As filed with the Securities and Exchange Commission on February 27, 2014
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Tarena International, Inc.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrants name into English)
Cayman Islands | 8200 | Not Applicable | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
Suite 10017, Building E,
Zhongkun Plaza, A18 Bei San Huan West Road,
Haidian District, Beijing 100098
Peoples Republic of China
Tel: +86 10 6213-5687
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Law Debenture Corporate Services Inc.
400 Madison Avenue, Suite 4D
New York, New York 10017
+1 212 750-6474
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Z. Julie Gao, Esq. Skadden, Arps, Slate, Meagher & Flom LLP c/o 42/F, Edinburgh Tower, The Landmark 15 Queens Road Central Hong Kong +852 3740-4700 |
David Roberts, Esq. Ke Geng, Esq. OMelveny & Myers LLP Yin Tai Centre Office Tower, 37 th Floor No. 2 Jianguomenwai Ave., Beijing 100022 Peoples Republic of China +86 10 6563-4200 |
Approximate date of commencement of proposed sale to the public: as soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
CALCULATION OF REGISTRATION FEE
|
||||
Title of each class of
securities to be registered |
Proposed
offering price (1) |
Amount of
registration fee |
||
Class A ordinary shares, par value US$0.001 per share (2)(3) |
US$100,000,000 | US$12,880 | ||
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||||
|
(1) | Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act. |
(2) | Includes Class A ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public, and also includes ordinary shares that are issuable upon exercise of the underwriters option to purchase additional shares. These Class A ordinary shares are not being registered for the purpose of sales outside the United States. |
(3) | American depositary shares issuable upon deposit of the Class A ordinary shares registered hereby have been registered under a separate registration statement on Form F-6 with the Securities and Exchange Commission on , 2014 (Registration No.333- ). Each American depositary share represents Class A ordinary shares. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We [and the selling shareholders] may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we [and the selling shareholders] are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED , 2014
American Depositary Shares
Tarena International, Inc.
Representing | Class A Ordinary Shares |
Tarena International, Inc. is offering American depositary shares, or ADSs[, and the selling shareholders are offering ADSs]. Each ADS represents Class A ordinary shares, par value $0.001 per share. [We will not receive any proceeds from the ADSs sold by the selling shareholders.] This is our initial public offering, and no public market exists for our ADSs or our Class A ordinary shares. We anticipate the initial public offering price of our ADSs will be between $ and $ per ADS.
Upon the completion of this offering, we will have a dual class ordinary share structure. Our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. Holders of Class A and Class B ordinary shares will vote together as one class on all matters that require a shareholders vote. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstance. Upon the completion of this offering, our existing shareholders will own an aggregate of Class B ordinary shares, which will represent of the then total voting power of our outstanding shares, assuming the underwriters will not exercise their option to purchase additional ADSs.
We are an emerging growth company under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.
We have applied for the listing of our ADSs on the NASDAQ Global Market under the symbol TEDU.
Investing in our ADSs involves risks. See Risk Factors beginning on page 15.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per ADS | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discount |
$ | $ | ||||||
Proceeds, before expenses, to us |
$ | $ | ||||||
[Proceeds, before expenses, to the selling shareholders |
$ | $ | ] |
The underwriters may also purchase up to an additional ADSs from us [and up to an additional ADSs from the selling shareholders] at the initial public offering price, less underwriting discounts and commissions.
Delivery of the ADSs will be made on or about , 2014.
Goldman Sachs (Asia) L.L.C. | Credit Suisse | |
Jefferies |
||
Oppenheimer & Co. |
The date of this prospectus is , 2014.
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F-1 |
You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, the ADSs only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ADSs.
We have not taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus outside the United States.
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The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under Risk Factors, before deciding whether to buy our ADSs.
Our Business
We are a leading provider of professional education services in China. Our core strength is in IT professional education services, where we are the largest provider in China with a market share of 8.3% as measured by revenues in 2013 according to IDC, a third-party research firm. Since our inception in 2002, we have trained over 130,000 students, cooperated with more than 500 universities and colleges and placed students with approximately 35,000 corporate employers in a variety of industries. Our six-month post-course job placement rates for students enrolled in 2011 and 2012 have averaged over 90%. The average starting salary of our students enrolled in 2012 was 14.3% higher than the national average of college graduates in 2012, calculated based on data from IDC.
We have an innovative education platform combining live distance instruction, classroom-based tutoring and online learning modules. For each class, instructors deliver lectures from one classroom in Beijing to students in the same classroom as well as to students at our learning centers across China via simultaneous webcast. To facilitate a disciplined and focused learning environment, we staff each classroom at our learning centers with one or two on-site teaching assistants to tutor and supervise students. We complement the live instruction and tutoring with our proprietary learning management system, named the Tarena Teaching System , or TTS. TTS has five core functions, featuring course content, self-assessment exams, student and teaching staff interaction tools, student management tools and an online student community. Through this education platform, we provide job-oriented education with measurable outcomes, as demonstrated by our high job placement rates and students academic performance.
We currently offer courses in nine IT subjects and two non-IT subjects. Our courses provide students with practical education to prepare them
for jobs in industries with significant growth potential and strong hiring demand. We believe we have successfully established Tarena (
) as a respected professional education brand known for high teaching quality and an excellent student placement track record. In 2013, we were recognized as the
Outstanding Training Institute
by the
Ministry of Industry and Information Technology of China.
With a strong commitment to career services, we have established an outstanding job placement record and a broad network of corporate employers. Our team of over 200 career counselors advise students through mandatory job skill seminars, one-on-one interview workshops and systematic career assessment and planning. We have over 100 employer cooperation representatives who liaise closely with employers, alumni, human resources websites and other employment recruiters to maximize job opportunities for our students. We have a track record of producing qualified, job-ready candidates for many corporate employers in China, including global Fortune 500 companies and leading technology companies. Our access to a large number of corporate employers is appealing to potential students, which in turn contributes to our student enrollment growth and further allows us to provide a larger pool of qualified candidates to employers.
Capitalizing on our innovative education platform, we have built a highly scalable business that we can expand and replicate rapidly with consistent quality. We deliver high quality lectures through a group of experienced and passionate instructors based in Beijing to a nationwide network of 92 directly operated learning
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centers in 33 cities in China. Compared to traditional classroom-based teaching, which requires hiring and training of instructors for local sites, we are able to expand our geographic footprint and class sizes without impacting the quality of our course offerings because we are generally able to provide our students across China with equal access to the same group of instructors. For our most established Java course, our student-to-instructor ratio increased from 1,624-to-1 in 2011 to 3,276-to-1 in 2013, and the average net revenues per instructor for our Java course increased from approximately US$2.7 million in 2011 to approximately US$6.9 million in 2013.
We have experienced significant growth in recent years. Our student enrollments grew from 16,282 in 2011 to 46,458 in 2013, representing a compound annual growth rate, or CAGR, of 68.9%. Our net revenues increased from US$25.7 million in 2011 to US$92.8 million in 2013, representing a CAGR of 89.9%. A substantial portion of our total net revenues are generated from Java courses, which contributed 70.6%, 71.3% and 59.3% of our total net revenues in 2011, 2012 and 2013, respectively. Our net income increased from US$0.7 million in 2011 to US$14.0 million in 2013.
Tarena International, Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our wholly-owned subsidiaries in China. We also control and consolidate a VIE, Beijing Tarena Jinqiao Technology Co., Ltd., or Beijing Tarena. Beijing Tarena holds an Internet content provider license, or ICP license, that is necessary for the operation of our website, www.it211.com.cn , which primarily conducts marketing activities for us. We are currently not eligible as a foreign-invested enterprise to hold an ICP license. If Beijing Tarena or its shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over Beijing Tarena. If we are unable to maintain effective control over Beijing Tarena, we would not be able to continue to use the ICP license to operate our www.it211.com.cn website.
Our Value Proposition to Students and Employers
Our services bridge the gap between students need for practical training and employers demand for trained professionals.
| Value proposition to students : For students, we provide practical training necessary to succeed in highly competitive professional job markets. Our job-oriented education offers students valuable practical skills that post-secondary institutions in China are less-equipped to provide. In addition, our personalized job placement services prepare students to perform well in the recruiting and interview processes. |
| Value proposition to employers : For employers, we provide a large and stable pool of job-ready prospective employees and tailored recruitment services that meet their hiring needs in a cost-effective and time-efficient manner. We address their needs for skilled entry-level professionals by closely aligning our course offerings with the practical knowledge needed in the marketplace. |
Our Industry
We define the professional education services market in China as non-degree granting, post-secondary education programs focused on professional career advancement. Chinas professional education services market is rapidly growing as a result of favorable economic and demographic trends, an intensely competitive employment market, a significant demand and supply gap for qualified skilled professionals and governmental support. According to IDC, the market size of professional education services in China, which includes industries with high employment demand such as IT, computer graphics, online marketing, finance and accounting and
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management, grew from RMB48.8 billion (US$8.1 billion) in 2010 to RMB67.5 billion (US$11.1 billion) in 2013, representing a CAGR of 11.4% and is projected to grow to RMB89.0 billion (US$14.7 billion) in 2017, representing a CAGR of 7.2% from 2013 to 2017.
In addition, the professional education services market in China is highly fragmented with no single company holding significant market share. We believe this fragmentation enables market players with high quality curricula and a track record of delivering strong educational outcomes to attract more students and grow market share.
Our Strengths
We believe the following competitive strengths are essential for our success and differentiate us from our competitors:
| highly innovative and effective education platform; |
| scalable and efficient business model; |
| respected brand known for high quality professional education; |
| outstanding job placement record supported by our access to a broad network of corporate employers; and |
| experienced management team with a proven track record. |
Our Strategies
We are dedicated to improving careers and changing lives by delivering high quality professional education services. Our goal is to become the worlds leading and most innovative professional education services provider. We intend to achieve our goal by pursuing the following strategies:
| grow our student enrollments; |
| expand our course offerings; |
| continuously enhance the quality of our education services; and |
| expand our corporate employer network. |
Our Challenges
The successful execution of our strategies is subject to risks and uncertainties related to our business and industry, including those relating to:
| our ability to continue to attract students to enroll in our courses; |
| our ability to continue to recruit, train and retain qualified instructors and teaching assistants; |
| our ability to continually tailor our curriculum to market demand and enhance our courses to adequately and promptly respond to developments in the professional job market; |
| our reliance on Java and C++ courses for a substantial portion of our net revenues, and a decrease in the popularity and usage of Java and/or C++ in the IT industry would have a material adverse effect on our business and results of operations; |
| our ability to maintain or enhance our brand recognition; |
| our ability to maintain our high job placement rate for our students; |
| our ability to maintain our cooperative relationships with financing service providers for student loans; |
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| our ability to control rental costs, obtain leases at desired locations at reasonable prices and protect our leasehold interests; and |
| the possibility that certain of our learning centers may be deemed by PRC government authorities to be operating beyond their authorized business scope or without proper license or registration, and that we may be subject to fines, confiscation of gains derived from such learning centers and suspension of those certain learning centers as a result; 21.3% of our student enrollments in 2013 were from learning centers operating outside their authorized scope of business in their business licenses and 11.4% of our student enrollments in 2013 were from learning centers operated by schools outside their approved districts or without proper registration. |
See Risk Factors and Special Note Regarding Forward-Looking Statements for a discussion of these and other risks and uncertainties associated with our business and investing in our ADSs.
Corporate History and Structure
We began our operations in Beijing in September 2002 through Beijing Tarena Technology Co., Ltd. In November 2012, we changed the name of Beijing Tarena Technology Co., Ltd. to Tarena Technologies Inc., or Tarena Tech. Tarena International, Inc. was incorporated in the Cayman Islands in October 2003 and became our ultimate holding company. We established Tarena Hong Kong Limited, or Tarena HK, as our wholly-owned subsidiary in October 2012. Tarena HK wholly owns Tarena Software Technology (Hangzhou) Co., Ltd., or Tarena Hangzhou, an entity that we established in January 2013.
Prior to 2012, we conducted a substantial portion of our operations through our consolidated variable interest entities, or VIEs, and their subsidiaries and schools. On January 30, 2012, the new PRC Catalogue for the Guidance of Foreign Investment Industries (amended) became effective, which listed professional education service as an industry for which foreign investments are encouraged by the government. In light of such change of law, starting from the second half of 2012, we began to transfer the operations, including related assets and liabilities, of our consolidated VIEs to Tarena Tech and its subsidiaries and schools. As of December 31, 2013, all of our learning center operations of VIEs have been transferred to Tarena Tech and its subsidiaries and schools. We are in the process of winding down Shanghai Tarena. We expect to continue to control and consolidate Beijing Tarena, which holds an Internet Content Provider license, or ICP license, that is necessary for the operation of our www.it211.com.cn website. For a detailed description of the risks associated with our corporate structure and the contractual arrangements we have entered into with our VIEs, see Risk FactorsRisks Relating to Our Corporate Structure.
The table below sets forth the respective revenues contribution and assets of Tarena and our wholly-owned subsidiaries and our consolidated VIEs as of the dates and for the periods indicated:
Net Revenues (1) | Total Assets (1) | |||||||||||
For the year ended
December 31, 2012 |
For the year ended
December 31, 2013 |
As of December 31,
2013 |
||||||||||
Tarena and its wholly-owned subsidiaries |
67.7% | 92.0% | 96.8% | |||||||||
Consolidated VIEs |
32.3% | 8.0% | 3.2% | |||||||||
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Total |
100% | 100% | 100% | |||||||||
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Note: |
(1) | The percentages exclude the inter-company transactions and balances between Tarena and wholly-owned subsidiaries and the consolidated VIEs. |
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A list of our subsidiaries and variable interest entities is filed as exhibit 21.1 to the registration statement to which this prospectus is a part. The following diagram illustrates our current corporate structure:
Notes:
(1) | Mr. Shaoyun Han, our founder, chairman and chief executive officer, owns 70% of the equity interest in Beijing Tarena. Mr. Jianguang Li, our director, owns 30% of the equity interest in Beijing Tarena. |
(2) | Mr. Shaoyun Han and Mr. Jianguang Li own 49% and 51% of the equity interest in Shanghai Tarena, respectively. |
(3) | Shanghai Tarena is in the process of voluntary winding down. |
(4) | Tarena (Wuhan) Technology Co., Ltd., which is a wholly-owned subsidiary of Tarena Tech, wholly owns Wuhan Tarena Software Co., Ltd., which holds 100% of the sponsorship interest in Wuhan Tarena Professional Education School. |
(5) | Mr. Shaoyun Han is the principal of Shenyang Tarena Professional Education School, Jinan Tarena Professional Education School, Wuhan Tarena Professional Education School, Chongqing Jiulongpo Tarena Professional Education School and Nanjing Tarena Professional Education School; De Xun Wang is the principal of Guangzhou Tarena Professional Education School and Shenzhen Baoan Tarena Professional Education School; Xuefeng Lu is the principal of Harbin Tarena Professional Education School; Qian Li is the principal of Qingdao Tarena Professional Education School; Ning Ding is the principal of Kunming Guandu Tarena Professional Education School; and Nini Tong is the principal of Zhuhai Tarena Professional Education School. |
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Corporate Information
Our current principal executive offices are located at Suite 10017, Building E, Zhongkun Plaza, A18 Bei San Huan West Road, Haidian District, Beijing, 100098, Peoples Republic of China. Our telephone number at this address is +86 10 6213-5687. Pursuant to our agreement with the local government in Hangzhou, China, we are in the process of relocating certain of our management and administrative functions to our office in Hangzhou. Our executive offices in Hangzhou are located at 1/F, Block A, Training Building, 65 Kejiyuan Road, Baiyang Jie Dao, Economic Development District, Hangzhou, 310000, Peoples Republic of China. Our telephone number at this address is +86 571 5602 9509. Our registered office in the Cayman Islands is located at the offices of Trident Trust Company (Cayman) Limited, Fourth Floor, One Capital Place, P.O. Box 847 GT, Grand Cayman, KY1-1103, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc. Investors should contact us for any inquiries through the address and telephone number of our principal executive offices.
Our website is www.tarena.com.cn . The information contained on our website is not a part of this prospectus.
Implications of Being an Emerging Growth Company
As a company with less than US$1.0 billion in revenue for the last fiscal year, we qualify as an emerging growth company pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth companys internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to opt out of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the previous three year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
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Conventions Which Apply to this Prospectus
Except where the context otherwise requires and for purposes of this prospectus only:
| ADSs refer to American depositary shares, representing our Class A ordinary shares; each ADS represents Class A ordinary shares; |
| China or PRC refers to the Peoples Republic of China, excluding, for the purpose of this prospectus only, Taiwan, Hong Kong and Macau; |
| IT refers to information technology; |
| ordinary shares refer to the Class A and Class B ordinary shares of Tarena, par value US$0.001 per share; |
| preferred shares refer to Series A, Series B and Series C convertible and redeemable preferred shares of Tarena, par value US$0.001 per share; |
| RMB or Renminbi refers to the legal currency of China; |
| variable interest entities, or VIEs, refer to Beijing Tarena Jinqiao Technology Co., Ltd. and Shanghai Tarena Software Technology Co., Ltd., which are domestic PRC companies in which we do not have any equity interests but whose financial results have been consolidated into our consolidated financial statements in accordance with U.S. GAAP because we have effective financial control over, and Tarena International, Inc. being the primary beneficiary of, these companies; Shanghai Tarena Software Technology Co., Ltd. is in the process of voluntary winding down; |
| we, us, our company, our, and Tarena refer to Tarena International, Inc., a Cayman Islands company, and, in the context of describing our operations and consolidated financial information, also include its subsidiaries, schools, VIEs, subsidiaries of VIEs and schools of VIEs. |
We gather data on post-course job placement rates and average starting salary by conducting surveys of our graduates. Based on the survey responses, we calculate the six-month post-course job placement rates for a year by dividing the number of job-seeking students enrolled in such year who indicated that they had begun employment within six months of graduation by the total number of job-seeking students enrolled in such year. We calculate the average starting salary of our students for a year by averaging the starting salary reported by job-seeking students enrolled in such year who indicated that they had begun employment within six months of graduation.
We calculate the student-to-instructor ratio and the average net revenues per instructor for our Java courses for a period using the average number of instructors for such period, which is computed by adding the number of Java instructors at the beginning of such period and at the end of such period, and then dividing the sum by two.
We calculate the retention rate of our instructors in a year by dividing the number of instructors at the end of such year by the sum of the number of instructors at the beginning of such year and the number of newly hired instructors in such year.
This prospectus contains information and statistics relating to Chinas economy and the industries in which we operate derived from various publications issued by market research companies and PRC governmental entities, which have not been independently verified by us, the underwriters or any of their respective affiliates or advisers. The information in such sources may not be consistent with other information compiled in or outside of China.
Certain operating data, economic and market data and regulatory information shown in Renminbi amounts in this prospectus are accompanied by translations into U.S. dollars solely for the convenience of the reader. Unless
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otherwise noted, all such translations from Renminbi to U.S. dollars in this prospectus were made at RMB6.0537 to US$1.0000, the noon buying rate for December 31, 2013 set forth in the H.10 statistical release of the Federal Reserve Board. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. The PRC government restricts the conversion of Renminbi into foreign currency and foreign currency into Renminbi for certain types of transactions. On February 21, 2014, the noon buying rate set forth in the H.10 statistical release of the Federal Reserve Board was RMB6.0912 to US$1.0000.
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The Offering
The following information assumes that the underwriters will not exercise their option to purchase additional ADSs in the offering, unless otherwise indicated.
Offering price |
We currently estimate that the initial public offering price will be between US$ and US$ per ADS. |
ADSs offered by us |
ADSs. |
[ADSs offered by the selling shareholders |
ADSs.] |
Ordinary shares outstanding immediately after this offering |
We will adopt a dual class ordinary share structure immediately prior to the completion of this offering. Immediately upon the completion of this offering, ordinary shares (or ordinary shares if the underwriters exercise their option to purchase additional ADSs in full) will be outstanding, comprised of (1) Class A ordinary shares, par value US$0.001 per share (or Class A ordinary shares if the underwriters exercise their option to purchase additional ADSs in full), and (2) Class B ordinary shares, par value US$0.001 per share. Class B ordinary shares outstanding immediately after the completion of this offering will represent % of our total outstanding shares and % of the then total voting power (or % of our total outstanding shares and % of the then total voting power if the underwriters exercise their option to purchase additional ADSs in full). |
ADSs outstanding immediately after this offering |
ADSs (or ADSs if the underwriters exercise their option to purchase additional ADSs in full). |
The ADSs |
Each ADS represents Class A ordinary shares, par value US$0.001 per share. |
The depositary will hold the Class A ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement. |
If we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our Class A ordinary shares, after deducting its fees and expenses. |
You may turn in your ADSs to the depositary in exchange for Class A ordinary shares. The depositary will charge you fees for any exchange. |
We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended. |
To better understand the terms of the ADSs, you should carefully read the Description of American Depositary Shares section of this |
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prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus. |
Ordinary shares |
We will issue Class A ordinary shares represented by our ADSs in this offering. |
All of our existing ordinary shares will be redesignated as Class B ordinary shares and all of our outstanding preferred shares will be redesignated or automatically converted into Class B ordinary shares on a one-for-one basis immediately prior to the completion of this offering. |
All options, regardless of grant dates, will entitle holders to the equivalent number of Class A ordinary shares once the vesting and exercising conditions on such share-based compensation awards are met. |
Immediately upon the completion of this offering, we will have Class B ordinary shares outstanding. |
Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to ten votes per share on all matters subject to shareholders vote. |
Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder or upon a change of control of such holder, such Class B ordinary shares will be automatically and immediately converted into the equivalent number of Class A ordinary shares. |
See Description of Share Capital. |
Option to purchase additional ADSs |
We [and the selling shareholders] have granted to the underwriters an option, which is exercisable within 30 days from the date of this prospectus, to purchase up to an additional ADSs. |
Use of proceeds |
The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives and obtain additional capital. We plan to use the net proceeds of this offering primarily for general corporate purposes, which may include investing in course development, expanding learning center network, sales and marketing activities, technology infrastructure, capital expenditures, improving facilities and other general and administrative matters. We may also use a portion of the net proceeds for investing in, or acquiring, complementary businesses, although we have not identified any near-term investment or acquisition targets. |
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See Use of Proceeds for additional information. |
[We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.] |
Lock-up |
[We, our directors and executive officers, our existing shareholders and our option holders] have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our ADSs or ordinary shares or securities convertible into or exercisable or exchangeable for our ADSs or ordinary shares for a period of 180 days after the date of this prospectus. See Shares Eligible for Future Sale and Underwriting for more information. |
Proposed NASDAQ Global Market symbol |
We have applied to have the ADSs listed on the NASDAQ Global Market under the symbol TEDU. Our ADSs and ordinary shares will not be listed on any other stock exchange or traded on any automated quotation system. |
Payment and settlement |
The underwriters expect to deliver the ADSs against payment therefor through the facilities of the Depository Trust Company on , 2014. |
Depositary
[Directed share program |
At our request, the underwriters have reserved for sale, at the initial public offering price, up to ADSs offered by this prospectus to our directors, officers, employees, business associates and related persons.] |
Conflicts of Interest |
Goldman Sachs (Asia) L.L.C., one of the participating underwriters, and/or its affiliates beneficially own in excess of 10% of our issued and outstanding shares and as a result are deemed to be our affiliate and to have a conflict of interest with us within the meaning of the Financial Industry Regulatory Authority (FINRA) Rule 5121 (Rule 5121). Therefore, this offering will be conducted in accordance with Rule 5121, which requires that Goldman Sachs (Asia) L.L.C. will not make sales to discretionary accounts without the prior written consent of the account holder and that a qualified independent underwriter (QIU), as defined in Rule 5121, participate in the preparation of the registration statement of which this prospectus forms a part and perform its usual standard of due diligence with respect thereto. Credit Suisse Securities (USA) LLC is acting as QIU for this offering. |
Risk factors |
See Risk Factors and other information included in this prospectus for a discussion of risks that you should carefully consider before investing in our ADSs. |
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The number of ordinary shares that will be outstanding immediately after this offering:
| assumes re-designation or conversion of all outstanding ordinary shares and Series A, B and C preferred shares into 37,657,389 Class B ordinary shares immediately upon the completion of this offering; and |
| excludes 9,940,614 Class A ordinary shares issuable upon the exercise of options outstanding as of the date of this prospectus, at a weighted average exercise price of US$2.46 per share. |
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Our Summary Consolidated Financial Data and Operating Data
The following summary consolidated statements of comprehensive income data (other than ADS data) for the years ended December 31, 2011, 2012 and 2013 and the summary consolidated balance sheet data as of December 31, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Our historical results for any period are not necessarily indicative of results to be expected for any future period. You should read the following summary financial information in conjunction with the consolidated financial statements and related notes and the information under Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus.
For the Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
(in thousands of US$, except for share, per
share and per ADS data) |
||||||||||||
Summary Consolidated Statements of Comprehensive Income Data: |
||||||||||||
Net revenues |
25,741 | 56,820 | 92,834 | |||||||||
Cost of revenues (1) |
(8,714 | ) | (17,762 | ) | (29,068 | ) | ||||||
Gross profit |
17,027 | 39,058 | 63,766 | |||||||||
Operating expenses (1) : |
||||||||||||
Selling and marketing |
(7,676 | ) | (16,875 | ) | (30,252 | ) | ||||||
General and administrative |
(7,832 | ) | (9,948 | ) | (16,224 | ) | ||||||
Research and development |
(1,159 | ) | (1,792 | ) | (3,807 | ) | ||||||
Operating income |
360 | 10,443 | 13,483 | |||||||||
Interest income |
275 | 1,165 | 1,541 | |||||||||
Income before income taxes |
840 | 11,771 | 16,318 | |||||||||
Income tax expense |
(139 | ) | (2,219 | ) | (2,271 | ) | ||||||
Net income |
701 | 9,552 | 14,047 | |||||||||
Net loss attributable to ordinary shareholders |
(9,593 | ) | (16,993 | ) | (30,313 | ) | ||||||
Weighted average number of ordinary shares used in per share calculations: |
||||||||||||
Basic |
12,518,419 | 10,851,287 | 10,930,412 | |||||||||
Diluted |
12,518,419 | 10,851,287 | 10,930,412 | |||||||||
Income (loss) per ordinary share |
||||||||||||
Basic |
(0.77 | ) | (1.57 | ) | (2.77 | ) | ||||||
Diluted |
(0.77 | ) | (1.57 | ) | (2.77 | ) | ||||||
Income (loss) per ADS (2) |
||||||||||||
Basic |
||||||||||||
Diluted |
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Notes:
(1) | Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows: |
For the Year Ended
December 31, |
||||||||||||
2011 | 2012 | 2013 | ||||||||||
(in thousands US$) | ||||||||||||
Cost of revenues |
| | 17 | |||||||||
Selling and marketing expenses |
1 | 1 | 45 | |||||||||
General and administrative expenses |
59 | 125 | 654 | |||||||||
Research and development expenses |
3 | 3 | 48 |
(2) | Each ADS represents Class A ordinary shares. |
As of December 31, | ||||||||
2012 | 2013 | |||||||
(in thousands of
US$) |
||||||||
Summary Consolidated Balance Sheet Data: |
||||||||
Cash and cash equivalents |
16,197 | 26,139 | ||||||
Accounts receivable, net of allowance for doubtful accounts |
16,984 | 15,417 | ||||||
Property and equipment, net |
8,172 | 12,806 | ||||||
Total assets |
46,870 | 73,673 | ||||||
Deferred revenue |
9,656 | 15,487 | ||||||
Total liabilities |
14,738 | 25,578 | ||||||
Total mezzanine equity |
67,099 | 111,379 | ||||||
Total shareholders deficit |
(34,967 | ) | (63,284 | ) |
The following tables present our summary operating data as of the dates and for the periods indicated:
For the Year Ended
December 31, |
||||||||||||
2011 | 2012 | 2013 | ||||||||||
Student enrollments (1) |
16,282 | 31,340 | 46,458 |
Note:
(1) | The number of student enrollments as presented does not include student enrollments at our two franchised learning centers in Taiyuan and Xian. |
As of December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
Learning centers (1) |
34 | 57 | 92 |
Note:
(1) | The number of learning centers as presented does not include our two franchised learning centers in Taiyuan and Xian. |
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An investment in our ADSs involves significant risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.
Risks Related to Our Business
If we are not able to continue to attract students to enroll in our courses, our business and prospects will be materially and adversely affected.
The success of our business depends primarily on the number of students enrolled in our courses. Therefore, our ability to continue to attract students to enroll in our courses is critical to the continued success and growth of our business. This in turn will depend on several factors, including our ability to develop new courses and enhance existing courses to respond to changes in market trends and student demands, expand our learning center network and geographic footprint, manage our growth while maintaining consistent and high education quality, broaden our relationships with corporate employers and market our courses effectively to a broader base of prospective students. Furthermore, our ability to attract students also depends on our ability to provide educational content that is perceived as more effective than the standard curricula of universities in China in terms of practical job-oriented training. If we are unable to continue to attract students to enroll in our courses, our net revenues may decline, which may have a material adverse effect on our business, financial condition and results of operations
We may not be able to continue to recruit, train and retain qualified instructors and teaching assistants, who are critical to the success of our business and effective delivery of our education services to students.
Our instructors and teaching assistants are critical to maintaining the quality of our educational services and our reputation. We seek to hire highly qualified instructors with rich industry experience and strong teaching skills. We recruit dedicated teaching assistants primarily from outstanding graduates of our courses. There is a limited pool of instructors and teaching assistants with these attributes and we must provide competitive compensation packages to attract and retain them. We must also provide ongoing training to our instructors and teaching assistants to ensure that they stay abreast of changes in curriculum, student demands, industry standards and other trends necessary to teach and tutor effectively. We have not experienced major difficulties in recruiting, training or retaining qualified instructors and teaching assistants in the past. However, we may not always be able to recruit, train and retain enough qualified instructors and teaching assistants in the future to keep pace with our growth and maintain consistent education quality. A shortage of qualified teaching staff, a decrease in the quality of our teaching staffs classroom performance, whether actual or perceived, or a significant increase in compensation to retain qualified instructors and teaching assistants would have a material adverse effect on our business, financial condition and results of operations.
If we are not able to continually tailor our curriculum to market demand and enhance our courses to adequately and promptly respond to developments in the professional job market, our courses may become less attractive to students.
New trends in the global economy and rapid developments in the professional services industries may change the type of skills required for professionals in the marketplace. This requires us to continually develop, update and enhance our course materials to adapt to the needs of the professional job market in China. We may be unable to update our courses in a timely and cost-effective manner, or at all, to keep pace with changes in market requirements. Any inability to track and respond to these changes in a cost-effective and timely manner or to tailor our courses to the professional services markets in China would render our courses less attractive to
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students, which may materially and adversely affect our reputation and ability to continue to attract students and cause us to lose market share.
If we fail to develop and introduce new courses in anticipation of market demand in a timely and cost-effective manner, our competitive position and ability to generate revenues may be materially and adversely affected.
Since inception, our primary focus has been on providing IT professional education services. We have since expanded our course offerings to include non-IT training courses, including digital art and online sales and marketing. We intend to continue developing new courses in anticipation of market demand. The introduction of new courses is subject to risks and uncertainties. Unexpected technical, operational, logistical, regulatory or other problems could delay or prevent the introduction of one or more new courses. Moreover, we cannot assure you that any of these new courses will match the quality or popularity of those developed by our competitors, achieve widespread market acceptance or generate the desired level of income for our students.
Offering new courses requires us to make investments in content development, recruit and train additional qualified instructors and teaching assistants, increase marketing efforts and re-allocate resources away from other uses. We may have limited experience with the content of new courses and may need to modify our systems and strategies to incorporate new courses into our existing course offerings. In offering courses in new subject areas, we may face new risks and challenges that we are not familiar with. Furthermore, we may experience difficulties in recruiting or otherwise identifying qualified instructors to develop the content for these new courses. If we are unable to offer new courses in a timely and cost-effective manner, our results of operations and financial condition could be adversely affected.
We rely on Java and C++ courses for a substantial portion of our total net revenues, and a decrease in the popularity and usage of Java and/or C++ in the IT industry would have a material adverse effect on our business and results of operations.
A substantial portion of our total net revenues are generated from Java and C++ courses. In 2011, 2012 and 2013, our Java courses contributed 70.6%, 71.3% and 59.3% of our total net revenues, respectively. During the same periods, C++ courses contributed 12.4%, 12.5% and 12.0% of our total net revenues, respectively. The rapid growth of our business has been driven by the popularity and usage of Java or C++ in the IT industry and we expect net revenues from these two courses to continue to represent a substantial portion of our total net revenues in the near future. We believe our reliance on Java or C++ courses is mainly attributable to the wide adoption of Java or C++ in the IT industry. However, whether Java or C++ as programming languages can maintain their popularity in the industry is beyond our control. Any factor that materially and adversely affects student enrollment in our Java or C++ courses, such as a decrease in the popularity and usage of Java or C++ in the IT industry, would have a material adverse effect on business and our results of operations.
Our business depends on the market recognition of our brand, and if we are unable to maintain or enhance our brand recognition, our business, financial condition and results of operations may be materially and adversely affected.
We believe that the market recognition of our Tarena (
) brand has significantly contributed to the success of our business and believe that maintaining and enhancing the reputation of this brand is critical to sustaining our competitive advantage. Our ability to maintain
and enhance our brand recognition and reputation depends primarily on the perceived effectiveness and quality of our courses as well as the success of our marketing and promotion efforts. As we continue to grow and expand into new course areas, we
may not be able to maintain the quality and consistency of our educational services as we did in the past. We have devoted significant resources to promoting our courses and brand in recent years, including Internet-based marketing and advertising,
traditional media advertising and sponsoring industry trade seminars and software design
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competitions. However, our marketing and promotion efforts may not be successful or may inadvertently negatively impact our brand recognition and reputation. For example, if any governmental authority or competitor publicly alleges that any of our advertisements are misleading, our brand reputation may be adversely impacted. If we are unable to maintain and further enhance our brand recognition and reputation and increase awareness of our courses, or if we incur excessive marketing and promotion expenses, our results of operations may be materially and adversely affected. If we are unable to sustain our brand image, we may not be able to maintain premium tuition fees over our competitors, which may further exacerbate the extent of any adverse effect on our results of operations. Furthermore, any negative publicity relating to our company or our courses and services, regardless of its veracity, could harm our brand image and in turn materially and adversely affect our business and operating results.
We may not be able to maintain our high job placement rate for students, which could harm our ability to attract student enrollments.
Our student job placement rate depends on a wide range of external and internal factors. External factors include the macroeconomic conditions, the performance of the professional services sector in China and the recruiting demand of corporate employers. Internal factors include our education quality, the efforts of our career services personnel, our ability to provide adequate staffing to achieve desired results and our relationships with corporate employers. A number of such external and internal factors are outside of our control. Our historical job placement rates have been high, with our six-month post-course job placement rates for students enrolled in 2011 and 2012 have averaged over 90%. However, we cannot assure you that we will be able to maintain our current level of job placement rate for our students in the future. Any decrease in our job placement rate could harm our ability to recruit students, which may materially and adversely affect our business, financial condition and results of operations.
Our business, financial condition and results of operations may be adversely affected by a downturn in the global or Chinese economy.
Because our student enrollment may depend on our students and potential students levels of disposable income, perceived job prospects and willingness to spend, as well as the level of hiring demand of professional services positions our business and prospects may be affected by economic conditions in China or globally. The global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went into recession. The recovery from the lows of 2008 and 2009 was uneven and is continuously facing new challenges, including the escalation of the European sovereign debt crisis since 2011 and the slowdown of the Chinese economy in 2012. Economic conditions in China, including the performance of the IT and other professional services industries, are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. A decline in the economic prospects of IT and other professionals could alter current or prospective students spending priorities and the recruiting demand from professional service industries. We cannot assure you that professional education spending in general or with respect to our course offerings in particular will increase, or not decrease, from current levels. Therefore, a slowdown in Chinas economy or the global economy may lead to a reduction in demand for professional education services, which could materially and adversely affect our financial condition and results of operations.
If we fail to successfully execute our growth strategies, our business and prospects may be materially and adversely affected.
Our growth strategies include growing our student enrollments for existing courses, expanding our course offerings, further enhancing the quality of our education services and expanding our corporate employer network. We may not succeed in executing our growth strategies due to a number of factors, including, without limitation, the following:
| we may fail to market our courses in new markets or promote new courses in existing markets effectively; |
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| we may not be able to replicate our successful business model in other geographic markets or in new course subject areas; |
| we may fail to identify new cities with sufficient growth potential to expand our network; |
| we may not be able to recruit and retain learning center managers, teaching assistants and other key personnel; |
| our analysis for selecting suitable new locations may not be accurate and the demand for our services at such new locations may not materialize or increase as rapidly as we expect; |
| we may fail to obtain the requisite licenses and permits necessary to open learning centers at our desired locations from local authorities; |
| we may not be able to continue to update our existing courses or offer new courses to adapt to changing market demand and technological advances; and |
| we may fail to achieve the benefits we expect from our expansion. |
If we fail to execute our growth strategies successfully, we may not be able to maintain our growth rate and our business and prospects may be materially and adversely affected as a result.
We may not be able to manage our business expansion effectively, which could harm our financial condition and results of operations.
We have expanded rapidly and we plan to continue to expand our operations in different geographic areas as we address the growth in our customer base and market opportunities. We increased the number of our learning centers from 34 as of December 31, 2011 to 92 as of December 31, 2013. This expansion has resulted, and will continue to result, in substantial demands on our management, personnel and operational, technological and other resources. To manage the expected growth of our operations, we will be required to expand our existing operational, administrative and technological systems and our financial systems, procedures and controls and to expand training and management of our growing employee base. In addition, the geographic dispersion of our operations requires significant management resources. We cannot assure you that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations, or that we will be able to effectively and efficiently manage the growth of our operations or recruit and retain qualified personnel to support our expansion. Any failure to effectively and efficiently manage our expansion may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material adverse effect on our financial condition and results of operations.
The growth of our business is in part dependent on our continuing access to a broad network of corporate employers.
We have placed students with approximately 35,000 corporate employers since our inception. We derive both direct benefits, such as increased enrollment driven by employer-specific customized courses, and indirect benefits, such as higher student job placement rate and strengthening of the Tarena brand, from our access to these corporate employers. We believe our access to a large number of corporate employers in a wide range of industries is one of our core competitive strengths. If our access to these corporate employers were to become constrained or limited, or the benefits we derive from these access were to be diminished, whether by our own actions or actions of our competitors, our growth prospects and our business would be harmed.
Our success depends on the continuing efforts of our senior management team and other key personnel and our business may be adversely affected if we lose their services.
Our future success depends heavily upon the continuing services of our senior management team. If any member of our senior management team leaves us and we fail to effectively manage a transition to new
18
personnel, or if we fail to attract and retain experienced and passionate instructors, regional managers and other key personnel on acceptable terms, our business, financial conditions and results of operations could be adversely affected. We will need to continue to hire additional personnel, especially qualified instructors and regional managers, as our business grows. A shortage in the supply of personnel with requisite skills or our failure to attract and retain high quality executives or key personnel could impede our ability to increase revenues from our existing courses, to launch new course offerings and to expand our operations and would have an adverse effect on our business and financial results.
Mr. Shaoyun Han, our founder, chairman and chief executive officer, has played an important role in the growth and development of our business since its inception. To date, we have relied heavily on Mr. Hans expertise in, and familiarity with, our business operations, his leadership, and his reputation in the professional education services industry. If Mr. Han is unable or unwilling to continue in his present positions, we may not be able to easily replace him and may incur additional expenses to identify and train his successor. We do not maintain key man insurance on Mr. Han.
The operations of certain of our learning centers are, or may be deemed by relevant PRC government authorities to be, beyond their authorized business scope or without proper license or registration. If the relevant PRC government authorities take actions against such learning centers, our business and operations could be materially and adversely affected.
The principal regulations governing private education in China consist of the Education Law of the PRC , the Law for Promoting Private Education and the Implementation Rules for the Law for Promoting Private Education . Under these PRC laws and regulations and related administrative requirements, to provide professional education services, a company may, in the capacity of a school sponsor, establish a private school which obtains a school permit from the human resources and social security authorities under the Law for Promoting Private Education , and such school can then establish and operate learning centers within the approved districts to provide professional education services, provided that learning centers located outside the registered address of the private schools shall be registered with original approving authorities. Alternatively, a company may obtain approval from the competent industry and commerce administration authorities to include the relevant professional education services in the authorized scope of business as specified in its business licenses. A company with professional education services or an equivalent statement included in its approved scope of business can operate learning centers by itself or through its registered branches.
However, many local government authorities have different views on the relevant rules and regulations and have adopted different practices in granting school permits to private schools or issuing business licenses to companies that provide professional education services. Although some cities, such as Beijing, Shanghai and Hangzhou, allow companies to include professional education services in their business scope, the industry and commerce administration authorities in certain other areas have adopted regional policies of not allowing professional education services or similar statement to be included in the business scope of any company. In addition, when we applied for school permits or registrations of learning centers, the local human resources and social security authorities in some cities in China have either informed us that no school permits will be issued to new private schools in their jurisdictions or that they do not permit new learning centers established by private schools to be registered. These regional policies and practices have created significant obstacles for us to comply with all applicable rules and regulations for all of our local operations.
We use both ways discussed above to establish learning centers. As of December 31, 2013, we operated a total of 92 learning centers, of which 29 were operated by schools and 63 were operated by our subsidiaries. Among the learning centers currently operated by our subsidiaries, 24 have neither professional education services nor education information related consultation as an authorized scope of business in the licenses of our subsidiaries or their registered branches operating these learning centers as of the date of this prospectus, and these learning centers in the aggregate accounted for 21.3% of our student enrollments in 2013. We were not able to include professional education services in these companies authorized business scope mainly because the
19
industry and commerce administration authorities in these areas have a general local policy prohibiting the inclusion of professional education services in the business scope of any company. In addition, seven learning centers operated by our subsidiaries only have education information related consultation rather than professional education services in their respective authorized scopes of business, and these learning centers in the aggregate accounted for 6.4% of our student enrollments in 2013. The difference between educational services and education information related consultation is not very clear under applicable PRC laws and regulations, and it is possible that the relevant PRC government authorities may determine that operating learning centers in the way as currently conducted by our relevant subsidiaries is beyond the scope of education information related consultation. For these learning centers, we have been communicating, and will continue to communicate, with the competent industry and commerce administration authorities to expand the authorized business scope of the relevant subsidiaries to include professional education services or similar statement. For regions where it becomes apparent that we will not be able to expand the authorized business scope of the relevant subsidiaries, we will also explore the possibility of obtaining approval from the competent authorities to set up private schools to take over the operations of the relevant subsidiaries. If the relevant PRC government authorities discover or determine that our subsidiaries operate beyond their authorized business scope, they may order the relevant subsidiaries to complete the registration for change of business scope within a given period, failing which each company is subject to a one-time fine of RMB10,000 (US$1,652) to RMB100,000 (US$16,519), or may be ordered to cease its operation. We have been fined once for RMB50,000 (US$8,259) for conducting business outside the authorized business scope since 2011.
For our learning centers operated by schools, we are also required to obtain and maintain various licenses and permits and make filings for each learning center with the competent human resources and social security authorities and civil affairs authorities. As of the date of this prospectus, three of our learning centers are operated by schools outside their approved districts without obtaining relevant licenses and permits, and 14 of our learning centers are operated by schools outside their registered address without being registered with the original approving authorities, which may subject us to fines of RMB10,000 (US$1,652) to RMB50,000 (US$8,259), confiscation of the gains derived from the noncompliant operations or the suspension of the noncompliant learning centers. These 17 learning centers in the aggregate accounted for 11.4% of our total student enrollments in 2013. We were unable to obtain the requisite permits or make the required filings in some districts because the local authorities discontinued granting permits or accepting filings for administrative reasons for a period of time. Although we have not been subject to any material fines or other penalties in relation to any non-compliance of licensing requirements in the past with respect to our learning centers operated by schools, if we fail to cure any non-compliance in a timely manner, we may be subject to fines, confiscation of the gains derived from our noncompliant operations or the suspension of our noncompliant learning centers, which may materially and adversely affect our business and results of operation.
We may lose market share and our profitability may be materially and adversely affected, if we fail to compete effectively with our present and future competitors or to adjust effectively to changing market conditions and trends.
The professional education services market in China is fragmented, rapidly evolving and highly competitive. We face competition in our offered courses and in many of the geographic markets in which we operate. As the IT professional education market in China matures, there is increased demand for highly specialized IT labor, and we may face competition from IT professional education providers that offer specialized training programs targeting certain niche job markets in the IT industry. In the future, we may also face competition from new entrants into the Chinese IT professional education market. As we expand beyond IT education into other fields of professional education, we also face competition for student enrollment from existing large online and offline providers of professional education services, as well as smaller regional professional education services providers in China.
Some of our competitors may be able to devote more resources than we can to the development, promotion and provision of their education services and respond more quickly than we can to changes in student needs,
20
market trends or new technologies. In addition, some of our competitors may be able to respond faster to changes in student preferences in some of our geographic markets and engage in price-cutting strategies. We cannot assure you that we will be able to compete successfully against current or future competitors. If we are unable to maintain our competitive position or otherwise respond to competitive pressure effectively, we may be forced to reduce our tuition fees and lose our market share, which will adversely impact our profitability.
Our business and financial results may be materially and adversely affected if we are unable to maintain our cooperative relationships with financing service providers for student loans.
A significant portion of our students rely on loans provided or arranged by Bank of Beijing Consumer Finance Company, or BOB CFC, and CreditEase Business Consulting (Beijing) Co., Ltd., or CreditEase to pay our tuition fees. Historically, a significant portion of our students also relied on loans arranged by Chuanbang Business Consulting (Beijing) Co., Ltd. or Chuanbang, to pay our tuition fees. Chuanbang is owned by Mr. Shaoyun Han, our chief executive officer. We have entered into a cooperative agreement with BOB CFC pursuant to which BOB CFC provides loans to our students for the payment of our tuition fees. We have also entered into agreements with CreditEase and Chuanbang, whereby they assisted our students in obtaining loans to pay for our tuition fees. In 2013, 56.9% of our students took out loans provided or arranged by these three financing service providers to pay for our tuition fees. Chuanbang ceased offering financing services to our students enrolled since January 1, 2014.
Our cooperative agreement with BOB CFC, our most important source of student loans, will expire on August 1, 2014, and we may not be able to renew the agreement on commercially reasonable terms or at all. Moreover, BOB CFC and CreditEase have full discretion in deciding whether or not to extend or arrange for loans to a particular student. Furthermore, macroeconomic conditions in China may force the financing service providers to decrease or eliminate the amount of credit available for our students, making it difficult for our prospective students to afford our education. In addition, if the default rates on the loans provided or arranged by these two financing service providers were to increase, they may raise the interest rates on the student loans, making such financing options less attractive to our students. Although person-to-person lending is generally protected as private loans between individuals under PRC law and has flourished in recent years in China, there are uncertainties as to the licensing requirements and the nature of business provided by those intermediaries, such as CreditEase, in facilitating the person-to-person lending. If one or more new PRC laws and/or regulations are passed in the future prohibiting person-to-person lending facilitated by, or imposing significant licensing requirements on, intermediaries such as CreditEase, we cannot assure you that CreditEase will be able to obtain relevant licenses and continue facilitating person-to-person lending in the future. If CreditEase ceases to facilitate person-to-person lending to our students in the future, if our cooperative relationships with the financing service providers are damaged or lost, or if the financing service providers significantly increase their interest rates, our business and financial results would be adversely affected.
If we fail to protect our intellectual property rights, we may lose our competitive advantage and our brand and operations may suffer.
We consider our copyrights, trademarks, trade names and domain names invaluable to our ability to continue to develop and enhance our brand
recognition. Unauthorized use of our copyrights, trademarks, trade names and domain names may damage our reputation and brand. Our major brand names and logos are registered trademarks in China. Our proprietary curricula and course materials,
together with our TTS, are protected by copyrights. However, preventing copyright, trademark and trade name infringement or misuse could be difficult, costly and
time-consuming,
particularly in China. The
measures we take to protect our copyrights, trademarks and other intellectual property rights are currently based upon a combination of trademark and copyright laws in China and may not be adequate to prevent unauthorized uses. Furthermore,
application of laws governing intellectual property rights in China is uncertain and evolving, and could involve substantial uncertainties to us. There had been several incidents in the past where third parties used our Tarena (
) brand without our authorization, and we had to resort to litigation to protect our intellectual property rights. These proceedings were
21
all resolved in our favor and our brand and business were not materially harmed. However, if we are unable to adequately protect our trademarks, copyrights and other intellectual property rights in the future, we may lose our competitive advantage, our brand name may be harmed and our business may suffer materially. Furthermore, our managements attention may be diverted by violations of our intellectual property rights, and we may be required to enter into costly litigation to protect our proprietary rights against any infringement or violation.
We may be subject to intellectual property rights claims or other claims which could result in substantial costs and diversion of our financial and management resources away from our business.
We cannot assure you that our course materials, other educational contents or other intellectual properties developed or used by us do not or will not infringe upon patents, valid copyrights or other intellectual property rights held by third parties. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others. In addition, some of our employees were previously employed at other companies, including our current and potential competitors. To the extent these employees are involved in content development at our company similar to content development in which they have been involved at their former employers, we may become subject to claims that such employees or we may have used or disclosed trade secrets or other proprietary information of the former employers of our employees. In addition, our competitors may file lawsuits against us. Although we are not aware of any pending or threatened claims, if any such claim arises in the future, litigation or other dispute resolution proceedings may be necessary to retain our ability to offer our current and future course materials or other content, which could result in substantial costs and diversion of our financial and management resources. Furthermore, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property rights, incur additional costs to license or develop alternative intellectual property rights and be forced to pay fines and damages, any of which may materially and adversely affect our business.
We recruit a significant portion of our students directly from our network of cooperative universities and colleges. If we lose these relationships, or the benefits we derive from these relationships diminish, our growth and our business may be harmed.
We have established various kinds of cooperative relationships with over 500 universities and colleges in China. We enroll a significant percentage of our students directly from these universities and colleges through jointly offered majors, on-campus learning sites and university recruiting promotional events. We recruited approximately 22.9% of our students in 2013 from these universities and colleges. If our relationships with any of these universities and colleges were to be damaged or lost, or the benefits we derive from these relationships were to be diminished, whether by our own actions, actions of one or more governmental entities or actions of our competitors, our growth and our business may be harmed.
Failure to control rental costs, obtain leases at desired locations at reasonable prices or protect our leasehold interests could materially and adversely affect our business.
All of our offices and learning centers are located on leased premises. At the end of each lease term we must negotiate an extension of the lease. If we are not able to negotiate an extension on terms acceptable to us, we will be forced to move to a different location, or the rent may increase significantly. This could disrupt our operations and adversely affect our profitability. All of our leases are subject to renewal at market prices, which could result in a substantial rent increase each renewal period. We compete with many other businesses for sites in certain highly desirable locations. As a result, we may not be able to obtain new leases at desirable locations or renew our existing leases on acceptable terms or at all, which could adversely affect our business. In addition, we have not been able to receive from our lessors copies of title certificates or proof of authorization to lease the properties to us for leased properties of approximately 35,300 square meters, which consisted of approximately 33% of our total leased property as of December 31, 2013. We cannot assure you that title to these properties we currently lease will not be challenged. Furthermore, several of our leased properties are owned by universities or the military or built on allocated land in China. Such properties may not be legally leased to us under PRC law.
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Our leasehold interest in these properties may be challenged by relevant PRC governmental authorities to be invalid, and we may be forced to move out of such premises. In addition, we have not registered most of our lease agreements with relevant PRC governmental authorities as required by PRC law, and although failure to do so does not in itself invalidate the leases, we may not be able to defend these leases against bona fide third parties. As of the date of this prospectus, we are not aware of any actions, claims or investigations being contemplated by governmental authorities against us or our lessors with respect to the defects in our leased real properties or any challenges by third parties to our use of these properties. However, if any of our leases are terminated as a result of challenges by third parties or governmental authorities for lack of title certificates or proof of authorization to lease, we may not be able to protect our leasehold interest and may be forced to relocate the affected learning centers and incur additional expenses relating to such relocation. If we fail to find suitable replacement sites in a timely manner or on terms acceptable to us, our business and results of operations could be materially and adversely affected.
Capacity constraints of our learning centers could cause us to lose students to our competitors.
Our learning centers are limited in size and number of classrooms. We may not be able to admit all students who would like to enroll in our courses due to the capacity constraints of our learning centers. If we fail to expand our physical capacity as quickly as the demand for our classroom-based services grows, we could lose potential students to our competitors, which could adversely affect our results of operations and business prospects.
Geographic concentration of our learning centers may unfavorably impact our operations.
We derive a substantial portion of our net revenues from our learning centers in Beijing. Revenue derived from the learning centers in Beijing accounted for 28.8%, 30.6% and 36.1% of our net revenues in 2011, 2012 and 2013, respectively. As a result of this geographic concentration, our results of operations are significantly affected by economic conditions in Beijing. Furthermore, any natural disaster or health epidemics affecting the Beijing region could significantly impact our operations. We expect that we will continue to derive a substantial portion of our net revenues from Beijing in the near future. Deterioration in economic conditions and the professional services industries in this market could decrease the demand for our courses, which in turn could negatively impact our operations and business prospects.
Our historical financial and operating results, growth rates and profitability may not be indicative of future performance.
Although we commenced operations in 2002, our significant business growth and expansion began in 2009. Our business and our prospects must be evaluated in light of the risks and uncertainties encountered by companies at a comparable stage of development. In addition, the professional education services market in China is still at an early stage of development, which makes it difficult to evaluate our business and future prospects. Furthermore, our results of operations may vary from period to period in response to a variety of other factors, including general economic conditions and regulations, government actions pertaining to the professional education services sector in China, changes in spending on professional education services, our ability to control cost of revenues and operating expenses, and non-recurring charges incurred in connection with acquisitions or other extraordinary transactions or under unexpected circumstances. Due to the above factors, some of which are beyond our control, our historical financial and operating results, growth rates and profitability may not be indicative of our future performance and you should not rely on our past results or our historic growth rates as indicators of our future performance.
Our ability to broadcast our lectures live and to offer online learning modules on TTS depends upon the performance and reliability of our systems and the Internet infrastructure and telecommunications networks in China.
We deliver live broadcasts of our lectures via a dedicated network provided by China Telecom or China Unicom to terminals located in selected learning centers with high student enrollment and via public Internet
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infrastructure to other learning centers. Any unscheduled service interruption of the Internet infrastructure and telecommunications networks in China could cause us to be unable to deliver these live broadcasts, forcing us to resort to using pre-recorded lectures in the event of such service interruptions. Our inability to broadcast live lectures during service interruptions may damage the quality of our education and student experience, which may hurt our reputation and negatively impact our financial condition and results of operations. Furthermore, our gross profit and net income could be adversely affected if the prices that we pay for telecommunications and Internet services rise significantly.
Our ability to offer online learning modules also depends on the performance and reliability of the Internet infrastructure in China. Disruptions to the Internet infrastructure of China may deny our students access to the learning functionalities on our TTS, which may hinder students from effectively learning our education contents. Furthermore, increases in the traffic on TTS could also strain the capacity of our existing computer systems, which could lead to slower response times or system failures. This would cause a disruption or suspension in our course offerings, which would hurt our brand and reputation and negatively affect our revenue growth. We may need to incur additional costs to improve our systems in order to accommodate increased demand if we anticipate that our systems cannot handle higher traffic volume in the future.
Our transition to a new CRM system may materially and adversely affect our operations
We are in the process of switching our customer relationship management, or CRM, system. The new CRM system is developed in-house and is intended to improve functionality and information flow. As with any major new software system, there are inherent risks in the design, construction, implementation and operation of our new CRM system. These risks include the potential failures to properly design the system, to efficiently construct and implement the system and to effectively operate the system. While we believe that our new CRM system will provide the anticipated IT and customer service enhancements we expect, no assurances can be given in this regard. The failure to properly and efficiently complete and operate the new CRM system could disrupt our operations and adversely affect our financial results.
Accidents or injuries suffered by our students or other people on our premises may adversely affect our reputation, subject us to liability and cause us to incur substantial costs.
We do not carry any liability insurance for our students at our learning centers. In the event of accidents, injuries or other harm to students or other people on our premises, including those caused by or otherwise arising from the actions of our employees on our premises, our facilities may be perceived to be unsafe, which may discourage prospective students from attending our classes. We could also face claims alleging that we were negligent or provided inadequate supervision to our employees and therefore should be held jointly liable for harm caused by them or are otherwise liable for injuries suffered by our students or other people on our premises. A liability claim, even of unsuccessful, against us or any of our employees could adversely affect our reputation, enrollment and revenues, causing us to incur substantial expenses and divert the time and attention of our management.
If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and adversely affected.
Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in connection with the audit of our consolidated financial statements as of and for the three years ended December 31, 2013, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting as of December 31, 2013, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB. The material weakness identified related to the
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lack of sufficient personnel with adequate knowledge and experience in accounting for income taxes under U.S. GAAP. Following the identification of the material weakness, we have taken measures and plan to continue to take measures to remedy the material weakness. For details of these remedies, see Managements Discussion and Analysis of Financial Condition and Results of OperationsInternal Control over Financial Reporting. However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct the material weakness or our failure to discover and address any other material weakness or deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.
Furthermore, it is possible that, had our independent registered public accounting firm conducted an audit of our internal control over financial reporting, such firm might have identified additional material weaknesses and deficiencies. Upon the completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the year ending December 31, 2015. In addition, once we cease to be an emerging growth company as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
Our historical outstanding accounts receivable have been relatively high. Inability to collect our accounts receivable on a timely basis, if at all, could materially and adversely affect our financial condition, liquidity and results of operations.
Understanding the difficulty for recent college graduates to afford the high tuition fees of our courses, we offered students the installment payment option beginning in 2006, which led to our high historical outstanding accounts receivable. We have gradually reduced the installment payment option starting from 2013. As of December 31, 2012 and 2013, our outstanding accounts receivable, net of allowance for doubtful accounts, were
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US$17.0 million and US$15.4 million, respectively. Although we conduct financial evaluations of our students, we do not require collateral or other security from our students. Adverse changes in the macroeconomic environmental and the earnings capacity of our students could negatively impact our ability to collect our accounts receivable. Our inability to collect our accounts receivable on a timely basis, if at all, could materially and adversely affect our financial condition, liquidity and results of operations.
We have limited insurance coverage for our operations in China.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies do in more developed economies. We have determined that the risks of disruption or liability from our business, the loss or damage to our fixed assets, including our equipment and office furniture, the cost of insuring for these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms render it commercially impractical for us to have such insurance. As a result, we do not have any liability, business interruption, litigation or property insurance coverage for our operations in China. Any uninsured occurrence of personal injury, loss or damage to fixed assets, or litigation or business disruption may result in the incurrence of substantial costs and the diversion of resources, which could have an adverse effect on our operating results.
Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter to quarter. This may result in volatility in and adversely affect the price of our ADSs.
We have experienced, and expect to continue to experience, seasonal fluctuations in our net revenues and results of operations, primarily due to seasonal changes in student enrollment. Historically, our courses tend to have the largest student enrollment, cash collection and net revenues in the third and fourth quarters. We generally generate less tuition fees in the first quarter of each year due to the Chinese New Year holiday. For example, we expect our net revenues in the quarter ended March 31, 2014 to be lower than in the quarter ended December 31, 2013 primarily due to the Chinese New Year holiday consistent with prior years. Our expenses, however, vary significantly and do not necessarily correspond to changes in our student enrollment and net revenues. We make investments in marketing and promotion, instructor recruitment and training and course development throughout the year. We expect quarterly fluctuations in our net revenues and results of operations to continue. These fluctuations could result in volatility and adversely affect the price of our ADSs. As our net revenues grow, these seasonal fluctuations may become more pronounced.
Higher labor costs and inflation in China may adversely affect our business and our profitability.
Labor costs in China have risen in recent years as a result of social development and increasing inflation in China. According to the National Bureau of Statistics of China, the consumer price index in China increased by 5.4%, 2.6% and 2.6% in 2011, 2012 and 2013, respectively. We currently employ over 3,000 employees in China. The increases in labor cost may erode our profitability and materially harm our business, financial condition and results of operations. In addition, PRC government have promulgated some new laws and regulations to enhance labor protection in recent years, such as the Labor Contract Law and the Social Insurance Law, which are also expected to cause our labor costs to increase. As the interpretation and implementation of these new laws and regulations are still evolving, our employment practice may not be at all times be deemed in compliance with the new laws and regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigation, our business and profitability may be adversely affected.
We have granted share options and may grant share options and other share-based awards in the future, which may materially reduce our net income.
We adopted a share plan in 2008, or the 2008 Plan, that permits granting of options to purchase our ordinary shares, restricted shares (or share appreciation rights or other similar awards) and rights to purchase restricted shares. Under the 2008 Plan, the maximum aggregate number of ordinary shares that may be issued pursuant to
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all awards under our share plan is 8,184,990 shares. In February 2014, we adopted a 2014 share incentive plan, or the 2014 Plan. Pursuant to the 2014 Plan, we may issue options, restricted shares and restricted share units to our qualified employees, directors and consultants on a regular basis. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2014 Plan, or the Award Pool, is 1,833,696, provided that the shares reserved in the Award Pool shall be increased on the first day of each calendar year, commencing with January 1, 2015, if the unissued shares reserved in the Award Pool on such day account for less than 2% of the total number of shares issued and outstanding on a fully-diluted basis on December 31 of the immediately preceding calendar year, as a result of which increase the shares unissued and reserved in the Award Pool immediately after each such increase shall equal 2% of the total number of shares issued and outstanding on a fully-diluted basis on December 31 of the immediately preceding calendar year. As a result of grants and potential future grants under the 2008 Plan and the 2014 Plan, we have incurred and will continue to incur share-based compensation expenses. As of December 31, 2013, the unrecognized compensation cost related to unvested options that are not contingent upon our IPO amounted to US$4.0 million, which will be recognized over a weighted average period of approximately 3.71 years. Expenses associated with share-based compensation awards granted under our share plan may materially reduce our future net income. However, if we limit the size of grants under our share plan to minimize share-based compensation expenses, we may not be able to attract or retain key personnel.
Any natural catastrophes, severe weather conditions, health epidemics and other extraordinary events could severely disrupt our business operations.
The occurrence of natural catastrophes such as earthquakes, floods, typhoons, tsunamis or any acts of terrorism may result in significant property damages as well as loss of revenues due to interruptions in our business operations. Health epidemics such as outbreaks of avian influenza, severe acute respiratory syndrome (SARS) or the influenza A (H1N1), and severe weather conditions such as snow storm and hazardous air pollution, as well as the government measures adopted in response to these events, could require the temporary closure of our learning centers.
Furthermore, our ability to broadcast live lectures and provide our education services through TTS depends on the continuing operation of our technology system, which is vulnerable to damage or interruption from natural catastrophes and other extraordinary events. Our disaster recovery planning cannot account for every conceivable possibility. Any damage to or failure of our technology system could result in interruptions in our services, and our brand could be damaged if students believe our systems are unreliable. Such disruptions could severely interfere with our business operations and adversely affect our results of operations.
Risks Related to Our Corporate Structure
If the PRC government finds that the agreements that establish the structure for holding our ICP license do not comply with applicable PRC laws and regulations, we could be subject to severe penalties.
Prior to 2012, we conducted a substantial portion of our operations through our consolidated VIEs and their subsidiaries and schools. On January 30, 2012, the new PRC Catalogue for the Guidance of Foreign Investment Industries (amended) became effective, which listed professional education service as an industry for which foreign investments are encouraged by the government. In light of such change of law, starting from the second half of 2012, we began to transfer the operations, including related assets and liabilities, of our consolidated VIEs to Tarena Tech and its subsidiaries and schools. As of December 31, 2013, all of our learning center operations of VIEs have been transferred to Tarena Tech and its subsidiaries and schools. We are in the process of winding down Shanghai Tarena. Pursuant to the Provisions on Administration of Foreign Invested Telecommunications Enterprises promulgated by the State Council on December 11, 2001 and amended on September 10, 2008, the ultimate foreign equity ownership in a value-added telecommunications services provider may not exceed 50%. Moreover, for a foreign investor to acquire any equity interest in a value-added telecommunication business in China, it must satisfy a number of stringent performance and operational experience requirements, including
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demonstrating good track records and experience in operating value-added telecommunication business overseas. Foreign investors that meet these requirements must obtain approvals from the MIIT and the Ministry of Commerce or their authorized local counterparts, which retain considerable discretion in granting approvals. Pursuant to publicly available information, the PRC government has issued telecommunications business operating licenses to only a limited number of foreign invested companies, all of which are Sino-foreign joint ventures engaging in the value-added telecommunication business. Due to the foreign ownership restriction on Internet content and other value-added telecommunication services, we operate our www.it211.com.cn website through our VIE, Beijing Tarena. Beijing Tarena holds our ICP License for www.it211.com.cn . Beijing Tarena is 70% owned by Mr. Shaoyun Han, our founder, chairman and chief executive officer, and 30% owned by Mr. Jianguang Li, our director. Mr. Han and Mr. Li are both PRC citizens. We entered into a series of contractual arrangements with Beijing Tarena and its shareholders, which enable us to:
| exercise effective financial control over Beijing Tarena; |
| receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses of Beijing Tarena; and |
| have an exclusive option to purchase all or part of the equity interests in Beijing Tarena when and to the extent permitted by PRC law. |
Because of these contractual arrangements, we are the primary beneficiary of Beijing Tarena and consolidate its financial results in our consolidated financial statements in accordance with U.S. GAAP. For a detailed discussion of these contractual arrangements, see Corporate History and Structure.
Han Kun Law Offices, our PRC legal counsel, is of the opinion that (i) the ownership structure of Beijing Tarena and Tarena Tech, both currently and immediately after giving effect to this offering, will not result in any violation of PRC laws or regulations currently in effect; and (ii) the contractual arrangements among Tarena Tech, Beijing Tarena and its shareholders governed by PRC law both currently and immediately after giving effect to this offering are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations concerning foreign investment in the PRC, and their application to and effect on the legality, binding effect and enforceability of the contractual arrangements. In particular, we cannot rule out the possibility that PRC regulatory authorities, courts or arbitral tribunals may in the future adopt a different or contrary interpretation or take a view that is inconsistent with the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to VIEs will be adopted or if adopted, what they would provide. In or around September 2011, various media sources reported that the China Securities Regulatory Commission, or the CSRC, had prepared a report proposing regulating the use of VIE structures, such as ours, in industries subject to foreign investment restrictions in China and overseas listings by China-based companies. However, it is unclear whether the CSRC officially issued or submitted such a report to a higher level government authority or what such report provides, or whether any new PRC laws or regulations relating to the VIE structures will be adopted or if adopted, what they would provide.
If we or Beijing Tarena is found to be in violation of any existing or future PRC laws or regulations, or such arrangement is determined as illegal and invalid by the PRC court, arbitral tribunal or regulatory authorities, or fail to obtain, maintain or renew any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:
| revoking the business and operating licenses of our PRC subsidiaries and Beijing Tarena; |
| discontinuing or restricting the conduct of any transactions between our PRC subsidiaries and Beijing Tarena; |
| imposing fines, confiscating the income from Beijing Tarena, or imposing other requirements with which we or Beijing Tarena may not be able to comply; |
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| requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with Beijing Tarena and deregistering the equity pledges of Beijing Tarena; or |
| restricting or prohibiting our use of the proceeds of this offering to finance our business and operations in China. |
Our website www.it211.com.cn features sample lecture videos and class materials covering our current course subjects, as well as a few experimental subjects. We provide prospective students with complimentary prepaid cards to purchase sample content on our www.it211.com.cn website. Currently, although www.it211.com.cn does not generate any meaningful revenues for us, it is important for our marketing efforts. Therefore, the imposition of any of these penalties could result in a material and adverse effect on our ability to conduct our marketing and promotional activities through www.it211.com.cn .
If the relevant PRC authorities determine that we can no longer own and operate certain of our learning centers through our PRC subsidiaries, we may need to restructure the ownership and operation of these learning centers (including possibly transferring these learning centers to our consolidated VIEs), our business may be disrupted and we may be exposed to increased risks associated with the contractual arrangements relating to our consolidated VIEs.
Prior to 2012, we operated a substantial portion of our learning centers through our consolidated VIEs and their subsidiaries and schools. After the PRC Catalogue for the Guidance of Foreign Investment Industries (amended) became effective on January 30, 2012, foreign investment in professional education services is now encouraged in China and there is no limitation with respect to maximum percentage of foreign ownership in a company conducting business in this area.
In light of such change of law, starting from the second half of 2012, we began to transfer the operations, including related assets and liabilities, of our consolidated VIEs to our wholly-owned subsidiary, Tarena Tech, and its subsidiaries. As of December 31, 2013, all of our learning center operations of VIEs have been transferred to Tarena Tech and its subsidiaries and schools. As of December 31, 2013, we operated 29 of our learning centers through private schools owned by subsidiaries of Tarena Tech. These 29 learning centers in the aggregate accounted for 30.4% of our total student enrollments in 2013.
However, there are still uncertainties under current PRC laws as to whether a wholly foreign owned enterprise (such as Tarena Tech) is allowed to indirectly invest in and own private schools through its PRC subsidiaries. On the one hand, the PRC Catalogue for the Guidance of Foreign Investment Industries (Amended) encourages and permit 100% foreign ownership of professional training business in China and the Law for Promoting Private Education does not expressly prohibit a subsidiary of a foreign-invested enterprise from investing in private schools. On the other hand, according to the Law for Promoting Private Education , Chinese-foreign cooperation in operating schools is specifically governed by the Regulations on Operating Chinese-foreign Schools and its implementing rules, which requires specific approvals from those governmental authorities in charge of either human resources and social security or education and requires any foreign party to such Chinese-foreign cooperation in operating schools to be an educational institution with relevant experience in providing educational services outside of China. In addition, the Regulations on Operating Chinese-foreign Schools prohibits foreign institutions or individuals from independently establishing schools which provide educational services mainly for Chinese citizens in China. In practice, different local authorities have different views and administrative policies on whether foreign institutions or individuals are permitted to use their direct or indirect wholly-owned subsidiary incorporated in China to establish a school under the Law for Promoting Private Education without violating the Regulations on Operating Chinese-foreign Schools . 11 private schools sponsored by our wholly-owned subsidiaries in China have obtained private school operating permits , and based on the results of oral inquiries with the relevant governmental authorities of human resources and social security or education, we believe that the relevant government authorities have not challenged and are unlikely to challenge the ownership structure of our schools. However, if the relevant PRC government authorities determine
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in the future that we can no longer own and operate our schools and their related learning centers through our PRC subsidiaries, which are considered ineligible to act as sponsors of private schools, we may need to transfer these schools and the related learning centers to our consolidated VIEs, which may severely disrupt our business and expose us to increased risks associated with the contractual arrangements relating to our consolidated VIEs. See Risks Relating to Our Corporate Structure. If we fail to restructure the ownership and operation of these schools or otherwise accommodate requests from the relevant PRC human resources and social security or education regulatory authorities in a timely manner or to their satisfaction, we may be subject to fines, the suspension or ceasing of our operations or other penalties, which may materially and adversely affect our business and results of operations.
Any failure by Beijing Tarena or its shareholders to perform their obligations under our contractual arrangements with them would have an adverse effect on our business.
If Beijing Tarena or its shareholders fail to perform their obligations under their contractual arrangements with us, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if the shareholders of Beijing Tarena were to refuse to transfer their equity interest in Beijing Tarena to us or our designee if we exercise the exclusive option agreements pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.
All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. Under PRC law, if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective financial control over Beijing Tarena, and our ability to conduct our business may be negatively affected.
If we had direct ownership of Beijing Tarena, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Beijing Tarena, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, we rely on the performance by Beijing Tarena and its shareholders of their obligations under the contracts to exercise control over Beijing Tarena. Therefore, our contractual arrangements with Beijing Tarena may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.
The shareholders of Beijing Tarena may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
We have designated individuals who are PRC nationals to be the shareholders of Beijing Tarena. The equity interests of Beijing Tarena are held by Mr. Shaoyun Han and Mr. Jianguang Li. The interests of these individuals as the shareholders of Beijing Tarena may differ from the interests of our company as a whole. These shareholders may breach, or cause Beijing Tarena to breach, or refuse to renew, the existing contractual arrangements we have with them and Beijing Tarena, which would have a material and adverse effect on our ability to effectively control Beijing Tarena. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase option under the purchase option agreement with these shareholders to request him to transfer all of his equity ownership in Beijing Tarena to a PRC entity or individual designated by us. We rely on Mr. Shaoyun Han and Mr. Jianguang Li, who are both our
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directors and who owe a fiduciary duty to our company, to comply with the terms and conditions of the contractual arrangements. Such fiduciary duty requires directors to act in good faith and in the best interests of the company and not to use their positions for personal gains. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Beijing Tarena, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Our contractual arrangements with our consolidated VIEs may be subject to scrutiny by the PRC tax authorities, and a finding that we owe additional taxes could substantially reduce our consolidated net income and the value of your investment.
Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among Tarena Tech and our consolidated VIEs did not represent an arms-length price and adjust our consolidated VIEs income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by our consolidated VIEs, which could in turn increase their tax liabilities without reducing our tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties to our consolidated VIEs for under-paid taxes. Our consolidated net income may be materially and adversely affected if our tax liabilities increase or if we are found to be subject to late payment fees or other penalties.
If Beijing Tarena becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy its assets, which could materially and adversely affect our business.
Due to foreign ownership restrictions in the online value-added telecommunications business, we hold our ICP license through contractual arrangements with Beijing Tarena as well as its shareholders. As part of these arrangements, Beijing Tarena holds assets that are important to the operation of our business, including the ICP license and the domain name for our www.it211.com.cn website.
We do not have priority pledges and liens against Beijing Tarenas assets. As a contractual and property right matter, this lack of priority pledges and liens has remote risks. If Beijing Tarena undergoes an involuntary liquidation proceeding, third-party creditors may claim rights to some or all of its assets and we may not have priority against such third-party creditors on Beijing Tarenas assets. If Beijing Tarena liquidates, we may take part in the liquidation procedures as a general creditor under the PRC Enterprise Bankruptcy Law and recover any outstanding liabilities owed by Beijing Tarena to Tarena Tech under the applicable service agreements. To ameliorate the risks of an involuntary liquidation proceeding initiated by a third-party creditor, we closely monitor the operations and finances of Beijing Tarena through carefully designed budgetary and internal controls to ensure that Beijing Tarena is well capitalized and is highly unlikely to trigger any third party monetary claims in excess of its assets and cash resources. Furthermore, Tarena Tech has the ability, if necessary, to provide financial support to Beijing Tarena to prevent such an involuntary liquidation.
If the shareholders of Beijing Tarena were to attempt to voluntarily dissolve or liquidate Beijing Tarena without obtaining our prior consent, we could effectively prevent such unauthorized voluntary liquidation by exercising our right to request Beijing Tarenas shareholders to transfer all of their equity ownership interest to a PRC entity or individual designated by us in accordance with the exclusive option agreements with the shareholders of Beijing Tarena. In the event that the shareholders of Beijing Tarena initiates a voluntary liquidation proceeding without our authorization or attempts to distribute the retained earnings or assets of Beijing Tarena without our prior consent, we may need to resort to legal proceedings to enforce the terms of the contractual agreements. Any such legal proceeding may be costly and may divert our managements time and attention away from the operation of our business, and the outcome of such legal proceeding would be uncertain. The uncertainties in legal proceedings to enforce the terms of the contractual agreements are mainly caused by
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PRC laws that prohibit domestic companies holding ICP licenses from assisting foreign investors in conducting value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds an ICP license is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China.
If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these assets, our business and operations could be materially and adversely affected.
In China, legal documents for corporate transactions, including agreements and contracts such as the leases and sales contracts that our business relies on, are typically executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant local branch of the SAIC. We generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents.
We have three major types of chopscorporate chops, contract chops and finance chops. We use corporate chops generally for documents to be submitted to government agencies, such as applications for changing business scope, directors or company name, and for legal letters. We use contract chops for executing leases and commercial contracts. We use finance chops generally for making and collecting payments, including but not limited to issuing invoices. Use of corporate chops and contract chops must be approved by our legal department and administrative department, and use of finance chops must be approved by our finance department. The chops of our subsidiaries and our consolidated VIEs are generally held by the relevant entities so that documents can be executed locally. Although we usually utilize chops to execute contracts, the registered legal representatives of our PRC subsidiaries and our consolidated VIEs have the apparent authority to enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise. All designated legal representatives of our PRC subsidiaries and our consolidated VIEs have signed employment agreements with us under which they agree to abide by duties they owe to us.
In order to maintain the physical security of our chops, we generally store them in secured locations accessible only to the department heads of the legal, administrative or finance departments. Our designated legal representatives generally do not have access to the chops. Although we monitor our employees, including the designated legal representatives of our PRC subsidiaries and our consolidated VIEs, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our employees or designated legal representatives could abuse their authority, for example, by binding the relevant subsidiary or consolidated VIEs with contracts against our interests, as we would be obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate a new legal representative and to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legal representatives misconduct. If any of the designated legal representatives obtains and misuses or misappropriates our chops and seals or other controlling intangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from our operations.
Risks Related to Doing Business in China
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late 1970s, the PRC government began to promulgate a
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comprehensive system of laws and regulations governing economic matters. The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in China. Our PRC subsidiaries are subject to various PRC laws and regulations generally applicable to companies in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) some of which may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.
Changes in Chinas economic, political or social conditions or government policies could have a material adverse effect on our business and operations.
All of our business operations are conducted in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
Chinas economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While Chinas economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and may slow down in the future. Some of the government measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher inflation, which could adversely affect our results of operations and financial condition.
We may be subject to significant limitations on our ability to operate private schools, or otherwise be materially and adversely affected by changes in PRC laws governing private education providers.
Under the Law for Promoting Private Education and the Implementation Rules for The Law for Promoting Private Education , a private school may elect to be a school that does not require reasonable returns or a school that requires reasonable returns. At the end of each fiscal year, every private school is required to allocate a certain amount to its development fund for the construction or maintenance of the school or procurement or upgrade of educational equipment. In the case of a private school that requires reasonable returns, this amount shall be no less than 25% of annual net income of the school, while in the case of a private school that does not
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require reasonable returns, this amount shall be equivalent to no less than 25% of the annual increase in the net assets of the school, if any. A private school that requires reasonable returns must publicly disclose such election and additional information required under the regulations. A private school shall consider factors such as the schools tuition, ratio of the funds used for education-related activities to the course fees collected, admission standards and educational quality when determining the percentage of the schools net income that would be distributed to the investors as reasonable returns. However, none of the current PRC laws and regulations provides a formula or guidelines for determining reasonable returns. In addition, none of the current PRC laws and regulations sets forth clear requirements or restrictions on a private schools ability to operate its education business based on such schools status as a school that requires reasonable returns or a school that does not require reasonable returns.
As of the date of this prospectus, we had two schools registered as schools requiring reasonable returns, while all other schools are registered as schools not requiring reasonable returns. Unlike typical schools which grant diplomas to students upon graduation, we provide professional education and do not grant any diploma to our students. However, the current PRC laws and regulations governing private education may be amended or replaced by new laws and regulations that (i) impose significant limitations on the ability of our schools to operate their business, charge course fees or make payments to related parties for services, (ii) specify the formula for calculating reasonable returns, or (iii) change the tax treatment policies applicable to private schools. We cannot predict the timing and effects of any such amendments or new laws and regulations. Changes in PRC laws and regulations governing private education could materially and adversely affect our business prospects and results of operations. For example, if the PRC government imposes additional restrictions on private schools ability to operate their business or restricts private schools from making payments to related parties for services, our ability to receive service fees from our schools may be limited.
Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.
Under the PRC Enterprise Income Tax Law, or the EIT Law, that became effective on January 1, 2008, an enterprise established outside the PRC with de facto management bodies within the PRC is considered a PRC resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the Implementation Rules to the EIT Law, a de facto management body is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, a circular, known as Circular 82, issued in April 2009, as amended in January 2014, by the State Administration of Taxation, or the SAT, specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders meetings; and half or more of the senior management or directors having voting rights. Circular 82 also clarified that dividends and other income paid by such resident enterprises will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by shareholders that are non-PRC resident enterprises. Further to Circular 82, the SAT issued a bulletin, known as Bulletin 45, which took effect on September 1, 2011, to provide more guidance on the implementation of Circular 82 and clarify the reporting and filing obligations of such Chinese-controlled offshore-incorporated resident enterprises. Bulletin 45 provides procedures and administrative details for the determination of PRC resident enterprise status and administration on post-determination matters. Although both Circular 82 and Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals like us, the determining criteria set forth in Circular 82 and Bulletin 45 may reflect the SATs general position on how the de facto management body test should be applied in determining the tax resident enterprise
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status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
We do not believe that Tarena International, Inc. meets all of the conditions above and thus we do not believe that Tarena International, Inc. is a PRC resident enterprise, despite the fact that all of the members of our management team as well as the management team of our offshore holding company are located in China. However, if the PRC tax authorities determine that Tarena International, Inc. is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Second, although dividends paid by one PRC tax resident to another PRC tax resident should qualify as tax-exempt income under the EIT Law, we cannot assure you that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the PRC tax authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are not controlled by any PRC enterprise or enterprise group and treated as resident enterprises for PRC enterprise income tax purposes.
Finally, dividends we pay to our non-PRC enterprise shareholders and gains derived by our non-PRC shareholders from the sale of our shares may be become subject to a 10% PRC withholding tax. In addition, future guidance may extend the withholding tax to dividends we pay to our non-PRC individual shareholders and gains derived by such shareholders from transferring our shares. In addition to the uncertainty in how the new resident enterprise classification could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If PRC income tax were imposed on gains realized through the transfer of our ADSs or ordinary shares or on dividends paid to our non-resident investors, the value of the investment in our ADSs or ordinary shares may be materially and adversely affected. Furthermore, our ADS holders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under such tax treaties or arrangements.
We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of our operating companys equity interests. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
In connection with the EIT Law, the Ministry of Finance and the SAT jointly issued a Circular 59 in April 2009, and the SAT issued a Circular 698 in December 2009. Both Circular 59 and Circular 698 became effective retroactively on January 1, 2008.
According to Circular 698, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and the overseas holding company is located in a tax jurisdiction that: (1) has an effective tax rate less than 12.5% or (2) does not impose tax on foreign income of its residents, the non-resident enterprise, being the transferor, must report to the relevant tax authority of the PRC resident enterprise this Indirect Transfer. Using a substance over form principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction. In addition, the PRC resident enterprise is supposed to provide necessary assistance to support the enforcement of Circular 698.
On March 28, 2011, the SAT released Bulletin [2011] No. 24, or Bulletin 24, to clarify several issues related to Circular 698. Bulletin 24 became effective on April 1, 2011. According to SAT Bulletin 24, the term
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effective tax refers to the effective tax on the gain derived from disposition of the equity interests of an overseas holding company; and the term does not impose income tax refers to the cases where the gain derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country/region where the overseas holding company is a resident.
There is little guidance and practical experience as to the application of Circular 698. For example, while the term Indirect Transfer is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. In addition, there are no formal declarations with regard to how to determine whether a foreign investor has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. Moreover, although Circular 698 contains an exemption for transfers of publicly traded stock in a PRC resident enterprise, it remains unclear whether we will be deemed a PRC resident enterprise and whether such exemption will be applicable to the transfer of our shares or ADSs. If any of the previous investments by non-resident investors in our company were determined by the tax authorities to lack reasonable commercial purpose, it is possible that the PRC tax authorities would pursue our offshore shareholders to conduct a filing regarding our offshore restructuring transactions where non-resident investors were involved and would request our PRC subsidiaries to assist in providing such disclosures. In addition, if our offshore subsidiary is deemed to lack substance, it could be disregarded by the PRC tax authorities. As a result, we and our non-resident investors may become at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which may have a material adverse effect on our financial condition and results of operations or the non-resident investors investments in us.
By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. The PRC tax authorities have the discretion under Circular 59 and Circular 698 to make adjustments to the taxable capital gains based on the difference between the fair value of the equity interests transferred and the cost of investment. Although we currently have no confirmed plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the EIT Law and if the PRC tax authorities make adjustments under Circular 59 or Circular 698, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.
We face risks and uncertainties with respect to the licensing requirement for Internet audio-video programs .
In December 2007, the State Administration of Press Publication Radio Film and Television, or SAPPRFT, and the Ministry of Industry and Information Technology, or MIIT, issued the Administrative Measures Regarding Internet Audio-Video Program Services, or the Internet Audio-Video Program Measures, which became effective on January 31, 2008. Among other things, the Internet Audio-Video Program Measures stipulate that no entities or individuals may provide Internet audio-video program services without a License for Disseminating Audio-Video Programs through Information Network issued by SAPPRFT or its local bureaus or completing the relevant registration with SAPPRFT or its local bureaus, and only entities wholly owned or controlled by the PRC government may engage in the production, editing, integration or consolidation, and transmission to the public through the Internet, of audio-video programs, or the provision of audio-video program uploading and transmission services. In February 2008, SAPPRFT and MIIT jointly held a press conference in response to inquiries related to the Internet Audio-Video Program Measures, during which SAPPRFT and MIIT officials indicated that providers of audio-video program services established prior to the promulgation date of the Internet Audio-Video Program Measures that do not have any regulatory non-compliance records can re-register with the relevant government authorities to continue their current business operations. After the conference, the two authorities published a press release that confirmed the above guidelines. There are still significant uncertainties relating to the interpretation and implementation of the Internet Audio-Video Program Measures, in particular, the scope of Internet Audio-Video Programs.
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Furthermore, on April 1, 2010, SAPPRFT promulgated the Test Implementation of the Tentative Categories of Internet Audio-Visual Program Services, or the Categories, which clarified the scope of Internet audio-video programs services. According to the Categories, there are four categories of Internet audio-visual program services which are further divided into seventeen sub-categories. The third sub-category to the second category covers the making and editing of certain specialized audio-video programs concerning, among other things, educational content, and broadcasting such content to the general public online.
We transmit our audio-video educational programs through our TTS system only to enrolled course participants, not to the general public. The limited scope of our audience distinguishes us from general online audio-video broadcasting companies, such as companies operating user-generated content websites. In addition, we do not provide audio-video program uploading and transmission services. As a result, we believe that we are not subject to the Internet Audio-Video Program Measures. However, there is no further official or publicly available interpretation of these definitions, especially the scope of Internet audio-video program service. If the governmental authorities determine that our provision of lecture videos on TTS falls within the Internet Audio-Video Program Measures, we may not be able to obtain the License for Disseminating Audio-Video Programs through Information Network. If this occurs, we may become subject to significant penalties, fines, legal sanctions or an order to suspend our use of audio-video content, all of which could have a material adverse effect on our business, financial condition, results of operations and prospectus.
PRC regulations establish complex approval procedures for some acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. The transfers of our learning centers from our consolidated VIEs to our wholly-owned subsidiaries in China may be subject to such approval procedures, in which case we may need to restructure the ownership and operation of the affected learning centers, and as a result we may be exposed to increased risks associated with the contractual arrangements relating to our consolidated VIEs.
Six PRC regulatory agencies promulgated regulations effective in September 2006 that are commonly referred to as the M&A Rules. The M&A Rules establish procedures and requirements that could make some acquisitions of PRC companies by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce, or the MOFCOM, be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, national security review rules issued by the PRC governmental authorities in 2011 require acquisitions by foreign investors of domestic companies engaged in military-related or certain other industries that are crucial to national security to be subject to prior security review. Moreover, the Anti-Monopoly Law requires that the Ministry of Commerce shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. We may expand our business in part by acquiring complementary businesses. Complying with the requirements of the M&A Rules, security review rules and other PRC regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
In addition, in accordance with the M&A Rules, approval of the MOFCOM is required for acquisitions of PRC domestic enterprises by foreign companies that are established or controlled by PRC domestic companies, enterprises or individuals related to the target PRC domestic enterprises, or Related Party Acquisitions, and the parties are not allowed to evade such requirements through investment by foreign investment enterprises in China or other ways. Although M&A Rules have become effective since September 2006, we are not aware of any precedent of approval by the MOFCOM of any Related Party Acquisition conducted by PRC domestic individuals. Starting from the second half of 2012, we began to transfer our operations, including related assets and liabilities, of our consolidated VIEs to our wholly-owned subsidiary, Tarena Tech, and its subsidiaries, either through transferring the companies that operate learning centers or that sponsor the schools, or through changing the schools sponsors. As of December 31, 2013, all of our learning center operations of VIEs have been transferred to Tarena Tech and its subsidiaries and schools. As Mr. Shaoyun Han is a shareholder of both Tarena
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and our consolidated VIEs, even though the transfers of the companies, which currently operate 24 of our learning centers themselves or through schools they established, from our consolidated VIEs to our wholly-owned subsidiaries in China are not acquisitions by foreign investors of PRC domestic enterprises under the M&A Rules, and Tarena Tech, our wholly foreign invested enterprise in PRC, was converted into a wholly foreign invested enterprise before the effective date of M&A Rules, the requirement for an approval from the MOFCOM may still be required for such transfers because of the above anti-evasion clause. Furthermore, it is unclear whether our transfers of the schools currently operating 11 learning centers, which are not enterprises, from subsidiaries of our consolidated VIEs to our wholly-owned subsidiaries, could be regarded as Related Party Transactions under the M&A Rules. If the MOFCOM determines that our previous transfers of learning centers from our consolidated VIEs to our wholly-owned subsidiaries are Related Party Transactions under the M&A Rules and we fail to obtain the MOFCOMs approvals on such transfers, the effectiveness of such transfers may be challenged and we may be need to transfer these companies and schools, including the related learning centers, back to our consolidated VIEs. Under such circumstances, our business may be disrupted and we may be exposed to increased risks associated with the contractual arrangements relating to our consolidated VIEs. See Risks Relating to Our Corporate Structure.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries ability to increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under PRC law.
The PRC State Administration of Foreign Exchange, or the SAFE, promulgated in October 2005 a SAFE Circular 75 that requires PRC citizens or residents to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore entity acquires or controls onshore assets or equity interests held by the PRC citizens or residents. In addition, such PRC citizens or residents must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to increases or decreases in investment amount, transfers or exchanges of shares, mergers or divisions, long-term equity or debt investments, external guarantees, or other material events that do not involve roundtrip investments. The term control under SAFE Circular 75 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles, or SPVs, or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. Subsequent regulations further clarified that PRC subsidiaries of an offshore company governed by the SAFE regulations are required to coordinate and supervise the filing of SAFE registrations in a timely manner by the offshore holding companys shareholders and beneficial owners who are PRC citizens or residents. If these shareholders or beneficial owners fail to comply, the PRC subsidiaries are required to report to the local SAFE branches. See PRC RegulationRegulations on Foreign Exchange Registration of Overseas Investment by PRC Residents. If our shareholders or beneficial owners who are PRC citizens or residents do not complete their registration with the local SAFE branches, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with the various SAFE registration requirements described above could result in liabilities for our PRC subsidiaries under PRC laws for evasion of applicable foreign exchange restrictions, including (1) the requirement by SAFE to return the foreign exchange remitted overseas within a period specified by SAFE, with a fine of up to 30% of the total amount of foreign exchange remitted overseas and deemed to have been evasive and (2) in circumstances involving serious violations, a fine of no less than 30% of and up to the total amount of remitted foreign exchange deemed evasive. Furthermore, the persons-in-charge and other persons at our PRC subsidiaries who are held directly liable for the violations may be subject to criminal sanctions.
These foreign exchange regulations provide that PRC residents include both PRC citizens, meaning any individual who holds a PRC passport or resident identification card, and individuals who are non-PRC citizens but primarily reside in the PRC due to their economic ties to the PRC. We have requested all of our current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the ambit of
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SAFE Circular 75 and its guidance and will urge relevant shareholders and beneficial owners, upon learning they are PRC residents, to make the necessary applications, filings and amendments as required under SAFE Circular 75 and other related rules. To our knowledge, all of our shareholders who are PRC citizens and hold interest in us, have registered with the local SAFE branch as required under SAFE Circular 75 and are in the process of amending certain applicable registrations with the local SAFE pursuant to SAFE Circular 75. We would expect these shareholders to also amend their registrations after the completion of this offering as required by PRC law. However, we cannot assure you that they can successfully amend their foreign exchange registrations with the local SAFE branch in full compliance with applicable laws after this offering. In addition, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, and we cannot provide any assurances that these PRC residents will comply with our request to make or obtain any applicable registrations or comply with other requirements required by SAFE Circular 75 or other related rules. A failure by any of our current or future shareholders or beneficial owners who are PRC residents to comply with the SAFE regulations may subject us to fines or other legal sanctions, restrict our cross-border investment activities, limit our PRC subsidiaries ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, either we or the owners of such company, as the case may be, may not be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly-listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. See PRC RegulationRegulation on Employee Stock Option Plans. We and our PRC employees who have been granted share options and restricted shares will be subject to these regulations upon the completion of this offering. Failure of our PRC share option holders or restricted shareholders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries, limited our PRC subsidiaries ability to distribute dividends to us, or otherwise materially and adversely affect our business.
PRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may delay or limit us from using the proceeds of this offering to make additional capital contributions or loans to our PRC subsidiaries.
Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries, including from the proceeds of this offering, are subject to PRC regulations. Under PRC laws and regulations, we are
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permitted to utilize the proceeds from this offering to fund our existing PRC subsidiaries only through loans or capital contributions or to establish new PRC subsidiaries, subject to applicable government registration and approval requirements. None of our loans to a PRC subsidiary can exceed the difference between its total amount of investment and its registered capital approved under relevant PRC laws, and the loans must be registered with the local branch of SAFE. Our capital contributions to our PRC subsidiaries or establishment of new PRC subsidiaries must be approved by the Ministry of Commerce or its local counterpart. We cannot assure you that we will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If we fail to complete the necessary registration or obtain the necessary approval, our ability to make loans or equity contributions to our PRC subsidiaries may be negatively affected, which could adversely affect our PRC subsidiaries liquidity and their ability to fund their working capital and expansion projects and meet their obligations and commitments.
In August 2008, SAFE promulgated a SAFE Circular 142 regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular 142 provides that the Renminbi capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and unless otherwise provided by law, such Renminbi capital may not be used for equity investments in the PRC. The business scopes of Tarena Tech include research and development of computer software, hardware, internet technology and products and telecommunications technology, transfer of proprietary technologies, information technology consulting, technical services, computer technology training, sales of self-developed products and franchise business operations. The business scopes of Tarena Hangzhou include technology development, technology consulting, technical services, computer software and hardware, network technology, telecommunication technology, services, non-certification computer technology training for adults (excluding business subject to pre-approvals), wholesale and retail of computer software and hardware and telecommunication equipments (excluding equipments subject to national control sand other special controls). Tarena Tech and Tarena Hangzhou may only use Renminbi converted from foreign exchange capital contribution for activities within their respective approved business scope. In addition, the use of such Renminbi capital may not be altered without SAFE approval, and such Renminbi capital may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of SAFE Circular 142 could result in severe monetary or other penalties. If we convert the net proceeds we receive from this offering into Renminbi pursuant to SAFE Circular 142, our use of Renminbi funds for general corporate purposes will be within the business scope of our PRC subsidiaries. However, we may not be able to use such Renminbi funds to make equity investments in the PRC through our PRC subsidiaries.
Furthermore, SAFE promulgated in November 2010 a SAFE Circular 59, which requires the relevant government authorities to closely examine the authenticity of settlement of net proceeds from offshore offerings and the net proceeds to be settled in the manner described in the offering documents. SAFE also promulgated a SAFE Circular 45 in November 2011, which, among other things, restricts a foreign-invested enterprise from using RMB converted from its registered capital to provide entrusted loans or repay loans between non-financial enterprises. SAFE Circular 142, SAFE Circular 59 and SAFE Circular 45 may significantly limit our ability to use Renminbi converted from the net proceeds of this offering to fund establishment of new PRC subsidiaries by Tarena Tech to invest in or acquire any other PRC companies, or to establish new PRC consolidated affiliated entities.
Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.
We are a holding company incorporated in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the
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total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. Furthermore, if our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our subsidiaries to distribute dividends to us or may restrict our ability to satisfy our liquidity requirements.
In addition, the EIT Law, and its implementation rules provide that withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.
We may not be able to obtain certain treaty benefits on dividends paid to us by our PRC subsidiary through our Hong Kong Subsidiary.
Under the EIT Law, dividends generated from retained earnings after January 1, 2008 from a PRC company and distributed to a foreign parent company are subject to a withholding tax rate of 10% unless the foreign parents jurisdiction of incorporation has a tax treaty with China that provides for a preferential withholding arrangement. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, or the Hong Kong Tax Treaty, which became effective on December 8, 2006, a company incorporated in Hong Kong, such as Tarena HK, will be subject to withholding income tax at a rate of 5% on dividends it receives from its PRC subsidiary if it holds a 25% or more interest in that particular PRC subsidiary, or 10% if it holds less than a 25% interest in that subsidiary. However, the SAT promulgated a tax notice on October 27, 2009, or Circular 601, which provides that tax treaty benefits will be denied to conduit or shell companies without business substance, and a beneficial ownership analysis will be used based on a substance-over-the-form principle to determine whether or not to grant tax treaty benefits. On June 29, 2012, the SAT further issued the Announcement of the SAT regarding Recognition of Beneficial Owner under Tax Treaties, or Announcement 30, which provides that a comprehensive analysis should be made when determining the beneficial owner status based on various factors supported by various types of documents including the articles of association, financial statements, records of cash movements, board meeting minutes, board resolutions, staffing and materials, relevant expenditures, functions and risk assumption as well as relevant contracts and other information. As a result, although our PRC subsidiary, Tarena Hangzhou, is currently wholly owned by our Hong Kong subsidiary Tarena HK, we cannot assure you that we would be entitled to the tax treaty benefits and enjoy the favorable 5% rate applicable under the Hong Kong Tax Treaty on dividends. If Tarena HK cannot be recognized as the beneficial owner of the dividends to be paid by Tarena Hangzhou to us, such dividends will be subject to a normal withholding tax of 10% as provided by the EIT Law.
Discontinuation or revocation of any of the preferential tax treatments and government subsidies or imposition of any additional taxes and surcharges could adversely affect our financial condition and results of operations.
Our PRC subsidiaries are incorporated in the PRC and governed by applicable PRC tax laws and regulations. The EIT Law and its Implementing Rules, both became effective on January 1, 2008, have adopted a uniform statutory enterprise income tax rate of 25% to all enterprises in China including foreign-invested enterprises. The EIT Law and its Implementation Rules also permit qualified high and new technology enterprises, or HNTEs, to enjoy a preferential enterprise income tax rate of 15% upon filing with relevant tax authorities. The qualification as a HNTE generally has a valid term of three years and the renewal of such qualification is subject to review by the relevant authorities in China. Tarena Tech obtained its HNTE certificate in 2009 and renewed its HNTE certificate in 2012 with a valid period of three years. Therefore, Tarena Tech is eligible to enjoy a preferential tax rate of 15% until the end of 2014, as long as it maintains the HNTE qualification and duly conducts filing procedures with relevant tax authority regarding the tax incentive. If
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Tarena Tech fails to maintain its HNTE qualification or renew its qualification when its current term expires, its applicable enterprise income tax rate may increase to 25%, which could have an adverse effect on our financial condition and results of operations.
In addition, one of our PRC subsidiaries, Tarena Hangzhou, has received financial subsidies from PRC local government authority. Preferential tax treatments and financial subsidies are subject to review and may be adjusted or revoked at any time in the future. The discontinuation of any preferential tax treatments or financial subsidies or imposition of any additional taxes could adversely affect our financial condition and results of operations.
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
Although our reporting currency is in U.S. dollars, we earn revenues and incur costs and expenses in Renminbi. As a result, fluctuations in the exchange rate between the U.S. dollar and RMB will affect the relative purchasing power in RMB terms of the proceeds from this offering. As the functional currency for our PRC subsidiaries and consolidated VIEs is RMB, fluctuations in the exchange rate may also cause us to incur foreign exchange losses on any foreign currency holdings they may have. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. If we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.
The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in Chinas political and economic conditions and Chinas foreign exchange policies. In July 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. However, the Peoples Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. During the period between July 2008 and June 2010, the exchange rate between the RMB and the U.S. dollar had been stable and traded within a narrow range. However, the Renminbi fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. Since June 2010, the Renminbi has started to slowly appreciate against the U.S. dollar, though there have been periods recently when the U.S. dollar has appreciated against the Renminbi. It is difficult to predict how long the current situation may last and when and how the relationship between the Renminbi and the U.S. dollar may change again.
There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the Renminbi may materially and adversely affect our net revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from this initial public offering into Renminbi to pay our operating expenses, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, a significant depreciation of the Renminbi against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict
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our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.
The approval of the China Securities Regulatory Commission may be required in connection with this offering under a regulation adopted in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval.
Six PRC regulatory agencies, including the China Securities Regulatory Commission, or the CSRC, promulgated the Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was subsequently amended. The M&A Rules, among other things, requires offshore special purpose vehicles, or SPVs, controlled by PRC companies or individuals formed for the purpose of an overseas listing of such PRC companies or individuals interests in PRC domestic companies, to obtain CSRC approval prior to listing their securities on an overseas stock exchange. The application of this regulation remains unclear. Our PRC counsel, Han Kun Law Offices, has advised us that, based on their understanding of the current PRC laws, rules and regulations, we are not required to submit an application to the CSRC for its approval of the listing and trading of our ADSs on the NASDAQ Global Market because:
| the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this regulation; and |
| we were established and Tarena Tech was acquired by us and converted into a wholly foreign owned enterprise before the M&A Rules took effect. |
There is uncertainty as to how this regulation will be interpreted or implemented. If it is determined that the CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek the CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, delays or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiaries, or other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable to us, to halt this offering before the settlement and delivery of the ADSs that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the ADSs we are offering, you would be doing so at the risk that the settlement and delivery may not occur.
The audit report included in this prospectus is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection
Auditors of companies that are registered with the U.S. Securities and Exchange Commission and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the U.S. Public Company Accounting Oversight Board (United States), or PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because our auditor is located in the Peoples Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditor is not currently inspected by the PCAOB. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.
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This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including our auditor. As a result, investors may be deprived of the benefits of PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditors audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.
Proceedings instituted recently by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
In December 2012, the SEC brought administrative proceedings against five accounting firms in China, including our independent registered public accounting firm, alleging that they had refused to produce audit work papers and other documents related to certain China-based companies under investigation by the SEC for potential accounting fraud. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of the five firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. These accounting firms have the ability to appeal and the four firms which are subject to the six-month suspension from practicing before the SEC have filed a petition for review of the decision. The sanction will not become effective until after a full appeal process is concluded and a final decision is issued by the SEC. The accounting firms can also further appeal the final decision of the SEC through the federal appellate courts. We are not involved in the proceedings brought by the SEC against the accounting firms. However, our independent registered public accounting firm is one of the four accounting firms subject to the six-month suspension from practicing before the SEC in the initial administrative law decision. We may therefore be adversely affected by the outcome of the proceedings, along with other U.S.-listed companies audited by these accounting firms.
On May 24, 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission, or the CSRC, and the Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in the United States and China. However, it is not clear how these developments could affect the SECs final decision in the case against the five accounting firms or any subsequent appeals that the accounting firms may initiate. Therefore, it is difficult to determine the final outcome of the administrative proceedings and the potential consequences thereof.
If our independent registered public accounting firm were denied temporarily the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delay or abandonment of this offering, or delisting of our ADSs from the NASDAQ Global Market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.
Risks Related to Our ADSs and This Offering
An active trading market for our ordinary shares or our ADSs may not develop and the trading price for our ADSs may fluctuate significantly.
We have applied to list our ADSs on the NASDAQ Global Market. Prior to the completion of this offering, there has been no public market for our ADSs or our Class A ordinary shares underlying the ADSs, and we cannot assure you that a liquid public market for our ADSs will develop or be sustained after this offering. If an active public market for our ADSs does not develop following the completion of this offering, the market price
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and liquidity of our ADSs may be materially and adversely affected. The initial public offering price for our ADSs will be determined by negotiation between us, the selling shareholders and the underwriters based upon several factors, and we can provide no assurance that the trading price of our ADSs after this offering will not decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their ADSs.
The trading prices of our ADSs are likely to be volatile, which could result in substantial losses to investors.
The trading prices of our ADSs are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In recent years, the widespread negative publicity of alleged fraudulent accounting practices and poor corporate governance of certain U.S. public companies with operations in China were believed to have negatively affected investors perception and sentiment towards companies with connection with China, which significantly and negatively affected the trading prices of some companies securities listed in the U.S. Once we become a public company, any similar negative publicity or sentiment may affect the performances of our ADSs. A number of PRC companies have recently listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these PRC companies securities after their offerings may affect the attitudes of investors toward PRC companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:
| the financial projections that we may choose to provide to the public, any changes in those projections or our failure for any reason to meet those projections; |
| variations in our net revenues, net income and cash flow; |
| announcements of new investments, acquisitions, strategic partnerships, or joint ventures; |
| announcements of new services and expansions by us or our competitors; |
| changes in financial estimates by securities analysts; |
| additions or departures of key personnel; |
| release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; |
| potential litigation, regulatory investigations or other legal proceedings involving us; and |
| detrimental negative publicity about us or our industry. |
Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.
The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our ADSs or publish unfavorable research about us, the market price for our ADSs would likely decline. If one or more of these
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analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ADSs to decline.
Our dual class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Immediately prior to the completion of this offering, our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to ten votes per share, with Class A and Class B ordinary shares voting together as one class on all matters subject to a shareholders vote. We will issue Class A ordinary shares represented by our ADSs in this offering. All of our outstanding shares will be redesignated as Class B ordinary shares immediately prior to the completion of this offering. Currently, our founder, chairman and chief executive officer, Mr. Shaoyun Han, together with three private equity investors, beneficially own an aggregate of 94.1% of our outstanding shares. Upon the completion of this offering, they will beneficially own an aggregate of % of our outstanding shares, or % if the underwriters exercise their option to purchase additional ADSs in full, representing % and % of the then total voting power of our outstanding shares, respectively.
As a result of the dual class share structure and the concentration of ownership, our existing shareholders have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial. For more information regarding our principal shareholders and their affiliated entities, see Principal and Selling Shareholders.
The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.
Sales of substantial amounts of our ADSs in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. The ADSs sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. There will be ADSs (equivalent to Class A ordinary shares) outstanding immediately after this offering, or ADSs (equivalent to Class A ordinary shares) if the underwriters exercise their option to purchase additional ADSs in full. In connection with this offering, [we, our directors and executive officers, our existing shareholders and our option holders] have agreed not to sell any ordinary shares or ADSs for 180 days after the date of this prospectus without the prior written consent of the underwriters. However, the underwriters may release these securities from these restrictions at any time, subject to applicable regulations of the Financial Industry Regulatory Authority, Inc. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. In addition, certain holders of our preferred shares prior to the completion of this offering are entitled to certain registration rights, including demand registration rights, piggyback registration rights, and Form F-3 or Form S-3 registration rights. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in
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the public market, or the perception that such sales could occur, could cause the price of our ADSs to decline. See Underwriting and Shares Eligible for Future Sale for a more detailed description of the restrictions on selling our securities after this offering.
Because the initial public offering price is substantially higher than the pro forma net tangible book value per share, you will experience immediate and substantial dilution.
If you purchase ADSs in this offering, you will pay more for each ADS than the corresponding amount paid by existing shareholders for their ordinary shares. As a result, you will experience immediate and substantial dilution of approximately US$ per ADS (assuming that no outstanding options to acquire Class A ordinary shares are exercised). This number represents the difference between our pro forma net tangible book value per ADS of US$ as of , after giving effect to this offering and the assumed initial public offering price of US$ per ADS, the midpoint of the estimated initial public offering price range set forth on the front cover of this prospectus. See Dilution for a more complete description of how the value of your investment in our ADSs will be diluted upon the completion of this offering.
We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse United States federal income tax consequences to United States investors in the ADSs or ordinary shares.
We will be classified as a passive foreign investment company, or PFIC if, in the case of any particular taxable year, either (a) 75% or more of our gross income for such year consists of certain types of passive income or (b) 50% or more of the average quarterly value of our assets (as determined on the basis of fair market value) during such year produce or are held for the production of passive income, or the asset test. Although the law in this regard is unclear, we treat our consolidated VIEs as being owned by us for United States federal income tax purposes, not only because we exercise effective financial control over the operation of such entities, but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. Assuming that we are the owner of our consolidated VIEs for United States federal income tax purposes, and based upon our current income and assets (taking into account the proceeds from this offering) and projections as to the value of our ADSs and ordinary shares following the offering, we do not presently expect to be classified as a PFIC for the current taxable year or the foreseeable future.
While we do not expect to become a PFIC, because the value of our assets for purposes of the asset test will generally be determined by reference to the market price of our ADSs or ordinary shares, fluctuations in the market price of our ADSs or ordinary shares may cause us to become a PFIC for the current or subsequent taxable years. The determination of whether we will be or become a PFIC will also depend, in part, on the composition of our income and assets, which will be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. Under circumstances where we determine not to deploy significant amounts of cash for active purposes or not to treat our consolidated VIEs as owned by us for United States federal income tax purposes, our risk of being classified as a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.
If we are classified as a PFIC in any taxable year, a U.S. Holder (as defined in TaxationUnited States Federal Income Tax Considerations) may incur significantly increased United States income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an excess distribution under the United States federal income tax rules and such holders may be subject to burdensome reporting requirements. Further, if we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder
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holds our ADSs or ordinary shares. For more information, see TaxationMaterial United States Federal Income Tax ConsiderationsPassive Foreign Investment Company Considerations.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law of the Cayman Islands (2013 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
The Cayman Islands courts are also unlikely:
| to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and |
| to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature. |
There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands (2013 Revision) and the laws applicable to companies incorporated in the United States and their shareholders, see Description of Share CapitalDifferences in Corporate Law.
Judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and all of our assets are located outside of the United States. All of our current operations are conducted in China. In addition, all of our current directors and executive officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see Enforceability of Civil Liabilities.
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We have not determined a specific use for a portion of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree.
We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. For more information, see Use of Proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase our ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your Class A ordinary shares.
As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying Class A ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and articles of association, as amended, the minimum notice period required for convening a general meeting is ten clear days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.
We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we are an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.
The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to opt out of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission, or the SEC, of quarterly reports on Form 10-Q or current reports on Form 8-K; |
49
| the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| the selective disclosure rules by issuers of material nonpublic information under Regulation FD. |
We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NASDAQ Global Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely as compared to that required to be filed with the SEC by United States domestic issuers. As a Cayman Islands company listed on the NASDAQ Global Market, we are subject to the NASDAQ Global Market corporate governance listing standards. However, NASDAQ Global Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NASDAQ Global Market corporate governance listing standards. Although we do not currently plan to utilize the home country exemption for corporate governance matters, to the extent that we choose to do so in the future, our shareholders may be afforded less protection than they otherwise would under the NASDAQ Global Market corporate governance listing standards applicable to U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a United States domestic issuer.
You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class A ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.
You may not be able to participate in rights offerings and may experience dilution of your holdings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities
50
or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an emerging growth company.
Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and NASDAQ Global Market, impose various requirements on the corporate governance practices of public companies. As a company with less than US$1.0 billion in revenues for our last fiscal year, we qualify as an emerging growth company pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth companys internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, we have elected to opt out of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that companys securities. If we were involved in a class action suit, it could divert a significant amount of our managements attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, likely to or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:
| our goals and growth strategies; |
| our expectations regarding demand for and market acceptance of our courses; |
| our ability to retain and increase our student enrollments; |
| our ability to offer new courses in existing and new subject areas; |
| our ability to maintain and increase the tuition fees of our courses; |
| our ability to deepen and expand our corporate employer relationships; |
| our ability to maintain our relationships with universities and colleges; |
| our future business development, results of operations and financial condition; |
| the expected growth of, and trends in, the markets for our services in China; |
| relevant government policies and regulations relating to our corporate structure, business and industry; |
| our expectation regarding the use of proceeds from this offering; and |
| assumptions underlying or related to any of the foregoing. |
You should read thoroughly this prospectus and the documents that we refer to in this prospectus with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this prospectus include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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We estimate that we will receive net proceeds from this offering of approximately US$ million, or approximately US$ million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. These estimates are based upon an assumed initial offering price of US$ per ADS, the mid-point of the range shown on the front cover page of this prospectus. [We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.] A US$1.00 change in the assumed initial public offering price of US$ per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease the net proceeds of this offering by US$ million, or approximately US$ million if the underwriters exercise their option to purchase additional ADSs in full, assuming the sale of ADSs at US$ per ADS, the mid-point of the range shown on the front cover page of this prospectus and after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.
The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives and obtain additional capital. We plan to use the net proceeds of this offering primarily for general corporate purposes, which may include investing in course development, expanding our learning center network, sales and marketing activities, technology infrastructure and capital expenditures, upgrading facilities and other general and administrative matters. We may also use a portion of the net proceeds for investing in, or acquiring, complementary businesses, although we have not identified any near-term investment or acquisition targets.
The amounts and timing of any expenditures will vary depending on the amount of cash generated by our operations, and the rate of growth, if any, of our business. Accordingly, our management will have significant flexibility in applying the net proceeds of the offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.
In utilizing the proceeds from this offering, we are permitted under PRC laws and regulations to provide funding to our existing PRC subsidiaries only through loans or capital contributions or to establish new PRC subsidiaries, subject to the applicable government registration and approval requirements. We cannot assure you that we will be able to meet these requirements on a timely basis, if at all. See Risk FactorsRisks Relating to Our Corporate StructurePRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may delay or limit us from using the proceeds of this offering to make additional capital contributions or loans to our PRC subsidiaries. We plan to use a portion of proceeds from this offering to increase the registered capital of Tarena Hangzhou and will apply for approval from the Investment Promotion Bureau of Hangzhou Economic and Technological Development Zone for such capital increase, and register the change with the Hangzhou Administration for Industry and Commerce and the Zhejiang Bureau of SAFE. We currently do not plan to use any of the proceeds from this offering to fund the operations of our consolidated VIEs and their related entities.
Pending use of the net proceeds, we intend to hold our net proceeds in short-term, interest-bearing, financial instruments or demand deposits.
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We have not previously declared or paid cash dividends, and we have no plan to declare or pay any dividends in the near future on our shares or ADSs. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See PRC RegulationRegulations on Dividend Distribution.
Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See Description of American Depositary Shares. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
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The following table sets forth our capitalization as of December 31, 2013:
| on an actual basis; |
| on a pro forma basis to reflect the automatic conversion of all of our outstanding preferred shares into 25,430,831 ordinary shares upon the completion of this offering; and |
| on a pro forma as adjusted basis to reflect (i) the automatic conversion of all of our outstanding preferred shares into 25,430,831 ordinary shares upon the completion of this offering and (ii) the sale of ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$ per ADS, the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us (assuming the underwriters will not exercise their option to purchase additional ADSs). |
You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under Managements Discussion and Analysis of Financial Condition and Results of Operations.
As of December 31, 2013 | ||||||||||
Actual | Pro forma (1) |
Pro forma
as adjusted (1) |
||||||||
(in thousands of US$) | ||||||||||
Preferred Shares |
||||||||||
Series A preferred shares (US$0.001 par value; 7,196,159 shares issued and outstanding on an actual basis; none outstanding on a pro forma or pro forma as adjusted basis) |
420 | | ||||||||
Series B preferred shares (US$0.001 par value; 7,319,820 shares issued and outstanding on an actual basis; none outstanding on a pro forma or pro forma as adjusted basis) |
15,748 | | ||||||||
Series C preferred shares (US$0.001 par value; 10,914,852 shares issued and outstanding on an actual basis; none outstanding on a pro forma or pro forma as adjusted basis) |
95,211 | | ||||||||
Shareholders Equity (Deficit) |
||||||||||
Ordinary shares (US$0.001 par value; 90,000,000 shares authorized, 12,226,558 shares issued and outstanding on an actual basis; 37,657,389 issued and outstanding on a pro forma basis; issued and outstanding on a pro forma as adjusted basis) |
12 | 38 | ||||||||
Additional paid in capital |
| 111,353 | ||||||||
Accumulated other comprehensive income |
1,635 | 1,635 | ||||||||
Accumulated deficit |
(64,931 | ) | (64,931 | ) | ||||||
|
|
|
|
|
||||||
Total shareholders equity (deficit) (2) |
(63,284 | ) | 48,095 | |||||||
|
|
|
|
|
||||||
Total preferred shares and shareholders equity (deficit) (2) |
48,095 | 48,095 | ||||||||
|
|
|
|
|
Notes:
(1) | The pro forma and pro forma as adjusted information discussed above is illustrative only. Our total shareholders equity and total capitalization following the completion of this offering are subject to adjustment based on the actual initial public offering price and other terms of this offering determined at pricing. |
(2) | Assuming the number of ADSs offered by us as set forth on the cover page of this prospectus remains the same, and after deduction of underwriting discounts and commissions and the estimated offering expenses payable by us, a US$1.00 change in the assumed initial public offering price of US$ per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease each of total shareholders equity and total capitalization by US$ million. |
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Our net tangible book value as of December 31, 2013 was approximately US$3.93 per ordinary share and US$ per ADS. Net tangible book value per ordinary share represents the amount of total assets, minus the amount of total liabilities, divided by the total number of ordinary shares outstanding. Dilution is determined by subtracting net tangible book value per ordinary share from the assumed public offering price per ordinary share.
Without taking into account any other changes in such net tangible book value after December 31, 2013, other than to give effect to (1) the conversion of all of our Series A, Series B and Series C convertible preferred shares into 25,430,831 ordinary shares, which will occur automatically upon the completion of this offering, and (2) our issuance and sale of ADSs in this offering, at an assumed initial public offering price of US$ per ADS, the mid-point of the estimated public offering price range, and after deduction of underwriting discounts and commissions and estimated offering expenses payable by us (assuming the underwriters will not exercise their option to purchase additional ADSs), our pro forma net tangible book value at December 31, 2013 would have been US$ per outstanding ordinary share, including ordinary shares underlying our outstanding ADSs, or US$ per ADS. This represents an immediate increase in net tangible book value of US$ per ordinary share, or US$ per ADS, to existing shareholders and an immediate dilution in net tangible book value of US$ per ordinary share, or US$ per ADS, to purchasers of ADSs in this offering.
The following table illustrates the dilution on a per ordinary share basis assuming that the initial public offering price per ordinary share is US$ and all ADSs are exchanged for ordinary shares:
Assumed initial public offering price per ordinary share |
US$ | |||
Net tangible book value per ordinary share |
US$ | 3.93 | ||
Pro forma net tangible book value per ordinary share after giving effect to the automatic conversion of all of our outstanding preferred shares |
US$ | 1.28 | ||
Pro forma net tangible book value per ordinary share as adjusted to give effect to the automatic conversion of all of our outstanding preferred shares and this offering as of December 31, 2013 |
US$ | |||
Amount of dilution in net tangible book value per ordinary share to new investors in the offering |
US$ | |||
Amount of dilution in net tangible book value per ADS to new investors in the offering |
US$ |
A US$1.00 change in the assumed public offering price of US$ per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease our pro forma net tangible book value after giving effect to the offering by US$ million, the pro forma net tangible book value per ordinary share and per ADS after giving effect to this offering by US$ per ordinary share and US$ per ADS and the dilution in pro forma net tangible book value per ordinary share and per ADS to new investors in this offering by US$ per ordinary share and US$ per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses. The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.
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The following table summarizes, on a pro forma basis as of December 31, 2013, the differences between the shareholders as of December 31, 2013 and the new investors with respect to the number of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share paid at an assumed initial public offering price of US$ per ADS, the mid-point of the estimated public offering price range, before deducting estimated underwriting discounts and commissions and estimated offering expenses.
Ordinary shares
Purchased |
Total Consideration |
Average Price
Per Ordinary Share |
Average Price
Per ADS |
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Number | Percent |
Amount
(US$) |
Percent | US$ | US$ | |||||||
Existing shareholders |
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New investors |
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|
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Total |
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|
|
A US$1.00 change in the assumed public offering price of US$ per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease total consideration paid by new investors, total consideration paid by all shareholders, average price per ordinary share and average price per ADS paid by all shareholders by US$ , US$ , US$ and US$ , respectively, assuming the sale of ADSs at US$ , the mid-point of the range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The discussion and tables above also assume no exercise of any outstanding share options outstanding as of the date of this prospectus. As of the date of this prospectus, options to purchase ordinary shares are issued and outstanding, at a weighted average exercise price of US$ per ordinary share, and there are ordinary shares available for future issuance upon the exercise of future grants under the 2008 Plan. To the extent that any of these options are exercised, there will be further dilution to new investors.
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ENFORCEABILITY OF CIVIL LIABILITIES
We were incorporated in the Cayman Islands in order to enjoy the following benefits:
| political and economic stability; |
| an effective judicial system; |
| a favorable tax system; |
| the absence of exchange control or currency restrictions; and |
| the availability of professional and support services. |
However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to, the following:
| the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors; and |
| Cayman Islands companies may not have standing to sue before the federal courts of the United States. |
Our constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.
All of our operations are conducted outside the United States, and all of our assets are located outside the United States. All of our officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
We have appointed Law Debenture Corporate Services Inc. as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.
Conyers Dill & Pearman (Cayman) Limited, our counsel as to Cayman Islands law, and Han Kun Law Offices, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:
| recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or |
| entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States. |
Conyers Dill & Pearman (Cayman) Limited has informed us that it is uncertain whether the courts of the Cayman Islands will allow shareholders of our company to originate actions in the Cayman Islands based upon securities laws of the United States. In addition, there is uncertainty with regard to Cayman Islands law related to whether a judgment obtained from the U.S. courts under civil liability provisions of U.S. securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature.
If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company, such as our company. As the courts of the Cayman Islands have yet to rule on making such a determination in relation to judgments obtained from U.S. courts under civil liability provisions of U.S. securities laws, it is uncertain whether such judgments would be enforceable in the Cayman
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Islands. Conyers Dill & Pearman (Cayman) Limited has further advised us that the courts of the Cayman Islands would recognize as a valid judgment a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) or, in certain circumstances, an in personam judgment for non-monetary relief, and would give a judgment based thereon provided that: (a) such courts had proper jurisdiction over the parties subject to such judgment; (b) such courts did not contravene the rules of natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with the correct procedures under the laws of the Cayman Islands.
Han Kun Law Offices has further advised us that the recognition and enforcement of foreign judgments are provided for under PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands.
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CORPORATE HISTORY AND STRUCTURE
We began our operations in Beijing in September 2002 through Beijing Tarena Technology Co., Ltd. In November 2012, we changed the name of Beijing Tarena Technology Co., Ltd. to Tarena Technologies Inc., or Tarena Tech. Tarena International, Inc. was incorporated in the Cayman Islands in October 2003 and became our ultimate holding company. We established Tarena Hong Kong Limited, or Tarena HK, as our wholly-owned subsidiary in October 2012. Tarena HK wholly owns Tarena Software Technology (Hangzhou) Co., Ltd., or Tarena Hangzhou, an entity that we established in January 2013.
Prior to 2012, we conducted a substantial portion of our operations through our consolidated VIEs and their respective subsidiaries and schools. On January 30, 2012, the new PRC Catalogue for the Guidance of Foreign Investment Industries (amended) became effective, which listed professional education service as an industry for which foreign investments are encouraged by the government. In light of such change of law, starting from the second half of 2012, we began to transfer the operations, including related assets and liabilities, of our consolidated VIEs to Tarena Tech and its subsidiaries and schools. As of December 31, 2013, all of our learning center operations of VIEs have been transferred to Tarena Tech and its subsidiaries and schools. We are in the process of winding down Shanghai Tarena. We expect to continue to control and consolidate Beijing Tarena, which holds an Internet Content Provider license, or ICP license, that is necessary for the operation of our www.it211.com.cn website. For a description of the risks relating to our corporate structure and the contractual arrangements we have entered into with our VIEs, see Risk FactorsRisk Relating to Our Corporate Structure.
The table below sets forth the respective revenues contribution and assets of Tarena and our wholly-owned subsidiaries and our consolidated VIEs:
Net Revenues (1) | Total Assets (1) | |||||||||||
For the year ended
December 31, 2012 |
For the year ended
December 31, 2013 |
As of December 31,
2013 |
||||||||||
Tarena and its wholly-owned subsidiaries |
67.7% | 92.0% | 96.8% | |||||||||
Consolidated VIEs |
32.3% | 8.0% | 3.2% | |||||||||
|
|
|
|
|
|
|||||||
Total |
100% | 100% | 100% | |||||||||
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|
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|
|
Notes:
(1) | The percentages exclude the inter-company transactions and balances between Tarena and wholly-owned subsidiaries and the consolidated VIEs. |
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A list of our subsidiaries and variable interest entities is filed as exhibit 21.1 to the registration statement to which this prospectus is a part. The following diagram illustrates our current corporate structure:
Notes:
(1) | Mr. Shaoyun Han, our founder, chairman and chief executive officer, owns 70% of the equity interest in Beijing Tarena. Mr. Jianguang Li, our director, owns 30% of the equity interest in Beijing Tarena. |
(2) | Mr. Shaoyun Han and Mr. Jianguang Li own 49% and 51% of the equity interest in Shanghai Tarena, respectively. |
(3) | Shanghai Tarena is in the process of voluntary winding down. |
(4) | Tarena (Wuhan) Technology Co., Ltd., which is a wholly-owned subsidiary of Tarena Tech, wholly owns Wuhan Tarena Software Co., Ltd., which holds 100% of the sponsorship interest in Wuhan Tarena Professional Education School. |
(5) | Mr. Shaoyun Han is the principal of Shenyang Tarena Professional Education School, Jinan Tarena Professional Education School, Wuhan Tarena Professional Education School, Chongqing Jiulongpo Tarena Professional Education School and Nanjing Tarena Professional Education School; De Xun Wang is the principal of Guangzhou Tarena Professional Education School and Shenzhen Baoan Tarena Professional Education School; Xuefeng Lu is the principal of Harbin Tarena Professional Education School; Qian Li is the principal of Qingdao Tarena Professional Education School; Ning Ding is the principal of Kunming Guandu Tarena Professional Education School; and Nini Tong is the principal of Zhuhai Tarena Professional Education School. |
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Contractual Arrangements with our VIEs
Because of foreign ownership restriction on Internet content and other value-added telecommunication services in China, we operate our www.it211.com.cn website through our consolidated VIE, Beijing Tarena. Beijing Tarena holds our ICP License for www.it211.com.cn . Beijing Tarena is 70% owned by Mr. Shaoyun Han, our founder, chairman and chief executive officer, and 30% owned by Mr. Jianguang Li, our director. Mr. Han and Mr. Li are both PRC citizens. We entered into a series of contractual arrangements with Beijing Tarena and its shareholders, which enable us to:
| exercise effective financial control over Beijing Tarena; |
| receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses of Beijing Tarena; and |
| have an exclusive option to purchase all or part of the equity interests in Beijing Tarena when and to the extent permitted by PRC law. |
Because of these contractual arrangements, we are the primary beneficiary of Beijing Tarena and consolidate its financial results in our consolidated financial statements in accordance with U.S. GAAP.
The following is a summary of the currently effective contracts by and among Tarena International, our subsidiary Tarena Tech, our VIE, Beijing Tarena, and the shareholders of Beijing Tarena.
Exclusive Business Cooperation Agreement
Under the exclusive business cooperation agreement between Beijing Tarena and Tarena Tech, as amended and restated, Tarena Tech has the exclusive right to provide, among other things, technical support, business support and related consulting services to Beijing Tarena and Beijing Tarena agrees to accept all the consultation and services provided by Tarena Tech. Without Tarena Techs prior written consent, Beijing Tarena is prohibited from engaging any third party to provide any of the services under this agreement. In addition, Tarena Tech exclusively owns all intellectual property rights arising out of or created during the performance of this agreement. Beijing Tarena agrees to pay a monthly service fee to Tarena Tech at an amount determined solely by Tarena Tech after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the Tarena Tech employees providing services to Beijing Tarena, the value of services provided, the market price of comparable services and the operating conditions of Beijing Tarena. Furthermore, to the extent permitted under the PRC law, Tarena Tech agrees to provide financial support to Beijing Tarena if Beijing Tarena has any operating loss or suffered any critical operation adversity. The term of the agreement will remain effective unless Tarena Tech terminates the agreement in writing or a competent governmental authority rejects the renewal applications by either Beijing Tarena or Tarena Tech to renew its respective business license upon expiration. Without the consent of Tarena Tech, Beijing Tarena is not permitted to terminate this agreement in any event unless required by applicable laws.
Power of Attorney
Pursuant to the power of attorney, as amended and restated, the shareholders of Beijing Tarena each irrevocably appointed Tarena Tech as the attorney-in-fact to act on their behalf on all matters pertaining to Beijing Tarena and to exercise all of their rights as a shareholder of Beijing Tarena, including but not limited to attend shareholders meetings, vote on their behalf on all matters of Beijing Tarena requiring shareholders approval under PRC laws and regulations and the articles of association of Beijing Tarena, and designate and appoint directors and senior management members. Tarena Tech may assign its rights under this power of attorney to any other person or entity at its sole discretion without prior notice to the shareholders of Beijing Tarena. Each power of attorney will remain in force until the shareholder ceases to hold any equity interest in Beijing Tarena.
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Equity Interest Pledge Agreements
Under the equity interest pledge agreements between Tarena Tech, Beijing Tarena and the shareholders of Beijing Tarena, as amended and restated, the shareholders pledged all of their equity interests in Beijing Tarena to Tarena Tech to guarantee Beijing Tarenas and Beijing Tarenas shareholders performance of their obligations under the contractual arrangements including, but not limited to the service fees due to Tarena Tech. If Beijing Tarena or any of Beijing Tarenas shareholders breaches its contractual obligations under the contractual arrangements, Tarena Tech, as the pledgee, will be entitled to certain rights and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Beijing Tarena in accordance with legal procedures. Tarena Tech has the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any event of default as provided in the contractual arrangements occurs, Tarena Tech, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance with PRC laws and regulations. The equity interest pledge agreements became effective on the date when the agreements were duly executed. The pledge was registered with Changping Bureau of Beijing Administration for Industry and Commerce in December 2013, and will remain binding until Beijing Tarena and its shareholders discharge all their obligations under the contractual arrangements. The registration of the equity pledge enables Tarena Tech to enforce the equity pledge against third parties who acquire the equity interests of Beijing Tarena in good faith.
Exclusive Option Agreements
Under the exclusive option agreements between Tarena International, Inc., Tarena Tech, each of the shareholders of Beijing Tarena and Beijing Tarena, as amended and restated, each of the shareholders irrevocably granted Tarena International, Inc. or its designated representative(s) an exclusive option to purchase, to the extent permitted under PRC law, all or part of his equity interests in Beijing Tarena. In addition, Tarena International, Inc. has the option to acquire the equity interests of Beijing Tarena for a specified price equal to the loan provided by Tarena Tech to the individual shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Tarena International, Inc. or its designated representative(s) has sole discretion as to when to exercise such options, either in part or in full. Without Tarena International, Inc.s prior written consent, Beijing Tarenas shareholders shall not sell, transfer, mortgage, or otherwise dispose any equity interests in Beijing Tarena. These agreements will remain effective until all equity interests in Beijing Tarena held by its shareholders are transferred or assigned to Tarena International, Inc. or Tarena International, Inc.s designated representatives.
Loan Agreements
Pursuant to the loan agreements between Tarena Tech and each individual shareholder of Beijing Tarena, as amended and restated, Tarena Tech provided loans with an aggregate amount of RMB2 million (US$0.3 million) to the individual shareholders of Beijing Tarena for the sole purpose of providing capital for Beijing Tarena. The loans can only be repaid in a manner determined by Tarena Tech at its sole discretion, which repayment may take the form of transferring the individual shareholders equity interest in Beijing Tarena to Tarena or its designated person pursuant to the exclusive option agreements. The loan shall be interest-free, unless the transfer price exceeds the principal of the loan when each individual shareholder of Beijing Tarena transfers his equity interests in Beijing Tarena to Tarena or its designated person(s). Such excess over the principal of the loan shall be deemed the interest of the loan to the extent permitted under PRC law. The term of each loan agreement is ten years from the date of the agreement expiring in 2023 and can be extended with the written consent of both parties before expiration.
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Spousal Consent Letters
Ms. Ying Sun, the spouse of Mr. Shaoyun Han, and Ms. Nan Li, the spouse of Mr. Jianguang Li, executed spousal consent letters. Pursuant to the spousal consent letters, each of Ms. Ying Sun and Ms. Nan Li:
| undertook not to make any assertions in connection with the equity interests in Beijing Tarena held by her spouse; |
| confirmed that her spouse can perform the amended and restated equity interest pledge agreements, the amended and restated exclusive option agreements, the power of attorney and the amended and restated loan agreements and to further amend or terminate such documents absent authorization or consent from her; |
| undertook to execute all necessary documents and take all necessary actions to ensure appropriate performance of the amended and restated equity interest pledge agreements, the amended and restated exclusive option agreements, the power of attorney and the amended and restated loan agreements; and |
| agreed and undertook to be bound by the amended and restated equity interest pledge agreements, the amended and restated exclusive option agreements, the power of attorney, the amended and restated loan agreements and the amended and restated exclusive business cooperation agreement and comply with the obligations thereunder as an equity holder of Beijing Tarena if she obtain any equity interests in Beijing Tarena held by her spouse for any reason. |
The contractual arrangements by and among Tarena, our subsidiary Tarena Tech, Shanghai Tarena, and the shareholders of Shanghai Tarena are substantially the same as the contractual arrangements discussed above.
In the opinion of our PRC counsel, Han Kun Law Offices, these contractual arrangements are valid, binding and enforceable under current PRC laws. However, these contractual arrangements may not be as effective in providing control as direct ownership. There are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. For a description of the risks relating to our contractual arrangements, please see Risk FactorsRisks Relating to Our Corporate Structure.
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SELECTED CONSOLIDATED FINANCIAL DATA AND OPERATING DATA
The following selected consolidated statements of comprehensive income data (other than ADS data) for the years ended December 31, 2011, 2012 and 2013 and the selected consolidated balance sheet data as of December 31, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results for any period are not necessarily indicative of results to be expected for any future period. You should read the following summary financial information in conjunction with the consolidated financial statements and related notes and the information under Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus.
For the Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
(in thousands of US$, except for share, per
share and per ADS data) |
||||||||||||
Selected Consolidated Statements of Comprehensive Income Data: |
||||||||||||
Net revenues |
25,741 | 56,820 | 92,834 | |||||||||
Cost of revenues (1) |
(8,714 | ) | (17,762 | ) | (29,068 | ) | ||||||
Gross profit |
17,027 | 39,058 | 63,766 | |||||||||
Operating expenses (1) : |
||||||||||||
Selling and marketing |
(7,676 | ) | (16,875 | ) | (30,252 | ) | ||||||
General and administrative |
(7,832 | ) | (9,948 | ) | (16,224 | ) | ||||||
Research and development |
(1,159 | ) | (1,792 | ) | (3,807 | ) | ||||||
Operating income |
360 | 10,443 | 13,483 | |||||||||
Interest income |
275 | 1,165 | 1,541 | |||||||||
Income before income taxes |
840 | 11,771 | 16,318 | |||||||||
Income tax expense |
(139 | ) | (2,219 | ) | (2,271 | ) | ||||||
Net income |
701 | 9,552 | 14,047 | |||||||||
Net loss attributable to ordinary shareholders |
(9,593 | ) | (16,993 | ) | (30,313 | ) | ||||||
Weighted average number of ordinary shares used in per share calculations: |
||||||||||||
Basic |
12,518,419 | 10,851,287 | 10,930,412 | |||||||||
Diluted |
12,518,419 | 10,851,287 | 10,930,412 | |||||||||
Income (loss) per ordinary share |
||||||||||||
Basic |
(0.77 | ) | (1.57 | ) | (2.77 | ) | ||||||
Diluted |
(0.77 | ) | (1.57 | ) | (2.77 | ) | ||||||
Income (loss) per ADS (2) |
||||||||||||
Basic |
||||||||||||
Diluted |
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Notes:
(1) | Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows: |
For the Year Ended
December 31, |
||||||||||||
2011 | 2012 | 2013 | ||||||||||
(in thousands US$) | ||||||||||||
Cost of revenues |
| | 17 | |||||||||
Selling and marketing expenses |
1 | 1 | 45 | |||||||||
General and administrative expenses |
59 | 125 | 654 | |||||||||
Research and development expenses |
3 | 3 | 48 |
(2) | Each ADS represents Class A ordinary shares. |
As of December 31, | ||||||||
2012 | 2013 | |||||||
(in thousands of
US$) |
||||||||
Selected Consolidated Balance Sheet Data: |
||||||||
Cash and cash equivalents |
16,197 | 26,139 | ||||||
Accounts receivable, net of allowance for doubtful accounts |
16,984 | 15,417 | ||||||
Property and equipment, net |
8,172 | 12,806 | ||||||
Total assets |
46,870 | 73,673 | ||||||
Deferred revenue |
9,656 | 15,487 | ||||||
Total liabilities |
14,738 | 25,578 | ||||||
Total mezzanine equity |
67,099 | 111,379 | ||||||
Total shareholders deficit |
(34,967 | ) | (63,284 | ) |
The following tables present our selected operating data as of the dates and for the periods indicated:
For the Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
Student enrollments (1) |
16,282 | 31,340 | 46,458 |
Note:
(1) | The number of student enrollments as presented does not include student enrollments at our two franchised learning centers in Taiyuan and Xian. |
As of December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
Learning centers (1) |
34 | 57 | 92 |
Note:
(1) | The number of learning centers as presented does not include our two franchised learning centers in Taiyuan and Xian. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled Selected Consolidated Financial Data and Operating Data and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Risk Factors and elsewhere in this prospectus.
Overview
We are a leading provider of professional education services in China. Our core strength is in IT professional education services, where we are the largest provider in China with a market share of 8.3% as measured by revenues in 2013 according to IDC, a third-party research firm. We currently offer courses in nine IT subjects and two non-IT subjects. Our courses provide students with practical education to prepare them for jobs in industries with significant growth potential and strong hiring demand.
We have an innovative education platform combining live distance instruction, classroom-based tutoring and online learning modules. For each class, instructors deliver lectures from one classroom in Beijing to both students in the same classroom as well as to students at our learning centers across China via simultaneous webcast. To facilitate a disciplined and focused learning environment, we staff each classroom at our learning centers with one or two on-site teaching assistants to tutor and supervise students. We complement the live instruction and tutoring with our proprietary learning management system TTS. TTS has five core functions, featuring course content, self-assessment exams, student and teaching staff interaction tools, student management tools and an online student community. Through this education platform, we provide job-oriented education with measurable outcomes, as demonstrated by our high job placement rates and students academic performance.
Capitalizing on our innovative education platform, we have built a highly scalable business that we can expand and replicate rapidly with consistent quality. We deliver high quality lectures through a group of experienced and passionate instructors based in Beijing to a nationwide network of 92 directly operated learning centers in 33 cities in China. Compared to traditional classroom-based teaching, which requires hiring and training of instructors for local sites, we are able to expand our geographic footprint and class sizes without impacting the quality of our course offerings because we are generally able to provide our students across China with equal access to the same group of instructors. For our most established Java course, our student-to-instructor ratio increased from 1,624-to-1 in 2011 to 3,276-to-1 in 2013, and the average net revenues per instructor for our Java course increased from approximately US$2.7 million in 2011 to approximately US$6.9 million in 2013.
Selected Income Statement Items
Net Revenues
We derive substantially all of our net revenues from tuition fees that we charge students. In 2011, 2012 and 2013, we generated net revenues of US$25.7 million, US$56.8 million and US$92.8 million, respectively. We record tuition fees that we collect in advance as deferred revenues. We historically allowed students to pay our tuition fees within a period of time after graduation. We have gradually phased out this payment option since the beginning of 2013. The gradual cessation of such installment payment option has reduced our outstanding accounts receivable. Starting in 2013, we began to generally collect tuition fees in advance. Our net revenues are presented net of business tax and surcharges.
Number of Student Enrollments
Our ability to generate and increase revenues is primarily driven by our ability to increase the number of student enrollments. The number of our student enrollments is primarily driven by the number and popularity of our course offerings. We evaluate the market demands for our course offerings and open new learning centers to
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cater to such demands. Our total student enrollments increased from 16,282 in 2011 to 46,458 in 2013, representing a CAGR of 68.9%. The total number of our learning centers nationwide grew from 34 as of December 31, 2011 to 57 as of December 31, 2012 and to 92 as of December 31, 2013.
Our total student enrollment is affected by the continuing popularity of our existing courses and the number of new courses we offer. Between 2011 and 2013, annual student enrollment in our five main courses, namely Java, C++, Embedded, PHP and Software testing, increased from 15,035 to 37,868, representing a CAGR of 58.7%. To date, our Java and C++ courses remain the largest and most important courses in terms of revenues and number of student enrollments. We derived approximately 70.6%, 71.3% and 59.3% of our net revenues from our Java course in 2011, 2012 and 2013, respectively. We derived approximately 12.4%, 12.5% and 12.0% of our net revenues from our C++ course in each of 2011, 2012 and 2013. Since 2011, we have developed and launched five new courses. Expanding our course offerings and diversifying our sources of revenues help protect us from potential reduced student enrollments due to down-turns in certain industries or professions.
Our total student enrollment is also affected by our ability to maintain our cooperative relationships with financing service providers for student loans. A significant portion of our students rely on loans provided or arranged by BOB CFC and CreditEase to pay for our tuition fees. Historically, a significant portion of our students also relied on loans arranged by Chuanbang, a credit-sourcing company in China owned by Mr. Shaoyun Han, our chief executive officer. In 2013, 56.9% of our students took out loans provided or arranged by these three financing service providers to pay for our tuition fees. Chuanbang ceased offering financing services to our students enrolled since January 1, 2014. We intend to continue our cooperation with BOB CFC in providing loans and CreditEase in providing person-to-person lending services to our students in the future.
Starting from 2011, Chuanbang began to offer person-to-person lending services to our students to help them pay for our tuition fees. In connection with the person-to-person lending services provided by Chuanbang, we serve as a guarantor of the loans taken out by students. We recognized US$6,087, US$70,245 and US$90,490 as guarantee fee revenue in 2011, 2012 and 2013, respectively. We have stopped providing guarantees for any new student loan arranged by Chuanbang since April 2013. We have not generated any interest income in connection with the person-to-person lending services provided by Chuanbang.
Tuition fees
Our net revenues are affected by the tuition fees for each of our courses. For our full-time classes, our standard tuition fees range from RMB13,800 (US$2,280) to RMB16,800 (US$2,775) per course in 2013. Our standard tuition fees for our part-time class are typically RMB13,800 (US$2,280) per course. We increased our tuition fees for most of our full-time classes by approximately RMB1,000 (US$165) from RMB13,800 (US$2,280) per course to RMB14,800 (US$2,445) per course in 2012 and further increased such tuition fees by RMB1,000 (US$165) to RMB15,800 (US$2,610) per course in 2013. We believe our high education quality and strong job placement track record have enabled us to charge above-market tuition fees during the past three years.
The actual tuition fees that we charge for our courses may vary according to the recruiting channel through which a student is enrolled. We recruit students either through our direct marketing efforts or from our network of cooperative universities and colleges. We generally offer a discount of approximately RMB4,000 (US$661) per person per full-time course for students enrolled through our network of cooperative universities and colleges. In 2013, we recruited approximately 22.9% of our students from these universities and colleges.
Our tuition fees are also affected by the payment option selected by our students. We primarily offer two payment options for our students, including one-time full payment upon enrollment and multiple payments within two months of enrollment. We historically allowed students to pay our tuition fees within a period of time after graduation. We have gradually phased out this payment option since the beginning of 2013, and expect to substantially end it in 2014. We charge RMB3,000 (US$496) higher in tuition fees to students electing to pay in multiple installments, as compared to students who elect to pay in full upfront.
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Cost of Revenues
Our cost of revenues primarily consists of payroll and employee benefits for our instructors (as apportioned based on the amount of time that they devote to teaching), teaching assistants, career counselors and employer cooperation representatives, as well as rental payments for our learning centers, and to a lesser extent, depreciation relating to property and equipment used at our learning centers. The following table sets forth a breakdown of our cost of revenues in absolute amounts and as percentages of net revenues for the periods indicated:
For the Year Ended December 31, | ||||||||||||||||||||||||
2011 | 2012 | 2013 | ||||||||||||||||||||||
US$ |
% of
net revenues |
US$ |
% of
net revenues |
US$ |
% of
net revenues |
|||||||||||||||||||
(in thousands of US$, except percentages) | ||||||||||||||||||||||||
Personnel cost and welfare |
2,901 | 11.3 | 6,560 | 11.5 | 11,109 | 12.0 | ||||||||||||||||||
Rental cost |
2,312 | 9.0 | 5,112 | 9.0 | 8,668 | 9.3 | ||||||||||||||||||
Others |
3,501 | 13.6 | 6,090 | 10.8 | 9,291 | 10.0 | ||||||||||||||||||
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Total cost of revenues |
8,714 | 33.9 | % | 17,762 | 31.3 | % | 29,068 | 31.3 | % | |||||||||||||||
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Our cost of revenues is primarily affected by the number of our learning centers. We operated a total of 34, 57 and 92 learning centers as of December 31, 2011, 2012 and 2013, respectively. Our cost of revenues as a percentage of net revenues was 33.9%, 31.3% and 31.3% in 2011, 2012 and 2013, respectively. We expect our cost of revenues to continue to increase as we plan to open more learning centers.
Operating Expenses
Our operating expenses consist primarily of selling and marketing expenses, general and administrative expenses and, to a lesser extent, research and development expenses. The following table sets forth our operating expenses in absolute amounts and as percentages of net revenues for the periods indicated:
For the Year Ended December 31, | ||||||||||||||||||||||||
2011 | 2012 | 2013 | ||||||||||||||||||||||
US$ |
% of
net revenues |
US$ |
% of
net revenues |
US$ |
% of
net revenues |
|||||||||||||||||||
(in thousands of US$, except percentages) | ||||||||||||||||||||||||
Selling and marketing expenses |
7,676 | 29.8 | 16,875 | 29.7 | 30,252 | 32.6 | ||||||||||||||||||
General and administrative expenses |
7,832 | 30.4 | 9,948 | 17.5 | 16,224 | 17.6 | ||||||||||||||||||
Research and development expenses |
1,159 | 4.5 | 1,792 | 3.2 | 3,807 | 4.1 | ||||||||||||||||||
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Total operating expenses |
16,667 | 64.7 | % | 28,615 | 50.4 | % | 50,283 | 54.3 | % | |||||||||||||||
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Our selling and marketing expenses primarily consist of compensation expenses relating to our personnel involved in selling and marketing, including our enrollment advisors and our university cooperation representatives based at our learning centers, advertising expenses relating to our marketing activities, and, to a lesser extent, travel expenses incurred by our selling and marketing staff. We expect our selling and marketing expenses to increase as we further expand our business.
Our general and administrative expenses primarily consist of compensation expenses relating to our management and administrative personnel. To a lesser extent, our general and administrative expenses include rental and utility costs related to office and administrative functions. We expect our general and administrative expenses to increase in the future on an absolute basis as our business grows and we incur increased costs related to complying with our reporting obligations after we become a public company under U.S. securities laws.
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Our research and development expenses primarily consist of a portion of the personnel costs of our instructors as determined based on the amount of time that they devote to research and development-related activities, as well as the personnel costs of our software engineers.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.
Hong Kong
Our wholly-owned subsidiary in Hong Kong, Tarena Hong Kong Limited, is subject to Hong Kong profits tax on its activities conducted in Hong Kong. No provision for Hong Kong profits tax has been made in the consolidated financial statements as Tarena Hong Kong Limited has no assessable income since its inception on October 22, 2012 to December 31, 2013.
China
Pursuant to the EIT Law and its Implementation Rules, which became effective on January 1, 2008, foreign-invested enterprises and domestic companies are subject to enterprise income tax at a uniform rate of 25%. In addition, high and new technology enterprises, or HNTEs, will enjoy a preferential enterprise income tax rate of 15% under the EIT Law. Tarena Tech qualified as a HNTE under the EIT Law and is eligible for a preferential enterprise income tax rate of 15% for the period from 2009 to 2014, so long as it completes the filing with the competent tax authority. Tarena Software Technology (Hangzhou) Co., Ltd. was established in 2013 and qualified as an eligible software enterprise, which entitles it to two years of full exemption followed by three years of 50% exemption, commencing from the year in which its taxable income is greater than zero.
Internal Control over Financial Reporting
In connection with the audit of our consolidated financial statements as of and for the three years ended December 31, 2013, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting as of December 31, 2013. As defined in standards established by the PCAOB, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness is related to the lack of sufficient personnel with adequate knowledge and experience in accounting for income taxes under U.S. GAAP.
Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal controls for purposes of identifying and reporting material weaknesses and other control deficiencies in our internal control over financial reporting, as we and they will be required to do under the Section 404 of the Sarbenes-Oxley Act of 2002. Had we performed a complete assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.
To remedy our control deficiencies, we have adopted several measures to improve our internal control over financial reporting. We recently hired a chief financial officer with U.S. public company and securities regulation experience and additional finance and accounting personnel, including a finance director and a finance manager
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with U.S. GAAP and SEC reporting experience and we plan to hire additional personnel with adequate knowledge and experience in dealing with income taxes under U.S. GAAP. In addition, we have (i) provided, and intend to continue to provide, on-going training to our accounting and operating personnel across different subsidiaries to improve their income tax accounting knowledge under U.S. GAAP; (ii) included the accounting for income taxes in our accounting manual under U.S. GAAP with detailed guidance on accounting policies and procedures and will continue to update the manual as needed; and (iii) begun to prepare technical accounting memos for complex transactions related to income taxes under U.S. GAAP. We will continue to implement measures to remedy our internal control deficiencies in order to meet the requirements under Section 404 of the Sarbanes-Oxley Act. However, the implementation of these measures may not fully address the deficiencies in our internal control over financial reporting. We are not able to estimate with reasonable certainty the costs that we will need to incur to implement these and other measures designed to improve our internal control over financial reporting. See Risk FactorsRisks Related to Our Business and IndustryIf we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may, therefore, be adversely impacted.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions and our expectations regarding the future based on available information, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.
Revenue recognition
We derive substantially all of our net revenues from tuition fees, a portion of which we allow qualified students to pay on installment for a period of time exceeding one year. When tuition services are sold on repayment terms that exceed one year beyond the point in time that revenue is recognized, the receivable, and therefore the revenue is recorded at the present value of the total payments. The difference between the present value of the receivable and the nominal or principal value of the tuition fees is recognized as interest income over the contractual collection period using the effective interest rate method. The interest rate used to determine the present value of the total amount receivable is the rate at which students can obtain financing of a similar nature from other sources at the date of the transaction. Revenue is presented net of business tax and value added taxes at rates ranging between 3% and 6%, and surcharges.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our students to make payments according to their respective payment plans stipulated on the arrangement. We determine the allowance by analyzing specific students accounts that have known or potential collection issues and applying historical loss rates to the aging of the remaining balances of accounts receivable. In the event that
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we believe an account receivable will become uncollectible, we record an additional provision to increase the allowance for doubtful accounts.
Long-lived assets
Our long-lived assets include property and equipment. We depreciate our property and equipment using the straight-line method over the estimated useful lives of the assets. We make estimates of the useful lives of property and equipment, including the salvage values, in order to determine the amount of depreciation expense to be recorded during each reporting period. We amortize leasehold improvements of our learning center facilities and offices over the shorter of the lease term or the estimated useful life of the assets. We estimate the useful lives of our other property and equipment at the time the assets are acquired based on historical experience with similar assets, as well as anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may be shortened, which would result in the recognition of increased depreciation expense in future periods. There has been no change to the estimated useful lives or salvage values of our property and equipment in 2011, 2012 and 2013.
We evaluate property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We assess recoverability by comparing the carrying amount of a long-lived asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, we recognize an impairment charge based on the amount by which the carrying amount exceeds the estimated fair value of the asset or asset group. We estimate the fair value of the asset or asset group based on the best information available, including prices for similar assets, and in the absence of an observable market price, the results of using a present value technique to estimate the fair value of the asset or asset group.
No impairment on our long-lived assets was recognized in 2011, 2012 and 2013.
Share-based Compensation
We measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award and recognize the cost over the period the employee is required to provide service in exchange for the award, which is generally the vesting period. We have elected to recognize the compensation cost for an award with only service conditions that have a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, net of estimated forfeitures, provided that the cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested at that date. Forfeiture rates are estimated based on historical and future expectations of employee turnover rates.
On September 22, 2008, we adopted the 2008 Plan, pursuant to which we can issue share options and other share-based awards to our key employees, directors and consultants to purchase up to 6,002,020 of our ordinary shares (being retroactively adjusted to reflect the effect of the share split). On November 28, 2012, we increased the number of our ordinary shares authorized for issuance under the 2008 Plan to 8,184,990. Share options issued before September 22, 2008 are also administered under the 2008 Plan.
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Since January 1, 2004, our board of directors has granted the following options to our executive officers and employees:
Number of
options |
Exercise price
(US$) |
Fair value of
ordinary share (US$) |
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Grant date |
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Prior to January 1, 2012 |
7,117,020 | 0.058-1.00 | 0.04-0.83 | |||||||||
January 1, 2013 |
2,030,566 | 1.83 | 3.75 | |||||||||
September 16, 2013 |
488,424 | 1.83 | 5.69 | |||||||||
February 20, 2014 |
1,805,784 | 1.83-4.36 | |
On February 20, 2014, we granted options to acquire a total of 1,805,784 ordinary shares under our 2014 share incentive plan to a number of executive officers and employees.
In determining the estimated fair value of share options granted to executive officers and certain employees, we have considered the guidance prescribed by the AICPA Audit and Accounting Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , or the Practice Aid, which sets forth the preferred types of valuation that should be used. We have followed the Level B recommendation, and established the fair value of our ordinary shares at the dates of grant using a retrospective valuation for valuation dates prior to September 2013 with the assistance of an independent valuation firm. We obtained a retrospective valuation instead of contemporaneous valuation for valuation dates prior to September 2013, because at that time, our financial and managerial resources were limited. The valuation as of September 2013 was prepared on contemporaneous basis. We are ultimately responsible for all the fair value measurements in relation to the options and ordinary shares.
In determining the fair value of our ordinary shares for the purpose of determining the fair value of the share options, we followed a two-step process. In the first step, the equity value of our company was determined by taking into consideration the income approach, or the discounted cash flow on DCF, method. We considered the market approach and searched for public companies located in China with business nature and in a development stage similar to ours. However, no companies were similar to us in all aspects. We therefore did not apply any weight for the market approach to arrive at the equity value of our company and only used the market approach to corroborate the valuation results based on the income approach.
In estimating the total equity value of our ordinary shares, we considered the DCF method, which incorporates the projected cash flow of our managements best estimation as of each measurement date. The projected cash flow estimation includes, among others, analysis of projected net revenue growth, gross margins and terminal value. The assumptions used in deriving the fair value of ordinary shares are consistent with our business plan.
The key assumptions used in developing the cash flow forecasts include: (i) compounded annualized growth rates of net revenue range from 19% to 52% for the forecasted period; (ii) gross margin forecast to improve with increasing economies of scale; and (iii) a terminal growth rate after the projection period.
The DCF method of the income approach involves applying appropriate weighted average cost of capital, or WACC, to discount the future cash flows forecast to present value. WACC comprises a required rate of return on equity plus the current tax effected rate of return on debt, weighted by the relative percentages of equity and debt in the capital structure of comparable public companies whose business operations are similar to that of ours. The required rates of return on equity were based on an estimation of the market required rate of return for investing in business similar to ours, which were derived by using the capital asset pricing model, or CAPM. Under CAPM, the discount rate was determined with consideration of the risk-free rate, industry-average correlated relative volatility coefficient beta, equity risk premium, size of our company, the scale of our business and our ability in achieving forecasted projections.
The risks associated with achieving the forecasts were assessed in selecting the appropriate WACC, which had been determined to range from 17.5% to 30%. The determined WACC decreased from 30% as of 2004 to
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17.5% as of 2013 was due to decrease in uncertainties associated with our financial forecast as we achieved millstones, progressed to later stage of development and developed solid track records.
In estimating the fair value of our ordinary shares by the DCF method, our management does not think there would be disproportionate returns of cash flows to different shareholders. Therefore, neither control premium nor a lack of control discount was considered in our valuations.
We also applied a discount for lack of marketability, or DLOM, ranging from 15% to 35%, to reflect the fact that there is no ready market for shares in a closely-held company like us. When determining the DLOM, the Black-Scholes option pricing model was used. Under this option-pricing method, the cost of the put option, which can hedge the price change before the privately held shares can be sold, was considered as a basis to determine the DLOM. This option pricing method was used because it takes into account certain company-specific factors, including the timing of the expected initial public offering and the volatility of the share price of the guideline companies engaged in the same industry.
The above assumptions used in determining the fair values were consistent with our business plan and major milestones we achieved. We also applied general assumptions, including the following:
| there will be no major changes in the existing political, legal, fiscal and economic conditions in countries in which we will carry on our business; |
| there will be no major changes in the current tax laws in countries in which we operate and, that the rates of tax payable remain unchanged and that all applicable laws and regulations will be complied with; |
| exchange rates and interest rates will not differ materially from those presently prevailing; |
| the availability of financing will not be a constraint on the future growth of our operation; |
| we will retain and have competent management, key personnel, and technical staff to support our ongoing operations; and |
| industry trends and market conditions for related industries will not deviate significantly from economic forecasts. |
In the second step, since our capital structure comprised convertible redeemable preferred shares and ordinary shares at each grant date, we allocated our equity value among each class of equity securities using the option-pricing method. The option-pricing method treats ordinary shares and preferred shares as call options on our companys equity value and liquidation preference, redemption preference and conversion threshold of the preferred shares as exercise price of the call options.
The increase in the fair value of our ordinary shares from US$3.75 per share as of January 1, 2013 to US$5.69 per share as of September 16, 2013 was primarily attributable to the following factors:
| We offered more courses at our learning centers in 2013. As a result of these offerings, we experienced rapid revenue and student growth in the nine-month period ended September 30, 2013. Our net revenues in the nine-month period ended September 30, 2013 were US$64.5 million, an increase of 64.5% from US$39.2 million in the nine-month period ended September 30, 2012. The number of learning centers increased from 57 as of December 31, 2012 to 86 as of September 30, 2013, and the number of student enrollments increased from 31,340 in 2012 to 33,289 in the nine months ended September 30, 2013, respectively. In view of the above, we adjusted our estimated earning upwards when we prepared financial forecast for valuation as of September 16, 2013, and lowered the discount rate used in valuation from 19.5% as of January 1, 2013 to 17.5% as of September 16, 2013. |
| As we progressed towards an initial public offering, leading time to an expected liquidity event decreased, resulting in a decrease of DLOM from 20% as of January 1, 2013 to 15% as of September 16, 2013. We also increased our estimated probability of IPO from 50% to 60%. As preferred shares would be automatically converted into ordinary shares upon IPO, the increase in estimated probability of IPO results in allocation of a higher portion of our business enterprise value to ordinary shares. |
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In determining the fair value of share options granted to executive officers and certain employees, we have used the binomial option pricing model. Under this option pricing model, certain assumptions, including the risk-free interest rate, the expected dividends on the underlying ordinary shares and the expected volatility of the price of the underlying shares for the contract term of the options, are required in order to determine the fair value of the options. Changes in these assumptions could significantly affect the fair value of share options and hence the amount of compensation expense we recognize in our consolidated financial statements.
For the options granted, we used the following assumptions on the date of grant in determining the estimated fair value per option:
Options granted in | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
Expected volatility |
45-46 | % | | 52 | % | |||||||
Expected dividends yield |
0 | % | | 0 | % | |||||||
Exercise multiple |
2.2 | | 2.2 | |||||||||
Risk-free interest rate per annum |
3.89%-3.93 | % | | 2.27%-3.38 | % | |||||||
Estimated fair value of underlying ordinary shares (per share) |
US$ | 0.63-0.83 | | US$ | 3.75-5.69 |
For the purpose of determining the estimated fair value of our share options, we believe the expected volatility and the estimated fair value of our ordinary shares are the most critical assumptions since we are a privately held company when we granted these share options.
Since we did not have a trading history at the time the share options were granted and we did not have sufficient share price history to calculate our own historical volatility, expected volatility of our future ordinary share price was estimated based on the price volatility of the shares of comparable public traded companies engaged in the similar industry.
Income taxes
The realization of the future tax benefits of deferred income tax assets is dependent on future taxable income against which such tax benefits can be applied or utilized and any tax planning strategies. In assessing the realizability of deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. All available evidence must be considered in determining the realizability of the deferred income tax assets. Such evidence includes, but is not limited to, the financial performance of subsidiaries and consolidated VIEs, the market environment in which these entities operate, the utilization of past tax credits, and the length of relevant carryforward periods. Sufficient negative evidence, such as a cumulative net loss during a three-year period that includes the current year and the prior two years, may require that a valuation allowance be established with respect to existing and future deferred income tax assets. In view of cumulative losses sustained by our PRC subsidiaries and consolidated VIEs, valuation allowances of US$0.73 million and US$0.60 million were provided as of December 31, 2012 and 2013, respectively. If, in the future, taxable incomes are available for each tax-paying component, the valuation allowances against our deferred income tax assets may be adjusted.
Recently Issued Accounting Policies
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). The standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification (e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic pension cost), companies would instead cross reference to the related footnote for
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additional information (e.g., the pension footnote). ASU 2013-02 is effective for interim and annual reporting periods beginning after December 15, 2012. We adopted the new standard on January 1, 2013.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The new standard is to be applied prospectively but retrospective application is permitted. We expect the adoption of ASU 2013-11 will not have a material impact on our consolidated financial statements.
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amounts and as percentages of our net revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
For the Year Ended December 31, | ||||||||||||||||||||||||
2011 | 2012 | 2013 | ||||||||||||||||||||||
US$ |
%of Net
Revenues |
US$ |
%of Net
Revenues |
US$ |
%of Net
Revenues |
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(in thousands, except for percentages) | ||||||||||||||||||||||||
Net revenues |
25,741 | 100.0 | % | 56,820 | 100.0 | % | 92,834 | 100.0 | % | |||||||||||||||
Cost of revenues (1) |
(8,714 | ) | (33.9 | ) | (17,762 | ) | (31.3 | ) | (29,068 | ) | (31.3 | ) | ||||||||||||
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Gross profit |
17,027 | 66.1 | 39,058 | 68.7 | 63,766 | 68.7 | ||||||||||||||||||
Operating expenses (1) : |
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Selling and marketing |
(7,676 | ) | (29.8 | ) | (16,875 | ) | (29.7 | ) | (30,252 | ) | (32.6 | ) | ||||||||||||
General and administrative |
(7,832 | ) | (30.4 | ) | (9,948 | ) | (17.5 | ) | (16,224 | ) | (17.6 | ) | ||||||||||||
Research and development |
(1,159 | ) | (4.5 | ) | (1,792 | ) | (3.2 | ) | (3,807 | ) | (4.1 | ) | ||||||||||||
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Operating income |
360 | 1.4 | 10,443 | 18.3 | 13,483 | 14.4 | ||||||||||||||||||
Interest income |
275 | 1.1 | 1,165 | 2.1 | 1,541 | 1.7 | ||||||||||||||||||
Interest expense |
| | (6 | ) | | | | |||||||||||||||||
Other income |
205 | 0.8 | 169 | 0.3 | 1,294 | 1.4 | ||||||||||||||||||
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Income before income taxes |
840 | 3.3 | 11,771 | 20.7 | 16,318 | 17.5 | ||||||||||||||||||
Income tax expense |
(139 | ) | (0.6 | ) | (2,219 | ) | (3.9 | ) | (2,271 | ) | (2.4 | ) | ||||||||||||
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Net income |
701 | 2.7 | % | 9,552 | 16.8 | % | 14,047 | 15.1 | % | |||||||||||||||
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Notes:
(1) | Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows: |
For the Year Ended
December 31, |
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2011 | 2012 | 2013 | ||||||||||
(in thousands US$) | ||||||||||||
Cost of revenues |
| | 17 | |||||||||
Selling and marketing expenses |
1 | 1 | 45 | |||||||||
General and administrative expenses |
59 | 125 | 654 | |||||||||
Research and development expenses |
3 | 3 | 48 |
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The Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012
Net revenues
Our net revenues increased by 63.4% from US$56.8 million in 2012 to US$92.8 million in 2013. This increase was primarily due to new student enrollments. The number of total student enrollments grew by 48.2% from 31,340 in 2012 to 46,458 in 2013. The number of our student enrollments is primarily driven by the number and popularity of our course offerings. While our existing courses continued to attract increased student enrollments, we launched three new courses in 2013. For example, we launched our digital art course in February 2013, which enrolled 5,003 students in 2013. The number of our learning centers increased from 57 as of December 31, 2012 to 92 as of December 31, 2013 to cater to the increased demand for our courses. To a lesser degree, our net revenues increase was also attributable to the increase of our tuition fees. In 2013, we raised the standard tuition fees on most of our courses by RMB1,000 (US$165) per course.
Cost of Revenues
Our cost of revenues increased by 63.7% from US$17.8 million in 2012 to US$29.1 million in 2013. This increase was primarily due to higher compensation expenses resulting from increased number of teaching and advisory staff at our learning centers. Our instructors, teaching assistants, career counselors and employer cooperation representatives at our learning centers increased from 921 as of December 31, 2012 to 1,179 as of December 31, 2013. The increase in cost of revenues was also attributable to increased rental payments for our learning centers. The number of our learning centers increased from 57 as of December 31, 2012 to 92 as of December 31, 2013.
Gross Profit
As a result of the foregoing, our gross profit increased by 63.3% from US$39.1 million in 2012 to US$63.8 million in 2013. Our gross profit margin was 68.7% in each of 2012 and 2013.
Operating Expenses
Our operating expenses increased by 75.7% from US$28.6 million in 2012 to US$50.3 million in 2013 as a result of increases in our selling and marketing, general and administrative and research and development expenses.
Selling and Marketing Expenses
Our selling and marketing expenses increased by 79.3% from US$16.9 million in 2012 to US$30.3 million in 2013. This increase was partially due to increased personnel cost and welfare expenses related to growth in our selling and marketing headcount from 959 as of December 31, 2012 to 1,321 as of December 31, 2013. The amount of personnel cost and welfare expenses for our selling and marketing staff increased from US$6.2 million in 2012 to US$12.9 million in 2013. The increase in selling and marketing expenses was also due to expanded marketing efforts, which increased advertising expenses from US$5.9 million in 2012 to US$11.6 million in 2013, primarily as a result of increased spending on search engine advertising as we expand our network of learning centers.
General and Administrative Expenses.
Our general and administrative expenses increased by 63.1% from US$9.9 million in 2012 to US$16.2 million in 2013 primarily due to increased headcount to support our growing operations from 456 as of December 31, 2012 to 591 as of December 31, 2013 and higher office expenses and office rental payments.
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Research and Development Expenses.
Our research and development expenses increased by 112.5% from US$1.8 million in 2012 to US$3.8 million in 2013 primarily due to increased compensation expenses of our instructors allocated to their content development activities for our new courses.
Interest Income, Net
Our net interest income increased from US$1.2 million in 2012 to US$1.5 million in 2013. Our interest income in both periods consisted of interest earned on our cash and time deposits deposited in commercial banks and interest income recognized in relation to our installment payment plan for students.
Income Tax Expense
Our income tax expense increased from US$2.2 million in 2012 to US$2.3 million in 2013 due to the increase in our taxable income, partially offset by a decrease in our effective income tax rate. The decrease in our effective income tax rate is primarily due to the effect of the higher proportion of taxable income generated by Tarena Tech which enjoys preferential income tax rate of 15%.
The effective income tax rate of 19% in 2012 was lower than the statutory income tax rate of 25% primarily because of (i) the preferential income tax rate of 15% enjoyed by Tarena Tech, (ii) the deemed profit method in determining income tax used by certain of our subsidiaries and consolidated VIEs, and (iii) the effect of research and development expenses bonus deduction allowed under PRC tax regulations, partially offset by recognition of valuation allowances for deferred income tax assets of certain subsidiaries, which were at cumulative loss position.
The effective income tax rate of 14% in 2013 was lower than the statutory income tax rate of 25% primarily because of the effect of the abovementioned Tarena Techs preferential income tax rate and the effect of research and development expenses bonus deduction allowed under PRC tax regulations.
Net Income
As a result of the foregoing, our net income increased from US$9.6 million in 2012 to US$14.0 million in 2013.
The Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011
Net revenues
Our net revenues increased by 120.7% from US$25.7 million in 2011 to US$56.8 million in 2012. This increase was primarily due to new student enrollments. The total number of student enrollments grew by 92.5% from 16,282 in 2011 to 31,340 in 2012. The number of our student enrollments is primarily driven by the number and popularity of our course offerings. Our existing courses continued to attract increased student enrollments and we launched our iOS course in 2012. The total number of our learning centers nationwide increased by 23 from 2011 to 2012 to cater to the increased demand for our courses. To a lesser degree, our net revenues increase was also attributable to the increase of our tuition fees. In 2012, we raised the standard tuition fees on most of our courses by RMB1,000 (US$165) per course.
Cost of Revenues
Our cost of revenues increased by 103.8% from US$8.7 million in 2011 to US$17.8 million in 2012. The increase in cost of revenues was primarily due to an increase in aggregate compensation expenses related to our teaching and advisory staff at our learning centers. Our instructors, teaching assistants, career counselors and employer cooperation representatives increased from 479 as of December 31, 2011 to 921 as of December 31,
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2012. The increase in cost of revenues was also attributable to increased rental payments for our learning centers. The number of our learning centers increased from 34 as of December 31, 2011 to 57 as of December 31, 2012.
Gross Profit
As a result of the foregoing, our gross profit increased by 129.4% from US$17.0 million in 2011 to US$39.1 million in 2012. Our gross profit margin increased from 66.1% in 2011 to 68.7% in 2012.
Operating Expenses
Our operating expenses increased by 71.7% from US$16.7 million in 2011 to US$28.6 million in 2012 as a result of increases in our selling and marketing, general and administrative and research and development expenses.
Selling and Marketing Expenses
Our selling and marketing expenses increased by 119.8% from US$7.7 million in 2011 to US$16.9 million in 2012. This increase was partially due to our expanded marketing effort, which increased advertising expenses from US$2.2 million in 2011 to US$5.9 million in 2012. The increase in advertising expenses primarily related to greater spending on search engine advertising as we expand our network of learning centers and price increase by major search engines. The increase in selling and marketing expenses was also due to increased personnel cost and welfare expenses related to the growth of our selling and marketing headcount from 528 as of December 31, 2011 to 959 as of December 31, 2012. The amount of personnel cost and welfare expenses related to our selling and marketing staff increased from US$2.8 million in 2011 to US$6.2 million in 2012.
General and Administrative Expenses
Our general and administrative expenses increased by 27.0% from US$7.8 million in 2011 to US$9.9 million in 2012, due to increased headcount to support our growing operations from 243 as of December 31, 2011 to 456 as of December 31, 2012 and higher office expenses and office rental. In 2011, in connection with the issuance of Series C convertible redeemable preferred shares, we incurred compensation charge of US$2.5 million in relation to ordinary share repurchases from Connion Capital Limited, a company owned by Mr. Shaoyun Han. The amount represents the excess between the repurchase price of our ordinary shares and the fair value of our ordinary shares on the date of repurchase.
Research and Development Expenses.
Our research and development expenses increased by 54.6% from US$1.2 million in 2011 to US$1.8 million in 2012 primarily due to increased compensation expenses of our instructors allocated to their content development activities.
Interest Income, Net
Our net interest income increased from US$0.3 million in 2011 to US$1.2 million in 2012. Our interest income in both years consisted of interest earned on our cash and time deposits deposited in commercial banks and interest income recognized in relation to our installment payment plan for students.
Income Tax Expense
Our income tax expense increased significantly from US$0.1 million for the year ended December 31, 2011 to US$2.2 million for the year ended December 31, 2012, primarily due to the increase in our taxable income and
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an increase in our effective income tax rate. The increase in our effective income tax rate is primarily due to a number of our previously loss-making learning centers becoming profitable in 2012.
The effective income tax rate of 17% for the year ended December 31, 2011 was lower than the statutory income tax rate of 25% primarily because of the reduction in valuation allowance for the deferred income tax assets of certain of our subsidiaries and consolidated VIEs, and the deemed profit method in determining income tax used by certain of our subsidiaries and consolidated VIEs, which is calculated based on revenues less deemed expenses equal to 85% to 90% of revenues, partially offset by our non-PRC entities not subject to income taxes.
The effective income tax rate of 19% for the year ended December 31, 2012 was lower than the statutory income tax rate of 25% primarily because of (i) the preferential income tax rate of 15% enjoyed by Tarena Tech, (ii) the deemed profit method in determining income tax used by certain of our subsidiaries and consolidated VIEs, and (iii) the effect of research and development expenses bonus deduction allowed under PRC tax regulations, partially offset by recognition of valuation allowances for deferred income tax assets of certain subsidiaries, which were at cumulative loss position.
Net Income
As a result of the foregoing, our net income increased from US$0.7 million in 2011 to US$9.6 million in 2012.
Selected Quarterly Results of Operations
The following table sets forth our unaudited condensed consolidated quarterly results of operations for each of the eight quarters in the period from January 1, 2012 to December 31, 2013. You should read the following table in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus. The unaudited condensed consolidated quarterly results of operations includes all adjustments that we consider necessary for a fair presentation of our operating results for the quarters presented. Our historical results for any particular quarter are not necessarily indicative of our future results.
For the Three Months Ended | ||||||||||||||||||||||||||||||||
March 31,
2012 |
June 30,
2012 |
September 30,
2012 |
December 31,
2012 |
March 31,
2013 |
June 30,
2013 |
September 30,
2013 |
December 31,
2013 |
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Selected Consolidated Statement of Comprehensive Income Data: |
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Net revenues |
8,147 | 13,318 | 17,721 | 17,634 | 15,142 | 20,826 | 28,491 | 28,375 | ||||||||||||||||||||||||
Cost of revenues (1) |
(3,124 | ) | (3,634 | ) | (4,971 | ) | (6,033 | ) | (6,014 | ) | (6,616 | ) | (8,017 | ) | (8,421 | ) | ||||||||||||||||
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Gross profit |
5,023 | 9,684 | 12,750 | 11,601 | 9,128 | 14,210 | 20,474 | 19,954 | ||||||||||||||||||||||||
Operating expenses (1) : |
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Selling and marketing |
(2,982 | ) | (4,000 | ) | (4,523 | ) | (5,370 | ) | (5,518 | ) | (7,671 | ) | (8,672 | ) | (8,391 | ) | ||||||||||||||||
General and administrative |
(2,076 | ) | (2,296 | ) | (2,467 | ) | (3,109 | ) | (3,221 | ) | (3,804 | ) | (4,182 | ) | (5,017 | ) | ||||||||||||||||
Research and development |
(364 | ) | (447 | ) | (433 | ) | (548 | ) | (627 | ) | (996 | ) | (997 | ) | (1,187 | ) | ||||||||||||||||
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Operating income (loss) |
(399 | ) | 2,941 | 5,327 | 2,574 | (238 | ) | 1,739 | 6,623 | 5,359 | ||||||||||||||||||||||
Interest income |
233 | 261 | 238 | 433 | 293 | 512 | 639 | 97 | ||||||||||||||||||||||||
Interest expense |
(5 | ) | (1 | ) | | | | | | | ||||||||||||||||||||||
Other income |
86 | 52 | 9 | 22 | 1 | 38 | 95 | 1,160 | ||||||||||||||||||||||||
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Income (loss) before income taxes |
(85 | ) | 3,253 | 5,574 | 3,029 | 56 | 2,289 | 7,357 | 6,616 | |||||||||||||||||||||||
Income tax benefit (expense) |
17 | (596 | ) | (949 | ) | (691 | ) | (10 | ) | (407 | ) | (1,331 | ) | (523 | ) | |||||||||||||||||
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Net income (loss) |
(68 | ) | 2,657 | 4,625 | 2,338 | 46 | 1,882 | 6,026 | 6,093 | |||||||||||||||||||||||
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Note:
(1) | Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows: |
For the Three Months Ended | ||||||||||||||||||||||||||||||||
March 31,
2012 |
June 30,
2012 |
September 30,
2012 |
December 31,
2012 |
March 31,
2013 |
June 30,
2013 |
September 30,
2013 |
December 31,
2013 |
|||||||||||||||||||||||||
(in thousands of US$) | ||||||||||||||||||||||||||||||||
Cost of revenues |
| | | | 4 | 4 | 4 | 4 | ||||||||||||||||||||||||
Selling and marketing expenses |
| | | | 11 | 11 | 11 | 11 | ||||||||||||||||||||||||
General and administrative expenses |
31 | 31 | 31 | 31 | 149 | 149 | 158 | 198 | ||||||||||||||||||||||||
Research and development expenses |
1 | 1 | 1 | 1 | 12 | 12 | 12 | 12 |
The growth of our quarterly net revenues was primarily driven by the increases in student enrollments over the eight quarters in the period from January 1, 2012 to December 31, 2013. The following table sets forth our student enrollments for each of the eight quarters in the period from January 1, 2012 to December 31, 2013:
For the Three Months Ended | ||||||||||||||||||||||||||||||||
March 31,
2012 |
June 30,
2012 |
September 30,
2012 |
December 31,
2012 |
March 31,
2013 |
June 30,
2013 |
September 30,
2013 |
December 31,
2013 |
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Student enrollments (1) |
6,239 | 8,618 | 8,354 | 8,129 | 8,473 | 11,341 | 13,475 | 13,169 |
Note:
(1) | The number of student enrollments as presented does not include student enrollments at our two franchised learning centers in Taiyuan and Xian. |
Seasonal fluctuations have affected, and are likely to continue to affect, our business. Historically, we typically generate the highest net revenues in the third and fourth quarters because of the increased student enrollments during summer vacation. We generally generate less tuition fees in the first quarter of each year due to the Chinese New Year holiday. For example, we expect our net revenues in the quarter ended March 31, 2014 to be lower than in the quarter ended December 31, 2013 primarily due to the Chinese New Year holiday consistent with prior years. Our quarterly cost of revenue, selling and marketing expenses, general and administrative expenses and research and development expenses have generally been increasing in absolute amounts during the period from January 1, 2012 to December 31, 2013 as we expanded our network of learning centers, increased the number of our personnel and enhanced our marketing efforts. We may experience fluctuations in our quarterly results of operations after this offering, for the reasons given above or other reasons, which may be significant. See also Risk FactorsRisks Related to Our BusinessOur business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter to quarter. This may result in volatility in and adversely affect the price of our ADSs.
Liquidity and Capital Resources
Cash Flows and Working Capital
Our principal sources of liquidity have been cash generated from operating activities and proceeds from the issuance and sale of our preferred shares. As of December 31, 2013, we had US$38.3 million in cash, cash equivalents and time deposits and we had no bank borrowings. Our cash consists of cash on hand and cash in bank, which are unrestricted as to withdrawal. Cash and cash equivalents of our consolidated VIEs, in the amount of US$0.2 million as of December 31, 2013, can be used only to settle obligations of our consolidated VIEs. Cash equivalents consist of interest-bearing certificates of deposit with initial term of no more than three months when purchased. Time deposits represent certificates of deposit and those that mature over one year as of the balance sheet date are included in non-current assets.
We believe that our current cash, cash equivalents and time deposits and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months.
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The following table sets forth a summary of our cash flows for the periods indicated:
For the Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
(US$ in thousands) | ||||||||||||
Net cash provided by (used in) operating activities |
(1,004 | ) | 7,444 | 29,706 | ||||||||
Net cash used in investing activities |
(1,563 | ) | (7,915 | ) | (19,537 | ) | ||||||
Net cash provided by (used in) financing activities |
17,560 | (227 | ) | (591 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
15,081 | (653 | ) | 9,942 | ||||||||
Cash and cash equivalents at the beginning of the year |
1,769 | 16,850 | 16,197 | |||||||||
Cash and cash equivalents at end of the year |
16,850 | 16,197 | 26,139 |
Operating Activities
Net cash provided by operating activities increased to US$29.7 million in 2013 from US$7.4 million in 2012, primarily due to an increase of approximately US$48 million in cash collected from our students in 2013, which were partially offset by an increase of approximately US$25 million in cash operating expenditures and an increase of approximately US$1 million in income tax payment in 2013.
Net cash provided by operating activities was US$7.4 million in 2012 compared with net cash used in operating activities of US$1.0 million in 2011, primarily due to an increase of approximately US$28 million in cash collected from our students in 2012, which were partially offset by an increase of approximately US$20 million in cash operating expenditures and an increase of approximately US$1 million in income tax payment in 2012.
Investing Activities
We lease all of our facilities. Our cash used in investing activities is primarily related to leasehold improvements, purchase of property and equipment, and investments in time deposits and short-term financial products.
Net cash used in investing activities was US$19.5 million in 2013, consisting of purchases of property and equipment, including computers and servers, of approximately US$9 million in connection with the expansion of our network of learning centers; purchase of time deposits of approximately US$17 million; purchase of short-term investment in the amount of approximately US$11 million; and partially offset by the maturity of short-term investment of approximately US$11 million, maturity of time deposits of approximately US$6 million, and proceeds from repayment of housing loans from employees in the amount of approximately US$1 million.
Net cash used in investing activities was US$7.9 million in 2012, consisting of purchases of property and equipment, including computers and servers, of approximately US$7 million in connection with the expansion of our network of learning centers, purchase of time deposits of approximately US$1 million and issuance of housing loans to employees in the amount of approximately US$1 million, partially offset by the maturity of time deposits in the amount of approximately US$1 million. Our loans to employees were aimed at helping them finance their purchase of apartments. Our loans issued to our employees in 2012 have been collected as of December 31, 2013.
Net cash used in investing activities was US$1.6 million in 2011, consisting of purchase of equipment of approximately US$3 million in connection with the expansion of our network of learning centers, partially offset by the maturity of time deposits of approximately US$1 million.
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Financing Activities
Net cash used in financing activities in 2013 was US$0.6 million, which was primarily attributable to the payment of costs related to this offering in the amount of US$0.5 million.
Net cash used in financing activities in 2012 was US$0.2 million.
Net cash provided by financing activities in 2011 was US$17.6 million, which was primarily attributable to our issuance of Series C preferred shares, which contributed approximately US$20 million in cash after deducting payment of relevant issuance costs, partially offset by our repurchase of certain ordinary shares from Connion Capital Limited, a company owned by Mr. Shaoyun Han, of approximately US$3 million.
Capital Expenditures
Our capital expenditures are primarily related to leasehold improvements and investments in computers, network equipment and software. Our capital expenditures were US$2.9 million, US$7.2 million and US$9.1 million in 2011, 2012 and 2013, respectively. We intend to continue to lease facilities for our learning centers in order to allocate our capital resources cost-efficiently. We may make acquisitions of businesses and properties that complement our operations when suitable opportunities arise. We expect our capital expenditures will continue to be significant for the near future as we continue to expand our network of learning centers.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2013:
Payment due by December 31, | ||||||||||||||||||||||||||||
Total | 2014 | 2015 | 2016 | 2017 | 2018 |
2019 and
thereafter |
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(in thousands of US$) | ||||||||||||||||||||||||||||
Operating lease commitments (1) |
26,227 | 9,085 | 6,198 | 3,868 | 2,737 | 1,307 | 3,032 |
Note:
(1) | Represents our non-cancelable leases for our offices and learning centers. |
Holding Company Structure
We are a holding company with no material operations of our own. We conduct our operations primarily through our wholly-owned subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our wholly-owned subsidiaries. If our wholly-owned subsidiaries or any newly formed subsidiaries incur any debt in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly-owned subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory surplus reserve until such reserve reaches 50% of its registered capital. Although the statutory surplus reserves can be used to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. As a result of these PRC laws and regulations, as of December 31, 2013, we had US$2.8 million in statutory surplus reserves that are not distributable as cash dividends. Our PRC subsidiaries have not historically paid any dividends to our offshore entities from their accumulated profits. However, we do not expect that the statutory surplus reserve requirement will materially limit our ability to pay dividends to our shareholders or our plan to expand our business because we are only required to set aside an additional US$12.0 million to satisfy the maximum requirement of statutory surplus reserves for all of our PRC subsidiaries. In addition, our private schools requiring reasonable returns are required to appropriate no less than 25% of their net income to a
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statutory development fund, whereas in the case of private schools requiring reasonable return, this amount shall be no less than 25% of the annual increase of their net assets. As of December 31, 2013, we had US$0.9 million in statutory development fund that are not distributable as cash dividends.
Off-Balance Sheet Commitments and Arrangements
Starting from 2011, Chuanbang, a credit-sourcing company in China owned by Mr. Shaoyun Han, our chief executive officer, began to offer person-to-person lending services to our students to help them pay for our tuition fees. Under the person-to-person lending service, we serve as the guarantor of the loans taken out by students. Starting from April 2013, we had stopped providing guarantees for any new student loans arranged by Chuanbang. See Related Party TransactionsTransactions with Shareholders and AffiliatesTransactions with Chuanbang. As of December 31, 2012 and 2013, our maximum exposure to guarantees of student loans obtained through Chuanbang was US$7.4 million and US$4.4 million, respectively.
Other than the above, we have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. We have not used any derivative financial instruments to manage our interest risk exposure. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.
Foreign Exchange Risk
Substantially all of our net revenues, costs and expenses are denominated in Renminbi. The Renminbi is not freely convertible into foreign currencies for capital account transactions. The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in Chinas political and economic conditions and Chinas foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed the Renminbi to appreciate slowly against the U.S. dollar again. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.
We estimate that we will receive net proceeds of approximately US$ million from this offering if the underwriters do not exercise their option to purchase additional ADSs, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, based on the initial offering price of US$ per ADS (the mid-point of the estimated initial public offering price range shown on the front cover page of this prospectus). Assuming that we convert the full amount of the net proceeds from this offering into RMB, a % appreciation of the U.S. dollar against RMB, from a rate of RMB to US$1.00 to a rate of
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RMB to US$1.00, will result in an increase of RMB million in our net proceeds from this offering. Conversely, a % depreciation of the U.S. dollar against the RMB, from a rate of RMB to US$1.00 to a rate of RMB to US$1.00, will result in a decrease of RMB million in our net proceeds from this offering.
Inflation Risk
Since our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the consumer price index in China increased by 5.4%, 2.6% and 2.6% in 2011, 2012 and 2013, respectively. Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China.
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We define the professional education services market in China as non-degree granting, post-secondary education programs focused on professional career advancement. We believe this market is highly attractive due to its large addressable population, strong growth rate and high fragmentation. According to IDC, the professional education services market, which includes IT, computer graphics, online marketing, finance and accounting, and management, grew from RMB48.8 billion (US$8.1 billion) in 2010 to RMB67.5 billion (US$11.1 billion) in 2013, representing a CAGR of 11.4% and is projected to grow to RMB89.0 billion (US$14.7 billion) in 2017, representing a CAGR of 7.2% from 2013. In addition, the professional education services market in China is highly fragmented with no single company holding significant market share. We believe this fragmentation enables market players with high quality curricula and a track record of delivering strong educational outcomes to attract more students and further grow market share.
Key Market Growth Drivers
Growth in Chinas professional education services market is a result of a number of factors including favorable economic and demographic trends, an intensely competitive employment market, a significant demand and supply gap for qualified skilled professionals and government support for the professional education services industry.
Favorable economic and demographic trends
Chinas rapid economic growth has stimulated increasing spending on professional education services. According to the National Bureau of Statistics of China, or NBSC, Chinas GDP reached RMB51.9 trillion (US$8.6 trillion) in 2012, representing a CAGR of 14.3% from 2007. In addition, annual consumption expenditure on education, cultural and recreational services per capita in urban households reached RMB2,034 (US$336.0) in 2012, representing a CAGR of 8.9% from 2007 according to NBSC.
Chinas favorable demographic trends, including a large young population and rapid urbanization, have also contributed to the growth of the professional education services market. Based on figures cited in NBSCs 2013 China Statistical Yearbook, the Chinese population between the ages of 20 and 29 reached 231 million in 2012. China has also experienced tremendous urban population growth, which increased by 105 million from 2007 to 2012, according to the NBSC. Increased urbanization has boosted demand for skilled workers especially in the services industry, further driving growth of the professional education services market.
Intensely competitive employment market
According to NBSC, the number of college graduates in China increased from 4.5 million in 2007 to 6.2 million in 2012. Given the significant influx of college graduates, we believe Chinas employment market for new graduates has become intensely competitive and prospective job seekers are facing increasing challenges in securing employment post-graduation, particularly for more desirable, higher paying jobs. The heightened level of competition is motivating new job market entrants to equip themselves with broader skill sets and more job-ready, practical training, which fosters greater demand for professional education services.
Significant demand and supply gap for qualified skilled professionals
Despite growing demand for qualified skilled professionals in areas such as IT, Chinese universities have not been able to generate a sufficient number of qualified candidates. Universities and colleges in China generally offer fewer courses designed to provide students with practical training and skill sets in preparation for employment. As a result, a significant gap exists between the knowledge that students gain through their
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university education and the practical skills required for entry-level positions in the competitive professional job market. Professional education services providers are helping to close this gap by offering practical, competency-based training through relatively short and flexible programs and better connections to prospective employers.
Government support for the professional education services industry
The Chinese government has published a series of laws and regulations over the past two decades that are favorable to the professional education services industry. Under the Vocational Education Law of the PRC adopted in 1996, vocational education is recognized as an important path for promotion of economic and social development and higher employment rates. Under the Employment Promotion Law of the PRC that became effective in 2008, enterprises in China are required to set aside financial resources for the skill training and continued education of their employees, which we believe has further encouraged enterprises spending on professional education services. The PRC Catalogue for the Guidance of Foreign Investment Industries (amended) that became effective on January 30, 2012 listed professional education services as an industry in which foreign investments are encouraged by the government. Such government support is expected to foster further expansion of the industry in China.
Learning Modalities
Historically, classroom-based learning has been the most common format for professional education services delivery in China. Classroom-based learning has traditionally been viewed as an effective teaching format due to students ability to interact with instructors in person in a closer and more disciplined learning environment. However, classroom-based education services providers generally face the challenge of scalability due to limited availability of high quality teachers and the significant costs associated with expansion of physical learning center networks. In addition, prospective students may not have the ability to physically attend classes on a regular basis and are increasingly demanding more flexible learning formats.
With increasing Internet penetration, online learning has risen in popularity in Chinas education services market in recent years. While online learning allows students more flexibility in pursuing their education, it has not achieved widespread acceptance in the professional services market as practical skills training is difficult to do solely online. Without strong education pedigrees, the major online learning players in China have mostly focused on the test preparation market. However, both employers and students are now increasingly focusing on practical training for job-ready skills.
The hybrid learning model, which combines the benefits of both traditional classroom-based learning and online learning, is an emerging and innovative modality for professional education services in China. With the hybrid learning model, professional education service providers deliver live courses to multiple classrooms simultaneously through webcasts. Teaching assistants tutor students on-site during and after these webcasts to ensure adequate retention and understanding of the subject matter. This combination of tutoring and live instruction is typically supplemented with online learning modules that students use to learn, practice and assess progress at their own pace.
Unlike the traditional classroom-based learning model, which requires the hiring and retention of local teachers, the hybrid learning model is highly scalable given its ability to deliver instruction via webcast to a widespread audience. In addition, the hybrid learning model is capable of creating a more disciplined learning environment and driving greater persistence among students, which are advantages over the purely online learning model.
Key Market Verticals
Professional education service providers in China generally target industries with high employment demand, such as IT, computer graphics, online marketing, finance and accounting, and management, which are
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categorized by strong career prospects with attractive salaries, a broad and diverse prospective trainee base and high professional requirements that are evolving given rapid technological innovation.
Information Technology
According to IDC, the IT professional education services market in China grew from RMB5.3 billion (US$875 million) in 2010 to RMB7.7 billion (US$1.3 billion) in 2013, representing a CAGR of 13.7%, and is expected to further grow at a CAGR of 11.6% to RMB12.0 billion (US$2.0 billion) in 2017. A number of factors are expected to contribute to this growth, including:
| Growing IT industry in China . Chinas IT industry has experienced solid growth over the past several years, creating increasing demand for IT-related services among both corporations and individuals. According to IDC, Chinas IT services industry grew at a CAGR of 12% in 2013 compared to 2012. The rapid growth of Chinas IT industry has created significant demand for qualified students with practical IT training. |
| Rapid innovation in IT . The rapid development of new IT technologies, along with emerging platforms and trends, such as mobile Internet, cloud computing and big data, make it difficult for university curricula and IT professionals to stay current on the latest technologies. According to IDC, the rapid transformation in the IT sector is expected to continue for at least a decade, leading corporations to seek out enhanced IT training for in-house staff, and IT professionals and students to seek training on the latest technologies on a regular basis. The impact of IT innovation is not confined to technology firms alone. For example, 40% of graduates from IT professional education providers are employed by non-IT companies, according to IDC. |
| Government support for IT industry in China. The Chinese government has increasingly focused on supporting the growth of the IT industry. Chinas education reform agenda as set forth in its central governments Five Year Plan, among other policies, demonstrates strong support for the expansion of the IT sector. The government has invested in critical infrastructure, such as modern telecommunication networks and high-speed broadband connections, for the development of the IT industry. The government has also supported the development of IT industry parks to attract multinational IT firms. Furthermore, in February 2013, the Office of the State Council issued extended tax incentives for outsourcing service sectors, including IT, in selected cities through December 2018. Such government support will likely continue to generate significant demand for qualified professionals in the expanding IT industry. |
While the IT professional education services market in China remains fragmented, Tarena is the largest provider with 8.3% market share as measured by revenues in 2013, more than double that of the second largest provider, according to IDC. Tarena is also able to charge premium prices compared to its major competitors.
Computer Graphics
According to IDC, the computer graphics training market grew from RMB1.9 billion (US$314 million) in 2010 to RMB2.8 billion (US$463 million) in 2013, representing a CAGR of 13.3%, and is expected to further grow at a CAGR of 12.0% to RMB4.4 billion (US$727 million) in 2017.
Computer graphics is generally defined as the application of computer technology to visual design and production, and covers a wide range of professions, including graphic design, web design, three dimensional animation, film effect, multi-media technology and computer-aided architectural and industry design. The growing web and mobile-based presence of businesses throughout China is driving strong market demand and high salary levels for qualified professionals. As such, quality training institutions are able to charge premium tuition fees for computer graphics courses.
Online Marketing
According to IDC, online marketing training market grew from RMB550 million (US$91 million) in 2010 to RMB870 million (US$144 million) in 2013, representing a CAGR of 16.7%, and is expected to further grow at a CAGR of 15.3% to RMB1.5 billion (US$248 million) in 2017.
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This increasing demand for training is mainly driven by the rapid growth of Internet advertising in China. With the emergence of widely available Internet access in China, online marketing has become an essential tool for corporations due to its relatively low costs and broad reach. According to iResearch, online advertising market in China has grown at a CAGR of 46.5% in 2010 to 2013. The increasing demand for personnel with online sales and marketing skills is the key driver for professional training services in this field.
Finance and Accounting
According to IDC, the finance and accounting training market grew from RMB2.5 billion (US$413 million) in 2010 to RMB3.5 billion (US$578 million) in 2013, representing a CAGR of 11.6%, and is expected to further grow at a CAGR of 9.7% to RMB5.1 billion (US$842 million) in 2017.
Training in finance and accounting is mostly driven by a demand for qualifications and professional certifications, which are earned through professional exams. Training in these areas is thus exam-centric, often targeted to current professionals, and lends itself well to an online learning model. The market is highly fragmented and dominated by small and medium-sized institutions, creating an opportunity for market share consolidation by reputable national training providers.
Management
According to IDC, the management training market grew from RMB38.5 billion (US$6.4 billion) in 2010 to RMB52.6 billion (US$8.7 billion) in 2013, representing a CAGR of 10.9%, and is expected to further grow at a CAGR of 5.8% to RMB65.9 billion (US$10.9 billion) in 2017. A number of factors are expected to contribute to this growth, including:
| Demands of a market-oriented economy . Chinas entry into the WTO has created increased global competition for companies operating in China, driving demand for more capable management teams. |
| Government support . The Chinese governments Regulations on Vocational Skill Training and Appraisal require employers to allocate funds for employee training. This drives a high level of demand from corporations for management training. |
| Rising consumer demand . Corporations have traditionally accounted for the majority of spending in the professional training market in China. However, given an increasingly competitive job market as well as intensifying competition for upward mobility for existing corporate employees, individuals are increasingly paying out-of-pocket for management courses. For mid- and upper-level managers, management training courses are viewed as an effective means of broadening professional networks, which are important resources in Chinas business culture. |
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Overview
We are a leading provider of professional education services in China. Our core strength is in IT professional education services, where we are the largest provider in China with a market share of 8.3% as measured by revenues in 2013 according to IDC, a third-party research firm. Since our inception in 2002, we have trained over 130,000 students, cooperated with more than 500 universities and colleges and placed students with approximately 35,000 corporate employers in a variety of industries. Our six-month post-course job placement rates for students enrolled in 2011 and 2012 have averaged over 90%. The average starting salary of our students enrolled in 2012 was 14.3% higher than the national average of college graduates in 2012, calculated based on data from IDC.
We have an innovative education platform combining live distance instruction, classroom-based tutoring and online learning modules. For each class, instructors deliver lectures from one classroom in Beijing to students in the same classroom as well as to students at our learning centers across China via simultaneous webcast. To facilitate a disciplined and focused learning environment, we staff each classroom at our learning centers with one or two on-site teaching assistants to tutor and supervise students. We complement the live instruction and tutoring with our proprietary learning management system TTS. TTS has five core functions, featuring course content, self-assessment exams, student and teaching staff interaction tools, student management tools and an online student community. Through this education platform, we provide job-oriented education with measurable outcomes, as demonstrated by our high job placement rates and students academic performance.
We currently offer courses in nine IT subjects and two non-IT subjects. Our courses provide students with practical education to prepare them
for jobs in industries with significant growth potential and strong hiring demand. We believe we have successfully established Tarena (
) as a respected professional education brand known for high teaching quality and an excellent student placement track record. In 2013, we were recognized as the
Outstanding Training Institute
by the
Ministry of Industry and Information Technology of China.
With a strong commitment to career services, we have established an outstanding job placement record and a broad network of corporate employers. Our team of over 200 career counselors advise students through mandatory job skill seminars, one-on-one interview workshops and systematic career assessment and planning. We have over 100 employer cooperation representatives who liaise closely with employers, alumni, human resources websites and other employment recruiters to maximize job opportunities for our students. We have a track record of producing qualified, job-ready candidates for many corporate employers in China, including global Fortune 500 companies and leading technology companies. Our access to a large number of corporate employers is appealing to prospective students, which in turn contributes to our student enrollment growth and further allows us to provide a larger pool of qualified candidates to employers.
Capitalizing on our innovative education platform, we have built a highly scalable business that we can expand and replicate rapidly with consistent quality. We deliver high quality lectures through a group of experienced and passionate instructors based in Beijing to a nationwide network of 92 directly operated learning centers in 33 cities in China. Compared to traditional classroom-based teaching, which requires hiring and training of instructors for local sites, we are able to expand our geographic footprint and class sizes without impacting the quality of our course offerings because we are generally able to provide our students across China with equal access to the same group of instructors. For our most established Java course, our student-to-instructor ratio increased from 1,624-to-1 in 2011 to 3,276-to-1 in 2013, and the average net revenues per instructor for our Java course increased from approximately US$2.7 million in 2011 to approximately US$6.9 million in 2013.
We have experienced significant growth in recent years. Our student enrollments grew from 16,282 in 2011 to 46,458 in 2013, representing a CAGR of 68.9%. Our net revenues increased from US$25.7 million in 2011 to
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US$92.8 million in 2013, representing a CAGR of 89.9%. A substantial portion of our total net revenues are generated from Java courses, which contributed 70.6%, 71.3% and 59.3% of our total net revenues in 2011, 2012 and 2013, respectively. Our net income increased from US$0.7 million in 2011 to US$14.0 million in 2013.
We are a holding company with no material operations of our own. We conduct our operations primarily through our wholly-owned subsidiaries in China. We also control and consolidated a VIE, Beijing Tarena Jinqiao Technology Co., Ltd., or Beijing Tarena. Beijing Tarena holds an ICP license that is necessary for the operation of our website, www.it211.com.cn , which primarily serves a marketing function for our business. We are currently not eligible as a foreign-invested enterprise to hold an ICP license. If Beijing Tarena or its shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control. If we are unable to maintain effective control over Beijing Tarena, we would not be able to continue to use the ICP license to operate our www.it211.com.cn website.
Our Value Proposition to Students and Employers
Our services bridge the gap between students need for practical training and employers demand for trained professionals.
| Value proposition to students : For students, we provide practical training necessary to succeed in highly competitive professional job markets. Our job-oriented education offers students valuable practical skills that post-secondary institutions in China are less-equipped to provide. In addition, our personalized job placement services prepare students to perform well in the recruiting and interview processes. |
| Value proposition to employers : For employers, we provide a large and stable pool of job-ready prospective employees and tailored recruitment services that meet their hiring needs in a cost-effective and time-efficient manner. We address their needs for skilled entry-level professionals by closely aligning our course offerings with the practical knowledge needed in the marketplace. |
Our Strengths
We believe the following competitive strengths are essential for our success and differentiate us from our competitors:
Highly innovative and effective education platform
We have developed an innovative education platform combining three key components: live distance instruction, classroom-based tutoring and online learning modules.
| Live distance instruction . As compared to traditional local classroom-based teaching with multiple local instructors whose teaching capabilities vary, we generally provide our students throughout China with real-time access to the same group of experienced and high quality instructors, which ensures consistent teaching quality across geographies. We believe live instruction fosters a better student learning experience than pre-recorded lectures because students perceive instructors to be more engaging and interactive. Furthermore, delivering live instruction enables instructors to receive daily feedback from students and to make timely adjustments to their lecture content and pace. |
|
Classroom-based tutoring . We require our students to attend classes at our learning centers where our teaching assistants are physically present to tutor and supervise students, thereby facilitating a disciplined and focused learning environment. We believe such an environment is essential for our |
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students to master the technical subjects of our courses. Physical class attendance also enables us to assess student engagement in real-time and to provide personalized tutoring services to students. |
| Online learning modules . Online learning modules delivered via our proprietary TTS learning management system are a critical component of our education platform. TTS supplements our lectures and allows students to practice and assess their understanding of lecture materials, as well as interact with instructors, teaching assistants and classmates, thereby further enhancing student engagement and performance. TTS also provides tools for instructors and teaching assistants to respond to student requests and questions, and to monitor the academic performance and class attendance of students. |
Through this innovative effective education platform, we provide job-oriented education with measurable outcome as demonstrated by our high job placement rates and students academic performance. Our education platform has been well received by the market, as demonstrated by our position as the largest IT professional education service provider in China, as measured by revenues in 2013, according to IDC.
Scalable and efficient business model
Capitalizing on our innovative education platform, we have built a highly scalable business model that we can expand and replicate rapidly with consistent quality. We currently have a group of experienced and passionate instructors delivering lectures from our headquarters in Beijing to our nationwide network of 92 directly operated learning centers in 33 cities in China. Our instructors provided training to over 46,000 students in 2013. Compared to traditional classroom-based teaching, which requires hiring and training of instructors for local sites, we are able to expand our geographic footprint and class sizes rapidly without impacting the quality of our course offerings. For example, for our most established Java course, our student-to-instructor ratio increased from 1,624-to-1 in 2011 to 3,276-to-1 in 2013, and the average net revenues per instructor for our Java course increased from approximately US$2.7 million in 2011 to approximately US$6.9 million in 2013.
Our business model enables us to be quick-to-market, replicating our learning centers with efficiency. We centralize our instructor recruiting, continuous training and content development efforts in Beijing, enabling our local learning centers to focus their resources on marketing and job placement services. We are generally able to commence classes at a new learning center within seven weeks after we decide to open such learning center. We operated 34 and 92 learning centers as of December 31, 2011 and 2013, respectively, representing CAGR of 64.5%.
Respected brand known for high quality professional education
We believe our Tarena (
) brand is known for high teaching quality and an excellent student placement track record. In 2013, we were recognized as the
Outstanding Training Institute
by the Ministry of Industry and Information Technology
of China. Our commitment to high quality instructors is reflected in our highly selective instructor hiring process, emphasis on rigorous evaluation and competitive performance-based compensation. Our instructors generally have industry background
with many years of corporate work experience. Our internal quality control personnel monitor the teaching quality of each instructor. We collect feedback on our instructors from students on a daily basis through multiple channels and provide
professional development training for instructors on an ongoing basis. We provide our instructors with performance-based compensation packages which we believe are among the highest in the professional education services market in China. This has
helped us retain our best teaching talent as evidenced by our annual instructor retention rate of approximately 87% in the past two years.
We develop all of our programs and content in-house. We have formulated a systematic approach to identify, develop and evaluate new courses based on job market demand and industry trends. With our
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experienced and passionate instructor team, we are able to offer a variety of high quality and practical IT, software and other professional education services while adding new courses and updating existing programs to meet market demands from time to time. For example, we launched our digital art, Linux and network engineering and online sales and marketing courses in 2013 in response to the latest industry demands for trained professionals in these areas.
Our strong brand allows us to maintain premium tuition fees relative to our competitors while continuing to periodically increase tuition fees. Over the past three years, we have increased tuition fees for our courses twice while maintaining strong enrollment growth. Furthermore, we are able to leverage our brand to rapidly and successfully expand into new fields of professional education. For example, we launched our new course in digital art in February 2013 and recruited 5,003 students in 2013.
Outstanding job placement record supported by our access to a broad network of corporate employers
We have a track record of producing job-ready and highly qualified candidates for many corporate employers. Since our inception in 2002, we have placed students with approximately 35,000 corporate employers in a variety of industries. In addition to referrals and recruiting events, we offer customized courses designed to recruit and train students that suit the needs of specific employers upon graduation. Our access to a large number of corporate employers is appealing to potential students, which in turn contributes to our student enrollment growth and further allows us to provide a larger pool of qualified candidates to employers.
We offer personalized and systematic job placement services through hundreds of in-house career counselors. Our career counselors organize a series of seminars on job-seeking skills and professionalism in the workplace and conduct one-on-one interview training sessions with students. Our employer cooperation representatives liaise closely with employers, alumni, human resources websites and other employment recruiters, and regularly organize recruiting events at our learning centers and refer qualified students to employers.
Our high quality education, extensive employer network and dedicated job placement services allow us to achieve high student job placement rates. Our six-month post-course job placement rates for students enrolled in 2011 and 2012 have averaged over 90%.
Experienced management team with a proven track record
We have a strong management team with extensive experience in and passion for the professional education services industry. Mr. Shaoyun Han, our founder, chairman and chief executive officer, is an IT industry veteran with over 20 years of experience. Prior to founding Tarena, Mr. Han was deputy chief engineer and director of the software division of AsiaInfo-Linkage, Inc., or AsiaInfo-Linkage, a leading provider of software solutions and IT services in China. We have a seasoned team of senior officers and regional managers with significant prior experience in related industries. Over the past decade, our management team has organically built a leading professional education services business with national scale and successfully established an effective and comprehensive management system.
Our Strategies
We are dedicated to improving careers and changing lives by delivering high quality professional education services. Our goal is to become the worlds leading and most innovative professional education services provider. We intend to achieve our goal by pursuing the following strategies:
Grow our student enrollments
We plan to grow student enrollments in our existing courses by adding new classrooms, opening new learning centers in cities with our presence and launching courses currently unavailable in such cities. We also plan to grow our student enrollments by expanding our geographic footprint into new cities with high, unmet professional education demand and strong employment opportunities. We experienced rapid expansion in the past three years, increasing our network cities from 14 at the beginning of 2011 to 33 as of December 31, 2013.
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In addition, we intend to drive greater demand by further increasing the efficiency of our marketing efforts. We plan to increase our participation in and visibility at career recruiting events to enhance our direct communications with job-seeking recent college graduates, who form the majority of our prospective students. In addition to search-engine based advertising, which currently is our most important marketing channel, we plan to increase targeted advertising on leading education portals, career sites and industry-specific websites. We intend to increase the frequency and breadth of marketing activities at our learning centers to attract students to physically experience our learning environment and services.
Expand our course offerings
We intend to expand our course offerings in response to evolving job-market demands and recent graduates ongoing needs for continuing education. We plan to leverage our in-house development capability and corporate employer network to better understand market needs and develop new courses in areas that we believe will enhance our growth and profitability. We also intend to leverage our respected brand and existing teaching infrastructure to attract highly qualified instructors to develop education materials for our new courses.
We have historically added at least one course every year since 2009. We have recently accelerated the pace and expanded the scope of new course offerings. In 2013, we launched two new non-IT professional education courses, namely digital art and online sales and marketing, and one new IT course, namely Linux and network engineering. We have enrolled over 5,000 students in these courses since their launch. In addition, we are leveraging our platform to expand into other professional education sectors over time, such as accounting, financial management, human resources management and other management-related courses.
We intend to selectively pursue strategic cooperation with, or acquisition of, domestic or international professional education services providers whose operations are complementary to our strategic goal. By pursuing such new strategic opportunities, we can gain access to new sectors and educational content to further drive our long-term growth strategy.
Continuously enhance the quality of our education services
We plan to continuously enhance all aspects of our education platform, including the quality of our instructors, content, infrastructure and operational efficiency, in order to maintain our high educational standards and drive premium tuition fees. We will continue to invest in attracting, developing, and continuously training highly qualified instructors and teaching assistants who are experienced in and passionate about professional education. We plan to strengthen our distance learning infrastructure to maintain and improve the reliability and quality of video streaming at remote learning centers. In anticipation of increasing student enrollments, we will continue to improve our operational efficiency. We believe our continued focus on enhancing our education platform will allow us to maintain our premium pricing power.
Expand our corporate employer network
We plan to expand our corporate employer network by further aligning our course offerings with employers needs for entry-level professionals. Leveraging our team of over 100 employer cooperation representatives, we intend to continue to maintain and deepen our communication with corporate employers regarding their specific technical competency and skill-set requirements for job-seekers. We will continue to update our course content to reflect the feedback we receive from corporate employers and ensure that we consistently produce job-ready and highly qualified job candidates. We plan to engage more corporate employers to jointly offer customized courses with us. Furthermore, as we expand our course offerings into new professional education areas, we expect to cooperate with more corporate employers in a broader variety of industries.
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Our Education Platform
We have developed an innovative education platform combining three key components: live distance instruction, classroom-based tutoring and online learning modules.
Live distance instruction
From our headquarters in Beijing, our instructors deliver live courses primarily via live webcast to our learning centers across China. Students attending class watch live audio-video broadcasts of lectures delivered using streaming media and other Internet-based technologies. Our full-time students typically watch live lectures for approximately five hours a day and work on practice exercises assigned by instructors for approximately two hours every day during the classroom sessions, which generally last from 9:30 a.m. to 6:00 p.m. six days a week.
Our live broadcast method of lecture delivery ensures consistency in teaching quality across all our centers. All of our instructors are located in Beijing, where we centralize our training support. Our headquarter-level quality control department monitors the performance of each lecturer on a daily basis. We typically have multiple instructors for each course, with each instructor focusing on separate topic areas. We believe this allows our instructors to focus, and offer more in-depth teaching, on their specific areas of expertise within a subject.
Our live distance instruction model has enabled us to rapidly expand our enrollment in our existing programs without significantly increasing our number of instructors. For example, the total enrollment in our Java courses increased from 11,370 in 2011 to 26,205 in 2013, while the number of Java instructors increased from seven in 2011 to eight in 2013.
Classroom-based tutoring
Our students are required to physically attend classes at our learning centers. We believe physical attendance is important as it creates a disciplined and focused learning environment for students to effectively master the course content. Requiring students to physically attend classes also facilitates the delivery of personalized and systematic tutoring and job placement services to our students.
Our classrooms are equipped with computers for each student, as well as projectors and other equipment necessary for the live broadcast of our lectures. Our classroom technology infrastructure allows students to interact with instructors and teaching assistants online during lecture hours to receive help on course materials and to use online modules in TTS to take notes and conduct practice exercises.
Our learning centers function both as classrooms for delivering lectures and self-study rooms after class hours. As of December 31, 2013, we had a total of 92 learning centers in 33 major cities across China. Our learning centers vary in terms of size, having between 5 and 20 classrooms, with each classroom able to host between 30 and 80 students. We have significantly expanded our network of learning centers in recent years. We operated a total of 34, 57 and 92 learning centers as of December 31, 2011, 2012 and 2013, respectively. In addition to the learning centers that we operate directly, we also have two franchised learning centers in Taiyuan and Xian. We enrolled a total of 694, 1,102 and 1,505 students in our two franchised learning centers in 2011, 2012 and 2013, respectively. Franchise fees we earned from these two franchised learning centers in 2011, 2012 and 2013 accounted for less than 1.2% of our total net revenues in each of these years.
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The following table provides an overview of our national network of learning centers that we operate directly and the courses offered in each city as of December 31, 2013 and student enrollments in each city in 2013:
Cities |
Number
of Learning Centers |
Student
Enrollments |
Courses Offered | |||||||||||||||||||||||||||||||||||||||||||||||||
Java | C++ |
Digital
art |
Software
testing |
PHP | Embedded | Android | .NET | iOS |
Linux and
network engineering |
Online sales
& marketing |
||||||||||||||||||||||||||||||||||||||||||
Beijing |
10 | 7,839 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Shanghai |
9 | 3,845 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Hangzhou |
7 | 2,973 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Shenzhen |
8 | 3,219 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Guangzhou |
9 | 3,100 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Nanjing |
4 | 2,309 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Wuhan |
4 | 1,864 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Chengdu |
4 | 2,030 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Chongqing |
3 | 1,670 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Hefei |
4 | 1,538 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Shenyang |
3 | 1,622 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Changsha |
2 | 1,112 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Zhengzhou |
2 | 1,441 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Harbin |
2 | 1,338 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Changchun |
1 | 1,016 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Jinan |
2 | 1,010 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Qingdao |
1 | 977 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Nanchang |
1 | 881 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Dalian |
1 | 907 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Kunming |
1 | 738 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Tianjin |
2 | 737 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Nanning |
1 | 628 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Wuxi |
1 | 470 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Suzhou |
1 | 500 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Ningbo |
1 | 459 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Shijiazhuang |
1 | 427 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Fuzhou |
1 | 372 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Xian |
1 | 454 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Zhuhai |
1 | 313 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Daqing |
1 | 374 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Yan Tai |
1 | 142 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Xiamen |
1 | 153 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Dongguan (1) |
1 | 0 | | | | | | | | | | | |
Notes:
: | currently offered |
: | not currently offered |
(1) | Our learning center in Dongguan was established in December 2013. |
Online learning modules
Our live distance instruction and classroom-based tutoring are supplemented by our proprietary online learning modules featured on our TTS platform. TTS has the following five core functions:
| Course content . TTS contains lecture slides, key lecture video recordings, case studies, practice exercises and supplemental reading materials. In addition to recordings of past lectures, TTS also features exclusive online videos on key course materials. Students may view lecture videos using the computers at our learning centers. To foster effective learning of our course lecture materials, especially theoretical knowledge points, TTS features software development case studies and practice exercises. TTS contains supplemental reading materials on areas in which we have historically received frequent questions from students. TTS also allows students to download coding materials and study notes that they have prepared for reference in their future jobs. |
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| Self-assessment exams . TTS features daily and weekly interactive mock examinations to measure learning outcomes. Students use the mock exams to assess their learning results and gauge their grasp of course content. After students complete a self-assessment exam, TTS automatically provides students with detailed explanations on each of the exam questions. |
| Student and teaching staff interaction . TTS allows students to interact with instructors and teaching assistants. In class, students may raise questions for instructors and teaching assistants using the messaging tools on TTS. After class, students can post questions to the teaching assistants through the online question and answer board in TTS. Teaching assistants are able to provide timely and accurate responses typically within 30 minutes after a question is submitted. To ensure the accuracy of responses and to identify questions of common interest, our instructors also actively review questions posted on TTS and regularly provide answers. Students are given the opportunity to provide feedback for each answer or tutorial service provided by teaching assistants using the evaluation functions on TTS. |
| Student management tools . TTS allows instructors to receive daily ratings and feedback from students. Instructors may then adjust their lecture pace and coverage of course materials each day. TTS enables teaching assistants to evaluate each students academic performance. The teaching assistant interface of TTS contains each students monthly performance test scores, as well as each students ranking within the class and nationally. Teaching assistants are required to follow-up with underperforming students regarding their academic status and to adopt concrete action plans with such students to improve their future performance. TTS also allows teaching assistants to monitor each students attendance and to log their daily tutoring activities. |
| Online student community . TTS serves as an online student community that fosters academic collaboration among students. We encourage students to post course-related articles and comments sharing their study experiences on the bulletin board forum. |
Our Course Offerings
Our courses provide students with practical education to prepare them for jobs in industries with significant growth potential and strong hiring demand. We currently offer courses in nine IT subjects and two non-IT subjects.
We generally offer the following two types of classes in order to accommodate the different scheduling and training needs of our students:
| Full-time class. The term for a full-time class is typically four months and includes approximately 1,000 learning hours. Full-time classes meet from Monday to Saturday. In 2013, approximately 89% of our enrolled students attended our full-time classes. |
| Part-time class . Part-time classes typically have terms of four to five months. We allow students to attend part-time classes either exclusively during weekends or on a combination of weekday nights and weekends, as these students typically have full-time jobs. In 2013, approximately 11% of our enrolled students attended our part-time classes. |
We have adopted stringent quality control procedures to ensure that we produce high quality graduates. We use entrance exams to assess the level of our students. Prospective full-time students with low entrance exam scores are recommended to enroll in preparatory training camps. We have a total of four monthly closed-book performance tests to evaluate the learning status of our students. For underperforming students who have failed the first monthly performance test, we offer them the opportunity to re-take the first month classes at no extra cost. We believe physical class attendance is important, and students with attendance rates below 90% are generally not given graduation certificates at the end of our program.
Our full-time classes also include short term, project-based training programs designed for college students to gain practical IT experience, which are not material for our business as a whole.
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IT education courses
We offer education courses covering the following nine IT subjects:
Student Enrollments | ||||||||||||||||||
Subject |
Year of
Launch |
2011 | 2012 | 2013 |
Focus of Course Content |
|||||||||||||
Java |
2002 | 11,370 | 22,588 | 26,205 | Programming for Windows and Linux-based desktop software and web-based software | |||||||||||||
C++ |
2009 | 2,220 | 3,984 | 4,671 | Programming for Windows and Linux-based desktop software | |||||||||||||
Software testing |
2009 | 186 | 584 | 2,419 | Practical software testing and quality assurance training | |||||||||||||
PHP |
2010 | 582 | 1,072 | 2,366 | Web-based software development for e-commerce industries | |||||||||||||
Embedded |
2009 | 677 | 1,117 | 2,207 | Development of software to control machines and devices | |||||||||||||
Android |
2011 | N/A | 733 | 1,580 | Programming for Android-based applications | |||||||||||||
.NET |
2007 | 233 | 252 | 720 | Development of software based on the .NET framework that runs primarily on Windows | |||||||||||||
iOS |
2012 | N/A | N/A | 627 | Programming for iOS-based applications | |||||||||||||
Linux and network engineering |
2013 | N/A | N/A | 274 | Linux operating system and network management technology |
Graduates of our IT education courses receive Tarena Certified Software Developer certificates, or TCSD certificates. Holders of TCSD certificates are qualified to obtain the intermediate-advanced software engineer certificate issued by the Ministry of Industry and Information Technology of China, or the MIIT, for their respective field of study, subject to such graduates passing our internal examination. Graduates of our Java courses are granted ORACLE Certified Java Programmer certificates by ORACLE Corporation after passing the relevant exams. Graduates of our Linux and Network engineering courses are awarded the international network engineer certificate issued by CompTIA upon passing the relevant exams. Graduates of our embedded course are awarded the Embedded Engineer Certificate issued by ARM upon passing the relevant exams.
Non-IT education courses
We recently began offering courses in non-IT subjects. We launched our digital art course in February 2013 and our online sales and marketing course in November 2013. The following table describes the two non-IT courses that we currently offer:
Subject |
Year of Launch |
Focus of Course Content |
||
Digital art |
2013 | Latest Adobe user interface design technology for graphic, webpage and mobile sites design | ||
Online sales and marketing |
2013 | Search engine marketing, search engine optimization, and other Internet based marketing, including microblog marketing |
We enrolled over 5,000 students in our non-IT courses in 2013. Graduates of our online sales and marketing courses are awarded the SEM Certificate issued by Baidu without additional examination.
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Our Teaching Staff
Our instructors
As of December 31, 2013, we employed 76 full-time instructors based in Beijing. Most of our instructors have industry backgrounds in global and domestic technology companies. Our instructors also provide us with unique access to a large pool of experts on industry trends that is especially valuable in our decision-making and development process for new courses. We believe we attract highly qualified instructors by virtue of our respected brand, our well-established teaching infrastructure and sales team and our competitive compensation.
We believe that developing and maintaining highly capable and motivated instructors is critical to our success. We seek qualified instructor candidates who have extensive IT industry experience or come from other professional education service providers. These candidates are subject to multiple rounds of interviews conducted by our director of teaching, vice-president for teaching and the chief executive officer. All instructors are required to undergo training in teaching skills and techniques. We require our instructors to regularly update their course materials to remain current with evolving employer needs, industry developments and other key trends necessary to teach effectively. We typically have a back up instructor assigned to each course to meet any emergency needs.
To align incentives, instructors receive bonuses based on students ratings and the number of class sessions taught, in addition to their base compensation. Our instructors have demonstrated high loyalty as evidenced by our annual instructor retention rate of approximately 87% in the past two years. We had a total of 37, 55 and 76 instructors as of December 31, 2011, 2012 and 2013, respectively.
Our teaching assistants
We believe that our dedicated teaching assistants are essential to the success of our education model. Our teaching assistants interact with and tutor our students on a daily basis, and are instrumental in facilitating a disciplined and focused learning environment. Each classroom is staffed with one or two teaching assistants, who attends lectures together with students. Teaching assistants are available during class hours to answer student questions in person, and after class hours to address inquiries online via TTS. Teaching assistants are also responsible for offering focused tutoring services to underperforming students and continuously monitoring their academic results. We have adopted a comprehensive set of key performance indicators, or KPIs, to evaluate the performance of our teaching assistants. Such KPIs include student satisfaction, exam scores of students on monthly performance tests, the improvement of underperforming students and employment results after graduation, among other indicators.
We primarily seek teaching assistant candidates from our graduates who have demonstrated strong command of materials in the relevant subject areas. We provide necessary training to newly hired teaching assistants to tutor effectively. Our teaching assistants are frequently evaluated by students on the quality of their assistance. We had a total of 317, 569 and 763 teaching assistants as of December 31, 2011, 2012 and 2013, respectively.
Course Content Development
In addition to teaching, our instructors also develop the course content in their respective subject areas. We regularly update our existing programs, typically every six months, to stay abreast of the latest technology developments and industry trends. For example, since the introduction of our flagship Java course in 2002, we have updated this program approximately 20 times, and launched the latest version in July 2013. Our instructors are also responsible for producing practice exercises and exam questions for monthly performance tests to evaluate the effectiveness of our student self-assessment tests in TTS.
We regularly engage in new course development in order to capture demands created by evolving job market and industry trends. We have a set of procedures for new course development. Prior to developing a new
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course, we gather market intelligence by collecting job market demand information to ensure that we are developing relevant and up-to-date courses. We conduct a series of surveys, each with clear parameters, to determine various aspects of the proposed new course. Once we gather enough market intelligence, we recruit, or identify from within Tarena, instructors with the appropriate industry and academic background to form a course-specific development task team. We generally require four or five instructors for each new course, and we historically have been able to recruit or identify such instructors within three months. We have generally been able to complete the teaching material development process for a new course in three months after we have finished instructor recruitment. All of our new courses are then pilot tested in selected learning centers in Beijing for student satisfaction, training practicality and employment outcomes. The time frame between our identification of a new course area and pilot testing is typically three to six months. We typically pilot test new courses for three to five months, and new courses that have passed our pilot tests are then introduced nationally. We recently introduced two new non-IT courses, namely digital art, launched in February 2013, and online sales and marketing, which began in November 2013. We also launched our Linux and network engineering in July 2013. We plan to introduce new courses in accounting, financial management, human resources management and other management-related courses.
Our software research and development department is tasked with improving the technical performance and user experience of TTS. Since introducing TTS student version 1.0 in 2006, we have produced five major upgrades to TTS. The current version that our students use is TTS student version 6.1.
Our Students
The vast majority of our students are college students and graduates. In 2013, approximately 91% of our enrolled students were either studying towards, or already held, a post-secondary degree. We have experienced significant growth in student enrollment in recent years. Our student enrollments increased from 16,282 in 2011 to 46,458 in 2013, representing a CAGR of 68.9%.
Student recruitment
We rely primarily on Internet-based marketing to attract students and increase enrollments. We advertise on the Internet using search engine keywords on leading search engines. We also use banners and other advertising placements on targeted sites, such as education portals, career sites and industry-specific websites. We actively monitor the effectiveness of our advertising and adjust marketing spending accordingly.
As part of our online marketing efforts, we operate a promotional website www.it211.com.cn . Our www.it211.com.cn website features sample lecture videos and class materials covering the vast majority of our course subjects, as well as subjects beyond our current course offerings. We provide prospective students with prepaid study cards to purchase sample content on our www.it211.com.cn website.
Student recruitment generally occurs at the learning center level. Our learning centers host seminars, information sessions and preparatory training camps for prospective students, and distribute print and Internet-based advertising materials, including prepaid study cards for www.it211.com.cn . When a prospective student responds to our advertisements and contacts a learning center, an enrollment advisor generates a prospective student profile and advises the candidate, either online or in a face-to-face meeting, on various aspects of our courses and educational experience. As of December 31, 2013, we had a total of 935 enrollment advisors nationally.
To promote brand awareness, we place advertisements in industry trade publications and present at industry trade seminars and conventions. We also began to host our annual Tarena-Discovery Cup Chinese University Students Software Design Competition in April 2012. The first competition attracted over 10,000 participants from over 1,000 universities and colleges in China.
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In addition to our marketing efforts, we recruit a significant portion of our students directly from universities and colleges. We have cooperated with over 500 universities and colleges in China under one of the three following modes of cooperation:
| Joint-majors . We offer joint-majors with five universities and colleges in China, namely Jiangsu Normal University, Kunming University of Science and Technology, Northeast Forestry University, Qingdao Vocational Technology Institute and Zhejiang Haiyang University. These universities offer students the option to major in one of the subject areas that we teach and include our selected courses in their standard undergraduate curriculum. Students in selected majors at these universities take our courses full-time for one semester and receive academic credits from these universities and colleges after successfully completing our courses. |
| On-campus learning sites. We have established on-campus learning sites with over 190 universities and colleges in China to offer our courses, without live broadcast, to students attending these universities and colleges. Students enrolled in our on-campus learning sites typically attend part of our course in the on-campus learning sites and part of the course at our learning centers. We pay universities and colleges for the cost of classroom facilities used in the learning sites but do not share revenue with these universities and colleges. |
| Enrollment cooperation. We have enrollment cooperation with over 300 universities and colleges in China. These universities and colleges allow us to organize marketing and promotional events on campus in order to attract students. |
We had a total of 90, 186 and 173 university cooperation representatives as of December 31, 2011, 2012 and 2013, respectively. Our university cooperation representatives are responsible for establishing new and maintaining current cooperative relationships between us and universities in China. In 2011, 2012 and 2013, we enrolled approximately 37.5%, 28.3% and 22.9%, respectively, of our students from universities and colleges with which we cooperated.
Student job placement services
We have an effective job placement program for our students. Each learning center retains full-time career counselors who meet with students on the first day of class to discuss their career goals and to build an employment profile for each student. Our career counselors host a series of mandatory career development seminars for students throughout the term. During the final weeks of each course, our career counselors meet with students one-on-one to offer training on interview and résumé preparation. In addition to the scheduled career service activities, our career counselors are generally available to meet with students one-on-one during office hours. Our career counselors also monitor the employment results of our students and actively offer personalized assistance to students facing difficulties in securing job offers. We had a total of 101, 234 and 214 career counselors as of December 31, 2011, 2012 and 2013, respectively.
Each learning center also retains full-time employer cooperation representatives who routinely collaborate with employers, alumni, human resources websites and other employment recruiters to maximize opportunities for job placements. We had a total of 24, 63 and 126 employer cooperation representatives as of December 31, 2011, 2012 and 2013, respectively. We invite corporate employers to host recruiting events and interviews at our learning centers and offer students with interview opportunities across the country. In 2013, we organized or arranged over 800 recruiting events every month across our nationwide network.
Our Network of Employers
We have a track record of producing job-ready and highly qualified candidates for many corporate employers. Since our inception, our network of potential employers for our students covered approximately 35,000 corporate employers, including Global Fortune 500 companies, such as Infosys, China Unicom and Huawei, and leading technology, IT services and Internet companies in China, such as Sinosoft, iSoftStone, Chinasoft International and Pactera.
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We offer the following recruiting services to corporate employers:
| General recruiting services. We offer corporate employers candidate referral services and other recruitment-related services. Once an employer communicates its hiring needs to us, we direct the relevant learning centers to produce a list of student candidates that meet the hiring criteria of such employer, and refer such candidates to the employer for interviews and assessments. We also offer space at our learning centers for employers to host recruiting events targeting our students and to conduct interviews. |
| Customized courses. We offer customized courses targeting specific employers with large demands for trained professionals. Prospective students for our customized courses generally undergo interviews conducted by the employers before the start of classes. In addition to our standard curriculum, students enrolled in customized courses must participate in additional training provided by employers at our learning centers. Such additional training is tailored according to the particular skill requirements of the employers. Successful graduates of our customized courses who have passed the relevant qualifying exams are granted job offers by the employers. Examples of companies that have engaged our customized training services include Asiainfo-Linkage, CVIC Software Engineering, Digital China, Founder Group and PCCW. |
The top ten employers of Tarena students, as measured by the cumulative number of graduates hired during the past three years, are Sinosoft, iSoftStone, Chinasoft International, Pactera, AsiaInfo-Linkage, PCCW, Agree Technology, BroadenGate, Yucheng Tech and CVIC Software Engineering. While we do not generate revenue from any of our recruiting services for corporate employers, we believe such services enhance our brand recognition and are instrumental in our ability to help students achieve high job placement rates.
Tuition Fees
For our full-time classes, our standard tuition fees range from RMB13,800 (US$2,280) to RMB16,800 (US$2,775) per course in 2013. Our standard tuition fees for our part-time classes are typically RMB13,800 (US$2,280) per course. We increased our tuition fees for most of our full-time classes by approximately RMB1,000 (US$165) from RMB13,800 (US$2,280) per course to RMB14,800 (US$2,445) per course in 2012 and further increased such tuition fees by RMB1,000 (US$165) from RMB14,800 (US$2,445) per course to RMB15,800 (US$2,610) per course in 2013. We also increased our tuition fees for part-time classes by RMB1,000 (US$165) per course in 2013. We believe our high education quality and strong job placement track record have enabled us to charge above-market tuition fees during the past three years.
We primarily offer two payment options for our students, including one-time full payment upon enrollment and multiple payments within two months of enrollment. We historically also offered an option whereby students could pay our tuition fees within a period of time after graduation, which we have gradually reduced since the beginning of 2013 and expect to substantially end in 2014.
To assist our students in paying our tuition fees, we have formed cooperative relationships with the following three credit sources to provide financing services for our students to make one-time, up-front tuition payments:
| Bank of Beijing Consumer Financing Company. We launched the BOB CFC student loan program in September 2012. Approximately 61.4% of our students who obtained financing for tuition fees in 2013 elected BOB CFC as the lender. |
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CreditEase. CreditEase, a credit management and microfinancing company in China, assists Tarena students in obtaining loans to pay for their tuition. CreditEase utilizes a person-to-person lending method to enable qualified students to borrow unsecured loans from unrelated individuals without using a bank as an intermediary. Under this person-to-person lending method, CreditEase identifies third-party individual lenders and matches their lending needs with the loan demands of our students. |
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CreditEase began to offer this service to our students in July 2013. Approximately 32.7% of our students who obtained financing for tuition fees in 2013 obtained funding from CreditEase. |
| Chuanbang. Chuanbang utilizes a person-to-person lending method similar to the one used by CreditEase to assist our students in obtaining loans to pay for their tuition. Chuanbang is owned by Mr. Shaoyan Han, our chief executive officer. Chuangbang began to offer this service to our students in 2011. Approximately 5.8% of our students who obtained financing in 2013 elected funding sourced by Chuanbang. Chuanbang has ceased offering financing services to our students enrolled since January 1, 2014. |
Approximately 56.9% of our students enrolled in 2013 obtained financing from one of the three abovementioned sources.
Technology
Building a reliable, scalable and secure technology infrastructure is crucial to our ability to support our live lecture broadcasts, online TTS and the various services that we provide to our students. We manage our lecture delivery system and TTS using a combination of commercially available software, hardware systems and proprietary technology. Since 2006, we have established a powerful online platform that enables thousands of students to simultaneously log onto our TTS and participate in activities online.
All of our servers and routers, including backup servers, are currently hosted at our learning centers or by third-party service providers in multiple cities in China. We regularly back up our databases. Our network administration department regularly monitors the performance of our websites and infrastructure to enable us to respond quickly to potential problems. We deliver live broadcast of audio and video of the lectures given in Beijing via the dedicated network of China Telecom or China Unicom to terminals located in selected learning centers with high student enrollment, and via public Internet infrastructure to our other learning centers.
We use CRM software to manage our student and corporate employer information, as well as to integrate our key administrative functions.
Intellectual Property
Our trademarks, copyrights, domain names, trade secrets and other intellectual property rights distinguish our courses and services from those of our competitors and contribute to our ability to compete in our target markets. We rely on a combination of copyright and trademark law, trade secret protection and confidentiality agreements with senior executive officers and most other employees, to protect our intellectual property rights. In addition, we require certain of our senior executive officers and other employees to enter into agreements with us under which they acknowledge that all inventions, utility models, designs, know-how, copyrights and other forms of intellectual property made by them within the scope of their employment with us, pursuant to job assignments or using our materials and technology, or during the one year after their employment that relates to their employment with us, are our property and they should assign the same to us if we so require. We also regularly monitor any infringement or misappropriation of our intellectual property rights.
We have registered 13 software copyrights for our proprietary TTS with the National Copyright Administration of the PRC. We have also registered two trademarks with the China Trademark Office.
As of December 31, 2013, we had registered 40 domain names relating to our business, including our www.tarena.com.cn and www.it211.com.cn websites, with the Internet Corporation for Assigned Names and Numbers and China Internet Network Information Center. Tarena Tech holds 13 registered software copyrights, two trademarks and 39 registered domain names including www.tarena.com.cn . Beijing Tarena holds one domain name, namely, www.it211.com.cn .
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Employees
We are currently headquartered in Beijing, where all of our instructors and software engineers are based. We have divided our national network of learning centers into three regions, namely northern region, southern region, and central and western region, and we have regional offices that are responsible for managing the daily operations of learning centers located within each territory.
We had a total of 1,265, 2,352 and 3,104 employees as of December 31, 2011, 2012 and 2013, respectively. As of December 31, 2013, we had 590 employees in Beijing and 2,514 employees in other areas within China. The following table sets forth the number of our employees, categorized by function, as of December 31, 2013:
Functions |
Number of Employees | |||
Teaching and content development |
852 | |||
Selling and marketing |
1,321 | |||
Career development |
214 | |||
Employer cooperation |
126 | |||
General and administration |
591 | |||
|
|
|||
Total |
3,104 | |||
|
|
We enter into standard employment contracts with all of our employees. We also enter into confidentiality agreements with our senior executive officers and most other employees that impose confidentiality obligations until the relevant information becomes public or is no longer considered confidential by us. In addition to salaries and benefits, we provide performance-based bonuses for our employees and commission-based compensation for our sales force.
As required by regulations in China, we participate in various employee social security plans that are organized by municipal and provincial governments, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. We are required under PRC law to make contributions from time to time to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government.
We believe that we maintain a good working relationship with our employees, and we have not experienced any significant labor disputes.
Competition
The professional education services market in China is fragmented, rapidly evolving and highly competitive. We face competition in our offered courses and in many of the geographic markets in which we operate. We may also face competition from IT professional education providers that offer specialized training programs targeting certain niche job markets in the IT industry. In the future, we may also face competition from new entrants into the Chinese IT professional education market. As we expand beyond IT education into other fields of professional education, we face competition for student enrollment from existing large online and offline providers of professional education services, as well as smaller regional professional education services providers in China.
We believe that the principal competitive factors in our markets include the following:
| scope and quality of course offerings and services; |
| student placement and employer satisfaction with our graduates; |
| brand recognition; |
| ability to effectively market course offerings and services to a broad base of prospective students; |
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| cost effectiveness of the education; and |
| ability to align course offerings and services to specific needs of students and employers. |
We believe that we are well-positioned to effectively compete in markets in which we operate on the basis of our innovative education platform, scalable and efficient business model, unparalleled access to corporate employers, training quality, strong content development capabilities and experienced management team. However, some of our current or future competitors may have longer operating histories, greater brand recognition, or greater financial, technical or marketing resources than we do. For a discussion of risks relating to competition, see Risk FactorsRisk Relating to Our BusinessWe may lose market share and our profitability may be materially and adversely affected, if we fail to compete effectively with our present and future competitors or to adjust effectively to changing market conditions and trends.
Facilities
Our current principal executive offices are located at our headquarters in Beijing comprising 792 square meters at Suite 10017, Building E, Zhongkun Plaza, A18 Bei San Huan West Road, Haidian District, Beijing, PRC, 100098. This facility currently accommodates our management headquarters, research and development and general and administrative activities. Pursuant to our agreement with the local government in Hangzhou, China, we are in the process of relocating certain of our management and administrative functions to our office in Hangzhou. After our relocation to Hangzhou, we will have dual headquarters in China. We expect to complete the relocation process in early 2014. Our executive offices in Hangzhou are located at 1/F, Block A, Training Building, 65 Kejiyuan Road, Baiyang Jie Dao, Economic Development District, Hangzhou, 310000, China, comprising approximately 5,000 square meters.
In addition to our principal executive offices in Beijing, we maintain a number of offices, classrooms and student dormitories with an aggregate of approximately 100,000 square meters in 33 cities in the PRC. We lease all of the facilities that we currently occupy.
We believe that the facilities that we currently lease are adequate to meet our needs for the foreseeable future, and we believe that we will be able to obtain adequate facilities, principally through leasing of additional properties, to accommodate our future expansion plans.
Insurance
We do not maintain any liability insurance or property insurance policies covering students, equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in China, we do not maintain business interruption insurance, nor do we maintain key-man life insurance. We maintain accident injury insurance and accident injury medical insurance for our employees based in our headquarters in Beijing. Uninsured injury or death to our students or staff, or damage to any of our equipment or buildings could have a material adverse effect on our results of operations. See Risk FactorsRisks Relating to Our BusinessWe have limited insurance coverage for our operations in China.
Legal Proceedings
We are currently not a party to, and are not aware of any threat of, any legal, arbitration or administrative proceedings that, in the opinion of our management, are likely to have a material and adverse effect on our business, financial condition or results of operations. From time to time, we have become, and may in the future become, a party to various legal or administrative proceedings or claims arising in the ordinary course of our business. Regardless of the outcome, legal or administrative proceedings or claims may have an adverse impact on us because of defense and settlement costs, diversion of management attention and other factors.
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This section sets forth a summary of the significant regulations or requirements that affect our business activities in China or our shareholders rights to receive dividends and other distributions from us.
Regulations on Private Education
The principal regulations governing private education in China consist of the Education Law of the PRC , the Law for Promoting Private Education and the Implementation Rules for the Law for Promoting Private Education , or the PE Implementation Rules and the Regulations on Chinese-Foreign Cooperation in Operating Schools.
Education Law of the PRC
On March 18, 1995, the PRC National Peoples Congress promulgated the Education Law of the PRC , or the Education Law. Pursuant to the Education Law, enterprises, social organizations and individuals are generally encouraged to operate schools and other types of educational organizations in accordance with PRC laws and regulations, though private schools are prohibited from providing military, police, political and other kinds of education which are of a special nature. Although no organization or individual may establish or operate a school or any other institution of education for profit-making purposes, private schools may be operated for reasonable returns, as described in more detail below.
The Law for Promoting Private Education and its Implementation Rules
On December 28, 2002, the Standing Committee of the PRC National Peoples Congress promulgated the Law for Promoting Private Education , or the Private Education Law, which became effective on September 1, 2003 and was amended on June 29, 2013. On March 5, 2004, the PRC State Council promulgated the Implementation Rules for the Law for Promoting Private Education , which became effective on April 1, 2004, or the PE Implementation Rules. Under the Private Education Law and the Private Education Law Implementation Rules, private schools are defined as schools established by social organizations or individuals using non-government funds. Private schools providing certifications, pre-school education, education for self-study aid and other academic education shall be subject to approval by the education authorities, while private schools engaging in professional qualification training and professional education training shall be subject to approvals from the authorities in charge of labor and social welfare. A duly approved private school engaging in professional qualification training and professional education training shall (i) be granted a Permit for Operating a Private School by the authorities in charge of human resources and social security, (ii) be registered with the Ministry of Civil Affairs or its local counterparts as a privately run non-enterprise institution and (iii) pass the annual inspection with the Ministry of Civil Affairs or its local counterparts. As of the date of this prospectus, we operate 11 schools, all of which are engaged in professional education training. Each has (i) obtained a Permit for Operating a Private School issued by the authorities in charge of human resources and social security or education, (ii) been registered with the relevant local counterpart of the Ministry of Civil Affairs and (iii) passed the annual inspection, as applicable, with the Ministry of Civil Affairs or its local counterparts.
The types and amounts of fees charged by a private school providing certifications shall be approved by the governmental pricing authority and be publicly disclosed. A private school that does not provide certifications shall file its pricing information with the governmental pricing authority and publicly disclose such information. A private school shall file its advertisement and school enrollment brochure with the relevant governmental authorities of human resources and social security or education. None of our schools provides a diploma or certification to students, and ten of our schools have filed their pricing information with the governmental pricing authority and publicly disclose such information. Seven of our schools have filed their advertisement and school enrollment brochure with the relevant governmental authorities of human resources and social security or education. See Risk FactorsRisks Related to Our BusinessThe operations of certain of our learning centers
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are, or may be deemed by relevant PRC government authorities to be, beyond their authorized business scope or without proper license or registration. If the relevant PRC government authorities take actions against such learning centers, our business and operations could be materially and adversely affected.
Private education is treated as a public welfare undertaking under relevant regulations, and entities and individuals who establish private schools are commonly referred to as sponsors instead of owners or shareholders under the regulations. Nonetheless, sponsors of a private school may choose to require reasonable returns from the annual net balance of the school after deduction of costs, donations received, government subsidies, if any, the reserved development fund and other expenses as required by the regulations. Private schools are divided into three categories: private schools established with donated funds; private schools that require reasonable returns and private schools that do not require reasonable returns.
The election to establish a private school requiring reasonable returns shall be provided in the articles of association of the school. The percentage of the schools annual net balance that can be distributed as a reasonable return shall be determined by the schools board of directors, taking into consideration the following factors: (1) school fee types and collection criteria, (2) the ratio of the schools expenses used for educational activities and improving the educational conditions to the total fees collected, and (3) the admission standards and educational quality. The relevant information relating to the above factors shall be publicly disclosed before the schools board determines the percentage of the schools annual net balance that can be distributed as reasonable returns. Such information and the decision to distribute reasonable returns shall also be filed with the approval authorities within 15 days from the decision made by the board. However, none of the current PRC laws and regulations provides a formula or guidelines for determining reasonable returns. In addition, none of the current PRC laws and regulations sets forth sponsors economic rights in schools that do not distribute reasonable returns, nor do they have different requirements or restrictions on a private schools ability to operate its education business based on such schools status as a school that requires reasonable returns or a school that does not require reasonable returns.
At the end of each fiscal year, every private school is required to allocate a certain amount to its development fund for the construction or maintenance of the school or procurement or upgrade of educational equipment. In the case of a private school that requires reasonable returns, this amount shall be no less than 25% of the annual net income of the school, while in the case of a private school that does not require reasonable returns, this amount shall be equal to no less than 25% of the annual increase in the net assets of the school, if any. Private schools that do not require reasonable returns shall be entitled to the same preferential tax treatment as public schools, while the preferential tax treatment policies applicable to private schools requiring reasonable returns shall be formulated by the finance authority, taxation authority and other authorities under the State Council. To date, however, no regulations have been promulgated by the relevant authorities in this regard.
Regardless of whether distributing reasonable return or not, the Private Education Law provides that properties that remain upon termination and liquidation of a school after payment of relevant fees and compensations shall be made in accordance with other relevant laws and regulations. However, there have been no other relevant national laws and regulations addressing the distribution of residual properties upon termination and liquidation of a private school.
Except for aforementioned differences, the sponsorship interest that a sponsor holds in a private school is, for all other practical purposes, substantially equivalent under PRC law and practice to the equity interest a shareholder holds in a company. A sponsor of a private school has the obligation to make capital contributions to the school in a timely manner. The contributed capital can be in the form of tangible or non-tangible assets such as materials in kind, land use rights or intellectual property rights. The capital contributed by the sponsor becomes assets of the school and the school has independent legal person status. In addition, the sponsor of a private school has the right to exercise ultimate control over the school by becoming the member of and controlling the composition of the schools decision making body. Specifically, the sponsor has control over the private schools constitutional documents and has the right to elect and replace the private schools decision
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making bodies, such as the schools board of directors, and therefore controls the private schools business and affairs.
As of the date of this prospectus, we had two schools registered as schools requiring reasonable returns, while all other schools are registered as schools not requiring reasonable returns.
Regulations on Chinese-Foreign Cooperation in Operating Schools
Chinese-foreign cooperation in operating schools or training programs is specifically governed by the Regulations on Operating Chinese-foreign Schools, promulgated by the State Council in 2003 in accordance with the Education Law, the Occupational Education Law and the Private Education Law. The Implementing Rules for the Regulations on Operating Chinese-foreign Schools, or the Implementing Rules, were issued by the MOE in 2004. The Regulations on ChineseForeign Cooperation in Operating Schools and its Implementing Rules encourage substantive cooperation between overseas educational organizations with relevant qualifications and experience in providing high-quality education and Chinese educational organizations to jointly operate various types of schools in the PRC. Cooperation in the areas of higher education and occupational education is especially encouraged. Chinese-foreign cooperative schools are not permitted, however, to engage in compulsory education or military, police, political and other kinds of education that are of a special nature in China. The Regulations on Operating Chinese-foreign Schools prohibits foreign institutions or individuals from independently establishing schools in China, which provide educational services mainly for Chinese citizens.
The Ministry of Human Resources and Social Security (formerly known as Ministry of Labor and Social Security) also promulgated the Regulations on Operation Chinese-foreign Cooperation School in Professional Education Training to implement the Regulations on Operating Chinese-foreign Schools on July 26, 2006, which took effect on October 1, 2006. The Regulations on Operation Chinese-foreign Cooperation School in Professional Education Training prohibits foreign institutions or individuals from independently establishing professional education training institutions in China, which provide educational services mainly for Chinese citizens.
We have not operated or applied for any Chinese-foreign schools. Prior to 2012, we operated a substantial portion of our learning centers through subsidiaries of our consolidated VIEs and schools to which our consolidated VIEs or their respective subsidiaries are sponsors. Starting from the second half of 2012, we began to transfer our operations to our wholly-owned subsidiary, Tarena Tech, and its subsidiaries. As of December 31, 2013, all of our learning center operations of VIEs have been transferred to Tarena Tech and its subsidiaries and schools. As of December 31, 2013, we operated 29 of our learning centers through private schools owned by subsidiaries of Tarena Tech. However, there are still uncertainties under the current PRC laws as to whether a wholly foreign owned enterprise (such as Tarena Tech) is allowed to indirectly invest in and own private schools through its PRC subsidiaries. See Risk FactorsRisks Related to Our BusinessIf the relevant PRC authorities determine that we can no longer own and operate certain of our learning centers through our PRC subsidiaries, we may need to restructure the ownership and operation of these learning centers (including possibly transferring these learning centers to our consolidated VIEs), our business may be disrupted and we may be exposed to increased risks associated with the contractual arrangements relating to our consolidated VIEs.
Regulations on Professional Education
On May 15, 1996, the Standing Committee of the PRC National Peoples Congress promulgated the Professional Education Law of the PRC, or the Professional Education Law which became effective on September 1, 1996. Pursuant to the Professional Education Law, professional training includes training pre-employment, training for military personnel transferring to civil positions, training for apprentices, on-the-job training, job-transfer training and other professional training. Professional training may be classified as junior, middle or senior level according to the actual situations. It shall be conducted by either professional training institutions or professional schools, which may develop various professional training to satisfy the needs of the society. The PRC government encourages institutional organizations, social organizations, other social groups and citizens to establish professional schools and professional training institutions, and the financial allocation
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for professional schools and professional training institutions from the governments at various levels shall be gradually increased. The PRC government also encourages financial institutions to support and develop professional education by means of credit facilities.
On August 3, 2007, the Standing Committee of the PRC National Peoples Congress promulgated the Employment Promotion Law of the PRC, or the Employment Promotion Law which became effective on January 1, 2008. Pursuant to the Employment Promotion Law, the PRC government at and above the county level shall encourage and support professional schools, professional training institutions and corporations to carry out pre-employment training, employment training, re-employment training and entrepreneurship training, and encourage workers to attend various types of training programs. Corporations in China are requested to set aside financial resources for the training and continued education of their employees.
Foreign Investments in Professional Education Services
The Catalogue for the Guidance of Foreign Investment Industries, or the Catalogue, as promulgated and amended from time to time by the Ministry of Commerce and the National Development and Reform Commission, is the principal guide to foreign investors investment activities in the PRC. The most updated version of the Catalogue, which was promulgated in 2011 and effective in 2012, divides the industries into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalogue are generally open to foreign investment unless specifically restricted by other PRC laws and regulations. A wholly foreign-owned enterprise is generally permitted for encouraged industries and industries not listed in the Catalogue, while there are some limitations to the ownership and/or corporate structure of the foreign-invested companies that operate in restricted industries. Industries in the prohibited category are not open to foreign investors. According to the latest Catalogue, foreign investment is encouraged in professional education services and there is no limitation with respect to maximum percentage of foreign ownership in a company conducting business in professional education services.
Regulations on For-profit Private Training Institutions
The Private Education Law provides that the regulations applicable to private training institutions registered with the State Administration for Industry and Commerce, or the SAIC, and its local counterparts shall be formulated by the State Council separately. On July 29, 2010, the PRC central government promulgated the Outline of Chinas National Plan for Medium- and Long-Term Education Reform and Development (2010-2020), which announced the policy that the government will implement a reform to divide private schools into two categories: (1) for-profit private schools and (2) not-for-profit private schools. On October 24, 2010, the General Office of the State Council issued the Notices on the National Education System Innovation Pilot. Under this notice, the PRC government plans to implement a for-profit and non-profit classified management system for the private schools in Shanghai, Zhejiang, Shenzhen and Jilin Huaqiao Foreign Language School. However, the above outline and the pilot program is still new and no further national law or regulation has been promulgated to implement them and, except in Shanghai, no other local government of the pilot areas has promulgated relevant regulations on differentiated management of the private schools and for-profit training institutions.
On June 20, 2013, Shanghai promulgated the Interim Measures for Administration of Operational Private Training Institutions, or Measure No. 5, which requires for-profit private training institutions to register with local counterparts of the SAIC. The local counterparts of the SAIC shall consult with the local human resources and social securities authorities before completion of registration of for-profit private training institutions. Measure No. 5 came into effect on July 20, 2013 and will remain effective for two years.
As of the date of this prospectus, 30 of our PRC subsidiaries, consolidated VIEs and subsidiaries of consolidated VIEs, including 17 branch companies, had computer technology training or training in its approved business scope.
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Regulations on Online and Distance Education
Pursuant to the Administrative Regulations on Educational Websites and Online and Distance Education Schools issued by the Ministry of Education on July 5, 2000, educational websites and online education schools may provide educational services in relation to higher education, elementary education, pre-school education, teaching education, occupational education, adult education, other education and public educational information services. Educational websites refer to organizations providing education or education-related information services to website visitors by means of a database or online education platform connected via the Internet or an educational television station through an Internet Service Provider, or ISP. Online education schools refer to education websites providing academic education services or training services with the issuance of various certificates.
Setting up education websites and online education schools is subject to approval from relevant education authorities, depending on the specific types of education. Any education website and online education school shall, upon the receipt of approval, indicate on its website such approval information as well as the approval date and file number.
On June 29, 2004, the State Council promulgated the Decision on Setting Down Administrative Licenses for the Administrative Examination and Approval Items Really Necessary to be Retained, pursuant to which the administrative license for online education schools was retained, while the administrative license for educational websites was not retained. Accordingly, Beijing Tarena, our consolidated VIE engaging in online education-related services, is not required to obtain approval to operate educational websites from the Ministry of Education. On January 28, 2014, the State Council promulgated the Decision on Abolishing and Delegating Certain Administrative Examination and Approval Items, pursuant to which the administrative approval for online education schools of higher education was abolished. Beijing Tarena is not required to obtain a license to operate online education schools, as it does not directly offer government accredited degrees or certifications through its online education or training services.
Regulations on Online Publications
On June 27, 2002, the State Administration of Press, Publication, Radio, Film and Television (formerly the General Administration of Press and Publication), or the SAPPRFT and the Ministry of Industry and Information Technology, or the MIIT jointly promulgated the Tentative Internet Publishing Administrative Measures, or the Internet Publishing Measures, which took effect on August 1, 2002. The Internet Publishing Measures require entities that engage in Internet publishing to obtain an Internet Publishing License for engaging in Internet publishing from the SAPPRFT. Pursuant to the Internet Publishing Measures, the definition of Internet publishing is broad and refers to the act of online spreading of articles, whereby the Internet information service providers select, edit and process works created by themselves or others and subsequently post such works on the Internet or transmit such works to the users end through Internet for the public to browse. These works include contents from books, newspapers, periodicals, audio-video products, electronic publications that have already been formally published or works that have been made public in other media.
Beijing Tarena has offered videos of lectures on its website www.it211.com.cn for trial purposes and has not obtained an Internet Publishing License from the SAPPRFT. Currently, Internet publishing is not officially defined in any publicly available regulations. However, governmental authorities could determine that Beijing Tarenas online content services fall within the scope of internet publishing, and therefore require Beijing Tarena to apply for an Internet Publishing License. Beijing Tarena may not be able to obtain such a license, and it may become subject to penalties, fines, legal sanctions or be ordered to suspend the video content on the website.
Regulation on Broadcasting Audio-Video Programs through the Internet or Other Information Network
The SAPPRFT promulgated the Rules for Administration of Broadcasting of Audio-Video Programs through the Internet and Other Information Networks, or the Broadcasting Rules, in 2004, which became
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effective on October 11, 2004. The Broadcasting Rules apply to the activities of broadcasting, integration, transmission, downloading of audio-video programs with computers, televisions or mobile phones as the main terminals and through various types of information networks. Pursuant to the Broadcasting Rules, a Permit for Broadcasting Audio-video Programs via Information Network is required to engage in these Internet broadcasting activities. On April 13, 2005, the State Council announced a policy on private investments in businesses in China that relate to cultural matters, which prohibits private investments in businesses relating to the dissemination of audio-video programs through information networks.
On December 20, 2007, the SAPPRFT and MIIT issued the Internet Audio-Video Program Measures, which became effective on January 31, 2008. Among other things, the Internet Audio-Video Program Measures stipulate that no entities or individuals may provide Internet audio-video program services without a Permit for Broadcasting Audio-video Programs via Information Network issued by the SAPPRFT or its local counterparts and only entities wholly owned or controlled by the PRC government may engage in the production, editing, integration or consolidation, and transfer to the public through the Internet, of audio-video programs, and the provision of audio-video program uploading and transmission services. On September 15, 2009, SAPPRFT promulgated the Notice on Several Issues regarding the Permit for Broadcasting Audio-video Programs via Information Network. The Notice restates the necessity of applying for such license and sets forth the legal liabilities for those providing Internet audio-video program services without the license.
On April 1, 2010, SAPPRFT promulgated the Test Implementation of the Tentative Categories of Internet Audio-Visual Program Services, or the Categories, which clarified the scope of Internet audio-video programs services. According to the Categories, there are four categories of Internet audio-visual program services which are further divided into seventeen sub-categories. The third sub-category to the second category covers the making and editing of certain specialized audio-video programs concerning, among other things, educational content, and broadcasting such content to the general public online.
In the course of offering our lecture videos, we transmit our audio-video educational programs live through the Internet only to enrolled course participants, not to the general public. The limited scope of our audience distinguishes us from general online audio-video broadcasting companies. In addition, we do not provide audio-video program uploading and transmission services. As a result, we believe that we are not subject to the Internet Audio-Video Program Measures. However, there is no further official or publicly available interpretation of these definitions, especially the scope of Internet audio-video program service. If the governmental authorities determine that our provision of lecture videos falls within the Internet Audio-Video Program Measures, we may not be able to obtain the License for Disseminating Audio-Video Programs through Information Network. If this occurs, we may become subject to significant penalties, fines, legal sanctions or an order to suspend our use of audio-video content.
Regulations on Value-Added Telecommunications Services
Licenses for Value-Added Telecommunication Services
On September 25, 2000, the Telecommunications Regulations of the Peoples Republic of China, or the Telecom Regulations, were issued by the PRC State Council as the primary governing law on telecommunication services. The Telecom Regulations set out the general framework for the provision of telecommunication services by PRC companies. Under the Telecom Regulations, it is a requirement that telecommunications service providers procure operating licenses prior to their commencement of operations. The Telecom Regulations draw a distinction between basic telecommunications services and value-added telecommunications services. A Catalog of Telecommunications Business was issued as an attachment to the Telecom Regulations to categorize telecommunications services as basic or value-added. In February 2003, the Catalog was updated and the information services such as content service, entertainment and online games services are classified as value-added telecommunications services.
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On March 1, 2009, the MIIT issued the Administrative Measures for Telecommunications Business Operating Permit, or the Telecom Permit Measures, which took effect on April 10, 2009. The Telecom Permit Measures confirm that there are two types of telecom operating licenses for operators in China, namely, licenses for basic telecommunications services and licenses for value-added telecommunications services. The operation scope of the license will detail the permitted activities of the enterprise to which it was granted. An approved telecommunication services operator shall conduct its business in accordance with the specifications recorded on its value-added telecommunications services operating license, or VATS License. In addition, a VATS Licenses holder is required to obtain approval from the original permit-issuing authority prior to any change to its shareholders.
On September 25, 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, which was amended in January 2011. Under the Internet Measures, commercial Internet information services operators shall obtain an ICP license from the relevant government authorities before engaging in any commercial Internet information services operations within the PRC. The ICP license has a term of five years and shall be renewed within 90 days before expiration. Our consolidated VIE, Beijing Tarena, obtained an ICP license issued by Beijing Communications Administration on March 1, 2012, which will expire on March 1, 2017.
Foreign Investment in Value-Added Telecommunication Services
Pursuant to the Provisions on Administration of Foreign Invested Telecommunications Enterprises promulgated by the State Council on December 11, 2001 and amended on September 10, 2008, the ultimate foreign equity ownership in a value-added telecommunications services provider may not exceed 50%. Moreover, for a foreign investor to acquire any equity interest in a value-added telecommunication business in China, it must satisfy a number of stringent performance and operational experience requirements, including demonstrating good track records and experience in operating value-added telecommunication business overseas. Foreign investors that meet these requirements must obtain approvals from the MIIT and the Ministry of Commerce or their authorized local counterparts, which retain considerable discretion in granting approvals. Pursuant to publicly available information, the PRC government has issued telecommunications business operating licenses to only a limited number of foreign invested companies, all of which are Sino-foreign joint ventures engaging in the value-added telecommunication business.
The MIIT Circular issued by the MIIT in July 2006 reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign-invested enterprises and obtain an ICP license to conduct any value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds an ICP license is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local ICP license holder or its shareholder. The MIIT Circular further requires each ICP license holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. Currently, Beijing Tarena, our VIE, owns the related domain name www.it211.com.cn and holds the ICP license necessary to operate our www.it211.com.cn website in China, while the trademarks relating to our operations are held by Tarena Tech, our WFOE. If the relevant PRC government authorities determine in the future that the current ownership of our trademarks do not comply with the relevant regulations and the trademarks relating to our operations must be held by our VIE, we may need to transfer the trademarks to our VIE, which may severely disrupt our business. The Internet Electronic Messaging Service Administrative Measures promulgated by the MIIT in November 2000 require ICP operators to obtain specific approvals before providing BBS services. BBS services include electronic bulletin boards, electronic forums, message boards and chat rooms. On July 4, 2010, the approval requirement for operating BBS services was terminated by a decision issued by the PRC State Council. However, in practice, the competent authorities in Beijing still require the relevant operating companies to obtain such approval for the operation of BBS services which we have not obtained.
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In light of the aforesaid restrictions, we rely on Beijing Tarena, our consolidated VIE in China, to hold and maintain the licenses necessary to provide online education and other value-added telecommunications services in China. We operate our www.it211.com.cn website and value-added telecommunications services through Beijing Tarena. Beijing Tarena, our consolidated VIE in China, holds an ICP license that is valid until March 1, 2017.
Regulations on Intellectual Property Rights
Copyright and Software Products
The National Peoples Congress adopted the Copyright Law in 1990 and amended it in 2001 and 2010, respectively. The amended Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. The amended Copyright Law also requires registration of a copyright pledge.
To address the problem of copyright infringement related to the content posted or transmitted over the Internet, the National Copyright Administration and the MIIT jointly promulgated the Measures for Administrative Protection of Copyright Related to Internet on April 29, 2005. This measure became effective on May 30, 2005.
The Administrative Measures on Software Products, issued by the MIIT in October 2000 and subsequently amended, provide a registration and filing system with respect to software products made in or imported into China. These software products may be registered with the relevant local authorities in charge of software industry administration. Registered software products may enjoy preferential treatment status granted by relevant software industry regulations. Software products can be registered for five years, and the registration is renewable upon expiration.
In order to further implement the Computer Software Protection Regulations promulgated by the State Council on December 20, 2001 and amended on January 30, 2013, the State Copyright Bureau issued the Computer Software Copyright Registration Procedures on February 20, 2002, which apply to software copyright registration, license contract registration and transfer contract registration. In compliance with, and in order to take advantage of the above rules, as of the date of this prospectus, we had registered 13 software programs in China.
Trademarks
Trademarks are protected by the PRC Trademark Law which was adopted in 1982 and subsequently amended in 1993, 2001 and 2013 as well as the Implementation Regulation of the PRC Trademark Law adopted by the State Council in 2002. The Trademark Office under the SAIC handles trademark registrations and grants a term of ten years to registered trademarks which may be renewed for consecutive ten-year periods upon request by the trademark owner. Trademark license agreements must be filed with the Trademark Office for record. The PRC Trademark Law has adopted a first-to-file principle with respect to trademark registration. Where a trademark for which a registration has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a sufficient degree of reputation through such partys use. We have registered two trademarks in China as of the date of this prospectus.
Regulations on Foreign Currency Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, or the Foreign Exchange Regulations, as amended on August 5, 2008. Under the
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Foreign Exchange Regulations, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made. Though there are restrictions on the convertibility of Renminbi for capital account transactions, which principally include investments and loans, we generally follow the regulations and apply to obtain the approval of the SAFE and other relevant PRC governmental authorities.
On August 29, 2008, the SAFE promulgated SAFE Circular 142, regulating the conversion by a foreign invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular 142 requires that the registered capital of a foreign invested enterprise settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within China. In addition, the SAFE strengthened its oversight of the flow and use of the registered capital of a foreign invested enterprise settled in Renminbi converted from foreign currencies. The use of such Renminbi capital may not be changed without the SAFEs approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. Furthermore, the SAFE promulgated SAFE Circular 59 on November 9, 2010, which tightens the regulation over settlement of net proceeds from overseas offerings and requires that the settlement of net proceeds must be consistent with the description in the prospectus for the relevant offering. The SAFE also promulgated SAFE Circular 45 in November 2011, which, among other things, restricts a foreign-invested enterprise from using Renminbi funds converted from its registered capital to provide entrusted loans or repay loans between non-financial enterprises. These circulars may delay or limit us from using the proceeds of this offering to make additional capital contributions or loans to our PRC subsidiaries and violations of these circulars could result in severe monetary or other penalties. See also Risk FactorsRisks Related to Doing Business in ChinaPRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may delay or limit us from using the proceeds of this offering to make additional capital contributions or loans to our PRC subsidiaries.
Regulations on Dividend Distribution
Under our current corporate structure, our Cayman Islands holding company primarily relies on dividend payments from Tarena Tech, which is a wholly foreign owned enterprise incorporated in the PRC, to fund any cash and financing requirements we may have. The principal regulations governing distribution of dividends of foreign invested enterprises include the Foreign Invested Enterprise Law, as amended on October 31, 2000, and the Implementation Rules of the Foreign Invested Enterprise Law, as amended on April 12, 2001.
Under these laws and regulations, wholly foreign owned enterprises in China may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign owned enterprises in China are required to allocate at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until these reserves have reached 50% of the registered capital of the enterprises. Wholly foreign owned companies may, at their discretion, allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserves are not distributable as cash dividends.
Regulations on Overseas Listings
On August 8, 2006, six PRC regulatory agencies, namely, the Ministry of Commerce, the State Assets Supervision and Administration Commission, or SASAC, the SAT, the SAIC, China Securities Regulatory Commission, or CSRC, and the SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. The M&A Rules purport, among other things, to require offshore special purpose vehicles, or SPVs, formed for overseas listing purposes through acquisitions of PRC domestic companies and
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controlled by PRC companies or individuals, to obtain the approval of CSRC prior to publicly listing their securities on an overseas stock exchange.
While the application of this new regulation remains unclear, we believe, based on the advice of our PRC counsel, Han Kun Law Offices, that CSRCs approval is not required in the context of this offering because (a) CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this regulation and (b) we were established before the M&A Rules took effective and Tarena Tech was acquired by us and converted into a wholly foreign owned enterprise before the M&A Rules took effect. See Risk FactorsRisks Related to Doing Business in ChinaThe approval of the China Securities Regulatory Commission may be required in connection with this offering under a regulation adopted in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval.
Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents
Pursuant to SAFEs Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles, or SAFE Circular No. 75, issued in October 2005, and a series of implementation rules and guidance, PRC residents, including PRC resident natural persons or PRC companies, must register with local branches of SAFE in connection with their direct or indirect offshore investment in an overseas special purpose vehicle, or SPV, for the purposes of overseas equity financing activities. Such PRC residents are also required to amend their registration or filing with the local branches of SAFE for the injection of equity interests or assets of an onshore enterprise into the offshore company, or the overseas funds raised by such offshore company or any other material change involving a change in the capital of the offshore company. PRC residents who are shareholders or beneficial owner of SPVs that were established or controlled and which have completed their inbound investment before November 1, 2005 were required to register with the local SAFE branch before March 31, 2006. The term control under SAFE Circular 75 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles, or SPVs, or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements.
Failure to comply with the registration procedures set forth in SAFE Circular 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant onshore company or PRC residents to penalties under the Foreign Exchange Regulations. PRC residents who control our company from time to time are required to register with SAFE in connection with their investments in us. We have requested all of our current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the ambit of SAFE Circular 75 and its guidance and will urge relevant shareholders and beneficial owners, upon learning they are PRC residents, to make the necessary applications, filings and amendments as required under SAFE Circular 75 and other related rules. To our knowledge, Mr. Shaoyun Han and Ms. Mei Zhao have each registered with the local SAFE branch as required under SAFE Circular 75 and are in the process of amending certain applicable registrations with the local SAFE pursuant to SAFE Circular 75. See Risk FactorsRisks Related to Doing Business in ChinaPRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries ability to increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under PRC law.
Regulations on Stock Incentive Plans
In February 2012, SAFE promulgated the Stock Option Rules. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures.
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Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. The PRC agents must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents.
We adopted two share incentive plans, namely the 2008 Plan and the 2014 Plan. Pursuant to the 2008 Plan, we may issue options, restricted shares (or share appreciation rights or other similar awards) and rights to purchase restricted shares to our qualified employees and directors and consultants on a regular basis. Pursuant to the 2014 Plan, we may issue options, restricted shares and restricted share units to our qualified employees, directors and consultants on a regular basis. After this offering, we plan to advise our employees and directors participating in the employee stock option plan to handle foreign exchange matters in accordance with the Stock Option Rules.
In addition, the State Administration for Taxation has issued circulars concerning employee share options, under which our employees working in the PRC who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or if we fail to withhold their income taxes as required by relevant laws and regulations, we may face sanctions imposed by the PRC tax authorities or other PRC government authorities.
Regulation on Tax
PRC Enterprise Income Tax Law
On March 16, 2007, the National Peoples Congress, the PRC legislature, enacted the EIT Law. Both the EIT Law and its Implementing Rules, which was enacted on December 6, 2007 by the State Council, became effective on January 1, 2008. Under the EIT Law, enterprises are classified as PRC resident enterprises and non-PRC-resident enterprises. PRC resident enterprises typically pay an enterprise income tax at the rate of 25%. An enterprise established outside of the PRC with its de facto management bodies located within the PRC is considered a PRC resident enterprise, meaning that it shall be treated in a manner similar to a PRC resident enterprise for enterprise income tax purposes. The Implementing Rules to the EIT Law defines de facto management body as a managing body that in practice exercises substantial and overall management and control over the production and operations, personnel, accounting, and properties of an enterprise.
The SAT issued Circular 82 on April 22, 2009, as amended in January 2014. Circular 82 provides certain specific criteria for determining whether the de facto management body of a PRC-controlled and offshore-incorporated enterprise is located in China, which include all of the following conditions: (a) the location where senior management members responsible for an enterprises daily operations discharge their duties; (b) the location where financial and human resource decisions are made or approved by organizations or persons; (c) the location where the major assets and corporate documents are kept; and (d) the location where more than half (inclusive) of all directors with voting rights or senior management have their habitual residence. In addition, the SAT issued a bulletin on July 27, 2011, effective September 1, 2011, or Bulletin 45, providing more guidance on the implementation of Circular 82. Bulletin 45 clarifies matters including PRC resident enterprise status determination, post-determination administration and competent tax authorities etc. Although both Circular 82 and Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not
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those controlled by PRC individuals or foreign individuals like us, the determining criteria set forth in Circular 82 and Bulletin 45 may reflect the SATs general position on how the de facto management body test should be applied in determining the PRC tax resident enterprise status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
We do not believe that Tarena International, Inc. meets all of the conditions above, and thus we do not believe that Tarena International, Inc. is a PRC resident enterprise despite the fact that all members of our management team as well as the management team of our offshore holding company are located in China. However, if the PRC tax authorities determine that Tarena International, Inc. is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. See Risk FactorsRisks Related to Doing Business in ChinaUnder the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.
Pursuant to the Arrangement Between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, or the Hong Kong Tax Treaty, and other applicable PRC regulations, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Hong Kong Tax Treaty and other applicable regulations, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% upon receiving approval from in-charge tax authority. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009 by the SAT, or Circular 81, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment; and based on the Notice on the Interpretation and Recognition of Beneficial Owners in Tax Treaties, or Circular 601, issued on October 27, 2009 by the SAT, and the Announcement on the Recognition of Beneficial Owners in Tax Treaties issued on June 29, 2012 by the SAT, conduit companies, which are established for the purpose of evading or reducing tax, or transferring or accumulating profits, shall not be recognized as beneficial owners and thus are not entitled to the above-mentioned reduced income tax rate of 5% under the Hong Kong Tax Treaty. Tarena HK has not obtained the approval for a withholding tax rate of 5% from the local tax authority and does not plan to obtain such approval in the near future, as Tarena Hangzhou has not paid dividends in the past and does not plan to pay dividends in the future as it may continue to incur losses. See Risk FactorsRisks Related to Doing Business in ChinaWe may not be able to obtain certain treaty benefits on dividends paid to us by our PRC subsidiary through our Hong Kong Subsidiary.
In January 2009, the SAT promulgated the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-resident Enterprises, or the Non-resident Enterprises Measures, pursuant to which, the entities which have the direct obligation to make certain payments to a non-resident enterprise shall be the relevant tax withholders for such non-resident enterprise. Further, the Non-resident Enterprises Measures provides that in case of an equity transfer between two non-resident enterprises which occurs outside China, the non-resident enterprise which receives the equity transfer payment shall, by itself or engage an agent to, file tax declaration with the PRC tax authority located at the place of the PRC company whose equity has been transferred, and the PRC company whose equity has been transferred shall assist the tax authorities to collect taxes from the relevant non-resident enterprise. On April 30, 2009, the MOF and the SAT jointly issued the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59. On December 10, 2009, the SAT issued Circular 698. Both Circular 59 and Circular 698 became effective retroactively as of January 1, 2008. By promulgating and implementing these two circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. Under Circular 698, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in certain low tax jurisdictions,
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the non-resident enterprise, being the transferor, shall report to the competent tax authority of the PRC resident enterprise this Indirect Transfer. The PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC tax at a rate of up to 10%. Although it appears that Circular 698 was not intended to apply to purchase and sale of shares of publicly traded companies in the open market, the PRC tax authorities may determine that Circular 698 is applicable to our non-resident shareholders who acquired our shares outside of the open market and subsequently sell our shares in our private financing transactions or in the open market if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose, and we and our non-resident shareholders may be at risk of being required to file a return and being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698. On March 28, 2011, the SAT released SAT Bulletin (2011) No. 24, or SAT Bulletin 24, to clarify several issues related to Circular 698. SAT Bulletin 24 became effective on April 1, 2011. According to SAT Bulletin 24, the term effective tax refers to the effective tax on the gain derived from disposition of the equity interests of an overseas holding company; and the term does not impose income tax refers to the cases where the gain derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country/region where the overseas holding company is a resident.
In addition, the EIT Law and its Implementation Rules permit certain high and new technology enterprises strongly supported by the state that hold independent ownership of core intellectual property and simultaneously meet a list of other criteria, financial or non-financial, as stipulated in the Implementation Rules and other regulations, to enjoy a reduced 15% enterprise income tax rate. The SAT, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Measures on the Recognition Criteria and Procedures for Advance and New Technology Enterprise delineating the specific criteria and procedures for the high and new technology enterprises certification in April 2008. Enterprises recognized as high and new technology enterprises will enjoy a reduced 15% enterprise income tax rate after they go through tax reduction application formalities with relevant tax authorities. Tarena Tech, renewed its high and new technology enterprise certificate in 2012, which will be valid until the end of 2014. Tarena Tech will be eligible for a preferential tax rate of 15% as long as it maintain its high and new technology enterprise status. Tarena Software Technology (Hangzhou) Co., Ltd. was established in 2013 and is qualified as an eligible software enterprise, which entitles it to two years of full tax exemption followed by three years of 50% tax exemption, commencing from the year in which its taxable income is greater than zero.
PRC Value-added Tax ( VAT ) in lieu of Business Tax (the VAT Pilot Program )
An enterprise or individual providing taxable service within the territory of China has been historically required to pay BT at the rate of 3% or 5% on the revenues generated from provision of such services in accordance with applicable PRC tax regulations. However, if the services provided are technical transfer or technical development, or technical consulting and technical service related to technology transfer or technical development, BT may be exempted subject to approval by the relevant tax authorities.
In November 2011, the Ministry of Finance and the SAT promulgated the Notice on the Pilot Program in Shanghai Replacing BT with VAT in Transportation and Some Modern Service Sectors. Pursuant to this circular and other relevant notices, VAT shall be imposed in lieu of BT in transportation and some modern service sectors firstly in Shanghai starting from January 1, 2012. Afterwards the VAT Pilot Program is expanded to Beijing from September 1, 2012, and then is rolled out to the whole country from August 1, 2013. Under the VAT Pilot Program, VAT at a rate of 6% applies to some modern service industries.
Local Surcharges
The city construction tax and education surcharge are local surcharges imposed as a certain percentage of PRC turnover taxes (i.e., business tax, value-added tax and consumption tax). The city construction tax is
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charged at rates of 1%, 5% or 7% (the applicable city construction tax rate depends on the location of the taxpayer) of the turnover tax paid while the education surcharge rate is currently at 3% of the turnover tax paid. Though in the past, foreign-invested enterprises, foreign enterprises and foreign individuals were exempted from such surcharges, these entities were required to make such payments from December 1, 2010 according to a notice issued by PRC State Council in October 2010.
In addition to the city construction tax and the education surcharge, the China Ministry of Finance issued Circular Caizong (2010) No. 98, or Circular 98, that requires all entities and individuals (including foreign-invested enterprises, foreign enterprises and foreign individuals) to pay a local education surcharge, or LES, at 2% on turnover tax paid. Local governments are required to report their implementation measures on LES to the Ministry of Finance. LES became applicable to all entities and individuals in Beijing on January 1, 2012.
Employment Laws and Social Insurance
We are subject to laws and regulations governing our relationship with our employees, including wage and hour requirements, working and safety conditions, and social insurance, housing funds and other welfare. The compliance with these laws and regulations may require substantial resources.
Chinas National Labor Law, which became effective on January 1, 1995, and Chinas National Labor Contract Law, which became effective on January 1, 2008 and was amended on December 28, 2012, permit workers in both state-owned and private enterprises in China to bargain collectively. The National Labor Law and the National Labor Contract Law provide for collective contracts to be developed through collaboration between the labor union (or worker representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, and hours of work. The laws also permit workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract. The National Labor Contract Law has enhanced rights for the nations workers, including permitting open-ended labor contracts and severance payments. The legislation requires employers to provide written contracts to their workers, restricts the use of temporary labor and makes it harder for employers to lay off employees. It also requires that employees with fixed-term contracts be entitled to an indefinite-term contract after a fixed-term contract is renewed twice or the employee has worked for the employer for a consecutive ten-year period.
On October 28, 2010, the National Peoples Congress of China promulgated the PRC Social Insurance Law, which became effective on July 1, 2011. In accordance with the PRC Social Insurance Law and other relevant laws and regulations, China establishes a social insurance system including basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance. An employer shall pay the social insurance for its employees in accordance with the rates provided under relevant regulations and shall withhold the social insurance that should be assumed by the employees. The authorities in charge of social insurance may request an employers compliance and impose sanctions if such employer fails to pay and withhold social insurance in a timely manner. Under the Regulations on the Administration of Housing Fund effective in 1999, as amended in 2002, PRC companies must register with applicable housing fund management centers and establish a special housing fund account in an entrusted bank. Both PRC companies and their employees are required to contribute to the housing funds.
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Directors and Executive Officers
The following table sets forth information regarding our executive officers and directors as of the date of this prospectus.
Directors and Executive Officers |
Age |
Position/Title |
||||
Shaoyun Han |
43 | Founder, chairman and chief executive officer | ||||
Jianguang Li |
49 | Director | ||||
Yongji Sun (1) |
49 | Independent director appointee | ||||
Xiaosong Zhang (2) |
50 | Independent director appointee | ||||
Ya-Qin Zhang (3) |
48 | Independent director appointee | ||||
Suhai Ji |
37 | Chief financial officer | ||||
Ying Sun |
37 | Vice president | ||||
Yi Li |
38 | Vice president | ||||
Yinan Qi |
34 | Vice president and general manager of northern region | ||||
Jiangyou Wang |
36 | General manager of southern region | ||||
Xiaolan Tang |
34 | General manager of central and western region |
(1) | Mr. Sun has accepted appointment as our independent director, effective upon the effectiveness of the registration statement of which this prospectus is a part. |
(2) | Mr. Zhang has accepted appointment as our independent director, effective upon the effectiveness of the registration statement of which this prospectus is a part. |
(3) | Mr. Zhang has accepted appointment as our independent director, effective upon the effectiveness of the registration statement of which this prospectus is a part. |
Shaoyun Han is our founder and has served as chairman of our board of directors and chief executive officer since our inception. Before founding Tarena in September 2002, Mr. Han was deputy chief engineer and director of the software division of AsiaInfo-Linkage between 1995 and 2002, responsible for software research and development and corporate management. Mr. Han received a bachelors degree in computer application from Jilin University in China.
Jianguang Li is our director. Mr. Li has served as our director since January 2004. Mr. Li has been a partner of IDG Capital Partners since March 2006, responsible for providing venture capital and private equity investment-related advice. Between 1999 and 2006, Mr. Li served as a vice-president of IDG Technology Venture Investment Inc. Prior to joining IDG in 1999, Mr. Li worked in Crosby Assets Management Limited as an investment manager. Mr. Li received a bachelors degree in management from Peking University and a masters of science degree from the University of Guelph.
Yongj i Sun will serve as our independent director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Sun currently serves as the chairman of Dilato Infotech Inc. and the chief executive officer of Shangxue Education Technology Inc. Between 2005 and 2011, Mr. Sun served as executive vice president of special projects and strategic relationships at HiSoft Technology International Ltd., or HiSoft . Prior to joining HiSoft in November 2005, Mr. Sun founded Beijing Tianhai Hongye International Software Co., Ltd. (Ensemble) in 2002 and served as its chief executive officer from 2003 to 2005. He founded and served as chief executive officer of Newland Network Co. from 2000 to 2002. He founded Lotus China in 1993 and served as the head of the research and development center until 1998. Mr. Sun received a bachelors degree from North Eastern Machinery Institute in 1985, a masters degree in Computer Science from Nanjing Aerospace & Aeronautic University in 1988, and received a master of business administration from Babson College in 2000.
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Xiaosong Zhang will serve as our independent director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Zhang has served as an independent director and chairman of the audit committee of Sungy Mobile Limited, a NYSE-listed mobile internet company, since November 2013. Mr. Zhang has served as the chief financial officer of iSoftStone Holdings Limited, a NYSE-listed company, since July 2010 and was an independent director of iSoftStone between February 2010 and July 2010. Prior to joining iSoftStone, Mr. Zhang served as chief financial officer of BJB Career Education Company Limited from 2009 to June 2010, as chief financial officer of Emarket Holding Group, Ltd. from 2008 to 2009, as chief financial officer of Chinacars, Inc. from 2007 to 2008 and as chief financial officer of Vimicro International Corporation, a NASDAQ-listed company, from 2004 to 2007. From 2000 to 2004, Mr. Zhang was a manager and then a senior manager at the Beijing office of PricewaterhouseCoopers. From 1995 to 1999, Mr. Zhang was an auditor and then a senior auditor at the Los Angeles office of KPMG LLP. Mr. Zhang received his master degree in accountancy from University of Illinois, his master degree in professional meteorology from Saint Louis University, and his bachelor degree in meteorology from Peking University. Mr. Zhang is a Certified Public Accountant in the State of California.
Mr. Ya-Qin Zhang will serve as our independent director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Zhang has served as an independent director and member of the audit committee of Autohome Inc., a NYSE-listed company, since December 2013. Mr. Zhang has served as a director of ChinaCache International Holdings Ltd., a NASDAQ-listed company, since September 2010. Mr. Zhang has been serving as the chairman of Microsoft Asia-Pacific R&D Group since 2005 and is in charge of the research and development of Microsoft Corporation in the Asia-Pacific region. Mr. Zhang is one of the founding members of the Microsoft Research Asia lab, where he served as managing director and chief scientist, and he also founded the Advanced Technology Center in 2003. Before joining Microsoft in 1999, Mr. Zhang was a director for the Multimedia Technology Laboratory at Sarnoff Corp. and worked as a senior technical staff member for GTE Laboratories Inc. and Contel Corp. From 2009 to 2012, Mr. Zhang served as an independent director of China Real Estate Information Corporation, a provider of real estate information, consulting and online services in China. Mr. Zhang received his bachelors and masters degrees in electrical engineering from the University of Science and Technology of China and a Ph.D. in electrical engineering from George Washington University.
Suhai Ji is our chief financial officer. Mr. Ji has served as our chief financial officer since September 2013. From November 2010 to September 2013, Mr. Ji served as the chief financial officer of NQ Mobile Inc., a NYSE-listed company. From June 2009 to November 2010, Mr. Ji was a director in the NYSE Beijing Representative Office where he was responsible for NYSEs business development in China. From 2005 to 2009, Mr. Ji worked as an associate and vice president in investment banking at Deutsche Bank AG, Hong Kong Branch. Prior to that, Mr. Ji was a management consultant at A.T. Kearney Beijing Office from 2003 to 2005. Mr. Ji received a bachelors degree in economics and a masters degree in international economics and finance from Brandeis University, as well as an MBA degree in finance from Columbia Business School.
Ying Sun is our vice president. Ms. Sun has served as our vice president since December 2009, responsible for our nation-wide operations. Ms. Sun joined us in June 2005 as the general manager of our Beijing learning centers. Between 2007 and 2009, she was the general manager of our northern region. From 1999 to 2005, Ms. Sun worked in Gloria Hotels and Resorts, serving in various sales and human resources-related roles. Ms. Sun received a bachelors degree in tourism economics management from Dongbei University of Finance and Economics in China. Ms. Sun is the spouse of Shaoyun Han.
Yi Li is our vice president. Mr. Li has served as our vice president since January 2012, responsible for our teaching and research efforts. Mr. Li joined us in November 2008, serving as our director of teaching between 2008 and 2012. Prior to joining us, Mr. Li was a senior teacher and later a general supervisor of the JAVA training course at Oriental Standard between 2005 and 2008. From 2004 to 2005, Mr. Li was a senior development engineer at IBM China R&D center. Mr. Li received a bachelors degree in Automation from the Institute of Technology of Taiyuan and a masters degree in software engineering from Beihang University.
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Yinan Qi is our vice president and general manager of northern region. Mr. Qi has served as our vice president since September 2013, responsible for our selling and marketing efforts, and as our general manager of northern region since June 2010, responsible for our operations in Northern China. Mr. Qi joined us in March 2007, previously serving in roles including the deputy general manager of northern region, deputy general manager of our Beijing learning centers and director of our Hangzhou learning center. Prior to joining us, Mr. Qi served as the general manager of the Beihang campus of GAMFE between 2005 and 2006 and as director of technology at Zhonghe Wangxun (Beijing) Information Technology Co., Ltd. between 2002 and 2005. Mr. Qi received a bachelors degree in optoelectronic technology from China Jiliang University and a masters degree in multimedia technologies from the University of Science and Technology Beijing.
Jiangyou Wang is our general manager of southern region. Mr. Wang has served as our general manager of southern region since January 2010, responsible for our operations in Southern China. Mr. Wang joined us in March 2008 as the director of our Hangzhou learning center before being promoted to his current position. Between 2007 and 2008, Mr. Wang founded Hangzhou Daowei Information Technology Co., Ltd., an IT operating services provider. Between 2006 and 2007, Mr. Wang co-founded Hangzhou Beiteng Technology Co., Ltd., a business simulation and course content provider. Between 2005 and 2006, Mr. Wang served as general manager of Talking Street English School in Ningbo. Between 2001 and 2004, Mr. Wang worked in Hangzhou New Grand Software Co., Ltd. as a regional sales director and general manager of the Ningbo branch. Mr. Wang received an associates degree in sales and marketing management from Zhejiang Industrial & Commercial University.
Xiaolan Tang is our general manager of central and western region. Mr. Tang has served as our general manager of central and western region since January 2011, responsible for our operations in central and western China. Mr. Tang joined us in October 2007, serving as marketing director of our Beijing branch, marketing director of the northern region and vice-general manager of northern region before being promoted to his current position. From 2006 to 2007, Mr. Tang worked as the director of marketing at Beijing Blue Point Technology Co., Ltd. From 2002 to 2006, Mr. Tang served as executive assistant to the general manager and training school headmaster of Jilin Education Technology Co., Ltd. Mr. Li received a bachelors degree in management from Jilin University.
Employment Agreements
We have entered into employment agreements with each of our executive officers. We may terminate an executive officers employment for cause at any time without remuneration for certain acts of the officer, such as being subject to criminal penalty, serious dereliction of duty or corruption to our detriment, a serious violation of our labor discipline, rules or regulations, or providing services for other entities without our consent. We may also terminate an executive officers employment by giving thirty days notice under certain circumstances, such as serious sickness that results in the inability to perform ordinary tasks or incompetence of the executive officer. An executive officer may terminate his or her employment at any time by giving thirty days notice.
Pursuant to the confidentiality, non-competition and intellectual property rights agreements that we have entered into with certain director and executive officers, they have agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment, any of our confidential information or trade secrets, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. In addition, such director and executive officers acknowledge that all inventions, utility models, designs, know-how, copyright and other forms of intellectual property made by them within the scope of their employment with us, pursuant to job assignments or using our materials and technology, or during the one year after their employment that relates to their employment with us, are our property and they should assign the same to us if we so require, pursuant to the confidentiality, non-competition and intellectual property rights agreements.
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In addition, such director and executive officers have agreed, pursuant to the confidentiality, non-competition and intellectual property rights agreements, to be bound by non-competition restrictions during the term of his or her employment and for two years following the last date of employment. Specifically, each executive officer has agreed not to (i) directly or indirectly, work for a competitor of Tarena that produces the same type of products or is engaged in the same type of business as Tarena or (ii) establish his own business to produce the same type of products or engage in the same type of business.
Board of Directors
Our board of directors currently consists of two directors. Three additional independent directors will join the board upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. A director is not required to hold any shares in our company. A director may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interested. A director may exercise all the powers of the company to borrow money, mortgage its business, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party.
Under the shareholders agreement and our memorandum and articles of association currently in effect, the holders of a majority of our ordinary shares have the right to appoint four directors. As long as the Series A, Series B and Series C preferred shares investors hold at least 15% of their preferred shares purchased through their respective share purchase agreements, each of our preferred share investors who bought their shares from us has the right to appoint one director. Such shareholders right to appoint directors will automatically terminate upon the completion of this offering when all outstanding preferred shares are automatically converted into ordinary shares. Among our three existing directors, one was appointed by the holders of a majority of our ordinary shares, one was appointed by a Series A preferred shares investor, one was appointed by our Series B preferred shares investor and none was appointed by our Series C preferred shares investor.
Committees of the Board of Directors
Prior to the completion of this offering, we intend to establish an audit committee, a compensation committee and a nominating and corporate governance committee under the board of directors. We intend to adopt a charter for each of the three committees prior to the completion of this offering. Each committees members and functions are described below.
Audit Committee . Our audit committee will consist of Messrs. Xiaosong Zhang, Yongji Sun and Ya-Qin Zhang and will be chaired by Mr. Xiaosong Zhang. Each member of our audit committee satisfies the independence requirements of Rule5605(c)(2) of the NASDAQ Stock Market Rules and meets the independence standards under Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have determined that Mr. Xiaosong Zhang qualifies as an audit committee financial expert. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:
| selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; |
| reviewing with the independent registered public accounting firm any audit problems or difficulties and managements response; |
| reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
| discussing the annual audited financial statements with management and the independent registered public accounting firm; |
| reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
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| reviewing and reassessing annually the adequacy of our audit committee charter; |
| meeting separately and periodically with management and the independent registered public accounting firm; |
| monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance; and |
| reporting regularly to the board. |
Compensation Committee . Our compensation committee will consist of Messrs. Ya-Qin Zhang, Yongjin Sun and Xiaosong Zhang, and will be chaired by Ya-Qin Zhang. Each member of our compensation committee satisfies the independence requirements of Rule5605(c)(2) of the NASDAQ Stock Market Rules. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which their compensation is deliberated upon. The compensation committee will be responsible for, among other things:
| reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; |
| reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; |
| reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors |
| selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that persons independence from management. |
Nominating and Corporate Governance Committee . Our nominating and corporate governance committee will consist of Messrs. Yongjin Sun, Xiaosing Zhang and Ya-Qi Zhang, and will be chaired by Mr. Yongji Sun. Each member of our nominating and corporate governance committee satisfies the independence requirements of Rule5605(c)(2) of the NASDAQ Stock Market Rules. The nominating and corporate governance committee will assist the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:
| recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board; |
| reviewing annually with the board the current composition of the board with regards to characteristics such as independence, age, skills, experience and availability of service to us; |
| selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; |
| developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and |
| evaluating the performance and effectiveness of the board as a whole. |
Duties of Directors
Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and
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diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder may have the right to seek damages in our name if a duty owed by our directors is breached. You should refer to Description of Share CapitalDifferences in Corporate Law for additional information on our standard of corporate governance under Cayman Islands law.
Terms of Directors and Officers
Pursuant to the amended and restated memorandum and articles of association, which will become effective and replace the current amended and restated memorandum and articles of association in its entirety upon the completion of this offering, our officers will be elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold office until such time as they resign or are removed from office by special resolution of our shareholders. A director will be removed from office automatically if, among other things, the director (1) becomes bankrupt or makes any arrangement or composition with his creditors; or (2) dies or is found by our company to be of unsound mind.
Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2013, we paid an aggregate of approximately US$0.5 million in cash to our executive officers, and we did not pay any cash compensation to our non-executive directors. For share incentive grants to our directors and executive officers, see ManagementShare Plan.
Share Incentive Plan
The 2008 Plan
We have adopted the 2008 Plan in September 2008. The purpose of the 2008 Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to selected directors, officers, employees and consultants and to promote the success of Tarenas business by offering these individuals an opportunity to acquire a proprietary interest in Tarena.
Under the 2008 Plan, the maximum aggregate number of shares which may be issued is 8,184,990. As of the date of this prospectus, options to purchase 8,134,830 ordinary shares are issued and outstanding, and there are 50,160 ordinary shares available for future issuance upon the exercise of future grants under the 2008 Plan.
There are outstanding options to purchase a total of 3,815,000 ordinary shares granted prior to our adoption of the 2008 Plan. Such options were ratified by our board and included in the 2008 Plan.
The following paragraphs summarize the terms of the 2008 Plan.
Types of Awards. The 2008 Plan permits the awards of options, restricted shares (or share appreciation rights or other similar awards) and rights to purchase restricted shares.
Plan Administration. Our board of directors or a committee appointed by our board will administer the 2008 Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant, among other things.
Award Agreement. Awards granted under the 2008 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the term of the award and the provisions applicable in the event of the grantees employment or service terminates.
Eligibility. We may grant awards to our employees, directors and consultants of our company, as well as trusts or companies established in connection with any of our employee benefit plan for the benefit of our employees, directors or consultants.
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Acceleration. The plan administrator may accelerate the vesting or exercisability of an option or lapsing of a repurchase or redemption right to which restricted shares may be subject.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum exercisable term is the tenth anniversary after the date of a grant.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or applicable laws of descent and distribution or pursuant to a qualified domestic relations order and by trusts or companies established in connection with any of our employee benefit plan for the benefit of an employee, director or consultant, except as otherwise provided by the plan administrator.
Termination of Employment or Service. In the event that a grantee ceases employment with us or ceases to provide services to us, any vested options will generally terminate after a period of time following the termination of employment if the grantee does not exercise the options during this period.
Restrictions on Issue of Shares. Options granted under the 2008 Plan can only be exercised and ordinary shares can only be issued upon the occurrence of (i) the consummation of a qualified initial public offering, (ii) the consummation of a liquidation event or (iii) the expiry of the five year period commencing from the grant date.
Termination of the 2008 Plan. Unless terminated earlier, the 2008 Plan will terminate automatically in 2018. Our board of directors has the authority to amend or terminate the plan subject to shareholder approval if required by applicable law.
The 2014 Plan
We adopted the 2014 Plan in February 2014. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2014 Plan, or the Award Pool, is 1,833,696, provided that the shares reserved in the Award Pool shall be increased on the first day of each calendar year, commencing with January 1, 2015, if the unissued shares reserved in the Award Pool on such day account for less than 2% of the total number of shares issued and outstanding on a fully-diluted basis on December 31 of the immediately preceding calendar year, as a result of which increase the shares unissued and reserved in the Award Pool immediately after each such increase shall equal 2% of the total number of shares issued and outstanding on a fully-diluted basis on December 31 of the immediately preceding calendar year. As of the date of this prospectus, options to purchase 1,805,784 ordinary shares are issued and outstanding under the 2014 Plan. The following paragraphs summarize the terms of the 2014 Plan.
Types of Awards . The 2014 Plan permits the awards of options, restricted shares and restricted share units.
Plan Administration . Our board or a committee of one or more members of our board duly authorized for the purpose of the 2014 Plan can act as the plan administrator.
Award Agreement . Options, restricted shares or restricted share units granted under the 2014 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each grant.
Eligibility . We may grant awards to our employees, consultants or directors. However, we may grant options that are intended to qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.
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Acceleration of Awards upon Change in Control. If a change in control, liquidation or dissolution of our company occurs, the plan administrator may, in its sole discretion, provide for (i) all awards outstanding to terminate at a specific time in the future and give each participant the right to exercise the vested portion of such awards during a specific period of time, or (ii) the purchase of any award for an amount of cash equal to the amount that could have been attained upon the exercise of such award, or (iii) the replacement of such award with other rights or property selected by the plan administrator in its sole discretion, or (iv) payment of award in cash based on the value of ordinary shares on the date of the change-in-control transaction plus reasonable interest.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum exercisable term is the tenth anniversary after the date of a grant.
Exercise Price of Options . The exercise price in respect of any option shall be determined by the plan administrator and set forth in the award agreement which may be a fixed or variable price related to the fair market value of the shares. The exercise price per share subject to an option may be amended or adjusted in the absolute discretion of the plan administrator, the determination of which shall be final, binding and conclusive.
Vesting Schedule . In general, the plan administrator determines the vesting schedule, which is set forth in the award agreement.
Transfer Restrictions . Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except as otherwise provided by the plan administrator.
Termination . Unless terminated earlier, the 2014 Plan will terminate automatically in 2024.
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The following table summarizes, as of the date of this prospectus, the outstanding options granted to our directors and executive officers under our share plan.
Name |
Ordinary Shares
Underlying Options Awarded |
Exercise Price
(US$/Share) |
Date of Grant | Date of Expiration | ||||||
Shaoyun Han |
860,000 | 0.058 | January 1, 2004 | December 31, 2013 | ||||||
640,000 | 0.058 | October 1, 2006 | September 30, 2016 | |||||||
600,000 | 0.158 | January 1, 2008 | December 31, 2017 | |||||||
1,523,020 | 1.000 | August 26, 2011 | August 25, 2021 | |||||||
1,326,980 | 1.830 | January 1, 2013 | December 31, 2022 | |||||||
130,000 | 4.360 | February 20, 2014 | December 31, 2022 | |||||||
916,848 | 1.830 | February 20, 2014 | February 19, 2024 | |||||||
Jianguang Li |
400,000 | 0.058 | January 1, 2004 | December 31, 2013 | ||||||
Suhai Ji |
* | 1.830 | September 16, 2013 | September 15, 2023 | ||||||
1.830 | February 20, 2014 | December 31, 2022 | ||||||||
Ying Sun |
400,000 | 0.058 | September 1, 2005 | August 31, 2015 | ||||||
100,000 | 0.058 | February 20, 2007 | January 31, 2017 | |||||||
18,000 | 1.830 | January 1, 2013 | December 31, 2022 | |||||||
5,000 | 4.360 | February 20, 2014 | February 1, 2017 | |||||||
Yi Li |
* | 0.890 | March 1, 2009 | February 28, 2019 | ||||||
1.830 | January 1, 2013 | December 31, 2022 | ||||||||
4.360 | February 20, 2014 | December 31, 2022 | ||||||||
Yinan Qi |
* | 0.890 | June 1, 2009 | May 31, 2019 | ||||||
1.830 | January 1, 2013 | December 31, 2022 | ||||||||
4.360 | February 20, 2014 | December 31, 2022 | ||||||||
Jiangyou Wang |
* | 0.890 | June 1, 2009 | May 31, 2019 | ||||||
1.830 | January 1, 2013 | December 31, 2022 | ||||||||
4.360 | February 20, 2014 | December 31, 2022 | ||||||||
Xiaolan Tang |
* | 0.890 | June 1, 2009 | May 31, 2019 | ||||||
1.830 | January 1, 2013 | December 31, 2022 | ||||||||
4.360 | February 20, 2014 | January 1, 2017 | ||||||||
|
|
|||||||||
Total |
7,633,028 | |||||||||
|
|
* | The aggregate number of ordinary shares underlying the outstanding options that are exercisable within 60 days of the date of this prospectus held by this individual is less than 1% of our total outstanding shares. |
As of the date of this prospectus, other employees and a consultant as a group held options to purchase 2,307,586 ordinary shares of our company, with exercise prices ranging from US$0.058 to US$4.360 per ordinary share.
Certain Legal Proceedings Relating to Our Chief Financial Officer
From November 2010 to September 2013, our chief financial officer, Mr. Suhai Ji, was the chief financial officer of NQ Mobile Inc., an NYSE-listed company. On October 24, 2013, Muddy Waters LLC, a short-seller research company, published a report alleging, among others things, that certain operating and financial data reported by NQ Mobile were false. Since the date of the report, NQ Mobile and many of its current and former directors and executive officers have been named as defendants in several putative class action lawsuits filed in the United States alleging violations of federal securities laws. Mr. Ji is one of the former executive officers named in the complaints. The case is in its preliminary phase and, to our knowledge, all of the defendants deny and are vigorously contesting the allegations. None of the proceedings involves us.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information concerning the beneficial ownership of our ordinary shares as of the date of this prospectus, assuming conversion of (i) all of our outstanding series A, series B and series C preferred shares and (ii) all of our outstanding ordinary shares into Class B ordinary shares, by:
| each of our directors and executive officers; |
| each person known to us to beneficially own more than 5% of our ordinary shares; and |
| each selling shareholder. |
We will adopt a dual class ordinary share structure immediately prior to the completion of this offering. The calculations in the table below are based on 37,657,389 ordinary shares outstanding as of the date of this prospectus and ordinary shares outstanding immediately after the completion of this offering, including (1) Class A ordinary shares to be sold by us in this offering in the form of ADSs, (2) Class B ordinary shares redesignated and converted from our outstanding ordinary shares and preferred shares, assuming that the underwriters do not exercise their option to purchase additional ADSs.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
Ordinary shares
Beneficially Owned Prior to This Offering |
Class A Ordinary
Shares Beneficially Owned After This Offering |
Class B Ordinary
Shares Beneficially Owned After This Offering |
Voting Power
After This Offering |
|||||||||||||||||
Number | % | Number | % | Number | % | Number | % | |||||||||||||
Directors and Executive Officers:** |
||||||||||||||||||||
Shaoyun Han (1) |
13,345,951 | 32.4 | ||||||||||||||||||
Jianguang Li (2) |
9,285,349 | 24.4 | ||||||||||||||||||
Suhai Ji |
* | * | ||||||||||||||||||
Ying Sun (4) (3) |
13,345,951 | 32.4 | ||||||||||||||||||
Yinan Qi |
* | * | ||||||||||||||||||
Yi Li |
* | * | ||||||||||||||||||
Jiangyou Wang |
* | * | ||||||||||||||||||
Xiaolan Tang |
* | * | ||||||||||||||||||
All directors and executive officers as a group |
22,864,156 | 54.7 | ||||||||||||||||||
Principal and Selling Shareholders: |
||||||||||||||||||||
Goldman Sachs funds (4) |
10,914,852 | 29.0 | ||||||||||||||||||
IDG funds (5) |
8,885,349 | 23.6 | ||||||||||||||||||
JAFCO Asia Technology Fund IV (6) |
5,630,630 | 15.0 | ||||||||||||||||||
Connion Capital Limited (7) |
2,594,439 | 6.9 |
Notes:
* | Less than 1%. |
** | Except for Mr. Jianguang Li, Mr. Yongji Sun, Mr. Xiaosong Zhang and Mr. Ya-Qin Zhang, the business address of our directors and executive officers is Suite 10017, Building E, Zhongkun Plaza, A18 Bei San Huan West Road, Haidian District, Beijing, 100098, PRC. |
(1) |
Represents (i) 6,060,000 ordinary shares held by Learningon Limited, a British Virgin Islands company owned by Mr. Han, (ii) 2,594,439 ordinary shares held by Connion Capital Limited, a British Virgin Islands company owned by Mr. Han, (iii) 1,146,059 ordinary shares held by Techedu Limited, a British Virgin Islands company owned by Mr. Han, (iv) 3,040,953 ordinary shares that |
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Mr. Han may purchase upon exercise of options within 60 days of the date of this prospectus and (v) 504,500 ordinary shares that Ms. Ying Sun may purchase upon exercise of options within 60 days of the date of this prospectus. Mr. Han and Ms. Sun are husband and wife. Mr. Han is the sole director of Learningon Limited, Connion Capital Limited and Techedu Limited. |
(2) | Represents (i) 7,196,159 ordinary shares issuable upon the conversion of the same number of Series A preferred shares held by IDG Technology Venture Investments, LP, (ii) 1,689,190 ordinary shares issuable upon the conversion of the same number of Series B preferred shares held by IDG Technology Ventures Investment III, L.P. We refer to these funds collectively as the IDG funds. Mr. Li is a director of our company appointed by the IDG funds. Mr. Li is associated with the IDG funds and (iii) 400,000 ordinary shares that Mr. Li may purchase upon exercise of options within 60 days of the date of this prospectus. Mr. Li disclaims beneficial ownership of shares held by the IDG funds, except to the extent of his pecuniary interest therein]. The business address of Mr. Li is 6/F., COFCO Plaza, No.8 Jianguomennei Ave, Jiannei St, Dongcheng District, Beijing, 100020, PRC. |
(3) | See footnote (1). |
(4) | Represents (i) 5,457,426 ordinary shares issuable upon conversion of the same number of Series C convertible preferred shares held by Goldman Sachs Investment Partners Master Fund, L.P. and (ii) 5,457,426 ordinary shares issuable upon conversion of the same number of Series C convertible preferred shares held by Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. The general partner of Goldman Sachs Investment Partners Master Fund, L.P. is Goldman Sachs Investment Partners GP, LLC, and the investment manager of Goldman Sachs Investment Partners Master Fund, L.P. is GS Investment Strategies, LLC. Goldman Sachs Investment Partners GP, LLC and GS Investment Strategies, LLC are wholly owned by The Goldman Sachs Group, Inc. The business address of Goldman Sachs Investment Partners Master Fund, L.P. is 200 West Street, NY NY 10282. The general partner of Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. is Goldman Sachs Investment Partners Private Opportunities Holdings Advisors, Inc., and the investment manager of Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. is GS Investment Strategies, LLC. Goldman Sachs Investment Partners Private Opportunities Holdings Advisors, Inc. and GS Investment Strategies, LLC are wholly owned by The Goldman Sachs Group, Inc. The business address of Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. is 200 West Street, NY NY 10282. |
(5) | Represents (i) 7,196,159 ordinary shares issuable upon conversion of the same number of Series A convertible preferred shares held by IDG Technology Venture Investments, LP and (ii) 1,689,190 ordinary shares issuable upon conversion of the same number of Series B convertible preferred shares held by IDG Technology Venture Investment III, L.P. IDG Technology Venture Investments, LP is a Delaware limited partnership which is controlled by IDG Technology Venture Investments, LLC, its sole general partner. IDG Technology Venture Investments, LLC is controlled by its two managing member: Mr. Quan Zhou and Mr. Chi Sing Ho. The registered office address of IDG Technology Venture Investments, LP is The Corporation Service Company, 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805-1297. IDG Technology Venture Investment III, L.P. is a Delaware limited partnership which is controlled by IDG Technology Venture Investment III, LLC, its sole general partner. IDG Technology Venture Investment III, LLC is controlled by its two managing member: Mr. Quan Zhou and Mr. Chi Sing Ho. The registered office address of IDG Technology Venture Investment III, L.P. is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. |
(6) | Represents 5,630,630 ordinary shares issuable upon conversion of the same number of Series B convertible preferred shares held by JAFCO Asia Technology Fund IV. JAFCO Asia Technology Fund IV is an exempted company organized and existing under the laws of the Cayman Islands and is wholly owned by JAFCO Asia Technology Fund IV L.P., a limited partnership established in the Cayman Islands. JAFCO Asia Technology Holdings IV Limited, a Cayman Islands company and a wholly-owned subsidiary of JAFCO Investment (Asia Pacific) Ltd, is the sole general partner of JAFCO Asia Technology Fund IV L.P. and controls the voting and the investment power over the securities owned by JAFCO Asia Technology Fund IV. JAFCO Asia Technology Holdings IV Limited has appointed JAFCO Investment (Asia Pacific) Ltd to manage JAFCO Asia Technology Fund IV L.P. and voting and investment power over the securities owned by JAFCO Asia Technology Fund IV is exercised by an investment committee and a listed portfolio divestment committee of JAFCO Investment (Asia Pacific) Ltd. As at the date of this document, Messrs. Hiroshi Yamada, Junitsu Uchikata and Ui Chel Joung are members of such investment committee and Messrs. Yamada and Uchikata are members of such listed portfolio divestment committee. Each member of these committees may be deemed to have shared voting and investment power over the securities owned by JAFCO Asia Technology Fund IV, and each such person disclaims beneficial ownership of the securities held by JAFCO Asia Technology Fund IV, except to the extent of each persons pecuniary interest therein. JAFCO Investment (Asia Pacific) Ltd is wholly owned by JAFCO Co., Ltd., a public company listed on the Tokyo Stock Exchange. The registered office address of JAFCO Asia Technology Fund IV is 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands. |
(7) | The registered office address of Connion Capital Limited is Offices of Trident Trust Company (B.V.I.) Limited, Trident Chambers, P.O. Box 146, Road Town, Tortola, the British Virgin Islands. Connion Capital Limited is owned by Mr. Shaoyun Han. Mr. Shaoyun Han is the sole director of Connion Capital Limited. |
As of the date of this prospectus, none of our outstanding ordinary shares are held by record holders in the United States, 7,196,159 of our Series A convertible preferred shares, or 100.0% of our issued and outstanding Series A preferred shares, are held by one record holder in the United States, 1,689,190 of our Series B convertible preferred shares, or 23.1% of our issued and outstanding Series B preferred shares, are held by one record holder in the United States and 10,914,852 of our Series C convertible preferred shares, or 100.0% of our issued and outstanding Series C preferred shares, are held by two record holders in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. See Description of Share CapitalHistory of Securities Issuances for a description of issuances of our ordinary shares and preferred shares that have resulted in significant changes in ownership held by our major shareholders.
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Goldman Sachs Investment Partners Master Fund, L.P. and Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. have informed us that (i) they are managed by GS Investment Strategies, LLC, which is a wholly owned subsidiary of The Goldman Sachs Group, Inc., (ii) Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., Mercer Allied Company, L.P. and REDI Global Technologies LLC are affiliated with The Goldman Sachs Group, Inc., (iii) Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., Mercer Allied Company, L.P. and REDI Global Technologies LLC are members of the Financial Industry Regulatory Authority and (iv) certain affiliates of The Goldman Sachs Group, Inc. may participate in this offering as an underwriter. Goldman Sachs Investment Partners Master Fund, L.P. and Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. have informed us that certain affiliates of The Goldman Sachs Group, Inc. who may participate in this offering as an underwriter will not be selling securities as part of this offering. None of our other shareholders has informed us that it is affiliated with a registered broker-dealer or is in the business of underwriting securities.
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Contractual Arrangements
See Corporate History and StructureContractual Arrangements with Our VIEs.
Transactions with Shareholders and Affiliates
Transactions with Chuanbang. Starting from the second half of 2011, Chuanbang, a company owned by our chief executive officer, Mr. Shaoyun Han, began to offer person-to-person lending to enable qualified students to borrow unsecured loans from unrelated individuals to pay for our tuition fees. Under the person-to-person lending service offered by Chuanbang, a student enters into a loan agreement with Mr. Han, as the designated representative of Chuanbang, to borrow an amount equal to our tuition fees. Mr. Han then assigns the existing loan agreement to an unrelated individual lender identified by Chuanbang, or the person-to-person lender, with us serving as the guarantor of the loan to the student. Upon the receipt of cash from the person-to-person lenders, Mr. Han remits the cash to us directly on behalf of the student for the payment of such students tuition fees. Chuanbang services the student loans by collecting repayments on behalf of the person-to-person lenders from students, made to an account opened in the name of Mr. Han. The interest spread between (i) the interest rate under the loan agreement between the student and Mr. Han and (ii) the anticipated annual yield under the assignment agreement between Mr. Han and the person-to-person lender represents compensation for Chuanbangs estimated costs incurred in originating and servicing the student loans, plus the amount payable to us for guaranteeing the student loans. We received US$0.3 million, US$7.9 million and US$8.7 million in tuition fees under Chuanbangs person-to-person financing arrangements in 2011, 2012 and 2013, respectively.
As of December 31, 2012 and 2013, our maximum exposure to guarantees of student loans was US$7.4 million and US$4.4 million, respectively. US$6,087, US$70,245 and US$90,490 were recognized as guarantee fee revenue and included in other revenues in 2011, 2012 and 2013, respectively. Starting from April 2013, we had stopped providing guarantees for any new student loans arranged by Chuanbang. The estimated amount of the loss contingency related to the guarantee was immaterial as of December 31, 2012 and 2013. The Company paid US$78,931 in the fourth quarter of 2013 to discharge its guarantee obligations, which represented cumulative default of repayments by students as of December 31, 2013.
In 2012 and 2013, we received advances for prepayments of services in the amount of US$0.3 million and US$0.2 million from Chuanbang, respectively. We fully repaid such advances in 2012 and 2013 as the services were no longer required.
Pursuant to our agreement with Chuanbang, Chuanbang provided cash collection service on our accounts receivable to better manage our cash collection since August 2013. The fee is calculated based on 6%~8% of the amount collected. The staff of Chuanbang includes our former employees who joined Chuanbang in July 2013. Chuanbang also provides similar cash collection service to other financial institutions. The cash collection service fee was US$64,586 for 2013.
Transactions with Mr. Shaoyun Han. Under Chuanbangs lending service, students are typically required to repay the loan amount to a bank account opened in the name of Mr. Shaoyun Han. However, certain students remitted payments to us directly instead of to Mr. Han. In 2011, 2012 and 2013, we received cash repayments from students utilizing Chuanbangs lending service in the amount of US$0.2 million, US$0.7 million and US$0.1 million, respectively. The amount received by us on behalf of Mr. Han is recorded in amounts due to Mr. Han. The Company repaid US$0.1 million, US$0.7 million and US$0.2 million, respectively, to Mr. Han in 2011, 2012 and 2013. As of December 31, 2012 and 2013, the amounts due to Mr. Han were US$0.1 million and nil, respectively.
Transactions with Connion Capital Ltd. In connection with the issuance of Series C convertible redeemable preferred shares in 2011, Connion, a company owned by Mr. Shaoyun Han, paid US$0.2 million of
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the issuance cost of Series C convertible redeemable preferred shares in 2011 on our behalf. We fully repaid such amount in cash to Connion on March 30, 2012. As of December 31, 2012 and 2013, the amounts due to Connion was nil, respectively.
Private Placements
See Description of Share CapitalHistory of Securities Issuances.
Shareholders Agreement
See Description of Share CapitalShareholders Agreement.
Employment Agreements
See ManagementEmployment Agreements.
Share Incentive Plan
See ManagementShare Incentive Plan.
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We are a Cayman Islands company and our affairs are governed by our memorandum and articles of association and Companies Law (2013 Revision) of the Cayman Islands, which we refer to as the Companies Law below.
As of the date hereof, our authorized share capital consists of 90,000,000 ordinary shares with a par value of US$0.001 each and 60,000,000 preferred shares with a par value of US$0.001 each, of which 8,571,430 preferred shares are designated as Series A preferred shares, 7,319,820 preferred shares are designated as Series B preferred shares and 10,914,852 preferred shares are designated as Series C preferred shares. As of the date of this prospectus, there are 12,226,558 ordinary shares, 7,196,159 Series A preferred shares, 7,319,820 Series B preferred shares and 10,914,852 Series C preferred shares issued and outstanding. Immediately prior to the completion of this offering, all of our issued and outstanding ordinary shares and preferred shares will be redesignated or converted into Class B ordinary shares on a one-for-one basis.
We plan to adopt an amended and restated memorandum and articles of association, which will become effective and replace the current amended and restated memorandum and articles of association in its entirety immediately prior to the completion of this offering. Our post-offering amended and restated memorandum and articles of association will provide that, upon the closing of this offering, we will have two classes of shares, the Class A ordinary shares and Class B ordinary shares. Our authorized share capital upon completion of the offering will be US$ divided into Class A ordinary shares of a par value of US$0.001 each and Class B ordinary shares of a par value of US$0.001 each. All outstanding ordinary shares and all outstanding preferred shares will be automatically redesignated or converted into Class B ordinary shares on a one-for-one basis immediately prior to the completion of the offering. Immediately upon the completion of this offering, we will have 37,657,389 Class B ordinary shares outstanding. We will issue Class A ordinary shares represented by our ADSs in this offering. All options, regardless of grant dates, will entitle holders to an equivalent number of Class A ordinary shares once the vesting and exercising conditions are met. The following are summaries of material provisions of our post-offering amended and restated memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our ordinary shares that we expect will become effective upon the closing of this offering.
Ordinary Shares
General. Upon the completion of this offering, our authorized share capital is US$ divided into ordinary shares, with a par value of US$0.001 each, which will be divided into Class A ordinary shares with a par value of US$0.001 each, and Class B ordinary shares, with a par value of US$0.001 each. Holders of Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. All of our outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors, provided that dividends may be declared and paid out of funds legally available therefor, namely out of either profit, our share premium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Law. Holders of Class A ordinary shares and Class B ordinary shares will be entitled to the same amount of dividends, if declared.
Voting Rights. Holders of our ordinary shares are entitled to ten calendar days notice of meetings of our shareholders. In respect of all matters subject to a shareholders vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes, voting together as one class. Voting at any
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meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any shareholders present in person or by proxy.
A quorum required for a meeting of shareholders consists of two shareholders who hold at least 50% of all voting power of our share capital in issue at the meeting present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Shareholders meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Extraordinary general meetings may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders holding at the date of deposit of the requisition not less than 1/3 of the aggregate voting power of our company. Advance notice of at least ten calendar days is required for the convening of our annual general meeting and other general meetings.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than 2/3 of the votes cast attaching to the outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our post-offering amended and restated memorandum and articles of association.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares.
Transfer of Ordinary Shares. Subject to the restrictions set out below and the provisions above in respect of Class B ordinary shares, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
| the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| the instrument of transfer is in respect of only one class of ordinary shares; |
| the instrument of transfer is properly stamped, if required; |
| in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and |
| a fee of such maximum sum as the NASDAQ Global Market may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. |
If our directors refuse to register a transfer they shall, within after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the NASDAQ Global Market, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than days in any year as our board may determine.
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Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets available for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately. Any distribution of assets or capital to a holder of a Class A ordinary share and a holder of a Class B ordinary share will be the same in any liquidation event.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least fourteen calendar days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Repurchase and Redemption of Ordinary Shares. The Companies Law and our post-offering amended and restated articles of association permit us to purchase our own shares. In accordance with our post-offering amended and restated articles of association and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner, including out of capital, as may be determined by our board of directors.
Variations of Rights of Shares. All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied with the written consent of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
Inspection of Books and Records. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See Where You Can Find Additional Information.
Issuance of Additional Shares. Our post-offering amended and restated memorandum of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our post-offering amended and restated memorandum of association also authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
| the designation of the series; |
| the number of shares of the series; |
| the dividend rights, dividend rates, voting rights; and |
| the rights and terms of redemption and liquidation preferences. |
Our board of directors may issue preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions. Some provisions of our post-offering amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders.
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Exempted Company. We are an exempted company with limited liability under the Companies Law. Limited liability means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company. The Companies Law distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
| does not have to file an annual return of its shareholders with the Registrar of Companies; |
| is not required to open its register of members for inspection; |
| does not have to hold an annual general meeting; |
| may issue negotiable or bearer shares or shares with no par value; |
| may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); |
| may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| may register as a limited duration company; and |
| may register as a segregated portfolio company. |
Our post-offering amended and restated memorandum and articles of association do not provide provisions that are different from those that are applicable to an exempted company as set forth above.
History of Securities Issuances
The following is a summary of our securities issuances in the past three years.
Ordinary Shares
On December 10, 2013, we issued 229,212 ordinary shares to GF Tarena Limited pursuant to a conversion of 229,212 Series A preferred shares held by GF Tarena Limited into ordinary shares.
On December 10, 2013, we issued 1,146,059 ordinary shares to Techedu Limited pursuant to a conversion of 1,146,059 Series A preferred shares held by Techedu Limited into ordinary shares.
Preferred Shares
On September 6, 2011, we issued a total of 10,914,852 Series C preferred shares to Goldman Sachs Investment Partners Master Fund, L.P. and Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. for an aggregate consideration of US$19,974,179.
As the holders of our Series C preferred shares was not our related party prior to such holders initial investment in our securities, the price of our Series C preferred shares was determined based on negotiations between us and the investors and was approved by our board of directors. Our Series C preferred shares will automatically convert into ordinary shares upon the completion of this offering at an initial conversion ratio of 1:1 adjusted for share splits, share dividends, recapitalizations and similar transactions.
Option Grants
We have granted options to purchase our ordinary shares to certain of our directors, executive officers and employees.
As of the date of this prospectus, options to purchase 9,940,614 ordinary shares are granted and outstanding, at a weighted average exercise price of US$2.46 per ordinary share. See ManagementShare Plan.
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Shareholders Agreement
In connection with our issuance of Series C preferred shares, we and all our then shareholders entered into an amended and restated shareholders agreement on September 6, 2011.
Under the shareholders agreement, our Series A, Series B and Series C preferred shareholders are entitled to registration rights and certain preferential rights, including, among others, right of first refusal in the event that Mr. Shaoyun Han, his affiliate or any of our employees holding at least 1% of our ordinary shares proposes to sell or otherwise transfer any of our shares, and co-sale rights in the event that any shares are sold to purchasers other than preferred shareholders. Except for the registration rights and certain tax-related rights, all preferred shareholders rights will automatically terminate upon the completion of this offering.
Registration Rights
Pursuant to our shareholders agreement, we have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the agreement.
Demand Registration Rights. At any time after the completion of this offering, upon a written request from the holders of at least 10% of the registrable securities held by our preferred shareholders, we must file a registration statement covering the offer and sale of the registrable securities held by the requesting shareholders and other holders of registrable securities who choose to participate in the offering. Registrable securities include, among others, our ordinary shares issued or to be issued upon conversion of the preferred shares.
However, we are not obligated to proceed with a demand registration if we have, within the six-month period preceding the date of such request, already effected a registration under the Securities Act pursuant to the exercise of the holders registration rights, unless the registrable securities of the holders were excluded from such registration. We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the filing of a registration statement would be materially detrimental to us and our shareholders, but we cannot exercise the deferral right more than once in any 12-month period.
Form F-3 Registration Rights. When we are eligible for registration on Form F-3, upon a written request from the holders of a majority of the registrable securities held by our preferred shareholders, we must file a registration statement on Form F-3 covering the offer and sale of the registrable securities.
We are not obligated to effect a Form F-3 registration, among other things, if we already effected a registration under the Securities Act pursuant to the exercise of the holders demand or piggyback registration rights, unless the registrable securities of the holders were excluded from such registration. We have the right to defer filing of a registration statement for up to 60 days if our board of directors determines in good faith that the filing of a registration statement would be materially detrimental to us and our shareholders, but we cannot exercise the deferral right more than once in any 12-month period.
Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our ordinary shares on a form that would be suitable for registrable securities, we must offer holders of registrable securities an opportunity to include in that registration all or any part of their registrable securities. The underwriters of any underwritten offering have the right to limit the number of shares with registration rights to be included in the registration statement, subject to certain limitations.
Expenses of Registration. We will pay all expenses relating to any demand, Form F-3, or piggyback registration, with certain limited exceptions.
Termination of Obligations. We shall have no obligation to effect any demand, Form F-3, or piggyback registration on the earlier of (a) the date that is five years after the completion of this offering, or (b) as to any holder of registrable securities, the time when all registrable securities held by such holder may be sold in any 90-day period without registration pursuant to Rule 144 under the Securities Act.
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Differences in Corporate Law
The Companies Law is modeled after that of English law but does not follow many recent English law statutory enactments. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements. A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by (a) a special resolution of the shareholders and (b) such other authorization, if any, as may be specified in such constituent companys articles of association.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
| the statutory provisions as to the required majority vote have been met; |
| the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class; |
| the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and |
| the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law. |
When a takeover offer is made and accepted by holders of 90.0% of the shares within four months, the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of
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Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders Suits. In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:
| a company acts or proposes to act illegally or ultra vires; |
| the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and |
| those who control the company are perpetrating a fraud on the minority. |
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a companys memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our post-offering amended and restated memorandum and articles of association permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from wilful default or fraud of such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our post-offering amended and restated memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he or she owes the following duties to the companya duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It
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was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our post-offering amended and restated articles of association provide that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
Cayman Islands law does not provide shareholders any right to put proposal before a meeting or requisition a general meeting. However, these rights may be provided in articles of association. Our post-offering amended and restated articles of association allow our shareholders holding not less than one-third of all voting power of our share capital in issue to requisition a shareholders meeting. Other than this right to requisition a shareholders meeting, our post-offering amended and restated articles of association do not provide our shareholders other right to put proposal before a meeting. As an exempted Cayman Islands company, we are not obliged by law to call shareholders annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporations certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholders voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our post-offering amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our post-offering amended and restated articles of association, directors may be removed by an ordinary resolution of our shareholders.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an interested shareholder for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the targets outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the targets board of directors.
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Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporations outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Law and our post-offering amended and restated articles of association, our company may be dissolved, liquidated or wound up by a special resolution of our shareholders.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our post-offering amended and restated articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporations governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our post-offering amended and restated memorandum and articles of association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our post-offering amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our post-offering amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American Depositary Receipts
, as depositary will issue the ADSs which you will be entitled to receive in this offering. Each ADS will represent an ownership interest in Class A ordinary shares which we will deposit with the custodian, as agent of the depositary, under the deposit agreement among ourselves, the depositary and yourself as an ADS holder. In the future, each ADS will also represent any securities, cash or other property deposited with the depositary but which they have not distributed directly to you. Unless certificated ADRs are specifically requested by you, all ADSs will be issued on the books of our depositary in book-entry form and periodic statements will be mailed to you which reflect your ownership interest in such ADSs. In our description, references to American depositary receipts or ADRs shall include the statements you will receive which reflect your ownership of ADSs.
The depositarys office is located at . The depositary has appointed as custodian of the securities, cash and other property represented by the ADSs.
You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, by having an ADS registered in your name on the books of the depositary, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs through your broker or financial institution nominee, you must rely on the procedures of such broker or financial institution to assert the rights of an ADS holder described in this section. You should consult with your broker or financial institution to find out what those procedures are.
As an ADS holder, we will not treat you as a shareholder of ours and you will not have any shareholder rights. Cayman Islands law governs shareholder rights. Because the depositary or its nominee will be the shareholder of record for the shares represented by all outstanding ADSs, shareholder rights rest with such record holder. Your rights are those of an ADS holder. Such rights derive from the terms of the deposit agreement to be entered into among us, the depositary and all registered holders from time to time of ADSs issued under the deposit agreement. The obligations of the depositary and its agents are also set out in the deposit agreement. Because the depositary or its nominee will actually be the registered owner of the shares, you must rely on it to exercise the rights of a shareholder on your behalf. The deposit agreement and the ADSs are governed by New York law. Under the deposit agreement, as an ADS holder, you agree that any legal suit, action or proceeding against or involving us or the depositary, arising out of or based upon the deposit agreement or transactions contemplated thereby, may only be instituted in a state or federal court in New York, New York, and you irrevocably waive any objection which you may have to the laying of venue of any such proceeding and irrevocably submit to the exclusive jurisdiction of such courts in any such suit, action or proceeding.
The following is a summary of what we believe to be the material terms of the deposit agreement. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs. You can read a copy of the deposit agreement which is filed as an exhibit to the registration statement of which this prospectus forms a part. You may also obtain a copy of the deposit agreement at the SECs Public Reference Room which is located at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. You may also find the registration statement and the attached deposit agreement on the SECs website at www.sec.gov .
Share Dividends and Other Distributions
How will I receive dividends and other distributions on the shares underlying my ADSs?
We may make various types of distributions with respect to our securities. The depositary has agreed that, to the extent practicable, it will pay to you the cash dividends or other distributions it or the custodian receives on
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shares or other deposited securities, after converting any cash received into U.S. dollars (if it determines such conversion may be made on a practicable basis) and, in all cases, making any necessary deductions provided for in the deposit agreement. The depositary may utilize a division, branch or affiliate of to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement. Such division, branch and/or affiliate may charge the depositary a fee in connection with such sales, which fee is considered an expense of the depositary. You will receive these distributions in proportion to the number of underlying securities that your ADSs represent.
Except as stated below, the depositary will deliver such distributions to ADR holders in proportion to their interests in the following manner:
| Cash. The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain registered ADS holders, and (iii) deduction of the depositarys and/or its agents expenses in (1) converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, you may lose some or all of the value of the distribution. |
| Shares. In the case of a distribution in shares, the depositary will issue additional ADSs representing such shares. Only whole ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed in the same manner as cash to the ADS holders entitled thereto. |
| Rights to receive additional shares. In the case of a distribution of rights to subscribe for additional shares or other rights, if we timely provide evidence satisfactory to the depositary that it may lawfully distribute such rights, the depositary will distribute warrants or other instruments in the discretion of the depositary representing such rights. However, if we do not timely furnish such evidence, the depositary may: |
| sell such rights if practicable and distribute the net proceeds in the same manner as cash to the ADS holders entitled thereto; or |
| if it is not practicable to sell such rights by reason of the non-transferability of the rights, limited markets therefor, their short duration or otherwise, do nothing and allow such rights to lapse, in which case ADS holders will receive nothing and the rights may lapse. |
We have no obligation to file a registration statement under the Securities Act in order to make any rights available to ADS holders.
| Other Distributions. In the case of a distribution of securities or property other than those described above, the depositary may either (i) distribute such securities or property in any manner it deems practicable or (ii) to the extent the depositary deems distribution of such securities or property not to be practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash. |
|
Elective Distributions. In the case of a dividend payable at the election of our shareholders in cash or in additional shares, we will notify the depositary at least 30 days prior to the proposed distribution stating whether or not we wish such elective distribution to be made available to ADS holders. The |
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depositary shall make such elective distribution available to ADS holders only if (i) we shall have timely requested that the elective distribution is available to ADS holders, (ii) the depositary shall have determined that such distribution is reasonably practicable and (iii) the depositary shall have received satisfactory documentation within the terms of the deposit agreement including any legal opinions of counsel that the depositary in its reasonable discretion may request. If the above conditions are not satisfied, the depositary shall, to the extent permitted by law, distribute to the ADS holders, on the basis of the same determination as is made in the local market in respect of the shares for which no election is made, either (x) cash or (y) additional ADSs representing such additional shares. If the above conditions are satisfied, the depositary shall establish procedures to enable ADS holders to elect the receipt of the proposed dividend in cash or in additional ADSs. There can be no assurance that ADS holders generally, or any ADR holder in particular, will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of shares. |
If the depositary determines in its discretion that any distribution described above is not practicable with respect to any specific registered ADS holder, the depositary may choose any method of distribution that it deems practicable for such ADS holder, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or investing them, on behalf of the ADS holder as deposited securities, in which case the ADSs will also represent the retained items.
Any U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the depositary in accordance with its then current practices.
The depositary is not responsible if it decides that it is unlawful or not reasonably practicable to make a distribution available to any ADR holders.
There can be no assurance that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, nor that any of such transactions can be completed within a specified time period.
Deposit, Withdrawal and Cancellation
How does the depositary issue ADSs?
The depositary will issue ADSs if you or your broker deposit shares or evidence of rights to receive shares with the custodian and pay the fees and expenses owing to the depositary in connection with such issuance. In the case of the ADSs to be issued under this prospectus, we will arrange with the underwriters named herein to deposit such shares.
Shares deposited in the future with the custodian must be accompanied by certain delivery documentation and shall, at the time of such deposit, be registered in the name of , as depositary for the benefit of holders of ADSs or in such other name as the depositary shall direct.
The custodian will hold all deposited shares (including those being deposited by or on our behalf in connection with the offering to which this prospectus relates) for the account of the depositary. ADS holders thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as deposited securities.
Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any
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taxes or other fees or charges owing, the depositary will issue ADSs in the name or upon the order of the person entitled thereto. All of the ADSs issued will, unless specifically requested to the contrary, be part of the depositarys direct registration system, and a registered holder will receive periodic statements from the depositary which will show the number of ADSs registered in such holders name. An ADS holder can request that the ADSs not be held through the depositarys direct registration system and that a certificated ADR be issued.
How do ADS holders cancel an ADS and obtain deposited securities?
When you turn in your ADR certificate at the depositarys office, or when you provide proper instructions and documentation in the case of direct registration ADSs, the depositary will, upon payment of certain applicable fees, charges and taxes, deliver the underlying shares to you or upon your written order. Delivery of deposited securities in certificated form will be made at the custodians office. At your risk, expense and request, the depositary may deliver deposited securities at such other place as you may request.
The depositary may only restrict the withdrawal of deposited securities in connection with:
| temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders meeting, or the payment of dividends; |
| the payment of fees, taxes and similar charges; or |
| compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities. |
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Record Dates
The depositary may, after consultation with us if practicable, fix record dates for the determination of the registered ADS holders who will be entitled (or obligated, as the case may be):
| to receive any distribution on or in respect of shares, |
| to give instructions for the exercise of voting rights at a meeting of holders of shares, or |
| to pay the fee assessed by the depositary for administration of the ADR program and for any expenses as provided for in the ADR, |
| to receive any notice or to act in respect of other matters |
all subject to the provisions of the deposit agreement.
Voting Rights
How do I vote?
If you are an ADS holder and the depositary asks you to provide it with voting instructions, you may instruct the depositary how to exercise the voting rights for the shares which underlie your ADSs. As soon as practicable after receiving notice of any meeting or solicitation of consents or proxies from us, the depositary will distribute to the registered ADS holders a notice stating such information as is contained in the voting materials received by the depositary and describing how you may instruct the depositary to exercise the voting rights for the shares which underlie your ADSs, including instructions for giving a discretionary proxy to a person designated by us. For instructions to be valid, the depositary must receive them in the manner and on or before the date specified. The depositary will try, as far as is practical, subject to the provisions of and governing the underlying shares or other deposited securities, to vote or to have its agents vote the shares or other deposited
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securities as you instruct. The depositary will only vote or attempt to vote as you instruct. Holders are strongly encouraged to forward their voting instructions to the depositary as soon as possible. Voting instructions will not be deemed to be received until such time as the ADR department responsible for proxies and voting has received such instructions notwithstanding that such instructions may have been physically received by the depositary prior to such time. The depositary will not itself exercise any voting discretion. Furthermore, neither the depositary nor its agents are responsible for any failure to carry out any voting instructions, for the manner in which any vote is cast or for the effect of any vote. Notwithstanding anything contained in the deposit agreement or any ADR, the depositary may, to the extent not prohibited by law or regulations, or by the requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the depositary in connection with any meeting of, or solicitation of consents or proxies from, holders of deposited securities, distribute to the registered holders of ADSs a notice that provides such holders with, or otherwise publicizes to such holders, instructions on how to retrieve such materials or receive such materials upon request ( i.e. , by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).
We have advised the depositary that under the Cayman Islands law and our constituent documents, each as in effect as of the date of the deposit agreement, voting at any meeting of shareholders is by show of hands unless a poll is (before or on the declaration of the results of the show of hands) demanded. In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with our constituent documents, the depositary will instruct the custodian to vote all deposited securities in accordance with the voting instructions received from a majority of holders of ADSs who provided voting instructions. The depositary will not demand a poll or join in demanding a poll, whether or not requested to do so by holders of ADSs. There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
Reports and Other Communications
Will ADS holders be able to view our reports?
The depositary will make available for inspection by ADS holders at the offices of the depositary and the custodian the deposit agreement, the provisions of or governing deposited securities, and any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities.
Additionally, if we make any written communications generally available to holders of our shares, and we furnish copies thereof (or English translations or summaries) to the depositary, it will distribute the same to registered ADS holders.
Fees and Expenses
What fees and expenses will I be responsible for paying?
Charges will be payable by each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADSs are cancelled or reduced for any other reason, up to $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall be incurred by the ADS holders, by any party depositing or withdrawing shares or by any party surrendering ADSs or to whom ADSs are issued (including, without
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limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
| a fee of up to U.S.$0.05 per ADS for any cash distribution made pursuant to the deposit agreement; |
| a fee of up to U.S.$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision); |
| a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositarys or its custodians compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions); |
| a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the $0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto; |
| stock transfer or other taxes and other governmental charges; |
| cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of shares; |
| transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; and |
| in connection with the conversion of foreign currency into U.S. dollars, shall deduct out of such foreign currency the fees and expenses charged by it or its agent so appointed in connection with such conversion. |
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The charges described above may be amended from time to time by agreement between us and the depositary.
The depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADR program upon such terms and conditions as we and the depositary may agree from time to time. The Depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the Depositary may agree from time to time. The depositary collects fees for the issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect the fees for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to provide any further services to holders that have
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not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary.
Payment of Taxes
ADS holders must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution. If an ADS holder owes any tax or other governmental charge, the depositary may (i) deduct the amount thereof from any cash distributions, or (ii) sell deposited securities (by public or private sale) and deduct the amount owing from the net proceeds of such sale. In either case the ADS holder remains liable for any shortfall. Additionally, if any taxes or other governmental charges (including any penalties and/or interest) shall become payable by or on behalf of the custodian or the depositary with respect to any ADS, any deposited securities represented by the ADSs evidenced thereby or any distribution thereon, including, without limitation, any Chinese Enterprise Income Tax owing if the Circular Guoshuifa [2009] No. 82 issued by the Chinese State Administration of Taxation (SAT) or any other circular, edict, order or ruling, as issued and as from time to time amended, is applied or otherwise, such tax or other governmental charge shall be paid by the holder thereof to the depositary. By holding or having held an ADS the holder and all prior holders thereof, jointly and severally, agree to indemnify, defend and save harmless each of the depositary and its agents in respect thereof. If any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration of transfer, split-up or combination of deposited securities or withdrawal of deposited securities until such payment is made. If any tax or governmental charge is required to be withheld on any cash distribution, the depositary may deduct the amount required to be withheld from any cash distribution or, in the case of a non-cash distribution, sell the distributed property or securities (by public or private sale) to pay such taxes and distribute any remaining net proceeds or the balance of any such property after deduction of such taxes to the ADS holders entitled thereto.
By holding an ADS or an interest therein, you will be agreeing to indemnify us, the depositary, its custodian and any of our or their respective officers, directors, employees, agents and affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained.
Reclassifications, Recapitalizations and Mergers
If we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation, cancellation or other reclassification of deposited securities or (ii) any distributions of shares or other property not made to holders of ADSs or (iii) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to, and shall if reasonably requested by us among other steps:
(1) | amend the form of ADR; |
(2) | distribute additional or amended ADSs; |
(3) | distribute cash, securities or other property it has received in connection with such actions; |
(4) | sell any securities or property received and distribute the proceeds as cash; or |
(5) | none of the above. |
If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then represent a proportionate interest in such property.
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Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. ADS holders must be given at least 30 days notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of ADS holders. Such notice need not describe in detail the specific amendments effectuated thereby, but must identify to ADS holders a means to access the text of such amendment. If an ADS holder continues to hold an ADS after being so notified, such ADS holder is deemed to agree to such amendment and to be bound by the deposit agreement as so amended. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the deposit agreement or the ADRs to ensure compliance therewith, we and the depositary may amend or supplement the deposit agreement and the ADR at any time in accordance with such changed laws, rules or regulations, which amendment or supplement may take effect before a notice is given or within any other period of time as required for compliance. No amendment, however, will impair your right to surrender your ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable law.
How may the deposit agreement be terminated?
The depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination to the registered holders of ADSs at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary shall have (i) resigned as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders unless a successor depositary shall not be operating under the deposit agreement within 60 days of the date of such resignation, and (ii) been removed as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders of ADRs unless a successor depositary shall not be operating under the deposit agreement on the 120 th day after our notice of removal was first provided to the depositary.
On and after the date of termination of the deposit agreement, the holder will, upon surrender of an ADR at the principal office of the depositary, upon the payment of the charges of the depositary for the surrender of ADRs, subject to the conditions and restrictions of the deposit agreement, and upon payment of any applicable taxes or governmental charges, be entitled to delivery, to him or upon his order, of the amount of deposited securities represented by such ADR. If any ADRs shall remain outstanding after the date of termination of the deposit agreement, the registrar thereafter shall discontinue the registration of transfers of ADRs, and the depositary shall suspend the distribution of dividends to the holders thereof, and shall not give any further notices or perform any further acts under the deposit agreement, except that the depositary shall continue to collect dividends and other distributions pertaining to deposited securities, shall sell rights as provided in the deposit agreement, and shall continue to deliver deposited securities, subject to the conditions and restrictions set forth in the deposit agreement, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for ADRs surrendered to the depositary (after deducting, or charging, as the case may be, in each case, the charges of the depositary for the surrender of an ADR, any expenses for the account of the holder in accordance with the terms and conditions of the deposit agreement and any applicable taxes or governmental charges or assessments). At any time after the date of termination of the deposit agreement, the depositary may sell the deposited securities and thereafter hold uninvested the net proceeds, together with any other cash then held by it without liability for interest for the pro rata benefit of the holders of ADRs not theretofore surrendered. Thereafter, the depositary shall be discharged from all obligations under the deposit agreement with respect to the ADRs, the Shares, the deposited securities and the ADSs, except to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case, the charges of the depositary for the surrender of an ADR, any expenses for the account of
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the holder in accordance with the terms and conditions of the deposit agreement and any applicable taxes or governmental charges or assessments). Upon the termination of the deposit agreement, we will be discharged from all obligations under the deposit agreement as to the ADRs, the Shares, the deposited securities and the ADSs except for certain specified obligations to the depositary under the terms of the deposit agreement.
Limitations on Obligations and Liability to ADS holders
Limits on our obligations and the obligations of the depositary; limits on liability to ADS holders and holders of ADSs
Prior to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADSs, or the delivery of any distribution in respect thereof, and from time to time in the case of the production of proofs as described below, we or the depositary or its custodian may require:
| payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of shares or other deposited securities upon any applicable register and (iii) any applicable fees and expenses described in the deposit agreement; |
| the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including without limitation information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADRs, as it may deem necessary or proper; and |
| compliance with such regulations as the depositary may establish consistent with the deposit agreement. |
The issuance of ADSs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of ADSs or the withdrawal of shares, may be suspended, generally or in particular instances, when the ADS register or any register for deposited securities is closed or when any such action is deemed advisable by the depositary; provided that the ability to withdraw shares may only be limited under the following circumstances: (i) temporary delays caused by closing transfer books of the depositary or our transfer books or the deposit of shares in connection with voting at a shareholders meeting, or the payment of dividends, (ii) the payment of fees, taxes, and similar charges, and (iii) compliance with any laws or governmental regulations relating to ADSs or to the withdrawal of deposited securities.
The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents, provided, however, that no such disclaimer of liability under the Securities Act is intended by any of the limitations of liabilities provisions of the deposit agreement. In the deposit agreement it provides that neither we nor the depositary nor any such agent will be liable if:
| any present or future law, rule, regulation, fiat, order or decree of the United States, the Cayman Islands, the Peoples Republic of China or any other country, or of any governmental or regulatory authority or securities exchange or market or automated quotation system, the provisions of or governing any deposited securities, any present or future provision of our charter, any act of God, war, terrorism, nationalization or other circumstance beyond our, the depositarys or our respective agents control shall prevent or delay, or shall cause any of them to be subject to any civil or criminal penalty in connection with, any act which the deposit agreement or the ADRs provide shall be done or performed by us, the depositary or our respective agents (including, without limitation, voting); |
| the depositary exercises or fails to exercise discretion under the deposit agreement or the ADR including, without limitation, any failure to determine that any distribution or action may be lawful or reasonably practicable; |
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| the depositary performs its obligations under the deposit agreement and ADRs without gross negligence or willful misconduct; |
| the depositary takes any action or refrains from taking any action in reliance upon the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give such advice or information; or |
| the depositary relies upon any written notice, request, direction, instruction or document believed by it to be genuine and to have been signed, presented or given by the proper party or parties. |
Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADSs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADSs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as may be required. The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any registered holder or holders of ADSs, any ADSs or otherwise related to the deposit agreement or ADRs to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators. The depositary shall not be liable for the acts or omissions made by, or the insolvency of, any securities depository, clearing agency or settlement system. Furthermore, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any custodian that is not a branch or affiliate of . The depositary and the custodian(s) may use third party delivery services and providers of information regarding matters such as pricing, proxy voting, corporate actions, class action litigation and other services in connection with the ADRs and the deposit agreement, and use local agents to provide extraordinary services such as attendance at annual meetings of issuers of securities. Although the depositary and the custodian will use reasonable care (and cause their agents to use reasonable care) in the selection and retention of such third party providers and local agents, they will not be responsible for any errors or omissions made by them in providing the relevant information or services. The depositary shall not have any liability for the price received in connection with any sale of securities, the timing thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale.
The depositary has no obligation to inform ADS holders or other holders of an interest in an ADS about the requirements of Cayman Islands or Peoples Republic of China law, rules or regulations or any changes therein or thereto.
Additionally, none of us, the depositary or the custodian shall be liable for the failure by any registered holder of ADSs or beneficial owner therein to obtain the benefits of credits on the basis of non-U.S. tax paid against such holders or beneficial owners income tax liability. Neither we nor the depositary shall incur any liability for any tax consequences that may be incurred by holders or beneficial owners on account of their ownership of ADSs.
Neither the depositary nor its agents will be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any such vote is cast or for the effect of any such vote. The depositary may rely upon instructions from us or our counsel in respect of any approval or license required for any currency conversion, transfer or distribution. The depositary shall not incur any liability for the content of any information submitted to it by us or on our behalf for distribution to ADS holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the deposited securities, for the validity or worth of the deposited securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the deposit agreement or for the failure or timeliness of any notice from us. The
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depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary, provided that in connection with the issue out of which such potential liability arises the depositary performed its obligations without negligence while it acted as depositary. Neither the depositary nor any of its agents shall be liable to registered holders of ADSs or beneficial owners of interests in ADSs for any indirect, special, punitive or consequential damages (including, without limitation, lost profits) of any form incurred by any person or entity, whether or not foreseeable and regardless of the type of action in which such a claim may be brought.
In the deposit agreement each party thereto (including, for avoidance of doubt, each holder and beneficial owner of ADSs) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly or indirectly arising out of or relating to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory).
The depositary and its agents may own and deal in any class of our securities and in ADSs.
Disclosure of Interest in ADSs
To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of deposited securities, other shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, you agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable instructions we may provide in respect thereof. We reserve the right to instruct you to deliver your ADSs for cancellation and withdrawal of the deposited securities so as to permit us to deal with you directly as a holder of shares and, by holding an ADS or an interest therein, you will be agreeing to comply with such instructions.
Books of Depositary
The depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs, which register shall include the depositarys direct registration system. Registered holders of ADSs may inspect such records at the depositarys office at all reasonable times, but solely for the purpose of communicating with other holders in the interest of the business of our company or a matter relating to the deposit agreement. Such register may be closed from time to time, when deemed expedient by the depositary.
The depositary will maintain facilities for the delivery and receipt of ADSs.
Pre-release of ADSs
In its capacity as depositary, the depositary shall not lend shares or ADSs; provided, however, that the depositary may (i) issue ADSs prior to the receipt of shares and (ii) deliver shares prior to the receipt of ADSs for withdrawal of deposited securities, including ADSs which were issued under (i) above but for which shares may not have been received (each such transaction a pre-release). The depositary may receive ADSs in lieu of shares under (i) above (which ADSs will promptly be canceled by the depositary upon receipt by the depositary) and receive shares in lieu of ADSs under (ii) above. Each such pre-release will be subject to a written agreement whereby the person or entity (the applicant) to whom ADSs or shares are to be delivered (a) represents that at the time of the pre-release the applicant or its customer owns the shares or ADSs that are to be delivered by the applicant under such pre-release, (b) agrees to indicate the depositary as owner of such shares or ADSs in its records and to hold such shares or ADSs in trust for the depositary until such shares or ADSs are delivered to the depositary or the custodian, (c) unconditionally guarantees to deliver to the depositary or the custodian, as applicable, such shares or ADSs, and (d) agrees to any additional restrictions or requirements that the depositary
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deems appropriate. Each such pre-release will be at all times fully collateralized with cash, U.S. government securities or such other collateral as the depositary deems appropriate, terminable by the depositary on not more than five (5) business days notice and subject to such further indemnities and credit regulations as the depositary deems appropriate. The depositary will normally limit the number of ADSs and shares involved in such pre-release at any one time to thirty percent (30%) of the ADSs outstanding (without giving effect to ADSs outstanding under (i) above), provided, however, that the depositary reserves the right to change or disregard such limit from time to time as it deems appropriate. The depositary may also set limits with respect to the number of ADSs and shares involved in pre-release with any one person on a case-by-case basis as it deems appropriate. The depositary may retain for its own account any compensation received by it in conjunction with the foregoing. Collateral provided in connection with pre-release transactions, but not the earnings thereon, shall be held for the benefit of the ADS holders (other than the applicant).
Appointment
In the deposit agreement, each registered holder of ADSs and each person holding an interest in ADSs, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions of the deposit agreement will be deemed for all purposes to:
| be a party to and bound by the terms of the deposit agreement and the applicable ADRs, and |
| appoint the depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the deposit agreement and the applicable ADRs, to adopt any and all procedures necessary to comply with applicable laws and to take such action as the depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the deposit agreement and the applicable ADRs, the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof. |
Governing Law
The deposit agreement and the ADSs shall be governed by and construed in accordance with the laws of the State of New York. In the deposit agreement, we have submitted to the jurisdiction of the courts of the State of New York and appointed an agent for service of process on our behalf.
The deposit agreement and the ADSs will be governed by, and construed in accordance with, the laws of the State of New York without reference to the principles of choice of law thereof. Notwithstanding anything contained in the deposit agreement, any ADR or any present or future provisions of the laws of the State of New York, the rights of holders of Shares and of any other deposited securities, as such, shall be governed by the laws of the Peoples Republic of China (or, if applicable, such other laws as may govern the deposited securities).
By holding an ADS or an interest therein, registered holders of ADSs and beneficial owners of ADSs each irrevocably agree that any legal suit, action or proceeding against or involving us or the depositary, arising out of or based upon the deposit agreement or the transactions contemplated thereby, may only be instituted in a state or federal court in New York, New York, and each irrevocably waives any objection which it may have to the laying of venue of any such proceeding, and irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have ADSs outstanding, representing Class A ordinary shares, or approximately % of our outstanding ordinary shares (assuming the underwriters will not exercise their option to purchase additional ADSs). All of the ADSs sold in this offering will be freely transferable by persons other than our affiliates without restriction or further registration under the Securities Act. Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs. Prior to this offering, there has been no public market for our ordinary shares or the ADSs, and while application has been made for the ADSs to be listed on the NASDAQ Global Market, we cannot assure you that a regular trading market will develop in the ADSs. We do not expect that a trading market will develop for our ordinary shares not represented by the ADSs.
Lock-Up Agreements
[We, our directors and executive officers, our existing shareholders and certain of our option holders] have agreed, subject to some exceptions, not to transfer or dispose of, directly or indirectly, any of our ordinary shares, in the form of ADSs or otherwise, or any securities convertible into or exchangeable or exercisable for our ordinary shares, in the form of ADSs or otherwise, for a period of 180 days after the date of this prospectus. After the expiration of the 180-day period, the ordinary shares or ADSs held by our directors, executive officers and our existing shareholders may be sold subject to the restrictions under Rule 144 under the Securities Act or by means of registered public offerings.
Rule 144
All of our ordinary shares outstanding prior to this offering are restricted shares as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are registered pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirements. Under Rule 144 as currently in effect, a person who has beneficially owned our restricted shares for at least six months is generally entitled to sell the restricted securities without registration under the Securities Act beginning 90 days after the date of this prospectus, subject to certain additional restrictions.
Our affiliates may sell within any three-month period a number of restricted shares that do not exceed the greater of the following:
| 1% of the then outstanding ordinary shares, in the form of ADSs or otherwise, which will equal approximately ordinary shares immediately after this offering; or |
| the average weekly trading volume of our ordinary shares in the form of ADSs or otherwise, on the NASDAQ Global Market, during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC. |
Affiliates who sell restricted securities under Rule 144 may not solicit orders or arrange for the solicitation of orders, and they are also subject to notice requirements and the availability of current public information about us.
Persons who are not our affiliates are only subject to one of these additional restrictions, the requirement of the availability of current public information about us, and this additional restriction does not apply if they have beneficially owned our restricted shares for more than one year.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases our ordinary shares from us in connection with a compensatory share incentive plan or
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other written agreement relating to compensation is eligible to resell such ordinary shares 90 days after we became a reporting company under the Exchange Act in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.
Registration Rights
Upon completion of this offering, certain holders of our ordinary shares or their transferees will be entitled to request that we register their shares under the Securities Act, following the expiration of the lock-up agreements described above. See Description of Share CapitalRegistration Rights.
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The following discussion of material Cayman Islands, PRC and United States federal income tax consequences of an investment in our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under U.S. state, local and other tax laws. To the extent the at the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Conyers Dill & Pearman (Cayman) Limited, our Cayman Islands counsel. To the extent that the discussion relates to matters of PRC tax law, it represents the opinion of Han Kun Law Offices, our PRC counsel.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the Government of the Cayman Islands that are likely to be material to holders of ADSs or ordinary shares. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Council:
(1) | that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and |
(2) | that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations. |
The undertaking for us is for a period of twenty years from October 15, 2003.
Peoples Republic of China Taxation
Under the EIT Law, an enterprise established outside the PRC with de facto management bodies within the PRC is considered a resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax reporting obligations. Under the Implementation Rules to the EIT Law, a de facto management body is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, Circular 82 issued by the SAT in April 2009, as amended in January 2014, specifies that certain offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, minutes of board meetings and shareholders meetings; and half or more of the senior management or directors having voting rights. Further to Circular 82, the SAT issued the Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of Circular 82. Bulletin 45 provides for procedures and administration details of determination on PRC resident enterprise status and administration on post-determination matters. We do not believe that Tarena International, Inc. is a PRC resident enterprise. If the PRC tax authorities determine that Tarena International, Inc. is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. One example is that a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual shareholders from transferring our shares or ADSs.
Under the EIT Law, dividends generated from retained earnings after January 1, 2008 from a PRC company and distributed to a foreign parent company are subject to a withholding tax rate of 10% unless the foreign
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parents jurisdiction of incorporation has a tax treaty with China that provides for a preferential withholding arrangement. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, or the Hong Kong Tax Treaty, which became effective on December 8, 2006, a company incorporated in Hong Kong, such as Tarena HK, will be subject to withholding income tax at a rate of 5% on dividends it receives from its PRC subsidiary if it holds a 25% or more interest in that particular PRC subsidiary, or 10% if it holds less than a 25% interest in that subsidiary. However, the SAT promulgated a tax notice on October 27, 2009, or Circular 601, which provides that tax treaty benefits will be denied to conduit or shell companies without business substance, and a beneficial ownership analysis will be used based on a substance-over-the-form principle to determine whether or not to grant tax treaty benefits. On June 29, 2012, the SAT further issued the Announcement of the SAT regarding Recognition of Beneficial Owner under Tax Treaties, or Announcement 30, which provides that a comprehensive analysis should be made when determining the beneficial owner status based on various factors supported by various types of documents including the articles of association, financial statements, records of cash movements, board meeting minutes, board resolutions, staffing and materials, relevant expenditures, functions and risk assumption as well as relevant contracts and other information. Our Hong Kong subsidiary has not obtained the approval for a withholding tax rate of 5% from the relevant tax authority and does not plan to obtain such approval in the near future because our PRC subsidiaries have not paid any dividends and do not plan to pay dividends in the near future.
It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. See Risk FactorsRisk Factors Relating to Doing Business in ChinaUnder the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.
The SAT issued a Circular 59 together with the Ministry of Finance in April 2009 and a Circular 698 in December 2009. Both Circular 59 and Circular 698 became effective retroactively as of January 1, 2008. By promulgating and implementing these two circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. Under Circular 698, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, and such overseas holding company is located in certain low tax jurisdictions, the non-resident enterprise, being the transferor, must report to the relevant tax authority of the PRC resident enterprise this Indirect Transfer. The PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC tax at a rate of up to 10%. Although it appears that Circular 698 was not intended to apply to share transfers of publicly traded companies, there is uncertainty as to the application of Circular 698 and we and our non-resident investors may be at risk of being required to file a return and being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698. See Risk FactorsRisk Factors Relating to Doing Business in ChinaWe face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of our operating companys equity interests. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
United States Federal Income Tax Considerations
The following discussion is a summary of United States federal income tax considerations relating to the acquisition, ownership, and disposition of our ADSs or ordinary shares by a U.S. Holder, as defined below, that acquires our ADSs in this offering and holds our ADSs or ordinary shares as capital assets (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended (the Code). This discussion is based upon existing United States federal income tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service (the IRS) with respect to any United States federal income tax consequences described below, and there can be no assurance that the
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IRS or a court will not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (such as, for example, certain financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners, tax-exempt organizations (including private foundations)), investors who are not U.S. Holders, investors that own (directly, indirectly, or constructively) 10% or more of our voting stock, investors that hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction), or investors that have a functional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this discussion does not address any state, local, alternative minimum tax, or non-United States tax considerations, or the Medicare tax. Each potential investor is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of an investment in our ADSs or ordinary shares.
General
For purposes of this discussion, a U.S. Holder is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding our ADSs or ordinary shares are urged to consult their tax advisors regarding an investment in our ADSs or ordinary shares.
Based in part on certain representations from the depositary bank, a U.S. Holder of ADSs will be treated as the beneficial owner for United States federal income tax purposes of the underlying shares represented by the ADSs.
Passive Foreign Investment Company Considerations
A non-United States corporation, such as our company, will be classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such year consists of certain types of passive income or (ii) 50% or more of its average quarterly assets (as determined on the basis of fair market value) during such year produce or are held for the production of passive income. For this purpose, cash is categorized as a passive asset and the companys unbooked intangibles associated with active business activities may generally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.
Although the law in this regard is unclear, we treat our consolidated VIEs as being owned by us for United States federal income tax purposes, not only because we exercise effective financial control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. Assuming that we are the owner of our consolidated VIEs for United States federal income tax purposes, based upon our current income and assets (taking into account the proceeds from this offering) and projections as to the value of our ADSs and ordinary shares following the offering, we do not presently expect to be classified as a PFIC for the current taxable year or the foreseeable future.
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While we do not expect to become a PFIC in the current or future taxable years, the determination of whether we will be or become a PFIC will depend upon the composition of our income and assets and the value of our assets from time to time, including, in particular the value of our goodwill and other unbooked intangibles (which may depend upon the market value of our ADSs or ordinary shares from time-to-time, which may be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our anticipated market capitalization following the close of this offering. Among other matters, if market capitalization is less than anticipated or subsequently declines, we may be classified as a PFIC for the current or future taxable years. It is also possible that the IRS, may challenge our classification or valuation of our goodwill and other unbooked intangibles, or determine that such assets should not be included in the determination of whether we are classified as a PFIC, which may result in our company being, or becoming classified as, a PFIC for the current or one or more future taxable years.
The determination of whether we will be or become a PFIC may also depend, in part, on how, and how quickly, we use our liquid assets and the cash raised in this offering. Under circumstances where we determine not to deploy significant amounts of cash for active purposes or our consolidated VIEs were not treated as owned by us for United States federal income tax purposes, our risk of being classified as a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year. Our special United States counsel expresses no opinion with respect to our PFIC status and also expresses no opinion with respect to our expectations regarding our PFIC status. If we were classified as a PFIC for any year during which a U.S. holder held our ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. holder held our ADSs or ordinary shares.
The discussion below under Dividends and Sale or Other Disposition of ADSs or Ordinary Shares is written on the basis that we will not be classified as a PFIC for United States federal income tax purposes. The United States federal income tax rules that apply if we are classified as a PFIC for the current taxable year or any subsequent taxable year are generally discussed below under Passive Foreign Investment Company Rules.
Dividends
Subject to the PFIC rules described below, any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution paid will generally be treated as a dividend for United States federal income tax purposes. A non-corporate recipient of dividend income will generally be subject to tax on dividend income from a qualified foreign corporation at a lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain holding period and other requirements are met.
A non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (b) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securities market in the United States. We have applied to list the ADSs on the NASDAQ Global Market. Provided the listing is approved, we believe that the ADSs will be readily tradable on an established securities market in the United States and that we will be a qualified foreign corporation with respect to dividends paid on the ADSs. Since we do not expect that our ordinary shares will be listed on established securities markets, it is unclear whether dividends that we pay on our ordinary shares that are not backed by ADSs currently meet the conditions required for the reduced tax rate. There can be no assurance that our ADSs will continue to be considered readily tradable on an established securities market in later years. In the event we are deemed to be a resident enterprise under the EIT Law, we
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may be eligible for the benefits of the United States-PRC income tax treaty (which the U.S. Treasury Department has determined is satisfactory for this purpose) and we would be treated as a qualified foreign corporation with respect to dividends paid on our ordinary shares or ADSs. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular circumstances. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations.
For United States foreign tax credit purposes, dividends paid on our ADSs or ordinary shares will generally be treated as income from foreign sources and will generally constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the EIT Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on our ADSs or ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on our ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for United States federal income tax purposes in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition of ADSs or Ordinary Shares
Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holders adjusted tax basis in such ADSs or ordinary shares. Any capital gain or loss will be long-term gain or loss if the ADSs or ordinary shares have been held for more than one year and will generally be United States source gain or loss for United States foreign tax credit purposes. In the event that we are treated as a PRC resident enterprise under the PRC Enterprise Income Tax Law, and gain from the disposition of the ADSs or ordinary shares is subject to tax in the PRC, such gain may be treated as PRC source gain for foreign tax credit purposes under the United States-PRC income tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company Rules
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holders holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:
| the excess distribution and/or gain will be allocated ratably over the U.S. Holders holding period for the ADSs or ordinary shares; |
| the amount allocated to the current taxable year and any taxable years in the U.S. Holders holding period prior to the first taxable year in which we are classified as a PFIC, or pre-PFIC year, will be taxable as ordinary income; and |
| the amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC year, will be subject to tax at the highest tax rate in effect applicable to the individuals or corporations, as appropriate, for that year; and |
| will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each such other taxable year. |
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If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our non-United States subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of marketable stock in a PFIC may make a mark-to-market election with respect to our ADSs, provided that the ADSs are regularly traded on the NASDAQ Global Market. In addition, we do not expect that holders of ordinary shares that are not represented by ADSs will be eligible to make a mark-to-market election. We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be given in this regard. If a mark-to-market election is made, the U.S. Holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holders adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes an effective mark-to-market election, in each year that we are a PFIC any gain recognized upon the sale or other disposition of the ADSs will be treated as ordinary income and loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not classified as a PFIC.
Because a mark-to-market election cannot be made for any lower-tier PFICs that a PFIC may own, a U.S. Holder who makes a mark-to-market election with respect to our ADSs may continue to be subject to the general PFIC rules with respect to such U.S. Holders indirect interest in any of our non-United States subsidiaries that is classified as a PFIC.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.
As discussed above under Dividends, dividends that we pay on our ADSs or ordinary shares will not be eligible for the reduced tax rate that applies to qualified dividend income if we are classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year. In addition, if a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must file an annual report with the IRS. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of purchasing, holding, and disposing ADSs or ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election and the unavailability of the qualified electing fund election.
Information Reporting and Backup Withholding
Pursuant to the Hiring Incentives to Restore Employment Act enacted on March 18, 2010, in tax years beginning after the date of enactment, an individual U.S. Holder and certain entities may be required to submit to the IRS certain information with respect to his or her beneficial ownership of the ADSs or ordinary shares, if such ADSs or ordinary shares are not held on his or her behalf by a U.S. financial institution. This new law also imposes penalties if an individual U.S. Holder is required to submit such information to the IRS and fails to do so.
In addition, U.S. Holders may be subject to information reporting to the IRS with respect to dividends on and proceeds from the sale or other disposition of our ADSs or ordinary shares. Each U.S. Holder is advised to consult with its tax advisor regarding the application of the United States information reporting rules to their particular circumstances.
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UNDERWRITING (CONFLICT OF INTEREST)
We[, the selling shareholders] and the underwriters named below have entered into an underwriting agreement with respect to the ADSs being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of ADSs indicated in the following table. Goldman Sachs (Asia) L.L.C. and Credit Suisse Securities (USA) LLC are acting as the representatives of the underwriters named below. Goldman Sachs (Asia) L.L.C.s address is 68 th Floor, Cheung Kong Center, 2 Queens Road Central, Hong Kong. Credit Suisse Securities (USA) LLCs address is Eleven Madison Avenue, New York, New York 10010, U.S.A.
Underwriters |
Number of ADSs | |
Goldman Sachs (Asia) L.L.C. |
||
Credit Suisse Securities (USA) LLC |
||
Jefferies LLC |
||
Oppenheimer & Co. Inc. |
||
Total |
The underwriters are committed to take and pay for all of the ADSs being offered, if any are taken, other than the ADSs covered by the option described below unless and until this option is exercised.
If the underwriters sell more ADSs than the total number set forth in the table above, the underwriters have an option to buy up to an additional ADSs from us [and the selling shareholders]. They may exercise that option for 30 days from the date of this prospectus. If any ADSs are purchased pursuant to this option, the underwriters will severally purchase ADSs in approximately the same proportion as set forth in the table above.
The following tables show the per ADS and total underwriting discounts and commissions to be paid to the underwriters by us [and the selling shareholders]. Such amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase the additional ADSs covered by the option described above.
Paid by Us
No Exercise | Full Exercise | |||||||
Per ADS |
US$ | US$ | ||||||
Total |
US$ | US$ |
[Paid by the Selling Shareholders]
No Exercise | Full Exercise | |||||||
Per ADS |
US$ | US$ | ||||||
Total |
US$ | US$ |
ADSs sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any ADSs sold by the underwriters to securities dealers may be sold at a discount of up to US$ per ADS from the initial public offering price. If all the ADSs are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. The offering of the ADSs by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
Total expenses for this offering are estimated to be approximately US$ , including SEC registration fees of US$ , the Financial Industry Regulatory Authority, Inc., or FINRA, filing fees of US$ , the NASDAQ Global Market listing fee of US$ , printing expenses of approximately US$ , legal fees and expenses of approximately US$ , accounting fees of approximately US$ , roadshow costs and expenses of approximately US$ , and travel and other out-of-pocket expenses of approximately
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US$ . All amounts are estimated except for the fees relating to SEC registration, FINRA filing and the NASDAQ Global Market listing.
We have agreed with the underwriters not to, without the prior consent of the representatives, for a period of 180 days following the date of this prospectus, offer, sell, contract to sell, pledge, grant any option to purchase, purchase any option or contract to sell, make any short sale, file a registration statement with respect to, or otherwise dispose of (including entering into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequence of ownership interests) any of our ADSs or ordinary shares or any securities that are convertible into or exchangeable for, or that represent the right to receive, our ADSs or ordinary shares or any substantially similar securities. We have also agreed to cause our subsidiaries and consolidated variable interest entities to abide by the restrictions of the lock-up agreement. In addition, all of our existing shareholders and all of our directors, executive officers [and option holders] have entered into a similar 180-day lock-up agreement with respect to our ADSs or ordinary shares or any securities that are convertible into or exchangeable for, or that represent the right to receive, our ADSs or ordinary shares or any substantially similar securities.
In addition, through a letter agreement, we will instruct as depositary, not to accept any deposit of any ordinary shares or issue any ADSs for 180 days after the date of this prospectus unless we otherwise instruct the depositary with the prior written consent of the representatives. The foregoing does not affect the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares.
Prior to the offering, there has been no public market for our ADSs or ordinary shares. The initial public offering price of the ADSs has been negotiated between us and the representatives. The factors to be considered in determining the initial public offering price of the ADSs, in addition to prevailing market conditions, include our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.
We have applied to list our ADSs on the NASDAQ Global Market under the symbol TEDU.
In connection with the offering, the underwriters may purchase and sell ADSs in the open market on behalf of the underwriters. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of ADSs than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the underwriters option to purchase additional ADSs from [us/the selling shareholders] in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional ADSs or purchasing ADSs in the open market. In determining the source of ADSs to close out the covered short position, the underwriters will consider, among other things, the price of ADSs available for purchase in the open market as compared to the price at which they may purchase additional ADSs pursuant to the option granted to them. Naked short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for, or purchases of, ADSs made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased ADSs sold by, or for the account of, such underwriter in stabilizing or short covering transactions. Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the ADSs, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the ADSs.
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As a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they are required to be conducted in accordance with applicable laws and regulations, and they may be discontinued at any time. These transactions may be effected on the NASDAQ Global Market, the over-the-counter market or otherwise.
A prospectus in electronic format will be made available on the websites maintained by one or more of the underwriters or one or more securities dealers. One or more of the underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of ADSs for sale to their online brokerage account holders. ADSs to be sold pursuant to an internet distribution will be allocated on the same basis as other allocations. In addition, ADSs may be sold by the underwriters to securities dealers who resell ADSs to online brokerage account holders.
No action has been or will be taken by us or by any underwriter in any jurisdiction except in the United States that would permit a public offering of the ADSs, or the possession, circulation or distribution of a prospectus or any other material relating to us and the ADSs in any country or jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither this prospectus nor any other material or advertisements in connection with the ADSs may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable laws, rules and regulations of any such country or jurisdiction.
This prospectus may be used by the underwriters and other dealers in connection with offers and sales of the ADSs, including the ADSs initially sold by the underwriters in the offering being made outside of the United States, to persons located in the United States.
This prospectus does not constitute a public offer of the ADSs or ordinary shares, whether by way of sale or subscription, in the Cayman Islands. Each underwriter may not offer or sell, directly or indirectly, any ADSs or ordinary shares in the Cayman Islands.
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date), an offer of the ADSs to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the ADSs which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of the ADSs to the public in that Relevant Member State at any time,
(a) | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
(b) | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; |
(c) | to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or |
(d) | in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an offer of ADSs to the public in relation to any ADSs in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the ADSs to be offered so as to enable an investor to decide to purchase or subscribe
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the ADSs, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
This prospectus is only being distributed to and is only directed at: (1) persons who are outside the United Kingdom; (2) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); or (3) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons falling within (1)-(3) together being referred to as relevant persons). The ADSs are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire the ADSs will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.
The ADSs may not be offered or sold to any investors in Switzerland other than on a non-public basis. This prospectus does not constitute a prospectus within the meaning of Article 652a and Art. 1156 of the Swiss Code of Obligations (Schweizerisches Obligationenrecht). Neither this offering nor the ADSs have been or will be approved by any Swiss regulatory authority.
The ADSs may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the ADSs may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs may not be circulated or distributed, nor may the ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the ADSs are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
The ADSs have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an
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exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan. For purposes of this paragraph, Japanese person means any person resident in Japan, including any corporation or other entity organized under the laws of Japan. This prospectus may not be circulated or distributed in the PRC and the ADSs may not be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws and regulations of the PRC. For the purpose of this paragraph, PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
The ADSs have not been offered or sold, and will not be offered or sold, directly or indirectly, in the United Arab Emirates, except: (1) in compliance with all applicable laws and regulations of the United Arab Emirates; and (2) through persons or corporate entities authorized and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the United Arab Emirates. The information contained in this prospectus does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law (Federal Law No. 8 of 1984 (as amended)) or otherwise and is not intended to be a public offer and is addressed only to persons who are sophisticated investors.
Some of the underwriters are expected to make offers and sales both in and outside the United States through their respective selling agents. Any offers and sales in the United States will be conducted by broker-dealers registered with the SEC. Goldman Sachs (Asia) L.L.C. is expected to make offers and sales in the United States through its selling agent, Goldman, Sachs & Co.
The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of ADSs offered.
We [and the selling shareholders] have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.
We currently anticipate that we will undertake a directed share program pursuant to which we will direct the underwriters to reserve up to ADSs offered in this offering for sale at the initial public offering price to directors, officers, employees, business associates and related persons through a directed share program. The number of ADSs available for sale to the general public in the public offering will be reduced to the extent these persons purchase any reserved ADSs. Any ADSs not so purchased will be offered by the underwriters to the general public on the same basis as the other ADSs offered hereby.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us [and the selling shareholders], for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the issuer [and the selling shareholders].
Conflicts of Interest
Goldman Sachs (Asia) L.L.C., one of the participating underwriters, and/or its affiliates beneficially own in excess of 10% of our issued and outstanding shares and as a result are deemed to be our affiliate and to have a conflict of interest with us within the meaning of Financial Industry Regulatory Authority (FINRA)
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Rule 5121 (Rule 5121). Therefore, this offering will be conducted in accordance with Rule 5121, which requires that Goldman Sachs (Asia) L.L.C. will not make sales to discretionary accounts without the prior written consent of the account holder and that a qualified independent underwriter (QIU), as defined in Rule 5121, participate in the preparation of the registration statement of which this prospectus forms a part and perform its usual standard of due diligence with respect thereto. Credit Suisse Securities (USA) LLC is acting as QIU for this offering. We have agreed to indemnify Credit Suisse Securities (USA) LLC against certain liabilities incurred in connection with acting as QIU for this offering, including liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.
168
The validity of the ADSs and certain other legal matters with respect to U.S. federal and New York State law in connection with this offering will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP. Certain legal matters with respect to U.S. federal and New York State law in connection with this offering will be passed upon for the underwriters by OMelveny & Myers LLP. The validity of the Class A ordinary shares represented by the ADSs offered in this offering and other certain legal matters as to Cayman Islands law will be passed upon for us by Conyers Dill & Pearman (Cayman) Limited. Legal matters as to PRC law will be passed upon for us by Han Kun Law Offices and for the underwriters by Haiwen & Partners. Skadden, Arps, Slate, Meagher & Flom LLP may rely upon Conyers Dill & Pearman (Cayman) Limited with respect to matters governed by Cayman Islands law and Han Kun Law Offices with respect to matters governed by PRC law. OMelveny & Myers LLP may rely upon Haiwen & Partners with respect to matters governed by PRC law.
169
Our consolidated financial statements as of December 31, 2012 and 2013 and for each of the years in the three-year period ended December 31, 2013 have been included herein and in this registration statement in reliance upon the report of KPMG Huazhen (SGP), an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The office of KPMG Huazhen (SGP) is located at 8th Floor, Office Tower E2, Oriental Plaza, Beijing, Peoples Republic of China.
170
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement, including relevant exhibits, with the SEC on Form F-1 under the Securities Act with respect to underlying ordinary shares represented by the ADSs to be sold in this offering. We have also filed a related registration statement on Form F-6 with the SEC to register the ADSs. This prospectus, which constitutes a part of the registration statement on Form F-1, does not contain all of the information contained in the registration statement. You should read our registration statements and their exhibits and schedules for further information with respect to us and our ADSs.
The agreements included as exhibits to the registration statement on Form F-1 contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (1) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (2) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (3) may apply contract standards of materiality that are different from materiality under the applicable securities laws; and (4) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.
Immediately upon the effectiveness of the registration statement on Form F-1 to which this prospectus is a part, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders, and Section 16 short swing profit reporting for our officers and directors and for holders of more than 10% of our ordinary shares. All information filed with the SEC can be inspected over the Internet at the SECs website at www.sec.gov and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. You may also obtain additional information over the Internet at the SECs website at www.sec.gov .
171
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Tarena International, Inc. :
We have audited the accompanying consolidated balance sheets of Tarena International, Inc. and subsidiaries (the Company) as of December 31, 2012 and 2013, and the related consolidated statements of comprehensive income, changes in deficit and cash flows for each of the years in the three-year period ended December 31, 2013. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tarena International, Inc. and subsidiaries as of December 31, 2012 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG Huazhen (SGP)
Beijing, China
February 18, 2014
F-2
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
F-3
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31, | ||||||||||||||
Note | 2011 | 2012 | 2013 | |||||||||||
US$ | US$ | US$ | ||||||||||||
Net revenues |
7 | 25,740,897 | 56,820,281 | 92,833,660 | ||||||||||
Cost of revenues (a) |
(8,714,051 | ) | (17,762,096 | ) | (29,068,058 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Gross profit |
17,026,846 | 39,058,185 | 63,765,602 | |||||||||||
Selling and marketing expenses (a) |
(7,676,401 | ) | (16,875,338 | ) | (30,251,656 | ) | ||||||||
General and administrative expenses (a) |
(7,832,295 | ) | (9,948,830 | ) | (16,223,871 | ) | ||||||||
Research and development expenses (a) |
(1,158,645 | ) | (1,791,515 | ) | (3,807,155 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Operating income |
359,505 | 10,442,502 | 13,482,920 | |||||||||||
Interest income |
274,954 | 1,165,155 | 1,541,175 | |||||||||||
Interest expense |
| (5,967 | ) | | ||||||||||
Other income |
205,338 | 169,891 | 1,294,262 | |||||||||||
|
|
|
|
|
|
|||||||||
Income before income taxes |
839,797 | 11,771,581 | 16,318,357 | |||||||||||
Income tax expense |
8 | (139,115 | ) | (2,219,110 | ) | (2,271,326 | ) | |||||||
|
|
|
|
|
|
|||||||||
Net income |
700,682 | 9,552,471 | 14,047,031 | |||||||||||
Accretion of convertible redeemable preferred shares |
11 | (10,293,672 | ) | (26,545,560 | ) | (44,360,060 | ) | |||||||
|
|
|
|
|
|
|||||||||
Net loss attributable to ordinary shareholders |
(9,592,990 | ) | (16,993,089 | ) | (30,313,029 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Basic and diluted loss per share |
13 | (0.77 | ) | (1.57 | ) | (2.77 | ) | |||||||
|
|
|
|
|
|
|||||||||
Net income |
700,682 | 9,552,471 | 14,047,031 | |||||||||||
Other comprehensive income |
||||||||||||||
Foreign currency translation adjustment, net of nil income taxes |
240,312 | 68,415 | 1,150,824 | |||||||||||
|
|
|
|
|
|
|||||||||
Comprehensive income |
940,994 | 9,620,886 | 15,197,855 | |||||||||||
|
|
|
|
|
|
|||||||||
(a) Includes share-based compensation expense as follows (note 12): |
||||||||||||||
Cost of revenues |
(128 | ) | (14 | ) | (17,179 | ) | ||||||||
Selling and marketing expenses |
(1,296 | ) | (1,296 | ) | (45,233 | ) | ||||||||
General and administrative expenses |
(59,420 | ) | (124,811 | ) | (654,323 | ) | ||||||||
Research and development expenses |
(3,366 | ) | (3,310 | ) | (48,011 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT
Ordinary Shares |
Additional
Paid-in Capital |
Accumulated Other
Comprehensive Income |
Accumulated
Deficit |
Total
Shareholders Deficit |
||||||||||||||||||||
Number of
Shares |
Amount | |||||||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||
Balance as of January 1, 2011 |
13,580,000 | 13,580 | | 175,369 | (6,563,035 | ) | (6,374,086 | ) | ||||||||||||||||
Net income |
| | | | 700,682 | 700,682 | ||||||||||||||||||
Foreign currency translation adjustment, net of nil income taxes |
| | | 240,312 | | 240,312 | ||||||||||||||||||
Repurchase and cancellation of ordinary shares from Connion Capital Limited in connection with the issuance of Series C convertible redeemable preferred shares (note 10(a)) |
(2,728,713 | ) | (2,729 | ) | | | (2,506,323 | ) | (2,509,052 | ) | ||||||||||||||
Share-based compensation |
| | 64,210 | | | 64,210 | ||||||||||||||||||
Accretion of convertible redeemable preferred shares |
| | (64,210 | ) | | (10,229,462 | ) | (10,293,672 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of December 31, 2011 |
10,851,287 | 10,851 | | 415,681 | (18,598,138 | ) | (18,171,606 | ) | ||||||||||||||||
Net income |
| | | | 9,552,471 | 9,552,471 | ||||||||||||||||||
Foreign currency translation adjustment, net of nil income taxes |
| | | 68,415 | | 68,415 | ||||||||||||||||||
Share-based compensation |
| | 129,431 | | | 129,431 | ||||||||||||||||||
Accretion of convertible redeemable preferred shares |
| | (129,431 | ) | | (26,416,129 | ) | (26,545,560 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of December 31, 2012 |
10,851,287 | 10,851 | | 484,096 | (35,461,796 | ) | (34,966,849 | ) | ||||||||||||||||
Net income |
| | | | 14,047,031 | 14,047,031 | ||||||||||||||||||
Conversion of Series A convertible redeemable preferred shares to ordinary shares (note 10 (a)) |
1,375,271 | 1,375 | 78,849 | | | 80,224 | ||||||||||||||||||
Foreign currency translation adjustment, net of nil income taxes |
| | | 1,150,824 | | 1,150,824 | ||||||||||||||||||
Share-based compensation |
| | 764,746 | | | 764,746 | ||||||||||||||||||
Accretion of convertible redeemable preferred shares |
| | (843,595 | ) | | (43,516,465 | ) | (44,360,060 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of December 31, 2013 |
12,226,558 | 12,226 | | 1,634,920 | (64,931,230 | ) | (63,284,084 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Operating activities: |
||||||||||||
Net income |
700,682 | 9,552,471 | 14,047,031 | |||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||||||
Depreciation |
1,233,832 | 2,426,188 | 4,653,914 | |||||||||
Bad debt expense |
384,011 | 419,383 | 941,065 | |||||||||
Loss (gain) on disposal of property and equipment |
11,934 | (6,634 | ) | 66,470 | ||||||||
Deferred income tax benefit |
(385,042 | ) | (21,191 | ) | (1,052,265 | ) | ||||||
Share based compensation expense |
64,210 | 129,431 | 764,746 | |||||||||
Foreign currency exchange loss, net |
| | 197,040 | |||||||||
Changes in operating assets and liabilities |
||||||||||||
Accounts receivable |
(4,765,236 | ) | (11,004,712 | ) | 1,117,160 | |||||||
Prepaid expenses and other current assets |
(871,803 | ) | (993,676 | ) | (534,531 | ) | ||||||
Accrued interest income on time deposits |
| | (330,579 | ) | ||||||||
Other non-current assets |
(232,139 | ) | (421,512 | ) | (472,702 | ) | ||||||
Accounts payable |
108,271 | (133,390 | ) | (7,038 | ) | |||||||
Income taxes payable |
300,743 | 1,113,516 | 1,422,375 | |||||||||
Deferred revenue |
1,814,653 | 5,239,498 | 5,444,456 | |||||||||
Accrued expenses and other current liabilities |
541,585 | 1,055,429 | 3,393,767 | |||||||||
Other non-current liabilities |
90,729 | 88,744 | 54,642 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) operating activities |
(1,003,570 | ) | 7,443,545 | 29,705,551 | ||||||||
|
|
|
|
|
|
|||||||
Investing activities: |
||||||||||||
Purchase of property and equipment |
(2,896,432 | ) | (7,188,777 | ) | (9,108,968 | ) | ||||||
Proceeds from disposal of property and equipment |
2,366 | 26,209 | 50,060 | |||||||||
Purchase of short term investment |
| | (11,298,158 | ) | ||||||||
Proceeds from maturity of short term investment |
| | 11,298,158 | |||||||||
Purchase of time deposits |
(148,582 | ) | (792,104 | ) | (17,286,182 | ) | ||||||
Proceeds from maturity of time deposits |
1,479,625 | 697,052 | 6,456,091 | |||||||||
Issuance of housing loans to employees |
| (656,954 | ) | (339,623 | ) | |||||||
Proceeds from repayment of housing loans from employees |
| | 691,492 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(1,563,023 | ) | (7,914,574 | ) | (19,537,130 | ) | ||||||
|
|
|
|
|
|
|||||||
Financing activities: |
||||||||||||
Proceeds from bank borrowings |
| 301,000 | | |||||||||
Repayment of bank borrowings |
| (301,000 | ) | | ||||||||
Amounts received on behalf of a related party |
213,840 | 668,652 | 141,329 | |||||||||
Repayment of amounts received on behalf of a related party |
(50,563 | ) | (745,918 | ) | (232,879 | ) | ||||||
Advances from a related party |
| 308,658 | 153,386 | |||||||||
Repayment of advances from a related party |
| (308,658 | ) | (153,386 | ) | |||||||
Repurchase of ordinary shares |
(2,509,052 | ) | | | ||||||||
Proceeds from issuance of Series C convertible redeemable preferred shares |
19,974,179 | | | |||||||||
Payment of issuance cost of Series C convertible redeemable preferred shares |
(68,376 | ) | (150,000 | ) | | |||||||
Payment of initial public offering costs |
| | (499,331 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) financing activities |
17,560,028 | (227,266 | ) | (590,881 | ) | |||||||
|
|
|
|
|
|
|||||||
Effect of foreign currency exchange rate changes on cash |
87,362 | 45,756 | 364,495 | |||||||||
Net increase (decrease) in cash |
15,080,797 | (652,539 | ) | 9,942,035 | ||||||||
Cash and cash equivalents at beginning of year |
1,768,962 | 16,849,759 | 16,197,220 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of year |
16,849,759 | 16,197,220 | 26,139,255 | |||||||||
|
|
|
|
|
|
|||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Income taxes paid |
132,687 | 1,038,042 | 1,846,576 | |||||||||
Interest paid |
| 5,967 | | |||||||||
Non-cash investing and financing activities: |
||||||||||||
Accrual for purchase of equipment |
80,098 | 86,244 | | |||||||||
Accrual of issuance cost of Series C convertible redeemable preferred shares |
150,000 | | | |||||||||
Conversion of Series A convertible redeemable preferred shares to ordinary shares |
| | 80,224 | |||||||||
Accrual of initial public offering costs |
| | 107,866 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 | DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT CONCENTRATIONS AND RISKS |
(a) | Description of business |
Tarena International, Inc. (Tarena International), through its wholly-owned subsidiaries and consolidated variable interest entities or VIEs (collectively referred to hereinafter as the Company), is principally engaged in providing professional education services including professional information technology (IT) training courses across the Peoples Republic of China (PRC). All of the Companys operations and customers are located in the PRC.
(b) | Organization |
Tarena International is a holding company that was incorporated in the Cayman Islands on October 8, 2003 by Mr. Han Shaoyun (Mr. Han), the founder and chief executive officer of the Company, and five other individuals. Tarena International is the parent company of a number of wholly-owned subsidiaries that are engaged in professional education services. The Companys education services in certain locations of the PRC were previously conducted through Beijing Tarena Jinqiao Technology Co., Ltd. (Beijing Tarena) and Shanghai Tarena Software Technology Co., Ltd. (Shanghai Tarena), and their subsidiaries (collectively, the Tarena Entities), in order to comply with the PRC laws and regulations which restricted foreign investments in companies that were engaged in education services. Tarena Entities were principally engaged in providing professional education services including professional IT training courses in those locations and operated 23 learning centers as of December 31, 2011. Pursuant to the VIE Agreements as described below, Tarena International has effective financial control over Tarena Entities and their initial capital funding was provided by Tarena Technologies Inc., (a wholly-owned subsidiary of Tarena International or the WOFE, formerly known as Beijing Tarena Technology Co., Ltd.). The recognized and unrecognized revenue-producing assets that were held by Tarena Entities primarily consisted of property and equipment, operating leases for the learning premises, ICP license, www.it211.com.cn website and assembled workforce in those learning centers. Because of change in PRC laws and regulations in 2012 which encourages foreign investments in education services, the Company began to transfer most of the operations, including related assets and liabilities of Tarena Entities to the wholly-owned subsidiaries of Tarena International. As of December 31, 2013, all of the learning center operations of Tarena Entities have been transferred to other subsidiaries of Tarena International. The remaining assets and liabilities of Tarena Entities as of December 31, 2013 are expected to be transferred to other subsidiaries of Tarena International in 2014 where practicable.
The registered capital of Beijing Tarena and Shanghai Tarena is RMB2 million and RMB1 million, respectively. All of the equity interests of Tarena Entities are legally held by Mr. Han and a representative from Series A convertible redeemable preferred shareholder. Both individuals are nominee equity holders of Tarena Entities and holding their equity interests on behalf of Tarena International. Through a series of contractual agreements and arrangements (the VIE Agreements), among Tarena International, WOFE, Tarena Entities and their nominee equity holders, the nominee equity holders of Tarena Entities have granted all their legal rights including voting rights and disposition rights of their equity interests in Tarena Entities to Tarena International. The nominee equity holders of Tarena Entities do not participate significantly in income and loss and do not have the power to direct the activities of the Tarena Entities that most significantly impact their economic performance. Accordingly, the Tarena Entities are considered variable interest entities.
In accordance with Accounting Standards Codification (ASC) 810-10-25-38A, Tarena International has a controlling financial interest in Tarena Entities because Tarena International has (i) the power to direct activities of Tarena Entities that most significantly impact the economic performance of Tarena
F-7
1 | DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT CONCENTRATIONS AND RISKS (CONTINUED) |
(b) | Organization (continued) |
Entities; and (ii) the obligation to absorb the expected losses and the right to receive expected residual return of Tarena Entities that could potentially be significant to Tarena Entities. Thus, Tarena International is the primary beneficiary of the Tarena Entities.
Under the terms of the VIE Agreements, Tarena International has (i) the right to receive economic benefits that could potentially be significant to Tarena Entities in the form of service fees under the exclusive business cooperation agreements; (ii) the right to receive all dividends declared by Tarena Entities and the right to all undistributed earnings of Tarena Entities; (iii) the right to receive the residual benefits of Tarena Entities through its exclusive option to acquire 100% of the equity interests in Tarena Entities, to the extent permitted under PRC law. Accordingly, the financial statements of Tarena Entities are consolidated in Tarena Internationals consolidated financial statements.
Under the terms of the VIE Agreements, Tarena Entities nominee equity holders have no rights to the net assets nor have the obligations to fund the deficit, and such rights and obligations have been vested to Tarena International. All of the equity (net assets) and net income of Tarena Entities are attributed to Tarena International.
The key terms of the VIE Agreements are as follows:
Loan Agreements: The WOFE provided RMB3 million loans in aggregate to Tarena Entities nominee equity holders for the sole purpose of their contribution of Tarena Entities registered capital. The nominee equity holders of Tarena Entities can only repay the loans by transferring all of their legal equity interest in Tarena Entities to the WOFE or its designated representatives pursuant to the exclusive option agreements. The loans shall be interest-free, unless the transfer price exceeds the principal of the loans when each nominee equityholder of Tarena Entities transfers his equity interests in Tarena Entities to Tarena International or its designated representatives. Such excess over the principal of the loan shall be deemed as the interest of the loans to the extent permitted under the PRC law. The initial terms of the loans expire in 2023, which can be extended with the written notice of both the WOFE and Tarena Entities before expiration.
Exclusive Option Agreements: Each of the nominee equity holders irrevocably granted Tarena International, Inc. or its designated representatives an exclusive option to purchase, to the extent permitted under PRC law, all or part of his equity interests in Tarena Entities. In addition, Tarena International has the option to acquire the equity interests of Tarena Entities for a specified price equal to the loan provided by the WOFE to the nominee equity holders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Without Tarena Internationals prior written consent, the nominee equity holders shall not sell, transfer, mortgage, or otherwise dispose any equity interests in Tarena Entities. These agreements will remain effective until all equity interests held in Tarena Entities by the nominee equity holders are transferred or assigned to Tarena International or its designated representatives.
Exclusive Business Cooperation Agreements: The WOFE has the exclusive right to provide, among other things, technical support, business support and related consulting services to Tarena Entities and Tarena Entities agree to accept all the consultation and services provided by the WOFE. Without the WOFEs prior written consent, Tarena Entities are prohibited from engaging any third party to provide any of the services under this agreement. In addition, the WOFE exclusively owns all intellectual property rights arising out of or created during the performance of this agreement. Tarena Entities agree to pay a monthly service fee to the WOFE at an amount determined solely by the WOFE after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the WOFE employees providing services to Tarena Entities, the value of
F-8
1 | DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT CONCENTRATIONS AND RISKS (CONTINUED) |
(b) | Organization (continued) |
services provided, the market price of comparable services and the operating conditions of Tarena Entities. Furthermore, to the extent permitted under the PRC law, the WOFE agrees to provide financial support to Tarena Entities. The term of the agreement will remain effective unless the WOFE terminates the agreement in writing or a competent governmental authority rejects the renewal applications by either Tarena Entities or the WOFE to renew its respective business license upon expiration. Tarena Entities are not permitted to terminate this agreement in any event unless required by applicable laws.
Power of Attorney: Each nominee equity holder of Tarena Entities appointed the WOFE as the attorney-in-fact to act on all matters pertaining to Tarena Entities and to exercise all of their rights as an equity holder of Tarena Entities, including but not limited to attend shareholders meetings, vote on their behalf on all matters of Tarena Entities requiring shareholders approval under PRC laws and regulations and the articles of association of Tarena Entities, designate and appoint directors and senior management members. The WOFE may authorize or assign its rights under this appointment to any other person or entity at its sole discretion without prior notice to the nominee equity holders of Tarena Entities. Each power of attorney will remain effective until the nominee equity holder ceases to hold any equity interest in Tarena Entities.
Spousal Consent Letters: The spouses of the nominee equity holders of Tarena Entities executed spousal consent letters to acknowledge that the equity interests in Tarena Entities held by their spouses will be disposed of pursuant to the equity disposal agreement and equity interest pledge agreement and they will not make any assertions in connection with the equity interests in Tarena Entities held by their spouses. They shall be bound by the related VIE agreements and comply with the obligations thereunder as an equity holder of Tarena Entities if they obtain any equity interests in Tarena Entities which are held by their spouses for any reasons.
Equity Interest Pledge Agreements: Pursuant to the equity interest pledge agreement, Tarena Entities nominee equity holders pledged all of their equity interests in Tarena Entities to the WOFE to guarantee their performance of the obligations under the contractual arrangements including but not limited to, the service fees due to the WOFE. If Tarena Entities or any of Tarena Entities nominee equity holders breaches its contractual obligations under the contractual arrangements, the WOFE, as the pledgee, will be entitled to certain rights and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Tarena Entities in accordance with legal procedures. The WOFE has the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any event of default as provided in the contractual arrangements occurs, the WOFE, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance with PRC laws and regulations. The equity interest pledge agreements became effective on the date when the agreements were duly executed. The pledge was registered with the relevant local administration for industry and commerce in 2013 and will remain binding until Tarena Entities and their nominee equity holders discharge all their obligations under the contractual arrangements. The registration of the equity pledge enables the WOFE to enforce the equity pledge against third parties who acquire the equity interests of Tarena Entities in good faith.
Tarena International relies on the VIE Agreements to operate and control the Tarena Entities. However, these contractual arrangements may not be as effective as direct equity ownership in providing Tarena International with control over Tarena Entities. Any failure by Tarena Entities or the nominee equity holders to perform their obligations under the VIE Agreements would have a material adverse effect on the consolidated financial position and consolidated financial performance of the Company. All the VIE Agreements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law
F-9
1 | DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT CONCENTRATIONS AND RISKS (CONTINUED) |
(b) | Organization (continued) |
and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit Tarena Internationals ability to enforce these contractual arrangements. In addition, if the legal structure and the VIE Agreements were found to be in violation of any existing or future PRC laws and regulations, Tarena International may be subject to fines or other legal or administrative sanctions.
In the opinion of management, based on the legal opinion obtained from the Companys PRC legal counsel, the above contractual arrangements are legally binding and enforceable and do not violate current PRC laws and regulations. However, there are uncertainties regarding the interpretation and application of existing and future PRC laws and regulations. Accordingly, Tarena International cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to its opinion. If the current ownership structure of the Company and the VIE Arrangements are found to be in violation of any existing or future PRC laws and regulations, the PRC government could:
| revoke the business and operating licenses of the WOFE, its subsidiaries and Tarena Entities; |
| discontinue or restrict the conduct of any transactions between the WOFE, its subsidiaries and Tarena Entities; |
| impose fines, confiscate the income from Tarena Entities, or impose other requirements with which the Company may not be able to comply; |
| require Tarena International to restructure its ownership structure or operations, including terminating the contractual arrangements with Tarena Entities and deregistering the equity pledges of Tarena Entities; and |
| restrict or prohibit the use of the proceeds of future offering to finance the Companys business and operations in the PRC. |
If the imposition of any of these government actions causes Tarena International to lose its right to direct the activities of Tarena Entities or its right to receive substantially all the economic benefits and residual returns from Tarena Entities and Tarena International is not able to restructure its ownership structure and operations in a satisfactory manner, Tarena International would no longer be able to consolidate the financial results of Tarena Entities. In the opinion of management, the likelihood of deconsolidation of the Tarena Entities is remote based on current facts and circumstances.
The equity interests of Tarena Entities are legally held by Mr. Han and a representative from Series A convertible redeemable preferred shareholder (the Representative) as nominee equity holders on behalf of the Company. Mr. Han and the Representative are also directors of Tarena International. Mr. Han and the Representative each holds 35.4% and 24.4% of the total ordinary shares issued and outstanding as of December 31, 2013, respectively, assuming the conversion of the Series A, Series B and Series C convertible redeemable preferred shares to ordinary shares and the exercise of all outstanding options held by Mr. Han (and his spouse) and the Representative as of such date. The Company cannot assure that when conflicts of interest arise, either of the nominee equity holders will act in the best interests of the Company or such conflicts will be resolved in the Companys favor. Currently, the Company does not have any arrangements to address potential conflicts of interest between the nominee equity holders and the Company, except that Tarena International could exercise the purchase option under the exclusive option agreement with the nominee equity holders to request them to transfer all of their equity ownership in Tarena Entities to a PRC entity or individual designated by Tarena International. The Company relies on the nominee equity holders, who are both
F-10
1 | DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT CONCENTRATIONS AND RISKS (CONTINUED) |
(b) | Organization (continued) |
Tarena Internationals directors and who owe a fiduciary duty to Tarena International, to comply with the terms and conditions of the contractual arrangements. Such fiduciary duty requires directors to act in good faith and in the best interests of Tarena International and not to use their positions for personal gains. If the Company cannot resolve any conflict of interest or dispute between the Company and the nominee equity holders of Tarena Entities, the Company would have to rely on legal proceedings, which could result in disruption of the Companys business and subject the Company to substantial uncertainty as to the outcome of any such legal proceedings.
The Companys involvement with Tarena Entities under the VIE Agreements affected the Companys consolidated financial position, results of operations and cash flows as indicated below.
The assets and liabilities of Tarena Entities that were included in the accompanying consolidated financial statements as of December 31, 2012 and 2013 are as follows:
December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
Cash |
734,283 | 186,698 | ||||||
Accounts receivable, net of allowance for doubtful accounts |
4,444,976 | 530,826 | ||||||
Prepaid expenses and other current assets |
376,820 | 96,980 | ||||||
Amounts due from related parties |
4,964,323 | 5,783,142 | ||||||
Deferred income tax assets |
133,226 | 484,699 | ||||||
|
|
|
|
|||||
Total current assets |
10,653,628 | 7,082,345 | ||||||
Accounts receivable, net of allowance for doubtful accounts |
847,955 | 64,325 | ||||||
Property and equipment, net |
1,820,948 | 974,295 | ||||||
Other non-current assets |
400,666 | 3,850 | ||||||
|
|
|
|
|||||
Total assets |
13,723,197 | 8,124,815 | ||||||
|
|
|
|
|||||
Accounts payable |
38,434 | 16,287 | ||||||
Income taxes payable |
662,451 | 590,281 | ||||||
Deferred revenue |
2,260,298 | | ||||||
Accrued expenses and other current liabilities |
736,077 | 421,531 | ||||||
Amounts due to related parties, including amounts due to WOFE for accrued service fees |
5,065,667 | 4,445,366 | ||||||
|
|
|
|
|||||
Total current liabilities |
8,762,927 | 5,473,465 | ||||||
Other non-current liabilities |
19,925 | 20,541 | ||||||
|
|
|
|
|||||
Total liabilities |
8,782,852 | 5,494,006 | ||||||
|
|
|
|
Amounts due from/to related parties include the amounts due from/to Tarena International and its wholly-owned subsidiaries, which are eliminated upon consolidation.
F-11
1 | DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT CONCENTRATIONS AND RISKS (CONTINUED) |
(b) | Organization (continued) |
The financial performance and cash flows of Tarena Entities that were included in the accompanying consolidated financial statements for the years ended December 31, 2011, 2012 and 2013 are as follows:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Net revenues |
19,542,916 | 18,343,915 | 8,191,886 | |||||||||
Net income (loss) |
1,879,527 | 3,607,731 | (1,917,256 | ) | ||||||||
Net cash provided by (used in) operating activities |
1,504,341 | 4,172,858 | (1,538,619 | ) | ||||||||
Net cash used in investing activities |
(1,981,825 | ) | (933,382 | ) | (470,805 | ) | ||||||
Net cash provided by (used in) financing activities |
637,610 | (3,253,753 | ) | 1,436,631 |
All of the assets of Tarena Entities can be used only to settle obligations of Tarena Entities. None of the assets of Tarena Entities have been pledged or collateralized. The creditors of Tarena Entities do not have recourse to the general credit of Tarena International and its wholly-owned subsidiaries. Assets of Tarena Entities that can be used only to settle obligations of Tarena Entities and liabilities of Tarena Entities for which creditors (or beneficial interest holders) do not have recourse to the general credit of Tarena International and its wholly owned subsidiaries have been presented parenthetically alongside each balance sheet caption on the face of the consolidated balance sheets.
During the periods presented, Tarena International and its wholly-owned subsidiaries provided financial support to Tarena Entities that they were not previously contractually required to provide in the form of advances. To the extent Tarena Entities require financial support, pursuant to the exclusive business cooperation agreements, the WOFE may, at its option and to the extent permitted under the PRC law, provide such support to Tarena Entities through loans to Tarena Entities nominee equity holders or entrustment loans to Tarena Entities.
(c) | Basis of presentation |
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
(d) | Significant concentrations and risks |
Revenue concentration
A substantial portion of the Companys total net revenues are generated from Java and C++ training courses. The percentages of the Companys total net revenues from Java and C++ training courses are as follows:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
Java |
70.6 | % | 71.3 | % | 59.3 | % | ||||||
C++ |
12.4 | % | 12.5 | % | 12.0 | % | ||||||
|
|
|
|
|
|
|||||||
Total |
83.0 | % | 83.8 | % | 71.3 | % | ||||||
|
|
|
|
|
|
F-12
1 | DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT CONCENTRATIONS AND RISKS (CONTINUED) |
(d) | Significant concentrations and risks (continued) |
The Company expects net revenues from these two training courses to continue to represent a substantial portion of its total net revenues in the future. Negative factors that adversely affect net revenues generated by these two training courses will have a material adverse effect on the Companys business, financial condition and results of operations.
Geographic concentration
A substantial portion of the Companys total net revenues are currently derived from learning centers that operate in Beijing. Revenues derived from the learning centers that operate in Beijing accounted for 28.8%, 30.6% and 36.1% of the Companys total net revenues for the years ended December 31, 2011, 2012 and 2013, respectively. The Company expects revenues derived from the learning centers that operate in Beijing to continue to represent a significant portion of its total net revenues. Negative factors that adversely affect professional education services in Beijing will have a material adverse effect on the Companys business, financial condition and results of operations.
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Principles of consolidation |
The consolidated financial statements include the financial statements of Tarena International, its wholly-owned subsidiaries, VIEs and their wholly-owned subsidiaries in which Tarena International is the primary beneficiary. All significant intercompany balances and transactions have been eliminated on consolidation.
(b) | Use of estimates |
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the collectability of accounts receivable, the fair values of financial instruments and share-based compensation awards, the realizability of deferred income tax assets, the accruals for tax uncertainties and other contingencies, the recoverability of the carrying amounts of property and equipment and the useful lives of property and equipment. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
(c) | Foreign currency |
The accompanying consolidated financial statements have been expressed in U.S. dollar (USD), the Companys reporting currency. The functional currency of Tarena International and Tarena Hong Kong Limited (Tarena HK) is USD. The functional currency of Tarena Internationals PRC subsidiaries and consolidated VIEs is Renminbi (RMB). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the applicable exchange rate at the balance sheet date. The resulting exchange differences are recorded in general and administrative expenses in the consolidated statements of comprehensive income.
F-13
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(c) | Foreign currency (continued) |
Assets and liabilities of entities with functional currencies other than USD are translated into USD using the exchange rate on the balance sheet date. Revenues and expenses are translated into USD at average rates prevailing during the reporting period. The resulting foreign currency translation adjustment are recorded in accumulated other comprehensive income within shareholders deficit.
Since the RMB is not a fully convertible currency, all foreign exchange transactions involving RMB must take place either through the Peoples Bank of China (the PBOC) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC.
(d) | Cash, cash equivalents and time deposits |
Cash consist of cash on hand and cash in bank, which are unrestricted as to withdrawal. Cash equivalents consist of interest-bearing certificates of deposit with initial term of no more than three months when purchased.
Time deposits, which mature within one year as of the balance sheet date, represent interest-bearing certificates of deposit with an initial term of greater than three months when purchased. Time deposits which mature over one year as of the balance sheet date are included in non-current assets.
Cash, cash equivalents and time deposits maintained at banks consist of the following:
December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
RMB denominated bank deposits with financial institutions in the PRC |
5,725,698 | 35,234,336 | ||||||
US dollar denominated bank deposits with a financial institutions in the PRC |
6,608,923 | 1,669,384 | ||||||
US dollar denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (HK SAR) |
4,632,887 | 1,378,195 | ||||||
HK dollar denominated bank deposits with a financial institution in HK SAR |
| 5,017 | ||||||
RMB denominated bank deposits with a financial institution in HK SAR |
| 414 |
To limit exposure to credit risk relating to bank deposits, the Company primarily places bank deposits only with large financial institutions in the PRC and HK SAR with acceptable credit rating.
(e) | Short-term investment |
In November 2013, the Company invested US$11,298,158 (equivalent to RMB70 million) in a financial product managed by a bank in PRC. The term of the financial product is thirty days. The financial product matured in December 2013. The Company earned investment income of US$39,930 on the financial product, which was included in other income in the consolidated statements of comprehensive income.
(f) | Accounts receivable |
Accounts receivable primarily represent tuition fees due from students. Accounts receivable which are due over one year as of the balance sheet date are presented as non-current assets. The unearned interest on
F-14
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(f) | Accounts receivable (continued) |
accounts receivable which are due over one year is reported in the consolidated balance sheets as a direct deduction from the principal amount of accounts receivable. See note 2 (h). The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Accounts receivable is considered past due based on its contractual terms. In establishing the allowance, management considers historical losses, the students financial condition, the amount of accounts receivables in dispute, the accounts receivables aging and the students payment patterns. Account receivable which are deemed to be uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. There is a time lag between when the Company estimates a portion of or the entire account balances to be uncollectible and when a write off of the account balances is taken. The Company takes a write off of the account balances when it meets the requirements as a tax deductible item. That is, either the Company can demonstrate all means of collection on the outstanding balances have been exhausted or the balances have been overdue for more than three years.
(g) | Property and equipment |
Property and equipment are recorded at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful life of property and equipment is as follows:
Furniture |
5 years | |
Office equipment |
3 to 4 years | |
Leasehold improvements |
Shorter of the lease term or the estimated useful life of the assets |
Ordinary maintenance and repairs are charged to expenses as incurred, while replacements and betterments are capitalized. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value of the item disposed and proceeds realized thereon.
Property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of a long-lived asset or asset group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying value of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment loss is recognized by the amount that the carrying value exceeds the estimated fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. Assets to be disposed are reported at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated. No impairment of long-lived assets was recognized for any of the years presented.
(h) | Revenue recognition |
Revenue is recognized when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. These criteria as they relate to each of the following major revenue generating activities are described below. Revenue is presented net of business tax and value added taxes (VAT) at rates ranging between 3% and 6%, and surcharges. VAT and business tax collected from customers, net of VAT paid for purchases, is recorded as a liability in the consolidated balance sheets until it is paid to the tax authorities.
F-15
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(h) | Revenue recognition (continued) |
Tuition fees
Educational and professional tuition fees are recognized as revenue ratably over the period of the training course, which primarily range from four to five months. The unearned portion of tuition fees is recorded as deferred revenue.
The Company offers certain qualified students to pay their tuition fees on installment for a period of time exceeding one year. When tuition services are sold on repayment term that exceeds one year beyond the point in time that revenue is recognized, the receivable, and therefore the revenue is recorded at the present value of the payments. The difference between the present value of the receivable and the nominal or principal value of the tuition fees is recognized as interest income over the contractual collection period using the effective interest rate method. The interest rate used to determine the present value of total amount receivable is the rate at which the students can obtain financing of a similar nature from other sources at the date of the transaction.
Certification service revenue
The Company provide certification service to students who complete the training course and enroll for the exams. The Company is responsible for the certification service, including organization, proctoring and grading of exams. The certificates are issued by a government agency to the students who pass the exam. The Company acts as the principal in providing this service and recognizes revenue on gross basis because the Company is the primary obligor in the arrangement and is responsible for fulfilling the ordered services by the students. Cash received before the students taking the exam, is recorded as deferred revenue, and subsequently recognized as certification service revenue upon completion of the certification service.
(i) | Cost of revenues |
Cost of revenues consists of payroll and employee benefits, rent expenses of learning centers, depreciation relating to property and equipment used for operating the learning centers, and other operating costs that are directly attributed to the provision of training services.
(j) | Advertising costs |
Advertising costs are expensed as incurred and included in selling and marketing expenses. Advertising costs were US$2,249,402, US$5,928,454 and US$11,570,458 for the years ended December 31, 2011, 2012 and 2013, respectively.
(k) | Operating lease |
The Company leases premises for learning centers and offices under non-cancellable operating leases. Leases with escalated rent provisions are recognized on a straight-line basis commencing with the beginning of the lease term. There are no capital improvement funding, other lease concessions or contingent rent in the lease agreements. The lease terms of the Companys learning centers range between 1 and 10 years. The Company has historically been able to renew all learning centers leases. The Company has no legal or contractual asset retirement obligations at the end of the lease term.
Certain learning centers of the Company sublease a portion of the areas to certain students for their living accommodation. Income from subleases is recognized on a straight-line basis over the term of the lease and recognized as reduction of costs of revenues.
F-16
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(l) | Government grant |
Government grant is recognized when there is reasonable assurance that the Company will comply with the conditions attach to it and the grant will be received. Government grant for the purpose of giving immediate financial support to the Company with no future related costs is recognized in the Companys consolidated statements of comprehensive income when the grant becomes receivable. Government grant of US$0.2 million, US$0.2 million and US$1.3 million was recognized and included in other income for the years ended December 31, 2011, 2012 and 2013, respectively.
(m) | Research and development costs |
Research and development costs primarily consist of software developed for internal use. The Company expenses all costs that are incurred in connection with the planning and implementation phases of the development of software. Costs incurred in the development phase are capitalized and amortized over the estimated life of the software. No costs were capitalized for any of the periods presented.
(n) | Employee benefits |
Pursuant to relevant PRC regulations, the Company is required to make contributions to various defined contribution plans organized by municipal and provincial PRC governments. The contributions are made for each PRC employee at rates ranging from 28.6% to 56.0% on a standard salary base as determined by local social security bureau. Contributions to the defined contribution plans are charged to the consolidated statements of comprehensive income when the related service is provided. For the years ended December 31, 2011, 2012 and 2013, the costs of the Companys obligations to the defined contribution plans amounted to US$1,533,954, US$3,518,397 and US$5,850,415, respectively. The Company has no other obligation for the payment of employee benefits associated with these plans beyond the contributions described above.
(o) | Income taxes |
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates or tax laws is recognized in the consolidated statements of comprehensive income in the period the change in tax rates or tax laws is enacted. A valuation allowance is provided to reduce the carrying amount of deferred income tax assets if it is considered more likely than not that some portion or all of the deferred income tax assets will not be realized.
The Company recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related to an unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of comprehensive income.
F-17
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(p) | Deferred offering costs |
Deferred offering costs consist principally of legal, printing and registration costs in connection with the initial public offering of Tarena Internationals ordinary shares (IPO). Such costs are deferred until the closing of the offering, at which time the deferred costs are offset against the offering proceeds. In the event the offering is unsuccessful or aborted, the costs will be expensed. Deferred offering costs as of December 31, 2013 amounted to US$615,793 and were included in other non-current assets.
(q) | Share based compensation |
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the period the employee is required to provide service in exchange for the award, which generally is the vesting period. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, net of estimated forfeitures, provided that the cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested at that date. Forfeiture rates are estimated based on historical and future expectations of employee turnover rates.
(r) | Commitments and contingencies |
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, and non-income tax matters. An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.
The allowance for off-balance-sheet credit exposures is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to the guarantee under the Student Loan Program. See note 9. The Company evaluates the current status of the payment/performance risk of the guarantee based on periodic evaluations of the actual defaults, estimated future defaults, current understanding of the students status and existing economic conditions. At the inception of the guarantee, an amount related to the fair value of the guarantee has been accrued and included in accrued expenses and other current liabilities as of December 31, 2012 and 2013.
(s) | Earnings (loss) per share |
Basic earnings (loss) per ordinary share is computed by dividing net income (loss) attributable to Tarena International ordinary shareholders by the weighted average number of ordinary shares outstanding during the year using the two-class method. Under the two-class method, net income (loss) attributable to Tarena International ordinary shareholders is allocated between ordinary shares and other participating securities based on participating rights in undistributed earnings. Tarena Internationals Series A convertible redeemable preferred shares, Series B convertible redeemable preferred shares and Series C convertible redeemable preferred shares are participating securities since the holders of these securities participate in dividends on the same basis as ordinary shareholders. These participating securities are not included in the computation of basic loss per ordinary share in periods when the Company reports net loss, because these participating security holders have no obligation to share in the losses of Tarena International based on the contractual rights and obligations of these participating securities.
F-18
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(s) | Earnings (loss) per share (continued) |
Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to Tarena International ordinary shareholders as adjusted for the effect of dilutive ordinary share equivalents, if any, by the weighted average number of ordinary and dilutive ordinary share equivalents outstanding during the year. Ordinary share equivalents include the ordinary shares issuable upon the exercise of the outstanding share options (using the treasury stock method) and conversion of convertible redeemable preferred shares (using the as-if-converted method). Potential dilutive securities are not included in the calculation of diluted earnings (loss) per share if the impact is anti-dilutive.
(t) | Segment reporting |
The Company uses the management approach in determining its operating segments. The management approach considers the internal reporting used by the Companys chief operating decision maker for making decisions about the allocation of resources to and the assessment of the performance of the segments of the Company. Management has determined that the Company has one operating segment, which is the training segment. All of the Companys operations and customers are located in the PRC. Consequently, no geographic information is presented.
(u) | Fair value measurements |
The Company applies the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring and nonrecurring basis. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. ASC Topic 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
| Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| Level 3 inputs are unobservable inputs for the asset or liability. |
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. In situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects managements own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by management based on the best information available in the circumstances.
F-19
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(u) | Fair value measurements (continued) |
The carrying amounts of accounts receivable, housing loans to employees, accounts payable, amounts due to a related party, accrued expenses and other current liabilities as of December 31, 2012 and 2013 approximate their fair value.
The carrying amounts of non-current time deposits as of December 31, 2012 and 2013 approximates their fair value since the interest rates of the time deposits did not differ significantly from the market interest rates for similar types of time deposits.
The fair values of time deposits as of December 31, 2012 and 2013 are categorized as Level 2 measurement.
(v) | Recently issued accounting standards |
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). The standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification (e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic pension cost), companies would instead cross reference to the related footnote for additional information (e.g., the pension footnote). ASU 2013-02 is effective for interim and annual reporting periods beginning after December 15, 2012. The Company adopted the new standard on January 1, 2013.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists . ASU 2013-11 requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The new standard is to be applied prospectively but retrospective application is permitted. The adoption is not expected to have a material impact on the Companys consolidated financial statements.
3 | ACCOUNTS RECEIVABLE |
Accounts receivable consists of the following:
December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
Accounts receivable: |
||||||||
Gross |
20,937,274 | 18,859,182 | ||||||
Unearned interest |
(2,647,645 | ) | (1,139,050 | ) | ||||
|
|
|
|
|||||
Total accounts receivable |
18,289,629 | 17,720,132 | ||||||
Less: allowance for doubtful accounts |
(1,306,306 | ) | (2,303,029 | ) | ||||
|
|
|
|
|||||
Accounts receivable, net |
16,983,323 | 15,417,103 | ||||||
|
|
|
|
F-20
3 | ACCOUNTS RECEIVABLE (CONTINUED) |
The classification of accounts receivable is as follows:
December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
Accounts receivable, net current portion |
14,315,529 | 15,001,222 | ||||||
Accounts receivable, net non-current portion |
2,667,794 | 415,881 | ||||||
|
|
|
|
|||||
Total accounts receivable, net |
16,983,323 | 15,417,103 | ||||||
|
|
|
|
The movements of the allowance for doubtful accounts are as follows:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Balance at the beginning of the year |
465,427 | 882,972 | 1,306,306 | |||||||||
Additions charged to bad debt expense |
384,011 | 419,383 | 941,065 | |||||||||
Foreign currency translation adjustment |
33,534 | 3,951 | 55,658 | |||||||||
|
|
|
|
|
|
|||||||
Balance at the end of the year |
882,972 | 1,306,306 | 2,303,029 | |||||||||
|
|
|
|
|
|
The aging analysis of our accounts receivable is as follows:
As of December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
Aging: |
||||||||
current |
15,250,127 | 11,032,162 | ||||||
1-3 months past due |
765,705 | 2,583,817 | ||||||
4-6 months past due |
631,049 | 1,428,159 | ||||||
7-12 months past due |
950,782 | 1,454,967 | ||||||
greater than one year past due |
691,966 | 1,221,027 | ||||||
|
|
|
|
|||||
Total accounts receivable |
18,289,629 | 17,720,132 | ||||||
|
|
|
|
4 | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets consist of the following:
December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
Prepaid expenses and other current assets: |
||||||||
Prepaid rental expenses |
986,309 | 1,451,388 | ||||||
Prepaid advertising expenses |
484,961 | 638,143 | ||||||
Staff advances (a) |
412,019 | 164,896 | ||||||
Housing loans made to employees (b) |
681,613 | 345,126 | ||||||
Others (c) |
715,675 | 897,779 | ||||||
|
|
|
|
|||||
Total prepaid expenses and other current assets |
3,280,577 | 3,497,332 | ||||||
|
|
|
|
(a) | Staff advances are provided to staff for traveling and related expenses and are expensed when incurred. |
(b) | The Company provided one-year housing loans to the employees to help them finance their purchase of apartments. |
(c) | Others mainly represent textbooks and other miscellaneous prepaid expenses. |
F-21
5 | PROPERTY AND EQUIPMENT, NET |
Property and equipment consists of the following:
December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
Furniture |
433,621 | 760,434 | ||||||
Office equipment |
12,744,195 | 19,249,724 | ||||||
Leasehold improvements |
2,308,813 | 4,300,909 | ||||||
|
|
|
|
|||||
Total property and equipment |
15,486,629 | 24,311,067 | ||||||
Less: accumulated depreciation |
(7,314,906 | ) | (11,505,500 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
8,171,723 | 12,805,567 | ||||||
|
|
|
|
Depreciation expense for property and equipment was allocated to the following:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Cost of revenues |
989,027 | 2,033,006 | 4,001,726 | |||||||||
Selling and marketing expenses |
79,305 | 128,527 | 278,094 | |||||||||
General and administrative expenses |
97,690 | 196,233 | 347,904 | |||||||||
Research and development expenses |
67,810 | 68,422 | 26,190 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,233,832 | 2,426,188 | 4,653,914 | |||||||||
|
|
|
|
|
|
6 | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
VAT and other tax payables |
802,370 | 1,250,544 | ||||||
Accrued payroll and employee benefits |
1,813,823 | 3,280,317 | ||||||
Others |
592,702 | 2,086,697 | ||||||
|
|
|
|
|||||
Total |
3,208,895 | 6,617,558 | ||||||
|
|
|
|
Others mainly represent accrual for communication expenses, postal expenses and other miscellaneous expenses.
7 | NET REVENUES |
Net revenues consist of the following:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Tuition fee |
25,796,897 | 57,559,681 | 92,927,773 | |||||||||
Certification service fee |
631,043 | 1,177,284 | 2,001,705 | |||||||||
Others |
391,347 | 420,273 | 897,862 | |||||||||
Business taxes and surcharges |
(1,078,390 | ) | (2,336,957 | ) | (2,993,680 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
25,740,897 | 56,820,281 | 92,833,660 | |||||||||
|
|
|
|
|
|
Others mainly represent miscellaneous fees, including franchise fee and guarantee fee (see note 9(b)).
F-22
8 | INCOME TAXES |
Under the current laws of the Cayman Islands, Tarena International is not subject to tax on its income or capital gains. For the period from its inception on October 22, 2012 to December 31, 2013, Tarena HK did not have any assessable profits arising in or derived from HK SAR. Tarena Internationals PRC subsidiaries and consolidated VIEs file separate tax returns in the PRC. Effective from January 1, 2008, the PRC statutory income tax rate is 25% according to the Corporate Income Tax (CIT) Law which was passed by the National Peoples Congress on March 16, 2007.
Under the CIT Law, entities that qualify as Advanced and New Technology Enterprise (ANTE) are entitled to a preferential income tax rate of 15%. In 2009, the WOFE qualified as an ANTE, which entitled it to the preferential income tax rate of 15% from January 1, 2009 to December 31, 2011. In 2012, the WOFE renewed its ANTE qualification, which entitled it to the preferential income tax rate of 15% from January 1, 2012 to December 31, 2014.
Tarena Software Technology (Hangzhou) Co., Ltd. was established in 2013 and qualified as an eligible software enterprise. As a result of this qualification, it is entitled to a tax holiday of a two-year full exemption followed by a three-year 50% exemption, commencing from the year in which its taxable income is greater than zero.
Certain Tarena Internationals subsidiaries and branches qualified as Small Profit Enterprises in 2011 and 2012, and therefore are subject to the preferential income tax rate of 20%.
According to the approvals from the tax authorities in certain localities in the PRC, Tarena Internationals subsidiaries and consolidated VIEs that are based in these localities are required to use the deemed profit method to determine their income tax. Under the deemed profit method, these subsidiaries are subject to income tax at 25% on its deemed profit which is calculated based on revenues less deemed expenses equal to 85% to 90% of revenues.
The components of income before income taxes are as follows:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
PRC |
3,327,307 | 11,773,448 | 16,533,265 | |||||||||
Hong Kong |
| (280 | ) | (182,447 | ) | |||||||
Cayman Islands |
(2,487,510 | ) | (1,587 | ) | (32,461 | ) | ||||||
|
|
|
|
|
|
|||||||
Total income before income taxes |
839,797 | 11,771,581 | 16,318,357 | |||||||||
|
|
|
|
|
|
Income tax expense consists of the following:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Current income tax expense |
524,157 | 2,240,301 | 3,323,591 | |||||||||
Deferred income tax benefit |
(385,042 | ) | (21,191 | ) | (1,052,265 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
139,115 | 2,219,110 | 2,271,326 | |||||||||
|
|
|
|
|
|
F-23
8 | INCOME TAXES (CONTINUED) |
The actual income tax expense reported in the consolidated statements of comprehensive income for each of the years ended December 31, 2011, 2012 and 2013 differs from the amount computed by applying the PRC statutory income tax rate to income before income taxes due to the following:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
PRC statutory income tax rate |
25.0 | % | 25.0 | % | 25.0 | % | ||||||
Increase (decrease) in effective income tax rate resulting from: |
||||||||||||
Non-PRC entity not subject to income taxes (a) |
74.1 | % | 0.0 | % | 0.3 | % | ||||||
Research and development bonus deduction |
| (2.1 | %) | (3.3 | %) | |||||||
Non-deductible selling, general and administrative expenses |
21.0 | % | 1.8 | % | 1.6 | % | ||||||
Preferential tax rates |
(1.2 | %) | (5.6 | %) | (9.6 | %) | ||||||
Change in valuation allowance |
(49.0 | %) | 2.6 | % | (0.9 | %) | ||||||
Deemed profit method differential (b) |
(38.3 | %) | (2.9 | %) | (0.2 | %) | ||||||
Tax rate differential |
(15.9 | %) | 0.0 | % | 0.8 | % | ||||||
Others |
0.9 | % | 0.1 | % | 0.2 | % | ||||||
|
|
|
|
|
|
|||||||
Actual income tax expense |
16.6 | % | 18.9 | % | 13.9 | % | ||||||
|
|
|
|
|
|
Significant variances year over year as shown above are further explained as follows:
(a) | In 2011, in connection with the issuance of Series C convertible redeemable preferred shares, Tarena International incurred compensation expenses in the amount of US$2,484,493. See note 10 (a). |
(b) | The decrease of the effect of deemed profit method differential in 2012 is primarily because profit generated by the entities subject to the deemed profit method constituted a smaller portion of the total income before income taxes for the year ended December 31, 2012 compared with that of 2011. |
The principal components of deferred income tax assets are as follows:
December 31, | ||||||||
2012 | 2013 | |||||||
US$ | US$ | |||||||
Deferred income tax assets: |
||||||||
Accounts receivable |
816,529 | 966,148 | ||||||
Tax loss carry forwards |
212,674 | 548,571 | ||||||
Advertising expense |
47,227 | 529,063 | ||||||
Accrued expenses and other current liabilities |
117,985 | 100,548 | ||||||
|
|
|
|
|||||
Total deferred income tax assets |
1,194,415 | 2,144,330 | ||||||
Valuation allowance |
(731,828 | ) | (598,117 | ) | ||||
|
|
|
|
|||||
Deferred income tax assets, net |
462,587 | 1,546,213 | ||||||
|
|
|
|
F-24
8 | INCOME TAXES (CONTINUED) |
The movements of the valuation allowance are as follows:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Balance at the beginning of the year |
806,135 | 424,967 | 731,828 | |||||||||
Additions of valuation allowance |
286,034 | 427,438 | 525,061 | |||||||||
Reduction of valuation allowance |
(697,906 | ) | (122,920 | ) | (678,916 | ) | ||||||
Foreign currency translation adjustment |
30,704 | 2,343 | 20,144 | |||||||||
|
|
|
|
|
|
|||||||
Balance at the end of the year |
424,967 | 731,828 | 598,117 | |||||||||
|
|
|
|
|
|
The valuation allowance as of December 31, 2012 and 2013 was primarily provided for the deferred income tax assets of certain Tarena Internationals PRC subsidiaries and consolidated VIEs, which were at cumulative loss positions. In assessing the realization of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or utilizable. Management considers projected future taxable income and tax planning strategies in making this assessment. As of December 31, 2013, the Company had tax losses carryforwards of US$2,907,718. Tax losses of US$34,684, US$101,618, US$318,056 and US$2,453,360 will expire, if unused, by 2015, 2016, 2017 and 2018, respectively.
The CIT Law and its implementation rules impose a withholding income tax at 10%, unless reduced by a tax treaty or arrangement, on the amount of dividends distributed by a PRC-resident enterprise to its immediate holding company outside the PRC that are related to earnings accumulated beginning on January 1, 2008. Dividends relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding income tax.
Due to the plan to indefinitely reinvest its earnings in the PRC, the Company has not provided for deferred income tax liabilities on undistributed earnings of US$15,644,773 and US$36,072,588 as of December 31, 2012 and 2013, respectively. It is not practicable to estimate the unrecognized deferred income tax liabilities thereof.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended December 31, 2011, 2012 and 2013 is as follows:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Balance at beginning of year |
97,411 | 518,024 | 1,700,106 | |||||||||
Increase related to current year tax positions |
505,179 | 1,600,020 | 2,843,585 | |||||||||
Settlement |
(99,848 | ) | (424,220 | ) | (1,539,717 | ) | ||||||
Foreign currency translation adjustment |
15,282 | 6,282 | 73,719 | |||||||||
|
|
|
|
|
|
|||||||
Balance at end of year |
518,024 | 1,700,106 | 3,077,693 | |||||||||
|
|
|
|
|
|
US$1,454,148 and US$2,965,958 of unrecognized tax benefits as of December 31, 2012 and 2013, if recognized, would affect the effective tax rate. No interest and penalty expenses were recorded for the years ended December 31, 2011, 2012 and 2013. US$1,292,326 and US$1,613,832 of unrecognized tax benefits as of December 31, 2012 and 2013 were included in income taxes payable. US$182,386 and US$243,555 of unrecognized tax benefits as of December 31, 2012 and 2013 were included in other non-current liabilities. The remaining US$225,394 and US$1,220,306 unrecognized tax benefit as of December 31, 2012 and 2013,
F-25
8 | INCOME TAXES (CONTINUED) |
respectively were presented as a reduction of the deferred income tax assets for tax loss carry forwards since the uncertain tax position would reduce the tax loss carry forwards under the tax law. The unrecognized tax benefits represent the estimated income tax expenses the Company would be required to pay should its revenue for tax purposes be recognized in accordance with current PRC tax laws and regulations. Management believes that it is reasonably possible that US$2,834,138 unrecognized tax benefits as of December 31, 2013 will be recognized in the next twelve months as a result of such revenue being reported in the income tax filing during the next twelve months.
According to the PRC Tax Administration and Collection Law, the statute of limitation is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitation is extended to five years under special circumstances where the underpayment of taxes is more than RMB100,000. In the case of transfer pricing issues, the statute of limitation is 10 years. There is no statute of limitation in the case of tax evasion. The income tax returns of Tarena Internationals PRC subsidiaries and consolidated VIEs for the years from 2009 to 2013 are open to examination by the PRC tax authorities.
9 | RELATED PARTY TRANSACTIONS |
During the years ended December 31, 2011, 2012 and 2013, the Company entered into related party transactions with Mr. Han, Connion Capital Ltd. (Connion) and Chuanbang Business Consulting (Beijing) Co., Ltd. (Chuanbang), entities both wholly owned by Mr. Han. The significant related party transactions are summarized as follows:
Year Ended December 31, | ||||||||||||||||
2011 | 2012 | 2013 | ||||||||||||||
US$ | US$ | US$ | ||||||||||||||
Tuition fees paid under the Student Loan Program |
(a | ) | 346,503 | 7,924,903 | 8,672,904 | |||||||||||
Guarantee fee |
(b | ) | 6,087 | 70,245 | 90,490 | |||||||||||
Amounts received under the Student Loan Program |
(c | ) | (213,840 | ) | (668,652 | ) | (141,329 | ) | ||||||||
Repayment of amounts received under the Student Loan Program |
(c | ) | 50,563 | 745,918 | 232,879 | |||||||||||
Advances from Chuanbang |
(d | ) | | (308,658 | ) | (153,386 | ) | |||||||||
Repayment of advances from Chuanbang |
(d | ) | | 308,658 | 153,386 | |||||||||||
Cash collection service fee |
(e | ) | | | 64,586 | |||||||||||
Issuance cost of Series C convertible redeemable preferred shares paid by Connion on behalf of the Company |
(f | ) | 150,000 | | |
The balances due to a related party are summarized as follows:
December 31, | ||||||||||||
2012 | 2013 | |||||||||||
US$ | US$ | |||||||||||
Amounts due to Mr. Han |
(c | ) | (90,242 | ) | | |||||||
|
|
|
|
|||||||||
Amounts due to a related party |
(90,242 | ) | | |||||||||
|
|
|
|
Notes:
(a) |
Starting from the second half of 2011, the Company began to refer its students who need financial assistance for the payment of their tuition fees to Chuanbang. Chuanbang is a person-to-person or a peer-to-peer (P2P) lending intermediary that assists students in obtaining loans to pay for their tuition |
F-26
9 | RELATED PARTY TRANSACTIONS (CONTINUED) |
fees by identifying potential third-party individual lenders (the Student Loan Program). The third-party lenders remit cash to Mr. Han, who is a representative of Chuanbang, rather than directly to the Company, because the P2P arrangement is between Chuanbang (rather than the Company) and the third party individual lenders. As a P2P lending intermediary and pursuant to the relevant agreements between the two parties, Chuanbang is responsible for processing payments from student borrowers and forwarding those payments to individual lenders. The Company has no direct involvement in or is a party to the P2P arrangement, other than serving as the guarantor of the student loans. The role of the third-party individual lenders is to provide the students with funding of the student loans that are arranged or identified by Chuanbang. |
Under the Student Loan Program, before the training courses commence, the students entered into loan agreements with Mr. Han, a designated representative of Chuanbang, to borrow an amount equal to the total amount of the tuition fees. The repayment term of the loan agreements ranges between 12 and 20 months. Shortly thereafter, Mr. Han assigned such loan agreements to third party individual lenders (including certain employees and a director of the Company), with the Company serving as the guarantor of the loan amount. The terms of the assignment agreements between Mr. Han and the third party individual lenders are identical to the terms of the loan agreements between the students and Mr. Han, except that the interest rate charged to the students by Mr. Han is higher than the interest rate charged to Mr. Han by the third party individual lenders. The interest rate differential represents the compensation to Mr. Han for the estimated costs he incurred to originate and will incur to service the student loans as well as the amount payable to the Company for guaranteeing the student loans. Upon the receipt of the cash from the third party individual lenders, Mr. Han remits the cash to the Company on behalf of students for the payment of the students tuition fees. In substance, the Company has agreed to guarantee amounts borrowed by the students (indirectly from third-party individual lenders through Mr. Han) to purchase the training services of the Company.
The terms of the guarantee coincide with the terms of loan agreements, which range between 12 and 20 months. If the students default on a payment, the Company would have to perform under the guarantee. However, the Company would have recourse against the students. The maximum amount of undiscounted payments the Company would have to make in the event of default is US$7,367,827 and US$4,448,162 as of December 31, 2012 and 2013, respectively. Upon the inception of the guarantee, the Company recognized a liability based on the estimated fair value of the guarantee. The liability is amortized over the term of the guarantee. The balance of the liability, which is included in accrued expenses and other current liabilities, was US$93,816 and US$18,313 as of December 31, 2012 and 2013, respectively. The estimated amount of the loss contingency related to the guarantee was immaterial as of December 31, 2012 and 2013. The Company paid US$78,931 in the fourth quarter of 2013 to discharge its guarantee obligations, which represented cumulative default of repayments by students as of December 31, 2013.
Under the Student Loan Program, upon the receipt of cash from third party individual lenders, Mr. Han remitted US$346,503, US$7,924,903 and US$8,672,904 to the Company on behalf of students for the payment of the students tuition fees during the years ended December 31, 2011, 2012 and 2013, respectively.
(b) | Under the Student Loan Program, the Company allocates the total consideration between the fair value of the tuition service and the loan guarantee. Subsequent to the initial recognition, the loan guarantee liability is recognized as guarantee fee revenue over the term of the guarantee on a straight-line basis. US$6,087, US$70,245 and US$90,490 was recognized as guarantee fee revenue and included in other revenues for the years ended December 31, 2011, 2012 and 2013, respectively. |
(c) | Under the Student Loan Program, the Company is not required to service the loans indirectly obtained by the students from the third party individual lenders. However, certain students remitted payments to the Company directly instead to Mr. Han. During the years ended December 31, 2011, 2012 and 2013, the Company received cash repayments from students in the amount of US$213,840, US$668,652 and US$141,329. The amount received by the Company on behalf of Mr. Han is recorded in amounts due to Mr. Han. The Company repaid US$50,563, US$745,918 and US$232,879 to Mr. Han during the years ended December 31, 2011, 2012 and 2013, respectively. |
F-27
9 | RELATED PARTY TRANSACTIONS (CONTINUED) |
(d) | Represents advance for prepayment of services received from Chuanbang. During the years ended December 31, 2012 and 2013, the Company received advances in the amount of US$308,658 and US$153,386, respectively from Chuanbang. The Company repaid advances of US$308,658 and US$153,386 during the years ended December 31, 2012 and 2013, respectively, as the services were no longer required. |
(e) | Pursuant to an agreement between Chuanbang and the Company, beginning August 2013, Chuanbang provides cash collection service on the Companys accounts receivable. The fee for the service is calculated based on 6%~8% of the amount collected. Employees of Chuanbang include former employees of the Company who worked in the credit evaluation department. Chuanbang also provides similar cash collection service to financial institutions in the PRC. The cash collection service fee was US$64,586 for the year ended December 31, 2013. |
(f) | Connion paid US$150,000 of issuance cost of Series C convertible redeemable preferred shares in 2011 on behalf of the Company. The Company repaid the amount in cash to Connion on March 30, 2012. |
10 | ORDINARY SHARES AND STATUTORY RESERVE |
(a) | Ordinary shares |
On October 8, 2003, Tarena International was established with authorized share capital of US$150,000, or 90,000,000 ordinary shares with a par value of US$0.001 (being retroactively adjusted to reflect the effect of the share split) and 60,000,000 preferred shares with a par value of US$0.001 (being retroactively adjusted to reflect the effect of the share split).
On December 16, 2008, the Board of Directors of Tarena International approved a 10:1 share split, which increased (i) the total number of authorized ordinary shares of 9,000,000, and issued and outstanding ordinary shares of 1,358,000, to 90,000,000 and 13,580,000, respectively; and (ii) the total number of authorized preferred shares of 6,000,000, and issued and outstanding preferred shares of 1,589,125, to 60,000,000 and 15,891,250, respectively. All applicable share and per share amounts in the accompanying consolidated financial statements have been retroactively adjusted to reflect the effect of the share split.
On September 6, 2011, in connection with the issuance of Series C convertible redeemable preferred shares, the Company repurchased 2,728,713 of its ordinary shares from Connion, for a total consideration of US$4,993,545, or US$1.83 per share, and cancelled the shares on the same date. The repurchase price of US$1.83 per share was equal to the issuance price of the Series C convertible redeemable preferred shares. The excess between the repurchase price of the ordinary shares and the fair value of the ordinary shares amounted to US$2,484,493, and was recognized as additional compensation cost in the consolidated statements of comprehensive income.
On April 9, 2013, IDG Technology Venture Investments, LP (IDG), the Series A convertible redeemable preferred shareholder, entered into a series of agreements with Mr. Han, Connion, Techedu Limited, a company incorporated in the British Virgin Islands (BVI) with limited liability and wholly owned by Mr. Han, and GF Tarena Limited, a third party company incorporated with limited liability under the law of the BVI, pursuant to which IDG sold 1,146,059 and 229,212 of its Series A convertible redeemable preferred shares to Techedu Limited and GF Tarena Limited for a consideration of US$5 million and US$1 million, respectively, or US$4.3628 per share. At the same time, Connion sold 916,848 of its ordinary shares to GF Tarena Limited for a consideration of US$4 million, or US$4.3628 per share. The 1,146,059 Series A convertible redeemable preferred shares purchased by Techedu Limited and 229,212 Series A convertible redeemable preferred shares purchased by GF Tarena Limited were converted to ordinary shares on December 10, 2013. To facilitate the purchase of the Series A convertible redeemable preferred shares, Techedu Limited borrowed a loan in the amount of US$5 million from GF Tarena Limited on April 9, 2013, with an annual interest rate of 19% for a period of 30 months.
F-28
10 | ORDINARY SHARES AND STATUTORY RESERVE (CONTINUED) |
(b) | Statutory reserves |
Under PRC rules and regulations, Tarena Internationals PRC subsidiaries and consolidated VIEs (the PRC Entities) are required to appropriate 10% of their net profit, as determined in accordance with PRC accounting rules and regulations, to a statutory surplus reserve until the reserve balance reaches 50% of their registered capital. In addition, private schools (held by the PRC Entities) which require reasonable returns are required to appropriate 25% of their net profit, as determined in accordance with PRC accounting rules and regulations, to a statutory development fund, whereas in the case of private schools which do not require reasonable return, 25% of the annual increase of their net assets. The appropriation to these statutory reserves must be made before distribution of dividends to Tarena International can be made.
For the years ended December 31, 2011, 2012 and 2013, the PRC Entities made appropriations to the statutory reserves of US$192,933, US$1,236,843 and US$1,972,313, respectively. As of December 31, 2012 and 2013, the accumulated balance of the statutory reserves was US$1,702,528 and US$3,674,841, respectively.
11 | PREFERRED SHARES |
Series A convertible redeemable preferred shares
On January 16, 2004, pursuant to the Series A convertible redeemable preferred shares purchase agreements (Series A Purchase Agreement), Tarena International issued 8,571,430 Series A convertible redeemable preferred shares to a third party investor for a total consideration of US$500,000 or US$0.05833 per share (Series A Original Issuance Price) (being retroactively adjusted to reflect the effect of the share split).
The Company determined that there was no embedded beneficial conversion feature attributable to the Series A convertible redeemable preferred shares at the commitment date since the initial conversion price of the Series A convertible redeemable preferred shares was greater than the estimated fair value of the Companys ordinary shares as of January 16, 2004. The estimated fair value of the underlying ordinary shares on January 16, 2004 was determined by management based on a retrospective valuation with the assistance of American Appraisal China Limited (American Appraisal), an independent valuation firm, using an income approach which requires the estimation of future cash flows and the application of an appropriate discount rate with reference to comparable listed companies engaged in a similar industry to convert such future cash flows to a single present value.
The significant terms of Series A convertible redeemable preferred shares are as follows:
(i) | Conversion |
The holders of Series A convertible redeemable preferred shares have the right to convert all or any portion of their holdings into ordinary shares at a rate of one-for-one at any time, subject to a contingent conversion price adjustment if there are additional ordinary shares issued or deemed to be issued, as defined in Tarena Internationals Memorandum and Articles of Association, at a price lower than the Series A Original Issuance Price. In addition, each Series A Preferred Share is automatically converted into ordinary shares upon the consummation of a Qualified Public Offering, as defined in the Series A Purchase Agreement.
The contingent conversion price adjustment may provide the holders of the Series A convertible redeemable preferred shares with a beneficial conversion feature. However, any such beneficial conversion feature relating to the conversion price adjustment, if any, is recognized when the contingency is resolved.
F-29
11 | PREFERRED SHARES (CONTINUED) |
Series A convertible redeemable preferred shares (continued)
(ii) | Voting |
The holders of Series A convertible redeemable preferred shares have voting rights equivalent to the ordinary shareholders on an if-converted basis.
(iii) | Dividends |
Any dividend declared and paid on ordinary shares shall be also declared and paid in respect of the Series A convertible redeemable preferred shares as if all such Series A convertible redeemable preferred shares has been converted to ordinary shares.
(iv) | Liquidation preference |
The liquidation preference of the holders of Series A convertible redeemable preferred shares as of December 31, 2013 is as follows:
In the event of any liquidation, dissolution, or winding up of the Company, the proceeds shall be distributed according to the following sequence: (i) first to the holders of the Series C convertible redeemable preferred shares at 150% of the Series C Original Issuance Price, plus declared but unpaid dividends on each share of Series C convertible redeemable preferred shares; (ii) second to the holders of Series B convertible redeemable preferred shares at 150% of the Series B Original Issuance Price, plus declared but unpaid dividends on each share of Series B convertible redeemable preferred shares, (iii) third to the holders of Series A convertible redeemable preferred shares at 100% of the Series A Original Issuance Price, plus declared but unpaid dividends on each share of Series A convertible redeemable preferred shares. The remaining assets of the Company, if any, shall be distributed pro rata to the holders of Series C convertible redeemable preferred shares, Series B convertible redeemable preferred shares, Series A convertible redeemable preferred shares and ordinary shares on an if-converted basis.
From the date of September 25, 2008 to August 11, 2011 (the date of the issuance of Series C convertible redeemable preferred shares), the liquidation preference of the holders of Series A convertible redeemable preferred shares was as follows:
In the event of any liquidation, dissolution, or winding up of the Company, the proceeds shall be distributed according to the following sequence: (i) first to the holders of the Series B convertible redeemable preferred shares at 150% of the Series B Original Issuance Price, plus declared but unpaid dividends on each share of Series B convertible redeemable preferred shares; (ii) second to the holders of Series A convertible redeemable preferred shares at 100% of the Series A Original Issuance Price, plus declared but unpaid dividends on each share of Series A convertible redeemable preferred shares. The remaining assets of the Company, if any, shall be distributed pro rata to the holders of Series B convertible redeemable preferred shares, Series A convertible redeemable preferred shares and ordinary shares on an if-converted basis.
From the date of its issuance (January 16, 2004) to September 25, 2008 (the date of the issuance of Series B convertible redeemable preferred shares), the liquidation preference of the holders of Series A convertible redeemable preferred shares was as follows:
In the event of any liquidation, dissolution, or winding up of the Company, the holders of the outstanding Series A convertible redeemable preferred shares shall be entitled to receive, prior and in preference to any distribution of any of the assets of Tarena International to the holders of the ordinary shares by reason of their ownership of such shares, an amount equal to the Series A Original Issuance Price plus dividends declared but unpaid on each share of Series A convertible redeemable preferred shares. The remaining assets of the Company, if any, shall be distributed pro rata to the holders of
F-30
11 | PREFERRED SHARES (CONTINUED) |
Series A convertible redeemable preferred shares (continued)
(iv) | Liquidation preference (continued) |
ordinary shares and Series A convertible redeemable preferred shares then outstanding, based on the number of ordinary shares then held by each shareholder on an if-converted basis.
(v) | Drag-along rights |
Holders of a majority of the Series A convertible redeemable preferred shares have a drag-along right whereby they can require the ordinary shareholders to approve a third-party offer to directly or indirectly purchase all, or substantial all, of the equity interests or assets of the Company, provided that the transaction shall occur on or after the fifth anniversary of the closing of the issuance of the Series A convertible redeemable preferred shares or the transaction shall be at a price per share of not less than US$0.5833 per share (being retroactively adjusted to reflect the effect of the share split). Triggering of this drag-along right results in a deemed liquidation of the Company at the option of a majority of the holders of Series A convertible redeemable preferred shares with a required distribution of the transaction proceeds in accordance with the Companys Memorandum and Articles of Association.
Consequently, the Series A convertible redeemable preferred shares are classified outside of permanent equity.
Series B convertible redeemable preferred shares
On September 25, 2008, pursuant to Series B convertible redeemable preferred shares purchase agreement, Tarena International issued 5,630,630 Series B convertible redeemable preferred shares to a third party investor for a total consideration of US$5 million or US$0.888 per share (Series B Original Issuance Price) (being retroactively adjusted to reflect the effect of the share split). On the same date, an outstanding US$1.5 million short term borrowing was exchanged for 1,689,190 shares of Series B convertible redeemable preferred shares (being retroactively adjusted to reflect the effect of the share split).
The Company determined that there was no embedded beneficial conversion feature attributable to the Series B convertible redeemable preferred shares at the commitment date since the initial conversion price of the Series B convertible redeemable preferred shares was greater than the estimated fair value of the Companys ordinary shares as of September 25, 2008. The estimated fair value of the underlying ordinary shares on September 25, 2008 was determined by management based on a retrospective valuation with the assistance of American Appraisal, using an income approach which requires the estimation of future cash flows and the application of an appropriate discount rate with reference to comparable listed companies engaged in a similar industry to convert such future cash flows to a single present value.
The significant terms of Series B convertible redeemable preferred shares are as follows:
(i) | Conversion |
The holders of Series B convertible redeemable preferred shares have the right to convert all or any portion of their holdings into ordinary shares at a rate of one-for-one at any time, subject to a contingent conversion price adjustment if there are additional ordinary shares issued or deemed to be issued, as defined in Tarena Internationals Memorandum and Articles of Association, at a price lower than the Series B Original Issuance Price. In addition, each Series B convertible redeemable preferred share is automatically converted into ordinary shares upon the written consent of the holders of more than 45% of the then outstanding Series B convertible redeemable preferred shares and the holders of more than 45% of the then outstanding Series A convertible redeemable preferred shares or the consummation of a Qualified Public Offering, as defined in the Series B convertible redeemable preferred shares purchase agreement.
F-31
11 | PREFERRED SHARES (CONTINUED) |
Series B convertible redeemable preferred shares (continued)
(i) | Conversion (continued) |
The contingent conversion price adjustment may provide the holders of the Series B convertible redeemable preferred shares with a beneficial conversion feature. However, any such beneficial conversion feature relating to the conversion price adjustment, if any, is recognized when the contingency is resolved.
(ii) | Voting |
The holders of Series B convertible redeemable preferred shares have voting rights equivalent to the ordinary shareholders on an if-converted basis.
(iii) | Dividends |
Any dividend declared and paid on ordinary shares shall be also declared and paid in respect of the Series B convertible redeemable preferred shares as if all such Series B convertible redeemable preferred shares have been converted to ordinary shares.
(iv) | Liquidation preference |
The liquidation preference of the holders of Series B convertible redeemable preferred shares as of December 31, 2013 is as follows:
In the event of any liquidation, dissolution, or winding up of the Company, the proceeds shall be distributed according to the following sequence: (i) first to the holders of the Series C convertible redeemable preferred shares at 150% of the Series C Original Issuance Price, plus declared but unpaid dividends on each share of Series C convertible redeemable preferred shares; (ii) second to the holders of Series B convertible redeemable preferred shares at 150% of the Series B Original Issuance Price, plus declared but unpaid dividends on each share of Series B convertible redeemable preferred shares, (iii) third to the holders of Series A convertible redeemable preferred shares at 100% of the Series A Original Issuance Price, plus declared but unpaid dividends on each share of Series A convertible redeemable preferred shares. The remaining assets of the Company, if any, shall be distributed pro rata to the holders of Series C convertible redeemable preferred shares, Series B convertible redeemable preferred shares, Series A convertible redeemable preferred shares and ordinary shares on an if-converted basis.
From the date of September 25, 2008 to August 11, 2011 (the date of the issuance of Series C convertible redeemable preferred shares), the liquidation preference of the holders of Series B convertible redeemable preferred shares was as follows:
In the event of any liquidation, dissolution, or winding up of the Company, the proceeds shall be distributed according to the following sequence: (i) first to the holders of the Series B convertible redeemable preferred shares at 150% of the Series B Original Issuance Price, plus declared but unpaid dividends on each share of Series B convertible redeemable preferred shares; (ii) second to the holders of Series A convertible redeemable preferred shares at 100% of the Series A Original Issuance Price, plus declared but unpaid dividends on each share of Series A convertible redeemable preferred shares. The remaining assets of the Company, if any, shall be distributed pro rata to the holders of Series B convertible redeemable preferred shares, Series A convertible redeemable preferred shares and ordinary shares on an if-converted basis.
F-32
11 | PREFERRED SHARES (CONTINUED) |
Series B convertible redeemable preferred shares (continued)
(v) | Redemption |
If a Qualified Initial Public Offering or a Trade Sale, as defined in the Series B convertible redeemable preferred shares purchase agreement, did not occur by December 31, 2012 (the Redemption Date), the holders of Series B convertible redeemable preferred shares had the right to request for redemption any portion of the Series B convertible redeemable preferred shares they held at a price equal to the sum of:
| an amount equal to 150% of Series B Original Issuance Price; plus, |
| an amount equal to all declared but unpaid dividends on each share of Series B convertible redeemable preferred shares; plus, |
| 10% compound interest per annum on 150% of Series B Original Issuance Price for each Series B convertible redeemable preferred share from the date of issuance to the earliest redemption date of the security. |
On August 11, 2011, in connection with the issuance of Series C convertible redeemable preferred shares, the Company and holders of Series B convertible redeemable preferred shares agreed to defer the Redemption Date until June 30, 2014.
Series C convertible redeemable preferred shares
On August 11, 2011, pursuant to the Series C convertible redeemable preferred shares purchase agreement (Series C Purchase Agreement), Tarena International issued 10,914,852 Series C convertible redeemable preferred shares to a third party investor for a total consideration of US$19,974,179 or US$1.83 per share (Series C Original Issuance Price). Total issuance cost of Series C convertible redeemable preferred shares was US$218,376.
The Company determined that there was no embedded beneficial conversion feature attributable to the Series C convertible redeemable preferred shares at the commitment date since the initial conversion price of the Series C convertible redeemable preferred shares was greater than the estimated fair value of the Companys ordinary shares as of August 11, 2011. The estimated fair value of the underlying ordinary shares on August 11, 2011 was determined by management based on a retrospective valuation with the assistance of American Appraisal, a third party valuation firm, using an income approach which requires the estimation of future cash flows and the application of an appropriate discount rate with reference to comparable listed companies engaged in a similar industry to convert such future cash flows to a single present value.
The significant terms of Series C convertible redeemable preferred shares are as follows:
(i) | Conversion |
The holders of Series C convertible redeemable preferred shares have the right to convert all or any portion of their holdings into ordinary shares at a rate of one-for-one at any time, subject to a contingent conversion price adjustment if there are additional ordinary shares issued or deemed to be issued, as defined in Tarena Internationals Memorandum and Articles of Association, at a price lower than the Series C Original Issuance Price. In addition, each Series C Preferred Share is automatically converted into ordinary shares upon the closing of a Qualified Public Offering, as defined in the Memorandum and Articles of Association or the written consent of 67% of the holders of the Series C convertible redeemable preferred shares as well as the written consent of the holders of more than 45% of the then outstanding Series B convertible redeemable preferred shares and the written consent of the
F-33
11 | PREFERRED SHARES (CONTINUED) |
Series C convertible redeemable preferred shares (continued)
(i) | Conversion (continued) |
holders of more than 45% of the then outstanding Series A convertible redeemable preferred shares for conversion.
The contingent conversion price adjustments may provide the holders of the Series C convertible redeemable preferred shares with a beneficial conversion feature. However, any such beneficial conversion feature relating to the conversion price adjustment, is recognized when the contingency is resolved.
(ii) | Voting |
The holders of Series C convertible redeemable preferred shares have voting rights equivalent to the ordinary shareholders on an if-converted basis.
(iii) | Dividends |
The board of directors of Tarena International may approve the payment of dividends at their discretion to the holders of Series C convertible redeemable preferred shares. Any dividend declared and paid on ordinary shares shall be also declared and paid in respect of the Series C convertible redeemable preferred shares as if all such Series C convertible redeemable preferred shares have been converted to ordinary shares.
(iv) | Liquidation preference |
The liquidation preference of the holders of Series C convertible redeemable preferred shares is as follows:
In the event of liquidation, dissolution, or winding up of the Company, the proceeds shall be distributed according to the following sequence: (i) first to the holders of the Series C convertible redeemable preferred shares at 150% of the Series C Original Issuance Price, plus declared but unpaid dividends on each share of Series C convertible redeemable preferred shares; (ii) second to the holders of Series B convertible redeemable preferred shares at 150% of the Series B Original Issuance Price, plus declared but unpaid dividends on each share of Series B convertible redeemable preferred shares, (iii) third to the holders of Series A convertible redeemable preferred shares at 100% of the Series A Original Issuance Price, plus declared but unpaid dividends on each share of Series A convertible redeemable preferred shares. The remaining assets of the Company, if any, shall be distributed pro rata to the holders of Series C convertible redeemable preferred shares, Series B convertible redeemable preferred shares, Series A convertible redeemable preferred shares and ordinary shares on an if-converted basis.
(v) | Redemption |
If a Qualified Initial Public Offering or a Trade Sale, as defined in the Series C convertible redeemable preferred shares purchase agreement, does not occur by June 30, 2014 (the Redemption Date), the holders of the Series C convertible redeemable preferred shares have the right to request for redemption for all or a portion of the Series C convertible redeemable preferred shares they hold at a price equal to the greater of (i) an amount equal to 137.50% of the Series C Original Issuance Price, plus declared but unpaid dividends on each share of Series C convertible redeemable preferred shares; or (ii) the fair market value of the Series C convertible redeemable preferred shares as of the most recent year end, as determined by an independent appraiser mutually agreeable to the Company and the holder of the Series C convertible redeemable preferred shares.
F-34
11 | PREFERRED SHARES (CONTINUED) |
Series | C convertible redeemable preferred shares (continued) |
(v) | Redemption (continued) |
As of December 31, 2012 and 2013, the Company concluded that it was probable that the Series B and Series C convertible redeemable preferred shares will become redeemable. The Company has elected to accrete changes in the redemption value over the period from the date of issuance to the earliest redemption date using the interest method. The total accretion of Series B convertible redeemable preferred shares of US$1,867,497, US$1,804,179 and US$2,072,284 and total accretion of Series C convertible redeemable preferred shares of US$8,426,175, US$24,741,381 and US$42,287,776 were recorded as a reduction to additional paid-in capital first and then charged against accumulated deficit in the absence of additional paid-in capital for the years ended December 31, 2011, 2012 and 2013, respectively.
12 | SHARE BASED COMPENSATION |
Share options
On September 22, 2008, Tarena International adopted the 2008 Share Plan (the Plan), pursuant to which Tarena International is authorized to issue share options and other share-based awards to key employees, directors and consultants of the Company to purchase up to 6,002,020 of its ordinary shares (being retroactively adjusted to reflect the effect of the share split) under the Plan. On November 28, 2012, the Company increased the number of ordinary shares authorized for issuance under the Plan to 8,184,990 ordinary shares. Share options issued before September 22, 2008 are also administered under the Plan.
On January 1, 2011 and September 26, 2011, the board of directors of Tarena International approved the grant of options to purchase 124,000 and 1,533,020 ordinary shares of Tarena International to certain employees and directors. These options vest over a five-year period. The option holders can only exercise their vested options upon the occurrence of the earliest of (i) a qualified IPO as defined in the Plan, (ii) a liquidation event as defined in the Companys Memorandum and Articles of Association, or (iii) the five-year anniversary of the option grant date. The options have a contractual term of ten years. The fair value of Tarena Internationals ordinary shares on January 1, 2011 and September 26, 2011 was determined to be US$0.63 and US$0.83 per share, respectively.
On January 1, 2013, the board of directors of Tarena International approved the grant of options to certain employees to purchase 2,030,566 ordinary shares of Tarena International. These options vest over a four year period. The option holders can only exercise their vested options upon the occurrence of the earliest of (i) a qualified IPO as defined in the Plan, (ii) a liquidation event as defined in the Companys Memorandum and Articles of Association, or (iii) the five-year anniversary of the option grant date. The options have a contractual term of ten years.
On September 16, 2013, the board of directors of Tarena International approved the grant of options to an employee to purchase 30,000 ordinary shares of Tarena International. 25% of the options will be vested at the closing of the Companys IPO while the remaining 75% will vest over a four-year period, that can only be exercised upon the occurrence of the earliest of (i) a qualified IPO, (ii) a liquidation event, or (iii) the five-year anniversary of the option grant date. The options have a contractual term of ten years.
On September 16, 2013, the board of directors of Tarena International approved the grant of options to an officer to purchase 458,424 ordinary shares of Tarena International. If the Company undertakes any additional round of financing or any other activities to effect an increase of the total shares outstanding on a fully diluted basis before the IPO, the officer will be granted additional share options at the same exercise price. The total number of share options the officer will be granted will be equal to not less than 1% of the Companys total shares outstanding on a fully diluted basis on the date immediately preceding the closing of
F-35
12 | SHARE BASED COMPENSATION (CONTINUED) |
Share options (continued)
the Companys IPO. 25% of the options will be immediately and fully vested at the closing of the Companys IPO while the remaining 75% will vest over a four-year period, that can only be exercised upon the occurrence of the earliest of (i) a qualified IPO, (ii) a liquidation event, or (iii) the five-year anniversary of the option grant date. The options have a contractual term of ten years. The fair value of Tarena Internationals ordinary shares on January 1, 2013 and September 16, 2013 was determined to be US$3.75 and US$5.69 per share, respectively.
A summary of share options activity for the years ended December 31, 2011, 2012 and 2013 is as follows:
Number of
Share Options |
Weighted
Average Exercise Price US$ |
Weighted
Average Remaining Contractual Years |
Aggregate
Intrinsic Value US$ |
|||||||||||||
Outstanding at December 31, 2010 |
4,345,000 | 0.11 | ||||||||||||||
|
|
|||||||||||||||
Granted |
1,657,020 | 0.99 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
(158,000 | ) | 0.16 | |||||||||||||
Expired |
| | ||||||||||||||
|
|
|
|
|||||||||||||
Outstanding at December 31, 2011 |
5,844,020 | 0.36 | ||||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
(205,000 | ) | 0.06 | |||||||||||||
Expired |
| | ||||||||||||||
|
|
|
|
|||||||||||||
Outstanding at December 31, 2012 |
5,639,020 | 0.37 | ||||||||||||||
|
|
|
|
|||||||||||||
Granted |
2,518,990 | 1.83 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
(22,000 | ) | 1.83 | |||||||||||||
Expired |
| | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Outstanding at December 31, 2013 |
8,136,010 | 0.82 | 5.28 | 44,894,757 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested and expected to vest as of December 31, 2013 |
6,508,808 | 0.82 | 5.28 | 35,915,806 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable as of December 31, 2013 |
3,815,000 | 0.08 | 1.72 | 31,492,680 | ||||||||||||
|
|
|
|
|
|
|
|
The Company calculated the fair value of the share options on the grant date using the Binomial option-pricing valuation model. The assumptions used in the valuation model are summarized in the following table.
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Expected volatility |
45%-46 | % | | 52% | ||||||||
Expected dividends yield |
0 | % | | 0% | ||||||||
Exercise multiple |
2.2 | | 2.2 | |||||||||
Risk-free interest rate per annum |
3.89%-3.93 | % | | 2.27%-3.38% | ||||||||
Estimated fair value of underlying ordinary shares (per share) |
US$0.63-US$0.83 | | US$3.75-US$5.69 |
Because the Companys ordinary shares did not have a trading history at the time the options were issued, the expected volatility was based on the historical volatilities of comparable publicly traded companies engaged in the similar industry.
F-36
12 | SHARE BASED COMPENSATION (CONTINUED) |
Share options (continued)
The estimated fair value of the underlying ordinary shares on each date of grant prior to September 2013, was determined by management based on a retrospective valuation conducted by American Appraisal. The estimated fair value of the underlying ordinary shares on September 16, 2013 was determined by management based on a contemporaneous valuation conducted by American Appraisal. The Company first determined its enterprise value by using income approach, which required the estimation of future cash flows, and the application of an appropriate discount rate with reference to comparable listed companies engaged in the similar industry to convert such future cash flows to a single present value, and then allocated the enterprise value between the ordinary shares and preferred shares.
No income tax benefit was recognized in the consolidated statements of comprehensive income as the share-based compensation expense was not tax deductible.
The fair values of the options granted for the years ended December 31, 2011, 2012 and 2013 are as follows:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Weighted average grant date fair value of option per share |
0.40 | | 2.13 | |||||||||
Aggregate grant date fair value of options |
668,088 | | 5,372,463 |
As of December 31, 2013, there was approximately US$3,999,803 of total unrecognized compensation cost related to unvested share options that are not contingent upon an IPO of the Company. The unrecognized compensation costs are expected to be recognized over a weighted average period of approximately 3.71 years.
13 | LOSS PER SHARE |
Basic and diluted loss per share is calculated as follows:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Net loss attributable to ordinary shareholders for basic and diluted loss per share |
(9,592,990 | ) | (16,993,089 | ) | (30,313,029) | |||||||
Weighted average number of ordinary shares outstanding |
12,518,419 | 10,851,287 | 10,930,412 | |||||||||
Basic and diluted loss per share |
(0.77 | ) | (1.57 | ) | (2.77) |
The following table summarizes potential ordinary shares outstanding excluded from the calculation of diluted earnings per share for the years ended December 31, 2011, 2012 and 2013, because their effect is anti-dilutive:
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
Shares issuable upon exercise of share options |
5,844,020 | 5,639,020 | 8,136,010 | |||||||||
Shares issuable upon conversion of preferred shares |
26,806,102 | 26,806,102 | 25,430,831 |
F-37
14 | COMMITMENTS AND CONTINGENCIES |
(a) | Operating lease commitments |
Future minimum lease payments under non-cancelable operating lease agreements as of December 31, 2013 were as follows. The Companys leases do not contain any contingent rent payment terms.
US$ | ||||
Year ending December 31, |
||||
2014 |
9,085,166 | |||
2015 |
6,198,028 | |||
2016 |
3,868,210 | |||
2017 |
2,737,012 | |||
2018 |
1,307,011 | |||
2019 and thereafter |
3,032,375 | |||
|
|
|||
Total |
26,227,802 | |||
|
|
Gross rent expenses incurred under operating leases were US$2,613,152, US$5,494,341 and US$9,684,871 for the years ended December 31, 2011, 2012 and 2013, respectively. Sublease rental income of US$13,019, US$67,274 and US$114,361 for the years ended December 31, 2011, 2012 and 2013, respectively, were recognized as reductions of gross rental expenses.
F-38
15 | PARENT ONLY FINANCIAL INFORMATION |
The following presents condensed parent company financial information of Tarena International.
F-39
15 | PARENT ONLY FINANCIAL INFORMATION (CONTINUED) |
Condensed Statements of Comprehensive Income | ||||||||||||
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
General and administrative expenses |
(2,513,871 | ) | (83,001 | ) | (57,172 | ) | ||||||
|
|
|
|
|
|
|||||||
Operating loss |
(2,513,871 | ) | (83,001 | ) | (57,172 | ) | ||||||
Equity in income of subsidiaries |
3,188,192 | 9,554,058 | 14,079,492 | |||||||||
Interest income |
26,361 | 81,414 | 24,711 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
700,682 | 9,552,471 | 14,047,031 | |||||||||
Income tax expense |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net income |
700,682 | 9,552,471 | 14,047,031 | |||||||||
Other comprehensive income |
||||||||||||
Foreign currency translation adjustment, net of nil income tax |
240,312 | 68,415 | 1,150,824 | |||||||||
|
|
|
|
|
|
|||||||
Comprehensive Income |
940,994 | 9,620,886 | 15,197,855 | |||||||||
|
|
|
|
|
|
Condensed Statements of Cash Flows | ||||||||||||
Year Ended December 31, | ||||||||||||
2011 | 2012 | 2013 | ||||||||||
US$ | US$ | US$ | ||||||||||
Operating activities: |
||||||||||||
Net cash used in operating activities |
(2,512,153 | ) | (42,825 | ) | (3,570 | ) | ||||||
|
|
|
|
|
|
|||||||
Investing activities: |
||||||||||||
Investments made to subsidiaries |
| (14,671,162 | ) | | ||||||||
Issuance of loans made to a subsidiary |
| (3,000,000 | ) | | ||||||||
Repayment of loans from a subsidiary |
| 3,000,000 | | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
| (14,671,162 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Financing activities: |
||||||||||||
Proceeds from issuance of Series C convertible redeemable preferred shares |
19,974,179 | | | |||||||||
Repurchase of ordinary shares |
(2,509,052 | ) | | | ||||||||
Payment of issuance cost of Series C convertible redeemable preferred shares |
(68,376 | ) | (150,000 | ) | | |||||||
Payment of initial public offering costs |
| | (76,719 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) financing activities |
17,396,751 | (150,000 | ) | (76,719 | ) | |||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash |
14,884,598 | (14,863,987 | ) | (80,289 | ) | |||||||
Cash at beginning of year |
112,556 | 14,997,154 | 133,167 | |||||||||
|
|
|
|
|
|
|||||||
Cash at end of year |
14,997,154 | 133,167 | 52,878 | |||||||||
|
|
|
|
|
|
|||||||
Non-cash investing and financing activities: |
||||||||||||
Accrual of issuance cost of Series C convertible redeemable preferred shares |
150,000 | | | |||||||||
Conversion of Series A convertible redeemable preferred shares to ordinary shares |
| | 80,224 |
F-40
16 | SUBSEQUENT EVENTS |
On January 8, 2014, the Company and holders of Series B and Series C convertible redeemable preferred shares agreed to defer the Redemption Date to June 30, 2015.
Management has considered subsequent events through February 18, 2014, which was the date these consolidated financial statements were issued.
17 | PRO FORMA FINANCIAL INFORMATION |
Each of Tarena Internationals Series A, B and C convertible redeemable preferred shares is automatically converted into one ordinary share upon the consummation of a Qualified IPO. The pro forma balance sheet as of December 31, 2013 presents the financial position as if the conversion of the convertible redeemable preferred shares into ordinary shares occurred on December 31, 2013 (excluding effects of offering proceeds).
On a pro forma basis, the carrying amounts of the Series A, Series B and Series C convertible redeemable preferred shares as of December 31, 2013, in the amount of US$419,776, US$15,747,869 and US$95,211,135 respectively are included in shareholders equity under ordinary shares and additional paid-in capital.
On a pro forma basis, the effect of the conversion of such convertible redeemable preferred shares for earnings per share purpose (excluding effects of offering) is anti-dilutive for the years ended December 31, 2012 and 2013.
F-41
American Depositary Shares
Tarena International, Inc.
Representing Class A Ordinary Shares
Goldman Sachs (Asia) L.L.C. | Credit Suisse | |
Jefferies |
||
Oppenheimer & Co. |
Until , 2014 (the 25 th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Cayman Islands law does not limit the extent to which a companys articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences or committing a crime. The post-offering amended and restated articles of association that we expect to adopt to become effective upon the completion of this offering provide for indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such, except through fraud or dishonesty.
Pursuant to the form of indemnification agreements filed as Exhibit 10.2 to this Registration Statement, we will agree to indemnify our directors and officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or officer.
The Underwriting Agreement, the form of which is filed as Exhibit 1.1 to this Registration Statement, will also provide for indemnification of us and our officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, we have issued the following securities. We believe that each of the following issuances was exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act regarding transactions not involving a public offering or in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore transactions.
Purchaser |
Date of Sale or
Issuance |
Number of Securities |
Consideration |
Underwriting
Discount and Commission |
||||
Goldman Sachs Investment Partners Master Fund, L.P. |
September 6, 2011 |
5,457,426 Series C preferred
shares |
US$9,987,089.58 | Not applicable | ||||
Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. |
September 6, 2011 |
5,457,426 Series C preferred
shares |
US$9,987,089.58 | Not applicable | ||||
Certain directors, officers and employees |
August 26, 2011
to February 20, 2014 |
Options to purchase
5,834,614 ordinary shares |
Past and future services to our company | Not applicable | ||||
GF Tarena Limited |
December 10,
2013 |
229,212 ordinary shares | 229,212 Series A preferred shares | Not applicable | ||||
Techedu Limited |
December 10,
2013 |
1,146,059 ordinary shares | 1,146,059 Series A preferred shares | Not applicable |
ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) | Exhibits |
See Exhibit Index beginning on page II-7 of this registration statement.
The agreements included as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties
II-1
were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of materiality that are different from materiality under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.
We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this registration statement not misleading.
(b) | Financial Statement Schedules |
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.
ITEM 9. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(3) |
For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as |
II-2
to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
(4) | For the purpose of determining any liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Beijing, China, on February 27, 2014.
Tarena International, Inc. | ||||
By: |
/s/ Shaoyun Han |
|||
Name: | Shaoyun Han | |||
Title: | Chief executive officer |
II-4
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of Shaoyun Han and Suhai Ji as attorneys-in-fact with full power of substitution, for him or her in any and all capacities, to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended (the Securities Act), and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant (the Shares), including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1 (the Registration Statement) to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Shaoyun Han Shaoyun Han |
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | February 27, 2014 | ||
/s/ Jianguang Li |
Director |
February 27, 2014 |
||
Jianguang Li | ||||
/s/ Suhai Ji |
Chief Financial Officer (Principal Financial and Accounting Officer) |
February 27, 2014 | ||
Suhai Ji |
II-5
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of Tarena International, Inc. has signed this registration statement or amendment thereto in New York on February 27, 2014.
Authorized U.S. Representative | ||
By: |
/s/ Amy Segler |
|
Name: Amy Segler | ||
Title: Service of Process Officer
Law Debenture Corporate Services Inc. |
II-6
Tarena International, Inc.
EXHIBIT INDEX
Exhibit Number |
Description of Document |
|
1.1* | Form of Underwriting Agreement | |
3.1 | Fourth Amended and Restated Memorandum and Articles of Association of the Registrant and Amendment No. 1 to the Fourth Amended and Restated Articles of Association of the Registrant, as currently in effect | |
3.2* | Fifth Amended and Restated Memorandum and Articles of Association of the Registrant, as effective upon the completion of this offering | |
4.1* | Registrants Specimen American Depositary Receipt (included in Exhibit 4.3) | |
4.2 | Registrants Specimen Certificate for Class A ordinary shares | |
4.3* | Deposit Agreement, dated as of , 2014, among the Registrant, the depositary and holder of the American Depositary Receipts | |
4.4 | Second Amended and Restated Shareholders Agreement dated as of September 6, 2011 among the Registrant and certain shareholders of the Registrant. | |
5.1* | Opinion of Conyers Dill & Pearman (Cayman) Limited regarding the validity of the Class A ordinary shares being registered | |
8.1* | Opinion of Conyers Dill & Pearman (Cayman) Limited regarding certain Cayman Islands tax matters | |
8.2* | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding certain U.S. tax matters | |
8.3* | Opinion of Han Kun Law Offices regarding certain PRC tax matters (included in Exhibit 99.2) | |
10.1 | 2008 Share Incentive Plan, as amended on November 28, 2012 | |
10.2 | 2014 Share Incentive Plan | |
10.3 | Form of Indemnification Agreement with the Registrants directors | |
10.4 | Form of Director Service Agreement with the Registrants directors | |
10.5 | Form of Employment Agreement between the Registrant and an Executive Officer of the Registrant | |
10.6 | Amended and Restated Exclusive Business Cooperation Agreement dated November 25, 2013 between Tarena Tech and Beijing Tarena | |
10.7 | Power of Attorney dated November 25, 2013 granted to Tarena Tech by Mr. Shaoyun Han and acknowledged by Beijing Tarena | |
10.8 | Power of Attorney dated November 25, 2013 granted to Tarena Tech by Mr. Jianguang Li and acknowledged by Beijing Tarena | |
10.9 | Amended and Restated Exclusive Option Agreement dated November 25, 2013 among Tarena, Tarena Tech, Mr. Shaoyun Han and Beijing Tarena | |
10.10 | Amended and Restated Exclusive Option Agreement dated November 25, 2013 among Tarena, Tarena Tech, Mr. Jianguang Li and Beijing Tarena | |
10.11 | Amended and Restated Loan Agreement dated November 25, 2013 between Tarena Tech and Mr. Shaoyun Han in connection with Beijing Tarena | |
10.12 | Amended and Restated Loan Agreement dated November 25, 2013 between Tarena Tech and Mr. Jianguang Li in connection with Beijing Tarena | |
10.13 | Amended and Restated Share Pledge Agreement dated November 25, 2013 among Tarena Tech, Mr. Shaoyun Han and Beijing Tarena |
II-7
Exhibit Number |
Description of Document |
|
10.14 | Amended and Restated Share Pledge Agreement dated November 25, 2013 among Tarena Tech, Mr. Jianguang Li and Beijing Tarena | |
10.15 | Spousal consent letter dated November 25, 2013 signed by Ying Sun in connection with Beijing Tarena | |
10.16 | Spousal consent letter dated November 25, 2013 signed by Nan Li in connection with Beijing Tarena | |
10.17 | Amended and Restated Exclusive Business Cooperation Agreement dated November 25, 2013 between Tarena Tech and Shanghai Tarena | |
10.18 | Power of Attorney dated November 25, 2013 granted to Tarena Tech by Mr. Shaoyun Han and acknowledged by Shanghai Tarena | |
10.19 | Power of Attorney dated November 25, 2013 granted to Tarena Tech by Mr. Jianguang Li and acknowledged by Shanghai Tarena | |
10.20 | Amended and Restated Exclusive Option Agreement dated November 25, 2013 among Tarena, Tarena Tech, Mr. Shaoyun Han and Shanghai Tarena | |
10.21 | Amended and Restated Exclusive Option Agreement dated November 25, 2013 among Tarena, Tarena Tech, Mr. Jianguang Li and Shanghai Tarena | |
10.22 | Amended and Restated Loan Agreement dated November 25, 2013 between Tarena Tech and Mr. Shaoyun Han in connection with Shanghai Tarena | |
10.23 | Amended and Restated Loan Agreement dated November 25, 2013 between Tarena Tech and Mr. Jianguang Li in connection with Shanghai Tarena | |
10.24 | Amended and Restated Share Pledge Agreement dated November 25, 2013 among Tarena Tech, Mr. Shaoyun Han and Shanghai Tarena | |
10.25 | Amended and Restated Share Pledge Agreement dated November 25, 2013 among Tarena Tech, Mr. Jianguang Li and Shanghai Tarena | |
10.26 | Spousal consent letter dated November 25, 2013 signed by Ying Sun in connection with Shanghai Tarena | |
10.27 | Spousal consent letter dated November 25, 2013 signed by Nan Li in connection with Shanghai Tarena | |
21.1 | List of Subsidiaries of the Registrant | |
23.1 | Consent of KPMG Huazhen (SGP) | |
23.2* | Consent of Conyers Dill & Pearman (Cayman) Limited (included in Exhibit 5.1) | |
23.3* | Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.2) | |
23.4* | Consent of Han Kun Law Offices (included in Exhibit 99.2) | |
24.1 | Powers of Attorney (included on signature page) | |
99.1 | Code of Business Conduct and Ethics of the Registrant | |
99.2* | Opinion of Han Kun Law Offices regarding certain PRC law matters | |
99.3 | Registrants Waiver Request and Representations | |
99.4 | Consent of Yongji Sun | |
99.5 | Consent of Xiaosong Zhang | |
99.6 | Consent of Ya-Qin Zhang |
* | To be filed by amendment. |
II-8
Exhibit 3.1
THE COMPANIES LAW (AS AMENDED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
FOURTH AMENDED AND RESTATED ARTICLES OF ASSOCIATION
OF
TARENA INTERNATIONAL, INC.
(Adopted by Special Resolution of the Shareholders on August 26, 2011, with effect from
September 6, 2011)
1. | The name of the Company is: TARENA INTERNATIONAL, INC. |
2. | The Registered Office of the Company shall be offices of Trident Trust Company (Cayman) Limited, Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands, British West Indies or at such other place as the Directors may from time to time decide. |
3. | The objects for which the Company is established are as follows: |
(i) | (a) | To carry on the business of an investment company and to invest the available funds of the company or borrowed funds in things of whatsoever nature. |
(b) | To act as promoters and entrepreneurs and to carry on business as financiers, capitalists, concessionaires, retailers, wholesalers, merchants, brokers, traders, dealers, agents, importers and exporters and to undertake and carry on and execute all kinds of investment, financial, commercial, mercantile, trading and other operations. |
(c) | To carry on whether as principals, agent or otherwise howsoever the business of realtors, developers, consultants, estate agents or managers, builders, contractors, engineers, manufacturers, dealers in or vendors of all types of property including services. |
(d) | To do or carry on any other business which the company may from time to time determine. |
(ii) | To exercise and enforce all rights and powers conferred by or incidental to the ownership of any shares, stock, obligations or other securities including without prejudice to the generality of the foregoing all such powers of veto or control as may be conferred by virtue of the holding by the Company of some special proportion of the issued or nominal amount thereof, to provide managerial and other executive, supervisory and consultant services for or in relation to any company in which the Company is interested upon such terms as may be thought fit. |
(iii) | To purchase or otherwise acquire, to sell, exchange, surrender, lease, mortgage, charge, convert, turn to account, dispose of and deal with real and personal property and rights of all kinds and, in particular, mortgages, debentures, produce, concessions, options, contracts, patents, annuities, licenses, stocks, shares, bonds, policies, book debts, business concerns, undertakings, claims, privileges and choses in action of all kinds. |
(iv) | To subscribe for, conditionally or unconditionally, to underwrite, issue on commission or otherwise, take, hold, deal in and convert stocks, shares and securities of all kinds and to enter into partnership or into any arrangement for sharing profits, reciprocal concessions or cooperation with any person or company and to promote and aid in promoting, to constitute, form or organize any company, syndicate or partnership of any kind, for the purpose of acquiring and undertaking any property and liabilities of the Company or of advancing, directly or indirectly, the objects of the Company or for any other purpose which the Company may think expedient. |
(v) | To stand surety for or to guarantee, support or secure the performance of all or any of the obligations of any person, firm or company whether or not related or affiliated to the Company in any manner and whether by personal covenant or by mortgage, charge or lien upon the whole or any part of the undertaking, property and assets of the Company, both present and future, including its uncalled capital or by any such method and whether or not the Company shall receive valuable consideration therefore. |
(vi) | To engage in or carry on any other lawful trade, business, or enterprise which may at any time appear to the Directors of the Company capable of being conveniently carried on in conjunction with any of the aforementioned businesses or activities or which may appear to the Directors of the Company likely to be profitable to the Company. In the interpretation of this Fourth Amended and Restated Memorandum of Association in general and of this Clause 3 in particular no object, business or power specified or mentioned shall be limited or restricted by reference to or inference from any other object,, business or power, or the name of the Company, or by the juxtaposition of two or more objects, businesses or powers and that, in the event of any ambiguity in this clause or elsewhere in this Fourth Amended and Restated Memorandum of Association, the same shall be resolved by such interpretation and construction as will widen and enlarge and not restrict the objects, businesses and powers of and exercisable by the Company. |
2
4. | Except as prohibited or limited by the Companies Law (as amended), the Company shall have full power and authority to carry out any object and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate in doing in any part of the world whether as principal, agent, contractor or otherwise whatever may be considered by it necessary for the attainment of its objects and whatever else may be considered by it as incidental or conducive thereto or consequential thereon, including, but without in any way restricting the generality of the foregoing, the power to make any alterations or amendments to this Fourth Amended and Restated Memorandum of Association and the Fourth Amended and Restated Articles of Association of the Company considered necessary or convenient in the manner set out in the Fourth Amended and Restated Articles of Association of the Company, and the power to do any of the following acts or things, viz: to pay all expenses of and incidental to the promotion, formation and incorporation of the Company; to register the Company and to do business in any other jurisdiction; to sell, lease or dispose of any property of the Company; to draw, make, accept, endorse, discount, execute and issue promissory notes, debentures, bills of exchange, bills of lading, warrants and other negotiable or transferable instruments; to lend money or other assets and to act as guarantors; to borrow or raise money on the security of the undertaking or on all or any of the assets of the Company including uncalled capital or without security; to invest monies of the Company in such manner as the Directors determine; to promote other companies; to sell the undertaking of the Company for cash or any other consideration; to distribute assets in specie to members of the Company; to make charitable or benevolent donations; to pay pensions or gratuities or provide other benefits in cash or kind to Directors, officers, employees, past or present and their families; to purchase and maintain directors and officers liability insurance and to carry on any trade or business and generally to do all acts and things which, in the opinion of the company or the Directors, may be conveniently or profitably or usefully acquired and dealt with, carried on, executed or done by the Company in connection with the aforesaid business PROVIDED THAT the Company shall only carry on the businesses for which a license is required under the laws of the Cayman Islands when so licensed under the terms of such laws. |
5. | The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands. |
6. | The liability of each member is limited to the amount from time to time unpaid on such members shares. |
7. | The share capital of the Company is US$150,000 divided into 150,000,000 shares, including (i) 90,000,000 Ordinary Shares of a nominal or par value of US$0.001, (ii) 60,000,000 preferred shares with a par value of US$0.001 each, of which 8,571,430 preferred shares are designated as Series A Preferred Shares of a nominal or par value of US$0.001, 7,319,820 preferred shares are designated as Series B Preferred Shares of a nominal or par value of US$0.001, and 10,914,852 preferred shares are designated as Series C Preferred Shares of a nominal or par value of US$0.001, each with power for the Company insofar as is permitted by law, to redeem any of its shares and to increase or reduce the said capital subject to the provisions of the Companies Law (as amended) and the Fourth Amended and Restated Articles of Association and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be ordinary, preference or otherwise shall be subject to the powers hereinbefore contained. The rights, preferences and restrictions of the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares are set forth in Schedule A to these Articles of Association. |
3
8. | If the Company is registered as exempted: |
(a) | Its operations will be carried on subject to the provisions of Section 206 of the Companies Law (as amended) and, subject to the provisions of the Companies Law (as amended) and the Fourth Amended and Restated Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
(b) | The Company shall have no power to issue shares in bearer form. |
9. | Capitalized terms that are not defined in this Fourth Amended and Restated Memorandum of Association bear the same meaning as those given in the Fourth Amended and Restated Articles of Association of the Company, as amended from time to time. |
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THE COMPANIES LAW (2009 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
FOURTH AMENDED AND RESTATED ARTICLES OF ASSOCIATION
OF
TARENA INTERNATIONAL, INC.
(Adopted by Special Resolution of the Shareholders on August 26, 2011, with effect from
September 6, 2011)
PRELIMINARY AND INTERPRETATION
1. | In these ARTICLES Table A in the Schedule to the Statute does not apply and, unless there be something in the subject or context inconsistent therewith: |
Articles means these Articles as originally framed or as from time to time altered by Special Resolution.
The Auditors mean the persons for the time being performing the duties of auditors of the Company.
The Company means the above named Company.
Ordinary Share means the Ordinary Shares in the capital of the Company, par value of US$0.001 per share.
Debenture means debenture stock, mortgages, bonds and any other such securities; of the Company whether constituting a charge on the assets of the Company or not.
Director means a director for the time being of the Company. Dividend includes bonus.
Exempt Company means a company registered as an exempted company under Part VII of the Statute.
Member shall bear the meaning ascribed to it in Section 38 of the Statute. Month means calendar month.
Ordinary Resolution means a resolution:
(a) | passed by a simple majority of such Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Member is entitled; or |
(b) | approved in writing by the Members holding not less than seventy-five percent (75%) of the outstanding shares of the Company entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments if more than one, is executed. |
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The Registered Office means the registered office for the time being of the Company. Paid-up means paid-up and/or credited as paid-up.
Preferred Shares means the Series A Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares.
Schedule means the Schedule to and which forms a part of these Articles. Seal means the common seal of the Company and includes every official seal.
Secretary includes the Assistant Secretary and any person appointed to perform the duties of Secretary of the Company.
Series A Preferred Shares shall mean the series A preferred shares in the capital of the Company with a nominal or par value of US$0.001 per share.
Series B Preferred Shares shall mean the series B preferred shares in the capital of the Company with a nominal or par value of US$0.001 per share.
Series C Preferred Shares shall mean the series C preferred shares in the capital of the Company with a nominal or par value of US$0.001 per share.
Shares means the Ordinary Shares and the Preferred Shares of the Company.
Special Resolution means a special resolution of the Company passed in accordance with the Statute, being a resolution:
(a) | passed by a majority of not less than two-thirds of such shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given and where a poll is taken regard shall be had in computing a majority to the number of votes to which each shareholder is entitled; or |
(b) | approved in writing by all of the shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed. |
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Statute means the Companies Law of the Cayman Islands as amended and every statutory modification or re-enactment thereof for the time being in force.
Written and In Writing include all modes of representing or reproducing words in visible form.
Words importing the singular number also include the plural number and vice-versa. Words importing the masculine gender also include the feminine gender and vice-versa.
In the event of any inconsistency between the provisions of the Schedule and the remainder of these Articles, the provisions of the Schedule shall prevail.
2. | The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that part only of the shares may have been allotted. |
3. | The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration. |
CERTIFICATE FOR SHARES
4. | Certificates representing shares of the Company shall be in such form as shall be determined by the Directors. Such certificates shall be under seal. All certificates for shares shall be consecutively numbered or otherwise identified and shall specify the shares to which they relate. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered in the register of members of the Company. All certificates surrendered to the Company for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled. The Directors may authorize signature(s) affixed by some method or system of mechanical process. |
5. | Notwithstanding Article 4 of these Articles, if a share certificate is defaced, lost, stolen or destroyed, it may be renewed on payment of a fee of ten dollars (US$10.00) or such lesser sum and on such terms (if any) as to evidence and indemnity and the payment of the expenses incurred by the Company in investigating evidence, as the Directors may prescribe. |
ISSUE OF SHARES
6. | Subject to the provisions, if any, of the Fourth Amended and Restated Memorandum of Association and in these Articles (including the Schedule) and to any direction that may be given by the Company in general meeting and without prejudice to any special rights previously conferred on the holders of existing shares, the Directors may allot, issue, grant options over or otherwise dispose of shares of the Company with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper. |
7. | The Company shall maintain a register of its members and every person whose name is entered as a member in the register of members and has paid for such shares in full shall be entitled without payment to receive within two months after allotment or lodgment of transfer (or within such other period as the conditions of issue shall provide) one certificate for all his shares or several certificates each for one or more of his shares upon payment of fifty cents (US$0.50) for every certificate after the first or such less sum as the Directors shall from time to time determine provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of the several joint holders shall be sufficient delivery to all such holders. |
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TRANSFER OF SHARES
8. | The instrument of transfer of any share to be registered by the Company shall be in writing and shall be executed by or on behalf of the Transferor. The Transferor shall be deemed to remain the holder of a share until the name of the Transferee is entered in the register in respect thereof. |
9. | The Directors may in their absolute discretion decline to register any transfer of shares without assigning any reason therefore. If the Directors refuse to register a transfer they shall notify the Transferee within two (2) weeks of such refusal. |
10. | The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than forty (40) days in any year. |
REDEEMABLE SHARES
11. | Subject to the provisions of the Statute, the Schedule, the Fourth Amended and Restated Memorandum of Association and these Articles, shares may be issued on the terms that they may be redeemed on such terms and in such manner as the Company, before the issue of the shares, may by Special Resolution determine. |
VARIATION OF RIGHTS OF SHARES
12. | If at any time the share capital of the Company is divided into different classes or series of shares, the rights attached to any class or series (unless otherwise provided by the terms of issue of the shares of that class or series) may, whether or not the Company is being wound-up, be varied with the sanction of a Special Resolution subject to Article 5 of the Schedule. |
The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class or series of shares except that the necessary quorum shall be one (1) person holding or representing by proxy at least one-third in nominal or par value amount of the issued shares of the class or series and that any holder of shares of the class or series present in person or by proxy may demand a poll.
13. | The rights conferred upon the holders of the shares of any class or series issued with preference or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class or series, be deemed to be varied by (i) the creation or issue of further shares ranking pari passu therewith or (ii) by the creation or issue of any further shares or securities carrying rights or preferences senior to that class or series in any aspect including without limitation dividend rights, redemptions, liquidation preference and/or restrictions provided for the benefit thereof. |
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COMMISSION ON SALE OF SHARES
14. | The Company may in so far as the Statute from time to time permits pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares of the Company. Such commissions may be satisfied by the payment of cash or the lodgment of fully or partly paid-up shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage fees as may be lawful. |
NON-RECOGNITION OF TRUSTS
15. | No person shall be recognized by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future, or partial interest in any share, or any interest in any fractional part of a share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. |
LIEN ON SHARES
16. | The Company shall have a first and paramount lien and charge on all shares (whether fully paid-up or not) registered in the name of a member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such member or his estate, either alone or jointly with any other person, whether a member or not, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such share shall operate as a waiver of the Companys lien (if any) thereon. The Companys Lien (if any) on a share shall extend to all dividends or other monies payable in respect thereof. |
17. | The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless a sum in respect of which the Lien exists is presently payable, nor until the expiration of fourteen days after a notice in writing stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder or holders for the time being of the share, or the person, of which the Company has notice, entitled thereto by reason of his death or bankruptcy. |
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18. | To give effect to any such sale the Directors may authorize some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. |
19. | The proceeds of such sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale. |
CALL ON SHARES
20. | (a) | The Directors may from time to time make calls upon the members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed terms and each member shall (subject to receiving at least fourteen days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on the shares. A call may be revoked or postponed as the Directors may determine. A call may be made payable by installments. |
(b) | A call shall be deemed to have been made at the time when the resolution of the Directors authorizing such call was passed. |
(c) | The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. |
21. | If a sum called in respect of a share is not paid before or on a day appointed for payment thereof, the persons from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate not exceeding ten per cent per annum as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest either wholly or in part. |
22. | Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium or otherwise, shall for the purposes of these Articles be deemed to be a call duly made, notified and payable on the date on which by the terms of issue the same becomes payable, and in the case of non-payment all the relevant provisions of these Articles as to payment of interest forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. |
23. | The Directors may, on the issue of shares, differentiate between the holders as to the amount of calls or interest to be paid and the times of payment. |
24. | (a) | The Directors may, if they think fit, receive from any member willing to advance the same, all or any part of the monies uncalled and unpaid upon any shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advances, become payable) pay interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) seven per cent (7%) per annum, as may be agreed upon between the Directors and the member paying such sum in advance. |
(b) | No such sum paid in advance of calls shall entitle the member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable. |
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FORFEITURE OF SHARES
25. | (a) | If a member fails to pay any call or installment of a call or to make any payment required by the terms of issue on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of the call, installment or payment remains unpaid, give notice requiring payment of so much of the call, installment or payment as is unpaid, together with any interest which may have accrued and all expenses that have been incurred by the Company by reason of such non-payment. Such notice shall name a day (not earlier than the expiration of fourteen days from the date of giving of the notice) on or before which the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time appointed the shares in respect of which such notice was given will be liable to be forfeited. |
(b) | If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture. |
(c) | A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit and at any time before a sale or disposition the forfeiture may be canceled on such terms as the Directors think fit. |
26. | A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture were payable by him to the Company in respect of the shares together with interest thereon, but his liability shall cease if and when the Company shall have received payment in full of all monies whenever payable in respect of the shares. |
27. | A certificate in writing under the hand of one Director and the Secretary of the Company that a share in the Company has been duly forfeited on a date stated in the declaration shall be conclusive evidence of the fact therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration given for the share on any sale or disposition thereof and may execute a transfer of the share in favor of the person to whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. |
28. | The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium as if the same had been payable by virtue of a call duly made and notified. |
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REGISTRATION OF EMPOWERING INSTRUMENTS
29. | The Company shall be entitled to charge a fee not exceeding ten dollars (US$10.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, stop order, or other instrument. |
TRANSMISSION OF SHARES
30. | In case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognized by the Company as having any title to his interest in the shares, but nothing herein contained shall release the estate of any such deceased holder from any liability in respect of any shares which had been held by him solely or jointly with other persons. |
31. | (a) | Any person becoming entitled to a share in consequence of the death, bankruptcy, liquidation or dissolution of a member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors and subject as hereinafter provided, elect either to be registered himself as holder of the share or to make such transfer of the share to such other person nominated by him as the deceased or bankrupt person could have made and to have such person registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that member before his death or bankruptcy as the case may be. |
(b) | If the person so becoming entitled shall elect to be registered himself as holder he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. |
32. | A person becoming entitled to a share by reason of the death, bankruptcy, liquidation or dissolution of the holder (or in any other case than by transfer) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company PROVIDED HOWEVER that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within ninety days the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share until the requirements of the notice have been complied with. |
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AMENDMENT OF FOURTH AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION, CHANGE OF LOCATION OF REGISTERED OFFICE & ALTERATION OF CAPITAL
33. | (a) | Subject to the Schedule and in so far as permitted by the provisions of the Statute and these Articles, the Company may from time to time by Special Resolution alter or amend its Fourth Amended and Restated Memorandum of Association other than with respect to its name, powers and objects and may, without restriction to the generality of the foregoing: |
(i) | increase the share capital by such sum to be divided into shares of such amount or without nominal or par value as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine; |
(ii) | consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; |
(iii) | by division or subdivision of its existing shares or any of them divide the whole or any part of its share capital into shares of smaller amount than is fixed by the Fourth Amended and Restated Memorandum of Association or into shares without nominal or par value, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; |
(iv) | convert all or any of its paid-up shares into stock, and reconvert that stock in to paid-up shares of any denomination; |
(v) | cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. |
All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the shares in the original share capital.
(b) | Subject to the provisions of the Statute and the Schedule the Company may by Special Resolution change its name or alter its objects. |
(c) | Subject to the provisions of the Statute, the Schedule and these Articles, the Company may by Special Resolution reduce its share capital, any capital redemption reserve fund, or any share premium account. |
(d) | Subject to the provisions of the Statute and these Articles, the Company may by resolution of the Directors change the location of its registered office. |
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CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE
34. | For the purpose of determining members entitled to notice of or to vote at any meeting of members or any adjournment thereof, or members entitled to receive payment of any dividend, or in order to make a determination of members for any other proper purpose, the Directors of the Company may provide that the register of members shall be closed for transfers for a stated period but not to exceed in any case forty (40) days. If the register of members shall be so closed for the purpose of determining members entitled to notice of or to vote at a meeting of members such register shall be so closed for at least ten (10) days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of members. |
35. | In lieu of or apart from closing the register of members, the Directors may fix in advance a date as the record date for any such determination of members entitled to notice of or to vote at a meeting of the members and for the purpose of determining the members entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. |
36. | If the register of members is not so closed and no record date is fixed for the determination of members entitled to notice of or to vote at a meeting of members or members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of members. When a determination of members entitled to attend or receive notice of, attend or vote at any meeting of members has been made as provided in this section, such determination shall apply to any adjournment thereof |
GENERAL MEETING
37. | (a) | Subject to paragraph (c) hereof, the Company shall within one (1) year of its incorporation and in each year of its existence thereafter hold a general meeting as its Annual General Meeting and shall specify the meeting as such in the notices calling it. The Annual General Meeting shall be held at such time and place as the Directors shall appoint. |
(b) | At these meetings the report of the Directors (if any) shall be presented. |
(c) | The directors of the Company may convene meetings of the members of the Company at such times and in such manner and places within or outside the Cayman Islands as the directors consider necessary or desirable. |
38. | (a) | The Directors may whenever they think fit, and they shall on the requisition of members of the Company holding at the date of the deposit of the requisition not less than one-tenth of such of the voting paid-up capital of the Company as at the date of the deposit carries the right of voting at general meetings of the Company, proceed to convene a general meeting of the Company. |
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(b) | The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office of the Company and may consist of several documents in like form each signed by one or more requisitionists. |
(c) | If the Directors do not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the said twenty-one days. |
(d) | A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. |
NOTICE OF GENERAL MEETINGS
39. | At least fourteen (14) days notice shall be given of an Annual General Meeting or any other general meeting. Every notice shall be exclusive of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company PROVIDED that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given, be deemed to have been duly called if it is so agreed: |
(a) | in the case of a general meeting called as an Annual General Meeting by all the members entitled to attend and vote thereat or their proxies; and |
(b) | in the case of any other general meeting by a majority in number of having a right to attend and vote at the meeting, being a majority together holding not less than seventy-five percent (75%) in nominal value or in the case of shares without nominal or par value seventy five percent (75%) of the shares in issue, or their proxies. |
40. | The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings of that meeting. |
PROCEEDINGS AT GENERAL MEETINGS
41. | No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business: four (4) members (including the holders of sixty-seven percent (67%) of the Series A Preferred Shares, forty-five percent (45%) of the Series B Preferred Shares and sixty-seven percent (67%) of the Series C Preferred Shares) present in person or by proxy shall be quorum and a quorum must be present at the beginning of and throughout each meeting; provided always that if the Company has one shareholder of record the quorum shall be that one (1) member present in person or by proxy. |
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42. | Subject and without prejudice to any provisions of the Statute and Schedule attached hereto, an action that may be taken by the members at a meeting may also be taken by a resolution of members consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication, without the need for any notice, and any such resolution, which is required to be passed as an Ordinary Resolution, may be adopted only by the holders of a majority in number of having a right to attend and vote at the meeting, being a majority together holding not less than seventy-five percent (75%) in nominal value or in the case of shares without nominal or par value seventy five percent (75%) of the shares in issue, or their proxies, and any such resolution which is required to be passed as a Special Resolution, must be adopted by the holders of all the shares having a right to attend and vote at a meeting. The consent may be in the form of counterparts, each counterpart being signed by one or more members. A member shall be deemed to be present at a meeting of members if he participates by telephone or other electronic means and all members participating in the meeting are able to hear each other. |
43. | If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved and in any other case it shall stand adjourned to the same day in the next week at the same time and place or to such other time or such other place as the Directors may determine and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the members present shall be a quorum. |
44. | The Chairman, if any, of the Board of Directors shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he shall not be present within fifteen minutes after the time appointed for the holding of the meeting, or is unwilling to act, the Directors present shall by unanimous consent elect one of the Directors to be Chairman of the meeting. |
45. | If at any general meeting no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the members present shall choose one of their members to be Chairman of the meeting. |
46. | The Chairman may, with the consent of any general meeting duly constituted hereunder at which a quorum is present, and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting; save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned general meeting. |
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47. | At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is, before or on the declaration of the result of the show of hands, demanded by the Chairman or any other member present in person or by proxy. |
48. | Unless a poll be so demanded a declaration by the Chairman that a resolution has on a show of hands been carried, and an entry to that effect in the Companys Minute Book containing the Minutes of the proceedings of the meeting shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favor of or against such resolution. |
49. | The demand for a poll may be withdrawn. |
50. | Except as provided in Article 52, if a poll is duly demanded it shall be taken in such manner as the Chairman directs and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded. |
51. | In the case of an equality of votes, the Chairman of the general meeting shall not be entitled to a second or casting vote. |
52. | A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairman of the general meeting directs and any business other than that upon which a poll has been demanded or is contingent thereon may be proceeded with pending the taking of the poll. |
VOTES OF MEMBERS
53. | Subject to any rights or restrictions for the time being attached to any class or classes of shares and the Schedule, on a show of hands every member of record present in person or by proxy at a general meeting shall have one vote and on a poll every member of record present in person or by proxy shall have one vote for each share held. |
54. | In the case of joint holders of record the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members. |
55. | A member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or curator bonis appointed by that court, and any such committee, receiver, curator bonis or other persons may vote by proxy. |
56. | No member shall be entitled to vote at any general meeting unless he is registered as a shareholder of the Company on the record date for such meeting or unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. |
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57. | No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the general meeting whose decision shall be final and conclusive. |
58. | On a poll or on a show of hands votes may be given either personally or by proxy. |
PROXIES
59. | The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointer or of his attorney duly authorized in writing, or, if the appointer is a corporation under the hand of an officer or attorney duly authorized in that behalf. A proxy need not be a member of the Company. |
60. | The instrument appointing a proxy shall be deposited at the Registered Office of the Company or at such other place as is specified for that purpose in the notice convening the meeting no later than the time for holding the meeting, or adjourned meeting provided that the Chairman of the Meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of telex, cable or telecopy confirmation from the appointer that the instrument of proxy duly signed is in the course of transmission to the Company. |
61. | The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand to join or concur in demanding a poll. |
62. | A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at its registered office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy. |
63. | Any corporation which is a member of record of the Company may in accordance with its articles or other governing documents or in the absence of such provision by resolution of its Directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual member of record of the Company. |
64. | Shares of its own stock belonging to the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time. |
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DIRECTORS
65. | Subject to the Schedule attached hereto, there shall be a Board of Directors consisting of not more than seven (7) persons PROVIDED HOWEVER that the Company may from time to time increase or reduce the limits in the number of Directors in accordance with the Shareholders Agreement as defined in the Schedule hereto. |
66. | Subject to the Schedule attached hereto, the remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to accrue from day to day. The Directors shall also be entitled to be paid their traveling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors from time to time, or combination partly of one such method and partly the other. |
67. | Subject to the Schedule attached hereto, the Directors may by resolution award special remuneration to any Director of the Company undertaking any special work or services for, or undertaking any special mission on behalf of, the Company other than his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity shall be in addition to his remuneration as a Director. |
68. | Subject to the Schedule attached hereto, a Director or Alternate Director may hold any other office or place of profit under the Company in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine. |
69. | Subject to the Schedule attached hereto, a Director or Alternate Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or Alternate Director. |
70. | Subject to the Schedule attached hereto, a shareholding qualification for Directors may be fixed by the Company in general meeting, but unless and until so fixed no qualification shall be required. |
71. | Subject to the Schedule attached hereto, a Director or Alternate Director of the Company may be or become a Director or other Officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as shareholder or otherwise and no such Director or Alternate Director shall be accountable to the Company for any remuneration or other benefits received by him as a Director or Officer of, or from his interest in, such other company. |
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72. | Subject to the Schedule attached hereto, no person shall be disqualified from the office of Director or Alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or Alternate Director shall be in any way interested be or be liable to be avoided nor shall any Director or Alternate Director so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established. A Director (or his Alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid PROVIDED HOWEVER that the nature of the interest of any Director or Alternate Director in any such contract or transaction shall be disclosed by him or the Alternate Director appointed by him at or prior to its consideration and any vote thereon. |
73. | Subject to the Schedule attached hereto, a general notice or disclosure to the Directors or otherwise contained in the minutes of a meeting that a Director or Alternate Director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 72 and after such general notice it shall not be necessary to give special notice relating to any particular transaction. |
ALTERNATE DIRECTORS
74. | Subject to the exception contained in Article 82 and the Schedule attached hereto, a Director who expects to be unable to attend Directors meetings because of absence, illness or otherwise may appoint any person to be an Alternate Director to act in his stead and such appointee whilst he holds office as an Alternate Director shall, in the event of absence therefrom of his appointer, be entitled to attend meetings of the Directors and to vote thereat and to do, in the place and stead of his appointer, any other act or thing which his appointer is permitted or required to do by virtue of his being a Director as if the Alternate Director were the appointer, other than appointment of an Alternate to himself, and he shall ipso facto vacate office if and when his appointer ceases to be a Director or removes the appointee from office. Any appointment or removal under this Article shall be effected by notice in writing under the hand of the Director making the same. |
POWERS AND DUTIES OF DIRECTORS
75. | Subject to the Schedule attached hereto, the business of the Company shall be managed by the Directors (or a sole Director if only one is appointed) who may pay all expenses incurred in promoting, registering and setting up the Company, and may exercise all such powers of the Company as are not inconsistent with the Statute, these Articles, the rights and powers of any class or series of Preferred Shares or such regulations, as may be prescribed by the Company in general meeting required to be exercised by the Company in general meeting PROVIDED HOWEVER that no regulations made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. |
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76. | Subject to the receipt of all approvals required under this Articles and the Schedule attached hereto, the Directors may from time to time and at any time by powers of attorney and by a resolution appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorneys as the Directors may think fit and may also authorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him. |
77. | Subject to the Schedule attached hereto, all cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall from time to time by resolution determine. |
78. | Subject to the Schedule attached hereto, the Directors shall cause Minutes to be made in books provided for the purpose: |
(a) | of all appointments of Officers made by the Directors; |
(b) | of the names of the Directors (including those represented thereat by an Alternate or by proxy) present at each meeting of the Directors and of any committee of the Directors; |
(c) | of all resolutions and proceedings at all meetings of the Company and of the Directors and of Committees of Directors. |
79. | Subject to the Schedule attached hereto, the Directors on behalf of the Company may by a resolution pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependents and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. |
80. | Subject to the receipt of all approvals required under this Articles and the Schedule attached hereto, the Directors may by a resolution exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party. |
MANAGEMENT
81. | (a) | Subject to the Schedule attached hereto, the Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the two next following paragraphs shall be without prejudice to the general powers conferred by this paragraph. |
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(b) | Subject to the receipt of all approvals required under this Articles and the Schedule attached hereto, the Directors by a resolution from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such committees or local boards or any managers or agents and may fix their remuneration. |
(c) | Subject to the Schedule attached hereto, the Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorize the member for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. |
MANAGING DIRECTORS
82. | Subject to the Schedule attached hereto, the Directors may, from time to time, appoint one or more of their body to the office of Managing Director for such term and at such remuneration (whether by way of salary, or commission, or participation in profits) as they may think fit but his appointment shall be subject to determination ipso facto if he ceases from any cause to be a Director and no Alternate Director appointed by him can act in his stead as a Director or Managing Director. |
83. | Subject to the Schedule attached hereto, the Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw, alter or vary all or any of such powers. |
PROCEEDINGS OF DIRECTORS
84. | Subject to the Schedule attached hereto, the Directors shall meet at least quarterly together for the dispatch of business, convening, adjourning and otherwise regulating their meetings as provided in these Articles and the Shareholders Agreement. Questions arising at any meeting shall, unless otherwise required by the Schedule, be decided by a majority of votes of the Directors and Alternate Directors present at a meeting at which there is a quorum, the vote of an Alternate Director not being counted if his appointer be present at such meeting. A director shall be deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other. |
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85. | Subject to the Schedule attached hereto, a Director or Alternate Director may, and the Secretary on the requisition of a Director or Alternate Director shall, at any time summon a meeting of the Directors by at least seven (7) days notice in writing to every Director and Alternate Director which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their Alternates) either at, before or after the meeting is held and PROVIDED FURTHER if notice is given in person, by cable, telex or telecopy the same shall be deemed to have been given on the day it is delivered to the Directors or transmitting organization as the case may be. The provisions of Article 40 shall apply mutatis mutandis with respect to notices of meetings of Directors. Any notice shall include an agenda identifying in reasonable detail the matters to be discussed at the meeting together with copies of any relevant papers to be discussed at the meeting. If any matter is not identified in reasonable detail in the agenda, the Board shall not decide upon it, unless all Directors agree in writing. No amendments or additions shall be made to such agenda following such delivery without the unanimous consent of the all the Directors. Minutes of the Board meetings shall be sent to the Directors within seven (7) days after the relevant meeting. |
86. | Subject to the Schedule attached hereto, the quorum necessary for the transaction of the business of the Directors shall consist of four (4) Directors (including the Series A Director, the JAFCO Director and the Series C Director), provided, however, that if such quorum cannot be obtained for a Board meeting after two (2) consecutive notices of Board meetings have been sent by the Company with the first notice providing not less than seven (7) days of prior notice and the second notice providing not less than three (3) days of prior notice, then the attendance of any four (4) directors shall constitute a quorum; it being understood that if the Series C Director is unable to attend any such reconvened meeting, the Series C Director may suggest an alternative date and time for a reconvened meeting and if such alternative meeting cannot be accommodated, then the Series C Director may appoint an alternate director to attend the reconvened meeting in the capacity of the Series C Director. A Director and his appointed Alternate Director shall be considered only one person for the purpose of these Articles. For the purposes of this Article an Alternate Director or proxy appointed by a Director shall be counted in a quorum at a meeting at which the Director appointing him is not present. |
87. | Subject to the Schedule attached hereto, the continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is below the number fixed by or pursuant to these Articles as the necessary quorum of Directors the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose. |
88. | Subject to the Schedule attached hereto, the Directors may elect a Chairman of their Board and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting the Chairman is not present within twenty minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting. |
89. | Subject to the receipt of all approvals required under this Articles and the Schedule attached hereto, the Directors may by a resolution delegate any of their powers to committees consisting of such member or members of the Board of Directors (including Alternate Directors in the absence of their appointers) as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. |
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90. | Subject to the Schedule attached hereto, a committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present. |
91. | Subject to the Schedule attached hereto, all acts done by any meeting of the Directors or of a committee of Directors (including any person acting as an Alternate Director) shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or Alternate Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director or Alternate Director as the case may be. |
92. | Subject to the Schedule attached hereto, members of the Board of Directors or of any committee thereof may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting provided that a meeting of the Board or a committee thereof shall not be valid if the Company does not make such means of participation reasonably available and accessible to the members thereof. A resolution in writing (in one or more counterparts), signed by all the Directors for the time being or all the members of a committee of Directors (an Alternate Director being entitled to sign such resolution on behalf of his appointer) shall be as valid and as effectual as if it had been passed at a meeting of the Directors or committee as the case may be duly convened and held. |
93. | (a) | A Director may be represented at any meetings of the Board of Directors by a proxy appointed by him in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director, subject to the Schedule attached hereto. |
(b) | The provisions of Articles 59-62 shall mutatis mutandis apply to the appointment of proxies by the Directors, subject to the Schedule attached hereto. |
VACATION OF OFFICE OF DIRECTOR
94. | The office of Director shall be vacated: |
(a) | If he gives notice in writing to the Company that he resigns the office of Director; |
(b) | If he absents himself (without being represented by proxy or an Alternate Director appointed by him) from three consecutive meetings of the Board of Directors without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office; |
(c) | If he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; or |
(d) | If he is found a lunatic or becomes of unsound mind. |
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95. | Subject to the Shareholders Agreement and the Schedule, the Company may by Ordinary Resolution appoint any person to be a Director and may in like manner remove any Director and may in like manner appoint another person in his stead. |
96. | The Directors shall have power at any time and from time to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors but so that the total amount of Directors (exclusive of Alternate Directors) shall not at any time exceed the number fixed in accordance with these Articles. |
RIGHT TO ABSTAIN
97. | A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken but on which matter he abstained from voting shall not be presumed to have assented or dissented to the action taken unless his assent or dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting a the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Company immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. |
SEAL
98. | The Seal shall only be used by the authority of the Directors or of a committee of the Directors authorized by the Directors in that behalf and every instrument to which the Seal has been affixed shall be signed by one person who shall be either a Director or the Secretary or Secretary-Treasurer or some person appointed by the Directors for the purpose. |
PROVIDED THAT the Company may have for use in any territory district or place not situate in the Cayman Islands, an official seal which shall be a facsimile of the Common Seal of the Company with the addition on its face of the name of every territory district or place where it is to be used.
PROVIDED FURTHER THAT a Director, Secretary or other officer or representative or attorney may without further authority of the Directors affix the Seal of the Company over his signature alone to any document of the Company required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever.
OFFICERS
99. | Subject to the receipt of all approvals required under this Articles, the Company by a resolution may have a President, a Secretary or Treasurer appointed by the Directors who may also from time to time appoint such other Officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors from time to time prescribe. |
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DIVIDENDS AND RESERVE
100. | Subject to the Statute and the Schedule, the Directors may by a resolution from time to time declare dividends and distributions on shares of the Company outstanding and authorize payment of the same out of the funds of the Company lawfully available therefor and may from time to time pay to the Members such interim dividends as appear to the Directors to be justified by the profits of the Company. The Board may not declare a dividend on Ordinary Shares unless it simultaneously declares an equivalent dividend with respect to the Preferred Shares. |
101. | The Directors may, by a resolution before declaring any dividends or distributions, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company. |
102. | No dividend or distribution shall be payable except out of the profits of the Company, realized or unrealized or out of the share premium account or as otherwise permitted by the Statute. |
103. | Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions as described under Schedule, if dividends or distributions are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a share in advance of calls shall be treated for the purpose of this Article as paid on the share. |
104. | The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise. |
105. | Subject to the Schedule, the Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors. |
106. | Any dividend, distribution, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of Members, or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the share held by them as joint holders. |
107. | No dividend or distribution shall bear interest against the Company. |
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CAPITALIZATION
108. | Subject to the Schedule, upon the recommendation of the Board, the Members may by Special Resolution authorize the Directors to capitalise any sum standing to the credit of any of the Companys reserve accounts (including share premium account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued shares (not being redeemable shares) for allotment and distribution credited as fully paid up to and amongst them in the proportion aforesaid, hi such event the Directors shall do all acts and things required to give effect to such capitalization, with full power to the Directors to make such provisions as they think fit for the case of shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorize any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalization and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. |
BOOKS OF ACCOUNT
109. | The Directors shall cause proper books of account to be kept with respect to: |
(a) | all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place; |
(b) | all sales and purchases of goods by the Company; |
(c) | the assets and liabilities of the Company. |
Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Companys affairs and to explain its transactions.
110. | The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Statute or authorized by the Directors or by the Company in general meeting. |
111. | The Directors shall from time to time cause to be prepared and to be laid before the Company in general meeting such reports and accounts as may be required by law. |
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AUDIT
112. | The Company may at any Annual General Meeting appoint an Auditor or Auditors of the Company who shall hold office until the next Annual General Meeting and may fix his or their remuneration. Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance and the duties of the Auditors. |
113. | The Directors may by a resolution before the first Annual General Meeting appoint an Auditor or Auditors of the Company who shall hold office until the first Annual General Meeting unless previously removed by an Ordinary Resolution of the members in general meeting in which case the members at that meeting may appoint Auditors. |
114. | The Directors may by a resolution fill any casual vacancy in the office of Auditor but while any such vacancy continues the surviving or continuing Auditor or Auditors, if any, may act. |
NOTICES
115. | Notices shall be in writing and may be given by the Company to any Member either personally or by sending it by post, cable, telex or telecopy to him or to his address as shown in the register of Members, such notice, if mailed, to be forwarded airmail if the address be outside the Cayman Islands. |
116. | Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting by next day or second day service through internationally recognized courier a letter containing the notice, and to have been effected at the expiration of sixty hours after the letter containing the same is posted as aforesaid. |
117. | Where a notice is sent by cable, telex, or telecopy, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a confirmation of delivery, and to have been effected on the day the same is sent as aforesaid. |
118. | A notice may be given by the Company to the joint holders of record of a share by giving the notice to the joint holder first named on the register of Members in respect of the share, or, if there is no register, to the joint holder first named on the share certificate. |
119. | A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a share or shares in consequence of the death or bankruptcy of a Member by sending it through the post as aforesaid in a pre-paid letter addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. |
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120. | Notice of every general meeting shall be given in any manner hereinbefore authorized to: |
(a) | every person shown as a Member in the register of members as of the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the register of Members. |
(b) | every person upon whom the ownership of a share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his death or bankruptcy would be entitled to receive notice of the meeting; and |
No other person shall be entitled to receive notices of general meetings. WINDING UP
121. | Subject to the Schedule attached hereto, if the Company shall be wound up, the Liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Statute and the Schedule, divide amongst the members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The Liquidator may with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the Liquidator, with the like sanction, shall think fit, but so that no member shall be compelled to accept any shares or other securities whereon there is any liability. |
122. | Subject to the Schedule attached hereto, if the Company shall be wound up, and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if, in a winding up of the Company, assets available for distribution amongst the members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the members in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. This Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions as are set forth in the Schedule. |
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INDEMNITY
123. | To the maximum extent permitted by applicable law, the Directors, Auditors and Officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall be indemnified out of the assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses which they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own wilful default and no such Director, Auditor, Officer or trustee shall be answerable for the acts, receipts, neglects or defaults of any other Director, Auditor, Officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his office or trust unless the same shall happen through the wilful default of such Director, Auditor, Officer or trustee. |
FISCAL YEAR
124. | The Fiscal Year of the company shall begin on the date of incorporation of the Company and the anniversary date thereof in each year ending the day prior to the anniversary date in each year unless the Directors prescribe some other period therefor. |
AMENDMENTS OF ARTICLES
125. | Subject to the Statute and the Schedule, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part. |
DATED this on September 6, 2011
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SCHEDULE
PREFERRED SHARES
The rights and restrictions attaching to the Preferred Shares shall be as hereinafter specified in this Schedule.
ARTICLE 1
DIVIDENDS
1.1 Subject to the provisions of the Statute, no dividends, whether in cash, in property or Shares shall be declared or paid on the Ordinary Shares, unless and until a dividend in like amount is declared or paid on each outstanding Preferred Share (on an as-if-converted basis).
1.2 Subject to Article 1.1 above, each holder of Series B Preferred Shares and Series C Preferred Shares shall be entitled to receive, on an annual basis and when, as and if declared by the Board, preferential, non-cumulative dividends at the rate equal to the dividend that would be paid with respect to the Ordinary Shares into which the Series B Preferred Share and/or Series C Preferred Share could be converted, in each case for each Series B Preferred Share and/or Series C Preferred Share held by such holder, payable in cash when and as such cash becomes legally available therefor on parity with each other, prior and in preference to any dividend on any other Shares; provided that such dividends shall accrue and be payable only when, as, and if declared by the Board. All accrued but unpaid dividends shall be paid in cash when and as such cash becomes legally available to the holders of Series B Preferred Shares and Series C Preferred Shares immediately prior to the closing of a Qualified IPO. Dividends shall be non-cumulative.
1.3 After distribution or payment in full of the amount distributable or payable on the Series C Preferred Shares and the Series B Preferred Shares pursuant to Article 1.1 and Article 1.2, respectively, each holder of Series A Preferred Shares shall be entitled to receive, on an annual basis and when, as and if declared by the Board, preferential, non-cumulative dividends at the rate equal to the dividend that would be paid with respect to the Ordinary Shares into which the Series A Preferred Share could be converted, in each case for each Series A Preferred Share held by such holder, payable in cash when and as such cash becomes legally available therefor on parity with each other, prior and in preference to any dividend on any other Shares; provided that such dividends shall accrue and be payable only when, as, and if declared by the Board. All accrued but unpaid dividends shall be paid in cash when and as such cash becomes legally available to the holders of Series A Preferred Shares immediately prior to the closing of a Qualified IPO. Dividends shall be non-cumulative.
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ARTICLE 2
LIQUIDATION
2.1 Liquidation Preferences . Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary:
(a) Before any distribution or payment shall be made to the holders of any Series B Preferred Shares, Series A Preferred Shares, or Ordinary Shares, each holder of Series C Preferred Shares shall be entitled to receive, on a pari passu basis, an amount equal to one hundred and fifty percent (150%) of the total actual Series C Purchase Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series C Preferred Share then held by such holder in preference to the holders of Series B Preferred Shares, Series A Preferred Shares and Ordinary Shares (the Series C Liquidation Preference ). If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the full Series C Liquidation Preference on all Series C Preferred Shares, then such assets shall be distributed solely among the holders of Series C Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.
(b) Subject to Article 2.1(a) above and before any distribution or payment shall be made to the holders of Ordinary Shares or Series A Preferred Shares and only after full payment of the Series C Liquidation Preference has been made, each holder of Series B Preferred Shares shall be entitled to receive, on a pari passu basis, an amount equal to one hundred and fifty percent (150%) of the total actual Series B Purchase Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series B Preferred Share then held by such holder in preference to the holders of Series A Preferred Shares and Ordinary Shares (the Series B Liquidation Preference ). If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the full Series B Liquidation Preference on all Series B Preferred Shares, then such assets shall be distributed, subject to Article 2.1(a) above, solely among the holders of Series B Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.
(c) After distribution or payment in full of the Series C Liquidation Preference pursuant to Article 2.1(a) and the Series B Liquidation Preference pursuant to Article 2.1(b) , if there are any remaining assets of the Company available for distribution to Members, each holder of Series A Preferred Shares shall be entitled to receive, on a pari passu basis, an amount equal to one hundred percent (100%) of the total actual Series A Purchase Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series A Preferred Share then held by such holder in preference to the holders of Ordinary Shares (the Series A Liquidation Preference ). If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the full Series A Liquidation Preference on all Series A Preferred Shares, then such assets shall be distributed solely among the holders of Series A Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.
(d) After distribution or payment in full of the amount distributable or payable on the Series C Liquidation Preference pursuant to Article 2.1(a), the Series B Liquidation Preference pursuant to Article 2.1(b) and the Series A Liquidation Preference pursuant to Article 2.1(c) , any remaining assets of the Company available for distribution to Members shall be distributed ratably among the holders of outstanding Ordinary Shares and holders of Preferred Shares on an as-converted basis.
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2.2 Liquidation on Sale or Merger. The following events shall be treated as a liquidation (each, a Liquidation Event ) under this Article 2.2 unless waived by the holders of more than sixty-seven percent (67%) of the then outstanding Series C Preferred Shares (which holders shall include the Series C Investor), forty-five percent (45%), of each class of the then outstanding Series B Preferred Shares (which holders shall include JAFCO) and Series A Preferred Shares, voting separately on an as-if-converted basis:
(a) any liquidation, dissolution, or winding up of any Group Company;
(b) any consolidation, corporate reorganization, merger, amalgamation, scheme of arrangement, tender offer or share purchase of any Group Company (excluding any transaction effected solely for tax purposes or to change the Companys domicile), unless the shareholders of the Company immediately prior to any such transaction are holders of a majority of the voting power of the surviving or acquiring entity immediately thereafter; or
(c) a sale, transfer, license or lease of all or substantially all of the assets of the Company and/or its subsidiaries to a third party or license of all or substantially all intellectual property of the Company and/or its subsidiaries to a third party.
Any proceeds from such Liquidation Events shall be distributed in accordance with the terms of Article 2.1
2.3 In the event the Company proposes to distribute assets other than cash in connection with any liquidation, dissolution or winding up of the Company, the value of the assets to be distributed to the holder of Preferred Shares and Ordinary Shares shall be determined in good faith by the Board, or by a liquidator if one is appointed. Any securities not subjected to investment letter or similar restrictions on free marketability shall be valued as follows:
(a) If traded on a securities exchange, the value shall be deemed to be the average of the securitys closing prices on such exchange over the thirty (30) day period ending one (1) day prior to the distribution;
(b) If traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the thirty (30) day period ending three (3) days prior to the distribution; and
(c) If there is no active public market, the value shall be the fair market value thereof as determined in good faith by an independent appraiser appointed by the unanimous approval of the Board.
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The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be adjusted to make an appropriate discount from the market value determined as above in clauses (a), (b) or (c) to reflect the fair market value thereof as determined in good faith by the Board, or by a liquidator if one is appointed. The holders of more than sixty-seven percent (67%) of the then outstanding Series C Preferred Shares (which holders shall include the Series C Investor), holders of more than forty-five percent (45%), of each class of the outstanding Series B Preferred Shares and Series A Preferred Shares shall have the right to challenge any determination by the Board of fair market value pursuant to this Article 2.3 , in which case the determination of fair market value shall be made by an independent appraiser selected jointly by the Board and the challenging parties, the cost of such appraisal to be borne equally by the Company and the challenging parties.
ARTICLE 3
VOTING RIGHTS
Subject to the provisions of the Memorandum and Articles, at all general meetings of the Company: (i) the holder of each Ordinary Share issued and outstanding shall have one vote in respect of each Ordinary Share held, and (ii) the holder of each Preferred Share shall be entitled to such number of votes as equals the whole number of Ordinary Shares into which such holders collective Preferred Shares are convertible immediately after the close of business on the record date of the determination of the Companys shareholders entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of the Companys shareholders is first solicited. Subject to provisions to the contrary elsewhere in the Memorandum and Articles (including this Schedule), or as required by the Statute, the holders of Preferred Shares shall vote together with the holders of Ordinary Shares, and not as a separate class or series, on all matters put before the Members.
ARTICLE 4
CONVERSION
The holders of the Preferred Shares shall have the following rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares. Subject to the provisions of Article 4.2, the number of Ordinary Shares to which a holder shall be entitled upon conversion of any Preferred Share shall be the quotient of the Series C Share Price divided by the then-effective Series C Conversion Price, the quotient of the Series B Share Price divided by the then-effective Series B Conversion Price, or the quotient of the Series A Share Price divided by the then-effective Series A Conversion Price. For the avoidance of doubt, subject to the provisions of Article 4.2 , the initial conversion ratio for Preferred Shares to Ordinary Shares shall be 1:1, and subject to adjustments of the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price, as applicable (the Applicable Conversion Price and each a Conversion Price ), as set forth below:
4.1 Optional Conversion .
(a) Subject to and in compliance with the provisions of this Article 4.1(a) and subject to compliance with the requirements of the Statute, any Preferred Share may, at the option of the holder thereof, be converted at any time into fully-paid and non-assessable Ordinary Shares based on the then-effective Applicable Conversion Price.
(b) The holder of any Preferred Shares who desires to convert such shares into Ordinary Shares shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Preferred Shares, and shall give written notice to the Company at such office that such holder has elected to convert such shares. Such notice shall state the number of Preferred Shares being converted. Thereupon, the Company shall promptly issue and deliver to such holder at such office a certificate or certificates for the number of Ordinary Shares to which the holder is entitled. No fractional Ordinary Shares shall be issued upon conversion of the Preferred Shares, and the number of Ordinary Shares to be so issued to a holder of Preferred Shares upon the conversion of such Preferred Shares (after aggregating all fractional Ordinary Shares that would be issued to such holder) shall be rounded to the nearest whole share (with one-half being rounded upward). Such conversion shall be deemed to have been made at the close of business on the date of the surrender of the certificates representing the Preferred Shares to be converted, and the person entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Ordinary Shares on such date.
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4.2 Automatic Conversion
(a) Without any action being required by the holder of such share and whether or not the certificates representing such share are surrendered to the Company or its transfer agent, the Preferred Share shall automatically be converted into Ordinary Shares upon (i) the prior written consent of the holders of (x) more than sixty-seven percent (67%) of the then-outstanding Series C Preferred Shares (which holders shall include the Series C Investor) and (y) more than forty-five percent (45%) of each class of the then-outstanding Series B Preferred Shares (which holders shall include JAFCO) and Series A Preferred Shares or (ii) the closing of a Qualified IPO, based on the then-effective Applicable Conversion Price.
(b) The Company shall not be obligated to issue certificates for any Ordinary Shares issuable upon the automatic conversion of any Preferred Shares unless the certificate or certificates evidencing such Preferred Shares is either delivered as provided below to the Company or any transfer agent for the Preferred Shares, or the holder thereof notifies the Company or its transfer agent that such certificate has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificate. The Company shall, as soon as practicable after receipt of certificates for Preferred Shares, or satisfactory agreement for indemnification in the case of a lost certificate, promptly issue and deliver at its office to the holder thereof a certificate or certificates for the number of Ordinary Shares to which the holder is entitled. No fractional Ordinary Shares shall be issued upon conversion of the Preferred Shares, and the number of Ordinary Shares to be so issued to a holder of converting Preferred Shares (after aggregating all fractional Ordinary Shares that would be issued to such holder) shall be rounded to the nearest whole share (with one-half being rounded upward). Any person entitled to receive Ordinary Shares issuable upon the automatic conversion of the Preferred Shares shall be treated for all purposes as the record holder of such Ordinary Shares on the date of such conversion.
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4.3 Mechanics of Conversion . The conversion hereunder of any Preferred Share (the Conversion Share ) shall be effected in the following manner:
(a) The Company shall redeem the Conversion Share for aggregate consideration (the Redemption Amount ) equal to (a) the aggregate par value of any capital shares of the Company to be issued upon such conversion and (b) the aggregate value, as determined by the Board (including the Series A Director, the JAFCO Director and the Series C Director), of any other assets which are to be distributed upon such conversion.
(b) Concurrent with the redemption of the Conversion Share, the Company shall apply the Redemption Amount for the benefit of the holder of the Conversion Share to pay for any capital shares of the Company issuable, and any other assets distributable, to such holder in connection with such conversion.
(c) Upon application of the Redemption Amount, the Company shall issue to the holder of the Conversion Share all capital shares issuable, and distribute to such holder all other assets distributable, upon such conversion.
4.4 Initial Conversion Price . The Conversion Price shall initially equal the Series C Share Price, Series B Share Price or Series A Share Price, as applicable, and shall be adjusted from time to time as provided below in Article 4.5 .
4.5 Adjustments to Conversion Price .
(a) Adjustment for Share Splits and Combinations . If the Company shall at any time, or from time to time, effect a subdivision of the outstanding Ordinary Shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately decreased. Conversely, if the Company shall at any time, or from time to time, combine the outstanding Ordinary Shares into a smaller number of shares, the Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective.
(b) Adjustment for Ordinary Share Dividends and Distributions . If the Company makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution to the holders of Ordinary Shares payable in Additional Ordinary Shares, the Conversion Price then in effect shall be decreased as of the time of such issuance (or in the event such record date is fixed, as of the close of business on such record date) by multiplying such Conversion Price then in effect by a fraction (i) the numerator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of Ordinary Shares issuable in payment of such dividend or distribution.
(c) Adjustments for Other Dividends . If the Company at any time, or from time to time, makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution payable in securities of the Company other than Ordinary Shares or Ordinary Share Equivalents, then, and in each such event, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive, in addition to the number of Ordinary Shares issuable thereon, the amount of securities of the Company which the holder of such share would have received had the Preferred Shares been converted into Ordinary Shares immediately prior to such event, all subject to further adjustment as provided herein.
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(d) Reorganizations, Mergers, Consolidations, Reclassifications, Exchanges, Substitutions . If at any time, or from time to time, any capital reorganization or reclassification of the Ordinary Shares (other than as a result of a share dividend, subdivision, split or combination otherwise treated above) occurs or the Company is consolidated, merged or amalgamated with or into another Person (other than a consolidation, merger or amalgamation treated as a Liquidation Event), then in any such event, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive the kind and amount of shares and other securities and property which the holder of such share would have received had the Preferred Shares been converted into Ordinary Shares on the date of such event, all subject to further adjustment as provided herein, or with respect to such other securities or property, in accordance with any terms applicable thereto.
(e) Sale of Shares below the Conversion Price .
(i) Full Ratchet Adjustment. In the event the Company shall issue or sell Additional Ordinary Shares (other than Additional Ordinary Shares issued or deemed to be issued pursuant to this Article 4.5(a) and Article 4.5(b)), after the date of the Shareholder Agreement, without consideration or for a consideration per share less than the Conversion Price in effect on the date of and immediately prior to such issue (such issuance price being referred to herein as the Dilution Price ), then and in each such event the Conversion Price shall automatically be adjusted, as at the opening of business on the date of such issuance or sale, to a price equal to the Dilution Price, unless such adjustment of Conversion Price is waived by (A) the holders of more than sixty-seven percent (67%) of the then outstanding Series C Preferred Shares (which holders shall include the Series C Investor) and (B) the holders of more than forty-five percent (45%) of each class of the then outstanding Series B Preferred Shares (which holders shall include JAFCO) and Series A Preferred Shares.
(ii) Determination of Consideration . For the purpose of making any adjustment to any Conversion Price or the number of Ordinary Shares issuable upon conversion of the Preferred Shares, as provided above:
(A) To the extent it consists of cash, the consideration received by the Company for any issue or sale of securities shall be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensations, discounts or concessions paid or allowed by the Company in connection with such issue or sale;
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(B) To the extent it consists of property other than cash, consideration other than cash received by the Company for any issue or sale of securities shall be computed at the fair market value thereof (as determined in good faith by a majority of the Board, including the Series A Director, the JAFCO Director and the Series C Director), as of the date of the adoption of the resolution specifically authorizing such issue or sale, irrespective of any accounting treatment of such property; and
(C) If Additional Ordinary Shares or Ordinary Share Equivalents exercisable, convertible or exchangeable for Additional Ordinary Shares are issued or sold together with other stock or securities or other assets of the Company for consideration which covers both, the consideration received for the Additional Ordinary Shares or such Ordinary Share Equivalents shall be computed as that portion of the consideration received (as determined in good faith by a majority of the Board, including the Series A Director, the JAFCO Director and the Series C Director) to be allocable to such Additional Ordinary Shares or Ordinary Share Equivalents.
(iii) Adjustments for Ordinary Share Equivalents . For the purpose of making any adjustment in any applicable Conversion Price provided in this subsection (e), if at any time, or from time to time, the Company issues any Ordinary Share Equivalents exercisable, convertible or exchangeable for Additional Ordinary Shares and the effective conversion price of such Ordinary Share Equivalents is less than a Conversion Price in effect immediately prior to such issuance, then, in each such case, at the time of such issuance the Company shall be deemed to have issued the maximum number of Additional Ordinary Shares issuable upon the exercise, conversion or exchange of such Ordinary Share Equivalents and to have received in consideration for each Additional Ordinary Share deemed issued an amount equal to the Effective Conversion Price . Effective Conversion Price means, with respect to any Ordinary Share Equivalents at a given time, an amount equal to the quotient of (i) the sum of any consideration, if any, received by the Company with respect to the issuance of such Ordinary Share Equivalents and the lowest aggregate consideration receivable by the Company, if any, upon the exercise, exchange or conversion of the Ordinary Share Equivalents over (ii) the number of Ordinary Shares issuable upon the exercise, conversion or exchange of the Ordinary Share Equivalents.
(A) In the event of any increase in the number of Ordinary Shares deliverable or any reduction in consideration payable upon exercise, conversion or exchange of any Ordinary Share Equivalents where the resulting Effective Conversion Price is less than a Conversion Price at such date, including, but not limited to, a change resulting from the antidilution provisions thereof, such Conversion Price shall be recomputed to reflect such change as if, at the time of issue for such Ordinary Share Equivalent, such Effective Conversion Price applied;
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(B) If any right to exercise, convert or exchange any Ordinary Share Equivalents shall expire without having been fully exercised, a Conversion Price as adjusted upon the issuance of such Ordinary Share Equivalents shall be readjusted to the Conversion Price which would have been in effect had such adjustment been made on the basis that (1) the only Additional Ordinary Shares to be issued on such Ordinary Share Equivalents were such Additional Ordinary Shares, if any, as were actually issued or sold in the exercise, conversion or exchange of any part of such Ordinary Share Equivalents prior to the expiration thereof and (2) such Additional Ordinary Shares, if any, were issued or sold for (x) the consideration actually received by the Company upon such exercise, conversion or exchange, plus (y) where the Ordinary Share Equivalents consist of options, warrants or rights to purchase Ordinary Shares, the consideration, if any, actually received by the Company for the grant of such Ordinary Share Equivalents, whether or not exercised, plus (z) where the Ordinary Share Equivalents consist of shares or securities convertible or exchangeable for Ordinary Shares, the consideration received for the issue or sale of Ordinary Share Equivalent actually converted; and
(C) For any Ordinary Share Equivalent with respect to which a Conversion Price has been adjusted under this subsection (C), no further adjustment of such Conversion Price shall be made solely as a result of the actual issuance of Ordinary Shares upon the actual exercise or conversion of such Ordinary Share Equivalent.
(f) Other Dilutive Events. In case any event shall occur as to which the other provisions of this Article 4 are not strictly applicable, but the failure to make any adjustment to any Conversion Price would not fairly protect the conversion rights of the applicable series of Preferred Shares in accordance with the essential intent and principles hereof, then, in each such case, the Company, in good faith, shall determine the appropriate adjustment to be made, on a basis consistent with the essential intent and principles established in this Article 4 , necessary to preserve, without dilution, the conversion rights of such series of Preferred Shares. If the holders of more than 50% of the then outstanding Preferred Shares of such series shall reasonably and in good faith disagree with such determination by the Company, then the Company shall appoint an internationally recognized investment banking firm, which shall give their opinion as to the appropriate adjustment, if any, on the basis described above. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the holders of such series of Preferred Shares and shall make the adjustments described therein.
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(g) Certificate of Adjustment . In the case of any adjustment or readjustment of a Conversion Price, the Company, at its sole expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of such series of Preferred Shares at such holders address as shown in the Companys books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Ordinary Shares issued or sold or deemed to have been issued or sold, (ii) the number of Additional Ordinary Shares issued or sold or deemed to be issued or sold, (iii) the Conversion Price in effect before and after such adjustment or readjustment, and (iv) the number of Ordinary Shares and the type and amount, if any, of other property which would be received upon conversion of such series of Preferred Shares after such adjustment or readjustment.
(h) Notice of Record Date . In the event the Company shall propose to take any action of the type or types requiring an adjustment to a Conversion Price or the number or character of the Preferred Shares as set forth herein, the Company shall give notice to the holders of such series of Preferred Shares, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable upon the occurrence of such action or deliverable upon the conversion of Preferred Shares. In the case of any action which would require the fixing of a record date, such notice shall be given at least twenty (20) days prior to the date so fixed, and in the case of all other actions, such notice shall be given at least thirty (30) days prior to the taking of such proposed action.
(i) Reservation of Shares Issuable Upon Conversion . The Company shall at all times reserve and keep available out of its authorized but unissued Ordinary Shares, solely for the purpose of effecting the conversion of the Preferred Shares, such number of its Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares. If at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purpose.
(j) Notices. All notices and other communications given or made pursuant to this Article 4 shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) three (3) days after having been delivered by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after delivery by an internationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company.
(k) Payment of Taxes . The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of Ordinary Shares upon conversion of Preferred Shares, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of Ordinary Shares in a name other than that in which the Preferred Share so converted were registered.
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ARTICLE 5
ACTS OF THE COMPANY
5.1 Notwithstanding anything to the contrary, the following acts of any Group Company shall require the prior written approval of the holders of more than sixty-seven percent (67%) of the Series A Preferred Shares, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO), and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares (which holders shall include the Series C Investor), or by way of a written resolution signed by all holders of the Preferred Shares:
(a) any approval of the business plan and change in the business plan or scope of principal business of any Group Company, or engaging in any new line of business by any Group Company, or ceasing to conduct or carry on the business of any Group Company substantially as now conducted;
(b) any purchase or disposal of assets (including intangible assets) and businesses by any Group Company worth more than one million U.S. dollars (US$1,000,000) per transaction or, in the aggregate, more than three million U.S. dollars (US$3,000,000) in a period of twelve (12) months;
(c) any disposal or dilution of the Companys interest, directly or indirectly, in any Domestic Company or in any of its subsidiaries;
(d) any capital commitment of any Group Company, in one or a series of transactions, exceeding the amount of fifty thousand U.S. dollars (US$50,000) (or its equivalent in other currency) or any non-core business investments (other than in prime commercial paper, money market funds, certificates of deposit in an international bank having net worth in excess of one hundred million U.S. dollars (US$100,000,000) or obligations issued or guaranteed by a sovereign government, in each case having a maturity not in excess of two (2) years), or any-acquisition of assets or equity interests outside the PRC (including Hong Kong Special Administrative Region and Macau Special Administrative Region);
(e) any merger, consolidation, scheme of arrangement, recapitalization, sale or disposal of the whole or a substantial part of the undertaking, goodwill or the assets of any Group Company;
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(f) any increase of the authorized or issued share capital or registered capital (where applicable) of any Group Company save for increase of authorized capital of the Company for the purpose of issuing Ordinary Shares upon the conversion of the Preferred Shares;
(g) repurchase or redemption by any Group Company of any outstanding securities or any other reduction of share capital or similar process other than pursuant to the redemption right of the holders of Preferred Shares, as provided in the Memorandum and/or Articles, or contractual rights to repurchase Ordinary Shares from the employees, directors or consultants of the Company upon termination of their employment or services;
(h) issuance of any new securities or any instruments that are convertible into securities, excluding (x) any issuance of the Series C Preferred Shares under the Purchase Agreement, (y) any issuance of Ordinary Shares upon conversion of the Preferred Shares, and (z) any issuance of Ordinary Shares (or options or warrants therefor) under employee equity incentive plans approved by the Board, the holders of more than sixty-seven percent (67%) of the Series A Preferred Shares, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO), and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares (which holders shall include the Series C Investor) or issuance of any corporate debt or debt security;
(i) any action by the Company to authorize, create or issue shares of any class or series of the Company having preferences superior to or on a parity with any Preferred Shares;
(j) any amendment or change of, or other action that alters, the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, any Preferred Share;
(k) the declaration and/or payment of any and all dividends by, or the making of any distribution on or with respect to the shares or any other share capital of, any Group Company;
(l) any action by the Company to reclassify any outstanding shares into shares having preferences or priority as to dividends or assets senior to or on a parity with the preference of any Preferred Shares;
(m) appointment, removal and remuneration of executive management, including the CEO, CFO and COO of any Group Company, or any purchase of automobiles and accommodation for the management;
(n) appointment, removal and remuneration of the directors of any Group Company other than appointments and removals effected in accordance with Sections 5.1 and 5.2(b) of the Shareholders Agreement;
(o) establishment of any board committee and the delegation of any authority to the Board of Directors of any Group Company, or any change in the number of directors of any Group Company;
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(p) adoption of, or amendment to any bonus or profit sharing scheme, any employee equity incentive scheme or equity participation scheme of any Group Company;
(q) adoption of, or amendment to any treasury policy, any accounting policy or financial year of any Group Company;
(r) appointment or change of the auditors of any Group Company;
(s) other than in the ordinary course of the business, the grant or creation by any Group Company of any indemnity or guarantee or any charge, lien or debenture or other security over all or any part of the assets or rights of any Group Company;
(t) borrowing any money or obtaining any financial facilities (except pursuant to trade facilities obtained from banks or other financial institutions in the ordinary course of business, provided that the aggregate amount of such indebtedness or facilities shall not exceed five hundred thousand U.S. dollars (US$500,000));
(u) any transfer, sale, encumbrance of, or grant of license in any of the Group Companies intellectual property or other proprietary rights other than in the ordinary course of business, provided that any grant of exclusive license shall be deemed to be not in the ordinary course of business;
(v) any application or filing for the dissolution, liquidation or winding up of any Group Company or any application or filing by or against any Group Company for the appointment of a receiver, administrator or other form of external manager, or passing of any resolution for the winding up, liquidation, bankruptcy or insolvency of any Group Company;
(w) adoption of or amendment to the Memorandum and/or Articles or other charter documents of any Group Company;
(x) any agreement, or any modification of the terms of any agreement, undertaking or other arrangement between any officer or director of any Group Company or any Affiliate or Associate (as those terms are defined in Rule 405 promulgated under the Securities Act or Rule 12b-2 of the Exchange Act) and any Group Company, which shall be deemed an interested party transaction under the Securities Act;
(y) any acquisition of any equity or other securities of any body corporate or the establishment of any brands by any Group Company;
(z) approval of any transfer, disposal or dilution of shares in any Group Company;
(aa) any increase in compensation of any of the five (5) most highly compensated employees of any Group Company by more than fifteen percent (15%) in a twelve (12) month period or any change in the terms of employment of such employees (other than any increase in compensation already approved by the compensation Committee of the Board);
43
(bb) any adoption or amendment of the employment contracts or benefit plans for employees whose annual remuneration rate exceeds sixty thousand U.S. dollars (US$60,000) (other than any adoption or amendment of the employment contracts or benefit plans already approved by the Compensation Committee of the Board);
(cc) adoption of, or any material amendment to, the Budget;
(dd) any non-budgeted and non-operating expenditure exceeding the amount of twenty-five thousand U.S. dollars (US$25,000), per payment or in the aggregate in a period of three (3) months, by any Group Company;
(ee) other than in the ordinary course of business, any business transaction of any Group Company exceeding the amount of twenty-five thousand U.S. dollars (US$25,000), or any business transaction outside the scope of the principal business of any Group Company;
(ff) any amendment to the operational agreements among the Group Companies (including all current and future agreements), or any transaction involving both a Group Company and a shareholder or any of a Group Companys employees, officers, directors or shareholders or any affiliate of a shareholder or any of its officers, directors or shareholders;
(gg) provision of loans or advances by any Group Company to any other person (including any Group Company (unless it is wholly owned), employees or directors of any Group Company or any other entity) except in the ordinary course of business or in accordance with any stock option plan or stock incentive plan approved by the Board;
(hh) any purchase or lease by any Group Company of any real estate properties not in the ordinary course of business;
(ii) establishment of any subsidiary or affiliates (other than those provided under the Budget already approved in the manner described under Section 5.1(cc) and the signing of any shareholders agreement or joint venture agreement by any Group Company;
(jj) change of the co-signatories to the Closing Account (as described under Section 1.3 of the Purchase Agreement);
(kk) change in the size, composition or structure of the Board of Directors;
(ll) entry, extension or renewal of any franchisor or franchising arrangement or agreement;
(mm) an initial public offering of any Group Company; or
(nn) any change in the corporate structure of the Group Companies.
44
ARTICLE 6
REDEMPTION RIGHTS
6.1 Redemption of Series C Preferred Shares.
(a) Right to Redemption. If (i) the Company fails to complete a Qualified IPO or a Trade Sale on or before June 30, 2014 ( Series C Maturity Date ) for any reason or (ii) any holder of Series B Preferred Shares elects to exercise its redemption right under this Section 6, any holder of Series C Preferred Share(s) may, at any time thereafter, require that the Company redeem all or a portion of the Series C Preferred Shares then held by such holder, prior to the Companys redemption of any other Shares, in accordance with the following terms ( Series C Redemption Right ). In the event that that a holder of the then outstanding Series C Preferred Shares is entitled to require the Company to redeem all or a portion of its outstanding Series C Preferred Shares, and such holder (the Requesting C Holder ) decides to require the Company to redeem all or a portion of its outstanding Series C Preferred Shares, the Requesting C Holder shall give a notice (the C Redemption Notice ) to the Company of its intention. The Company shall promptly, and in any event within ten (10) business days from the receipt of the C Redemption Notice, forward a copy of the C Redemption Notice to each holder of record of a Series C Preferred Share, at the address last shown on the records of the Company for such holder(s). The C Redemption Notice shall state (i) the number of the Series C Preferred Shares requested to be redeemed and (ii) the date on which the requested redemption shall be made by the Company (the C Redemption Date ) which shall be a date not less than thirty (30) business days from the date of the C Redemption Notice. Within fifteen (15) business days after the receipt of the C Redemption Notice by the other holders of the Series C Preferred Shares, each of the other holders of the Series C Preferred Shares may exercise its right to require the Company to redeem all or a portion of its Series C Preferred Shares on the C Redemption Date by notifying the Company and each other holder of Series C Preferred Shares (including the Requesting C Holder) in writing of its intention, setting forth the number of the Series C Preferred Shares it requests to be redeemed on the C Redemption Date, but any failure or refusal by another holder to exercise its right within such fifteen (15) business day period shall not be deemed a waiver by such holder nor prejudice any right of such holder to require the Company to redeem all or a portion of its Series C Preferred Shares at a later date. Any payment of the C Redemption Price (as defined below) shall be made by the Company to all holders whose Series C Preferred Shares are to be redeemed on the same C Redemption Date (collectively, the Redeeming C Holders and each, a Redeeming C Holder ) pro rata based on the Total C Redemption Amount due to each Redeeming C Holder in proportion to the aggregate Total C Redemption Amount payable by the Company.
(b) C Redemption Price. The redemption price for each Series C Preferred Share redeemed pursuant to this Section 6.1 shall be the greater of (i) the sum of (x) an amount equal to one hundred thirty-seven and one-half percent (137.50%) of the Series C Share Price (as adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions) and (y) an amount equal to all dividends accrued and unpaid with respect to such Series C Preferred Share accrued up to and including the date that the Redeeming C Holder receives full payment of the C Redemption Price; or (ii) the fair market value of the Series C Preferred Shares (exclusive of liquidity event, fire sale or minority ownership discounts) as determined by an independent appraiser mutually agreeable to the Company and the Series C Investor (either (i) or (ii) being the C Redemption Price ).
(c) C Closing. The closing (the C Redemption Closing ) of the redemption of any Series C Preferred Shares pursuant to this Section 6.1 will take place within sixty (60) days of the date of the C Redemption Notice at the offices of the Company, or such earlier date or other place as the Redeeming C Holders and the Company may mutually agree in writing. At the C Redemption Closing, subject to applicable law, the Company will, from any source of assets or funds legally available therefor, redeem each Series C Preferred Share with respect to which the Company has received a C Redemption Notice by paying in cash therefor the C Redemption Price against surrender by the Redeeming C Holder at the Companys principal office of the certificate(s) representing such shares. From and after the C Redemption Closing all rights of the Redeeming C Holder of the relevant Series C Preferred Share will cease subject to the Redeeming C Holder having received the full amount of the C Redemption Price from the Company, and such Series C Preferred Share will not thereafter be transferred on the books of the Company or be deemed outstanding for any purpose whatsoever.
45
6.2 Redemption of Series B Preferred Shares .
(a) Right to Redemption. If the Company fails to complete a Qualified IPO or a Trade Sale on or before June 30, 2014, and holders of Series C Preferred Shares have elected to exercise his or her right of redemption pursuant to Section 6.1 above and the Company has satisfied its redemption obligations thereunder, any holder of Series B Preferred Share(s) may, at any time thereafter, require that the Company redeem all or a portion of the Series B Preferred Shares then held by such holder, in accordance with the following terms. In the event that that a holder of the then outstanding Series B Preferred Shares is entitled to require the Company to redeem all or a portion of its outstanding Series B Preferred Shares, and such holder (the Requesting B Holder ) decides to require the Company to redeem all or a portion of its outstanding Series B Preferred Shares, the Requesting B Holder shall give a notice (the B Redemption Notice ) to the Company of its intention. The Company shall promptly, and in any event within ten (10) business days from the receipt of the B Redemption Notice, forward a copy of the B Redemption Notice to each holder of record of a Series B Preferred Share, at the address last shown on the records of the Company for such holder(s). The B Redemption Notice shall state (i) the number of the Series B Preferred Shares requested to be redeemed and (ii) the date on which the requested redemption shall be made by the Company ( the B Redemption Date ) which shall be a date not less than thirty (30) business days from the date of the B Redemption Notice. Within fifteen (15) business days after the receipt of the B Redemption Notice by the other holders of the Series B Preferred Shares, each of the other holders of the Series B Preferred Shares may exercise its right to require the Company to redeem all or a portion of its Series B Preferred Shares on the B Redemption Date by notifying the Company and each other holder of Series B Preferred Shares (including the Requesting B Holder) in writing of its intention, setting forth the number of the Series B Preferred Shares it requests to be redeemed on the B Redemption Date, but any failure or refusal by another holder to exercise its right within such fifteen (15) business day period shall not be deemed a waiver by such holder nor prejudice any right of such holder to require the Company to redeem all or a portion of its Series B Preferred Shares at a later date. Any payment of the B Redemption Price (as defined below) shall be made by the Company to all holders whose Series B Preferred Shares are to be redeemed on the same B Redemption Date (collectively, the Redeeming B Holders and each, a Redeeming B Holder ) pro rata based on the Total B Redemption Amount due to each Redeeming B Holder in proportion to the aggregate Total B Redemption Amount payable by the Company.
46
(b) B Redemption Price. The redemption price for each Series B Preferred Share redeemed pursuant to this Section 6.2 shall be the sum of (x) an amount equal to one hundred and fifty percent (150%) of the Series B Share Price (as adjusted for any share splits, share dividends, combinations, recapitalizations or similar transactions) (the B Redemption Price ), (y) an amount equal to all dividends accrued and unpaid with respect to such Series B Preferred Share accrued up to and including the date that the Redeeming B Holder receives full payment of the B Redemption Price (the Full B Payment Date ) and (z) interest accrued on the B Redemption Price at the rate of ten percent (10%) per annum compounded annually from the date of issuance of the relevant Series B Preferred Share up to and including the Full B Payment Date (the aggregate sum of (x), (y) and (z) being the Total B Redemption Amount ).
(c) B Closing. The closing (the B Redemption Closing ) of the redemption of any Series B Preferred Shares pursuant to this Section 6.2 will take place within sixty (60) days of the date of the B Redemption Notice at the offices of the Company, or such earlier date or other place as the Redeeming B Holders and the Company may mutually agree in writing. At the B Redemption Closing, subject to applicable law, the Company will, from any source of assets or funds legally available therefor, redeem each Series B Preferred Share with respect to which the Company has received a B Redemption Notice by paying in cash therefor the Total B Redemption Amount against surrender by the Redeeming B Holder at the Companys principal office of the certificate representing such share. From and after the B Redemption Closing all rights of the Redeeming B Holder of the relevant Series B Preferred Share will cease subject to the Redeeming B Holder having received the full amount of the Total B Redemption Amount from the Company, and such Series B Preferred Share will not thereafter be transferred on the books of the Company or be deemed outstanding for any purpose whatsoever.
6.3 Insufficient Funds. If the Companys assets or funds which are legally available on the date that any redemption payment under this Section 6 is due are insufficient to pay in full all redemption payments to be paid at the C Redemption Closing, and/or subsequently, the B Redemption Closing, or if the Company is otherwise prohibited by applicable law from making such redemption, those assets or funds which are legally available shall be used to the extent permitted by applicable law to pay all redemption payments due on the Series C Preferred Shares, and subsequently, the Series B Preferred Shares, on such date ratably in proportion to the full amounts to which the holders of the Series C Preferred Shares, and subsequently, the holders of the Series B Preferred Shares, to which such redemption payments are due would otherwise be respectively entitled thereon. Thereafter, all assets or funds of the Company that become legally available for the redemption of shares shall immediately be used to pay the redemption payment which the Company did not pay to the holders of Series C Preferred Shares, and subsequently, the Series B Preferred Shares, on the date that such redemption payments were due. Without limiting any rights of the holders of Series C Preferred Shares and Series B Preferred Shares which are set forth in this Agreement or the Companys Fourth Amended and Restated Articles of Association, or are otherwise available under law, the balance of any shares subject to redemption hereunder with respect to which the Company has become obligated to pay the redemption payment but which it has not paid in full shall continue to have all the powers, designations, preferences and relative participating, optional, and other special rights (including, without limitation, rights to accrue dividends) which such shares had prior to such date, until the redemption payment has been paid in full with respect to such shares.
6.4 Redemption of Series A Preferred Shares . For the avoidance of doubt, except as provided in Article 4 of this Schedule, the Series A Preferred Shares shall not be redeemable.
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ARTICLE 7
RESTRICTION ON TRANSFER
7.1 None of the Members shall directly or indirectly transfer, mortgage, pledge or otherwise dispose of or encumber or grant a security interest, lien, charge, privilege or similar right in or on any of the Shares except and in accordance with the provisions of the Shareholders Agreement.
ARTICLE 8
DEFINITIONS
For the purposes of this Schedule, the following terms shall have the meanings indicated. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Shareholders Agreement.
Additional Ordinary Shares means all Equity Securities issued by the Company, excluding those issued or issuable: (i) in accordance with any stock option plan or stock incentive plan approved by the Board in accordance with the Shareholders Agreement; (ii) upon conversion or exercise of the Preferred Shares; (iii) in connection with a bona fide business acquisition by the Company of another business, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise provided that such acquisition is one approved in accordance with Article 5.1; (iv) in a Qualified IPO; (v) pursuant to equipment lease financings or bank credit arrangements provided that such financing or arrangement is one approved in accordance with Article 5.1.
Affiliates means, with respect to any individual, corporation, partnership, association, trust, or any other entity (in each case, a Person ), any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation (any general partner, officer or director of such Person and any venture capital fund now or hereafter existing which is controlled by or under common control with one or more general partners or shares the same management company with such Person.
Applicable Conversion Price has the meaning ascribed to it in Article 4.
Board shall mean the board of Directors of the Company.
B Redemption Closing has the meaning ascribed to such term in Article 6.2(c) .
B Redemption Date has the meaning ascribed to such term in Article 6.2(a).
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B Redemption Notice has the meaning ascribed to such term in Article 6.2(a) .
B Redemption Price has the meaning ascribed to such term in Article 6.2(b) .
C Redemption Closing has the meaning ascribed to such term in Article 6.1(c) .
C Redemption Date has the meaning ascribed to such term in Article 6.1(a).
C Redemption Notice has the meaning ascribed to such term in Article 6.1(a) .
C Redemption Price has the meaning ascribed to such term in Article 6.1(b) .
Company shall mean Tarena International, Inc.
Conversion Prices has the meaning ascribed to it in Article 4.4 .
Conversion Share has the meaning ascribed to it in Article 4.3.
Dilution Price has the meaning ascribed to it in Article 4.5(e) (i).
Effective Conversion Price has the meaning ascribed to it in Article 4.5(e) (iii) .
Equity Securities means any Ordinary Shares or Ordinary Share Equivalents of the Company.
Full B Payment Date has the meaning ascribed to such term in Article 6.2(b) .
Group Companies means the Company, the WFOE, and the Domestic Companies, and any other direct or indirect Subsidiary of a Group Company collectively, and Group Company means any one of them.
JAFCO means JAFCO Asia Technology Fund IV and its affiliates, successors and permitted assigns.
JAFCO Director shall mean the Director appointed by JAFCO.
Liquidation Event has the meaning ascribed to it in Article 2.2 .
Member has the meaning ascribed to it in the Statute.
Memorandum and Articles means the fourth amended and restated memorandum of association and fourth amended and restated articles of association, adopted by Special Resolution on August 26, 2011.
Ordinary Share Equivalents means warrants, options and rights exercisable for Ordinary Shares or securities convertible into or exchangeable for Ordinary Shares, including, without limitation, the Preferred Shares.
49
Person means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.
Preferred Shares means Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares.
Purchase
Agreement
shall mean the Purchase Agreement dated as of August 9, 2011 entered into by and among the Company, Goldman Sachs Investment Partners Master Fund, L.P., and Goldman Sachs Investment Partners Private Opportunities Holdings,
L.P., Han Shaoyun
(Founder),
Zhao Mei
(Existing Holder),
Connion Capital Limited
(Founder Holdco),
Beijing Tarena Jinqiao Technology Co., Ltd.
(Beijing Domestic Company),
Shanghai Tarena Software Technology Co., Ltd.
(Shanghai
Domestic Company
and together with Beijing Domestic Company, the
Domestic Companies),
and Beijing Tarena Technology Co., Ltd.
(WFOE).
Qualified IPO means a firm commitment underwritten public offering of the Ordinary Shares in the United States, that has been registered under the Securities Act, with the pre-money valuation of the Company of no less than US$270,000,000 and gross proceeds to the Company of at least US$50,000,000 and the total securities issued by the Company in such offering no less than twenty percent (20%) of all outstanding share capital of the Company after the offering, or in a similar public offering of the Ordinary Shares of the Company in Hong Kong or another jurisdiction which results in the Ordinary Shares trading publicly on a recognized international securities exchange; provided that such offering satisfies the foregoing pre-money valuation and offering share percentage and has been approved by the holders of more than forty five percent (45%) of the Series A Preferred Shares, the holders of more than forty five percent (45%) of the Series B Preferred Shares (including JAFCO), and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares (including the Series C Investor).
Redemption Amount has the meaning ascribed to it in Article 4.3(a) .
Redeeming B Holder has the meaning ascribed to it in Article 6.2(a) .
Redeeming C Holder has the meaning ascribed to it in Article 6.1(a) .
Requesting B Holder has the meaning ascribed to such term in Article 6.2(a) .
Requesting C Holder has the meaning ascribed to such term in Article 6.1(a) .
Series A Director shall mean the Director appointed by holders of Series A Preferred Shares.
Series A Liquidation Preference has the meaning ascribe to it in Article 2.1(c) .
Series A Preferred Shares means the Companys Series A Convertible Preferred Shares with a par value of US$0.001 per share.
Series A Purchase Price shall mean US$500,000.
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Series A Share Price shall mean US$0.5833 per Series B Preferred Share.
Series B Liquidation Preference has the meaning ascribed to it in Article 2.1(b) .
Series B Preferred Shares means the Companys Series B Convertible Preferred Shares with a par value of US$0.001 per share.
Series B Purchase Price shall mean US$6,500,000.
Series B Share Price shall mean US$8.88 per Series B Preferred Share.
Series C Director shall mean the Director appointed by holders of Series C Preferred Shares.
Series C Investor shall mean Goldman Sachs Investment Partners Master Fund, L.P., and Goldman Sachs Investment Partners Private Opportunities Holdings, L.P., and the respective affiliates, successors and permitted assigns of such entities.
Series C Liquidation Preference has the meaning ascribed to it in Article 2.1(a).
Series C Maturity Date has the meaning ascribed to such term in Article 6.1(a) .
Series C Preferred Shares means the Companys Series C Convertible Preferred Shares with a par value of US$0.001 per share.
Series C Purchase Price shall mean US$19,974,223.08.
Series C Redemption Right has the meaning ascribed to such term in Article 6.1(a) .
Shareholders Agreement shall mean the Shareholders Agreement entered into by and among the Company, the Series C Investor, JAFCO, IDG Technology Venture Investments, LP., the Founder, the Founder Holdco, the Existing Holder, the WFOE and the Domestic Companies on September 6, 2011.
Subsidiary or subsidiary means, as of the relevant date of determination, with respect to any Person (the subject entity), (i) any Person (x) more than fifty percent (50%) of whose shares or other interests entitled to vote in the election of directors or (y) more than a fifty percent (50%) interest in the profits or capital of such Person are owned or controlled directly or indirectly by the subject entity or through one (1) or more Subsidiaries of the subject entity, (ii) any Person whose assets, or portions thereof, are consolidated with the net earnings of the subject entity and are recorded on the books of the subject entity for financial reporting purposes in accordance with GAAP, or (iii) any Person with respect to which the subject entity has the power to otherwise direct the business and policies of that entity directly or indirectly through another subsidiary. For the avoidance of doubt, the Subsidiaries of the Company shall include the Group Companies (excluding the Company).
Total B Redemption Amount has the meaning ascribed to such term in Article 6.2(b) .
Total C Redemption Amount has the meaning ascribed to such term in Article 6.1(a).
51
THE COMPANIES LAW (AS AMENDED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDMENT NO. 1 TO THE FOURTH AMENDED AND RESTATED ARTICLES OF ASSOCIATION
OF
TARENA INTERNATIONAL, INC.
(Adopted by Special Resolutions of the Shareholders on January 8, 2014)
The shareholders of Tarena International, Inc. (the Company), by way of a special resolutions, have resolved to amend the fourth amended and restated articles of association of the Company (the Articles) as follows:
1. | Article 6.1(a) of Schedule, as defined in the Articles, is replaced in its entirety with the following: |
Right to Redemption . If (i) the Company fails to complete a Qualified IPO or a Trade Sale on or before June 30, 2015 ( Series C Maturity Date ) for any reason or (ii) any holder of Series B Preferred Shares elects to exercise its redemption right under this Section 6 , any holder of Series C Preferred Share(s) may, at any time thereafter, require that the Company redeem all or a portion of the Series C Preferred Shares then held by such holder, prior to the Companys redemption of any other Shares, in accordance with the following terms ( Series C Redemption Right ). In the event that that a holder of the then outstanding Series C Preferred Shares is entitled to require the Company to redeem all or a portion of its outstanding Series C Preferred Shares, and such holder (the Requesting C Holder ) decides to require the Company to redeem all or a portion of its outstanding Series C Preferred Shares, the Requesting C Holder shall give a notice (the C Redemption Notice ) to the Company of its intention. The Company shall promptly, and in any event within ten (10) business days from the receipt of the C Redemption Notice, forward a copy of the C Redemption Notice to each holder of record of a Series C Preferred Share, at the address last shown on the records of the Company for such holder(s). The C Redemption Notice shall state (i) the number of the Series C Preferred Shares requested to be redeemed and (ii) the date on which the requested redemption shall be made by the Company (the C Redemption Date ) which shall be a date not less than thirty (30) business days from the date of the C Redemption Notice. Within fifteen (15) business days after the receipt of the C Redemption Notice by the other holders of the Series C Preferred Shares, each of the other holders of the Series C Preferred Shares may exercise its right to require the Company to redeem all or a portion of its Series C Preferred Shares on the C Redemption Date by notifying the Company and each other holder of Series C Preferred Shares (including the Requesting C Holder) in writing of its intention, setting forth the number of the Series C Preferred Shares it requests to be redeemed on the C Redemption Date, but any failure or refusal by another holder to exercise its right within such fifteen (15) business day period shall not be deemed a waiver by such holder nor prejudice any right of such holder to require the Company to redeem all or a portion of its Series C Preferred Shares at a later date. Any payment of the C Redemption Price (as defined below) shall be made by the Company to all holders whose Series C Preferred Shares are to be redeemed on the same C Redemption Date (collectively, the Redeeming C Holders and each, a Redeeming C Holder) pro rata based on the Total C Redemption Amount due to each Redeeming C Holder in proportion to the aggregate Total C Redemption Amount payable by the Company.
52
2. | Article 6.2(a) of Schedule, as defined in the Articles, is replaced in its entirety with the following: |
Right to Redemption . If the Company fails to complete a Qualified IPO or a Trade Sale on or before June 30, 2015, and holders of Series C Preferred Shares have elected to exercise his or her right of redemption pursuant to Section 6.1 above and the Company has satisfied its redemption obligations thereunder, any holder of Series B Preferred Share(s) may, at any time thereafter, require that the Company redeem all or a portion of the Series B Preferred Shares then held by such holder, in accordance with the following terms. In the event that that a holder of the then outstanding Series B Preferred Shares is entitled to require the Company to redeem all or a portion of its outstanding Series B Preferred Shares, and such holder (the Requesting B Holder ) decides to require the Company to redeem all or a portion of its outstanding Series B Preferred Shares, the Requesting B Holder shall give a notice (the B Redemption Notice ) to the Company of its intention. The Company shall promptly, and in any event within ten (10) business days from the receipt of the B Redemption Notice, forward a copy of the B Redemption Notice to each holder of record of a Series B Preferred Share, at the address last shown on the records of the Company for such holder(s). The B Redemption Notice shall state (i) the number of the Series B Preferred Shares requested to be redeemed and (ii) the date on which the requested redemption shall be made by the Company (the B Redemption Date ) which shall be a date not less than thirty (30) business days from the date of the B Redemption Notice. Within fifteen (15) business days after the receipt of the B Redemption Notice by the other holders of the Series B Preferred Shares, each of the other holders of the Series B Preferred Shares may exercise its right to require the Company to redeem all or a portion of its Series B Preferred Shares on the B Redemption Date by notifying the Company and each other holder of Series B Preferred Shares (including the Requesting B Holder) in writing of its intention, setting forth the number of the Series B Preferred Shares it requests to be redeemed on the B Redemption Date, but any failure or refusal by another holder to exercise its right within such fifteen (15) business day period shall not be deemed a waiver by such holder nor prejudice any right of such holder to require the Company to redeem all or a portion of its Series B Preferred Shares at a later date. Any payment of the B Redemption Price (as defined below) shall be made by the Company to all holders whose Series B Preferred Shares are to be redeemed on the same B Redemption Date (collectively, the Redeeming B Holders and each, a Redeeming B Holder ) pro rata based on the Total B Redemption Amount due to each Redeeming B Holder in proportion to the aggregate Total B Redemption Amount payable by the Company.
53
Exhibit 4.4
SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
DATED THIS SEPTEMBER 6, 2011
BY AND AMONG
TARENA INTERNATIONAL, INC.
(as Company)
each of the Persons listed on Schedule 1 hereto
(as Investors)
the Person listed on Schedule 2 hereto
(as Founder)
CONNION CAPITAL LIMITED
(as Key Holder)
ZHAO MEI
(as Existing Holder)
each of the Persons listed on Schedule 3 hereto
(as Domestic Companies)
AND
BEIJING TARENA TECHNOLOGY CO., LTD.
(as WFOE)
SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
This SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (the
Agreement
) is made as of September 6, 2011 by and among
(i) Tarena International, Inc., an exempted company duly incorporated and validly existing under the Laws of the Cayman Islands (the
Company
), (ii) Goldman Sachs Investment Partners Master Fund, L.P. (
GS Master
Fund
), Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. (
GS Private Opportunities Holdings
, and together with GS Master Fund,
GS
) and the persons identified on
Schedule 1
of this Agreement (each individually an
Existing Investor
and collectively the
Existing Investors
and together with GS, the
Investors
), (iii) the person identified on
Schedule 2
of
this Agreement (the
Founder
), (iv) Connion Capital Limited, a business company with limited liability duly incorporated and validly existing under the Laws of the British Virgin Islands (the
Key Holder
),
(v) Zhao Mei, a PRC citizen with passport number of *** (the
Existing Holder
), (vi) the entities identified as Domestic Companies on
Schedule 3
of this Agreement (each individually a
Domestic
Company
and collectively the
Domestic Companies
) and (vii) Beijing Tarena Technology Co., Ltd.
a wholly-foreign owned enterprise organized and existing under the Laws of the PRC (the
WFOE
). Each of the Company, the Investors, the Founder, the Key Holder, the Existing Holder, the WFOE and the
Domestic Companies shall be referred to individually as a
Party
and collectively as the
Parties
.
RECITALS
WHEREAS , the Company, GS, the Founder, the Key Holder, the Existing Holder, the WFOE and the Domestic Companies are parties to the Series C Preferred Share Purchase Agreement dated as of August 8, 2011 (the Purchase Agreement ); and
WHEREAS , the Company, certain of the Investors, the Founder, the Key Holder, the WFOE and the Domestic Company are parties to the Amended and Restated Shareholders Agreement dated as of September 22, 2008 (the 2008 Shareholders Agreement ) to record the respective information, registration and other rights and obligations of the shareholders of the Company; and
WHEREAS , in order to induce the Company to enter into the Purchase Agreement and to induce GS to invest funds in the Company pursuant to the Purchase Agreement, the Investors, the Founder, the Key Holder, the Company, the Existing Holder, the Domestic Companies and the WFOE hereby agree that this Agreement shall govern certain shareholder rights and other matters as set forth in this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. | DEFINITIONS . |
For purposes of this Agreement, capitalized terms shall have the meanings set forth in Exhibit A attached hereto.
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2. | REGISTRATION RIGHTS; GOING PUBLIC . |
(a) | Registration Rights . |
The registrations rights of the Investors with respect to the Company and the rights and obligations of the parties with respect to registration of the Companys Ordinary Shares are set forth on Exhibit B attached hereto. No Holder shall be entitled to exercise any right provided for in Exhibit B following the date that is five (5) years after the consummation of the Qualifying IPO. The rights set forth in Exhibit B shall terminate upon the earlier of (i) the date of the completion of a Liquidation Event, as such term is defined in the Companys Articles, or (ii) as to any Holder, when all Registrable Securities held by such Holder (together with any Affiliate of such Holder with whom such Holder must aggregate its sales under SEC Rule 144) could be sold without restriction under SEC Rule 144(k) within a ninety (90) day period.
(b) | Going Public . |
Each of the Key Holder, the Founder and the Company undertakes to use best efforts to, within twenty-four (24) months from the date of Closing, consummate a Qualifying IPO of the Company on NASDAQ or the Hong Kong Stock Exchange (Main Board or GEM) or any other stock exchange acceptable to the Investors, or consummate a Trade Sale. In connection with the forgoing, each of the Shareholders shall exercise their voting rights in favor of the Companys application for such listing. The Company and the Shareholders will not do or permit to be done or permit to be omitted or otherwise undertake, agree or propose any act, deed, transaction or proposal prejudicial to or which may affect its ability to achieve such listing.
3. | INFORMATION AND OBSERVER RIGHTS . |
3.1 | Delivery of Financial Statements . |
The Company shall deliver to the Investors:
(a) | as soon as practicable, but in any event within sixty (60) days after the end of each financial year of the Company, (i) an unaudited consolidated balance sheet as of the last day of such year; (ii) an unaudited consolidated income statement for such year; and (iii) an unaudited consolidated statement of cash flows for such year; such year-end financial statements to be in reasonable detail, prepared in accordance with U.S. GAAP, consistently applied and in each case setting forth in comparative form figures for the previous year, such financial statements to be prepared by a reputable international accounting firm acceptable to the Investors and certified by the Companys Chief Executive Officer; |
(b) | as soon as practicable, but in any event within ninety (90) days after the end of each financial year of the Company, (i) a consolidated balance sheet as of the last day of such year; (ii) a consolidated income statement for such year; and (iii) a consolidated statement of cash flows for such year; such year-end financial reports to be in reasonable detail, prepared in accordance with U.S. GAAP consistently applied and in each case setting forth in comparative form figures for the previous year and audited and certified by independent public accountants of internationally recognized standing selected by the Company with the approval of the Board of Directors, including the affirmative consent of both the Series C Director and the JAFCO Director, and accompanied by a report and opinion thereon by such independent public accountants and certified by the Companys Chief Executive Officer; |
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(c) | as soon as practicable, but in any event within thirty (30) days after the end of each quarter of each financial year of the Company, (i) a consolidated unaudited balance sheet as of the last day of such quarter; (ii) a consolidated unaudited income statement for such quarter; (iii) an unaudited consolidated statement of cash flows for such quarter; and (iv) a statement of shareholders equity, each certified by the Companys Chief Financial Officer as of the last day of such quarter, along with a statement certified by the Companys Chief Financial Officer showing the number of shares of each class of share capital and securities convertible into or exercisable for share capital outstanding at the end of the period, the number of Ordinary Shares issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Ordinary Shares and the exchange ratio or exercise price applicable thereto and number of shares of issued share options and share options not yet issued but reserved for issuance, if any (all in sufficient detail as to permit each Investor to calculate its respective percentage equity ownership in the Company), except that any financial reports or statements submitted pursuant to this Section 3.1(c) may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto which may be required in accordance with U.S. GAAP; |
(d) | as soon as practicable, but in any event within thirty (30) days of the end of each month, (i) an unaudited consolidated balance sheet as of the last day of such month; (ii) an unaudited consolidated income statement for such month and (iii) an unaudited consolidated statement of cash flows for such month, each certified by the Companys Chief Financial Officer; |
(e) | as soon as practicable, but in any event forty-five (45) days prior to the end of each financial year, a comprehensive proposed consolidated budget and business plan for the next financial year to be submitted to the Board for approval (collectively, the Budget ), prepared on a monthly basis including, revenues, expenses, cash position, balance sheets and sources and applications of funds statements (including any anticipated or planned capital expenditure or borrowings) for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; |
(f) | with respect to the financial statements called for in Sections 3.1(a) , 3.1(b) , 3.1(c) and 3.1(d) , an instrument executed by the Chief Financial Officer of the Company and certifying that such financials were prepared in accordance with U.S. GAAP consistently applied with prior practice for earlier periods (with the exception, for unaudited statements, such statements may be subject to normal year-end audit adjustments and exclude all footnotes required by applicable accounting standard). Management shall also provide an analysis of results, highlighting notable events and a thorough explanation of any material differences between actual figures, on the one hand and figures for the prior year and figures presented in the Budget on the other hand. |
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(g) | such other information relating to the financial condition, business, prospects or corporate affairs of the Company as determined by the Board, an Investor and/or any assignee of an Investor may from time to time reasonably request; |
(h) | if for any period the Company shall have any Subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated Subsidiaries; |
(i) | Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date sixty (60) days prior to the Companys good faith estimate of the date of filing of, and ending on a date one hundred and eighty (180) days after the effective date of the registration effecting the Qualifying IPO, to the extent required under the applicable rules of the jurisdiction in which the registration statement (or similar application for listing of the Ordinary Shares or statement) is to be filed; provided that the Company is actively employing its reasonable best efforts to cause such registration statement to become effective. |
3.2 | Inspection . |
So long as an Investor holds any Shares, each Group Company shall permit such Investor, at the Investors expense, to visit and inspect such Group Companys properties, to examine its books of account and records and to discuss the Group Companys affairs, finances and accounts with its officers, any time during regular business hours and at such reasonable times as may be reasonably requested by the Investors.
3.3 | Observer Rights . |
So long as any Investor holds any Shares, such Investor shall be entitled to nominate a representative (an Observer ) to attend, at its own expense, and speak at all meetings of the Board. An Observer is entitled to receive all notices of meetings of the Board as well as copies of all minutes, consents and other materials, financial or otherwise, in the same manner as such notices, minutes, consents and other materials are provided to a Director.
An Observer shall have full rights of audience and may speak at all meetings of the Board, but shall not be entitled to vote or be counted towards the quorum at any such meetings.
3.4 | Termination of Information, Inspection and Observer Rights . |
The covenants set forth in Section 3.1 and Section 3.2 shall terminate and be of no further force or effect immediately prior to (i) the consummation of the sale of Ordinary Shares in the Qualifying IPO, or (ii) upon the completion of a Liquidation Event, as such term is defined in the Articles, whichever event shall first occur.
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3.5 | Confidentiality . |
(a) | Disclosure of Terms |
Each party hereto acknowledges that the terms and conditions (collectively, the Financial Terms ) of this Agreement, the other Transaction Documents, and all exhibits, restatements and amendments hereto and thereto, including their existence, shall be considered confidential information and shall not be disclosed by it to any third party except in accordance with the provisions set forth below. Each Investor agrees with the Company that such Investor will keep confidential and will not disclose or divulge, any information which such Investor obtains from the Company, pursuant to financial statements, reports, presentations, correspondence, and any other materials provided by the Company to, or communications between the Company and such Investor, or pursuant to information rights granted under this Agreement or any other related documents, unless the information is known, or until the information becomes known, to the public through no fault of such Investor, or unless the Company gives its written consent to such Investors release of the information.
(b) | Press Releases |
Any press release, public announcement and disclosure disclosing that the Investors have invested in the Company may only be issued, if (a) it does not disclose any of the Financial Terms or any transactions contemplated in the Purchase Agreement, (b) it does not disclose the amount or other specific terms of the investment, and (c) its final form was approved in advance in writing by each Investor mentioned therein. Investors names and the fact that Investors have made an investment in the Company can be included in a reusable press release boilerplate statement, so long as each Investor has given its initial approval of such boilerplate statement and the boilerplate statement is reproduced in exactly the form in which it was approved. No other announcement regarding any Investor or any of its Affiliates in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without such Investors prior written consent (and the prior written consent of the Affiliate(s) of such Investor named), which consent may be withheld at such Investors sole discretion (and at the sole discretion of such Investors Affiliate(s), as the case may be).
(c) | Permitted Disclosures |
Notwithstanding anything in the foregoing to the contrary:
(i) | the Company may disclose, on a need to know basis, any of the Financial Terms to its current or bona fide prospective investors, directors, officers, employees, shareholders, investment bankers, lenders, accountants, auditors, insurers, business or financial advisors, and attorneys, in each case only where such persons or entities are under appropriate nondisclosure obligations imposed by professional ethics, Law or otherwise; |
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(ii) | each Investor (and its fund manager) may, without disclosing the identities of the other Investors or the Financial Terms of their respective investments in the Company without their or the Companys consent, disclose such Investors investment in the Company to third parties or to the public at its sole discretion and in relation thereto may use the Companys logo and trademark (without requiring the Companys further consent). If it does so, the other parties shall have the right to disclose to third parties any such information disclosed in a press release or other public announcement by such Investor. |
(iii) | each Investor shall have the right to disclose: |
(A) | any information to such Investors Affiliates, such Investors and/or its fund managers and/or its Affiliates legal counsel, fund manager auditor, insurer, accountant, consultant or to an officer, director, general partner, limited partner, its fund manager, shareholder, investor or transferee, potential investor or transferee, counsel or advisor, or employee of such Investor and/or any of its Affiliates; provided , however , that any such counsel, auditor, insurer, accountant, consultant, officer, director or employee shall be advised of the confidential nature of the information and are under appropriate non-disclosure obligation imposed by professional ethics, Law or otherwise; |
(B) | any information for fund and inter-fund reporting purposes; |
(C) | any information as required by Law, government authorities, exchanges and/or regulatory bodies; |
(D) | any information to bona fide prospective purchasers/investors of any share, security or other interests in the Company; and/or |
(E) |
any information contained in press releases or public announcements of the Company pursuant to
Section 3.5(b) above. |
(iv) | the confidentiality obligations set out in this Section 3.5 do not apply to: |
(A) | information which was in the public domain or otherwise known to the relevant party before it was furnished to it by another party hereto or, after it was furnished to that party, entered the public domain otherwise than as a result of (i) a breach by that party of this Section 3.5 or (ii) a breach of a confidentiality obligation by a third party discloser, where the breach was actually known to that relevant party; |
(B) | information the disclosure of which is necessary in order to comply with any applicable Law, the order of any court, the requirements of a stock exchange or to obtain tax or other clearances or consents from any relevant authority; or |
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(C) | information disclosed by any Director or Observer of the Company to its appointer or any of its Affiliates or to any person to whom disclosure would be permitted in accordance with the foregoing provisions of this Section 3.5(c) . |
(d) | Legally Compelled Disclosure . |
In the event that any party is requested or becomes legally compelled (including without limitation, pursuant to securities Laws and regulations) to disclose the existence of this Agreement or any Agreement Financing Terms, such party (the Disclosing Party ) shall provide the other parties (the Non-Disclosing Parties ) with prompt written notice of that fact, if lawfully permitted to do so, so that the appropriate party may seek (with the cooperation and reasonable efforts of the other parties) a protective order, confidential treatment or other appropriate remedy. In such event, the Disclosing Party shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information to the extent reasonably requested by any Non-Disclosing Party.
(e) | Entire Agreement . |
This Section 3.5 constitutes the entire agreement among the Parties as to the matter of confidentiality and supersedes the separate nondisclosure agreements executed by the Company with the Investors (and/or their Affiliates) with respect to the transactions contemplated.
3.6 | Tax Matters . |
(a) | The Company shall upon the request of any U.S. Investor (a) determine, with respect to such taxable year whether the Company (or any of its Affiliates) is a passive foreign investment company ( PFIC ) as described in Section 1297 of the United States Internal Revenue Code of 1986, as amended (the Code ) (including whether any exception to PFIC status may apply) or is or may be classified as a partnership or branch for U.S. federal income tax purposes, and (b) provide such information reasonably available to the Company as any U.S. Investor may reasonably request to permit such U.S. Investor to elect to treat the Company and/or any such entity (including a Subsidiary of the Company) as a qualified electing fund (within the meaning of Section 1295 of the Code) (a QEF Election ) for U.S. federal income tax purposes. The Company shall also, reasonably promptly upon request, obtain and provide any and all other information reasonably deemed necessary by the U.S. Investor to comply with the provisions of this Section 3.6(a) . The Company shall, upon the request of any U.S. Investor, appoint an internationally reputable accounting firm acceptable to the Investor to prepare and submit its U.S. tax filings. |
(b) | If a determination is made by the Company that the Company is a PFIC for a particular taxable year, then for such year and for each year thereafter, the Company shall also provide each known U.S. Investor within sixty (60) days upon the request of such U.S. Investor with a completed PFIC Annual Information Statement as required by Treasury Regulation Section 1.1295-1(g) and any other information reasonably required by a U.S. Investor to comply with any reporting or other requirements in connection with the QEF Election. |
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(c) | The Company shall promptly provide each U.S. Investor with written notice if it (or any of its Subsidiaries) becomes aware that it is a controlled foreign corporation as described in Section 957 of the Code ( CFC ). The Company shall, upon the reasonable request of a U.S. Investor, furnish on a timely basis all information requested by such Investor to satisfy its U.S. federal income tax return filing requirements, if any, arising from its investment in the Company and relating to the Company or any Group Companys classification as a CFC. |
(d) | The Company, upon a reasonable request, will comply and will cause its Subsidiaries to comply with all record-keeping, reporting, and other requests reasonably necessary for the Company and its Subsidiaries to allow any U.S. Investor to comply with any applicable U.S. federal income tax Law. The Company will also provide any known U.S. Investor with any information reasonably requested to allow such U.S. Investor to comply with any applicable U.S. federal income tax Law (including but not limited to information relating to the transfer of any equity interests of the Company (or any Subsidiary) and the issuance or redemption by the Company (or any Subsidiary) of any equity interests). |
(e) | The Company shall, if reasonably requested by a U.S. Investor, cooperate in determining whether it would be desirable, reasonable and appropriate for the Company and/or any Subsidiary to elect to be classified as a partnership or branch for U.S. federal income tax purposes and, if so, to take all reasonable steps to cause any such elections to be made, including by filing or by causing to be filed, Internal Revenue Service Form 8832 (or any successor form), and the Company shall not permit such election, once made, to be terminated or revoked without the written consent of the U.S. Investors; provided that the Company shall notify all U.S. Investors prior to the making of any such election. |
(f) | The Company shall, and shall cause each Group Company to, timely and accurately file tax returns in each jurisdiction in which such returns are required to be filed. |
(g) | All out-of-pocket expenses incurred by the Company or any Subsidiary, resulting from the affirmative requests of a U.S. Investor pursuant to Sections 3.6(a) - (f) above shall be borne by the Company. |
(h) | The covenants set forth in this Section 3.6 shall terminate and be of no further force or effect, with respect to the Companys obligation to any U.S. Investor, at such time as the U.S. Investor no longer holds any Ordinary Shares (on an as-converted basis) in the Company. |
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4. | RIGHT OF FIRST OFFER . |
4.1 | Right of First Offer . |
Subject to the terms and conditions specified in this Section 4.1 , and applicable securities Laws, in the event the Company proposes to offer or sell any New Securities, the Company shall first make an offering of such New Securities to the Investors in proportion to their respective shareholding in the Company in accordance with the following provisions of this Section 4.1 . Any Investor shall be entitled to apportion the right of first offer hereby granted it among themselves and their partners, members and Affiliates in such proportions as it deems appropriate provided that, with respect to any Investor other than GS, such partners, members and Affiliates of such Investors do not have any interest in any business, company or asset which competes with the business of the Company or any of its Subsidiaries.
(a) | The Company shall deliver a notice, in accordance with the provisions of Section 9.4 hereof, (the Offer Notice ) to the Investors stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities. |
(b) | By written notification received by the Company, within twenty (20) calendar days after mailing of the Offer Notice, each Investor may elect to purchase or obtain, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the number of Ordinary Shares issued and held or issuable upon conversion of the Preferred Shares (and any other securities convertible into, or otherwise exercisable or exchangeable for, Ordinary Shares) then held, by such Investor bears to the total number of Ordinary Shares issued and held by all Investors, or issuable to all Investors upon conversion of all Preferred Shares then outstanding. The Company shall promptly, in writing, inform each Investor that elects to purchase all the shares available to it (each, a Fully-Exercising Holder ) of any other Investors failure to do likewise. During the ten (10) day-period commencing immediately after receipt of such information, each Fully-Exercising Holder shall be entitled to obtain that portion of the New Securities for which any of the Investors were entitled to subscribe but which were not subscribed for by the Investors which is equal to the proportion that the number of Ordinary Shares issued and held, or issuable upon conversion of Preferred Shares then held by such Fully-Exercising Holder bears to the total number of Ordinary Shares issued and held, or issuable upon conversion of the Preferred Shares then held by all Fully-Exercising Holders who wish to purchase such unsubscribed shares. |
(c) |
If not all New Securities referred to in the Offer Notice are elected to be purchased or obtained as provided in
Section 4.1(b ) hereof, the Company may, during the sixty (60) day period following the expiration of the period provided in Section 4.1(b) hereof, offer the remaining unsubscribed portion of such New Securities (collectively, the Refused Securities ) to any person or persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Investors in accordance with this Section 4.1 . |
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(d) | The right of first offer in this Section 4.1 shall not be applicable to: (i) up to 6,002,020 Ordinary Shares (including outstanding options) (as adjusted for stock splits, stock divisions, recapitalizations and similar transactions) issued or to be issued to employees or directors of, or consultants to, the Company or any of its Subsidiaries pursuant to the 2008 employee stock option plan as previously approved by the Board of the Company; (ii) the issuance of Ordinary Shares pursuant to the conversion of the issued and outstanding Preferred Shares; (iii) securities issued in connection with any share split, share dividend, combination, recapitalization or other similar transaction of the Company; or (iv) the issuance of Ordinary Shares issued in a Qualifying IPO. |
4.2 | Termination . |
The provisions of this Section 4 shall terminate upon the earlier of: (a) the consummation of the Companys Qualifying IPO and (b) upon a Liquidation Event, as such term is defined in the Articles.
5. | BOARD COMPOSITION AND VOTING MATTERS . |
5.1 | Board Composition . |
Each Shareholder agrees to vote all of his, her or its Shares in the Company (whether now owned or hereafter acquired or which the Shareholder may be empowered to vote), from time to time and at all times, in whatever manner shall be necessary to ensure that at each annual or special meeting of shareholders at which an election of directors is held or pursuant to any written consent of the shareholders, the following persons shall be elected to the Board:
(a) | For so long as the Series A Investor holds no less than fifteen percent (15%) of the Series A Preferred Shares purchased under the Series A Preferred Share Purchase Agreement (as adjusted for any conversion, share splits, share dividends, combinations, recapitalizations or similar transactions), the Series A Investor shall be entitled to nominate and elect one (1) director of the Board of the Company(the Series A Director ), initially to be Li Jianguang. The Series A Investor shall also be entitled to remove any director occupying in such position and to fill any vacancy caused by the resignation, death or removal of any director occupying such position. |
(b) | For so long as JAFCO holds no less than fifteen percent (15%) of the Series B Preferred Shares purchased under the Series B Preferred Share Purchase Agreement (as adjusted for any conversion, share splits, share dividends, combinations, recapitalizations or similar transactions), JAFCO shall be entitled to nominate and elect one (1) director of the Board of the Company (the JAFCO Director ), initially to be Zhang Yang. JAFCO shall also be entitled to remove any director occupying in such position and to fill any vacancy caused by the resignation, death or removal of any director occupying such position. |
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(c) | For so long as the Series C Investor holds no less than fifteen percent (15%) of the Series C Preferred Shares purchased under the Purchase Agreement (as adjusted for any conversion, share splits, share dividends, combinations, recapitalizations or similar transactions), the Series C Investor shall be entitled to nominate and elect one (1) director of the Board of the Company (the Series C Director and together with the Series A Director and the JAFCO Director, the Preferred Directors ), initially to be Terence Ting. The Series C Investor shall also be entitled to remove any director occupying in such position and to fill any vacancy caused by the resignation, death or removal of any director occupying such position. |
(d) | The holders of more than fifty percent (50%) of the Ordinary Shares of the Company shall be entitled to nominate and elect four (4) directors of the Board of the Company (the Ordinary Share Directors ), initially to be Han Shaoyun, Liu Dan, Tang Ning and Xia Xiaotao. Such holders shall also be entitled to remove any director occupying in such position and to fill any vacancy caused by the resignation, death or removal of any director occupying such position. |
5.2 | Size of the Board; Board of Subsidiaries; Committees . |
(a) | Each Shareholder agrees to vote all of its Shares from time to time and at all times, in whatever manner shall be necessary to ensure that the size of the Board shall be no less than one (1) nor more than seven (7) directors. |
(b) | The Investors shall have the right but not the obligation to appoint their nominees to the board of any Subsidiary (including in the event that the Company shall form or acquire any new Subsidiaries), and the Company and the Common Shareholders shall procure that such nominees are appointed to the relevant board of directors. The Investors shall also be entitled to remove any director occupying such position and to fill any vacancy caused by the resignation, death or removal of any director occupying such position. |
(c) | Compensation Committee and Audit Committee . The JAFCO Director and the Series C Director shall be entitled to serve as a member of any committee or subcommittee duly established by the Board. The Company shall set up a compensation committee (the Compensation Committee ) and an audit committee (the Audit Committee , together with the Compensation Committee, the Committees ) at the time determined by the Board, each with three (3) members, including one (1) member nominated by JAFCO, one (1) member nominated by GS, and one (1) member nominated by the Key Holder. The chairman of each Committee shall be the member nominated by GS. The Compensation Committee shall be responsible for evaluating and recommending to the Board for action all matters related to the Companys annual compensation and/or bonus plan, share option plan, and employee related compensation matters. The Audit Committee shall be responsible for internal audit and nomination of auditors for the Company. Any recommendation to be made to the Board shall require the approval by the majority of the members of the relevant Committee(s). The meetings of the Committees shall be held at least every three (3) months. |
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5.3 | Removal of Board Members . |
Each Shareholder also agrees to vote all of his, her or its Shares from time to time and at all times in whatever manner as shall be necessary to ensure that (i) no director elected pursuant to Section 5.1 of this Agreement may be removed from office unless (A) with respect to the Series A Director, such removal is directed or approved by IDG, (B) with respect to the JAFCO Director, such removal is directed or approved by JAFCO, (C) with respect to the Series C Director, such removal is directed or approved by GS, (D) with respect to the Ordinary Share Directors, such removal is directed or approved by the holders of more than fifty percent (50%) of the Ordinary Shares of the Company, or (E) the person(s) or entity(ies) originally entitled to designate or approve such director or occupy such Board seat pursuant to Section 5.1 is no longer so entitled to designate or approve such director or occupy such Board seat; and (ii) any vacancies created by the resignation, removal or death of a director elected pursuant to Section 5.1 shall be filled pursuant to the provisions of Section 5.1 . All Shareholders agree to execute any written consents required to effectuate the obligations of this Agreement, and the Company agrees at the request of any Shareholder entitled to designate directors to call a special meeting of shareholders for the purpose of electing directors.
5.4 | Quorum; Notice . |
The Companys Articles of Association shall provide for a quorum (which shall exist at the time of the voting as well as the attendance of the Board meeting) of the Board meeting of four (4) directors, including the Series A Director, the JAFCO Director, and the Series C Director (or a temporary alternate director selected by the Series C Director) provided , however , if such quorum cannot be obtained for a Board meeting after two (2) consecutive notices of Board meetings have been sent by the Company, with the first notice providing not less than seven (7) days of prior notice and the second notice providing not less than three (3) days of prior notice, then the attendance of any four (4) directors shall constitute a quorum; it being understood that if the Series C Director is unable to attend any such reconvened meeting, the Series C Director may suggest an alternative date and time for a reconvened meeting and if such alternative meeting cannot be accommodated, then the Series C Director may appoint an alternate director to attend the reconvened meeting in the capacity of the Series C Director. Except as otherwise provided in this Agreement (including the schedules and exhibits hereto) and the Companys Articles of Association, all Board resolutions shall require the affirmative vote of a majority of the directors (or their respective alternate directors) present. Notices and agendas of Board meetings as well as copies of all board papers shall be sent to all Investors at least seven (7) days prior to the relevant Board meeting. Minutes of Board meetings shall be sent to Investors within seven (7) days after the relevant meeting.
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5.5 | Waiver . |
The Company acknowledges that each Investor will likely have, from time to time, information that may be of interest to the Company or the Subsidiaries of the Company ( Information ) regarding a wide variety of matters including, by way of example only, (1) an Investors technologies, plans and services, and plans and strategies relating thereto, (2) current and future investments an Investor has made, may make, may consider or may become aware of with respect to other companies and other technologies, products and services, including, without limitation, technologies, products and services that may be competitive with those of the Company or its Subsidiaries, and (3) developments with respect to the technologies, products and services, and plans and strategies relating thereto, of other companies, including, without limitation, companies that may be competitive with the Company or any of its Subsidiaries. The Company recognizes that a portion of such Information may be of interest to the Company or any of its Subsidiaries. Such Information may or may not be known by the Preferred Directors or the Observers. The Company, as a material part of the consideration for entering into the Transaction Documents, agrees that neither any Observer nor any Preferred Directors shall have any duty to disclose any Information to the Company or its Subsidiaries, or permit the Company or any of its Subsidiaries to participate in any projects or investments based on any Information, or to otherwise take advantage of any opportunity that may be of interest to the Company or any of its Subsidiaries if it were aware of such Information, and hereby waives, to the extent permitted by Law, any claim based on the corporate opportunity doctrine or otherwise that could limit an Investors ability to pursue opportunities based on such Information or that would require any Investor, any Preferred Director or any Observer to disclose any such Information to the Company or any of its Subsidiaries or offer any opportunity relating thereto to the Company or any of its Subsidiaries. The Founder, the Key Holder and the Company hereby irrevocably agree that each Preferred Director and Observer is a nominee of the Investor who appoints him and that such Preferred Director and Observer shall be entitled to, and the Investor who nominates him can require him to, report all matters concerning the Company and its Subsidiaries, including but not limited to, matters discussed at any meeting of the Board, and that the Preferred Director and Observer may take advice and obtain instructions from his/her nominating Investor. Notwithstanding the foregoing, each Preferred Director shall undertake general fiduciary obligations to the Company according to the Company Law.
5.6 | Insurance and Indemnification . |
The Company shall procure customary directors and officers insurance for the directors, covering an amount of at least one million U.S. dollars (US$1,000,000) or such other amount as is approved by a majority of the Investors (including the Series C Investor and JAFCO, where the Series C Investor and JAFCO have appointed directors, respectively). Notwithstanding anything to the contrary in this Agreement or in the Articles, the Company shall indemnify and hold harmless each Director and his alternate, to the fullest extent permitted by Law, from and against all liabilities, damages, actions, suits, proceedings, claims, costs, charges and expenses suffered or incurred by or brought or made against such Director or his alternate as a result of any act, matter or thing done or omitted to be done by him in good faith in the course of acting as a director or alternate director, as applicable, of the Company, by delivering to such Director or its alternate, at the time of its appointment as a director or an alternate director, an indemnification agreement duly executed by the Company substantially in the form attached hereto as Exhibit D .
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5.7 | Appointment of Key Personnel . |
The appointment of the chairman, chief executive officer, president, chief financial officer, chief operations officer and/or other key personnel of the Company shall be subject to the prior approval of the Board, including the affirmative consent of all of the Preferred Directors.
5.8 | Drag-Along Right . |
(a) | Drag-Along Right . If, after June 30, 2014 (the Maturity Date ), the Series C Investor or JAFCO (A) approves (1) a transaction or series of related transactions in which a Person, or a group of related Persons, shall acquire from Shareholders of the Company Shares representing more than fifty percent (50%) of the outstanding voting power of the Company, or (2) a transaction that qualifies as a Liquidation Event , or (B) proposes to transfer its Shares to a Person or a group of related Persons (such events described in subsections (A) and (B) shall reflect a valuation of the Company of no less than US$200 million, such events are referred to in this Agreement as a Trade Sale ), then each Key Holder and Investor (other than the Series C Investor) hereby agrees with respect to all Shares that he, she or it holds and any other Company securities over which he, she or it otherwise exercises dispositive power: |
(i) | in the event such transaction requires the approval of shareholders, (a) if the matter is to be brought to a vote at a shareholder meeting, after receiving proper notice of any meeting of shareholders of the Company to vote on the approval of a Trade Sale, to be present, in person or by proxy, as a holder of Shares, at all such meetings and be counted for the purposes of determining the presence of a quorum at such meetings; and (b) to vote (in person, by proxy or by action by written consent, as applicable) all Shares in favor of such Trade Sale and in opposition of any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Trade Sale; |
(ii) | in the event that the Trade Sale is to be effected by the sale of Shares held by another Shareholder (the Selling Shareholder ) without the need for shareholder approval (including without limitation by way of a change in Control of such Shareholder), to sell all shares of the Company beneficially held by such Shareholder (or in the event that the Selling Shareholder is selling fewer than all of its shares held in the Company, shares in the same proportion as the Selling Shareholder is selling) to the person to whom the Selling Shareholder proposes to sell its shares, for the same per-share consideration (on an as-converted basis) and on the same terms and conditions as the Selling Shareholder, except that the Shareholder will not be required to sell its shares unless the liability for indemnification if any, of the Shareholder in such Trade Sale is several, not joint, and is pro rata in accordance with the Shareholders relative share ownership of the Company, and will not exceed the consideration payable to the Shareholder, if any, in such transaction (except in the case of potential liability for fraud or willful misconduct by the Shareholder); |
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(iii) | to refrain from exercising any dissenters rights or rights of appraisal under applicable Law at any time with respect to such Trade Sale; |
(iv) | to execute and deliver all related documentation and take such other action in support of the Trade Sale as shall reasonably be requested by the Company; |
(v) | not to deposit, and to cause their affiliates not to deposit, except as provided in this Agreement, any voting securities owned by such Party or affiliate in a voting trust or subject any such voting securities to any arrangement or agreement with respect to the voting of such securities, unless specifically requested to do so by the acquiror in connection with a Trade Sale; and |
(vi) | to: (A) make representation and warranties in connection with such a Trade Sale regarding (i) ownership and authority to sell their respective Shares and (ii) the existence of any material violations as a result of such sale under any material agreement to which such Shareholder is a party; (B) obtain any consents or approvals that can be obtained without significant expense; and (C) pay its pro rata share of expenses in connection with the contemplated Trade Sale. |
5.9 | Increase in Authorized Share Capital . |
Each Shareholder agrees to vote all of its Shares from time to time and at all times, in whatever manner shall be necessary to authorize an increase in the authorized share capital of the Company so that there will be sufficient Ordinary Shares available for conversion of all of the then-outstanding Preferred Shares at any time that an adjustment to the relevant conversion price with respect to the Preferred Shares is made under the Articles.
5.10 | Term . |
The provisions of this Section 5 shall be effective as of the date hereof and shall continue in effect until and shall terminate upon the earlier to occur of (a) the consummation of a Qualifying IPO, and (b) a Liquidation Event; provided , however , that the provisions of Section 5.9 shall survive until the Investors have converted all of their Preferred Shares into Ordinary Shares.
5.11 | Specific Enforcement . |
Each Shareholder acknowledges and agrees that each party hereto will be irreparably damaged in the event any of the provisions of this Section 5 are not performed by the Shareholder in accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that each of the Company and the Shareholders shall be entitled to an injunction to prevent breaches of this Agreement and to specific enforcement of this Agreement and its terms and provisions in any action instituted in any court of competent jurisdiction, in addition to any other remedy to which the Parties may be entitled at Law or in equity. Each of the Parties to this Agreement hereby consents to personal jurisdiction in any such action brought in the courts of Hong Kong.
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5.12 | Director Expenses . |
The Company shall reimburse any non-local independent directors and the Preferred Directors for all reasonable out-of-pocket travel and related expenses incurred in connection with Board duties and attending meetings of the Board.
6. | RIGHT OF FIRST REFUSAL, CO-SALE AND RESTRICTIONS ON TRANSFER. |
6.1 | Right of First Refusal - Transfers by the Key Holder, the Founder or any Employees Holding 1% or more of the Companys Ordinary Shares . |
(a) | Grant . If any of the Key Holder, the Founder, or an employee holding one percent (1%) or more of the Companys Ordinary Shares (calculated on a fully-diluted basis) (each a Restricted Employee and collectively, the Restricted Employees ) (each a Restricted Shareholder , and collectively, the Restricted Shareholders ) (including its successors and permitted assigns) proposes to sell, assign, pledge, hypothecate, encumber or otherwise transfer any Shares held by such Restricted Shareholder or in any other way dilute any beneficial ownership, control and discretion over any Shares held by such Restricted Shareholder (the Proposed Transfer ), then such Restricted Shareholder may not complete the Proposed Transfer unless it complies with this Section 6 (including without limitation Section 6.6 ). For avoidance of doubt, any change in the equity interest of the Key Holder, including without limitation as a result of (i) the issuance or redemption by such Key Holder of any portion of its outstanding shares or equity, or (ii) a transfer of such Key Holders equity by the Founder, shall constitute a Proposed Transfer for purposes of this Agreement. |
(b) | Subject to the provisions of the Company Law, any other applicable Law and this Section 6 , each Restricted Shareholder hereby unconditionally and irrevocably grants to each Investor a first Right of First Refusal to purchase its Pro Rata ROFR Share of the Shares that such Restricted Shareholder may propose to transfer in a Proposed Transfer (the Transfer Shares ), at the same price and on the same terms and conditions as those offered to the Prospective Transferee. For purposes of this Section 6.1 , an Investors Pro Rata ROFR Share of a specified quantity of Shares proposed to be transferred shall mean that number of Shares which equals the specified quantity of Shares proposed to be transferred by the Restricted Shareholder multiplied by a fraction equal to (i) the number of Ordinary Shares (on an as converted basis) then held by such Investor, divided by (ii) the total number of Ordinary Shares (on an as converted basis) then held by all Investors. The phrase on an as converted basis shall mean assuming the conversion, exercise and exchange of all securities, directly or indirectly, convertible, exercisable or exchangeable into or for Ordinary Shares. |
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(c) | Notice . Each Restricted Shareholder proposing to make a Proposed Transfer must deliver a written notice to the Company and each Investor not later than forty-five (45) days prior to the consummation of such Proposed Transfer (the Proposed Transfer Notice ). Such Proposed Transfer Notice shall contain the material terms and conditions of the Proposed Transfer and the identity of the Prospective Transferee. The Investors must exercise their Right of First Refusal under this Section 6 by giving notice (an Investor Exercise Notice ) to the selling Restricted Shareholder within fifteen (15) days after delivery of the Proposed Transfer Notice (the Investor Notice Period ). Such right shall at all times be exercised in accordance with the provisions of the Company Law and any other applicable Laws. In the event of a conflict between this Agreement and any other agreement that may have been entered into by a Restricted Shareholder with the Company that contains a preexisting right of first refusal, the terms of this Agreement shall control and the preexisting right of first refusal shall be deemed satisfied by compliance with this Section 6.1 . |
(d) | Undersubscription of Transfer Shares . If rights to purchase have been exercised by the Investors with respect to some but not all of the Transfer Shares by the end of the Investor Notice Period, then the Company shall, immediately after the expiration of the Investor Notice Period, send written notice to those Investors who fully exercised their rights within the Investor Notice Period (the Exercising Investors ). Each Exercising Investor shall have an additional right to purchase all or any part of the balance of any such remaining unsubscribed Transfer Shares on the terms and conditions set forth in the Proposed Transfer Notice. To exercise such right, an Investor must deliver an Undersubscription Notice to the selling Restricted Shareholder and the Company within ten (10) days after the expiration of the Investor Notice Period (the Undersubscription Exercise Period ). In the event that there are two (2) or more Exercising Investors that choose to exercise the last-mentioned right for a total number of remaining Shares in excess of the number available, the remaining unsubscribed Transfer Shares shall be sold to the Exercising Investors in proportion (as nearly as may be without involving fractions or increasing the number sold to any Restricted Shareholder beyond that applied by it) to their then existing holding of Shares (on an as converted basis). Within five (5) calendar days after the expiration of the Undersubscription Exercise Period, the selling Restricted Shareholder will give written notice to the Company and each Investor specifying the number of Transfer Shares that were subscribed by the Investors exercising their Rights of First Refusal (the Confirmation Notice ). |
(e) | Sale of Remaining Transfer Shares . The selling Restricted Shareholder shall be free to sell the remaining Transfer Shares not sold after employing the above procedures to the Prospective Transferee (subject to the other terms and restrictions of this Agreement), provided , that such sale shall be consummated within ninety (90) days after receipt of the Proposed Transfer Notice by the Company. |
(f) | Consideration; Closing . If the consideration proposed to be paid for the Transfer Shares is in property, services or other non-cash consideration, the fair market value of the consideration shall be determined in good faith by the Board. If any Investor cannot for any reason pay for the Transfer Shares in the same form of non-cash consideration, such Investor may pay the cash value equivalent thereof, as determined by the Board. The closing of the purchase of Transfer Shares by the Investors shall take place, and all payments from the Investors shall have been delivered to the selling Restricted Shareholder by the later of (i) the date specified in the Proposed Transfer Notice as the intended date of the Proposed Transfer and (ii) forty-five (45) days after delivery of the Proposed Transfer Notice. |
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6.2 | Right of First Refusal - Transfer by Investors . |
(a) | Subject to the provisions of the Company Law, any other applicable Law and this Section 6 , each selling Investor other than the Series C Investor and the Series B Investor (each a Subject Investor and together, the Subject Investors) hereby unconditionally and irrevocably grants to each non-selling Investor a first Right of First Refusal to purchase its Pro Rata ROFR Share of the Preferred Shares (the Investor Transfer Shares ) that such selling Subject Investor may propose to transfer (a Proposed Investor Transfer ), at the same price and on the same terms and conditions as those offered to the Prospective Transferee. For purposes of this Section 6.2 , a non-selling Investors Pro Rata ROFR Share of a specified quantity of Preferred Shares proposed to be transferred shall mean that number of Preferred Shares which equals the specified quantity of Preferred Shares proposed to be transferred multiplied by a fraction equal to (i) the number of Ordinary Shares (on an as converted basis) then held by such non-selling Investor, divided by (ii) the total number of Ordinary Shares (on an as converted basis) then held by all non-selling Investors. |
(b) | Notice . Each selling Subject Investor proposing to make a Proposed Investor Transfer must deliver a Proposed Transfer Notice to the Company and each non-selling Investor not later than forty-five (45) days prior to the consummation of such Proposed Transfer (the Investor Proposed Transfer Notice ). Such Proposed Transfer Notice shall contain the material terms and conditions of the Proposed Transfer and the identity of the Prospective Transferee. The non-selling Investors must exercise their Right of First Refusal under this Section 6.2 by giving notice (an Investor Exercise Notice ) to the selling Subject Investor within fifteen (15) days after delivery of the Investor Proposed Transfer Notice (the Investor Notice Period ). Such right shall at all times be exercised in accordance with the provisions of the Company Law and any other applicable Laws. In the event of a conflict between this Agreement and any other agreement that may have been entered into by an Investor with the Company that contains a preexisting right of first refusal, the terms of this Agreement shall control and the preexisting right of first refusal shall be deemed satisfied by compliance with this Section 6.2 . |
(c) | Undersubscription of Subject Investor Transfer Shares . If rights to purchase have been exercised by the non-selling Investors with respect to some but not all of the Investor Transfer Shares by the end of the Investor Notice Period under Section 6.2(b) , then the Company shall, immediately after the expiration of the Investor Notice Period, send written notice to the non-selling Investors that have exercised the right of first refusal pursuant to Section 6.2(b) (each an Exercising Investor ) and the Restricted Shareholders. Each Exercising Investor and Restricted Shareholder shall have a right to purchase all or any part of the balance of any such remaining unsubscribed Investor Transfer Shares on the terms and conditions set forth in the Investor Proposed Transfer Notice. To exercise such right, such Exercising Investors and Restricted Shareholders must deliver an Undersubscription Notice to the selling Subject Investor and the Company within ten (10) days after the expiration of the Investor Notice Period. In the event that there are two (2) or more Exercising Investors and/or Restricted Shareholders that choose to exercise the last-mentioned right for a total number of remaining Investor Transfer Shares in excess of the number available, the remaining unsubscribed Investor Transfer Shares shall be sold to the Exercising Investors and Restricted Shareholders in proportion (as nearly as may be without involving fractions or increasing the number sold to any Exercising Investor beyond that applied by it) to their then existing holding of Shares (on a deemed converted basis). If the rights to purchase the remaining Investor Transfer Shares are exercised in full by the Exercising Investors and Restricted Shareholders, the Company shall immediately notify all of the Exercising Investors of that fact. |
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(d) | Forfeiture of Right of First Refusal with Respect to Investor Transfer . Notwithstanding the foregoing, if the total number of Investor Transfer Shares to be transferred by any Subject Investor that the non-selling Investors and Restricted Shareholders indicate an interest in purchasing in the Investor Exercise Notices and Undersubscription Notices is less than the total number of Investor Transfer Shares, then the non-selling Investors and Restricted Shareholders shall be deemed to have forfeited any right to purchase the Investor Transfer Shares, and the selling Subject Investor shall be free to sell all, but not less than all, of the Investor Transfer Shares to the Prospective Transferee (subject to the other terms and restrictions of this Agreement), provided, that such sale shall be consummated within ninety (90) days after receipt of the Proposed Transfer Notice by the Company. |
(e) | Consideration; Closing . If the consideration proposed to be paid for the Investor Transfer Shares is in property, services or other non-cash consideration, the fair market value of the consideration shall be determined in good faith by the Board. If any Investor or Restricted Shareholder cannot for any reason pay for the Investor Transfer Shares in the same form of non-cash consideration, such Investor or Restricted Shareholder may pay the cash value equivalent thereof, as determined by the Board. The closing of the purchase of Investor Transfer Shares shall take place, and all payments shall have been delivered to the selling Investor by the later of (i) the date specified in the Investor Proposed Transfer Notice as the intended date of the Proposed Investor Transfer and (ii) forty-five (45) days after delivery of the Investor Proposed Transfer Notice. |
6.3 | Right of Co-Sale . |
(a) | If any Transfer Shares subject to a Proposed Transfer by any Restricted Shareholder pursuant to Section 6.1 are not purchased pursuant to Section 6.1(a) above and thereafter are to be sold to a Prospective Transferee, each respective Investor that has not exercised its Right of First Refusal may elect to exercise its Right of Co-Sale and participate on a pro-rata basis in the Proposed Transfer on the same terms and conditions specified in the Proposed Transfer Notice (each such Investor, a Co-Sale Exercising Investor ). To exercise its Right of Co-Sale the Investor must give the selling Restricted Shareholder written notice to that effect within fifteen (15) days after receipt of the Confirmation Notice as provided in Section 6.1(d) (the Co-Sale Period ), and upon giving such notice the Investors shall be deemed to have effectively exercised the Right of Co-Sale. |
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(b) | Each Co-Sale Exercising Investor, by timely exercising its Right of Co-Sale by delivering the written notice provided for above in Section 6.3(a) may include in the Proposed Transfer pursuant to this Section 6.3 all or any part of its Shares equal to such Investors Pro Rata Co-Sale Share. A Co-Sale Exercising Investors Pro Rata Co-Sale Share of a specified quantity of Transfer Shares proposed to be transferred shall mean that number of Transfer Shares proposed to be transferred pursuant to this Section 6.3 multiplied by a fraction equal to (i) the total number of Ordinary Shares (on an as converted basis) then held by such Co-Sale Exercising Investor, divided by (ii) the total number of Ordinary Shares held by the selling Restricted Shareholder plus the total number of Ordinary Shares (on an as converted basis) then held by all Co-Sale Exercising Investors;. To the extent that one or more of the Investors exercises such right of participation in accordance with the terms and conditions set forth herein, the number of Shares that the selling Restricted Shareholder may sell in the Proposed Transfer shall be correspondingly reduced. |
(c) | The sale of the Pro Rata Co-Sale Shares and remaining Transfer Shares shall occur within ninety (90) calendar days from the beginning of the CoSale Period (the Co-Sale Closing ). For avoidance of doubt, the Right of CoSale shall not apply with respect to Transfer Shares sold or to be sold to the Investors under the Right of First Refusal in Section 6.2 . |
(d) | Subject to Section 6.3(b) above, an Investor shall effect its participation in the Proposed Transfer by delivering to the transferring Restricted Shareholder prior to the Co-Sale Closing, one or more share certificates, properly endorsed for transfer to the Prospective Transferee, representing: |
(i) | the number of Ordinary Shares that such Investor elects to include in the Proposed Transfer; or |
(ii) | the number of Preferred Shares that are at such time convertible into the number of Ordinary Shares that such Investor elects to include in the Proposed Transfer; provided , however , that if the Prospective Transferee objects to the delivery of convertible Preferred Shares in lieu of Ordinary Shares, such Investor shall first convert the Preferred Shares into Ordinary Shares and deliver Ordinary Shares as provided above. The Company agrees to make any such conversion concurrent with and contingent upon the actual transfer of such shares to the Prospective Transferee. |
(e) | The terms and conditions of any sale pursuant to this Section 6.3 will be contained in, and governed by, a written purchase and sale agreement with customary terms and provisions for such a transaction. |
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(f) | Each share certificate an Investor delivers to the selling Restricted Shareholder pursuant to Section 6.3(d) above will be transferred to the Prospective Transferee against payment therefor in consummation of the sale of the Transfer Shares pursuant to the terms and conditions specified in the Proposed Transfer Notice and the purchase and sale agreement, and the selling Restricted Shareholder shall concurrently therewith remit to each Investor the portion of the sale proceeds to which such Investor is entitled by reason of its participation in such sale. If any Prospective Transferee refuses to purchase securities subject to the Right of Co-Sale from any Investor exercising its Right of Co-Sale hereunder, no Restricted Shareholder may sell any Shares to such Prospective Transferee unless and until, simultaneously with such sale, such Restricted Shareholder purchases all securities subject to the Right of Co-Sale from such Investor. |
(g) | If any Proposed Transfer is not consummated within ninety (90) days after receipt of the Proposed Transfer Notice by the Company, the Restricted Shareholder proposing the Proposed Transfer may not sell any Shares unless they first comply in full with each provision of this Section 6 . The exercise or election not to exercise any right by any Investor hereunder shall not adversely affect its right to participate in any other sales of Transfer Shares subject to this Section 6.3 . |
6.4 | Effect of Failure to Comply . |
(a) | Any Proposed Transfer or Proposed Investor Transfer not made in compliance with the requirements of this Agreement shall be null and void ab initio , shall not be recorded on the books or register of the Company or its transfer agent and shall not be recognized by the Company. Each party hereto acknowledges and agrees that any breach of this Section 6 would result in substantial harm to the other parties hereto for which monetary damages alone could not adequately compensate. Therefore, the parties hereto unconditionally and irrevocably agree that any non-breaching party hereto shall be entitled to seek protective orders, injunctive relief and other remedies available at Law or in equity (including, without limitation, seeking specific performance or the rescission of purchases, sales and other transfers of Shares not made in strict compliance with this Section 6 ). |
(b) | If any Restricted Shareholder purports to sell any Shares in contravention of the Right of Co-Sale (a Prohibited Transfer ), each Investor, in addition to such remedies as may be available by Law, in equity or hereunder, is entitled to require such Restricted Shareholder to purchase Shares from the Investors, as provided below, and such Restricted Shareholder will be bound by the terms of such option. If a Restricted Shareholder makes a Prohibited Transfer, each Investor upon timely exercise of its Right of Co-Sale under Section 6.3 may require such Restricted Shareholder to purchase from such Investor the type and number of Shares that such Investor would have been entitled to sell to the Prospective Transferee under Section 6.3 had the Prohibited Transfer been effected pursuant to and in compliance with the terms of Section 6.3 . The sale will be made on the same terms and subject to the same conditions as would have applied had the Restricted Shareholder not made the Prohibited Transfer, except that the sale (including, without limitation, the delivery of the purchase price) must be made within ninety (90) days after the Investor learns of the Prohibited Transfer, as opposed to the timeframe prescribed in Section 6.3 . Such Restricted Shareholder shall also reimburse such Investor for any and all fees and expenses, including legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of such Investors rights under Section 6.3 . |
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6.5 | Exempt Transfers . |
(a) | Notwithstanding the foregoing or anything to the contrary herein, the provisions of Section 6.1 , Section 6.2 and Section 6.3 shall not apply: (i) to a repurchase of Shares from a Restricted Shareholder by the Company at a price no greater than that originally paid by such Restricted Shareholder for such Shares and pursuant to an agreement containing vesting and/or repurchase provisions approved by a majority of the Board including the affirmative vote of the Preferred Directors, (ii) in the case of a Restricted Shareholder that is a natural person, upon a gratuitous transfer of Shares by such Restricted Shareholder (including on death by will or intestacy) to an Immediate Family Member of such Restricted Shareholder, or to a custodian, trustee, executor, or other fiduciary for the account of such Restricted Shareholders Immediate Family Member, or to a trust for such Restricted Shareholders own self, in each case for bona fide estate and/or tax planning purposes, provided that (A) each such transferee or assignee, prior to the completion of the sale, shall have executed documents assuming the obligations of the transferring Restricted Shareholder under this Agreement with respect to the transferred Shares; and provided further that any such transfer or distribution shall comply with applicable Law and regulations, including without limitation any requirement for the transferee to make any required filings with SAFE pursuant to Circular 75 issued by the State Administration of Foreign Exchange of the PRC ( SAFE ) on October 21, 2005 (and any successor regulation) ( Circular 75 ) and (B) any such transfer shall not exceed ten percent (10%) of the total shares held by such Restricted Shareholder, (iii) in the case of a Restricted Shareholder that is an entity, upon a transfer by such Restricted Shareholder to an Affiliate provided that the transferee, prior to the completion of the sale, shall have executed documents assuming the obligations of the transferring Shareholder under this Agreement with respect to the transferred Shares, and provided further that any such transfer or distribution shall comply with applicable Law and regulations, including without limitation any requirement for the transferee to make any required filings with SAFE pursuant to Circular 75, (iv) the sale of any Shares to the public in a Qualifying IPO, or (v) in the case of an Investor that is an entity, upon a transfer by such Investor to a transferee that is a subsidiary, Affiliate, parent, partner, member, limited partner, retired partner, retired member or shareholder; provided that in each of the above cases such transferee or assignee, prior to the completion of the sale, shall have executed documents assuming the obligations of the transferring Shareholder under this Agreement with respect to the transferred Shares. |
(b) | Notwithstanding the foregoing or anything to the contrary herein, the provisions of Section 6.1 , Section 6.2 , and Section 6.3 shall not apply to the sale of any Shares to the public in a Qualifying IPO (as defined in the Purchase Agreement). |
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6.6 | Prohibition on Transfer of Restricted Shareholders Shares . |
In addition to the restrictions set forth in Sections 6.1 to 6.5 above, without the prior written consent of the holders of more than forty-five (45%) of each of the Series C Preferred Shares, Series B Preferred Shares and the Series A Preferred Shares (voting separately) then outstanding (and the holders of the Series C Preferred Shares shall include the Series C Investor and the holders of the Series B Preferred Shares shall include JAFCO, respectively), within forty-eight (48) months following the closing date of the Purchase Agreement, the Restricted Shareholders shall not affect a Proposed Transfer unless otherwise permitted pursuant to Section 6.5 . The Key Holder hereby irrevocably and unconditionally undertakes with the Investors that without the prior written approval of the Investors, it shall not directly or indirectly issue, sell, transfer or otherwise dispose of or create any mortgage, charge, pledge, lien or other encumbrance, third party rights or security interest whatsoever on or over or in respect of all or any of its shares (or any interest therein). The Founder hereby irrevocably and unconditionally undertakes with the Investors that without the prior written approval of the Investors, he shall not allow, directly or indirectly, sell, transfer or otherwise dispose of or create any mortgage, charge, pledge, lien or other encumbrance, third party rights or security interest whatsoever on or over or in respect of all or any of the shares in the Key Holder.
6.7 | Term . |
The provisions of this Section 6 shall terminate upon the earlier of (i) immediately prior to the Qualifying IPO and (ii) the occurrence of a Liquidation Event (as defined in the Articles).
7. | ADDITIONAL COVENANTS. |
7.1 | Insurance . |
(a) | Upon request by the Investors, the Company shall use its reasonable best efforts to obtain within ninety (90) days from financially sound and reputable insurers (i) Directors and Officers Liability insurance and (ii) term key-person insurance as appropriate, each in an amount satisfactory to the Investors, and will use reasonable best efforts to cause such insurance policies to be maintained until such time as the Board (including the Series C Director and the JAFCO Director) determines that such insurance should be discontinued. The key person policy shall name the Company as loss payee and neither policy shall be cancelable by the Company without prior approval of the Board including the Series A Director, JAFCO Director and the Series C Director. |
(b) | Notwithstanding any other provision in this Agreement or in the Articles, the Company shall, and shall cause each Group Company to, jointly and severally, indemnify to the fullest extent permitted by applicable Law any director made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or interstate is or was a director or officer of the Company or any predecessor of the Company or any other Group Company or serves or served at any other enterprise as a director or officer at the request of the Company or any predecessor to the Company. |
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7.2 | Employee Stock Option Plan . |
The Company shall maintain a share incentive option plan (the Stock Plan ), under which the Company may grant not more than 6,002,020 (including outstanding options) of its authorized Ordinary Shares (as reflected in the capitalization table attached as Schedule 8 to the Purchase Agreement) for issuance to officers, directors, employees and consultants of the Company. The Stock Plan shall be managed by the Board. Unless approved by the Board (including the affirmative consent of each of the Series A Director, JAFCO Director and the Series C Director), all officers, directors, employees and consultants of the Company who shall purchase, or receive options to purchase, shares of the Company under the Stock Plan shall be required to execute share purchase or option agreements providing for (i) vesting of shares over not less than a five-year period with the first twenty percent (20%) of such shares vesting following twelve (12) months of continued employment or services, and the remaining shares vesting in equal yearly instalments over the following four (4) years, and (ii) a one hundred eighty (180) day lockup period in connection with the Companys initial public offering. All options granted under the Stock Plan can only be exercised upon the occurrence of (i) the consummation of a Qualifying IPO; (ii) the consummation of a Liquidation Event; or (iii) the expiry of five (5) year period commencing from the date hereof.
7.3 | Acts of the Company . |
Notwithstanding anything to the contrary, the Parties (with the exception of the Company in relation to Sections 7.3(e) , (f) , (g) , (v) and (w) below) hereby agree that the following acts of any Group Company shall require the prior written approval, in addition to approval by the shareholders as required by law, of the holders of more than sixty-seven percent (67%) of the Series A Preferred Shares, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO) and the holders of more than sixty-seven percent 67% of the Series C Preferred Shares (which holders shall include the Series C Investor), or by way of a written resolution signed by all holders of the Preferred Shares:
(a) | any approval of the business plan and change in the business plan or scope of principal business of any Group Company, or engaging in any new line of business by any Group Company, or ceasing to conduct or carry on the business of any Group Company substantially as now conducted; |
(b) | any purchase or disposal of assets (including intangible assets) and businesses by any Group Company worth more than one million U.S. dollars (US$1,000,000) per transaction or, in the aggregate, more than three million U.S. dollars (US$3,000,000) in a period of twelve (12) months; |
(c) | any disposal or dilution of the Companys interest, directly or indirectly, in any Domestic Company or in any of its subsidiaries; |
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(d) | any capital commitment of any Group Company, in one or a series of transactions, exceeding the amount of fifty thousand U.S. dollars (US$50,000) (or its equivalent in other currency) or any non-core business investments (other than in prime commercial paper, money market funds, certificates of deposit in an international bank having net worth in excess of one hundred million U.S. dollars (US$100,000,000) or obligations issued or guaranteed by a sovereign government, in each case having a maturity not in excess of two (2) years), or any-acquisition of assets or equity interests outside the PRC (including Hong Kong Special Administrative Region and Macau Special Administrative Region); |
(e) | any merger, consolidation, scheme of arrangement, recapitalization, sale or disposal of the whole or a substantial part of the undertaking, goodwill or the assets of any Group Company; |
(f) | any increase of the authorized or issued share capital or registered capital (where applicable) of any Group Company save for increase of authorized capital of the Company for the purpose of issuing Ordinary Shares upon the conversion of the Preferred Shares; |
(g) | repurchase or redemption by any Group Company of any outstanding securities or any other reduction of share capital or similar process other than pursuant to the redemption right of the holders of Preferred Shares, as provided in the Articles, or contractual rights to repurchase Ordinary Shares from the employees, directors or consultants of the Company upon termination of their employment or services; |
(h) | issuance of any new securities or any instruments that are convertible into securities, excluding (i) any issuance of the Series C Preferred Shares under the Purchase Agreement, (ii) any issuance of Ordinary Shares upon conversion of the Preferred Shares, and (iii) any issuance of Ordinary Shares (or options or warrants therefor) under employee equity incentive plans approved by the Board, the holders of more than sixty-seven percent (67%) of the Series A Preferred Shares, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO), and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares (which holders shall include the Series C Investor), or issuance of any corporate debt or debt security; |
(i) | any action by the Company to authorize, create or issue shares of any class or series of the Company having preferences superior to or on a parity with any Preferred Shares; |
(j) | any amendment or change of, or other action that alters, the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, any Preferred Share; |
(k) | the declaration and/or payment of any and all dividends by, or the making of any distribution on or with respect to the shares or any other share capital of, any Group Company; |
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(l) | any action by the Company to reclassify any outstanding shares into shares having preferences or priority as to dividends or assets senior to or on a parity with the preference of any Preferred Shares; |
(m) | appointment, removal and remuneration of executive management, including the CEO, CFO and COO of any Group Company, or any purchase of automobiles and accommodation for the management; |
(n) | appointment, removal and remuneration of the directors of any Group Company, other than appointments and removals effected in accordance with Sections 5.1 5.2(b) and 5.3 ; |
(o) | establishment of any board committee and the delegation of any authority to the Board of Directors of any Group Company, or any change in the number of directors of any Group Company; |
(p) | adoption of, or amendment to any bonus or profit sharing scheme, any employee equity incentive scheme or equity participation scheme of any Group Company; |
(q) | adoption of, or amendment to any treasury policy, any accounting policy or financial year of any Group Company; |
(r) | appointment or change of the auditors of any Group Company; |
(s) | other than in the ordinary course of the business, the grant or creation by any Group Company of any indemnity or guarantee or any charge, lien or debenture or other security over all or any part of the assets or rights of any Group Company; |
(t) | borrowing any money or obtaining any financial facilities (except pursuant to trade facilities obtained from banks or other financial institutions in the ordinary course of business, provided that the aggregate amount of such indebtedness or facilities shall not exceed five hundred thousand U.S. dollars (US$500,000)); |
(u) | any transfer, sale, encumbrance of, or grant of license in any of the Group Companies intellectual property or other proprietary rights other than in the ordinary course of business, provided that any grant of exclusive license shall be deemed to be not in the ordinary course of business; |
(v) | any application or filing for the dissolution, liquidation or winding up of any Group Company or any application or filing by or against any Group Company for the appointment of a receiver, administrator or other form of external manager, or passing of any resolution for the winding up, liquidation, bankruptcy or insolvency of any Group Company; |
(w) | adoption of or amendment to the Articles or other charter documents of any Group Company; |
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(x) | any agreement, or any modification of the terms of any agreement, undertaking or other arrangement between any officer or director of any Group Company or any Affiliate or Associate (as those terms are defined in Rule 405 promulgated under the Securities Act or Rule 12b-2 of the Exchange Act) and any Group Company, which shall be deemed an interested party transaction under the Securities Act; |
(y) | any acquisition of any equity or other securities of any body corporate or the establishment of any brands by any Group Company; |
(z) | approval of any transfer, disposal or dilution of shares in any Group Company; |
(aa) | any increase in compensation of any of the five (5) most highly compensated employees of any Group Company by more than fifteen percent (15%) in a twelve (12) month period or any change in the terms of employment of such employees (other than any increase in compensation already approved by the compensation Committee of the Board); |
(bb) | any adoption or amendment of the employment contracts or benefit plans for employees whose annual remuneration rate exceeds sixty thousand U.S. dollars (US$60,000) (other than any adoption or amendment of the employment contracts or benefit plans already approved by the Compensation Committee of the Board); |
(cc) | adoption of, or any material amendment to, the Budget; |
(dd) | any non-budgeted and non-operating expenditure exceeding the amount of twenty-five thousand U.S. dollars (US$25,000), per payment or in the aggregate in a period of three (3) months, by any Group Company; |
(ee) | other than in the ordinary course of business, any business transaction of any Group Company exceeding the amount of twenty-five thousand U.S. dollars (US$25,000), or any business transaction outside the scope of the principal business of any Group Company; |
(ff) | any amendment to the operational agreements among the Group Companies (including all current and future agreements), or any transaction involving both a Group Company and a shareholder or any of a Group Companys employees, officers, directors or shareholders or any affiliate of a shareholder or any of its officers, directors or shareholders; |
(gg) | provision of loans or advances by any Group Company to any other person (including any Group Company (unless it is wholly owned), employees or directors of any Group Company or any other entity) except in the ordinary course of business or in accordance with any stock option plan or stock incentive plan approved by the Board; |
(hh) | any purchase or lease by any Group Company of any real estate properties not in the ordinary course of business; |
(ii) | establishment of any subsidiary or affiliates (other than those provided under the Budget already approved in the manner described under Section 7.3(cc) ) and the signing of any shareholders agreement or joint venture agreement by any Group Company; |
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(jj) | change of the co-signatories to the Closing Account (as described under Section 1.3 of the Purchase Agreement); |
(kk) | change in the size, composition or structure of the Board of Directors; |
(ll) | entry, extension or renewal of any franchisor or franchising arrangement or agreement; |
(mm) | an initial public offering of any Group Company; or |
(nn) | any change in the corporate structure of the Group Companies. |
7.4 | Acts of the WFOE and the Domestic Companies . |
Without limitation of the foregoing and subject to applicable PRC Laws and regulations, the following acts by the Domestic Companies and the WFOE shall in each case require the prior written approval of the holders of more than sixty-seven percent (67%) of the Series A Preferred Shares, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO), and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares (which holders shall include the Series C Investor):
(a) | any amendment to the Domestic Companies or the WFOEs Articles of Association; |
(b) | the liquidation, termination or dissolution of the Domestic Companies or the WFOE; |
(c) | any increase of the registered capital of the Domestic Companies or the WFOE or any increase or transfer of any equity interest in the Domestic Companies or the WFOE; |
(d) | the sale, lease, transfer or other disposition of all or substantially all of the assets of the Domestic Companies or the WFOE or any merger or consolidation of the Domestic Companies or the WFOE with or into any other business entity; or |
(e) | any issuance of equity securities or equity-like securities of the Domestic Companies or the WFOE. |
7.5 | Meetings of the Board . |
Unless otherwise determined by the vote of a majority of the directors then in office, the Board shall meet at least quarterly in accordance with an agreed upon schedule.
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7.6 | Successor Indemnification . |
In the event that the Company or any of its affiliates, successors or assigns (i) consolidates with or merges into any other entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person or entity, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately prior to such transaction, whether in the Companys Articles or elsewhere, as the case may be.
7.7 | Business Principles . |
The Company agrees and undertakes to the Investors that the business of the Company will be designed and carried on in accordance with the following business principles (collectively, the Business Principles ), namely, in a way that:
(a) | provides safe and healthy working conditions for its employees and contractors; |
(b) | encourages the efficient use of natural resources and promotes the protection of the environment; |
(c) | treats all employees fairly in terms of recruitment, progression, remuneration and conditions of work, irrespective of gender, race, color, language, disability, political opinion, age, religion, or national/social origin; |
(d) | allows consultative work-place structures and associations that provide employees with an opportunity to present their views to management; |
(e) | takes account of the impact of its operations on the local community and seeks to ensure that potentially harmful occupational health and safety, environmental and social effects are properly assessed, addressed and monitored; |
(f) | upholds high standards of business integrity and honesty, and operates in accordance with local Laws and international good practice (including those intended to fight extortion, bribery and financial crime); |
(g) | implements a social and environmental management system that enables effective identification, management and monitoring of any risks and provides a framework for action; and |
(h) | provides for the reporting of the companys compliances with the Business Principles in an annual report by the company to its Board in a manner that allows a reader to make an informed assessment of the business of the Company and, to the extent relevant, the undertakings of the Group Companies as against the requirements of the Business Principles. |
7.8 | Amendment to Control Documents . |
In the event that any provision under the Control Documents is ruled by any relevant Governmental Entity as invalid or unenforceable under the Laws of the PRC, the Founder and the Group Companies shall, subject to the Laws of the PRC, use their best efforts to take, or cause to be taken, such action, to execute and deliver, or cause to be executed and delivered, such documents and instruments and to do, or cause to be done, all things necessary, proper or advisable to ensure that substantially all of the income generated by the Domestic Companies is consolidated into the WFOE.
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7.9 | Option to Purchase the Domestic Companies . |
The Company shall maintain a fully transferable option, exercisable by the Company or its designee at any time to purchase one hundred percent (100%) of the shares or ownership of the Domestic Companies, for a total nominal consideration of RMB10 (or for the lowest price that is in compliance with PRC Law). The shareholders of each of the Group Companies shall return any proceeds from the Companys exercise of this option to the Company.
7.10 | Termination of Covenants . |
The covenants set forth in this Section 7 (other than Section 7.7 ) shall terminate and be of no further force or effect upon (a) the consummation of a Qualifying IPO, or (b) upon the consummation of a Liquidation Event, as such term is defined in the Companys Articles, whichever event shall first occur.
7.11 | Notification and Public Dissemination Rights . |
The Issuer shall keep the Investors informed, on a current basis, of any events, discussions, notices or changes with respect to any criminal or regulatory investigation or action involving the Issuer or any of its subsidiaries, so that the Investors will have the opportunity to take appropriate steps to avoid or mitigate any regulatory consequences to them that might arise from such criminal or regulatory investigation or action and the Issuer shall reasonably cooperate with the respective Investor(s), their members and their respective affiliates in an effort to avoid or mitigate any cost or regulatory consequences that might arise from such investigation or action (including by reviewing written submissions in advance, attending meetings with authorities, coordinating and providing assistance in meeting with regulators and, if requested by the Investor(s), making a public announcement of such matters).
8. | [RESERVED]. |
9. | MISCELLANEOUS . |
9.1 | Governing Law . |
This Agreement shall be governed by and construed in accordance with the Laws of Hong Kong without regard to the principles of conflicts of Laws of any jurisdiction.
9.2 | Counterparts . |
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by electronic (via PDF) or facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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9.3 | Headings and Subheadings . |
The headings and subheadings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
9.4 | Notices . |
All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next Business Day, (c) three (3) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with an internationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on Schedule 4 , or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 9.4 .
9.5 | Costs of Enforcement . |
If any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable legal advisers fees.
9.6 | Amendments and Waivers . |
(a) | Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consents of each of the Company, the Founders, the Key Holder, the holders of more than sixty-seven percent ( 67%) of the Series A Preferred Shares then outstanding, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO) and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares then outstanding (which holders shall include the Series C Investor). Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. |
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In addition to the foregoing, in the case of an amendment (i) with respect to the Registration Rights under any provision of Section 2 and Exhibit B hereof, any such amendment may be made only with the written consents of the Company, the holders of more than sixty-seven percent (67%) of the Series A Preferred Shares then outstanding, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO), and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares then outstanding (which holders shall include the Series C Investor); (ii) with respect to the Information and Observer Rights under Section 3 , only with the written consents of the Company and each of the Investors; (iii) with respect to the Right of First Offer under Section 4 and the Right of First Refusal, Co-Sale and Restrictions on Transfer under Section 6 , any such amendment may be made only with the written consents of the Company, the Restricted Shareholders (excluding the Restricted Employees), the holders of more than sixty-seven percent (67%) of the Series A Preferred Shares then outstanding, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO), and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares then outstanding (which holders shall include the Series C Investor); (iv) with respect to the Drag-Along Right under Section 5.8 , any such amendment may be made only with the written consents of the Company, the holders of more than sixty-seven percent (67%) of the Series A Preferred Shares then outstanding, the holders of more than forty-five percent (45%) of the Series B Preferred Shares (which holders shall include JAFCO), the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares then outstanding (which holders shall include the Series C Investor) and the Restricted Shareholders (excluding the Restricted Employees). Any amendment effected in accordance with this Section 9.6 shall be binding upon the Company, the WFOE, the Domestic Companies, each Investor, the Founder, the Key Holder, the Existing Holder and their respective successors in interest.
(b) | Notwithstanding anything to the contrary in this Section 9.6 : |
(i) | no amendment to this Agreement shall be effective or enforceable against an Investor that does not consent to such amendment unless: (i) written notice describing the proposed amendment has been provided to each Investor at least five (5) Business Days prior to such amendment; and (ii) a copy of the final executed version of the amendment shall be provided to each of the Investors within twenty (20) Business Days after such amendment; and |
(ii) | an amendment to this Agreement shall not be effective or enforceable in respect of any particular Investor if such amendment: (i) unilaterally and adversely affects the rights of such Investor and does not materially and adversely affect the rights of all other Investors in the same manner; or (ii) imposes any material obligation or liability on such Investor beyond that already imposed on such Investor hereunder prior to such amendment or waiver. |
(c) | Any amendment, termination or waiver effected in accordance with this Section 9.6 shall be binding on all Parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. |
9.7 | Severability . |
The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
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9.8 | Aggregation of Shares . |
All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
9.9 | Entire Agreement . |
This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement between the Parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the Parties are expressly canceled.
9.10 | Transfers, Successors and Assigns . |
(a) | The rights of the Investors set forth in this Agreement are fully assignable to any person who holds or is acquiring Preferred Shares (or such other securities received in exchange for or upon conversion of such Preferred Shares) in a transfer permitted hereunder; provided , however that the Company is given written notice at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further that the transferee executes and delivers an Assumption Agreement as provided in Section 9.10(c) . |
(b) | Subject to Section 9.10(a) , this Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, permitted assigns and legal representatives. No Shareholder may assign or transfer, or purport to assign or transfer, any of its rights or obligations under this Agreement without the prior written consent of the other Parties except to a transferee of Shares in the event of any transfer of Shares made in compliance with or permitted under this Agreement. For the avoidance of doubt, the rights of the Investors hereunder are assignable (A) to any Affiliate of such Investor, (B) to any other Investor, or (C) to an assignee or transferee who acquires the Preferred Shares (or such other securities received in exchange for or upon conversion of such Preferred Shares) from an Investor. |
(c) | Each transferee or assignee of the Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition to the Companys recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Assumption Agreement substantially in the form attached hereto as Exhibit C . Upon the execution and delivery of an Assumption Agreement by any transferee, such transferee shall be deemed to be a Party hereto as if such transferees signature appeared on the signature pages of this Agreement. By execution of this Agreement or of any Assumption Agreement, each of the Parties appoints the Company as its attorney in fact for the purpose of executing any Assumption Agreement that may be required to be delivered under the terms of this Agreement. The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until such transferee shall have complied with the terms of this Section 9.10 . Each certificate representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 9.11 . Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties or their respective executors, administrators, heirs, successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. |
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9.11 | Legend . |
(a) | Each certificate representing Shares issued by the Company to the Key Holder, as well as the register of members of the Company, shall be endorsed with the following legend: |
i. | THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ). SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS (A) A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR (B) PURSUANT TO RULE 144, OR (C) IN THE OPINION OF THE COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT. |
ii. | THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF SEPTEMBER 6, 2011, AMONG THE COMPANY AND CERTAIN OF THE COMPANYS SHAREHOLDERS, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH SHAREHOLDERS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST. |
iii. | THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF A REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES. |
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iv. | THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE ACT, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER, IF NOT A U.S. PERSON: (1) REPRESENTS THAT IT IS NOT A U.S. PERSON AND IS ACQUIRING THESE SHARES IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THESE SHARES EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOR, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (C) INSIDE THE UNITED STATES, TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (D) INSIDE THE UNITED STATES, TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THESE SHARES (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY), (E) OUTSIDE THE UNITED STATES, IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULES 904 AND 905 UNDER THE ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE); AND (3) AGREES THAT IT WILL GIVE EACH PERSON TO WHOM THESE SHARES ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THESE SHARES PURSUANT TO CLAUSES (C), (D) OR (F) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS, OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS OFFSHORE TRANSACTION, UNITED STATES, AND U.S. PERSON HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT. |
The Key Holder agrees that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 9.11(a) above to enforce the provisions of this Agreement, and the Company agrees to promptly do so. The legend shall be removed upon termination of this Agreement at the request of the holder.
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(b) | Each certificate representing Shares issued by the Company to the Preferred Shareholders, as well as the register of members of the Company, shall be endorsed with the following legend: |
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
9.12 | Dispute Resolution . |
Any dispute, controversy or claim arising out of or relating to this Agreement, including the validity, invalidity, breach or termination thereof, shall be settled by arbitration in Hong Kong under the Hong Kong International Arbitration Centre Administered Arbitration Rules in force when the Notice of Arbitration is submitted in accordance with these Rules. The number of arbitrators shall be three (3). The arbitration proceedings shall be conducted in English.
9.13 | Delays or Omissions . |
No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by Law or otherwise afforded to any party, shall be cumulative and not alternative.
9.14 | Termination of 2008 Shareholders Agreements; Waiver of Pre-emptive Rights . |
(a) | In consideration of the mutual covenants and promises contained herein, each of the parties to the 2008 Shareholders Agreements hereby confirms and covenants with each of the other parties thereto that, with effect immediately after Closing: (a) the 2008 Shareholders Agreements shall be absolutely terminated; (b) none of the parties to the 2008 Shareholders Agreements have or shall have any rights, claims or interests whatsoever against any of the other parties to the 2008 Shareholders Agreements under or in respect of the 2008 Shareholders Agreements; and (c) to the extent that any of the parties to the 2008 Shareholders Agreements have or may have any rights, claims or interests whatsoever against any of the other parties thereto under or in respect of the 2008 Shareholders Agreements, such rights, claims or interests are hereby absolutely, irrevocably and unconditionally waived, discharged and released by the parties concerned. |
(b) | Each of the shareholders of the Company hereby waives any right of first offer, pre-emptive right or other rights to purchase any portion of the Series C Preferred Shares issued by the Company pursuant to the Purchase Agreement that such shareholder may have under the Prior Investment Agreements, the Articles of the Company, or otherwise. |
37
9.15 | Conflict with Articles of Association . |
Subject to the Act, in the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the Companys Articles or other constitutional documents, the terms of this Agreement shall prevail as between the shareholders of the Company only. The Parties shall, notwithstanding the conflict or inconsistency, act so as to effect the intent of this Agreement to the greatest extent possible under the Act and shall promptly amend the conflicting constitutional documents to conform to this Agreement to the greatest extent possible under the laws of the Cayman Islands.
9.16 | Performance . |
The Founder shall procure that the Key Holder shall fully comply with and perform all of the obligations, covenants, undertakings and commitments of the Key Holder under this Agreement.
9.17 | JAFCOs Rights . |
Any rights of JAFCO under this Agreement may, without prejudice to the rights of JAFCO to exercise any such rights, be exercised by JAFCO Investment (Asia Pacific) Ltd. ( JIAP ) or any other fund manager of JAFCO or their nominees (a JAFCO Manager ), unless JAFCO has (a) given notice to the other Parties that any such rights cannot be exercised by JIAP or a JAFCO Manager and (b) not given notice to the other Parties that such notice which is given under this Section 9.17 has been revoked.
[ Remainder of Page Intentionally Left Blank ]
38
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
COMPANY: | TARENA INTERNATIONAL, INC. | |||||
By: | /s/ Han Shaoyun | |||||
Name: | ||||||
Title: | ||||||
DOMESTIC COMPANY: |
BEIJING TARENA JINQIAO
TECHNOLOGY CO., LTD.
|
|||||
By: | /s/ Han Shaoyun | |||||
Name: | ||||||
Title: | ||||||
DOMESTIC COMPANY: |
SHANGHAI TARENA SOFTWARE
TECHNOLOGY CO., LTD.
|
|||||
By: | /s/ Han Shaoyun | |||||
Name: | ||||||
Title: |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
WFOE: |
BEIJING TARENA TECHNOLOGY CO., LTD.
|
|||||
By: | /s/ Han Shaoyun | |||||
Name: | ||||||
Title: |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
SERIES C INVESTOR: |
GOLDMAN SACHS INVESTMENT PARTNERS MASTER FUND, L.P. |
|||||||
By: |
Goldman Sachs Investment Partners OP, LLC, its General Partner |
|||||||
By: |
/s/ Michelle Barone |
|||||||
Name: | Michelle Barone | |||||||
Title: | Vice President | |||||||
GOLDMAN SACHS INVESTMENT PARTNERS PRIVATE OPPORTUNITIES HOLDINGS, L.P. |
||||||||
By: |
Goldman Sachs Investment Partners Private Opportunities Advisors, Inc. its General Partner |
|||||||
By: |
/s/ Michelle Barone |
|||||||
Name: | Michelle Barone | |||||||
Title: | Vice President |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
SERIES A INVESTOR: |
IDG TECHNOLOGY VENTURE INVESTMENTS, L.P. |
|||||
By: | /s/ Quan Zhou | |||||
Name: | Quan Zhou | |||||
Title: | Authorized Signatory |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
SERIES B INVESTOR: | JAFCO ASIA TECHNOLOGY FUND IV | |||||
By: | /s/ Hiroshi Yamada | |||||
Name: | Hiroshi Yamada | |||||
Title: | Attorney |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
SERIES B INVESTOR: |
IDG TECHNOLOGY VENTURE INVESTMENT III, L.P. |
|||||
By: | /s/ Quan Zhou | |||||
Name: | Quan Zhou | |||||
Title: | Authorized Signatory |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
FOUNDER:
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
KEY HOLDER: | CONNION CAPITAL LIMITED | |||||
By: |
/s/ Han Shaoyun |
|||||
Name: | ||||||
Title: |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Parties have executed this Shareholders Agreement as of the date first above written.
EXISTING HOLDER: |
||||||
By: | /s/ Zhao Mei | |||||
Name: | Zhao Mei |
SHAREHOLDER AGREEMENT SIGNATURE PAGE
SCHEDULE 1
LIST OF INVESTORS
SERIES A INVESTOR |
Series A Shares | |||
IDG Technology Venture Investments, LP |
8,571,430 | |||
Total Series A Shares |
8,571,430 | |||
SERIES B INVESTORS |
Series B Shares | |||
JAFCO Asia Technology Fund IV and its affiliates |
5,630,630 | |||
IDG Technology Venture Investment III, L.P. |
1,689,190 | |||
Total Series B Shares |
7,319,820 | |||
SERIES C INVESTORS |
Series C Shares | |||
Goldman Sachs Investment Partners Master Fund, L.P. |
5,457,426 | |||
Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. |
5,457,426 | |||
Total Series C Shares |
10,914,852 |
SCHEDULE 1-1
SCHEDULE 2
FOUNDER
FOUNDER |
ID NUMBER | |||
Han Shaoyun |
* | ** |
SCHEDULE 2-1
SCHEDULE 3
LIST OF DOMESTIC COMPANIES
1. |
Beijing Tarena Jinqiao Technology Co., Ltd.
|
2. |
Shanghai Tarena Software Technology Co., Ltd.
|
SCHEDULE 3-1
SCHEDULE 4
NOTICES
Company
Address for Notices 7/F, Tower B, Zhongding Plaza A 18, West Road of North 3 rd Ring Road Haidian, 100098, Beijing Fax Number: (8610) 6219 6102 |
||
Key Holder
Address for Notices 7/F, Tower B, Zhongding Plaza A 18, West Road of North 3 rd Ring Road Haidian, 100098, Beijing Fax Number: (8610) 6219 6102 |
||
Domestic Company
Address for Notices 7/F, Tower B, Zhongding Plaza A 18, West Road of North 3 rd Ring Road Haidian, 100098, Beijing Fax Number: (8610) 6219 6102 |
||
WFOE
Address for Notices 7/F, Tower B, Zhongding Plaza A 18, West Road of North 3 rd Ring Road Haidian, 100098, Beijing Fax Number: (8610) 6219 6102 |
||
Founder
Address for Notices 7/F, Tower B, Zhongding Plaza A 18, West Road of North 3 rd Ring Road Haidian, 100098, Beijing Fax Number: (8610) 6219 6102 |
||
Existing Holder
Address for Notices 7/F, Tower B, Zhongding Plaza A 18, West Road of North 3 rd Ring Road Haidian, 100098, Beijing Fax Number: (8610) 6219 6102 |
||
IDG Technology Venture Investments, L.P. and IDG Technology Venture Investment III, L.P.
Address for Notices c/o IDG VC Management (HK) Limited Unit 1509, The Center 99 Queens Road, Central, Hong Kong Fax Number: (852) 25291619 Att.: Mr. Simon Ho |
SCHEDULE 4-1
JAFCO Asia Technology Fund IV | ||
Address for Notices c/o JAFCO Investment (Asia Pacific) Ltd. 6 Battery Road #42-01 Singapore 049909 Fax Number: +65 6221-3690
Address with effect from 12 September 2011 c/o JAFCO Investment (Asia Pacific) Ltd. 10 Marina Boulevard Marina Bay Financial Centre Tower 2, #33-05 Singapore 018983 |
With a copy to: JAFCO Investment (Hong Kong) Ltd. Beijing Representative Office Room 817 Beijing Fortune Building No. 5 Dong San Huan Bei Lu Chao Yang District, Beijing 100004 Fax Number: +8610 6590 9729 Attention: Chief Representative |
|
Goldman Sachs Investment Partners Master Fund, L.P. | ||
Address for Notices c/o Goldman Sachs Investment Partners GP, LLC 200 West Street, 34 th Floor New York, NY 10282, USA Fax Number: +1 (917) 977-3246 Attention: Ms. Michelle Barone |
With a copy to : Goldman Sachs (Asia) L.L.C. 66 th Floor, Cheung Kong Center 2 Queens Road, Central, Hong Kong Fax Number: +852 2978-6686 Attention: Ms. Daisy Cai |
|
Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. | ||
Address for Notices c/o Goldman Sachs Investment Partners Private Opportunities Advisors, Inc. 200 West Street, 34 th Floor New York, NY 10282, USA |
With a copy to : Goldman Sachs (Asia) L.L.C. 66 th Floor, Cheung Kong Center 2 Queens Road, Central, Hong Kong Fax Number: +852 2978-6686 |
SCHEDULE 4-2
EXHIBIT A
DEFINITIONS
For purposes of this Agreement, capitalized terms shall have the meanings set forth in this Exhibit A .
1. | 2008 Shareholders Agreement has the meaning ascribed to such term in the Recitals to this Agreement. |
2. | Act means the Companies Law (as amended) of the Cayman Islands. |
3. | The term Audit Committee has the meaning ascribed to such term in Section 5.2(c) . |
4. | The term Affiliate means, with respect to any individual, corporation, partnership, association, trust, or any other entity (in each case, a Person ), any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation (i) any general partner, officer or director of such Person and any venture capital fund now or hereafter existing which is controlled by or under common control with one or more general partners or shares the same management company with such Person and (ii) with respect to GS, (a) the general partners or limited partners of GS Master Fund and/or GS Private Opportunities Holdings, (b) the fund manager managing GS Master Fund and/or GS Private Opportunities Holdings (and general partners, limited partners and officers thereof) and other funds managed by such fund manager, (c) trusts Controlled by or for the benefit of any such Person referred in (a) or (b), and (d) any fund or holding company formed for investment purposes that is promoted, sponsored, managed, advised or serviced by The Goldman Sachs Group, Inc. or any of its Affiliates. |
5. | The term Agreement has the meaning ascribed to such term in the Preamble to this Agreement. |
6. | The term Articles means the Companys Fourth Amended and Restated Memorandum and/or Fourth Amended and Restated Articles of Association. |
7. | The term Board means the Companys Board of Directors. |
8. | The term Budget has the meaning ascribed to such term in Section 3.1(e) . |
9. | The term Business means the research, development, manufacture, marketing and sales of software or hardware products in relation to information technology, as conducted by the Company. |
10. | The term Business Day means any day, other than a Saturday, Sunday or other day on which the commercial banks in New York, Singapore, Hong Kong or Beijing are authorized or required to be closed for the conduct of regular banking business. |
11. | The term Business Principles has the meaning ascribed to such term in Section 7.7 . |
12. | The term CEO means the chief executive officer as appointed by the Board. |
EXHIBIT A-1
13. | The term CFC has the meaning ascribed to such term in Section 3.6(c) . |
14. | The term CFO means the chief financial officer as appointed by the Board. |
15. | The term Circular 75 has the meaning ascribed to such term in Section 6.5(a) . |
16. | The term Closing means the closing of the sale and purchase of the Series C Preferred Shares in accordance with the Purchase Agreement. |
17. | The term Code has the meaning ascribed to such term in Section 3.6(a) . |
18. | The term Committee has the meaning ascribed to such term in Section 5.2(c) . |
19. | The term Company has the meaning ascribed to such term in the Preamble to this Agreement. |
20. | The term Company Law means the Companies Law (as amended) of the Cayman Islands. |
21. | The term Compensation Committee has the meaning ascribed to such term in Section 5.2(c) . |
22. | The term Confirmation Notice has the meaning ascribed to such term in Section 6.1(d) . |
23. | The term Control of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, which power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person; the terms Controlling and Controlled have meanings correlative to the foregoing. |
24. | The term Control Documents includes share pledge agreement, exclusive business cooperation agreement, and exclusive option agreement by and between the WFOE and the Domestic Companies. |
25. | The term COO means the chief operating officer as appointed by the Board. |
26. | The term Co-Sale Exercising Investor has the meaning ascribed to such term in Section 6.3(a) . |
27. | The term Co-Sale Period has the meaning ascribed to such term in Section 6.3(a) . |
28. | The term Co-Sale Closing has the meaning ascribed to such term in Section 6.3(c) . |
29. | The term Disclosing Party has the meaning ascribed to such term in Section 3.5(d) . |
30. | The terms Domestic Company and Domestic Companies have the meanings ascribed to such term in the Preamble to this Agreement. |
EXHIBIT A-2
31. | The term Exchange Act means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, or any comparable Law of any other jurisdiction in which the Companys Shares are subject to regulation. |
32. | The term Exercising Investors for purposes of Section 6.1 has the meaning ascribed to such term in Section 6.1(d) and for purposes of Section 6.2 has the meaning ascribed to such term in Section 6.2(c) . |
33. | The term Existing Holder has the meaning ascribed to such term in the Preamble to this Agreement. |
34. | The term Financial Terms has the meaning ascribed to such term in Section 3.5(a) . |
35. | The term Form F-3/S-3 means such form under the Securities Act as in effect on the date hereof (including Form S-3 or Form F-3, as appropriate) or any registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. |
36. | The term Founder has the meaning ascribed to such term in the Preamble of the Purchase Agreement. |
37. | The term Fully-Exercising Holder has the meaning ascribed to such term in Section 4.1(b) . |
38. | The term Governmental Entity means the government of any nation, province, state, city, locality or other political subdivision of any thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, regulation or compliance, and any corporation or other entity owned or controlled, through share or capital ownership or otherwise, by any of the foregoing. |
39. | The term Group Companies means the Company, the WFOE, and the Domestic Companies, and any other direct or indirect Subsidiary of a Group Company collectively, and Group Company means any one of them. |
40. | The term GS has the meaning ascribed to such term in the Preamble to this Agreement. |
41. | The term Holder means any Person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 12 of the Exhibit D hereof. |
42. | The term Hong Kong means the Hong Kong Special Administrative Region of the PRC. |
43. | The term IDG means IDG Technology Venture Investments III, L.P. |
44. | The term Immediate Family Member means a child, stepchild, grandchild, parent, steparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a person referred to herein. |
EXHIBIT A-3
45. | The term Information has the meaning ascribed to such term in Section 5.5 . |
46. | The term Initiating Holders means, collectively, any Holders who properly initiate a registration request under this Agreement. |
47. | The terms Investor and Investors have the meanings ascribed to such terms in the Preamble to this Agreement and shall include the Series A Investor, the Series B Investor and the Series C Investor. |
48. | The term Investor Exercise Notice has the meaning ascribed to such term in Section 6.1(c) or has the meaning ascribed to such term in Section 6.2(b) , as applicable. |
49. | The term Investor Notice Period has the meaning ascribed to such term in Section 6.1(c) or has the meaning ascribed to such term in Section 6.2(b) , as applicable. |
50. | The term Investor Proposed Transfer Notice Period has the meaning ascribed to such term in Section 6.2(b) . |
51. | The term Investor Transfer Shares has the meaning ascribed to such term in Section 6.2(a) . |
52. | The term IPO means the Companys first underwritten public offering of its Ordinary Shares and listing on an internationally-recognized securities exchange. |
53. | The term JAFCO means JAFCO Asia Technology Fund IV and its affiliates, successors and permitted assigns. |
54. | The term JAFCO Director has the meaning ascribed to such term in Section 5.1(b) . |
55. | The term JAFCO Manager has the meaning set forth in Section 9.17 . |
56. | The term JIAP has the meaning set forth in Section 9.17 . |
57. | The term Key Employee means each of the Group Companies Chief Executive Officer (or the General Manager, in the absence of such a position), Chief Financial Officer, Vice President, Deputy General Manager and Secretary (or the Secretary of the board of directors of each of the Domestic Companies in the case of the Domestic Companies). |
58. | The term Key Holder has the meaning ascribed to such term in the Preamble to this Agreement. |
59. | The term Law means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Entity and any injunction, judgment, order, ruling, assessment or writ issued by any Governmental Entity. |
EXHIBIT A-4
60. | The term Liquidation Event has the meaning ascribed to such term in Section 2.2 of the Schedule to the Articles. |
61. | The term Maturity Date has the meaning ascribed to such term in Section 5.8(a) . |
62. | The term New Securities means equity securities of the Company, whether now authorized or not, or rights, options, or warrants to purchase said equity securities, or securities of any type whatsoever that are, or may become, convertible into or exchangeable into or exercisable for said equity securities. |
63. | The term Non-Disclosing Parties has the meaning ascribed to such term in Section 3.5(d) . |
64. | The term Observer has the meaning ascribed to such term in Section 3.3 . |
65. | The term Offer Notice has the meaning ascribed to such term in Section 4.1(a) . |
66. | The term on an as converted basis has the meaning ascribed to such term in Section 6.1(b) . |
67. | The term Ordinary Shares means ordinary shares of the Company, par value US$0.001 per share. |
68. | The term Ordinary Share Directors has the meaning ascribed to such term in Section 5.1(d) . |
69. | The term Party or Parties shall mean the parties to this Agreement, as set forth in the Preamble. |
70. | The term Permitted Registration shall mean any registration of the Companys Registrable Securities pursuant to Sections 2 , 3 and 4 of Exhibit B . |
71. | The term PFIC has the meaning ascribed to such term in Section 3.6(a) . |
72. | The term PRC means the Peoples Republic of China, which for purposes of this Agreement excludes Hong Kong, the Macau Special Administrative Region and Taiwan. |
73. | The term Preferred Directors has the meaning ascribed to such term in Section 5.1(c) . |
74. | The term Preferred Shares means the Series A Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares. |
75. | The term Pro Rata Co-Sale Share has the meaning ascribed to such term in Section 6.3(b) . |
76. | The term Pro Rata ROFR Share has the meaning ascribed to such term in Section 6.1(b) . |
77. | The term Prohibited Transfer has the meaning ascribed to such term in Section 6.4(b) . |
EXHIBIT A-5
78. | The term Proposed Investor Transfer has the meaning ascribed to such term in Section 6.2(a) . |
79. | The term Proposed Transfer has the meaning ascribed to such term in Section 6.1(a) . |
80. | The term Proposed Transfer Notice has the meaning ascribed to such term in Section 6.1(c) . |
81. | The term Prospective Transferee means any person to whom a Restricted Shareholder or selling Subject Investor proposes to make a Proposed Transfer or Proposed Investor Transfer as the case may be. |
82. | The term Purchase Agreement has the meaning ascribed to such term in the Recitals to this Agreement. |
83. | The term QEF Election has the meaning ascribed to such term in Section 3.6(a) . |
84. | The term Qualifying IPO means a firm commitment underwritten public offering of the Ordinary Shares in the United States, that has been registered under the Securities Act, with the pre-money valuation of the Company of no less than US$270,000,000 and gross proceeds to the Company of at least US$50,000,000 and the total securities issued by the Company in such offering no less than twenty percent (20%) of all outstanding share capital of the Company after the offering, or in a similar public offering of the Ordinary Shares of the Company in Hong Kong or another jurisdiction which results in the Ordinary Shares trading publicly on a recognized international securities exchange; provided that such offering satisfies the foregoing pre-money valuation and offering share percentage is subject to the prior written approval of the holders of more than forty five percent (45%) of the Series A Preferred Shares, the holders of more than forty five percent (45%) of the Series B Preferred Shares (including JAFCO) and the holders of more than sixty-seven percent (67%) of the Series C Preferred Shares. |
85. | The term Refused Securities has the meaning ascribed to such term in Section 4.1(c) . |
86. | The terms Register , Registered , and Registration refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. |
87. | The term Registrable Securities means (i) the Ordinary Shares issuable or issued upon conversion of the Preferred Shares; (ii) any Ordinary Shares issued or issuable upon conversion of any shares of the Company acquired by the Investors after the date hereof; (iii) any Ordinary Shares of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in clauses (i) and (ii) above; (iv) any other Ordinary Shares owned or hereafter acquired by any Investor, including, without limitation, any Ordinary Shares issued in respect of the Ordinary Shares described in clauses (i)-(iv) above upon any share split, share dividend, recapitalization or a similar event; and (v) any depositary receipts issued by an institutional depositary upon deposit of any of the foregoing, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under Section 2 hereof are not assigned or any shares for which registration rights have terminated pursuant to Section 2 of this Agreement. |
EXHIBIT A-6
88. | The term Registrable Securities then Outstanding means the number of shares determined by adding the number of Ordinary Shares outstanding which are, and the number of Ordinary Shares issuable pursuant to, then exercisable or convertible securities which are, Registrable Securities. |
89. | The term Registration Expenses shall mean all expenses incurred by the Company in complying with a Permitted Registration, including, without limitation, all registration and filing fees, printing expenses, fees, and disbursements of counsel for the Company, reasonable fees and disbursements of one (1) counsel for the Investors, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). |
90. | The term Restricted Employee or Restricted Employees has the meaning ascribed to such term in Section 6.1(a) . |
91. |
The terms
Restricted Shareholder
and
Restricted Shareholders
have the meanings ascribed to such terms in
Section 6.1(a) . |
92. | The term Right of Co-Sale means the right, but not an obligation, of each Investor to participate in a Proposed Transfer on the terms and conditions specified in the Proposed Transfer Notice. |
93. | The term Right of First Refusal means the right, but not an obligation, of the Company, an Investor or a Restricted Shareholder, as the case may be, or its permitted transferees or assigns, to purchase some or all of the Transfer Shares or the Investor Transfer Shares, as the case may be, with respect to a Proposed Transfer or Proposed Investor Transfer, as the case may be, on the terms and conditions specified in the Proposed Transfer Notice or the Investor Proposed Transfer Notice, as the case may be. |
94. | The term SAFE has the meaning ascribed to such term in Section 6.5(a) . |
95. | The term SEC means the United States Securities and Exchange Commission, or comparable regulatory authority in any other jurisdiction having oversight over the trading of the Companys Shares. |
96. | The term SEC Rule 144 means Rule 144 promulgated by the SEC under the Securities Act (or comparable law in a jurisdiction other than the United States). |
97. | The term SEC Rule 144(k) means Rule 144(k) promulgated by the SEC under the Securities Act (or comparable law in a jurisdiction other than the United States). |
98. | The term SEC Rule 145 means Rule 145 promulgated by the SEC under the Securities Act (or comparable law in a jurisdiction other than the United States). |
EXHIBIT A-7
99. | The term Securities Act means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, (or comparable law in a jurisdiction other than the United States). |
100. | The term Selling Expenses has the meaning ascribed to such term in Section 5 of Exhibit B hereto. |
101. | The term Selling Shareholder has the meaning ascribed to such term in Section 5.8(ii) . |
102. | The term Series A Director has the meaning ascribed to such term in Section 5.1(a) . |
103. | The term Series A Investor shall mean IDG Technology Venture Investments, LP. |
104. | The term Series A Preferred Shares means the Companys Series A Convertible Preferred Shares with a par value of US$0.001 per share. |
105. | The term Series B Investor shall mean JAFCO or IDG. |
106. | The term Series B Preferred Shares means the Companys Series B Convertible Preferred Shares with a par value of US$0.001 per share. |
107. | The term Series B Share Price means the price for each Series B Preferred Share, being US$8.88. |
108. | The term S eries C Director has the meaning ascribed to such term in Section 5.1(c) . |
109. | The term Series C Investor shall mean GS Master Fund and GS Private Opportunities Holdings and their respective affiliates, successors and permitted assigns. |
110. | The term Series C Preferred Shares means the Companys Series C Convertible Preferred Shares with a par value of US$0.001 per share. |
111. | The term Series C Share Price means the price for each Series C Preferred Share, being US$1.83. |
112. | The term Shareholder shall mean each of the Restricted Shareholder, the Existing Holder and the Investors. |
113. | The term Shares means shares of any class in the capital of the Company and including, without limitation, (i) Common Shares (whether now outstanding or hereafter issued in any context), and (ii) the Preferred Shares. |
114. | The term Stock Plan has the meaning ascribed to such term in Section 2.21 of the Purchase Agreement. |
115. | The term Subject Investor and Subject Investors have the meaning ascribed to such term in Section 6.2(a) . |
EXHIBIT A-8
116. | The term Subsidiary or subsidiary means, as of the relevant date of determination, with respect to any Person (the subject entity), (i) any Person (x) more than fifty percent (50%) of whose shares or other interests entitled to vote in the election of directors or (y) more than a fifty percent (50%) interest in the profits or capital of such Person are owned or controlled directly or indirectly by the subject entity or through one (1) or more Subsidiaries of the subject entity, (ii) any Person whose assets, or portions thereof, are consolidated with the net earnings of the subject entity and are recorded on the books of the subject entity for financial reporting purposes in accordance with GAAP, or (iii) any Person with respect to which the subject entity has the power to otherwise direct the business and policies of that entity directly or indirectly through another subsidiary. For the avoidance of doubt, the Subsidiaries of the Company shall include the Group Companies (excluding the Company). |
117. | The term Trade Sale shall have the meaning ascribed to such term in Section 5.8(a) . |
118. | The term Transaction Documents means this Agreement, the Purchase Agreement, and any other agreements, instruments or documents entered into in connection with this Agreement. |
119. | The term Transfer Shares has the meaning ascribed to such term in Section 6.1(b) . |
120. | The term Undersubscription Exercise Period has the meaning ascribed to such term in Section 6.1(d) . |
121. | The term Undersubscription Notice means written notice from an Investor notifying the Company and the selling Restricted Shareholder or selling Investor, as the case may be, that such Investor or Restricted Shareholder, as the case may be, intends to exercise its option to purchase a portion of the Transfer Shares or Investor Transfer Shares not purchased pursuant to an initial Right of First Refusal. |
122. | The term United States Person means any person described in Section 7701(a)(30) of the Code. |
123. | The term US$ means the United States dollar, the lawful currency of the United States of America. |
124. | The term U.S. GAAP means the generally accepted accounting principles of the United States of America. |
125. | The term U.S. Investor means (A) any Investor that is a United States Person and (B) any Investor, one or more of the owners of which are, or controlled by, United States persons. |
EXHIBIT A-9
126. | The term Violation means losses, claims, damages, or liabilities (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act or other applicable Laws of the United States or other relevant jurisdictions, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by any other party hereto, of the Securities Act, the Exchange Act, any state securities Law or any rule or regulation promulgated under the Securities Act, the Exchange Act, any state securities Law, or other applicable Laws of the United States or other relevant jurisdictions. |
127. | The term WFOE has the meaning ascribed to such term in the Preamble to this Agreement. |
EXHIBIT A-10
Exhibit B
1. | Applicability of Rights; Non-U.S. Registrations . |
1.1 | The Holders shall be entitled to the following rights with respect to any potential public offering of the Companys Ordinary Shares in the United States and shall be entitled to reasonably analogous or equivalent rights with respect to any other offering of Company securities in any other jurisdiction pursuant to which the Company undertakes to publicly offer or list such securities for trading on a recognized securities exchange. |
1.2 | For purposes of this Agreement and Exhibit B , reference to registration of securities under the Securities Act and the Exchange Act shall be deemed to mean the equivalent registration in a jurisdiction other than the United States as designated by such Holders, it being understood and agreed that in each such case all references in this Agreement to the Securities Act, the Exchange Act and rules, forms of registration statements and registration of securities thereunder, U.S. Law and the SEC, shall be deemed to refer, to the equivalent statutes, rules, forms of registration statements, registration of securities and Laws of and equivalent government authority in the applicable non-U.S. jurisdiction. |
2. | Demand Registration . |
2.1 | Request by Holders . |
If the Company shall, at any time after the earlier of (i) twenty-four (24) months after the Closing, (ii) after the Companys IPO, or (iii) six (6) months after the Company becomes subject to the reporting requirements of the Securities Exchange Act, receive a written request from the Holders of at least ten percent (10%) of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act pursuant to this Section 2 , then the Company shall, within five (5) Business Days of the receipt of such written request, give written notice of such request (the Request Notice) to all Holders, and use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered and included in such registration by written notice given by such Holders to the Company within fifteen (15) days after receipt of the Request Notice, subject only to the limitations of this Section 2 ; provided that the Company shall not be obligated to effect any such registration if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act pursuant to this Section 2 or Section 4 or in which the Holders had an opportunity to participate pursuant to the provisions of Section 3 , other than a registration from which the Registrable Securities of the Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Sections 2.2(b) or 3.2(b) .
EXHIBIT B-1
2.2 | Underwriting . |
(a) | If the Holders initiating the registration request under this Section 2 (the Initiating Holders ) intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 2 and the Company shall include such information in the Request Notice. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting by the Holders of a majority of the Registrable Securities being registered and reasonably acceptable to the Company. |
(b) | Notwithstanding any other provision of this Section 2 , if the underwriter(s) determine in good faith that marketing factors require a limitation of the number of securities to be underwritten then the Company shall so advise all Holders of Registrable Securities which would otherwise be registered and underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated (x) first, to the Investors on a pro rata basis according to the total number of Registrable Securities then outstanding held by each Investor requesting registration and (y) then, to the other Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities then outstanding held by each such Holder requesting registration; provided , however , that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities are first entirely excluded from the underwriting and registration including, without limitation, all shares that are not Registrable Securities and are held by any other person, including, without limitation, any person who is an employee, officer or director of the Company or any subsidiary of the Company; provided further that at least twenty-five percent (25%) of the Registrable Securities requested by the Holders to be included in such underwriting and registration shall be so included. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least ten (10) Business Days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. |
2.3 | Maximum Number of Demand Registrations . |
The Company shall not be obligated to effect more than three (3) such registrations (excluding registrations which are declared or ordered effective but pursuant to which securities have not been sold) on behalf of the Investors pursuant to this Section 2 .
EXHIBIT B-2
2.4 | Deferral . |
Notwithstanding the foregoing, if the Company shall furnish to Holders requesting registration pursuant to this Section 2 , a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be materially detrimental to the Company and its shareholders for such registration statement to be filed at such time, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided , however , that the Company may not utilize this right more than once in any twelve (12) month period; provided further , that the Company shall not register any other of its shares during such twelve (12) month period. A demand right shall not be deemed to have been exercised until such deferred registration shall have been effected.
3. | Piggyback Registrations . |
3.1 | The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 4 of this Agreement or to any employee benefit plan or a corporate reorganization) and shall afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall within thirty (30) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. Upon the written request of each Holder given within thirty (30) days after mailing of such notice by the Company, the Company shall use its commercial best efforts to cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. |
3.2 | Underwriting . |
(a) | If a registration statement under which the Company gives notice under this Section 3 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holders Registrable Securities to be included in a registration pursuant to this Section 3 shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting. |
EXHIBIT B-3
(b) | Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first, to the Company, second, to each of the Investors requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by each such Investor, third, to the other Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by each such Holder and fourth, to holders of other securities of the Company; provided , however , that the right of the underwriter(s) to exclude shares (including Registrable Securities) from the registration and underwriting as described above shall be restricted so that (i) the number of Registrable Securities included in any such registration is not reduced below twenty-five percent (25%) of the aggregate number of shares of Registrable Securities for which inclusion has been requested; and (ii) all shares that are not Registrable Securities and are held by any other person, including, without limitation, any person who is an employee, officer or director of the Company (or any subsidiary of the Company) shall first be excluded from such registration and underwriting before any Registrable Securities are so excluded, unless otherwise approved by the holders of a majority of the Registrable Securities. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least ten (10) Business Days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. |
3.3 | Not Demand Registration . |
Registration pursuant to this Section 3 shall not be deemed to be a demand registration as described in Section 2 above. There shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 3 .
4. | Form F-3/S-3 Registration . |
After the Companys IPO, the Company shall use its best efforts to qualify for registration on Form F-3/S-3 or any comparable or successor form or forms. In case the Company shall receive from any Holder or Holders of a majority of all Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form F-3/S-3 (or an equivalent registration in a jurisdiction outside of the United States) and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then the Company will:
4.1 | Notice . |
Promptly give written notice of the proposed registration and the Holders or Holders request therefor, and any related qualification or compliance, to all other Holders of Registrable Securities; and
EXHIBIT B-4
4.2 | Registration . |
As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders or Holders Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after the Company provides the notice contemplated by Section 4.1 ; provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 4 :
(a) | if Form F-3/S-3 (or any successor or similar form) is not available for such offering by the Holders; |
(b) | if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than US$500,000; |
(c) | if the Company shall furnish to the Holders a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its shareholders for such Form F-3/S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form F-3/S-3 registration statement no more than once during any twelve (12) month period for a period of not more than sixty (60) days after receipt of the request of the Holder or Holders under this Section 4 ; provided that the Company shall not register any of its other shares during such sixty (60) day period. |
(d) | if the Company has, within the six (6) month period preceding the date of such request, already effected registrations under the Securities Act other than a registration from which the Registrable Securities of Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Sections 2.2 and 3.2 ; or |
(e) | in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act. |
4.3 | Not a Demand Registration . |
Form F-3/S-3 registrations shall not be deemed to be demand registrations as described in Section 2 above. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 4 .
EXHIBIT B-5
4.4 | Underwriting . |
If the Holders of Registrable Securities requesting registration under this Section 4 intend to distribute the Registrable Securities covered by their request by means of an underwriting, the provisions of Section 2.2 shall apply to such registration.
5. | Expenses . |
All Registration Expenses incurred in connection with a Permitted Registration (but excluding underwriting discounts and commissions (the Selling Expenses )) shall be borne by the Company. In the event the Company does not issue any securities in connection with a Permitted Registration, each Holder participating in such Permitted Registration shall bear such Holders proportionate share (based on the total number of shares sold in such registration other than for the account of the Company) of all Selling Expenses, in connection with such offering by the Holders. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, unless the Holders of a majority of the Registrable Securities then outstanding agree that such registration constitutes the use by the Holders of one (1) demand registration pursuant to Section 2 (in which case such registration shall also constitute the use by all Holders of Registrable Securities of one (1) such demand registration); provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company not known to the Holders at the time of their request for such registration and have withdrawn their request for registration with reasonable promptness after learning of such material adverse change, then the Holders shall not be required to pay any of such expenses and such registration shall not constitute the use of a demand registration pursuant to Section 2 .
6. | Obligations of the Company . |
Whenever required to effect the registration of any Registrable Securities under this Agreement the Company shall, as expeditiously as reasonably possible:
6.1 | Registration Statement . |
Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to ninety (90) days or, in the case of Registrable Securities registered under Form F-3/S-3 in accordance with Rule 415 under the Securities Act or a successor rule, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such ninety (90) day period shall be extended for a period of time equal to the period any Holder refrains from selling any securities included in such registration at the request of the underwriter(s), and (ii) in the case of any registration of Registrable Securities on Form F-3/S-3 which are intended to be offered on a continuous or delayed basis, such ninety (90) day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold.
EXHIBIT B-6
6.2 | Amendments and Supplements . |
Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement.
6.3 | Prospectuses . |
Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, and amendments and supplements thereto, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration.
6.4 | Blue Sky . |
Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act.
6.5 | Underwriting . |
In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter(s) of such offering.
6.6 | Notification . |
Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of (i) the issuance of any stop order by the SEC in respect of such registration statement, or (ii) the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
EXHIBIT B-7
6.7 | Opinion and Comfort Letter . |
Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriter(s) for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and (ii) letters dated as of (x) the effective date of the registration statement covering such Registrable Securities and (y) the closing date of the offering from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.
6.8 | Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. |
6.9 | Cause all such Registrable Securities registered pursuant to such registration statement to be listed on each securities exchange on which similar securities issued by the Company are then listed. |
7. | Furnish Information . |
It shall be a condition precedent to the obligations of the Company to take any the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to timely effect the Registration of their Registrable Securities.
8. | Indemnification . |
In the event any Registrable Securities are included in a registration statement under Sections 2 , 3 or 4 :
8.1 | By the Company . |
To the extent permitted by Law, the Company will indemnify and hold harmless each Holder, its partners, members, officers, directors, legal counsel, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other United States federal or state Law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a Violation ):
(a) | any untrue statement or alleged untrue statement of a material fact contained in such registration statement or incorporated reference therein, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; |
EXHIBIT B-8
(b) | the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or |
(c) | any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any United States federal or state securities Law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any United States federal or state securities Law in connection with the offering covered by such registration statement; |
and the Company will reimburse each such Holder, its partner, officer, director, legal counsel, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the indemnity agreement contained in this Section 8.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld, delayed or conditioned), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder or any partner, officer, director, counsel, underwriter or controlling person of such Holder.
8.2 | By Selling Holders . |
To the extent permitted by Law, each selling Holder will, if Registrable Securities held by Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holders partners, directors, officers, legal counsel or any person who controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, legal counsel, controlling person, underwriter or other such Holder, partner or director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other United States federal or state Law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any of the following statements or omissions in respect of such Holder only: (a) any untrue statement or alleged untrue statement of a material fact contained in such registration statement or incorporated reference therein (provided by such Holder or its authorised agent for the express purpose of inclusion in such registration statement), including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; or (b) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading (collectively, Holder Violations ),
EXHIBIT B-9
In each case to the extent (and only to the extent) that such Holder Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Holder Violation; provided , however , that the indemnity agreement contained in this Section 8.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further , that in no event shall any indemnity under this Section 8.2 exceed the net proceeds received by such Holder in the registered offering out of which the applicable Holder Violation arises.
8.3 | Notice . |
Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnified party under this Section 8 , deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of liability to the indemnified party under this Section 8 to the extent the indemnifying party is prejudiced as a result thereof, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 8 .
8.4 | Contribution . |
In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any indemnified party makes a claim for indemnification pursuant to this Section 8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party in circumstances for which indemnification is provided under this Section 8 ; then, and in each such case, the indemnified party and the indemnifying party will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that a Holder (together with its related persons) is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion. The relative fault of the indemnifying Party and of the indemnified Party shall be determined by a court of Law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying Party or by the indemnified Party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided , however , that, in any such case: (A) no Holder will be required to contribute any amount in excess of the net proceeds to such Holder from the sale of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.
EXHIBIT B-10
8.5 | Survival . |
The obligations of the Company and Holders under this Section 8 shall survive the termination of this Agreement and the completion of any offering of Registrable Securities in a registration statement, regardless of the expiration of any statutes of limitation or extensions of such statutes. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
9. | No Registration Rights to Third Parties . |
Without the prior written consent of the Holders of a majority in interest of the Registrable Securities then outstanding, the Company covenants and agrees that it shall not grant, or cause or permit to be created, for the benefit of any person or entity any registration rights of any kind (whether similar to the demand, piggyback or Form F-3/S-3 registration rights described in this Exhibit B , or otherwise) relating to any securities of the Company which are senior to, or on a parity with, those granted to the Holders of Registrable Securities.
10. | Rule 144 Reporting . |
With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration or pursuant to a registration on Form F-3/S-3, after such time as a public market exists for the Ordinary Shares, the Company agrees to:
10.1 | Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; |
10.2 | File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and |
EXHIBIT B-11
10.3 |
So long as a Holder owns any Registrable Securities, to furnish to such Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the Companys initial public offering), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or its qualification as a
registrant whose securities may be resold pursuant to
Form F-3/S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to Form F-3/S-3. |
11. | Market Stand-Off . |
Each Shareholder agrees that, so long as it holds any voting securities of the Company, upon request by the Company or the underwriters managing the initial public offering of the Companys securities, it will not sell or otherwise transfer or dispose of any securities of the Company (other than those permitted to be included in the registration and other transfers to Affiliates permitted by Law) without the prior written consent of the Company or such underwriters, as the case may be, for a period of time specified by the representative of the underwriters not to exceed one hundred and eighty (180) days from the effective date of the registration statement filed by the Company under the Securities Act and covering such public offering. The foregoing provision of this Section 11 shall not apply to the sale of any securities of the Company to an underwriter pursuant to any underwriting agreement, and shall only be applicable to the Holders if all officers, directors and holders of one percent (1%) or more of the Companys outstanding share capital enter into similar agreements, and if the Company or any underwriter releases any officer, director or holder of one percent (1%) or more of the Companys outstanding share capital from his or her sale restrictions so undertaken, then each Holder shall be notified prior to such release and shall itself be simultaneously released to the same proportional extent. The Company shall require all future acquirers of the Companys securities to execute prior to a Qualifying IPO a market stand-off agreement containing substantially similar provisions as those contained in this Section 11 . Notwithstanding anything herein to the contrary, Goldman, Sachs & Co. and its Affiliates (other than GS) may engage in any brokerage, investment advisory, financial advisory, anti-raid advisory, merger advisory, financing, asset management, trading, market making, arbitrage and other similar activities conducted in the ordinary course of their business.
EXHIBIT B-12
Exhibit 10.1
TARENA INTERNATIONAL, INC.
2008 SHARE PLAN
(Adopted by the members of the Company on September 22, 2008; and adopted by the
Companys Board of Directors on September 22, 2008; amended on November 28, 2012; share
information has reflected the 10-for-1 share split effective on December 16, 2008)
1. Purposes of the Plan . The purpose of this Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to selected Service Providers and to promote the success of the Companys business by offering these individuals an opportunity to acquire a proprietary interest in the success of the Company or to increase this interest, by permitting them to acquire Shares of the Company. The Plan provides both for the direct award or sale of Shares and for the grant of Options to purchase Shares.
2. Definitions . For the purposes of this Plan, the following terms shall have the following meanings:
(a) Acquisition Date means, with respect to Shares, the respective dates on which the Shares are sold under the Plan, the Shares are issued upon exercise of an Option or the Shares are issued in connection with a Share Award.
(b) Administrator means the Board, any of its Committees or such delegates as shall be administering the Plan in accordance with Section 4 hereof.
(c) Affiliate means (a) any entity (other than the Company) in an unbroken chain of entities ending with the Company if, at the time of the determination, each of the entities other than the Company owns shares possessing fifty percent (50%) or more of the total combined voting power of all classes of shares in one of the other entities in such chain, or (b) any entity (other than the Company) in an unbroken chain of entities beginning with the Company if, at the time of the determination, each of the entities other than the last entity in the unbroken chain owns shares possessing fifty percent (50%) or more of the total combined voting power of all classes of shares in one of the other entities in such chain.
(d) Applicable Law means any applicable legal requirements relating to the administration of and the issuance of securities under equity securities-based compensation plans, including, without limitation, the requirements of laws of the PRC, Hong Kong, U.S. federal and state laws, the laws of the Cayman Islands and the requirements of any stock exchange or quotation system upon which the Shares may then be listed or quoted and the applicable laws of any other country or jurisdiction where Awards are granted under the Plan. For all purposes of this Plan, references to statutes and regulations shall be deemed to include any successor statutes or regulations, to the extent reasonably appropriate as determined by the Administrator.
(e) Award means an Option, a Share Purchase Right or a Share Award.
(f) Awardee means a recipient of an Award.
(g) Board means the Board of Directors of the Company.
(h) Change in Control means the occurrence of any of the following events:
(i) any legal or natural person or group acting in concert becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Companys then outstanding voting securities; or
(ii) the consummation of the sale, lease, or disposition by the Company of all or substantially all of the Companys assets; or
(iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.
Anything in the foregoing to the contrary notwithstanding, a transaction shall not constitute a Change in Control if its sole purpose is to change the legal jurisdiction of the Companys incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction. In addition, a sale by the Company of its securities in a transaction, the primary purpose of which is to raise capital for the Companys operations and business activities including, without limitation, an initial public offering of Shares under the Securities Act or other Applicable Law, shall not constitute a Change in Control.
(i) Committee means a committee of Directors appointed by the Board in accordance with Section 4 hereof.
(j) Company means Tarena International, Inc. , a limited liability company duly incorporated and validly existing under the Laws of the Cayman Islands, or any successor corporation thereto.
(k) Consultant means any natural person, including an advisor, who is engaged by the Company, or any Parent, Subsidiary or variable interest entity whose financial statements are intended to be consolidated with the Company, any Parent or Subsidiary to render bona fide consulting or advisory services to such entity and who is compensated for the services; provided that the term Consultant does not include (i) Employees or (ii) securities promoters.
(l) Date of Grant means the date an Award is granted to an Awardee in accordance with Section 13 hereof.
(m) Director means a member of the Board.
(n) Disability means total and permanent disability.
(o) Employee means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or any Parent or Subsidiary, including sick leave, military leave, or any other personal leave, or (ii) transfers between locations of the Company or between the Company or variable interest entity whose financial statements are intended to be consolidated with the Company or any Parent or Subsidiary, or any successor. Neither service as a Director nor payment of a directors fee by the Company or any Parent or Subsidiary shall be sufficient to constitute employment by the Company or any Parent or Subsidiary.
(p) Exercise Price means the amount for which one Share may be purchased upon exercise of an Option, as specified by the Administrator in the applicable Option Agreement in accordance with Section 6(c) hereof.
(q) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(r) Fair Market Value means, as of any date, the value of the Shares determined as follows:
(i) if the Shares are listed on any established stock exchange or a national market system, including, without limitation, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market of the Nasdaq Stock Market, Hong Kong Stock Exchange and the London Stock Exchange (Main Listing or Alternative Investment Market), the Fair Market Value shall be the closing sales price for the Shares (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) if the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value shall be the mean of the high bid and low asked prices for the Shares on the day of determination, as reported in The Wall Street Journal or any other source as the Administrator deems reliable; or
(iii) in the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Administrator in accordance with Applicable Law.
(s) Hong Kong means Hong Kong Special Administrative Region of the Peoples Republic of China.
(t) Option means an option to purchase Shares that is granted pursuant to the Plan in accordance with Section 6 hereof.
(u) Option Agreement means a written or electronic agreement between the Company and an Optionee, the form(s) of which shall be approved from time to time by the Administrator, evidencing the terms and conditions of an individual Option granted under the Plan, and includes any documents attached to or incorporated into the Option Agreement, including, but not limited to, a notice of option grant and a form of exercise notice. The Option Agreement shall be subject to the terms and conditions of the Plan.
(v) Optioned Shares means the Shares subject to an Option.
(w) Optionee means the holder of an outstanding Option granted under the Plan.
(x) Parent means a parent corporation with respect to the Company, whether now or hereafter existing.
(y) Plan means this 2008 Share Plan, as amended from time to time.
(z) PRC means the Peoples Republic of China, which, for the purpose of this Plan, shall exclude Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan.
(aa) Purchase Price means the amount of consideration for which one Share may be acquired pursuant to a Share Purchase Right or Share Award, as specified by the Administrator in the applicable Restricted Share Purchase Agreement or Share Award in accordance with Section 7(c) hereof.
(bb) Purchaser means the holder of Shares purchased pursuant to the exercise of a Share Purchase Right.
(cc) Restricted Share Purchase Agreement means a written or electronic agreement between the Company and a Purchaser, the form(s) of which shall be approved from time to time by the Administrator, evidencing the terms and conditions of an individual Share Purchase Right, and includes any documents attached to or incorporated into the Restricted Share Purchase Agreement. The Restricted Share Purchase Agreement shall be subject to the terms and conditions of the Plan.
(dd) Restricted Shares means Shares acquired pursuant to a Restricted Share Purchase Agreement or Share Award Agreement (if subjected to rights of redemption, repurchase or forfeiture).
(ee) Securities Act means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(ff) Service Provider means an Employee, Director, or Consultant.
(gg) Share means an ordinary share of the Company, as adjusted in accordance with Section 12 hereof.
(hh) Share Award means an award or issuance of Shares or stock appreciation rights or other similar awards made under Section 7 of the Plan, the grant, issuance, retention, vesting, settlement and/or transferability of which is subject during specified periods of time to such conditions (including continued employment or performance conditions) and terms as are expressed in the agreement or other documents evidencing the Award (the Share Award Agreement ).
(ii) Shareholders Agreement means any agreement between an Awardee and the Company or members of the Company or both.
(jj) Share Purchase Right means a right to purchase Restricted Shares pursuant to Section 7 hereof.
(kk) Subsidiary means, as of the relevant date of determination, with respect to any legal or natural person (the subject entity), (i) any legal or natural person (x) more than fifty percent (50%) of whose shares or other interests entitled to vote in the election of directors or (y) more than a fifty percent (50%) interest in the profits or capital of such person are owned or controlled directly or indirectly by the subject entity or through one (1) or more Subsidiaries of the subject entity, (ii) any legal or natural person whose assets, or portions thereof, are consolidated with the net earnings of the subject entity and are recorded on the books of the subject entity for financial reporting purposes in accordance with the U.S. GAAP, or (iii) any legal or natural person with respect to which the subject entity has the power to otherwise direct the business and policies of that entity directly or indirectly through another subsidiary.
(ll) United States means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia.
3. Shares Subject to the Plan .
(a) Basic Limitation . Subject to the provisions of Section 12 hereof, the maximum aggregate number of Shares that may be issued under the Plan shall not exceed 8,184,990 Shares. The Shares may be authorized but unissued or reacquired Shares. The number of Shares that are subject to Awards outstanding under the Plan at any time shall not exceed the aggregate number of Shares that then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of outstanding Awards granted under the Plan.
(b) Additional Shares . If a Share Purchase Right or an Award expires, becomes unexercisable, or is cancelled, forfeited, or otherwise terminated without having been exercised or settled in full, as the case may be, the Shares allocable to the unexercised portion of the Share Purchase Right or the Award shall again become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that actually have been issued under the Plan, upon exercise of an Option or delivery under a Share Purchase Right or Share Award, shall not be returned to the Plan and shall not become available for future distribution under the Plan except to the extent such Shares are repurchased or otherwise re-acquired by the Company pursuant to the terms of this Plan, any Option Agreement, any Restricted Share Purchase Agreement or any Share Award Agreement.
4. Administration of the Plan .
(a) Administrator . The Plan shall be administered by the Board or a Committee appointed by the Board. Any Committee of the Board shall be constituted to comply with Applicable Law.
(b) Powers of the Administrator . Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value, in accordance with Section 2(r) hereof;
(ii) to select the Awardees to whom Awards may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve the form(s) of agreement for use under the Plan;
(v) to determine the terms and conditions of any Award granted hereunder including, but not limited to, the Exercise Price, the Purchase Price, the time or times when Options may be exercised (which may be based on performance criteria), the time or times when repurchase or redemption rights shall lapse, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
(vi) to implement a program where (A) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower Exercise/Purchase Prices and different terms), Awards of a different type, or cash, or (B) the Exercise/Purchase Price of an outstanding Award is reduced, based in each case on terms and conditions determined by the Administrator in its sole discretion;
(vii) to prescribe, amend, and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable laws of jurisdictions other than the United States;
(viii) to allow Awardees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued under an Award that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Awardees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;
(ix) to modify or amend each Award (subject to Section 17 hereof and Awardee consent if the modification or amendment is to the Awardees detriment), including, without limitation, the discretionary authority to extend the post-termination exercisability of an Option longer than is otherwise provided for in an Option Agreement or accelerate the vesting or exercisability of an Option or lapsing of a repurchase or redemption right to which Restricted Shares may be subject;
(x) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan; and
(xi) to make any other determination and take any other action that the Administrator deems necessary or desirable for the administration of the Plan.
(c) Delegation of Authority to Officers . Subject to Applicable Law, the Administrator may delegate limited authority to specified officers of the Company to execute on behalf of the Company any instrument required to effect an Award previously granted by the Administrator.
(d) Effect of Administrators Decision . All decisions, determinations, and interpretations of the Administrator shall be final and binding on all Awardees.
5. Rules of Eligibility . Only Service Providers, or trusts or companies established in connection with any employee benefit plan of the Company (including the Plan) for the benefit of a Service Provider, shall be eligible for the grant of Awards.
6. Terms and Conditions of Options .
(a) Option Agreement . Each grant of an Option under the Plan shall be evidenced by an Option Agreement between the Optionee and the Company. Each Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Administrator deems appropriate for inclusion in an Option Agreement; provided, however, that any such inclusion shall be subject to Section 6A hereof. The provisions of the various Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares . Each Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 12 hereof.
(c) Exercise Price and Method of Payment . Each Option Agreement shall specify the Exercise Price. The Exercise Price shall be payable in accordance with Section 9 hereof. Notwithstanding anything to the contrary hereunder, (i) the exercise price for such amount of options set forth against the name of each optionee under Appendix I (totaling 5,385,000 Shares) shall be US$0.58 per share in the First Stage Options and Second Stage Options (as defined in Appendix I) and US$1.58 per share in the Third Stage Options (as defined in Appendix I); and (ii) the exercise price of the remaining 617,020 Shares that may be issued under the Plan pursuant to Section 3(a) shall be determined by the Board (including the affirmative votes of the Series A Director and the JAFCO Director, each defined under the Second Amended and Restated Memorandum and Articles of Association of the Company adopted by the Shareholders resolutions dated September 22, 2008).
(d) Term of Option . The Option Agreement shall specify the term of the Option; provided, however, that the term shall not exceed ten (10) years from the Date of Grant. The Option Agreement will be subject to earlier termination as provided in or pursuant to Section 6.
(e) Exercisability . Each Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The exercisability provisions of any Option Agreement shall be determined by the Administrator in its sole discretion; provided, however, that such exercisability provisions shall be subject to Sections 6A and 6B hereof.
(f) Exercise Procedure . Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as may be determined by the Administrator subject to Sections 6A and 6B hereof and as set forth in the Option Agreement; provided, however, that an Option shall not be exercised for a fraction of a Share.
(i) An Option shall be deemed exercised when the Company receives (A) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, (B) full payment for the Shares with respect to which the Option is exercised, and (C) all representations, indemnifications, and documents reasonably requested by the Administrator including, without limitation, any Shareholders Agreement. Full payment may consist of any consideration and method of payment authorized by the Administrator in accordance with Section 9 hereof and permitted by the Option Agreement.
(ii) Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Subject to the provisions of Sections 8, 9, 14, and 15, the Company shall issue (or cause to be issued) certificates evidencing the issued Shares promptly after the Option is exercised. Notwithstanding the foregoing, the Administrator in its discretion may require the Company to retain possession of any certificate evidencing Shares acquired upon the exercise of an Option, if those Shares remain subject to repurchase or redemption under the provisions of the Option Agreement, any Shareholders Agreement, or any other agreement between the Company and the Optionee, or if those Shares are collateral for a loan or obligation due to the Company.
(iii) Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan (in accordance with Section 3(b)) and for sale under the Option, by the number of Shares as to which the Option is exercised.
(g) Termination of Service (other than by death) .
(i) If an Optionee ceases to be a Service Provider for any reason other than because of death, then the Optionees Options shall expire on the earliest of the following occasions:
(A) The expiration date determined by Section 6(d) hereof;
(B) The 30th day following the termination of the Optionees relationship as a Service Provider for any reason other than Disability, or such later date as the Administrator may determine and specify in the Option Agreement; or
(C) The last day of the six-month period following the termination of the Optionees relationship as a Service Provider by reason of Disability, or such later date as the Administrator may determine and specify in the Option Agreement.
(ii) Following the termination of
the Optionees relationship as a Service Provider pursuant to this Section 6(h), the Optionee may exercise all or part of the Optionees Option at any time before the expiration of the Option as set forth in
Section 6(h)(i) hereof, but only to the extent that the Option was vested and exercisable as of the date of termination of the Optionees relationship as a Service Provider (or became vested and exercisable as a result of the
termination). The balance of the Shares subject to the Option shall be forfeited on the date of termination of the Optionees relationship as a Service Provider. In the event that the Optionee dies after the termination of the Optionees
relationship as a Service Provider but before the expiration of the Optionees Option as set forth in Section 6(h)(i) hereof, all or part of the Option may be exercised (prior to expiration) by the executors or administrators of the
Optionees estate or by any person who has acquired the Option directly from the Optionee by beneficiary designation, bequest, or inheritance, but only to the extent that the Option was vested and exercisable as of the termination date of the
Optionees relationship as a Service Provider (or became vested and exercisable as a result of the termination). Any Optioned Shares subject to the portion of the Option that are vested as of the termination date of the Optionees
relationship as a Service Provider but that are not purchased prior to the expiration of the Option pursuant to this Section 6(h) shall be forfeited immediately following the Options expiration.
(h) Leaves of Absence . Unless otherwise determined by the Administrator, for purposes of this Section 6, the service of an Optionee as a Service Provider shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing. Unless otherwise determined by the Administrator and subject to Applicable Law, vesting of an Option shall be suspended during any unpaid leave of absence.
(i) Death of Optionee .
(i) If an Optionee dies while a Service Provider, then the Optionees Option shall expire on the earlier of the following dates:
(A) The expiration date determined by Section 6(d) hereof;
(B) The last day of the six-month period immediately following the Optionees death, or such later date as the Administrator may determine and specify in the Option Agreement.
(ii) All or part of the Optionees Option may be exercised at any time before the expiration of the Option as set forth in Section 6(j)(i) hereof by the executors or administrators of the Optionees estate or by any person who has acquired the Option directly from the Optionee by beneficiary designation, bequest, or inheritance, but only to the extent that the Option was vested and exercisable as of the date of the Optionees death or had became vested and exercisable as a result of the death. The balance of the Shares subject to the Option shall be forfeited upon the Optionees death. Any Optioned Shares subject to the portion of the Option that are vested as of the Optionees death but that are not purchased prior to the expiration of the Option pursuant to this Section 6(j) shall be forfeited immediately following the Options expiration.
(j) No Assignment . The Optionee shall not sell, transfer, pledge, hypothecate, encumber or otherwise assign any of his or her rights under the Option Agreement (including any Option, vested or unvested, issued or unissued, exercised or unexercised) without prior written consent of the Board (including the affirmative votes of the Series A Directors and the Series B Director).
(k) Restrictions on Transfer of Shares . Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase or redemption, rights of first refusal, nomination arrangements, and other transfer restrictions as the Administrator may determine. The restrictions described in the preceding sentence shall be set forth in the applicable Option Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally.
6A. Restriction on Issue of Shares
Notwithstanding anything else in this Plan, all Options can only be exercised (if vested) and Shares issued pursuant thereunder, and Shares can only be issued pursuant to a Share Award, only upon the occurrence of any of the following events:
(a) the consummation of a Qualified IPO (as defined below);
(b) the consummation of a Liquidation Event (as defined below); or
(c) the expiry of the five (5) year period commencing from the date hereof.
For the purpose of this Section 6A, (i) the term Qualified IPO shall mean a firm commitment underwritten public offering of the Ordinary Shares in the United States, that has been registered under the Securities Act, with the pre-money valuation of the Company of no less than US$270,000,000 and gross proceeds to the Company of at least US$50,000,000 and the total securities issued by the Company in such offering no less than twenty percent (20%) of all outstanding share capital of the Company after the offering, or in a similar public offering of the Ordinary Shares of the Company in Hong Kong or another jurisdiction which results in the Ordinary Shares trading publicly on a recognized international securities exchange; provided that such offering satisfies the foregoing pre-money valuation and offering share percentage is subject to the prior written approval of the holders of more than forty five percent (45%) of the Series A Preferred Shares and the holders of more than forty five percent (45%) of the Series B Preferred Shares (including JAFCO Asia Technology Fund IV); and (ii) the term Liquidation Event shall have the meaning described under Article 2.2 of the Schedule of the Second Amended and Restated Articles of Association of the Company.
6B. Automatic Extension of Termination Date
Due to the exercise restrictions set forth in Section 6A hereof, any expiration dates associated with termination, including by death, as described in Sections 6(g) and 6(i) hereof, shall be calculated starting from the occurrence of any of the events enumerated in Section 6A hereof.
7. Terms and Conditions of Share Purchase Rights and Share Awards .
(a) Restricted Share Purchase Agreement or Share Award Agreement . Each Share Purchase Right or Share Award under the Plan shall be evidenced by a Restricted Share Purchase Agreement or Share Award Agreement, respectively, between the Purchaser and the Company. Each Share Purchase Right and each Share Award shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Administrator deems appropriate for inclusion in a Restricted Share Purchase Agreement or Share Award Agreement, including without limitation, (i) the number of Shares subject to such Restricted Share Purchase Agreement or Share Award Agreement, as applicable, or a formula for determining such number, (ii) the purchase price of the Shares, if any, and the means of payment for the Shares, (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number of Shares granted, issued, retainable and/or vested, (iv) such terms and conditions on the grant, issuance, vesting, settlement and/or forfeiture of the Shares as may be determined from time to time by the Administrator and (v) restrictions on the transferability of the Share Purchase Rights and the Share Awards. The provisions of the various Restricted Share Purchase Agreements and Share Award Agreements entered into under the Plan need not be identical.
(b) Duration of Offers of Share Purchase Rights or Share Awards . Any Share Purchase Right or Share Award granted under the Plan shall automatically expire if not exercised by the Purchaser within 30 days (or such longer time as is specified in the Restricted Share Purchase Agreement or the Share Award Agreement) after the Date of Grant. Share Purchase Rights or Share Awards shall not be transferable and shall be exercisable only by the Awardee to whom the Share Purchase Right or the Share Award was granted.
(c) Purchase Price . The Purchase Price, if any, shall be determined by the Administrator in its sole discretion. The Purchase Price, if any, shall be payable in a form described in Section 9 hereof.
(d) Restrictions on Transfer of Shares . Any Shares awarded or sold pursuant to Share Purchase Rights or Share Awards shall be subject to such special forfeiture conditions, rights of repurchase or redemption, rights of first refusal, market stand-offs, and other transfer restrictions as the Administrator may determine. The restrictions described in the preceding sentence shall be set forth in the applicable Restricted Share Purchase Agreement or Share Award Agreement, as applicable, and shall apply in addition to any restrictions that may apply to holders of Shares generally. Unless otherwise determined by the Administrator and subject to Applicable Law, vesting of Shares acquired pursuant to a Restricted Share Purchase Agreement or a Share Award Agreement shall be suspended during any unpaid leave of absence.
8. Withholding Taxes . As a condition to the exercise of an Option, purchase of Restricted Shares or receipt of a Share Award, the Awardee (or in the case of the Awardees death or in the event of a permissible transfer of Awards hereunder, the person exercising the Option, purchasing Restricted Shares or receiving the Share Award) shall make such arrangements as the Administrator may require for the satisfaction of any applicable withholding taxes arising in connection with the exercise of an Option or purchase of Restricted Shares under the laws of any applicable jurisdiction including the Cayman Islands, the PRC, the U.S., Hong Kong and any other jurisdiction. The Awardee (or in the case of the Awardees death or in the event of a permissible transfer of Awards hereunder, the person exercising the Option, purchasing Restricted Shares or receiving Share Awards) also shall make such arrangements as the Administrator may require for the satisfaction of any applicable Cayman Islands, PRC, Hong Kong, U.S. federal, state, local, or non-Cayman Islands, non-PRC, non-Hong Kong and non-U.S. withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option, purchasing Restricted Shares or receiving Share Awards. The Company shall not be required to issue any Shares under the Plan until the foregoing obligations are satisfied. Without limiting the generality of the foregoing, upon the exercise of the Option or delivery of Restricted Shares or Share or Award, the Company shall have the right to withhold taxes from any compensation or other amounts that the Company may owe to the Awardee, or to require the Awardee to pay to the Company the amount of any taxes that the Company may be required to withhold with respect to the Shares issued to the Awardee. Without limiting the generality of the foregoing, the Administrator in its discretion may authorize the Awardee to satisfy all or part of any withholding tax liability by (i) having the Company withhold from the Shares that would otherwise be issued upon the exercise of an Option, purchase of Restricted Shares that number of Shares or received in a Share Award having a Fair Market Value, as of the date the withholding tax liability arises, equal to the portion of the Companys withholding tax liability to be so satisfied or (ii) by delivering to the Company previously owned and unencumbered Shares having a Fair Market Value, as of the date the withholding tax liability arises, equal to the amount of the Companys withholding tax liability to be so satisfied.
9. Payment for Shares . The consideration to be paid for the Shares to be issued under the Plan, including the method of payment, shall be determined by the Administrator, subject to the provisions in this Section 9.
(a) General Rule . The entire Purchase Price or Exercise Price (as the case may be) for Shares issued under the Plan shall be payable in cash or cash equivalents at the time when the Shares are purchased, except as otherwise provided in this Section 9.
(b) Surrender of Shares . To the extent that an Option Agreement, Restricted Share Purchase Agreement or Share Award Agreement so provides, all or any part of the Exercise Price or Purchase Price (as the case may be) may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Awardee. These Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date the Option is exercised or Restricted Shares are purchased. The Awardee shall not surrender, or attest to the ownership of, Shares in payment of the Exercise Price or Purchase Price (as the case may be) if this action would subject the Company to adverse accounting consequences, as determined by the Administrator.
(c) Services Rendered . At the discretion of the Administrator and to the extent so provided in the agreements evidencing Awards of Shares under the Plan, Shares may be awarded under the Plan in consideration of services rendered to the Company or any Parent or Subsidiary prior to the Award.
(d) Other Forms of Consideration . At the discretion of the Administrator and to the extent an Option Agreement, a Restricted Share Purchase Agreement or Share Award so provides, all or a portion of the Exercise Price or Purchase Price may be paid by any other form of consideration and method of payment to the extent permitted by Applicable Law.
10. Nontransferability of Awards . Unless otherwise determined by the Administrator and so provided in the applicable Option Agreement, Restricted Share Purchase Agreement or Share Award Agreement (or be amended to provide), no Award shall be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner (whether by operation of law or otherwise) other than (i) by will or applicable laws of descent and distribution or pursuant to a qualified domestic relations order or (ii) by trusts or companies established in connection with any employee benefit plan of the Company (including the Plan) for the benefit of a Service Provider or Service Providers, in each case subject to Applicable Law, and shall not be subject to execution, attachment, or similar process. In the event the Administrator in its sole discretion makes an Award transferable, only a Share Purchase Right or Share Award may be transferred provided such Award is transferred without payment of consideration to members of the Awardees immediate family or to trusts or partnerships established exclusively for the benefit of the Awardee and the members of the Awardees immediate family, all as permitted by Applicable Law. Upon any attempt to pledge, assign, hypothecate, transfer, or otherwise dispose of any Award or of any right or privilege conferred by this Plan contrary to the provisions hereof, or upon the sale, levy or attachment or similar process upon the rights and privileges conferred by this Plan, such Award shall thereupon terminate and become null and void.
11. Rights as a Member . Until the Shares actually are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a member shall exist with respect to the Shares, notwithstanding the exercise of the Award. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan.
12. Adjustment of Shares .
(a) Changes in Capitalization . Subject to the Boards prior written approval, the class(es) and number and type of Shares that have been authorized for issuance under the Plan shall be proportionately adjusted for any increase, decrease, or change in the number or type of outstanding Shares or other securities of the Company or exchange of outstanding Shares or other securities of the Company into or for a different number or type of shares or other securities of the Company or successor entity, or for other property (including, without limitation, cash) or other change to the Shares resulting from a share split, reverse share split, share dividend, dividend in property other than cash, combination of shares, exchange of shares, combination, consolidation, recapitalization, reincorporation, reorganization, change in corporate structure, reclassification, or other distribution of the Shares effected without receipt of consideration by the Company; provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been effected without receipt of consideration. The adjustment contemplated in this Section 12(a) shall be made by the Board, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of equity securities of the Company of any class, or securities convertible into equity securities of the Company of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number, type, or price of Shares subject to an Award.
(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Awardee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until fifteen (15) days prior to the proposed dissolution or liquidation as to all of the Optioned Shares covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase or redemption option applicable to any Shares purchased upon exercise of an Option or Restricted Shares purchased under a Share Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent an Option has not been previously exercised and all Restricted Shares covered by a Share Purchase Right have not been purchased, the Award will terminate immediately prior to the consummation of such proposed action.
(c) Change in Control . In the event of a Change in Control, unless the Option Agreement, Restricted Share Purchase Agreement or Share Award Agreement provides otherwise, each outstanding Option shall be assumed or an equivalent option shall be substituted by, and each right of the Company to repurchase, redeem or reacquire Shares upon termination of a Purchasers relationship as a Service Provider shall be assigned to, the successor corporation or a Parent or Subsidiary of the successor corporation. If, in the event of a Change in Control, the Option is not assumed or substituted, or the repurchase, redemption or reacquisition or similar right is not assigned, in the case of an outstanding Option, the Option shall fully vest immediately and the Awardee shall have the right to exercise the Option as to all of the Optioned Shares, including Shares as to which it would not otherwise be vested or exercisable, and, in the case of Restricted Shares, the Companys repurchase, redemption or reacquisition or similar right shall lapse immediately and all of the Restricted Shares subject to the repurchase, redemption or reacquisition or similar right shall become vested. If an Option becomes fully vested and exercisable, in lieu of assumption or substitution in the event of a Change in Control, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For purposes of this Section 12(c), an Option shall be considered assumed, and Restricted Shares will be considered assigned if, following the Change in Control, the Award confers the right to purchase or receive, for each covered Share immediately prior to the Change in Control, the consideration (whether shares, cash, or other securities or property) received in connection with the Change in Control by holders of Shares for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if the consideration received in the Change in Control is not solely common stock or ordinary shares of the successor corporation or its Parent or Subsidiary, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or vesting of the Restricted Shares, for each covered Share, to be solely common stock or ordinary shares of the successor corporation or its Parent or Subsidiary equal in Fair Market Value to the per Share consideration received by holders of Shares in the Change in Control.
(d) Reservation of Rights . Except as provided in this Section 12 and in the applicable Option Agreement, Restricted Share Purchase Agreement or Share Award Agreement, an Awardee shall have no rights by reason of (i) any subdivision or consolidation of Shares or other securities of any class, (ii) the payment of any dividend, or (iii) any other increase or decrease in the number of Shares or other securities of any class. Any issuance by the Company of equity securities of any class, or securities convertible into equity securities of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Optioned Shares. The grant of an Option, Share Purchase Right or Share Award shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.
13. Date of Grant . The Date of Grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination to grant the Award, or such other later date as is determined by the Administrator.
14. Securities Law Requirements .
(a) Legal Compliance . Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and nor shall it have any liability for failure to deliver any Shares under the Plan unless the issuance and delivery of Shares comply with (or are exempt from) all Applicable Law, including, without limitation, the applicable securities laws in the PRC, Hong Kong and the British Virgin Islands, Securities Act, U.S. state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Companys securities may then be traded, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations . Shares delivered under the Plan shall be subject to transfer restrictions, and the person acquiring the Shares shall, as a condition to the exercise of an Option or the purchase or acquisition of Restricted Shares if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with Applicable Law, including, without limitation, the representation and warranty at the time of acquisition of Shares that the Shares are being acquired only for investment purposes and without any present intention to sell, transfer, or distribute the Shares.
15. Inability to Obtain Authority . The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Companys counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
16. Approval by Members . The Plan shall be subject to approval by the members of the Company within twelve (12) months before or after the date the Plan is adopted by the Board. Such approval by members of the Company shall be obtained in the degree and manner required under Applicable Law. Awards may be granted but Options may not be exercised and Restricted Shares may not be purchased or acquired prior to approval of the Plan by members of the Company.
17. Duration and Amendment .
(a) Term of Plan . Subject to approval by members of the Company in accordance with Section 16 hereof, the Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the members of the Company as described in Section 16 hereof. In the event that the members of the Company fail to approve the Plan within 12 months prior to or after its adoption by the Board, any Awards that have been granted and any Shares that have been awarded or purchased under the Plan shall be rescinded, and no additional Awards shall be granted thereafter. Unless sooner terminated under Section 17(b) hereof, the Plan shall continue in effect for a term of ten (10) years.
(b) Amendment and Termination . The Board may at any time amend, alter, suspend, or terminate the Plan.
(c) Approval by Members . The Board shall obtain approval of the members of any Plan amendment to the extent necessary and desirable to comply with Applicable Law.
(d) Effect of Amendment or Termination . No amendment, alteration, suspension, or termination of the Plan shall materially and adversely impair the rights of any Awardee with respect to an outstanding Award, unless mutually agreed otherwise between the Awardee and the Administrator, which agreement must be in writing and signed by the Awardee and the Company. Termination of the Plan shall not affect the Administrators ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Award granted prior to the termination of the Plan.
18.
Legending Share Certificates
. In order to enforce any restrictions imposed upon Shares issued upon the exercise of Options or the
acquisition of Restricted Shares, including, without limitations, the restrictions described in Sections 6(k), 7(d), and
14(c) hereof, the Administrator may cause a legend or legends to be placed on any share certificates representing the
Shares, which legend or legends shall make appropriate reference to the restrictions, including, without limitation, a restriction against sale of the Shares for any period as may be required by Applicable Law.
19. No Retention Rights . Neither the Plan nor any Award shall confer upon any Awardee any right to continue his or her relationship as a Service Provider with the Company for any period of specific duration or interfere in any way with his or her right or the right of the Company (or any Parent or Subsidiary employing or retaining the Awardee), which rights are hereby expressly reserved by each, to terminate this relationship at any time, with or without cause, and with or without notice.
20. No Registration Rights . The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other Applicable Law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Plan to comply with any law.
21. No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Parent or Subsidiary and an Awardee or any other person. To the extent that any Awardee acquires a right to receive payments from the Company or any Parent or Subsidiary pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company, a Parent, or any Subsidiary.
22. No Rights to Awards . No Awardee, eligible Service Provider, or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of a Service Provider, Awardee, or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Awardee or with respect to different Awardees.
23. Governing Law . The Plan and any Option Agreement, Restricted Share Purchase Agreement or Share Award Agreement entered into by the Company pursuant to the Plan shall be governed by the laws of Hong Kong without regard to its principles of conflicts of laws.
24. Dispute Resolution .
(a) Any dispute, controversy or claim arising out of or relating to the Share Plan and any Option Agreement, Restricted Share Purchase Agreement or Share Award Agreements, or the interpretation, breach, termination or validity hereof or thereof, shall first be subject to resolution through consultation of the parties to such dispute, controversy or claim. Such consultation shall begin within three (3) days after one party hereto has delivered to the other party hereto a written request for such consultation. If within thirty (30) days following the commencement of such consultation the dispute cannot be resolved, the dispute shall be submitted to arbitration upon the request of either party with notice to the other.
(b) The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the Centre ) in accordance with the UNCITRAL Arbitration Rules ( UNCITRAL Rules ) in effect, which rules are deemed to be incorporated by reference into this subsection (b), subject to the following: The arbitration tribunal shall consist of one (1) arbitrator to be appointed according to the UNCITRAL Rules by the Centre. The language of the arbitration shall be English.
(c) Each party hereto shall cooperate with any party to the dispute in making full disclosure of and providing complete access to all information and documents requested by such party to the dispute in connection with such arbitration proceedings, subject only to any confidentiality obligations binding on such party.
(d) The award of the arbitration tribunal shall be final and binding upon the disputing parties, and either party may apply to a court of competent jurisdiction for enforcement of such award.
(e) Either party shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitral tribunal.
25. No Guarantee of Continued Service . The vesting of shares pursuant to the vesting schedule under any Option Agreement is earned only be continuing as a Service Provider and does not constitute an express or implied promise of continued engagement as a Service Provider for the vesting period, for any period, or at all and shall not interfere with the right of any party or third party to terminate the Optionees relationship as a Service Provider at any time subject to Applicable Law.
Exhibit 10.2
TARENA INTERNATIONAL, INC.
2014 SHARE INCENTIVE PLAN
ARTICLE 1
PURPOSE
The purpose of the Tarena International, Inc. 2014 Share Incentive Plan (the Plan ) is to promote the success and enhance the value of Tarena International, Inc., a company formed under the laws of the Cayman Islands (the Company ), by linking the personal interests of the members of the Board, Employees, Consultants and other individuals as the Committee may authorize and approve, to those of the Companys shareholders and, by providing such individuals with an incentive for outstanding performance, to generate superior returns to the Companys shareholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of recipients of share incentives hereunder upon whose judgment, interest, and special effort the successful conduct of the Companys operation is largely dependent.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1 Applicable Laws means the legal requirements relating to the Plan and the Awards under applicable provisions of the corporate, securities, tax and other laws, rules, regulations and government orders, and the rules of any applicable stock exchange or national market system, of any jurisdiction applicable to Awards granted to residents therein.
2.2 Award means an Option, Restricted Share or Restricted Share Unit award granted to a Participant pursuant to the Plan.
2.3 Award Agreement means any written agreement, contract, or other instrument or document evidencing an Award, including through electronic medium.
2.4 Award Pool shall have the meaning set forth in Section 3.1(a).
2.5 Board means the Board of Directors of the Company.
2.6 Cause with respect to a Participant means (unless otherwise expressly provided in the applicable Award Agreement, or another applicable contract with the Participant that defines such term for purposes of determining the effect that a for cause termination has on the Participants Awards) a termination of employment or service based upon a finding by the Service Recipient, acting in good faith and based on its reasonable belief at the time, that the Participant:
(a) has been negligent in the discharge of his or her duties to the Service Recipient, has refused to perform stated or assigned duties or is incompetent in or (other than by reason of a disability or analogous condition) incapable of performing those duties;
(b) has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of confidentiality, an unauthorized disclosure or use of inside information, customer lists, trade secrets or other confidential information;
(c) has breached a fiduciary duty, or willfully and materially violated any other duty, law, rule, regulation or policy of the Service Recipient; or has been convicted of, or plead guilty or nolo contendere to, a felony or misdemeanor (other than minor traffic violations or similar offenses);
(d) has materially breached any of the provisions of any agreement with the Service Recipient;
(e) has engaged in unfair competition with, or otherwise acted intentionally in a manner injurious to the reputation, business or assets of, the Service Recipient; or
(f) has improperly induced a vendor or customer to break or terminate any contract with the Service Recipient or induced a principal for whom the Service Recipient acts as agent to terminate such agency relationship.
A termination for Cause shall be deemed to occur (subject to reinstatement upon a contrary final determination by the Committee) on the date on which the Service Recipient first delivers written notice to the Participant of a finding of termination for Cause.
2.7 Code means the Internal Revenue Code of 1986 of the United States, as amended.
2.8 Committee means the Board or a committee of the Board described in Article 10.
2.9 Consultant means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to a Service Recipient; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Companys securities; and (c) the consultant or adviser is a natural person who has contracted directly with the Service Recipient to render such services.
2.10 Corporate Transaction , unless otherwise defined in an Award Agreement, means any of the following transactions, provided, however, that the Committee shall determine under (d) and (e) whether multiple transactions are related, and its determination shall be final, binding and conclusive:
(a) an amalgamation, arrangement or consolidation or scheme of arrangement (i) in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which the Company is incorporated or (ii) following which the holders of the voting securities of the Company do not continue to hold more than 50% of the combined voting power of the voting securities of the surviving entity;
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(b) the sale, transfer or other disposition of all or substantially all of the assets of the Company;
(c) the complete liquidation or dissolution of the Company;
(d) any reverse takeover or series of related transactions culminating in a reverse takeover (including, but not limited to, a tender offer followed by a reverse takeover) in which the Company is the surviving entity but (A) the Companys equity securities outstanding immediately prior to such takeover are converted or exchanged by virtue of the takeover into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%) of the total combined voting power of the Companys outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such takeover or the initial transaction culminating in such takeover, but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction; or
(e) acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Companys outstanding securities but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction.
2.11 Disability , unless otherwise defined in an Award Agreement, means that the Participant qualifies to receive long-term disability payments under the Service Recipients long-term disability insurance program, as it may be amended from time to time, to which the Participant provides services regardless of whether the Participant is covered by such policy. If the Service Recipient to which the Participant provides service does not have a long-term disability plan in place, Disability means that a Participant is unable to carry out the responsibilities and functions of the position held by the Participant by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days. A Participant will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Committee in its discretion.
2.12 Effective Date shall have the meaning set forth in Section 11.1.
2.13 Employee means any person, including an officer or a member of the Board of the Company or any Parent or Subsidiary of the Company, who is in the employment of a Service Recipient, subject to the control and direction of the Service Recipient as to both the work to be performed and the manner and method of performance. The payment of a directors fee by a Service Recipient shall not be sufficient to constitute employment by the Service Recipient.
2.14 Exchange Act means the Securities Exchange Act of 1934 of the United States, as amended.
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2.15 Fair Market Value means, as of any date, the value of Shares determined as follows:
(a) If the Shares are listed on one or more established stock exchanges or national market systems, including without limitation, The New York Stock Exchange and The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such shares (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Shares are listed (as determined by the Committee) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable;
(b) If the Shares are regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such shares as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Shares on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable; or
(c) In the absence of an established market for the Shares of the type described in (a) and (b), above, the Fair Market Value thereof shall be determined by the Committee in good faith and in its discretion by reference to (i) the placing price of the latest private placement of the Shares and the development of the Companys business operations and the general economic and market conditions since such latest private placement, (ii) other third party transactions involving the Shares and the development of the Companys business operation and the general economic and market conditions since such sale, (iii) an independent valuation of the Shares, or (iv) such other methodologies or information as the Committee determines to be indicative of Fair Market Value and relevant.
2.16 Incentive Share Option means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.
2.17 Independent Director means (i) before the Shares or other securities representing the Shares are listed on a stock exchange, a member of the Board who is a Non-Employee Director; and (ii) after the Shares or other securities representing the Shares are listed on a stock exchange, a member of the Board who meets the independence standards under the applicable corporate governance rules of the stock exchange.
2.18 Non-Employee Director means a member of the Board who qualifies as a Non-Employee Director as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.
2.19 Non-Qualified Share Option means an Option that is not intended to be an Incentive Share Option.
2.20 Option means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of Shares at a specified price during specified time periods. An Option may be either an Incentive Share Option or a Non-Qualified Share Option.
2.21 Participant means a person who, as a member of the Board, Consultant or Employee, or other individuals as the Committee may authorize and approve, has been granted an Award pursuant to the Plan.
2.22 Parent means a parent corporation under Section 424(e) of the Code.
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2.23 Plan means this Tarena International, Inc. 2014 Share Incentive Plan, as it may be amended from time to time.
2.24 Related Entity means any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or Subsidiary of the Company holds a substantial ownership interest, directly or indirectly, but which is not a Subsidiary and which the Board designates as a Related Entity for purposes of the Plan.
2.25 Restricted Share means a Share awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture.
2.26 Restricted Share Unit means the right granted to a Participant pursuant to Article 7 to receive a Share at a future date.
2.27 Securities Act means the Securities Act of 1933 of the United States, as amended.
2.28 Service Recipient means the Company, any Parent or Subsidiary of the Company and any Related Entity to which a Participant provides services as an Employee, a Consultant, or a Director.
2.29 Share means Class A ordinary shares of the Company, par value US$0.001 per share, and such other securities of the Company that may be substituted for Shares pursuant to Article 9.
2.30 Subsidiary means any corporation or other entity of which a majority of the outstanding voting shares or voting power is beneficially owned or controlled directly or indirectly by the Company.
2.31 Trading Date means the closing of the first sale to the general public of the Shares pursuant to a registration statement filed with and declared effective by the U.S. Securities and Exchange Commission under the Securities Act.
ARTICLE 3
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares .
(a) Subject to the provisions of Article 9 and Section 3.1(b), the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Share Options) under the Plan (the Award Pool) shall be 1,833,696 Shares; provided that the Shares reserved in the Award Pool shall be increased on the first day of each calendar year, commencing with January 1, 2015, if the unissued Shares reserved in the Award Pool on such day account for less than two percent (2%) of the total number of Shares issued and outstanding on a fully-diluted basis on December 31 of the immediately preceding calendar year, as a result of which increase the Shares unissued and reserved in the Award Pool immediately after each such increase shall equal 2% of the total number of Shares issued and outstanding on a fully-diluted basis on December 31 of the immediately preceding calendar year.
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(b) To the extent that an Award terminates, expires, or lapses for any reason, any Shares subject to the Award shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by Applicable Laws, Shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form or combination by the Company or any Parent or Subsidiary of the Company shall not be counted against Shares available for grant pursuant to the Plan. Shares delivered by the Participant or withheld by the Company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a). If any Restricted Shares are forfeited by the Participant or repurchased by the Company, such Shares may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a). Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Share Option to fail to qualify as an Incentive Share Option under Section 422 of the Code.
3.2 Shares Distributed . Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares, treasury shares (subject to Applicable Laws) or Shares purchased on the open market. Additionally, in the discretion of the Committee, American Depository Shares in an amount equal to the number of Shares which otherwise would be distributed pursuant to an Award may be distributed in lieu of Shares in settlement of any Award. If the number of Shares represented by an American Depository Share is other than on a one-to-one basis, the limitations of Section 3.1 shall be adjusted to reflect the distribution of American Depository Shares in lieu of Shares.
ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1 Eligibility . Those eligible to participate in this Plan include Employees, Consultants, and all members of the Board, and other individuals, as determined, authorized and approved by the Committee.
4.2 Participation . Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be granted an Award pursuant to this Plan.
4.3 Jurisdictions . In order to assure the viability of Awards granted to Participants in various jurisdictions, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom applicable in the jurisdiction in which the Participant resides, is employed, operates or is incorporated. Moreover, the Committee may approve such supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however , that no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Section 3.1 of the Plan. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate any Applicable Laws.
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ARTICLE 5
OPTIONS
5.1 General . The Committee is authorized to grant Options to Participants on the following terms and conditions:
(a) Exercise Price . The exercise price per Share subject to an Option shall be determined by the Committee and set forth in the Award Agreement which may be a fixed or variable price related to the Fair Market Value of the Shares. The exercise price per Share subject to an Option may be amended or adjusted in the absolute discretion of the Committee, the determination of which shall be final, binding and conclusive. For the avoidance of doubt, to the extent not prohibited by Applicable Laws or any exchange rule, a downward adjustment of the exercise prices of Options mentioned in the preceding sentence shall be effective without the approval of the Companys shareholders or the approval of the affected Participants.
(b) Time and Conditions of Exercise . The Committee shall determine the time or times at which an Option may be exercised in whole or in part, including exercise prior to vesting; provided that the term of any Option granted under the Plan shall not exceed ten years, except as provided in Section 12.1. The Committee shall also determine any conditions, if any, that must be satisfied before all or part of an Option may be exercised.
(c) Payment . The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation (i) cash or check denominated in U.S. Dollars, (ii) to the extent permissible under the Applicable Laws, cash or check in Chinese Renminbi, (iii) cash or check denominated in any other local currency as approved by the Committee, (iv) Shares held for such period of time as may be required by the Committee in order to avoid adverse financial accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, (v) after the Trading Date the delivery of a notice that the Participant has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale, (vi) other property acceptable to the Committee with a Fair Market Value equal to the exercise price, or (vii) any combination of the foregoing. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an executive officer of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option in any method which would violate Section 13(k) of the Exchange Act.
(d) Evidence of Grant . All Options shall be evidenced by an Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee.
(e) Effects of Termination of Employment or Service on Options . Termination of employment or service shall have the following effects on Options granted to the Participants:
(i) Dismissal for Cause . Unless otherwise provided in the Award Agreement, if a Participants employment by or service to the Service Recipient is terminated by the Service Recipient for Cause, the Participants Options will terminate upon such termination, whether or not the Option is then vested and/or exercisable;
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(ii) Death or Disability . Unless otherwise provided in the Award Agreement, if a Participants employment by or service to the Service Recipient terminates as a result of the Participants death or Disability:
(a) | the Participant (or his or her legal representative or beneficiary, in the case of the Participants Disability or death, respectively), will have until the date that is 12 months after the Participants termination of Employment to exercise the Participants Options (or portion thereof) to the extent that such Options were vested and exercisable on the date of the Participants termination of Employment on account of death or Disability; |
(b) | the Options, to the extent not vested and exercisable on the date of the Participants termination of Employment or service, shall terminate upon the Participants termination of Employment or service on account of death or Disability; and |
(c) | the Options, to the extent exercisable for the 12-month period following the Participants termination of Employment or service and not exercised during such period, shall terminate at the close of business on the last day of the 12-month period. |
(iii) Other Terminations of Employment or Service . Unless otherwise provided in the Award Agreement, if a Participants employment by or service to the Service Recipient terminates for any reason other than a termination by the Service Recipient for Cause or because of the Participants death or Disability:
(a) | the Participant will have until the date that is 90 days after the Participants termination of Employment or service to exercise his or her Options (or portion thereof) to the extent that such Options were vested and exercisable on the date of the Participants termination of Employment or service; |
(b) | the Options, to the extent not vested and exercisable on the date of the Participants termination of Employment or service, shall terminate upon the Participants termination of Employment or service; and |
(c) | the Options, to the extent exercisable for the 90-day period following the Participants termination of Employment or service and not exercised during such period, shall terminate at the close of business on the last day of the 90-day period. |
5.2 Incentive Share Options . Incentive Share Options may be granted to Employees of the Company, a Parent or Subsidiary of the Company. Incentive Share Options may not be granted to Employees of a Related Entity or to Independent Directors or Consultants. The terms of any Incentive Share Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the following additional provisions of this Section 5.2:
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(a) Individual Dollar Limitation . The aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares with respect to which Incentive Share Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Share Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Share Options.
(b) Exercise Price . The exercise price of an Incentive Share Option shall be equal to the Fair Market Value on the date of grant. However, the exercise price of any Incentive Share Option granted to any individual who, at the date of grant, owns Shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company may not be less than 110% of Fair Market Value on the date of grant and such Option may not be exercisable for more than five years from the date of grant.
(c) Transfer Restriction . The Participant shall give the Company prompt notice of any disposition of Shares acquired by exercise of an Incentive Share Option within (i) two years from the date of grant of such Incentive Share Option or (ii) one year after the transfer of such Shares to the Participant.
(d) Expiration of Incentive Share Options . No Award of an Incentive Share Option may be made pursuant to this Plan after the tenth anniversary of the Effective Date.
(e) Right to Exercise . During a Participants lifetime, an Incentive Share Option may be exercised only by the Participant.
ARTICLE 6
RESTRICTED SHARES
6.1 Grant of Restricted Shares . The Committee, at any time and from time to time, may grant Restricted Shares to Participants as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number of Restricted Shares to be granted to each Participant.
6.2 Restricted Shares Award Agreement . Each Award of Restricted Shares shall be evidenced by an Award Agreement that shall specify the period of restriction, the number of Restricted Shares granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine. Unless the Committee determines otherwise, Restricted Shares shall be held by the Company as escrow agent until the restrictions on such Restricted Shares have lapsed.
6.3 Issuance and Restrictions . Restricted Shares shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Shares or the right to receive dividends on the Restricted Share). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.
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6.4 Forfeiture/Repurchase . Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Shares that are at that time subject to restrictions shall be forfeited or repurchased in accordance with the Award Agreement; provided, however , the Committee may (a) provide in any Restricted Share Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Shares will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Shares.
6.5 Certificates for Restricted Shares . Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Shares are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Shares, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.
6.6 Removal of Restrictions . Except as otherwise provided in this Article 6, Restricted Shares granted under the Plan shall be released from escrow as soon as practicable after the last day of the period of restriction. The Committee, in its discretion, may accelerate the time at which any restrictions shall lapse or be removed. After the restrictions have lapsed, the Participant shall be entitled to have any legend or legends under Section 6.5 removed from his or her Share certificate, and the Shares shall be freely transferable by the Participant, subject to applicable legal restrictions. The Committee (in its discretion) may establish procedures regarding the release of Shares from escrow and the removal of legends, as necessary or appropriate to minimize administrative burdens on the Company.
ARTICLE 7
RESTRICTED SHARE UNITS
7.1 Grant of Restricted Share Units . The Committee, at any time and from time to time, may grant Restricted Share Units to Participants as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number of Restricted Share Units to be granted to each Participant.
7.2 Restricted Share Units Award Agreement . Each Award of Restricted Share Units shall be evidenced by an Award Agreement that shall specify any vesting conditions, the number of Restricted Share Units granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine.
7.3 Performance Objectives and Other Terms . The Committee, in its discretion, may set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of Restricted Share Units that will be paid out to the Participants.
7.4 Form and Timing of Payment of Restricted Share Units . At the time of grant, the Committee shall specify the date or dates on which the Restricted Share Units shall become fully vested and nonforfeitable. Upon vesting, the Committee, in its sole discretion, may pay Restricted Share Units in the form of cash, in Shares or in a combination thereof.
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7.5 Forfeiture/Repurchase . Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Share Units that are at that time unvested shall be forfeited or repurchased in accordance with the Award Agreement; provided, however , the Committee may (a) provide in any Restricted Share Unit Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Share Units will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Share Units.
ARTICLE 8
PROVISIONS APPLICABLE TO AWARDS
8.1 Award Agreement . Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participants employment or service terminates, and the Companys authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.
8.2 No Transferability; Limited Exception to Transfer Restrictions .
8.2.1 Limits on Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 8.2, by applicable law and by the Award Agreement, as the same may be amended:
(a) | all Awards are non-transferable and will not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; |
(b) | Awards will be exercised only by the Participant; and |
(c) | amounts payable or shares issuable pursuant to an Award will be delivered only to (or for the account of), and, in the case of Shares, registered in the name of, the Participant. |
In additioin, the shares shall be subject to the restrictions set forth in the applicable Award Agreement.
8.2.2 Further Exceptions to Limits on Transfer . The exercise and transfer restrictions in Section 8.2.1 will not apply to:
(a) | transfers to the Company or a Subsidiary; |
(b) | transfers by gift to immediate family as that term is defined in SEC Rule 16a-1(e) promulgated under the Exchange Act; |
(c) | the designation of a beneficiary to receive benefits if the Participant dies or, if the Participant has died, transfers to or exercises by the Participants beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution; or |
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(d) | if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by the Participants duly authorized legal representative; or |
(e) | subject to the prior approval of the Committee or an executive officer or director of the Company authorized by the Committee, transfer to one or more natural persons who are the Participants family members or entities owned and controlled by the Participant and/or the Participants family members, including but not limited to trusts or other entities whose beneficiaries or beneficial owners are the Participant and/or the Participants family members, or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee or may establish. Any permitted transfer shall be subject to the condition that the Committee receives evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes and on a basis consistent with the Companys lawful issue of securities. |
Notwithstanding anything else in this Section 8.2.2 to the contrary, but subject to compliance with all Applicable Laws, Incentive Share Options, Restricted Shares and Restricted Share Units will be subject to any and all transfer restrictions under the Code applicable to such Awards or necessary to maintain the intended tax consequences of such Awards. Notwithstanding clause (b) above but subject to compliance with all Applicable Laws, any contemplated transfer by gift to immediate family as referenced in clause (b) above is subject to the condition precedent that the transfer be approved by the Administrator in order for it to be effective.
8.3 Beneficiaries . Notwithstanding Section 8.2, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participants death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participants spouse as his or her beneficiary with respect to more than 50% of the Participants interest in the Award shall not be effective without the prior written consent of the Participants spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participants will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.
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8.4 Share Certificates . Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing the Shares pursuant to the exercise of any Award, unless and until the Committee has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all Applicable Laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the Shares are listed or traded. All Share certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with all Applicable Laws, and the rules of any national securities exchange or automated quotation system on which the Shares are listed, quoted, or traded. The Committee may place legends on any Share certificate to reference restrictions applicable to the Shares. In addition to the terms and conditions provided herein, the Committee may require that a Participant make such reasonable covenants, agreements, and representations as the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.
8.5 Paperless Administration . Subject to Applicable Laws, the Committee may make Awards, provide applicable disclosure and procedures for exercise of Awards by an internet website or interactive voice response system for the paperless administration of Awards.
8.6 Foreign Currency . A Participant may be required to provide evidence that any currency used to pay the exercise price of any Award were acquired and taken out of the jurisdiction in which the Participant resides in accordance with Applicable Laws, including foreign exchange control laws and regulations. In the event the exercise price for an Award is paid in Chinese Renminbi or other foreign currency, as permitted by the Committee, the amount payable will be determined by conversion from U.S. dollars at the official rate promulgated by the Peoples Bank of China for Chinese Renminbi, or for jurisdictions other than the Peoples Republic of China, the exchange rate as selected by the Committee on the date of exercise.
ARTICLE 9
CHANGES IN CAPITAL STRUCTURE
9.1 Adjustments . In the event of any dividend, share split, combination or exchange of Shares, amalgamation, arrangement or consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to its shareholders, or any other change affecting the shares of Shares or the share price of a Share, the Committee shall make such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any outstanding Awards under the Plan.
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9.2 Corporate Transactions . Except as may otherwise be provided in any Award Agreement or any other written agreement entered into by and between the Company and a Participant, if the Committee anticipates the occurrence, or upon the occurrence, of a Corporate Transaction, the Committee may, in its sole discretion, provide for (i) any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Participant the right to exercise the vested portion of such Awards during a period of time as the Committee shall determine, or (ii) the purchase of any Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award (and, for the avoidance of doubt, if as of such date the Committee determines in good faith that no amount would have been attained upon the exercise of such Award, then such Award may be terminated by the Company without payment), or (iii) the replacement of such Award with other rights or property selected by the Committee in its sole discretion or the assumption of or substitution of such Award by the successor or surviving corporation, or a Parent or Subsidiary thereof, with appropriate adjustments as to the number and kind of Shares and prices, or (iv) payment of Award in cash based on the value of Shares on the date of the Corporate Transaction plus reasonable interest on the Award through the date when such Award would otherwise be vested or have been paid in accordance with its original terms, if necessary to comply with Section 409A of the Code.
9.3 Outstanding Awards Other Changes . In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 9, the Committee may, in its absolute discretion, make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights.
9.4 No Other Rights . Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of Shares of any class, the payment of any dividend, any increase or decrease in the number of shares of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares subject to an Award or the grant or exercise price of any Award.
ARTICLE 10
ADMINISTRATION
10.1 Committee . The Plan shall be administered by the Board or a committee of one or more members of the Board to whom the Board shall delegate the authority to grant or amend Awards to Participants other than any of the Committee members. Any grant or amendment of Awards to any Committee member shall then require an affirmative vote of a majority of the Board members who are not on the Committee.
10.2 Action by the Committee . A majority of the Committee shall constitute a quorum. The acts of a majority of the members of the Committee present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Companys independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
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10.3 Authority of the Committee . Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:
(a) designate Participants to receive Awards;
(b) determine the type or types of Awards to be granted to each Participant;
(c) determine the number of Awards to be granted and the number of Shares to which an Award will relate;
(d) determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;
(e) determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(f) prescribe the form of each Award Agreement, which need not be identical for each Participant;
(g) decide all other matters that must be determined in connection with an Award;
(h) establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
(i) interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and
(j) make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.
10.4 Decisions Binding . The Committees interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.
ARTICLE 11
EFFECTIVE AND EXPIRATION DATE
11.1 Effective Date . This Plan shall become effective on the date of its adoption by the Board (the Effective Date ); provided the Plan shall be approved by the shareholders of the Company according to its Memorandum of Association and Articles of Association no later than twelve months following the Effective Date. If the Plan is not so approved by the shareholders of the Company, all Awards granted under this Plan shall be rescinded and shall be void.
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11.2 Expiration Date . The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the Effective Date. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.
ARTICLE 12
AMENDMENT, MODIFICATION, AND TERMINATION
12.1 Amendment, Modification, And Termination . At any time and from time to time, the Board or the Committee may terminate, amend or modify the Plan; provided, however , that to the extent necessary to comply with Applicable Laws, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required, including (a) to increases the number of Shares available under the Plan (other than any adjustment as provided by Article 9), or (b) to permits the Committee to extend the term of the Plan or the exercise period for an Option beyond ten years from the date of grant; provided, further , that to the extent permissible under the Applicable Laws, the Board may decide to follow home country practice not to seek the shareholder approval for any amendment or modification of the Plan.
12.2 Awards Previously Granted . Except with respect to amendments made pursuant to Section 12.1, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.
ARTICLE 13
GENERAL PROVISIONS
13.1 No Rights to Awards . No Participant, employee, or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Participants, employees, and other persons uniformly.
13.2 No Shareholders Rights . No Award gives the Participant any of the rights of a Shareholder of the Company unless and until Shares are in fact issued to such person in connection with such Award.
13.3 Taxes . No Shares shall be delivered under the Plan to any Participant until such Participant has made arrangements acceptable to the Committee for the satisfaction of any income and employment tax withholding obligations under Applicable Laws. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy all applicable taxes (including the Participants payroll tax obligations) required or permitted by Applicable Laws to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the return of Shares) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of Shares which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award after such Shares were acquired by the Participant from the Company) in order to satisfy any income and payroll tax liabilities applicable to the Participant with respect to the issuance, vesting, exercise or payment of the Award shall, unless specifically approved by the Committee, be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for the applicable income and payroll tax purposes that are applicable to such supplemental taxable income.
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13.4 No Right to Employment or Services . Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Service Recipient to terminate any Participants employment or services at any time, nor confer upon any Participant any right to continue in the employment or services of any Service Recipient.
13.5 Unfunded Status of Awards . The Plan is intended to be an unfunded plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.
13.6 Indemnification . To the extent allowable pursuant to Applicable Laws, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Companys Memorandum of Association and Articles of Association, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
13.7 Relationship to other Benefits . No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
13.8 Expenses . The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
13.9 Titles and Headings . The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
13.10 Fractional Shares . No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down as appropriate.
13.11 Limitations Applicable to Section 16 Persons . Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by the Applicable Laws, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
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13.12 Government and Other Regulations . The obligation of the Company to make payment of awards in Shares or otherwise shall be subject to all Applicable Laws, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register any of the Shares paid pursuant to the Plan under the Securities Act or any other similar law in any applicable jurisdiction. If the Shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act or other Applicable Laws, the Company may restrict the transfer of such Shares in such manner as it deems advisable to ensure the availability of any such exemption.
13.13 Governing Law . The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the Cayman Islands.
13.14 Section 409A . To the extent that the Committee determines that any Award granted under the Plan is or may become subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and the Award Agreements shall be interpreted in accordance with Section 409A of the Code and the U.S. Department of Treasury regulations and other interpretative guidance issued thereunder, including without limitation any such regulation or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related U.S. Department of Treasury guidance.
13.15 Appendices . The Committee may approve such supplements, amendments or appendices to the Plan as it may consider necessary or appropriate for purposes of compliance with Applicable Laws or otherwise and such supplements, amendments or appendices shall be considered a part of the Plan; provided, however, that no such supplements shall increase the share limitation contained in Section 3.1 of the Plan without the approval of the Board.
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Exhibit 10.3
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this Agreement ) is made as of , 2014 by and between Tarena International, Inc., an exempted company incorporated and existing under the laws of the Cayman Islands (the Company ), and ([Passport/ID] Number ) (the Indemnitee ).
WHEREAS, the Indemnitee has agreed to render valuable services to the Company; and
WHEREAS, in order to induce and encourage highly experienced and capable persons such as the Indemnitee to render valuable services to the Company, the board of directors of the Company (the Board of Directors ) has determined that this Agreement is not only reasonable and prudent, but necessary to promote and ensure the best interests of the Company and its shareholders;
NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and other good and valuable consideration, including, without limitation, the service of the Indemnitee, the receipt of which hereby is acknowledged, and in order to induce the Indemnitee to render valuable services the Company, the Company and the Indemnitee hereby agree as follows:
1. Definitions. As used in this Agreement:
(a) Change in Control shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar or successor schedule or form) promulgated under the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the Act ), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred (irrespective of the applicability of the initial clause of this definition) if (i) any person (as such term is used in Sections 13(d) and 14(d) of the Act, but excluding any trustee or other fiduciary holding securities pursuant to an employee benefit or welfare plan or employee share plan of the Company or any subsidiary or affiliate of the Company, or any entity organized, appointed, established or holding securities of the Company with voting power for or pursuant to the terms of any such plan) becomes the beneficial owner (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Companys then outstanding securities without the prior approval of at least two-thirds of the Continuing Directors (as defined below) in office immediately prior to such persons attaining such interest; (ii) the Company is a party to a merger, consolidation, scheme of arrangement, sale of assets or other reorganization, or a proxy contest, as a consequence of which Continuing Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors of the Company (or any successor entity) thereafter; or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (including for this purpose any new director whose election or nomination for election by the Companys shareholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) (such directors being referred to herein as Continuing Directors ) cease for any reason to constitute at least a majority of the Board of Directors of the Company.
(b) Disinterested Director with respect to any request by the Indemnitee for indemnification or advancement of expenses hereunder shall mean a director of the Company who neither is nor was a party to the Proceeding (as defined below) in respect of which indemnification or advancement is being sought by the Indemnitee.
(c) The term Expenses shall mean, without limitation, expenses of Proceedings, including attorneys fees, disbursements and retainers, accounting and witness fees, expenses related to preparation for service as a witness and to service as a witness, travel and deposition costs, expenses of investigations, judicial or administrative proceedings and appeals, amounts paid in settlement of a Proceeding by or on behalf of the Indemnitee, costs of attachment or similar bonds, any expenses of attempting to establish or establishing a right to indemnification or advancement of expenses, under this Agreement, the Companys Memorandum of Association and Articles of Association as currently in effect (the Articles ), applicable law or otherwise, and reasonable compensation for time spent by the Indemnitee in connection with the investigation, defense or appeal of a Proceeding or action for indemnification for which the Indemnitee is not otherwise compensated by the Company or any third party. The term Expenses shall not include the amount of judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually levied against or sustained by the Indemnitee to the extent sustained after final adjudication.
(d) The term Independent Legal Counsel shall mean any firm of attorneys reasonably selected by the Board of Directors of the Company, so long as such firm has not represented the Company, the Companys subsidiaries or affiliates, the Indemnitee, any entity controlled by the Indemnitee, or any party adverse to the Company, within the preceding five (5) years. Notwithstanding the foregoing, the term Independent Legal Counsel shall not include any person who, under applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitees right to indemnification or advancement of expenses under this Agreement, the Companys Articles, applicable law or otherwise.
(e) The term Proceeding shall mean any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, or other proceeding (including, without limitation, an appeal therefrom), formal or informal, whether brought in the name of the Company or otherwise, whether of a civil, criminal, administrative or investigative nature, and whether by, in or involving a court or an administrative, other governmental or private entity or body (including, without limitation, an investigation by the Company or its Board of Directors), by reason of (i) the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, whether or not the Indemnitee is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement is to be provided under this Agreement, (ii) any actual or alleged act or omission or neglect or breach of duty, including, without limitation, any actual or alleged error or misstatement or misleading statement, which the Indemnitee commits or suffers while acting in any such capacity, or (iii) the Indemnitee attempting to establish or establishing a right to indemnification or advancement of expenses pursuant to this Agreement, the Companys Articles, applicable law or otherwise.
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(f) The phrase serving at the request of the Company as an agent of another enterprise or any similar terminology shall mean, unless the context otherwise requires, serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic. The phrase serving at the request of the Company shall include, without limitation, any service as a director/an executive officer of the Company which imposes duties on, or involves services by, such director/executive officer with respect to the Company or any of the Companys subsidiaries, affiliates, employee benefit or welfare plans, such plans participants or beneficiaries or any other enterprise, foreign or domestic. In the event that the Indemnitee shall be a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, 50% or more of the ordinary shares, combined voting power or total equity interest of which is owned by the Company or any subsidiary or affiliate thereof, then it shall be presumed conclusively that the Indemnitee is so acting at the request of the Company.
2. Services by the Indemnitee . The Indemnitee agrees to serve as a director or officer of the Company under the terms of the Indemnitees agreement with the Company for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing or is removed from the Indemnittees position; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or other obligation imposed by operation of law).
3. Proceedings by or in the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such a Proceeding, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this section shall be made in respect of any claim, issue or matter as to which such person shall have been adjudicated by final judgment by a court of competent jurisdiction to be liable to the Company for willful misconduct in the performance of his/her duty to the Company, unless and only to the extent that the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which such other court shall deem proper.
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4. Proceeding Other Than a Proceeding by or in the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Company), by reason of the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, and excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in connection with such a Proceeding, to the fullest extent permitted by applicable law; provided, however, that any settlement of a Proceeding must be approved in advance in writing by the Company (which approval shall not be unreasonably withheld).
5. Indemnification for Costs, Charges and Expenses of Witness or Successful Party . Notwithstanding any other provision of this Agreement (except as set forth in subparagraph 9(a) hereof), and without a requirement for determination as required by Paragraph 8 hereof, to the extent that the Indemnitee (a) has prepared to serve or has served as a witness in any Proceeding in any way relating to (i) the Company or any of the Companys subsidiaries, affiliates, employee benefit or welfare plans or such plans participants or beneficiaries or (ii) anything done or not done by the Indemnitee as a director or officer of the Company or in connection with serving at the request of the Company as an agent of another enterprise, or (b) has been successful in defense of any Proceeding or in defense of any claim, issue or matter therein, on the merits or otherwise, including the dismissal of a Proceeding without prejudice or the settlement of a Proceeding without an admission of liability, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee in connection therewith to the fullest extent permitted by applicable law.
6. Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of the Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are actually and reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any Proceeding, but not, however, for the total amount of the Indemnitees Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, then the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, interest or penalties or excise taxes to which the Indemnitee is entitled.
7. Advancement of Expenses . The Expenses incurred by the Indemnitee in any Proceeding shall be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by applicable law; provided, however, that the Indemnitee shall set forth in such request reasonable evidence that such Expenses have been incurred by the Indemnitee in connection with such Proceeding, a statement that such Expenses do not relate to any matter described in subparagraph 9(a) of this Agreement, and an undertaking in writing to repay any advances if it is ultimately determined as provided in subparagraph 8(b) of this Agreement that the Indemnitee is not entitled to indemnification under this Agreement.
8. Indemnification Procedure; Determination of Right to Indemnification .
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(a) Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee shall, if a claim for indemnification or advancement of Expenses in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof in writing. The omission to so notify the Company will not relieve the Company from any liability which the Company may have to the Indemnitee under this Agreement unless the Company shall have lost significant substantive or procedural rights with respect to the defense of any Proceeding as a result of such omission to so notify.
(b) The Indemnitee shall be conclusively presumed to have met the relevant standards of conduct, if any, as defined by applicable law, for indemnification pursuant to this Agreement and shall be absolutely entitled to such indemnification, unless a determination is made that the Indemnitee has not met such standards by (i) the Board of Directors by a majority vote of a quorum thereof consisting of Disinterested Directors, (ii) the shareholders of the Company by majority vote of a quorum thereof consisting of shareholders who are not parties to the Proceeding due to which a claim for indemnification is made under this Agreement, (iii) Independent Legal Counsel as set forth in a written opinion (it being understood that such Independent Legal Counsel shall make such determination only if the quorum of Disinterested Directors referred to in clause (i) of this subparagraph 8(b) is not obtainable or if the Board of Directors of the Company by a majority vote of a quorum thereof consisting of Disinterested Directors so directs), or (iv) a court of competent jurisdiction; provided, however, that if a Change of Control shall have occurred and the Indemnitee so requests in writing, such determination shall be made only by a court of competent jurisdiction.
(c) If a claim for indemnification or advancement of Expenses under this Agreement is not paid by the Company within thirty (30) days after receipt by the Company of written notice thereof, the rights provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Such judicial proceeding shall be made de novo. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the directors or shareholders of the Company or Independent Legal Counsel to have made a determination prior to the commencement of such action that indemnification or advancement of Expenses is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, if any, nor an actual determination by the directors or shareholders of the Company or Independent Legal Counsel that the Indemnitee has not met the applicable standard of conduct shall be a defense to an action by the Indemnitee or create a presumption for the purpose of such an action that the Indemnitee has not met the applicable standard of conduct. The termination of any Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself (i) create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in the best interests of the Company and/or its shareholders, and, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification or advancement of Expenses under this Agreement, except as may be provided herein.
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(d) If a court of competent jurisdiction shall determine that the Indemnitee is entitled to any indemnification or advancement of Expenses hereunder, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such adjudication (including, but not limited to, any appellate proceedings).
(e) With respect to any Proceeding for which indemnification or advancement of Expenses is requested, the Company will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to assume the defense of a Proceeding, the Company will not be liable to the Indemnitee under this Agreement for any Expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than as provided below. The Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitees written consent. The Indemnitee shall have the right to employ his/her own counsel in any Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense of the Proceeding shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of a proceeding, in each of which cases the fees and expenses of the Indemnitees counsel shall be advanced by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee.
9. Limitations on Indemnification . No payments pursuant to this Agreement shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee for Expenses with respect to (i) Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under applicable law or (ii) Expenses incurred by the Indemnitee in connection with preparing to serve or serving, prior to a Change in Control, as a witness in cooperation with any party or entity who or which has threatened or commenced any action or proceeding against the Company, or any director, officer, employee, trustee, agent, representative, subsidiary, parent corporation or affiliate of the Company, but such indemnification or advancement of Expenses in each such case may be provided by the Company if the Board of Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, sustained in any Proceeding for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance;
(c) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties sustained in any Proceeding for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act or similar provisions of any foreign or United States federal, state or local statute or regulation;
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(d) To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, for which the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement;
(e) To indemnify the Indemnitee for any Expenses (including without limitation any Expenses relating to a Proceeding attempting to enforce this Agreement), judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, on account of the Indemnitees conduct if such conduct shall be finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct, including, without limitation, breach of the duty of loyalty; or
(f) If a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication;
(g) To indemnify the Indemnitee in connection with Indemnitees personal tax matter; or
(h) To indemnify the Indemnitee with respect to any claim related to any dispute or breach arising under any contract or similar obligation between the Company or any of its subsidiaries or affiliates and such Indemnitee.
10. Continuation of Indemnification . All agreements and obligations of the Company contained herein shall continue during the period that the Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as an agent of another enterprise, foreign or domestic) and shall continue thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that the Indemnitee was a director or officer of the Company or serving in any other capacity referred to in this Paragraph 10.
11. Indemnification Hereunder Not Exclusive . The indemnification provided by this Agreement shall not be deemed to be exclusive of any other rights to which the Indemnitee may be entitled under the Companys Articles, any agreement, vote of shareholders or vote of Disinterested Directors, provisions of applicable law, or otherwise, both as to action or omission in the Indemnitees official capacity and as to action or omission in another capacity on behalf of the Company while holding such office.
12. Successors and Assigns .
(a) This Agreement shall be binding upon the Indemnitee, and shall inure to the benefit of, the Indemnitee and the Indemnitees heirs, executors, administrators and assigns, whether or not the Indemnitee has ceased to be a director or officer, and the Company and its successors and assigns. Upon the sale of all or substantially all of the business, assets or share capital of the Company to, or upon the merger of the Company into or with, any corporation, partnership, joint venture, trust or other person, this Agreement shall inure to the benefit of and be binding upon both the Indemnitee and such purchaser or successor person. Subject to the foregoing, this Agreement may not be assigned by either party without the prior written consent of the other party hereto.
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(b) If the Indemnitee is deceased and is entitled to indemnification under any provision of this Agreement, the Company shall indemnify the Indemnitees estate and the Indemnitees spouse, heirs, executors, administrators and assigns against, and the Company shall, and does hereby agree to assume, any and all Expenses actually and reasonably incurred by or for the Indemnitee or the Indemnitees estate, in connection with the investigation, defense, appeal or settlement of any Proceeding. Further, when requested in writing by the spouse of the Indemnitee, and/or the Indemnitees heirs, executors, administrators and assigns, the Company shall provide appropriate evidence of the Companys agreement set out herein to indemnify the Indemnitee against and to itself assume such Expenses.
13. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
14. Severability . Each and every paragraph, sentence, term and provision of this Agreement is separate and distinct so that if any paragraph, sentence, term or provision thereof shall be held to be invalid, unlawful or unenforceable for any reason, such invalidity, unlawfulness or unenforceability shall not affect the validity, unlawfulness or enforceability of any other paragraph, sentence, term or provision hereof. To the extent required, any paragraph, sentence, term or provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification permitted under applicable law. The Companys inability, pursuant to a court order or decision, to perform its obligations under this Agreement shall not constitute a breach of this Agreement.
15. Savings Clause . If this Agreement or any paragraph, sentence, term or provision hereof is invalidated on any ground by any court of competent jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any Expenses, judgments, fines, interest or penalties, or excise taxes assessed with respect to any employee benefit or welfare plan, which are incurred with respect to any Proceeding to the fullest extent permitted by any (a) applicable paragraph, sentence, term or provision of this Agreement that has not been invalidated or (b) applicable law.
16. Interpretation; Governing Law . This Agreement shall be construed as a whole and in accordance with its fair meaning and any ambiguities shall not be construed for or against either party. Headings are for convenience only and shall not be used in construing meaning. This Agreement shall be governed and interpreted in accordance with the laws of the State of New York without regard to the conflict of laws principles thereof.
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17. Amendments . No amendment, waiver, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by the party against whom enforcement is sought. The indemnification rights afforded to the Indemnitee hereby are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Companys Articles, or by other agreements, including directors and officers liability insurance policies, of the Company.
18. Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other.
19. Notices . Any notice required to be given under this Agreement shall be directed to the Chief Financial Officer of the Company at Suite 10017, Building E, Zhongkun Plaza, A18 Bei San Huan West Road, Haidian District, Beijing 100098 Peoples Republic of China, and to the Indemnitee at or to such other address as either shall designate to the other in writing.
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IN WITNESS WHEREOF, the parties have executed this Indemnification Agreement as of the date first written above.
INDEMNITEE | ||
Name: |
TARENA INTERNATIONAL, INC. | ||
By: | ||
Name: | ||
Title: |
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Exhibit 10.4
TARENA INTERNATIONAL, INC.
DIRECTOR SERVICE AGREEMENT
This Director Service Agreement (the Agreement ) is made and entered into as of , 2014, by and between Tarena International, Inc., a Cayman Islands company (the Company ), and , an individual ( Director ).
I. | SERVICES |
1.1 Board of Directors . Director is appointed to serve as a member of the Companys Board of Directors (the Board ), effective upon the Securities and Exchange Commissions declaration of effectiveness of the Companys registration statement on Form F-1 initially submitted to the Securities and Exchange Commission confidentially on November 26, 2013 (such date, the Effectiveness Date ), until the earlier of (i) the date on which Director ceases to be a member of the Board for any reason or (ii) the date of termination of this Agreement in accordance with Section 5.2 hereof (such earlier date being the Expiration Date ). The Board shall consist of the Director and such other members as nominated and elected pursuant to the then-current Memorandum and Articles of Association of the Company (the Memorandum and Articles ).
1.2 Director Services . Directors services to the Company hereunder shall include service on the Board [and service as the chairman of the committee and as the chairman or other member of other committees as the Board deems fit] in accordance with applicable law, stock exchange rules and the currently effective Memorandum and Articles of the Company, and such other services mutually agreed to by Director and the Company (the Director Services ).
II. | COMPENSATION |
2.1 Compensation . The terms of compensation for Director are set forth in Schedule I attached hereto.
III. | DUTIES OF DIRECTOR |
3.1 Fiduciary Duties . In fulfilling his managerial responsibilities, Director shall be charged with a fiduciary duty to the Company and all of its shareholders. Director shall be attentive and inform himself of all material facts regarding a decision before taking action. In addition, Directors actions shall be motivated solely by the best interests of the Company and its shareholders.
3.2 Confidentiality . During the term of this Agreement, and for a period of two (2) years after the Expiration Date, Director shall maintain in strict confidence all information he has obtained or shall obtain from the Company which the Company has designated as confidential, or which is by its nature confidential, relating to the Companys business, operations, properties, assets, services, condition (financial or otherwise), liabilities, employee relations, customers (including user base personal data and customer usage statistics), advertising clients, suppliers, prospects, technology, intellectual property or trade secrets, except to the extent such information (i) is in the public domain through no act or omission of the Company, (ii) is required to be disclosed by law or a valid order by a court or other governmental body, or (iii) is independently learned by Director outside of this relationship ( Confidential Information ).
3.3 Nondisclosure and Nonuse Obligations . Director will use the Confidential Information solely to perform the Director Services for the benefit of the Company. Director will treat all Confidential Information of the Company with the same degree of care as Director treats his own Confidential Information, and Director will use his best efforts to protect the Confidential Information. Director will not use the Confidential Information for his own benefit or the benefit of any other person or entity, except as may be specifically permitted in this Agreement. Director will immediately give notice to the Company of any unauthorized use or disclosure by or through him, or of which he becomes aware, of the Confidential Information. Director agrees to assist the Company in remedying any such unauthorized use or disclosure of the Confidential Information.
3.4 Return of the Company Property . All materials furnished to Director by the Company, whether delivered to Director by the Company or made by Director in the performance of Director Services under this Agreement (the Company Property ) are the sole and exclusive property of the Company. Director agrees to promptly deliver the original and any copies of the Company Property to the Company at any time upon the Companys request. Upon termination of this Agreement by either party for any reason, Director agrees to promptly deliver to the Company or destroy, at the Companys option, the original and any copies of the Company Property. Director agrees to certify in writing that Director has so returned or destroyed all such Company Property.
IV. | COVENANTS OF DIRECTOR |
4.1 No Conflict of Interest . During the term of this Agreement, and for a period of two (2) years after the Expiration Date, Director shall not be employed by, own, manage, control or participate in the ownership, management, operation or control of any business entity that is competitive with the Company or otherwise undertake any obligation inconsistent with the terms hereof, provided that Director may continue Directors current affiliation or other current relationships with the entity or entities described on Exhibit A (all of which entities are referred to collectively as Current Affiliations ). This Agreement is subject to the current terms and agreements governing Directors relationship with Current Affiliations, and nothing in this Agreement is intended to be or will be construed to inhibit or limit any of Directors obligations to Current Affiliations. Director represents that nothing in this Agreement conflicts with Directors obligations to Current Affiliations. A business entity shall be deemed to be competitive with the Company for purpose of this Article IV only if and to the extent it engages in the business substantially similar to the Companys business. If Director undertakes any duty, investment or other obligation that may present a conflict of interest prohibited under this Section 4.1, Director shall inform the Board in advance. If the Board decides such proposed new obligation would present an actual conflict of interest prohibited hereunder and Director still undertakes the new obligation, the Board shall have the right to remove Director from the Board.
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4.2 Noninterference with Business . During the term of this Agreement, and for a period of two (2) years after the Expiration Date, Director agrees not to interfere with the business of the Company in any manner. By way of example and not of limitation, Director agrees not to solicit or induce any employee, independent contractor, customer or supplier of the Company to terminate or breach his or her employment, contractual or other relationship with the Company.
V. | TERM AND TERMINATION |
5.1 Term . This Agreement is effective as of the date first written above and will continue until the Expiration Date.
5.2 Termination . This Agreement shall have a term of two (2) years, beginning on the Effectiveness Date. Notwithstanding anything to the contrary, either party may terminate this Agreement at any time upon thirty (30) days prior written notice to the other party, or such shorter period as the parties may agree upon.
5.3 Survival . The rights and obligations contained in Articles III and IV will survive any termination or expiration of this Agreement.
VI. | MISCELLANEOUS |
6.1 Assignment . Except as expressly permitted by this Agreement, neither party shall assign, delegate, or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the other party. Subject to the foregoing, this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns.
6.2 No Waiver . The failure of any party to insist upon the strict observance and performance of the terms of this Agreement shall not be deemed a waiver of other obligations hereunder, nor shall it be considered a future or continuing waiver of the same terms.
6.3 Notices . Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to the addresses set forth on the signature page or such other address as either party may specify in writing.
6.4 Governing Law . This Agreement shall be governed in all respects by the laws of the State of New York, without regard to conflicts of law principles thereof.
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6.5 Severability . Should any provisions of this Agreement be held by a court of law to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby.
6.6 Entire Agreement . This Agreement constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or contemporaneous oral or written agreements concerning such subject matter. The terms of this Agreement will govern all Director Services undertaken by Director for the Company.
6.7 Amendments . This Agreement may only be amended, modified or changed by an agreement signed by the Company and Director. The terms contained herein may not be altered, supplemented or interpreted by any course of dealing or practices.
6.8 Counterparts . This Agreement may be executed in two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
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SCHEDULE I
Directors Compensation
EXHIBIT A
Directors Current Affiliations
A - 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the Agreement ) is entered into as of , 201 by and between Tarena International, Inc., a company incorporated and existing under the laws of the Cayman Islands (the Company ) and , an individual (the Executive ). The term Company as used herein with respect to all obligations of the Executive hereunder shall be deemed to include the Company and all of its direct or indirect subsidiaries and affiliates (collectively, the Group ).
RECITALS
A. The Company desires to employ the Executive and to assure itself of the services of the Executive during the term of Employment (as defined below).
B. The Executive desires to be employed by the Company during the term of Employment and under the terms and conditions of this Agreement.
AGREEMENT
The parties hereto agree as follows:
1. | POSITION |
The Executive hereby accepts a position of (the Employment ) of the Company.
2. | TERM |
Subject to the terms and conditions of this Agreement, the initial term of the Employment shall be commencing on , 20 (the Effective Date ), until , 20 , unless terminated earlier pursuant to the terms of this Agreement. The Company and the Executive can determine to extend the Employment through mutual agreement.
3. | PROBATION |
There is no probation period for the Employment.
4. | DUTIES AND RESPONSIBILITIES |
The Executives duties at the Company will include all jobs assigned by the Board of Directors of the Company (the Board ) or, if authorized by the Board, by the Companys Chief Executive Officer.
The Executive shall devote all of his/her working time, attention and skills to the performance of his/her duties at the Company and shall faithfully and diligently serve the Company in accordance with this Agreement and the guidelines, policies and procedures of the Company approved from time to time by the Board.
The Executive shall use his/her best efforts to perform his/her duties hereunder. The Executive shall not, without the prior written consent of the Board, become an employee or consultant of any entity other than the Company and/or any member of the Group, and shall not carry on or be interested in the business or entity that competes with that carried on by the Group (any such business or entity, a Competitor ), provided that nothing in this clause shall preclude the Executive from holding any shares or other securities of any Competitor that is listed on any securities exchange or recognized securities market anywhere. The Executive shall notify the Company in writing of his/her interest in such shares or securities in a timely manner and with such details and particulars as the Company may reasonably require.
5. | NO BREACH OF CONTRACT |
The Executive hereby represents to the Company that: (i) the execution and delivery of this Agreement by the Executive and the performance by the Executive of the Executives duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any other agreement or policy to which the Executive is a party or otherwise bound, except for agreements that are required to be entered into by and between the Executive and any member of the Group pursuant to applicable law of the jurisdiction where the Executive is based, if any; (ii) that the Executive has no information (including, without limitation, confidential information and trade secrets) relating to any other person or entity which would prevent, or be violated by, the Executive entering into this Agreement or carrying out his/her duties hereunder; and (iii) that the Executive is not bound by any confidentiality, trade secret or similar agreement with any other person or entity except for other member(s) of the Group, as the case may be.
6. | LOCATION |
The Executive will be based in Beijing, China until both parties hereto agree to change otherwise.
7. | COMPENSATION AND BENEFITS |
Unless set forth separately in Schedule A , Executive shall receive such compensation and benefits as described in this Section 7.
(a) | Cash Compensation . The Executives cash compensation (including salary and bonus) shall be determined by the Company and specified in a standalone agreement between the Executive and the Companys designated subsidiary or affiliated entity and such compensation is subject to annual review and adjustment by the Company, except in the case of the Chief Executive Officer of the Company, his compensation shall be determined by the Board of Directors of the Company or the compensation committee thereof, subject to annual review and adjustment. |
(b) | Equity Incentives . The Executive will be eligible for participating in the Companys equity incentive plan(s) pursuant to the terms and conditions thereof as determined by the Board, and any award granted thereunder will be governed by an award agreement to be entered into separately between the Company and the Executive. |
(c) | Benefits . The Executive is eligible for participation in any standard employee benefit plan of the Company that currently exists or may be adopted by the Company in the future, including, but not limited to, any retirement plan, life insurance plan, health insurance plan and annual holiday plan. |
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8. | TERMINATION OF THE AGREEMENT |
(a) | By the Company . The Company may terminate the Employment for cause, at any time, without advance notice or remuneration, if (1) the Executive is convicted or pleads guilty to a felony or to an act of fraud, misappropriation or embezzlement, (2) the Executive has been negligent or acted dishonestly to the detriment of the Company, (3) the Executive has engaged in actions amounting to misconduct or failed to perform his/her duties hereunder and such failure continues after the Executive is afforded a reasonable opportunity to cure such failure, (4) the Executive has died, or (5) the Executive has a disability which shall mean a physical or mental impairment which, as reasonably determined by the Board, renders the Executive unable to perform the essential functions of his/her employment with the Company, even with reasonable accommodation that does not impose an undue hardship on the Company, for more than 180 days in any 12-month period, unless a longer period is required by applicable law, in which case that longer period would apply. In addition, the Company may terminate the Employment without cause, at any time, upon three-month prior written notice to the Executive. Upon termination without cause, the Company shall provide severance payments to the Executive as expressly required by applicable law of the jurisdiction where the Executive is based. |
(b) | By the Executive . The Executive may resign from the Company at any time with a three-month prior written notice to the Company. |
(c) | Notice of Termination. Any termination of the Executives employment under this Agreement shall be communicated by written notice of termination from the terminating party to the other party. |
9. | CONFIDENTIALITY AND NONDISCLOSURE |
(a) | Confidentiality and Non-disclosure . The Executive agrees at all times during and after the Employment, to hold in the strictest confidence, and not to use, or to disclose to any person, corporation or other entity without written consent of the Company, any Confidential Information, except as required in the performance of the Executives duties in connection with the Employment or pursuant to applicable law. The Executive understands that Confidential Information means any proprietary or confidential information of the Company, its affiliates, or their respective clients, customers or partners, including, without limitation, technical data, trade secrets, research and development information, product plans, services, customer lists and customers, supplier lists and suppliers, software developments, inventions, processes, formulas, technology, designs, hardware configuration information, personnel information, marketing, finances, information about the suppliers, joint ventures, franchisees, distributors and other persons with whom the Company does business, information regarding the skills and compensation of other employees of the Company or other business information disclosed to the Executive by or obtained by the Executive from the Company, its affiliates, or their respective clients, customers or partners either directly or indirectly in writing, orally or otherwise, if specifically indicated to be confidential or reasonably expected to be confidential. Notwithstanding the foregoing, Confidential Information shall not include information that is generally available and known to the public through no breaching the confidential obligations of this agreement by the Executive. |
(b) | Trade Secrets. During and after the Employment, the Executive shall hold the Trade Secrets (as defined below) in strict confidence; the Executive shall not disclose the Trade Secrets to anyone except other employees of the Company who have a need to know the Trade Secrets in connection with the Companys business. The Executive shall not use the Trade Secrets other than for his /her duties of the Company and for the benefits of the Company. |
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Trade Secrets means information deemed confidential by the Company, treated by the Company or which the Executive knows or ought reasonably to have known to be confidential, and trade secrets, including without limitation designs, processes, pricing policies, methods, inventions, conceptions, technology, technical data, financial information, corporate structure and know-how, relating to the business and affairs of the Company and its subsidiaries, affiliates and business associates, whether embodied in memoranda, manuals, letters or other documents, computer disks, tapes or other information storage devices, hardware, or other media or vehicles. Trade Secrets do not include information generally known or released to public domain through no breaching the confidential obligations of this agreement by the Executive.
(c) | Company Property . The Executive understands that all documents (including computer records, facsimile and e-mail) and materials created, received or transmitted in connection with his or her work or using the facilities of the Company are property of the Company and subject to inspection by the Company, at any time. Upon termination of the Employment (or at any other time when requested by the Company), the Executive will promptly deliver to the Company all documents and materials of any nature pertaining to his work with the Company and will provide written certification of his or her compliance with this Agreement. Under no circumstances will the Executive have, following his or her termination, in his or her possession any property of the Company, or any documents or materials or copies thereof containing any Confidential Information. |
(c) | Former Employer Information . The Executive represents and agrees that, during the term of his/her employment with the Company, he/she has not improperly used or disclosed, and will not improperly use or disclose, any proprietary information or trade secrets of any former employer or other person or entity with which the Executive has an agreement to keep in confidence information acquired by the Executive, if any. The Executive will indemnify the Company and hold it harmless from and against all claims, liabilities, damages and expenses, including reasonable attorneys fees and costs of suit, arising out of or in connection with any violation of the foregoing. |
(d) | Third Party Information . The Executive recognizes that the Company may have received, and in the future may receive, from third parties their confidential or proprietary information subject to a duty on the Companys part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Executive agrees that the Executive owes the Company and such third parties, during the Executives employment by the Company and thereafter, a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person or firm and to use it in a manner consistent with, and for the limited purposes permitted by, the Companys agreement with such third party. |
This Section 9 shall survive the termination of this Agreement for any reason. In the event the Executive breaches this Section 9, the Company shall have right to seek remedies permissible under applicable law.
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10. | INVENTIONS |
(a) | Inventions Retained and Licensed . The Executive has attached hereto, as Schedule B , a list describing all inventions, ideas, improvements, designs and discoveries, whether or not patentable and whether or not reduced to practice, original works of authorship and trade secrets made or conceived by or belonging to the Executive (whether made solely by the Executive or jointly with others) that (i) were developed by the Executive prior to the Executives employment by the Company (collectively, Prior Inventions ), (ii) relate to the Company actual or proposed business, products or research and development, and (iii) are not assigned to the Company hereunder; or, if no such list is attached, the Executive represents that there are no such Prior Inventions. Except to the extent set forth in Schedule B , the Executive hereby acknowledges that, if in the course of his/her service for the Company, the Executive incorporates into a Company product, process or machine a Prior Invention owned by the Executive or in which he/she has an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide right and license (which may be freely transferred by the Company to any other person or entity) to make, have made, modify, use, sell, sublicense and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. |
(b) | Disclosure and Assignment of Inventions . The Executive understands that the Company engages in research and development and other activities in connection with its business and that, as an essential part of the Employment, the Executive is expected to make new contributions to and create inventions of value for the Company. |
From and after the Effective Date, the Executive shall disclose in confidence to the Company all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works and trade secrets (collectively, the Inventions ), which the Executive may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of the Executives Employment at the Company. The Executive acknowledges that copyrightable works prepared by the Executive within the scope of and during the period of the Executives Employment with the Company are works for hire and that the Company will be considered the author thereof. The Executive agrees that all the Inventions shall be the sole and exclusive property of the Company and the Executive hereby assigns all his/her right, title and interest in and to any and all of the Inventions to the Company or its successor in interest without further consideration.
(c) | Patent and Copyright Registration . The Executive agrees to assist the Company in every proper way to obtain for the Company and enforce patents, copyrights, mask work rights, trade secret rights, and other legal protection for the Inventions. The Executive will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets and other legal protections. The Executives obligations under this paragraph will continue beyond the termination of the Employment with the Company, provided that the Company will reasonably compensate the Executive after such termination for time or expenses actually spent by the Executive at the Companys request on such assistance. |
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(d) | Return of Confidential Materials. In the event of the Executives termination of employment with the Company for any reason whatsoever, the Executive agrees promptly to surrender and deliver to the Company all records, materials, equipment, drawings, documents and data of any nature pertaining to any confidential information or to his/her employment, and the Executive will not retain or take with him/her any tangible materials or electronically stored data, containing or pertaining to any confidential information that the Executive may produce, acquire or obtain access to during the course of his/her employment. |
This Section 10 shall survive the termination of this Agreement for any reason. In the event the Executive breaches this Section 10, the Company shall have right to seek remedies permissible under applicable law.
11. | NON-COMPETITION AND NON-SOLICITATION |
In consideration of the Employment, the Executive agrees that during the term of the Employment and for a period of year(s) following the termination of the Employment for whatever reason:
(a) | The Executive will not approach suppliers, clients, customers or contacts of the Company or other persons or entities introduced to the Executive in the Executives capacity as a representative of the Company for the purposes of doing business with such persons or entities which will harm the business relationship between the Company and such persons and/or entities; |
(b) | unless expressly consented to by the Company, the Executive will not assume employment with or provide services as a director or otherwise for any Competitor, or engage, whether as principal, partner, licensor or otherwise, any Competitor; and |
(c) | unless expressly consented to by the Company, the Executive will not seek directly or indirectly, by the offer of alternative employment or other inducement whatsoever, to solicit the services of any employee of the Company employed as at or after the date of such termination, or in the year preceding such termination. |
In consideration of the foregoing, the Company shall pay, through its designated subsidiary or affiliated entity, compensation to the Executive in an aggregate amount equal to % of the Executives annual base salary for the last year prior to the termination of the Employment, in equal installments on a monthly basis after the termination of the Employment.
The provisions contained in this Section 11 are considered reasonable by the Executive and the Company. In the event that any such provisions should be found to be void under applicable laws but would be valid if some part thereof was deleted or the period or area of application reduced, such provisions shall apply with such modification as may be necessary to make them valid and effective.
This Section 11 shall survive the termination of this Agreement for any reason. In the event the Executive breaches this Section 11, the Executive acknowledges that there will be no adequate remedy at law, and the Company shall be entitled to injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate). In any event, the Company shall have right to seek all remedies permissible under applicable law.
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12. | WITHHOLDING TAXES |
Notwithstanding anything else herein to the contrary, the Company may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or payable under or pursuant to this Agreement such national, provincial, local or any other income, employment, or other taxes as may be required to be withheld pursuant to any applicable law or regulation.
13. | ASSIGNMENT |
This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that (i) the Company may assign or transfer this Agreement or any rights or obligations hereunder to any member of the Group without such consent, and (ii) in the event of a merger, consolidation, or transfer or sale of all or substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder.
14. | SEVERABILITY |
If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of this Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable.
15. | ENTIRE AGREEMENT |
This Agreement constitutes the entire agreement and understanding between the Executive and the Company regarding the terms of the Employment and supersedes all prior or contemporaneous oral or written agreements concerning such subject matter. The Executive acknowledges that he/she has not entered into this Agreement in reliance upon any representation, warranty or undertaking which is not set forth in this Agreement.
16. | GOVERNING LAW |
This Agreement shall be governed by and construed in accordance with the law of the Cayman Islands.
17. | AMENDMENT |
This Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to this Agreement, which agreement is executed by both of the parties hereto.
18. | WAIVER |
Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
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19. | NOTICES |
All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given and made if (i) delivered by hand, (ii) otherwise delivered against receipt therefor, or (iii) sent by a recognized courier with next-day or second-day delivery to the last known address of the other party.
20. | COUNTERPARTS |
This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.
21. | NO INTERPRETATION AGAINST DRAFTER |
Each party recognizes that this Agreement is a legally binding contract and acknowledges that such party has had the opportunity to consult with legal counsel of choice. In any construction of the terms of this Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such terms.
[Remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
Tarena International, Inc.
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By: | ||
Name: | ||
Title: |
Executive
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Signature: |
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Name: |
Schedule A
Terms of Compensation and Benefits
Schedule B
List of Prior Inventions
Title |
Date |
Identifying Number or Brief Description |
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______ No inventions or improvements
______ Additional Sheets Attached
Signature of Executive: ________________
Print Name of Executive: _______________
Date: ____________
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Exhibit 10.6
Amended and Restated Exclusive Business Cooperation Agreement
This Amended and Restated Exclusive Business Cooperation Agreement (this Agreement) is made and entered into by and between the following Parties on November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC).
Party A: | Tarena Technologies Inc. | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Party B: | Beijing Tarena Jinqiao Technology Co., Ltd. | |
Address: | Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing |
Each of Party A and Party B shall be hereinafter referred to as a Party respectively, and as the Parties collectively.
Whereas,
1. | Party A is a wholly-foreign-owned enterprise established in China and has the necessary resources to provide technical and consulting services; |
2. | Party B is a company with exclusively domestic capital registered in China, engaging in technology development, technology transfer, technology consulting and other services; |
3. | Party A is willing to provide Party B with exclusive technical, consulting and other services in relation to technology development, technology transfer, technology consulting and other services during the term of this Agreement utilizing its own advantages in human resources, technology and information, and Party B is willing to accept such services provided by Party A or Party As designee(s), each on the terms set forth herein. |
4. | Party A and Party B executed an Exclusive Business Cooperation Agreement (the Original Exclusive Business Cooperation Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Exclusive Business Cooperation Agreement by executing this Agreement. |
Now, therefore, through mutual discussion, the Parties have reached the following agreements:
1. | Services Provided by Party A |
1.1 | Party B hereby appoints Party A as Party Bs exclusive services provider to provide Party B with complete technical support, business support, and related consulting services (the Services) during the term of this Agreement, in accordance with the terms and conditions of this Agreement, which Services may include all services within the business scope of Party B as may be determined from time to time by Party A, including but not limited to: |
(1) | Licensing Party B to use any software legally owned by Party A; |
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(2) | Development, maintenance and update of software involved in Party Bs business; |
(3) | Design, installation, daily management, maintenance and updating of network system, hardware and database design; |
(4) | Technical support and training for employees of Party B; |
(5) | Assisting Party B in consultancy, collection and research of technology and market information (excluding market research business that wholly foreign-owned enterprises are prohibited from conducting under PRC law); |
(6) | Providing business management consultation for Party B; |
(7) | Providing marketing and promotion services for Party B; |
(8) | Providing customer order management and customer services for Party B; |
(9) | Leasing of equipments or properties; and |
(10) | Other services requested by Party B from time to time to the extent permitted under PRC law. |
1.2 | Party B agrees to accept all the Services provided by Party A. Party B further agrees that unless with Party As prior written consent, during the term of this Agreement, Party B shall not accept any consultations and/or services similar to the Services provided by any third party and shall not establish similar corporation relationship with any third party regarding the matters contemplated by this Agreement. Party A may appoint other parties, who may enter into certain agreements described in Section 1.3 with Party B, to provide Party B with the Services under this Agreement. |
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1.3 | Forms of Service |
1.3.1 | Party A and Party B agree that during the term of this Agreement, both Parties, directly or through their respective affiliates, may enter into further technical service agreements or consulting service agreements, which shall provide the specific contents, manner, personnel, and fees for the specific technical services and consulting services. |
1.3.2 | To fulfill this Agreement, Party A and Party B agree that during the term of this Agreement, where necessary, Party B may enter into equipment or property leases with Party A or any other party designated by Party A which shall permit Party B to use Party As relevant equipment or property based on the needs of the business of Party B. |
1.3.3 | Party B hereby grants to Party A an irrevocable and exclusive option to purchase from Party B, at Party As sole discretion, any or all of the assets of Party B, to the extent permitted under the PRC laws, at the lowest purchase price permitted by the PRC laws. In this case, the Parties shall enter into a separate assets transfer agreement, specifying the terms and conditions of the transfer of the assets. |
2. | The Calculation and Payment of the Service Fees |
2.1 | The fees payable by Party B to Party A during the term of this Agreement shall be calculated as follows: |
2.1.1 | As requested by Party A, Party B shall pay service fee to Party A in each month. The service fee for each month shall consist of management fee and fee for services provided, which shall be determined by the Parties through negotiation after considering: |
(1) | Complexity and difficulty of the services provided by Party A; |
(2) | Title of and time consumed by employees of Party A providing the services; |
(3) | Contents and value of the services provided by Party A; |
(4) | Market price of the same type of services; |
(5) | Operation conditions of the Party B. |
2.1.2 | On the premise of complying with the PRC law, Party A agrees that, during the term of this agreement, it is entitled to and responsible for all economic benefits and risks derived by Party B. If any operating loss or critical operation adversity occurs in Party B, Party A shall provide financial support to Party B, and only Party A can decide whether Party B should continue its operation and Party B shall unconditionally accept and execute the decision made by Party A as aforesaid. |
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2.1.3 | If Party A transfers technology to Party B or develops software or other technology as entrusted by Party B or leases equipments or properties to Party B, the technology transfer price, development fees or rent shall be determined by the Parties based on the actual situations. |
3. | Intellectual Property Rights and Confidentiality Clauses |
3.1 | Party A shall have exclusive and proprietary ownership, rights and interests in any and all intellectual properties arising out of or created during the performance of this Agreement, including but not limited to copyrights, patents, patent applications, software, technical secrets, trade secrets and others. Party B shall execute all appropriate documents, take all appropriate actions, submit all filings and/or applications, render all appropriate assistance and otherwise conduct whatever is necessary as deemed by Party A at its sole discretion for the purposes of vesting any ownership, right or interest of any such intellectual property rights in Party A, and/or perfecting the protections for any such intellectual property rights in Party A. |
3.2 | The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason. |
3.3 | The Parties agree that this Section shall survive changes to, and rescission or termination of, this Agreement. |
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4. | Representations and Warranties |
4.1 | Party A hereby represents and warrants as follows: |
4.1.1 | Party A is a wholly-foreign-owned enterprise legally established and validly existing in accordance with the laws of China; Party A or the service providers designated by Party A will obtain all government permits and licenses for providing the service under this Agreement before providing such services. |
4.1.2 | Its execution and performance of this Agreement is within its corporate capacity and the scope of its business operations; It has taken necessary corporate actions and given appropriate authorization and has obtained the consent and approval from third parties and government agencies, and will not violate any restrictions in law or otherwise binding or having an impact on it. |
4.1.3 | This Agreement constitutes its legal, valid and binding obligations, enforceable in accordance with its terms. |
4.2 | Party B hereby represents and warrants as follows: |
4.2.1 | Party B is a company legally established and validly existing in accordance with the laws of China and has obtained and will maintain all permits and licenses for engaging in the principal business in a timely manner; |
4.2.2 | Its execution and performance of this Agreement is within its corporate capacity and the scope of its business operations; It has taken necessary corporate actions and given appropriate authorization and has obtained the consent and approval from third parties and government agencies, and will not violate any restrictions in law or otherwise binding or having an impact on it. |
4.2.3 | This Agreement constitutes its legal, valid and binding obligations, and shall be enforceable against it. |
5. | Effectiveness and Term |
5.1 | Unless otherwise terminated in accordance with the provisions of this Agreement or as determined by Party A in writing, this Agreement shall remain in full force and effect. Since the effective date of this Agreement, the Original Exclusive Business Cooperation Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
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5.2 | During the term of this Agreement, in the event the operation term of either Party expires, such Party shall immediately extend its operation term in a timely manner so that this Agreement could remain in full force and effect. In case the application of such Party for the extension is not approved by the governmental authorities, this Agreement shall terminate upon expiration of the operation term of such Party. |
5.3 | The rights and obligations of the Parties under Sections 3, 6, 7 and this Section 5.3 shall survive the termination of this Agreement. |
6. | Governing Law and Resolution of Disputes |
6.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China. |
6.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
6.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
7. | Breach of Agreement and Indemnification |
7.1 | If Party B commits any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/or require Party B to pay for all damages; this Section 7.1 shall not be prejudiced to any other rights of Party A herein. |
7.2 | Unless otherwise required by applicable laws, Party B shall not have any right to terminate this Agreement in any event. |
7.3 | Party B shall indemnify and hold harmless Party A from any losses, injuries, obligations or expenses caused by any lawsuit, claims or other demands against Party A arising from or caused by the services provided by Party A to Party B pursuant this Agreement, except where such losses, injuries, obligations or expenses arise from the gross negligence or willful misconduct of Party A. |
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8. | Force Majeure |
8.1 | In the case of any force majeure events (Force Majeure) such as earthquake, typhoon, flood, fire, flu, war, strikes or any other events that cannot be predicted and are unpreventable and unavoidable by the affected Party, which directly or indirectly causes the failure of either Party to perform or completely perform this Agreement, then the Party affected by such Force Majeure shall give the other Party written notices without any delay, and shall provide details of such event within 15 days after sending out such notice, explaining the reasons for such failure of, partial or delay of performance. |
8.2 | If such Party claiming Force Majeure fails to notify the other Party and furnish it with proof pursuant to the above provision, such Party shall not be excused from the non-performance of its obligations hereunder. The Party so affected by the event of Force Majeure shall use reasonable efforts to minimize the consequences of such Force Majeure and to promptly resume performance hereunder whenever the causes of such excuse are cured. Should the Party so affected by the event of Force Majeure fail to resume performance hereunder when the causes of such excuse are cured, such Party shall be liable to the other Party. |
8.3 | In the event of Force Majeure, the Parties shall immediately consult with each other to find an equitable solution and shall use all reasonable endeavors to minimize the consequences of such Force Majeure. |
9. | Notices |
9.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
9.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
9.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
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9.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-6369 | |
Facsimile: | 86-10 6211-0873 | |
Party B: | Beijing Tarena Jinqiao Technology Co., Ltd. | |
Address: | Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-5687 | |
Facsimile: | 86-10 6211-0873 |
9.3 | Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof. |
10. | Assignment |
10.1 | Without Party As prior written consent, Party B shall not assign its rights and obligations under this Agreement to any third party. |
10.2 | Party B agrees that Party A may assign its obligations and rights under this Agreement to any third party upon a prior written notice to Party B but without the consent of Party B. |
11. | Severability |
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any aspect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
12. | Amendments and Supplements |
Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
13. | Language and Counterparts |
This Agreement is written in both Chinese and English language in two copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Exclusive Business Cooperation Agreement as of the date first above written.
Party A: Tarena Technologies Inc. | ||
By: |
/s/ Han Shaoyun | |
Name: |
Han Shaoyun | |
Title: |
Legal Representative | |
Party B: Beijing Tarena Jinqiao Technology Co., Ltd. | ||
By: |
/s/ Han Shaoyun | |
Name: |
Han Shaoyun | |
Title: |
Legal Representative |
Signature Page to Amended and Restated Exclusive Business Cooperation Agreement
Exhibit 10.7
Power of Attorney
This Power of Attorney (this Power of Attorney) shall supersede and replace the power of attorney I executed on December 31, 2006 (the Original Power of Attorney) upon the effective date stipulated in this Power of Attorney.
I, Han Shaoyun, a Chinese citizen with Chinese Identification Card No.: ***, and a holder of 70% of the entire registered capital in Beijing Tarena Jinqiao Technology Co., Ltd. (Beijing Tarena) as of the date when the Power of Attorney is executed, hereby irrevocably authorize Tarena Technologies Inc. (the Designee) to exercise the following rights relating to all equity interests held by me now and in the future in Beijing Tarena (My Shareholding) during the term of this Power of Attorney:
The Designee is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attending shareholders meetings of Beijing Tarena; 2) exercising all the shareholders rights and shareholders voting rights I am entitled to under the laws of China and Beijing Tarenas Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the directors, supervisors, the chief executive officer and other senior management members of Beijing Tarena.
Without limiting the generality of the powers granted hereunder, the Designee shall have the power and authority to, on behalf of myself, execute all the documents I shall sign as stipulated in the Amended and Restated Exclusive Option Agreement entered into by and among me, the Designee, Beijing Tarena and Tarena International, Inc. on November 25, 2013 and the Amended and Restated Equity Pledge Agreement entered into by and among me, Beijing Tarena and the Designee on November 25, 2013 (including any modification, amendment and restatement thereto, collectively the Transaction Documents), and perform the terms of the Transaction Documents.
All the actions associated with My Shareholding conducted by the Designee shall be deemed as my own actions, and all the documents related to My Shareholding executed by the Designee shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the Designee.
The Designee is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent. If required by PRC laws, the Designee shall designate a PRC citizen to exercise the aforementioned rights.
During the period that I am a shareholder of Beijing Tarena, this Power of Attorney shall be irrevocable and continuously effective and valid from the date of execution of this Power of Attorney.
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During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the Designee through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is written in Chinese and English. The Chinese version and English version shall have equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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Han Shaoyun | ||
By: |
/s/ Han Shaoyun |
Accepted by | ||
Tarena Technologies Inc. | ||
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Acknowledged by: | ||
Beijing Tarena Jinqiao Technology Co., Ltd. | ||
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Exhibit 10.8
Power of Attorney
This Power of Attorney (this Power of Attorney) shall supersede and replace the power of attorney I executed on December 31, 2006 (the Original Power of Attorney) upon the effective date stipulated in this Power of Attorney.
I, Li Jianguang, a Chinese citizen with Chinese Identification Card No.: ***, and a holder of 30% of the entire registered capital in Beijing Tarena Jinqiao Technology Co., Ltd. (Beijing Tarena) as of the date when the Power of Attorney is executed, hereby irrevocably authorize Tarena Technologies Inc. (the Designee) to exercise the following rights relating to all equity interests held by me now and in the future in Beijing Tarena (My Shareholding) during the term of this Power of Attorney:
The Designee is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attending shareholders meetings of Beijing Tarena; 2) exercising all the shareholders rights and shareholders voting rights I am entitled to under the laws of China and Beijing Tarenas Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the directors, supervisors, the chief executive officer and other senior management members of Beijing Tarena.
Without limiting the generality of the powers granted hereunder, the Designee shall have the power and authority to, on behalf of myself, execute all the documents I shall sign as stipulated in the Amended and Restated Exclusive Option Agreement entered into by and among me, the Designee, Beijing Tarena and Tarena International, Inc. on November 25, 2013 and the Amended and Restated Equity Pledge Agreement entered into by and among me, Beijing Tarena and the Designee on November 25, 2013 (including any modification, amendment and restatement thereto, collectively the Transaction Documents), and perform the terms of the Transaction Documents.
All the actions associated with My Shareholding conducted by the Designee shall be deemed as my own actions, and all the documents related to My Shareholding executed by the Designee shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the Designee.
The Designee is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent. If required by PRC laws, the Designee shall designate a PRC citizen to exercise the aforementioned rights.
During the period that I am a shareholder of Beijing Tarena, this Power of Attorney shall be irrevocable and continuously effective and valid from the date of execution of this Power of Attorney.
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During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the Designee through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is written in Chinese and English. The Chinese version and English version shall have equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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Li Jianguang | ||
By: |
/s/ Li Jianguang |
Accepted by | ||
Tarena Technologies Inc. | ||
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Acknowledged by: | ||
Beijing Tarena Jinqiao Technology Co., Ltd. | ||
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Exhibit 10.9
Amended and Restated Exclusive Option Agreement
This Amended and Restated Exclusive Option Agreement (this Agreement) is executed by and among the Parties below as of November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC):
Party A: | Tarena International, Inc. |
Address: | Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands |
Party B: | Tarena Technologies Inc. |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing |
Party C: | Han Shaoyun |
ID No.: | *** |
Party D: | Beijing Tarena Jinqiao Technology Co., Ltd. |
Address: | Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing |
In this Agreement, each of Party A, Party B, Party C and Party D shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1. | Party A is a company established in Cayman Islands and holds 100% of the equity interests of Party B. |
2. | Party C is a shareholder of Party D and as of the date hereof holds 70% of the equity interests of Party D, representing RMB1,400,000 in the registered capital of Party D. |
3. | Party B and Party C executed an Amended and Restated Loan Agreement on November 25, 2013, 2013 (the Loan Agreement). |
4. | Party B, Party C and Party D executed an Exclusive Option Agreement (the Original Exclusive Option Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Exclusive Option Agreement by executing this Agreement. |
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Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:
1. | Sale and Purchase of Equity Interest |
1.1 | Option Granted |
In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party C, Party C hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a Designee) to purchase, the equity interests in Party D then held by Party C once or at multiple times at any time in part or in whole at Party As sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the Equity Interest Purchase Option). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party C. Party D hereby agrees to the grant by Party C of the Equity Interest Purchase Option to Party A. The term person as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
1.2 | Steps for Exercise of Equity Interest Purchase Option |
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party C (the Equity Interest Purchase Option Notice), specifying: (a) Party As decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party C (the Optioned Interests); and (c) the date for purchasing the Optioned Interests. Party A and/or the Designee(s) shall obtain all necessary government licenses and permits and take all necessary actions to purchase the equity interests in Party D.
1.3 | Equity Interest Purchase Price |
The purchase price of all equity interests held by Party C in Party D purchased by Party A by exercising the Equity Interest Purchase Option shall be RMB1,400,000; if Party A exercises the Equity Interest Purchase Option to purchase part of the equity interests held by Party C in Party D, the purchase price shall be calculated on a pro rata basis. If PRC law requires a minimum price higher than the aforementioned price when Party A exercises the Equity Interest Purchase Option, the minimum price regulated by PRC law shall be the purchase price (collectively, the Equity Interest Purchase Price).
1.4 | Transfer of Optioned Interests |
For each exercise of the Equity Interest Purchase Option by Party A:
1.4.1 | Party C shall cause Party D to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party Cs transfer of the Optioned Interests to Party A and/or the Designee(s); |
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1.4.2 | Party C shall obtain written statements from the other shareholders of Party D giving consent to the transfer of the equity interests to Party A and/or the Designee(s) and waiving any right of first refusal related thereto; |
1.4.3 | Party C shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests; |
1.4.4 | The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, security interests shall include securities, mortgages, third partys rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement, Party Cs Share Pledge Agreement and Party Cs Power of Attorney. Party Cs Share Pledge Agreement as used in this Agreement shall refer to the Amended and Restated Share Pledge Agreement executed by and among Party B, Party C and Party D on the date hereof and any modifications, amendments, and restatements thereto. Party Cs Power of Attorney as used in this Agreement shall refer to the Power of Attorney executed by Party C on the date hereof and any modifications, amendments, and restatements thereto. |
1.5 | Payment of the Equity Interest Purchase Price |
The Parties have agreed in the Loan Agreement that any proceeds obtained by Party C through the transfer of its equity interests in Party D shall be used for repayment of the loan provided by Party B in accordance with the Loan Agreement. Accordingly, if Party A designates Party B as the Designee, upon exercise of the Equity Interest Purchase Option, Party B may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party C to Party B, in which case Party A shall not be required to pay any additional purchase price to Party C, unless the Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with the applicable laws and regulations.
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2. | Covenants |
2.1 | Covenants regarding Party D |
Party C (as a shareholder of Party D) and Party D hereby covenant as follows:
2.1.1 | Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association or bylaws of Party D, increase or decrease its registered capital, or change its structure of registered capital in other manners; |
2.1.2 | They shall maintain Party Ds corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs; |
2.1.3 | Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party D or legal or beneficial interest in the business or revenues of Party D, or allow the encumbrance thereon of any security interest; |
2.1.4 | Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except forpayables incurred in the ordinary course of business other than through loans; |
2.1.5 | They shall always operate all of Party Ds businesses within the ordinary course of business to maintain the asset value of Party D and refrain from any action/omission that may affect Party Ds operating status and asset value; |
2.1.6 | Without the prior written consent of Party A, they shall not cause Party D to execute any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB 500,000 shall be deemed a major contract); |
2.1.7 | Without the prior written consent of Party A, they shall not cause Party D to provide any person with any loan or credit; |
2.1.8 | They shall provide Party A with information on Party Ds business operations and financial condition at Party As request; |
2.1.9 | If requested by Party A, they shall procure and maintain, at the cost of Party D, insurance in respect of Party Ds assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses; |
2.1.10 | Without the prior written consent of Party A, they shall not cause or permit Party D to merge, consolidate with, acquire or invest in any person; |
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2.1.11 | They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party Ds assets, business or revenue; |
2.1.12 | To maintain the ownership by Party D of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
2.1.13 | Without the prior written consent of Party A, they shall ensure that Party D shall not in any manner distribute dividends to its shareholders, provided that upon Party As written request, Party D shall immediately distribute all distributable profits to its shareholders; |
2.1.14 | At the request of Party A, they shall appoint any persons designated by Party A as directors of Party D; |
2.1.15 | Without Party As prior written consent, they shall not engage in any business in competition with Party A or its affiliates; and |
2.1.16 | Unless otherwise required by PRC law, Party D shall not be dissolved or liquated without prior written consent by Party A. |
2.2 | Other Covenants |
Party C hereby covenants as follows:
2.2.1 | Without the prior written consent of Party A, Party C shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party D held by Party C, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party Cs Share Pledge Agreement; |
2.2.2 | Party C shall cause the shareholders meeting and/or the board of directors of Party D not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party D held by Party C, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party Cs Share Pledge Agreement and Party Cs Power of Attorney; |
2.2.3 | Party C shall cause the shareholders meeting or the board of directors of Party D not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A; |
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2.2.4 | Party C shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party D held by Party C; |
2.2.5 | Party C shall cause the shareholders meeting or the board of directors of Party D to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A; |
2.2.6 | To the extent necessary to maintain Party Cs ownership in Party D, Party C shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
2.2.7 | Party C shall appoint any designee of Party A as director of Party D, at the request of Party A; |
2.2.8 | Party C hereby waives its right of first refusal in regards to the transfer of equity interest by any other shareholder of Party D to Party A (if any), and gives consent to the execution by each other shareholder of Party D with Party A, Party B and Party D, as applicable, the exclusive option agreement, the share pledge agreement and the power of attorney similar to this Agreement, Party Cs Share Pledge Agreement, and Party Cs Power of Attorney, and undertakes not to take any actions in conflict with such documents executed by the other shareholders; |
2.2.9 | Party C shall promptly donate any profits, interests, dividends, or proceeds of liquidation to Party A or any other person designated by Party A to the extent permitted under the applicable PRC laws; and |
2.2.10 | Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party C, Party D, Party B and Party A, as applicable, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. To the extent that Party C has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party Cs Share Pledge Agreement or under Party Cs Power of Attorney, Party C shall not exercise such rights except in accordance with the written instructions of Party A. |
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3. | Representations and Warranties |
Party C and Party D hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that: |
3.1 | They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are parties concerning the Optioned Interests to be transferred thereunder (each, a Transfer Contract), and to perform their obligations under this Agreement and any Transfer Contracts. Party C and Party D agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party As exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof; |
3.2 | Party C and Party D have obtained any and all approvals and consents from the relevant government authorities and third parties (if required) for the execution, delivery, and performance of this Agreement; |
3.3 | The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable PRC laws; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party D; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them; |
3.4 | Party C has a good and merchantable title to the equity interests in Party D he holds. Except for Party Cs Share Pledge Agreement, Party C has not placed any security interest on such equity interests; |
3.5 | Party D has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets; |
3.6 | Party D does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party As written consent has been obtained; |
3.7 | Party D has complied with all laws and regulations of China applicable to asset acquisitions; and |
3.8 | There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party D, assets of Party D or Party D. |
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4. | Effective Date and Term |
This Agreement shall become effective upon execution by the Parties, and remain in effect until all equity interests held by Party C in Party D have been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement. Since the effective date of this Agreement, the Original Exclusive Option Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
5. | Governing Law and Resolution of Disputes |
5.1 | Governing Law |
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of the PRC.
5.2 | Methods of Resolution of Disputes |
In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on all Parties.
6. | Taxes and Fees |
Each Party shall pay any and all transfer and registration taxes, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts. |
7. | Notices |
7.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
7.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
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7.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
7.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: |
Tarena International, Inc. | |
Address: | Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-6369 | |
Facsimile: | 86-10 6211-0873 | |
Party B: |
Tarena Technologies Inc. | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-6369 | |
Facsimile: | 86-10 6211-0873 | |
Party C: |
Han Shaoyun | |
Address: | Room 2008, Hall 1, 30 Heng Qi Tiao, Fengtai District, Beijing | |
Tel: | 86-10 6211-5451 | |
Party D: |
Beijing Tarena Jinqiao Technology Co., Ltd. | |
Address: | Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-5687 | |
Facsimile: | 86-10 6211-0873 |
7.3 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
8. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain the confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be featured in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason. |
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9. | Further Warranties |
The Parties agree to promptly execute the documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and to take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement. |
10. | Breach of Agreement |
10.1 | If Party C or Party D conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/or require Party C or Party D to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein; |
10.2 | Party C or Party D shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable laws. |
11. | Miscellaneous |
11.1 | Amendments, Changes and Supplements |
Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
11.2 | Entire Agreement |
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement. This Agreement supersedes, in its entirety, the Original Exclusive Option Agreement relating to the matters set forth herein, which shall be terminated as of the date hereof.
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11.3 | Headings |
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.
11.4 | Language |
This Agreement is written in both Chinese and English language in four copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
11.5 | Severability |
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
11.6 | Successors |
This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.
11.7 | Survival |
11.7.1 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. |
11.7.2 | The provisions of Sections 5, 7, 8 and this Section 11.7 shall survive the termination of this Agreement. |
11.8 | Waivers |
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Exclusive Option Agreement as of the date first above written.
Party A: Tarena International, Inc. | ||
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Director | |
Party B: Tarena Technologies Inc. | ||
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Party C: Han Shaoyun | ||
By: |
/s/ Han Shaoyun |
|
Party D: Beijing Tarena Jinqiao Technology Co., Ltd. | ||
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Signature Page to Amended and Restated Exclusive Option Agreement
Exhibit 10.10
Amended and Restated Exclusive Option Agreement
This Amended and Restated Exclusive Option Agreement (this Agreement) is executed by and among the Parties below as of November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC):
Party A: | Tarena International, Inc. |
Address: | Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands |
Party B: | Tarena Technologies Inc. |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing |
Party C: | Li Jianguang |
ID No.: | *** |
Party D: | Beijing Tarena Jinqiao Technology Co., Ltd. |
Address: | Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing |
In this Agreement, each of Party A, Party B, Party C and Party D shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1. | Party A is a company established in Cayman Islands and holds 100% of the equity interests of Party B. |
2. | Party C is a shareholder of Party D and as of the date hereof holds 30% of the equity interests of Party D, representing RMB600,000 in the registered capital of Party D. |
3. | Party B and Party C executed an Amended and Restated Loan Agreement on November 25, 2013 (the Loan Agreement). |
4. | Party B, Party C and Party D executed an Exclusive Option Agreement (the Original Exclusive Option Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Exclusive Option Agreement by executing this Agreement. |
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Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:
1. | S ALE AND P URCHASE OF E QUITY I NTEREST |
1.1 | Option Granted |
In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party C, Party C hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a Designee) to purchase, the equity interests in Party D then held by Party C once or at multiple times at any time in part or in whole at Party As sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the Equity Interest Purchase Option). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party C. Party D hereby agrees to the grant by Party C of the Equity Interest Purchase Option to Party A. The term person as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
1.2 | Steps for Exercise of Equity Interest Purchase Option |
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party C (the Equity Interest Purchase Option Notice), specifying: (a) Party As decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party C (the Optioned Interests); and (c) the date for purchasing the Optioned Interests. Party A and/or the Designee(s) shall obtain all necessary government licenses and permits and take all necessary actions to purchase the equity interests in Party D.
1.3 | Equity Interest Purchase Price |
The purchase price of all equity interests held by Party C in Party D purchased by Party A by exercising the Equity Interest Purchase Option shall be RMB600,000; if Party A exercises the Equity Interest Purchase Option to purchase part of the equity interests held by Party C in Party D, the purchase price shall be calculated on a pro rata basis. If PRC law requires a minimum price higher than the aforementioned price when Party A exercises the Equity Interest Purchase Option, the minimum price regulated by PRC law shall be the purchase price (collectively, the Equity Interest Purchase Price).
1.4 | Transfer of Optioned Interests |
For each exercise of the Equity Interest Purchase Option by Party A:
1.4.1 | Party C shall cause Party D to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party Cs transfer of the Optioned Interests to Party A and/or the Designee(s); |
1.4.2 | Party C shall obtain written statements from the other shareholders of Party D giving consent to the transfer of the equity interests to Party A and/or the Designee(s) and waiving any right of first refusal related thereto; |
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1.4.3 | Party C shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests; |
1.4.4 | The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, security interests shall include securities, mortgages, third partys rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement, Party Cs Share Pledge Agreement and Party Cs Power of Attorney. Party Cs Share Pledge Agreement as used in this Agreement shall refer to the Amended and Restated Share Pledge Agreement executed by and among Party B, Party C and Party D on the date hereof and any modifications, amendments, and restatements thereto. Party Cs Power of Attorney as used in this Agreement shall refer to the Power of Attorney executed by Party C on the date hereof and any modifications, amendments, and restatements thereto. |
1.5 | Payment of the Equity Interest Purchase Price |
The Parties have agreed in the Loan Agreement that any proceeds obtained by Party C through the transfer of its equity interests in Party D shall be used for repayment of the loan provided by Party B in accordance with the Loan Agreement. Accordingly, if Party A designates Party B as the Designee, upon exercise of the Equity Interest Purchase Option, Party B may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party C to Party B, in which case Party A shall not be required to pay any additional purchase price to Party C, unless the Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with the applicable laws and regulations.
2. | C OVENANTS |
2.1 | Covenants regarding Party D |
Party C (as a shareholder of Party D) and Party D hereby covenant as follows:
2.1.1 | Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association or bylaws of Party D, increase or decrease its registered capital, or change its structure of registered capital in other manners; |
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2.1.2 | They shall maintain Party Ds corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs; |
2.1.3 | Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party D or legal or beneficial interest in the business or revenues of Party D, or allow the encumbrance thereon of any security interest; |
2.1.4 | Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except forpayables incurred in the ordinary course of business other than through loans; |
2.1.5 | They shall always operate all of Party Ds businesses within the ordinary course of business to maintain the asset value of Party D and refrain from any action/omission that may affect Party Ds operating status and asset value; |
2.1.6 | Without the prior written consent of Party A, they shall not cause Party D to execute any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB 500,000 shall be deemed a major contract); |
2.1.7 | Without the prior written consent of Party A, they shall not cause Party D to provide any person with any loan or credit; |
2.1.8 | They shall provide Party A with information on Party Ds business operations and financial condition at Party As request; |
2.1.9 | If requested by Party A, they shall procure and maintain, at the cost of Party D, insurance in respect of Party Ds assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses; |
2.1.10 | Without the prior written consent of Party A, they shall not cause or permit Party D to merge, consolidate with, acquire or invest in any person; |
2.1.11 | They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party Ds assets, business or revenue; |
2.1.12 | To maintain the ownership by Party D of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
2.1.13 | Without the prior written consent of Party A, they shall ensure that Party D shall not in any manner distribute dividends to its shareholders, provided that upon Party As written request, Party D shall immediately distribute all distributable profits to its shareholders; |
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2.1.14 | At the request of Party A, they shall appoint any persons designated by Party A as directors of Party D; |
2.1.15 | Without Party As prior written consent, they shall not engage in any business in competition with Party A or its affiliates; and |
2.1.16 | Unless otherwise required by PRC law, Party D shall not be dissolved or liquated without prior written consent by Party A. |
2.2 | Other Covenants |
Party C hereby covenants as follows:
2.2.1 | Without the prior written consent of Party A, Party C shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party D held by Party C, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party Cs Share Pledge Agreement; |
2.2.2 | Party C shall cause the shareholders meeting and/or the board of directors of Party D not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party D held by Party C, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party Cs Share Pledge Agreement and Party Cs Power of Attorney; |
2.2.3 | Party C shall cause the shareholders meeting or the board of directors of Party D not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A; |
2.2.4 | Party C shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party D held by Party C; |
2.2.5 | Party C shall cause the shareholders meeting or the board of directors of Party D to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A; |
2.2.6 | To the extent necessary to maintain Party Cs ownership in Party D, Party C shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
2.2.7 | Party C shall appoint any designee of Party A as director of Party D, at the request of Party A; |
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2.2.8 | Party C hereby waives its right of first refusal in regards to the transfer of equity interest by any other shareholder of Party D to Party A (if any), and gives consent to the execution by each other shareholder of Party D with Party A, Party B and Party D, as applicable, the exclusive option agreement, the share pledge agreement and the power of attorney similar to this Agreement, Party Cs Share Pledge Agreement, and Party Cs Power of Attorney, and undertakes not to take any actions in conflict with such documents executed by the other shareholders; |
2.2.9 | Party C shall promptly donate any profits, interests, dividends, or proceeds of liquidation to Party A or any other person designated by Party A to the extent permitted under the applicable PRC laws; and |
2.2.10 | Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party C, Party D, Party B and Party A, as applicable, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. To the extent that Party C has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party Cs Share Pledge Agreement or under Party Cs Power of Attorney, Party C shall not exercise such rights except in accordance with the written instructions of Party A. |
3. | R EPRESENTATIONS AND W ARRANTIES |
Party C and Party D hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:
3.1 | They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are parties concerning the Optioned Interests to be transferred thereunder (each, a Transfer Contract), and to perform their obligations under this Agreement and any Transfer Contracts. Party C and Party D agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party As exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof; |
3.2 | Party C and Party D have obtained any and all approvals and consents from the relevant government authorities and third parties (if required) for the execution, delivery, and performance of this Agreement; |
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3.3 | The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable PRC laws; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party D; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them; |
3.4 | Party C has a good and merchantable title to the equity interests in Party D he holds. Except for Party Cs Share Pledge Agreement, Party C has not placed any security interest on such equity interests; |
3.5 | Party D has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets; |
3.6 | Party D does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party As written consent has been obtained; |
3.7 | Party D has complied with all laws and regulations of China applicable to asset acquisitions; and |
3.8 | There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party D, assets of Party D or Party D. |
4. | E FFECTIVE D ATE AND T ERM |
This Agreement shall become effective upon execution by the Parties, and remain in effect until all equity interests held by Party C in Party D have been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement. Since the effective date of this Agreement, the Original Exclusive Option Agreement shall be terminated and shall be replaced and superseded by this Agreement.
5. | G OVERNING L AW AND R ESOLUTION OF D ISPUTES |
5.1 | Governing Law |
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of the PRC.
5.2 | Methods of Resolution of Disputes |
In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on all Parties.
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6. | T AXES AND F EES |
Each Party shall pay any and all transfer and registration taxes, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.
7. | N OTICES |
7.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
7.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
7.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
7.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena International, Inc. |
Address: | Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands |
Attn: | Han Shaoyun |
Phone: | 86-10 6213-6369 |
Facsimile: | 86-10 6211-0873 |
Party B: | Tarena Technologies Inc. |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing |
Attn: | Han Shaoyun |
Phone: | 86-10 6213-6369 |
Facsimile: | 86-10 6211-0873 |
Party C: | Li Jianguang |
Address: | 5 Jianguomennei Avenue, Dongcheng District, Beijing |
Tel: | 86-10 6526-2400 |
Party D: | Beijing Tarena Jinqiao Technology Co., Ltd. |
Address: | Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing |
Attn: | Han Shaoyun |
Phone: | 86-10 6213-5687 |
Facsimile: | 86-10 6211-0873 |
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7.3 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
8. | C ONFIDENTIALITY |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain the confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be featured in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
9. | F URTHER W ARRANTIES |
The Parties agree to promptly execute the documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and to take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.
10. | B REACH OF A GREEMENT |
10.1 | If Party C or Party D conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/or require Party C or Party D to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein; |
10.2 | Party C or Party D shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable laws. |
11. | M ISCELLANEOUS |
11.1 | Amendments, Changes and Supplements |
Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
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11.2 | Entire Agreement |
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement. This Agreement supersedes, in its entirety, the Original Exclusive Option Agreement relating to the matters set forth herein, which shall be terminated as of the date hereof.
11.3 | Headings |
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.
11.4 | Language |
This Agreement is written in both Chinese and English language in four copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
11.5 | Severability |
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
11.6 | Successors |
This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.
11.7 | Survival |
11.7.1 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. |
11.7.2 | The provisions of Sections 5, 7, 8 and this Section 11.7 shall survive the termination of this Agreement. |
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11.8 | Waivers |
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Exclusive Option Agreement as of the date first above written.
Party A: Tarena International, Inc. |
||
By: |
/s/ Han Shaoyun | |
Name: |
Han Shaoyun | |
Title: |
Director | |
Party B: Tarena Technologies Inc. |
||
By: |
/s/ Han Shaoyun | |
Name: |
Han Shaoyun | |
Title: |
Legal Representative | |
Party C: Li Jianguang |
||
By: |
/s/ Li Jianguang | |
Party D: Beijing Tarena Jinqiao Technology Co., Ltd. |
||
By: |
/s/ Han Shaoyun | |
Name: |
Han Shaoyun | |
Title: |
Legal Representative |
Signature Page to Amended and Restated Exclusive Option Agreement
Exhibit 10.11
Amended and Restated Loan Agreement
This Amended and Restated Loan Agreement (this Agreement) is made and entered into by and between the Parties below as of November 25, 2013 in Beijing, Peoples Republic of China (PRC or China):
(1) | Tarena Technologies Inc. (the Lender), a wholly-foreign-owned enterprise, organized and existing under the laws of China, with its address at Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing; |
(2) | Han Shaoyun (the Borrower), a citizen of China with Chinese Identification No.: ***. |
Each of the Lender and the Borrower shall be hereinafter referred to as a Party respectively, and as the Parties collectively.
Whereas:
1. | The Borrower holds 70% of equity interests in Beijing Tarena Jinqiao Technology Co., Ltd. (the Borrower Company). All of the equity interests now held and hereafter acquired by the Borrower in the Borrower Company shall be referred to as the Borrower Equity Interest. The Borrower Company is a limited company duly registered in Beijing, China with its registered capital of RMB 2,000,000; |
2. | The Lender confirms that it agrees to provide the Borrower with and the Borrower confirms that he has received a loan to be used for the purposes set forth under this agreement. |
3. | The Lender and the Borrower executed a Loan Agreement (the Original Loan Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Loan Agreement by executing this Agreement. |
After friendly consultation, the Parties agree as follows:
1. | Loan |
1.1 | In accordance with the terms and conditions of this Agreement, the Lender agrees to provide an interest-free loan in the amount of RMB1,400,000 (the Loan) to the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, which may be extended upon mutual written consent of the Parties. During the term of the Loan or the extended term of the Loan, the Borrower shall immediately repay the full amount of the Loan in the event that any one or more of the following circumstances occur: |
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1.1.1 | 30 days elapse after the Borrower receives a written notice from the Lender requesting repayment of the Loan; |
1.1.2 | The Borrowers death, lack or limitation of civil capacity; |
1.1.3 | The Borrower ceases (for any reason) to be an employee of the Lender, the Borrower Company or their affiliates; |
1.1.4 | The Borrower engages in criminal act or is involved in criminal activities; |
1.1.5 | According to the applicable laws of China, foreign investors are permitted to invest in the business that is currently conducted by the Borrower Company in China with a controlling stake and/or in the form of wholly-foreign-owned enterprises, the relevant competent authorities of China begin to approve such investments, and Tarena International, Inc., as the sole shareholder of Lender, exercises the exclusive option under the Exclusive Option Agreement described in this Agreement. |
1.2 | The Loan provided by the Lender under this Agreement shall inure to the Borrowers benefit only and not to the Borrowers successor(s) or assign(s). |
1.3 | The Borrower agrees to accept the aforementioned Loan provided by the Lender, and hereby agrees and warrants using the Loan to provide capital for the Borrower Company to develop the business of the Borrower Company. Without the Lenders prior written consent, the Borrower shall not use the Loan for any purpose other than as set forth herein. |
1.4 | The Lender and the Borrower hereby agree and acknowledge that the Borrowers method of repayment of the Loan set forth in Section 1.1 shall be at the sole discretion of the Lender, and may at the Lenders option take the form of the Borrowers transferring the Borrower Equity Interest in whole to Tarena International, Inc. or Tarena International, Inc.s designated persons (legal or natural persons) to the extent permitted under the applicable PRC laws pursuant to the Tarena International, Inc.s exercise of its right to acquire the Borrower Equity Interest under the Exclusive Option Agreement. |
1.5 | The Borrower also undertakes to execute an irrevocable Power of Attorney (the Power of Attorney), which authorizes a legal or natural person designated by the Lender to exercise all of the Borrowers rights as a shareholder of the Borrower Company. |
1.6 | The Parties agree hereof that the Loan shall be interest-free unless otherwise agreed in this Agreement. When the Borrower transfers the Borrower Equity Interest to the Tarena International, Inc. or Tarena International, Inc.s designated person(s), in the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by the Borrower to the Lender. |
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2. | Conditions Precedent |
The obligation of the Lender to provide the Loan to the Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by the Lender.
2.1 | The Borrower Company and the Lender or other person (legal or natural person) designated by the Lender have officially executed an Amended and Restated Exclusive Business Cooperation Agreement (the Exclusive Business Cooperation Agreement), under which the Lender or other person designated by the Lender, as an exclusive service provider, will provide the Borrower Company with business support service and business consulting service. |
2.2 | The Borrower, the Borrower Company and the Lender or other person (legal or natural person) designated by the Lender have executed an Amended and Restated Share Pledge Agreement (the Share Pledge Agreement), the contents of which have been confirmed, and according to the Share Pledge Agreement, the Borrower agrees to pledge the Borrower Equity Interest to the Lender or other person designated by the Lender. |
2.3 | The Borrower, the Lender, Tarena International, Inc. and the Borrower Company have officially executed an Amended and Restated Exclusive Option Agreement (the Exclusive Option Agreement), the contents of which have been confirmed, and under which the Borrower shall irrevocably grant Tarena International, Inc. an exclusive option to purchase all of the Borrower Equity Interest. |
2.4 | The Borrower has executed an irrevocable Power of Attorney (the Power of Attorney), which authorizes Lender or other person (legal or natural person) designated by Lender to exercise all of the Borrowers rights as a shareholder in the Borrower Company. |
2.5 | The aforementioned Share Pledge Agreement, Power of Attorney, Exclusive Option Agreement and Exclusive Business Cooperation Agreement have been entered into before or on the date of execution of this Agreement and shall have full legal validity without any default or encumbrance related to these agreements or contracts, and all the related filing procedures, approvals, authorization, registrations and government procedures have been completed (as applicable). |
2.6 | All the representations and warranties by the Borrower in Section 3.2 are true, complete, correct and not misleading. |
2.7 | The Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect the Borrowers performance of its obligations under this Agreement has occurred or is expected to occur. |
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3. | Representations and Warranties |
3.1 | Between the date of this Agreement and the date of termination of this Agreement, the Lender hereby makes the following representations and warranties to the Borrower: |
3.1.1 | The Lender is a corporation duly organized and legally existing in accordance with the laws of China; |
3.1.2 | The Lender has the legal capacity to execute and perform this Agreement. The execution and performance by the Lender of this Agreement is consistent with the Lenders scope of business and the provisions of the Lenders corporate bylaws and other organizational documents, and the Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and |
3.1.3 | This Agreement constitutes the Lenders legal, valid and binding obligations enforceable in accordance with its terms. |
3.2 | Between the date of this Agreement and the date of termination of this Agreement, the Borrower hereby makes the following representations and warranties: |
3.2.1 | The Borrower has the legal capacity to execute and perform this Agreement. The Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; |
3.2.2 | The Borrower has caused his spouse to agree never to claim any ownership rights in the Borrower Equity Interest, including, without limitation, claiming that the Borrower Equity Interest constitutes communal property of marriage; |
3.2.3 | This Agreement constitutes the Borrowers legal, valid and binding obligations enforceable in accordance with its terms; and |
3.2.4 | There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to the Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to the Borrower. |
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4. | Borrowers Covenants |
4.1 | As and when he becomes, as well as for so long as he remains a shareholder of the Borrower Company, the Borrower irrevocably covenants that during the term of this Agreement, the Borrower shall cause the Borrower Company: |
4.1.1 | to strictly abide by the provisions of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement; |
4.1.2 | at the request of the Lender (or a party designated by the Lender), to execute agreements/contracts on business cooperation with the Lender (or a party designated by the Lender), and to strictly abide by such agreements/contracts; |
4.1.3 | to provide the Lender with all of the information on the Borrower Companys business operations and financial situation at the Lenders request; |
4.1.4 | to immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Companys assets, business or income; |
4.1.5 | at the request of the Lender, to appoint any persons designated by Lender as directors of the Borrower Company. |
4.2 | The Borrower covenants that during the term of this Agreement, he shall: |
4.2.1 | endeavor to keep the Borrower Company to engage in its principal businesses specified in its business license; |
4.2.2 | abide by the provisions of this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement to which the Borrower is a party, perform his obligations under this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement; |
4.2.3 | not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Share Pledge Agreement; |
4.2.4 | cause any shareholders meeting and/or the board of directors of the Borrower Company to not approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest, except to the Lender or the Lenders designated person; |
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4.2.5 | cause any shareholders meeting and/or the board of directors of the Borrower Company not to approve the merger or consolidation of the Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of the Lender; |
4.2.6 | immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Equity Interest; |
4.2.7 | to the extent necessary to maintain his ownership of the Borrower Equity Interest, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
4.2.8 | without the prior written consent of the Lender, refrain from any action/omission that may have a material impact on the assets, business and liabilities of the Borrower Company; |
4.2.9 | appoint any designee of the Lender as director of the Borrower Company, at the request of the Lender; |
4.2.10 | to the extent permitted by the laws of China, at the request of the Lender at any time, promptly and unconditionally transfer all of the Borrower Equity Interest to Tarena International, Inc. or its designated representative(s) at any time, and cause the other shareholders of the Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section; |
4.2.11 | to the extent permitted by the laws of China, at the request of the Lender at any time, cause the other shareholders of the Borrower Company to promptly and unconditionally transfer all of their equity interests to Tarena International, Inc. or its designated representative(s) at any time, and the Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section; |
4.2.12 | without the prior written consent of the Lender, not to cause the Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner. |
5. | Liability for Default |
5.1 | If the Borrower commits any material breach of any term of this Agreement, the Lender shall have the right to terminate this Agreement and require the Borrower to pay for all damages; this Section 5.1 shall be without prejudice to any other rights of the Lender herein. |
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5.2 | The Borrower shall have no right to terminate this Agreement in any event unless otherwise required by the applicable laws. |
5.3 | In the event that the Borrower fails to perform the repayment obligations set forth in this Agreement, the Borrower shall pay an overdue interest of 0.01% per day for the outstanding payment, until the day the Borrower repays the full principal of the Loan, overdue interests and other payable amounts. |
6. | Notices |
6.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
6.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery. |
6.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of the transmission). |
6.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. | |||
Attn: | Han Shaoyun | |||
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |||
Phone: | 010 6213-6369 | |||
Facsimile: | 010 6211-0873 | |||
Party B: | Han Shaoyun | |||
Address: | Room 2008, Hall 1, 30 Heng Qi Tiao, Fengtai District, Beijing | |||
Phone: | 010 6211-5451 |
6.3 | Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof. |
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7. | Confidentiality |
The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.
8. | Governing Law and Resolution of Disputes |
8.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China. |
8.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
8.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
9. | Miscellaneous |
9.1 | This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement. Since the effective date of this Agreement, the Original Loan Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
9.2 | This Agreement is written in both Chinese and English language in two copies, with each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail. |
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9.3 | This Agreement may be amended or supplemented through written agreement by and between the Lender and the Borrower. Such written amendment agreement and/or supplementary agreement executed by and between the Lender and the Borrower are an integral part of this Agreement, and shall have the same legal validity as this Agreement. |
9.4 | In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by the relevant laws the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions. |
9.5 | The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement. |
9.6 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. The provisions of Sections 5, 7, 8, and this Section 9.6 shall survive the termination of this Agreement. |
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Loan Agreement as of the date first above written.
Lender: Tarena Technologies Inc. | ||
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Borrower: Han Shaoyun | ||
By: | /s/ Han Shaoyun |
Signature Page to Amended and Restated Loan Agreement
Exhibit 10.12
Amended and Restated Loan Agreement
This Amended and Restated Loan Agreement (this Agreement) is made and entered into by and between the Parties below as of November 25, 2013 in Beijing, Peoples Republic of China (PRC or China):
(1) | Tarena Technologies Inc. (the Lender), a wholly-foreign-owned enterprise, organized and existing under the laws of China, with its address at Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing; |
(2) | Li Jianguang (the Borrower), a citizen of China with Chinese Identification No.: ***. |
Each of the Lender and the Borrower shall be hereinafter referred to as a Party respectively, and as the Parties collectively.
Whereas:
1. | The Borrower holds 30% of equity interests in Beijing Tarena Jinqiao Technology Co., Ltd. (the Borrower Company). All of the equity interests now held and hereafter acquired by the Borrower in the Borrower Company shall be referred to as the Borrower Equity Interest. The Borrower Company is a limited company duly registered in Beijing, China with its registered capital of RMB 2,000,000; |
2. | The Lender confirms that it agrees to provide the Borrower with and the Borrower confirms that he has received a loan to be used for the purposes set forth under this agreement. |
3. | The Lender and the Borrower executed a Loan Agreement (the Original Loan Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Loan Agreement by executing this Agreement. |
After friendly consultation, the Parties agree as follows:
1. | Loan |
1.1 | In accordance with the terms and conditions of this Agreement, the Lender agrees to provide an interest-free loan in the amount of RMB600,000 (the Loan) to the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, which may be extended upon mutual written consent of the Parties. During the term of the Loan or the extended term of the Loan, the Borrower shall immediately repay the full amount of the Loan in the event that any one or more of the following circumstances occur: |
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1.1.1 | 30 days elapse after the Borrower receives a written notice from the Lender requesting repayment of the Loan; |
1.1.2 | The Borrowers death, lack or limitation of civil capacity; |
1.1.3 | The Borrower ceases (for any reason) to be an employee of the Lender, the Borrower Company or their affiliates; |
1.1.4 | The Borrower engages in criminal act or is involved in criminal activities; |
1.1.5 |
According to the applicable laws of China, foreign investors are permitted to invest in the business that is currently conducted by the Borrower Company in China with a controlling stake and/or in the form of
wholly-foreign-owned enterprises, the relevant competent authorities of China begin to approve such investments, and Tarena International, Inc., as the sole shareholder of Lender, exercises the exclusive option under the Exclusive Option Agreement described in this Agreement. |
1.2 | The Loan provided by the Lender under this Agreement shall inure to the Borrowers benefit only and not to the Borrowers successor(s) or assign(s). |
1.3 | The Borrower agrees to accept the aforementioned Loan provided by the Lender, and hereby agrees and warrants using the Loan to provide capital for the Borrower Company to develop the business of the Borrower Company. Without the Lenders prior written consent, the Borrower shall not use the Loan for any purpose other than as set forth herein. |
1.4 | The Lender and the Borrower hereby agree and acknowledge that the Borrowers method of repayment of the Loan set forth in Section 1.1 shall be at the sole discretion of the Lender, and may at the Lenders option take the form of the Borrowers transferring the Borrower Equity Interest in whole to Tarena International Inc. or Tarena International Inc.s designated persons (legal or natural persons) to the extent permitted under the applicable PRC laws pursuant to the Tarena International Inc.s exercise of its right to acquire the Borrower Equity Interest under the Exclusive Option Agreement. |
1.5 | The Borrower also undertakes to execute an irrevocable Power of Attorney (the Power of Attorney), which authorizes a legal or natural person designated by the Lender to exercise all of the Borrowers rights as a shareholder of the Borrower Company. |
1.6 | The Parties agree hereof that the Loan shall be interest-free unless otherwise agreed in this Agreement. When the Borrower transfers the Borrower Equity Interest to the Tarena International, Inc. or Tarena International, Inc.s designated person(s), in the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by the Borrower to the Lender. |
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2. | Conditions Precedent |
The obligation of the Lender to provide the Loan to the Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by the Lender.
2.1 | The Borrower Company and the Lender or other person (legal or natural person) designated by the Lender have officially executed an Amended and Restated Exclusive Business Cooperation Agreement (the Exclusive Business Cooperation Agreement), under which the Lender or other person designated by the Lender, as an exclusive service provider, will provide the Borrower Company with business support service and business consulting service. |
2.2 | The Borrower, the Borrower Company and the Lender or other person (legal or natural person) designated by the Lender have executed an Amended and Restated Share Pledge Agreement (the Share Pledge Agreement), the contents of which have been confirmed, and according to the Share Pledge Agreement, the Borrower agrees to pledge the Borrower Equity Interest to the Lender or other person designated by the Lender. |
2.3 | The Borrower, the Lender, Tarena International, Inc. and the Borrower Company have officially executed an Amended and Restated Exclusive Option Agreement (the Exclusive Option Agreement), the contents of which have been confirmed, and under which the Borrower shall irrevocably grant Tarena International, Inc. an exclusive option to purchase all of the Borrower Equity Interest. |
2.4 | The Borrower has executed an irrevocable Power of Attorney (the Power of Attorney), which authorizes Lender or other person (legal or natural person) designated by Lender to exercise all of the Borrowers rights as a shareholder in the Borrower Company. |
2.5 | The aforementioned Share Pledge Agreement, Power of Attorney, Exclusive Option Agreement and Exclusive Business Cooperation Agreement have been entered into before or on the date of execution of this Agreement and shall have full legal validity without any default or encumbrance related to these agreements or contracts, and all the related filing procedures, approvals, authorization, registrations and government procedures have been completed (as applicable). |
2.6 | All the representations and warranties by the Borrower in Section 3.2 are true, complete, correct and not misleading. |
2.7 | The Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect the Borrowers performance of its obligations under this Agreement has occurred or is expected to occur. |
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3. | Representations and Warranties |
3.1 | Between the date of this Agreement and the date of termination of this Agreement, the Lender hereby makes the following representations and warranties to the Borrower: |
3.1.1 | The Lender is a corporation duly organized and legally existing inaccordance with the laws of China; |
3.1.2 | The Lender has the legal capacity to execute and perform this Agreement. The execution and performance by the Lender of this Agreement is consistent with the Lenders scope of business and the provisions of the Lenders corporate bylaws and other organizational documents, and the Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and |
3.1.3 | This Agreement constitutes the Lenders legal, valid and binding obligations enforceable in accordance with its terms. |
3.2 | Between the date of this Agreement and the date of termination of this Agreement, the Borrower hereby makes the following representations and warranties: |
3.2.1 | The Borrower has the legal capacity to execute and perform this Agreement. The Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; |
3.2.2 | The Borrower has caused his spouse to agree never to claim any ownership rights in the Borrower Equity Interest, including, without limitation, claiming that the Borrower Equity Interest constitutes communal property of marriage; |
3.2.3 | This Agreement constitutes the Borrowers legal, valid and binding obligations enforceable in accordance with its terms; and |
3.2.4 | There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to the Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to the Borrower. |
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4. | Borrowers Covenants |
4.1 | As and when he becomes, as well as for so long as he remains a shareholder of the Borrower Company, the Borrower irrevocably covenants that during the term of this Agreement, the Borrower shall cause the Borrower Company: |
4.1.1 | to strictly abide by the provisions of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement; |
4.1.2 | at the request of the Lender (or a party designated by the Lender), to execute agreements/contracts on business cooperation with the Lender (or a party designated by the Lender), and to strictly abide by such agreements/contracts; |
4.1.3 | to provide the Lender with all of the information on the Borrower Companys business operations and financial situation at the Lenders request; |
4.1.4 | to immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Companys assets, business or income; |
4.1.5 | at the request of the Lender, to appoint any persons designated by Lender as directors of the Borrower Company. |
4.2 | The Borrower covenants that during the term of this Agreement, he shall: |
4.2.1 | endeavor to keep the Borrower Company to engage in its principal businesses specified in its business license; |
4.2.2 | abide by the provisions of this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement to which the Borrower is a party, perform his obligations under this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement; |
4.2.3 | not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Share Pledge Agreement; |
4.2.4 | cause any shareholders meeting and/or the board of directors of the Borrower Company to not approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest, except to the Lender or the Lenders designated person; |
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4.2.5 | cause any shareholders meeting and/or the board of directors of the Borrower Company not to approve the merger or consolidation of the Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of the Lender; |
4.2.6 | immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Equity Interest; |
4.2.7 | to the extent necessary to maintain his ownership of the Borrower Equity Interest, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
4.2.8 | without the prior written consent of the Lender, refrain from any action/omission that may have a material impact on the assets, business and liabilities of the Borrower Company; |
4.2.9 | appoint any designee of the Lender as director of the Borrower Company, at the request of the Lender; |
4.2.10 | to the extent permitted by the laws of China, at the request of the Lender at any time, promptly and unconditionally transfer all of the Borrower Equity Interest to Tarena International, Inc. or its designated representative(s) at any time, and cause the other shareholders of the Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section; |
4.2.11 | to the extent permitted by the laws of China, at the request of the Lender at any time, cause the other shareholders of the Borrower Company to promptly and unconditionally transfer all of their equity interests to Tarena International, Inc. or its designated representative(s) at any time, and the Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section; |
4.2.12 | without the prior written consent of the Lender, not to cause the Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner. |
5. | Liability for Default |
5.1 | If the Borrower commits any material breach of any term of this Agreement, the Lender shall have the right to terminate this Agreement and require the Borrower to pay for all damages; this Section 5.1 shall be without prejudice to any other rights of the Lender herein. |
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5.2 | The Borrower shall have no right to terminate this Agreement in any event unless otherwise required by the applicable laws. |
5.3 | In the event that the Borrower fails to perform the repayment obligations set forth in this Agreement, the Borrower shall pay an overdue interest of 0.01% per day for the outstanding payment, until the day the Borrower repays the full principal of the Loan, overdue interests and other payable amounts. |
6. | Notices |
6.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
6.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery. |
6.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of the transmission). |
6.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: |
Tarena Technologies Inc. | |
Attn: |
Han Shaoyun | |
Address: |
Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Phone: |
010 6213-6369 | |
Facsimile: |
010 6211-0873 | |
Party B: |
Li Jianguang | |
Address: |
5 Jianguomennei Avenue, Dongcheng District, Beijing | |
Phone: |
010 6526-2400 |
6.3 | Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof. |
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7. | Confidentiality |
The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.
8. | Governing Law and Resolution of Disputes |
8.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China. |
8.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
8.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
9. | Miscellaneous |
9.1 | This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement. Since the effective date of this Agreement, the Original Loan Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
9.2 | This Agreement is written in both Chinese and English language in two copies, with each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail. |
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9.3 | This Agreement may be amended or supplemented through written agreement by and between the Lender and the Borrower. Such written amendment agreement and/or supplementary agreement executed by and between the Lender and the Borrower are an integral part of this Agreement, and shall have the same legal validity as this Agreement. |
9.4 | In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by the relevant laws the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions. |
9.5 | The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement. |
9.6 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. The provisions of Sections 5, 7, 8, and this Section 9.6 shall survive the termination of this Agreement. |
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Loan Agreement as of the date first above written.
Lender: Tarena Technologies Inc. | ||
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Borrower: Li Jianguang | ||
By: | /s/ Li Jianguang |
Signature Page to Amended and Restated Loan Agreement
Exhibit 10.13
Amended and Restated Share Pledge Agreement
This Amended and Restated Share Pledge Agreement (this Agreement) has been executed by and among the following parties on November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC):
Party A: | Tarena Technologies Inc. (hereinafter Pledgee); | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Party B: | Han Shaoyun (hereinafter Pledgor) | |
ID No.: |
*** |
|
Party C: | Beijing Tarena Jinqiao Technology Co., Ltd. | |
Address: | Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing |
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1. | Pledgor is a Chinese citizen and holds 70% of the equity interest in Party C. Party C is a limited liability company registered in Beijing, China engaging in technology development, technology transfer, technology consulting, etc. Party C acknowledges the respective rights and obligations of Pledgor and Pledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge; |
2. | Pledgee is a wholly-foreign-owned enterprise registered in China. Pledgee and Party C, which is partially owned by Pledgor, have executed an Exclusive Business Cooperation Agreements (as defined below) in Beijing; Party C, Pledgee, Pledgor and Tarena International, Inc. have executed an Exclusive Option Agreements (as defined below); Pledgor has executed a Power of Attorney (as defined below) in favor of Tarena International, Inc.; and Pledgee and Pledgor have executed a Loan Agreement (as defined below); |
3. | To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest that Pledgor holds in Party C as security for Party Cs and Pledgors obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney. |
4. | Party A, Party B and Party C executed a Share Pledge Agreement on December 31, 2006 and an Amendment to Share Pledge Agreement on September 23, 2008 (collectively, the Original Share Pledge Agreement). The Parties intend to enter this Agreement to replace and supersede the Original Share Pledge Agreement by executing this Agreement. |
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To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon the following terms.
1. | Definitions |
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 | Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest. |
1.2 | Equity Interest: shall refer to 70% equity interests in Party C currently held by Pledgor, representing RMB1,400,000 in the registered capital of Party C, and all of the equity interest hereafter acquired by Pledgor in Party C. |
1.3 | Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement. |
1.4 | Transaction Documents: shall refer to the Amended and Restated Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee on November 25, 2013 (the Exclusive Business Cooperation Agreement); (ii) the Amended and Restated Exclusive Option Agreement executed by and among Tarena International, Inc., Party C, Pledgee and Pledgor on November 25, 2013 (the Exclusive Option Agreement); (iii) the Amended and Restated Loan Agreement executed by and between Pledgee and Pledgor on November 25, 2013 (the Loan Agreement); (iv) Power of Attorney executed on November 25, 2013 by Pledgor (the Power of Attorney) and any modification, amendment and restatement to the aforementioned documents. |
1.5 | Contract Obligations: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Power of Attorney, the Loan Agreement and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement and this Agreement. |
1.6 | Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee, incurred as a result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan and profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement, all expenses occurred in connection with enforcement by Pledgee of Pledgors and/or Party Cs Contract Obligations and etc. |
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1.7 | Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement. |
1.8 | Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. |
2. | The Pledge |
2.1 | Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured Indebtedness under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement. |
2.2 | During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividends distributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on Equity Interest after deduction of individual income tax paid by Pledgor shall be, as required by Pledgee, (1) deposited into an account designated and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
2.3 | Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by Pledgor as a result of Pledgors subscription of the increased registered capital of the Company shall also be deemed as Equity Interest. |
2.4 | In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party Cs dissolution or liquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
3. | Term of Pledge |
3.1 | The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the AIC). The Pledge shall be continuously valid until all payments due under the Exclusive Business Cooperation Agreement have been fulfilled by Party C. The parties agree that within 3 business days following the execution of this Agreement, Pledgor and Party C shall register the Pledge in the shareholders register of Party C, and within 10 business days after the competent AIC has formally begun accepting applications for the registration of equity interest pledge, Pledgor and Party C shall submit application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC within 20 business days after filing (or such other time period normally required by the relevant AIC). |
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3.2 | During the Term of Pledge, in the event Party C fails to perform the Contract Obligations or pay Secured Indebtedness, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement. |
4. | Custody of Records for Equity Interest subject to Pledge |
During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgees custody the capital contribution certificate for the Equity Interest and the shareholders register containing the Pledge within one week from the execution of this Agreement. Pledgee shall have custody of such items during the entire Term of Pledge set forth in this Agreement. |
5. | Representations and Warranties of Pledgor and Party C |
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that:
5.1 | Pledgor is the sole legal owner of the Equity Interest. |
5.2 | Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement. |
5.3 | Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest. |
5.4 | Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) for execution, delivery and performance of this Agreement. |
5.5 | The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party Cs articles of association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it is a party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approval granted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions. |
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6. | Covenants of Pledgor and Party C |
6.1 | During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee: |
6.1.1 | not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, without the prior written consent of Pledgee, except for the performance of the Transaction Documents; |
6.1.2 | Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within 5 days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgees reasonable request or upon consent of Pledgee; |
6.1.3 | Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgees rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement. |
6.1.4 | Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expiration of such term to maintain the validity of this Agreement. |
6.2 | Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings. |
6.3 | To protect or perfect the security interest granted by this Agreement for payment of the Service Fees under the Exclusive Business Cooperation Agreement, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee. |
6.4 | Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom. |
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7. | Event of Breach |
7.1 | The following circumstances shall be deemed Event of Default: |
7.1.1 | Pledgors any breach to any obligations under the Transaction Documents and/or this Agreement; |
7.1.2 | Party Cs any breach to any obligations under the Transaction Documents and/or this Agreement. |
7.2 | Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly. |
7.3 | Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgees satisfaction within twenty (20) days after the Pledgee and/or Party C delivers a notice to the Pledgor requesting rectification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing upon the occurrence of the Event of Default or at any time thereafter and demand that Pledgor immediately pay all outstanding payments due under the Exclusive Business Cooperation Agreement and all other payments due to Pledgee, and/or dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement. |
8. | Exercise of Pledge |
8.1 | Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge. |
8.2 | Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge concurrently with the issuance of the Notice of Default in accordance with Section 8.1 or at any time after the issuance of the Notice of Default. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest. |
8.3 | After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicable PRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. The Pledgee shall not be liable for any loss incurred by its duly exercise of such rights and powers. |
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8.4 | The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity Interest and to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other payment. After the payment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balance under applicable laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor shall unconditionally donate the aforementioned proceeds to Pledgee or any other person designated by Pledgee. |
8.5 | Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest under this Agreement, without exercising any other remedy measure first. |
8.6 | Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C shall not raise any objection to such exercise. |
8.7 | When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement. |
9. | Breach of Agreement |
9.1 | If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and/or require Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein; |
9.2 | Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws. |
10. | Assignment |
10.1 | Without Pledgees prior written consent, Pledgor and Party C shall not have the right to assign or delegate its rights and obligations under this Agreement. |
10.2 | This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns. |
10.3 | At any time, Pledgee may assign any and all of its rights and obligations under the Exclusive Business Cooperation Agreement to its designee(s) (natural/legal persons), in which case the designee shall have the rights and obligations of Pledgee under the Transaction Documents and this Agreement, as if it were the original party to the Transaction Documents and this Agreement. |
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10.4 | In the event of a change in Pledgee due to an assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC. |
10.5 | Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee. |
11. | Termination |
11.1 | Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall release the Pledge under this Agreement upon Pledgors request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge from the shareholders register of Party C and with relevant PRC local administration for industry and commerce. |
11.2 | The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement. |
12. | Handling Fees and Other Expenses |
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.
13. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
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14. | Governing Law and Resolution of Disputes |
14.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of the PRC. |
14.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
14.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
15. | Notices |
15.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
15.2 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
15.3 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
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15.4 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. | |||
Address: |
Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |||
Attn: |
Han Shaoyun | |||
Phone: |
86-10 6213-6369 | |||
Facsimile: |
86-10 6211-0873 | |||
Party B: |
Han Shaoyun | |||
Address: |
Room 2008, Hall 1, 30 Heng Qi Tiao, Fengtai District, Beijing | |||
Tel: |
86-10 6211-5451 | |||
Party C: |
Beijing Tarena Jinqiao Technology Co., Ltd. | |||
Address: |
Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing | |||
Attn: |
Han Shaoyun | |||
Phone: |
86-10 6213-5687 | |||
Facsimile: |
86-10 6211-0873 |
15.5 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
16. | Severability |
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
17. | Attachments |
The attachments set forth herein shall be an integral part of this Agreement.
18. | Effectiveness |
18.1 | This Agreement shall become effective upon execution by the Parties hereto. Since the effective date of this Agreement, the Original Share Pledge Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
18.2 | Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement. |
18.3 | This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail. |
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Share Pledge Agreement as of the date first above written.
Party A: |
Tarena Technologies Inc. | |
By: |
/s/ Han Shaoyun |
|
Name: |
Han Shaoyun | |
Title: |
Legal Representative | |
Party B: | Han Shaoyun | |
By: |
/s/ Han Shaoyun |
|
Party C: |
Beijing Tarena Jinqiao Technology Co., Ltd. | |
By: |
/s/ Han Shaoyun |
|
Name: |
Han Shaoyun | |
Title: |
Legal Representative |
Signature Page to Amended and Restated Share Pledge Agreement
Attachments:
1. | Shareholders register of Party C; |
2. | The Capital Contribution Certificate for the Formation of Party C; |
3. | Exclusive Business Cooperation Agreement. |
4. | Exclusive Option Agreement |
5. | Loan Agreement |
6. | Power of Attorney |
Exhibit 10.14
Amended and Restated Share Pledge Agreement
This Amended and Restated Share Pledge Agreement (this Agreement) has been executed by and among the following parties on November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC):
Party A: |
Tarena Technologies Inc. (hereinafter Pledgee); | |
Address: |
Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Party B: |
Li Jianguang (hereinafter Pledgor) | |
ID No.: |
*** |
|
Party C: |
Beijing Tarena Jinqiao Technology Co., Ltd. | |
Address: |
Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing |
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1. | Pledgor is a Chinese citizen and holds 30% of the equity interest in Party C. Party C is a limited liability company registered in Beijing, China engaging in technology development, technology transfer, technology consulting, etc. Party C acknowledges the respective rights and obligations of Pledgor and Pledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge; |
2. | Pledgee is a wholly-foreign-owned enterprise registered in China. Pledgee and Party C, which is partially owned by Pledgor, have executed an Exclusive Business Cooperation Agreements (as defined below) in Beijing; Party C, Pledgee, Pledgor and Tarena International, Inc. have executed an Exclusive Option Agreements (as defined below); Pledgor has executed a Power of Attorney (as defined below) in favor of Tarena International, Inc.; and Pledgee and Pledgor have executed a Loan Agreement (as defined below) ; |
3. | To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest that Pledgor holds in Party C as security for Party Cs and Pledgors obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney. |
4. | Party A, Party B and Party C executed a Share Pledge Agreement on December 31, 2006 and an Amendment to Share Pledge Agreement on September 23, 2008 (collectively, the Original Share Pledge Agreement). The Parties intend to enter this Agreement to replace and supersede the Original Share Pledge Agreement by executing this Agreement. |
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To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon the following terms.
1. | Definitions |
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 | Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest. |
1.2 | Equity Interest: shall refer to 30% equity interests in Party C currently held by Pledgor, representing RMB600,000 in the registered capital of Party C, and all of the equity interest hereafter acquired by Pledgor in Party C. |
1.3 | Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement. |
1.4 | Transaction Documents: shall refer to the Amended and Restated Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee on November 25, 2013 (the Exclusive Business Cooperation Agreement); (ii) the Amended and Restated Exclusive Option Agreement executed by and among Tarena International, Inc., Party C, Pledgee and Pledgor on November 25, 2013 (the Exclusive Option Agreement); (iii) the Amended and Restated Loan Agreement executed by and between Pledgee and Pledgor on November 25, 2013 (the Loan Agreement); (iv) Power of Attorney executed on November 25, 2013 by Pledgor (the Power of Attorney) and any modification, amendment and restatement to the aforementioned documents. |
1.5 | Contract Obligations: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Power of Attorney, the Loan Agreement and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement and this Agreement. |
1.6 | Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee, incurred as a result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan and profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement, all expenses occurred in connection with enforcement by Pledgee of Pledgors and/or Party Cs Contract Obligations and etc. |
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1.7 | Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement. |
1.8 | Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. |
2. | The Pledge |
2.1 | Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured Indebtedness under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement. |
2.2 | During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividends distributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on Equity Interest after deduction of individual income tax paid by Pledgor shall be, as required by Pledgee, (1) deposited into an account designated and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
2.3 | Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by Pledgor as a result of Pledgors subscription of the increased registered capital of the Company shall also be deemed as Equity Interest. |
2.4 | In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party Cs dissolution or liquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
3. | Term of Pledge |
3.1 | The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the AIC). The Pledge shall be continuously valid until all payments due under the Exclusive Business Cooperation Agreement have been fulfilled by Party C. The parties agree that within 3 business days following the execution of this Agreement, Pledgor and Party C shall register the Pledge in the shareholders register of Party C, and within 10 business days after the competent AIC has formally begun accepting applications for the registration of equity interest pledge, Pledgor and Party C shall submit application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC within 20 business days after filing (or such other time period normally required by the relevant AIC). |
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3.2 | During the Term of Pledge, in the event Party C fails to perform the Contract Obligations or pay Secured Indebtedness, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement. |
4. | Custody of Records for Equity Interest subject to Pledge |
During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgees custody the capital contribution certificate for the Equity Interest and the shareholders register containing the Pledge within one week from the execution of this Agreement. Pledgee shall have custody of such items during the entire Term of Pledge set forth in this Agreement.
5. | Representations and Warranties of Pledgor and Party C |
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that:
5.1 | Pledgor is the sole legal owner of the Equity Interest. |
5.2 | Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement. |
5.3 | Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest. |
5.4 | Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) for execution, delivery and performance of this Agreement. |
5.5 | The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party Cs articles of association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it is a party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approval granted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions. |
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6. | Covenants of Pledgor and Party C |
6.1 | During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee: |
6.1.1 | not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, without the prior written consent of Pledgee, except for the performance of the Transaction Documents; |
6.1.2 | Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within 5 days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgees reasonable request or upon consent of Pledgee; |
6.1.3 | Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgees rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement. |
6.1.4 | Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expiration of such term to maintain the validity of this Agreement. |
6.2 | Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings. |
6.3 | To protect or perfect the security interest granted by this Agreement for payment of the Service Fees under the Exclusive Business Cooperation Agreement, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee. |
6.4 | Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom. |
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7. | Event of Breach |
7.1 | The following circumstances shall be deemed Event of Default: |
7.1.1 | Pledgors any breach to any obligations under the Transaction Documents and/or this Agreement; |
7.1.2 | Party Cs any breach to any obligations under the Transaction Documents and/or this Agreement. |
7.2 | Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly. |
7.3 | Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgees satisfaction within twenty (20) days after the Pledgee and/or Party C delivers a notice to the Pledgor requesting rectification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing upon the occurrence of the Event of Default or at any time thereafter and demand that Pledgor immediately pay all outstanding payments due under the Exclusive Business Cooperation Agreement and all other payments due to Pledgee, and/or dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement. |
8. | Exercise of Pledge |
8.1 | Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge. |
8.2 | Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge concurrently with the issuance of the Notice of Default in accordance with Section 8.1 or at any time after the issuance of the Notice of Default. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest. |
8.3 | After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicable PRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. The Pledgee shall not be liable for any loss incurred by its duly exercise of such rights and powers. |
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8.4 | The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity Interest and to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other payment. After the payment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balance under applicable laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor shall unconditionally donate the aforementioned proceeds to Pledgee or any other person designated by Pledgee. |
8.5 | Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest under this Agreement, without exercising any other remedy measure first. |
8.6 | Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C shall not raise any objection to such exercise. |
8.7 | When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement. |
9. | Breach of Agreement |
9.1 | If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and/or require Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein; |
9.2 | Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws. |
10. | Assignment |
10.1 | Without Pledgees prior written consent, Pledgor and Party C shall not have the right to assign or delegate its rights and obligations under this Agreement. |
10.2 | This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns. |
10.3 | At any time, Pledgee may assign any and all of its rights and obligations under the Exclusive Business Cooperation Agreement to its designee(s) (natural/legal persons), in which case the designee shall have the rights and obligations of Pledgee under the Transaction Documents and this Agreement, as if it were the original party to the Transaction Documents and this Agreement. |
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10.4 | In the event of a change in Pledgee due to an assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC. |
10.5 | Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee. |
11. | Termination |
11.1 | Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall release the Pledge under this Agreement upon Pledgors request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge from the shareholders register of Party C and with relevant PRC local administration for industry and commerce. |
11.2 | The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement. |
12. | Handling Fees and Other Expenses |
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.
13. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
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14. | Governing Law and Resolution of Disputes |
14.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of the PRC. |
14.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
14.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
15. | Notices |
15.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
15.2 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
15.3 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
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15.4 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. | |||
Address: |
Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |||
Attn: |
Han Shaoyun | |||
Phone: |
86-10 6213-6369 | |||
Facsimile: |
86-10 6211-0873 | |||
Party B: |
Li Jianguang | |||
Address: |
5 Jianguomennei Avenue, Dongcheng District, Beijing | |||
Tel: |
86-10 6526-2400 | |||
Party C: |
Beijing Tarena Jinqiao Technology Co., Ltd. | |||
Address: |
Room 4-3, No.4 Workshop, 10 Zhenggezhuang Village, Beiqijia Town, Changping District, Beijing | |||
Attn: |
Han Shaoyun | |||
Phone: |
86-10 6213-5687 | |||
Facsimile: |
86-10 6211-0873 |
15.5 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
16. | Severability |
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
17. | Attachments |
The attachments set forth herein shall be an integral part of this Agreement.
18. | Effectiveness |
18.1 | This Agreement shall become effective upon execution by the Parties hereto. Since the effective date of this Agreement, the Original Share Pledge Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
18.2 | Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement. |
18.3 | This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail. |
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Share Pledge Agreement as of the date first above written.
Party A: |
Tarena Technologies Inc. | |
By: |
/s/ Han Shaoyun |
|
Name: |
Han Shaoyun | |
Title: |
Legal Representative | |
Party B: |
Li Jianguang | |
By: |
/s/ Li Jianguang |
|
Party C: |
Beijing Tarena Jinqiao Technology Co., Ltd. | |
By: |
/s/ Han Shaoyun |
|
Name: |
Han Shaoyun | |
Title: |
Legal Representative |
Signature Page to Amended and Restated Share Pledge Agreement
Attachments:
1. | Shareholders register of Party C; |
2. | The Capital Contribution Certificate for the Formation of Party C; |
3. | Exclusive Business Cooperation Agreement. |
4. | Exclusive Option Agreement |
5. | Loan Agreement |
6. | Power of Attorney |
Exhibit 10.15
Spousal Consent
The undersigned, Sun Ying (ID card No. ***), is the lawful spouse of Han Shaoyun (ID card No. ***). I hereby unconditionally and irrevocably agree to the execution of the following documents (hereinafter referred to as the Transaction Documents ) by Han Shaoyun on November 25, 2013, and the disposal of the equity interests of Beijing Tarena Jinqiao Technology Co., Ltd. ( Beijing Tarena ) held by Han Shaoyun and registered in his name according to the following documents:
(1) | Amended and Restated Equity Interest Pledge Agreement entered into between Han Shaoyun, Tarena Technologies Inc. (hereinafter referred to as the WFOE ) and Beijing Tarena; |
(2) | Amended and Restated Exclusive Option Agreement entered into between Han Shaoyun, the WFOE, Beijing Tarena and Tarena International, Inc.; |
(3) | Power of Attorney executed by Han Shaoyun; |
(4) | Amended and Restated Loan Agreement entered into between Han Shaoyun and WFOE. |
I hereby undertake not to make any assertions in connection with the equity interests of Beijing Tarena which are held by Han Shaoyun. I hereby further confirm that Han Shaoyun can perform the Transaction Documents and further amend or terminate the Transaction Documents absent authorization or consent from me.
I hereby undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the Transaction Documents (as amended form time to time).
I hereby agree and undertake that if I obtain any equity interests of Beijing Tarena which are held by Han Shaoyun for any reasons, I shall be bound by the Transaction Documents and the Amended and Restated Exclusive Business Cooperation Agreement entered into between the WFOE and Beijing Tarena as of November 25, 2013 ( Exclusive Business Cooperation Agreement ) (as amended from time to time) and comply with the obligations thereunder as a shareholder of Beijing Tarena. For this purpose, upon the WFOEs request, I shall sign a series of written documents in substantially the same format and content as the Transaction Documents and Exclusive Business Cooperation Agreement (as amended from time to time).
_/s/ Sun Ying
Date: November 25, 2013
Exhibit 10.16
Spousal Consent
The undersigned, Li Nan (ID card No. ***), is the lawful spouse of Li Jianguang (ID card No. ***). I hereby unconditionally and irrevocably agree to the execution of the following documents (hereinafter referred to as the Transaction Documents ) by Li Jianguang on November 25, 2013, and the disposal of the equity interests of Beijing Tarena Jinqiao Technology Co., Ltd. ( Beijing Tarena ) held by Li Jianguang and registered in his name according to the following documents:
(1) | Amended and Restated Equity Interest Pledge Agreement entered into between Li Jianguang, Tarena Technologies Inc. (hereinafter referred to as the WFOE ) and Beijing Tarena; |
(2) | Amended and Restated Exclusive Option Agreement entered into between Li Jianguang, the WFOE, Beijing Tarena and Tarena International, Inc.; |
(3) | Power of Attorney executed by Li Jianguang; |
(4) | Amended and Restated Loan Agreement entered into between Li Jianguang and WFOE. |
I hereby undertake not to make any assertions in connection with the equity interests of Beijing Tarena which are held by Li Jianguang. I hereby further confirm that Li Jianguang can perform the Transaction Documents and further amend or terminate the Transaction Documents absent authorization or consent from me.
I hereby undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the Transaction Documents (as amended form time to time).
I hereby agree and undertake that if I obtain any equity interests of Beijing Tarena which are held by Li Jianguang for any reasons, I shall be bound by the Transaction Documents and the Amended and Restated Exclusive Business Cooperation Agreement entered into between the WFOE and Beijing Tarena as of November 25, 2013 ( Exclusive Business Cooperation Agreement ) (as amended from time to time) and comply with the obligations thereunder as a shareholder of Beijing Tarena. For this purpose, upon the WFOEs request, I shall sign a series of written documents in substantially the same format and content as the Transaction Documents and Exclusive Business Cooperation Agreement (as amended from time to time).
/s/ Li Nan
Date: November 25, 2013
Exhibit 10.17
Amended and Restated Exclusive Business Cooperation Agreement
This Amended and Restated Exclusive Business Cooperation Agreement (this Agreement) is made and entered into by and between the following Parties on November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC).
Party A: |
Tarena Technologies Inc. | |
Address: |
Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Party B: |
Shanghai Tarena Software Technology Co., Ltd. | |
Address: |
31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai |
Each of Party A and Party B shall be hereinafter referred to as a Party respectively, and as the Parties collectively.
Whereas,
1. | Party A is a wholly-foreign-owned enterprise established in China and has the necessary resources to provide technical and consulting services; |
2. | Party B is a company with exclusively domestic capital registered in China, engaging in technology development, technology transfer, technology consulting and other services; |
3. | Party A is willing to provide Party B with exclusive technical, consulting and other services in relation to technology development, technology transfer, technology consulting and other services during the term of this Agreement utilizing its own advantages in human resources, technology and information, and Party B is willing to accept such services provided by Party A or Party As designee(s), each on the terms set forth herein. |
4. | Party A and Party B executed an Exclusive Business Cooperation Agreement (the Original Exclusive Business Cooperation Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Exclusive Business Cooperation Agreement by executing this Agreement. |
Now, therefore, through mutual discussion, the Parties have reached the following agreements:
1. | Se rvices Provided by Party A |
1.1 | Party B hereby appoints Party A as Party Bs exclusive services provider to provide Party B with complete technical support, business support, and related consulting services (the Services) during the term of this Agreement, in accordance with the terms and conditions of this Agreement, which Services may include all services within the business scope of Party B as may be determined from time to time by Party A, including but not limited to: |
(1) | Licensing Party B to use any software legally owned by Party A; |
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(2) | Development, maintenance and update of software involved in Party Bs business; |
(3) | Design, installation, daily management, maintenance and updating of network system, hardware and database design; |
(4) | Technical support and training for employees of Party B; |
(5) | Assisting Party B in consultancy, collection and research of technology and market information (excluding market research business that wholly foreign-owned enterprises are prohibited from conducting under PRC law); |
(6) | Providing business management consultation for Party B; |
(7) | Providing marketing and promotion services for Party B; |
(8) | Providing customer order management and customer services for Party B; |
(9) | Leasing of equipments or properties; and |
(10) | Other services requested by Party B from time to time to the extent permitted under PRC law. |
1.2 | Party B agrees to accept all the Services provided by Party A. Party B further agrees that unless with Party As prior written consent, during the term of this Agreement, Party B shall not accept any consultations and/or services similar to the Services provided by any third party and shall not establish similar corporation relationship with any third party regarding the matters contemplated by this Agreement. Party A may appoint other parties, who may enter into certain agreements described in Section 1.3 with Party B, to provide Party B with the Services under this Agreement. |
1.3 | Forms of Service |
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1.3.1 | Party A and Party B agree that during the term of this Agreement, both Parties, directly or through their respective affiliates, may enter into further technical service agreements or consulting service agreements, which shall provide the specific contents, manner, personnel, and fees for the specific technical services and consulting services. |
1.3.2 | To fulfill this Agreement, Party A and Party B agree that during the term of this Agreement, where necessary, Party B may enter into equipment or property leases with Party A or any other party designated by Party A which shall permit Party B to use Party As relevant equipment or property based on the needs of the business of Party B. |
1.3.3 | Party B hereby grants to Party A an irrevocable and exclusive option to purchase from Party B, at Party As sole discretion, any or all of the assets of Party B, to the extent permitted under the PRC laws, at the lowest purchase price permitted by the PRC laws. In this case, the Parties shall enter into a separate assets transfer agreement, specifying the terms and conditions of the transfer of the assets. |
2. | The Calculation and Payment of the Service Fees |
2.1 | The fees payable by Party B to Party A during the term of this Agreement shall be calculated as follows: |
2.1.1 | As requested by Party A, Party B shall pay service fee to Party A in each month. The service fee for each month shall consist of management fee and fee for services provided, which shall be determined by the Parties through negotiation after considering: |
(1) | Complexity and difficulty of the services provided by Party A; |
(2) | Title of and time consumed by employees of Party A providing the services; |
(3) | Contents and value of the services provided by Party A; |
(4) | Market price of the same type of services; |
(5) | Operation conditions of the Party B. |
2.1.2 | On the premise of complying with the PRC law, Party A agrees that, during the term of this agreement, it is entitled to and responsible for all economic benefits and risks derived by Party B. If any operating loss or critical operation adversity occurs in Party B, Party A shall provide financial support to Party B, and only Party A can decide whether Party B should continue its operation and Party B shall unconditionally accept and execute the decision made by Party A as aforesaid. |
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2.1.3 | If Party A transfers technology to Party B or develops software or other technology as entrusted by Party B or leases equipments or properties to Party B, the technology transfer price, development fees or rent shall be determined by the Parties based on the actual situations. |
3. | Intellectual Property Rights and Confidentiality Clauses |
3.1 | Party A shall have exclusive and proprietary ownership, rights and interests in any and all intellectual properties arising out of or created during the performance of this Agreement, including but not limited to copyrights, patents, patent applications, software, technical secrets, trade secrets and others. Party B shall execute all appropriate documents, take all appropriate actions, submit all filings and/or applications, render all appropriate assistance and otherwise conduct whatever is necessary as deemed by Party A at its sole discretion for the purposes of vesting any ownership, right or interest of any such intellectual property rights in Party A, and/or perfecting the protections for any such intellectual property rights in Party A. |
3.2 | The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason. |
3.3 | The Parties agree that this Section shall survive changes to, and rescission or termination of, this Agreement. |
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4. | Representations and Warranties |
4.1 | Party A hereby represents and warrants as follows: |
4.1.1 | Party A is a wholly-foreign-owned enterprise legally established and validly existing in accordance with the laws of China; Party A or the service providers designated by Party A will obtain all government permits and licenses for providing the service under this Agreement before providing such services. |
4.1.2 | Its execution and performance of this Agreement is within its corporate capacity and the scope of its business operations; It has taken necessary corporate actions and given appropriate authorization and has obtained the consent and approval from third parties and government agencies, and will not violate any restrictions in law or otherwise binding or having an impact on it. |
4.1.3 | This Agreement constitutes its legal, valid and binding obligations, enforceable in accordance with its terms. |
4.2 | Party B hereby represents and warrants as follows: |
4.2.1 | Party B is a company legally established and validly existing in accordance with the laws of China and has obtained and will maintain all permits and licenses for engaging in the principal business in a timely manner; |
4.2.2 | Its execution and performance of this Agreement is within its corporate capacity and the scope of its business operations; It has taken necessary corporate actions and given appropriate authorization and has obtained the consent and approval from third parties and government agencies, and will not violate any restrictions in law or otherwise binding or having an impact on it. |
4.2.3 | This Agreement constitutes its legal, valid and binding obligations, and shall be enforceable against it. |
5. | Effectiveness and Term |
5.1 | Unless otherwise terminated in accordance with the provisions of this Agreement or as determined by Party A in writing, this Agreement shall remain in full force and effect. Since the effective date of this Agreement, the Original Exclusive Business Cooperation Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
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5.2 | During the term of this Agreement, in the event the operation term of either Party expires, such Party shall immediately extend its operation term in a timely manner so that this Agreement could remain in full force and effect. In case the application of such Party for the extension is not approved by the governmental authorities, this Agreement shall terminate upon expiration of the operation term of such Party. |
5.3 | The rights and obligations of the Parties under Sections 3, 6, 7 and this Section 5.3 shall survive the termination of this Agreement. |
6. | Governing Law and Resolution of Disputes |
6.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China. |
6.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
6.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
7. | Breach of Agreement and Indemnification |
7.1 | If Party B commits any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/or require Party B to pay for all damages; this Section 7.1 shall not be prejudiced to any other rights of Party A herein. |
7.2 | Unless otherwise required by applicable laws, Party B shall not have any right to terminate this Agreement in any event. |
7.3 | Party B shall indemnify and hold harmless Party A from any losses, injuries, obligations or expenses caused by any lawsuit, claims or other demands against Party A arising from or caused by the services provided by Party A to Party B pursuant this Agreement, except where such losses, injuries, obligations or expenses arise from the gross negligence or willful misconduct of Party A. |
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8. | Force Majeure |
8.1 | In the case of any force majeure events (Force Majeure) such as earthquake, typhoon, flood, fire, flu, war, strikes or any other events that cannot be predicted and are unpreventable and unavoidable by the affected Party, which directly or indirectly causes the failure of either Party to perform or completely perform this Agreement, then the Party affected by such Force Majeure shall give the other Party written notices without any delay, and shall provide details of such event within 15 days after sending out such notice, explaining the reasons for such failure of, partial or delay of performance. |
8.2 | If such Party claiming Force Majeure fails to notify the other Party and furnish it with proof pursuant to the above provision, such Party shall not be excused from the non-performance of its obligations hereunder. The Party so affected by the event of Force Majeure shall use reasonable efforts to minimize the consequences of such Force Majeure and to promptly resume performance hereunder whenever the causes of such excuse are cured. Should the Party so affected by the event of Force Majeure fail to resume performance hereunder when the causes of such excuse are cured, such Party shall be liable to the other Party. |
8.3 | In the event of Force Majeure, the Parties shall immediately consult with each other to find an equitable solution and shall use all reasonable endeavors to minimize the consequences of such Force Majeure. |
9. | Notices |
9.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
9.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
9.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
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9.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. | |||
Address: |
Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |||
Attn: |
Han Shaoyun | |||
Phone: |
86-10 6213-6369 | |||
Facsimile: |
86-10 6211-0873 | |||
Party B: |
Shanghai Tarena Software Technology Co., Ltd. | |||
Address: |
31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai | |||
Attn: |
Han Shaoyun | |||
Phone: |
86-10 6213-5687 | |||
Facsimile: |
86-10 6211-0873 |
9.3 | Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof. |
10. | Assignment |
10.1 | Without Party As prior written consent, Party B shall not assign its rights and obligations under this Agreement to any third party. |
10.2 | Party B agrees that Party A may assign its obligations and rights under this Agreement to any third party upon a prior written notice to Party B but without the consent of Party B. |
11. | Severability |
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any aspect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
12. | Amendments and Supplements |
Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
13. | Language and Counterparts |
This Agreement is written in both Chinese and English language in two copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Exclusive Business Cooperation Agreement as of the date first above written.
Party A: Tarena Technologies Inc. |
||
By: |
/s/ Han Shaoyun |
|
Name: |
Han Shaoyun | |
Title: |
Legal Representative |
Party B: Shanghai Tarena Software Technology Co., Ltd.
By: |
/s/ Han Shaoyun |
|
Name: |
Han Shaoyun | |
Title: |
Legal Representative |
Signature Page to Amended and Restated Exclusive Business Cooperation Agreement
Exhibit 10.18
Power of Attorney
This Power of Attorney (this Power of Attorney) shall supersede and replace the power of attorney I executed on December 31, 2006 (the Original Power of Attorney) upon the effective date stipulated in this Power of Attorney.
I, Han Shaoyun, a Chinese citizen with Chinese Identification Card No.: ***, and a holder of 49% of the entire registered capital in Shanghai Tarena Software Technology Co., Ltd. (Shanghai Tarena) as of the date when the Power of Attorney is executed, hereby irrevocably authorize Tarena Technologies Inc. (the Designee) to exercise the following rights relating to all equity interests held by me now and in the future in Shanghai Tarena (My Shareholding) during the term of this Power of Attorney:
The Designee is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attending shareholders meetings of Shanghai Tarena; 2) exercising all the shareholders rights and shareholders voting rights I am entitled to under the laws of China and Shanghai Tarenas Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the directors, supervisors, the chief executive officer and other senior management members of Shanghai Tarena.
Without limiting the generality of the powers granted hereunder, the Designee shall have the power and authority to, on behalf of myself, execute all the documents I shall sign as stipulated in the Amended and Restated Exclusive Option Agreement entered into by and among me, the Designee, Shanghai Tarena and Tarena International Inc. on November 25, 2013 and the Amended and Restated Equity Pledge Agreement entered into by and among me, Shanghai Tarena and the Designee on November 25, 2013 (including any modification, amendment and restatement thereto, collectively the Transaction Documents), and perform the terms of the Transaction Documents.
All the actions associated with My Shareholding conducted by the Designee shall be deemed as my own actions, and all the documents related to My Shareholding executed by the Designee shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the Designee.
The Designee is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent. If required by PRC laws, the Designee shall designate a PRC citizen to exercise the aforementioned rights.
During the period that I am a shareholder of Shanghai Tarena, this Power of Attorney shall be irrevocable and continuously effective and valid from the date of execution of this Power of Attorney.
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During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the Designee through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is written in Chinese and English. The Chinese version and English version shall have equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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Han Shaoyun | ||
By: |
/s/ Han Shaoyun |
Accepted by
Tarena Technologies Inc.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Acknowledged by:
Shanghai Tarena Software Technology Co., Ltd.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Exhibit 10.19
Power of Attorney
This Power of Attorney (this Power of Attorney) shall supersede and replace the power of attorney I executed on December 31, 2006 (the Original Power of Attorney) upon the effective date stipulated in this Power of Attorney.
I, Li Jianguang, a Chinese citizen with Chinese Identification Card No.: ***, and a holder of 51% of the entire registered capital in Shanghai Tarena Software Technology Co., Ltd. (Shanghai Tarena) as of the date when the Power of Attorney is executed, hereby irrevocably authorize Tarena Technologies Inc. (the Designee) to exercise the following rights relating to all equity interests held by me now and in the future in Shanghai Tarena (My Shareholding) during the term of this Power of Attorney:
The Designee is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attending shareholders meetings of Shanghai Tarena; 2) exercising all the shareholders rights and shareholders voting rights I am entitled to under the laws of China and Shanghai Tarenas Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the directors, supervisors, the chief executive officer and other senior management members of Shanghai Tarena.
Without limiting the generality of the powers granted hereunder, the Designee shall have the power and authority to, on behalf of myself, execute all the documents I shall sign as stipulated in the Amended and Restated Exclusive Option Agreement entered into by and among me, the Designee, Shanghai Tarena and Tarena International, Inc. on November 25, 2013 and the Amended and Restated Equity Pledge Agreement entered into by and among me, Shanghai Tarena and the Designee on November 25, 2013 (including any modification, amendment and restatement thereto, collectively the Transaction Documents), and perform the terms of the Transaction Documents.
All the actions associated with My Shareholding conducted by the Designee shall be deemed as my own actions, and all the documents related to My Shareholding executed by the Designee shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the Designee.
The Designee is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent. If required by PRC laws, the Designee shall designate a PRC citizen to exercise the aforementioned rights.
During the period that I am a shareholder of Shanghai Tarena, this Power of Attorney shall be irrevocable and continuously effective and valid from the date of execution of this Power of Attorney.
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During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the Designee through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is written in Chinese and English. The Chinese version and English version shall have equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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Li Jianguang | ||
By: |
/s/ Li Jianguang |
Accepted by
Tarena Technologies Inc.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Acknowledged by:
Shanghai Tarena Software Technology Co., Ltd.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Exhibit 10.20
Amended and Restated Exclusive Option Agreement
This Amended and Restated Exclusive Option Agreement (this Agreement) is executed by and among the Parties below as of November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC):
Party A: | Tarena International, Inc. | |
Address: | Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands | |
Party B: | Tarena Technologies Inc. | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Party C: | Han Shaoyun | |
ID No.: |
*** |
|
Party D: | Shanghai Tarena Software Technology Co., Ltd. | |
Address: | 31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai |
In this Agreement, each of Party A, Party B, Party C and Party D shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1. | Party A is a company established in Cayman Islands and holds 100% of the equity interests of Party B. |
2. | Party C is a shareholder of Party D and as of the date hereof holds 49% of the equity interests of Party D, representing RMB490,000 in the registered capital of Party D. |
3. | Party B and Party C executed an Amended and Restated Loan Agreement on November 25, 2013 (the Loan Agreement). |
4. | Party B, Party C and Party D executed an Exclusive Option Agreement (the Original Exclusive Option Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Exclusive Option Agreement by executing this Agreement. |
Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:
1. | Sale and Purchase of Equity Interest |
1.1 | Option Granted |
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In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party C, Party C hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a Designee) to purchase, the equity interests in Party D then held by Party C once or at multiple times at any time in part or in whole at Party As sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the Equity Interest Purchase Option). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party C. Party D hereby agrees to the grant by Party C of the Equity Interest Purchase Option to Party A. The term person as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
1.2 | Steps for Exercise of Equity Interest Purchase Option |
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party C (the Equity Interest Purchase Option Notice), specifying: (a) Party As decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party C (the Optioned Interests); and (c) the date for purchasing the Optioned Interests. Party A and/or the Designee(s) shall obtain all necessary government licenses and permits and take all necessary actions to purchase the equity interests in Party D.
1.3 | Equity Interest Purchase Price |
The purchase price of all equity interests held by Party C in Party D purchased by Party A by exercising the Equity Interest Purchase Option shall be RMB490,000; if Party A exercises the Equity Interest Purchase Option to purchase part of the equity interests held by Party C in Party D, the purchase price shall be calculated on a pro rata basis. If PRC law requires a minimum price higher than the aforementioned price when Party A exercises the Equity Interest Purchase Option, the minimum price regulated by PRC law shall be the purchase price (collectively, the Equity Interest Purchase Price).
1.4 | Transfer of Optioned Interests |
For each exercise of the Equity Interest Purchase Option by Party A:
1.4.1 | Party C shall cause Party D to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party Cs transfer of the Optioned Interests to Party A and/or the Designee(s); |
1.4.2 | Party C shall obtain written statements from the other shareholders of Party D giving consent to the transfer of the equity interests to Party A and/or the Designee(s) and waiving any right of first refusal related thereto; |
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1.4.3 | Party C shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests; |
1.4.4 | The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, security interests shall include securities, mortgages, third partys rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement, Party Cs Share Pledge Agreement and Party Cs Power of Attorney. Party Cs Share Pledge Agreement as used in this Agreement shall refer to the Amended and Restated Share Pledge Agreement executed by and among Party B, Party C and Party D on the date hereof and any modifications, amendments, and restatements thereto. Party Cs Power of Attorney as used in this Agreement shall refer to the Power of Attorney executed by Party C on the date hereof and any modifications, amendments, and restatements thereto. |
1.5 | Payment of the Equity Interest Purchase Price |
The Parties have agreed in the Loan Agreement that any proceeds obtained by Party C through the transfer of its equity interests in Party D shall be used for repayment of the loan provided by Party B in accordance with the Loan Agreement. Accordingly, if Party A designates Party B as the Designee, upon exercise of the Equity Interest Purchase Option, Party B may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party C to Party B, in which case Party A shall not be required to pay any additional purchase price to Party C, unless the Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with the applicable laws and regulations.
2. | Covenants |
2.1 | Covenants regarding Party D |
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Party C (as a shareholder of Party D) and Party D hereby covenant as follows:
2.1.1 | Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association or bylaws of Party D, increase or decrease its registered capital, or change its structure of registered capital in other manners; |
2.1.2 | They shall maintain Party Ds corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs; |
2.1.3 | Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party D or legal or beneficial interest in the business or revenues of Party D, or allow the encumbrance thereon of any security interest; |
2.1.4 | Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except forpayables incurred in the ordinary course of business other than through loans; |
2.1.5 | They shall always operate all of Party Ds businesses within the ordinary course of business to maintain the asset value of Party D and refrain from any action/omission that may affect Party Ds operating status and asset value; |
2.1.6 | Without the prior written consent of Party A, they shall not cause Party D to execute any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB 500,000 shall be deemed a major contract); |
2.1.7 | Without the prior written consent of Party A, they shall not cause Party D to provide any person with any loan or credit; |
2.1.8 | They shall provide Party A with information on Party Ds business operations and financial condition at Party As request; |
2.1.9 | If requested by Party A, they shall procure and maintain, at the cost of Party D, insurance in respect of Party Ds assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses; |
2.1.10 | Without the prior written consent of Party A, they shall not cause or permit Party D to merge, consolidate with, acquire or invest in any person; |
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2.1.11 | They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party Ds assets, business or revenue; |
2.1.12 | To maintain the ownership by Party D of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
2.1.13 | Without the prior written consent of Party A, they shall ensure that Party D shall not in any manner distribute dividends to its shareholders, provided that upon Party As written request, Party D shall immediately distribute all distributable profits to its shareholders; |
2.1.14 | At the request of Party A, they shall appoint any persons designated by Party A as directors of Party D; |
2.1.15 | Without Party As prior written consent, they shall not engage in any business in competition with Party A or its affiliates; and |
2.1.16 | Unless otherwise required by PRC law, Party D shall not be dissolved or liquated without prior written consent by Party A. |
2.2 | Other Covenants |
Party C hereby covenants as follows:
2.2.1 | Without the prior written consent of Party A, Party C shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party D held by Party C, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party Cs Share Pledge Agreement; |
2.2.2 | Party C shall cause the shareholders meeting and/or the board of directors of Party D not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party D held by Party C, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party Cs Share Pledge Agreement and Party Cs Power of Attorney; |
2.2.3 | Party C shall cause the shareholders meeting or the board of directors of Party D not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A; |
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2.2.4 | Party C shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party D held by Party C; |
2.2.5 | Party C shall cause the shareholders meeting or the board of directors of Party D to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A; |
2.2.6 | To the extent necessary to maintain Party Cs ownership in Party D, Party C shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
2.2.7 | Party C shall appoint any designee of Party A as director of Party D, at the request of Party A; |
2.2.8 | Party C hereby waives its right of first refusal in regards to the transfer of equity interest by any other shareholder of Party D to Party A (if any), and gives consent to the execution by each other shareholder of Party D with Party A, Party B and Party D, as applicable, the exclusive option agreement, the share pledge agreement and the power of attorney similar to this Agreement, Party Cs Share Pledge Agreement, and Party Cs Power of Attorney, and undertakes not to take any actions in conflict with such documents executed by the other shareholders; |
2.2.9 | Party C shall promptly donate any profits, interests, dividends, or proceeds of liquidation to Party A or any other person designated by Party A to the extent permitted under the applicable PRC laws; and |
2.2.10 | Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party C, Party D, Party B and Party A, as applicable, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. To the extent that Party C has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party Cs Share Pledge Agreement or under Party Cs Power of Attorney, Party C shall not exercise such rights except in accordance with the written instructions of Party A. |
3. | Representations and Warranties |
Party C and Party D hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:
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3.1 | They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are parties concerning the Optioned Interests to be transferred thereunder (each, a Transfer Contract), and to perform their obligations under this Agreement and any Transfer Contracts. Party C and Party D agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party As exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof; |
3.2 | Party C and Party D have obtained any and all approvals and consents from the relevant government authorities and third parties (if required) for the execution, delivery, and performance of this Agreement; |
3.3 | The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable PRC laws; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party D; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them; |
3.4 | Party C has a good and merchantable title to the equity interests in Party D he holds. Except for Party Cs Share Pledge Agreement, Party C has not placed any security interest on such equity interests; |
3.5 | Party D has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets; |
3.6 | Party D does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party As written consent has been obtained; |
3.7 | Party D has complied with all laws and regulations of China applicable to asset acquisitions; and |
3.8 | There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party D, assets of Party D or Party D. |
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4. | Effective Date and Term |
This Agreement shall become effective upon execution by the Parties, and remain in effect until all equity interests held by Party C in Party D have been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement. Since the effective date of this Agreement, the Original Exclusive Option Agreement shall be terminated and shall be replaced and superseded by this Agreement.
5. | Governing Law and Resolution of Disputes |
5.1 | Governing Law |
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of the PRC.
5.2 | Methods of Resolution of Disputes |
In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on all Parties.
6. | Taxes and Fees |
Each Party shall pay any and all transfer and registration taxes, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.
7. | Notices |
7.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
7.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
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7.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
7.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena International, Inc. | |
Address: | Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-6369 | |
Facsimile: | 86-10 6211-0873 | |
Party B: | Tarena Technologies Inc. | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-6369 | |
Facsimile: | 86-10 6211-0873 | |
Party C: | Han Shaoyun | |
Address: | Room 2008, Hall 1, 30 Heng Qi Tiao, Fengtai District, Beijing | |
Tel: | 86-10 6211-5451 | |
Party D: | Shanghai Tarena Software Technology Co., Ltd. | |
Address: | 31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-5687 | |
Facsimile: | 86-10 6211-0873 |
7.3 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
8. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain the confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be featured in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
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9. | Further Warranties |
The Parties agree to promptly execute the documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and to take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.
10. | Breach of Agreement |
10.1 | If Party C or Party D conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/or require Party C or Party D to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein; |
10.2 | Party C or Party D shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable laws. |
11. | Miscellaneous |
11.1 | Amendments, Changes and Supplements |
Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
11.2 | Entire Agreement |
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement. This Agreement supersedes, in its entirety, the Original Exclusive Option Agreement relating to the matters set forth herein, which shall be terminated as of the date hereof.
11.3 | Headings |
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.
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11.4 | Language |
This Agreement is written in both Chinese and English language in four copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
11.5 | Severability |
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
11.6 | Successors |
This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.
11.7 | Survival |
11.7.1 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. |
11.7.2 | The provisions of Sections 5, 7, 8 and this Section 11.7 shall survive the termination of this Agreement. |
11.8 | Waivers |
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Exclusive Option Agreement as of the date first above written.
Party A: Tarena International, Inc.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Director |
Party B: Tarena Technologies Inc.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Party C: Han Shaoyun
By: |
/s/ Han Shaoyun |
Party D: Shanghai Tarena Software Technology Co., Ltd.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Signature Page to Amended and Restated Exclusive Option Agreement
Exhibit 10.21
Amended and Restated Exclusive Option Agreement
This Amended and Restated Exclusive Option Agreement (this Agreement) is executed by and among the Parties below as of November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC):
Party A : | Tarena International, Inc. | |
Address: | Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands | |
Party B: | Tarena Technologies Inc. | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Party C: | Li Jianguang | |
ID No.: |
*** |
|
Party D: | Shanghai Tarena Software Technology Co., Ltd. | |
Address: | 31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai |
In this Agreement, each of Party A, Party B, Party C and Party D shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1. | Party A is a company established in Cayman Islands and holds 100% of the equity interests of Party B. |
2. | Party C is a shareholder of Party D and as of the date hereof holds 51% of the equity interests of Party D, representing RMB510,000 in the registered capital of Party D. |
3. | Party B and Party C executed an Amended and Restated Loan Agreement on November 25, 2013 (the Loan Agreement). |
4. | Party B, Party C and Party D executed an Exclusive Option Agreement (the Original Exclusive Option Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Exclusive Option Agreement by executing this Agreement. |
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Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:
1. | Sale and Purchase of Equity Interest |
1.1 | Option Granted |
In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party C, Party C hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a Designee) to purchase, the equity interests in Party D then held by Party C once or at multiple times at any time in part or in whole at Party As sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the Equity Interest Purchase Option). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party C. Party D hereby agrees to the grant by Party C of the Equity Interest Purchase Option to Party A. The term person as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
1.2 | Steps for Exercise of Equity Interest Purchase Option |
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party C (the Equity Interest Purchase Option Notice), specifying: (a) Party As decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party C (the Optioned Interests); and (c) the date for purchasing the Optioned Interests. Party A and/or the Designee(s) shall obtain all necessary government licenses and permits and take all necessary actions to purchase the equity interests in Party D.
1.3 | Equity Interest Purchase Price |
The purchase price of all equity interests held by Party C in Party D purchased by Party A by exercising the Equity Interest Purchase Option shall be RMB510,000; if Party A exercises the Equity Interest Purchase Option to purchase part of the equity interests held by Party C in Party D, the purchase price shall be calculated on a pro rata basis. If PRC law requires a minimum price higher than the aforementioned price when Party A exercises the Equity Interest Purchase Option, the minimum price regulated by PRC law shall be the purchase price (collectively, the Equity Interest Purchase Price).
1.4 | Transfer of Optioned Interests |
For each exercise of the Equity Interest Purchase Option by Party A:
1.4.1 | Party C shall cause Party D to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party Cs transfer of the Optioned Interests to Party A and/or the Designee(s); |
1.4.2 | Party C shall obtain written statements from the other shareholders of Party D giving consent to the transfer of the equity interests to Party A and/or the Designee(s) and waiving any right of first refusal related thereto; |
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1.4.3 | Party C shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests; |
1.4.4 | The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, security interests shall include securities, mortgages, third partys rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement, Party Cs Share Pledge Agreement and Party Cs Power of Attorney. Party Cs Share Pledge Agreement as used in this Agreement shall refer to the Amended and Restated Share Pledge Agreement executed by and among Party B, Party C and Party D on the date hereof and any modifications, amendments, and restatements thereto. Party Cs Power of Attorney as used in this Agreement shall refer to the Power of Attorney executed by Party C on the date hereof and any modifications, amendments, and restatements thereto. |
1.5 | Payment of the Equity Interest Purchase Price |
The Parties have agreed in the Loan Agreement that any proceeds obtained by Party C through the transfer of its equity interests in Party D shall be used for repayment of the loan provided by Party B in accordance with the Loan Agreement. Accordingly, if Party A designates Party B as the Designee, upon exercise of the Equity Interest Purchase Option, Party B may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party C to Party B, in which case Party A shall not be required to pay any additional purchase price to Party C, unless the Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with the applicable laws and regulations.
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2. | Covenants |
2.1 | Covenants regarding Party D |
Party C (as a shareholder of Party D) and Party D hereby covenant as follows:
2.1.1 | Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association or bylaws of Party D, increase or decrease its registered capital, or change its structure of registered capital in other manners; |
2.1.2 | They shall maintain Party Ds corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs; |
2.1.3 | Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party D or legal or beneficial interest in the business or revenues of Party D, or allow the encumbrance thereon of any security interest; |
2.1.4 | Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except forpayables incurred in the ordinary course of business other than through loans; |
2.1.5 | They shall always operate all of Party Ds businesses within the ordinary course of business to maintain the asset value of Party D and refrain from any action/omission that may affect Party Ds operating status and asset value; |
2.1.6 | Without the prior written consent of Party A, they shall not cause Party D to execute any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB 500,000 shall be deemed a major contract); |
2.1.7 | Without the prior written consent of Party A, they shall not cause Party D to provide any person with any loan or credit; |
2.1.8 | They shall provide Party A with information on Party Ds business operations and financial condition at Party As request; |
2.1.9 | If requested by Party A, they shall procure and maintain, at the cost of Party D, insurance in respect of Party Ds assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses; |
2.1.10 | Without the prior written consent of Party A, they shall not cause or permit Party D to merge, consolidate with, acquire or invest in any person; |
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2.1.11 | They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party Ds assets, business or revenue; |
2.1.12 | To maintain the ownership by Party D of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
2.1.13 | Without the prior written consent of Party A, they shall ensure that Party D shall not in any manner distribute dividends to its shareholders, provided that upon Party As written request, Party D shall immediately distribute all distributable profits to its shareholders; |
2.1.14 | At the request of Party A, they shall appoint any persons designated by Party A as directors of Party D; |
2.1.15 | Without Party As prior written consent, they shall not engage in any business in competition with Party A or its affiliates; and |
2.1.16 | Unless otherwise required by PRC law, Party D shall not be dissolved or liquated without prior written consent by Party A. |
2.2 | Other Covenants |
Party C hereby covenants as follows:
2.2.1 | Without the prior written consent of Party A, Party C shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party D held by Party C, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party Cs Share Pledge Agreement; |
2.2.2 | Party C shall cause the shareholders meeting and/or the board of directors of Party D not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party D held by Party C, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party Cs Share Pledge Agreement and Party Cs Power of Attorney; |
2.2.3 | Party C shall cause the shareholders meeting or the board of directors of Party D not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A; |
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2.2.4 | Party C shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party D held by Party C; |
2.2.5 | Party C shall cause the shareholders meeting or the board of directors of Party D to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A; |
2.2.6 | To the extent necessary to maintain Party Cs ownership in Party D, Party C shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
2.2.7 | Party C shall appoint any designee of Party A as director of Party D, at the request of Party A; |
2.2.8 | Party C hereby waives its right of first refusal in regards to the transfer of equity interest by any other shareholder of Party D to Party A (if any), and gives consent to the execution by each other shareholder of Party D with Party A, Party B and Party D, as applicable, the exclusive option agreement, the share pledge agreement and the power of attorney similar to this Agreement, Party Cs Share Pledge Agreement, and Party Cs Power of Attorney, and undertakes not to take any actions in conflict with such documents executed by the other shareholders; |
2.2.9 | Party C shall promptly donate any profits, interests, dividends, or proceeds of liquidation to Party A or any other person designated by Party A to the extent permitted under the applicable PRC laws; and |
2.2.10 | Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party C, Party D, Party B and Party A, as applicable, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. To the extent that Party C has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party Cs Share Pledge Agreement or under Party Cs Power of Attorney, Party C shall not exercise such rights except in accordance with the written instructions of Party A. |
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3. | Representations and Warranties |
Party C and Party D hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:
3.1 | They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are parties concerning the Optioned Interests to be transferred thereunder (each, a Transfer Contract), and to perform their obligations under this Agreement and any Transfer Contracts. Party C and Party D agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party As exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof; |
3.2 | Party C and Party D have obtained any and all approvals and consents from the relevant government authorities and third parties (if required) for the execution, delivery, and performance of this Agreement; |
3.3 | The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable PRC laws; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party D; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them; |
3.4 | Party C has a good and merchantable title to the equity interests in Party D he holds. Except for Party Cs Share Pledge Agreement, Party C has not placed any security interest on such equity interests; |
3.5 | Party D has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets; |
3.6 | Party D does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party As written consent has been obtained; |
3.7 | Party D has complied with all laws and regulations of China applicable to asset acquisitions; and |
3.8 | There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party D, assets of Party D or Party D. |
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4. | Effective Date and Term |
This Agreement shall become effective upon execution by the Parties, and remain in effect until all equity interests held by Party C in Party D have been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement. Since the effective date of this Agreement, the Original Exclusive Option Agreement shall be terminated and shall be replaced and superseded by this Agreement.
5. | Governing Law and Resolution of Disputes |
5.1 | Governing Law |
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of the PRC.
5.2 | Methods of Resolution of Disputes |
In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on all Parties.
6. | Taxes and Fees |
Each Party shall pay any and all transfer and registration taxes, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.
7. | Notices |
7.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
7.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
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7.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
7.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena International Inc. | |
Address: | Fourth Floor, One Capital Place, P.O. Box 847GT, Grand Cayman, Cayman Islands | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-6369 | |
Facsimile: | 86-10 6211-0873 | |
Party B: | Tarena Technologies Inc. | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-6369 | |
Facsimile: | 86-10 6211-0873 | |
Party C: | Li Jianguang | |
Address: | 5 Jianguomennei Avenue, Dongcheng District, Beijing | |
Tel: | 86-10 6526-2400 | |
Party D: | Shanghai Tarena Software Technology Co., Ltd. | |
Address: | 31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-5687 | |
Facsimile: | 86-10 6211-0873 |
7.3 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
8. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain the confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be featured in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
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9. | Further Warranties |
The Parties agree to promptly execute the documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and to take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.
10. | Breach of Agreement |
10.1 | If Party C or Party D conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/or require Party C or Party D to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein; |
10.2 | Party C or Party D shall not have any right to terminate this Agreement in any event unless otherwise required by the applicable laws. |
11. | Miscellaneous |
11.1 | Amendments, Changes and Supplements |
Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
11.2 | Entire Agreement |
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement. This Agreement supersedes, in its entirety, the Original Exclusive Option Agreement relating to the matters set forth herein, which shall be terminated as of the date hereof.
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11.3 | Headings |
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.
11.4 | Language |
This Agreement is written in both Chinese and English language in four copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
11.5 | Severability |
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
11.6 | Successors |
This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.
11.7 | Survival |
11.7.1 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. |
11.7.2 | The provisions of Sections 5, 7, 8 and this Section 11.7 shall survive the termination of this Agreement. |
11.8 | Waivers |
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Exclusive Option Agreement as of the date first above written.
Party A: Tarena International Inc.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Director |
Party B: Tarena Technologies Inc.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Party C: Li Jianguang
By: |
/s/ Li Jianguang |
Party D: Shanghai Tarena Software Technology Co., Ltd.
By: |
/s/ Han Shaoyun |
|
Name: | Han Shaoyun | |
Title: | Legal Representative |
Signature Page to Amended and Restated Exclusive Option Agreement
Exhibit 10.22
Amended and Restated Loan Agreement
This Amended and Restated Loan Agreement (this Agreement) is made and entered into by and between the Parties below as of November 25, 2013 in Beijing, Peoples Republic of China (PRC or China):
(1) | Tarena Technologies Inc. (the Lender), a wholly-foreign-owned enterprise, organized and existing under the laws of China, with its address at Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing; |
(2) | Han Shaoyun (the Borrower), a citizen of China with Chinese Identification No.: ***. |
Each of the Lender and the Borrower shall be hereinafter referred to as a Party respectively, and as the Parties collectively.
Whereas:
1. | The Borrower holds 49% of equity interests in Shanghai Tarena Software Technology Co., Ltd. (the Borrower Company). All of the equity interests now held and hereafter acquired by the Borrower in the Borrower Company shall be referred to as the Borrower Equity Interest. The Borrower Company is a limited company duly registered in Shanghai, China with its registered capital of RMB 1,000,000; |
2. | The Lender confirms that it agrees to provide the Borrower with and the Borrower confirms that he has received a loan to be used for the purposes set forth under this agreement. |
3. | The Lender and the Borrower executed a Loan Agreement (the Original Loan Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Loan Agreement by executing this Agreement. |
After friendly consultation, the Parties agree as follows:
1. | Loan |
1.1 | In accordance with the terms and conditions of this Agreement, the Lender agrees to provide an interest-free loan in the amount of RMB490,000 (the Loan) to the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, which may be extended upon mutual written consent of the Parties. During the term of the Loan or the extended term of the Loan, the Borrower shall immediately repay the full amount of the Loan in the event that any one or more of the following circumstances occur: |
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1.1.1 | 30 days elapse after the Borrower receives a written notice from the Lender requesting repayment of the Loan; |
1.1.2 | The Borrowers death, lack or limitation of civil capacity; |
1.1.3 | The Borrower ceases (for any reason) to be an employee of the Lender, the Borrower Company or their affiliates; |
1.1.4 | The Borrower engages in criminal act or is involved in criminal activities; |
1.1.5 | According to the applicable laws of China, foreign investors are permitted to invest in the business that is currently conducted by the Borrower Company in China with a controlling stake and/or in the form of wholly-foreign-owned enterprises, the relevant competent authorities of China begin to approve such investments, and Tarena International, Inc., as the sole shareholder of Lender, exercises the exclusive option under the Exclusive Option Agreement described in this Agreement. |
1.2 | The Loan provided by the Lender under this Agreement shall inure to the Borrowers benefit only and not to the Borrowers successor(s) or assign(s). |
1.3 | The Borrower agrees to accept the aforementioned Loan provided by the Lender, and hereby agrees and warrants using the Loan to provide capital for the Borrower Company to develop the business of the Borrower Company. Without the Lenders prior written consent, the Borrower shall not use the Loan for any purpose other than as set forth herein. |
1.4 | The Lender and the Borrower hereby agree and acknowledge that the Borrowers method of repayment of the Loan set forth in Section 1.1 shall be at the sole discretion of the Lender, and may at the Lenders option take the form of the Borrowers transferring the Borrower Equity Interest in whole to Tarena International, Inc. or Tarena International Inc.s designated persons (legal or natural persons) to the extent permitted under the applicable PRC laws pursuant to the Tarena International Inc.s exercise of its right to acquire the Borrower Equity Interest under the Exclusive Option Agreement. |
1.5 | The Borrower also undertakes to execute an irrevocable Power of Attorney (the Power of Attorney), which authorizes a legal or natural person designated by the Lender to exercise all of the Borrowers rights as a shareholder of the Borrower Company. |
1.6 | The Parties agree hereof that the Loan shall be interest-free unless otherwise agreed in this Agreement. When the Borrower transfers the Borrower Equity Interest to the Tarena International, Inc. or Tarena International, Inc.s designated person(s), in the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by the Borrower to the Lender. |
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2. | Conditions Precedent |
The obligation of the Lender to provide the Loan to the Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by the Lender.
2.1 | The Borrower Company and the Lender or other person (legal or natural person) designated by the Lender have officially executed an Amended and Restated Exclusive Business Cooperation Agreement (the Exclusive Business Cooperation Agreement), under which the Lender or other person designated by the Lender, as an exclusive service provider, will provide the Borrower Company with business support service and business consulting service. |
2.2 | The Borrower, the Borrower Company and the Lender or other person (legal or natural person) designated by the Lender have executed an Amended and Restated Share Pledge Agreement (the Share Pledge Agreement), the contents of which have been confirmed, and according to the Share Pledge Agreement, the Borrower agrees to pledge the Borrower Equity Interest to the Lender or other person designated by the Lender. |
2.3 | The Borrower, the Lender, Tarena International, Inc. and the Borrower Company have officially executed an Amended and Restated Exclusive Option Agreement (the Exclusive Option Agreement), the contents of which have been confirmed, and under which the Borrower shall irrevocably grant Tarena International, Inc. an exclusive option to purchase all of the Borrower Equity Interest. |
2.4 | The Borrower has executed an irrevocable Power of Attorney (the Power of Attorney), which authorizes Lender or other person (legal or natural person) designated by Lender to exercise all of the Borrowers rights as a shareholder in the Borrower Company. |
2.5 | The aforementioned Share Pledge Agreement, Power of Attorney, Exclusive Option Agreement and Exclusive Business Cooperation Agreement have been entered into before or on the date of execution of this Agreement and shall have full legal validity without any default or encumbrance related to these agreements or contracts, and all the related filing procedures, approvals, authorization, registrations and government procedures have been completed (as applicable). |
2.6 | All the representations and warranties by the Borrower in Section 3.2 are true, complete, correct and not misleading. |
2.7 | The Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect the Borrowers performance of its obligations under this Agreement has occurred or is expected to occur. |
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3. | Representations and Warranties |
3.1 | Between the date of this Agreement and the date of termination of this Agreement, the Lender hereby makes the following representations and warranties to the Borrower: |
3.1.1 | The Lender is a corporation duly organized and legally existing in accordance with the laws of China; |
3.1.2 | The Lender has the legal capacity to execute and perform this Agreement. The execution and performance by the Lender of this Agreement is consistent with the Lenders scope of business and the provisions of the Lenders corporate bylaws and other organizational documents, and the Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and |
3.1.3 | This Agreement constitutes the Lenders legal, valid and binding obligations enforceable in accordance with its terms. |
3.2 | Between the date of this Agreement and the date of termination of this Agreement, the Borrower hereby makes the following representations and warranties: |
3.2.1 | The Borrower has the legal capacity to execute and perform this Agreement. The Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; |
3.2.2 | The Borrower has caused his spouse to agree never to claim any ownership rights in the Borrower Equity Interest, including, without limitation, claiming that the Borrower Equity Interest constitutes communal property of marriage; |
3.2.3 | This Agreement constitutes the Borrowers legal, valid and binding obligations enforceable in accordance with its terms; and |
3.2.4 | There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to the Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to the Borrower. |
4. | Borrowers Covenants |
4.1 | As and when he becomes, as well as for so long as he remains a shareholder of the Borrower Company, the Borrower irrevocably covenants that during the term of this Agreement, the Borrower shall cause the Borrower Company: |
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4.1.1 | to strictly abide by the provisions of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement; |
4.1.2 | at the request of the Lender (or a party designated by the Lender), to execute agreements/contracts on business cooperation with the Lender (or a party designated by the Lender), and to strictly abide by such agreements/contracts; |
4.1.3 | to provide the Lender with all of the information on the Borrower Companys business operations and financial situation at the Lenders request; |
4.1.4 | to immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Companys assets, business or income; |
4.1.5 | at the request of the Lender, to appoint any persons designated by Lender as directors of the Borrower Company. |
4.2 | The Borrower covenants that during the term of this Agreement, he shall: |
4.2.1 | endeavor to keep the Borrower Company to engage in its principal businesses specified in its business license; |
4.2.2 | abide by the provisions of this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement to which the Borrower is a party, perform his obligations under this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement; |
4.2.3 | not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Share Pledge Agreement; |
4.2.4 | cause any shareholders meeting and/or the board of directors of the Borrower Company to not approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest, except to the Lender or the Lenders designated person; |
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4.2.5 | cause any shareholders meeting and/or the board of directors of the Borrower Company not to approve the merger or consolidation of the Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of the Lender; |
4.2.6 | immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Equity Interest; |
4.2.7 | to the extent necessary to maintain his ownership of the Borrower Equity Interest, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
4.2.8 | without the prior written consent of the Lender, refrain from any action/omission that may have a material impact on the assets, business and liabilities of the Borrower Company; |
4.2.9 | appoint any designee of the Lender as director of the Borrower Company, at the request of the Lender; |
4.2.10 | to the extent permitted by the laws of China, at the request of the Lender at any time, promptly and unconditionally transfer all of the Borrower Equity Interest to Tarena International, Inc. or its designated representative(s) at any time, and cause the other shareholders of the Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section; |
4.2.11 | to the extent permitted by the laws of China, at the request of the Lender at any time, cause the other shareholders of the Borrower Company to promptly and unconditionally transfer all of their equity interests to Tarena International, Inc. or its designated representative(s) at any time, and the Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section; |
4.2.12 | without the prior written consent of the Lender, not to cause the Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner. |
5. | Liability for Default |
5.1 | If the Borrower commits any material breach of any term of this Agreement, the Lender shall have the right to terminate this Agreement and require the Borrower to pay for all damages; this Section 5.1 shall be without prejudice to any other rights of the Lender herein. |
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5.2 | The Borrower shall have no right to terminate this Agreement in any event unless otherwise required by the applicable laws. |
5.3 | In the event that the Borrower fails to perform the repayment obligations set forth in this Agreement, the Borrower shall pay an overdue interest of 0.01% per day for the outstanding payment, until the day the Borrower repays the full principal of the Loan, overdue interests and other payable amounts. |
6. | Notices |
6.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
6.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery. |
6.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of the transmission). |
6.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. |
Attn: | Han Shaoyun |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing |
Phone: | 010 6213-6369 |
Facsimile: | 010 6211-0873 |
Party B: | Han Shaoyun |
Address: | Room 2008, Hall 1, 30 Heng Qi Tiao, Fengtai District, Beijing |
Phone: | 010 6211-5451 |
6.3 | Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof. |
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7. | Confidentiality |
The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.
8. | Governing Law and Resolution of Disputes |
8.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China. |
8.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
8.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
9. | Miscellaneous |
9.1 | This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement. Since the effective date of this Agreement, the Original Loan Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
9.2 | This Agreement is written in both Chinese and English language in two copies, with each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail. |
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9.3 | This Agreement may be amended or supplemented through written agreement by and between the Lender and the Borrower. Such written amendment agreement and/or supplementary agreement executed by and between the Lender and the Borrower are an integral part of this Agreement, and shall have the same legal validity as this Agreement. |
9.4 | In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by the relevant laws the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions. |
9.5 | The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement. |
9.6 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. The provisions of Sections 5, 7, 8, and this Section 9.6 shall survive the termination of this Agreement. |
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Loan Agreement as of the date first above written.
Lender: | Tarena Technologies Inc. | |
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Borrower: | Han Shaoyun | |
By: | /s/ Han Shaoyun |
Signature Page to Amended and Restated Loan Agreement
Exhibit 10.23
Amended and Restated Loan Agreement
This Amended and Restated Loan Agreement (this Agreement) is made and entered into by and between the Parties below as of November 25, 2013 in Beijing, Peoples Republic of China (PRC or China):
(1) | Tarena Technologies Inc. (the Lender), a wholly-foreign-owned enterprise, organized and existing under the laws of China, with its address at Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing; |
(2) | Li Jianguang (the Borrower), a citizen of China with Chinese Identification No.: ***. |
Each of the Lender and the Borrower shall be hereinafter referred to as a Party respectively, and as the Parties collectively.
Whereas:
1. | The Borrower holds 51% of equity interests in Shanghai Tarena Software Technology Co., Ltd. (the Borrower Company). All of the equity interests now held and hereafter acquired by the Borrower in the Borrower Company shall be referred to as the Borrower Equity Interest. The Borrower Company is a limited company duly registered in Shanghai, China with its registered capital of RMB 1,000,000; |
2. | The Lender confirms that it agrees to provide the Borrower with and the Borrower confirms that he has received a loan to be used for the purposes set forth under this agreement. |
3. | The Lender and the Borrower executed a Loan Agreement (the Original Loan Agreement) on December 31, 2006. The Parties intend to enter this Agreement to replace and supersede the Original Loan Agreement by executing this Agreement. |
After friendly consultation, the Parties agree as follows:
1. | Loan |
1.1 | In accordance with the terms and conditions of this Agreement, the Lender agrees to provide an interest-free loan in the amount of RMB510,000 (the Loan) to the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, which may be extended upon mutual written consent of the Parties. During the term of the Loan or the extended term of the Loan, the Borrower shall immediately repay the full amount of the Loan in the event that any one or more of the following circumstances occur: |
1.1.1 | 30 days elapse after the Borrower receives a written notice from the Lender requesting repayment of the Loan; |
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1.1.2 | The Borrowers death, lack or limitation of civil capacity; |
1.1.3 | The Borrower ceases (for any reason) to be an employee of the Lender, the Borrower Company or their affiliates; |
1.1.4 | The Borrower engages in criminal act or is involved in criminal activities; |
1.1.5 | According to the applicable laws of China, foreign investors are permitted to invest in the business that is currently conducted by the Borrower Company in China with a controlling stake and/or in the form of wholly-foreign-owned enterprises, the relevant competent authorities of China begin to approve such investments, and Tarena International, Inc., as the sole shareholder of Lender, exercises the exclusive option under the Exclusive Option Agreement described in this Agreement. |
1.2 | The Loan provided by the Lender under this Agreement shall inure to the Borrowers benefit only and not to the Borrowers successor(s) or assign(s). |
1.3 | The Borrower agrees to accept the aforementioned Loan provided by the Lender, and hereby agrees and warrants using the Loan to provide capital for the Borrower Company to develop the business of the Borrower Company. Without the Lenders prior written consent, the Borrower shall not use the Loan for any purpose other than as set forth herein. |
1.4 | The Lender and the Borrower hereby agree and acknowledge that the Borrowers method of repayment of the Loan set forth in Section 1.1 shall be at the sole discretion of the Lender, and may at the Lenders option take the form of the Borrowers transferring the Borrower Equity Interest in whole to Tarena International, Inc. or Tarena International Inc.s designated persons (legal or natural persons) to the extent permitted under the applicable PRC laws pursuant to the Tarena International Inc.s exercise of its right to acquire the Borrower Equity Interest under the Exclusive Option Agreement. |
1.5 | The Borrower also undertakes to execute an irrevocable Power of Attorney (the Power of Attorney), which authorizes a legal or natural person designated by the Lender to exercise all of the Borrowers rights as a shareholder of the Borrower Company. |
1.6 | The Parties agree hereof that the Loan shall be interest-free unless otherwise agreed in this Agreement. When the Borrower transfers the Borrower Equity Interest to the Tarena International, Inc. or Tarena International, Inc.s designated person(s), in the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by the Borrower to the Lender. |
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2. | Conditions Precedent |
The obligation of the Lender to provide the Loan to the Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by the Lender.
2.1 | The Borrower Company and the Lender or other person (legal or natural person) designated by the Lender have officially executed an Amended and Restated Exclusive Business Cooperation Agreement (the Exclusive Business Cooperation Agreement), under which the Lender or other person designated by the Lender, as an exclusive service provider, will provide the Borrower Company with business support service and business consulting service. |
2.2 | The Borrower, the Borrower Company and the Lender or other person (legal or natural person) designated by the Lender have executed an Amended and Restated Share Pledge Agreement (the Share Pledge Agreement), the contents of which have been confirmed, and according to the Share Pledge Agreement, the Borrower agrees to pledge the Borrower Equity Interest to the Lender or other person designated by the Lender. |
2.3 | The Borrower, the Lender, Tarena International, Inc. and the Borrower Company have officially executed an Amended and Restated Exclusive Option Agreement (the Exclusive Option Agreement), the contents of which have been confirmed, and under which the Borrower shall irrevocably grant Tarena International, Inc. an exclusive option to purchase all of the Borrower Equity Interest. |
2.4 | The Borrower has executed an irrevocable Power of Attorney (the Power of Attorney), which authorizes Lender or other person (legal or natural person) designated by Lender to exercise all of the Borrowers rights as a shareholder in the Borrower Company. |
2.5 | The aforementioned Share Pledge Agreement, Power of Attorney, Exclusive Option Agreement and Exclusive Business Cooperation Agreement have been entered into before or on the date of execution of this Agreement and shall have full legal validity without any default or encumbrance related to these agreements or contracts, and all the related filing procedures, approvals, authorization, registrations and government procedures have been completed (as applicable). |
2.6 | All the representations and warranties by the Borrower in Section 3.2 are true, complete, correct and not misleading. |
2.7 | The Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect the Borrowers performance of its obligations under this Agreement has occurred or is expected to occur. |
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3. | Representations and Warranties |
3.1 | Between the date of this Agreement and the date of termination of this Agreement, the Lender hereby makes the following representations and warranties to the Borrower: |
3.1.1 | The Lender is a corporation duly organized and legally existing in accordance with the laws of China; |
3.1.2 | The Lender has the legal capacity to execute and perform this Agreement. The execution and performance by the Lender of this Agreement is consistent with the Lenders scope of business and the provisions of the Lenders corporate bylaws and other organizational documents, and the Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and |
3.1.3 | This Agreement constitutes the Lenders legal, valid and binding obligations enforceable in accordance with its terms. |
3.2 | Between the date of this Agreement and the date of termination of this Agreement, the Borrower hereby makes the following representations and warranties: |
3.2.1 | The Borrower has the legal capacity to execute and perform this Agreement. The Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; |
3.2.2 | The Borrower has caused his spouse to agree never to claim any ownership rights in the Borrower Equity Interest, including, without limitation, claiming that the Borrower Equity Interest constitutes communal property of marriage; |
3.2.3 | This Agreement constitutes the Borrowers legal, valid and binding obligations enforceable in accordance with its terms; and |
3.2.4 | There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to the Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to the Borrower. |
4. | Borrowers Covenants |
4.1 | As and when he becomes, as well as for so long as he remains a shareholder of the Borrower Company, the Borrower irrevocably covenants that during the term of this Agreement, the Borrower shall cause the Borrower Company: |
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4.1.1 | to strictly abide by the provisions of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement; |
4.1.2 | at the request of the Lender (or a party designated by the Lender), to execute agreements/contracts on business cooperation with the Lender (or a party designated by the Lender), and to strictly abide by such agreements/contracts; |
4.1.3 | to provide the Lender with all of the information on the Borrower Companys business operations and financial situation at the Lenders request; |
4.1.4 | to immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Companys assets, business or income; |
4.1.5 | at the request of the Lender, to appoint any persons designated by Lender as directors of the Borrower Company. |
4.2 | The Borrower covenants that during the term of this Agreement, he shall: |
4.2.1 | endeavor to keep the Borrower Company to engage in its principal businesses specified in its business license; |
4.2.2 | abide by the provisions of this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement to which the Borrower is a party, perform his obligations under this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Share Pledge Agreement and the Exclusive Option Agreement; |
4.2.3 | not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Share Pledge Agreement; |
4.2.4 | cause any shareholders meeting and/or the board of directors of the Borrower Company to not approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the Borrower Equity Interest, or allow the encumbrance thereon of any security interest, except to the Lender or the Lenders designated person; |
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4.2.5 | cause any shareholders meeting and/or the board of directors of the Borrower Company not to approve the merger or consolidation of the Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of the Lender; |
4.2.6 | immediately notify the Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the Borrower Equity Interest; |
4.2.7 | to the extent necessary to maintain his ownership of the Borrower Equity Interest, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; |
4.2.8 | without the prior written consent of the Lender, refrain from any action/omission that may have a material impact on the assets, business and liabilities of the Borrower Company; |
4.2.9 | appoint any designee of the Lender as director of the Borrower Company, at the request of the Lender; |
4.2.10 | to the extent permitted by the laws of China, at the request of the Lender at any time, promptly and unconditionally transfer all of the Borrower Equity Interest to Tarena International, Inc. or its designated representative(s) at any time, and cause the other shareholders of the Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section; |
4.2.11 | to the extent permitted by the laws of China, at the request of the Lender at any time, cause the other shareholders of the Borrower Company to promptly and unconditionally transfer all of their equity interests to Tarena International, Inc. or its designated representative(s) at any time, and the Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section; |
4.2.12 | without the prior written consent of the Lender, not to cause the Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner. |
5. | Liability for Default |
5.1 | If the Borrower commits any material breach of any term of this Agreement, the Lender shall have the right to terminate this Agreement and require the Borrower to pay for all damages; this Section 5.1 shall be without prejudice to any other rights of the Lender herein. |
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5.2 | The Borrower shall have no right to terminate this Agreement in any event unless otherwise required by the applicable laws. |
5.3 | In the event that the Borrower fails to perform the repayment obligations set forth in this Agreement, the Borrower shall pay an overdue interest of 0.01% per day for the outstanding payment, until the day the Borrower repays the full principal of the Loan, overdue interests and other payable amounts. |
6. | Notices |
6.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
6.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery. |
6.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of the transmission). |
6.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. |
Attn: | Han Shaoyun |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing |
Phone: | 010 6213-6369 |
Facsimile: | 010 6211-0873 |
Party B: | Li Jianguang |
Address: | 5 Jianguomennei Avenue, Dongcheng District, Beijing |
Phone: | 010 6526-2400 |
6.3 | Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof. |
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7. | Confidentiality |
The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.
8. | Governing Law and Resolution of Disputes |
8.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China. |
8.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
8.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
9. | Miscellaneous |
9.1 | This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement. Since the effective date of this Agreement, the Original Loan Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
9.2 | This Agreement is written in both Chinese and English language in two copies, with each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail. |
9.3 | This Agreement may be amended or supplemented through written agreement by and between the Lender and the Borrower. Such written amendment agreement and/or supplementary agreement executed by and between the Lender and the Borrower are an integral part of this Agreement, and shall have the same legal validity as this Agreement. |
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9.4 | In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by the relevant laws the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions. |
9.5 | The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement. |
9.6 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. The provisions of Sections 5, 7, 8, and this Section 9.6 shall survive the termination of this Agreement. |
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Loan Agreement as of the date first above written.
Lender: | Tarena Technologies Inc. | |
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Borrower: | Li Jianguang | |
By: | /s/ Li Jianguang |
Signature Page to Amended and Restated Loan Agreement
Exhibit 10.24
Amended and Restated Share Pledge Agreement
This Amended and Restated Share Pledge Agreement (this Agreement) has been executed by and among the following parties on November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC):
Party A: | Tarena Technologies Inc. (hereinafter Pledgee); |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing |
Party B: | Han Shaoyun (hereinafter Pledgor) |
ID No.: | *** |
Party C: | Shanghai Tarena Software Technology Co., Ltd. |
Address: | 31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai |
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1. | Pledgor is a Chinese citizen and holds 49% of the equity interest in Party C. Party C is a limited liability company registered in Shanghai, China engaging in technology development, technology transfer, technology consulting, etc. Party C acknowledges the respective rights and obligations of Pledgor and Pledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge; |
2. | Pledgee is a wholly-foreign-owned enterprise registered in China. Pledgee and Party C, which is partially owned by Pledgor, have executed an Exclusive Business Cooperation Agreements (as defined below) in Beijing; Party C, Pledgee, Pledgor and Tarena International, Inc. have executed an Exclusive Option Agreements (as defined below); Pledgor has executed a Power of Attorney (as defined below) in favor of Tarena International, Inc.; and Pledgee and Pledgor have executed a Loan Agreement (as defined below); |
3. | To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest that Pledgor holds in Party C as security for Party Cs and Pledgors obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney; |
4. | Party A, Party and Party C executed a Share Pledge Agreement on December 31, 2006 and an Amendment to Share Pledge Agreement on September 23, 2008 (collectively, the Original Share Pledge Agreement). The Parties intend to enter this Agreement to replace and supersede the Original Share Pledge Agreement by executing this Agreement. |
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To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon the following terms.
1. | Definitions |
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 | Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest. |
1.2 | Equity Interest: shall refer to 49% equity interests in Party C currently held by Pledgor, representing RMB490,000 in the registered capital of Party C, and all of the equity interest hereafter acquired by Pledgor in Party C. |
1.3 | Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement. |
1.4 | Transaction Documents: shall refer to the Amended and Restated Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee on November 25, 2013 (the Exclusive Business Cooperation Agreement); (ii) the Amended and Restated Exclusive Option Agreement executed by and among Tarena International, Inc., Party C, Pledgee and Pledgor on November 25, 2013 (the Exclusive Option Agreement); (iii) the Amended and Restated Loan Agreement executed by and between Pledgee and Pledgor on November 25, 2013 (the Loan Agreement); (iv) Power of Attorney executed on November 25, 2013 by Pledgor (the Power of Attorney) and any modification, amendment and restatement to the aforementioned documents. |
1.5 | Contract Obligations: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Power of Attorney, the Loan Agreement and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement and this Agreement. |
1.6 | Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee, incurred as a result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan and profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement, all expenses occurred in connection with enforcement by Pledgee of Pledgors and/or Party Cs Contract Obligations and etc. |
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1.7 | Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement. |
1.8 | Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. |
2. | The Pledge |
2.1 | Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured Indebtedness under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement. |
2.2 | During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividends distributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on Equity Interest after deduction of individual income tax paid by Pledgor shall be, as required by Pledgee, (1) deposited into an account designated and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
2.3 | Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by Pledgor as a result of Pledgors subscription of the increased registered capital of the Company shall also be deemed as Equity Interest. |
2.4 | In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party Cs dissolution or liquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
3. | Term of Pledge |
3.1 | The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the AIC). The Pledge shall be continuously valid until all payments due under the Exclusive Business Cooperation Agreement have been fulfilled by Party C. The parties agree that within 3 business days following the execution of this Agreement, Pledgor and Party C shall register the Pledge in the shareholders register of Party C, and within 10 business days after the competent AIC has formally begun accepting applications for the registration of equity interest pledge, Pledgor and Party C shall submit application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC within 20 business days after filing (or such other time period normally required by the relevant AIC). |
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3.2 | During the Term of Pledge, in the event Party C fails to perform the Contract Obligations or pay Secured Indebtedness, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement. |
4. | Custody of Records for Equity Interest subject to Pledge |
During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgees custody the capital contribution certificate for the Equity Interest and the shareholders register containing the Pledge within one week from the execution of this Agreement. Pledgee shall have custody of such items during the entire Term of Pledge set forth in this Agreement.
5. | Representations and Warranties of Pledgor and Party C |
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that:
5.1 | Pledgor is the sole legal owner of the Equity Interest. |
5.2 | Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement. |
5.3 | Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest. |
5.4 | Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) for execution, delivery and performance of this Agreement. |
5.5 | The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party Cs articles of association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it is a party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approval granted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions. |
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6. | Covenants of Pledgor and Party C |
6.1 | During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee: |
6.1.1 | not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, without the prior written consent of Pledgee, except for the performance of the Transaction Documents; |
6.1.2 | Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within 5 days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgees reasonable request or upon consent of Pledgee; |
6.1.3 | Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgees rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement. |
6.1.4 | Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expiration of such term to maintain the validity of this Agreement. |
6.2 | Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings. |
6.3 | To protect or perfect the security interest granted by this Agreement for payment of the Service Fees under the Exclusive Business Cooperation Agreement, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee. |
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6.4 | Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom. |
7. | Event of Breach |
7.1 | The following circumstances shall be deemed Event of Default: |
7.1.1 | Pledgors any breach to any obligations under the Transaction Documents and/or this Agreement; |
7.1.2 | Party Cs any breach to any obligations under the Transaction Documents and/or this Agreement. |
7.2 | Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly. |
7.3 | Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgees satisfaction within twenty (20) days after the Pledgee and/or Party C delivers a notice to the Pledgor requesting rectification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing upon the occurrence of the Event of Default or at any time thereafter and demand that Pledgor immediately pay all outstanding payments due under the Exclusive Business Cooperation Agreement and all other payments due to Pledgee, and/or dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement. |
8. | Exercise of Pledge |
8.1 | Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge. |
8.2 | Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge concurrently with the issuance of the Notice of Default in accordance with Section 8.1 or at any time after the issuance of the Notice of Default. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest. |
8.3 | After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicable PRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. The Pledgee shall not be liable for any loss incurred by its duly exercise of such rights and powers. |
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8.4 | The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity Interest and to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other payment. After the payment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balance under applicable laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor shall unconditionally donate the aforementioned proceeds to Pledgee or any other person designated by Pledgee. |
8.5 | Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest under this Agreement, without exercising any other remedy measure first. |
8.6 | Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C shall not raise any objection to such exercise. |
8.7 | When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement. |
9. | Breach of Agreement |
9.1 | If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and/or require Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein; |
9.2 | Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws. |
10. | Assignment |
10.1 | Without Pledgees prior written consent, Pledgor and Party C shall not have the right to assign or delegate its rights and obligations under this Agreement. |
10.2 | This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns. |
10.3 | At any time, Pledgee may assign any and all of its rights and obligations under the Exclusive Business Cooperation Agreement to its designee(s) (natural/legal persons), in which case the designee shall have the rights and obligations of Pledgee under the Transaction Documents and this Agreement, as if it were the original party to the Transaction Documents and this Agreement. |
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10.4 | In the event of a change in Pledgee due to an assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC. |
10.5 | Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee. |
11. | Termination |
11.1 | Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall release the Pledge under this Agreement upon Pledgors request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge from the shareholders register of Party C and with relevant PRC local administration for industry and commerce. |
11.2 | The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement. |
12. | Handling Fees and Other Expenses |
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.
13. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
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14. | Governing Law and Resolution of Disputes |
14.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of the PRC. |
14.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
14.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
15. | Notices |
15.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
15.2 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
15.3 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
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15.4 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing |
Attn: | Han Shaoyun |
Phone: | 86-10 6213-6369 |
Facsimile: | 86-10 6211-0873 |
Party B: | Han Shaoyun |
Address: | Room 2008, Hall 1, 30 Heng Qi Tiao, Fengtai District, Beijing |
Tel: | 86-10 6211-5451 |
Party C: | Shanghai Tarena Software Technology Co., Ltd. |
Address: | 31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai |
Attn: |
Phone: |
Facsimile: |
15.5 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
16. | Severability |
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
17. | Attachments |
The attachments set forth herein shall be an integral part of this Agreement.
18. | Effectiveness |
18.1 | This Agreement shall become effective upon execution by the Parties hereto. Since the effective date of this Agreement, the Original Share Pledge Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
18.2 | Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement. |
18.3 | This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail. |
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Share Pledge Agreement as of the date first above written.
Party A: | Tarena Technologies Inc. | |
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Party B: | Han Shaoyun | |
By: | /s/ Han Shaoyun | |
Party C: | Shanghai Tarena Software Technology Co., Ltd. | |
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun | |
Title: | Legal Representative |
Signature Page to Amended and Restated Share Pledge Agreement
Attachments:
1. | Shareholders register of Party C; |
2. | The Capital Contribution Certificate for the Formation of Party C; |
3. | Exclusive Business Cooperation Agreement. |
4. | Exclusive Option Agreement |
5. | Loan Agreement |
6. | Power of Attorney |
Exhibit 10.25
Amended and Restated Share Pledge Agreement
This Amended and Restated Share Pledge Agreement (this Agreement) has been executed by and among the following parties on November 25, 2013 in Beijing, the Peoples Republic of China (China or the PRC):
Party A: | Tarena Technologies Inc. (hereinafter Pledgee); | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Party B: | Li Jianguang (hereinafter Pledgor) | |
ID No.: |
*** |
|
Party C: | Shanghai Tarena Software Technology Co., Ltd. | |
Address: | 31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai |
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1. | Pledgor is a Chinese citizen and holds 51% of the equity interest in Party C. Party C is a limited liability company registered in Shanghai, China engaging in technology development, technology transfer, technology consulting, etc. Party C acknowledges the respective rights and obligations of Pledgor and Pledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge; |
2. | Pledgee is a wholly-foreign-owned enterprise registered in China. Pledgee and Party C, which is partially owned by Pledgor, have executed an Exclusive Business Cooperation Agreements (as defined below) in Beijing; Party C, Pledgee, Pledgor and Tarena International, Inc. have executed an Exclusive Option Agreements (as defined below); Pledgor has executed a Power of Attorney (as defined below) in favor of Tarena International, Inc.; and Pledgee and Pledgor have executed a Loan Agreement (as defined below) ; |
3. | To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest that Pledgor holds in Party C as security for Party Cs and Pledgors obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement, the Loan Agreement and the Power of Attorney. |
4. | Party A, Party B and Party C executed a Share Pledge Agreement on December 31, 2006 and an Amendment to Share Pledge Agreement on September 23, 2008 (collectively, the Original Share Pledge Agreement). The Parties intend to enter this Agreement to replace and supersede the Original Share Pledge Agreement by executing this Agreement. |
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To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon the following terms.
1. | Definitions |
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 | Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest. |
1.2 | Equity Interest: shall refer to 51% equity interests in Party C currently held by Pledgor, representing RMB510,000 in the registered capital of Party C, and all of the equity interest hereafter acquired by Pledgor in Party C. |
1.3 | Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement. |
1.4 | Transaction Documents: shall refer to the Amended and Restated Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee on November 25, 2013 (the Exclusive Business Cooperation Agreement); (ii) the Amended and Restated Exclusive Option Agreement executed by and among Tarena International, Inc., Party C, Pledgee and Pledgor on November 25, 2013 (the Exclusive Option Agreement); (iii) the Amended and Restated Loan Agreement executed by and between Pledgee and Pledgor on November 25, 2013 (the Loan Agreement); (iv) Power of Attorney executed on November 25, 2013 by Pledgor (the Power of Attorney) and any modification, amendment and restatement to the aforementioned documents. |
1.5 | Contract Obligations: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Power of Attorney, the Loan Agreement and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement and this Agreement. |
1.6 | Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee, incurred as a result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan and profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement, all expenses occurred in connection with enforcement by Pledgee of Pledgors and/or Party Cs Contract Obligations and etc. |
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1.7 | Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement. |
1.8 | Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. |
2. | The Pledge |
2.1 | Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured Indebtedness under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement. |
2.2 | During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividends distributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on Equity Interest after deduction of individual income tax paid by Pledgor shall be, as required by Pledgee, (1) deposited into an account designated and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
2.3 | Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by Pledgor as a result of Pledgors subscription of the increased registered capital of the Company shall also be deemed as Equity Interest. |
2.4 | In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party Cs dissolution or liquidation shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
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3. | Term of Pledge |
3.1 | The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the AIC). The Pledge shall be continuously valid until all payments due under the Exclusive Business Cooperation Agreement have been fulfilled by Party C. The parties agree that within 3 business days following the execution of this Agreement, Pledgor and Party C shall register the Pledge in the shareholders register of Party C, and within 10 business days after the competent AIC has formally begun accepting applications for the registration of equity interest pledge, Pledgor and Party C shall submit application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC within 20 business days after filing (or such other time period normally required by the relevant AIC). |
3.2 | During the Term of Pledge, in the event Party C fails to perform the Contract Obligations or pay Secured Indebtedness, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement. |
4. | Custody of Records for Equity Interest subject to Pledge |
During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgees custody the capital contribution certificate for the Equity Interest and the shareholders register containing the Pledge within one week from the execution of this Agreement. Pledgee shall have custody of such items during the entire Term of Pledge set forth in this Agreement.
5. | Representations and Warranties of Pledgor and Party C |
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that:
5.1 | Pledgor is the sole legal owner of the Equity Interest. |
5.2 | Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement. |
5.3 | Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest. |
5.4 | Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) for execution, delivery and performance of this Agreement. |
5.5 | The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party Cs articles of association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it is a party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approval granted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions. |
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6. | Covenants of Pledgor and Party C |
6.1 | During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee: |
6.1.1 | not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, without the prior written consent of Pledgee, except for the performance of the Transaction Documents; |
6.1.2 | Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within 5 days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgees reasonable request or upon consent of Pledgee; |
6.1.3 | Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgees rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement. |
6.1.4 | Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expiration of such term to maintain the validity of this Agreement. |
6.2 | Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings. |
6.3 | To protect or perfect the security interest granted by this Agreement for payment of the Service Fees under the Exclusive Business Cooperation Agreement, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee. |
6.4 | Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom. |
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7. | Event of Breach |
7.1 | The following circumstances shall be deemed Event of Default: |
7.1.1 | Pledgors any breach to any obligations under the Transaction Documents and/or this Agreement; |
7.1.2 | Party Cs any breach to any obligations under the Transaction Documents and/or this Agreement. |
7.2 | Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly. |
7.3 | Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgees satisfaction within twenty (20) days after the Pledgee and/or Party C delivers a notice to the Pledgor requesting rectification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing upon the occurrence of the Event of Default or at any time thereafter and demand that Pledgor immediately pay all outstanding payments due under the Exclusive Business Cooperation Agreement and all other payments due to Pledgee, and/or dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement. |
8. | Exercise of Pledge |
8.1 | Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge. |
8.2 | Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge concurrently with the issuance of the Notice of Default in accordance with Section 8.1 or at any time after the issuance of the Notice of Default. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest. |
8.3 | After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicable PRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. The Pledgee shall not be liable for any loss incurred by its duly exercise of such rights and powers. |
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8.4 | The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity Interest and to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other payment. After the payment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balance under applicable laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor shall unconditionally donate the aforementioned proceeds to Pledgee or any other person designated by Pledgee. |
8.5 | Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest under this Agreement, without exercising any other remedy measure first. |
8.6 | Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C shall not raise any objection to such exercise. |
8.7 | When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement. |
9. | Breach of Agreement |
9.1 | If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and/or require Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein; |
9.2 | Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws. |
10. | Assignment |
10.1 | Without Pledgees prior written consent, Pledgor and Party C shall not have the right to assign or delegate its rights and obligations under this Agreement. |
10.2 | This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns. |
10.3 | At any time, Pledgee may assign any and all of its rights and obligations under the Exclusive Business Cooperation Agreement to its designee(s) (natural/legal persons), in which case the designee shall have the rights and obligations of Pledgee under the Transaction Documents and this Agreement, as if it were the original party to the Transaction Documents and this Agreement. |
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10.4 | In the event of a change in Pledgee due to an assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC. |
10.5 | Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee. |
11. | Termination |
11.1 | Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall release the Pledge under this Agreement upon Pledgors request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge from the shareholders register of Party C and with relevant PRC local administration for industry and commerce. |
11.2 | The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement. |
12. | Handling Fees and Other Expenses |
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.
13. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
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14. | Governing Law and Resolution of Disputes |
14.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of the PRC. |
14.2 | In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Partys request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties. |
14.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
15. | Notices |
15.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
15.2 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
15.3 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
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15.4 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Tarena Technologies Inc. | |
Address: | Suite 3709, 18 Jia West Road of North Third Ring, Haidian District, Beijing | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-6369 | |
Facsimile: | 86-10 6211-0873 | |
Party B: | Li Jianguang | |
Address: | 5 Jianguomennei Avenue, Dongcheng District, Beijing | |
Tel: | 86-10 6526-2400 | |
Party C: | Shanghai Tarena Software Technology Co., Ltd. | |
Address: | 31st Floor, West F District, 666 Beijing East Rd, Huangpu District, Shanghai | |
Attn: | Han Shaoyun | |
Phone: | 86-10 6213-5687 | |
Facsimile: | 86-10 6211-0873 |
15.5 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
16. | Severability |
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
17. | Attachments |
The attachments set forth herein shall be an integral part of this Agreement.
18. | Effectiveness |
18.1 | This Agreement shall become effective upon execution by the Parties hereto. Since the effective date of this Agreement, the Original Share Pledge Agreement shall be terminated and shall be replaced and superseded by this Agreement. |
18.2 | Any amendments and supplements to this Agreement shall be made in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement. |
18.3 | This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail. |
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Share Pledge Agreement as of the date first above written.
Party A: Tarena Technologies Inc. | ||
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun | |
Title: | Legal Representative | |
Party B: Li Jianguang | ||
By: | /s/ Li Jianguang | |
Party C: Shanghai Tarena Software Technology Co., Ltd. | ||
By: | /s/ Han Shaoyun | |
Name: | Han Shaoyun | |
Title: | Legal Representative |
Signature Page to Amended and Restated Share Pledge Agreement
Attachments:
1. | Shareholders register of Party C; |
2. | The Capital Contribution Certificate for the Formation of Party C; |
3. | Exclusive Business Cooperation Agreement. |
4. | Exclusive Option Agreement |
5. | Loan Agreement |
6. | Power of Attorney |
Exhibit 10.26
Spousal Consent
The undersigned, Sun Ying (ID card No. ***), is the lawful spouse of Han Shaoyun (ID card No. ***). I hereby unconditionally and irrevocably agree to the execution of the following documents (hereinafter referred to as the Transaction Documents ) by Han Shaoyun on November 25, 2013, and the disposal of the equity interests of Shanghai Tarena Software Technology Co., Ltd. ( Shanghai Tarena ) held by Han Shaoyun and registered in his name according to the following documents:
(1) | Amended and Restated Equity Interest Pledge Agreement entered into between Han Shaoyun, Tarena Technologies Inc. (hereinafter referred to as the WFOE ) and Shanghai Tarena; |
(2) | Amended and Restated Exclusive Option Agreement entered into between Han Shaoyun, the WFOE, Shanghai Tarena and Tarena International, Inc.; |
(3) | Power of Attorney executed by Han Shaoyun; |
(4) | Amended and Restated Loan Agreement entered into between Han Shaoyun and WFOE. |
I hereby undertake not to make any assertions in connection with the equity interests of Shanghai Tarena which are held by Han Shaoyun. I hereby further confirm that Han Shaoyun can perform the Transaction Documents and further amend or terminate the Transaction Documents absent authorization or consent from me.
I hereby undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the Transaction Documents (as amended form time to time).
I hereby agree and undertake that if I obtain any equity interests of Shanghai Tarena which are held by Han Shaoyun for any reasons, I shall be bound by the Transaction Documents and the Amended and Restated Exclusive Business Cooperation Agreement entered into between the WFOE and Shanghai Tarena as of November 25, 2013 ( Exclusive Business Cooperation Agreement ) (as amended from time to time) and comply with the obligations thereunder as a shareholder of Shanghai Tarena. For this purpose, upon the WFOEs request, I shall sign a series of written documents in substantially the same format and content as the Transaction Documents and Exclusive Business Cooperation Agreement (as amended from time to time).
/s/ Sun Ying |
Date: November 25, 2013
Exhibit 10.27
Spousal Consent
The undersigned, Li Nan (ID card No. ***), is the lawful spouse of Li Jianguang (ID card No. ***). I hereby unconditionally and irrevocably agree to the execution of the following documents (hereinafter referred to as the Transaction Documents ) by Li Jianguang on November 25, 2013, and the disposal of the equity interests of Shanghai Tarena Software Technology Co., Ltd. ( Shanghai Tarena ) held by Li Jianguang and registered in his name according to the following documents:
(1) | Amended and Restated Equity Interest Pledge Agreement entered into between Li Jianguang, Tarena Technologies Inc. (hereinafter referred to as the WFOE ) and Shanghai Tarena; |
(2) | Amended and Restated Exclusive Option Agreement entered into between Li Jianguang, the WFOE, Shanghai Tarena and Tarena International, Inc.; |
(3) | Power of Attorney executed by Li Jianguang; |
(4) | Amended and Restated Loan Agreement entered into between Li Jianguang and WFOE. |
I hereby undertake not to make any assertions in connection with the equity interests of Shanghai Tarena which are held by Li Jianguang. I hereby further confirm that Li Jianguang can perform the Transaction Documents and further amend or terminate the Transaction Documents absent authorization or consent from me.
I hereby undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the Transaction Documents (as amended form time to time).
I hereby agree and undertake that if I obtain any equity interests of Shanghai Tarena which are held by Li Jianguang for any reasons, I shall be bound by the Transaction Documents and the Amended and Restated Exclusive Business Cooperation Agreement entered into between the WFOE and Shanghai Tarena as of , 2013 ( Exclusive Business Cooperation Agreement ) (as amended from time to time) and comply with the obligations thereunder as a shareholder of Shanghai Tarena For this purpose, upon the WFOEs request, I shall sign a series of written documents in substantially the same format and content as the Transaction Documents and Exclusive Business Cooperation Agreement (as amended from time to time).
/s/ Li Nan |
Date: November 25, 2013
Exhibit 21.1
List of Subsidiaries
Name |
Jurisdiction of
Incorporation |
Affiliate Relationship with
The Registrant |
||
Tarena Hong Kong Limited |
Hong Kong | Wholly-owned subsidiary | ||
Tarena Software Technology (Hangzhou) Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Tarena Technologies Inc. |
PRC | Wholly-owned subsidiary | ||
Shenyang Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Jinan Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Qingdao Tarena Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Tarena (Wuhan) Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Chongqing Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Kunming Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Nanjing Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Zhuhai Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Guangzhou Tarena Information Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Shenzhen Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Beijing Yingcai Tianyi Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Heilongjiang Tarena Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Harbin Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Shijiazhuang Tarena Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Changchun Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Tianjin Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Yantai Tarena Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Xian Tarena Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Suzhou Tarena Information Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Wuxi Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Ningbo Tarena Information Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Nanchang Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Fuzhou Tarena Information Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Nanjing Tarena Weishang Information Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Guangxi Nanning Tarena Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Zhengzhou Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Changsha Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Chengdu Tarena Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Hefei Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Xiamen Tarena Information Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Dalian Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Wuhan Tarena Software Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Shanghai Tarena Weishang Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Shanghai Tarena Weiguan Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Shanghai Tarena Weicheng Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary | ||
Shanghai Tarena Weixin Software Technology Co., Ltd. |
PRC | Wholly-owned subsidiary |
Name |
Jurisdiction of
Incorporation |
Affiliate Relationship with
The Registrant |
||
Shenyang Tarena Professional Education School |
PRC |
School sponsored by Shenyang Tarena Technology Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Jinan Tarena Professional Education School |
PRC |
School sponsored by Jinan Tarena Software Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Qingdao Tarena Professional Education School |
PRC |
School sponsored by Qingdao Tarena Software Technology Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Wuhan Tarena Professional Education School |
PRC |
School sponsored by Wuhan Tarena Software Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Chongqing Jiulongpo Tarena Professional Education School |
PRC |
School sponsored by Chongqing Tarena Software Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Kunming Guandu Tarena Professional Education School |
PRC |
School sponsored by Kunming Tarena Technology Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Nanjing Tarena Professional Education School |
PRC |
School sponsored by Nanjing Tarena Software Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Zhuhai Tarena Professional Education School |
PRC |
School sponsored by Zhuhai Tarena Software Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Guangzhou Tarena Professional Education School |
PRC |
School sponsored by Guangzhou Tarena Information Technology Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Shenzhen Baoan Tarena Professional Education School |
PRC |
School sponsored by Shenzhen Tarena Software Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. |
||
Harbin Tarena Professional Education School |
PRC | School sponsored by Harbin Tarena Technology Co., Ltd., a wholly-owned subsidiary of Tarena International, Inc. | ||
Beijing Tarena Jinqiao Technology Co., Ltd. |
PRC | Variable interest entitiy | ||
Shanghai Tarena Software Technology Co., Ltd. |
PRC | Variable interest entity | ||
Guangzhou Huicai Software Co., Ltd. |
PRC | Subsidiary of Variable interest entity | ||
Hangzhou Tarena Technology Co., Ltd. |
PRC | Subsidiary of Variable interest entity | ||
Hangzhou Tarena Computer Co., Ltd. |
PRC | Subsidiary of Variable interest entity | ||
Hangzhou Tarena Information Technology Co., Ltd. |
PRC | Subsidiary of Variable interest entity |
2
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Tarena International, Inc.:
We consent to the use of our report included herein and to the reference to our firm under the heading Experts in the registration statement.
/s/ KPMG Huazhen (SGP)
Beijing, China
February 27, 2014
Exhibit 99.1
TARENA INTERNATIONAL, INC.
CODE OF BUSINESS CONDUCT AND ETHICS
I. | PURPOSE |
This Code of Business Conduct and Ethics (the Code ) contains general guidelines for conducting the business of Tarena International, Inc., a Cayman Islands company, and its subsidiaries and affiliates (collectively, the Company ) consistent with the highest standards of business ethics, and is intended to qualify as a code of ethics within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. To the extent this Code requires a higher standard than required by commercial practice or applicable laws, rules or regulations, we adhere to these higher standards.
This Code is designed to deter wrongdoing and to promote:
| honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the U.S. Securities and Exchange Commission (the SEC ) and in other public communications made by the Company; |
| compliance with applicable laws, rules and regulations; |
| prompt internal reporting of violations of the Code; and |
| accountability for adherence to the Code. |
II. | APPLICABILITY |
This Code applies to all directors, officers and employees of the Company, whether they work for the Company on a full-time, part-time, consultative or temporary basis (each, an employee and collectively, the employees ). Certain provisions of the Code apply specifically to our chief executive officer, chief financial officer, senior finance officer, controller, senior vice presidents, vice presidents and any other persons who perform similar functions for the Company (each, a senior officer , and collectively, the senior officers ).
The Board of Directors of the Company (the Board ) has appointed the Companys Chief Executive Officer, as the Compliance Officer for the Company (the Compliance Officer ). If you have any questions regarding the Code or would like to report any violation of the Code, please email the Compliance Officer at hansy@tarena.com.cn.
This Code has been adopted by the Board and shall become effective (the Effective Time ) upon the effectiveness of the Companys registration statement on Form F-1 filed by the Company with the SEC relating to the Companys initial public offering.
III. | CONFLICTS OF INTEREST |
Identifying Conflicts of Interest
A conflict of interest occurs when an employees private interest interferes, or appears to interfere, in any way with the interests of the Company as a whole. An employee should actively avoid any private interest that may impact such employees ability to act in the interests of the Company or that may make it difficult to perform the employees work objectively and effectively. In general, the following should be considered conflicts of interest:
| Competing Business . No employee may be employed by a business that competes with the Company or deprives it of any business. |
| Corporate Opportunity . No employee should use corporate property, information or his/her position with the Company to secure a business opportunity that would otherwise be available to the Company. If an employee discovers a business opportunity that is in the Companys line of business through the use of the Companys property, information or position, the employee must first present the business opportunity to the Company before pursuing the opportunity in his/her individual capacity. |
| Financial Interests . |
(i) | No employee may have any financial interest (ownership or otherwise), either directly or indirectly through a spouse or other family member, in any other business or entity if such interest adversely affects the employees performance of duties or responsibilities to the Company, or requires the employee to devote time to it during such employees working hours at the Company; |
(ii) | No employee may hold any ownership interest in a privately held company that is in competition with the Company; |
(iii) | An employee may hold up to 5% ownership interest in a publicly traded company that is in competition with the Company; provided that if the employees ownership interest in such publicly traded company increases to more than 5%, the employee must immediately report such ownership to the Compliance Officer; |
(iv) | No employee may hold any ownership interest in a company that has a business relationship with the Company if such employees duties at the Company include managing or supervising the Companys business relations with that company; and |
(v) | Notwithstanding the other provisions of this Code, |
(a) a director or any immediate family member of such director (collectively, Director Affiliates ) or a senior officer or any immediate family member of such senior officer (collectively, Officer Affiliates ) may continue to hold his/her investment or other financial interest in a business or entity (an Interested Business ) that:
(1) was made or obtained either (x) before the Company invested in or otherwise became interested in such business or entity; or (y) before the director or senior officer joined the Company (for the avoidance of doubt, regardless of whether the Company had or had not already invested in or otherwise become interested in such business or entity at the time the director or senior officer joined the Company); or
(2) may in the future be made or obtained by the director or senior officer, provided that at the time such investment or other financial interest is made or obtained, the Company has not yet invested in or otherwise become interested in such business or entity;
provided that such director or senior officer shall disclose such investment or other financial interest to the Board;
(b) an interested director or senior officer shall refrain from participating in any discussion among senior officers of the Company relating to an Interested Business and shall not be involved in any proposed transaction between the Company and an Interested Business; and
(c) before any Director Affiliate or Officer Affiliate (i) invests, or otherwise acquires any equity or other financial interest, in a business or entity that is in competition with the Company; or (ii) enters into any transaction with the Company, the related director or senior officer shall obtain prior approval from the Audit Committee of the Board.
For purposes of this Code, a company or entity is deemed to be in competition with the Company if it competes with the Companys business of providing professional education services in China and/or any other business in which the Company is engaged.
| Loans or Other Financial Transactions . No employee may obtain loans or guarantees of personal obligations from, or enter into any other personal financial transaction with, any company that is a material customer, supplier or competitor of the Company. This guideline does not prohibit arms-length transactions with recognized banks or other financial institutions. |
| Service on Boards and Committees . No employee shall serve on a board of directors or trustees or on a committee of any entity (whether profit or not-for-profit) whose interests could reasonably be expected to conflict with those of the Company. Employees must obtain prior approval from the Board before accepting any such board or committee position. The Company may revisit its approval of any such position at any time to determine whether an employees service in such position is still appropriate. |
The above is in no way a complete list of situations where conflicts of interest may arise. The following questions might serve as a useful guide in assessing a potential conflict of interest situation not specifically addressed above:
| Is the action to be taken legal? |
| Is it honest and fair? |
| Is it in the best interests of the Company? |
Disclosure of Conflicts of Interest
The Company requires that employees fully disclose any situations that could reasonably be expected to give rise to a conflict of interest. If an employee suspects that he/she has a conflict of interest, or a situation that others could reasonably perceive as a conflict of interest, the employee must report it immediately to the Compliance Officer. Conflicts of interest may only be waived by the Board, or the appropriate committee of the Board, and will be promptly disclosed to the public to the extent required by law and applicable rules of Nasdaq.
Family Members and Work
The actions of family members outside the workplace may also give rise to conflicts of interest because they may influence an employees objectivity in making decisions on behalf of the Company. If a member of an employees family is interested in doing business with the Company, the criteria as to whether to enter into or continue the business relationship and the terms and conditions of the relationship must be no less favorable to the Company compared with those that would apply to an unrelated party seeking to do business with the Company under similar circumstances.
Employees should report any situation involving family members that could reasonably be expected to give rise to a conflict of interest to their supervisor or the Compliance Officer. For purposes of this Code, family members or members of employees family include an employees spouse, siblings, parents, in-laws and children.
IV. | GIFTS AND ENTERTAINMENT |
The giving and receiving of appropriate gifts may be considered common business practice. Appropriate business gifts and entertainment are welcome courtesies designed to build relationships and understanding among business partners. However, gifts and entertainment should never compromise, or appear to compromise, an employees ability to make objective and fair business decisions.
It is the responsibility of employees to use good judgment in this area. As a general rule, employees may give or receive gifts or entertainment to or from customers or suppliers only if the gift or entertainment is in compliance with applicable law, insignificant in amount and not given in consideration or expectation of any action by the recipient. All gifts and entertainment expenses made on behalf of the Company must be properly accounted for on expense reports.
We encourage employees to submit gifts received to the Company. While it is not mandatory to submit small gifts, gifts of over RMB200 must be submitted immediately to the human resources department of the Company.
Bribes and kickbacks are criminal acts, strictly prohibited by law. An employee must not offer, give, solicit or receive any form of bribe or kickback anywhere in the world.
V. | FCPA COMPLIANCE |
The U.S. Foreign Corrupt Practices Act ( FCPA ) prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. A violation of FCPA does not only violate the Companys policy but also constitute a civil or criminal offense under FCPA which the Company is subject to after the Effective Time. No employee shall give or authorize directly or indirectly any illegal payments to government officials of any country. While the FCPA does, in certain limited circumstances, allow nominal facilitating payments to be made, any such payment must be discussed with and approved by an employees supervisor in advance before it can be made.
VI. | PROTECTION AND USE OF COMPANY ASSETS |
Employees should protect the Companys assets and ensure their efficient use for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Companys profitability. Any use of the funds or assets of the Company, whether for personal gain or not, for any unlawful or improper purpose is strictly prohibited.
To ensure the protection and proper use of the Companys assets, each employee should:
| Exercise reasonable care to prevent theft, damage or misuse of Company property; |
| Promptly report any actual or suspected theft, damage or misuse of Company property; |
| Safeguard all electronic programs, data, communications and written materials from unauthorized access; and |
| Use Company property only for legitimate business purposes. |
Except as approved in advance by the Chief Executive Officer or Chief Financial Officer of the Company, the Company prohibits political contributions (directly or through trade associations) by any employee on behalf of the Company. Prohibited political contributions include:
| any contributions of the Companys funds or other assets for political purposes; |
| encouraging individual employees to make any such contribution; and |
| reimbursing an employee for any political contribution. |
VII. | INTELLECTUAL PROPERTY AND CONFIDENTIALITY |
Employees should abide by the Companys rules and policies in protecting the intellectual property and confidential information, including the following:
| All inventions, creative works, computer software, and technical or trade secrets developed by an employee in the course of performing the employees duties or primarily through the use of the Companys assets or resources while working at the Company shall be the property of the Company. |
| Employees should maintain the confidentiality of information entrusted to them by the Company or entities with which the Company has business relations, except when disclosure is authorized or legally mandated. Confidential information includes all non-public information that might be of use to competitors, or harmful to the company or its business associates, if disclosed. |
| The Company maintains a strict confidentiality policy. During an employees term of employment with the Company, the employee shall comply with any and all written or unwritten rules and policies concerning confidentiality and shall fulfill the duties and responsibilities concerning confidentiality applicable to the employee. |
| In addition to fulfilling the responsibilities associated with his/her position in the Company, an employee shall not, without obtaining prior approval from the Company, disclose, announce or publish trade secrets or other confidential business information of the Company, nor shall an employee use such confidential information outside the course of his/her duties to the Company. |
| Even outside the work environment, an employee must maintain vigilance and refrain from disclosing important information regarding the Company or its business, business associates or employees. |
| An employees duty of confidentiality with respect to the confidential information of the Company survives the termination of such employees employment with the Company for any reason until such time as the Company discloses such information publicly or the information otherwise becomes available in the public sphere through no fault of the employee. |
| Upon termination of employment, or at such time as the Company requests, an employee must return to the Company all of its property without exception, including all forms of medium containing confidential information, and may not retain duplicate materials. |
VIII. | ACCURACY OF FINANCIAL REPORTS AND OTHER PUBLIC COMMUNICATIONS |
Upon the Effective Time, the Company will be required to report its financial results and other material information about its business to the public and the SEC. It is the Companys policy to promptly disclose accurate and complete information regarding its business, financial condition and results of operations. Employees must strictly comply with all applicable standards, laws, regulations and policies for accounting and financial reporting of transactions, estimates and forecasts. Inaccurate, incomplete or untimely reporting will not be tolerated and can severely damage the Company and result in legal liability.
Employees should be on guard for, and promptly report, any possibility of inaccurate or incomplete financial reporting. Particular attention should be paid to:
| Financial results that seem inconsistent with the performance of the underlying business; |
| Transactions that do not seem to have an obvious business purpose; and |
| Requests to circumvent ordinary review and approval procedures. |
The Companys senior financial officers and other employees working in the finance department have a special responsibility to ensure that all of the Companys financial disclosures are full, fair, accurate, timely and understandable. Any practice or situation that might undermine this objective should be reported to the Compliance Officer.
Employees are prohibited from directly or indirectly taking any action to coerce, manipulate, mislead or fraudulently influence the Companys independent auditors for the purpose of rendering the financial statements of the Company materially misleading. Prohibited actions include but are not limited to:
| issuing or reissuing a report on the Companys financial statements that is not warranted in the circumstances (due to material violations of U.S. GAAP, generally accepted auditing standards or other professional or regulatory standards); |
| not performing audit, review or other procedures required by generally accepted auditing standards or other professional standards; |
| not withdrawing an issued report when withdrawal is warranted under the circumstances; or |
| not communicating matters required to be communicated to the Companys Audit Committee. |
IX. | COMPANY RECORDS |
Accurate and reliable records are crucial to the Companys business and form the basis of its earnings statements, financial reports and other disclosures to the public. The Companys records are a source of essential data that guides business decision-making and strategic planning. Company records include, but are not limited to, booking information, payroll, timecards, travel and expense reports, e-mails, accounting and financial data, measurement and performance records, electronic data files and all other records maintained in the ordinary course of business.
All Company records must be complete, accurate and reliable in all material respects. There is never an acceptable reason to make false or misleading entries. Undisclosed or unrecorded funds, payments or receipts are strictly prohibited. An employee is responsible for understanding and complying with the Companys recordkeeping policy. An employee should contact the Compliance Officer if he/she has any questions regarding the recordkeeping policy.
X. | COMPLIANCE WITH LAWS AND REGULATIONS |
Each employee has an obligation to comply with the laws of the cities, provinces, regions and countries in which the Company operates. This includes, without limitation, laws covering commercial bribery and kickbacks, patent, copyrights, trademarks and trade secrets, information privacy, insider trading, offering or receiving gratuities, employment harassment, environmental protection, occupational health and safety, false or misleading financial information, misuse of corporate assets and foreign currency exchange activities. Employees are expected to understand and comply with all laws, rules and regulations that apply to their positions at the Company. If any doubt exists about whether a course of action is lawful, the employee should seek advice immediately from the Compliance Officer.
XI. | DISCRIMINATION AND HARASSMENT |
The Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment based on race, ethnicity, religion, gender, age, national origin or any other protected class. For further information, employees should consult the Compliance Officer.
XII. FAIR DEALING
Each employee should endeavor to deal fairly with the Companys customers, suppliers, competitors and employees. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice.
XIII. | HEALTH AND SAFETY |
The Company strives to provide employees with a safe and healthy work environment. Each employee has responsibility for maintaining a safe and healthy workplace for other employees by following environmental, safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions. Violence or threats of violence are not permitted.
Each employee is expected to perform his/her duty to the Company in a safe manner, not under the influence of alcohol, illegal drugs or other controlled substances. The use of illegal drugs or other controlled substances in the workplace is prohibited.
XIV. | VIOLATIONS OF THE CODE |
All employees have a duty to report any known or suspected violation of this Code, including any violation of laws, rules, regulations or policies that apply to the Company. Reporting a known or suspected violation of this Code by others will not be considered an act of disloyalty, but an action to safeguard the reputation and integrity of the Company and its employees.
If an employee knows of or suspects a violation of this Code, it is such employees responsibility to immediately report the violation to the Compliance Officer, who will work with the employee to investigate his/her concern. All questions and reports of known or suspected violations of this Code will be treated with sensitivity and discretion. The Compliance Officer and the Company will protect the employees confidentiality to the extent possible, consistent with the law and the Companys need to investigate the employees concern.
It is the Companys policy that any employee who violates this Code will be subject to appropriate discipline, including termination of employment, based upon the facts and circumstances of each particular situation. An employees conduct, if it does not comply with the law or with this Code, can result in serious consequences for both the employee and the Company.
The Company strictly prohibits retaliation against an employee who, in good faith, seeks help or reports known or suspected violations. An employee inflicting reprisal or retaliation against another employee for reporting a known or suspected violation will be subject to disciplinary action, including termination of employment.
XV. | WAIVERS OF THE CODE |
Waivers of this Code will be granted on a case-by-case basis and only in extraordinary circumstances. Waivers of this Code may be made only by the Board, or the appropriate committee of the Board, and may be promptly disclosed to the public if so required by applicable laws and regulations and rules of the Nasdaq.
XVI. | CONCLUSION |
This Code contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. If employees have any questions about these guidelines, they should contact the Compliance Officer. We expect all employees to adhere to these standards. Each employee is separately responsible for his/her actions. Conduct that violates the law or this Code cannot be justified by claiming that it was ordered by a supervisor or someone in higher management positions. If an employee engages in conduct prohibited by the law or this Code, such employee will be deemed to have acted outside the scope of his/her employment. Such conduct will subject the employee to disciplinary action, including termination of employment.
* * * * * * * * * * * * *
Exhibit 99.3
Letterhead of Tarena International, Inc.
January 24, 2014
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
RE: | Tarena International, Inc.: Draft Registration |
Statement on Form F-1
Application for Waiver of Requirements of Item
8.A.4, Form 20F
Ladies and Gentlemen:
The undersigned, Tarena International, Inc., a foreign private issuer organized under the laws of the Cayman Islands (the Company ), respectfully requests that the Securities and Exchange Commission (the Commission ) waive the requirement of Item 8.A.4 of Form 20-F, which states that in the case of a companys initial public offering, the Registration Statement on Form F-1 (the Registration Statement ) must contain audited financial statements of a date not older than 12 months from the date of the offering unless a waiver is obtained. See also Division of Corporation Finance, Financial Reporting Manual , Section 6220.3.
The Company is submitting this waiver request pursuant to Instruction 2 to Item 8.A.4 of Form 20-F, which provides that the Commission will waive the 12-month age of financial statements requirement in cases where the company is able to represent adequately to us that it is not required to comply with this requirement in any other jurisdiction outside the United States and that complying with this requirement is impracticable or involves undue hardship. See also the 2004 release entitled International Reporting and Disclosure Issues in the Division of Corporation Finance (available on the Commissions website at http://www.sec.gov/divisions/corpfin/internatl/cfirdissues1104.htm) by the staff of the Division of Corporation Finance (the Staff ) at Section III.B.c, in which the Staff note that:
the instruction indicates that the staff will waive the 12-month requirement where it is not applicable in the registrants other filing jurisdictions and is impracticable or involves undue hardship. As a result, we expect that the vast majority of IPOs will be subject only to the 15-month rule. The only times that we anticipate audited financial statements will be filed under the 12-month rule are when the registrant must comply with the rule in another jurisdiction, or when those audited financial statements are otherwise readily available. (emphasis added)
In connection with this request, the Company represents to the Commission that:
1. The Company is not currently a public reporting company in any jurisdiction.
2. The Company is not required by any jurisdiction outside the United States to prepare, and has not prepared, consolidated financial statements audited under any generally accepted auditing standards for any interim period.
Securities and Exchange Commission
January 15, 2014
Page 2
3. Compliance with Item 8.A.4 of Form 20-F at present is impracticable and involves undue hardship for the Company.
4. The Company does not anticipate that its audited financial statements for the year ended December 31, 2013 will be available until the middle of March 2014.
5. In no event will the Company seek effectiveness of the Registration Statement if its audited financial statements are older than 15 months at the time of the offering.
The Company will file this letter as an exhibit to the Registration Statement on Form F-1 pursuant to Instruction 2 to Item 8.A.4 of Form 20-F.
Very truly yours, | ||
Tarena International, Inc. |
||
By: |
/s/ Shaoyun Han |
|
Name: | Shaoyun Han | |
Title: | Chief Executive Officer |
Exhibit 99.4
February 27, 2014
Tarena International, Inc.
Suite 10017, Building E,
Zhongkun Plaza, A18 Bei San Huan West Road,
Haidian District, Beijing 100098
Peoples Republic of China
Tel: +86 10 6213-5687
Ladies and Gentlemen:
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the reference of my name as a director of Tarena International, Inc. (the Company), effective immediately upon the effectiveness of the Companys registration statement on Form F-1 initially filed by the Company on November 26, 2013 with the U.S. Securities and Exchange Commission confidentially.
Sincerely yours,
/s/ Yongji Sun
Name: Yongji Sun
Exhibit 99.5
February 27, 2014
Tarena International, Inc.
Suite 10017, Building E,
Zhongkun Plaza, A18 Bei San Huan West Road,
Haidian District, Beijing 100098
Peoples Republic of China
Tel: +86 10 6213-5687
Ladies and Gentlemen:
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the reference of my name as a director of Tarena International, Inc. (the Company), effective immediately upon the effectiveness of the Companys registration statement on Form F-1 initially filed by the Company on November 26, 2013 with the U.S. Securities and Exchange Commission confidentially.
Sincerely yours,
/s/ Xiaosong Zhang
Name: Xiaosong Zhang
Exhibit 99.6
February 19, 2014
Tarena International, Inc.
Suite 10017, Building E,
Zhongkun Plaza, A18 Bei San Huan West Road,
Haidian District, Beijing 100098
Peoples Republic of China
Tel: +86 10 6213-5687
Ladies and Gentlemen:
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to the reference of my name as a director of Tarena International, Inc. (the Company), effective immediately upon the effectiveness of the Companys registration statement on Form F-1 initially filed by the Company on November 26, 2013 with the U.S. Securities and Exchange Commission confidentially.
Sincerely yours,
/s/ Ya-Qin Zhang
Name: Ya-Qin Zhang