Cocoon Holdings Limited — M&A Activity 2002

Apr 9, 2002

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 part of the contents of this announcement.

This announcement appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe the securities.

21CN CYBERNET CORPORATION LIMITED

(incorporated in Bermuda with limited liability)

Website: http://www.21cncybernet.com, http://www.irasia.com/listco/hk/21cncybernet

SHARE AND CONNECTED TRANSACTIONS

ACQUISITION OF 100% INTEREST IN JOY HEAVEN INC.

The Directors are pleased to announce that on 3 April, 2002, the Vendor and the Company entered into the Acquisition Agreement, pursuant to which the Company will acquire the entire issued share capital of Joy Heaven, together with the Loan due by Joy Heaven to the Vendor, from the Vendor at an aggregrate consideration of HK$17,000,000. Upon completion of the Acquisition, Joy Heaven will become a wholly owned subsidiary of the Company.

The consideration under the Acquisition Agreement will be satisfied by the payment of HK$2,000,000 in cash and the issue by the Company of Consideration Shares at an issue price of HK$0.30 per Share.

The Consideration Shares will represent 1.63% and 1.61% of the existing and enlarged share capital of the Company. The Consideration Shares will rank pari passu in all aspects with the then existing issued share capital of the Company. The Company will apply to the Stock Exchange for the listing of and permission to deal in the Consideration Shares. The Vendor is a brother of Chen Xiao Ying, the ultimate controlling shareholder of the Company, who holds 77.5% equity interest in Uni-Tech International Group Limited which is the controlling shareholder of the Company. Accordingly, the Vendor is a connected person as defined under the Listing Rules and therefore the Acquisition constitutes a connected transaction for the Company under the Listing Rules and is therefore subject to the Independent Shareholders’ approval at the SGM. The Vendor, Uni-Tech International Group Limited and their respective associates will abstain from voting in respect of the resolution to be proposed at the SGM to approve the Acquisition Agreement and the issue of the Consideration Shares.

The transaction also constitutes a share transaction for the Company under the Listing Rules.

A circular containing further details of the Acquisition and the issue of the Consideration Shares, the recommendation of the independent board committee on the Acquisition and the issue of the Consideration Shares, the letter from the independent financial adviser containing its advice to the independent board committee and a notice of the SGM will be despatched to the Shareholders as soon as practicable.

Trading in the Shares was suspended from 9:30 a.m. on 4 April, 2002. An application has been made to the Stock Exchange for the resumption of trading in the Shares with effect from 9:30 a.m. on 9 April, 2002.

THE ACQUISITION AGREEMENT

Date: 3 April, 2002

Parties: Vendor: Chen Wen Xin

Purchaser: 21CN CyberNet Corporation Limited

Asset to be acquired

Pursuant to the Acquisition Agreement, the Company shall acquire from the Vendor the Acquired Shares and the Loan. The Acquired Shares shall be free from all liens, charges, mortgages, equity, adverse interest and encumbrances and from all other rights exercisable by third parties and together with all rights attaching thereto including all dividends and distributions declared, made or paid or agreed to be made or paid thereon or in respect thereof on or after the date of the Acquisition Agreement. The Loan shall be free from all liens, charges, mortgages, equity, adverse interest and encumbrances and from all other rights exercisable by third parties and together with all rights attaching thereto on or after the date of the Acquisition Agreement.

Consideration

The Acquisition Consideration of HK$17,000,000 was determined after arm’s length negotiation between the Company and the Vendor with reference to the unaudited consolidated net tangible assets of Joy Heaven Group of HK$18,340,000 which were prepared in accordance with generally accepted accounting principles in Hong Kong, without taking into account the Loan of HK$40,000,000 due to the Vendor as at 31 December, 2001. In addition, the Acquisition Consideration represents a price earnings multiple of approximately 4.5 times the unaudited consolidated profit after taxation and minority interest of Joy Heaven Group for the year ended 31 December, 2001.

The Acquisition Consideration will be satisfied by the payment of HK$2,000,000 in cash and the issue of the Consideration Shares by the Company to the Vendor on the date of completion of the Acquisition Agreement.

Consideration Shares

The issue price of HK$0.30 per Consideration Share represents:

˙ a discount of around 1.64% to the closing price of HK$0.305 per Share as quoted on the Stock Exchange on 3 April, 2002 (the last trading day before suspension of the trading of Shares on 4 April, 2002);

˙ a discount of around 1% to the average closing price of HK$0.303 per Share as quoted on the Stock Exchange for the last ten trading days up to and including 18 March, 2002; and

˙ a premium of around 445% to the unaudited consolidated net asset value of around HK$0.055 per Share based on the Company’s unaudited consolidated net asset value disclosed as at 30 September, 2001.

The Consideration Shares, when issued, will rank pari passu in all respects with the then existing Shares in issue. The Consideration Shares represent around 1.63% of the existing issued share capital of the Company and around 1.61% of its issued share capital as enlarged by the issue of the Consideration Shares.

Conditions precedent

1. no material adverse changes having occurred in the financial, business or trading conditions of the Joy Heaven Group from the date of signing of the Acquisition Agreement to and including the date of completion of the Acquisition;

2. the Independent Shareholders approving the Acquisition Agreement, the issue and allotment of the Consideration Shares and the transactions contemplated in the Acquisition Agreement in the SGM;

3. the Listing Committee of the Stock Exchange having approved the listing of and permission to deal in the Consideration Shares;

4. the representations and warranties given by the Vendor pursuant to the Acquisition Agreement remaining to be true, accurate and not misleading as of the date of the completion of the Acquisition Agreement;

5. (if required) the approval of the Bermuda Monetary Authority having been obtained in relation to the issue of the Consideration Shares pursuant to the Acquisition Agreement; and

6. all necessary consents, authorisation, licences and approvals for or in connection with the Acquisition and the issue of Consideration Shares being granted on the terms the Company may reasonably accept.

Undertaking

The Vendor undertakes to procure the transfer in a mutually acceptable way by Guangdong Tian Tu and Guangdong Qi Xin of their businesses, assets and liabilities to a wholly foreign owned enterprise to be incorporated by the Company in the PRC (“Transfer”). The Vendor undertakes to indemnify the Company from all losses and liabilities suffered by the Company and /or its members if the Transfer cannot be completed within one year from the date of completion of the Acquisition Agreement, including but not limited to any reduction in value of the assets or share capital of the Group. The Vendor further undertakes that prior to the Transfer, Ms. Zhan Mei Ji and Mr. Wang Jia Jun will remain holding Guangdong Tian Tu and Guangdong Qi Xin on trust for Grand Cycle and Happy Moment, respectively and all profits and benefits therefrom will be accountable to the said beneficiaries.

Completion

Completion of the Acquisition shall take place 30 days after all of the above conditions precedent have been fulfilled or such later date as the Vendor and the Company may agree in writing. Upon completion of the Acquisition, Joy Heaven will become a wholly owned subsidiary of the Company.

Information of Joy Heaven

Joy Heaven is currently owned as to 100% by the Vendor.

The principal activity of Joy Heaven is investment holding. The Joy Heaven Group are mainly engaged in telecommunications software development and system integration. The Joy Heaven Group has strong and stable cliente and expertise in the area of system integration in relation to telecommunications business.

The assets of Joy Heaven Group comprises the entire issued share capital of (i) Brightown, (ii) Grand Cycle; and (iii) Happy Moment. Further, Grand Cycle owns the beneficial interest of the entire equity interest of Guangdong Tian Tu, which is now held by Ms. Zhan Mei Ji and Mr. Wang Jin Jun on trust for Grand Cycle in the ratio of 90% and 10%. Happy Moment owns 70% of the entire issued share capital of Cattsoft and also owns the beneficial interest of the entire equity interest of Guangdong Qi Xing which is now held by Ms. Zhan Mei Ji and Mr. Wang Jin Jun on trust for Happy Moment in the ratio of 80% and 20%. Guangdong Qi Xing in turn owns 70% of Guangdong Kai Tong.

Joy Heaven was financed by the Loan, which was unsecured and interest-free, granted by Vendor to Joy Heaven on 20 June, 2001, to acquire the above mentioned companies.

The group structure of the Joy Heaven Group is as follows:

Notes

1. It is a limited company incorporated under the laws of the PRC engaging in the system integration business, as to 90% owned by Ms. Zhang Mei Ji and 10% owned by Mr. Wang Jia Jun. Both Ms. Zhang Mei Ji and Mr. Wang Jia Jun are trustees who hold the entire equity interest in Guangdong Tian Tu on trust for Grand Cycle. The company commenced operation on 21 December 1998.

2. It is a limited company incorporated under the laws of the PRC, the principal activity of which is the investment holding of Guangdong Kai Tong, as to 80% owned by Ms. Zhang Mei Ji and 20% owned by Mr. Wang Jia Jun. Both Ms. Zhang Mei Ji and Mr. Wang Jia Jun are trustees who hold the entire equity interest in Guangdong Qi Xin on trust for Happy Moment. The company commenced operation on 7 December, 1999.

3. It is a limited company incorporated under the laws of Hong Kong and wholly owned by Joy Heaven. It is engaged in the investment holding and system integration business. The company commenced operation on 16 January, 1997.

4. It is a limited company incorporated under the laws of Hong Kong and wholly owned by Joy Heaven. It is engaged in the system integration business. The company commenced operation on 30 June, 2000.

5. It is a limited liability company incorporated under the laws of British Virgin Islands and a wholly owned subsidiary Joy Heaven. Its principal activity is Investment Holding. The company commenced operation on 1 February, 2001.

6. Tam Po Ki, an independent third party, not connected to the directors, chief executive or substantial shareholders of the Company, or their respective subsidiaries or any of their respective associates, as defined in the Listing Rules.

7. It is a limited company incorporated under the laws of Hong Kong and 70% owned by Joy Heaven it is engaged in the software development business. The company commenced operation on 7 April, 2000.

8. Beijing Kai Tong Technology Services Company Limited, an independent third party, a company not connected to the directors, chief executive or substantial shareholders of the Company, or their respective subsidiaries or any of their respective associates, as defined in the Listing Rules.

9. It is a limited company incorporated under the laws of the PRC engaging in the telecommunications software development business .The company commenced operation on 26 April, 2000.

Based on the unaudited consolidated financial statements of Joy Heaven Group, the consolidated net tangible asset of Joy Heaven Group as at 31 December, 2001 was approximately HK$18,340,000 which were prepared in accordance with generally accepted accounting principles in Hong Kong, without taking into account the Loan of HK$40,000,000 due to the Vendor. The unaudited consolidated results of Joy Heaven Group for the years ended 31 December, 2000 and 31 December, 2001 were as follow:

	31 December, 2001	31 December, 2000
	HK$’000	HK$’000
Profit before taxation and minority interest	5,115	5,618
Profit after taxation and minority interest	3,760	4,308

REASONS FOR ENTERING INTO THE ACQUISITION AGREEMENT

The Company is an investment holding company and the Group is principally engaged, among other businesses, in the telecommunications and related business in the PRC and Hong Kong. It was stated in the Company’s 2001 annual report that the Group would (i) shift its business focus to participate in the telecommunications value added services business; and (ii) focus on developing the business of software and integrated solutions by acquiring and integrating promising research & development teams, products and technologies. Given its stated business intention, the Directors believe that the Acquisition will enable the Company to expand its core business with the strong and stable cliente and expertise of the Joy Heaven Group in this respect.

The Directors consider that the Acquisition is in the interests of both the Company and the Shareholders.

SHAREHOLDING STRUCTURE

Set out below is the existing shareholding structure of the Company and the structure assuming completion of the Acquisition before and after issue of the Consideration Shares.

	Existing shareholding structure		Upon completion and issue of all the Consideration Shares
	No. of Shares	%	No. of Shares	%
Uni-Tech International Group Ltd.	1,235,027,200	40.37	1,235,027,200	39.72
Touch Profit Limited	405,965,700	13.27	405,965,700	13.05
Road Shine Development Ltd.	600,000,000	19.61	600,000,000	19.30
Chen Wen Xin	NIL	NIL	50,000,000	1.61
Public Shareholders	818,273,100	26.75	818,273,100	26.32
Total:	3,059,266,000	100.0	3,109,266,000	100.0

GENERAL

The Group was previously principally engaged in property investment activities. The Company aims to expand the business of the Group into investment in companies conducting information technology including telecommunications and internet-related activities in the PRC and/or other regions. The transaction contemplated under the Acquisition Agreement constitutes a share transaction for the Company under the Listing Rules. Application will be made to the Stock Exchange for listing of and permission to deal with the Consideration Shares. The Vendor is a brother of Chen Xiao Ying, the ultimate controlling shareholder of the Company, who holds 77.5% equity interest in Uni-Tech International Group Limited which is the controlling shareholder of the Company. Accordingly, the Vendor is a connected person as defined under the Listing Rules and therefore the Acquisition constitutes a connected transaction for the Company under the Listing Rules and is therefore subject to approval by the Independent Shareholders. The Vendor, Uni-Tech International Group Limited and their respective associates will abstain from voting in respect of the resolution to be proposed at the SGM to approve the Acquisition Agreement and the issue of the Consideration Shares.

An independent board committee will be formed to consider the terms of the Acquisition Agreement and to advise the Independent Shareholders as to the fairness and reasonableness of the Acquisition. An independent financial adviser will be appointed to advise the independent board committee in respect of the Acquisition.

A circular containing, among other things, further details of the Acquisition and the issue of the Consideration Shares, the recommendation of independent board committee on the Acquisition, the letter from the independent financial adviser containing its advice to the independent board committee and a notice of the SGM will be despatched to the Shareholders as soon as practicable.

The Company refers to a press article in Sun Daily dated 8 April, 2002 concerning the Company. Save as disclosed above, the Directors confirm that there are no negotiations or agreements relating to any intended acquisitions or realizations which are discloseable under paragraph 3 of the Listing Agreement, neither is the Directors aware of any matter discloseable under the general obligation imposed by paragraph 2 of the Listing Agreement, which is or may be of a price-sensitive nature.

Trading in the Shares was suspended from 9:30 a.m. on 4 April, 2002. An application has been made to the Stock Exchange for the resumption of trading in the Shares with effect from 9:30 a.m. on 9 April, 2002.

DEFINITIONS:

“Acquired Shares”	the entire issued share capital of Joy Heaven to be acquired by the Company from the Vender pursuant to the Acquisition Agreement
“Acquisition”	the proposed acquisition of the Acquired Shares and the Loan
“Acquisition Agreement”	the agreement for the Acquisition entered into on 3 April, 2002 between the Vendor and the Company in relation to the Acquisition
“Acquisition Consideration”	HK$17,000,000 for the Acquisition, the same of which will be satisfied by the issue of the Consideration Shares at an issue price of HK$0.30 per Share and the payment of HK$2,000,000 in cash
“associate(s)”	has the meaning ascribed thereto under the Listing Rules
“Brightown”	Brightown (Hong Kong) Limited, a limited company incorporated under the laws of Hong Kong on 5 May, 2000 and wholly owned by Joy Heaven and is engaged in the investment holding and system integration business
“Cattsoft”	Cattsoft Technology Co., Ltd., a limited company incorporated under the laws of Hong Kong on 7 April, 2000 and 70% owned by Joy Heaven and is engaged in the software development business
“Company”	21CN CyberNet Corporation Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange
“Consideration Shares”	50,000,000 new shares to be issued under the Acquisition Agreement as part of the consideration
“Directors”	the directors of the Company
“Grand Cycle”	Grand Cycle Int’l Ltd., a limited company incorporated under the laws of Hong Kong on 12 September, 1996 and wholly owned by Joy Heaven and is engaged in the system integration business
“Group”	the Company, its subsidiaries and associated companies
“Guangdong Kai Tong”	Guangdong Kai Tong Software Development Company Limited 廣東凱通軟件開發有限公司, a limited company incorporated under the laws of the PRC on 26 April, 2000 engaging in the telecommunications software development business
“Guangdong Qi Xin”	Guangdong Qi Xin Technology Company Limited 廣東啟新科技有限公司, a limited company incorporated under the laws of the PRC on 7 December, 1999, the principal activity of which is the investment holding of Guangdong Kai Tong, as to 80% owned by Ms. Zhang Mei Ji and 20% owned by Mr. Wang Jia Jun. Both Ms. Zhang Mei Ji and Mr. Wang Jia Jun are trustees who hold the entire equity interest in Guangzhou on trust for Happy Moment
“Guangdong Tian Tu”	Guantdong Tian Tu Technology Company Limited 廣東天圖科技有限公司, a limited company incorporated under the laws of the PRC on 21 December, 1998 engaging in the system integration business, as to 90% owned by Ms. Zhang Mei Ji and 10% owned by Mr. Wang Jia Jun. Both Ms. Zhang Mei Ji and Mr. Wang Jia Jun are trustees who hold the entire equity interest in Guangdong Tian Tu on trust for Grand Cycle
“Happy Moment”	Happy Moment Inc., a limited company incorporated under the laws of British Virgin Islands on 18 June, 1997 and wholly owned by Joy Heaven and is an investment holding company
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Independent Shareholders”	the shareholders of the Company, other than the Vendor and its associates which include Uni-Tech International Group Limited and its associates
“Joy Heaven”	Joy Heaven Incorporated, a company incorporated under the laws of British Virgin Islands on 29 April, 1997 and wholly owned by the Vendor
“Joy Heaven Group”	Joy Heaven and its subsidiaries, details of which are set out in the group chart as contained in this announcement
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Loan”	the debt owed by Joy Heaven to the Vendor aggregating HK$40,000,000
“PRC”	the People’s Republic of China
“SGM”	special general meeting of the Company to be convened for approving the Acquisition and the issue of the Consideration Shares
“Shareholder(s)”	holder(s) of Shares of the Company
“Share(s)”	share(s) of HK$0.01 each in the share capital of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Vendor”	Chen Wen Xin, a brother of Chen Xiao Ying, the ultimate controlling shareholder of the Company

By Order of the Board
21CN CyberNet Corporation Limited
Chen Xiao YingExecutive ChairmanHong Kong, 8 April, 2002

Please also refer to the published version of this announcement in the South China Morning Post.