Cocoon Holdings Limited — M&A Activity 2000

Feb 18, 2000

Listed Company Information

EASYKNIT INT'L<1218>EASY CONCEPTS<0241>-Joint Announcement & Resumption The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, 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 announcement. EASYKNIT INTERNATIONAL HOLDINGS LIMITED (Incorporated in Bermuda with limited liability) MAJOR TRANSACTIONS Deemed disposal of interests in a major subsidiary and proposed placement of Shares EASY CONCEPTS INTERNATIONAL HOLDINGS LIMITED (Incorporated in Bermuda with limited liability) Proposed capital reduction, and proposed change of name UNI-TECH INTERNATIONAL GROUP LIMITED (Incorporated in the British Virgin Islands with limited liability) TOP CENTURY INVESTMENTS COMPANY LIMITED (Incorporated in the British Virgin Islands with limited liability) JOINT ANNOUNCEMENT Agreement for the subscription of New Shares and possible unconditional cash offer by BNP Prime Peregrine on behalf of Uni-Tech for all the Shares not already owned or agreed to be acquired by Uni-Tech or its Concert Parties The Company has entered into the Subscription Agreement with the Subscribers and Easyknit in relation to the subscription of 2,297,377,680 new Shares, representing approximately 354.5 per cent. of the existing issued share capital of the Company and approximately 78 per cent. of the issued share capital of the Company as enlarged by the Subscription. The consideration for the Subscription is about HK$117.2 million, which represents 2,297,377,680 new Shares times HK$0.051 per Share and will be payable in cash by the Subscribers upon Completion. It is proposed that the nominal value of all the issued and unissued Shares will be reduced from HK$0.10 each to HK$0.01 each simultaneously with Completion. On the basis of 647,978,320 Shares presently in issue, a credit of HK$58,318,048.80 will arise as a result of the Capital Reduction. Such credit will be transferred to a special capital reserve account of the Company. The Capital Reduction is subject to approval by the Shareholders at the Special General Meeting. At present, the Subscribers and their Concert Parties do not own any interest in the Company. Upon Completion, the Subscribers and their Concert Parties will be interested in an aggregate of 2,297,377,680 Shares, representing about 78 per cent. of the issued share capital of the Company as enlarged by the Subscription. Under Rule 26.1 of the Takeovers Code, upon Completion, Uni-Tech will make an unconditional cash offer at HK$0.051 per Share for all issued Shares not already owned or agreed to be acquired by it or its Concert Parties. Warning: The Offer is a possibility only. The making of the Offer is subject to Completion. The Subscription Agreement is conditional (see `Conditions of the Subscription Agreement' below). Shareholders and investors should exercise extreme caution when buying or selling Shares. If the Offer is made, it will be on the terms set out in this announcement. The Company is an indirect 75 per cent. owned subsidiary of Easyknit. Following Completion (but before the Placing described below), Easyknit's interest in the Company will be diluted from approximately 75 per cent. to 16.5 per cent. of the issued share capital of the Company as enlarged by the Subscription. The effect of the Subscription Agreement represents a material dilution in Easyknit's interest in a major subsidiary and gives rise to a deemed disposal of a major subsidiary which constitutes a major transaction for Easyknit under the Listing Rules and the Subscription Agreement is, therefore, subject to approval of the shareholders of Easyknit at its general meeting. On 17th February, 2000, the Placing Agreement was entered into between Touch Profits Limited, a wholly-owned subsidiary of Easyknit which holds a 75 per cent. interest in the Company and Fair Eagle Securities Limited, on a fully underwritten basis, for the placement of a total of 80,000,000 Shares to the placees at the placing price of HK$1.20 per Share. The 80,000,000 Shares comprised in the Placing represent approximately 12.3 per cent. of the existing issued share capital of the Company and approximately 2.7 per cent. of the issued share capital of the Company as enlarged by the Subscription. The Placing will reduce the aggregate shareholding of Easyknit from approximately 75 per cent. to about 62.7 per cent. of the Company's existing issued share capital. Following the Placing and the Subscription, Easyknit's interest in the Company will be further diluted to 13.8 per cent. of the Company's share capital as enlarged by the Subscription. Entering into the Placing Agreement constitutes a major transaction for Easyknit under the Listing Rules. Therefore, the Placing Agreements is subject to approval of shareholders of Easyknit in a forthcoming special general meeting of Easyknit. The proceeds from the Placing are estimated to be approximately HK$96 million, which will be used as to about HK$40 million for the repayment of bank borrowings of Easyknit and the balance for working capital for Easyknit. Both Easyknit and the Subscribers intend that Easyknit, being the current controlling shareholder of the Company, maintains an interest in the Company. Accordingly, Easyknit further agrees with the Subscribers that out of the 485,965,700 Shares held by Easyknit at the date of the Subscription Agreement, it shall not dispose of 40 per cent. of such Shares, being 194,386,280 Shares (other than the 80,000,000 Shares comprised in the Placing), representing approximately 6.6 per cent. of the issued share capital of the Company as enlarged by the Subscription, during the one-year period after Completion. As for the remaining 291,579,420 Shares (including the 80,000,000 Shares comprised in the Placing), representing approximately 9.9 per cent. of the issued share capital of the Company as enlarged by the Subscription, Easyknit has undertaken with the Subscribers that it shall dispose of all of them during the one-year period after Completion. Trading in the shares of Easyknit on the Stock Exchange and the SGX-ST was suspended at the request of Easyknit, due to the exceptional increase of 30.4 per cent. in the share price to HK$0.36 and trading volume of 5.4 million shares on the Stock Exchange, with effect from 10:48 a.m. and 11:26 a.m. respectively on 31st January, 2000. Trading in the Shares on the Stock Exchange was suspended at the request of the Company due to the exceptional increase of 517.6 per cent. in the Share prices to HK$2.10 and the trading volume of 4.2 million Shares on the Stock Exchange, with effect from 10:47 a.m. on 31st January, 2000. Applications have been made to the Stock Exchange and the SGX-ST for the resumption of trading of the shares of Easyknit and an application has also been made to the Stock Exchange for the resumption of trading of the Shares, in each case, with effect from 10:00 a.m. on 18th February, 2000. Completion is conditional upon a number of conditions as set out below under the section headed `Conditions of the Subscription Agreement'. The Subscription may or may not proceed. Shareholders of each of Easyknit and the Company and investors should exercise extreme caution when dealing in the shares of each of Easyknit and the Company. THE SUBSCRIPTION AGREEMENT Date: 7th February, 2000 Issuer: The Company Subscribers: Uni-Tech Top Century Warrantor: Easyknit, in the role of the warrantor, please refer to section headed `Warranties, undertaking and terminations' below. The Company is an indirect 75 per cent. owned subsidiary of Easyknit. Each of the Subscribers is independent of the directors, chief executive and substantial shareholders of the Company and Easyknit, any of their subsidiaries or their respective Associates. Shares to be issued An aggregate of 2,297,377,680 new Shares, representing approximately 354.5 per cent. of the existing issued share capital of the Company and approximately 78 per cent. of the issued share capital of the Company as enlarged by the Subscription. Of the New Shares, 2,209,017,000 new Shares will be subscribed by Uni-Tech, representing approximately 75 per cent. of the enlarged issued share capital of the Company and 88,360,680 new Shares will be subscribed by Top Century, representing approximately 3 per cent. of the enlarged issued share capital of the Company. The New Shares will rank pari passu in all respects with all existing Shares, including the right to receive all future dividends and distributions declared, made or paid by the Company on or after the date of their issue. Issue price The New Shares will be issued at HK$0.051 per Share which was determined after arm's length negotiations. The issue price of HK$0.051 per Share represents a discount of approximately 97.6 per cent. to the closing price of HK$2.10 prior to the suspension in trading on 31st January, 2000, a discount of approximately 85 per cent. to the closing price of HK$0.34 per Share on 28th January, 2000, a discount of about 89.5 per cent. to the average closing price of approximately HK$0.484 per Share over the 10 trading days up to and including 28th January, 2000. Such issue price of HK$0.051 per Share also represents a discount of approximately 55.5 per cent. to the net asset value per Share as at 31st March, 1999 of approximately HK$0.1146. The terms of the Subscription Agreement were negotiated on an arm's length basis. In negotiating the issue price for the New Shares, the directors of the Subscribers and the Company have taken into account, amongst others, the following factors: - the Shares have been traded at a price range of HK$0.32 to HK$0.44 per Share during the last full trading day on 28th January, 2000 prior to the suspension of trading in the Shares on 31st January, 2000; - the aggregate trading volume of 256,000 Shares over the 120 trading days up to and including 28th January, 2000; - the Group recorded losses of about HK$179.5 million, HK$77.9 million, HK$26.8 million and HK$12.3 million for the period / year ended 31st March, 1999, 31st March, 1998, 28th February, 1997 and 29th February, 1996 respectively and continued to record a loss of HK$10.5 million for the six months ended 30th September, 1999; - the average closing prices per Share for the 30-, 60-, 90- and 120- trading day periods up to and including 28th January, 2000 were approximately HK$0.71, HK$0.855, HK$0.9033 and HK$0.9275 respectively; and - the net asset value per Share as at 31st March, 1999 of HK$0.1146. In addition, the Directors believe the subscription price of HK$0.051 per Share is in the best interests of the Company, having taken into account the following circumstances affecting the Group at the time: (1) The Company is in a difficult financial condition. The Company has been in negotiation with its creditors for some months and in particular, the standstill agreement with its major bank creditors expired on 31st December, 1999. While those standstill arrangement have orally agreed to continue its standstill arrangement until 30th June, 2000, the Company, at that time continued to be placed under pressure by creditors; (2) The net asset value per share of HK$0.1146 is not reflective of the underlying financial position of the Company. In particular, the Directors estimate that approximately 80% of the assets of the Company comprise relatively illiquid real properties located in Hong Kong and the PRC. The Company have attempted for more than one year to dispose of some of the Properties, including by tender, without success. Such difficulties in realising these assets are not reflected in the net asset value of the Company; (3) The Directors believe it would not be possible to raise money in the equity markets generally at a price in excess of the subscription price; (4) Easyknit is not willing or able to make further investment in the Company. Conditions of the Subscription Agreement Completion is conditional upon the following conditions being fulfilled: (a) the listings of and permissions to deal in the Shares in issue immediately after the Capital Reduction and the New Shares being granted by the Listing Committee of the Stock Exchange (and such permission and listing not subsequently being revoked prior to the delivery of definitive Share certificate(s) representing the New Shares); (b) the Shares remaining listed and traded on the Stock Exchange prior to Completion, and no notification being received from the Stock Exchange or the SFC that the listing of the Shares on the Stock Exchange will or may be withdrawn or suspended at, upon or as a result of, Completion or otherwise in connection with the terms of the Subscription Agreement, or for any reason other than the Capital Reduction or an inadequate percentage of the issued share capital of the Company being held in public hands following the close of the Offer; (c) an increase in the authorised share capital of the Company which is sufficient for the issue of the New Shares, and issue and allotment of the New Shares having been approved by Shareholders to the extent as permitted to vote under the Takeovers Code and the Listing Rules in respect thereof at the Special General Meeting by way of ordinary resolution(s); (d) the Capital Reduction having been approved by the Shareholders at the Special General Meeting by way of a special resolution; (e) the Subscription Agreement and the issue and allotment of the New Shares having been approved by the shareholders of Easyknit at a special general meeting by way of ordinary resolution(s); (f) the Bermuda Monetary Authority having consented to the issue and confirmed the transferability of the New Shares; (g) all waivers, consents or approvals of the Stock Exchange, the SFC and any other authority in Hong Kong, Bermuda or elsewhere, which are required or appropriate for the entry into and the implementation of the Subscription Agreement, having been obtained; (h) all requisite consents for the transactions contemplated under this Agreement having been obtained from financial institutions which have entered into financing agreements with the Group or Easyknit or its subsidiaries; and (i) the Capital Reduction taking effect simultaneously with Completion. If any of the conditions has not been fulfilled (or waived by the Subscribers to the extent of conditions (b) and (h) (in respect of the relevant consents to be obtained from the financial institutions which have entered into financing agreements relating to the Group only) )on or before 8th June, 2000, the Subscription Agreement shall cease to be of any effect. Completion The aggregate consideration for the Subscription of about HK$117.2 million will be payable in cash upon Completion. Completion will take place on the third business day after all the conditions of the Subscription Agreement have been fulfilled or waived by Subscribers (to the extent with in respect of conditions (b) and (h) (in respect of the relevant consents to the Group only)). It is expected that Completion will take place in or around May 2000. Warranties, undertaking and terminations Easyknit, being the Warrantor, and the Company, on a joint and several basis, made certain warranties in respect of the Group. In particular, Easyknit warrants that the aggregate value of the properties of the Group as at 31st March, 2000 will not be less than HK$200,000,000 (please see paragraph below) and the Standstill Agreement will be extended to 30th June, 2000 or a later date. In the event of any breach of warranties in any material respect on or before Completion, the Subscribers may rescind the Subscription Agreement. Both Easyknit and the Subscribers intend that Easyknit, being the current controlling shareholder of the Company, maintains an interest in the Company. Accordingly, Easyknit further agrees with the Subscribers that out of the 485,965,700 Shares held by Easyknit at the date of the Subscription Agreement, it shall not dispose of 40 per cent. of such Shares, being 194,386,280 Shares (other than the 80,000,000 Shares comprised in the Placing), representing approximately 6.6 per cent. of the issued share capital of the Company as enlarged by the Subscription, during the one-year period after Completion. As for the remaining 291,579,420 Shares (including the 80,000,000 Shares comprised in the Placing), representing approximately 9.9 per cent. of the issued share capital of the Company as enlarged by the Subscription, Easyknit has undertaken with the Subscribers that it shall dispose of all of them during the one-year period after Completion and deposit the sale proceeds, save for those arising from the Placing, up to a maximum of HK$50 million or if the sale proceeds of all such Shares are less than HK$50 million, the entire amount with the escrow agent. Property warranty In relation to the Group's properties, the Subscribers currently do not intend to dispose of such properties, except for properties in Hong Kong currently under negotiations by the Company, at an approximate valuation of HK$35 million. As stated above, Easyknit warrants that the aggregate gross proceeds of the Group's properties (if successfully disposed) and the market value of those properties that have not been disposed of within three years from Completion shall not be less than HK$200 million. Despite such warranty given by Easyknit, under the Subscription Agreement, the Company is not obligated to dispose of any of the Group properties within three years from completion. If only part of the properties were disposed of within the three years from Completion and the gross proceeds from such disposal together with the aggregate value of the remaining properties as appraised by an independent valuer approved by the escrow agent is less than HK$200 million, the Subscribers shall be entitled to be compensated, out of the sale proceeds of Shares deposited with the escrow agent described above on a dollar to dollar basis, the shortfall which is limited to the amount that has been deposited with the escrow agent. Use of proceeds The proceeds from the Subscription are estimated to amount to about HK$117.2 million. It is intended that the proceeds will be used to expand the business of the Group to telecommunications and Internet-related activities. At present, there is no specific project planned for this purpose, and there is also no plan for the Subscribers to inject any existing assets of theirs or their Concert Parties into the Group. INFORMATION ON THE GROUP AND EASYKNIT The Group is principally engaged in property investment activities. The Company is an indirect 75 per cent. owned subsidiary of Easyknit. Following Completion, Easyknit's interest in the Company will be diluted from approximately 75 per cent. to 16.5 per cent. of the issued share capital of the Company as enlarged by the Subscription. The effect of the Subscription Agreement represents a material dilution in Easyknit's interest in a major subsidiary and gives rise to a deemed disposal of a major subsidiary which constitutes a major transaction for Easyknit under the Listing Rules. The Subscription Agreement is therefore subject to approval by the shareholders of Easyknit at its general meeting. Information on Easyknit The principal business activities of Easyknit are sourcing and export of cotton based knitted garments for women, children and infants and property investments. In December 1997, Easyknit acquired the Company, which was then known as Shui Hing Company Limited, and subsequently renamed Easy Concepts International Holdings Limited. Following the Asian financial crisis, the Group's core businesses of property holding and retail deteriorated, as was reflected in substantial increases in losses of HK$77.9 million and HK$179.5 million in the years ended 31st March 1998 and 1999 respectively (as further described in the section headed `Subscription Agreement'). The directors of Easyknit believe that the injection of capital and change of manangement through the Subscription enables Easyknit to concentrate on the principal activities of Easyknit whilst maintaining an interest and upside potential as a minority shareholder in the Company. INFORMATION ON THE SUBSCRIBERS Uni-Tech Uni-Tech is an investment holding company incorporated in the British Virgin Islands with limited liability and is a wholly-owned subsidiary of 21CN. Top Century Top Century is an investment holding company incorporated in the British Virgin Islands with limited liability. The shareholding structure of Top Century is as to 65 per cent. beneficially owned by Mr. Poon Wai-Cheong, the executive vice-president of the Pollon Group and 35 per cent. beneficially owned by Mr. Fung Ka-Keung, David, the vice-president and financial controller of the Pollon Group. 21CN The shareholding structure of 21CN is as to 76.5 per cent. beneficially owned by Pollon, as to 17.5 per cent. by 21CN China, a company incorporated in the PRC, which is 94 per cent. owned by (Guangdong Post and Telecommunications Bureau) and its Associates and the balance by an independent third party, being (Hua Xin Telecom Technology Company Limited), a provider of internet related services in the PRC. Guangdong Post and Telecommunications Bureau is a supervisory governmental agency of 21CN China, and as to 5 per cent. by Multiphase, a wholly-owned subsidiary of China Telecom (Hong Kong) Group Limited, (an intermediate holding company of China Telecom (Hong Kong) Limited, a company listed on the Stock Exchange). The remaining 1 per cent. is owned by Top Century. 21CN has been developing a portal under the domain name `21cnhk.com' (the `HK Web Business') which is scheduled to be launched in Hong Kong in the first quarter of Year 2000. 21CN China operates an internet business in China, including a portal under the domain name `21cn.com' (registered under the name of a nominee of 21CN China, Ms. Chen Changjuan, a deputy director- general of Guangdong Posts and Telecommunications Administration) (the `PRC Web Business') which was ranked number 7 by the CNNIC as the most favorite websites in the PRC for the year ended 31st December, 1999. On 22nd January, 2000, 21CN China entered into an agreement with 21CN pursuant to which, 21CN China has an obligation to deal and cross promote exclusively with 21CN in respect of the PRC Web Business. 21CN also plans to establish other overseas Web Business, together with the HK Web Business and the PRC Web Business, under the brandname `21CN'. Pollon Pollon is 100 per cent. beneficially owned by Ms. Chen Xiao-Ying. For details of Ms. Chen Xiao-Ying, please refer to section headed `Proposed change of board composition'. Pollon is an investment holding company. The directors, chief executive and substantial shareholders of the Company are independent of the Subscribers and have no shareholding or other financial interests in any member of the Subscribers. Convertible and Exchangeable Notes Pursuant to Notes Agreement I (of 4th February, 2000), 21CN has conditionally agreed to issue the ES Note to Emerald Sky and the NF Note to New Found. Pursuant to Notes Agreement II of (11th February, 2000), 21CN has conditionally agreed to issue the YH Note to Yi Hua. The principal amounts of the ES Note, NF Note and YH Note are HK$18,661,775.62, HK$15,162,692.69 and HK$22,744,039.03 respectively. Under the terms and conditions of the ES Note, the NF Note and the YH Note, Emerald Sky, New Found and Yi Hua respectively may at any time after the issue of the ES Note, the NF Note and the YH Note and on or before 4th February, 2002: 1. convert the ES Note, the NF Note and the YH Note into 21CN Shares, which, assuming full conversion, would represent approximately 2.9%, 1.9% and 2.9%, respectively, of the issued share capital of 21CN as enlarged by the full conversion of the ES Note, the NF Note and the YH Note; or 2. exchange the ES Note, the NF Note and the YH Note into Shares that will be owned by 21CN through Uni-Tech upon Completion at an exchange price of HK$0.28, HK$0.34 and HK$0.34 per Share respectively, which assuming full exchange, would represent approximately 2.25 per cent., 1.5 per cent. and 2.25 per cent., respectively, of the issued share capital of the Company as enlarged by the Subscription. Completion of the Notes Agreement I and the Notes Agreement II are subject to, among other things, the following conditions: 1. in respect of the Notes Agreement II only, the completion of the Notes Agreement I ; 2. to the extent legally feasible, the transfer of the domain name and the business relating to the website `21cnhk.com' by Pollon to 21CN without any consideration and the transfer of the domain name and the business relating to the website `21cn.com' by the 21CN China's nominee (Ms. Chen Changjuan) to 21CN China; 3. Completion of the Subscription Agreement; 4. Emerald Sky, New Found and Yi Hua, as the case may be, have not identified any undisclosed shareholder of the Company who beneficially owns more than 20,000,000 of the Shares or any securities convertible into or exchangeable for the Shares; 5. Emerald Sky, New Found and Yi Hua, as the case may be, have not identified any undisclosed shareholder of Easyknit who beneficially owns more than 10 per cent. of Easyknit's shares or any securities convertible into or exchangeable for the Shares; and 6. Emerald Sky, New Found and Yi Hua, as the case may be, having received copy of a certificate signed by Mr. Koon Wing Yee, relating to his beneficial interests, if any, in the Company. Completion of Notes Agreement I is expected to take place on the second business day after satisfaction of all of the conditions precedent as set out in the Notes Agreement I or at such other time as 21CN, Emerald Sky and New Found may agree in writing. Completion of the Notes Agreement II is expected to take place simultaneously with the completion of the Notes Agreement I or any other time as 21CN and Yi Hua may agree in writing, subject to the fulfilment of the conditions set out in the Notes Agreement II. Emerald Sky is a company wholly-owned by Sino Equity, a private equity investment and advisory firm formed in 1998. Sino Equity is wholly-owned by Mr. Gong Hong-Yu and his family, an independent third party. Sino Equity serves as advisor to leading international private equity investors in Asian infrastructure, telecom, media, and technology areas and on specific investment transactions. It is also actively seeking to make direct private equity investment in opportunities relating to information technology in Greater China region. Mr. Gong Hong-Yu has considerable experience in the investment industry. New Found is owned as to 95 per cent. by The News Corporation Limited indirectly and as to 5 per cent. by Sino Equity. The News Corporation Limited is one of the world's largest diversified media and communications companies and its shares are listed on the Australian Stock Exchange Limited and other major exchanges around the world. Yi Hua is beneficially owned as to 50 per cent. by BNP Prime Peregrine Limited and 50 per cent. by Mr. Leung Pak To, Francis. BNP Prime Peregrine Limited is the holding company of BNP Prime Peregrine and BNP Prime Peregrine Limited. Mr. Leung Pak To, Francis is the Chairman of BNP Prime Peregrine and vice chairman of BNP Prime Peregrine Limited. Each of Emerald Sky, Sino Equity, Mr. Gong Hong-Yu, New Found, The News Corporation Limited, Yi Hua, BNP Prime Peregrine Limited and Mr. Leung Pak To, Francis is independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company or Easyknit and their respective subsidiaries or any of their respective Associates. Each of Emerald Sky, New Found and Yi Hua and parties acting in concert with any of them has not dealt in any of the Shares within six months prior to the date of this announcement. Each of Emerald Sky, New Found and Yi Hua notes that except with the consent of the Executive, it may not within six months of the closing of the offer acquire any Shares from any Shareholders at a price higher than the offer price of HK$0.051 under the Offer. In the event that such consent is not obtained, each of Emerald Sky, New Found and Yi Hua would take the requisite action to comply with the Takeover Code. The following table sets out the shareholding position of the Company, and the corresponding changes (i) upon completion of the Placing, (ii) upon Completion and the Placing but before Exchange and (iii) upon Completion, the Placing and after Exchange in full. Existing Immediately Immediately shareholding upon upon structure Completion Completion and and completion after of the Exchange Placing in full but before Exchange Number Approximate Number Approximate Number Approximate of of of Shares percentage Shares percentage Shares percentage Easyknit 485,965,700 75.0 405,965,700 13.8 405,965,700 13.8 Uni-Tech - - 2,209,017,000 75.0 2,032,295,640 69.00 Top - - 88,360,680 3.0 88,360,680 3.00 Century New - - - - 44,180,340 1.50 Found Emerald - - - - 66,270,510 2.25 Sky Yi Hua - - - - 66,270,510 2.25 Public 162,012,620 25.0 242,012,620 8.2 242,012,620 8.2 ------------------------------------------------------------ 647,978,320 100.0 2,945,356,000 100.0 2,945,356,000 100.0 Easyknit through its wholly-owned subsidiary, Touch Profits Limited, holds 485,965,700 Shares in the Company. The placing Agreement Date of the Placing Agreement 17th February, 2000 Parties Vendor : Touch Profits Limited Placing agent : Fair Eagle Securities Limited Number of Shares to be placed 80,000,000 Shares comprised in the Placing represent approximately 12.3 per cent. of the existing issued share capital of the Company and approximately 2.7 per cent. of the issued share capital of the Company as enlarged by the Subscription. The Placing will reduce the shareholding of Easyknit from approximately 75 per cent. to about 62.7 per cent. of the Company's existing issued share capital. Entering into the Placing Agreement constitutes a major transaction for Easyknit under the Listing Rules. Therefore, the Placing Agreement is subject to approval of shareholders of Easyknit in a forthcoming special general meeting of Easyknit. A resolution will be put forward to the shareholders of Easyknit at a forthcoming special general meeting of Easyknit for the approval of the placing of 80,000,000 Shares. Such special general meeting of Easyknit is expected to be held at the end of March 2000. The purpose of the Placing is to increase the percentage of the issued share capital of the Company held by public shareholders after the Completion. Placing price HK$1.20 per Share, which represents a discount of approximately 42.9 per cent. to the closing price of HK$2.10 per Share prior to the suspension in trading on 31st January, 2000 and a premium of approximately 252.9 per cent. over the closing price of HK$0.34 per Share on 28th January, 2000 (being the last full day of trading of the Shares prior to suspension). Such price also represents a premium of approximately 147.9 per cent. over the 10-day average closing price of HK$0.484 on and immediately preceding 28th January, 2000. Share to be placed under the Placing The Shares to be placed under the Placing will be sold free from all liens, charges, encumbrances, claims options or any third-party rights and together with all rights attaching thereto as at the date of the Placing Agreement, including the right to all dividends or other distributions which may be declared, paid or made after the date of the Placing Agreement. Independence of placees and the Placing Agent The Placing Agent has procured that the placees are independent institutional, professional and other investors and are third parties independent of the directors, chief executive or substantial shareholders of the Company, Easyknit, Uni-Tech and the Placing Agent respectively, any of their respective subsidiaries or their respective Associates or Concert Parties. The Placing Agent is independent of the directors, chief executive or substantial shareholders of the Company, any of its subsidiaries or their respective associates (as defined in the Listing Rules). Conditions and completion of the Placing Completion of the Placing Agreement shall take place on the second business day after the shareholders' approval is obtained at a special general meeting of Easyknit which is expected to be at the end of March, 2000 or such other date as Touch Profits Limited and the Placing Agent may agree in writing. If such condition has not fulfilled on or before 5:00 p.m. on 31st March, 2000 (or such later time and/or date as the Placing Agent may specify in writing), the Placing Agreement shall lapse. Use of proceeds The aggregate proceeds of the Placing will be approximately HK$96 million. It is intended that such proceeds will be used as to approximately HK$40 million for the repayment of bank borrowings of Easyknit and the balance for working capital for Easyknit. SHAREHOLDING STRUCTURE (For the diagrams showing the Company's existing structure, the structure immediately (i) upon completion of the Placing; (ii) upon Completion and the Placing but before the Conversion and/or Exchange; (iii) upon Completion, the Placing and after Conversion in full and (iv) upon Completion, the Placing and after Exchange in full, please refer the press announcement today.) FUTURE INTENTIONS OF the SUBSCRIBERS The directors of the Subscribers, upon Completion, will conduct a review of the position and operations of the Group with a view to strengthening operations of the Group. The Subscribers currently do not intend to dispose of the Properties, except for properties in Hong Kong currently under negotiations by the Company, at an approximate valuation of HK$35 million. It is the intention of the Subscribers that the Group will continue its existing business. There is also no intention for the Subscribers to inject any existing assets of the Subscribers or their Concert Parties into the Group. In addition, the directors of the Subscribers intend that there will be no material changes to the existing management structure and employees of the Group by reason only of the Subscription. The directors of the Subscribers aim to expand the business of the Group into investment in companies conducting information technology including telecommunications and Internet-related activities in particular in the PRC and the Asia-Pacific Region. However, there is no specific plan or target identified at present. The directors of the Subscribers also believe that the Company will benefit from having the Subscribers as a controlling shareholder. The Stock Exchange will also closely monitor all future acquisitions or disposals of assets by the Company. The Stock Exchange has the discretion to require the Company to issue a circular to its shareholders irrespective of the size of the proposed transaction, particularly when such proposed transaction represents a departure from the principal activities of the Company. The Stock Exchange also has the power to aggregate a series of transactions and any such transaction may result in the Company being treated as if it were a new listing applicant. The future directors of the Company are aware of the possibility of the Company's public float falling below 25 per cent. immediately after Completion and will address this issue accordingly including by means of the placement of shares. PROPOSED CHANGE OF BOARD COMPOSITION It is intended that other than Mr. Koon Wing Yee, all the existing Directors will resign upon the closing of the Offer which is expected to be in May 2000. It is the intention of the Subscribers that Ms. Chen Xiao-Ying and Mr. Poon Wai-Cheong will be nominated to join the board of directors of the Company as executive directors. Five more new executive or non-executive directors including two new independent non-executive directors will also be appointed. It is intended that Ms. Chen Xiao-Ying will be appointed as the Executive Chairperson. As such, the board of directors of the Company would comprise eight directors, including six executive and non-executive directors and two independent non-executive directors. Particulars of the proposed new executive directors of the Company are set out below: Ms. Chen Xiao-Ying has been the Executive Chairman of the board of the Pollon Group, a private investment group, since its inception in 1989. She has been responsible for developing and managing the Pollon Group's businesses for the past 11 years, including investing in power plants, telecommunications and real estate development in the PRC. Ms. Chen has been a Member of the Chinese National People's Political Consultative Committee since 1998 and Permanent Honorary President of Friends of Hong Kong Association Limited since 1999. Ms. Chen graduated from The University of Tokyo with a degree in economics. Mr. Poon Wai-Cheong has been the Executive Vice President of Pollon Industrial Limited (incorporated in the Cayman Islands) since 1997, and is in-charge of the group's investment in internet and telecommunications, power generation and real estates. Mr. Poon has over 15 years' experience in financial management and corporate development. Mr. Poon holds a Bachalor of Social Science degree in Economics and Master of Business Administration degree from the Chinese University of Hong Kong. PROPOSED CHANGE OF NAME It is intended that subject to the approval of the Registrar of Companies in Bermuda, the name of the Company will be changed to 21CN CyberNet Corporation Limited on Completion to reflect the introduction of new management and the intention to diversify the Company's business to include telecommunications and Internet-related activities in the future. The proposed change of name is also subject to the approval of the Shareholders at the Special General Meeting. THE CAPITAL REDUCTION PROPOSAL It is proposed that the nominal value of all the issued and unissued Shares will be reduced from HK$0.10 each to HK$0.01 each. On the basis of 647,978,320 Shares presently in issue, a credit of HK$58,318,048.80 will arise as a result of the Capital Reduction. Such credit will be transferred to a special capital reserve account of the Company. The special reserve account may be applied at the discretion of the board of the Company towards the meeting of claims on or liabilities of the Company or contingencies or for paying off any loan capital or for equalising dividends or for any purposes to which the profits of the Company may be properly applied. The Directors have no intention to use such special capital reserve and have no concrete plans as to when and how to use such reserve. The Capital Reduction is subject to approval by the Shareholders at the Special General Meeting. TAKEOVERS CODE IMPLICATIONS FOR THE SUBSCRIBERS During the six-month period immediately preceeding the date of this announcement, there were no dealings in the Shares by the Subscribers and their Concert Parties. At present, none of the Subscribers or their Concert Parties hold any Shares. Upon issuance of the New Shares, the Subscribers and Concert Parties will be interested in approximately 78 per cent. of the enlarged issued share capital of the Company. Under the Takeovers Code, the Subscribers will be obliged to make an unconditional cash offer to acquire all the issued Shares other than those already owned or agreed to be acquired by them and their Concert Parties. POSSIBLE UNCONDITIONAL CASH OFFER The Offer At present, Uni-Tech and its Concert Parties do not own any interest in the Company. Upon Completion, Uni-Tech and its Concert Parties will be interested in 2,297,377,680 Shares representing about 78 per cent. of the issued share capital of the Company as enlarged by the Subscription. The existing shareholding structure and the shareholding structure upon Completion are set out in the section headed `Shareholding structure' above. Under Rule 26 of the Takeovers Code, upon Completion, Uni-Tech will be obliged to make an unconditional cash offer for all the issued Shares not already owned or agreed to be acquired by Uni-Tech or its Concert Parties. Warning: The Offer is a possibility only. The making of the Offer is subject to Completion. The Subscription Agreement is conditional (see `Conditions of the Subscription Agreement' above). Shareholders and investors should exercise extreme caution when buying or selling Shares. If the Offer is made, it will be on the terms set out below. BNP Prime Peregrine, on behalf of Uni-Tech, will make an unconditional cash offer for all the issued Shares other than those already owned or agreed to be acquired by Uni-Tech or its Concert Parties on the following basis: for each Share ..................................... HK$0.051 in cash The offer price of HK$0.051 per Share is the same as the issue price per Share under the Subscription Agreement. There are no outstanding warrants or outstanding share options or securities convertible into shares issued by the Company as at the date of this announcement. Condition If the Offer is made, it will be unconditional. Easyknit has undertaken to the Subscribers not to accept the Offer in respect of any Shares held by it. Total consideration At present, there are 647,978,320 Shares in issue and the Company's share capital will be enlarged to 2,945,356,000 Shares upon Completion. In the event that the Offer was accepted in full by Shareholders other than Easyknit and its Associates, the aggregate amount payable by Uni-Tech would be about HK$12.34 million (assuming the Placing is completed). Easyknit has undertaken to the Subscribers not to accept the Offer in respect of all the Shares held by it. Pursuant to an underwriting agreement between Uni-Tech and BNP Peregrine Securities Limited dated 10th February, 2000, BNP Prime Peregrine Securities Limited has agreed to purchase or procure purchasers for all the Shares that are tendered to the Offer at a price of HK$0.051 per Share to ensure that Uni-Tech will only hold 75 per cent. of the issued share capital of the Company upon Completion. The underwriting agreement is conditional on the Offer having been made. BNP Prime Peregrine Capital is satisfied that sufficient resources are available to Uni-Tech to satisfy acceptances of the Offer in full. Effect of accepting the Offer By accepting the Offer, Shareholders will sell their Shares and all rights attached to them, including the right to receive all dividends and distributions declared, made or paid on or after the date of the Subscription Agreement. Stamp duty Stamp duty at a rate of HK$1.25 for every HK$1,000 or part thereof of the amount payable in respect of relevant acceptances will be deducted from the amount payable to shareholders who accept the Offer. MAINTAINING THE LISTING OF THE COMPANY It is the intention of the future directors of the Company to maintain the listing of the Shares on the Stock Exchange after Completion. Accordingly, the Directors including future directors upon Completion and the Company and Uni-Tech will jointly and severally undertake to the Stock Exchange to take appropriate steps to ensure that sufficient public float exists for the Shares. The future directors of the Company are aware of the possibility of the Company's public float falling below 25 per cent. immediately after Completion and will address this issue accordingly, including by means of the placement of shares. If the Stock Exchange believes that: - a false market exists or may exist in the Shares; or - there are too few Shares in public hands to maintain an orderly market; it will consider exercising its discretion to suspend trading in the Shares. In this connection, it should be noted that upon Completion, there may be insufficient public float for the Shares and therefore trading in the Shares may be suspended until a sufficient level of public float is attained. SUSPENSION AND RESUMPTION OF TRADING IN THE SECURITIES Trading in the shares of Easyknit on the Stock Exchange and SGX-ST was suspended at the request of Easyknit with effect from 10:48 a.m. and 11:26 a.m. respectively on 31st January, 2000. Trading in the Shares on the Stock Exchange was suspended with effect from 10:47 a.m. on 31st January, 2000 at the request of Easyknit and the Company. Applications have been made to the Stock Exchange and SGX-ST for resumption of trading of the shares in Easyknit and an application has also been made to the Stock Exchange for resumption of trading of the Shares, in each case, with effect from 10:00 a.m. on 18th February, 2000. GENERAL An independent committee of the board of directors of the Company will be appointed to consider the Subscription and the Offer. An independent financial adviser will be appointed to advise the independent board committee regarding the Subscription and the Offer. BNP Prime Peregrine has been appointed to advise 21CN and Uni-Tech in connection with the Subscription and the Offer. An application will be made to the Stock Exchange for the listing of, and permission to deal in, the New Shares to be issued under the Subscription and the Exchange. A circular containing details of the Subscription and notice of the Special General Meeting will be despatched to Shareholders of the Company as soon as practicable. Subject to Completion, a composite offer document containing details of the Offer, the opinion of the independent board committee and the recommendation of the independent financial adviser will be despatched to the Shareholders within seven days from Completion. Application will be made to the Executive for a consent to despatch the offer document on a date more than 21 days of the date of this announcement as the making of the Offer is subject to Completion and Completion is expected to take place in May 2000. A circular will be sent to the Shareholders of Easyknit in respect of the Subscription and the Placing. In this announcement, the following expressions have the meanings set out below unless the context requires otherwise. `21CN' 21CN Corporation, a company incorporated in the Cayman Islands with limited liability `21CN China' 21CN Corporation Limited `21CN Shares' shares of US$0.001 each in the capital of 21CN `Associate(s)' has the meaning ascribed thereto under the Listing Rules `BNP Prime Peregrine' BNP Prime Peregrine Capital Limited, financial adviser to 21CN and Uni-Tech in relation to the Subscription and the Offer `Capital Reduction' the reduction of nominal value of the shares HK$0.10 each in the share capital of the Company from HK$0.10 to HK$0.01 `CNNIC' China Internet Network Information Center. a non-profit making government, administration and service agency which is engaged in domain names registration, Internet catalogue database service and administrates other Internet-related information services in the PRC `Company' Easy Concepts International Holdings Limited, an exempted company incorporated in Bermuda with limited liability, the Shares of which are listed on the Stock Exchange and which is an indirect 75 per cent. owned subsidiary of Easyknit `Completion' completion of the Subscription Agreement `Concert Parties' persons acting in concert with the Subscribers within the meaning of the Takeovers Code, comprising 21CN China, Pollon, Multiphase, 21CN, New Found, Emerald Sky and Yi Hua and parties acting in concert with any of them `Controlling Shareholder' has the meaning ascribed thereto under the Listing Rules `Conversion' pursuant to the Notes Agreements, Emerald Sky, New Found and Yi Hua may, at their option, convert the ES Note, the NF Note and the YH Note respectively into shares of 21CN, representing a total of approximately 8 per cent. of 21CN's enlarged equity upon full conversion, on or before 4th February, 2002 `Directors' the directors of the Company `Easyknit or `Warrantor' Easyknit International Holdings Limited, an exempted company incorporated in Bermuda with limited liability, the Shares of which are listed on the Stock Exchange and the SGX-ST `Emerald Sky' Emerald Sky Assets Limited is a company incorporated in the British Virgin Islands with limited liability `ES Note' zero-coupon convertible and exchange note in an aggregate principal amount of HK$18,661,775.62 to be issued by 21CN to Emerald Sky pursuant to the Notes Agreement I `Exchange' pursuant to the Notes Agreements, Emerald Sky, New Found and Yi Hua may, at their option, exchange the ES Note, the NF Note and the YH Note respectively into Shares, representing approximately six per cent. of the share capital of the Company as enlarged by the Subscription upon full exchange, on or before 4th February, 2002 `Executive' the Executive Director of the Corporate Finance Division of the SFC or any of his delegates `Group' the Company and its subsidiaries `HK$' Hong Kong dollar(s), the lawful currency in Hong Kong `Hong Kong' Hong Kong Special Administrative Region of the PRC `Listing Rules' Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited `Multiphase' Multiphase Properties Limited, a company incorporated in the British Virgin Islands with limited liability `New Found' New Found International Limited is a company incorporated in the British Virgin Islands with limited liability `New Shares' an aggregate of 2,297,377,680 new Shares `NF Note' zero-coupon convertible and exchange note in an aggregate principal amount of HK$15,162,692.69 to be issued by 21CN to New Found pursuant to the Notes Agreement I `Notes Agreement I' the subscription agreement for the subscription of the ES Note and the NF Note dated 4th February, 2000 entered into between 21CN as issuer, and Emarald Sky and New Found as subscribers `Notes Agreement II' the subscription agreement for the subscription of the YH Note dated 11th February, 2000 entered into between 21CN as issuer and Yi Hua as subscriber `Notes Agreements' the Notes Agreement I and the Notes Agreement II `Offer' the unconditional cash offer, for the Offer Shares to be made by or on behalf of the Uni-Tech in accordance with the Takeovers Code `Offer Shares' all the existing issued Shares (other than the New Shares and any Shares which are already beneficially owned or acquired, or agreed to be acquired, by Uni-Tech and its Concert Parties), while the Offer remains open for acceptance `Placing' the placing of 80,000,000 Shares pursuant to the Placing Agreement with a price of HK$1.20 per Share `Placing Agent' Fair Eagle Securities Limited `Placing Agreement' the placing and underwriting agreement dated 17th February, 2000 entered into between Touch Profits Limited and the Placing Agent in relation to the placing of 80,000,000 Shares `Pollon' Pollon Internet Corporation, a company incorporated in the British Virgin Islands with limited liability `Pollon Group' private investment group of companies chaired by Ms. Chen Xiao-Ying `PRC' the People's Republic of China `Properties' the properties currently owned by the Group `SFC' Securities and Futures Commission of Hong Kong `SGX-ST' Singapore Exchange Securities Trading Limited `Sino Equity' Sino Equity Enterprises Limited, a company incorporated in the British Virgin Islands with limited liability `Special General Meeting' the special general meeting of the Company `Share(s)' shares of HK$0.10 each in the capital of the Company or, where the context requires, shares of HK$0.01 each in the capital of the Company after the Capital Reduction `Shareholder(s)' the holder(s) of the Share(s) `Standstill Agreement' Easyknit and its subsidiaries entered into a standstill agreement on 2nd September, 1999 with two of its bankers who together hold approximately 94.94 per cent. of the total bank loans and other borrowings of approximately HK$734,000,000 as at 25th August, 1999 whereby the two bankers agreed to standstill to 31st December, 1999 in respect of amounts owed to them by Easyknit and subsidiaries `Stock Exchange' The Stock Exchange of Hong Kong Limited `Subscribers' Uni-Tech and Top Century `Subscription Agreement' the conditional agreement dated 7th February, 2000, as amended by a supplemental agreement dated 14th February, 2000 between Easyknit, the Subscribers and the Company relating to the subscription for 2,297,377,680 new Shares in aggregate `Subscription' the subscription of the New Shares by the Subscribers on the terms of the Subscription Agreement `Takeovers Code' the Hong Kong Code on Takeovers and Mergers `Top Century' Top Century Investments Company Limited is a company incorporated in the British Virgin Islands with limited liability `Uni-Tech' Uni-Tech International Group Limited is a company incorporated in the British Virgin Islands with limited liability and is 100 per cent. owned by 21CN `YH Note' zero-coupon convertible and exchange note in an aggregate principal amount of HK$22,744,039.03 to be issued by 21CN to Yi Hua pursuant to the Notes Agreement II `Yi Hua' Yi Hua Assets Limited, a company incorporated in the British Virgin Islands with limited liability By Order of the Board of Easyknit International Holdings Limited Koon Wing Yee President and Chief Executive Officer By Order of the Board of Uni-Tech International Group Limited Chen Xiao-Ying Chairperson By Order of the Board of Easy Concepts International Holdings Limited Koon Wing Yee President and Chief Executive Officer By Order of the Board of Top Century Investments Company Limited Poon Wai-Cheong Chairman Hong Kong, 17th February, 2000 The Directors and the directors of Easyknit jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than those relating to the Subscribers) and confirm, having made all reasonable enquiries, that to the best of their knowledge, their opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts (other than those relating to the Subscribers) not contained in this announcement, the omission of which would make any of their statements in this announcement misleading. The directors of each of the Subscribers jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to the Group and Easyknit) and confirm, having made all reasonable enquiries, that to the best of their knowledge, their opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts (other than that relating to the Group and Easyknit) not contained in this announcement, the omission of which would make any of their statements in this announcement misleading.