expected that ENC will improve in cost eficiency, achieve greater economies of scale and capture a greater market share in its specialized markets.

An amount of RMB93,108,000 of the consideration for the Disposal receivable by the Company will be set off against the consideration of the Acquisition payable by the Company and the net proceed of RMB 15,261,889 in cash has been paid to the Company by China PTIC on 15 December, 2002.

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LETTER FROM THE BOARD

The audited net profit of ENC before and after taxation and extraordinary items prepared in accordance with the PRC accounting standards is RMB 725,281,529 and RMB 605,017,796 for the year ended 31 December 2001, and RMB 510,672,586 and RMB 455,894,794 for the year ended 31 December 2000. The audited net tangible assets of ENC as at 31 December 2001 and 2000 are RMB 1,216,678,118 and RMB 883,851,026 respectively.

Completion

15 December, 2002

Condition

There is no condition precedent to the completion of the Disposal.

Use of Net Proceeds

The net proceeds of the Disposal will be applied by the Company as its working capital.

REASONS FOR THE ACQUISITION AND DISPOSAL

There are duplications of business in ENC and BMC. In order to build a firm business base and increase the competitive edge for ENC and BMC to be the top supply hubs for Ericsson's global business, Ericsson, the Company and China PTIC have agreed to consolidate all business relating to mobile communications base stations in ENC, and all business relating to the manufacturing of mobile phones in BMC.

To implement the Reorganization, Ericsson, the Company, China PTIC and other shareholders of ENC and BMC have undergone a series of transactions and transfers of interests, including the Acquisition and the Disposal to adjust the shareholding structure of ENC and BMC.

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LETTER FROM THE BOARD

The Reorganization has been completed and the shareholding structure of ENC and BMC is as follows:

ENC :

	Before	After
The Company	43%	27%
Ericsson*	51%	25%
Ericsson (China)*	—	26%
China PTIC	—	20% (16% from the Company, 3% from JTIGC,
		and 1% from Yung Shing)
JTIGC	3%	—
Yung Shing	3%	2%

BMC :

	Before	After
The Company	—	20% (from the China PTIC)
Ericsson*	49%	25%
Ericsson (China)*	—	16%
Sony Ericsson*	—	10%
China PTIC	49%	27%
Yung Shing	2%	2%

• Ericsson, Ericsson (China) and Sony Ericsson are associated companies.

The parties to the Reorganization have further agreed that the new shareholding structure of ENC and BMC shall be effective from 1 October 2002, from which the calculation of profit-sharing among the respective shareholders of ENC and BMC will be based on the new shareholding structure and all treatments to the accounts of the ENC and BMC will be consistent with that before the change to the shareholding structure.

Upon completion of the Reorganisation, ENC will be one of the three largest logistics supply hubs serving the global business of Ericsson and the logistics supply hub serving the Asia Pacific region. ENC will mainly be engaged in mobile telecommunications base stations and systems equipment, including product certification, purchasing, supply control, system integration and research and development. BMC will be an important manufacturing base of mobile terminal products including mobile phones for Sony Ericsson, and a supply hub for its world market.

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LETTER FROM THE BOARD

BENEFITS TO THE COMPANY

The Board is of the opinion that the Reorganisation has realigned and consolidated the businesses of ENC and BMC, and will be beneficial to the future growth and development of ENC and BMC. ENC will specialize in mobile telecommunications base stations and BMC will concentrate its resources in the manufacturing of mobile phones. This Reorganization leverages on ENC and BMC's respective comparative advantage and is expected to improve cost efficiency with greater economies of scale and capture a greater market share in their respective specialized markets.

The Company and its subsidiaries are principally engaged in mobile telecommunications, satellite communication, electromechanical and information products, with mobile telecommunications being its major operations. The Reorganization is in line with and does not affect the principal business of the Company.

The Reorganization will allow the Company, Ericsson and China PTIC to be strategic partners in Ericsson and Sony Ericsson's operations in the PRC. After the transfer of mobile communications base station business from BMC to ENC, the operating profit of ENC is expected to improve. The operating profit of BMC is also expected to improve as a result of its specialization in the the manufacturing of mobile phones. The Company will share the profit contribution from both ENC and BMC in proportion to the Company’s respective shareholding in ENC and BMC. Therefore, the Reorganization is expected to contribute directly to the future earning of the Company.

The Board is of the view that the terms and consideration of the Acquisition and the Disposal are fair and reasonable, and are in the best interest of the Company as a whole.

Save for the aforesaid shareholding in BMC, China PTIC is independent of and not connected with the director, chief executive or substantial shareholder of the Company or any of its subsidiaries or an associate of any of them.

ADDITIONAL INFORMATION

Your attention is drawn to the Appendix of this circular setting out the general information of the Company.

Yours faithfully By order of the Board

Li Anjian Chairman

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the 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 the Latest Practicable Date (20 December 2002 , being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular), the interests of the Directors, supervisors and members of the senior management of the Company in the equity or debt securities of the Company or any of its associated corporation (within the meaning of the Securities (Disclosure of Interests) Ordinance the "SDI Ordinance")) which are required to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including interests which any such Director, supervisor and member of the senior management is taken or deemed to have under section 31 of or Part I of the Schedule to the SDI Ordinance); or are required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein; or are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange, are as follows:

Name of Directors	No. of shares held
Zhang Zuzhong	9,400
Zhou Zhenyu	2,900
Yang Huiqian	4,400
He Zaiding	8,000
Deng Weiming	2,743
Xu Guofei	1,886
Zhu Lifeng	2,743
Tang Hongqing	9,100
Name of Supervisors	No. of shares held
Zhang Zhenping	3,429
Chen Ning	3,900
Name of Senior Management	No. of shares held
Wang Hongjin	8,300
Shi Qiusheng	3,343

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GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, none of the Directors supervisors and members of the senior management had any interests in the share capital of the Company or any of its associated corporation (within the meaning of the SDI Ordinance) which were required to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including interests which any such Directors , supervisors and members of the senior management were taken or deemed to have under section 31 of or Part I of the Schedule to the SDI Ordinance); or were required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein; or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS

As at 30 September 2002, according to the register of interests kept by the Company under section 16(1) of the SDI Ordinance and so far as the Board was aware, the following persons were the only persons who directly or indirectly held or were interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of the Company:

			Percentage of
			the total
Name	Type of shares	No. of shares held	share capital (%)
Panda Electronics Group Limited	State-owned	355,015,000	54.20
	(non-circulating)
HKSCC Nominees Ltd.	H Shares (circulating)	239,901,899	36.63

Save as disclosed above, according to the above-mentioned register of interests in the shares of the Company and, so far as the Board was aware, there were no persons who directly or indirectly held or were 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 the Company.

4. LITIGATION

As far as the Directors are aware, neither the Company nor any of its subsidiaries is involved in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

5. SERVICE CONTRACTS

Save as disclosed in the Company's latest Annual Report, the Company has not signed any new service contract with any Director or supervisor and none of the Directors, supervisors has any existing or proposed service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

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GENERAL INFORMATION

APPENDIX

6. MISCELLANEOUS

• (a) The secretary of the Company is Mr. Shi Qiusheng who is an economist.

• (b) The share registrar and transfer office of the Company is Hong Kong Registrars Limited of Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (c) As at the Latest Practicable Date, the issued share capital of the Company was RMB 655,015,000 comprised of 355,015,000 Non-circulating shares which held by the State and 300,000,000 Circulating shares of which 242,000,000 are overseas listed foreign shares (H shares) and 58,000,000 are RMB ordinary shares (A shares).

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