C banner International : SUPPLEMENTAL ANNOUNCEMENT ON THE DISCLOSABLE TRANSACTION IN RELATION TO ACQUISITION OF INTEREST IN A COMPANY ENGAGED IN OPERATING KINDERGARTENS IN THE PRC

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

千百度國際控股有限公司

(Incorporated in Bermuda with limited liability)

The Target Group is engaged in the business of operating kindergartens in the PRC and adopted the VIE Structure. The main reason for the Target Group to adopt the VIE Structure was because the laws and regulations in the PRC at the time did not allow a foreign investor (not being a foreign educational institution with relevant qualification and high quality of education) to directly engage in the business of operating kindergartens in the PRC. In light of such foreign ownership restriction, the Target Company, through the WFOE, entered into a series of VIE Agreements with the Operating Company and the Registered Shareholders. By entering into the VIE Agreements, the VIE Structure has allowed the Target Group to exercise full control over the Operating Company and consolidate the financial results of the Operating Company into the accounts of the Target Group as if it were a subsidiary of the Target Company. The VIE Structure has been subsisting since it was originally set up due to the above-mentioned foreign ownership restriction in the PRC.

As advised by our PRC Legal Adviser, the Target Company, as a foreign investor investing in the business of operating kindergartens in the PRC, is subject to the Qualification Requirement and the Foreign Ownership Restriction (as defined below). The Target Company is not a qualified education institution nor does it fulfill the Qualification Requirement, and therefore it is not feasible for the Target Company to set up a sino-foreign joint venture to directly engage in the business of operating kindergartens in the PRC.

Based on the reasons set out below in this announcement and as confirmed by our PRC Legal Adviser, in order to achieve the business purpose of the Target Group and gain the relevant education experience with a view to complying with the Qualification Requirement, the VIE Agreements have been utilized to minimise the potential conflict with relevant PRC laws and regulations.

Upon Completion, the Company will not obtain a majority control of the Target Company and as such, it is not in a position to require the Target Company to reorganize its existing VIE Structure. However, the Company intends to monitor the development of the relevant PRC laws and regulations on the Foreign Ownership Restriction and work closely with the Target Group to take all reasonable steps to comply with the other requirements or unwind the VIE Agreements to the extent possible and practicable under the relevant PRC laws and regulations.

Reference is made to the announcements of the Company dated July 21, 2017, July 28, 2017 and August 11, 2017 (the "Announcements") in respect of the acquisition of 45.78% equity interest in the Target Company. Unless otherwise defined hereunder, the capitalized terms used herein shall have the same meanings as those defined in the Announcements.

The Board wishes to provide potential investors and Shareholders with further information in relation to the VIE arrangements within the Target Group.

The Target Group is engaged in the business of operating kindergartens in the PRC. The Target Group adopted the VIE Structure due to the foreign ownership restriction on the kindergarten education industry in the PRC, the further details of which are set out in the section headed "Reasons for use of the VIE Arrangements" in this announcement. Set out below are the VIE Agreements entered into under the VIE arrangements, the simplified VIE Structure and the flow of economic benefits from the Operating Company to the WFOE according to the VIE Agreements upon Completion:

1. Power of attorney to exercise all shareholders' rights in the Operating Company (Note 1)

2. Exclusive option to acquire all or part of the equity interest in and/or assets of the Operating Company (Note 2)

3. First priority security interest over the entire equity interest in the Operating Company (Note 3)

4. Exclusive business cooperation agreement between the WFOE and the Operating Company (Note 4)

Company

Founder Company

45.78% 54.22%

Target Company

100%

Offshore Company

100%

The Operation Company (Note 6)

Notes:

Management and consultation (Note 4)

Consulting and service fees

100%

1. Please refer to "Power of Attorney" for details.

2. Please refer to "Exclusive Option Agreements" for details.

3. Please refer to "Share Pledge Agreement" for details.

4. Please refer to "Exclusive Business Cooperation Agreement" for details.

5. The Registered Shareholders are Ms. Wang Ruina and Ms. Zhao Lihong, each a PRC national, holding 99.9993% and 0.0007% equity interest in the Operating Company respectively.

6. The Operating Company has subsidiary undertakings which operate kindergartens in the PRC. " → " denotes direct legal and beneficial ownership in the equity interest.

▼

" " denotes contractual relationships under the VIE Agreements.

" " denotes the control by WFOE over the Registered Shareholders through (i) powers of attorney to exercise all shareholders' rights in the Operating Company, (ii) exclusive options to acquire all or part of the equity interests in the Operating Company, and (iii) equity pledges over the equity interests in the Operating Company.

The main reason for the Target Group to adopt the VIE Structure was because the laws and regulations in the PRC at the time of establishment of the Operating Company did not allow a foreign investor (not being a foreign educational institution with relevant qualification and high quality of education) to directly engage in the business of operating kindergartens in the PRC. In light of such foreign ownership restriction, the Target Company, through the WFOE, entered into a series of VIE Agreements with the Operating Company and the Registered Shareholders. By entering into the VIE Agreements, the VIE Structure has allowed the Target Group to exercise full control over the Operating Company and consolidate the financial results of the Operating Company into the accounts of the Target Group as if it were a subsidiary of the Target Company. The VIE Structure has been subsisting since it was originally set up due to the above-mentioned foreign ownership restriction in the PRC.

Currently, foreign investment activities in the PRC are mainly governed by the Guidance Catalogue of Industries for Foreign Investment which was promulgated and is amended from time to time jointly by the NDRC and the MOFCOM. On June 28, 2017, the NDRC and MOFCOM jointly released the 2017 version of the Foreign Investment Industrial Guidance Catalogue ("2017 Catalogue") which came into effect from July 28, 2017. The 2017 Catalogue divides industries into four categories in the context of foreign investment, namely, "encouraged", "restricted" and "prohibited" and those industries which are not listed are "permitted".

As confirmed by our PRC Legal Adviser, the provision of kindergartens in the PRC falls within the "restricted" category. In particular, foreign investors may only operate kindergartens through joint ventures with PRC incorporated entities that are in compliance with (i) the Regulation on Sino-Foreign Cooperation in Operating Schools（《中華人民共和國中外合作辦學條例》）, promulgated by the State Council on March 1, 2003 and amended on July 18, 2013 (the "Sino-Foreign Regulation"); and (ii) the Implementation Measures for Regulation on Sino-Foreign Cooperation in Operating Schools（《中華人民 共和國中外合作辦學條例實施辦法》）, promulgated by the MOE on June 2, 2004 (the "Implementation Measures").

As advised by our PRC Legal Adviser, pursuant to the Sino-Foreign Regulation and the Implementation Measures, the foreign investor in a Sino-foreign joint venture school for PRC students at a kindergarten (a "Sino-Foreign Joint Venture Private School") shall be a foreign educational institution with relevant qualification and high quality of education (the "Qualification Requirement"). Furthermore, pursuant to the Implementation Opinions on Encouraging and Guiding Private Fund's Entry into the Education Sector and Promoting Healthy Development of Private Education（《關於鼓勵和引導民間資

金進入教育領域促進民辦教育健康發展的實施意見》）promulgated by the MOE on June 18, 2012 (the

"Implementation Opinions"), the foreign portion of the total investment in a Sino-Foreign Joint Venture Private School should be below 50% (the "Foreign Ownership Restriction").