Cocoon Holdings Limited — Proxy Solicitation & Information Statement 2003

Jan 7, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult a 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 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.

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)

DISCLOSEABLE TRANSACTION

8 January 2003

21CN Cybernet Corporation Limited

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
The Provisional Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Reasons for the Disposal and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Appendix — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6

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21CN Cybernet Corporation Limited

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“associate”	has the meaning as ascribed to it in the Listing	Rules
“Company”	21CN CyberNet Corporation Limited,	a company
	incorporated in Bermuda with limited liabilities,	the shares of
	which are listed on the Main Board of the Stock Exchange
“Consideration”	the aggregate consideration for the Disposal
“Directors”	the directors of the Company
“Disposal”	the disposal of the Properties by the Vendor as	described in
	this circular
“Group”	the Company and its subsidiaries
“Latest Practicable Date”	6 January 2003, being the latest practicable date before the
	printing of this circular for ascertaining certain information
	contained herein
“Listing Rules”	the Rules Governing the Listing of Securities	on the Stock
	Exchange
“Properties”	collectively, Regency Centre at 39 Wong Chuk Hang Road,
	Aberdeen, Hong Kong and Lea Hin Industrial Building at 43
	Wong Chuk Hang Road, Aberdeen, Hong Kong
“Purchaser”	Ever Success Holdings Limited, an independent third party
	not connected with any of the directors, chief	executive or
	substantial shareholders of the Company or	any of its
	subsidiaries or any of their respective associates
“SDI Ordinance”	the Securities (Disclosure of interests) Ordinance (Cap. 396,
	Laws of Hong Kong)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Vendor”	Modern View Investment Limited, a wholly-owned subsidiary
	of the Company
“sq.ft.”	square feet

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21CN Cybernet Corporation Limited

LETTER FROM THE BOARD

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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. LI Qingpu Mr. ZHANG Lian Yang Mr. ZHANG Yue (Chief Executive Officer)

Independent non-executive Directors:

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

Registered office: Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda

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

8 January 2003

To the Shareholders

Dear Sir or Madam

DISCLOSEABLE TRANSACTION

INTRODUCTION

The Company announced on 17 December 2002 that a provisional sale and purchase agreement had been entered into by the Vendor, one of the Company’s wholly-owned subsidiaries, and the Purchaser for the disposal of the Properties.

The Disposal constitutes a discloseable transaction for the Company under the Listing Rules. The purpose of this circular is to provide the shareholders with details of the Disposal.

THE PROVISIONAL AGREEMENT

Date of the Provisional Agreement:

13 December 2002

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21CN Cybernet Corporation Limited

LETTER FROM THE BOARD

Parties

Vendor:

Modern View Investment Limited, a wholly-owned subsidiary of the Company.

Purchaser: Ever Success Holdings Limited, an independent third party not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates.

The Purchaser was identified by an independent property agent through a public tender implemented in December 2002. In connection with the procuring of the sale and purchase of the Properties, each of the Vendor and the Purchaser shall pay one per cent. of the aggregate Consideration (i.e. HK$555,000) to such property agent upon completion of the sale and purchase of the Properties.

The principal business of the Group is the investments in the telecommunication and internet related business and property investment.

Assets agreed to be disposed of

The properties to be disposed of by the Vendor consist of two industrial buildings, namely Regency Centre at 39 Wong Chuk Hang Road, Aberdeen, Hong Kong and Lea Hin Industrial Building at 43 Wong Chuk Hang Road, Aberdeen, Hong Kong, which are treated as investment properties by the Group. Lea Hin Industrial Building as acquired by the Group in March 1988 at a purchase price of HK$43,500,000 and Regency Centre was acquired by the Group in September 1994 at a purchase price of HK$151,300,000. The Properties together have an aggregate gross floor area of approximately 174,834 sq.ft.. The aggregate net book value of the Properties as at 31 March 2002 amounted to HK$62,000,000. Such value was the market value estimated by RHL Appraisal Limited, an independent property valuer, as at 31 March 2002.

Certain units in the Properties (occupying an aggregate gross floor area of approximately 85,656 sq. ft.) are currently leased out by the Group and the Properties are sold to the Purchaser subject to and with the benefits of such leases. The monthly rental income generated from such leases are approximately HK$380,000.

The stamp duty and registration fees payable in relation to the sale and purchase of the Properties shall be borne by the Purchaser solely.

Consideration

The Consideration for the Disposal is HK$55,500,000. An initial deposit of HK$4,000,000 has been paid by the Purchaser to the Vendor upon signing of the Provisional Agreement. A further deposit in the sum of HK$1,550,000 (the “Further Deposit”) was paid by the Purchaser upon signing of the formal agreement for sale and purchase in relation to the Properties on 19 December 2002. The balance of the Consideration in the sum of HK$49,950,000 will be paid on or before completion which is scheduled for 15 January 2003.

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21CN Cybernet Corporation Limited

LETTER FROM THE BOARD

Taking into account the expenses (which include the property agency fee, the legal expenses and the printing charges in relation to the publication of the announcement and the circular relating to the Disposal) to be incurred in connection with the Disposal, the Directors estimate that the Group will incur a book loss of approximately HK$7,000,000.

The Consideration was arrived at by the parties through arm’s length negotiations with reference to the recent market situation of industrial properties in the neighborhood of the Properties and the continuing property market downturn in Hong Kong. Despite the incurring of a book loss of approximately HK$7,000,000, the Directors (including the independent non-executive Directors) consider the Consideration to be fair and reasonable and in the best interests of the Company and its shareholders as a whole.

The net proceeds of the Disposal, after deducting the related expenses of approximately HK$1,500,000, are estimated to be approximately HK$54,000,000. The Consideration of HK$55,500,000 represents approximately 41.9 per cent. of the Group’s consolidated net asset value set out in the Company’s 2002 annual report (as adjusted) of HK$132,443,000.

Completion Date

The Disposal is scheduled for completion on 15 January 2003 pursuant to the Provisional Agreement.

In the event that the Purchaser fails to pay the Further Deposit or the balance of the Consideration, the Vendor may terminate the Provisional Agreement and/or the formal sale and purchase agreement by written notice and re-enter the Properties and the Vendor, under such circumstances, shall also be entitled to forfeit the deposit monies paid to it. As stated in the paragraph headed “Consideration” above, the Purchaser has paid the Further Deposit in accordance with the terms of the Provisional Agreement.

If the Vendor fails to complete the sale and purchase of the Properties (other than as a result of the default of the Purchaser), all deposit monies paid to it shall be returned to the Purchaser and the Purchaser shall also be entitled to recover from the Vendor such further damages (if any) over and above the said deposits.

The Directors confirm that so far as the Directors are aware, upon completion of the sale and purchase of the Properties, no claims or outstanding issues in relation to the leases in connection with the Properties will be clawed back to the Group.

REASONS FOR THE DISPOSAL AND USE OF PROCEEDS

As disclosed in the Company’s 2002 Annual Report, it is the intention of the management of the Group to dispose of its non-core property investment operations so as to concentrate its resources in telecommunication and internet related operations.

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21CN Cybernet Corporation Limited

LETTER FROM THE BOARD

The Directors consider that the Disposal represents a good opportunity for the Group to dispose of its non-core property investment business in line with the business plans of the Group. The Directors also believe that the Disposal can improve the working capital of the Group and also the gearing ratio of the Group as part of the sale proceeds will be applied to repay in full the mortgage loan in respect of the Properties (including accrued interest) of an amount of approximately HK$27,000,000. Upon completion of the sale and purchase of the Properties and the repayment of the mortgage loan, the working capital of the Group is expected to be increased by approximately HK$27,000,000 and the gearing ratio of the Group is expected to be decreased from approximately 0.26 (as at 31 March 2002) to approximately 0.03.

The proceeds from the Disposal after repayment of the mortgage loan in respect of the Properties will be applied by the Group as general working capital and investment in its telecommunication and internet related business if opportunities arise.

Apart from the Properties, the Group currently still has investments in certain properties in Shanghai, the People’s Republic of China which form part of its non-core business. Despite it is the intention of the management of the Group to dispose of all its non-core property investment business in the future, the management of the Company, at present, has no immediate plan to dispose of such overseas properties.

GENERAL

As each of (a) the aggregate value of the Properties and (b) the Consideration received by the Group represents more than 15 per cent. but less than 50 per cent. of the Group’s consolidated net asset value set out in the Company’s 2002 annual report (as adjusted by the acquisition of Joy Heaven Inc., particulars of such acquisition are set out in the circular of the Company dated 29 April 2002) of an amount of approximately HK$132,443,000, the Disposal constitutes a discloseable transaction for the Company under Rule 14.12 or the Listing Rules.

FURTHER INFORMATION

Your attention is drawn to the information set out in the appendix to this circular.

Yours faithfully For and on behalf of the Board Chen Xiao Ying Chairman

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21CN Cybernet Corporation Limited

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. 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 make any statement herein misleading.

2. SHARE CAPITAL

As at the Latest Practicable Date, the issued share capital of the Company was HK$31,092,660 comprising 3,109,266,000 shares of HK$0.01 each.

3. DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests of the Directors or chief executive of the Company in the share capital of the Company and its associated corporations (within the meaning of the SDI Ordinance) which had been notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including the interests which they were deemed or taken to have under section 31 or Part I of the Schedule to the SDI Ordinance) or which were required pursuant to section 29 of the SDI Ordinance, 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:

Number of Shares

	Corporate	Personal	Family	Other	Total
Director	Interests	interests	interests	interests	interests
Ms. CHEN Xiao Ying	1,235,027,200	—	—	—	1,235,027,200

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors nor chief executive of the Company had any interest in the share capital of the Company or any associated corporations (within the meaning of the SDI ordinance) which were required to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including the interests which they were deemed or taken to have under section 31 or part I of the Schedule to the SDI Ordinance) or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules or which are required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein.

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21CN Cybernet Corporation Limited

GENERAL INFORMATION

APPENDIX

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the following interests of 10 per cent. or more in the issued share capital of the Company were recorded in the register of interests required to be kept by the Company pursuant to Section 16(1) of the SDI Ordinance:

		Percentage of
Name	Number of Shares	issued shares
Uni-Tech International Group Limited (Note)	1,235,027,200	39.72%
21CN Corporation (Note)	1,235,027,200	39.72%
Pollon Internet Corporation (Note)	1,235,027,200	39.72%
Ms. CHEN Xiao Ying (Note)	1,235,027,200	39.72%
Road Shine Development Limited	600,000,000	19.30%

Note: Uni-Tech International Group Limited is a wholly owned subsidiary of 21CN Corporation, a subsidiary of Pollon Internet Corporation which is the ultimate holding company of the Company. Ms. Chen Xiao Ying has beneficial interests in these companies.

Save as disclosed herein, no person has notified the Company that he has an interests amounting to 10 per cent. or more of the issued share capital of the Company at the date of this circular pursuant to Section 16(1) of the SDI Ordinance.

5. LITIGATION

The Group is involved in legal proceedings relating to claims for rents in arrears and damages resulted from breaches of terms of the operating lease agreements made between the Group and Wai Fung Plaza Limited and Kadoorie Estate Limited by the respective parties. The claim made by Wai Fung Plaza Limited for an amount of HK$3,958,905.90 plus interest was initiated in May 1999 and the claim made by Kadoorie Estate Limited for an amount of HK$2,187,540 was initiated in March 1998. As regards the claim made by Kadoorie Estate Limited, it was adjudged that the relevant subsidiary of the Company to pay Kadoorie Estate Limited (i) the sum of HK$30,800 together with interest; (ii) damages for repudiation of the tenancy agreement to be assessed; and (iii) costs of the action.

No further action has been taken by Wai Fung Plaza Limited and Kadoorie Estate Limited since the year ended 31 March 2000. The Group made provisions of HK$4,600,000 and HK$2,200,000 in its financial statement for the year ended 31 March 2000 for the respective claims and the Directors are of the view that such provisions are adequate .

Information relating to the above legal proceedings have been disclosed in the Company’s circular dated 10 March 2000 in relation to subscription of new shares, the offer document dated 17 May 2000 in relation to an unconditional cash offer of shares of the Company, the annual report of the Company for the year ended 31 March 2000 dated 23 August 2000, the interim report of the Company for the six months ended 30 September 2000 dated 6 December 2000, the annual report of

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21CN Cybernet Corporation Limited

GENERAL INFORMATION

APPENDIX

the Company for the year ended 31 March 2001 dated 19 July 2001, the interim report of the Company for the six months ended 30 September 2001 dated 21 December 2001, the annual report of the Company for the year ended 31 March 2002 dated 17 July 2002 and the interim report of the Company for the six months ended 30 September 2002 dated 27 December 2002.

Save as disclosed above, neither the Company nor any of its subsidiaries was 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 by or against the Company or any of its subsidiaries as at the Latest Practicable Date.

6. DIRECTORS’ SERVICE CONTRACTS

None of the Directors has an existing or proposed service contract with the Company which is not terminable within one year without payment of compensation, other than statutory compensation.

7. EXPERT AND CONSENT

RHL Appraisal Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of an extract of its valuation report and reference to its name in the form and context in which they respectively appear. RHL Appraisal Limited is a firm of professional surveyors registered with the Hong Kong Institute of Surveyors.

RHL Appraisal Limited is not interested in any shares of any member of the Group nor does it have any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any shares of any member of the Group.

8. MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the financial or trading position or prospects of the Group since 31 March 2002 (being the date to which the latest audited combined financial statements of the Group were made up).

9. MISCELLANEOUS

• (a) The registered office of the Company is located at Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda.

• (b) The head office and principal place of business of the Company in Hong Kong is at 6208, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong.

• (c) The company secretary of the Company is Mr. Yee Foo Hei who is an associate member of the Hong Kong Institute of Company Secretaries and the Association of Chartered Certified Accountants. Mr. Yee is also holding a degree of Bachelor of Laws.

• (d) The branch share registrar of the Company in Hong Kong is Secretaries Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.

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21CN Cybernet Corporation Limited

GENERAL INFORMATION

APPENDIX

10. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company at 6208, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong during normal business hours on any weekday, except public holidays, from the date of this circular up to and including 21 January 2003:

• (a) valuation report dated 20 June 2002 prepared by RHL Appraisal Limited in respect of the valuation of, among other properties, the Properties as at 31 March 2002; and

• (b) the consent of RHL Appraisal Limited referred to in the paragraph headed “Consent and expert” in this appendix.

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21CN Cybernet Corporation Limited