Nanjing Panda Electronics Company Limited - Proxy Solicitation & Information Statement 2007

THE 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 transfer 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 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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南京熊貓電子股份有限公司 Nanjing Panda Electronics Company Limited

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

(Stock Code: 0553)

CONTINUING CONNECTED TRANSACTIONS

Joint Independent Financial Advisers to the Independent Board Committee and Independent Shareholders

CSC Asia Limited

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.

A letter from the board of directors of the Company is set out on pages 1 to 32 of this circular. A letter from the Independent Board Committee (as defined herein) containing its advice to the Independent Shareholders (as defined herein) is set out on page 33 of this circular. A letter of advice from VXLFS and CSC Asia to the Independent Board Committee and the Independent Shareholders is set out on pages 34 to 54 of this circular.

A notice convening the extraordinary general meeting of the Company to be held at the Conference Room, Workers’ Union, 301 Zhong Shan Road East, Nanjing, the People’s Republic of China on 3 April 2007 at 9:00 a.m. is set out on pages 62 to 63 of this circular. Whether or not you are able to attend the extraordinary general meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible to the office of the Company and in any event not less than 24 hours before the time of the extraordinary general meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the extraordinary general meeting or any adjournment thereof should you so wish.

15 February 2007

	Page
Definitions .....................................................................................................................................................	ii
Letter from the Board ..................................................................................................................................	1
Letter from the Independent Board Committee ........................................................................................	33
Letter from VXLFS and CSC Asia ............................................................................................................	34
Appendix I - General Information ...........................................................................................................	55
Notice of The First Extraordinary General Meeting in 2007 ..................................................................	62

— i —

DEFINITIONS

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

“2000 Reorganisation”

the transfer of the Disposed Assets from the Company to the PEGL and the transfer of the Injected Assets from the PEGL to the Company, details of which were stated in the announcement of the Company dated 2 November 2000

“Agreements”
collectively the (i) Sub-contracting services and composite services Agreement (by the Group to the PEGL Group), (ii) Sub-contracting services and composite services Agreement (by the PEGL Group to the Group), (iii) Sale of materials and components and parts Agreement (by the Group to the PEGL Group), (iv) Sale of materials and components and parts Agreement (by the PEGL Group to the Group), (v) Import and export agency Agreement (by the PEGL Group to the Group), (vi) Trademark Licence Agreement (by the Group to the PEGL Group), (vii) Factory Premises Lease Agreement (by the Group to the PEGL Group) and (viii) Land / Factory Premises Lease Agreement (by the PEGL Group to the Group), details of which are listed in the section headed “Future Continuing Connected Transactions” under the Letter from the Board of this circular
“associate(s)”
has the meaning ascribed to it under the Listing Rules
“Annual Cap”

a maximum aggregate annual value of each continuing connected transaction, details of each transaction are stated in the section headed “Future Continuing Connected Transactions” under Letter from the Board of this circular

“Board”
the board of Directors of the Company
“Company”

Nanjing Panda Electronics Company Limited, a company incorporated in PRC with limited liability

“Director(s)”
the director(s) of the Company

— ii —

DEFINITIONS

“Disposed Assets”

“EGM”

“Future Continuing Connected Transactions”
“Group”
“Import and Export Company”
“in the ordinary and usual course of business of the Company/the Group”
“Independent Board Committee”

the assets of the Company relating to the development, manufacture and sale of television sets and its related products as well as VCD players transferred from the Company to PEGL under the 2000 Reorganisation, which include a 100% equity interest in 南京熊貓電視機有限公司 (Nanjing Panda Television Co. Ltd.), 南京熊貓電子運輸公司 (Nanjing Panda Electronics Transportation Company), 熊貓電子集團電源設備公司 (Panda Electronics Group Power Source Equipment Corporation), 熊貓電子集團合肥經銷公司 (Panda Group Hefei Sales Company), 北京寧合熊貓電器有限責任公司 (Beijing Ninghe Panda Electronic Appliances Limited Company), 熊貓電子集團中南經銷公司 (武漢) (Panda Electronics Group Zhongnan Sales Company (Wuhan)), 浙江熊貓電子經銷公司 (Zhejiang Panda Electronics Sales Company), a 55.13% equity interest in 南京家家樂家用電器廠 (Nanjing Jiajiale Home Appliances Factory) and six units in the Company namely, VCD Players Division, Surface Decoration Printing Board Factory, Electronics Components Factory, Electric Appliances Factory, Piezoelectric Ceramic Devices Production Plant and Transport Company, for the development and manufacture of television sets and related products, parts and components, and VCD players

Extraordinary General Meeting including any adjourned meeting(s) thereof to be convened by the Company to consider and approve the Future Continuing Connected Transactions

the future continuing connected transactions between the Group and the PEGL Group as described in the section headed “Future Continuing Connected Transactions” under the Letter from the Board of this circular

the Company and its subsidiaries

Nanjing Panda Electronics Import and Export Company (南京熊貓電子進出口有限公司), a controlling subsidiary of the PEGL

the existing principal activities of the Company/the Group or an activity wholly necessary for the principal activities of the Company/ the Group

an independent committee of the Board appointed by the Board to consider and advise the Independent Shareholders in respect of the terms of the Future Continuing Connected Transactions, comprising the Independent Non-executive Directors, namely Ms. Wan Hui, Mr. Cai Lianglin, Mr. Ma Chung Lai, Lawrence

— iii —

DEFINITIONS

“Independent Non-Executive Directors”
“Independent Shareholders”
“Injected Assets”
“Joint IFA” or “Joint Independent Financial Advisers” or “VXLFS and CSC Asia”
“Judicial Forceful Execution”
“Listing Rules”
“Latest Practicable Date”
“normal commercial terms”

the independent non-executive directors of the Company

Shareholders of the Company other than PEGL and its associates

the assets of PEGL transferred from PEGL to the Company under the 2000 Reorganisation which include a 38.03% equity interest in Shenzhen Jinghua Electronic Company Limited. (深圳京華電子股份有限公司) and a 99% equity interest in Nanjing Panda Mechanical Engineering Plant (南京熊貓機電設備廠)

VXL Financial Services Limited and CSC Asia Limited, the joint independent financial advisers to the Independent Board Committee and the Independent Shareholders in relation to the Future Continuing Connected Transactions and are licensed corporations by the Securities and Futures Committee to conduct type 6 (advising on corporate finance) regulated activities under Securities and Futures Ordinance

On 10 March 2005, the People’s Court of Xuan Wu Qu of Nanjing City ruled to take judicial forceful execution on 51% equity interests valued at RMB19.9932 million in Panda Mobile held by the Company and 95% of equity interests valued at RMB100.0242 million in Panda Communication held by the Company be used to set off for an amount of RMB120 million of debt and interests accrued thereon owed to Nanjing Wei Te Investment Management Company Limited. Upon the Judicial Forceful Execution, Panda Mobile and Panda Communication are not the subsidiaries of the Company thereafter. Please refer to announcement of the Company dated 9 September 2005 for details

the Listing Rules Governing the Listing of Securities on the Stock Exchange
15 February 2007, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining information contained herein
terms which the Company or the Group could obtain on normal commercial terms or on terms no less favourable to the Company than terms accepted or offered by an independent third party

— iv —

DEFINITIONS

“Non-competition Agreement”
the non-competition and first right of refusal agreement entered into between the Group and the PEGL Group dated 18 March 1996 as supplemented by a supplemental agreement entered into between the Group and the PEGL Group on 9th October 2000 which will become effective on completion of the 2000 Reorganisation, details of which were stated in the announcement of the Company dated 2 November 2000
“Panda Communication” Nanjing Panda Communication Development Co., Ltd (南京熊貓通信發展有限公司)
“Panda Mobile” Nanjing Panda Mobile Communication Equipment Co., Ltd (南京熊貓移動通信設備有限公司)
“Panda Television” Nanjing Panda Television Co. Ltd. (南京熊貓電視機有限公司), a subsidiary of PEGL
“PEGL” Panda Electronics Group Limited (熊貓電子集團有限公司), the controlling Shareholder of the Company who holds approximately 51.1% of the issued share capital of the Company as at the date of this circular
“PEGL Group” a group comprising PEGL and its subsidiaries (for the purpose of this circular, excluding the Group)
“Previous Continuing Connected the previous continuing connected transactions between the Group Transactions” and the PEGL Group carried out by the Company from 1 January 2005 to the date of this circular as described in the section headed “Breach of Listing Rules” of this circular
“Previous Waiver”
the waiver granted by the Stock Exchange to the Company on 2 August 2001 in respect of the relevant ongoing connected transactions referred to in the announcement of the Company dated 2 November 2000
“RMB”
Renminbi, the lawful currency of PRC
“Shareholders”
shareholders of the Company
“Stock Exchange”

The Stock Exchange of Hong Kong Limited

— v —

LETTER FROM THE BOARD

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南京熊貓電子股份有限公司 Nanjing Panda Electronics Company Limited

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

(Stock Code: 0553)

Executive Directors: Li Anjian (Chairman, General Manager)

Non-executive Directors: Mr. Xu Guofei (Vice-chairman) Ms. Liu Ailian Mr. Zhu Lifeng Mr. Shi Qiu Sheng Mr. Lu Qing

Independent Non-executive Directors Ms. Wan Hui Mr. Cai Liang Lin Mr. Ma Chung Lai, Lawrence

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

Office Address: 301 Zhong Shan Road East Nanjing The PRC Postal Code: 210002 15 February 2007

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

The Board, in its announcement dated 11 December 2006, announced that the Company has entered into Agreements with the PEGL Group in respect of mutual provision of certain sub-contracting services and composite services between the Group and the PEGL Group, the mutual provision of certain material and components and parts between the Group and the PEGL Group, the import and export agency services provided by the PEGL Group to the Group, the licensing of PANDA Trademarks by the Group to the PEGL Group, the leasing of certain factory premises by the Group to the PEGL Group and the leasing of certain factory premises and land by the PEGL Group to the Group. The Agreements are conditionally entered into subject to the approval by the Independent Shareholders at the EGM by poll.

— 1 —

LETTER FROM THE BOARD

PEGL is the controlling shareholder of the Company. As of the date hereof, PEGL holds 334,715,000 restrictive circulating A Shares of the Company, representing 51.1% of the Company’s total issued share capital. PEGL, and its subsidiaries, excluding the Company and its subsidiaries for the purpose of this circular, are therefore connected persons of the Company under the Listing Rules. The transactions under the Agreements constitute continuing connected transactions under Chapter 14A of the Listing Rules.

As the Previous Waiver ended on 31 December 2004, the Company should have complied with the reporting, announcement and Independent Shareholders’ approval requirements (if applicable) under the Listing Rules for all continuing connected transactions starting from 1 January 2005 but failed to do so. Therefore, the conduct of the Previous Continuing Connected Transactions by the Company since 1 January 2005 to the date of this circular and the failure of the Company to report and announce the details of the Previous Continuing Connected Transactions and to seek Independent Shareholders’ approval have constituted a breach of Rule 14A.35 of the Listing Rules. The Company and the PEGL Group did not sign fresh agreements for the Previous Continuing Connected Transactions but relied on the same normal commercial terms as in the various agreements governing the respective continuing connected transactions for the period from 2002 to 2004, which have obtained the Previous Waiver, and have conducted the Previous Continuing Connected Transactions in the ordinary and usual course of business.

As the Directors expect that the relevant percentage ratios of the annual aggregate value of the Future Continuing Connected Transactions will either exceed 2.5% of the percentage ratios or the relevant considerations will be more than HK$10,000,000 as set out in Chapter 14A of the Listing Rules, the Future Continuing Connected Transactions constitute non-exempt continuing connected transactions under Rule 14A.35 of the Listing Rules . The Future Continuing Connected Transactions would require disclosure by way of press notice, dispatch of circular to Shareholders, prior approval by the Independent Shareholders and fulfillment of the annual review requirement.

The Independent Board Committee has been formed to consider the Future Continuing Connected Transactions and the respective Annual Caps. The letter from the Independent Board Committee to the Independent Shareholders is included in this circular. VXLFS and CSC Asia have been appointed as the joint independent financial advisers to advise the Independent Board Committee and the Independent Shareholders in respect of the Future Continuing Connected Transactions and the respective Annual Caps, and its letter of advice is included in this circular.

The purpose of this circular is to provide you with further information relating to the Future Continuing Connected Transactions and the respective Annual Caps; to set out the recommendation of the Independent Board Committee and the letter of advice from VXLFS and CSC Asia to the Independent Board Committee and the Independent Shareholders and to seek your approval of the Future Continuing Connected Transactions and the respective Annual Caps by poll as the ordinary resolutions as set out in the notice of the EGM.

— 2 —

LETTER FROM THE BOARD

BACKGROUND OF THE CONTINUING CONNECTED TRANSACTIONS

The Company was listed on the Stock Exchange and the Shanghai Stock Exchange respectively in May 1996 and November 1996. PEGL is the controlling shareholder of the Company. As at the date hereof, PEGL holds 334,715,000 restrictive circulating A Shares of the Company, representing 51.1% of the Company’s total issued share capital.

On 9 October 2000, the Company and PEGL entered into the Asset Reorganization Agreement to undergo the 2000 Reorganization. Since the completion of the 2000 Reorganization, the Group and the PEGL Group have respectively been engaged in businesses that are distinct and separate from each other in terms of nature and scope. The Group focuses on satellite communication, information and electromechanical product businesses, whilst the PEGL Group focuses on the consumer electronics product business including manufacture and sale of shortwave communication products, television sets and VCD players.

After completion of the 2000 Reorganization, the Group has entered into the following categories of ongoing connected transactions with the PEGL Group and the Stock Exchange has granted the Previous Waiver to the Company from strict compliance with the announcement/independent shareholders’ approval requirements for such transactions in respect of the three financial years ended 31 December 2002, 31 December 2003 and 31 December 2004 respectively:

(a) Provision of sub-contracting services and composite services by the Group to the PEGL Group
(b) Provision of sub-contracting services and composite services by the PEGL Group to the Group
(c) Sale of materials and components by the Group to the PEGL Group
(d) Sale of materials and components by the PEGL Group to the Group
(e) Import and export agency services provided by the PEGL Group to the Group
(f) Licensing of PANDA Trademarks by the Group to the PEGL Group
(g) Leasing of factory premises by the Group to the PEGL Group

— 3 —

LETTER FROM THE BOARD

The total amount of each of the abovementioned ongoing connected transactions under Previous Waiver did not exceed the relevant waiver cap, details of which are shown as follows:

				% of the		% of the
				Group’s		Group’s
		Annual		turnover		turnover		% of
		waiver cap		in the		in the		the Group’s
		granted by	Actual	preceding	Actual	preceding	Actual	turnover in
	Types of	SEHK under	Amount	financial	Amount	financial	Amount	the preceding
	transactions	Previous Waiver	in 2002	year	in 2003	year	in 2004	financial year
			(RMB’000)		(RMB’000)		(RMB’000)
1	Provision of sub-contracting services	8% of the Group’s	24,580	2.86%	41,147	3.19%	38,338	1.00%
	and composite services by the	turnover in the
	Group to the PEGL Group	preceding financial year
2	Provision of sub-contracting services	4% of the Group’s	3,777	0.44%	1,348	0.10%	5,149	0.13%
	and composite services by the	turnover in the
	PEGL Group to the Group	preceding financial year
3	Sale of materials and components	2% of the Group’s	13,447	1.56%	4,001	0.31%	3,921	0.10%
	by the Group to the PEGL Group	turnover in the
		preceding financial year
4	Sale of materials and Components	1% of the Group’s	6,841	0.80%	9,332	0.72%	4,213	0.11%
	by the PEGL Group to the Group	turnover in the
		preceding financial year
5	Provision of import and export	0.25% of the Group’s	1,656	0.19%	3,149	0.24%	4,787	0.12%
	agency service by the PEGL Group	turnover in the
	to the Group	preceding financial year
6	Licence of the PANDA trademarks	Not more than RMB3,000,000	1,549	N/A	795	N/A	853	N/A
7	Lease of factory premises by the	Not more than RMB3,000,000	508	N/A	1,006	N/A	800	N/A
	Group to the PEGL Group

— 4 —

LETTER FROM THE BOARD

BREACH OF LISTING RULES

As the Previous Waiver ended on 31 December 2004, the Company should have complied with the reporting, announcement and Independent Shareholders’ approval requirements (if applicable) under the Listing Rules for the Previous Continuing Connected Transactions commencing 1 January 2005 to the date of this circular but failed to do so. The failure was due to the oversight of the management of the Company but was not intentional. Therefore, the conduct of the Previous Continuing Connected Transactions by the Company and the failure by the Company to report and announce the details of the Previous Continuing Connected Transactions and to seek Independent Shareholders’ approval have constituted a breach of Rule 14A.35 of the Listing Rules. The Hong Kong Stock Exchange will look into the matter and take such actions as appropriate against the Company in respect of the Breach.

The Company and the PEGL Group did not sign fresh agreements for the Previous Continuing Connected Transactions but relied on the same normal commercial terms as in the various agreements governing the respective continuing connected transactions for the period from 2002 to 2004, which have obtained the Previous Waiver, and have conducted the Previous Continuing Connected Transactions in the ordinary and usual course of business. The categories of the Previous Continuing Connected Transactions are as follows:-

Categories of Previous Continuing	Categories of Previous Continuing	2005.01.01-	2006.01.01-
Connected Transactions		2005.12.31	2006.09.30
		(Audited)	(Unaudited)
		(RMB’000)	(RMB’000)
(A)	Provision of sub-contracting services and composite	28,208	14,845
	services by the Group to the PEGL Group
(B)	Provision of sub-contracting services and composite	17,314	6,964
	services by the PEGL Group to the Group
(C)	Sale of materials and components and parts（零部件）	9,194	13,083
	by the Group to the PEGL Group
(D)	Sale of materials and components and parts（零部件）	12,500	6,285
	by the PEGL Group to the Group
(E)	Import and export agency services provided by the	8,020	—
	PEGL Group to the Group
(F)	Licensing of PANDA Trademarks by the Group	—	—
	to the PEGL Group
(G)	Lease of factory premises by the Group	230	975
	to the PEGL Group

— 5 —

LETTER FROM THE BOARD

(H)	Lease of factory premises by the PEGL Group to the Group	2,410	2,302*
(I)	Guarantees Provided by the PEGL Group in respect of	556,000	576,000**
	banking facilities granted to the Group

Remarks:

the amount includes lease of factory premises and land
** the guarantees provided by the PEGL Group to the Group are for the benefit of the Group on normal commercial terms and no security over the assets of the Group is granted in respect thereof.
(J) Financial Assistance by the Company to the PEGL Group

Balance at beginning of year/period Add: advances Less: repayments Balance at end of year/period	2005.01.01 - 2005.12.31 (Audited) (RMB’000) 302,169 166,250 (193,105) 275,314	2006.01.01 - 2006.12.31 (Unaudited) (RMB’000) 275,314 — (275,314) 0

The financial assistance provided by the Company to the PEGL Group was fully settled and repaid on 31 December 2006 following the Independent Shareholders’ approval on asset transfer by the PEGL Group to the Group in the extraordinary general meeting of the Company held on that day. Reference is made to the Company’s announcements dated 31 December 2006 and 3 January 2007.

The expiration of the Previous Waiver occurred at around the same time as the Judicial Forceful Execution of two subsidiaries, namely, Panda Mobile and Panda Communication, which the Company regarded as a crisis, and there was insufficient manpower to handle the renewal of CCT contracts between PEGL and the Company at that time. Subsequently on 11 March 2005, the Company’s shares were suspended for 6 months pending the issue of an announcement. During that time, the Company’s listing compliance team was preoccupied with the lifting of the shares suspension and as a result there was oversight on the compliance of CCT but the same was not intentional. The Company has at the earliest opportunity started preparing the announcement dated 11 December 2006 and this circular to inform the Independent Shareholders regarding the breach and seek their approval for the Future Continuing Connected Transactions. Given the vast information contained in the said announcement and this circular, it took time for the Company to liaise with the PEGL, its accountant, and legal adviser to prepare and finalize the said announcement and this circular.

— 6 —

LETTER FROM THE BOARD

The Company has formally retained Horwath Risk Advisory Services Limited (“Horwath RA”), a company providing primary corporate governance related services, to conduct an overall examination of the Company’s internal controls.

Horwath RA, during its audit, discovered two main problems as below:

(a) the internal information reporting system formulated by the Group lacked specific procedures to observe and comply with the information disclosure requirements of the Listing Rules; and
(b) upon discovery of material and discloseable matters/events, the relevant personnel/department failed to strictly comply with the internal information reporting system and to report to the Chairman and Secretary of the Board of such matters/events on a timely basis.

Horwath RA, in view of the said findings, has proposed improvement measures to the Company including:

(a) the Group shall specify the internal information reporting system under the Group’s system guidelines so as to ensure full compliance with the requirements of the Listing Rules;
(b) each relevant department of the Group shall on a timely basis report to the Chairman and Secretary of the Board material and discloseable matters (including but not limited to connected transactions) in writing. The relevant department shall also file the relevant information for verification and followup for such matters/events to the Chairman and Secretary of the Board;
(c) arrangement shall be made by the Group to facilitate better communication between the Secretary of the Board and the other departments of the Group to ensure any discloseable matters are verified and reported on a timely basis so as to fully comply with the requirements of the Listing Rules; and
(d) training shall be provided to the relevant management personnel of the Company to familiarize themselves of the Hong Kong accounting system and relevant Listing Rules.

The Company will strictly follow these said proposals and implement the improvement measures.

As it is the Company’s intention to continue to carry out the Future Continuing Connected Transactions with the PEGL Group from the date of this circular to 31 December 2009, and in order to comply with Rule 14A.35 of the Listing Rules, the Company will convene an EGM to seek Independent Shareholders’ approval for the Future Continuing Connected Transactions with the PEGL Group and the respective Annual Caps.

— 7 —

LETTER FROM THE BOARD

PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY, THE GROUP AND THE PARTIES TO PREVIOUS CONTINUING CONNECTED TRANSACTIONS AND FUTURE CONTINUING CONNECTED TRANSACTIONS

The Company is mainly engaged in development, production and sale of satellite communication system, electromechanical and IT products.

The principal business activities carried on by the Group include investment holding and the development, production and sale of satellite communication products, electro-mechanical products and electronic information products.

The principal business activities carried on by PEGL include production of wireless communication equipments, broadcast television equipments, hardware and electronics (五金交電), electronic components, etc.

The PEGL Group is also engaged in the manufacture and sale of consumer electronic products such as shortwave communication products, television sets and VCD players.

Import and Export Company is a subsidiary of the PEGL which holds 70% of its shareholding. The principal business activity engaged by Import and Export Company is import and export trade.

Panda Television is a subsidiary of the PEGL which holds 99% of its shareholding. Its principal business activities are the manufacture of cathode ray tube, plasma display panel and liquid crystal diode, television, etc.

RELATIONSHIP BETWEEN THE GROUP AND THE PEGL GROUP

Since PEGL is the Company’s controlling shareholder, holding 51.1% of the Company’s shares, and therefore a connected person to the Company, the Previous Continuing Connected Transactions and Future Continuing Connected Transactions between the Group and the PEGL Group constitute continuing connected transactions under Chapter 14A of the Listing Rules.

PEGL is the controlling shareholder of Import and Export Company and Import and Export Company is the associate of the PEGL. Hence, Import and Export Company is a connected person to the Company and the continuing connected transactions between the Group and Import and Export Company constitute a continuing connected transaction under Chapter 14A of the Listing Rules.

PEGL is also the controlling shareholder of Panda Television and Panda Television is the associate of the PEGL. Hence, Panda Television is a connected person to the Company and the continuing connected transactions between the Group and Panda Television constitute a continuing connected transaction under Chapter 14A of the Listing Rules.

— 8 —

LETTER FROM THE BOARD

As the Directors expect that in the Future Continuing Connected Transactions, either the relevant percentage ratios will exceed 2.5% of the percentage ratios or the relevant considerations will be more than HK$10,000,000 as set out in Chapter 14A of the Listing Rules, the Future Continuing Connected Transactions constitute non-exempt continuing connected transactions under Rule 14A.35 of the Listing Rules which are subject to Independent Shareholders’ approval.

FUTURE CONTINUING CONNECTED TRANSACTIONS

In order to comply with Rule 14A.35(1) of the Listing Rules and to formally set out the operations and terms of these non-exempt continuing connected transactions between the PEGL Group and the Group, the Company has entered into the following agreements in respect of the Future Continuing Connected Transactions particulars of which are as follows. Each of the Future Continuing Connected Transactions will be conditional upon Independent Shareholders’ approval at the EGM to be convened.

(A) Provision of sub-contracting services and composite services by the Group to the PEGL Group

Agreement: Sub-contracting services and composite services Agreement （分包服務及綜合服務協議） 2. Date: 8th November 2006
Duration of Transactions: From 1 January 2007 to 31 December 2009 4. Parties: The Company PEGL
Nature of Transaction: Provision of sub-contracting services in respect of manufacture of external plastic casings for television sets, processing of machinery facilities, processing of surface mount technology (“SMT”), quality control services, etc. by the Group to the PEGL Group.

Provision of composite services including apparatus maintenance and computer network services by the Group to the PEGL Group.

— 9 —

LETTER FROM THE BOARD

Reasons for Transaction:

The Board considers that the provision of sub-contracting services and composite services by the Group to the PEGL Group is on normal commercial terms in the ordinary and usual course of business of the Group.

The Board also believes that the provision of sub-contracting services and composite services by the Group to the PEGL Group will enlarge the Group’s businesses with a stable source of income. Therefore, the arrangement is beneficial to and in the interests of the Group.

Pricing basis:

The service fees of the provision of sub-contracting services by the Group to the PEGL Group have been and will be determined on the basis of market prices, being prices no less favourable to those accepted or offered by an independent third party for similar services.

The service fees for the provision of composite services by the Group to the PEGL Group have been determined by reference to actual costs incurred in the past and, due to the Group’s plan to standardise its pricing policy, such service fees will be determined on the basis of market prices, being prices no less favourable to those accepted or offered by an independent third party for similar services.

Historical Figures:

As for the period from 1 January 2003 to 30 September 2006, the amount of sub-contracting services and composite services provided by the Group to the PEGL Group are as follows:

	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended
	30 Sep 2006 31 Dec 2005 31 Dec 2004 31 Dec 2003
(RMB’000)	(unaudited)	(audited)	(audited)	(audited)
Turnover of the Group	559,178	850,817	664,640	3,866,798
Amounts	14,845	28,208	38,338	41,147
% of the turnover of the
previous financial year	1.74%	4.24%	1.00%	3.19%

— 10 —

LETTER FROM THE BOARD

Annual Cap:

The PEGL Group expects further growth of television set and shortwave communication businesses in the coming three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively, which will in turn require increased provision of sub-contracting services and composite services. The Company on the other hand, expects its ability to provide relevant services (i.e. services in respect of manufacture of external plastic casings for television sets, processing of machinery facilities, processing of SMT, quality control services) will grow.

Therefore, the amounts of sub-contracting services and composite services to be provided by the Group to the PEGL Group in the three financial years ending 31 December 2007, 2008 and 2009 respectively will increase in line with the development of the PEGL Group’s businesses. The Directors consider that the Annual Cap for the provision of subcontracting services and composite services by the Group to the PEGL Group will not exceed RMB35,000,000, for each of the three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

Terms of Payment:

The Sub-contracting services and composite services Agreement is a general agreement setting out the intention of the parties in the provision of certain sub-contracting services and composite services by the Group to the PEGL Group for the years 2007, 2008 and 2009 respectively:-

(1) The unit prices, total amount and other terms of the actual transactions will be determined when the individual contracts for specific orders are to be executed. The aggregate amount of the actual transactions for each of the years 2007, 2008 and 2009 will not exceed the Annual Cap; and
(2) The Company or its relevant subsidiary, being the supplier, shall offer official invoices to PEGL or the relevant member of the PEGL Group, the purchaser, under individual contracts. The purchaser shall make the relevant payment to the supplier by way of money transfer or commercial bills within 20 days when invoices are received.

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LETTER FROM THE BOARD

(B) Provision of sub-contracting services and composite services by the PEGL Group to the Group

Agreement:
Sub-contracting services and composite services Agreement
（分包服務及綜合服務協議）
Date:
8th November 2006
Duration of Transactions: From 1 January 2007 to 31 December 2009
Parties:
The Company PEGL
Nature of Transaction:

Provision of sub-contracting services in respect of processing of raw materials or semi-finished products for its satellite communication, information and electromechanical products by the PEGL Group to the Group.

Provision of composite services including property management service, machinery maintenance service and other utility services in factory premises, and housing, medical services, social and recreational services and other general welfare services extended to the employees of the Group and their dependants (if applicable) by the PEGL Group to the Group.

Reasons for Transaction:

The Board considers that the provision of sub-contracting services and composite services by the PEGL Group to the Group is on normal commercial terms and in the ordinary and usual course of business of the Group.

The Board further considers that the sub-contracting services and composite services from the PEGL Group have provided the Group with better quality warranties of such services and have reduced cost in management and transportation. Therefore, such arrangement is beneficial to and in the interests of the Group.

Pricing basis:

The service fees of the provision of sub-contracting services between the Group and the PEGL Group will be determined on the basis of market prices, being prices no less favourable to those accepted or offered by an independent third party for similar services.

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LETTER FROM THE BOARD

The service fees of the provision of composite services between the Group and the PEGL Group have been determined by reference to actual costs incurred in the past and, due to the Group’s plan to standardise its pricing policy, such service fees will be determined on the basis of market prices, being prices no less favourable to those accepted or offered by an independent third party for similar services.

Historical Figures:

For the period from 1 January 2003 to 30 September 2006, the amounts of sub-contracting services and composite services provided by the PEGL Group to the Group are as follows:

	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended
	30 Sep 2006 31 Dec 2005 31 Dec 2004 31 Dec 2003
(RMB’000)	(unaudited)	(audited)	(audited)	(audited)
Turnover of the Group	559,178	850,817	664,640	3,866,798
Amounts	6,964	17,314	5,149	1,348
% of the turnover of the
previous financial year	0.82%	2.61%	0.13%	0.10%

Composite services and sub-contracting services provided by PEGL Group to the Group increased in 2005 compared to the preceding two years. There are mainly two reasons for such increase:

(a) Firstly, the Group has contracted to provide automatic ticket barrier（自動檢票機）and automatic ticket vending machine（自動售票機）for the first line of Nanjing City subway project. The Group in turn contracted the PEGL Group to provide the castings of the aforesaid two types of machines. Due to the subway project, the percentage of sub-contracting provided by the PEGL Group to the Group increased in 2005.

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LETTER FROM THE BOARD

(b) Secondly, the percentage stated above for the year ended 31 December 2005 increased as compared to previous years due to the significant decrease in turnover for the year 2004 as compared to 2003. As the percentage was computed against the turnover of the previous financial year, the decrease in the 2004 turnover correspondingly affected the percentage for 2005. Similarly, the turnover for the year ended 2002 was around RMB1,200 million and hence, the percentage for the year 2003 was in line with that of 2004.
Annual Cap:

The Directors expect no big fluctuations in the Group’s turnover of satellite communication, information and electromechanical product businesses in the coming three financial years ending 31 December 2007, 2008 and 2009 respectively , and such businesses are expected to grow gradually and hence will require the PEGL Group’s increased provision of subcontracting services and composite services.

Therefore, the amounts of provision of sub-contracting services and composite services will increase in line with the development of the Group’s businesses. The Directors consider that the Annual Cap for the provision of sub-contracting services and composite services by the PEGL Group to the Group will not exceed RMB15,000,000, for each of the three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

Terms of Payment:

This Sub-contracting services and composite services Agreement is a general agreement setting out the intention of the parties in the provision of certain sub-contracting services and composite services by the PEGL Group to the Group for the years 2007, 2008 and 2009 respectively:-

(1) The unit prices, total amount and other terms of the actual transactions will be determined when the individual contracts for specific orders are to be executed. The aggregate amount of the actual transactions for each of the years 2007, 2008 and 2009 will not exceed the Annual Cap; and

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LETTER FROM THE BOARD

(2) PEGL or the relevant member of the PEGL Group, being the supplier, shall offer official invoices to the Company or its relevant subsidiary, the purchaser, under individual contracts. The purchaser shall make the relevant payment to the supplier by way of money transfer or commercial bills within 20 days when invoices are received.

(C) Sale of materials and components and parts （零部件） by the Group to the PEGL Group

Agreement: Sale of materials and components and parts Agreement （銷售物資及零部件協議）
Date: 8th November 2006
Duration of Transactions: From 1 January 2007 to 31 December 2009
Parties: The Company PEGL
Nature of Transaction: Provision of materials and components and parts （零部件） by the Group to the PEGL Group including raw materials, metal and plastic parts necessary for manufacture of television sets and shortwave communication products and trading business, as well as office information products such as calculators and software.
Reasons for Transaction:

The Board considers that the sale of materials and components and parts by the Group to the PEGL Group will continue on normal commercial terms in the ordinary and usual course of business of the Group and at market prices. The sale of the Group’s materials and components and parts to the PEGL Group will provide the Group with a stable source of income in a fiercely competitive market. Accordingly, the said arrangement is beneficial to and in the interests of the Group.

Pricing basis:

The sale and purchase of materials and components and parts between the Group and the PEGL Group will continue on an arm’s length basis in the ordinary and usual course of business of the Group and at market prices paid by similar entities for similar materials and components and parts in the PRC, being the prices no less favourable to those accepted or offered by an independent third party for similar services.

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LETTER FROM THE BOARD

Historical Figures:

For the period from 1 January 2003 to 30 September 2006, the transaction amounts of materials and components and parts provided by the Group to the PEGL Group are as follows:

	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended
	30 Sep 2006 31 Dec 2005 31 Dec 2004 31 Dec 2003
(RMB’000)	(unaudited)	(audited)	(audited)	(audited)
Turnover of the Group	559,178	850,817	664,640	3,866,798
Amounts	13,083	9,194	3,921	4,001
% of the turnover of the
previous financial year	1.54%	1.38%	0.10%	0.31%

Annual Cap:

The Directors expect that the amounts of the materials and components and parts provided by the Group to the PEGL Group in the three financial years ending 31 December 2007, 2008 and 2009 respectively will increase in line with the development of the PEGL Group’s business, particularly it is estimated that the PEGL Group’s production volume in TV sets and shortwave communication products will increase significantly.

Hence, with reference to the transaction amounts in the past and its estimated growth in the future, the Annual Cap of materials and components and parts sold by the Group to the PEGL Group will not exceed RMB25,000,000, for each of three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

Terms of Payment:

This Sale of materials and components and parts Agreement is a general agreement setting out the intention of the parties in the provision of certain materials and components and parts by the Group to the PEGL Group for the years 2007, 2008 and 2009 respectively:-

(1) The unit prices, total amount and other terms of the actual transactions will be determined when the individual contracts for specific orders are to be executed. The aggregate amount of the actual transactions for each of the years 2007, 2008 and 2009 will not exceed the Annual Cap; and

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LETTER FROM THE BOARD

  - (2) The Company or its relevant subsidiary, being the supplier, shall offer official invoices to PEGL or the relevant member of the PEGL Group, the purchaser, under individual contracts. The purchaser shall make the relevant payment to the supplier by way of money transfer or commercial bills within 20 days when invoices are received.

(D) Sale of materials and components and parts （零部件） by the PEGL Group to the Group
Agreement: Sale of materials and components and parts Agreement （銷售物資及零部件協議）
Date: 8th November 2006 3. Duration of Transactions: From 1 January 2007 to 31 December 2009 4. Parties: The Company PEGL
Nature of Transaction: Provision of various materials, spare parts and components and parts necessary for production of satellite communication, information and electromechanical products by the PEGL Group to the Group.
Reasons for Transaction: The Board considers that the sale of materials and components and parts by the PEGL Group to the Group will continue on normal commercial terms in the ordinary and usual course of business of the Group and at market prices.

The purchase of materials and components and parts by the PEGL Group offers the Group easy and efficient access to materials and components and parts with quality warranties and reduces the Group’s costs in purchasing, management and transportation. Accordingly, the said arrangement is beneficial to and in the interests of the Group.

Pricing basis: The sale and purchase of materials and components and parts between the Group and the PEGL Group will continue on an arm’s length basis in the ordinary and usual course of business of the Group and at market prices paid by similar entities for similar materials and components and parts in the PRC, being the prices no less favourable to those accepted or offered by an independent third party for similar services.

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LETTER FROM THE BOARD

Historical Figures:

For the period from 1 January 2003 to 30 September 2006, the transaction amounts of materials and components and parts provided by the PEGL Group to the Group are as follows:

	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended
	30 Sep 2006 31 Dec 2005 31 Dec 2004 31 Dec 2003
(RMB’000)	(unaudited)	(audited)	(audited)	(audited)
Turnover of the Group	559,178	850,817	664,640	3,866,798
Amounts	6,285	12,500	4,213	9,332
% of the turnover of the
previous financial year	0.74%	1.88%	0.11%	0.72%

Annual Cap:

The Directors expect that the amounts of the materials and components and parts provided to the Group by the PEGL Group in the coming three financial years ending 31 December 2007, 2008 and 2009 respectively will increase in line with the development of the Group’s business without substantial changes.

Hence, with reference to the transaction amount in the past and its estimated growth in the future, the Annual Cap of materials and components and parts sold by the PEGL Group to the Group will not exceed RMB15,000,000, for each of three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

Terms of Payment:

This Sale of materials and components and parts Agreement is a general agreement setting out the intention of the parties in the provision of certain materials and components and parts by the PEGL Group to the Group for the years 2007, 2008 and 2009 respectively:-

(1) The unit prices, total amount and other terms of the actual transactions will be determined when the individual contracts for specific orders are to be executed. The aggregate amount of the actual transactions for each of the years 2007, 2008 and 2009 will not exceed the Annual Cap; and

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LETTER FROM THE BOARD

(2) PEGL or the relevant member of the PEGL Group, being the supplier, shall offer official invoices to the Company or its relevant subsidiary, the purchaser, under individual contracts. The purchaser shall make the relevant payment to the supplier by way of money transfer or commercial bills within 20 days when invoices are received.

(E) Import and export agency services provided by the PEGL Group to the Group

Agreement: Import and export agency Agreement （進出口代理合同） 2. Date: 27 November 2006
Duration of Transactions: From 1 January 2007 to 31 December 2009
Parties: The Company Import and Export Company
Nature of Transaction: Provision of services of importing certain raw materials and parts necessary for the Group’s production activities and exporting certain products abroad by Import and Export Company as the Company’s non-exclusive import and export agent.

During the three financial years ending 31 December 2007, 2008 and 2009 respectively, the Group will appoint Import and Export Company as its non-exclusive import and export agent in respect of its satellite communication, information and electromechanical product businesses.

Due to its expanding overseas sale channels, in addition to the existing import and export agency services, Import and Export Company will purchase from the Group certain products through direct orders for export, rather than charging agency fees only, which is expected to noticeably expand the future transaction amount.

Reasons for Transaction:

In view of the current insignificant amounts of import and export of the Group, it is not cost-effective for the Group to set up a separate import and export entity or to apply for the authorisation for import and export services. Import and Export Company has been and will be the Group’s non-exclusive import and export agency.

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LETTER FROM THE BOARD

The Board considers that the said Import and export agency agreement is entered into between the Group and Import and Export Company on normal commercial terms in the ordinary and usual course of business of the Group.

The Board also believes that due to the favourable import and export channels and the highly competitive power and service advantages of Import and Export Company in its principal business, such import and export agency arrangements between the Group and the PEGL Group will provide the Group with excellent import and export agency services and enhance the export of its products and thus are beneficial to and in the interests of the Group.

Pricing basis:
Historical Figures:
Import and export services provided by Import and Export Company and the prices for the products of the Group purchased by Import and Export Company for export purposes will be charged on the basis of market prices, being the prices no higher than those offered by an independent third party for similar services.

For the period from 1 January 2003 to 30 September 2006, the amounts of import and export agency services provided by the PEGL Group to the Group are as follows:

	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended
	30 Sep 2006 31 Dec 2005 31 Dec 2004 31 Dec 2003
(RMB’000)	(unaudited)	(audited)	(audited)	(audited)
Turnover of the Group	559,178	850,817	664,640	3,866,798
Amounts	—	8,020	4,787	3,149
% of the turnover of the
previous financial year	—	1.21%	0.12%	0.24%

Annual Cap:

The Directors expect that the Group’s growth rate of the turnovers of satellite communication, information and electromechanical product businesses in the coming three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively will be similar to those previously recorded.

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LETTER FROM THE BOARD

On the one hand, with China’s accession to World Trade Organization and the speedy economic globalization, the Group has increased and will further increase its overseas procurement and product export. In particular, it is expected that the Company will expand its overseas market in respect of its satellite communication, information and electromechanical product businesses, leading to a growth in the amount of import and export agency services. On the other hand, as Import and Export Company will directly arrange for the product ordering and export and the charge for direct ordering from the Company is higher than the service fees charged by Import and Export Company, the Company is expected to expand transaction amount noticeably. Therefore, the Annual Cap of the said arrangement will not exceed RMB15,000,000 for each of three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

Terms of Payment:

This Import and export agency Agreement is a general agreement setting out the intention of the parties in the (1) provision of import and export agency services by the PEGL Group to the Group and (2) direct purchases of various of the Group’s products by Import and Export Company for the years 2007, 2008 and 2009 respectively:-

(1) The unit prices, total amount and other terms of the actual transactions will be determined when the individual contracts for specific orders are to be executed. The aggregate amount of the actual transactions for each of the years 2007, 2008 and 2009 will not exceed the Annual Cap;
(2) Regarding the import and export agency services, Import and Export Company shall offer official invoices to the Company and its relevant subsidiaries under individual contracts. The Company and its relevant subsidiaries shall make the relevant payment to Import and Export Company within 20 days when invoices are received; and

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LETTER FROM THE BOARD

(3) As for direct purchases of the Group’s products by Import and Export Company, the Company or its relevant subsidiary shall offer official invoices to Import and Export Company under individual contracts. Import and Export Company shall make the relevant payment to the Company or its relevant subsidiary within 20 days when invoices are received.

(F) Licensing of PANDA Trademarks by the Group to the PEGL Group

Agreement: Trademark Licence Agreement （商標使用許可合同） 2. Date: 27 November 2006 3. Duration of Transactions: From 1 January 2007 to 31 December 2009
Parties: The Company PEGL Panda Television
Nature of Transaction: The grant of the rights to use the PANDA Trademark by the Group to the PEGL Group in the manufacture and sales of television sets and audio visual products like DVD players and VCD players which do not fall within any product category of the Group’s business or any business to be acquired and undertaken by the Group pursuant to the Non-competition Agreement.

The PEGL Group’s rights to use the PANDA Trademark granted under the said Trademark Licence Agreement are non-exclusive and are subject to the Group’s overriding rights to terminate the PEGL Group’s rights to use PANDA Trademark on such products which fall within a product category of any business of the PEGL Group.

Reasons for Transaction:

Although after the completion of the 2000 Reorganisation, the Group’s former Panda television set and VCD player businesses were transferred to the PEGL Group, the PANDA Trademark was registered in the PRC as a whole series of trademarks which could not be individually and separately transferred. Therefore, the PEGL Group has to be licensed to use the PANDA Trademark for manufacture and sale of television sets and VCD players and audio visual products like DVD players.

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LETTER FROM THE BOARD

In the coming three financial years ending 31 December 2007, 2008 and 2009 respectively, the PEGL Group will need to continue to use the PANDA Trademark for manufacture and sale of television sets and audio visual products, in which the Group will be engaged.

The Board believes that the licence granted to the PEGL Group for chargeable use of the trademark can secure and strengthen the fame of the PANDA Trademark with improved brand value and provide the Group with a stable source of income, and hence is beneficial to and in the interests of the Group.

Taking in account the fierce competition and low gross profit margins of the television set and audio visual product businesses, the Board believes that the terms of the Trademark Licence Agreement are in nature normal commercial terms and the execution of such terms is fair and reasonable.

Pricing basis:

The Company grants to the PEGL Group the rights to use the PANDA Trademark in the ordinary and usual course of business of the Group and at market prices paid by similar entities for the use right of the Trademark, being the prices no less favourable to those accepted by or offered to an independent third party for such rights of use.

The Directors expect that the aggregate transaction amount in the coming three financial years ending 31 December 2007, 2008 and 2009 respectively will not be substantial compared to the total turnover of the Company and determined to charge the license fees at the same level as that charged under the 2000 Reorganisation which are as follows:

Type of products Licence fee per unit Colour television set (34" and above) RMB5.00 Colour television set (29") RMB4.00 Colour television set (25") RMB3.00 Colour television set (21") RMB2.00 VCD player RMB2.00

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LETTER FROM THE BOARD

The above licence fee per unit will be reduced by half in respect of products that are manufactured and sold for export purposes in view of greater costs and resources required to penetrate into overseas markets.

The above licence fees are determined on the basis of the valuation of PANDA trademark at RMB18,810,000 as at 30 September 2000 by Sallmanns (Far East) Limited. The Directors consider that the above trademark license fees are in compliance with the market price principle and a valuation report prepared by an independent valuer is not necessary for the following reasons:

(1) the profitability of the television sets industry in recent years has been decreasing;
(2) competition is severe especially in view of the influx of foreign brands;
(3) the gross profit margin in current and future television set and VCD player markets is expected to be low.

In the premises, the Directors consider it would be beneficial to the Company to adopt the previous licence fees charged.

Historical Figures:

For the period from 1 January 2003 to 30 September 2006, the amounts of trademark licence fees paid by PEGL and Panda TV Company Limited to the Company are as follows:

	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended
	30 Sep 2006 31 Dec 2005 31 Dec 2004 31 Dec 2003
(RMB’000)	(unaudited)	(audited)	(audited)	(audited)
Turnover of the Group	559,178	850,817	664,640	3,866,798
Amounts	—	—	853	795
% of the turnover of the
previous financial year	—	—	0.02%	0.06%

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LETTER FROM THE BOARD

Note: The aggregate amount of the licencing fees for the financial year ended 31 December 2005 was around RMB550,000. As the amount of licence fee payable in 2005 was not substantial, and in light of the fact that Panda Television was in final difficulties, the Company, at the request of Panda Television, agreed to allow Panda Television to defer payment of the 2005 licence fees until the end of 2006. As for the 9 months period ending 30 September 2006, there has been transactions and the amount of the relevant licence fees will be billed and be payable by Panda Television after the end of the 2006 financial year.

Annual Cap: According to the development plan of the PEGL Group for television sets and audio visual products for the three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively, there will be increased production of plasma display panel television sets and liquid crystal diode television sets. Therefore, the Annual Cap of the said arrangement is determined at RMB1,000,000 for each of three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively. 10. Terms of Payment: (1) The relevant member of the PEGL Group and Panda Television shall pay the Company the licence fees incurred in each of the years 2007, 2008 and 2009 on or before the 20th day after the end of year of 2007, 2008 respectively; and
(2) The aggregate of the licence fees for each of the years 2007, 2008 and 2009 will not exceed the Annual Cap.

(G) Lease of factory premises by the Group to the PEGL Group

Agreement: Factory Premises Lease Agreement 2. Date: 8 November 2006 3. Duration of Transactions: From 1 January 2007 to 31 December 2009 4. Parties: The Company PEGL 5. Nature of Transaction: Lease of vacant factory premises by the Group to the PEGL Group (“Premises”) under short-term or long-term leases in the three financial years ending 31 December 2007, 2008 and 2009 respectively for the purpose of manufacture and operation.

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LETTER FROM THE BOARD

The Premises are situated at Block 54, No. 301, Zhong Shan Road East, Nanjing. The total annual rent will not exceed RMB2,000,000 and the maximum area for the Premises under the lease will not exceed 2,267 square metres. According to the manufacturing progress of the PEGL Group, at different period of time, it requires different factory premises to accommodate its manufacturing need, which means given a specific point of time within the lease period, the PEGL Group may need different part or the whole of the Premises. Hence, the parties will negotiate and agree upon the exact property area within the Premises to be rented for a specific period of time. As a result, both the area of Premises under the lease and the rental will fluctuate depending on the manufacturing progress of the PEGL Group.
Reasons for Transaction:
The Board is of the opinion that the lease(s) by the Group to the PEGL Group will continue on normal commercial terms in the ordinary and usual course of business of the Group.

Due to product restructure and new business development, the Group has certain vacant Premises which the PEGL Group needs to lease. The lease of such vacant Premises to the PEGL Group will not affect the Group’s own operation. Indeed, such lease arrangements by the Group to the PEGL Group can make full use of existing resources and provide the Group with a stable source of income and thus is beneficial to and in the interests of the Group.

Pricing basis:

The lease(s) by the Group to the PEGL Group will continue to be determined on the basis of market prices, in accordance with the location and function of the Premises, being the prices no less favourable to those accepted or offered by an independent third party for similar lease(s) in similar areas. There is no valuation report in relation to the market rentals of the Premises.

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LETTER FROM THE BOARD

Historical Figures:

For the period from 1 January 2003 to 30 September 2006, the rentals of the Premises leased by the Group to the PEGL Group are as follows. The amount of rental fluctuated because the actual area of property within the Premises that was rented out to the PEGL Group was different from time to time.

	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended
	30 Sep 2006 31 Dec 2005 31 Dec 2004 31 Dec 2003
(RMB’000)	(unaudited)	(audited)	(audited)	(audited)
Turnover of the Group	559,178	850,817	664,640	3,866,798
Rent	975	230	800	1,006
% of the turnover of the
previous financial year	0.27%	0.03%	0.02%	0.08%

Annual Cap:

As the consideration for the lease(s) of the Premises by the Group to the PEGL Group in the coming three financial years ending 31 December 2007, 2008 and 2009 respectively will increase in line with the Group’s business adjustment and development without substantial changes, the Annual Cap of the said arrangement will not exceed RMB2,000,000, for each of the three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

The rental for each individual property within the Premises was fixed in accordance with the location and function of that particular property. In the coming three years, depending on the actual area that will be rented out to the PEGL Group, the total rental will fluctuate correspondingly.

Terms of Payment:

This Factory Premises Lease Agreement is a general agreement setting out the intention of the parties for leasing certain Premises by the Group to the PEGL Group for the years 2007, 2008 and 2009 respectively:-

(1) The specific rents, sizes of area, duration and other terms of the actual rental will be determined when the individual lease agreements are to be executed. The aggregate amount of the rentals for each of the years 2007, 2008 and 2009 will not exceed the Annual Cap;

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LETTER FROM THE BOARD

(2) For leases of which the terms are longer than 1 year, the rentals shall be made payable by PEGL or the relevant member of the PEGL Group to the Company or its relevant subsidiary on or before the 14th day after the end of year 2007, 2008 and 2009 respectively; and
(3) For leases of which the terms are shorter than 1 year, the rent shall be made payable by PEGL or the relevant member of the PEGL Group to the Company or its relevant subsidiary within 14 days of the end of the leasing period.

(H) Lease of factory premises and land use right by the PEGL Group to the Group

Agreement: Land/Factory Premises Lease Agreement 2. Date: 8th November 2006
Duration of Transactions: From 1 January 2007 to 31 December 2009
Parties: The Company PEGL Group
Nature of Transaction: Lease(s) of vacant factory premises and land by the PEGL Group to the Group under short-term or long-term leases in the coming three financial years ending 31 December 2007, 2008 and 2009 respectively for purpose of production and storage.

The subject factory premises are situated at Blocks 16, 17, 27 and 55, No. 301, Zhongshan Road East, Nanjing and the subject land is situated at Economics and Technology Development Zone, Nanjing. The annual rent will be less than RMB6,000,000. The maximum leased area for the vacant factory premises will not exceed 25,000 square metres and that for the land will not exceed 20,000 square metres.

Reasons for Transaction:

The Board is of the opinion that the lease(s) between the Group and the PEGL Group will continue on normal commercial terms in the ordinary and usual course of business of the Group.

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LETTER FROM THE BOARD

Due to product restructure and business development, the Group needs to lease certain factory premises and land for production and storage purposes. The nature and the function of the premises of the PEGL Group meet the manufacturing and storage requirement of the Group and are also close to the premises of the Group. The Group could not find alternative premises that not only meet the manufacturing and storage requirement but are also close to the Group’s manufacturing line. Therefore, such lease arrangements by the PEGL Group to the Group will meet the Group’s needs for factory premises for its production and operation and thus is beneficial to and in the interests of the Group.

Pricing basis:
Historical Figures:
The lease(s) by the PEGL Group to the Group will be determined on the basis of market prices, in accordance with the location and function of the factory premises and land, being the prices no less favourable to those accepted or offered by an independent third party for similar lease(s) in similar areas.

For the period from 1 January 2003 to 30 September 2006, the rentals of the factory premises and land leased by the PEGL Group to the Group are as follows:

	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended	9 months ended Year ended Year ended Year ended
	30 Sep 2006 31 Dec 2005 31 Dec 2004 31 Dec 2003
(RMB’000)	(unaudited)	(audited)	(audited)	(audited)
Turnover of the Group	559,178	850,817	664,640	3,866,798
Rent	2,302	2,410	179	—
% of the turnover of the
previous financial year	0.11%	0.36%	—	—

Annual Cap:

In line with the Group’s business adjustment and development, the Annual Cap of the said lease arrangement will not exceed RMB6,000,000, for each of the three financial years ending 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

The rental for each individual property within the Premises was fixed in accordance with the location and function of that particular property. In the coming three years, depending on the actual area that will be rented by the Group, the total rental will fluctuate correspondingly.

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LETTER FROM THE BOARD

Terms of Payment:

This Land / Factory Premises Lease Agreement is a general agreement setting out the intention of the parties for leasing certain vacant factory premises and land by the PEGL Group to the Group for the years 2007, 2008 and 2009 respectively:-

(1) The specific rents, sizes of area, duration and other terms of the actual rental will be determined when the individual lease agreements are to be executed. The aggregate amount of the rentals for each of the years 2007, 2008 and 2009 will not exceed the Annual Cap;
(2) For leases of which the terms are longer than 1 year, the rentals shall be made payable by the Company or its relevant subsidiary to PEGL or the relevant member of the PEGL Group on or before the 14th day after the end of year of 2007, 2008 and 2009 respectively; and
(3) For leases of which the terms are shorter than 1 year, the rent shall be made payable by the Company or its relevant subsidiary to PEGL or the relevant member of the PEGL Group within 14 days of the end of the leasing period.

BENEFITS OF THE FUTURE CONTINUING CONNECTED TRANSACTIONS

The Future Continuing Connected Transactions form an integral part of the ordinary and usual course of business of the Group and are conducted on normal commercial terms determined on an arm’s length basis. As the Group started business relationship with the PEGL Group since the listing of the Company in 1996, the Group considers that the services mutually provided between the PEGL Group and the Group have so far been able to meet satisfactorily requirements of the Group.

In view of business operational convenience and sources of incomes brought by the Future Continuing Connected Transactions to the Group, the Board considers it to be in the interests of the Company to continue to engage in the Future Continuing Connected Transactions and that the terms of the agreements for Future Continuing Connected Transactions are fair and reasonable and in the interests of the Shareholders as a whole.

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LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

Since PEGL is a connected person of the Company, the Agreements constitute continuing connected transactions under the Listing Rules.

Given that the aggregate consideration of the Future Continuing Connected Transactions are calculated to exceed 2.5% of the relevant percentage ratios and exceed HK$10,000,000 under the Listing Rules, the Future Continuing Connected Transactions are subject to announcement, reporting and shareholders’ approval requirements pursuant to Rule 14A.35 of the Listing Rules. An announcement regarding the Future Continuing Connected Transactions has been made by the Company on 11 December 2006 and the Future Continuing Connected Transactions are proposed for Independent Shareholders’ approval by poll at the EGM to be held on 3 April 2007.

On 8 November 2006, the Board resolved to approve entering into of the Future Continuing Connected Transactions, and all those Directors who have a material interest in the Future Continuing Connected Transactions abstained from voting. The remaining Directors, namely Ms. Wan Hui, Mr. Cai Lianglin, and Mr. Ma Chung Lai, Lawrence, being Independent Non-Executive Directors voted unanimously in favour of the resolution approving the entering into of the Future Continuing Connected Transactions.

The Board proposed that the Future Continuing Connected Transactions shall require Independent Shareholders’ approval by way of poll at the EGM to be held on 3 April 2007 at which PEGL and its associates shall abstain from voting on the resolution regarding the approval of the Future Continuing Connected Transactions and the respective Annual Caps proposed for the Future Continuing Connected Transactions.

The Company will comply with the requirements of annual review of the Future Continuing Connected Transactions as set out in Rules 14A.37 to 14A.40 of the Listing Rules and will re-comply with the relevant Listing Rules if the Annual cap is exceeded or, when the relevant agreements are renewed or, when there is a material change to the terms of the Future Continuing Connected Transactions.

EXTRAORDINARY GENERAL MEETING

Under the Listing Rules, the connected persons with a material interest in the transaction and any shareholder with a material interest in the transaction and its associates will not be permitted to vote at the meeting on the resolution approving the transaction. As at the Latest Practicable Date, PEGL owns about 51.1% of the issued share capital of the Company and controls the voting rights in respect of its shareholding interests in the Company. None of the associates of PEGL holds any shareholding interests or controls or is entitled to exercise control over the voting rights in respect of the shareholding interests of PEGL in the Company. PEGL will abstain from voting in respect of the ordinary resolutions to approve the Future Continuing Connected Transactions and the respective Annual Caps.

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LETTER FROM THE BOARD

Pursuant to the Article 96 of the Articles of Association of the Company, unless a poll is demanded by the following persons before or after voting by show of hands, any vote shall be decided by show of hands:-

(1) the chairman of the meeting; or
(2) at least two shareholders or proxies vested with the voting right; or
(3) shareholder or shareholders (or proxy or proxies) who is/are vested with an aggregate of not less than 10% (including 10%) of the voting rights in such meeting.

The chairman of the meeting shall demand the vote be taken by poll on the approval of the Future Continuing Connected Transactions.

RECOMMENDATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on page 33 of this circular which contains the recommendation of the Independent Board Committee to the Independent Shareholders concerning the Future Continuing Connected Transactions and the respective Annual Caps and (ii) the letter from VXLFS and CSC Asia set out on pages 34 to 54 of this circular which contains its recommendations to the Independent Board Committee and the Independent Shareholders on the Future Continuing Connected Transactions and the respective Annual Caps and the principal factors and reasons considered by VXLFS and CSC Asia in arriving at their recommendations.

Having considered the above principal factors and reasons, the Board is of the opinion that the terms of the Agreements, which constitute the Future Continuing Connected Transactions, and the respective Annual Caps are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned and are no less favourable to the Group than those from independent third parties. The Future Continuing Connected Transactions are conducted in the ordinary and usual course of business in the interest of the Company and the Shareholders. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Future Continuing Connected Transactions under the Agreements and the respective Annual Caps.

ADDITIONAL INFORMATION

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

Yours faithfully

By order of the Board

Li Anjian Chairman

As at the date of the circular, the Board comprises of: 1. Executive Directors: Mr. Li Anjian; 2. Non-executive Directors: Mr. Xu Guofei, Ms. Liu Ailian, Mr. Zhu Lifeng, Mr. Shi Qiusheng, Mr. Lu Qing; 3. Independent Non-executive Directors: Ms. Wan Hui, Mr. Cai Lianglin, Mr. Ma Chung Lai, Lawrence.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee to the Independent Shareholders prepared for incorporation in this circular.

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南京熊貓電子股份有限公司 Nanjing Panda Electronics Company Limited

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

(Stock Code: 0553)

15 February 2007

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We have been appointed as the Independent Board Committee to advise you in connection with the Future Continuing Connected Transactions and the respective Annual Caps, details of which are set out in the Letter from the Board set out in the circular to the Shareholders dated 15 February 2007 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having taken into account the terms of the Future Continuing Connected Transactions, the principal factors and reasons considered by VXLFS and CSC Asia and their advice in relation hereto as set out on pages 34 to 54 of the Circular, we are of the opinion that the Future Continuing Connected Transactions and the respective Annual Caps will be conducted in the normal and usual course of business of the Company and the terms of the Future Continuing Connected Transactions and the respective Annual Caps are on normal commercial terms no less favourable to the Group than those available from independent third parties which are in the interest of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend you to vote in favour of the ordinary resolution to be proposed at the EGM for approving the Future Continuing Connected Transactions and the respective Annual Caps.

Yours faithfully,

For and on behalf of the Independent Board Committee

Ms. Wan Hui, Mr. Cai Lianglin, Mr. Ma Chung Lai, Lawrence

Independent Non-Executive Directors

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LETTER FROM VXLFS & CSC ASIA

The following is the letter of advice from VXLFS and CSC Asia to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular.

VXL Financial Services Limited

Unit 3214, Cosco Tower Grand Millennium Plaza (High Block) 183 Queen’s Road Central Hong Kong

CSC Asia Limited

Units 3204-07, 32/F Cosco Tower 183 Queen’s Road Central Hong Kong

15 February 2007

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We, VXLFS and CSC Asia, refer to our engagement as the joint independent financial advisers to advise the Independent Board Committee and the Independent Shareholders with respect to the Future Continuing Connected Transactions and the respective Annual Caps, details of which are set out in the letter from the Board (the “Letter from the Board”) contained in the circular of the Company to the Shareholders dated 15 February 2007 (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

As stated in the Letter from the Board, the Company has entered into the Agreements with the PEGL Group in respect of the Future Continuing Connected Transactions, all of which with a three-year duration from 1 January 2007 to 31 December 2009.

Since PEGL is the Company’s controlling shareholder holding 51.1% of the Company’s total issued share capital, under the Listing Rules, PEGL and its subsidiaries (excluding the Company and its subsidiaries for the purpose of the Circular) are therefore considered as connected persons of the Company. Accordingly, the transactions under the Agreements constitute continuing connected transactions under Chapter 14A of the Listing Rules.

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LETTER FROM VXLFS & CSC ASIA

As the Directors expect that the relevant percentage ratios of the annual aggregate value of the Future Continuing Connected Transactions will either exceed 2.5% of the percentage ratios or the relevant considerations will be more than HK$10,000,000, the Future Continuing Connected Transactions are therefore subject to the requirements of reporting, announcement and independent shareholders’ approval under the Listing Rules. In this connection, the Company will seek from the Independent Shareholders the approval of the Future Continuing Connected Transactions including the respective Annual Caps. PEGL and its associates will abstain from voting at the EGM in relation to the Future Continuing Connected Transactions and their respective Annual Caps.

The Independent Board Committee comprising of independent non-executive Directors namely Ms. Wan Hui, Mr. Cai Lianglin and Mr. Ma Chung Lai, Lawrence, has been formed to give advise and recommendation to the Independent Shareholders in relation to the Future Continuing Connected Transactions and the respective Annual Caps. We, VXLFS and CSC Asia, have been appointed as the joint independent financial advisers to advise the Independent Board Committee and the Independent Shareholders as to whether the Future Continuing Connected Transactions and the respective Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

VXLFS and CSC Asia are independent from, not connected with, the Company or any of its substantial shareholders, directors or chief executive, or any of their respective associates, and are accordingly qualified to give independent advice to the Independent Board Committee and the Independent Shareholders.

BASIS OF OUR OPINION

In formulating our recommendations, we have relied on the information and facts supplied by the Company and the representations of, the Directors and management of the Company, including those set out in the Circular. We have assumed that all the information and representations so supplied by the Company and/or the Directors and all information and representations referred to or contained in the Circular, for which the Company and the Directors are solely and wholly responsible, were true, accurate and complete at the time they were made and continue to be so as the date hereof. No representation or warranty, expressed or implied, is made by us on the accuracy of such information or representation. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. The Directors have confirmed, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no material facts the omission of which would make any statements in the Circular misleading.

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LETTER FROM VXLFS & CSC ASIA

We consider that we have reviewed sufficient information and documents and have taken all reasonable steps as required under Rule 13.80 of the Listing Rules to reach an informed view to justify our reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Directors and management of the Company. We have not carried out any independent verification on the information provided to us by the Company, its representatives and the Directors, nor have we conducted any independent investigation into the businesses or affairs or assets and liabilities or future prospects of the Group or any of its associates or other parties involved in the Future Continuing Connected Transactions.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion regarding the Future Continuing Connected Transactions, we have taken into consideration the following principal factors and reasons:

1. Background of and reasons for the Future Continuing Connected Transactions

The principal activities of the Group include investment holding and the development, production and sale of satellite communication products, electromechanical products and electronic information products.

The PEGL Group, being the controlling Shareholder, is principally engaged in the production of wireless communication equipments, broadcast television equipments, hardware and electronics, electronic components, and manufacture and sale of consumer electronic products such as shortwave communication products, television (“TV”) sets and video compact disc (“VCD”) players.

As a result of the 2000 Reorganisation, certain transactions have been conducted between the Group and the PEGL Group on an ongoing basis. In order to comply with Rule 14A.35(1) of the Listing Rules and to formally set out the operations and terms of the non-exempt continuing connected transactions between the PEGL Group and the Group and to ensure the continual normal operations of the Group, the Company has entered into the Agreements in respect to the Future Continuing Connected Transactions.

In view of the past cooperation between the PEGL Group involving the continuing connected transactions during the period 2002 to 2004 which had obtained the Previous Waiver and the Future Continuing Connected Transactions are in essence renewals of the Previous Continuing Connected Transactions, the Directors consider that each of the Future Continuing Connected Transactions has been entered into in the ordinary and usual course of business of the Group, on normal commercial terms and on terms that are fair and reasonable and are in the interests of the Group and the Shareholders taken as a whole.

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LETTER FROM VXLFS & CSC ASIA

Future Continuing Connected Transactions

(A) Provision of sub-contracting services and composite services by the Group to the PEGL Group (the “Service Provision”)

On 8 November 2006, the Company and PEGL entered into a sub-contracting services and composite services agreement for a term of three years with effect from 1 January 2007, pursuant to which the Group shall provide (i) sub-contracting services in respect of manufacture of external plastic casings for TV sets, processing of machinery facilities, processing of surface mount technology, quality control services, etc. (the “ Sub-contracting Services”); and (ii) composite services in respect of apparatus maintenance and computer network services (the “Composite Services”) to the PEGL Group (the “Service Provision Agreement”). The commercial terms of the Service Provision Agreement are principally the same as the Previous Continuing Connected Transactions in relation to the Service Provision. As referred to the Service Provision Agreement, the service fees payable by the PEGL Group will be determined on the basis of market prices, being prices no less favourable to those accepted or offered by an independent third party for similar services. The market prices refer to (i) the prices which will be paid by similar entities within the People’s Republic of China (the “PRC “) to acquire similar materials, parts or machines or to receive similar services; or (ii) in the absence of available comparison, the prices fixed by reference to historical transactions; or (iii) in the event that such materials or machines are not available for purchase in the PRC domestic market, the import prices. As advised by the management of the Company, the basis of price charged by the Group is determined after taken into account material costs, labour costs and other related costs and the Group’s service charge. As advised by the management of the Company and upon review of past comparable transactions of the Group, on a sample basis, we note that the transactions contemplated under the Service Provision Agreement are conducted based on gross profit margin of approximately 20% which is comparable to the gross profit margin recorded by the Group for similar services rendered to an independent third party.

Given the years’ of historical track record of the sales generated from the PEGL Group in respect to the provision of sub-contracting and composite services, we consider the Service Provision is a natural extension of the Previous Continuing Connected Transactions, which in essence, will provide a stable source of income to the Group.

Based on the above, we consider that it is in the interest of the Group to enter into the Service Provision Agreement to continue the Service Provision.

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LETTER FROM VXLFS & CSC ASIA

(B) Provision of sub-contracting services and composite services by the PEGL Group to the Group (the “Service Acquisition”)

On 8 November 2006, the Company and PEGL entered into a sub-contracting services and composite services agreement for a term of three years with effect from 1 January 2007, pursuant to which the PEGL Group shall provide to the Group (i) sub-contracting services in respect of processing of raw materials or semi-finished products for satellite communication, information and electromechanical products (the “PEGL Sub-contracting Services”); and (ii) composite services in respect of property management service, machinery maintenance service and other utility services in factory premises, and housing, medical services, social and recreational services and other general welfare services, namely workout facilities and sanitarium services, extended to the employees of the Group and their dependants (if applicable) (the “PEGL Composite Services”) (the “Service Acquisition Agreement”). The commercial terms of the Service Acquisition Agreement are principally the same as the Previous Continuing Connected Transactions in relation to the Service Acquisition. The service fees payable by the Group have been and will be determined on the basis of market prices, being prices no less favourable to those accepted or offered by an independent third party for similar services. Upon review of the comparable past transactions of the Group, on a sample basis, we note that the pricing for the PEGL Sub-contracting Services were generally the same with those offered by independent third party to the Group. As advised by the management of the Company, the fees payable by the Company, in particular, the general welfare services of the PEGL Composite Services, are determined based on actual costs incurred by the PEGL Group plus a service charge representing not more than 18% of such costs. In any event, the charges for the services provided by the PEGL Group will not be higher than the fees charged to independent third parties.

Upon enquiry, we were advised by the management of the Company that the Group does not have the production capabilities regarding the PEGL Sub-contracting Services and therefore has contracted the PEGL Group to carry out the PEGL Sub-contracting Services for the Group since 1996. The Company has advised us that the production facilities of the PEGL Group are in close proximity to the Group’s production plants. Given that PEGL is the controlling Shareholder and that the production facilities are within close proximity, it is reasonable to believe that the PEGL Group will provide the Group quality assurance of the PEGL Sub-contracting Services and that the Group may benefit from lower transportation cost and shorter hauling time. Given that it is not economical for the Group to set up its own production facilities for the PEGL Sub-contracting Services and to employ a team of staff for the sole purpose of providing PEGL Composite Services for its own usage, hence, the rendering of the PEGL Sub-contracting Services and PEGL Composite Services enables a higher degree of economies of scale being attained and thereby will reduce the Group’s procurement costs and enhance the operation efficiency.

Based on the above, we consider that it is in the interest of the Group to enter into the Service Acquisition Agreement to continue to facilitate the smooth operations of the Group.

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LETTER FROM VXLFS & CSC ASIA

(C) Sale of materials and components and parts by the Group to the PEGL Group (the “Materials Sales Transaction”)

On 8 November 2006, the Company and PEGL entered into a sale of materials and components and parts agreement for a term of three years effective from 1 January 2007, pursuant to which the Group shall provide materials and components and parts including raw materials, metal and plastic parts necessary for manufacture of TV sets and shortwave communication products and trading business and office information products to the PEGL Group (the “Materials Sales Agreement”). The commercial terms of the Materials Sales Agreement are principally the same as the Previous Continuing Connected Transactions in relation to the Materials Sales Transaction. According to the Materials Sales Agreement, the consideration payable by the PEGL Group for the Materials Sales Transaction has been and will be at market prices paid by similar entities for similar materials and components and parts in the PRC, being prices no less favourable to those accepted or offered by an independent third party for similar services. Direct comparison of prices of products and raw materials sold to the PEGL Group could not be made against prices of those which are sold to third party customers as the specifications of the products and raw materials with other customers are not identical. As reference, we have compared the respective prices of certain materials and components sold by the Group to the PEGL Group and to independent third party which were similar in specifications, and we noted that the prices sold to the PEGL Group were above their costs and the margins were comparable to those sold to third party customers.

As set out in the Letter from the Board, the Group’s former TV set and VCD player businesses were transferred to the PEGL Group after the completion of the 2000 Reorganisation. We are given to understand that the sale of materials and components to the PEGL Group by the Group has been conducted prior to the 2000 Reorganisation. Furthermore, the Materials Sales Transaction has provided and will provide the Group with a stable source of income.

Based on the above, we consider it is in the interest of the Group to enter into the Materials Sales Agreement which will continue to provide a stable income source for the Group.

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LETTER FROM VXLFS & CSC ASIA

(D) Sale of materials and components and parts by the PEGL Group to the Group (the “Materials Acquisition Transaction”)

On 8 November 2006, the Company and PEGL entered into a sale of materials and components and parts agreement for a term of three years effective from 1 January 2007, pursuant to which the PEGL Group shall provide various materials, spare parts and components and parts necessary for production of satellite communication, information and electromechanical products (the “Materials Acquisition Agreement”). The consideration payable by the Group for the Materials Acquisition Transaction have been and will be at market prices paid by similar entities for similar materials and components and parts in the PRC, being prices no less favourable to those accepted or offered by an independent third party for similar services. Upon our review of respective prices of certain materials and components acquired by the Group from the PEGL Group and from other third party suppliers, it is noted that direct comparison of prices of products and raw materials sold by the PEGL Group could not be made against prices of those which are sold by third party suppliers as the specifications of the products and raw materials were not identical. As advised by the Directors, the prices charged by the PEGL Group is fair and reasonable for products and raw materials sold by the PEGL Group to the Group.

As advised by the Company, prior to the 2000 Reorganisation, the Group had been purchasing the materials and components and parts in connection with the Group’s production of satellite communication, information and electromechanical products from the PEGL Group. Given the years’ of historical track record of materials acquisition transactions from the PEGL Group, it is reasonable to believe that the Materials Acquisition Transaction is a natural extension of the past continuing connected transaction, which have, in essence, been facilitating the Group to secure reliable and stable supply of raw materials and components required for the manufacturing of its products. Moreover, given the close proximity of the operations between the Group and the PEGL Group and PEGL being the controlling Shareholder, it is reasonable to believe that the Group (i) will be offered efficient access to a stable source of supply of the materials and components and parts under the Materials Acquisition Agreement; (ii) will be able to obtain quality assurance from the PEGL Group and at competitive prices; and (iii) can minimize the cost and time involved in procurement, management, transportation and storage in the Group’s procurement process, hence enhancing the operational efficiency and smooth production of the Group.

Based on the above, we consider that it is in the interest of the Group to enter into the Materials Acquisition Agreement to continue to facilitate the smooth operations of the Group.

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LETTER FROM VXLFS & CSC ASIA

(E) Import and export agency services provided by the PEGL Group to the Group (the “Agency Service Acquisition”)

On 27 November 2006, the Company and Import and Export Company entered into an import and export agency agreement for a term of three years effective from 1 January 2007, pursuant to which Import and Export Company shall (i) act as a non-exclusive import and export agent of the Group, providing import services of raw materials and parts essential for the Group’s production activities and export services for certain Group’s products abroad; and (ii) purchase certain Group’s products through direct orders for export (the “Agency Service Acquisition Agreement”). The commercial terms of the Agency Service Acquisition Agreement are principally the same as the Previous Continuing Connected Transactions regarding the Agency Service Acquisition. According to the Agency Service Acquisition Agreement, the agency fees payable by the Group will be charged on the basis of market prices, being the prices not higher than those offered by an independent third party for similar services. In addition, Import and Export Company will give priority to the Group in providing import and export services than to independent third party.

As set out in the Letter from the Board, the principal activity of Import and Export Company is import and export trade while one of the principal business activities of the Group is the production and sale of satellite communication, information and electromechanical products.

Upon enquiry, we were advised by the Company that the Group has not engaged other independent third party as Import and Export Company has been providing satisfactory services at reasonable price to the Group. Moreover, the Directors considered that it is not cost-effective for the Group to set up an import and export entity or to apply for authorisation for import and export services to cater the Group’s potential increase demand for import and export services as a result of its plan for overseas sales channel expansion. Apart from enjoying the economies of scale, the Group could obtain one stop solution for its shipments and/or transhipments. Furthermore, the Agency Service Acquisition is non-exclusive and the Group is entitled to appoint other import and export agent if terms offered by other independent third parties are more favourable.

Based on the above, we consider it is in the interest of the Group to enter into the Agency Service Acquisition Agreement to continue to facilitate the smooth operation of the Group.

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LETTER FROM VXLFS & CSC ASIA

(F) Licensing of PANDA trademarks (the “PANDA Trademark”) by the Group to the PEGL Group (the “Trademark Licensing”)

On 27 November 2006, the Company, PEGL and Panda TV Company Limited entered into the trademark licence agreement for a term of three years effective from 1 January 2007, in respect of the grant of the rights to use the PANDA Trademark by the Group to the PEGL Group in its manufacture and sale of TV sets and VCD players on a non-exclusive basis, and the Group has the overriding rights to terminate the PEGL Group’s right to use the PANDA Trademark (the “Trademark Agreement”). The commercial terms of the Trademark Agreement are substantially the same as the Previous Continuing Connected Transactions in relation to the Trademark Licensing. Pursuant to the Trademark Agreement, the PEGL Group has the rights to use the PANDA Trademark at market prices paid by similar entities for the use right of the Panda Trademark, being the prices no less favourable to those accepted by or offered to an independent third party for such rights of use. Further, the licence fee per unit will be reduced by half in respect of products that are manufactured and sold for export purposes in view of greater costs and resources required to penetrate into overseas markets.

As stated in the Letter from the Board, the Directors determined to charge the licence fees at the same level as that charged under the 2000 Reorganisation which has been based on an independent valuation of PANDA Trademark. In view of the above pricing basis for the licence fees, we are of the view that the pricing under the Trademark Agreement is fair and reasonable.

As set out in the Letter from the Board, the PANDA Trademark was registered in the PRC by the Group as a whole series of trademarks and could not be individually and separately transferred to the PEGL Group even though after the completion of the 2000 Reorganisation of transferring the Group’s former Panda TV set and VCD player businesses to the PEGL Group. As the business of the sale and manufacture of Panda TV sets and VCD players have been transferred to the PEGL Group following the 2000 Reorganisation and that the PANDA Trademark could not be registered individually and separately transferred, the PEGL Group has to license to use the PANDA Trademark for manufacturing of Panda TV sets and VCD players.

Given that the Trademark Licensing will (i) enhance the income generating ability of Group; (ii) provide a recovery of the costs incurred by the Group for the PANDA Trademark; and (iii) strengthen the renown of the PANDA Trademark, which is expected to provide an improved brand value and enhance corporate image and public recognition of the Group, we consider that there is acceptable rationale to enter into the Trademark Agreement which will continue to provide a stable source of income for the Group.

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LETTER FROM VXLFS & CSC ASIA

(G) Lease of factory premises by the Group to the PEGL Group (“the Lease of Factory Premises Agreement”)

On 8 November 2006, the Company and PEGL entered into the Factory Premises Lease Agreement for a term of three years effective from 1 January 2007, in respect of the lease of vacant factory premises by the Group to the PEGL Group (“Premises 1”) for the purpose of manufacture and operation under short-term or long-term leases with maximum area of 2,267 square metres for lease. The exact property area of Premises 1 to be leased and the rental will vary depending on the manufacturing need of the PEGL Group in accordance with its manufacturing progress and will be negotiated and agreed by the contracting parties. The commercial terms of the Factory Premises Lease Agreement are principally the same as the Previous Continuing Connected Transactions in relation to the Lease of Factory Premises. The rental income payable by the PEGL Group will continue to be determined on the basis of market prices, in accordance with the location and function of the Premises 1, being the prices no less favourable to those accepted or offered by an independent third party for similar lease(s) in similar areas. As reference, we have compared the leases made by the Group to the PEGL Group and to independent third party, and we noted that the leases made by the Group to the PEGL Group and to independent third party are generally on similar prices.

As set out in the Letter from the Board, in view of (i) product restructure and new business development of the Group, Premises 1 are vacant and are leased to the PEGL Group to accommodate the PEGL Group’s manufacturing needs; (ii) the lease of vacant Premises 1 will not affect the Group’s own operation; (iii) the Group utilizes its existing resources to maximize return from its capital investment; and (iv) the Group’s excessive resources will meet the PEGL Group’s required usage and function of the production facilities during which the PEGL Group does not have the required usage and function from its own production facilities at the time of leasing, we consider it is beneficial for the Company to enter into the Factory Premises Lease Agreement to continue to lease Premises 1 to the PEGL Group.

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LETTER FROM VXLFS & CSC ASIA

(H) Lease of factory premises and land use rights by the PEGL Group to the Group (the “Land/ Factory Leasing Arrangement “)

On 8 November 2006, the Company and the PEGL Group entered into the Land/ Factory Premises Lease Agreement for a term of three years effective from 1 January 2007, in respect of the lease of vacant factory premises and land (“Premises 2”) by the PEGL Group to the Group for the purpose of production and storage under short-term or long-term leases with maximum leased area of 25,000 square metres for vacant factory premises and 20,000 square metres for the land. The lease(s) by the PEGL Group to the Group will be determined on the basis of market prices, in accordance with the location and function of the factory premises and land, being the prices no less favourable to those accepted or offered by an independent third party for similar lease(s) in similar areas. As reference, we have compared the leasing contracts leased by the PEGL Group to the Group and other independent third party and noted that the leases paid by the Group are comparable to that paid by independent third party.

We are given to understand that (i) the Group needs to lease certain factory premises and land for production and storage purposes as a result of its product restructure and business development; (ii) the nature and the function of Premises 2 satisfy the Group’s manufacturing and storage requirement; (iii) Premises 2 are in close proximity to the Group’s production premises; (iv) the Group does not possess the required function from its own production facilities and the required function is available from the PEGL Group’s production facilities, i.e. Premises 2; and (v) the Group could not find alternative premises that could meet the manufacturing and storage requirement and as close as Premises 2 with the Group’s manufacturing facilities.

Based on the above, we consider it is beneficial for the Group to enter into the Land/ Factory Premises Lease Agreement as it will facilitate the smooth operation of the Group.

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LETTER FROM VXLFS & CSC ASIA

2. Proposed Annual Caps for the Future Continuing Connected Transactions

Each of the Future Continuing Connected Transactions will be subject to, among other things, the relevant Annual Caps for each of the three financial years ending 31 December 2009. As referred to the Letter from the Board, the Company proposes to set out the following Annual Caps for each of the Future Continuing Connected Transactions.

		Actual	figures		Proposed Annual Caps	Proposed Annual Caps
				9 months
				ended 30
	Year	ended 31 December		September	Year ending 31 December
Amounts in RMB million	2003	2004	2005	2006	2007	2008	2009
	(Audited)	(Audited)	(Audited)	(Unaudited)
Turnover of the Group	3,866. 8	664.6	850.8	559.2
Service Provision	41.1	38.3	28.2	14.8	35.0	35.0	35.0
Service Acquisition	1.3	5.1	17.3	7.0	15.0	15.0	15.0
Materials Sales Transaction	4.0	3.9	9.2	13.1	25.0	25.0	25.0
Materials Acquisition	9.3	4.2	12.5	6.3	15.0	15.0	15.0
Agency Service Acquisition	3.1	4.8	8.0	—	15.0	15.0	15.0
Trademark Licensing	0.8	0.9	—	—	1.0	1.0	1.0
Lease of Factory Premises	1.0	0.8	0.2	1.0	2.0	2.0	2.0
Land/Factory Leasing
Arrangement	—	0.2	2.4	2.3	6.0	6.0	6.0

In determining whether the above Annual Caps proposed by the Company are fair and reasonable in so far as the Independent Shareholders are concerned, we have discussed with the Directors the basis for setting the Annual Caps for each of the Future Continuing Connected Transactions and have taken into account the reasons and factors as set out below.

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LETTER FROM VXLFS & CSC ASIA

(A) The Service Provision

We have been advised by the management of the Company that the Annual Cap for the Service Provision is determined by reference to (i) the historical amount for the three years ended 31 December 2005 and the nine months ended 30 September 2006; (ii) anticipated market growth for TV and shortwave communication businesses; and (iii) anticipated growth in the PEGL Group’s business will in turn require increase in demand for the Service Provision.

The proposed Annual Cap of RMB35,000,000 for each of the three years ending 31 December 2009 represents an increase of approximately 24.1% and 79.9% as compared to the total transaction amount of approximately RMB28,208,000 for the year ended 31 December 2005 and estimated total transaction amount of approximately RMB19,460,000 for the year ended 31 December 2006 (based on the Company’s latest management accounts) respectively.

As advised by the Directors, the increase in the Annual Cap from the historical amount is principally due to the expected increase in volume of products processed for the PEGL Group as a result of (i) the expansion of TV and shortwave communication business of the PEGL Group; (ii) the PEGL Group’s expansion into the overseas market; and (iii) further increase in the Group’s production capacity resulting from the addition of the new and technologically advanced production facilities. Furthermore, anticipated growth in production volume of the PEGL Group is expected to lead to addition of new production equipment hence leading to an increase in demand of apparatus maintenance services and also computer network services provided from the Group. We are also advised by the Directors that the Group’s processing capacity will be increased as a result of the Group’s plan in adding new production equipment and machineries with higher efficiency and production capacity.

Upon our discussion with the Directors, we are given to understand that the proposed Annual Cap was determined by the Group with reference to the tentative production orders to be placed by the PEGL Group as a result of the PEGL Group’s business growth in its TV and shortwave communication business and its expansion into the overseas market.

In view of the above, we are of the view that the proposed Annual Cap for the Service Provision to be fair and reasonable.

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LETTER FROM VXLFS & CSC ASIA

(B) Service Acquisition

We have been advised by the management of the Company that the Annual Cap for the Service Acquisition is determined by reference to (i) the historical amount for the three years ended 31 December 2005 and the nine months ended 30 September 2006; and (ii) gradual growth in the business environment in which the Group is operating under its satellite communication, information and electromechanical product businesses.

The principal business of the Group are satellite communication products business, electronic information products business and electromechanical business. The gross domestic product of the PRC recorded an annual growth rate of over 8% over the past few years and it is estimated that such growth will be maintained in the future. As advised by the Directors, after taking into account the pace of economic development and industrial growth in the PRC, the Directors are of the view that the market outlook of the Group’s principal business will be in line with the development of the PRC economy.

The proposed Annual Cap of RMB15,000,000 for each of the three years ending 31 December 2009 represents an increase of approximately 14.9% as compared to the estimated total transaction amount of approximately RMB13,060,000 for the year ended 31 December 2006 (based on the Company’s latest management accounts).

Having considered that the PRC has maintained a strong economic growth in recent years and the anticipated upward trend in the market in which the Group operates in, the Directors envisage that there will be an increase of the Group’s orders for the PEGL Sub-contracting Services and the PEGL Composite Services from the PEGL Group for the three years ending 31 December 2009.

In view of the above, we are of the view that the proposed Annual Cap for the Service Acquisition to be fair and reasonable.

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LETTER FROM VXLFS & CSC ASIA

(C) Materials Sales Transaction

We have been advised by the management of the Company that the Annual Cap for the Materials Sales Transaction is determined by reference to (i) the historical amount for the three years ended 31 December 2005 and the nine months ended 30 September 2006; and (ii) market for the TV and shortwave communication products businesses.

As advised by the management of the Company, based on the expected growth in the TV sets and shortwave communication businesses, the volume in the respective areas is expected to increase as a result.

The proposed Annual Cap of RMB25,000,000 for each of the three years ending 31 December 2009 represents an increase of approximately 70.5% as compared to the estimated total transaction amount of approximately RMB14,660,000 for the year ended 31 December 2006 (based on the Company’s latest management accounts).

As advised by the Directors, (i) they expect that the transaction value will grow in line with the growth of PEGL Group’s production volume and according to the tentative production orders to be placed by the PEGL Group; (ii) increase in emphasis placed by the PEGL Group in the production of high definition digital TV sets and liquid crystal display (“LCD”) TV which require more production supplies with higher average unit prices; and (iii) general increase in the price level of the production supplies.

On the above basis, we are of the view that the proposed Annual Cap for the Materials Sales Transaction to be fair and reasonable.

(D) Materials Acquisition Transaction

We have been advised by the management of the Company that the Annual Cap for the Materials Acquisition Transaction is determined by reference to (i) the historical amount for the three years ended 31 December 2005 and the nine months ended 30 September 2006; and (ii) gradual growth in the business environment in which the Group is operating under its satellite communication, information and electromechanical product businesses.

The proposed Annual Cap of RMB15,000,000 for each of the three years ending 31 December 2009 represents an increase of approximately 4.9% as compared to the estimated total transaction amount of approximately RMB14,300,000 for the year ended 31 December 2006 (based on the Company’s latest management accounts).

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LETTER FROM VXLFS & CSC ASIA

As advised by the Directors the following factors have been considered in determining the Annual Cap: (i) growth of the Group’s business; (ii) the mild increase in the general price level of the production supplies; and (iii) shift of focus of the Group’s product mix to products with higher added value, hence leading to an increase in percentage of procurement of the components with higher value.

On the above basis, we are of the view that the proposed Annual Cap for the Materials Acquisition Transaction to be fair and reasonable.

(E) Agency Service Acquisition

We have been advised by the management of the Company that the Annual Cap for the Agency Service Acquisition is determined by reference to (i) the historical amount for the three years ended 31 December 2005 and the nine months ended 30 September 2006; (ii) the anticipated growth of PRC’s economy; (iii) the opportunities emerging from Closer Economic Partnership Arrangement; (iv) expected increase in overseas procurement and products export by the Group as a result of China’s accession to World Trade Organisation and the increasing rate of economic globalisation and the Group’s expansion of business into the overseas market; (v) higher service fees to be charged as a result of the new services provided by Import and Export Company through direct order services; and (vi) shift of export arrangement to direct orders.

The proposed Annual Cap to the actual transaction amount in 2005 is a practicable basis of reference. The proposed Annual Cap of RMB15,000,000 for each of the three years ending 31 December 2009 represents an increase of approximately 87.0% as compared to the total transaction amount of approximately RMB8,020,000 for the year ended 31 December 2005.

As advised by the Directors, over 90% of the Group’s sales were made in PRC in 2006, therefore the actual transaction amount for Agency Service Acquisition in 2006 was minimal. The management of the Group advised that along with the estimated growth in the Group’s business, the Group is expanding its overseas sales channels, and the Group is expected to increase its overseas procurement and product export. Starting from year 2007, one of the Group’s business development focus is to further explore into the overseas markets for its products. Therefore, there will be an increase in demand for import and export services.

On the above basis, we are of the view that the proposed Annual Cap for the Agency Service Acquisition to be fair and reasonable.

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LETTER FROM VXLFS & CSC ASIA

(F) Trademark Licensing

We have been advised by the management of the Company that the Annual Cap for the Trademark Licensing is determined by reference to (i) the historical amount for the three years ended 31 December 2005 and the nine months ended 30 September 2006; (ii) the PRC TV market; and (iii) production schedule of TV by the PEGL Group

As stated in the Letter from the Board, no amount was recorded for the year ended 31 December 2005 and the nine months ended 30 September 2006 was due to the deferring of the payment of the 2005 licence fees until the end of 2006.

Total amount payable by the PEGL Group for the year 2005 is estimated to be around RMB550,000. The proposed Annual Cap of RMB1,000,000 for each of the three years ending 31 December 2009 represents an increase of approximately 81.8% as compared to the aggregate amount payable by the PEGL Group for the year 2005.

Upon review and discussion with the Directors, according to the TV production plan of the PEGL Group, we note that the volume of TV production of the PEGL Group maintains a steady growth rate, in addition, the development plan of the PEGL Group indicated a shift in product mix towards plasma display panel TV sets and LCD TV sets, which are generally of bigger sizes. As advised by the Directors, the PEGL Group will be focused on the production of TV sets of 25 inches and above, which charges a license fee ranging from RMB3 to RMB5 per unit. In view of the PEGL Group’s anticipated growth in production of TV sets, and the increase in production of TV sets of larger size of which, higher unit license fees will be charged, accordingly resulting in an increase of the proposed Annual Cap.

Based on the above, we consider that the Annual Cap proposed by the Directors in relation to the Trademark Licensing is fair and reasonable.

(G) Lease of Factory Premises

We have been advised by the management of the Company that the Annual Cap for the Lease of Factory Premises is determined by reference to (i) the historical amount for the three years ended 31 December 2005 and the nine months ended 30 September 2006; and (ii) manufacturing process of the PEGL Group.

As advised by the Directors, substantial increase in the amount of Lease of Factory Premises for the nine months ended 30 September 2006 was mainly due to the increase in area leased by the PEGL Group for its production and administrative use as a result of the call back of the land of the PEGL Group at which its factory premises were situated on, by relevant authority for redevelopment (“PEGL Land Call Back”).

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LETTER FROM VXLFS & CSC ASIA

The proposed Annual Cap of RMB2,000,000 for each of the three years ending 31 December 2009 represents an increase of approximately 61.3% as compared to the estimated total transaction amount of approximately RMB1,240,000 for the year ended 31 December 2006 (based on the Company’s latest management accounts).

We note that the fixed rental will be charged for each individual property with Premises 1 according to their respective location and function. As advised by the Directors, in view of (i) the PEGL Group’s business development resulting from the growth of its TV business and shortwave communication business; (ii) expected increase in production volume of the PEGL Group to accommodate its production needs, it is expected that the PEGL Group will increase the time for leasing various property within Premises 1; (iii) substantial increase in area to be leased by the PEGL Group for continuing its operation as a result of the reduction of the usable area of PEGL Group’s production facilities resulting from PEGL Land Call Back; and (iv) increase in vacant area to be leased by the Group as a result of the relocation of the Group’s production facilities, accordingly resulting in an increase of the proposed Annual Cap.

In view of the above, we consider that the Annual Cap in relation to the Lease of Factory Premises proposed by the Directors is fair and reasonable.

(H) Land/ Factory Leasing Arrangement

We have been advised by the management of the Company that the Annual Cap for the Land/ Factory Leasing Arrangement is determined by reference to (i) the historical amount for the three years ended 31 December 2005 and the nine months ended 30 September 2006; and (ii) manufacturing process of the Group.

The proposed Annual Cap of RMB6,000,000 for each of the three years ending 31 December 2009 represents an increase of approximately 71.9% as compared to the total estimated transaction amount of approximately RMB3,490,000 for the year ended 31 December 2006 (based on the Company’s latest management accounts).

As advised by the Directors, the increase of the proposed Annual Cap is due to the following reasons: (i) the Group’s expected increase in area leased from the PEGL Group as a result of the Group’s relocation of its production facilities in stages resulting from the call back of the land of the Group where its production facilities were situated on by the government authority; and (ii) expected increase in area and time rented for Premises 2 as a result of the Group’s demand for production facilities to cater its production needs as a result of its business growth.

In view of the above, we consider that the Annual Cap in relation to the Land/Factory Leasing Arrangement proposed by the Directors is fair and reasonable.

— 51 —

LETTER FROM VXLFS & CSC ASIA

ANNUAL REVIEW OF THE FUTURE CONTINUING CONNECTED TRANSACTIONS

Pursuant to Rules 14A.37 to 14A.40 of the Listing Rules, the Future Continuing Connected Transactions are subject to the following annual review requirements:

(a) each year the independent non-executive Directors must review the Future Continuing Connected Transactions and confirm in the annual report and accounts that the Future Continuing Connected Transactions have been entered into:
(1) in the ordinary and usual course of business of the Group;
(2) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than terms available to or from (as appropriate) independent third parties; and
(3) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;
(b) each year the auditors of the Company must provide a letter to the Board (with a copy provided to the Stock Exchange at least 10 business days prior to the bulk printing of the Company’s annual report) confirming that the Future Continuing Connected Transactions:
(1) have received the approval of the Board;
(2) are in accordance with the pricing policies of the Group;
(3) have been entered into in accordance with the relevant agreement governing the transaction; and
(4) have not exceeded the Annual Cap.
(c) the Company shall allow, and shall procure the relevant counterparty to the Future Continuing Connected Transactions shall allow, the Company’s auditors with sufficient access to their records for the purpose of reporting on the Future Continuing Connected Transactions as set out in paragraphs (b); and
(d) the Company shall promptly notify the Stock Exchange and publish an announcement in the newspaper if it knows or has reason to believe that the independent non-executive Directors and/or auditors of the Company will not be able to confirm the matters set out in paragraphs (a) and (b) respectively.

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LETTER FROM VXLFS & CSC ASIA

As set out in the Letter from the Board, the Company will comply with the annual review requirements of the Future Continuing Connected Transactions as stated above and will re-comply with the relevant Listing Rules if the Annual Cap is exceeded or, when the relevant agreements are renewed or, when there is a material change to the terms of the Future Continuing Connected Transactions.

According to the Letter from the Board, the Company has failed to comply with the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules for the Previous Continuing Connected Transactions since the expiration of the Previous Waiver on 1 January 2005. The Company has breached the Listing Rules and has formally retained Horwath Risk Advisory Services Limited (“Horwath RA”) to conduct an overall examination of the Company’s internal controls. We have enquired into and have been advised by the management of the Company that in view of Horwath RA’s proposed improvement measures, the Company is in the process of implementing policies to improve the Group’s internal controls such as improving internal information reporting system so as to ensure full compliance with the requirements of the Listing Rules, facilitating better communication between the secretary of the Board and other departments of the Group to ensure timely reporting of any discloseable matters and improving existing accounting system. As stated in the Letter from the Board, the Company will strictly follow Horwath RA’s proposal and implement the improvement measures.

In light of the conditions for the Future Continuing Connected Transactions and the Company will improve its internal controls by implementing the improvement measures proposed by Horwath RA, we are of the view that there are appropriate measures in place to govern the conduct of the Future Continuing Connected Transactions and safeguard the interests of the Independent Shareholders.

RECOMMENDATION

Having considered the above principal factors and reasons in respect to the Future Continuing Connected Transactions and the respective Annual Caps, in particular,

the background of and the reasons for carrying out the Future Continuing Connected Transactions;
the price determination basis of the Future Continuing Connected Transactions will, in general, be based on market prices and on terms no less favourable to the Company than the terms accepted or offered by an independent third party;
the basis of determining the Annual Caps;
the annual review conditions attached to the Future Continuing Connected Transactions as a mechanism to protect the interest of the Independent Shareholders;
the Company will strictly follow Horwath RA’s proposed internal controls improvement measures; and
the Future Continuing Connected Transactions in essence are the renewal of the Previous Continuing Connected Transactions.

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LETTER FROM VXLFS & CSC ASIA

we consider that the Future Continuing Connected Transactions are on normal commercial terms and in the ordinary and usual course of business of the Group and the terms of the Future Continuing Connected Transactions and the respective Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, we would advise the Independent Shareholders, as well as recommend the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the resolution to approve the Future Continuing Connected Transactions and the Annual Caps at the EGM.

Yours faithfully, For and on behalf of VXL Financial Services Limited Gary Mui Director

Yours faithfully, For and on behalf of CSC Asia Limited Andrew Chiu Patra Lee Managing Director Director

— 54 —

GENERAL INFORMATION

APPENDIX I

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

(A) Directors’ Interests

Save as disclosed below, as at the Latest Practicable Date, to the knowledge of the Company, none of the Directors or supervisors or chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors or supervisors or the chief executive of the Company are deemed or taken to have under such provisions of the SFO) or which are required to be and are recorded in the register required to be kept pursuant to Section 352 of the SFO or as otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) contained in the Listing Rules.

Interests in the Company’s domestic shares:

		No. of Domestic	Percentage of
		Shares held	share capital in	Nature of
Name	Duties	(Long position)	issue (%)	such interest
Xu Guofei	Non-executive Director	1,886	0.004	Personal interest
Zhu Lifeng	Non-executive Director	2,743	0.004	Personal interest
Shi Qiusheng	Non-executive Director &
	Company secretary	3,343	0.005	Personal interest
Zhang Zhenping	Chairman of the
	Supervisory Committee	3,429	0.005	Personal interest
Wang Hongjin	Deputy General Manager	8,300	0.013	Personal interest

— 55 —

GENERAL INFORMATION

APPENDIX I

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors or Supervisors is materially interested in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular which is significant in relation to the business of the Group. As at the Latest Practicable Date, none of the Directors or Supervisors has or has had any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group or which are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2005 (being the date to which the latest published audited accounts of the Company were made up).

(B) Substantial Shareholders’ Interests

As at the Latest Practicable Date, so far as is known to any Director or Supervisors or chief executive of the Company, other than the interests of the Directors or Supervisors or chief executive of the Company as disclosed above, none of the Directors or Supervisors or the chief executive of the Company is aware of any other person having interests or short positions in the shares, underlying shares and debenture of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 or Part XV of the SFO.

The following Directors and supervisors of the Company are holding offices as director or employee in PEGL, the substantial shareholder of the Company which has an interests in the shares of the Company which would fall to be disclosed to the Company under provisions 2 and 3 of Part XV of the Securities and Futures Ordinance:

	Name of the	Position held in
Name	Company’s shareholders	the Company’s shareholders
Li Anjian	PEGL	Chairman
Xu Guofei	PEGL	General Manager
Liu Ailian	PEGL	Deputy General Manager
Zhu Lifeng	PEGL	Deputy General Manager
Shi Qiu Sheng	PEGL	Chairman to Labor Union
Zhang Zhenping	PEGL	Deputy Secretary to Party Committee

— 56 —

GENERAL INFORMATION

APPENDIX I

As at the Latest Practicable Date, so far as is known to any Director or Supervisors or chief executive of the Company, other than the interests of the Directors or Supervisors or chief executive of the Company as disclosed above, none of the Directors or Supervisors or the chief executive of the Company is aware of any other person who has interests or short positions in the shares, underlying shares and debenture of the Company of any persons which would fall to be disclosed under the provisions of Divisions 2 and 3 or Part XV of the SFO.

As at the Latest Practicable Date, the following companies are interested in 5% 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.

			Approximate	Approximate
			Percentage in		Approximate
Name of	Class/No. of		the relevant		Percentage in
Substantial	Shares interested	Nature of	class of shares		the total shares
Shareholder	(long position)	Interest		in issue	in issue
PEGL	334,715,000	Corporate interest held in		81.04%	51.10%
	domestic shares	the capacity of
		beneficial owner
Lewis Joseph	20,260,000	Personal interest held in		8.38%	3.10%
	H shares	the capacity of
		beneficial owner
Tuesday Thirteen Inc.	16,920,000	Corporate interest held in
	H shares	the capacity of
		controlled corporation		7%	2.59%

— 57 —

GENERAL INFORMATION

APPENDIX I

As at the Latest Practicable Date, so far as is known to any director or chief executive of the Company, the following parties, other than a director or chief executive of the Company, have, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group and the amount of each of such party’s interest in such securities, together with particulars of any options in respect of such capital:

			Percentage to
			the issued
		Number of	share capital of
Name of Shareholders	Name of Subsidiaries	shares held	the subsidiary
南京白下區石門坎鎮工業公司	Nanjing Guanghua Electronic	3,500,000	28.06%
(Nanjing Baixia District	Plastic Installing Plant
Shi Men Kan Zhen
Industrial Company)
Simsen Technology Limited	Nanjing Panda Netcom	5,000,000	50%
	Technology Co., Ltd.
Panda Electronics (Hong Kong)	Nanjing Panda Information Industry Co., Ltd.	952,000	28%
Company Limited
Centra Developments	Nanjing Panda International	280,000	28%
Company Limited	Telecommunication System Co., Ltd.
Han Danmei	Nanjing Panda Netcom Technology Co., Ltd.	500,000	10%
Labour Union of Panda Mechanical	Nanjing Panda Mechanical	1,500,000	30%
Nanjing Manufacturing Co. Ltd.	Manufacturing Co. Ltd.
Liu Changhua	Nanjing Panda System Integration Co., Ltd.	380,000	12.67%
Zhang Yongjie	Nanjing Panda Accurate Machinery Co., Ltd.	525,000	10.5%

Save as disclosed above, as at the Latest Practicable Date, so far as the Directors were aware, there were no persons who directly or indirectly held or were interested in 5% 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 and those of any other members of the Group.

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GENERAL INFORMATION

APPENDIX I

3. COMPETING INTERESTS

None of the Directors and his associates has any interests competing with the Group.

4. SERVICE CONTRACTS

The Company has not signed any new service contract with any Director or supervisor and none of the Directors or 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.

5. LITIGATION

Save as disclosed in the Annual Report 2005 and 2004 and 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.

6. QUALIFICATION OF EXPERT

The following are the qualifications of the expert who has given opinion or advice, which are contained or referred to in this circular:

Name	Qualification
VXLFS	A licensed corporation registered under the Securities and
	Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
	to carry out type 6 regulated activity
CSC Asia	A licensed corporation registered under the Securities and
	Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
	to carry out type 6 regulated activity

As at the Latest Practicable Date, neither VXLFS nor CSC Asia has any shareholding interest in any member of Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member of the Group.

As at the Latest Practicable Date, neither VXLFS nor CSC Asia has any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group or which are proposed to be acquired of disposed of by or leased to any member of the Group since 31st December, 2005 (being the date to which the latest published audited accounts of the Company were made up).

— 59 —

GENERAL INFORMATION

APPENDIX I

7. CONSENT

Both VXLFS and CSC Asia have given and have not withdrawn their respective written consents to the issue of this circular with inclusion herein of their joint letter and references to their names in the form and context in which they appear.

8. MATERIAL ADVERSE CHANGE

Save as disclosed in the Annual Report 2005, as at the Latest Practicable Date, the Directors are not aware of any material change in the financial or trading position of the Group since 31 December 2005, being the date to which the latest published audited financial statements of the Company were made up.

9. GENERAL

(a) The company secretary of the Company is Mr. Shi Qiu Sheng who is a senior economist. The Company has obtained a three-year conditional waiver from the Stock Exchange from strict compliance with Rule 3.24 of the Listing Rules in relation to the requirement for the appointment of a qualified accountant that the Company could appoint Mr. Wu Liu Lin, the vice general manager and a member of a senior management of the Company, as its qualified accountant under Rule 3.24 of the Listing Rules and Ms. Wong Wan Lung, being a fellow member of Hong Kong Institute of Certified Public Accountant, to assist Mr. Wu for fulfillment of his duties as the qualified accountant during the relevant waiver period.
(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 RMB655,015,000, which comprised 334,715,000 restrictive circulating shares held by PEGL and 320,300,000 circulating shares. Among the circulating shares, 242,000,000 are overseas listed foreign shares (H shares) and 78,300,000 are Renminbi ordinary shares (A shares).

— 60 —

GENERAL INFORMATION

APPENDIX I

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available at the offices of Messrs Philip K H Wong, Kennedy Y H Wong & Co. at 23/F, Admiralty Centre Tower II, 18 Harcourt Road, Hong Kong during normal business hours up to and including 26 February 2007 (Monday):

(a) Sub-contracting services and composite services Agreement (by the Group to the PEGL Group);
(b) Sub-contracting services and composite services Agreement (by the PEGL Group to the Group);
(c) Sale of materials and components and parts Agreement (by the Group to the PEGL Group);
(d) Sale of materials and components and parts Agreement (by the PEGL Group to the Group);
(e) Import and export agency Agreement;
(f) Trademark Licence Agreement;
(g) Factory Premises Lease Agreement (by the Group to the PEGL Group);
(h) Land / Factory Premises Lease Agreement (by the PEGL Group to the Group);
(i) the letter from the Independent Board Committee as set out in this circular;
(j) the letter from VXLFS and CSC Asia as set out in this circular;
(k) the written consent from VXLFS referred to in this appendix;
(l) the written consent from CSC Asia referred to in this appendix;
(m) the announcement of the Company on “On-going Connected Transactions” dated 2 November 2000;
(n) the Memorandum and Articles of Association of the Company;
(o) the annual reports of the Company for the three years ended 31 December 2005; and
(p) this circular.

The English text of this circular and form of proxy shall prevail over the Chinese text for the purpose of interpretation.

— 61 —

NOTICE OF THE FIRST EXTRAORDINARY GENERAL MEETING IN 2007

==> picture [46 x 46] intentionally omitted <==

南京熊貓電子股份有限公司 Nanjing Panda Electronics Company Limited

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

(Stock Code: 0553)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting (“EGM”) of Nanjing Panda Electronics Company Limited (the “Company”) will be held at the Conference Room, Workers’ Union, 301 Zhong Shan Road East, Nanjing, the People’s Republic of China (the “PRC”) on Tuesday, 3 April 2007, at 9:00 a.m., to consider and if thought fit, to pass the following resolution:

ORDINARY RESOLUTION

“THAT:

the Future Continuing Connected Transactions under Agreements (as described in this circular, a copy of each of which was marked “A” “B” “C” “D” “E” “F” “G” and “H” respectively and has been produced to the meeting and signed by the chairman of the meeting for the purpose of identification) be and are hereby approved subject to the Annual Caps (as referred to in this circular) in 2007, 2008 and 2009 respectively, and the transactions contemplated therein be and are hereby approved, and the directors of the Company be and are hereby authorized to take all steps necessary or expedient in their opinion to implement and/or to give effect to the Agreements.”

By Order of the Board

Li Anjian Chairman

15 February 2007

Nanjing, the People’s Republic of China

— 62 —

NOTICE OF THE FIRST EXTRAORDINARY GENERAL MEETING IN 2007

Notes:

All shareholders of the Company whose names appear in the Company’s register of members at the close of business on Friday, 2 March 2007, are entitled to attend the EGM held on 3 April 2007. Holders of A Shares of the Company whose names appear in register of member in the Shanghai branch of China Securities Depository and Clearing Corporation Limited at the close of business on 2 March 2007 can bring along with their identity cards or shareholder account cards to attend the EGM. Holders of A Shares or their proxies (if any) shall bring their identity cards, shareholder account cards and the proxy forms (if any) to complete the procedures for attending the EGM at the secretarial office of the Board of the Company at 301 Zhong Shan Road East, Nanjing at 9:00 a.m. to 4:00 p.m. from 3 March 2007 to 12 March 2007. Overseas shareholders can register by post or by fax.
All holders of H Shares of the Company should pay attention that the register of members of the Company will be closed from 3 March 2007 to 3 April 2007, both days inclusive, during which period no transfer of H Shares will be registered. Holders of H Shares whose names appear in the Company’s register of member at the close of business on 2 March 2007, or their representatives or proxies are entitled to attend the EGM with their identity certificates or passports. If a shareholder appoints a proxy to attend the EGM on his behalf, his proxy must bring along with the proxy form.
Shareholder who has the right to attend and vote at the EGM is entitled to appoint one proxy or several proxies, whether a member of the Company or not, to attend and vote at the EGM.
If more than one proxy are appointed, the rights of voting may only be exercised when a poll is taken.
The instrument appointing a proxy must be in writing under the hand of the appointer or his attorney duly authorized in writing. In the case of a corporation, the proxy form must be under its common seal or under the hand of its director or duly authorized attorney. If the proxy form is signed by an agent on behalf of an appointer, the proxy form or other authority must be notarially certified. The proxy form together with the notarially certified power of attorney or other authority must be delivered to the office of the Company 24 hours before the time appointed for the holding of the EGM.
Shareholders who intend to attend the EGM should send a reply in writing to the office of the Company in person or by post, or by fax before 12 March 2007. The written reply shall not preclude the shareholders to attend the EGM.
The EGM is expected to last for a half day. Shareholders and their proxies attending the EGM are responsible for their own transportation and accommodation expenses.
The Company’s office and correspondence address: 301 Zhong Shan Road East, Nanjing, the People’s Republic of China Postal code: 210002 Telephone: 8625-8480 1144 Fax: 8625-8482 0729

— 63 —

AI assistant

Nanjing Panda Electronics Company Limited — Proxy Solicitation & Information Statement 2007

49292_rns_2007-02-16_7a3b5818-b0fd-4fb7-bbe4-de286d6f5277.pdf

南京熊 貓 電子股份有限公司 Nanjing Panda Electronics Company Limited

CONTINUING CONNECTED TRANSACTIONS

CONTENTS

DEFINITIONS

DEFINITIONS

“Disposed Assets”

DEFINITIONS

南京熊 貓 電子股份有限公司 Nanjing Panda Electronics Company Limited

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

BACKGROUND OF THE CONTINUING CONNECTED TRANSACTIONS

BREACH OF LISTING RULES

Remarks:

PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY, THE GROUP AND THE PARTIES TO PREVIOUS CONTINUING CONNECTED TRANSACTIONS AND FUTURE CONTINUING CONNECTED TRANSACTIONS

RELATIONSHIP BETWEEN THE GROUP AND THE PEGL GROUP

FUTURE CONTINUING CONNECTED TRANSACTIONS

(A) Provision of sub-contracting services and composite services by the Group to the PEGL Group

LETTER FROM THE BOARD

(B) Provision of sub-contracting services and composite services by the PEGL Group to the Group

(C) Sale of materials and components and parts （零部件） by the Group to the PEGL Group

(E) Import and export agency services provided by the PEGL Group to the Group

LETTER FROM THE BOARD

(F) Licensing of PANDA Trademarks by the Group to the PEGL Group

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(G) Lease of factory premises by the Group to the PEGL Group

LETTER FROM THE BOARD

BENEFITS OF THE FUTURE CONTINUING CONNECTED TRANSACTIONS

LISTING RULES IMPLICATIONS

EXTRAORDINARY GENERAL MEETING

RECOMMENDATION

ADDITIONAL INFORMATION

南京熊 貓 電子股份有限公司 Nanjing Panda Electronics Company Limited

CONTINUING CONNECTED TRANSACTIONS

Yours faithfully,

Ms. Wan Hui, Mr. Cai Lianglin, Mr. Ma Chung Lai, Lawrence

VXL Financial Services Limited

CSC Asia Limited

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of and reasons for the Future Continuing Connected Transactions

Future Continuing Connected Transactions

(A) Provision of sub-contracting services and composite services by the Group to the PEGL Group (the “Service Provision”)

(B) Provision of sub-contracting services and composite services by the PEGL Group to the Group (the “Service Acquisition”)

(C) Sale of materials and components and parts by the Group to the PEGL Group (the “Materials Sales Transaction”)

(D) Sale of materials and components and parts by the PEGL Group to the Group (the “Materials Acquisition Transaction”)

(E) Import and export agency services provided by the PEGL Group to the Group (the “Agency Service Acquisition”)

(F) Licensing of PANDA trademarks (the “PANDA Trademark”) by the Group to the PEGL Group (the “Trademark Licensing”)

(H) Lease of factory premises and land use rights by the PEGL Group to the Group (the “Land/ Factory Leasing Arrangement “)

2. Proposed Annual Caps for the Future Continuing Connected Transactions

(A) The Service Provision

(B) Service Acquisition

(C) Materials Sales Transaction

(D) Materials Acquisition Transaction

(E) Agency Service Acquisition

(F) Trademark Licensing

(G) Lease of Factory Premises

(H) Land/ Factory Leasing Arrangement

ANNUAL REVIEW OF THE FUTURE CONTINUING CONNECTED TRANSACTIONS

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

(A) Directors’ Interests

(B) Substantial Shareholders’ Interests

3. COMPETING INTERESTS

4. SERVICE CONTRACTS

5. LITIGATION

6. QUALIFICATION OF EXPERT

7. CONSENT

8. MATERIAL ADVERSE CHANGE

9. GENERAL

10. DOCUMENTS AVAILABLE FOR INSPECTION

南京熊 貓 電子股份有限公司 Nanjing Panda Electronics Company Limited

ORDINARY RESOLUTION

“THAT:

Nanjing Panda Electronics Company Limited Proxy Solicitation & Information Statement 2007

南京熊貓電子股份有限公司 Nanjing Panda Electronics Company Limited

南京熊貓電子股份有限公司 Nanjing Panda Electronics Company Limited

南京熊貓電子股份有限公司 Nanjing Panda Electronics Company Limited

南京熊貓電子股份有限公司 Nanjing Panda Electronics Company Limited