UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

SCHEDULE 13E-3

(Amendment No. 1)

 

RULE 13e-3 TRANSACTION STATEMENT

(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)

 

 

 

Tarena International, Inc.

(Name of the Issuer)

 

 

 

Tarena International, Inc.

Mr. Shaoyun Han

Kidedu Holdings Limited

Kidarena Merger Sub

Kidtech Limited

Ascendent Capital Partners III, L.P.

Connion Capital Limited

Learningon Limited

Moocon Education Limited

Techedu Limited

Titanium Education (Cayman) Limited

(Names of Persons Filing Statement)

 

Class A Ordinary Shares, par value $0.001 per share

American Depositary Shares, each representing one Class A Ordinary Share

(Title of Class of Securities)

 

G8675B 105*

876108101**

(CUSIP Number)

 

Tarena International, Inc.

6/F, No. 1 Andingmenwai Street, Litchi Tower,

Chaoyang District, Beijing 100011,

People’s Republic of China

Telephone: +86 10 6213 5687

 

Mr. Shaoyun Han

Kidedu Holdings Limited

Kidarena Merger Sub

Kidtech Limited

Connion Capital Limited

Learningon Limited

Moocon Education Limited

Techedu Limited
6/F, No. 1 Andingmenwai Street, Litchi Tower,

Chaoyang District, Beijing 100011,

People’s Republic of China

Telephone: +86 10 6213 5687

 

Ascendent Capital Partners III, L.P.

Titanium Education (Cayman) Limited

Suite 3501, 35/F Jardine House, 1 Connaught Place, Central, Hong Kong
Telephone: +852 2165 9000

 

With copies to:

Fang Xue, Esq.
Gibson, Dunn & Crutcher LLP
Unit 1301, Tower 1, China Central Place
No. 81 Jianguo Road
Chaoyang District
Beijing 100025
People’s Republic of China
+86 10 6502 8500

Z. Julie Gao, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
c/o 42/F, Edinburgh Tower
The Landmark
15 Queen’s Road Central
Hong Kong
+852 3740 4700
Peter X. Huang, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
30/F, China World Office 2
No. 1, Jianguomenwai Avenue
Chaoyang District
Beijing 100004
People’s Republic of China
+86 10 6535 5500

 

 

 

This statement is filed in connection with (check the appropriate box):

 

a¨ The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14-C or Rule 13e-3(c) under the Securities Exchange Act of 1934.

 

b¨ The filing of a registration statement under the Securities Act of 1933.

 

c¨ A tender offer

 

dx None of the above

 

Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: ¨

 

Check the following box if the filing is a final amendment reporting the results of the transaction: ¨

 

Calculation of Filing Fee

 

Transaction Valuation***

Amount of Filing Fee****

US$128,877,533.90 US$14,060.54

 

  * This CUSIP applies to class A ordinary shares.
     
  ** This CUSIP applies to American depositary shares, each representing one class A ordinary share.
     
  *** Calculated solely for the purpose of determining the filing fee in accordance with Rule 0-11(b)(1) under the Securities Exchange Act of 1934, as amended. The filing fee is calculated based on the sum of (a) the aggregate cash payment for the proposed per share cash payment of US$4.00 for 30,977,536 issued and outstanding ordinary shares of the issuer (including shares represented by American depositary shares) subject to the transaction, plus (b) the product of 242,539 restricted share units of the issuer subject to the transaction multiplied by US$4.00 per unit, plus (c) the product of 1,480,457 shares issuable under all outstanding and unexercised options with per share exercise price lower than US$4.00 multiplied by US$2.70 per share (which is the difference between the US$4.00 per share merger consideration and the weighted average exercise price of US$1.30 per share of such options) ((a), (b), and (c) together, the “Transaction Valuation”).

 

 ****The amount of the filing fee, calculated in accordance with Exchange Act Rule 0-11(b)(1) and the Securities and Exchange Commission Fee Rate Advisory #1 for Fiscal Year 2021, was calculated by multiplying the Transaction Valuation by 0.0001091.

 

¨Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting of the fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

Amount Previously Paid:   Filing Party:  
Form or Registration No.:   Date Filed:  

 

 

 

 

 

 

TABLE OF CONTENTS

 

Item 1 Summary of Term Sheet 3
Item 2 Subject Company Information 3
Item 3 Identity and Background of Filing Persons 3
Item 4 Terms of the Transaction 4
Item 5 Past Contracts, Transactions, Negotiations and Agreements 5
Item 6 Purposes of the Transaction and Plans or Proposals 6
Item 7 Purposes, Alternatives, Reasons and Effects 7
Item 8 Fairness of the Transaction 9
Item 9 Reports, Opinions, Appraisals and Negotiations 10
Item 10 Source and Amount of Funds or Other Consideration 10
Item 11 Interest in Securities of the Subject Company 11
Item 12 The Solicitation or Recommendation 11
Item 13 Financial Statements 12
Item 14 Persons/Assets, Retained, Employed, Compensated or Used 12
Item 15 Additional Information 12
Item 16 Exhibits 12

 

 

 

 

INTRODUCTION

 

This Amendment No. 1 (this “Amendment”) to the Rule 13e-3 transaction statement on Schedule 13E-3, together with the exhibits hereto (this “Transaction Statement”), is being filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), jointly by the following persons (each, a “Filing Person,” and collectively, the “Filing Persons”): (a) Tarena International, Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands (the “Company”), the issuer of the ordinary shares, par value US$0.001 per share (each, a “Share,” and collectively, the “Shares”), including Shares represented by American depositary shares (each, an “ADS,” and collectively, the “ADSs”), each representing one Class A ordinary share that is subject to the transaction pursuant to Rule 13e-3 under the Exchange Act; (b) Mr. Shaoyun Han, the chairman of the board of directors of the Company (the “Chairman”); (c) Kidedu Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”); (d) Kidarena Merger Sub, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Parent (“Merger Sub”); (e) Kidtech Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands controlled by the Chairman; (f) Ascendent Capital Partners III, L.P., an exempted limited partnership formed under the laws of the Cayman Islands (the “Sponsor”); (g) Connion Capital Limited, a company organized and existing under the laws of the British Virgin Islands (“Connion”); (h) Learningon Limited, a company organized and existing under the laws of the British Virgin Islands (“Learningon”); (i) Moocon Education Limited, a company organized and existing under the laws of the British Virgin Islands (“Moocon”); (j) Techedu Limited, a company organized and existing under the laws of the British Virgin Islands (“Techedu”); and (k) Titanium Education (Cayman) Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of the Sponsor (the “Investor”). This Amendment amends and restates in its entirety information set forth in the Transaction Statement.

 

Throughout this Amendment, Parent, Merger Sub, the Chairman, Kidtech Limited, Learningon, Connion, Techedu, Moocon, the Investor and the Sponsor are collectively referred to as the “Buyer Group.” The Chairman, Learningon, Connion, Techedu, Moocon, Banyan Enterprises Limited, Banyan Enterprises A Limited (collectively with Banyan Enterprises Limited, “Gaorong”), New Oriental Education & Technology Group Inc. (“New Oriental”) and Talent Fortune Investment Limited (“KKR”) are collectively referred to herein as the “Rollover Shareholders.”

 

On April 30, 2021, Parent, Merger Sub and the Company entered into an agreement and plan of merger (the “Merger Agreement”) providing for the merger of Merger Sub with and into the Company, with the Company continuing as the surviving company after the Merger as a wholly owned subsidiary of Parent (the “Merger”).

 

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (i) each of the Shares issued and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to receive US$4.00 in cash, without interest and net of any applicable withholding taxes, and (ii) each of the ADSs issued and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to receive US$4.00 in cash without interest and net of any applicable withholding taxes, except for (x) (a) 25,234,984 Shares (including Share represented by ADSs, but excluding, for purpose of this calculation, the Shares that the Chairman may acquire through the exercise of options within 60 days of the Proxy Statement, as defined below) held by the Rollover Shareholders (the “Rollover Shares”), which will be cancelled and cease to exist without payment of consideration as contemplated by and in accordance with the rollover and support agreements entered into between Parent and each of the Rollover Shareholders (the “Support Agreements”), (b) Shares (including Shares represented by ADSs) held by Parent, Merger Sub and any of their respective affiliates, (c) Shares (including Shares represented by ADSs) beneficially owned by the Company or any subsidiary of the Company or held in the Company’s treasury, and (d) Shares (including Shares represented by ADSs) held by Citibank, N.A., in its capacity as the ADS Depositary and the holder of the Shares underlying the ADSs and reserved for issuance, settlement and allocation pursuant to the 2008 Share Plan of the Company and the 2014 Share Plan of the Company (collectively, the “Company Share Plans”), in each case, issued and outstanding immediately prior to the Effective Time, which will be cancelled and cease to exist at the Effective Time without payment of any consideration or distribution therefor; and (y) Shares held by shareholders who have validly exercised and have not effectively withdrawn or lost their rights to dissent from the Merger pursuant to Section 238 of the Companies Act (2021 Revision) of the Cayman Islands (the “Cayman Islands Companies Act”), which will be cancelled and cease to exist in exchange for the right to receive the payment of fair value of such Shares in accordance with Section 238 of the Cayman Islands Companies Act.

 

1

 

In addition to the foregoing, at the Effective Time, each option (each, a “Company Option”) to purchase Shares granted under the Company Share Plans that is vested at or prior to the Effective Time and remains outstanding at the Effective Time (each, a “Vested Company Option”), will be cancelled in exchange for the election to (i) be issued with an employee incentive award, to replace such Vested Company Option, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such Vested Company Option, or (ii) receive cash from the surviving company, without interest and net of any applicable withholding taxes, in the amount equal to the product of (x) the excess, if any, of the Per Share Merger Consideration over the exercise price of such Vested Company Option and (y) the number of Shares underlying such Vested Company Option (assuming such holder exercises such Vested Company Option in full immediately prior to the Effective Time), provided that if the exercise price per Share of any such Vested Company Option is greater than the Per Share Merger Consideration, such Vested Company Option will be cancelled without any cash payment being made in respect thereof. In the event that such holder of a Vested Company Option fails to deliver the written election to the Company prior to the shareholders meeting, such holder will be deemed to have elected to be issued with an employee incentive award to replace such Vested Company Option according to item (i) described above.

 

At the Effective Time, each unvested Company Option that is outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to be issued with an employee incentive award, to replace such unvested Company Option, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such unvested Company Option.

 

At the Effective Time, each restricted share unit granted under the Company Share Plans (each, a “Company RSU”) that is vested and outstanding immediately prior to the Effective Time (each, a “Vested Company RSU”), will be cancelled in exchange for the election to (i) be issued with an employee incentive award, to replace such Vested Company RSU, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such Vested Company RSU, or (ii) receive cash, without interest and net of any applicable withholding taxes, in the amount equal to the Per Share Merger Consideration. In the event that such holder of a Vested Company RSU fails to deliver the written election to the Company prior to the shareholders meeting, such holder will be deemed to have elected to be issued with an employee incentive award to replace such Vested Company RSU according to item (i) described above.

 

At the Effective Time, each Company RSU that is unvested and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to be issued with an employee incentive award, to replace such unvested Company RSU, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such unvested Company RSU.

 

At the Effective Time, each of the Company RSUs granted to certain independent directors of the Company‎, whether vested or unvested, that is cancelled at the Effective Time will, except as otherwise agreed to in writing between such persons and Parent, in exchange therefor, receive cash, without interest and net of any applicable withholding taxes, in the amount equal to the Per Share Merger Consideration multiplied by the number of Shares underlying such Company RSU.

 

The Merger remains subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, including obtaining the requisite approval of the shareholders of the Company. The Merger Agreement, the plan of merger required to be filed with the Registrar of Companies of the Cayman Islands in connection with the Merger (the “Plan of Merger”) and the transactions contemplated by the Merger Agreement and the Plan of Merger, including the Merger (collectively, the “Transactions”), must be authorized and approved by a special resolution (as defined in the Cayman Islands Companies Act) of the Company passed by an affirmative vote of holders of Shares representing at least two-thirds of the voting power of the outstanding Shares present and voting in person or by proxy as a single class at the extraordinary general meeting or any adjournment or postponement thereof. Pursuant to the Support Agreements, the Rollover Shareholders have agreed to vote all of the Rollover Shares in favor of the authorization and approval of this Agreement, the Plan of Merger and the consummation of the Transactions, which collectively represent approximately 44.9% of the Company’s total issued and outstanding Shares and approximately 74.4% of the voting power of the total issued and outstanding Shares, each as of May 19, 2021.

 

The Company will make available to its shareholders a proxy statement (the “Proxy Statement,” a preliminary copy of which is attached as Exhibit (a)-(1) to this Amendment), relating to the extraordinary general meeting of the Company’s shareholders, at which the Company’s shareholders will consider and vote upon, among other proposals, a proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions. As of the date hereof, the Proxy Statement is in preliminary form and is subject to completion. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Proxy Statement.

 

The cross-references below are being supplied pursuant to General Instruction G to Schedule 13E-3 and show the location in the Proxy Statement of the information required to be included in response to the items of Schedule 13E-3. Pursuant to General Instruction F to Schedule 13E-3, the information contained in the Proxy Statement, including all annexes thereto, is incorporated in its entirety herein by this reference, and the responses to each item in this Amendment are qualified in their entirety by the information contained in the Proxy Statement and the annexes thereto.

 

All information contained in this Amendment concerning each Filing Person has been supplied by such Filing Person. No Filing Person, including the Company, has supplied any information with respect to any other Filing Person.

 

2

 

Item 1Summary of Term Sheet

 

The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET”

 

“QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER”

 

Item 2Subject Company Information

 

(a)Name and Address. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“SUMMARY TERM SHEET—The Parties Involved in the Merger”

 

(b)Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“THE EXTRAORDINARY GENERAL MEETING—Record Date; Shares and ADSs Entitled to Vote”

 

“THE EXTRAORDINARY GENERAL MEETING—Procedures for Voting”

 

“SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY”

 

(c)Trading Market and Price. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“MARKET PRICE OF THE COMPANY’S ADSS, DIVIDENDS AND OTHER MATTERS”

 

(d)Dividends. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“MARKET PRICE OF THE COMPANY’S ADSS, DIVIDENDS AND OTHER MATTERS”

 

(e)Prior Public Offerings. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“TRANSACTIONS IN THE SHARES AND ADSS—Prior Public Offerings”

 

(f)Prior Stock Purchases. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“TRANSACTIONS IN THE SHARES AND ADSS”

 

Item 3Identity and Background of Filing Persons

 

(a)Name and Address. Tarena International, Inc. is the subject company. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—The Parties Involved in the Merger”

 

“ANNEX E—DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON”

 

3

 

(b)Business and Background of Entities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—The Parties Involved in the Merger”

 

“ANNEX E—DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON”

 

(c)Business and Background of Natural Persons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—The Parties Involved in the Merger”

 

“ANNEX E—DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON”

 

Item 4Terms of the Transaction

 

(a)-(1)Material Terms—Tender Offers. Not applicable.

 

(a)-(2)Material Terms—Merger or Similar Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET”

 

“QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

“SPECIAL FACTORS—Purposes of and Reasons for the Merger”

 

“SPECIAL FACTORS—Support Agreements”

 

“SPECIAL FACTORS—Limited Guarantees”

 

“SPECIAL FACTORS—Financing of the Merger—Equity Financing”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“SPECIAL FACTORS—U.S. Federal Income Tax Consequences”

 

“SPECIAL FACTORS—PRC Income Tax Consequences”

 

“SPECIAL FACTORS—Cayman Islands Tax Consequences”

 

“THE EXTRAORDINARY GENERAL MEETING”

 

“THE MERGER AGREEMENT”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

“ANNEX B—PLAN OF MERGER”

 

(c)Different Terms. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

4

 

“THE EXTRAORDINARY GENERAL MEETING—Proposals to be Considered at the Extraordinary General Meeting”

 

“THE MERGER AGREEMENT”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

“ANNEX B—PLAN OF MERGER”

 

(d)Appraisal Rights. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER”

 

“DISSENTERS’ RIGHTS”

 

“ANNEX D—CAYMAN ISLANDS COMPANIES ACT (2021 REVISION)”

 

(e)Provisions for Unaffiliated Security Holders. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS”

 

(f)Eligibility of Listing or Trading. Not applicable.

 

Item 5Past Contracts, Transactions, Negotiations and Agreements

 

(a)Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“SPECIAL FACTORS—Related Party Transactions”

 

“TRANSACTIONS IN THE SHARES AND ADSS”

 

(b)Significant Corporate Events. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

“SPECIAL FACTORS—Purposes of and Reasons for the Merger”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“THE MERGER AGREEMENT”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

“ANNEX B—PLAN OF MERGER”

 

5

 

(c)Negotiations or Contacts. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“THE MERGER AGREEMENT”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

“ANNEX B—PLAN OF MERGER”

 

(e)Agreements Involving the Subject Company’s Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Financing of the Merger”

 

“SUMMARY TERM SHEET—Plans for the Company after the Merger”

 

“SUMMARY TERM SHEET—Support Agreements”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Financing of the Merger”

 

“SPECIAL FACTORS—Plans for the Company after the Merger”

 

“SPECIAL FACTORS—Support Agreements”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“SPECIAL FACTORS—Voting by the Rollover Shareholders at the Extraordinary General Meeting”

 

“THE MERGER AGREEMENT”

 

“TRANSACTIONS IN THE SHARES AND ADSS”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

“ANNEX B—PLAN OF MERGER”

 

Item 6Purposes of the Transaction and Plans or Proposals

 

(b)Use of Securities Acquired. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET”

 

“QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER”

 

“SPECIAL FACTORS—Purposes of and Reasons for the Merger”

 

“SPECIAL FACTORS—Effects of the Merger on the Company”

 

“THE MERGER AGREEMENT”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

6

 

“ANNEX B—PLAN OF MERGER”

 

(c)(1)-(8)Plans. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—The Merger Agreement”

 

“SUMMARY TERM SHEET—Purposes and Effects of the Merger”

 

“SUMMARY TERM SHEET—Plans for the Company after the Merger”

 

“SUMMARY TERM SHEET—Financing of the Merger”

 

“SUMMARY TERM SHEET—Interests of the Company’s Executive Officers and Directors in the Merger”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

“SPECIAL FACTORS—Purposes of and Reasons for the Merger”

 

“SPECIAL FACTORS—Effects of the Merger on the Company”

 

“SPECIAL FACTORS—Plans for the Company after the Merger”

 

“SPECIAL FACTORS—Financing of the Merger”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“THE MERGER AGREEMENT”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

“ANNEX B—PLAN OF MERGER”

 

Item 7Purposes, Alternatives, Reasons and Effects

 

(a)Purposes. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Purposes and Effects of the Merger”

 

“SUMMARY TERM SHEET—Plans for the Company after the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

“SPECIAL FACTORS—Purposes of and Reasons for the Merger”

 

(b)Alternatives. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

7

 

 

“SPECIAL FACTORS—Position of the Buyer Group as to the Fairness of the Merger”

 

“SPECIAL FACTORS—Purposes of and Reasons for the Merger”

 

“SPECIAL FACTORS—Alternatives to the Merger”

 

“SPECIAL FACTORS—Effects on the Company if the Merger Is Not Completed”

 

(c)Reasons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Purposes and Effects of the Merger”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

“SPECIAL FACTORS—Position of the Buyer Group as to the Fairness of the Merger”

 

“SPECIAL FACTORS—Purposes of and Reasons for the Merger”

 

“SPECIAL FACTORS—Alternatives to the Merger”

 

“SPECIAL FACTORS—Effects of the Merger on the Company”

 

(d)Effects. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Purposes and Effects of the Merger”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

“SPECIAL FACTORS—Effects of the Merger on the Company”

 

“SPECIAL FACTORS—Plans for the Company after the Merger”

 

“SPECIAL FACTORS—Effects on the Company if the Merger Is Not Completed”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“SPECIAL FACTORS—U.S. Federal Income Tax Consequences”

 

“SPECIAL FACTORS—PRC Income Tax Consequences”

 

“SPECIAL FACTORS—Cayman Islands Tax Consequences”

 

“THE MERGER AGREEMENT”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

“ANNEX B—PLAN OF MERGER”

 

8

 

Item 8Fairness of the Transaction

 

(a)-(b)Fairness; Factors Considered in Determining Fairness. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Position of the Buyer Group as to the Fairness of the Merger”

 

“SUMMARY TERM SHEET—Opinion of the Special Committee’s Financial Advisor”

 

“SUMMARY TERM SHEET—Interests of the Company’s Executive Officers and Directors in the Merger”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

“SPECIAL FACTORS—Position of the Buyer Group as to the Fairness of the Merger”

 

“SPECIAL FACTORS—Opinion of the Special Committee’s Financial Advisor”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“ANNEX C—FAIRNESS OPINION”

 

(c)Approval of Security Holders. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER”

 

“THE EXTRAORDINARY GENERAL MEETING—Vote Required”

 

(d)Unaffiliated Representative. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

“SPECIAL FACTORS—Opinion of the Special Committee’s Financial Advisor”

 

“ANNEX C—FAIRNESS OPINION”

 

(e)Approval of Directors. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

9

 

(f)Other Offers. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

Item 9Reports, Opinions, Appraisals and Negotiations

 

(a)Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Opinion of the Special Committee’s Financial Advisor”

 

“SPECIAL FACTORS—Background of the Merger”

 

“SPECIAL FACTORS—Opinion of the Special Committee’s Financial Advisor”

 

“ANNEX C—FAIRNESS OPINION”

 

(b)Preparer and Summary of the Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SPECIAL FACTORS—Opinion of the Special Committee’s Financial Advisor”

 

“ANNEX C—FAIRNESS OPINION”

 

(c)Availability of Documents. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“WHERE YOU CAN FIND MORE INFORMATION”

 

The reports, opinions or appraisals referenced in this Item 9 will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested holder of the Shares or his, her or its representative who has been so designated in writing.

 

Item 10Source and Amount of Funds or Other Consideration

 

(a)Source of Funds. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Financing of the Merger”

 

“SPECIAL FACTORS—Financing of the Merger”

 

“THE MERGER AGREEMENT”

 

“ANNEX A—AGREEMENT AND PLAN OF MERGER”

 

“ANNEX B—PLAN OF MERGER”

 

(b)Conditions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Financing of the Merger”

 

“SPECIAL FACTORS—Financing of the Merger”

 

10

 

(c)Expenses. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“SPECIAL FACTORS—Fees and Expenses”

 

(d)Borrowed Funds. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Financing of the Merger”

 

“SPECIAL FACTORS—Financing of the Merger”

 

“THE MERGER AGREEMENT—Financing”

 

Item 11Interest in Securities of the Subject Company

 

(a)Securities Ownership. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Interests of the Company’s Executive Officers and Directors in the Merger”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY”

 

(b)Securities Transactions. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“TRANSACTIONS IN THE SHARES AND ADSS”

 

Item 12The Solicitation or Recommendation

 

(d)Intent to Tender or Vote in a Going-Private Transaction. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Interests of the Company’s Executive Officers and Directors in the Merger”

 

“SUMMARY TERM SHEET—Support Agreements”

 

“SPECIAL FACTORS—Support Agreements”

 

“QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER”

 

“SPECIAL FACTORS—Voting by the Rollover Shareholders at the Extraordinary General Meeting”

 

“THE EXTRAORDINARY GENERAL MEETING—Vote Required”

 

“SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY”

 

(e)Recommendations of Others. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—Position of the Buyer Group as to the Fairness of the Merger”

 

“SUMMARY TERM SHEET—Support Agreements”

 

“SPECIAL FACTORS—Reasons for the Merger and Recommendation of the Special Committee and the Board”

 

11

 

“SPECIAL FACTORS—Position of the Buyer Group as to the Fairness of the Merger”

 

“SPECIAL FACTORS—Support Agreements”

 

“THE EXTRAORDINARY GENERAL MEETING—The Board’s Recommendation”

 

Item 13Financial Statements

 

(a)Financial Information. The audited financial statements of the Company for the two years ended December 31, 2019 and 2020 are incorporated herein by reference to the Company’s Form 20-F for the year ended December 31, 2020, originally filed on April 13, 2021 (see page F-1 and following pages).

 

The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“FINANCIAL INFORMATION”

 

“WHERE YOU CAN FIND MORE INFORMATION”

 

(b)Pro Forma Information. Not applicable.

 

Item 14Persons/Assets, Retained, Employed, Compensated or Used

 

(a)Solicitation or Recommendations. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“THE EXTRAORDINARY GENERAL MEETING—Solicitation of Proxies”

 

(b)Employees and Corporate Assets. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“SUMMARY TERM SHEET—The Parties Involved in the Merger”

 

“SPECIAL FACTORS—Interests of Certain Persons in the Merger”

 

“ANNEX E—DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON”

 

Item 15Additional Information

 

(b)Other Material Information. The information contained in the Proxy Statement, including all annexes thereto, is incorporated herein by reference.

 

Item 16Exhibits

 

(a)-(1) Preliminary Proxy Statement of the Company dated July 6, 2021 (the “Proxy Statement”).
(a)-(2) Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to the Proxy Statement.
(a)-(3) Depositary’s Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to Annex G to the Proxy Statement.
(a)-(4) Form of Proxy Card, incorporated herein by reference to Annex F to the Proxy Statement.
(a)-(5) Form of ADS Voting Instruction Card, incorporated herein by reference to Annex H to the Proxy Statement.
(a)-(6) Press Release issued by the Company, dated April 30, 2021, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the SEC on May 3, 2021.
(c)-(1) Opinion of Duff & Phelps, A Kroll Business operating as Kroll, LLC (formerly known as Duff & Phelps, LLC) (“Duff & Phelps”), dated April 30, 2021, incorporated herein by reference to Annex C to the Proxy Statement.

 

12

 

(c)-(2) Discussion Materials prepared by Duff & Phelps for discussion with the special committee of the board of directors of the Company, dated April 30, 2021.
(d)-(1) Agreement and Plan of Merger, dated as of April 30, 2021, by and among the Company, Parent and Merger Sub, incorporated herein by reference to Annex A to the Proxy Statement.
(d)-(2) Support Agreement, dated as of April 30, 2021, by and among the Chairman, Connion, Learningon, Techedu, Moocon and Parent, incorporated herein by reference to Exhibit R to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(3) Support Agreement, dated as of April 30, 2021, by and between KKR and Parent, incorporated herein by reference to Exhibit G to the Schedule 13D/A filed by KKR and other filing persons thereto with the SEC on May 3, 2021.
(d)-(4) Support Agreement, dated as of April 30, 2021, by and between New Oriental and Parent, incorporated herein by reference to Exhibit 2 to the Schedule 13D filed by New Oriental with the SEC on May 10, 2021.
(d)-(5) Support Agreement, dated as of April 30, 2021, by and among Gaorong and Parent.
(d)-(6) Limited Guarantee, dated as of April 30, 2021, by and between the Chairman and the Company, incorporated herein by reference to Exhibit S to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(7) Limited Guarantee, dated as of April 30, 2021, by and between the Sponsor and the Company.
(d)-(8) Equity Commitment Letter, dated April 30, 2021, by and among the Sponsor, Kidtech Limited, Parent and the Chairman, incorporated herein by reference to Exhibit Q to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(9) Consortium Agreement, dated January 21, 2021, by and between the Chairman and the Investor, incorporated herein by reference to Exhibit O to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on January 21, 2021.
(d)-(10) Interim Investor Agreement, dated April 30, 2021, by and among the Investor, Kidtech Limited, Parent and the Chairman, incorporated herein by reference to Exhibit T to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(11) Personal Guarantee, dated April 30, 2021, by the Chairman to the Investor and the Sponsor, incorporated herein by reference to Exhibit U to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(12) Letter of Undertaking regarding SPA and Personal Guarantee, dated April 30, 2021, by and among the Chairman, Techedu and Gaorong, incorporated herein by reference to Exhibit V to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(f)-(1) Dissenters’ Rights, incorporated herein by reference to the section entitled “Dissenters’ Rights” in the Proxy Statement.
(f)-(2) Section 238 of the Cayman Islands Companies Act, incorporated herein by reference to Annex D to the Proxy Statement.
(g) Not applicable.

 

13

 

EXHIBIT INDEX

 

(a)-(1) Preliminary Proxy Statement of the Company dated July 6, 2021 (the “Proxy Statement”).
(a)-(2) Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to the Proxy Statement.
(a)-(3) Depositary’s Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to Annex G to the Proxy Statement.
(a)-(4) Form of Proxy Card, incorporated herein by reference to Annex F to the Proxy Statement.
(a)-(5) Form of ADS Voting Instruction Card, incorporated herein by reference to Annex H to the Proxy Statement.
(a)-(6) Press Release issued by the Company, dated April 30, 2021, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the SEC on May 3, 2021.
(c)-(1) Opinion of Duff & Phelps, A Kroll Business operating as Kroll, LLC (formerly known as Duff & Phelps, LLC) (“Duff & Phelps”), dated April 30, 2021, incorporated herein by reference to Annex C to the Proxy Statement.
(c)-(2) Discussion Materials prepared by Duff & Phelps for discussion with the special committee of the board of directors of the Company, dated April 30, 2021.
(d)-(1) Agreement and Plan of Merger, dated as of April 30, 2021, by and among the Company, Parent and Merger Sub, incorporated herein by reference to Annex A to the Proxy Statement.
(d)-(2) Support Agreement, dated as of April 30, 2021, by and among the Chairman, Connion, Learningon, Techedu, Moocon and Parent, incorporated herein by reference to Exhibit R to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(3) Support Agreement, dated as of April 30, 2021, by and between KKR and Parent, incorporated herein by reference to Exhibit G to the Schedule 13D/A filed by KKR and other filing persons thereto with the SEC on May 3, 2021.
(d)-(4) Support Agreement, dated as of April 30, 2021, by and between New Oriental and Parent, incorporated herein by reference to Exhibit 2 to the Schedule 13D filed by New Oriental with the SEC on May 10, 2021.
(d)-(5) Support Agreement, dated as of April 30, 2021, by and among Gaorong and Parent.
(d)-(6) Limited Guarantee, dated as of April 30, 2021, by and between the Chairman and the Company, incorporated herein by reference to Exhibit S to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(7) Limited Guarantee, dated as of April 30, 2021, by and between the Sponsor and the Company.
(d)-(8) Equity Commitment Letter, dated April 30, 2021, by and among the Sponsor, Kidtech Limited, Parent and the Chairman, incorporated herein by reference to Exhibit Q to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(9) Consortium Agreement, dated January 21, 2021, by and between the Chairman and the Investor, incorporated herein by reference to Exhibit O to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on January 21, 2021.
(d)-(10) Interim Investor Agreement, dated April 30, 2021, by and among the Investor, Kidtech Limited, Parent and the Chairman, incorporated herein by reference to Exhibit T to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(11) Personal Guarantee, dated April 30, 2021, by the Chairman to the Investor and the Sponsor, incorporated herein by reference to Exhibit U to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(d)-(12) Letter of Undertaking regarding SPA and Personal Guarantee, dated April 30, 2021, by and among the Chairman, Techedu and Gaorong, incorporated herein by reference to Exhibit V to the Schedule 13D/A filed by the Chairman, Connion, Learningon, Techedu and Moocon with the SEC on May 3, 2021.
(f)-(1) Dissenters’ Rights, incorporated herein by reference to the section entitled “Dissenters’ Rights” in the Proxy Statement.
(f)-(2) Section 238 of the Cayman Islands Companies Act, incorporated herein by reference to Annex D to the Proxy Statement.
(g) Not applicable.

 

14

 

SIGNATURES

 

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

 

Date: July 6, 2021      
  TARENA INTERNATIONAL, INC.
 

 

 

By:

 

 

/s/ Arthur Lap Tat Wong

    Name: Arthur Lap Tat Wong
    Title: Chairman of the Special Committee

 

[Signature Page to Schedule 13E-3 Transaction Statement]

 

15

 

  SHAOYUN HAN
 

 

 

/s/ Shaoyun Han

 

 

  KIDEDU HOLDINGS LIMITED
 

 

 

By:

 

 

/s/ Shaoyun Han

    Name: Shaoyun Han
    Title: Director
 
  KIDARENA MERGER SUB
 

 

 

By:

 

 

/s/ Shaoyun Han

    Name: Shaoyun Han
    Title: Director
 
  KIDTECH LIMITED
 

 

 

By:

 

 

/s/ Shaoyun Han

    Name: Shaoyun Han
    Title: Director
 
  CONNION CAPITAL LIMITED
 

 

 

By:

 

 

/s/ Shaoyun Han

    Name: Shaoyun Han
    Title: Director
 
  LEARNINGON LIMITED
 

 

 

By:

 

 

/s/ Shaoyun Han

    Name: Shaoyun Han
    Title: Director
 
  MOOCON EDUCATION LIMITED
 

 

 

By:

 

 

/s/ Shaoyun Han

    Name: Shaoyun Han
    Title: Director

 

[Signature Page to Schedule 13E-3 Transaction Statement]

 

16

 

  TECHEDU LIMITED
 

 

 

By:

 

 

/s/ Shaoyun Han

    Name: Shaoyun Han
    Title: Director

 

[Signature Page to Schedule 13E-3 Transaction Statement]

 

17

 

  ASCENDENT CAPITAL PARTNERS III, L.P.
  By: Ascendent Capital Partners III GP, L.P., its general partner
  By: Ascendent Capital Partners III GP Limited, its general partner
 

 

 

By:

 

 

/s/ Lam On Na Anna

    Name: Lam On Na Anna
    Title: Authorized Signatory

 

  TITANIUM EDUCATION (CAYMAN) LIMITED
 

 

 

By:

 

 

/s/ Lam On Na Anna

    Name: Lam On Na Anna
    Title: Authorized Signatory

 

[Signature Page to Schedule 13E-3 Transaction Statement]

 

18

 

 

 

Exhibit (a)-(1)

 

PRELIMINARY PROXY STATEMENT OF THE COMPANY

 

 

 

Shareholders of Tarena International, Inc.
Re: Notice of Extraordinary General Meeting of Shareholders

 

Dear Shareholder:

 

You are cordially invited to attend an extraordinary general meeting of shareholders of Tarena International, Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands (the “Company”), to be held on                  at                  a.m. (Beijing time). The meeting will be held at                      . The accompanying notice of the extraordinary general meeting and proxy statement provide information regarding the matters to be considered and voted on at the extraordinary general meeting, including at any adjournment or postponement thereof.

 

On April 30, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kidedu Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), and Kidarena Merger Sub, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving company (the “Surviving Company”) and becoming a wholly owned subsidiary of Parent. The purpose of the extraordinary general meeting is for you and the other registered shareholders of the Company to consider and vote, amongst other things, upon a proposal to authorize and approve the Merger Agreement and the plan of merger required to be filed with the Registrar of Companies of the Cayman Islands in connection with the Merger (the “Plan of Merger”) and the transactions contemplated by the Merger Agreement and the Plan of Merger, including the Merger (collectively, the “Transactions”). Copies of the Merger Agreement and the form of the Plan of Merger are attached as Annex A and Annex B, respectively, to the accompanying proxy statement.

 

Each of Parent and Merger Sub was formed solely for purposes of the Merger and the investment and financing transactions related to the Merger. At the effective time of the Merger (the “Effective Time”), Parent will be beneficially owned by (i) Mr. Shaoyun Han (the “Chairman”) and his affiliates, (ii) Talent Fortune Investment Limited (an affiliate of KKR, “KKR”) or its designated entity, (iii) New Oriental Education & Technology Group Inc. (“New Oriental”) or its designated entity, (iv) Banyan Enterprises Limited and Banyan Enterprises A Limited (affiliates of Gaorong Capital, “Gaorong,” together with KKR and New Oriental, collectively, the “Other Rollover Shareholders,” together with the Chairman and his affiliates, collectively, the “Rollover Shareholders”) or their respective designated entities, and (v) Titanium Education (Cayman) Limited (the “Investor”) and Ascendent Capital Partners III, L.P. (the “Sponsor,” together with the Investor, collectively, the “ACP Filing Persons”). Throughout this proxy statement, Parent, Merger Sub, the Chairman, Kidtech Limited, Learningon Limited, Connion Capital Limited, Techedu Limited and Moocon Education Limited are collectively referred to as the “Chairman Filing Persons.” The Chairman Filing Persons and the ACP Filing Persons are collectively referred to as the “Buyer Group.” As of May 19, 2021, the Rollover Shareholders collectively beneficially own 18,028,925 Class A ordinary shares (including Class A ordinary shares represented by American depositary shares (“ADSs”), but excluding, for purpose of this calculation, the Class A ordinary shares that the Chairman may acquire through the exercise of options within 60 days of the date of the accompanying proxy statement), par value US$0.001 per share, of the Company (each, a “Class A Ordinary Share”) and 7,206,059 Class B ordinary shares, par value US$0.001 per share, of the Company (each, a “Class B Ordinary Share”), which collectively represent approximately 44.9% of the total issued and outstanding shares in the Company and approximately 74.4% of the total voting power of the outstanding shares in the Company (each, a “Share”). If the Merger is completed, the Company will continue its operations as a privately held company and will be wholly owned by Parent, and the Company’s ADSs will no longer be listed on NASDAQ Global Select Market (“NASDAQ”) and the ADS program for the Shares will terminate.

 

If the Merger is consummated, at the Effective Time, each Share issued and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to receive US$4.00 in cash per Share, without interest and net of any applicable withholding taxes (the “Per Share Merger Consideration”), and each ADS issued and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to receive US$4.00 in cash per ADS, without interest and net of any applicable withholding taxes (the “Per ADS Merger Consideration”). The ADS holders will pay any applicable fees, charges and expenses of Citibank, N.A., in its capacity as ADS depositary (the “ADS Depositary”), and government charges due to or incurred by the ADS Depositary, in connection with the cancellation of the ADSs surrendered (and the underlying Shares) and the distribution of the Per ADS Merger Consideration, including applicable ADS cash distribution fees (US$0.05 per ADS pursuant to the terms of the deposit agreement (the “Deposit Agreement”), dated as of April 2, 2014, by and among the Company, the ADS Depositary, and the holders and beneficial owners of ADSs issued thereunder) and applicable ADS cancellation fees (US$0.05 per ADS pursuant to the terms of the Deposit Agreement).

 

 

 

 

Notwithstanding the foregoing, if the Merger is completed, the following Shares will not be cancelled in exchange for the right to receive the cash consideration described above, but will be cancelled and cease to exist at the Effective Time:

 

(a)(i) 18,028,925 Class A Ordinary Shares and 7,206,059 Class B Ordinary Shares beneficially owned (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the Rollover Shareholders as of April 30, 2021, and any other Shares that may be acquired by any Rollover Shareholder between April 30, 2021 and the Effective Time (collectively, the “Rollover Shares”), (ii) Shares (including Shares represented by ADSs) held by Parent, Merger Sub and any of their respective affiliates, (iii) Shares (including Shares represented by ADSs) beneficially owned by the Company or any subsidiary of the Company or held in the Company’s treasury, and (iv) Shares (including Shares represented by ADSs) held by the ADS Depositary and reserved for issuance, settlement and allocation pursuant to the 2008 Share Plan of the Company and the 2014 Share Plan of the Company (collectively, the “Company Share Plans”), in each case, immediately prior to the Effective Time, will be cancelled and cease to exist at the Effective Time without payment of any consideration or distribution therefor; and

 

(b)Shares owned by registered shareholders who have validly exercised and have not effectively withdrawn or lost their rights to dissent from the Merger (the “Dissenting Shares”) in accordance with Section 238 of the Companies Act (2021 Revision) of the Cayman Islands (the “Cayman Islands Companies Act”) will be cancelled and cease to exist at the Effective Time and the holders of such Dissenting Shares will be entitled to receive only the payment of the fair value of their Dissenting Shares as determined by the Grand Court of the Cayman Islands in accordance with Section 238 of the Cayman Islands Companies Act.

 

At the Effective Time, the Company will (i) terminate the Company Share Plans and any relevant award agreements entered into under the Company Share Plans, (ii) cancel each Company Option (as defined below) that is then outstanding and unexercised, whether or not vested or exercisable, and (iii) cancel each Company RSU (as defined below) that is then outstanding, whether or not vested.

 

At the Effective Time, each option (each, a “Company Option”) to purchase Shares granted under the Company Share Plans that is vested at or prior to the Effective Time and remains outstanding at the Effective Time (each, a “Vested Company Option”), will be cancelled in exchange for the election to (i) be issued with an employee incentive award, to replace such Vested Company Option, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such Vested Company Option, or (ii) receive cash from the Surviving Company, without interest and net of any applicable withholding taxes, in the amount equal to the product of (x) the excess, if any, of the Per Share Merger Consideration over the exercise price of such Vested Company Option and (y) the number of Shares underlying such Vested Company Option (assuming such holder exercises such Vested Company Option in full immediately prior to the Effective Time), provided that if the exercise price per Share of any such Vested Company Option is greater than the Per Share Merger Consideration, such Vested Company Option will be cancelled without any cash payment being made in respect thereof. In the event that such holder of a Vested Company Option fails to deliver the written election to the Company prior to the shareholders meeting, such holder will be deemed to have elected to be issued with an employee incentive award to replace such Vested Company Option according to item (i) described above.

 

At the Effective Time, each unvested Company Option that is outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to be issued with an employee incentive award, to replace such unvested Company Option, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such unvested Company Option.

 

At the Effective Time, each restricted share unit granted under the Company Share Plans (each, a “Company RSU”) that is vested and outstanding immediately prior to the Effective Time (each, a “Vested Company RSU”), will be cancelled in exchange for the election to (i) be issued with an employee incentive award, to replace such Vested Company RSU, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such Vested Company RSU, or (ii) receive cash, without interest and net of any applicable withholding taxes, in the amount equal to the Per Share Merger Consideration. In the event that such holder of a Vested Company RSU fails to deliver the written election to the Company prior to the shareholders meeting, such holder will be deemed to have elected to be issued with an employee incentive award to replace such Vested Company RSU according to item (i) described above.

 

ii 

 

 

At the Effective Time, each Company RSU that is unvested and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to be issued with an employee incentive award, to replace such unvested Company RSU, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such unvested Company RSU.

 

At the Effective Time, each of the Company RSUs granted to certain independent directors of the Company, whether vested or unvested, that is cancelled at the Effective Time will, except as otherwise agreed to in writing between such persons and Parent, in exchange therefor, receive cash, without interest and net of any applicable withholding taxes, in the amount equal to the Per Share Merger Consideration multiplied by the number of Shares underlying such Company RSU.

 

The Buyer Group intends to fund the merger consideration through a combination of rollover equity (represented by the Rollover Shares) from the Rollover Shareholders and cash contribution by the Sponsor or its designated affiliates. On April 30, 2021, Parent entered into an equity commitment letter, pursuant to which the Sponsor has agreed, subject to the terms and conditions thereof, to provide or procure the provision of the financing amounts for the purpose of financing the merger consideration, and each of the Sponsor and the Chairman executed and delivered a limited guarantee (each, a “Limited Guarantee,” and collectively, the “Limited Guarantees”) in favor of the Company to guarantee certain payment obligations of Parent and Merger Sub under the Merger Agreement.

 

On April 30, 2021, a special committee of the board of directors of the Company (the “Board”), composed solely of independent and disinterested directors (the “Special Committee”), acting with full power and authority delegated by the Board, reviewed and considered the terms and conditions of the Merger Agreement, the Plan of Merger, and the Transactions. The Special Committee, after consultation with its financial advisor and legal counsels and due consideration of all relevant factors, unanimously (a) determined that the Merger as contemplated in the Merger Agreement and the Plan of Merger is fair to and in the best interests of the Company and its shareholders and ADS holders, other than shareholders and ADS holders who are affiliates of the Company and the Rollover Shareholders (such unaffiliated shareholders and ADS holders are referred to herein as the “Unaffiliated Security Holders”), and it is advisable for the Company to enter into the Merger Agreement, the Plan of Merger and the consummation of the Transactions, and (b) recommended that the Board authorize and approve the Merger Agreement, the Plan of Merger, and the consummation of the Transactions.

 

On April 30, 2021, the Board (other than the Chairman who abstained from the vote), acting upon the unanimous recommendation of the Special Committee, (a) determined that the Merger as contemplated in the Merger Agreement and the Plan of Merger is fair to and in the best interests of the Company and the Unaffiliated Security Holders and it is advisable for the Company to enter into the Merger Agreement, the Plan of Merger, and to consummate the Transactions, (b) authorized and approved the Merger Agreement, the Plan of Merger, the Transactions and the Limited Guarantees, and (c) resolved to recommend the approval and authorization of the Merger Agreement, the Plan of Merger and the consummation of the Transactions to the shareholders of the Company and directed that the Merger Agreement, the Plan of Merger and the consummation of the Transactions be submitted to the shareholders of the Company for authorization and approval.

 

Accordingly, the Board recommends that you vote FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger, and the consummation of the Transactions, including (i) the Merger, (ii) the variation of the authorized share capital of the Company from US$1,000,000 divided into 1,000,000,000 Shares of a par value of US$0.001 per Share to authorized share capital of the Company of US$50,000 divided into 5,000,000,000 ordinary shares of a par value of US$0.00001 each, at the Effective Time (the “Variation of Capital”), and (iii) the amendment and restatement of the existing memorandum and articles of association by their deletion in their entirety and the substitution in their place of the new memorandum and articles of association at the Effective Time, in the form attached as Appendix II to the Plan of Merger (the “Adoption of Amended M&A”), FOR the proposal to authorize each of the members of the Special Committee and the Chief Financial Officer of the Company to do all things necessary to give effect to the Merger Agreement, the Plan of Merger, and the Transactions, including the Merger, the Variation of Capital and the Adoption of Amended M&A, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

 

iii 

 

 

The Merger cannot be completed unless the Merger Agreement, the Plan of Merger and the consummation of the Transactions are authorized and approved by a special resolution (as defined in the Cayman Islands Companies Act) of the Company passed by an affirmative vote of holders of Shares (including Shares represented by ADSs) representing at least two-thirds of the voting power of the outstanding Shares present and voting in person or by proxy as a single class at the extraordinary general meeting or any adjournment or postponement thereof. As of May 19, 2021, the Rollover Shareholders beneficially own in the aggregate 25,234,984 Shares (including Shares represented by ADSs, but excluding, for purpose of this calculation, the Shares that the Chairman may acquire through the exercise of options within 60 days of the date of the accompanying proxy statement), which collectively represent approximately 44.9% of the Company’s total issued and outstanding Shares and approximately 74.4% of the voting power of the total issued and outstanding Shares, all of which will be voted in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions. Accordingly, based on          Shares expected to be issued and outstanding on          , the record date for voting Shares at the extraordinary general meeting (the “Share Record Date”), and assuming the Rollover Shareholders’ compliance with their voting obligations under those rollover and support agreements each of them entered into with Parent on April 30, 2021 to vote all their Shares (including Shares represented by ADSs) in favor of the special resolutions, a quorum will be present at the extraordinary general meeting and sufficient votes will be cast to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, without any further vote of any other shareholder.

 

The accompanying proxy statement provides detailed information about the Merger and the extraordinary general meeting. We encourage you to read the entire document and all of the attachments and other documents referred to or incorporated by reference herein carefully. You may also obtain more information about the Company from documents the Company has filed with the United States Securities and Exchange Commission (the “SEC”), which are available for free at the SEC’s website at www.sec.gov.

 

The Rollover Shareholders will exercise their rights as registered shareholders of the Company to demand poll voting at the meeting and accordingly voting will take place by poll voting. The effect of poll voting is that the number of votes each holder has will depend on the number of Shares held by such holder. If you receive more than one proxy card because you own Shares that are registered in different names, please vote all of your Shares shown on each of your proxy cards in accordance with the instructions set forth on the proxy card. Whether or not you plan to attend the extraordinary general meeting, please complete the accompanying proxy card, in accordance with the instructions set forth on the proxy card, as promptly as possible. The deadline to lodge your proxy card is           at           a.m. (Beijing time), being 48 hours before the time appointed for the extraordinary general meeting. Each registered holder of Shares has one vote for each Share held as of 5 p.m. Cayman Islands time on the Share Record Date.

 

Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting and vote your Shares in person. Please note, however, that if you hold your Shares through a financial intermediary such as a broker, bank or nominee, you must rely on the procedures of the financial intermediary through which you hold your Shares if you wish to vote at the extraordinary general meeting.

 

The Company will instruct the ADS Depositary to deliver to ADS holders as of ____________ (the “ADS Record Date”) a depositary’s notice and an ADS voting instruction card, the forms of which are attached as Annex G and Annex H to the accompanying proxy statement, and ADS holders as of the ADS Record Date will have the right to instruct the ADS Depositary how to vote the Shares underlying their ADSs at the extraordinary general meeting, subject to and in accordance with the terms of the Deposit Agreement. A copy of the Deposit Agreement is available free of charge at the SEC’s website at www.sec.gov.

 

ADS holders are strongly urged to sign, complete and return the ADS voting instruction card to the ADS Depositary in accordance with the instructions printed thereon and in the depositary’s notice, as soon as possible and, in any event, so as to be received by the ADS Depositary no later than 10:00 a.m. (New York time) on _______________ (or if the extraordinary general meeting is adjourned, such later date as may be notified by the Company or the ADS Depositary).

 

Upon the timely receipt from an ADS holder as of the ADS Record Date of voting instructions in the manner specified by the ADS Depositary, the ADS Depositary will endeavor to vote (or will endeavor to cause the vote of) (in person or by proxy), in so far as practicable and permitted under applicable law, the provisions of the Deposit Agreement, the memorandum and articles of association of the Company and the provisions of the Shares, the Shares represented by ADSs at the extraordinary general meeting in accordance with the voting instructions timely received (or deemed received) from holders of ADSs as of the ADS Record Date. The ADS Depositary has advised us that, pursuant to Section 4.10 of the Deposit Agreement, it will not itself exercise any voting discretion in respect of any Shares represented by ADSs and it will not vote or attempt to exercise the right to vote any Shares represented by ADSs other than in accordance with voting instructions received from the relevant ADS holder except as discussed below. ADS holders as of the ADS Record Date whose voting instructions are timely received but fail to specify the manner in which the ADS Depositary is to vote will be deemed to have instructed the ADS Depositary to vote in favor of the items set forth in such voting instruction. In addition, if the ADS Depositary does not receive timely voting instructions from an ADS holder as of the ADS Record Date on or before the ADS voting instruction deadline, such ADS holder shall be deemed, and the ADS Depositary shall deem such ADS holder, to have instructed the ADS Depositary to give a discretionary proxy to a person designated by the Company to vote the Shares represented by such unvoted ADSs, in each case upon the terms of the Deposit Agreement; provided, however, that no such discretionary proxy shall be given by the ADS Depositary with respect to any matter to be voted upon at the extraordinary general meeting as to which the Company informs the ADS Depositary that it does not wish such proxy to be given, that substantial opposition exists to the matter to be voted on at the extraordinary general meeting or that the rights of holders of Shares may be materially adversely affected as to such matter. If you hold your ADSs in a brokerage, bank or other nominee account, you must rely on the procedures of the broker, bank or other nominee through which you hold your ADSs if you wish to vote.

 

iv 

 

 

Holders of ADSs will not be able to attend or vote at the extraordinary general meeting directly (whether in person or by proxy) unless they surrender their ADSs to the ADS Depositary for cancellation, conversion into, and delivery of the corresponding Shares and become registered in the Company’s register of members as holders of Shares prior to the close of business in the Cayman Islands on the Share Record Date. ADS holders who wish to surrender their ADSs for cancellation and attend and vote at the extraordinary general meeting need to make arrangements with their broker or custodian to deliver the ADSs to the ADS Depositary for cancellation before the close of business in New York City on_______________ together with (a) delivery instructions for the corresponding Shares represented by such ADSs (including, if applicable, the name and address of person who will be the registered holder of such Shares), (b) payment of ADS Depositary’s fees associated with such cancellation (US$0.05 per ADS to be cancelled pursuant to the terms of the Deposit Agreement), which will not be borne by the Surviving Company, and any applicable taxes, and (c) a certification that the ADS holder either (i) beneficially owned the relevant ADSs as of the ADS Record Date and has not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being surrendered for cancellation (or has cancelled all voting instructions previously given), or has given voting instructions to the ADS Depositary as to the ADSs being surrendered but undertakes not to vote the corresponding Shares at the extraordinary general meeting or (ii) did not beneficially own the relevant ADSs as of the ADS Record Date and undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other nominee account, please promptly contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker, bank or other nominee to surrender the ADSs on your behalf. Upon surrender of the ADSs for cancellation, the ADS Depositary will direct Citibank, N.A. - Hong Kong, the custodian holding the Shares, to deliver, or cause the delivery of, the Shares represented by the ADSs so cancelled to or upon the written order of the person(s) designated in the order delivered to the ADS Depositary for such purpose. If you hold ADSs through a broker or other securities intermediary, you should contact that broker or intermediary to determine the date by which you must instruct them to act in order that the necessary processing can be completed in time. If after the registration of Shares in your name you wish to receive a certificate evidencing the Shares registered in your name, you will need to request the Company to instruct its Cayman Registrar of Shares to issue and mail a certificate to your attention. If the Merger is not consummated, the Company will continue to be a publicly traded company in the United States and the ADSs will continue to be listed on NASDAQ. Shares are not listed and cannot be traded on any stock exchange other than NASDAQ, and in such case only in the form of ADSs. As a result, if you have surrendered your ADSs for cancellation to attend the extraordinary general meeting and the Merger is not consummated and you wish to be able to sell your Shares on a stock exchange, you will need to deposit your Shares into the Company’s ADS program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including, among other things, the availability of ADSs for issuance under the existing F-6 registration statement(s) for the ADSs, payment of relevant fees of the ADS Depositary for the issuance of ADSs (US$0.05 per ADS issued pursuant to the terms of the Deposit Agreement), applicable share transfer taxes (if any), and related charges pursuant to the Deposit Agreement.

 

Registered shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands in accordance with Section 238 of the Cayman Islands Companies Act if the Merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Act for the exercise of dissenters’ rights. A copy of Section 238 is attached as Annex D to the accompanying proxy statement. The fair value of your Shares as determined by the Grand Court of the Cayman Islands under the Cayman Islands Companies Act could be more than, the same as, or less than the merger consideration you would receive pursuant to the Merger Agreement if you do not exercise dissenters’ rights with respect to your Shares.

 

v 

 

 

ADS HOLDERS WILL NOT HAVE THE RIGHT TO EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT EXERCISE OR ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs FOR CANCELLATION BEFORE 10:00 A.M. (NEW YORK CITY TIME) ON _______________TO THE ADS DEPOSITARY FOR CONVERSION INTO SHARES, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR ADSs (US$0.05 PER ADS CANCELLED), PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES IN THE COMPANY’S REGISTER OF MEMBERS AND DELIVERY INSTRUCTIONS FOR THE CORRESPONDING SHARES, AND CERTIFY THAT THEY EITHER (I) BENEFICIALLY OWNED THE ADSs AS OF THE ADS RECORD DATE AND HAVE NOT GIVEN, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR ADSs (OR HAVE CANCELLED ALL VOTING INSTRUCTIONS PREVIOUSLY GIVEN) OR HAVE GIVEN VOTING INSTRUCTIONS TO THE ADS DEPOSITARY AS TO THE ADSs BEING CANCELLED BUT UNDERTAKE NOT TO VOTE THE CORRESPONDING SHARES AT THE EXTRAORDINARY GENERAL MEETING, OR (II) DID NOT BENEFICIALLY OWN THE RELEVANT ADSs AS OF THE ADS RECORD DATE AND UNDERTAKE NOT TO VOTE THE CORRESPONDING SHARES AT THE EXTRAORDINARY GENERAL MEETING, AND BECOME REGISTERED HOLDERS OF SHARES BEFORE THE VOTE TO AUTHORIZE AND APPROVE THE MERGER IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING. FOR THE AVOIDANCE OF DOUBT, ANY ADS HOLDERS WHO CONVERT THEIR ADSs INTO SHARES AFTER THE SHARE RECORD DATE WILL NOT BE ENTITLED TO ATTEND OR TO VOTE AT THE EXTRAORDINARY GENERAL MEETING, BUT WILL BE ENTITLED TO EXERCISE DISSENTERS’ RIGHTS IF THEY BECOME REGISTERED HOLDERS OF SHARES BEFORE THE VOTE IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING, IN ACCORDANCE WITH THE IMMEDIATELY PRECEDING SENTENCE. AFTER CONVERTING THEIR ADSs AND BECOMING REGISTERED HOLDERS OF SHARES, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES ACT. IF THE MERGER IS NOT CONSUMMATED, THE COMPANY WOULD CONTINUE TO BE A PUBLICLY TRADED COMPANY IN THE UNITED STATES AND THE ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. THE COMPANY’S SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS SURRENDERED HIS, HER OR ITS ADSs FOR CANCELLATION TO THE ADS DEPOSITARY IN ORDER TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT CONSUMMATED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS, HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WILL NEED TO DEPOSIT HIS, HER OR ITS SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, THE AVAILABILITY OF ADSs FOR ISSUANCE UNDER THE EXISTING F-6 REGISTRATION STATEMENT(s) FOR THE ADSs, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs ($0.05 PER ADS ISSUED), APPLICABLE SHARE TRANSFER TAXES (IF ANY), AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.

 

Neither the SEC nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this letter or in the accompanying notice of the extraordinary general meeting or proxy statement. Any representation to the contrary is a criminal offense.

 

If you have any questions or need assistance voting your Shares or ADSs, please call our Investor Relations Department at +86 10 5668 3450. ADS holders who have any questions should contact the ADS Depositary using the contact details provided on the ADS voting instruction card. ADS holders who hold ADSs indirectly should contact their bank, broker, financial institution or administrator through which such ADSs are held.

 

Thank you for your cooperation and continued support.

 

  Sincerely,   Sincerely,
       
       
  Arthur Lap Tat Wong
Chairman of the Special Committee
  Shaoyun Han
Chairman of the Board

 

The accompanying proxy statement is dated                       , and is first being mailed to the Company’s registered shareholders and ADS holders on or about                          .

 

vi 

 

 

TARENA INTERNATIONAL, INC.

 

NOTICE OF EXTRAORDINARY GENERAL MEETING OF
SHAREHOLDERS TO BE HELD ON

 

Dear Shareholder:

 

Notice is hereby given that an extraordinary general meeting of the shareholders of Tarena International, Inc. (referred to herein alternately as the “Company,” “us,” “we” or other terms correlative thereto), will be held on at             a.m. (Beijing time) at              .

 

Only registered holders of Class A ordinary shares of the Company, par value US$0.001 per share (each, a “Class A Ordinary Share”), and Class B ordinary shares of the Company, par value US$0.001 per share (each, a “Class B Ordinary Share,” and the Class B Ordinary Shares together with the Class A Ordinary Shares, the “Shares”), as of 5 p.m. Cayman Islands time on                (the “Share Record Date”) or their proxy holders are entitled to attend and vote at this extraordinary general meeting or any adjournment thereof. At the extraordinary general meeting, you will be asked to consider and vote upon the following resolutions:

 

as special resolutions:

 

THAT the Agreement and Plan of Merger, dated as of April 30, 2021 (the “Merger Agreement”), among the Company, Kidedu Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), and Kidarena Merger Sub, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving company and becoming a wholly owned subsidiary of Parent (such Merger Agreement being in the form attached as Annex A to the proxy statement accompanying this notice of extraordinary general meeting and which will be produced and made available for inspection at the extraordinary general meeting), the plan of merger required to be registered with the Registrar of Companies of the Cayman Islands in connection with the Merger (the “Plan of Merger”) (such Plan of Merger being substantially in the form attached as Annex B to the proxy statement accompanying this notice of extraordinary general meeting and which will be produced and made available for inspection at the extraordinary general meeting), and the consummation of the transactions contemplated by the Merger Agreement and the Plan of Merger (collectively, the “Transactions”) including (i) the Merger, (ii) the variation of the authorized share capital of the Company from US$1,000,000 divided into 1,000,000,000 Shares of a par value of US$0.001 per Share to authorized share capital of the Company of US$50,000 divided into 5,000,000,000 ordinary shares of a par value of US$0.00001 each, at the Effective Time (the “Variation of Capital”), and (iii) the amendment and restatement of the existing memorandum and articles of association of the Company by their deletion in their entirety and the substitution in their place of the new memorandum and articles of association at the effective time of the Merger (the “Effective Time”), in the form attached as Appendix II to the Plan of Merger (the “Adoption of Amended M&A”), be approved and authorized by the Company;

 

THAT each member of a special committee of the Board, composed solely of independent and disinterested directors of the Company (the “Special Committee”) and the Chief Financial Officer of the Company each be authorized to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, the Variation of Capital and the Adoption of Amended M&A; and

 

if necessary, as an ordinary resolution:

 

THAT the extraordinary general meeting be adjourned in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

 

Please refer to the accompanying proxy statement, which is attached to and made a part of this notice. A list of the Company’s registered shareholders will be available at its principal executive offices at _________________________________, People’s Republic of China, during ordinary business hours for the two business days immediately prior to the extraordinary general meeting.

 

vii 

 

 

Pursuant to certain rollover and support agreements entered into on April 30, 2021 (the “Support Agreements”), each of Mr. Shaoyun Han (the “Chairman”) and his affiliates, Talent Fortune Investment Limited (an affiliate of KKR, “KKR”), New Oriental Education & Technology Group Inc. (“New Oriental”), and Banyan Enterprises Limited and Banyan Enterprises A Limited (affiliates of Gaorong Capital, “Gaorong,” together with KKR and New Oriental, collectively, the “Other Rollover Shareholders,” together with the Chairman and his affiliates, collectively, the “Rollover Shareholders”) will vote all of the Shares (including Shares represented by the Company’s American depositary shares (“ADSs”)) beneficially owned by them in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions. As of May 19, 2021, the Rollover Shareholders collectively beneficially own 25,234,984 Shares (including Shares represented by ADSs, but excluding, for purpose of this calculation, the Shares that the Chairman may acquire through the exercise of options within 60 days of the date of this notice), which collectively represent approximately 44.9% in number and approximately 74.4% in voting rights of the Company’s issued and outstanding Shares. Parent, Merger Sub, the Chairman, Kidtech Limited, Learningon Limited, Connion Capital Limited, Techedu Limited, Moocon Education Limited, Titanium Education (Cayman) Limited and Ascendent Capital Partners III, L.P. (the “Sponsor”) are collectively referred to as the “Buyer Group.”

 

After careful consideration and upon the unanimous recommendation of the Special Committee, the Board (other than the Chairman who abstained from the vote) (a) determined that the Merger as contemplated in the Merger Agreement and the Plan of Merger is fair to and in the best interests of the Company and its shareholders and ADS holders, other than shareholders and ADS holders who are affiliates of the Company and the Rollover Shareholders (such unaffiliated shareholders and ADS holders are referred to herein as the “Unaffiliated Security Holders”), and it is advisable for the Company to enter into the Merger Agreement and the Plan of Merger and to consummate the Transactions, (b) authorized and approved the Merger Agreement, the Plan of Merger and the consummation of the Transactions, and the limited guarantees by each of the Chairman and the Sponsor in favor of the Company pursuant to which each of the Chairman and the Sponsor will guarantee certain payment obligations of Parent and Merger Sub under the Merger Agreement (the “Limited Guarantees”) and (c) resolved to recommend the approval and authorization of the Merger Agreement, the Plan of Merger, and the consummation of the Transactions to the registered shareholders of the Company and directed that the Merger Agreement, the Plan of Merger and the consummation of the Transactions be submitted to a vote of the shareholders of the Company for authorization and approval. The Board recommends that you vote FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, the Variation of Capital and the Adoption of Amended M&A, FOR the proposal to authorize members of the Special Committee and the Chief Financial Officer of the Company, to do all things necessary to give effect to the Merger Agreement, the Plan of Merger, and the Transactions, including the Merger, the Variation of Capital and the Adoption of Amended M&A, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

 

The Merger cannot be completed unless the Merger Agreement, the Plan of Merger and the Transactions are authorized and approved by a special resolution (as defined in the Companies Act (2021 Revision) of the Cayman Islands (the “Cayman Islands Companies Act”)) of the Company passed by an affirmative vote of holders of Shares (including Shares represented by ADSs) representing at least two-thirds of the voting power of the outstanding Shares present and voting in person or by proxy as a single class at the extraordinary general meeting or any adjournment or postponement thereof. As of May 19, 2021, the Rollover Shareholders beneficially own 25,234,984 Shares (including Shares represented by ADSs, but excluding, for purpose of this calculation, the Shares that the Chairman may acquire through the exercise of options within 60 days of the date of this proxy statement), which represents approximately 74.4% of the total voting rights in the Company. Accordingly, based on the total number of Shares expected to be issued and outstanding on the Share Record Date, and assuming the Rollover Shareholders’ compliance with their voting obligations under the Support Agreements to vote all their Shares (including Shares represented by ADSs) in favor of the special resolutions, a quorum will be present at the extraordinary general meeting and sufficient votes will be cast to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, without any further vote of any other shareholder.

 

Regardless of whether you plan to attend the extraordinary general meeting in person, we request that you submit your proxy in accordance with the instructions set forth on the proxy card as promptly as possible. To be valid, your proxy card must be completed, signed and returned to the Company’s offices (to the attention of: Investor Relations Department) at __________________________________, People’s Republic of China, no later than _____a.m. (Beijing time), ______, being 48 hours before the time appointed for the extraordinary general meeting. The proxy card is the “instrument of proxy” and the “instrument appointing a proxy” as referred to in the Company’s articles of association. The Rollover Shareholders will exercise their right as registered shareholders of the Company to demand poll voting at the meeting and accordingly voting will take place by poll voting. The effect of poll voting is that the number of votes each holder has will depend on the number of Shares held by such holder. If you receive more than one proxy card because you own Shares that are registered in different names, please vote all of your Shares shown on each of your proxy cards in accordance with the instructions set forth on the proxy card. Each registered holder of Shares has one vote for each Share held as of 5 p.m. Cayman Islands time on the Share Record Date. If you receive more than one proxy card because you own Shares that are registered in different names, please vote all of your Shares shown on each of your proxy cards in accordance with the instructions set forth on the proxy card.

 

viii 

 

 

Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting and vote your Shares in person. Please note, however, that if your Shares are registered in the name of a broker, bank or other nominee and you wish to vote at the extraordinary general meeting in person, you must obtain from the record holder a proxy issued in your name.

 

If you abstain from voting, fail to cast your vote in person, fail to complete and return your proxy card in accordance with the instructions set forth on the proxy card, or fail to give voting instructions to your broker, bank or other nominee, your vote will not be counted.

 

When proxies are properly dated, executed and returned by registered shareholders, the Shares they hold will be voted at the extraordinary general meeting in accordance with the instructions of such registered shareholders. If no specific instructions are given by such registered shareholders, such Shares will be voted “FOR” the proposals as described above, unless you appoint a person other than the chairman of the meeting as your proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.

 

If you own ADSs as of the close of business in New York City on _____________ (the “ADS Record Date”) (and do not surrender such ADSs for cancellation and become a registered holder of the Shares underlying such ADSs as explained below), you cannot vote at the extraordinary general meeting directly, but you may give voting instructions, the form of which is attached as Annex H to the accompanying proxy statement, to Citibank, N.A., in its capacity as the ADS Depositary and the holder of the Shares underlying your ADSs (the “ADS Depositary”), how to vote the Shares underlying your ADSs by completing and signing the ADS voting instruction card and returning it in accordance with the instructions printed on it as soon as possible. The ADS Depositary must receive your instructions no later than 10:00 a.m. (New York City time) on_____________ in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other securities account, you must rely on the procedures of the broker, bank or other securities intermediary through which you hold your ADSs if you wish to vote.

 

Alternatively, if you own ADSs as of the close of business in New York City on the ADS Record Date, you may vote at the extraordinary general meeting directly if you surrender your ADSs to the ADS Depositary for cancellation and become a registered holder of the Shares underlying your ADSs prior to the close of business in the Cayman Islands on _____________, the Share Record Date. If you wish to surrender your ADSs to the ADS Depositary for cancellation for the purpose of voting Shares directly, you need to make arrangements to deliver your ADSs to the ADS Depositary for cancellation before the close of business in New York City on _____________together with (a) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of such Shares), (b) payment of the ADS cancellation fees (US$0.05 per ADS cancelled pursuant to the terms of the deposit agreement (the “Deposit Agreement”), dated as of April 2, 2014, by and among the Company, the ADS Depositary, and the holders and beneficial owners of ADSs issued thereunder), which will not be borne by the Company, and any applicable taxes, and (c) a certification that you either (i) beneficially owned the relevant ADSs as of the ADS Record Date and have not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being surrendered for cancellation (or have cancelled all voting instructions previously given), or have given voting instructions to the ADS Depositary as to the ADSs being surrendered but undertake not to vote the corresponding Shares at the extraordinary general meeting or (ii) did not beneficially own the relevant ADSs as of the ADS Record Date and undertake not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other nominee account, please promptly contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker, bank or other nominee to surrender the ADSs for cancellation on your behalf. Upon surrender of the ADSs for cancellation, the ADS Depositary will direct Citibank, N.A. - Hong Kong, the custodian holding the Shares, to deliver, or cause the delivery of, the Shares represented by the ADSs so cancelled to or upon the written order of the person(s) designated in the order delivered to the ADS Depositary for such purpose. It is difficult to predict how long the steps described above may take. ADS holders that wish to surrender the ADSs for cancellation to become resisted holders of Shares are advised to take action as soon as possible.

 

Registered shareholders who dissent from the Merger in accordance with the Cayman Islands Companies Act will have the right to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands in accordance with Section 238 of the Cayman Islands Companies Act if the Merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Act for the exercise of dissenters’ rights. A copy of Section 238 is attached as Annex D to the accompanying proxy statement. The fair value of their Shares as determined by the Grand Court of the Cayman Islands under the Cayman Islands Companies Act could be more than, the same as, or less than the merger consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Shares. This proxy statement is not to be construed or taken as legal advice on Cayman Islands law. Registered shareholders who wish to exercise any rights under Section 238 of the Cayman Islands Companies Act, or otherwise, should obtain their own copy of the complete Cayman Islands Companies Act and seek legal advice from a law firm authorized to practice Cayman Islands law without delay.

 

ix 

 

 

ADS HOLDERS WILL NOT HAVE THE RIGHT TO EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT EXERCISE OR ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs FOR CANCELLATION BEFORE 10:00 A.M. (NEW YORK CITY TIME) ON _______________TO THE ADS DEPOSITARY FOR CONVERSION INTO SHARES, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR ADSs (US$0.05 PER ADS CANCELLED), PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES IN THE COMPANY'S REGISTER OF MEMBERS AND DELIVERY INSTRUCTIONS FOR THE CORRESPONDING SHARES, AND CERTIFY THAT THEY EITHER (I) BENEFICIALLY OWNED THE ADSs AS OF THE ADS RECORD DATE AND HAVE NOT GIVEN, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR ADSs (OR HAVE CANCELLED ALL VOTING INSTRUCTIONS PREVIOUSLY GIVEN) OR HAVE GIVEN VOTING INSTRUCTIONS TO THE ADS DEPOSITARY AS TO THE ADSs BEING CANCELLED BUT UNDERTAKE NOT TO VOTE THE CORRESPONDING SHARES AT THE EXTRAORDINARY GENERAL MEETING, OR (II) DID NOT BENEFICIALLY OWN THE RELEVANT ADSs AS OF THE ADS RECORD DATE AND UNDERTAKE NOT TO VOTE THE CORRESPONDING SHARES AT THE EXTRAORDINARY GENERAL MEETING, AND BECOME REGISTERED HOLDERS OF SHARES BEFORE THE VOTE TO AUTHORIZE AND APPROVE THE MERGER IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING. FOR THE AVOIDANCE OF DOUBT, ANY ADS HOLDERS WHO CONVERT THEIR ADSs INTO SHARES AFTER THE SHARE RECORD DATE WILL NOT BE ENTITLED TO ATTEND OR TO VOTE AT THE EXTRAORDINARY GENERAL MEETING, BUT WILL BE ENTITLED TO EXERCISE DISSENTERS’ RIGHTS IF THEY BECOME REGISTERED HOLDERS OF SHARES BEFORE THE VOTE IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING, IN ACCORDANCE WITH THE IMMEDIATELY PRECEDING SENTENCE. AFTER CONVERTING THEIR ADSs AND BECOMING REGISTERED HOLDERS OF SHARES, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES ACT. IF THE MERGER IS NOT CONSUMMATED, THE COMPANY WOULD CONTINUE TO BE A PUBLICLY TRADED COMPANY IN THE UNITED STATES AND THE ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. THE COMPANY’S SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS SURRENDERED HIS, HER OR ITS ADSs FOR CANCELLATION TO THE ADS DEPOSITARY IN ORDER TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT CONSUMMATED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS, HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WILL NEED TO DEPOSIT HIS, HER OR ITS SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, THE AVAILABILITY OF ADSs FOR ISSUANCE UNDER THE EXISTING F-6 REGISTRATION STATEMENT(s) FOR THE ADSs, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs (US$0.05 PER ADS ISSUED), APPLICABLE SHARE TRANSFER TAXES (IF ANY), AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.

 

If you have any questions or need assistance voting your Shares, please call our Investor Relations Department at +86 10 5668 3450.

 

The Merger Agreement, the Plan of Merger and the Transactions are described in the accompanying proxy statement. Copies of the Merger Agreement and the Plan of Merger are included as Annex A and Annex B, respectively, to the accompanying proxy statement. We urge you to read the entire accompanying proxy statement carefully.

 

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Notes:

 

1.In the case of joint holders, any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he or she were solely entitled thereto, but if more than one of such joint holders be present at the extraordinary general meeting the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority will be determined by the order in which the names stand in the register of members of the Company in respect of the joint holders.

 

2.The instrument appointing a proxy must be in writing under the hand of the appointer or of his or her attorney duly authorized in writing or, if the appointer is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorized to sign the same.

 

3.A proxy need not be a member (registered shareholder) of the Company.

 

4.The proxy card must be deposited in the manner set out in the notice of the extraordinary general meeting. A proxy card that is not deposited in the manner permitted will be invalid.

 

5.Votes given in accordance with the terms of a proxy card will 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, provided that no intimation in writing of such death, insanity or revocation was received by the Company at __________________________________, People’s Republic of China, Attention: Investor Relations Department, at least two hours before the commencement of the extraordinary general meeting, or adjourned meeting at which such proxy is used.

 

  BY ORDER OF THE BOARD OF DIRECTORS,
   
   
  Shaoyun Han
  Chairman of the Board
    , 2021

 

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PROXY STATEMENT

 

Dated_________________

 

SUMMARY VOTING INSTRUCTIONS

 

Ensure that your Shares of Tarena International, Inc. can be voted at the extraordinary general meeting by submitting your proxy or contacting your broker, bank or other nominee.

 

If your shares are registered in the name of a broker, bank or other nominee: check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your Shares are voted at the extraordinary general meeting.

 

If your shares are registered in your name: submit your proxy as soon as possible by signing, dating and returning the accompanying proxy card in the enclosed postage-paid envelope, so that your Shares can be voted at the extraordinary general meeting in accordance with your instructions.

 

If you submit your proxy card without indicating how you wish to vote, the Shares represented by your proxy will be voted in favor of the resolutions to be proposed at the extraordinary general meeting, unless you appoint a person other than the chairman of the meeting as your proxy, in which case the Shares represented by your proxy will be voted (or not submitted for voting) as your proxy determines.

 

If your ADSs are registered in the name of a broker, bank or other nominee: check the ADS voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that the Shares represented by your ADSs are voted at the extraordinary general meeting.

 

If your ADSs are registered in your name: submit your ADS voting instruction card as soon as possible by signing, dating and returning the ADS voting instruction card, the form of which is attached hereto as Annex H, so that the Shares represented by your ADSs may be voted at the extraordinary general meeting on your behalf by the ADS Depositary (as defined below), as the registered holder of the Shares represented by your ADSs.

 

If you submit your ADS voting instruction card without indicating how you wish to vote, you will be deemed to have instructed the ADS Depositary to vote “FOR” the unmarked item.

 

If you have any questions, require assistance with voting your proxy card, or need additional copies of proxy material, please contact our Investor Relations Department at +86 10 5668 3450.

 

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TABLE OF CONTENTS

 

  Page
SUMMARY TERM SHEET 3
QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER 13
SPECIAL FACTORS 19
MARKET PRICE OF THE COMPANY’S ADSS, DIVIDENDS AND OTHER MATTERS 63
THE EXTRAORDINARY GENERAL MEETING 64
THE MERGER AGREEMENT 71
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS 91
DISSENTERS’ RIGHTS 92
FINANCIAL INFORMATION 94
TRANSACTIONS IN THE SHARES AND ADSS 96
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY 97
FUTURE SHAREHOLDER PROPOSALS 99
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 100
WHERE YOU CAN FIND MORE INFORMATION 101
   
Annex A AGREEMENT AND PLAN OF MERGER A-1
Annex B PLAN OF MERGER B-1
Annex C FAIRNESS OPINION C-1
Annex D CAYMAN ISLANDS COMPANIES ACT (2021 REVISION) D-1
Annex E DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON E-1
Annex F FORM OF PROXY CARD F-1
Annex G DEPOSITARY’S NOTICE G-1
Annex H FORM OF ADS VOTING INSTRUCTION CARD H-1

 

2

 

SUMMARY TERM SHEET

 

This “Summary Term Sheet” and the “Questions and Answers About the Extraordinary General Meeting and the Merger” highlight selected information contained in this proxy statement regarding the Merger (as defined below) and may not contain all of the information that may be important to your consideration of the Merger and other transactions contemplated by the Merger Agreement (as defined below). You should carefully read this entire proxy statement and the other documents to which this proxy statement refers for a more complete understanding of the matters being considered at the extraordinary general meeting. In addition, this proxy statement incorporates by reference important business and financial information about the Company. You are encouraged to read all of the documents incorporated by reference into this proxy statement and you may obtain such information without charge by following the instructions in “Where You Can Find More Information” beginning on page 101. In this proxy statement, the terms “the Company,” “us,” “we” or other terms correlative thereto refer to Tarena International, Inc. All references to “dollars,” “US$” and “$” in this proxy statement are to U.S. dollars, and all references to “RMB” in this proxy statement are to Renminbi, the lawful currency of the People’s Republic of China (“PRC” or “China”).

 

The Parties Involved in the Merger

 

The Company

 

The Company is an exempted company with limited liability incorporated under the laws of the Cayman Islands and a leading provider of professional education and K-12 education services in China. “K-12” refers to the year before the first grade through the last year of high school.

 

The Company has dual headquarters in China. Its principal executive offices in Beijing are located at 6/F, No. 1 Andingmenwai Street, Litchi Tower, Chaoyang District, Beijing 100011, PRC. Its telephone number at this address is +86 10 6213 5687. Its principal executive offices in Hangzhou are located at 1/F, Block A, Training Building, 65 Kejiyuan Road, Baiyang Jie Dao, Economic Development District, Hangzhou 310000, PRC. Its telephone number at this address is +86 571 5602 0827.

 

For a description of the Company’s history, development, business and organizational structure, see the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2020, filed on April 13, 2021 (“Company’s Annual Report”), which is incorporated herein by reference. Please see “Where You Can Find More Information” beginning on page 101 for a description of how to obtain a copy of the Company’s Annual Report.

 

The Chairman Filing Persons

 

Kidedu Holdings Limited (“Parent”) is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is a holding company formed solely for the purpose of holding the equity interest in Merger Sub and completing the transactions contemplated by the Merger Agreement and the Plan of Merger, including the Merger (as defined below) (collectively, the “Transactions”).

  

Kidarena Merger Sub (“Merger Sub”) is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is a holding company formed solely for the purpose of effecting the Transactions.

 

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Mr. Shaoyun Han (the “Chairman”) is the founder and the chairman of board of directors of the Company. The Chairman is a PRC citizen.

  

Kidtech Limited is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is a holding company formed solely for the purpose of effecting the Transactions.

 

Learningon Limited is a company organized and existing under the laws of the British Virgin Islands, and is ultimately wholly owned by HANQQ Trust. TMF (Cayman) Ltd. is the trustee of HANQQ Trust, with the Chairman as settlor and the Chairman and his family as beneficiaries. Learningon Limited is principally an investment holding vehicle.

  

Connion Capital Limited is a company organized and existing under the laws of the British Virgin Islands, and is ultimately wholly owned by HANQQ Trust. TMF (Cayman) Ltd. is the trustee of HANQQ Trust, with the Chairman as settlor and the Chairman and his family as beneficiaries. Connion Capital Limited is principally an investment holding vehicle.

  

Techedu Limited is a company organized and existing under the laws of the British Virgin Islands and is wholly owned by the Chairman. Techedu Limited is principally an investment holding vehicle.

 

Moocon Education Limited is a company organized and existing under the laws of the British Virgin Islands and is wholly owned by the Chairman. Moocon Education Limited is principally an investment holding vehicle.

 

The business address and telephone number for each Chairman Filing Person is 6/F, No.1, Andingmenwai Street, Litchi Tower, Chaoyang District, Beijing 100011, PRC, +86 10 62135687.

 

The ACP Filing Persons

 

Titanium Education (Cayman) Limited (the “Investor”) is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is a wholly owned subsidiary of Ascendent Capital Partners III, L.P. The Investor is principally engaged in the business of holding securities in portfolio companies in which Ascendent Capital Partners III, L.P. invests. The business address of the Investor is Suite 3501, 35/F Jardine House, 1 Connaught Place, Central, Hong Kong. The business telephone number is +852 2165-9000.

 

4

  

Ascendent Capital Partners III, L.P. (the “Sponsor”) is an exempted limited partnership formed under the laws of the Cayman Islands. The Sponsor is principally engaged in the business of investing in portfolio companies. The Sponsor’s business address and business telephone number is same as the Investor.

 

Throughout this proxy statement, Parent, Merger Sub, the Chairman, Kidtech Limited, Learningon Limited, Connion Capital Limited, Techedu Limited, Moocon Education Limited, the Investor and the Sponsor are collectively referred to as the “Buyer Group.”

 

During the last five years, none of the persons referred to above under the heading “The Parties Involved in the Merger,” and their directors and executive officers as listed in Annex E of this proxy statement has been (a) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.

 

The Merger (Page 71)

 

You are being asked to vote to authorize and approve the Agreement and Plan of Merger dated as of April 30, 2021 among the Company, Parent and Merger Sub (the “Merger Agreement”), and the plan of merger required to be registered with the Registrar of Companies of the Cayman Islands (the “Cayman Registrar”), in connection with the Merger (as defined below) (the “Plan of Merger”), pursuant to which, once the Merger Agreement and the Plan of Merger are approved and authorized by the requisite vote of the registered shareholders of the Company and the other conditions to the completion of the transactions contemplated by the Merger Agreement are satisfied or waived in accordance with the terms of the Merger Agreement, Merger Sub will be merged with and into the Company and cease to exist (the “Merger”), with the Company continuing as the surviving company (the “Surviving Company”). The Surviving Company will be wholly owned by Parent, and will continue to do business under the name “Tarena International, Inc.” following the Merger. Copies of the Merger Agreement and the form of the Plan of Merger are attached as Annex A and Annex B, respectively, to this proxy statement. You should read the Merger Agreement and the Plan of Merger in their entirety because they, and not this proxy statement, are the legal documents that govern the Merger.

 

Merger Consideration (Page 72)

 

Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each ordinary share of the Company, par value US$0.001 per Share issued and outstanding immediately prior to the Effective Time, other than the Excluded Shares (as defined below), Dissenting Shares (as defined below) and Shares (as defined below) represented by American depositary shares (each, an “ADS”), each representing one Class A ordinary share, par value US$0.001 per share (each, a “Class A Ordinary Share”), will be cancelled in exchange for the right to receive US$4.00 in cash per Share without interest (the “Per Share Merger Consideration”) and each ADS issued and outstanding immediately prior to the Effective Time, other than ADSs representing the Excluded Shares, will be cancelled in exchange for the right to receive US$4.00 in cash per ADS, without interest and net of any applicable withholding taxes (the “Per ADS Merger Consideration”). Notwithstanding the foregoing, if the Merger is completed, the following shares will be cancelled and cease to exist at the Effective Time but will not entitle the holders thereof to receive the consideration described in the immediately preceding sentence:

 

  (a) (i) 18,028,925 Class A Ordinary Shares and 7,206,059 Class B ordinary shares, par value US$0.001 per share (each, a “Class B Ordinary Share,” and the Class B Ordinary Shares together with the Class A Ordinary Shares, the “Shares”) beneficially owned (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the Chairman and his affiliates, Talent Fortune Investment Limited (an affiliate of KKR, “KKR”), New Oriental Education & Technology Group Inc. (“New Oriental”), and Banyan Enterprises Limited and Banyan Enterprises A Limited (affiliates of Gaorong Capital, “Gaorong,” together with KKR and New Oriental, collectively, the “Other Rollover Shareholders,” together with the Chairman and his affiliates, collectively, the “Rollover Shareholders”) as of April 30, 2021, and any other Shares that may be acquired by any Rollover Shareholder between April 30, 2021 and the Effective Time (collectively, the “Rollover Shares”), (ii) Shares (including Shares represented by ADSs) held by Parent, Merger Sub and any of their respective affiliates, (iii) Shares (including Shares represented by ADSs) beneficially owned by the Company or any subsidiary of the Company or held in the Company’s treasury, and (iv) Shares (including Shares represented by ADSs) held by Citibank, N.A., in its capacity as the ADS Depositary and the holder of the Shares underlying your ADSs (the “ADS Depositary”) and reserved for issuance, settlement and allocation pursuant to the Company Share Plans (as defined below), in each case, immediately prior to the Effective Time, will be cancelled and cease to exist at the Effective Time without payment of any consideration or distribution therefor (collectively, the “Excluded Shares”); and

  

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(b)Shares owned by registered shareholders who have validly exercised and have not effectively withdrawn or lost their rights to dissent from the Merger (the “Dissenting Shares”) in accordance with Section 238 of the Companies Act (2021 Revision) of the Cayman Islands (the “Cayman Islands Companies Act”) will be cancelled and cease to exist at the Effective Time and the holders of such Dissenting Shares shall be entitled to receive only the payment of the fair value of their Dissenting Shares as determined by the Grand Court of the Cayman Islands in accordance with Section 238 of the Cayman Islands Companies Act.

 

Treatment of Company Share Awards (Page 72)

 

At the Effective Time, the Company will (i) terminate the 2008 Share Plan of the Company and the 2014 Share Plan of the Company (collectively, the “Company Share Plans”) and any relevant award agreements entered into under the Company Share Plans, (ii) cancel each Company Option (as defined below) that is then outstanding and unexercised, whether or not vested or exercisable, and (iii) cancel each Company RSU (as defined below) that is then outstanding, whether or not vested.

 

At the Effective Time, each option (each, a “Company Option”) to purchase Shares granted under the Company Share Plans that is vested at or prior to the Effective Time and remains outstanding at the Effective Time (the “Vested Company Option”), will be cancelled in exchange for the election to (i) be issued with an employee incentive award, to replace such Vested Company Option, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such Vested Company Option, or (ii) receive cash from the Surviving Company, without interest and net of any applicable withholding taxes, in the amount equal to the product of (x) the excess, if any, of the Per Share Merger Consideration over the exercise price of such Vested Company Option and (y) the number of Shares underlying such Vested Company Option (assuming such holder exercises such Vested Company Option in full immediately prior to the Effective Time), provided that if the exercise price per Share of any such Vested Company Option is greater than the Per Share Merger Consideration, such Vested Company Option will be cancelled without any cash payment being made in respect thereof. In the event that such holder of a Vested Company Option fails to deliver the written election to the Company prior to the shareholders meeting, such holder will be deemed to have elected to be issued with an employee incentive award to replace such Vested Company Option according to item (i) described above.

m

At the Effective Time, each unvested Company Option that is outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to be issued with an employee incentive award, to replace such unvested Company Option, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such unvested Company Option.

 

At the Effective Time, each restricted share unit granted under the Company Share Plans (each, a “Company RSU”) that is vested and outstanding immediately prior to the Effective Time (each, a “Vested Company RSU”), will be cancelled in exchange for the election to (i) be issued with an employee incentive award, to replace such Vested Company RSU, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such Vested Company RSU, or (ii) receive cash, without interest and net of any applicable withholding taxes, in the amount equal to the Per Share Merger Consideration. In the event that such holder of a Vested Company RSU fails to deliver the written election to the Company prior to the shareholders meeting, such holder will be deemed to have elected to be issued with an employee incentive award to replace such Vested Company RSU according to item (i) described above.

 

At the Effective Time, each Company RSU that is unvested and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to be issued with an employee incentive award, to replace such unvested Company RSU, on terms and conditions reasonably determined by Parent that comply with the Company Share Plans and the award agreement(s) with respect to such unvested Company RSU.

 

At the Effective Time, each of the Company RSUs granted to certain independent directors of the Company, whether vested or unvested, that is cancelled at the Effective Time will, except as otherwise agreed to in writing between such persons and Parent, in exchange therefor, receive cash, without interest and net of any applicable withholding taxes, in the amount equal to the Per Share Merger Consideration multiplied by the number of Shares underlying such Company RSU.

 

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Purposes and Effects of the Merger (Page 46)

 

The purpose of the Merger is to enable Parent to acquire 100% ownership and control of the Company in a transaction in which the Company’s registered shareholders and ADS holders, other than holders of the Excluded Shares and Dissenting Shares, will be cashed out in exchange for the Per Share Merger Consideration or the Per ADS Merger Consideration, as applicable, so that Parent will bear the rewards and risks of the ownership of the Company after the Merger, including any future earnings and growth of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses. See “Special Factors—Purposes of and Reasons for the Merger” beginning on page 46 for additional information.

 

The ADSs are currently listed on NASDAQ Global Select Market (“NASDAQ”) under the symbol “TEDU.” Following the consummation of the Merger, the Company will cease to be a publicly traded company and will be a privately held company wholly owned by Parent. Following the completion of the Merger, the ADSs will no longer be listed on any securities exchange or quotation system, including NASDAQ. See “Special Factors—Effects of the Merger on the Company” beginning on page 46 for additional information.

 

Plans for the Company after the Merger (Page 50)

 

The Buyer Group anticipates that, after the Effective Time, the Company’s operations will be conducted substantially as they are currently being conducted, except that the Company will cease to be a publicly traded company and will instead be a wholly owned subsidiary of Parent.

 

Following the completion of the Merger and the anticipated deregistration of the Shares and ADSs, the Company will no longer be subject to the reporting requirements of the Exchange Act, or the compliance and reporting requirements of NASDAQ and the related direct and indirect costs and expenses.

 

Position of the Buyer Group as to the Fairness of the Merger (Page 32)

 

Each member of the Buyer Group believes that the Merger is fair, both substantively and procedurally, to the shareholders and ADS holders of the Company, other than shareholders and ADS holders who are affiliates of the Company and the Rollover Shareholders (such unaffiliated shareholders and ADS holders are referred to herein as the “Unaffiliated Security Holders”). Their belief is based upon the factors discussed under the section entitled “Special Factors—Position of the Buyer Group as to the Fairness of the Merger” beginning on page 32.

 

Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13E-3 and related rules under the Exchange Act. The views of each member of the Buyer Group as to the fairness of the Merger are not intended to be and should not be construed as a recommendation to any shareholder of the Company as to how that shareholder should vote on the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions.

 

Financing of the Merger (Page 52)

 

The Company and the Buyer Group estimate that the total amount of funds necessary to complete the Merger and the related transactions, excluding payment of fees and expenses in connection with the Merger, is anticipated to be approximately US$129 million, assuming no exercise of dissenters’ rights by shareholders of the Company. In calculating this amount, the Company and the Buyer Group did not consider the value of the Rollover Shares which will be cancelled for no consideration in the Merger.

 

The Buyer Group expects this amount to be provided through (a) cash contribution by the Sponsor or its designated affiliates, in accordance with the equity commitment letter entered into by Parent with the Sponsor, Kidtech Limited and the Chairman dated April 30, 2021 (the “Equity Commitment Letter”), pursuant to which the Sponsor has agreed, subject to the terms and conditions thereof, to provide or procure the provision of the financing amounts for the purpose of financing the merger consideration, and (b) cash in the Company and its subsidiaries. See “Special Factors— Financing of the Merger” beginning on page 52 for additional information.

 

Support Agreements (Page 53)

 

Concurrently with the execution of the Merger Agreement, each of the Rollover Shareholders and Parent entered into certain rollover and support agreements (the “Support Agreements”), pursuant to which each Rollover Shareholders have agreed that (i) the Rollover Shares will be cancelled for no cash consideration in exchange for the newly issued ordinary shares of Parent as set forth in the respective Support Agreements, and (ii) the Rollover Shareholders will vote the Rollover Shares in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, in each case, upon the terms and conditions set forth therein. See “Special Factors—Support Agreements” beginning on page 53 for additional information.

 

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Limited Guarantees (Page 53)

 

Concurrently with the execution and delivery of the Merger Agreement, each of the Chairman and the Sponsor executed and delivered a limited guarantee in favor of the Company (each a “Limited Guarantee,” and collectively, the “Limited Guarantees”), pursuant to which each of the Chairman and the Sponsor agrees to guarantee the payment obligations of Parent under the Merger Agreement for the Parent Termination Fee and certain cost and expenses that, in each case, may become payable to the Company by Parent under certain circumstances and subject to the terms and conditions as set forth in the Merger Agreement. See “Special Factors—Limited Guarantees” beginning on page 53 for additional information.

 

Opinion of the Special Committee’s Financial Advisor (Page 37)

 

At the meeting of the Special Committee on April 30, 2021, Duff & Phelps, A Kroll Business operating as Kroll, LLC (formerly known as Duff & Phelps, LLC) (“Duff & Phelps”) rendered its oral opinion (which was subsequently confirmed in writing by the delivery of Duff & Phelps’ written opinion, dated as of April 30, 2021, addressed to the Special Committee) to the Special Committee, to the effect that, as of that date and based upon and subject to the factors, assumptions and limitations set forth in its opinion, the Per Share Merger Consideration to be received by the holders of Shares (other than the Excluded Shares, the Dissenting Shares and Shares represented by ADSs) and the Per ADS Merger Consideration to be received by the holders of ADSs (other than ADSs representing the Excluded Shares) in the Merger, were fair, from a financial point of view, to such holders (without giving effect to any impact of the Merger on any particular holder of Shares or ADSs other than in their capacity as holders of Shares or ADSs).

 

The opinion of Duff & Phelps was addressed to the Special Committee and only addressed the fairness from a financial point of view of the Per Share Merger Consideration to be received by holders of Shares (other than the Excluded Shares, the Dissenting Shares and Shares represented by ADSs) and the Per ADS Merger Consideration to be received by holders of ADSs (other than ADSs representing the Excluded Shares) in the Merger, and does not address any other aspect or implication of the Merger. The summary of the opinion of Duff & Phelps in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex C to this proxy statement and sets forth the procedures followed, assumptions made, factors and matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in preparing its opinion. We encourage holders of Shares and ADSs to read carefully the full text of the written opinion of Duff & Phelps. However, the opinion of Duff & Phelps, the summary of the opinion and the related analyses set forth in this proxy statement are not intended to be, and do not constitute, advice or a recommendation to any shareholder or holder of ADSs, of the Company as to how to act or vote with respect to the Merger or any other matter. See “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 37 for additional information.

 

Interests of the Company’s Executive Officers and Directors in the Merger (Page 55)

 

In considering the recommendation of the Special Committee and the Board, the Company’s registered shareholders should be aware that certain of the Company’s directors and executive officers have interests in the Transactions that are different from, and/or in addition to, the interests of the Company’s registered shareholders generally. These interests include:

 

the beneficial ownership of equity interests in Parent by the Chairman as a result of the Merger (if approved and consummated);

 

the potential enhancement or decline of the share value of the Surviving Company, of which the Chairman will have beneficial ownership as a result of the completion of the Merger, and future performance of the Surviving Company;

 

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the cash-out of certain in-the-money Vested Company Options and Vested Company RSUs held by certain of the Company’s directors and executive officers at their option, as well as certain unvested Company RSUs held by certain of the Company’s independent directors;

 

continued indemnification rights, rights to advancement of fees and directors and officers liability insurance, which will continue to be provided to the existing directors and officers of the Company following the completion of the Merger. See “The Merger Agreement—Directors’ and Officers’ Indemnification and Insurance” of this proxy statement;

 

the compensation at a rate of US$16,000 per month for the chairman of the Special Committee and US$12,000 per month for the other member of the Special Committee, respectively, in exchange for each member’s services in such capacity (the payment of which is not contingent upon the closing of the Merger or the Special Committee’s or the Board’s recommendation of the Merger); and

 

the expected continuation of service of the executive officers of the Company with the Surviving Company in positions that are substantially similar to their current positions, allowing them to benefit from remuneration arrangements with the Surviving Company.

 

The Special Committee and the Board were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions and recommendations with respect to the Merger Agreement and related matters. See “Special Factors—Interests of Certain Persons in the Merger” beginning on page 54 for additional information.

 

Conditions to the Merger (Page 86)

 

The consummation of the Merger is subject to the satisfaction or waiver (where permissible under applicable law) of the following conditions:

 

the Merger Agreement, the Plan of Merger and the Transactions being authorized and approved by the affirmative vote of holders of Shares (including Shares represented by ADSs) representing at least two-thirds of the voting power of the outstanding Shares present and voting in person or by proxy as a single class at the shareholders meeting or any adjournment or postponement thereof (the “Requisite Company Vote”); and

 

no governmental authority of competent jurisdiction having enacted, issued, promulgated, enforced or entered any law or award, writ, injunction, determination, rule, regulation, judgment, decree or executive order, whether temporary, preliminary or permanent, which has or would have the effect of enjoining, restraining, prohibiting or otherwise making illegal the consummation of the Merger.

 

The obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of the following additional conditions:

 

the representations and warranties of the Company in the Merger Agreement being true and correct as of the date of the Merger Agreement and as of the closing of the Merger, subject to certain qualifications;

 

the Company having performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the closing date of the Merger;

 

the holders of no more than 10% of the Shares having validly served and not validly withdrawn a notice of objection under Section 238(2) of the Cayman Islands Companies Act;

 

there not having been any Company Material Adverse Effect (as defined below) since the date of the Merger Agreement that is continuing; and

 

the Company having delivered to Parent a certificate, dated the closing date, signed by a senior executive officer of the Company, certifying as to the satisfaction of the conditions above.

 

The obligations of the Company to consummate the Merger are subject to the satisfaction or waiver of the following additional conditions:

 

the representations and warranties of Parent and Merger Sub in the Merger Agreement being true and correct as of the date of the Merger Agreement and as of the closing of the Merger, subject to certain qualifications;

 

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Parent and Merger Sub having performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with by each of them on or prior to the closing date of the Merger; and

 

Parent having delivered to the Company a certificate, dated the closing date, signed by an executive officer of Parent, certifying as to the satisfaction of the conditions above.

 

Termination of the Merger Agreement (Page 87)

 

The Merger Agreement may be terminated at any time prior to Effective Time:

 

(a)by mutual written consent of Parent and the Company (if by the Company, acting at the direction of the Special Committee);

 

(b)by either Parent or the Company (if by the Company, acting at the direction of the Special Committee), if:

 

the Effective Time having not occurred on or before January 30, 2022 (the “Long Stop Date”);

 

any governmental authority of competent jurisdiction having enacted, issued, promulgated, enforced or entered any final and non-appealable law or order, which has the effect of preventing, prohibiting or otherwise making illegal consummation of the Merger; or

 

the Requisite Company Vote having not been obtained at the Shareholders Meeting (as defined below) duly convened therefor and concluded or at any adjournment or postponement thereof,

 

in each case, provided that, this termination right is not be available to any party whose failure (or, in the case of Parent, the failure of Parent or Merger Sub) to fulfill any of its obligations under the Merger Agreement has been a primary cause of, or resulted in, the failure of the Merger to be consummated by the Long Stop Date or the applicable condition(s) being satisfied;

 

(c)by the Company, upon:

 

a Parent Breach Termination Event;

 

a Parent Failure to Close Termination Event;

 

a Superior Proposal Termination Event; or

 

an Intervening Event Termination Event;

 

(d)by Parent, upon any Parent Termination Event,

 

each as defined in the section entitled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 87.

 

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U.S. Federal Income Tax Consequences (Page 59)

 

The receipt of cash pursuant to the Merger or through the exercise of dissenters’ rights in connection with the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local and other tax laws. Special rules will apply if you are a “U.S. Holder” and the Company was or currently is a passive foreign investment company, or “PFIC.” See “Special Factors—U.S. Federal Income Tax Consequences” beginning on page 59. The tax consequences of the Merger or the exercise of dissenters’ rights to you will depend upon your personal circumstances. You should consult your tax advisors for a full understanding of the U.S. federal, state, local, foreign and other tax consequences of the Merger to you.

 

PRC Income Tax Consequences (Page 61)

 

The Company does not believe that it should be considered a resident enterprise under the PRC Enterprise Income Tax Law (the “EIT Law”) or that the gains recognized on the receipt of cash for the Shares or ADSs should otherwise be subject to PRC tax to holders of such Shares or ADSs that are not PRC residents. However, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a resident enterprise. If the PRC tax authorities were to determine that the Company should be considered a resident enterprise, then gains recognized on the receipt of cash for the Shares or ADSs pursuant to the Merger by the holders of such Shares or ADSs who are not PRC residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of 10% in the case of enterprises or 20% in the case of individuals (subject to applicable tax treaty relief, if any), and, even in the event that the Company is not considered a resident enterprise, gains recognized on the receipt of cash for Shares or ADSs will be subject to PRC tax if the holders of such Shares or ADSs are PRC residents. The Company does not believe that the Merger is without reasonable commercial purpose for purposes of Bulletin 37 and Bulletin 7, and, as a result, the Company (as purchaser and withholding agent) will not withhold any PRC tax (under Bulletin 7 and Bulletin 37) from the merger consideration to be paid to holders of Shares or ADSs. You should consult your own tax advisor for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences.

 

Please see “Special Factors—PRC Income Tax Consequences” beginning on page 61 for additional information.

 

Cayman Islands Tax Consequences (Page 62)

 

The Cayman Islands currently has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will be payable (either by direct assessment or withholding) to the government or other taxing authority in the Cayman Islands under the laws of the Cayman Islands in respect of the Merger or the receipt of cash for the Shares or ADSs under the terms of the Merger Agreement. This is subject to the qualification that (i) Cayman Islands stamp duty may be payable if any original transaction documents are brought into or executed in or produced before a court in the Cayman Islands (for example, for enforcement); (ii) registration fees will be payable to the Cayman Registrar to register the Plan of Merger; and (iii) fees will be payable to the Cayman Islands Government Gazette Office to publish the notice of the Merger in the Cayman Islands Government Gazette. See “Special Factors—Cayman Islands Tax Consequences.”

 

Regulatory Matters (Page 58)

 

The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with effecting the Merger other than (a) the approvals, filings or notices required under the federal securities laws, (b) the filing of the Plan of Merger (and supporting documentation as specified in the Cayman Islands Companies Act) with the Cayman Registrar and, in the event the Merger becomes effective, a copy of the Certificate of Merger being given to the shareholders and creditors of the Company and Merger Sub as at the time of the filing of the Plan of Merger and notice of the Merger being published in the Cayman Islands Government Gazette, and (c) the clearances, consents and approvals required to be obtained from the Anti-Monopoly Bureau of the PRC State Administration for Market Regulation under the Anti-Monopoly Law of the PRC (the “PRC Anti-trust Approval”). As of the date of this proxy statement, the Buyer Group has obtained the PRC Anti-trust Approval.

 

Litigation Related to the Merger (Page 58)

 

We are not aware of any lawsuit that challenges the Merger, the Merger Agreement or the Transactions.

 

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Accounting Treatment of the Merger (Page 58)

 

The Merger is expected to be accounted for as a business combination by Parent in accordance with Accounting Standards Codification 805 “Business Combinations,” initially at the fair value of the Company as of the date of the closing of the Merger, which is the date of the acquisition.

 

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QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER

 

The following questions and answers address briefly some questions you may have regarding the extraordinary general meeting and the Merger. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

Q:When and where will the extraordinary general meeting be held?

 

A:The extraordinary general meeting will take place on                    , at ________ a.m. (Beijing time) at                      .

 

Q: How does the Board recommend that I vote on the proposals?

 

A: After careful consideration, and upon the unanimous recommendation of the Special Committee, the Board (other than the Chairman who abstained from the vote) recommends you to vote:

 

  · FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, the Variation of Capital and the Adoption of Amended M&A;

 

  · FOR the proposal to authorize each of the members of the Special Committee and the Chief Financial Officer of the Company, to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, the Variation of Capital and the Adoption of Amended M&A; and

 

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  · FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

 

Q:How do I vote if my Shares are registered in my name?

 

A: If Shares are registered in your name in the register of members maintained by the Company as of 5 p.m. Cayman Islands time on (the “Share Record Date”), you should simply indicate on your proxy card how you want to vote, and sign and mail your proxy card in the accompanying return envelope as soon as possible so that it is received by the Company no later than a.m. (Beijing time), ____, being 48 hours before the time appointed for the extraordinary general meeting, which is the deadline to lodge your proxy card for it to be valid, so that your Shares may be represented and voted at the extraordinary general meeting. Alternatively, you can attend the extraordinary general meeting and vote in person. If your Shares are held by your broker, bank or other nominee, please see below for additional information.

  

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Q:How do I vote if I own ADSs?

 

A: If you own ADSs as of the close of business in New York City on the ADS Record Date, you cannot vote at the extraordinary general meeting directly, but you may instruct the ADS Depositary (as the holder of Shares underlying your ADSs) how to vote the Shares underlying your ADSs by completing and signing the ADS voting instruction card and returning it in accordance with the instructions printed on it as soon as possible. The ADS Depositary must receive such instructions no later than 10:00 a.m. (New York City time) on                       , 2021 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting.

 

Alternatively, if you own ADSs as of the close of business in New York City on the ADS Record Date, you may vote at the extraordinary general meeting directly if you surrender your ADSs for cancellation to the ADS Depositary and become a holder of the Shares underlying your ADSs prior to the close of business in the Cayman Islands on the Share Record Date.

 

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Q:If my Shares or ADSs are held in a brokerage, bank or other securities account, will my broker, bank or other securities intermediary vote my Shares or ADSs on my behalf?

 

A: Your broker, bank or other securities intermediary will only vote your Shares on your behalf or give voting instruction with respect to Shares underlying your ADSs on your behalf if you instruct it how to vote. Therefore, it is important that you promptly follow the directions provided by your broker, bank or other securities intermediary regarding how to instruct it to vote your Shares or ADSs. If you do not instruct your broker, bank or other securities intermediary how to vote your Shares that it holds, those Shares or ADSs will not be voted.

  

Q:What will happen if I abstain from voting or fail to vote on the proposal to authorize and approve the Merger Agreement?

 

A: If you abstain from voting, fail to cast your vote in person, fail to complete and return your proxy card in accordance with the instructions set forth on the proxy card, or fail to give voting instructions to the ADS Depositary, your broker, bank, or other securities intermediary, your vote will not be counted.

 

Q:May I change my vote?

 

A:Yes. If you are a holder of Shares, you may change your vote in one of the following three ways:

 

  · First, you may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting at least two hours before the commencement of the extraordinary general meeting. Any written notice revoking a proxy should also be sent to the Company’s offices at _______________, People’s Republic of China, Attention: Investor Relations Department, at least two hours before the commencement of the extraordinary general meeting.

  

·Second, you may complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked to the Company so that it is received by the Company no later than  a.m. (Beijing time) on  , being 48 hours before the time appointed for the extraordinary general meeting which is the deadline to lodge your proxy card.

 

·Third, you may attend the extraordinary general meeting and vote in person. Attendance, by itself, will not revoke a proxy. It will only be revoked if the registered shareholder actually votes in person at the extraordinary general meeting.

 

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Holders of ADSs may revoke their voting instructions by notification to the ADS Depositary in writing at any time prior to 10:00 a.m. (New York City time) on                     , 2021. A holder of ADSs can do this in one of two ways:

 

·First, a holder of ADSs can revoke its voting instructions by written notice of revocation timely delivered to the ADS Depositary.

 

·Second, a holder of ADSs can complete, date and submit a new ADS voting instruction card to the ADS Depositary bearing a later date than the ADS voting instruction card sought to be revoked.

 

If you hold your Shares or ADSs through a broker, bank or other securities intermediary and you have instructed your broker, bank or other securities intermediary to vote your Shares or ADSs, you must follow directions received from the broker, bank or other securities intermediary to change your instructions.

 

Q:What should I do if I receive more than one set of voting materials?

 

A:If you are a holder of record and your Shares or ADSs are registered in more than one name, you will receive more than one proxy or voting instruction or voting instruction card. Please submit each proxy card that you receive.

 

Q:If I am a holder of certificated Shares or ADRs, should I send in my Share certificates or my ADRs now?

 

A:No, please do not send in your share certificates or ADRs now. After the Merger is completed, holders of certificated Shares will be sent a form of letter of transmittal with detailed written instructions for exchanging your share certificates for the Per Share Merger Consideration. Similarly, after the Merger is completed, ADR holders will be sent a form of letter of transmittal with detailed written instructions for exchanging your ADRs for the Per ADS Merger Consideration.

 

All holders of uncertificated Shares and uncertificated ADSs whose Shares or ADSs are held in book-entry will automatically receive their net merger consideration shortly after the Merger is completed without any further action required on the part of such holders. If your ADSs are held in a securities account with a broker or other securities intermediary, your broker or other securities intermediary will credit the net merger consideration to your account.

 

Q:Am I entitled to dissenters’ rights?

 

A:Registered shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands in accordance with Section 238 of the Cayman Islands Companies Act if the Merger is consummated, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Act for the exercise of dissenters’ rights. A copy of Section 238 is attached as Annex D to this proxy statement. The fair value of each of their Shares as determined by the Grand Court of the Cayman Islands under the Cayman Islands Companies Act could be more than, the same as, or less than the Per Share Merger Consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Shares.

 

ADS holders will not have the right to exercise dissenters’ rights and receive payment of the fair value of the Shares underlying their ADSs. The ADS Depositary will not attempt to exercise any dissenters’ rights with respect to any of the Shares that it holds, even if an ADS holder requests the ADS Depositary to do so. ADS holders wishing to exercise dissenters’ rights must surrender their ADSs to the ADS Depositary for cancellation, pay the ADS Depositary’s fees required for the cancellation of their ADSs (US$0.05 per ADS cancelled), provide instructions for the registration of the corresponding Shares in the Company’s register of members, and certify that they have not given, and will not give, voting instructions as to their ADS (or, alternatively, that they will not vote the corresponding Shares) before                       a.m. (New York City time) on                         , 2021, and become registered holders of Shares prior to the vote to authorize and approve the Merger is taken at the extraordinary general meeting. Thereafter, such former ADS holders must comply with the procedures and requirements for exercising dissenters’ rights with respect to the Shares under Section 238 of the Cayman Islands Companies Act.

 

We encourage you to read the section of this proxy statement entitled “Dissenters’ Rights” beginning on page 92 as well as “Annex D—Cayman Islands Companies Act (2021 Revision)—Section 238” to this proxy statement carefully. This proxy statement is not to be construed or taken as legal advice on Cayman Islands law. Registered shareholders who wish to exercise any rights under Section 238 of the Cayman Islands Companies Act, or otherwise, should obtain their own copy of the complete Cayman Islands Companies Act and seek legal advice from a law firm authorized to practice Cayman Islands law without delay.

 

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Q:What do I need to do now?

 

A:We urge you to read this proxy statement carefully, including its annexes, exhibits, attachments and the other documents referred to or incorporated by reference herein and to consider how the Merger affects you as a shareholder. After you have done so, please vote as soon as possible.

 

Q:Will any proxy solicitors be used in connection with the extraordinary general meeting?

 

A:We have not retained a third-party service provider to assist in the solicitation process. We will ask banks, brokers and other securities intermediaries to forward our proxy solicitation materials to the beneficial owners of Shares. In addition, proxies may be solicited by mail, in person, by telephone, by internet or by facsimile by certain of our officers, directors and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed for reasonable out-of-pocket expenses. We will pay all expenses of filing, printing and mailing this proxy statement.

 

Q:Who can help answer my questions?

 

A:If you have any questions about the Merger or if you need additional copies of this proxy statement or the accompanying proxy card, you should contact our Investor Relations Department at ir@tedu.cn.

 

In order for you to receive timely delivery of any additional copy of this proxy statement or the accompanying proxy card in advance of the extraordinary general meeting, you must make your request no later than ten days prior to the date of the extraordinary general meeting.

 

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SPECIAL FACTORS

 

Background of the Merger

 

Most of the events leading to the execution of the Merger Agreement described in this “Background of the Merger” occurred in the PRC. As a result, all dates and times referenced in this Background of the Merger refer to Beijing Time.

 

The Board and senior management of the Company periodically review the Company’s long-term strategic plans with the goal of maximizing shareholder value. As part of this ongoing process, the Board and senior management have, from time to time, considered strategic alternatives that may be available to the Company.

 

Starting in July 2020, the Chairman was approached by several investment firms regarding a potential going private transaction involving the Company. The Chairman discussed in general terms with these investment firms and considered strategic alternatives that may be available to the Company, but made no decision towards either the terms or the timing of any possible transaction.

 

As the Company’s stock price continued to be weak and volatile throughout 2020, the Chairman believed that the benefits of the Company as a publicly-traded company listed on NASDAQ no longer justify its maintenance costs. On December 8, 2020, the Chairman submitted a preliminary non-binding proposal letter (the “Proposal”) to the Board, proposing to acquire all of the outstanding Class A Ordinary Shares of the Company not already owned by him and his affiliates in a going private transaction for US$4.00 per Share or US$4.00 per ADS, in cash (the “Proposed Transaction”) subject to certain conditions. The Chairman indicated his intention to finance the Proposed Transaction with a combination of debt and equity capital. Shortly before his submission of the Proposal, the Chairman consulted Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) on general processes of a potential going private transaction, and engaged Skadden as his U.S. legal counsel in connection with the Proposed Transaction.

 

Later on the same date, the Company issued a press release announcing receipt of the Proposal and furnished the press release as an exhibit to a current report on Form 6-K with the United States Securities and Exchange Commission (the “SEC”).

 

On December 9, 2020, the Board convened a meeting via video conference to discuss the Proposal. During the meeting, the attending directors discussed various qualifications of the directors of the Company to serve on a special committee of the Board to evaluate the Proposal. After the discussion, the Board (other than the Chairman who abstained from voting) determined that it was in the best interests of the Company and its shareholders to establish a special committee of independent directors (the “Special Committee”) and thus passed a written resolution establishing the Special Committee to consider the Proposal, consisting of independent directors Mr. Arthur Lap Tat Wong and Mr. Hon Sang Lee, with Mr. Arthur Lap Tat Wong serving as the chairman of the Special Committee.

 

On December 10, 2020, the Company issued a press release announcing establishment of the Special Committee and furnished the press release as an exhibit to a current report on Form 6-K with the SEC.

 

On December 11, 2020, (i) the Chairman and (ii) Connion Capital Limited, Kidtech Limited, Learningon Limited, Techedu Limited and Moocon Education Limited (collectively, the “Chairman Entities”) filed an amendment to the Schedule 13D with the SEC in connection with the Proposal.

 

Over the course of December 2020, the Special Committee considered proposals from and conducted interviews with multiple law firms and investment banks that had expressed interest in being considered for the roles of the U.S. legal advisor and the financial advisor to the Special Committee, respectively. After due consideration of the qualifications, experience, reputation and other characteristics of each potential legal counsel candidate and each potential financial advisor candidate, the Special Committee retained Gibson, Dunn & Crutcher LLP (“Gibson Dunn”) as its U.S. legal counsel, and Duff & Phelps as its financial advisor, to assist the Special Committee in evaluating and negotiating the Proposed Transaction or any alternative transaction.

 

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On December 29, 2020, the Board passed unanimous written resolutions to, among other things, approve and adopt a Special Committee Charter. The Special Committee was granted, by way of unanimous written resolutions passed by all members of the Board, the power and authority to, among other things, (i) negotiate the Proposed Transaction or any alternative transaction and exercise its exclusive authority to agree to proposed terms on behalf of the Company, (ii) retain any legal counsel, financial advisor, and other consultants and agents as the Special Committee deems appropriate to assist it in discharging its responsibilities, (iii) access all books, records, and other information and documents of or in the possession of the Company or available to the Company as the Special Committee in its sole discretion deems necessary or desirable to assist it in its evaluation of the Proposal or any alternative transaction, (iv) explore, investigate, and consider any alternative transaction and matters related thereto as the Special Committee deems appropriate, (v) reject the Proposal or any alternative transaction if the Special Committee determines such transaction is not fair to and in the best interests of the Company’s shareholders in general or the shareholders other than the Chairman in particular, or if the Special Committee determines the other alternatives, including not entering into any similar transaction, are more advisable, and (vi) exercise any other power that the Special Committee may determine is necessary, proper or advisable to permit the Special Committee to effectively assist the Board in determining whether the Proposal or any alternative transaction is fair to and in the best interests of the Company’s shareholders in general or the shareholders other than the Chairman and Chairman Entities.

 

On December 30, 2020, the Company issued a press release announcing the Special Committee’s appointment of Gibson Dunn as its U.S. legal counsel and Duff & Phelps as its financial advisor, and furnished the press release as an exhibit to its current report on Form 6-K with the SEC.

 

At the end of 2020, the Chairman approached KKR and asked KKR if it would like to participate in the Proposed Transaction. KKR told the Chairman that it was not interested in joining the Chairman as a member of any buyer group.

 

In early January 2021, representatives of the Sponsor approached the Chairman and expressed their interest in exploring the possibility of participating in the Proposed Transaction, and the Sponsor engaged Morrison & Foerster LLP (“MoFo”) as its U.S. legal counsel in connection with the Proposed Transaction.

 

On January 4, 2021, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the Special Committee, Gibson Dunn explained to the Special Committee, among other things, the process of a going private transaction, relevant transaction documents and fiduciary duties of independent directors. Members of the Special Committee asked various questions regarding their fiduciary duties to which representatives of Gibson Dunn responded. Members of the Special Committee and representatives of Gibson Dunn also discussed the need to enter into a confidentiality agreement with the Chairman. Based on these discussions, the Special Committee instructed Gibson Dunn to prepare and circulate a draft confidentiality agreement to Skadden. Duff & Phelps then presented to the members of the Special Committee an overview of the financial due diligence and valuation analysis that Duff & Phelps planned to perform on the Company. Based on these discussions, the Special Committee authorized Duff & Phelps to conduct financial due diligence on the Company.

 

Following the meeting, on the same date, Gibson Dunn sent to Skadden an initial draft of the confidentiality agreement with the Chairman.

 

On January 6, 2021, Skadden sent to Gibson Dunn comments on the confidentiality Agreement with the Chairman.

 

Between January 6, 2021 and January 8, 2021, Gibson Dunn and Skadden negotiated and finalized the confidentiality agreement with the Chairman.

 

On January 8, 2021, the Company, the Special Committee and the Chairman entered into the confidentiality agreement, which contains customary provisions restricting the Chairman’s disclosure and use of confidential information relating to the Company or the Proposed Transaction and a “standstill” provision restricting the Chairman from acquiring Shares or ADSs without the Special Committee’s consent. The confidentiality agreement also obligated any person who participates in a consortium with the Chairman in connection with the Proposed Transaction to enter into a confidentiality agreement with the Company and the Special Committee.

 

On January 18, 2021, representatives of the Company informed Gibson Dunn that the Sponsor expressed interest in becoming a consortium member alongside with the Chairman.

 

On the same date, Gibson Dunn sent to MoFo and the Sponsor an initial draft of the confidentiality agreement with the Sponsor.

 

Later on the same date, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. Gibson Dunn provided the Special Committee with an update on the status of negotiating confidentiality agreements with the Sponsor and other potential equity financing sources. Duff & Phelps updated the Special Committee on the progress of its financial due diligence.

 

On January 19, 2021, MoFo sent to Gibson Dunn comments on the Sponsor’s confidentiality agreement.

 

Over the course of December 2020 and January 2021, Gibson Dunn negotiated confidentiality agreements with certain other potential equity financing sources, each of which contains customary provisions restricting such person’s disclosure and use of confidential information relating to the Company or the Proposed Transaction and a “standstill” provision restricting such person from acquiring Shares or ADSs without the Special Committee’s consent.

 

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On January 21, 2021, the Chairman entered into a consortium agreement (the “Consortium Agreement”) with the Investor, an affiliate of the Sponsor, pursuant to which the Chairman and the Investor agreed to cooperate in connection with the Proposed Transaction as contemplated by the Proposal.

 

Later on the same date, the Chairman and the Chairman Entities filed an amendment to the Schedule 13D with the SEC disclosing the entry into the Consortium Agreement.

 

Between January 19, 2021 and January 22, 2021, Gibson Dunn and MoFo negotiated and finalized the confidentiality agreement with the Sponsor. On January 22, 2021, the Company, the Special Committee and Ascendent Capital Partners (Asia) Limited (the “Advisor”), an affiliate of the Sponsor, entered into the confidentiality agreement, which contains customary provisions restricting the disclosure and use of confidential information by the Advisor and its affiliates relating to the Company or the Proposed Transaction and a “standstill” provision restricting the Adviser and its affiliates from acquiring Shares or ADSs without the Special Committee’s consent.

 

Following the entry into the confidentiality agreement, between January 22, 2021 and the signing of the Merger Agreement, representatives of the Sponsor and its financial, legal and accounting advisors had various discussions with the management of the Company regarding the business, operations and financial performance of the Company and conducted preliminary legal, business, financial and accounting due diligence on the Company.

 

Over the course of February 2021, the Buyer Group had multiple internal discussions on the draft Merger Agreement and the financing arrangement and documents in connection with the Proposed Transaction.

 

On February 26, 2021, Skadden sent an initial draft of the Merger Agreement to Gibson Dunn.

 

Later on the same date, Conyers Dill & Pearman was instructed to act as Cayman counsel to the Chairman and certain members of the Buyer Group and advise on matters of Cayman law.

 

On March 1, 2021, Gibson Dunn provided to the Special Committee an issues list identifying the key issues in Skadden’s initial draft of the Merger Agreement.

 

On March 3, 2021, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the Special Committee, Duff & Phelps updated the Special Committee on the progress of its financial due diligence and financial analysis on the Company. Gibson Dunn updated the Special Committee on the current status of the financing plan arranged by the Buyer Group based on Skadden’s initial draft of the Merger Agreement and Gibson Dunn’s discussion with Skadden. The Special Committee and Gibson Dunn then discussed the key issues identified by Gibson Dunn in the initial draft of the Merger Agreement. Based on these discussions, the Special Committee instructed Gibson Dunn to prepare a markup of the initial draft of the Merger Agreement with certain key commercial terms such as the purchase price in connection with the potential transaction identified for negotiation with the Buyer Group, and to work with the Company’s management to review certain representations, warranties, and covenants of the Company. The Special Committee also instructed Duff & Phelps to conduct precedent analysis on certain issues, including the use of a pre-signing market check and/or post-signing “go-shop,” and the amount of the company termination fee and reverse termination fee, in similar going private transactions, and to continue financial diligence and financial analysis on the Company.

 

On March 4, 2021, Duff & Phelps provided to the Special Committee a study on pre-signing market checks and/or post-signing “go-shop,” and the amount of the company termination fee and reverse termination fee, respectively, in precedent going private transactions.

 

On March 4, 2021 and March 5, 2021, the Buyer Group sent initial drafts of the Support Agreements to each of the Other Rollover Shareholders. KKR retained Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”) as its U.S. legal counsel in connection with the Proposed Transaction. New Oriental retained Allen & Overy LLP (“A&O”) as its U.S. legal counsel in connection with the Proposed Transaction. Gaorong retained Cooley LLP (“Cooley”) as its U.S. legal counsel in connection with the Proposed Transaction. Over the course of March and April 2021, the Other Rollover Shareholders discussed and negotiated the terms of the Support Agreements with the Buyer Group.

 

On March 5, 2021, the Special Committee retained Walkers (Hong Kong) as its Cayman legal counsel to advise on matters of Cayman law.

 

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On March 9, 2021, Gibson Dunn circulated a markup of the initial draft of the Merger Agreement to Skadden.

 

Between March 6, 2021 and March 27, 2021, the Buyer Group continued to negotiate and revise the Merger Agreement with the Special Committee.

 

Later on the same date, Skadden circulated a revised draft of the Merger Agreement to Gibson Dunn.

 

On March 29, 2021, Gibson Dunn provided to the Special Committee an updated issues list identifying the key issues in the revised draft of the Merger Agreement received from Skadden.

 

On March 31, 2021, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. Duff & Phelps updated the Special Committee on the progress of its financial due diligence and financial analysis on the Company. The Special Committee and Gibson Dunn then discussed certain terms of Skadden’s revised draft of the Merger Agreement, including the Buyer Group’s financing plan, treatment of Company Options and Company RSUs, and the company termination fee and reverse termination fee. At the request of the Special Committee, Duff & Phelps explained to the Special Committee the use of pre-signing market checks, post-signing “go-shop,” and the amount of the company termination fee and reverse termination fee in precedent going private transactions. Members of the Special Committee discussed some of these issues extensively among themselves. Based on these discussions, the Special Committee instructed Gibson Dunn to prepare a markup of Skadden’s revised draft of the Merger Agreement and discuss with the Company’s management regarding certain representations, warranties, and covenants of the Company.

 

Later on the same date, the Company’s management provided the Management Projections (as defined below) to Duff & Phelps, which Duff & Phelps then circulated to the Special Committee and Gibson Dunn.

 

On April 1, 2021, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the Special Committee, Duff & Phelps walked the Special Committee and Gibson Dunn through the Management Projections. The Special Committee instructed Duff & Phelps to perform the valuation analysis of the Company based on the Management Projections and other information that Duff & Phelps deems appropriate and relevant.

 

On April 7, 2021, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the Special Committee, Duff & Phelps informed the Special Committee of the progress of its financial due diligence and financial analysis on the Company. The Special Committee then instructed Duff & Phelps to request a purchase price increase from the Buyer Group. The Special Committee and Gibson Dunn next discussed certain terms in Gibson Dunn’s markup of the revised draft of the Merger Agreement. The Special Committee then instructed Gibson Dunn to update a markup of the revised draft of the Merger Agreement based on the discussions and circulate the markup to Skadden.

 

Following the meeting, on the same date, Gibson Dunn circulated a markup of the revised draft of the Merger Agreement to Skadden and requested Skadden to circulate drafts of ancillary transaction documents, including the Support Agreement(s), the Limited Guarantee(s) and the financing document with the potential financing source (collectively, the “Ancillary Agreements”).

 

On April 9, 2021, Duff & Phelps, on behalf of the Special Committee, delivered the Special Committee’s request for an increase of the purchase price to Skadden, based on, among other things, the fact that general economy and the after-school education industry had been gradually recovering from the COVID-19 impacts, and the Company’s K-12 segment had grown and is expected to continue growing, both in terms of revenue and profitability.

 

Between April 9, 2021 and April 16, 2021, the Buyer Group discussed the purchase price increase request of the Special Committee. The Buyer Group determined that the purchase price set forth in the Proposal was fair, and that the Buyer Group was not willing to increase the purchase price.

 

On April 16, 2021, Skadden conveyed to Duff & Phelps the Buyer Group’s position that the Buyer Group believed the purchase price set forth in the Proposal was fair and would be attractive to the public shareholders, and therefore would not agree to increase the purchase price. Skadden provided the Buyer Group’s rationale for this position, including that (i) the purchase price implies significant premium to the Company’s historical trading price, (ii) the purchase price also implies fair valuation multiples comparable to trading peers, (iii) the Company faces increasingly intensified competition from both online and offline competitors, which could erode its growth potential and profitability and negatively impact the Company’s equity value, and (iv) recent PRC regulatory changes in the after-school-tutoring industry where the Company operates could negatively impact the Company’s value.

 

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On April 19, 2021, Skadden sent to Gibson Dunn a revised draft of the Merger Agreement reflecting comments from the Buyer Group.

 

On April 20, 2021, Gibson Dunn provided to the Special Committee an issues list identifying the remaining issues in the revised draft of the Merger Agreement.

 

On April 21, 2021, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the meeting, at the request of the Special Committee, Duff & Phelps informed the Special Committee of the progress of its financial due diligence and financial analysis on the Company. The Special Committee then discussed with Duff & Phelps and Gibson Dunn the Buyer Group’s position not to increase the purchase price, including a discussion of the purchase price in light of Duff & Phelps’ preliminary and ongoing valuation analysis of the Company. Gibson Dunn then provided an update to the Special Committee regarding the status of the Merger Agreement and the Ancillary Agreements. Gibson Dunn walked the Special Committee through the remaining issues identified in the revised draft of Merger Agreement, including, among other things, the purchase price, the use of a post-signing “go-shop,” the majority-of-the-minority voting requirement, and the amount of the Company termination fee and reverse termination fee. Based on these discussions, the Special Committee instructed Gibson Dunn to prepare a markup of the revised draft of the Merger Agreement and review and negotiate the Ancillary Agreements in due course.

 

Later on the same date, Skadden circulated to Gibson Dunn an initial draft of the Limited Guarantee with the Chairman.

 

On April 23, 2021, Gibson Dunn circulated to Skadden a markup of the draft Limited Guarantee with the Chairman.

 

On the same date, Skadden circulated an initial draft of the Support Agreement with the Chairman.

 

On April 26, 2021, Gibson Dunn circulated to Skadden a markup of the initial draft of the Support Agreement with the Chairman.

 

On April 27, 2021, Skadden circulated a revised draft of the Merger Agreement to Gibson Dunn.

 

On the same day, Gibson Dunn provided an update to the Special Committee and Duff & Phelps identifying the remaining issues in the revised draft of the Merger Agreement, including, among other things, the purchase price, the use of a post-signing “go-shop,” “majority of the minority” vote requirement, the threshold for the dissenting shareholder closing condition and the triggering events with respect to the reverse termination fee.

 

Later on the same date, Skadden circulated to Gibson Dunn (i) an initial draft of the Support Agreement with Gaorong, which had been agreed to by Skadden and Cooley, and (ii) revised drafts of the Support Agreement with the Chairman and the Limited Guarantee with the Chairman.

 

Later on the same date, after communicating with the Special Committee, Gibson Dunn conveyed to Skadden the Special Committee’s request for the Buyer Group to (i) increase its purchase price of US$4.00 per Share or per ADS, and (ii) either remove certain PRC regulatory approval as a closing condition or include this closing condition as one of the triggering events with respect to the reverse termination fee, in exchange for which, the Special Committee would accept dropping the requests with respect to the “go-shop”, “majority of the minority” vote requirement and elevated dissenting shareholder threshold.

 

On April 28, 2021, Skadden circulated to Gibson Dunn initial drafts of the Support Agreements with New Oriental and KKR, respectively, each agreed to by Skadden, on one hand, and New Oriental’s and KKR’s respective U.S. legal counsel, on the other hand. Skadden also circulated revised drafts of the Support Agreements with the Chairman and Gaorong, respectively, to Gibson Dunn.

 

23

 

 

On the same date, Gibson Dunn circulated a markup of the revised draft of the Support Agreement with Gaorong to Skadden. Gibson Dunn and Skadden negotiated and substantially finalized the terms of the Support Agreements with the Chairman and Gaorong, respectively. Gibson Dunn, Skadden and A&O also negotiated and revised the Support Agreement with New Oriental.

 

Later on the same date, representatives of Gibson Dunn, Skadden and the Buyer Group held a meeting by telephone discussing the Special Committee’s request to increase the purchase price, among others, that Gibson Dunn conveyed to Skadden on April 27, 2021. During the discussion, representatives of the Buyer Group stated, among other things, that (i) the Buyer Group would be willing to drop the PRC regulatory approval as a closing condition and raise the Buyer Group’s efforts standard to obtain certain PRC regulatory approval to “hell or high water,” but (ii) the Buyer Group would not increase the purchase price and that US$4.00 per Share or per ADS was the Buyer Group’s “best and final offer” (collectively, the “Buyer Group’s Positions”). Representatives of Buyer Group reinforced that the Buyer Group’s Positions were driven by multiple considerations including, among other things, recent regulatory changes in China that had created pressure on the Company’s business and operations and would negatively impact the Company’s value. Representatives of Gibson Dunn and the Buyer Group next discussed the need of having the Sponsor deliver a second limited guarantee by the Sponsor in favor of the Company, as the Chairman’s personal liquid assets would not be sufficient to cover the full amount of the reverse termination fee (the “Second Limited Guarantee Issue”).

 

Following this meeting, on the same date, Gibson Dunn reported to the Special Committee the Buyer Group’s Positions and its rationale and the Second Limited Guarantee Issue.

 

Between April 28, 2021 and April 29, 2021, Gibson Dunn and Skadden negotiated and substantially finalized the terms of the Limited Guarantee with the Chairman.

 

On April 29, 2021, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. Members of the Special Committee and representatives of Gibson Dunn and Duff & Phelps discussed the Buyer Group’s Positions and its rationale and the Second Limited Guarantee Issue. Gibson Dunn also provided the Special Committee with an update on the status of the Ancillary Agreements. At the request of the Special Committee, Duff & Phelps reviewed and discussed its financial analyses based on the purchase price of US$4.00 per Share or per ADS. Based on these discussions, the Special Committee determined that the Buyer Group’s Positions were acceptable assuming that the Sponsor would provide a second limited guarantee in favor of the Company. The Special Committee then instructed Gibson Dunn to finalize the Merger Agreement and the Ancillary Agreements accordingly.

 

On the same date, Gibson Dunn and A&O negotiated and substantially finalized the terms of the Support Agreement with New Oriental.

 

Later on the same date, Gibson Dunn circulated a markup of the Support Agreement with KKR to Skadden and Paul Weiss. Gibson Dunn and Paul Weiss exchanged drafts of the Support Agreement with KKR and substantially finalized its terms.

 

Also on April 29, 2021, MoFo conveyed to Gibson Dunn that the Sponsor had agreed to deliver a second limited guarantee in favor of the Company to guarantee a portion of the reverse termination fee, and sent to Gibson Dunn an initial draft of the Limited Guarantee with the Sponsor. Skadden circulated an initial draft of the Equity Commitment Letter to Gibson Dunn.

 

Later on the same date, Gibson Dunn circulated to Skadden and MoFo comments on initial drafts of the Limited Guarantee with the Sponsor and the Equity Commitment Letter.

 

Between April 29, 2021 and April 30, 2021, Gibson Dunn, Skadden and MoFo negotiated and substantially finalized the terms of the Limited Guarantee with the Sponsor and Equity Commitment Letter.

 

Also on April 29, 2021, Cooley sent to Skadden an initial draft of the Gaorong Letter of Undertaking (as defined below).

 

Later on the same date, MoFo sent to Skadden an initial draft of the Interim Investor Agreement (as defined below).

 

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On April 30, 2021, MoFo sent to Skadden a draft Personal Guarantee (as defined below) to be delivered by the Chairman in favor of the Investor and the Sponsor with respect to certain payment and performance obligations of Kidtech Limited and Parent in connection with the Proposed Transaction.

 

Later on the same day, Skadden and MoFo finalized the Interim Investor Agreement and the Personal Guarantee.

 

Also on April 30, 2021, Skadden and Cooley finalized the Gaorong Letter of Undertaking.

 

Later on April 30, 2021, the Special Committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. Duff & Phelps discussed the Company’s financial performance and historical share trading price and provided a summary of the financial analyses it had performed. Thereafter, at the request of the Special Committee, Duff & Phelps verbally rendered its opinion to the Special Committee (which was subsequently confirmed in writing by the delivery of Duff & Phelps’ written opinion, dated April 30, 2021, addressed to the Special Committee) that, as of the date thereof and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Duff & Phelps in preparing its opinion, the merger consideration of US$4.00 per Share or US$4.00 per ADS to be received by holders of Shares (other than the Excluded Shares, the Dissenting Shares and Shares represented by ADSs) and holders of ADSs (other than ADSs representing the Excluded Shares), respectively, pursuant to the Merger Agreement, is fair, from a financial point of view, to such holders. Please see “Special Factors—Opinion of the Special Committee’s Financial Advisor” for additional information regarding the financial analysis performed by Duff & Phelps and the opinion rendered by Duff & Phelps to the Special Committee. The full text of the written opinion of Duff & Phelps to the Special Committee, dated April 30, 2021, is attached as Annex C to this proxy statement. Thereafter, Gibson Dunn reviewed with the members of the Special Committee the key terms of the Merger Agreement and the Ancillary Agreements. Following a discussion of the terms of the Merger Agreement and the Ancillary Agreements, as well as Duff & Phelps’ presentation of its financial analyses and opinion, the Special Committee unanimously resolved to approve the proposed Merger Agreement, the Plan of Merger and the Limited Guarantees, each substantially in the form of the drafts presented to the Special Committee, and the Transactions, and recommend that the Board authorize and approve the Merger Agreement, the Plan of Merger, and the consummation of the Transactions.

 

Following the meeting of the Special Committee, the Board convened, and based upon the unanimous recommendation of the Special Committee, and taking into account the other factors described below under the heading entitled “Special Factors—Reasons for the Merger and Recommendation of the Special Committee and the Board,” the Board (other than the Chairman who abstained from voting) (i) determined and declared that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, is fair to, and in the best interests of, the Company and Unaffiliated Security Holders, and (ii) adopted resolutions approving the terms of the Merger Agreement and Limited Guarantees and the transactions contemplated thereby.

 

Following the Board meeting, on the same date, the Company, Parent and Merger Sub executed and delivered the Merger Agreement, and the relevant parties executed and delivered the Ancillary Agreements.

 

Later on the same date, the Company issued a press release announcing the execution of the Merger Agreement and the Limited Guarantees.

 

On May 3, 2021, the Company furnished the press release as an exhibit to its current report on Form 6-K with the SEC.

 

Later on the same date, the Chairman and the Chairman Entities filed an amendment to the Schedule 13D with the SEC disclosing the entry into the definitive agreements for the Proposed Transaction, including the Merger Agreement, the Equity Commitment Letter, the Support Agreement with the Chairman and the Chairman Entities, the Limited Guarantee with the Chairman, the Interim Investor Agreement, the Personal Guarantee and the Gaorong Letter of Undertaking.

 

Later on the same date, KKR filed an amendment to the Schedule 13D with the SEC disclosing the entry into the Support Agreement with KKR.

 

On May 10, 2021, New Oriental filed a Schedule 13D with the SEC disclosing the entry into the Support Agreement with New Oriental.

 

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Reasons for the Merger and Recommendation of the Special Committee and the Board

 

The Special Committee and the Board believe that, as a privately held entity, the Company’s management may have greater flexibility to focus on improving the Company’s long-term financial performance without the pressures created by the public equity market’s emphasis on short-term period-to-period financial performance.

 

At a meeting on April 30, 2021, the Special Committee, after consultation with its financial advisor and legal counsel and due consideration, unanimously (a) determined that the Merger as contemplated in the Merger Agreement and the Plan of Merger is fair to and in the best interests of the Company and the Unaffiliated Security Holders, and it is advisable for the Company to enter into the Merger Agreement, the Plan of Merger and to consummate the Transactions, and (b) recommended that the Board authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions.

 

At a meeting on April 30, 2021, after careful consideration and upon the unanimous recommendation of the Special Committee, the Board (other than the Chairman who abstained from the vote), (a) determined that the Merger as contemplated in the Merger Agreement and the Plan of Merger is fair to and in the best interests of the Company and the Unaffiliated Security Holders, and it is advisable for the Company to enter into the Merger Agreement and the Plan of Merger and to consummate the Transactions, (b) authorized and approved the execution, delivery and performance of the Merger Agreement, the Plan of Merger, the Limited Guarantees and the consummation of the Transactions, and (c) resolved to recommend the approval and authorization of the Merger Agreement, the Plan of Merger and the consummation of the Transactions to the shareholders of the Company, and directed that the Merger Agreement, the Plan of Merger and the consummation of the Transactions be submitted to a vote of the shareholders of the Company for authorization and approval.

 

In the course of reaching their respective determinations, the Special Committee and the Board considered the following factors and potential benefits of the Merger, each of which the Special Committee and the Board believe supported their decision to recommend the Merger Agreement and that the Merger is fair to the Unaffiliated Security Holders. These factors and potential benefits, which are not listed in any relative order of importance, are discussed below:

 

the Special Committee’s and the Board’s knowledge of the Company’s business, financial condition, results of operations, prospects and competitive position and their respective belief that the Merger is financially more favorable to the Unaffiliated Security Holders than any other alternative reasonably available to the Company and the Unaffiliated Security Holders;

 

the challenges faced by the Company, including, among others:

 

increased competition in China’s professional education services market, from both online and offline competitors, which could erode the Company’s growth potential and profitability and negatively impact the Company’s value;

 

increased competition in China’s K-12 education services market and uncertainties regarding the growth and profitability of the K-12 education services in China;

 

uncertainties regarding the ability of the Company to replicate the success and growth of its adult education services to the K-12 education services market;

 

the ongoing regulatory headwinds in China in the after-school-tutoring industry, which had created pressure on the Company’s business and operations and would negatively impact the Company’s value;

 

the adverse impact of the outbreak of COVID-19 and uncertainty regarding the potential further impact of COVID-19 and of measures implemented by the Chinese central and local governments to control its spread, including travel restrictions, quarantines, temporary shutdowns of businesses, on the global and China economy and the Company’s business, financial condition and results of operation; and

 

the potential adverse effects on the Company’s business, financial condition and results of operations caused by the general economic slowdown in China and globally and the challenges in the macroeconomic environment;

 

26

 

the estimated forecasts of the Company’s future financial performance prepared by the Company’s management, together with the Company’s management’s view of the Company’s financial condition, results of operations, business, prospects and competitive position;

 

the current and historical market prices of the ADSs, and the fact that the Per ADS Merger Consideration of US$4.00 offered to the Unaffiliated Security Holders represents a premium of approximately 27.4% to the closing price of the ADSs on December 7, 2020, the last trading day prior to the Company’s announcement of its receipt of the Proposal, and premiums of approximately 84.4% and 98.1% to the volume-weighted average trading price of the ADSs during the 60 trading days and 90 trading days, respectively, prior to and including December 7, 2020;

 

the historical closing price of the ADSs was as low as US$0.77 per ADS during the 52-week period prior to the date on which the Company announced its receipt of the Proposal;

 

the limited trading volume of the ADSs on NASDAQ;

 

the costs and administrative burdens associated with the Company’s status as a U.S. publicly traded company, including the costs associated with regulatory filings and compliance requirements, will be reduced. The Company has estimated that no longer being subject to such requirements will result in a saving of direct costs of approximately US$2.3 million per year on a recurring basis;

 

the recognition that, as an SEC-reporting company, the Company’s management and accounting staff, which comprises a relatively small number of individuals, must devote significant time to SEC reporting and compliance matters;

 

the recognition that, as a privately held entity, the Company’s management may have greater flexibility to focus on improving the Company’s long-term financial performance without the pressures created by the public equity market’s emphasis on short-term period-to-period financial performance;

 

the recognition that, as an SEC-reporting company, the Company is required to disclose a considerable amount of business and financial information to the public, some of which would otherwise be considered competitively sensitive and would not be disclosed by a non-reporting company and which may help our actual or potential competitors, customers, lenders and vendors compete against us or make it more difficult for us to negotiate favorable terms with them, as the case may be;

 

the possible alternatives to the Merger (including the possibility of continuing to operate the Company as an independent publicly traded company and the possibility of a sale of the Company to another buyer), the perceived potential benefits and risks of the possible alternatives and the timing and the likelihood of accomplishing the goals of such alternatives, and the assessment by the Special Committee that none of these alternatives was reasonably likely to present superior opportunities for the Company or to create greater value for its shareholders than the Merger, taking into account (i) the likelihood of being consummated, given the percentage ownership held by the Buyer Group and the Other Rollover Shareholders and the Chairman’s expressed unwillingness to sell his and his affiliates’ Shares in any other transaction involving the Company, (ii) the business, competitive, industry and market risks, and (iii) the absence of any proposals made by any unsolicited potential buyers since the announcement of the proposed transaction on December 8, 2020;

 

the fact that the consideration payable in the Merger is entirely in cash, which will allow the Unaffiliated Security Holders to immediately realize liquidity for their investment and provide them with certainty of the value of their Shares or ADSs;

 

the possibility that it could take a considerable period of time before the trading price of the ADSs would reach and sustain at least the Per ADS Merger Consideration of US$4.00, as adjusted for present value, and the possibility that such value might never be obtained;

 

the negotiations with respect to the merger consideration and the Special Committee’s belief that, following extensive negotiations with the Buyer Group, US$4.00 per ADS or per Share was the highest price that the Buyer Group would agree to pay;

 

the likelihood that the Merger would be consummated based on, among other things (not in any relative order of importance):

 

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the absence of a financing condition in the Merger Agreement;

 

the fact that the Sponsor delivered equity commitment letter, committing sufficient equity financing to complete the Merger, and the creditworthiness of the equity financing source;

 

the Company’s ability, as set out in the Merger Agreement and the Equity Commitment Letter, to seek specific performance to prevent breaches of such agreements and to enforce specifically the terms of such agreements; and

 

the fact that the Merger Agreement provides that, in the event of a failure of the Merger to be consummated under certain circumstances, Parent will pay the Company a termination fee of US$6,842,041.87 (see “The Merger Agreement—Termination Fees” beginning on page 89 for additional information) and the guarantee of such payment obligation by each of the Chairman and the Sponsor pursuant to their respective Limited Guarantees;

 

the financial analysis reviewed by Duff & Phelps with the Special Committee, as well as the oral opinion of Duff & Phelps rendered to the Special Committee on April 30, 2021 (which was subsequently confirmed in writing by delivery of Duff & Phelps’ written opinion, dated April 30, 2021, to the Special Committee), as to the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the holders of Shares (other than the Excluded Shares, Dissenting Shares and Shares represented by ADSs) and the Per ADS Merger Consideration to be received by the holders of ADSs (other than ADSs representing the Excluded Shares), as of the date thereof, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Duff & Phelps in preparing its opinion (See “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 37 for additional information). The Special Committee notes that the opinion delivered by Duff & Phelps addresses the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by holders of the Shares (other than the Excluded Shares, Dissenting Shares and Shares represented by ADSs) and the Per ADS Merger Consideration to be received by holders of ADSs (other than ADSs representing the Excluded Shares), in each case, including the Company’s director and officer shareholders. These director and officer shareholders are treated in the same way as the Unaffiliated Security Holders in connection with the Merger, and will receive the same amount of merger consideration as the Unaffiliated Security Holders. The Special Committee does not believe the inclusion of these director and officer shareholders in Duff & Phelps’ opinion affects its ability to rely on the opinion of Duff & Phelps as one of the factors, based on which the Special Committee determines that the Merger is fair to the Unaffiliated Security Holders. However, the Special Committee has not made any determination, nor does it intend to express any view, as to the fairness of the Merger to any shareholder who is an affiliate of the Company, such as the director and officer shareholders identified in the preceding sentence;

 

the fact that, since the Company’s announcement of its receipt of the Proposal from the Chairman on December 8, 2020, and prior to the execution of the Merger Agreement, no third party had contacted the Company, the Special Committee or Duff & Phelps expressing an interest in exploring an alternative transaction with the Company; and

 

the possibility that China-based U.S.-listed public companies such as the Company could be forced to be delisted from U.S. stock exchanges, or be subject to other burdensome requirements, by reason of any newly enacted law or regulation similar in substance to the “Holding Foreign Companies Accountable Act” approved by the U.S. Senate and subsequently passed by the U.S. House of Representatives on December 2, 2020 and the “Memorandum on Protecting United States Investors from Significant Risks from Chinese Companies” issued by the U.S. White House in June 2020, both of which purport to address perceived risks to investors in U.S. financial markets from the PRC government’s purported failure to allow audit firms, such as the Company’s independent auditor, that audit U.S.-listed companies based in China to be adequately examined by the U.S. Public Company Accounting Oversight Board pursuant to U.S. securities laws.

 

In addition, the Special Committee and the Board believed that sufficient procedural safeguards were and are present to ensure that the Merger is procedurally fair to the Unaffiliated Security Holders and to permit the Special Committee and the Board to represent effectively the interests of such Unaffiliated Security Holders, which procedural safeguards include the following, which are not listed in any relative order of importance:

 

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the consideration and negotiation of the Merger Agreement was conducted entirely under the control and supervision of the Special Committee, which consists of two independent directors, and that no limitations were placed on the Special Committee’s authority;

 

in considering the transaction with the Buyer Group, the Special Committee acted solely to represent the interests of the Unaffiliated Security Holders, and the Special Committee had full control of the extensive negotiations with the Buyer Group and their respective advisors on behalf of the Unaffiliated Security Holders;

 

both members of the Special Committee during the entire process were and are independent directors and free from any affiliation with any member of the Buyer Group; in addition, none of the members of the Special Committee is or ever was an employee of the Company or any of its subsidiaries or affiliates and none of such members has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than (a) the members’ receipt of Board compensation in the ordinary course and the Special Committee compensation (which is not contingent on the completion of the Merger or the Special Committee’s or the Board’s recommendation and/or authorization and approval of the Merger), (b) their indemnification and liability insurance rights under their respective indemnification agreement entered into with the Company and the Merger Agreement, and (c) their right to receive cash consideration after the completion of the Merger with respect to the Company RSUs that had been granted to them, if any, under the Company Share Plans;

 

the Special Committee was assisted in negotiations with the Buyer Group and in its evaluation of the Merger by Duff & Phelps as its financial advisor, Gibson Dunn as its U.S. legal advisor and Walkers (Hong Kong) as its Cayman Islands legal advisor;

 

the Special Committee was empowered to, among other things, review, evaluate and negotiate the terms of the Merger and to recommend to the Board what action should be taken by the Company, including not to engage in the Transactions;

 

the terms and conditions of the Merger Agreement were the product of extensive negotiations between the Special Committee and its advisors, on the one hand, and the Buyer Group and their advisors, on the other hand;

 

the Special Committee held meetings on multiple occasions to consider and review the terms of the Merger Agreement and the Transactions;

 

the recognition by the Special Committee that the Special Committee had no obligation to recommend the Merger or any other Transactions;

 

the fact that the Company is able, subject to compliance with the terms and conditions of the Merger Agreement, to terminate the Merger Agreement prior to the receipt of the approval of the Company’s shareholders of the Merger Agreement and the Transactions at the shareholder meeting convened for such purpose (a) in order to enter into an alternative agreement with respect to an acquisition proposal that is a Superior Proposal or (b) in the event that the Board changes its recommendation of the Merger as required by directors’ fiduciary duties in connection with an Intervening Event;

 

the ability of the Special Committee to change, withhold, withdraw, qualify or modify its recommendation that the shareholders vote to approve the Merger Agreement in the event of a Superior Proposal or an Intervening Event;

 

the ability of the Special Committee to evaluate bona fide unsolicited alternative acquisition proposals that may arise between the date of the Merger Agreement and the date of the approval of the Merger by the Company’s shareholders, to furnish confidential information to and conduct negotiations with such third parties and, in certain circumstances, to terminate the Merger Agreement, subject to the payment to Parent or its designees of a termination fee, and accept a Superior Proposal, consistent with the Special Committee’s fiduciary obligations; and

 

the availability of dissenters’ rights to the Unaffiliated Security Holders who comply with all of the required procedures under the Cayman Islands Companies Act for exercising dissenters’ rights, which allow such shareholders to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands.

 

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The Special Committee and the Board also considered a variety of potentially negative factors concerning the Merger Agreement and the Merger, including the following, which are not listed in any relative order of importance:

 

approval of the Merger Agreement is not subject to the authorization and approval of holders of a majority of the Company’s outstanding Shares unaffiliated with the Buyer Group and given that the Buyer Group holds approximately 67.2% of the voting power of the total issued and outstanding Shares (including Shares represented by ADSs) as of the date of this proxy statement and the Rollover Shareholders collectively hold approximately 74.4% of the voting power of the total issued and outstanding Shares (including Shares represented by ADSs) as of the date of this proxy statement, the Buyer Group has the ability to determine the outcome of the matters to be voted upon at the extraordinary general meeting without relying on the support of any Unaffiliated Security Holders;

 

the inclusion of a condition to closing of the Merger, pursuant to which Parent or Merger Sub would not be required to close the Merger if the Company’s shareholders holding 10% or more of the Shares exercise their dissenters’ rights;

 

the significant portion of the voting power of the Shares owned by the Buyer Group, and the Chairman’s participation in the Buyer Group, may have deterred, and may continue to deter, other potentially interested parties from proposing to acquire the Company at a price per Share or per ADS that is higher than US$4.00;

 

the Unaffiliated Security Holders will have no on-going equity participation in the Company following the Merger, and they will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of Shares, and will not participate in any potential future sale of the Company to a third party or any potential recapitalization of the Company, which could include a dividend to shareholders;

 

the restrictions on the conduct of the Company’s business prior to the consummation of the Merger, which may delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company pending the consummation of the Merger;

 

since the Company became publicly listed on April 3, 2014, the highest historical closing price of our ADSs (US$21.32 per ADS) exceeds the Per ADS Merger Consideration;

 

the risks and costs to the Company if the Merger is not consummated, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on the Company’s business and customer relationships;

 

the Company may be required, under certain circumstances, to pay Parent a termination fee of US$3,421,020.93 in connection with termination of the Merger Agreement;

 

the Company’s remedy in the event of a breach of the Merger Agreement by Parent and Merger Sub is limited, under certain circumstances, to receipt of a reverse termination fee of US$6,842,041.87, and under certain circumstances the Company may not be entitled to a reverse termination fee or expenses at all;

 

the fact that members of the Buyer Group and the Other Rollover Shareholders may have interests in the Merger that are different from, or in addition to, those of the Unaffiliated Security Holders (see “Special Factors—Interests of Certain Persons in the Merger” beginning on page 54 for additional information);

 

the possibility that the Merger might not be consummated and the negative impact of such a public announcement on the Company’s sales and operating results, and the Company’s ability to attract and retain key management, marketing and technical personnel; and

 

the taxability of an all-cash transaction to the Unaffiliated Security Holders who are U.S. Holders (as defined under “Special Factors—U.S. Federal Income Tax Consequences”) for U.S. federal income tax purposes, and the likely taxability of such a transaction to the Unaffiliated Security Holders in other jurisdictions.

 

The foregoing discussion of information and factors considered by the Special Committee and the Board is not intended to be exhaustive, but includes all material factors considered by the Special Committee and the Board. In view of the wide variety of factors considered by the Special Committee and the Board, neither the Special Committee nor the Board found it practicable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the Special Committee and the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Special Committee recommended that the Board authorize and approve, and the Board authorized and approved, the Merger Agreement, the Plan of Merger and the Transactions, based upon the totality of the information presented to and considered by it.

 

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The Special Committee and the Board noted that the authorization and approval of the execution of the Merger Agreement, the Plan of Merger and the consummation of the Transactions are not subject to approval by a majority of the Unaffiliated Security Holders. Nevertheless, the Special Committee and the Board believe the Merger is procedurally fair to the Unaffiliated Security Holders given, among other things, (i) that the majority-of-the-minority voting requirement is not customary in going-private transactions involving Cayman Islands companies, (ii) the financial analysis performed by Duff & Phelps, and (iii) that various safeguards and protective measures have been adopted to ensure the procedural fairness of the Transactions, including without limitation (a) the Board’s formation of the Special Committee and granting to the Special Committee of the authority to review, evaluate, and negotiate (and to ultimately either authorize or reject) the terms of the Merger Agreement, the Plan of Merger and the Transactions, (b) the Special Committee’s retention of, and receipt of advice from, competent and experienced independent legal counsels and independent financial advisor for purposes of negotiating the terms of the Transactions and/or preparing a report concerning the fairness of the Transactions, (c) the execution of the Merger Agreement, the Plan of Merger and the consummation of the Transactions have been approved by all of the directors who are neither employees of the Company nor affiliated with the management of the Company or the Buyer Group, and (d) the right of the Company to evaluate bona fide unsolicited alternative acquisition proposals that may arise before the Company’s shareholders vote upon the Merger.

 

In reaching its conclusion regarding the fairness of the Merger to the Unaffiliated Security Holders and its decision to recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, the Special Committee considered financial analyses presented by Duff & Phelps. These analyses included, among others, historical trading ranges, comparable companies analysis, precedent transactions analysis and discounted cash flows analysis. All of the material analyses as presented to the Special Committee on April 30, 2021 are summarized below under the section entitled “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 37. The Special Committee and the Board expressly adopted these analyses and opinions, among other factors considered, in reaching their respective determination as to the fairness of the Transactions.

 

Neither the Special Committee nor the Board considered the liquidation value of the Company’s assets because each considers the Company to be a viable going-concern business where value is derived from cash flows generated from its continuing operations. In addition, the Special Committee and the Board believe that the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going-concern value for the reasons that (i) liquidation sales generally result in proceeds substantially less than the sales of a going concern; (ii) it is impracticable to determine a liquidation value given the significant execution risk involved in any breakup of a company; (iii) an ongoing operation has the ability to continue to earn profit, while a liquidated company does not, such that the “going-concern value” will be higher than the “liquidation value” of a company because the “going concern value” includes the liquidation value of a company’s tangible assets as well as the value of its intangible assets, such as goodwill; and (iv) a liquidation process would involve additional legal fees, costs of sale and other expenses that would reduce any amounts that shareholders might receive upon liquidation. Furthermore, the Company has no intention of liquidation and the Merger will not result in the liquidation of the Company. Each of the Special Committee and the Board believes the analyses and additional factors it reviewed provided an indication of the Company’s going-concern value. Each of the Special Committee and the Board also considered the historical market prices of the ADSs as described under the section entitled “Market Price of the Company’s ADSs, Dividends and Other Matters—Market Price of the ADSs” beginning on page 63. Each of the Special Committee and the Board considered the purchase prices paid in previous purchases as described under “Transactions in the Shares and ADSs” beginning on page 96.

 

Neither the Special Committee nor the Board, however, consider the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the Company’s shareholders, as a factor. The Special Committee and the Board believe that net book value is not a material indicator of the value of the Company as a going concern as it does not take into account the future prospects of the Company, market conditions, trends in the industry or the business risks inherent in competing with larger companies in that industry. The Special Committee and the Board note, however, that the Per ADS Merger Consideration of US$4.00 and the Per Share Merger Consideration of US$4.00 are significantly higher than the net book value per Share as of December 31, 2020, which is negative. See “Where You Can Find More Information” beginning on page 101 for a description of how to obtain a copy of the Company’s Annual Report.

 

The Company is not aware of any firm offers made by any unaffiliated person, other than the filing persons, during the past two years for (i) the merger or consolidation of the Company with or into another company, (ii) the sale of all or a substantial part of the Company’s assets or (iii) the purchase of the Company’s voting securities that would enable the holder to exercise control over the Company.

 

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In reaching its determination that the Merger Agreement, the Plan of Merger and the Transactions are fair to, and in the best interests of, the Company and the Unaffiliated Security Holders and its decision to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, and recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, by the Company’s shareholders, the Board, on behalf of the Company, considered the analysis and factors described above under this section and under “Special Factors—Background of the Merger” and expressly adopted such determination, recommendation and analysis. During its consideration of the Merger Agreement and the Transactions, the Board was also aware that some of the Company’s shareholders, including the Rollover Shareholders and certain directors and employees of the Company, have interests with respect to the Merger that are, or may be, different from, or in addition to those of the Unaffiliated Security Holders generally, as described under the section entitled “Special Factors—Interests of Certain Persons in the Merger” beginning on page 54.

 

Except as set forth under “Special Factors—Background of the Merger” beginning on page 19, “Special Factors—Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 26 and “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 37, no director who is not an employee of the Company has retained an unaffiliated representative to act solely on behalf of Unaffiliated Security Holders for purposes of negotiating the terms of the Transaction and/or preparing a report concerning the fairness of the Transaction.

 

For the foregoing reasons, the Company and the Board believe that the Merger Agreement, the Plan of Merger and the Transactions are fair to, and in the best interests of, the Company and the Unaffiliated Security Holders.

 

Position of the Buyer Group as to the Fairness of the Merger

 

Under SEC rules governing going-private transactions, each member of the Buyer Group is required to express his or its belief as to the fairness of the Merger to the Unaffiliated Security Holders.

 

Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Buyer Group as to the fairness of the Merger are not intended to be and should not be construed as a recommendation to any shareholder as to how that shareholder should vote on the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions. Members of the Buyer Group and the Other Rollover Shareholders have interests in the Merger that are different from, and/or in addition to, those of the other shareholders of the Company by virtue of their continuing interests in the Surviving Company after the completion of the Merger. These interests are described under the section entitled “Special Factors—Interests of Certain Persons in the Merger—Interests of the Buyer Group and the Other Rollover Shareholders” beginning on page 55.

 

The Buyer Group believes that the interests of the Unaffiliated Security Holders were represented by the Special Committee, which negotiated the terms and conditions of the Merger Agreement with the assistance of its independent legal and financial advisors. The Buyer Group attempted to negotiate a transaction that would be most favorable to the Buyer Group, rather than to the Unaffiliated Security Holders and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were substantively and procedurally fair to such holders. The Buyer Group did not participate in the deliberations of the Special Committee regarding, and did not receive any advice from the Special Committee’s independent legal or financial advisors as to, the fairness of the Merger to the Unaffiliated Security Holders. Furthermore, the Buyer Group did not itself undertake a formal evaluation of the fairness of the Merger. No financial advisor provided the Buyer Group with any analysis or opinion with respect to the fairness of the Per Share Merger Consideration or the Per ADS Merger Consideration to the Unaffiliated Security Holders.

 

Based on their knowledge and analysis of available information regarding the Company, as well as the factors considered by, and findings of, the Special Committee and the Board discussed under the section entitled “Special Factors—Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 26, the Buyer Group believes that the Merger is substantively fair to the Unaffiliated Security Holders based on the following factors, which are not listed in any relative order of importance:

 

the Per ADS Merger Consideration of US$4.00 offered to the Unaffiliated Security Holders represents a premium of approximately 27.4% to the closing price of US$3.14 per ADS as quoted by NASDAQ on December 7, 2020, the last trading day prior to December 8, 2020, the date on which the Company announced its receipt of the Proposal, and premiums of approximately 84.4% and 98.1% to the volume-weighted average trading price of the ADSs during the 60 trading days and 90 trading days, respectively, prior to and including December 7, 2020;

 

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the historical closing price of the ADSs was traded as low as US$0.77 per ADS during the 52-week period prior to the date on which the Company announced its receipt of the Proposal;

 

all of the members of the Special Committee during the entire process were and are independent directors and free from any affiliation with any member of the Buyer Group; in addition, none of the members of the Special Committee is or ever was an employee of the Company or any of its subsidiaries or affiliates and none of such members has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than (a) the members’ receipt of Board compensation in the ordinary course and the Special Committee compensation (which is not contingent on the completion of the Merger or the Special Committee’s or the Board’s recommendation and/or authorization and approval of the Merger), (b) their indemnification and liability insurance rights under their respective indemnification agreement entered into with the Company and the Merger Agreement, and (c) their right to receive cash consideration after the completion of the Merger with respect to the Company RSUs that had been granted to them, if any, under the Company Share Plans;

 

notwithstanding that the Buyer Group may not rely upon the opinion provided by Duff & Phelps to the Special Committee, the Special Committee received an opinion from Duff & Phelps stating that, as of the date of such opinion, and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Duff & Phelps in preparing its opinion, the Per Share Merger Consideration and the Per ADS Merger Consideration to be received by the Unaffiliated Security Holders in the Merger was fair to them, from a financial point of view;

 

the Special Committee and, upon the unanimous recommendation of the Special Committee, the Board determined that the Merger Agreement, the Plan of Merger and the consummation of the Transactions are fair to and in the best interests of the Unaffiliated Security Holders;

 

the Company has the ability, under certain circumstances, to seek specific performance to prevent breaches of the Merger Agreement and the Equity Commitment Letter to enforce specifically the terms of such agreements;

 

the Merger is not conditioned on any financing being obtained by Parent or Merger Sub, thus increasing the likelihood that the Merger will be consummated and the merger consideration will be paid to the Unaffiliated Security Holders;

 

the consideration to be paid to the Unaffiliated Security Holders in the Merger is all cash, allowing the Unaffiliated Security Holders to immediately realize a certain and fair value for all of their Shares and/or ADSs, without incurring brokerage and other costs typically associated with market sales (other than, in the case of holders of ADSs, a US$0.05 per ADS cash distribution fee and a US$0.05 per ADS cancellation fee pursuant to the terms of the Deposit Agreement);

 

the potential adverse effects on the Company’s business, financial condition and results of operations caused by the general economic slowdown in the PRC and globally and challenges in the macroeconomic environment;

 

the possibility that PRC-based U.S.-listed public companies would be subject to additional costs and burden of regulatory compliance by reason of any newly enacted law or regulation such as the Holding Foreign Companies Accountable Act; and

 

the availability of dissenters’ rights to the Unaffiliated Security Holders who hold their Shares in their own names and comply with all of the required procedures under the Cayman Islands Companies Act for exercising dissenters’ rights, which allow registered shareholders to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands.

 

The Buyer Group did not consider the liquidation value of the Company because the Buyer Group considers the Company to be a viable going concern and views the trading history of the ADSs as an indication of the Company’s going concern value, and, accordingly, did not believe liquidation value to be relevant to a determination as to the fairness of the Merger.

 

The Buyer Group did not consider the Company’s net book value, which is an accounting concept, as a factor because it believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs and therefore not a relevant measure in the determination as to the fairness of the Merger. The Buyer Group notes, however, that the Per ADS Merger Consideration of US$4.00 and the Per Share Merger Consideration of US$4.00 are significantly higher than the net book value per Share as of December 31, 2020, which is negative. See “Where You Can Find More Information” beginning on page 101 for a description of how to obtain a copy of the Company’s Annual Report.

 

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The Buyer Group did not establish, and did not consider, a going concern value for the Company as a public company to determine the fairness of the merger consideration to the Unaffiliated Security Holders because, following the Merger, the Company will have a significantly different capital structure. However, to the extent the pre-Merger going concern value was reflected in the pre-announcement price of the Company’s ADSs, the Per ADS Merger Consideration of US$4.00 represents a premium to the going concern value of the Company.

 

The Buyer Group is not aware of, and thus did not consider, any offers or proposals made by any unaffiliated person during the past two years for (i) a merger or consolidation of the Company with or into another company, (ii) a sale or transfer of all or substantially all of the Company’s assets or (iii) the purchase of all or a substantial portion of the Company’s voting securities that would enable such person to exercise control of or significant influence over the Company.

 

The Buyer Group did not perform or receive any independent reports, opinions or appraisals from any third party related to the Merger, and thus did not consider any such reports, opinions or appraisals in determining the substantive and procedural fairness of the Merger to the Unaffiliated Security Holders.

 

The Buyer Group believes that the Merger is procedurally fair to the Unaffiliated Security Holders based on the following factors, which are not listed in any relative order of importance:

 

the consideration and negotiation of the Merger Agreement were conducted entirely under the control and supervision of the Special Committee, which consists of two independent directors, as defined under applicable rules of NASDAQ, each of whom is an outside, non-employee director, and that no limitations were placed on the Special Committee’s authority;

 

in considering the transaction with the Buyer Group, the Special Committee acted solely to represent the interests of the Unaffiliated Security Holders, and the Special Committee had full control of the extensive negotiations with the members of the Buyer Group and their respective advisors on behalf of the Unaffiliated Security Holders;

 

all of the members of the Special Committee during the entire process were and are independent directors and free from any affiliation with any member of the Buyer Group; in addition, none of the members of the Special Committee is or ever was an employee of the Company or any of its subsidiaries or affiliates and none of such members has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than (a) the members’ receipt of Board compensation in the ordinary course and the Special Committee compensation (which is not contingent on the completion of the Merger or the Special Committee’s or the Board’s recommendation and/or authorization and approval of the Merger), (b) their indemnification and liability insurance rights under their respective indemnification agreement entered into with the Company and the Merger Agreement, and (c) their right to receive cash consideration after the completion of the Merger with respect to the Company RSUs that had been granted to them, if any, under the Company Share Plans;

 

the Special Committee retained and was advised by an independent financial advisor and independent legal counsels each of whom is experienced in advising committees such as the Special Committee in similar transactions;

 

the Special Committee was empowered to consider, attend to and take any and all actions in connection with the Proposal and in connection with the Transactions from the date the Special Committee was established, and no evaluation, negotiation or response regarding the Transactions in connection therewith from that date forward was considered by the Board for approval unless the Special Committee had recommended such action to the Board;

 

since the announcement of the receipt of the Proposal on December 8, 2020 and prior to the execution of the Merger Agreement, no third party had contacted the Company, the Special Committee or Duff & Phelps expressing an interest in exploring an alternative transaction with the Company;

 

the Special Committee held meetings regularly to consider and review the terms of the Merger Agreement, the Plan of Merger and the Transactions;

 

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the recognition by the Special Committee and the Board that it had no obligation to recommend the Transactions;

 

the Buyer Group did not participate in or have any influence over the deliberative process of, or the conclusions reached by, the Special Committee or the negotiating positions of the Special Committee;

 

the Company’s ability, subject to compliance with the terms and conditions of the Merger Agreement, to terminate the Merger Agreement prior to the receipt of shareholder approval (a) in order to accept an alternative transaction proposed by a third party that is a Superior Proposal or (b) in the event that the Board changes its recommendation of the Merger as required by directors’ fiduciary duties in connection with an Intervening Event; and

 

the fact that, in certain circumstances under the terms of the Merger Agreement, the Special Committee and the Board are able to change, withhold, withdraw, qualify or modify their recommendation of the Merger.

 

The foregoing is a summary of the information and factors considered and given weight by the Buyer Group in connection with its evaluation of the fairness of the Merger to the Unaffiliated Security Holders, which is not intended to be exhaustive, but is believed by the Buyer Group to include all material factors considered by it. The Buyer Group did not find it practicable to assign, and did not assign, relative weights to the individual factors considered in reaching its conclusion as to the fairness of the Merger to the Unaffiliated Security Holders. Rather, its fairness determination was made after consideration of all of the foregoing factors as a whole.

 

The Buyer Group believes these factors provide a reasonable basis for its belief that the Merger is both substantively and procedurally fair to the Unaffiliated Security Holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Buyer Group to any Unaffiliated Security Holder of the Company as to how such Unaffiliated Security Holder should vote with respect to the authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions.

 

Certain Financial Projections

 

The Company does not generally make public detailed financial forecasts or internal projections as to future performance, revenues, earnings or financial condition. However, the Company’s management prepared certain financial projections for the fiscal year ending December 31, 2021 through the fiscal year ending December 31, 2028 (the “Management Projections”) for the Special Committee and Duff & Phelps in connection with the financial analysis for the Merger. These Management Projections, which were based on the Company management’s estimates of the Company’s future financial performance as of the date provided, were prepared by the Company’s management for internal use and for use by Duff & Phelps in its financial analysis, and were not prepared with a view towards public disclosure or compliance with published guidelines of the SEC regarding forward-looking information or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or U.S. GAAP.

 

The Management Projections are not a guarantee of performance. They involve significant risks, uncertainties and assumptions. In compiling the Management Projections, the Company’s management considered historical performance, combined with estimates regarding revenue, gross profit, operating loss and net loss. Although the Management Projections are presented with numerical specificity, they were based on numerous assumptions and estimates as to future events made by our management that our management believed were prepared on a reasonable basis, reflected the best estimates and judgments available at that time and presented, to the best of the management’s knowledge and belief, the expected course of action and the expected future financial performance of the Company. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results, and shareholders are cautioned not to place undue reliance on the prospective financial information. In addition, factors such as industry performance, the market for the Company’s existing and new products and services, the competitive environment, expectations regarding future acquisitions or any other transactions and general business, economic, regulatory, market and financial conditions, and other factors described in “Cautionary Note Regarding Forward-Looking Statements,” all of which are difficult to predict and beyond the control of our management, may cause actual future results to differ materially from the results forecasted in these financial projections. The material assumptions underlying the Management Projections are as follows:

 

the Company will be able to maintain the market acceptance of its professional education and K-12 education services in China and continue to attract and retain students to enroll in its courses;

 

the growth of the education industry in China, and the demand for professional education and K-12 education services, will be in line with management’s expectations;

 

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the Company will be able to maintain its competitive edge within China’s professional education industry and K-12 education industry, and that as a result its revenue growth will be in line with management’s expectations for the growth of the professional and K-12 education market in China;

 

China’s overall economy will remain relatively stable, with no major changes in existing political, legal, fiscal, and economic conditions in China which may adversely affect the Company; and

 

there will be no material changes to relevant government policies and regulations relating to the Company’s corporate structure, business, and industry, including those applicable to the internet, private education, telecommunications, mergers and acquisitions, and taxation.

 

In addition, the Management Projections generally do not consider any circumstances or events occurring after the date that they were prepared. For instance, the Management Projections do not give effect to completion of the Merger or any changes to the Company’s operations or strategy that may be implemented after the time the Management Projections were prepared. As a result, there can be no assurance that the Management Projections will be realized, and actual results may be significantly different from those contained in the projections.

 

Neither the Company, its independent registered public accounting firm, nor any other independent accounts have examined, compiled, or performed any procedures with respect to the Management Projections or any amounts derived therefrom or built thereupon, nor have they given any opinion or any other form of assurance on such information or its achievability. The Management Projections included in this proxy statement are included solely to give shareholders access to certain information that was made available to the Special Committee and Duff & Phelps, and are not included in this proxy statement in order to induce any shareholders to vote in favor of approval of the Merger Agreement or to elect not to seek appraisal for his or her Shares.

 

The following table sets forth the Management Projections prepared by the Company’s management and considered by the Special Committee and Duff & Phelps in connection with their analysis of the Proposed Transaction:

 

   Management Projections 
   2021P   2022P   2023P   2024P   2025P   2026P   2027P   2028P 
   (in RMB millions except percentage) 
Total Revenue   2,411.69    2,726.94    3,082.72    3,380.33    3,605.62    3,824.15    4,015.77    4,186.47 
                                         
Total Cost of Sales   (1,203.84)   (1,297.39)   (1,387.15)   (1,451.84)   (1,507.13)   (1,555.79)   (1,612.52)   (1,671.16)
                                         
Total Gross Profit   1,207.85    1,429.55    1,695.57    1,928.49    2,098.49    2,268.36    2,403.25    2,515.30 
Margin %   50.1%   52.4%   55.0%   57.1%   58.2%   59.3%   59.8%   60.1%
                                         
EBITDA   (276.40)   (148.65)   68.04    206.49    307.81    409.92    463.94    500.16 
Margin %   -11.5%   -5.5%   2.2%   6.1%   8.5%   10.7%   11.6%   11.9%
                                         
Operating Income   (441.87)   (306.06)   (119.81)   44.45    140.48    237.88    284.13    312.37 
Margin %   -18.3%   -11.2%   -3.9%   1.3%   3.9%   6.2%   7.1%   7.5%
                                         
Net Income   (438.87)   (303.06)   (116.81)   47.45    143.48    240.88    287.13    265.73 
Margin %   -18.2%   -11.1%   -3.8%   1.4%   4.0%   6.3%   7.2%   6.3%
                                         
Capital Expenditures (1)   152.58    151.59    155.88    157.68    165.54    174.79    182.46    191.56 
                                         
Net Working Capital   (1,825.25)   (1,567.46)   (1,682.15)   (1,821.42)   (1,941.44)   (2,027.67)   (2,088.46)   (2,127.11)

 

(1)            Capital expenditures include acquisition of property, plant and equipment and other intangible assets.

 

Duff & Phelps, as the Special Committee’s financial advisor, reviewed with the Special Committee certain financial analysis that were based, in part, on the Management Projections summarized above. For additional information regarding the analyses by the Special Committee’s financial advisor, see “Discussion Materials prepared by Duff & Phelps for discussion with the Special Committee of the board of directors of the Company, dated as of April 30, 2021” filed as Exhibit (c)(2) to the Company’s transaction statement on Schedule 13E-3 and “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 37.

 

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The Management Projections are forward-looking statements. For information on factors that may cause the Company’s future financial results to materially vary, see “Cautionary Note Regarding Forward-Looking Statements” beginning on page 100 and “Item 3. Key Information—Risk Factors” included in the Company’s Annual Report, which is incorporated by reference into this proxy statement.

 

Opinion of the Special Committee’s Financial Advisor

 

Pursuant to an engagement letter (“D&P Engagement Letter”) among Duff & Phelps, Duff & Phelps Securities, LLC, the Company and the Special Committee dated December 29, 2020 (“D&P Engagement Letter”), Duff & Phelps was retained to serve as the Special Committee’s independent financial advisor and to deliver a fairness opinion in connection with the Merger. Duff & Phelps is an internationally recognized financial services firm that, among other things, is regularly engaged in the investment banking business, including the valuation of businesses and securities in connection with mergers and acquisitions, underwritings and private placements of securities, and other investment banking services.

 

At a meeting of the Special Committee on April 30, 2021, Duff & Phelps rendered its oral opinion (which was confirmed in writing by the delivery of Duff & Phelps’ written opinion, dated as of April 30, 2021, addressed to the Special Committee) to the Special Committee that, as of such date and based upon and subject to the factors, assumptions, qualifications and limitations set forth in its opinion, the Per Share Merger Consideration to be received by the holders of Shares (other than the Excluded Shares, the Dissenting Shares and Shares represented by ADSs) and the Per ADS Merger Consideration to be received by the holders of ADSs (other than ADSs representing the Excluded Shares) in the Merger, were fair, from a financial point of view, to such holders (without giving effect to any impact of the Merger on any particular holder of Shares or ADSs other than in their capacity as holders of Shares or ADSs). No limitations were imposed by the Special Committee upon Duff & Phelps with respect to the investigations made or procedures followed by it in rendering its opinion.

 

The full text of the written opinion of Duff & Phelps dated April 30, 2021, which sets forth the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated herein by reference. The summary of the opinion of Duff & Phelps set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The holders of Shares and ADSs are urged to read the opinion in its entirety. Duff & Phelps’ written opinion is addressed to the Special Committee (in its capacity as such), is directed only to the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the holders of Shares (other than the Excluded Shares, Dissenting Shares and Shares represented by ADSs) and the Per ADS Merger Consideration to be received by holders of ADSs (other than ADSs representing the Excluded Shares) and does not constitute, a recommendation to any holder of Shares or ADSs as to how such holder should vote or act with respect to the Merger or any other matter. Duff & Phelps did not recommend any specific amount of consideration for the Merger, that any specific amount of consideration constituted the only appropriate consideration for the Merger, or that the Per Share Merger Consideration or the Per ADS Merger Consideration was the best price possibly attainable under any circumstances. Duff & Phelps has consented to the inclusion of its opinion in its entirety and the description thereof in this proxy statement and any other filing the Company is required to make with the SEC in connection with the Merger if such inclusion is required by applicable law.

 

In connection with its opinion, Duff & Phelps has made such reviews, analyses and inquiries as it has deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

 

reviewed the Company’s annual reports and audited financial statements on Form 20-F filed with the SEC for the years ended December 31, 2017 through December 31, 2020;

 

reviewed certain unaudited and segment financial information for the Company for the years ended December 31, 2017 through December 31, 2020, provided by the management of the Company;

 

reviewed the Management Projections, upon which Duff & Phelps has relied, with the Company’s and the Special Committee’s consent, in performing its analysis;

 

reviewed other internal documents relating to the history, current operations, and probable future outlook of the Company, provided to Duff & Phelps by the management of the Company;

 

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received and reviewed a letter dated April 28, 2021 from the management of the Company, which made certain representations as to historical financial information for the Company, the Management Projections and the underlying assumptions of such projections (the “Management Representation Letter”);

 

reviewed a draft of the Merger Agreement dated as of April 30, 2021;

 

reviewed drafts of the Support Agreements by and among Parent and the respective parties listed on Schedule A thereto, each dated as of April 30, 2021;

 

discussed the information referred to above and the background and other elements of the Merger with the management of the Company;

 

discussed with the management of the Company its plans and intentions with respect to the management and operation of the Company’s business;

 

reviewed the historical trading price and trading volume of the ADSs and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

 

performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis, an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant; and

 

conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

 

In performing its analyses and rendering its opinion with respect to the Merger, Duff & Phelps, with the Company’s and the Special Committee’s consent:

 

relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including the management of the Company, and did not independently verify such information;

 

relied upon the fact that the Special Committee, the Board and the Company have been advised by counsel as to all legal matters with respect to the Merger, including whether all procedures required by law to be taken in connection with the Merger have been duly, validly and timely taken;

 

assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps, including, without limitation, the Management Projections, were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and Duff & Phelps expresses no opinion with respect to such estimates, evaluations, forecasts or projections or the underlying assumptions thereof;

 

assumed that information supplied and representations made by the management of the Company are substantially accurate regarding the Company and the Merger;

 

assumed that the representations and warranties made in the Merger Agreement and the Management Representation Letter are substantially accurate;

 

assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed;

 

assumed that there has been no material change in the assets, liabilities (contingent or otherwise), financial condition, results of operations, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there is no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading;

 

assumed that all of the conditions required to implement the Merger will be satisfied and that the Merger will be completed in accordance with the Merger Agreement without any amendments thereto or any waivers of any terms or conditions thereof; and

 

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·assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger will be obtained without any adverse effect on the Company or the contemplated benefits expected to be derived in the Merger.

 

To the extent that any of the foregoing assumptions or any of the facts on which Duff & Phelps’ opinion is based is proven to be untrue in any material respect, Duff & Phelps’ opinion cannot and should not be relied upon. Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of its opinion, Duff & Phelps has made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Merger.

 

Duff & Phelps prepared its opinion effective as of April 30, 2021. Its opinion was necessarily based upon market, economic, financial, and other conditions as they existed and can be evaluated as of April 30, 2021, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after April 30, 2021. The credit, financial and stock markets have been experiencing unusual volatility and Duff & Phelps expresses no opinion or view as to any potential effects of such volatility on the Company or the Merger.

 

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps has not been requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Merger, the assets, businesses or operations of the Company, or any alternatives to the Merger, (ii) negotiate the terms of the Merger (other than its participation in the negotiation of the Per Share Merger Consideration or Per ADS Merger Consideration), and therefore, Duff & Phelps has assumed that such terms are the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the Merger Agreement and the Merger, or (iii) advise the Special Committee or any other party with respect to alternatives to the Merger. Duff & Phelps did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject.

 

Duff & Phelps is not expressing any opinion as to the market price or value of the Shares or ADSs (or anything else) after the announcement or the consummation of the Merger. Duff & Phelps’ opinion should not be construed as a valuation opinion, a credit rating, a solvency opinion, an analysis of the Company’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter. The issuance of Duff & Phelps’ opinion was approved by an authorized opinion review committee of Duff & Phelps.

 

In rendering its opinion, Duff & Phelps was not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the Per Share Merger Consideration or Per ADS Merger Consideration, or with respect to the fairness of any such compensation.

 

Duff & Phelps’ opinion was furnished solely for the use and benefit of the Special Committee in connection with its consideration of the Merger and is not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’ express consent, except that a copy of its opinion may be included in the filings with the SEC in relation to the Merger. Duff & Phelps’ opinion (i) does not address the merits of the underlying business decision to enter into the Merger versus any alternative strategy or transaction; (ii) does not address any transaction related to the Merger; (iii) is not a recommendation as to how the Special Committee, the Board or any other person (including holders of the Shares or ADSs) should vote or act with respect to any matters relating to the Merger, or whether to proceed with the Merger or any related transaction; and (iv) does not indicate that the Per Share Merger Consideration or Per ADS Merger Consideration is the best possibly attainable under any circumstances; instead, it merely states whether the Per Share Merger Consideration or Per ADS Merger Consideration is within or above a range suggested by certain financial analyses. The decision as to whether to proceed with the Merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the opinion is based. Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.

 

Duff & Phelps’ opinion is solely that of Duff & Phelps, and Duff & Phelps’ liability in connection with the opinion shall be limited in accordance with the terms set forth in the D&P Engagement Letter. Duff & Phelps’ opinion is confidential, and its use and disclosure is strictly limited in accordance with the terms set forth in the D&P Engagement Letter.

 

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Summary of Financial Analysis

 

Set forth below is a summary of the material analyses performed by Duff & Phelps in connection with the delivery of its opinion to the Special Committee. This summary is qualified in its entirety by reference to the full text of Duff & Phelps’ opinion, attached hereto as Annex C. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentation to the Special Committee, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis. In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it in rendering the fairness opinion without considering all analyses and factors could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken as a whole, and also on the application of Duff & Phelps’ own experience and judgment.

 

The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’ financial analyses.

 

Discounted Cash Flow Analysis

 

Duff & Phelps performed a discounted cash flow analysis of the projected future unlevered free cash flows attributable to the Company for the fiscal years ending December 31, 2021 through December 31, 2028, with unlevered “free cash flow” defined as cash that is available either to reinvest or to distribute to security holders. The discounted cash flow analysis was used to determine the net present value of estimated future free cash flows using a weighted average cost of capital as the applicable discount rate. For the purposes of its discounted cash flow analysis, Duff & Phelps used and relied upon the Management Projections, which are described in this proxy statement in the section entitled “Special Factors—Certain Financial Projections” beginning on page 35. The costs associated with the Company being a publicly-listed company, as provided by the management of the Company, were excluded from the Management Projections because such costs would likely be eliminated as a result of the Merger.

 

Duff & Phelps estimated the net present value of all cash flows attributable to the Company after fiscal year 2028 (the “Terminal Value”) using a perpetuity growth formula assuming a 4.00% terminal growth rate, which took into consideration an estimate of the expected long-term growth rate of the Chinese economy and the Company’s business. Duff & Phelps used discount rates ranging from 12.00% to 13.00%, reflecting Duff & Phelps’ estimate of the Company’s weighted average cost of capital, to discount the projected free cash flows and the Terminal Value. Duff & Phelps estimated the Company’s weighted average cost of capital by estimating the weighted average of the Company’s cost of equity (derived using the capital asset pricing model) and the Company’s after-tax cost of debt. Duff & Phelps believes that this range of discount rates is consistent with the rate of return that security holders could expect to realize on alternative investment opportunities with similar risk profiles.

 

Based on these assumptions, Duff & Phelps’ discounted cash flow analysis resulted in an estimated enterprise value for the Company of RMB 1.77 billion to RMB 2.07 billion and a range of implied values of the Company’s ADSs of US$3.16 to US$3.94.

 

Selected Public Companies and Merger and Acquisition Transactions Analyses

 

Duff & Phelps analyzed selected public companies and selected merger and acquisition transactions for purposes of estimating valuation multiples with which to calculate a range of implied enterprise values of the Company. This collective analysis was based on publicly available information and is described in more detail in the sections that follow.

 

The companies used for comparative purposes in the following analysis were not directly comparable to the Company, and the transactions used for comparative purposes in the following analysis were not directly comparable to the Merger. Duff & Phelps does not have access to nonpublic information of any of the companies used for comparative purposes. Accordingly, a complete valuation analysis of the Company and the Merger cannot rely solely upon a quantitative review of the selected public companies and selected transactions, but involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies and targets, as well as other factors that could affect their value relative to that of the Company. Therefore, the selected public companies and the selected merger and acquisition transactions analyses are subject to certain limitations.

 

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Selected Public Companies Analysis. Duff & Phelps compared certain financial information of the Company to corresponding data and ratios from publicly traded companies in the education services industry that Duff & Phelps deemed relevant to its analysis. For purposes of its analysis, Duff & Phelps used certain publicly available historical financial data and consensus equity analyst estimates for the selected publicly traded companies. The twelve companies included in the selected public company analysis in the education services industry were:

 

Chinese Online Education Companies  
   
K12 After-school Tutoring GSX Techedu Inc.
     
  Youdao, Inc.
     
  China Online Education Group
     
Post-secondary and Professional Education Koolearn Technology Holding Limited
     
  Sunlands Technology Group
     
  LAIX Inc.
     
Chinese Traditional Education Companies  
   
K12 After-school Tutoring TAL Education Group
     
  New Oriental Education & Technology Group Inc.
     
  Puxin Limited
     
  OneSmart International Education Group Limited
     
  RISE Education Cayman Ltd
     
Post-secondary and Professional Education Meten EdtechX Education Group Ltd.

 

Duff & Phelps selected these companies for its analysis based on their relative similarity, primarily in terms of business model, to that of the Company.

 

The tables below summarize certain observed trading multiples and historical and projected financial performance, on an aggregate basis, of the selected public companies. The estimates for 2021, 2022 and 2023 in the tables below with respect to the selected public companies were derived based on information for the 12-month periods ending closest to the calendar year ends for which information was available. Data related to the Company’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and earnings before interest and taxes (“EBIT”) were adjusted for purposes of this analysis to eliminate public company costs and non-recurring income (expenses).

 

Due to the limited comparability of the selected public companies’ financial metrics relative to the Company, rather than applying a range of selected multiples from a review of the public companies, Duff & Phelps reviewed various valuation multiples for the Company implied by the valuation range determined from the discounted cash flow analysis in the context of the Company’s relative size, growth in revenue and profits, profit margins, capital spending and other characteristics that it deemed relevant.

 

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  Revenue Growth   EBITDA Growth   EBITDA Margin   EBIT Margin 
Company Information  3-YR
CAGR
   LTM   2021   2022   2023   3-YR
CAGR
   LTM   2021   2022   2023   3-YR
CAGR
   LTM   2021   2022   2023   3-YR
CAGR
   LTM   2021   2022   2023 
Chinese Online Education Companies                                                                                                    
K12 After-school Tutoring                                                                                                    
GSX Techedu Inc.    NM    NM    67.6%   45.1%   39.7%   NM    NM    NM    NM    NM    -2.6%   -24.5%   -17.9%   -5.6%   1.9%   -3.2%   -24.6%   -14.6%   -6.0%   0.8%
Youdao, Inc.    90.8%   NM    95.4%   49.1%   33.3%   NM    NM    NM    NM    NM    -43.6%   -56.5%   -28.2%   -10.7%   0.7%   -44.3%   -57.0%   -28.7%   -11.3%   0.2%
China Online Education Group    34.3%   38.9%   28.2%   27.9%   NA    NM    NM    -84.2%   NM    NA    -10.3%   6.9%   0.9%   6.5%   NA    -12.5%   5.1%   -0.9%   4.7%   NA 
Post-secondary and Professional Education                                                                                                    
Koolearn Technology Holding Limited    34.3%   18.0%   72.2%   65.5%   45.7%   NM    NM    NM    NM    NM    -31.4%   -118.1%   -61.0%   -26.9%   -3.1%   -32.4%   NM      -72.2%   -33.6%   -9.2%
Sunlands Technology Group.    31.5%   0.5%   -2.7%   NA    NA    NM    NM    NM    NM    NM    -32.6%   -27.6%   -21.8%   NA    NA    -34.2%   -29.5%   -21.8%   NA    NA 
LAIX Inc.    NM    -4.7%   7.8%   7.7%   NA    NM    NM    NM    NM    NM    -91.8%   -55.8%   -39.5%   -16.5%   NA    -93.0%   -58.7%   -42.8%   20.2%   NA 
Group Median   34.3%   9.2%   47.9%   45.1%   39.7%   NA    NA      -84.2%   NA    NA    -32.0%   -41.7%   -25.0%   -10.7%   0.7%   -33.3%   -29.5%   -25.3%   -11.3%   0.2%
Chinese Traditional Education Companies                                                                                                    
K12 After-school Tutoring                                                                                                    
TAL Education Group    37.9%   37.3%   29.1%   32.7%   35.0%   NM    NM    NM    NM    239.5%   6.9%   -4.8%   -0.7%   5.9%   14.9%   3.7%   -7.4%   -2.6%   8.2%   12.8%
New Oriental Education & Technology Group Inc.    25.8%   6.6%   37.2%   24.7%   32.2%   20.1    -37.3%   40.2%   56.1%   50.2%   14.3%   9.9%   11.9%   15.0%   17.0%   10.5%   6.0%   6.5%   10.5%   13.3%
Puxin Limited    31.3%   -6.4%   NA    NA    NA    NM    NM    NA    NA    NA    -11.5%   -2.0%   NA    NA    NA    -15.4%   -5.9%   NA    NA    NA 
OneSmart International Education Group Limited    18.7%   -19.7%   25.8%   23.9%   NA    NM    NM    NM    75.0%   NA    6.3%   -4.9%   6.9%   9.7%   NA    1.1%   -12.4%   -0.6%   4.1%   NA 
RISE Education Cayman Ltd    -0.4%   -37.3%   62.6%   21.5%   16.5%   NM    NM    NM    36.8%   13.5%   13.0%   -2.9%   14.5%   16.4%   16.0%   7.0%   -11.6%   9.1%   11.5%   11.5%
Post-secondary and Professional Education                                                                                                    
Meten EdtechX Education Group Ltd.    -7.9%   -38.0%   NA    NA    NA    NM    NM    NM    NM    NM    -18.2%   -56.0%   NA    NA    NA    -18.9%   -44.7%   NA    NA    NA 
Group Median    22.2%   -13.1%   33.2%   24.3%   32.2%   20.1%   -37.3%   40.2%   56.1%   50.2%   6.6%   -3.8%   9.4%   12.3%   16.0%   2.4%   -9.5%   2.9%   9.3%   12.8%
Aggregate Mean    29.6%   -0.5%   42.3%   33.1%   33.7%   20.1%   -37.3%   -22.0%   56.0%   101.1%   -16.8%   -28.0%   -13.5%   -0.7%   7.9%   -19.3%   -21.9%   -16.9%   -3.6%   4.9%
Aggregate Median    31.4%   -2.1%   33.2%   27.9%   34.1%   20.1%   -37.3%   -22.0%   56.1%   50.2%   -10.9%   -14.7%   -9.3%   5.9%   8.4%   -13.9%   -12.4%   -8.6%   4.1%   6.2%
The Company    2.7%   -7.5%   27.1%   13.1%   13.0%   -271.1%   NM    NM    NM    NM    -30.9%   -31.0%   -10.7%   -4.8%   2.8%   -39.7%   -40.3%   -17.6%   -10.6%   -3.3%

 

  Enterprise Value as a Multiple of 
Company Information  LTM
EBITDA
   2021
EBITDA
   2022
EBITDA
   2023
EBITDA
   LTM
EBIT
   2021
EBIT
   2022
EBIT
   2023
EBIT
   LTM
Revenue
   2021
Revenue
   2022
Revenue
   2023
Revenue
 
Chinese Online Education Companies                                                            
K12 After-school Tutoring                                                            
GSX Techedu Inc.    NM    NM    NM    NM    NM    NM    NM    NM    6.57x   3.92x   2.70x   1.93x
Youdao, Inc.    NM    NM    NM    NM    NM    NM    NM    NM    6.86x   3.51x   2.35x   1.77x
China Online Education Group    10.5x   66.6x   6.8x   NA    14.2x   NM    9.4x   NA    0.73x   0.57x   0.44x   NA 
Post-secondary and Professional Education                                                            
Koolearn Technology Holding Limited    NM    NM    NM    NM    NM    NM    NM    NM    8.64x   5.02x   3.03x   2.08x
Sunlands Technology Group.    NM    NM    NA    NA    NM    NM    NA    NA    NM    NM    NA    NA 
LAIX Inc.    NM    NM    NM    NA    NM    NM    NM    NA    0.34x   0.32x   0.30x   NA 
Group Median    10.5x   66.6x   6.8x   NA    14.2x   NA    9.4x   NA    6.57x   3.51x   2.35x   1.93x
Chinese Traditional Education Companies                                                            
K12 After-school Tutoring                                                            
TAL Education Group    NM    NM    NM    22.4x   NM    NM    54.7x   26.0x   7.71x   5.97x   4.50x   3.33x
New Oriental Education & Technology Group Inc.    55.1x   35.6x   22.8x   15.2x   NM    65.5x   32.6x   19.4x   5.43x   1.76x   1.21x   0.87x
Puxin Limited    NM    NA    NA    NA    NM    NA    NA    NA    1.16x   NA    NA    NA 
OneSmart International Education Group Limited    NM    8.9x   5.1x   NA    NM    NM    12.2x   NA    0.80x   0.61x   0.50x   NA 
RISE Education Cayman Ltd    NM    5.4x   4.0x   3.5x   NM    8.6x   5.6x   4.8x   1.28x   0.79x   0.65x   0.56x
Post-secondary and Professional Education                                                            
Meten EdtechX Education Group Ltd.    NM    NA    NA    NA    NM    NA    NA    NA    0.60x   NA    NA    NA 
Group Median    55.1x   8.9x   5.1x   15.2x   NA    37.1x   22.4x   19.4x   1.22x   1.27x   0.93x   0.87x
Aggregate Mean    32.8x   29.1x   9.7x   13.7x   14.2x   37.1x   22.9x   16.8x   3.65x   2.50x   1.74x   1.76x
Aggregate Median    32.8x   22.3x   6.0x   15.2x   14.2x   37.1x   12.2x   19.4x   1.28x   1.76x   1.21x   1.85x

 

42

 

Note:

 

The Company’s EBITDA and EBIT are adjusted to exclude public company costs and non-recurring items as provided by the management of the Company
LTM = Latest Twelve Months

 

Enterprise Value = (Market Capitalization) + (Debt + Preferred Stock + Non-Controlling Interest) - (Cash & Equivalents) - (Net Non-Operating Assets)
CAGR = Compounded Annual Growth Rate

 

Source: Capital IQ, Bloomberg, Company filings, press releases

 

Selected M&A Transactions Analysis. Duff & Phelps compared the Company to the target companies involved in the selected merger and acquisition transactions listed in the tables below. The selection of these transactions was based on, among other things, the target company’s industry, the relative size of the transaction compared to the Merger, and the availability of public information related to the transaction. The selected education services transactions indicated enterprise value to LTM revenue multiples ranging from 0.72x to 11.30x with a median of 2.47x, enterprise value to LTM EBITDA multiples ranging from 7.5x to 26.9x with a median of 9.8x and enterprise value to LTM EBIT multiples ranging from 8.2x to 58.0x with a median of 19.4x.

 

The Company is not directly comparable to the target companies in the selected M&A transactions analysis given certain characteristics of the transactions and the target companies, including business and industry comparability and lack of recent relevant transactions. Therefore, although it reviewed the selected M&A transactions analysis, Duff & Phelps did not select valuation multiples for the Company based on the selected M&A transactions analysis.

 

Selected M&A Transactions Analysis – Chinese Education Companies

(US$ in millions)

         Enterprise   LTM   LTM   EBITDA   EV /   EV /   EV / 
Announced  Target Name  Acquirer Name  Value   Revenue   EBITDA   Margin   Revenue   EBITDA   EBIT 
6/8/2020  China Distance Education Holdings Limited  Zhengdong Zhu and Baohong Yin (1)  $321   $210   $39    18.5%   1.53x   8.3x   17.6x
8/14/2019  Beijing Mars era Network Technology Co., Ltd.  Xinyu Martian Investment Management Partnership Enterprise  $67   $78    NA    NA    0.86x   NA    NA 
10/9/2018  Shaanxi Longmen Education Technology Co. Ltd  Suzhou Kingswood Printing Ink Co., Ltd.  $187   $69   $22    32.3%   2.69x   8.3x   8.9x
5/5/2018  Yaxia Automobile Corporation (2)  Beijing Offcn Education Technology Co., Ltd. (2)  $2,510   $620   $93    15.1%   4.05x   26.9x   28.9x
2/14/2018  Zhongwen Weilai Education Technology (Beijing) Co., Ltd.  Beijing Lanxum Technology Co., Ltd.  $149   $13    NA    NA    11.30x   NA    28.3x
8/30/2017  ATA Online (Beijing) Education Technology Co., Ltd.  CDH Investment Management Company Limited; Zhuhai Lihonghuaying Equity Investment Partnership  $172   $83   $22    26.6%   2.08x   7.8x   8.2x
8/16/2016  Shanghai Hengqi Education and Training Co., Ltd.  Changsha Kaiyuan Instruments Co., Ltd  $208   $43    NA    NA    4.81x   NA    47.0x
6/14/2016  Zhongda Elite (Beijing) Online Education Technology Co., Ltd.  Changsha Kaiyuan Instruments Co., Ltd  $39   $5    NA    NA    8.67x   NA    NA 
Group Mean                             4.50x   12.8x   23.2x
Group Median                             3.37x   8.3x   23.0x

 

(1) Co-founders of China Distance Education Holdings Limited. 

(2) This reverse merger transaction involves exchange of certain assets and liabilities between Yaxia (Target) and Offcn (Acquirer). Financials and implied multiples are that of Offcn’s business.

 

43

 

Selected M&A Transactions Analysis – Global Education Companies

(US$ in millions)

         Enterprise   LTM   LTM   EBITDA   EV /   EV /   EV / 
Announced  Target Name  Acquirer Name  Value   Revenue   EBITDA   Margin   Revenue   EBITDA   EBIT 
2/22/2021  RedHill Education Limited  iCollege Limited  $38   $41   $5    12.3%   0.93x   7.5x   NM 
11/20/2020  3P Learning Limited  Think and Learn Private Limited  $146   $41   $11    26.7%   3.59x   13.4x   58.0x
10/29/2020  Rasmussen College, Inc.  American Public Education, Inc.  $329   $256   $43    16.8%   1.29X   7.7x   NA 
7/3/2020  WhiteHat Education Technology Pvt ltd  Think and Learn Private Limited  $300   $150    NA    NA    2.00x   NA    NA 
10/21/2019  Adtalem Educacional do Brasil S/A  Universidade Estácio de Sá  $532   $211   $46    21.8%   2.52x   11.5x   NA 
9/4/2019  Thinkful, Inc.  Chegg, Inc.  $99   $14    NA    NA    7.09x   NA    NA 
4/8/2019  Trilogy Education Services, Inc.  2U, Inc.  $750   $97    NA    NA    7.73x   NA    NA 
10/10/2018  Navitas Limited  AustralianSuper; AustralianSuper; Remjay Investments; BGH; Hoperidge Enterprises  $1,649   $684   $107    15.6%   2.41x   15.5x   19.4x
4/16/2018  General Assembly Space, Inc.  Adecco Group AG  $413   $100    NA    NA    4.13x   NA    NA 
10/30/2017  Capella Education Company  Strayer Education, Inc.  $777   $440   $69    15.8%   1.77x   11.2x   12.0x
8/16/2017  Global Education & Technology Group Limited  Prepshine Holdings Co., Limited  $72   $100    NA    NA    0.72x   NA    NM 
3/15/2017  KG Eduone Co., Ltd.  KG Mobilians Co., Ltd  $68   $41    NA    NA    1.64x   NA    NA 
Group Mean                             2.98x   11.1x   29.8x
Group Median                             2.21x   11.4x   19.4x
Aggregate Mean                             3.59x   11.8x   25.4x
Aggregate Median                             2.47x   9.8x   19.4x

 

Source: Capital IQ, Bloomberg, company filings, press releases

 

44

 

 

Summary of Selected Public Companies / M&A Transactions Analyses

 

Duff& Phelps noted that while it reviewed the selected public companies and the selected M&A transactions, it did not select valuation multiples for the Company based on the selected public companies analysis and the selected M&A transactions analysis for the reasons described in the sections entitled “Selected Public Companies Analysis” and “Selected M&A Transactions Analysis” above, respectively.

 

Summary of Financial Analysis

 

The range of estimated enterprise values for the Company that Duff & Phelps derived from its discounted cash flow analysis was within a range of RMB 1.77 billion to RMB 2.07 billion based on the analyses described above.

 

Based on the concluded enterprise value, Duff & Phelps estimated the range of common equity value of the Company to be RMB 1.180 billion to RMB 1.474 billion by:

 

adding proceeds from exercise of in-the-money options of RMB 10.11 million;

 

adding cash and cash equivalents of RMB 320.18 million;

 

adding time deposits of RMB 6.26 million;

 

adding restricted cash of RMB 38.37 million;

 

adding net interest receivable of RMB 0.88 million;

 

adding housing loan due from employees of RMB 40.22 million;