The Listing Committee of the Exchange (the "Listing Committee") recently concluded a disciplinary hearing into the conduct of the Company and certain directors of the Company, including, Mr. Wang Mei Yue, Mr. Liang Wenhao, Mr. Chen Shukang, Mr. Li Xue Ming, Mr. Wu Xiaolong and Mr. Gong Hanbing, executive and former executive directors of the Company, in connection with certain connected transactions (the "Connected Transactions") in 1996, 1997 and 1998, some of which have been publicly announced by the Company in its announcement dated 4 May 1999 (the "Announcement") whereby the Company and it subsidiaries (the "Group") were involved in the following connected transactions:

(i) Loans to the Company's fellow subsidiaries and ultimate holding company (the "First Breach")

During the period from October 1996 to April 1997, the Group advanced loans of approximately HK$276,475,902 to fellow subsidiaries and holding company, details of which were set out in the Announcement. The aggregate amount of the loans represented 12.19% of the audited consolidated net tangible asset value of the Company as at 31 December 1996, adjusted to include the net proceeds from a placing of shares in March 1997. The holding company, Jetcote Investments Limited, was holding approximately 42.85% interest in the issued share capital of the Company and was a wholly-owned subsidiary of China Aerospace Corporation ("CASC"). CASC was the ultimate holding company of the other borrowers. The loans should have been disclosed pursuant to Rule 14.26(6) of the Exchange Listing Rules.

(ii) Sales to fellow subsidiaries (the "Second Breach")

Throughout 1997, the Group sold electronic components, namely integrated circuits, to Hua Chang Electronics Company Limited, an indirectly wholly-owned subsidiary of CASC, for an aggregate amount of HK$22,380,000 representing approximately 0.99% of the audited consolidated net tangible assets of the Company as at 31 December 1996, adjusted to include the net proceeds from a placing of shares in March 1997. Details of these transactions were set out in the Announcement. These sales transactions should have been disclosed pursuant to Rule 14.25(1) of the Exchange Listing Rules.

(iii) Sales through CASIL Science & Technology Development (Shenzhen) Co., Ltd. (the "Third Breach")

Throughout 1997, CASIL GPS Engineering Limited ("GPS") conducted 56 sales through CASIL Science & Technology Development (Shenzhen) Co., Ltd. ("S&T"), a wholly-owned subsidiary of the Company. GPS was a wholly-owned subsidiary of CASIL Telecommunications Holdings Limited ("CASTEL"). As the Company was interested in approximately 61.06% of the issue share capital of CASTEL at the material time, these transactions constituted connected transactions under the Exchange Listing Rules.

The aggregate sales amounted to approximately HK$1,999,999 and represented approximately 0.08% of the audited net tangible assets of the Group as at 31 December 1997, adjusted to include the net proceeds from a placing of shares in March 1998. These transactions should have been disclosed pursuant to Rule 14.25(1) of the Exchange Listing Rules.

(iv) Purchases and Sales of Digital Satellite Receiver Decoders between CXSAT and XCOM Multimedia Communications (the "Fourth Breach")

On 18 December 1997, CASIL Research and Development Co., Ltd. ("R&D"), a wholly-owned subsidiary of the Company, formed a joint venture, CXSAT, with XCOM Multimedia Communications ("XCOM"), a French corporation engaged in the research and development of decoders, for the production of decoders. XCOM was an independent third party not connected with the Group. CXSAT was owned as to 51% by R&D and 49% by XCOM. Certain terms of the joint venture provided that XCOM would provide technology and key components for the production of decoders and R&D would finance the working capital of CXSAT.

Throughout 1998, the Group was involved in the following transactions:

(a) Purchases of key components by CXSAT from XCOM

The aggregate amount of the transactions was HK$4,673,109 which represented approximately 0.16% of the Company's audited consolidated net tangible assets of the Company as at 31 December 1997, adjusted to include the net proceeds from a placing of shares in March 1998.

(b) Sales of decoders by CXSAT to XCOM

The aggregate amount of the transactions was HK$34,874,415 which represented approximately 0.99% of the Company's audited consolidated net tangible assets of the Company as at 31 December 1997, adjusted to include the net proceeds from a placing of shares in March 1998.

(c) Purchases of decoders by R&D from XCOM

The aggregate amount of the transactions was HK$4,200,000 which represented approximately 0.14% of the Company's audited consolidated net tangible assets of the Company as at 31 December 1997, adjusted to include the net proceeds from a placing of shares in March 1998.

The purchases and sales set out in (iv) (a), (b) and (c) above constituted connected transactions for the Company as they were transactions between subsidiaries of the Company and a substantial shareholder of a subsidiary, i.e. XCOM. Such transactions should have been disclosed pursuant to Rule 14.25(1) of the Exchange Listing Rules.

(v) Guarantee granted by CASIL Clearing Limited (the Fifth Breach")

From 1 April 1998 to July 1999, CASIL Clearing Limited ("CASIL Clearing"), a wholly-owned subsidiary of the Company, provided a guarantee in the amount of US$2,000,000 (HK$15,000,000) for a standby letter of credit issued by a bank in favour of CXSAT at no cost. The amount of such guarantee represented approximately 0.51% of the Company's audited consolidated net tangible assets of the Company as at 31 December 1997, adjusted to include the net proceeds from a placing of shares in March 1998. The amount of the guarantee was subsequently terminated in July 1999.

As CASIL Clearing was a wholly-owned subsidiary of the Company and it was providing financial assistance to a non wholly-owned subsidiary of the Company, the guarantee constituted a connected transaction under Rule 14.25 of the Exchange Listing Rules.

The Company and the Relevant Parties have admitted the Company's breaches of the connected transactions rules under Chapter 14 of the Exchange Listing Rules.

The Listing Committee concluded, among other things, that:

(1) the Company was in breach of the Exchange Listing Rules, in particular, Rule 14.26(6) for the First Breach and Rule 14.25 in relation to the Second, Third, Fourth and Fifth Breach; and

(2) each of the Relevant Parties was in breach of his Undertaking in failing to comply to the best of his abilities with the Exchange Listing Rules during the relevant period and to use his best endeavours to procure the Company comply with the Exchange Listing Rules during the relevant period, in particular, in connection with Rule 14.26(6) for the First Breach and Rule 14.25 in relation to the Second, Third, Fourth and Fifth Breach.

Accordingly, the Company and each of the Relevant Parties are hereby publicly censured by the Listing Committee for the various breaches set out in items (1) and (2) above.

For the avoidance of doubt the Exchange confirms that it is not in relation to this matter publicly censuring any other directors of the Company, past or present directors of the Company save for those named herein.