Cocoon Holdings Limited — Proxy Solicitation & Information Statement 2004

Oct 14, 2004

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 CITIC 21CN COMPANY LIMITED, you should at once hand this circular, together with the enclosed 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.

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

CITIC 21CN COMPANY LIMITED

(Incorporated in Bermuda with limited liability)

(stock code: 241)

DISCLOSEABLE AND CONNECTED TRANSACTION Acquisition of 30% interest in (Dongfang Customs Technology Company Limited*)

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Hercules Capital Limited

A letter from the independent board committee of CITIC 21CN COMPANY LIMITED containing its recommendation in respect of the Transaction (as defined in this circular) is set out on page 9 of this circular. A letter from Hercules Capital Limited containing its advice to the independent board committee of CITIC 21CN COMPANY LIMITED and the Independent Shareholders in respect of the Transaction is set out on pages 10 to 16 of this circular.

A notice convening a special general meeting of the shareholders of CITIC 21CN COMPANY LIMITED to be held at 3: 00 p.m. on 3 November 2004 at 8/F Crown Room, Dynasty Club, South West Tower, Convention Plaza, Wanchai, Hong Kong is set out on pages 25 and 26 of this circular. There is a form of proxy for use at the special general meeting of CITIC 21CN COMPANY LIMITED accompanying this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the accompanying form of proxy 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 the holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

• for identification purpose only

14 October 2004

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The Share Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Information on Dongfang Customs Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Reasons for and benefits of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Information on CITIC 21CN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Special general meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from Hercules Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Appendix — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25

— i —

DEFINITIONS

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

• ‘‘associate(s)’’ has the meaning ascribed to it in the Listing Rules ‘‘Bye-Laws’’ Bye-Laws of the Company ‘‘China Electronic (China Electronic Customs Data Centre*), a Customs Data Centre’’ company established in the PRC, an independent third party not connected with the directors, chief executive and substantial shareholders of CITIC 21CN or its subsidiaries or any of their respective associates

• ‘‘China Telecom’’ (China Telecommunications Corporation*), a company incorporated in the PRC, an independent third party not connected with the directors, chief executive and substantial shareholders of CITIC 21CN or its subsidiaries or any of their respective associates

• ‘‘CITIC 21CN ‘‘ or CITIC 21CN COMPANY LIMITED, a company incorporated in ‘‘Company’’ Bermuda with limited liability, the shares of which are listed on the Stock Exchange

• ‘‘CITIC 21CN Telecom’’ CITIC 21CN TELECOM COMPANY LIMITED, a company incorporated in Hong Kong, a wholly owned subsidiary of the Company

• ‘‘CITIC Group’’ CITIC Group, a company incorporated in the PRC, which is interested in approximately 24.60% of the issued share capital of CITIC 21CN

• ‘‘Completion’’ completion of the Share Purchase Agreement ‘‘Directors’’ Directors of the Company ‘‘Dongfang Customs (Dongfang Customs Technology Company Technology ‘‘ Limited[*] )

• ‘‘Group’’ CITIC 21CN and its subsidiaries ‘‘Hercules’’ Hercules Capital Limited, a licensed corporation to carry on type 6 regulated activity (advising on corporate finance) under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders

• ‘‘HK GAAP’’ Hong Kong generally accepted accounting principles ‘‘HKSSAP’’ Hong Kong Statement of Standard Accounting Practices ‘‘Independent Board the independent board committee of the Company, comprising the Committee’’ independent non-executive Directors, Tsui Yiu Wa, Alec, Zhang Jian Ming and Liu Hongru

• ‘‘Independent Shareholders other than CITIC Group and its associates Shareholders’’

• for identification purpose only

— 1 —

DEFINITIONS

• ‘‘Latest Practicable Date’’ 12 October 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular

• ‘‘Listing Rules’’ Rules Governing the Listing of Securities on the Stock Exchange ‘‘New Scheme’’ the share option scheme adopted by the Company on 30 August 2002 ‘‘Old Scheme’’ the share option scheme adopted by the Company on 28 May 1998 and which was terminated on 30 August 2002 except for options already granted thereunder

• ‘‘PRC’’ the People’s Republic of China ‘‘PRC GAAP’’ PRC generally accepted accounting principles ‘‘SFO’’ The Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• ‘‘SGM’’ a special general meeting of CITIC 21CN to be convened to consider and, if thought fit, approve by Independent Shareholders the Share Purchase Agreement

• ‘‘Sale Shares’’ 30% of the equity interest in Dongfang Customs Technology, the subject matter of the Share Purchase Agreement

• ‘‘Share(s)’’ share(s) of HK$0.01 each in the issued capital of CITIC 21CN ‘‘Shareholder(s)’’ holders of the Shares ‘‘Share Purchase the share transfer agreement dated 20 September 2004 entered into Agreement’’ between CITIC Group and CITIC 21CN Telecom relating to the sale and purchase of 30% of the equity interest in Dongfang Customs Technology

• ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘HK$’’ Hong Kong Dollars, the lawful currency of Hong Kong ‘‘RMB’’ the Renminbi, the lawful currency of the PRC ‘‘Transaction’’ the acquisition by CITIC 21CN Telecom from CITIC Group of its 30% equity interest in Dongfang Customs Technology pursuant to the Share Purchase Agreement

• ‘‘%’’ 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.

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LETTER FROM THE BOARD

CITIC 21CN COMPANY 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 Yin Yiping Xia Guilan Liu Xiaoping

Independent Non-executive Directors: Tsui Yiu Wa, Alec Zhang Jian Ming Liu Hongru

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head Office and Principal Place of Business in Hong Kong: 6208 Central Plaza 18 Harbour Road Wanchai Hong Kong

14 October 2004

To the Shareholders

and for information only, the option holders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION Acquisition of 30% interest in (Dongfang Customs Technology Company Limited*)

INTRODUCTION

The Directors announced on 22 September 2004 that CITIC 21CN Telecom has entered into the Share Purchase Agreement on 20 September 2004 to acquire from CITIC Group its 30% equity interest in Dongfang Customs Technology.

The Transaction constitutes a discloseable and connected transaction for CITIC 21CN under the Listing Rules and is subject to the approval of the Independent Shareholders. The Independent Board Committee has been constituted to advise the Independent Shareholders on the Transaction. Hercules has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

The purpose of this circular is to provide you with further information regarding the Transaction, to set out the advice of the Independent Board Committee on the terms of the Transaction and the advice letter of Hercules to the Independent Board Committee and the Independent Shareholders in respect of the Transaction as well as to give you notice of the SGM.

• for identification purpose only

— 3 —

LETTER FROM THE BOARD

THE SHARE PURCHASE AGREEMENT

Date:

20 September 2004

Parties:

Vendor : CITIC Group Purchaser : CITIC 21CN Telecom

Assets to be acquired

30% of the equity interest in Dongfang Customs Technology, which is a domestic enterprise incorporated in the PRC, the equity interest of which is held as to 30% by CITIC Group, 42% by China Electronic Customs Data Centre, and 28% by China Telecom.

China Electronic Customs Data Centre and China Telecom are independent third parties not connected with the directors, chief executive and substantial shareholders of CITIC 21CN or its subsidiaries or any of their respective associates.

Consideration

The consideration payable by CITIC 21CN Telecom to CITIC Group under the Share Purchase Agreement is RMB59,806,211, equivalent to approximately HK$56,420,953, which amount is payable in full within 10 business days of the fulfilment of the conditions referred to in the paragraph headed ‘‘Conditions’’ below. No deposit or instalment is required to be paid by CITIC 21CN Telecom to CITIC Group under the terms of the Share Purchase Agreement.

The consideration will be paid out of internal resources of the Company.

The consideration of RMB59,806,211 represents a premium of approximately RMB8,767,305 over 30% of the audited (in accordance with PRC GAAP) net asset value of Dongfang Customs Technology of approximately RMB51,038,906 as at 31 December 2003. Based on the audited profit after tax of Dongfang Customs Technology for the financial year ended 31 December 2003 of RMB49,758,658, the consideration represents a price to earnings ratio (‘‘P/E’’) of approximately 4 times. The premium and P/E were negotiated on an arm’s length basis and reflects an assessment by the Company of the substantial potential growth of Dongfang Customs Technology as a result of the general trend towards the use of electronic customs and electronic transaction processing in the PRC and after taking into account the P/Es of listed companies in Hong Kong which belong to a similar industry as Dongfang Customs Technology. CITIC 21CN Telecom is not required under the terms of the Share Purchase Agreement to make any financial contribution to Dongfang Customs Technology.

— 4 —

LETTER FROM THE BOARD

Conditions

The Share Purchase Agreement is conditional upon, inter alia:

• (i) all necessary consents and approvals under all relevant PRC laws and regulations in respect of the transaction contemplated under the Share Purchase Agreement having been obtained;

• (ii) CITIC Group having obtained (a) the waiver in writing of China Electronic Customs Data Centre and China Telecom in respect of any pre-emption rights they may have over the Sale Shares and (b) the written consent of China Electronic Customs Data Centre and China Telecom to the sale of the Sale Shares by CITIC Group to CITIC 21CN Telecom, and Dongfang Customs Technology having completed and effected the transfer of the Sale Shares from CITIC Group to CITIC 21CN Telecom in accordance with all applicable laws and regulations;

• (iii) all necessary consents and approvals under all relevant PRC laws and regulations in respect of the conversion of Dongfang Customs Technology from a domestic enterprise into a sino-foreign equity joint venture company having been obtained and the new joint venture agreement and new articles of association of Dongfang Customs Technology to be agreed between CITIC 21CN Telecom, China Electronic Customs Data Centre and China Telecom having been approved and registered by all relevant PRC government authorities in accordance with all relevant PRC laws and regulations;

• (iv) both CITIC Group and CITIC 21CN Telecom having obtained all necessary approvals and authorizations for the execution and implementation of the Share Purchase Agreement (including but not limited to approval by their respective board of directors and shareholders) in accordance with all applicable laws and regulations and the Listing Rules;

• (v) all necessary statutory governmental and regulatory obligations having been complied with and all necessary regulatory statutory, governmental and third party consents and waivers in respect of the fulfilment of any of the above conditions or for implementation of any terms of the Share Purchase Agreement having been obtained and delivered to the other party.

The above conditions cannot be waived except with the consent of both parties. As at the Latest Practicable Date, no condition has been fulfilled and CITIC 21CN Telecom has no intention to waive any of such conditions. If any of such conditions cannot be fulfilled, the Share Purchase Agreement shall lapse (without compensation to either party) and further announcement shall be made in such event.

CITIC Group has undertaken, pursuant to the Share Purchase Agreement, to provide CITIC 21CN Telecom with all assistance that is necessary for the transfer of the Sale Shares from CITIC Group to CITIC 21CN in accordance with applicable laws and regulations. Under the terms of the Share Purchase Agreement, a party to the Share Purchase Agreement is entitled to claim against the other for damages for any breach of any undertaking or agreement by the other party thereunder except due to any cause or condition beyond its control.

— 5 —

LETTER FROM THE BOARD

INFORMATION ON DONGFANG CUSTOMS TECHNOLOGY

Dongfang Customs Technology is a domestic enterprise incorporated in the PRC, and is engaged in the business of operating the network platform for accessing the China Electronic Customs dedicated network for electronic customs processing and other electronic government services and electronic commerce transactional platforms. A 42% equity interest in Dongfang Customs Technology is held by China Electronic Customs Data Centre and a 28% equity interest is held by China Telecom. The registered capital of Dongfang Customs Technology is RMB71,428,571, equivalent to approximately HK$67,385,444, all of which has been paid up and contributed by the existing holders of the equity interests in the aforesaid proportion.

Through its operation of the network platform for accessing the China Electronic Customs dedicated network, Dongfang Customs Technology provides services to users of China Electronic Customs, including electronic government services, electronic commerce value-added services, identity authentication, online payments, billing, and related services. Dongfang Customs Technology’s users include import and export corporations, government agencies, banks, insurance companies, and logistics companies.

The audited results of Dongfang Customs Technology for the period from 11 March 2002 (being its date of incorporation) to 31 December 2002 and for the year ended 31 December 2003 and its net asset value as at 31 December 2002 and 31 December 2003, all of which were in accordance with PRC GAAP, were as follows:

Profit before and after taxation (under PRC GAAP) Net asset value (under PRC GAAP)	Year ended 31 December 2003 RMB 49,758,658 As at 31 December 2003 RMB 170,129,687	Period from 11 March 2002 to 31 December 2002 RMB 3,644,086
		As at 31 December 2002 RMB 54,318,160

REASONS FOR AND BENEFITS OF THE TRANSACTION

CITIC 21CN is one of the leading integrated telecommunications value-added services company in the PRC. CITIC 21CN Telecom’s acquisition of a 30% equity interest in Dongfang Customs Technology further strengthens CITIC 21CN’s position and expertise in this fast-growing industry, and expands CITIC 21CN’s business coverage to include dedicated telecom platforms for transactions and information flow involving governmental agencies and businesses, in particular providing an electronic service related customs processing and electronic commerce transactional platforms.

— 6 —

LETTER FROM THE BOARD

The directors (including the independent non-executive directors) of CITIC 21CN are of the view that the terms of the Share Purchase Agreement are fair and reasonable and in the interest of CITIC 21CN and the Shareholders as a whole.

CITIC 21CN Telecom intends to appoint two directors to the board of Dongfang Customs Technology out of seven directors (three nominated by China Electronic Customs Data Centre, two nominated by China Telecom and two to be nominated by CITIC 21CN Telecom) subject to finalization of the new joint venture agreement and new articles of association of Dongfang Customs Technology to be entered into among CITIC 21CN Telecom, China Electronic Customs Data Centre and China Telecom on Completion. The existing board of Dongfang Customs Technology comprises three directors nominated by China Electronic Customs Data Centre, two directors nominated by China Telecom and two directors nominated by CITIC Group.

In accordance with HK GAAP, Dongfang Customs Technology will not be consolidated into the accounts of the Group.

INFORMATION ON CITIC 21CN

CITIC 21CN is an investment holding company. The principal activities of the Company and its subsidiaries are telecommunications value-added services, system integration and software development.

SPECIAL GENERAL MEETING

Set out on pages 25 and 26 of this document is a notice convening the SGM to be held at 8/F Crown Room, Dynasty Club, South West Tower, Convention Plaza, Wanchai, Hong Kong at 3: 00 p.m. on 3 November 2004 at which a resolution will be proposed to the Shareholders to approve the Transaction.

As at the Latest Practicable Date, CITIC Group was interested in approximately 24.60% of the issued share capital of CITIC 21CN. Accordingly, the Transaction constitutes a connected transaction for CITIC 21CN under the Listing Rules which will be subject to the approval by the Independent Shareholders at the SGM. The Transaction will be voted on by poll by the Independent Shareholders. CITIC Group and its associates will abstain from voting on the resolutions approving the Transaction.

A form of proxy for use at the SGM is also enclosed. If you are not able to attend the SGM, you are strongly urged to complete and return the enclosed form of proxy in accordance with the instructions printed thereon, and to lodge it with the principal place of business of the Company in Hong Kong at 6208 Central Plaza, 18 Harbour 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 the SGM or any adjourned meeting (as the case may be). 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 wish.

Pursuant to the Bye-Laws, a resolution put to the vote of a meeting of CITIC 21CN shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or

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LETTER FROM THE BOARD

• (b) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting;

• (c) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting;

• (d) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding shares in CITIC 21CN conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

RECOMMENDATION

The Board believes that the Transaction is in the interest of CITIC 21CN and the Shareholders as a whole.

The text of a letter to the Independent Shareholders from the Independent Board Committee, containing its recommendation in relation to the Transaction, is set out in this circular. Having considered the advice from Hercules, the Independent Board Committee is of the opinion that the Transaction is in the interests of CITIC 21CN and the Shareholders and the terms of the Transaction are fair and reasonable so far as the Shareholders as a whole are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the Transaction.

FURTHER INFORMATION

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

Yours faithfully By Order of the Board CITIC 21CN COMPANY LIMITED Vong Tat Ieong, David Vice Chairman

— 8 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

CITIC 21CN COMPANY LIMITED

(Incorporated in Bermuda with limited liability)

(stock code: 241)

14 October 2004

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION Acquisition of 30% interest in (Dongfang Customs Technology Company Limited*)

We refer to the circular of CITIC 21CN dated 14 October 2004 (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

We have been appointed as the Independent Board Committee to advise you on whether or not the terms of the Transaction are fair and reasonable so far as the Independent Shareholders are concerned. Hercules has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Transaction.

We wish to draw your attention to the letter from the Board set out on pages 3 to 8 of the Circular and to the letter of advice from Hercules to the Independent Board Committee and the Independent Shareholders as set out on pages 10 to 16 of the Circular.

Having considered the terms and conditions of the Transaction, the advice of Hercules and the other principal factors contained in the letter from the Board, we are of the opinion that the terms and conditions of the Transaction are fair and reasonable and are in the overall interests of CITIC 21CN and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions approving the Transaction as set out in the notice convening the SGM on pages 25 and 26 of the Circular.

Yours faithfully, Tsui Yiu Wa, Alec Zhang Jian Ming Liu Hongru

Independent Board Committee

• for identification purpose only

— 9 —

LETTER FROM HERCULES CAPITAL LIMITED

The following is the text of a letter of advice received from Hercules in relation to the Transaction, which letter has been prepared for the purpose of inclusion in this circular:

Hercules Capital Limited

1503 Ruttonjee House 11 Duddell Street Central Hong Kong

14 October 2004

To the Independent Board Committee and the Independent Shareholders of CITIC 21CN COMPANY LIMITED

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION

We refer to our engagement as the Independent financial adviser to advise the Independent Board Committee and the Independent Shareholders with respect to the proposed acquisition of a 30% equity interest in (Dongfang Customs Technology) (the ‘‘Acquisition’’), details of which are set out in the ‘‘Letter from the Board’’ contained in the circular dated 14 October 2004 to the Shareholders (the ‘‘Circular’’) of which this letter forms part. Terms used in this letter have the same meanings as defined elsewhere in the Circular unless the context otherwise requires and specifies.

On 20 September 2004, CITIC 21CN Telecom, a wholly-owned subsidiary of the Company, entered into the Share Purchase Agreement with CITIC Group to acquire its 30% equity interest in Dongfang Customs Technology. CITIC Group is a substantial Shareholder and is therefore a connected person of the Company under Rule 14A.11(1) of the Listing Rules. Accordingly, under Chapter 14A of the Listing Rules, the proposed Acquisition will constitute a connected transaction for the Company, and the Share Purchase Agreement will be subject to approval by the Independent Shareholders by poll at the SGM.

The Independent Board Committee (comprising of Mr. Tsui Yiu Wa, Alec, Mr. Zhang Jian Ming and Mr. Liu Hongru) has been formed to advise the Independent Shareholders on whether the terms and conditions of the proposed Acquisition are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Hercules is engaged to advise the Independent Board Committee and the Independent Shareholders in this regard.

In formulating our recommendations, we have relied on the information and representations supplied, and the opinions expressed, by the Directors and management of the Group, and have assumed that all statements and representations made to us by the Directors and management of the Group or made or referred to in the Circular are true and accurate at the time they were made and as at the date of the Circular and will continue to be true at the date of the SGM. We have also sought and received confirmation from the Directors that all material relevant information that is in their knowledge has been supplied to us and no material relevant information that is in their knowledge has been omitted from the information supplied and opinions expressed. We have discussed with the

— 10 —

LETTER FROM HERCULES CAPITAL LIMITED

management of the Group with respect to the terms of and reasons for, and basis of consideration for, the proposed Acquisition and we have relied on such information, and we consider that we have been provided with and have reviewed sufficient information to reach an independent and informed view on the terms of the proposed Acquisition and to justify our reliance on the accuracy of the information contained in the Circular in order to provide a reasonable basis for our recommendation. We have no reason to suspect that any material relevant information that is in the knowledge of the Directors has been withheld by them and management of the Group, or that material relevant information provided by them is misleading, untrue or inaccurate. We have not, however, for the purpose of this exercise, conducted detailed investigation or audit into the businesses or affairs or future prospects of the Group and the related subjects and parties of the proposed Acquisition.

PRINCIPAL FACTORS AND REASONS CONSIDERED

The principal factors and reasons that we have taken into consideration in assessing the proposed Acquisition and arriving at our opinion are set out as follows:

(I) Background

The Company is an investment holding company. The principal activities of the Group are telecommunications value-added services, system integration and software development. Pursuant to the Share Purchase Agreement, the Company, through CITIC 21CN Telecom, has conditionally agreed to acquire a 30% equity interest in Dongfang Customs Technology from CITIC Group.

Dongfang Customs Technology is a PRC domestic enterprise incorporated in 2002 and is owned as to 42% by China Electronic Customs Data Centre and as to 28% by China Telecom. Both China Electronic Customs Data Centre and China Telecom are not connected persons (as defined under the Listing Rules) of the Company. The registered capital of Dongfang Customs Technology is RMB71,428,571, equivalent to approximately HK$67,385,444, which has been fully paid up by the existing shareholders in proportion to their respective shareholdings.

Dongfang Customs Technology is engaged in the operation of the network platform for accessing the China Electronic Customs dedicated network for electronic customs processing and other electronic government services and electronic commerce transactional platforms. Through its operation of the network platform for accessing the China Electronic Customs dedicated network, Dongfang Customs Technology provides services to users of China Electronic Customs, including electronic government services, electronic commerce valueadded services, identity authentication, online payments, billing, and related services. Dongfang Customs Technology’s users include import and export corporations, government agencies, banks, insurance companies and logistics companies.

— 11 —

LETTER FROM HERCULES CAPITAL LIMITED

The table below sets out the audited results of Dongfang Customs Technology for the period from 11 March 2002 (being its date of incorporation) to 31 December 2002 and for the year ended 31 December 2003, and its audited net asset value as at 31 December 2002 and 31 December 2003 which are based on its audited accounts for the period from 11 March 2002 to 31 December 2002 and for the year ended 31 December 2003, each prepared in accordance with PRC GAAP:

			Period	from
	Year	ended	11 March	2002 to
	31 December 2003		31 December 2002
		HK$		HK$
	RMB	equivalent	RMB	equivalent
Turnover	82,773,900	78,088,585	10,102,700	9,530,849
Audited profit before and after tax	49,758,658	46,942,130	3,644,086	3,437,817
Net asset value	170,129,687	160,499,705	54,318,160	51,243,547

The improvement of results of Dongfang Customs Technology was due to the increase in turnover. Revenues derived from new businesses including development of software and telecommunication access which commenced during the year ended 31 December 2003 provided new income streams to Dongfang Customs Technology and accounted for approximately 80% of the increase in turnover. The continued expansion of the existing businesses also propelled the surge. Dongfang Customs Technology recorded a turnover of RMB82,773,900 during the year ended 31 December 2003, representing an increase of approximately 719.3% over that of the previous audited period of 11 March 2002 to 31 December 2002.

(II) Reasons for the Acquisition

As also mentioned in the ‘‘Letter from the Board’’, the Acquisition will further strengthen the Company’s position and expertise in the fast-growing telecommunications value-added services industry in the PRC, and expand the Company’s business coverage to include dedicated telecom network platforms for transactions as well as information flow involving governmental agencies and businesses, in particular providing an electronic customs processing and electronic commerce transactional platforms. In addition, as illustrated in the paragraph headed ‘‘Financial effects of the proposed Acquisition on the Group’’ below, we are of the view that the proposed Acquisition will have a positive effect on the profitability of the Group.

As such, we consider that the proposed Acquisition represents a unique opportunity that enables the Group to strengthen and expand its core business in the PRC.

(III) Consideration

The consideration of RMB59,806,211 (the ‘‘Consideration’’) was determined after arm’s length negotiation with reference to, inter alia, the audited net asset value of Dongfang Customs Technology as at 31 December 2003. We are of the view that the use of the net asset value of a private company as a benchmark for determining the Consideration is in line with the market practice. The Consideration represents an approximately 17.2% premium over the 30% share of the audited net asset value of Dongfang Customs Technology as at 31 December 2003. Such premium was determined by the Company after arm’s length negotiation with reference to the substantial growth potential of Dongfang Customs Technology as a result of

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LETTER FROM HERCULES CAPITAL LIMITED

the general market trend towards the use of electronic customs and electronic transaction processing in the PRC. Based on the P/E analysis set out below, we consider that the Consideration (representing 17.2% premium over the 30% share of the audited net asset value of Dongfang Customs Technology) is fair and reasonable.

Based on the audited profit after tax of Dongfang Customs Technology for the financial year ended 31 December 2003 of RMB49,758,658, the Consideration represents a price to earnings ratio (‘‘P/E’’) of approximately 4.0 times. The Directors informed us that such P/E was also determined after arm’s length negotiation and reflects an assessment by the Company of the substantial growth potential of Dongfang Customs Technology and after taking into account the P/Es of listed companies in Hong Kong which belong to a similar industry as Dongfang Customs Technology. The Consideration will be satisfied in cash within 10 business days upon the fulfilment of the conditions referred to in the paragraph headed ‘‘Condition’’ in the ‘‘Letter from the Board’’.

To evaluate the fairness and reasonableness of the Consideration in terms of P/E, we have identified listed companies in Hong Kong which belong to a similar industry as Dongfang Customs Technology and we have compared their P/Es with that of Dongfang Customs Technology. We have identified Computer and Technologies Holdings Limited (stock code: 46) which provides system and network platform with integrated services and e-business and e- Government services. We have also identified five other profitable listed companies which are engaged in IT-related businesses, for comparison purposes.

			Market
Comparable			capitalization
Companies		Financial year	as at the Latest	Earnings
(stock code)	Principal business activities	end date	Practicable Date	after tax	P/E
			(HK$’million)	(HK$’million)	(times)
Computer and	trading of computer hardware,	31-Dec-03	299.97	6.07	49.4
Technologies Holdings	software and related accessories;
Limited (46)	provision of system and network
	platform with integrated services;
	provision of e-business and
	e-Government services; provision
	of IT solutions and outsourcing
	services; provision of software
	application package with
	implementation, consultancy,
	training and maintenance services;
	and property and treasury
	investments
Automated Systems	IT services	31-Mar-04	355.79	18.18	19.6
Holdings Limited (771)
Comba Telecom	research, development,	31-Dec-03	2,905.00	211.16	13.8
Systems Holdings	manufacturing and sale of wireless
Limited (2342)	telecommunications coverage
	system equipment and the provision
	of related engineering services
abc Multiactive	designing and sale of computer	30-Nov-03	16.06	7.79	2.1
Limited (8131)	software and provision of
	professional and maintenance
	services for such products

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LETTER FROM HERCULES CAPITAL LIMITED

			Market
Comparable			capitalization
Companies		Financial year	as at the Latest	Earnings
(stock code)	Principal business activities	end date	Practicable Date	after tax	P/E
			(HK$’million)	(RMB’million)	(times)
Chinsoft International	development and provision of	31-Dec-03	454.40	24.12	20.0
Limited (8216)	solutions, provision of IT
	consulting, training, outsourcing
	services and standalone software
	products
Superdata Software	development and sales of packaged	31-Dec-03	382.70	15.60	26.0
Holdings Limited	software and customised software
(8263)	in the PRC excluding Hong Kong

Source:

1. the website of the Stock Exchange

2. the latest annual report of the Comparable Companies

As indicated in the table above, the P/E of the Comparable Companies as at the Latest Practicable Date ranges from approximately 2.1 times to 49.4 times. As Dongfang Customs Technology, a private company, is more profitable than all of the Comparable Companies except for Comba Telecom Systems Holdings Limited (Stock code: 2342), we are of the opinion that it is not necessary to apply a discount rate to the range obtained. As such, the P/E of 4.0 times represented by the Consideration falls within the low end of that range.

(IV) Financial effects of the proposed Acquisition on the Group

As stated in the ‘‘Letter from the Board’’, CITIC 21CN Telecom intends to appoint two directors to the board of Dongfang Customs Technology out of seven directors (three nominated by China Electronic Customs Data Centre, two nominated by China Telecom and two to be nominated by CITIC 21CN Telecom) subject to finalization of the new joint venture agreement and new articles of association of Dongfang Customs Technology to be entered into among CITIC 21CN Telecom, China Electronic Customs Data Centre and China Telecom on Completion. The existing board of Dongfang Customs Technology comprises three directors nominated by China Electronic Customs Data Centre, two directors nominated by China Telecom and two directors nominated by CITIC Group. As mentioned in the ‘‘Letter from the Board’’, in accordance with HK GAAP, the accounts of Dongfang Customs Technology will not be consolidated into the Group. The financial effects on the Group, as a result of the proposed Acquisition, are analysed below:

Cash Position

As at 31 March 2004, the Group had a cash and bank balance of approximately HK$173.2 million. As the Consideration will be satisfied in cash, assuming the proposed Acquisition had been completed on 31 March 2004, the cash and bank balance of the Group would have been reduced by approximately 32.6% to approximately HK$116.8 million.

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LETTER FROM HERCULES CAPITAL LIMITED

Net Tangible Asset Value (the ‘‘NTA’’)

The audited consolidated net asset value of the Group was approximately HK$218.2 million as at 31 March 2004. The Group had no material intangible assets prior to the Acquisition. Assuming the proposed Acquisition had been completed on 31 March 2004, the pro forma consolidated net assets value of the Group would remain unchanged at approximately HK$218.2 million. After taking into account the additional estimated goodwill of approximately RMB8.8 million, equivalent to approximately HK$8.3 million, arising from the proposed Acquisition, the NTA of the Group would have been reduced by 3.8% to approximately HK$209.9 million, thus the NTA per Share would drop slightly by 3.7% from approximately HK$0.0695 to HK$0.0669.

Earnings

The audited net loss attributable to the Shareholders for each of the financial years ended 31 March 2003 and 31 March 2004 were approximately HK$27.1 million and approximately HK$2.0 million, respectively. Dongfang Customs Technology generated a net profit after taxation of approximately RMB49.8 million for the year ended 31 December 2003. The financial results of Dongfang Customs Technology will be equity accounted for in the consolidated accounts of the Company in accordance with HKSSAP.

The goodwill arising from the Acquisition is approximately RMB8.8 million, equivalent to approximately HK$8.3 million, based on the audited net asset value of Dongfang Customs Technology as at 31 December 2003 assuming the Acquisition had been completed on 31 March 2004. As advised by the Directors, the goodwill will be amortized on a straight-line basis over a period of five years. Approximately HK$1.7 million will be charged to the profit and loss account of the Group on an annual basis after completion of the Acquisition. However, the amortization charge is non-cash in nature and will not have any adverse effect on the cashflow of the Group.

Based on the net profit of Dongfang Customs Technology of approximately RMB49.8 million (equivalent to approximately HK$47.0 million) in 2003 and taking into consideration the aforesaid amortisation of goodwill of approximately of HK$1.7 million per annum, the Group would derive a share of associated company income of approximately HK$12.4 million from its 30% interest in Dongfang Customs Technology.

The Company recorded a net loss per Share of HK$0.0006 for the year ended 31 March 2004. Based on the weighted average of 3,139,568,795 Shares in issue during the year ended 31 March 2004 and assuming the proposed Acquisition had been completed on 31 March 2004, the earnings per Share would have been improved to approximately HK$0.0033.

We are of the view that the Acquisition will have a positive effect on the profitability of the Group.

Working capital

The audited consolidated balance sheet of the Group as at 31 March 2004 indicates that the Group has working capital of approximately HK$169.2 million. As set out in the ‘‘Letter from the Board’’ in this circular, the cash Consideration of approximately HK$56.4 million for the Acquisition will be funded by the Group’s internal resources. As

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LETTER FROM HERCULES CAPITAL LIMITED

such, assuming the proposed Acquisition had been completed on 31 March 2004, the working capital of the Group would have been reduced by 33.3% to approximately HK$112.8 million.

RECOMMENDATION

Having considered the information and representations supplied, and the opinions expressed, by the Directors and management of the Group, including but not limited to the abovementioned principal factors and reasons, we are of the opinion that the proposed Acquisition is in the interests of the Company and the Shareholders as a whole and that the terms of the proposed Acquisition are fair and reasonable in so far as the Independent Shareholders are concerned. Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders, and we would recommend the Independent Shareholders, to vote in favour of the ordinary resolution to approve the proposed Acquisition 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

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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 CITIC 21CN. 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, opinions expressed in this circular have been arrived at after due and careful consideration and that there are no other facts the omission of which would make any statement herein misleading.

2. 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 fully paid or credited as fully paid: 3,285,198,666 Shares	HK$ 100,000,000
	HK$ 32,851,987

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GENERAL INFORMATION

APPENDIX

3. OPTIONS GRANTED UNDER THE OLD SCHEME AND NEW SCHEME

As at the Latest Practicable Date, the particulars of the options granted to each of the Directors under the Old Scheme and the New Scheme are as follows:

Directors Date of grant Exercise Price Exercise Period (HK$) Ms. Chen Xiao Ying 13.07.2000 0.9900 13.01.2001 to 27.05.2008 13.07.2000 0.9900 13.07.2001 to 27.05.2008 13.07.2000 0.9900 13.07.2002 to 27.05.2008 24.06.2003 0.3220 10.09.2004 to 23.06.2013 24.06.2003 0.3220 10.03.2005 to 23.06.2013 24.06.2003 0.3220 10.09.2005 to 23.06.2013 Mr. Luo Ning 24.06.2003 0.3220 24.06.2004 to 23.06.2013 24.06.2003 0.3220 24.12.2004 to 23.06.2013 24.06.2003 0.3220 24.06.2005 to 23.06.2013 Mr. Vong Tat Ieong, David 24.06.2003 0.3220 24.06.2004 to 23.06.2013 24.06.2003 0.3220 24.12.2004 to 23.06.2013 24.06.2003 0.3220 24.06.2005 to 23.06.2013 Mr. Sun Yalei 24.06.2003 0.3220 24.06.2004 to 23.06.2013 24.06.2003 0.3220 24.12.2004 to 23.06.2013 24.06.2003 0.3220 24.06.2005 to 23.06.2013 Mr. Zhang Lian Yang 24.06.2003 0.3220 24.06.2004 to 23.06.2013 24.06.2003 0.3220 24.12.2004 to 23.06.2013 24.06.2003 0.3220 24.06.2005 to 23.06.2013 Dr. Liu Xiaoping 24.06.2003 0.3220 24.06.2004 to 23.06.2013 24.06.2003 0.3220 24.12.2004 to 23.06.2013 24.06.2003 0.3220 24.06.2005 to 23.06.2013	Number of options Granted Lapsed/ Cancelled Exercised 21,000,000 — — 21,000,000 — — 28,000,000 — — 30,000,000 — — 30,000,000 — — 30,000,000 — — 3,333,333 — — 3,333,333 — — 3,333,334 — — 10,360,000 — — 10,360,000 — — 10,360,000 — — 3,333,333 — — 3,333,333 — — 3,333,334 — — 5,000,000 — — 5,000,000 — — 5,000,000 — — 1,666,666 — 1,666,000 1,666,666 — — 1,666,668 — — 231,080,000 — 1,666,000	Outstanding as at Latest Practicable Date 21.000,000 D 21,000,000 D 28,000,000 D 30,000,000 q 30,000,000 q 30,000,000 q 3,333,333 q 3,333,333 q 3,333,334 q 10,360,000 q 10,360,000 q 10,360,000 q 3,333,333 q 3,333,333 q 3,333,334 q 5,000,000 q 5,000,000 q 5,000,000 q 666 q 1,666,666 q 1,666,668 q 229,414,000

Notes:

D Options granted under the Old Scheme

q Options granted under the New Scheme

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GENERAL INFORMATION

APPENDIX

4. DISCLOSURE OF INTERESTS

(i) Directors

As at the Latest Practicable Date, the interests or short positions of each Director and chief executive of CITIC 21CN in the shares, underlying shares or debentures of CITIC 21CN or any associated corporation (within the meaning of Part XV of the SFO) which (a) were required to be notified to CITIC 21CN and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provision of the SFO); or (b) were required pursuant to Section 352 of the SFO to be entered in the register referred to therein; or (c) were required pursuant to the Model Code for Securities Transaction by Directors of Listed Companies (the ‘‘Model Code’’) to be notified to CITIC 21CN and the Stock Exchange were as follows:

						Approximate
				Interest in		aggregate
			Interests in	underlying	Total	percentage of
			shares/other	shares	interests in	interest in the
			than pursuant	pursuant to	shares/	issued share
			to equity	equity	underlying	capital of the
		Nature of interest	derivatives(1)	derivatives(1)	shares	Company(3)
Ms.	Chen Xiao Ying	Corporate interest	784,937,030(2)	—	784,937,030(2)	23.89%
Ms.	Chen Xiao Ying	Personal interest	—	160,000,000	160,000,000	4.87%
Mr.	Luo Ning	Personal interest	—	10,000,000	10,000,000	0.30%
Mr.	Vong Tat Ieong, David	Personal interest	—	31,080,000	31,080,000	0.95%
Mr.	Sun Yalei	Personal interest	—	10,000,000	10,000,000	0.30%
Mr.	Zhang Lian Yang	Personal interest	—	15,000,000	15,000,000	0.46%
Dr.	Liu Xiaoping	Personal interest	1,050,000	3,334,000	4,384,000	0.13%

Notes:

• (1) Interests in shares and underlying shares represented long positions, the equity derivatives are physically settled and unlisted. The interests of the Directors in the underlying shares pursuant to equity derivatives represent share options of the Company granted to them pursuant to the share option schemes adopted by the Company.

• (2) These shares were held by Uni-Tech International Group Limited, a wholly owned subsidiary of 21CN Corporation, which in turn is owned as to 95% by Pollon Internet Corporation, a company wholly-owned by Ms. Chen Xiao Ying.

• (3) Assuming options granted are exercised in full and based on the issued share capital of the Company as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of CITIC 21CN were interested, or were deemed to be interested in the long and short positions in the shares, underlying shares and debentures of CITIC 21CN or any associated corporation (within the meaning of the SFO) which (a) were required to be notified to CITIC 21CN and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code to be notified to CITIC 21CN and the Stock Exchange.

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GENERAL INFORMATION

APPENDIX

(ii) Substantial Shareholders

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of CITIC 21CN, the following persons (save as disclosed in the paragraph headed ‘‘Directors’’ above), had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to CITIC 21CN under the provision of the Divisions 2 and 3 of Part XV of the SFO, or who was 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 CITIC 21CN:

Long Position in Shares

			Approximate
			percentage of
			the issued
			share capital
	Number of		of the
Name	Shares held	Nature of interest	Company
Uni-Tech International	784,937,030	Beneficial owner	23.89%
Group Limited
(Note (a))
21CN Corporation	784,937,030	Interest of controlled	23.89%
(Note (a))		corporation
Pollon Internet	784,937,030	Interest of controlled	23.89%
Corporation (Note (a))		corporation
Ms. Chen Xiao Ying	784,937,030	Interest of controlled	23.89%
(Note (a))		corporation
Road Shine Developments	600,000,000	Beneficial owner	18.26%
Limited (Note (b))
CITIC Group (Note (b))	807,998,000	Interest of controlled	24.60%
		corporations

Notes:

• (a) Uni-Tech International Group Limited is wholly-owned by 21CN Corporation. 21CN Corporation is owned as to 95% by Pollon Internet Corporation, which is wholly-owned by Ms. Chen Xiao Ying, Chairman of the Company.

• (b) Road Shine Developments Limited, Goldreward.com Limited and Perfect Deed Company Limited holds 600,000,000 Shares being (approximately 18.26% the existing issued share capital of the Company), 163,818,000 Shares being (approximately 4.99% the existing issued share capital of the Company) and 44,180,000 Shares being (approximately 1.35% the existing issued share capital of the Company), respectively, with respect to all of which CITIC Group is a beneficial substantial shareholder.

Saved as disclosed above, the Directors are not aware of any other person (other than a Director or chief executive of CITIC 21CN) who had an interest (including options) or short position, directly or indirectly, in the shares or underlying shares of CITIC 21CN which would fall to be disclosed to CITIC 21CN under the provisions of Division 2 and 3 of Part XV of the SFO, or, who was, 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 other member of the Group.

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GENERAL INFORMATION

APPENDIX

• (iii) None of the Directors has any direct or indirect interest in any assets which have been, since the date to which the latest published audited accounts of CITIC 21CN were made up, acquired or disposed of by, or leased to CITIC 21CN or any of its subsidiaries, or are proposed to be acquired or disposed of by, or leased to CITIC 21CN or any of its subsidiaries.

5. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (other than contracts expiring or determinable by any member of Group within one year without payment of compensation, other than statutory compensation).

6. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the members of the Group within two years preceding the date of this circular and which are or may be material:

• (a) the provisional agreement dated 13 December 2002 (‘‘Provisional Agreement’’) entered into between Modern View Investment Limited (‘‘Modern View’’), a wholly-owned subsidiary of the Company and Ever Success Holdings Limited (‘‘Ever Success’’), an independent third party, in relation to the disposal by Modern View of Regency Centre and Lea Hin Industrial Building, Aberdeen, Hong Kong (the ‘‘Properties’’);

• (b) the formal agreement for sale and purchase dated 19 December 2002 (the ‘‘Formal Agreement’’) entered into between Modern View and Ever Success for the sale and purchase of the Property pursuant to the Provisional Agreement;

• (c) the assignment of the Property dated 15 January 2003 made by Modern View in favour of Ever Success pursuant to the Formal Agreement;

• (d) the share transfer agreement dated 31 July 2003 entered into between 21CN (China) Investment Limited (‘‘21CN China’’), a wholly-owned subsidiary of the Company, and (HL95 Information Industries Limited*) (‘‘HL95 Information

• Industries’’), a company of which CITIC Group is a beneficial substantial shareholder, in relation to the purchase by 21CN China from HL95 Information Industries of its 25% equity interest in (Beijing HL95 Information Industry Limited) (‘‘HL95’’), and subsequently assigned by 21CN China to CITIC 21CN Telecom;

• (e) the share transfer agreement dated 31 July 2003 entered into between 21CN China and (Guangdong HL95 Information Industry Limited*)

• (‘‘Guangdong HL95’’), a company of which CITIC Group is a beneficial substantial shareholder, in relation to the purchase by 21CN China from Guangdong HL95 of its 20% equity interest in HL95, and subsequently assigned by 21CN China to CITIC 21CN Telecom;

• (f) the share transfer agreement dated 31 July 2003 entered into between Easy Concepts (China) Investment Limited (‘‘Easy Concepts’’), a wholly-owned subsidiary of the Company, and (Beijing Guoan Construction Company Limited*)

— 21 —

GENERAL INFORMATION

APPENDIX

and (Beijing Guoan Electrical Appliances Corporation*) (‘‘CITIC Guoan Affiliates’’), both of which are companies of which CITIC Group is a beneficial substantial shareholder, in relation to the transfer by Easy Concepts to CITIC Guoan Affiliates of its 100% equity interest in Easy Concepts (Shanghai);

• (g) the joint venture agreement for HL95 dated 31 July 2003 entered into between 21CN China and (CITIC Guoan Information Industries*) (‘‘CITIC Guoan Information Industries’’), a company of which CITIC Group is a beneficial substantial shareholder, and subsequently assigned by 21CN China to CITIC 21CN Telecom;

• (h) the funds flow agreement dated 31 July 2003 entered into between 21CN China , Easy Concepts , Easy Concepts (Shanghai), CITIC Guoan Affiliates, Guangdong HL95 and HL95 Information Industries in relation to, among others, setting off of funds payable under the share transfer agreements referred to in paragraphs (d), (e) and (f) and the joint venture agreement referred to in paragraph (g) and subsequently assigned by 21CN China to CITIC 21CN Telecom;

• (i) the share purchase agreement dated 13 February 2004 entered into between CITIC 21CN Telecom and CITIC Guoan Information Industries in relation to the purchase by CITIC 21CN Telecom from CITIC Guoan Information Industries of a 4% equity interest in HL95;

• (j) the joint venture agreement for HL95 dated 13 February 2004 entered into between CITIC 21CN Telecom and CITIC Guoan Information Industries;

• (k) the Share Purchase Agreement.

7. LITIGATION

No member of the Group 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 any member of the Group.

8. QUALIFICATION

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

Name Qualification

Hercules Licensed corporation to carry on type 6 regulated activity (advising on corporate finance) under the SFO

Hercules is not beneficially interested in the share capital of any member of the Group nor has any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group and does not have any interest, either directly or indirectly, in any assets which have been, since the date to which the latest published audited financial statements of CITIC 21CN were made up, acquired or disposed or by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

— 22 —

GENERAL INFORMATION

APPENDIX

9. CONSENT

Hercules has given and has not withdrawn its written consent to the issue of this circular with inclusion of its letter, report or certificate or summary of its opinion (as the case may be) and references to its names in the form and context in which they appear herein.

10. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2004, the date to which the latest published audited financial statements of CITIC 21CN were made up.

11. DIRECTORS’ INTERESTS IN CONTRACTS AND COMPETING BUSINESS

• (a) No contracts of significance in relation to the Company’s business to which the Company, any of its subsidiaries or its holding companies were a party and in which a Director had a material interest, whether directly or indirectly, subsisted as at the Latest Practicable Date.

• (b) None of the Directors has any beneficial interest in other businesses which constitute a competing business to the Group.

12. GENERAL

• (a) The secretary and qualified accountant of the Company is Chung Yau Tong, who is an associate member of the Hong Kong Institute of Certified Public 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.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business in Hong Kong of CITIC 21CN up to and including 3 November 2004;

• (a) the memorandum of association and Bye-Laws of CITIC 21CN;

• (b) the annual report of CITIC 21CN for each of the two years ended 31 March 2004;

• (c) the letter of advice from Hercules to the Independent Board Committee, the text of which is set out on pages 10 to 16 of this circular;

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GENERAL INFORMATION

APPENDIX

• (d) the letter of consent from Hercules referred to in paragraph 9 of this appendix;

• (e) the letter addressed to the Independent Shareholders from the Independent Board Committee, the text of which is set out on page 9 of this circular; and

• (f) the contracts referred to in the section headed ‘‘Material Contracts’’ in paragraph 6 of this Appendix.

— 24 —

NOTICE OF THE SGM

CITIC 21CN COMPANY LIMITED

*

(Incorporated in Bermuda with limited liability)

(stock code: 241)

NOTICE IS HEREBY GIVEN that a special general meeting of CITIC 21CN COMPANY LIMITED (the ‘‘Company’’) will be held at 8/F Crown Room, Dynasty Club, South West Tower, Convention Plaza, Wanchai, Hong Kong on 3 November 2004 at 3: 00 p.m., or any adjourned meeting, for the purpose of considering and, if thought fit, passing the following resolution, which will be proposed as ordinary resolution of the Company:

ORDINARY RESOLUTION

1. ‘‘THAT:

2. (a) the Share Purchase Agreement dated 20 September 2004 (the ‘‘Share Purchase Agreement’’, a copy of which, signed by the Chairman of the meeting for the purposes of identification, has been produced to the meeting marked ‘‘A’’) made between CITIC Group (‘‘CITIC Group’’), and CITIC 21CN Telecom Company Limited (‘‘CITIC 21CN Telecom’’) whereby CITIC 21CN Telecom agreed to acquire CITIC Group’s 30% interest in (Dongfang Customs Technology Company Limited[*] ) at an aggregate consideration of RMB59,806,211, equivalent to approximately HK$56,420,953, be and is hereby approved, confirmed and ratified and that the transactions contemplated thereunder be and are hereby approved; and

3. (b) the directors of CITIC 21CN COMPANY LIMITED be and are hereby authorised for and on behalf of the Company to execute any documents and instruments as may be necessary or incidental to completion of the Share Purchase Agreement and to do all such acts and things as they consider necessary or expedient or desirable in connection with or to give effect to the Share Purchase Agreement.’’

By Order of the Board

CITIC 21CN COMPANY LIMITED Vong Tat Ieong, David Vice Chairman

Hong Kong, 14 October 2004

Registered Office

Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Principal Place of business in Hong Kong 6208 Central Plaza

18 Harbour Road Wanchai Hong Kong

• for identification purpose only

— 25 —

NOTICE OF THE SGM

Notes:

• (1) A member entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and to vote in his stead. A proxy need not be a member of the Company.

• (2) A form of proxy for use at the meeting is enclosed herewith. The instrument appointing a proxy shall be in writing under the hand of the appointer or his/her attorney duly authorised in writing. If the appointer is a corporation, the form of proxy must be under its common seal or under the hand of an officer or attorney duly authorised on its behalf.

• (3) To be valid, a form of proxy together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power of attorney must be completed and returned in accordance with the terms printed thereon as soon as possible and in any event by not less than 48 hours before the time appointed for holding the meeting.

• (4) Completion and return of the proxy shall not preclude a member from attending and voting in person at the meeting or at any adjourned meeting (as the case may be) should he so wish, and in such event, the form of proxy shall be deemed to be revoked.

• (5) Pursuant to the Bye-Laws, a resolution put to the vote of a meeting of the Company shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

• (a) by the chairman of such meeting;

• (b) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting;

• (c) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or

• (d) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid upon all shares conferring that right.

— 26 —