Cocoon Holdings Limited — Proxy Solicitation & Information Statement 2003

Aug 11, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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21CN CYBERNET CORPORATION LIMITED

(Incorporated in Bermuda with limited liability)

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

A notice convening the annual general meeting of 21CN CyberNet Corporation Limited to be held at Concord Room 2, 8th Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Friday, 29th August, 2003 at 10:00 a.m. to approve the matters referred therein is set out on pages 4 to 7 of the Annual Report 2003 sent together with this circular.

Whether or not you intend to attend the meeting, you are requested to complete the form of proxy enclosed in accordance with the instructions printed thereon and return the same to the principal place of business of the Company at 6208 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

23rd July, 2003

LETTER FROM THE EXECUTIVE CHAIRMAN

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21CN CYBERNET CORPORATION LIMITED

(Incorporated in Bermuda with limited liability)

Executive Directors: Ms. CHEN Xiao Ying (Executive Chairman) Mr. LUO Ning (Executive Vice Chairman) Mr. SUN Yalei Mr. ZHANG Lian Yang

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

Mr. ZHANG Yue (Chief Executive Officer)

Independent Non-Executive Directors:

Mr. MA Huaide Mr. TSUI Yiu Wa, Alec Mr. ZUO Wei Qi

Principal Place of Business: 6208 Central Plaza 18 Harbour Road Wanchai Hong Kong

23rd July, 2003

To the Shareholders

Dear Sir/Madam

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

1. Introduction

The purpose of this circular is to give you information regarding some of the resolutions to be proposed at the annual general meeting (“Annual General Meeting”) of 21CN CyberNet Corporation Limited (the “Company”) to be held on 29th August, 2003 to enable shareholders of the Company (“Shareholders”) to make an informed decision thereon.

2. General Mandate to Issue Shares

At the Annual General Meeting, an ordinary resolution will be proposed that the directors of the Company (“Directors”) be given a general and unconditional mandate to issue new shares of HK$0.01 each (“Shares”) of the Company representing 20% of the aggregate nominal amount of the share capital of the Company in issue as at the date of passing the relevant resolution during the period up to the conclusion of the next annual general meeting of the Company or such earlier period as stated in the relevant resolution.

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LETTER FROM THE EXECUTIVE CHAIRMAN

In addition, an ordinary resolution will also be proposed to authorize an extension of such general mandate to be granted to the Directors to issue new Shares by adding to the aggregate number of Shares which may be allotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant to such general mandate the number of Shares repurchased under the Repurchase Mandate (as defined below), if granted.

3. General Mandate to Repurchase Shares

At the Annual General Meeting, an ordinary resolution will be proposed to grant a general mandate to the Directors to exercise the powers of the Company to repurchase Shares not exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue as at the date of passing the relevant resolution to grant such mandate at any time until the conclusion of the next annual general meeting of the Company or such earlier period as stated in the relevant resolution (the “Repurchase Mandate”). Under the Repurchase Mandate, the Company may repurchase the Shares on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) up to the said limit if approval is being sought from the Shareholders.

4. Annual General Meeting

The Annual General Meeting will be held on 29th August, 2003 and resolutions will be proposed to approve, inter alia, the grant of general mandates to issue Shares, the Repurchase Mandate and the extension of the issue Shares mandate. A notice convening the Annual General Meeting is set out on pages 4 to 7 of the Annual Report 2003 sent together with this circular.

A form of proxy is enclosed for use by the Shareholders at the Annual General Meeting. Shareholders are requested to complete and return in accordance with the instructions printed thereon and return the same to the principal place of business of the Company at 6208 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting. Completion and return of the form of proxy shall not preclude a Shareholder from attending and voting in person at the meeting or any adjournment thereof should you so wish.

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LETTER FROM THE EXECUTIVE CHAIRMAN

5. Recommendation

The Directors believe that the ordinary resolutions for the general mandate to issue Shares, the Repurchase Mandate and the extension of the issue Shares mandate are in the best interests of the Company and the Shareholders as a whole. The Directors recommend that the Shareholders to vote in favour of all the relevant resolutions to be proposed at the Annual General Meeting. The Directors will vote all their shareholdings, if any, in favour of the resolutions.

Your attention is drawn to the information contained in the Appendix hereto.

Yours faithfully

By Order of the Board of

21CN CyberNet Corporation Limited Chen Xiao Ying

Executive Chairman

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EXPLANATORY STATEMENT

APPENDIX

The following is the explanatory statement required to be sent to the Shareholders under the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) in connection with the Repurchase Mandate to be proposed at the Annual General Meeting.

1. Share Capital

As at 15th July, 2003, being the latest practicable date for ascertaining certain information for inclusion in this circular (the “Latest Practicable Date”), the issued share capital of the Company comprised 3,109,266,000 Shares.

Subject to the passing of the relevant ordinary resolution to approve the grant of the Repurchase Mandate and on the basis that no further Shares are issued, and no Shares are repurchased prior to the Annual General Meeting, the Company would be allowed under the Repurchase Mandate to repurchase a maximum of approximately 310,926,600 Shares.

2. Reasons for share repurchases

The Directors believe that the grant of the Repurchase Mandate is in the best interests of the Company and the Shareholders as it will give the Company additional flexibility. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the value of the Company’s securities and/or its earnings per Share and will only be made when the Directors believe that such repurchases will benefit the Company and the Shareholders.

3. Funding of repurchase

In repurchasing the Shares, the Company may only apply funds legally available for such purpose in accordance with its memorandum of association, the bye-laws of the Company and the laws of Bermuda.

The Company is empowered by its memorandum of association and bye-laws to repurchase its securities.

There might be adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in the audited accounts for the year ended 31st March, 2003 contained in the Annual Report 2003) in the event that the Repurchase Mandate was to be exercised in full at any time during the proposed repurchase period. However, the Directors do not propose to exercise the Repurchase Mandate to such extent as would, in the circumstances, have an adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

4. Connected parties

No connected person (as defined in the Listing Rules) has notified the Company of a present intention to sell Shares to the Company and no such person has undertaken not to sell any Shares to the Company in the event that the Repurchase Mandate is approved by the Shareholders.

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EXPLANATORY STATEMENT

APPENDIX

5. Share prices

The highest and lowest prices per Share at which the Shares were traded on the Stock Exchange in each of the previous twelve months were as follows:

	**Price **	**per **	Share
	Highest		Lowest
	HK$		HK$
2002
July	0.168		0.082
August	0.166		0.068
September	0.360		0.155
October	0.310		0.201
November	0.335		0.250
December	0.315		0.260
2003
January	0.290		0.202
February	0.230		0.178
March	0.234		0.186
April	0.200		0.200
May	0.203		0.181
June	0.460		0.171

6. General

None of the Directors or, to the best of their knowledge having made all reasonable enquiries, any of their respective associates (as defined in the Listing Rules) has any present intention, in the event that the Repurchase Mandate is granted by the Shareholders, to sell any Shares to the Company.

The Directors have undertaken to the Stock Exchange to exercise the power of the Company to make repurchase pursuant to the Repurchase Mandate in accordance with the Listing Rules, the applicable laws of Bermuda and the bye-laws of the Company.

7. Effect of the Code on Takeovers and Mergers (the “Code”)

If, as a result of repurchase of Shares pursuant to the Repurchase Mandate, a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for purposes of the Code. As a result, a Shareholder, or group of Shareholders acting in concert depending on the level of increase of shareholders’ interest, could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Code for all Shares not already owned by such Shareholder or group of Shareholders.

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EXPLANATORY STATEMENT

APPENDIX

As at the Latest Practicable Date, according to the register maintained by the Company pursuant to Section 336 of the Securities and Futures Ordinance, the following Shareholders (“Substantial Shareholders”) were beneficially interested in 5% or more of the issued share capital of the Company:

			% of total
			number of
			Shares
			(assuming the
			Repurchase
		% of total	Mandate is
	Number of	number of	exercised
Name	Shares	Shares	in full)
Uni-Tech International Group Limited (note 1)	1,212,937,030	39.0%	43.3%
21CN Corporation (note 1)	1,212,937,030	39.0%	43.3%
Pollon Internet Corporation (note 1)	1,212,937,030	39.0%	43.3%
Ms. Chen Xiao Ying (note 1)	1,212,937,030	39.0%	43.3%
Road Shine Developments Limited (note 2)	600,000,000	19.3%	21.4%
Goldreward.Com Ltd. (note 2)	176,722,000	5.7%	6.3%
China International Trust &	820,902,000	26.4%	29.3%
Investment Corporation (note 2)
Mr. Lee Shing Put (note3)	160,387,700	5.2%	5.7%
Notes:

• (1) Uni-Tech International Group Limited is a wholly-owned subsidiary of 21CN Corporation which is in turn a 95% owned subsidiary of Pollon Internet Corporation. Pollon Internet Corporation is wholly owned by Ms. Chen Xiao Ying, Executive Chairman.

• (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 1.4% of the issued share capital of the Company, respectively.

• (3) Mr. Lee Shing Put is an independent third party not connected with any of the Directors, chief executive or substantial shareholders of the Company or its subsidiaries or any of their respective associates as defined under the Listing Rules.

In the event that the Repurchase Mandate is exercised in full by the Directors, the Directors believe that such increase would not give rise to the Substantial Shareholders to make a mandatory general offer under Rule 26 of the Code. The Directors have no intention to exercise the Repurchase Mandate to such an extent that it will result in the number of Shares in the hands of public falling below the prescribed minimum percentage of 25%.

8. Share repurchases made by the Company

No repurchase of Shares has been made by the Company on the Stock Exchange in the six months prior to the Latest Practicable Date.

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