THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

If you are in any 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 adviser.

If you have sold or transferred all your shares in 21CN CyberNet Corporation Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

==> picture [186 x 71] intentionally omitted <==

21CN CYBERNET CORPORATION LIMITED

(Incorporated in Bermuda with limited liability)

DISCLOSEABLE AND CONNECTED TRANSACTIONS

PROPOSED ACQUISITION OF 45% EQUITY INTEREST IN BEIJING HL95

AND

DISPOSAL OF THE ENTIRE EQUITY INTEREST IN EASY CONCEPTS (SHANGHAI)

AND

PROPOSED GRANT OF SHARE OPTIONS

Independent Financial Adviser to the Independent Board Committee

Hercules Capital Limited

A letter from the Independent Board Committee of 21CN CyberNet Corporation Limited is set out on page 21 of this circular. A letter from Hercules Capital Limited containing its advice to the Independent Board Committee is set out on pages 22 to 28 of this circular.

A notice convening the special general meeting of 21CN CyberNet Corporation Limited to be held at 3:00 p.m. on Wednesday, 10 September 2003 at Kennedy Room, Level 7, Conrad Hong Kong, Pacific Place, 88 Queensway, Hong Kong is set out on pages 44 and 45 of this circular. A form of proxy is also enclosed. Whether or not you intend to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the branch share registrar of the Company in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of such meeting or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so desire.

22 August 2003

CONTENTS

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER	FROM THE BOARD
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
	1.1 Discloseable and connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
	1.2 Proposed grant of Share Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
	1.3 SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
2.	Discloseable and Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
	2.1 The Share Transfer Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
	2.2 The Joint Venture Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
	2.3 The Third Share transfer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
	2.4 The Funds Flow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
	2.5 Connection among the parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
	2.6 Business of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
3.	Proposed Grant of Share Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
	3.1 The Grantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
	3.2 Information on options granted to the Grantee under the Schemes . . . . . . . . .	17
	3.3 Terms of the Share Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
	3.4 Changes of personal shareholding of the Grantee upon exercise
	in full of the Share Options under the Schemes . . . . . . . . . . . . . . . . . . . . . .	18
	3.5 Reasons and benefits of the proposed grant of Share Options . . . . . . . . . . . . .	19
	3.6 Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
4.	SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
5.	Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
6.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
LETTER	FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . .	21
LETTER	FROM HERCULES CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
APPENDIX I — VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		29
APPENDIX II — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		37
NOTICE	OF THE SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44

— i —

DEFINITIONS

In this circular, the following expressions have the meanings as set out below unless the context requires otherwise.

==> picture [456 x 547] intentionally omitted <==

----- Start of picture text -----

||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“21CN|(China)”|21CN|(China)|Investment|Limited,|a|wholly-owned|
|subsidiary|of|the|Company,|incorporated|in|the|British|Virgin|
|Islands|with|limited|liability|on|11|September|2000|
|“associate”|has|the|meaning|ascribed|to|it|under|the|Listing|Rules|
|“Beijing|Guoan|Affiliates”|,|a|limited|company|established|under|the|
|laws|of|the|PRC|on|23|February|1998,|and|,|
|a|state-owned|enterprise|established|under|the|laws|of|the|
|PRC|on|2|June|1988|
|“Beijing|HL95”|,|a|limited|company|(prior|to|the|
|completion|of|the|Transfers)|established|under|the|laws|of|the|
|PRC|on|13 August|1996|and|will|become|a|sino-foreign|equity|
|joint|venture|after|the|completion|of|the|Transfers|
|“Board”|the|board|of|Directors,|including|the|independent|non-|
|executive|Directors|
|“CITIC”|China|International|Trust|and|Investment|Corporation,|a|
|corporation|established|under|the|laws|of|the|PRC|on|4|
|October|1979|
|“CITIC|Guoan|Information|,|a|limited|company|established|
|Industries”|under|the|laws|of|the|PRC|on|14|October|1997|
|“Company”|21CN|CyberNet|Corporation|Limited,|an|exempted|company|
|incorporated|in|Bermuda|with|limited|liability|on|11|March|
|1998,|the|shares|of|which|are|listed|on|the|main|board|of|the|
|Stock|Exchange|
|“connected|person”|has|the|meaning|ascribed|to|it|under|the|Listing|Rules|
|“Directors”|the|directors|of|the|Company|
|“Disposal”|the|disposal|of|the|entire|equity|interest|in|Easy|Concepts|
|(Shanghai)|by|Easy|Concepts|(China)|pursuant|to|the|Third|
|Share|Transfer|Agreement|
|“Easy|Concepts|(China)”|Easy|Concepts|(China)|Limited,|a|wholly-owned|subsidiary|
|of|the|Company,|incorporated|in|Hong|Kong|with|limited|
|liability|on|3|September|1992|

----- End of picture text -----

— 1 —

DEFINITIONS

“Easy Concepts (Shanghai)” , a wholly foreign-owned enterprise established under the laws of the PRC on 1 June 1993 and a wholly-owned subsidiary of Easy Concepts (China) “First Share Transfer Agreement” the share transfer agreement dated 31 July 2003 entered into between 21CN (China) and HL95 Information Industries “Funds Flow Agreement” the agreement dated 31 July 2003 entered into by 21CN (China), Easy Concepts (China), Easy Concepts (Shanghai), the Beijing Guoan Affiliates, Guangdong HL95 and HL95 Information Industries regarding the setting-off of funds payable under the Share Transfer Agreements, the Joint Venture Agreement and the Third Share Transfer Agreement “Grantee” Ms. Chen Xiao Ying, Executive Chairman of the Company “Group” the Company and its subsidiaries “Guangdong HL95” , a limited company established under the laws of the PRC on 19 March 1998 “Hercules Capital” Hercules Capital Limited, a licensed corporation under the SFO and the independent financial adviser to the Independent Board Committee “HK GAAP” Hong Kong generally accepted accounting principles “HK$” Hong Kong dollars, the lawful currency of Hong Kong “HL95 Information Industries” , a limited company established under the laws of the PRC on 28 June 1999 “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Board Committee” the independent board committee of the Company, comprising the independent non-executive Directors, namely Ma Huaide, Tsui Yiu Wa, Alec and Zuo Wei Qi “Independent Shareholders” for the purpose of approving the Transactions at the SGM, shareholders of the Company other than Road Shine and its affiliates; for the purpose of approving the proposed grant of Share Options to the Grantee at the SGM, shareholders of the Company other than the Grantee, her associates and all the connected persons of the Company “Joint Venture Agreement” the joint venture agreement dated 31 July 2003 entered into between 21CN (China) and CITIC Guoan Information Industries

— 2 —

DEFINITIONS

“Latest Practicable Date”	21 August 2003, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Offer Letter”	conditional offer letter dated 24 June 2003 issued by the
	Company to the Grantee and accepted by the Grantee on 23
	July 2003 in relation to the proposed grant of Share Options
	to the Grantee
“PRC”	the People’s Republic of China
“PRC GAAP”	PRC generally accepted accounting principles
“RMB”	Renminbi, the lawful currency of the PRC
“Road Shine”	Road Shine Developments Limited, a company incorporated
	in the British Virgin Islands with limited liability on 28
	February 2001 and a substantial shareholder of the Company
“Scheme 1998”	the share option scheme approved and adopted by
	shareholders of the Company at the special general meeting
	on 28 May 1998 and which was terminated on 30 August 2002
“Scheme 2002”	the share option scheme approved and adopted by the
	shareholders of the Company at the annual general meeting of
	the Company on 30 August 2002
“Schemes”	collectively, Scheme 1998 and Scheme 2002
“Second Share Transfer	the share transfer agreement dated 31 July 2003 entered into
Agreement”	between 21CN (China) and Guangdong HL95
“SFO”	The Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	the special general meeting of the Company to be held at 3:00
	p.m. on Wednesday, 10 September 2003 at Kennedy Room,
	Level 7, Conrad Hong Kong, Pacific Place, 88 Queensway,
	Hong Kong or any adjourned meeting thereof, notice of which
	is set out on pages 44 and 45 of this circular
“Shares”	ordinary shares of par value of HK$0.01 each in the share
	capital of the Company

— 3 —

DEFINITIONS

“Share Options”	the options proposed to be granted under Scheme 2002 to the
	Grantee on the terms of the Offer Letter, a summary of the
	principal terms of which is set out under the paragraph headed
	“Terms of the Share Options” in the Letter from the Board
“Share Transfer Agreements”	the First Share Transfer Agreement and the Second Share
	Transfer Agreement
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Substantial Shareholder”	any substantial shareholder of the Company; and “substantial
	shareholder” shall have the meaning ascribed to it under the
	Listing Rules
“Third Share Transfer	the share transfer agreement dated 31 July 2003 entered into
Agreement”	between Easy Concepts (China) and the Beijing Guoan
	Affiliates
“Transactions”	the transactions contemplated under the Share Transfer
	Agreements, the Joint Venture Agreement, the Third Share
	Transfer Agreement and the Funds Flow Agreement, including
	but not limited to the Disposal and the Transfers
“Transfers”	the transfers of equity interests in Beijing HL95 pursuant to
	the Share Transfer Agreements
“US$”	United States dollars, the lawful currency of the United States
“%”	per cent.

Unless otherwise specified in this circular, amounts denominated in RMB has been translated, for the purpose of illustration only, into HK$ at an exchange rate of HK$1.00 = RMB1.06.

— 4 —

LETTER FROM THE BOARD

==> picture [170 x 58] intentionally omitted <==

21CN CYBERNET CORPORATION LIMITED

(Incorporated in Bermuda with limited liability)

Executive Directors: Chen Xiao Ying (Chairman) Luo Ning (Vice Chairman) Vong Tat Ieong, David (Vice Chairman) Sun Yalei Zhang Lian Yang Zhang Yue (Chief Executive Officer) Yin Yiping

Independent non-executive Directors: Ma Huaide Tsui Yiu Wa, Alec Zuo Wei Qi

Registered office: Cedar House 41 Cedar Avenue Hamilton HM 12 Bermuda

Head office and principal place of business in Hong Kong: 6208 Central Plaza 18 Harbour Road Wanchai Hong Kong

22 August 2003

To the shareholders of the Company and for information only, the option holders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS

PROPOSED ACQUISITION OF 45% EQUITY INTEREST IN BEIJING HL95

AND

DISPOSAL OF THE ENTIRE EQUITY INTEREST IN EASY CONCEPTS (SHANGHAI)

AND

PROPOSED GRANT OF SHARE OPTIONS

1. INTRODUCTION

1.1 DISCLOSEABLE AND CONNECTED TRANSACTIONS

Reference is made to the announcement of the Company dated 1 August 2003 under which the Company announced, among others, that on 31 July 2003:

(A) 21CN (China) entered into the Share Transfer Agreements with HL95 Information Industries and Guangdong HL95 under which 21CN (China) agreed to purchase from HL95

— 5 —

LETTER FROM THE BOARD

Information Industries and Guangdong HL95 their 25% and 20% equity interests in Beijing HL95, respectively. Upon completion of the Transfers, 21CN (China) will in total hold 45% of the equity interest in Beijing HL95. The remaining 55% of the equity interest in Beijing HL95 will be held by CITIC Guoan Information Industries;

(B) 21CN (China) and CITIC Guoan Information Industries entered into the Joint Venture Agreement in relation to the setting up, operation and governance of Beijing HL95;
(C) Easy Concepts (China), a wholly-owned subsidiary of the Company, entered into the Third Share Transfer Agreement under which Easy Concepts (China) agreed to transfer its 100% equity interest in Easy Concepts (Shanghai) to the Beijing Guoan Affiliates; and
(D) 21CN (China), Easy Concepts (China), Easy Concepts (Shanghai), the Beijing Guoan Affiliates, Guangdong HL95 and HL95 Information Industries entered into the Funds Flow Agreement under which the parties agreed to, among others, set-off funds payable under the Share Transfer Agreements and the Joint Venture Agreement against those payable under the Third Share Transfer Agreement.

21CN (China), a wholly-owned subsidiary of the Company, entered into the Share Transfer Agreements for the acquisition of equity interests in Beijing HL95, a leading nation-wide telecommunications value-added services company in the PRC. Upon completion of such acquisition, 21CN (China) will have an equity interest of 45% in Beijing HL95. The Directors believe that the strategic acquisition of Beijing HL95 fits the Company’s goal of becoming a major telecommunications value-added services group in the PRC.

The disposal of the entire equity interest in Easy Concepts (Shanghai) pursuant to the Third Share Transfer Agreement allows the Company to realise the value of its non-core assets and redirect its resources to enhance shareholders’ value through the strategic acquisition of a 45% equity interest in Beijing HL95.

Through its shareholdings in Road Shine and other affiliates, CITIC is a beneficial substantial shareholder of the Company. CITIC is also a beneficial substantial shareholder of HL95 Information Industries and Guangdong HL95 (parties to the Share Transfer Agreements and the Funds Flow Agreement), CITIC Guoan Information Industries (which holds 55% of Beijing HL95 and is a party to the Joint Venture Agreement) and the Beijing Guoan Affiliates (parties to the Third Share Transfer Agreement and the Funds Flow Agreement). As such, the transactions contemplated under the Share Transfer Agreements, the Joint Venture Agreement and the Third Share Transfer Agreement constitute discloseable and connected transactions of the Company under Rule 14.26 of the Listing Rules and will be subject to the approval of the Independent Shareholders at the SGM.

— 6 —

LETTER FROM THE BOARD

1.2 PROPOSED GRANT OF SHARE OPTIONS

At the annual general meeting of the Company held on 30 August 2002, the shareholders of the Company approved and adopted Scheme 2002 whereby the Board was authorised to grant share options to full-time or part-time employees, directors, substantial shareholders of the Company and other specified participants.

At the meeting of the Board held on 24 June 2003 (the “Board Meeting”), a resolution was passed by the Board to approve the proposed grant of Share Options to the Grantee.

1.3 SGM

The SGM will be held for the shareholders of the Company to consider and approve the resolutions in connection with (a) the Transactions and (b) the proposed grant of Share Options to the Grantee. With regard to the resolution in connection with the Transactions, Road Shine, being a substantial shareholder of the Company, and its affiliates will abstain from voting. With regard to the resolution in connection with the proposed grant of Share Options to the Grantee, the Grantee, her associates and all the connected persons of the Company will abstain from voting.

The purpose of this circular is to give you further information on, among others, the Transactions and the proposed grant of Share Options to the Grantee and to provide you with a notice of the SGM at which resolutions will be proposed for the purpose of approving, among others, the Transactions and the proposed grant of Share Options to the Grantee. The circular also contains the recommendations of the Independent Board Committee, which has been formed to advise the shareholders of the Company in relation to the Transactions and the proposed grant of Share Options to the Grantee, and the advice of Hercules Capital which has been retained to advise the Independent Board Committee in relation to the Transactions.

2. DISCLOSEABLE AND CONNECTED TRANSACTIONS

2.1 THE SHARE TRANSFER AGREEMENTS

Parties

Vendors: HL95 Information Industries and Guangdong HL95
Purchaser: 21CN (China)

Transactions

On 31 July 2003, 21CN (China) entered into the First Share Transfer Agreement with HL95 Information Industries under which 21CN (China) agreed to purchase from HL95 Information Industries its 25% equity interest in Beijing HL95.

On the same date, 21CN (China) entered into the Second Share Transfer Agreement with Guangdong HL95 under which 21CN (China) agreed to purchase from Guangdong HL95 its 20% equity interest in Beijing HL95.

— 7 —

LETTER FROM THE BOARD

The shareholding in Beijing HL95 before and after the Transfers is set out under the paragraph headed “Effect of the Transfers” below.

Information about Beijing HL95

Beijing HL95 is a leading nation-wide telecommunications value-added services company in the PRC with operations in more than 70 cities in the PRC. It was established and put into operation on 13 August 1996. Its main business areas include short messaging services (“SMS”), interactive voice response systems (“IVRS”) and enterprise value-added telecommunications services business.

Beijing HL95 is an important service provider (“SP”) for the China Mobile Monternet platform, which allows SPs to provide content services such as wireless data applications and information provision to individual and business end users. Beijing HL95 is one of the leading SMS service providers in the PRC providing a variety of premium services such as dating games, news and jokes provision, song dedication, stock quotes, ringtones and wallpaper downloads and multimedia messaging services (“MMS”).

The existing registered capital of Beijing HL95 is RMB10,000,000 and its audited net asset value under PRC GAAP as at 31 December 2002 was approximately RMB30,239,000 (equivalent to approximately HK$28,527,358). After completion of the Transfers, it will be accounted for in the Company’s accounts as an associated company.

Beijing HL95 currently has 5 directors, all of whom were appointed, directly or indirectly, by CITIC.

The audited consolidated results of Beijing HL95 for the year ended 31 December 2002 and the unaudited consolidated results of Beijing HL95 for the six-month period ended 30 June 2003, both of which were adjusted in accordance with HK GAAP, and the net asset value of Beijing HL95 as at 31 December 2002 and 30 June 2003 were as follows:

	Six-month
	period ended	Year ended
	30 June	31 December
	2003	2002
	(unaudited)	(audited)
	RMB	RMB
Profit before taxation and minority interest
(adjusted in accordance with HK GAAP)	15,200,000	5,123,000
Profit after taxation and minority interest
(adjusted in accordance with HK GAAP)	7,879,000	2,834,000

— 8 —

LETTER FROM THE BOARD

	As at	As at
	30 June	31 December
	2003	2002
	(unaudited)	(audited)
	RMB	RMB
Consolidated net asset value (under PRC GAAP)	38,327,000	30,239,000
Consolidated net asset value
(adjusted in accordance with HK GAAP)	37,720,000	29,841,000
Consolidated net current liabilities
(adjusted in accordance with HK GAAP)	35,351,301	46,375,293

Conditions

The closing of the Share Transfer Agreements is conditional upon the following (together, the “Conditions Precedent”):

(1) the financial verification report prepared by an independent accounting firm or financial adviser appointed by 21CN (China) showing that the businesses and financial status of Beijing HL95 to be in line with the relevant consolidated financial statements provided by HL95 Information Industries and Guangdong HL95;
(2) the transactions contemplated by the Share Transfer Agreements and the change in the legal status of Beijing HL95 being approved by the relevant PRC authorities; and
(3) the transactions contemplated by the Share Transfer Agreements being approved by the Independent Shareholders.

Each of the Share Transfer Agreements and the Third Share Transfer Agreement is interconditional on the completion of the other.

Consideration

Pursuant to the First Share Transfer Agreement, 21CN (China) agreed to pay a consideration of RMB7,559,703 (equivalent to approximately HK$7,131,795) to HL95 Information Industries for its 25% equity interest in Beijing HL95.

Pursuant to the Second Share Transfer Agreement, 21CN (China) agreed to pay a consideration of RMB6,047,762 (equivalent to approximately HK$5,705,436) to Guangdong HL95 for its 20% equity interest in Beijing HL95.

The above consideration was arrived at by the parties through arm’s length negotiations with reference to the audited consolidated net asset value of Beijing HL95, prepared under PRC GAAP, as at 31 December 2002, which was approximately RMB30,239,000 (equivalent to approximately HK$28,527,358). Such consideration is subject to valuation of the net asset value of Beijing HL95 as

— 9 —

LETTER FROM THE BOARD

at 31 December 2002 by an independent valuation firm in the PRC appointed by the parties to the Share Transfer Agreements within three days after the signing of the Share Transfer Agreements and will be adjusted based on the higher of the audited consolidated net asset value or the valuation by the independent valuation firm. In the event that the net asset value valuation under such valuation report exceeds the audited net asset value of Beijing HL95 as at 31 December 2002, prepared under PRC GAAP, by 5%, the Company is entitled to renegotiate or not proceed with the Transfers. A further announcement will be made by the Company in the event that the consideration under the Transfers is materially adjusted.

The Directors consider such consideration to be fair and reasonable and in the best interests of the Company and its shareholders as a whole.

Completion date

The Transfers are scheduled to complete as soon as practicable, in any event no later than three days (or as the parties may agree otherwise) after the consideration under the Share Transfer Agreements is paid, subject to the fulfilment of all of the Conditions Precedent.

The consideration under the Share Transfer Agreements shall be settled in accordance with the Funds Flow Agreement.

Effect of the Transfers

Upon the completion of the Transfers, 21CN (China) will have an aggregate equity interest of 45% in Beijing HL95. The other 55% equity interest in Beijing HL95 will remain in the ownership of CITIC Guoan Information Industries.

The shareholding structure of Beijing HL95 before completion of the Transfers is as follows:

HL95 Information Industries		Guangdong HL95		CITIC Guoan Information Industries
25% 20% 55% Beijing HL95

— 10 —

LETTER FROM THE BOARD

The shareholding structure of Beijing HL95 after completion of the Transfers will be as follows:

==> picture [264 x 142] intentionally omitted <==

----- Start of picture text -----

Road Shine
19.3%
Company
100%
CITIC Guoan
21CN (China)
Information Industries
45% 55%
Beijing HL95
----- End of picture text -----

Reasons for the Transfers

The Directors believe that the strategic acquisition of Beijing HL95 fits the Company’s goal of becoming a major telecommunications value-added services group in the PRC. The Directors also believe that Beijing HL95’s strong brand name and nation-wide market position will enhance the Company’s growth and prospects.

The Directors consider the Transfers to be in the interests of the Company and in line with the Group’s business objectives. The Directors believe that this strategic acquisition represents an opportunity for the Company to enter the potentially lucrative telecommunications value-added services sector in the PRC and that it will stand the Company in good stead for future growth.

2.2 THE JOINT VENTURE AGREEMENT

Parties

21CN (China)
CITIC Guoan Information Industries

Background

Following the completion of the Transfers, 21CN (China) and CITIC Guoan Information Industries will have equity interests of 45% and 55%, respectively, in Beijing HL95. Beijing HL95 will then become a sino-foreign equity joint venture under the laws of the PRC.

On 31 July 2003, the Joint Venture Agreement was entered into between 21CN (China) and CITIC Guoan Information Industries in relation to the setting up, operation and governance of Beijing HL95.

— 11 —

LETTER FROM THE BOARD

Condition

The Joint Venture Agreement is subject to the granting of relevant approvals by the relevant PRC authorities and will become effective on the date when all such approvals are obtained. It is also conditional on the completion of the Share Transfer Agreements and the Third Share Transfer Agreement.

Major terms

Beijing HL95 shall operate for a term of 30 years commencing on the date it obtains its new business licence (the “New Business Licence”) from the relevant PRC government authority as required under PRC law for a change in shareholding and shall have a registered capital of RMB60,000,000. The existing registered capital of Beijing HL95 is RMB10,000,000 and the term of its existing business licence is for 20 years from 13 August 1996 to 12 August 2016.

21CN (China) agreed to increase its capital investment in Beijing HL95 by RMB22,500,000 (equivalent to approximately HK$21,226,415) and CITIC Guoan Information Industries agreed to increase its capital investment in Beijing HL95 by RMB27,500,000 (equivalent to approximately HK$25,943,396), pro-rata in accordance with their respective shareholding in Beijing HL95. 21CN (China) agreed to pay such increased capital investment amount to a designated bank account within 10 days after the issuance of the New Business Licence.

The board of directors of Beijing HL95 shall consist of eight directors, and 21CN (China) and CITIC Guoan Information Industries shall each be entitled to appoint four directors. 21CN (China) will not have control over the board of directors of Beijing HL95 but intends to be actively involved in the management of Beijing HL95.

After completion of the Transfers, Beijing HL95 will be accounted for in the Company’s accounts as an associated company.

2.3 THE THIRD SHARE TRANSFER AGREEMENT

Parties

Vendor: Easy Concepts (China)
Purchasers: The Beijing Guoan Affiliates

Transaction

On 31 July 2003, the Beijing Guoan Affiliates entered into the Third Share Transfer Agreement with Easy Concepts (China) under which they agreed to purchase from Easy Concepts (China) its 100% equity interest in Easy Concepts (Shanghai), a wholly-owned subsidiary of Easy Concepts (China). The aggregate consideration for the Disposal is set out under paragraph headed “Consideration” below.

— 12 —

LETTER FROM THE BOARD

Pursuant to the Third Share Transfer Agreement, Easy Concepts (Shanghai) agreed, inter alia, to repay a shareholders’ loan of RMB38,170,000 (equivalent to approximately HK$36,009,434) to Easy Concepts (China) after completion of the Disposal, which amount will be provided by the Beijing Guoan Affiliates as a shareholders’ loan to Easy Concepts (Shanghai).

Information about Easy Concepts (Shanghai)

Easy Concepts (Shanghai) is a wholly foreign-owned enterprise established in Shanghai, PRC on 1 June 1993. It is principally engaged in property investment and holding and warehousing and has a registered capital of US$1,610,000. The profit/(loss) before and after taxation and minority interest of Easy Concepts (Shanghai) for the years ended 31 March 2003 and 2002 were HK$146,000 and HK$(13,735,000), respectively, and its shareholders’ deficit as at 31 March 2003 and 2002 were HK$5,177,000 and HK$5,323,000, respectively. All these figures were adjusted in accordance with HK GAAP and consolidated in the audited financial statement of the Company.

Before the Restructuring, Easy Concepts (Shanghai) owned Property No.3 and Property No.4 (defined below) (which the aggregate audited net book value as at 31 March 2003 amounted to HK$24,000,000) and had a shareholder’s loan from Easy Concepts (China) of HK$30,244,000. The Restructuring will involve the injection of Property No.1 and Property No.2 (defined below) into Easy Concepts (Shanghai) at their aggregate audited net book value as at 31 March 2003 of HK$12,264,000 and Easy Concepts (China) will waive the amount of HK$6,499,000 from its shareholder’s loan to Easy Concepts (Shanghai). As a result, Easy Concepts (Shanghai) will own the Shanghai Properties (defined below) (which the aggregate audited net book value as at 31 March 2003 amounted to HK$36,264,000) and the shareholder’s loan from Easy Concepts (China) to Easy Concepts (Shanghai) will amount to HK$36,009,000 (equivalent to approximately RMB$38,169,540).

Immediately before the Disposal, Easy Concepts (Shanghai) will own the following properties (the “Shanghai Properties”) which is currently owned by the wholly-owned subsidiaries of the Company:

Units 3, 4 and 5 on 8th Floor, Shanghai Square, No.138 Huai Hai Zhong Road, Luwan District, Shanghai (“Property No.1”) for rental purpose;
Flats B and C on 9th Floor, Hua Ying Court and Car Parking Space No.65 on Basement of Commercial Block, Hai Hua Garden, No.3 of 38 nong of Da Pu Road, Luwan District, Shanghai (“Property No.2”) currently occupied as office of Easy Concepts (Shanghai);
Level 2 of Industrial Block 1, No.271 Gangao Road, Site F10-3, Wai Gao Qiao, Pudong District, Shanghai (“Property No.3”) for rental purpose; and
Industrial Block at No.85 Tai Gu Road, Site D9-011, Wai Gao Qiao, Pudong District, Shanghai (“Property No.4”) for rental purpose.

The audited net book value of the Shanghai Properties as at 31 March 2003 with reference to a valuation performed by RHL Appraisal Limited, an independent property valuer in Hong Kong, amounted to HK$36,264,000.

— 13 —

LETTER FROM THE BOARD

The contribution by the Shanghai Properties to turnover and profit/(loss) of the Group for the years ended 31 March 2003 and 2002 are as follows:

		Year ended	Year ended
		31 March 2003	31 March 2002
		HK$	HK$
Turnover		1,593,000	1,600,398
Profit/(loss)	before and after taxation
(adjusted	in accordance with HK GAAP)	865,000	(12,973,000)

Conditions

The Third Share Transfer Agreement will become effective upon the completion of a restructuring that will transfer ownership of the Shanghai Properties to Easy Concepts (Shanghai) (the “Restructuring”). The closing of the Third Share Transfer Agreement is conditional upon Easy Concepts (Shanghai) obtaining the relevant new business licence from the relevant PRC government authority as required under PRC law for a change in shareholding. The term of its existing business licence is for 50 years from 1 June 1993 to 31 May 2043.

Consideration

Pursuant to the Third Share Transfer Agreement, the aggregate consideration for the disposal of Easy Concepts (China)’s 100% equity interest in Easy Concepts (Shanghai) is RMB690,000 (equivalent to approximately HK$650,943), representing 100% of the unaudited net asset value, based on HK GAAP, of Easy Concepts (Shanghai) upon the completion of the Restructuring.

The Beijing Guoan Affiliates also agreed to provide a shareholders’ loan of RMB38,170,000 (equivalent to approximately HK$36,009,434) to Easy Concepts (Shanghai) after completion of the Disposal for repayment to Easy Concepts (China) of its loan of corresponding amount to Easy Concepts (Shanghai) as at the completion of the Restructuring. No further amount will be due from Easy Concepts (Shanghai) to Easy Concepts (China) after such repayment.

Such consideration was arrived at by the parties through arm’s length negotiations. The Directors consider such consideration to be fair and reasonable and in the best interests of the Company and its shareholders as a whole.

Completion date

The Disposal is scheduled for completion upon Easy Concepts (Shanghai) obtaining a new business licence in accordance with the relevant procedural requirements of the PRC.

— 14 —

LETTER FROM THE BOARD

Reasons for the Disposal

The Disposal allows the Company to realise the value of its non-core assets and redirect its resources to enhance shareholders’ value through the strategic acquisition of a 45% equity interest in Beijing HL95.

Use of proceeds

The aggregate proceeds from the Disposal of RMB38,860,000 (equivalent to approximately HK$36,660,377) will be used to settle the consideration of an aggregate amount of RMB36,107,465 (equivalent to approximately HK$34,063,646) in respect of the Transfers and the Joint Venture Agreement in accordance with the Funds Flow Agreement. The balance of such proceeds of RMB2,752,535 (equivalent to approximately HK$2,596,731) is intended to be used as working capital of the Company.

2.4 THE FUNDS FLOW AGREEMENT

Parties

21CN (China)
Easy Concepts (China)
Easy Concepts (Shanghai)
The Beijing Guoan Affiliates
Guangdong HL95
HL95 Information Industries

Transaction

On 31 July 2003, the abovementioned parties entered into the Funds Flow Agreement whereby the parties agreed to, inter alia, set-off funds payable under the Share Transfer Agreements and the Joint Venture Agreement against those payable under the Third Share Transfer Agreement.

Under the Funds Flow Agreement, the Beijing Guoan Affiliates agreed to pay funds payable to Easy Concepts (China) under the Third Share Transfer Agreement as follows: as to RMB7,559,703 (equivalent to approximately HK$7,131,795) to HL95 Information Industries and RMB6,047,762 (equivalent to approximately HK$5,705,436) to Guangdong HL95 in settlement of the respective consideration payable by 21CN (China) under the Share Transfer Agreements; and as to RMB22,500,000 (equivalent to approximately HK$21,226,415) to Beijing HL95 in settlement of 21CN (China)’s obligation to increase its capital investment therein under the Joint Venture Agreement.

— 15 —

LETTER FROM THE BOARD

2.5 CONNECTION AMONG THE PARTIES

The SGM will be held for the shareholders of the Company to consider and approve, among others, the resolution in connection with the Transactions. Road Shine, being a substantial shareholder of the Company, and its affiliates will abstain from voting in the resolution to approve the Transactions at the SGM.

2.6 BUSINESS OF THE GROUP

The Group is principally engaged in systems integration and software development, property investment and holding, telecommunications and Internet-related business.

3. PROPOSED GRANT OF SHARE OPTIONS

3.1 THE GRANTEE

Set out below are the brief particulars of the Grantee:

Ms. Chen Xiao Ying, aged 40, is the Chairman of the Company who joined the Group on 17 May 2000. Ms. Chen has over 10 years of extensive experience in managing business in the PRC, including investments in power plants, telecommunication and property development. Ms Chen has been a member of the Chinese National People’s Political Consultative Committee since 1998.

— 16 —

LETTER FROM THE BOARD

3.2 INFORMATION ON OPTIONS GRANTED TO THE GRANTEE UNDER THE SCHEMES

As at the Latest Practicable Date, there were 3,109,266,000 Shares in issue. The particulars of the options granted (including options exercised, cancelled and outstanding) to the Grantee under the Schemes are set out below:

(a) Scheme 1998

		Approximate		Approximate		Approximate		Approximate
		percentage		percentage		percentage		percentage
		of the issued		of the issued		of the issued		of the issued
		share capital		share capital		share capital		share capital
		as at the		as at the		as at the		as at the
	Number of	Latest	Number of	Latest	Number of	Latest	Number of	Latest
Name of	Options	Practicable	options	Practicable	options	Practicable	options	Practicable
Grantee	Granted	Date	exercised	Date	cancelled	Date	outstanding	Date
Chen Xiao
Ying	70,000,000	2.25%	Nil	Nil	Nil	Nil	70,000,000	2.25%

(b) Save for the Share Options, no options have been granted to the Grantee under Scheme 2002 as at the Latest Practicable Date.

3.3 TERMS OF THE SHARE OPTIONS

The following are the principal terms of the Share Options as set out in Scheme 2002 and the Offer Letter:

Exercise period of the Share Options

The Share Options may be exercised by the Grantee during the following periods:

(a) one-third of the Share Options shall be exercisable at any time following the expiry of one year from the date of approval by the Independent Shareholders of the proposed grant of Share Options to the Grantee (the “Approval Date”) up to and including 23 June 2013 (the “Expiry Date”) or the date on which the Share Options lapse in accordance with the terms of Scheme 2002, whichever is the earlier;
(b) another one-third of the Share Options shall be exercisable at any time following the expiry of eighteen months from the Approval Date up to and including the Expiry Date or the date which the Share Options lapse in accordance with the terms of Scheme 2002, whichever is the earlier; and
(c) the remaining one-third of the Share Options shall be exercisable at any time following the expiry of two years from the Approval Date up to and including the Expiry Date or the date on which the Share Options lapse in accordance with the terms of Scheme 2002, whichever is the earlier.

Save for the conditions regarding the exercise of the Share Options by the Grantee as disclosed above, the Offer Letter does not specify any minimum period for which the Share Options must be held nor any performance target which must be achieved before the Share Options can be exercised.

— 17 —

LETTER FROM THE BOARD

Subscription price of the Share Options

The subscription price per Share under the Share Options is HK$ 0.322, representing at least the higher of (i) the average closing price of the Shares of HK$0.317 per Share as stated in the daily quotations sheets issued by the Stock Exchange for the 5 business days immediately preceding 24 June 2003, being the date of the Board Meeting and the Offer Letter; (ii) the closing price of the Shares of HK$0.270 per Share on 24 June 2003; and (iii) the nominal value of the Shares.

Number of Shares subject to the Share Options

The total number of Shares which may be issued upon exercise in full of the Share Options to the Grantee will be 90,000,000 Shares, representing approximately 2.89% of the issued share capital of the Company as at the Latest Practicable Date, and approximately 2.81% of the issued share capital of the Company as enlarged by the issue of Shares pursuant to the exercise of the Share Options.

The Grantee is required to pay HK$1 upon acceptance of the offer contained in the Offer Letter. Shares to be allotted upon the exercise of the Share Options will be subject to all the provisions of the bye-laws of the Company for the time being in force and will rank pari passu in all respects with the fully paid Shares in issue as at the date on which the name of the Grantee is registered in the register of members of the Company as the holder of such Shares.

3.4 CHANGES OF PERSONAL SHAREHOLDING OF THE GRANTEE UPON EXERCISE IN FULL OF THE SHARE OPTIONS UNDER THE SCHEMES

The following table illustrates the changes in the shareholding held by the Grantee personally in the issued share capital of the Company upon the exercise in full of the share options under the Schemes:

					Approximate
					percentage of		Approximate
					Shares to be		percentage of
					allotted upon	Approximate	shareholding
					exercise in full	percentage of	held by the
					of the share	Shares to be	Grantee
					options	allotted upon	personally
		Number of	Number of	Number of	under the	exercise	upon exercise
		Shares	percentage of	Shares to be	Schemes	in full of the	in full of the
		held by	shareholding	allotted upon	in the issued	share options	share options
		the Grantee	held by the	exercise	share capital	under the	under the
		personally	Grantee	in full of	of the	Schemes in the	Schemes in the
		as at the	personally as	the share	Company as	enlarged	enlarged
		Latest	at the Latest	options	at the Latest	issued share	issued share
		Practicable	Practicable	under the	Practicable	capital of the	capital of the
Name	of Grantee	Date	Date	Schemes	Date	Company	Company
Chen	Xiao Ying	1,212,937,030	39.01%	160,000,000	5.15%	4.89%	42%
		(Note 1)	(Note 1)

Note:

1,212,937,030 Shares are held by Uni-Tech International Group Ltd., the issued share capital of which is wholly-owned by 21CN Corporation. 21CN Corporation is owned as to 95% by Pollon Internet Corporation, a company wholly-owned by Chen Xiao Ying, Chairman of the Company.

— 18 —

LETTER FROM THE BOARD

3.5 REASONS AND BENEFITS OF THE PROPOSED GRANT OF SHARE OPTIONS

The Group is going through an expansion phase where acquisition and management of new businesses are inevitable in achieving future success. The Board considers the future success of the Group is highly dependent on the invaluable expertise, management skills, leadership and extensive business networks of the Grantee. In order to acknowledge the huge contribution of the Grantee to the Group during her term of service, it is proposed that the Share Options be granted to the Grantee under Scheme 2002.

The Board also considers that the proposed grant of Share Options serves as an incentive not only to the Grantee but also to other directors and/or employees of the Group for the purpose of motivating them to continue to work for the benefit of the Group by offering to them an opportunity to subscribe for Shares.

None of the Directors have been appointed as trustee of Scheme 2002.

3.6 IMPLICATIONS UNDER THE LISTING RULES

According to Rule 17.04 of the Listing Rules, the proposed grant of Share Options to the Grantee, must be approved by the independent non-executive Directors. At the Board Meeting, a resolution was passed by the Directors (including the independent non-executive Directors) to approve the proposed grant of Share Options to the Grantee.

Since the total number of Shares which may be allotted and issued upon exercise of the relevant Share Options proposed to be granted to the Grantee will represent, in aggregate, over 0.1% of the issued share capital of the Company and will have an aggregate value, based on the closing price of the Shares of HK$0.270 per Share on 24 June 2003, in excess of HK$5 million, such proposed grant will be subject to the approval of the Independent Shareholders at the SGM pursuant to Rule 17.04 of the Listing Rules and Clause 4(F) of Scheme 2002.

4. SGM

A notice convening the SGM is set out on pages 44 and 45 of this circular for the purpose of considering and, if thought fit, passing the ordinary resolutions in respect of the Transactions and the proposed grant of Share Options to be proposed at the SGM.

A form of proxy for use at the SGM is enclosed. Whether or not you intend to attend the SGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrar of the Company in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as possible but in any event, not less than 48 hours before the time appointed for holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so desire.

— 19 —

LETTER FROM THE BOARD

5. ADDITIONAL INFORMATION

The Independent Board Committee has been formed to advise the shareholders of the Company in connection with the Transactions and the proposed grant of Share Options to the Grantee and Hercules Capital has been retained by the Company to advise the Independent Board Committee in respect of the Transactions.

Your attention is drawn to the letter from the Independent Board Committee set out on page 21 of this circular which contains its recommendation to the shareholders of the Company as to voting at the SGM.

Your attention is also drawn to (a) the letter from Hercules Capital which contains its advice to the Independent Board Committee in relation to the Transactions and the principal factors and reasons considered by Hercules Capital in arriving at its advice; (b) the valuation report prepared by RHL Appraisal Limited in respect of the Shanghai Properties; and (c) the additional general information set out in the appendices to this circular.

6. RECOMMENDATION

As set out in the letter from the Independent Board Committee, based on the advice of Hercules Capital, the Independent Board Committee considers that the terms and conditions of the Transactions are fair and reasonable insofar as the Independent Shareholders are concerned and the Transactions are in the interests of the Company and its shareholders as a whole. Further, the Independent Board Committee believes that the proposed grant of Share Options to the Grantee is beneficial to the Company and the shareholders of the Company as a whole and the terms contained therein being fair and reasonable insofar as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve, among others, the Transactions and the proposed grant of Share Options to the Grantee.

Yours faithfully,

On behalf of the Board of 21CN CyberNet Corporation Limited Vong Tat Ieong, David Vice Chairman

— 20 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [170 x 58] intentionally omitted <==

21CN CYBERNET CORPORATION LIMITED

(Incorporated in Bermuda with limited liability)

22 August 2003

To the independent shareholders of the Company

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS AND PROPOSED GRANT OF SHARE OPTIONS

We refer to the circular dated 22 August 2003 issued by the Company (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall bear the same meanings as given to them in the Circular unless the context otherwise requires.

We have been appointed as the members of the Independent Board Committee to consider the Transactions and the proposed grant of Share Options to the Grantee; to advise the Independent Shareholders as to the fairness and reasonableness of the Transactions and the proposed grant of Share Options to the Grantee; and to recommend how the Independent Shareholders should vote at the SGM. Hercules Capital has been appointed to advise the Independent Board Committee in relation to the Transactions.

We wish to draw your attention to the letter from the Board, as set out on pages 5 to 20 of the Circular, and the letter from Hercules Capital to the Independent Board Committee which contains its advice to us in respect of the Transactions, as set out on pages 22 to 28 of the Circular.

Having taken into account of the advice of Hercules Capital, we consider that the terms and conditions of the Transactions to be fair and reasonable so far as the Independent Shareholders are concerned and the Transactions are in the interests of the Company and its shareholders as a whole.

Having considered the past and potential contribution of the Grantee to the development of the business of the Group, we consider that the proposed grant of Share Options is beneficial to the Company and the shareholders of the Company as a whole and the terms contained therein are fair and reasonable insofar as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve, among others, the Transactions and the proposed grant of Share Options to the Grantee.

Yours faithfully, The Independent Board Committee of 21CN CyberNet Corporation Limited Ma Huaide Tsui Yiu Wa, Alec Zuo Wei Qi

Independent non-executive Directors

— 21 —

LETTER FROM HERCULES CAPITAL

The following is the text of the letter of advice prepared by Hercules Capital to the Independent Board Committee in respect of the Proposed Transactions (as defined below) for incorporation in this Circular.

Hercules Capital Limited

1503 Ruttonjee House 11 Duddell Street Central Hong Kong 22 August, 2003

To the Independent Board Committee of 21CN CyberNet Corporation Limited

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTIONS

PROPOSED ACQUISITION OF 45% EQUITY INTEREST IN BEIJING HL95 AND DISPOSAL OF THE ENTIRE EQUITY INTEREST IN EASY CONCEPTS (SHANGHAI)

We refer to the Transfers and the Disposal, details of which are set out in the “Letter from the Board” contained in this circular dated 22 August, 2003 to the Shareholders (the “Circular”) of which this letter forms part. Hercules Capital has been appointed as the Independent Financial Advisor to advise the Independent Board Committee as to whether the terms of the proposed transactions (comprising the transactions contemplated by the Share Transfer Agreements, the Third Share Transfer Agreement, the Joint Venture Agreement and the Funds Flow Agreement) (together the “Proposed Transactions”) insofar as the Independent Shareholders are concerned are fair and reasonable. Terms used in this letter have the same meanings as defined elsewhere in the Circular unless the context otherwise requires and specifies.

In formulating our recommendations, we have relied on the information and representations provided to us by the management of the Group and have assumed that all information and representations made or referred to in the Circular, including the valuations on the Shanghai Properties conducted by RHL Appraisal Limited set out on pages 29 to 36 (and information and representations made by the management of the Group to RHL Appraisal Limited are true and accurate in all respects), were true at the time they are made and continue to be true at the date of the Circular. We have also assumed that all statements of belief, opinion and intention made by the management of the Group in the Circular were reasonably made after due enquiry. We have no reasons to doubt the truth, accuracy

— 22 —

LETTER FROM HERCULES CAPITAL

and completeness of the information and representations provided to us by the management of the Group and have been advised by the management of the Group that no material facts have been omitted from the information provided and referred to in the Circular. We have no reason to suspect that any material information has been withheld by the management of the Group or is misleading. We consider that we have reviewed sufficient information to reach an informed view in order to provide a reasonable basis for our recommendation. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the businesses or affairs of the Group and the related subjects and parties of the Proposed Transactions.

PRINCIPAL FACTORS AND REASONS CONSIDERED

The principal factors and reasons we have taken into consideration in assessing the Proposed Transactions and arriving at our opinion to the Independent Board Committee are set out below:

THE TRANSFERS

(1) Background and reasons

The Group is principally engaged in system integration and software development, property investment and holding, telecommunications and internet-related business in Hong Kong and the PRC. The acquisition of 45% equity interest in Beijing HL95, one of the leading nationwide telecommunications value-added services company in the PRC with operations in more than 70 cities, represents an opportunity for the Group to enter the potentially lucrative telecommunications value-added services sector in the PRC. The main business areas of Beijing HL95 include short messaging services (“SMS”), interactive voice response systems (“IVRS”) and enterprise value-added telecommunications services business. The Directors believe that the telecommunications value-added services sector have tremendous growth potential and the strategic investment in Beijing HL95 will enable the Group to capture the booming demand for telecommunications value-added services in the PRC and thus enhance the profitability of the Group. The Directors believe the growth and prospects of the Group will benefit from the strong brand name and nationwide market position of Beijing HL95 and that the Transfers are in line with the long-term objective of the Group to become a major telecommunications value-added services provider in the PRC. In our opinion, the Transfers is in line with the Group’s principal activities and long-term objective to become a major telecommunications value-added services group in the PRC.

(2) Basis of the consideration

Pursuant to the Share Transfer Agreements, the consideration for acquiring 25% and 20% equity interest in Beijing HL95 from HL95 Information Industries and Guangdong HL95 is RMB7,559,703 (equivalent to approximately HK$7,131,795) and RMB6,047,762 (equivalent to approximately HK$5,705,436) respectively, totaling RMB13,607,465 (equivalent to approximately HK$12,837,231). The Directors have confirmed that the terms of the Share Transfer Agreements have been arrived at after arm’s length negotiations between the parties thereto with reference to the audited consolidated net asset value of Beijing HL95.

— 23 —

LETTER FROM HERCULES CAPITAL

(a) Based on net asset value

The audited net asset value of Beijing HL95 prepared under PRC GAAP as at 31 December 2002 was approximately RMB30,239,000 (equivalent to approximately HK$28,527,358). The consideration of RMB13,607,465 (equivalent to approximately HK$12,837,231) represents approximately 45% of the audited net asset value, which is subject to valuation by an independent valuation firm in the PRC and will be adjusted based on the higher of the audited consolidated net asset value or the valuation result. In the event that the net asset value under such valuation report exceeds the audited net asset value of Beijing HL95 as at 31 December 2002, prepared under PRC GAAP, by 5%, the Group is entitled to renegotiate or not proceed with the Transfers. The Directors consider the consideration fair and reasonable and is in the best interests of the Company and the Shareholders as a whole. We are of the view that the basis for determining the consideration with reference to the net asset value is in line with market practice.

(b) Based on price-earnings multiple

The consideration of RMB13,607,465 (equivalent to approximately HK$12,837,231) for the Transfers of 45% equity interest in Beijing HL95 represents a price-earnings multiple (“P/E”) of:

approximately 10.67 times of the historical net profit of Beijing HL95 of approximately RMB2,834,000 for the year ended 31 December 2002; and
3.84 times of the unaudited profit of Beijing HL95 of approximately RMB7,879,000 for the six-month period ended 30 June 2003 or 1.92 times on an annualized basis.

For comparison purposes, we have selected the acquisition case of Palmweb Inc. (“Palmweb”) by hongkong.com Corporation, a company listed on the GEM Board of the Stock Exchange with the stock code #8006 in April 2003. Palmweb is principally engaged in providing mobile value-added services in the PRC, such as x-city, jokes, fortune telling, ringtones and logo download, whose business nature is similar to that of Beijing HL95.

Palmweb

Beijing HL95

Audited consolidated net profit HK$936,000 RMB2,834,000 for the financial year ended (under US GAAP) (under HK GAAP), 45% 31 December 2002 of which is RMB1,275,300

45%

Equity interest acquired 100% 45% Consideration Determined on the basis RMB13,607,465 of a prospective P/E on Historical P/E of 10.67 future profits over three times or prospective P/E years of about 10 times, of 1.92 times on an subject to a cap of annualized basis US$55,000,000

— 24 —

LETTER FROM HERCULES CAPITAL

In light of the above, we are of the opinion that the consideration relating to the Transfers represents a comparatively low historical P/E. However, since we have not been provided with any profit forecast of Beijing HL95, we are not in a position to express any opinion on the future profitability of Beijing HL95 and thus its P/E on a prospective basis.

Based on the above analysis, we consider the consideration of the Transfers fair and reasonable.

THE DISPOSAL

(1) Background and reasons

Easy Concepts (Shanghai) is principally engaged in property investment and holding and warehousing. The net profit / (loss) (adjusted in accordance with HK GAAP) of Easy Concepts (Shanghai) consolidated in the audited financial statement of the Company for the years ended 31 March 2002 and 2003 was HK$(13,735,000) and HK$146,000, respectively, and its shareholders’ deficit (adjusted in accordance with HK GAAP) as at 31 March 2002 and 2003 was HK$5,323,000 and HK$5,177,000, respectively. Pursuant to the Third Share Transfer Agreement, Easy Concepts (Shanghai) agreed, inter alia, to repay a shareholders’ loan of RMB38,170,000 (equivalent to approximately HK$36,009,434) to Easy Concepts (China) upon completion of the Disposal, which amount will be provided by the Beijing Guoan Affiliates as a shareholders’ loan to Easy Concepts (Shanghai). The Directors believe that the Disposal allows the Group to realize the value of its non-core assets and redirect its resources to enhance shareholders’ value through the Transfers of the 45% equity interest in Beijing HL95.

(2) Basis of the consideration

The consideration for the Disposal was arrived at after arm’s length negotiations between the Group and The Beijing Guoan Affiliates, and determined with reference to the unaudited net asset value, based on HK GAAP, of Easy Concepts (Shanghai) upon completion of the Restructuring.

Based on net asset value

According to the balance sheet immediately after the restructuring, the unaudited net asset value of Easy Concepts (Shanghai) is RMB690,000. The aggregate consideration for the Disposal of RMB690,000 (equivalent to approximately HK$650,943), represents the sum of 100% of the unaudited net asset value, based on HK GAAP, of Easy Concepts (Shanghai) upon completion of the restructuring. The shareholders’ loan of RMB38,170,000 (equivalent to approximately HK$36,009,434) to Easy Concepts (Shanghai) will be repaid to Easy Concepts (China) upon completion of the Disposal. No further amount will be due from Easy Concepts (Shanghai) to Easy Concepts (China) after such repayment. The Directors consider such consideration fair and reasonable and is in the best interests of the Company and the Shareholders as a whole. We are of the view that the basis for determining the consideration with reference to the net asset value is in line with market practice.

— 25 —

LETTER FROM HERCULES CAPITAL

(3) Valuation consideration

The audited net book value of the Shanghai Properties as at 31 March, 2003 with reference to the valuation performed as at 22 August 2003 by an independent property valuer in Hong Kong, RHL Appraisal Limited, amounted to HK$36,264,000. In assessing the reasonableness of the consideration, we have discussed with RHL Appraisal Limited on the methodology and assumptions used in their valuation of the Shanghai Properties, which was primarily based on the direct comparison method for self-use property and the investment method on the basis of capitalization of the net rental incomes for rental properties. Based on our discussions with RHL Appraisal Limited, we are of the view that the valuation of the Shanghai Properties performed by RHL Appraisal Limited have been conducted after due and careful consideration and we have used the valuation performed by RHL Appraisal Limited as a reference in our independent evaluation of the consideration for Easy Concepts (Shanghai).

Each of the Share Transfer Agreements and the Third Share Transfer Agreement is interconditional upon completion of the others. We concur with the Directors’ view that the Disposal allows the Group to re-deploy its resources to develop a foundation for its penetration into the telecommunications value-added services industry in the PRC and stand the Group in good stead for future growth. Based on the above analysis, we consider the terms of the Disposal fair and reasonable.

THE JOINT VENTURE AGREEMENT

Beijing HL95 had net current liabilities (based on HK GAAP) of RMB46,375,293 (audited) and RMB35,351,301 (unaudited) as at 31 December, 2002 and 30 June, 2003, respectively, both including a shareholder’s loan of RMB44,752,372. The current ratio of Beijing HL95 for the corresponding dates are 0.59 and 0.78. Pursuant to the Joint-Venture Agreement, 21CN (China) and CITIC Guoan Information Industries agreed to increase its capital investment in Beijing HL95, pro-rata in accordance with their respective shareholding by RMB22,500,000 (equivalent to approximately HK$21,226,415) and RMB27,500,000 (equivalent to approximately HK$25,943,396), respectively. On this basis, we consider the terms of the Joint Venture Agreement fair and reasonable.

After due and careful enquiry into the business operation of Beijing HL95, the Directors have confirmed to us that Beijing HL95 will have sufficient working capital for its business operation after the capital injection.

THE FUNDS FLOW AGREEMENT

The Directors have confirmed to us that no down payments for the Transfers have been paid or are intended to be paid. Pursuant to the Funds Flow Agreement, the abovementioned parties agreed to, inter alia, set-off funds payable under the Share Transfer Agreements and the Joint Venture Agreement against those payable under the Third Share Transfer Agreement. There would be a net proceed of RMB2,752,535 (equivalent to approximately HK$2,596,731) in form of accounts receivable to the Group. We consider the terms of the Funds Flow Agreement fair and reasonable.

— 26 —

LETTER FROM HERCULES CAPITAL

FINANCIAL EFFECTS ON THE GROUP

Net asset value

The Directors have confirmed that upon completion of the Proposed Transactions, there would be an increase of:

(i) interest in associated company by HK$34,063,646 (equivalent to approximately RMB36,107,465) representing the 45% equity interest of Beijing HL95;
(ii) accounts receivable by HK$2,596,731 (equivalent to approximately RMB2,752,535), representing the net proceed receivable;

and a decrease of:

(i) fixed assets (investment properties) by HK$36,264,000 (equivalent to approximately RMB38,439,840), representing the audited net asset value of the Shanghai Properties; and
(ii) net assets of HK$396,377 (equivalent to approximately RMB420,160) representing the value of the total assets of Easy Concepts (Shanghai), excluding the Shanghai Properties, net of all of its liabilities.

Thus, there would be no effect on the net asset value of the Group.

Earnings

Beijing HL95 has a profit-making track record, its audited net profit for the year ended 31 December, 2002 was RMB2,834,000 and the unaudited profit attributable to shareholders for the six-month period ended 30 June, 2003 was RMB7,879,000, both figures adjusted in accordance with HK GAAP. It is expected that the Group will enjoy 45% of the possible profit contribution from Beijing HL95 upon completion of the Proposed Transactions.

At the same time, the Group will forgo the rental income to be generated from the Shanghai Properties upon completion of the Proposed Transactions. The profit before tax derived from the Shanghai Properties (adjusted in accordance with HK GAAP) consolidated in the financial statements of the Company amounted to HK$865,000 for the year ended 31 March 2003 while a net loss before tax of HK$12,973,000 was recorded for the preceding year. The loss was mainly attributed to a revaluation deficit on the Shanghai Properties of approximately HK$14,500,000. The earnings contributed by the Shanghai Properties was approximately HK$1,527,000 before such write off. The Directors believe that upon completion of the Proposed Transactions, the Group is able to capture the unique opportunity arising from the booming demand for telecommunications value-added services in the PRC as a result of the continued prosperity and economic growth of the PRC and thus they are confident that the possible profit contribution from 45% of Beijing HL95 would outweigh that of Easy Concepts (Shanghai) in the future.

— 27 —

LETTER FROM HERCULES CAPITAL

The management of the Group confirmed that there is neither gain nor loss on the disposal of Easy Concepts (Shanghai) as the consideration is equivalent to the net asset value of that company.

Gearing

The Directors have confirmed that upon completion of the Proposed Transactions, there would be no effect on the total liabilities and the shareholders’ equity of the Company and thus the level of gearing of the Group.

Cashflow

The Directors have confirmed that upon completion of the Proposed Transactions, the net proceeds of RMB2,752,535 (equivalent to approximately HK$2,596,731) will be booked as accounts receivable which is expected to be received by the Group by the end of 2003, subject to further negotiations. The net effect of cashflow of the Proposed Transactions is therefore positive when the Group receives it.

Working capital

Upon completion of the Proposed Transactions, the Group’s working capital will be enhanced by RMB2,752,535 (equivalent to approximately HK$2,596,731) as a result of the increment of accounts receivable.

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider the terms of the Proposed Transactions fair and reasonable insofar as the Independent Shareholders are concerned. Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution no. 1 to approve the Proposed Transactions to be proposed at the upcoming SGM.

Yours faithfully, For and on behalf of Hercules Capital Limited Louis Koo Warren Cheung Managing Director Managing Director

— 28 —

VALUATION REPORT

APPENDIX I

==> picture [340 x 49] intentionally omitted <==

The Directors

21CN CyberNet Corporation Limited Suite 6208, Central Plaza 18 Harbour Road Wanchai, Hong Kong

Room 1010 Star House Tsimshatsui Kowloon Hong Kong

22nd August 2003

Dear Sirs,

Re: Valuation of Various Properties in the People’s Republic of China (the “PRC”)

1. INSTRUCTION

In accordance with the instructions from 21CN CyberNet Corporation Limited (referred to as the “Company”) for us to certain properties located in Hong Kong and in the PRC (referred to as the “Properties”) as at 31st July 2003 (referred to as the “valuation date”), we confirm that we have made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing our opinion of the open market values of the Properties as at the valuation date.

2. BASIS OF VALUATION

Our valuation is our opinion of the open market value, which we would define as intended to mean “the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the valuation date, assuming:

(i) a willing seller;
(ii) that, prior to the valuation date, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interests, for the agreement of price and terms and for the completion of the sale;
(iii) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the valuation date;
(iv) that no account is taken of any additional bid by a purchaser with a special interest; and
(v) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

— 29 —

VALUATION REPORT

APPENDIX I

3. VALUATION METHODOLOGY

In valuing the Properties, we have valued them on an open market basis by the direct comparison approach where comparison based on price information of comparable properties is made. Comparable properties of similar size, character and location are analysed and carefully weighted against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of capital values.

For those properties or portions of the Properties subject to existing tenancies, we have also adopted the investment method on the basis of capitalization of the net rental incomes for the unexpired terms of the existing tenancies plus the values of the reversionary interests thereof.

4. ASSUMPTIONS

Our valuation has been made on the assumption that the owner sells the Properties on the open market in their existing state without the benefit of options, rights of pre-emption, deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which would serve to affect their values. The Company has also confirmed that there was no options or rights of pre-emption connecting or affecting the Properties as at the valuation date.

As the Properties are held by the owners on long term Land Use Right Contracts, we have assumed that the owners have free and uninterrupted rights to use the Properties for the whole of the unexpired term of their respective Land Use Right Contracts. Unless specified as otherwise, vacant possession is assumed for the Properties.

Other special assumptions of each property, if any, have been stated in the footnotes of the valuation certificate for each corresponding property.

5. TITLE INVESTIGATION

We have been provided with copies of Title Realty Certificates regarding the Properties under valuation. However, no title search have been made by us for investigating the legal title or any liabilities attached to the Property.

In the course of valuation, we have relied upon the legal opinions as stated in the property title report date 20th August, 2003 given by Ya & Tai Law Firm Shanghai Office (referred to as the “PRC Lawyer”) in relation to the legal title to and the nature of the land interests in the properties concerned. Summary of the title report is set out in the footnotes in the valuation certificate.

— 30 —

VALUATION REPORT

APPENDIX I

6. LIMITING CONDITIONS

We have not carried out structural surveys for the Properties. Hence, we are unable to report that the Properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services. All dimensions, measurements and areas are only approximates.

We have relied to a considerable extent, on the information provided by the Company and have accepted advice given to us by the Company on such matters as statutory notices, easements, tenure, occupation, construction costs, site and floor areas and in the identification of the Properties.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also advised by the Company that no material facts have been omitted from the information supplied.

No allowance has been made in our valuation for any charges, mortgages or amount owing on the Properties nor for any expense or taxation which may be incurred in effecting a sale. We have assumed that the Properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

7. REMARKS

We have valued the properties in Hong Kong Dollars (HK$). Whenever necessary, the conversion of Renminbi (RMB) into HK$ is based on the factors of HK$1.0 to RMB1.06 with reference to the prevailing exchange rate on the valuation date.

In preparing this valuation report, we have conducted in accordance with the Hong Kong Guidance Notes on the Valuation of Property Asset (2nd Edition) published by the Hong Kong Institute of Surveyors and complied with all the requirements contained in Listing Rule and the Practice Notes 12 issued by the Stock Exchange of Hong Kong Limited.

We enclose herewith the summary of valuation and the valuation certificates.

Yours faithfully, For and on behalf of RHL Appraisal Ltd.

Serena S.W. Lau	Tse Wai Leung
MHKIS AAPI RPS (GP)	BSc MRICS MHKIS RPS(GP)
*Managing Director*	*Director*

Serena S.W. Lau, who is a member of the Hong Kong Institute of Surveyors, an Associate of the Australian Property Institute, a Registered Professional Surveyor in General Practice and a qualified real estate appraiser in the PRC, and Tse Wai Leung, who is a member of the Royal Institution of Chartered Surveyors, a member of the Hong Kong Institute of Surveyor, a Registered Professional Surveyor in General Practice and a qualified real estate appraiser in the PRC, have over eight years’ experience in valuation of properties in Hong Kong, in Macau and in the PRC.

— 31 —

VALUATION REPORT

APPENDIX I

SUMMARY OF VALUATION

Property

Capital value in existing state as at 31st July 2003

Group I — Property Interests held and occupled by the Group

Flats B and C on 9th Floor HK$ 1,300,000 Hua Ying Court and Car Parking Space No.65 on Basement of Commercial Block Hai Hua Garden No. 3 of 38 nong of Da Pu Road Luwan District Shanghai the PRC

Group II — Property Interests held by the Group for investment

2. Units 3, 4 and 5 on 8th Floor Shanghai Square No. 138 Huai Hai Zhong Road Luwan District Shanghai the PRC 3. Level 2 of Industrial Block I at Site F10-3 No. 271 Gangao Road Wai Gao Qiao Pudong District Shanghai the PRC 4. An industrial block at Site D9-011 No. 85 Tai Gu Road Wai Gao Qiao Pudong District Shanghai the PRC Total:	HK$11,000,000 HK$3,000,000 HK$21,000,000
	HK$36,300,000

— 32 —

VALUATION REPORT

APPENDIX I

VALUATION CERTIFICATE

Property Description and tenure
1. Flats B and C on The property comprises two residential units on 9th Floor the 9th floor of a 31-storey residential building Hua Ying Court and a car parking space on the basement level and Car Parking of a 3-storey (plus a basement level) commercial Space No.65 building. The subject development was on Basement of completed in 1998. Commercial Block Hai Hua Garden The total gross floor area of the property No. 3 of 38 nong (excluding car parking space) is approximately of Da Pu Road 204.2 sq.m. (2,198 sq.ft.). Luwan District The land use rights in the property were granted
Shanghai the PRC for a term commencing on 19th December 1997 and expiring on 16th February 2062.

	Capital value in
Particulars of	existing state as at
occupancy	31st July 2003
The property is	HK$1,300,000
currently
owner-occupied
for dormitory
purpose.

Notes:

As stipulated in two sets of Title Realty Certificate (ref. nos. 1998-000177 and 1998-000179) both dated 9th January 1998, the property is held by Swing Stores, Limited ( ), a wholly-owned subsidiary of the Company, for residential use.
Opinion of the PRC Lawyer is summarized as follows:
2.1 The registered owner of property is Swing Stores, Limited ( ). The property is held for residential use for a land use right term on 19th December 1997 and expiring on 16th February 2062.
2.2 The property is permitted to be freely transferred, leased and mortgaged in the open market.
2.3 The property is free from any encumbrance.

— 33 —

VALUATION REPORT

APPENDIX I

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31st July 2003
2.	Units 3, 4 and 5 on	The property comprises three office units on the	The property is	HK$11,000,000
	8th Floor	8th floor of a 34-storey (excluding 3-storey	subject to a
	Shanghai Square	basement car park) commercial development	tenancy for a
	No. 138 Huai Hai	completed in early 1998.	term of 2 years
	Zhong Road		from 15th
	Luwan District	The total gross floor area of the property is	September 2001
	Shanghai	approximately 866.01 sq.m. (9,322 sq.ft.).	to 14th
	the PRC		September 2003
		The land use rights in the property were granted	at a monthly
		for a term commencing on 4th August 2000 and	rent of
		expiring on 23rd October 2042.	HK$87,462.08
			exclusive of
			management
			fee.

Notes:

As stipulated in three sets of Title Realty Certificate (ref. nos. 2000-008076, 2000-008078 and 2000-008079) all dated 8th December 2000, the property is held by Easy Properties Limited ( ), a wholly-owned subsidiary of the Company, for office use.
Opinion of the PRC Lawyer is summarized as follows:
2.1 The registered owner of property is Easy Properties Limited ( ). The property is held for office use for a land use right term on 4th August 2000 and expiring on 23rd October 2042.
2.2 The property is permitted to be freely transferred, leased and mortgaged in the open market.
2.3 The property is free from any encumbrance.

— 34 —

VALUATION REPORT

APPENDIX I

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31st July 2003
3.	Level 2 of	The property comprises the whole of level 2 of	The property is	HK$3,000,000
	Industrial	a 4-storey industrial block completed in about	subject to a
	Block I at	1995.	tenancy for a
	Site F10-3		term of 3 years
	No.271 Gangao	The gross floor area of the property is	commencing on
	Road	approximately 2,155.55 sq.m. (23,202 sq.ft.).	1st March 2001
	Wai Gao Qiao		and expiring on
	Pudong District	The land use rights in the property were granted	28th February
	Shanghai	for a term of years commencing on 17th May	2004 at a
	the PRC	2001 and expiring on 11th June 2048.	monthly rent
			RMB41,305.8.

Notes:

As stipulated in the Title Realty Certificate (ref. no. 2001-003984) dated 5th June 2001, the property is held by Easy Concept (Shanghai) International Trading Company Limited ( ), a wholly-owned subsidiary of the Company, for industrial use.
Opinion of the PRC Lawyer is summarized as follows:
2.1 The registered owner of property is Easy Concept (Shanghai) International Trading Company Limited. The property is held for industrial use for a land use right term commencing on 17th May 2001 and expiring on 11th June 2048.
2.2 The property is permitted to be freely transferred, leased and mortgaged in the open market.
2.3 The property is free from any encumbrance.

— 35 —

VALUATION REPORT

APPENDIX I

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31st July 2003
4.	An industrial block	The property comprises a site with an area of	As at the	HK$21,000,000
	at Site D9-011	approximately 5,000 sq.m. (53,820 sq.ft.) on	valuation date,
	No. 85 Tai Gu	which a 7-storey industrial building is erected.	Level 1, Level
	Road	The building was completed in October 1997.	3 and Level 4
	Wai Gao Qiao		of the property
	Pudong District	The total gross floor area of the industrial	were subject to
	Shanghai	building is approximately 14,811.41 sq.m.	two tenancies
	the PRC	(159,428 sq.ft.).	with the latest
			expiring on 31st
		The land use rights in the property were granted	March 2006 at a
		for a term of 50 years commencing on 1st	total monthly
		December 1993 and expiring on 30th November	rent of
		2043.	HK$93,053.70,
			— whilst Level
			2, Level 5
			to Level 7
			with a gross
			floor area of
			8,914.61 sq.m.
			of the property
			were vacant.

Notes:

As stipulated in the Title Realty Certificate (ref. no. 1998-004797) dated 3rd November 1998, the property is held by Easy Concept (Shanghai) International Trading Company Limited ( ), a whollyowned subsidiary of the Company, for industrial use.
Opinion of the PRC Lawyer is summarized as follows:
2.1 The registered owner of property is Easy Concept (Shanghai) International Trading Company Limited. The property is held for industrial use for a land use right term commencing on 1st December 1993 and expiring on 30th November 2043.
2.2 The property is permitted to be freely transferred, leased and mortgaged in the open market.
2.3 The property is free from any encumbrance.

— 36 —

GENERAL INFORMATION

APPENDIX II

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.

SHARE CAPITAL

The authorised and issue share capital of the Company as at the Latest Practicable Date were as follows:

Authorised: 10,000,000,000 Shares Issued and full paid or credited as fully paid: 3,109,266,000 Shares	HK$ 100,000,000
	31,092,660

DISCLOSURE OF INTERESTS

1. Directors’ interest

As at the Latest Practicable Date, the interests and short positions of the Directors in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which had been 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 in which they were deemed or taken to have under such provisions of the SFO) or which were required pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules to be notified to the Company and the Stock Exchange were as follows:

					Approximate
					percentage of
		Company/associated		Number of	Shareholdings
Name	of Director	corporation	Capacity	Shares	(%)
			Interest of controlled
Chen	Xiao Ying	The Company	corporation (Note)	1,212,937,030	39.01%

Note: 1,212,937,030 Shares are held by Uni-Tech International Group Ltd., the issued share capital of which is wholly-owned by 21CN Corporation. 21CN Corporation is owned as to 95% by Pollon Internet Corporation, a company wholly-owned by Chen Xiao Ying, Chairman of the Company.

— 37 —

GENERAL INFORMATION

APPENDIX II

As at the Latest Practicable Date, the following Director had personal interests in respect of share options granted under Scheme 1998 as recorded in the register of the Company kept under section 352 of the SFO:

			Number of		Period during which
			share options	Exercise	share options are
Name	of Director	Date of grant	outstanding	Price	exercisable
				HK$
Chen	Xiao Ying	13 July 2000	21,000,000	0.990	13 January 2001 to
					27 May 2008
Chen	Xiao Ying	13 July 2000	21,000,000	0.990	13 July 2001 to
					27 May 2008
Chen	Xiao Ying	13 July 2000	28,000,000	0.990	13 July 2002 to
					27 May 2008

As at the Latest Practicable Date, the following Directors had personal interests in respect of share options granted under Scheme 2002 as recorded in the register of the Company kept under section 352 of the SFO:

		Number of		Period during which
		share options	Exercise	share options are
Name of Director	Date of grant	outstanding	Price	exercisable
			HK$
Chen Xiao Ying	24 June 2003	90,000,000	0.322	Note 2
		(Note 1)
Vong Tat Ieong, David	24 June 2003	31,080,000	0.322	Note 3
Luo Ning	24 June 2003	10,000,000	0.322	Note 3
Sun Yalei	24 June 2003	10,000,000	0.322	Note 3
Zhang Lian Yang	24 June 2003	15,000,000	0.322	Note 3
Zhang Yue	24 June 2003	15,000,000	0.322	Note 3

Notes:

The proposed grant of 90,000,000 share options under Scheme 2002 is subject to Independent Shareholders’ approval at the SGM, details of which are set out on pages 44 and 45 of this circular.
Subject to the granting of the Independent Shareholders’ approval in respect of the 90,000,000 share options, such share options may be exercised by the grantee during the following periods:
(i) one-third of the Share Options shall be exercisable at any time following the expiry of one year from the Approval Date up to and including 23 June 2013 or the date on which the Share Options lapse in accordance with the terms of Scheme 2002, whichever is the earlier;
(ii) another one-third of the Share Options shall be exercisable at any time following the expiry of eighteen months from the Approval Date up to and including 23 June 2013 or the date which the Share Options lapse in accordance with the terms of Scheme 2002, whichever is the earlier; and

— 38 —

GENERAL INFORMATION

APPENDIX II

(iii) the remaining one-third of the Share Options shall be exercisable at any time following the expiry of two years from the Approval Date up to and including 23 June 2013 or the date on which the Share Options lapse in accordance with the terms of Scheme 2002, whichever is the earlier.
The share options may be exercised by the grantee during the following periods:
(i) one-third of the share options shall be exercisable at any time following the expiry of one year from 24 June 2003 up to and including 23 June 2013 or the date on which such share options lapse in accordance with the terms of Scheme 2002, whichever is the earlier;
(ii) another one-third of the share options shall be exercisable at any time following the expiry of eighteen months from 24 June 2003 up to and including 23 June 2013 or the date on which such share options lapse in accordance with the terms of Scheme 2002, whichever is the earlier; and
(iii) the remaining one-third of the share options shall be exercisable at any time following the expiry of two years from 24 June 2003 up to and including 23 June 2013 or the date on which such share options lapse in accordance with the terms of Scheme 2002, whichever is the earlier.

Save as disclosed above, as at the Latest Practicable Date:

(i) none of the Directors or the chief executive of the Company had any interest in the equity or debt securities of the Company or any associated corporations (within the meaning of Part XV of the SFO) which is 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 which they were taken or deemed to have under such provisions of the SFO); or which is required pursuant to section 352 of the SFO to be entered in the register referred to therein; or any interest in warrants to subscribe for shares of the Company or any associated corporations (as so defined) which was required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies;
(ii) none of the Directors has any direct or indirect interest in any assets acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 March 2003 (being the date to which the latest published audited accounts of the Group were made up);
(iii) none of the Directors is materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries which is subsisting at the date of this circular and which is significant in relation to the business of the Group; and
(iv) none of the Directors has entered or is proposing to enter into a service contract with the Company or any of its subsidiaries (excluding contracts expiring or determinable within one year without payment of compensation other than statutory compensation).

— 39 —

GENERAL INFORMATION

APPENDIX II

2. Substantial shareholders’ interest

As at the Latest Practicable Date, according to the register kept by the Company pursuant to section 336 of SFO and so far as is known to, or can be ascertained after reasonable enquiry by the Directors, save as disclosed in the paragraph headed “Disclosure of interests” in this appendix, the following persons (other than a Director or chief executive of the Company) had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any members of the Group:

			Approximate
			percentage of
			the Company’s
	Number of		issued share
Name	Shares held	Nature of interest	capital
Uni-Tech International Group Ltd.	1,212,937,030	Beneficial owner	39.01%
		(Note 1)
21CN Corporation	1,212,937,030	Interest of controlled	39.01%
		corporation (Note 1)
Pollon Internet Corporation	1,212,937,030	Interest of controlled	39.01%
		corporation (Note 1)
Road Shine Developments Limited	600,000,000	Beneficial owner	19.30%
		(Note 2)
Goldreward.com Ltd.	163,818,000	Beneficial owner	5.27%
		(Note 2)
China International Trust &	807,998,000	Interest of controlled	25.99%
Investment Corporation		corporation (Note 2)

Note 1: Uni-Tech International Group Ltd. is wholly-owned by 21CN Corporation. 21CN Corporation is owned as to 95% by Pollon Internet Corporation, a company wholly-owned by Chen Xiao Ying, Chairman of the Company.

Note 2: The interests of China International Trust & Investment Corporation is beneficially held through Road Shine Developments Limited, Goldreward.Com Ltd. and Perfect Deed Co. Ltd., which holds 44,180,000 Shares representing approximately 1.42% of the issued share capital of the Company, respectively.

— 40 —

GENERAL INFORMATION

APPENDIX II

LITIGATION

As at 31 March 2003, the Group had the following pending litigation:

(a) In March 1998, litigation was brought by Kadoorie Estate Limited (“Kadoorie”), a third party, against Rheingold (Hong Kong) Limited (“Rheingold”), a wholly owned subsidiary of the Company. Kadoorie claimed for damages totalling HK$2.2 million in respect of alleged breaches of the terms of the operating lease agreement previously entered into between Kadoorie and Rheingold; and
(b) In May 1999, another litigation was brought by Wai Fung Plaza Limited (“Wai Fung”), a third party, against Easy Department Store Limited (“Easy Department Store”), a wholly owned subsidiary of the Company. Wai Fung claimed for damages amounting to approximately HK$9.3 million in respect of alleged breaches of the terms of the operating lease agreement previously entered into between Wai Fung and Easy Department Store.

The Directors, having sought independent legal advice, made a provision of HK$2.2 million and HK$4.6 million to cover the entire claim from Kadoorie and Wai Fung, respectively, in prior years. These provisions were included in accruals and other payables. The Directors are of the opinion that such provisions made in prior years in the respective cases are adequate and no further provision is required.

Save as disclosed above, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged 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.

EXPERT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

			Nature of opinion
Name	Qualification	Date of opinion	or advice
Hercules Capital	A licensed corporation	22 August 2003	Letter of advice to the
	under the SFO to		Independent Board
	carry on type 6		Committee
	regulated activity
RHL Appraisal Limited	Registered professional	22 August 2003	Valuation report in
	surveyors		respect of the
			Shanghai Properties
Ya & Tai Law Firm	PRC lawyer	22 August 2003	Legal opinion in
			respect of the legal
			title of the Shanghai
			Properties

— 41 —

GENERAL INFORMATION

APPENDIX II

Each of Hercules Capital, RHL Appraisal Limited and Ya & Tai Law Firm does not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Each of Hercules Capital, RHL Appraisal Limited and Ya & Tai Law Firm has given and has not withdrawn its respective written consent to the issue of this circular with the inclusion of the letter from Hercules Capital dated 22 August 2003 and the valuation report issued by RHL Appraisal Limited dated 22 August 2003 and references to their names in the form and context in which they respectively appear.

The letter and recommendation given by Hercules Capital and the valuation report issued by RHL Appraisal Limited are given as of the date of this circular for incorporation herein.

Each of Hercules Capital, RHL Appraisal Limited and Ya & Tai Law Firm does not have and has not had any direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries since 31 March 2003 (being the date to which the latest published audited financial statements of the Group were made up).

MATERIAL CHANGES

The Directors are not aware of any material adverse change in the financial and trading position of the Company since 31 March 2003 (being the date to which the latest published audited financial statements of the Group were made up).

MISCELLANEOUS

(a) The secretary of the Company is Chung Yau Tong, who is an associate member of the Hong Kong Society of Accountants and a fellow member of the Association of Chartered Certified Accountants.
(b) The principal share registrar and transfer office of the Company is situated at Reid Management Limited, 4th Floor, Windsor Place, 22 Queen Street, Hamilton HM 11, Bermuda and its head office and principal place of business in Hong Kong is at 6208 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong.
(c) The branch share registrar of the Company in Hong Kong is Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(d) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

— 42 —

GENERAL INFORMATION

APPENDIX II

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at 6208 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, up to and including the date of the SGM:

(a) the Share Transfer Agreements, the Joint Venture Agreement, the Third Share Transfer Agreement and the Funds Flow Agreement;
(b) the memorandum of association and bye-laws of the Company;
(c) the letter of recommendation from the Independent Board Committee to the shareholders of the Company, the text of which is set out on page 21 of this circular;
(d) the letter of advice received from Hercules Capital, the text of which is set out on pages 22 to 28 of this circular;
(e) the valuation report received from RHL Appraisal Limited as set out on pages 29 to 36 of this circular;
(f) the legal opinion received from Ya & Tai Law Firm in respect of the legal title of the Shanghai Properties;
(g) the written consents from Hercules Capital, RHL Appraisal Limited and Ya & Tai Law Firm, respectively, referred to in this appendix;
(h) the annual reports of the Company for each of the two years ended 31 March 2002 and 2003;
(i) the Scheme 2002; and
(j) the Offer Letter.

— 43 —

NOTICE OF SPECIAL GENERAL MEETING

==> picture [170 x 58] intentionally omitted <==

21CN CYBERNET CORPORATION LIMITED

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of 21CN CyberNet Corporation Limited (the “Company”) will be held at Kennedy Room, Level 7, Conrad Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Wednesday, 10 September 2003 at 3:00 p.m. or any adjourned meeting, for the purpose of considering and, if thought fit, with or without modifications, passing the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT :

the share transfer agreement dated 31 July 2003 entered into between 21CN (China) and HL95 Information Industries relating to the acquisition of an equity interest in Beijing HL95 (the “Acquisition”), the share transfer agreement dated 31 July 2003 entered into between 21CN (China) and Guangdong HL95 relating to the Acquisition, the joint venture agreement dated 31 July 2003 entered into between 21CN (China) and CITIC Guoan Information Industries relating to Beijing HL95, the share transfer agreement dated 31 July 2003 entered into between Easy Concepts (China) and the Beijing Guoan Affiliates relating to the disposal of entire equity interest in Easy Concepts (Shanghai) and the agreement dated 31 July 2003 entered into by 21CN (China), Easy Concepts (China), Easy Concepts (Shanghai), the Beijing Guoan Affiliates, Guangdong HL95 and HL95 Information Industries regarding the payment of funds (the names of such parties are as defined in the circular of the Company dated 22 August 2003) (together, the “Agreements”), copies of which have been produced to the meeting marked “A” to “E” and have been initialled by the Chairman of the meeting for the purpose of identification, be and are hereby approved, confirmed and ratified and that all the transactions contemplated thereunder (together the “Transactions”) be and are hereby approved and that any one director of the Company be and is hereby authorised to do or execute for and on behalf of the Company all such acts and things and such other documents by hand and, where required, under the common seal of the Company together with such other director or person authorised by the board of directors of the Company, which in his or their opinion may be necessary, desirable or expedient to carry into effect or to give effect to the Agreements and/or the Transactions, including such changes and amendments thereto as any one director of the Company may consider necessary, desirable or expedient.”

2. “ THAT :

the conditional offer letter dated 24 June 2003 issued by the Company to Chen Xiao Ying (the “Grantee”) and accepted by the Grantee on 23 July 2003 (the “Offer Letter”), a copy of which has been produced to the meeting marked “F” and signed by the Chairman of the meeting for the purpose of identification, pursuant to which the Company has conditionally agreed to grant under the share option scheme adopted by the shareholders of the Company on 30 August 2002 (the “Scheme 2002”) to the

— 44 —

NOTICE OF SPECIAL GENERAL MEETING

Grantee of options (the “Share Options”) to subscribe for 90,000,000 ordinary shares of HK$0.01 each in the share capital of the Company (the “Shares”) at the subscription price of HK$0.322 per Share be and is hereby confirmed and approved and that the Share Options be and are hereby authorised to be granted under the Scheme 2002 to the Grantee pursuant to the terms of the Offer Letter; and any one director of the Company be and is hereby authorised to do or execute for and on behalf of the Company all such acts and things and such other documents as may be necessary, desirable or expedient in connection with the grant of Share Options to the Grantee notwithstanding that they or any of them may be interested in the same.”

By order of the board of directors of 21CN CyberNet Corporation Limited Vong Tat Ieong, David Vice Chairman

Hong Kong, 22 August 2003

Registered office: Head office and principal place Cedar House of business in Hong Kong: 41 Cedar Avenue 6208 Central Plaza Hamilton HM 12 18 Harbour Road Bermuda Wanchai Hong Kong

Notes:

A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company.
In the case of joint registered holders of a share, any one of such joint registered holders may vote at the meeting, either personally or by proxy, in respect of such share as if he was solely entitled thereto. However, if more than one of such joint registered holders are present in the meeting personally or by proxy, then the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and for this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holdings, the first-named being the senior.
A form of proxy for use at the special general meeting is enclosed. In order to be valid, the form of proxy must be duly completed and signed in accordance with the instructions printed thereon and deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s Hong Kong branch share registrar, Secretaries Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 48 hours before the time for holding the meeting or any adjourned meeting.
Completion and return of the form of proxy will not preclude members of the Company from attending and voting in person at the meeting should he so desire.

— 45 —

AI assistant

Cocoon Holdings Limited — Proxy Solicitation & Information Statement 2003

49210_rns_2003-08-26_919b1b42-612e-4d4d-926d-0de1d2ee5546.pdf

21CN CYBERNET CORPORATION LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTIONS

AND

PROPOSED GRANT OF SHARE OPTIONS

Hercules Capital Limited

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

21CN CYBERNET CORPORATION LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTIONS

AND

PROPOSED GRANT OF SHARE OPTIONS

1. INTRODUCTION

1.1 DISCLOSEABLE AND CONNECTED TRANSACTIONS

1.2 PROPOSED GRANT OF SHARE OPTIONS

1.3 SGM

2. DISCLOSEABLE AND CONNECTED TRANSACTIONS

2.1 THE SHARE TRANSFER AGREEMENTS

Parties

Transactions

Information about Beijing HL95

Conditions

Consideration

LETTER FROM THE BOARD

Completion date

Effect of the Transfers

Reasons for the Transfers

2.2 THE JOINT VENTURE AGREEMENT

Parties

Background

Condition

Major terms

2.3 THE THIRD SHARE TRANSFER AGREEMENT

Parties

Transaction

Information about Easy Concepts (Shanghai)

Conditions

Consideration

Completion date

Reasons for the Disposal

Use of proceeds

2.4 THE FUNDS FLOW AGREEMENT

Parties

Transaction

2.5 CONNECTION AMONG THE PARTIES

2.6 BUSINESS OF THE GROUP

3. PROPOSED GRANT OF SHARE OPTIONS

3.1 THE GRANTEE

3.2 INFORMATION ON OPTIONS GRANTED TO THE GRANTEE UNDER THE SCHEMES

3.3 TERMS OF THE SHARE OPTIONS

Exercise period of the Share Options

Subscription price of the Share Options

Number of Shares subject to the Share Options

3.4 CHANGES OF PERSONAL SHAREHOLDING OF THE GRANTEE UPON EXERCISE IN FULL OF THE SHARE OPTIONS UNDER THE SCHEMES

3.5 REASONS AND BENEFITS OF THE PROPOSED GRANT OF SHARE OPTIONS

3.6 IMPLICATIONS UNDER THE LISTING RULES

4. SGM

5. ADDITIONAL INFORMATION

6. RECOMMENDATION

21CN CYBERNET CORPORATION LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTIONS AND PROPOSED GRANT OF SHARE OPTIONS

Yours faithfully, The Independent Board Committee of 21CN CyberNet Corporation Limited Ma Huaide Tsui Yiu Wa, Alec Zuo Wei Qi

LETTER FROM HERCULES CAPITAL

Hercules Capital Limited

DISCLOSEABLE AND CONNECTED TRANSACTIONS

PROPOSED ACQUISITION OF 45% EQUITY INTEREST IN BEIJING HL95 AND DISPOSAL OF THE ENTIRE EQUITY INTEREST IN EASY CONCEPTS (SHANGHAI)

LETTER FROM HERCULES CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

THE TRANSFERS

(1) Background and reasons

(2) Basis of the consideration

(a) Based on net asset value

(b) Based on price-earnings multiple

Palmweb

Beijing HL95

LETTER FROM HERCULES CAPITAL

Cocoon Holdings Limited Proxy Solicitation & Information Statement 2003