China New Higher Education : COMPLETION ON ACQUISITION OF GUANGXI SCHOOLS AND STRUCTURED CONTRACTS

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China New Higher Education Group Limited ʕ਷อ৷઺ණྠϞࠢʮ̡

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 2001)

COMPLETION ON ACQUISITION OF GUANGXI SCHOOLS

GUANGXI SCHOOLS STRUCTURED CONTRACTS

COMPLETION ON ACQUISITION OF GUANGXI SCHOOLS

Reference is made to the announcement dated 14 September 2018, pursuant to which, Beijing Daai Consulting, an indirect wholly-owned subsidiary of Yun Ai Group, a consolidated affiliated entity of the Company, entered into the Equity Transfer and Capital Increase Agreement with Greenwoods Jia Xin Rui Xuan, Mr. Li Jianchun, Songming Zhonghe and Songming Xinju to acquire 51% of equity interest of Songming Xinju, the sole shareholder of the School Sponsor of the Guangxi Schools.

On 21 November 2018, Beijing Daai Consulting transferred 51% of equity interest of Songming Xinju to Daai Shuren, an indirect wholly-owned subsidiary of Yun Ai Group, due to the Group's internal business restructuring.

The Board is pleased to announce that the Company has obtained all necessary approvals and completed the acquisition of the Guangxi Schools on 11 January 2019.

On the same date, among others, the Guangxi Schools and Huihuang Company entered into the Guangxi Schools Structured Contracts, the terms and conditions of which shall be the same as the existing Structured Contracts in all material aspects, pursuant to which the Guangxi Schools will become entities controlled by the Company and their results of operations will be consolidated into the Group's results of operations.

GUANGXI SCHOOLS STRUCTURED CONTRACTS

On 11 January 2019, among others, Huihuang Company and the Guangxi Schools, entered into the following agreements that constitute the Guangxi Schools Structured Contracts, pursuant to which 51% of economic benefits arising from the business of the Guangxi Schools and the School Sponsor are transferred to Huihuang Company to the extent permitted under the PRC laws and regulations by means of service fees payable by the Guangxi Schools and the School Sponsor to Huihuang Company: the (1) Business Cooperation Agreement, (2) Exclusive Technical Service and Management Consultancy Agreement, (3) Exclusive Call Option Agreement, (4) School Sponsor's and Directors' Rights Entrustment Agreement, (5) Shareholders' Rights Entrustment Agreement, and (6) Spouse Undertakings. Following the execution of the Guangxi Schools Structured Contracts, the Guangxi Schools will become entities controlled by the Company and their results of operations will be consolidated into the Group's results of operations.

The following diagram illustrates the relationship among the Company, Huihuang Company, and the PRC Consolidated Affiliated Entities:

Our Company

100%

Registered shareholders

Huihuang Company

(4)(5)

100%denotes direct and/or indirect legal and bene cial

ownership in the equity interest or school sponsor's interest

denotes structured contracts

Notes:
1.	Payment of service fees.
2.	Provision of exclusive technical and management consultancy services.
3.	Exclusive call option to acquire all or part of the School Sponsor's interest in the PRC Consolidated Affiliated
Entities and all or part of equity interest in the PRC Consolidated Affiliated Entities.
4.	Entrustment of school sponsor's rights in the Guangxi Schools by the School Sponsor.
5.	Entrustment of directors' rights in the Guangxi Schools and the School Sponsor by directors of PRC
Consolidated Affiliated Entities.
6.	Entrust of Shareholders' right.

Reasons for and Benefits of the Adoption of the Guangxi Schools Structured Contracts

The Guangxi Schools are engaged in private higher education.

Pursuant to the Foreign Investment Catalog, the provision of higher education in the PRC falls within the "restricted" category. In particular, the Foreign Investment Catalog explicitly restricts higher education to Sino-foreign cooperation, which means the foreign investor shall be an educational institution and shall operate higher education in the PRC through cooperation with a PRC educational institution in compliance with the Sino-Foreign Regulation. In addition, the Foreign Investment Catalog also provides that the domestic party shall play a dominant role in the Sino-foreign cooperation, meaning that (a) the principal or other chief executive officer of the schools shall be a PRC national; and (b) the representatives of the domestic party shall account for no less than half of the total members of the board of directors, the executive council or the joint administration committee of the Sino-foreign cooperative educational institution (the "Foreign Control Restriction"). The Company had fully complied with the Foreign Control Restriction in respect of the Guangxi Schools on the basis that (a) the principals and the chief executive officers of the Guangxi Schools are all PRC nationals; and (b) all the members of the board of directors are PRC nationals.

In relation to the interpretation of Sino-foreign cooperation, pursuant to the Sino-Foreign Regulation, if we were to apply for any of our schools to be reorganized as a Sino-Foreign Joint Venture Private School for PRC students at higher education institutions (a "Sino-Foreign Joint Venture Private School"), the foreign investor in the Sino-Foreign Joint Venture Private School must be a foreign educational institution with relevant qualification and that provides high quality education (the "Qualification Requirement"). Furthermore, pursuant to 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") and the establishment of these schools is subject to approval of education authorities at the provincial or national level. The PRC Legal Advisors have advised that there are no implementing measures or specific guidance on the Qualification Requirement in accordance with the existing PRC laws and regulations and therefore it is currently uncertain as to what specific criteria must be met by a foreign investor (such as length of experience and form and extent of ownership in the foreign jurisdiction) in order to demonstrate to the relevant educational authority that it meets the Qualification Requirement.

Based on the above and as confirmed by the PRC Legal Advisor, in order to achieve the business purpose of the Company, the Guangxi Schools Structured Contracts, through which the Group will be able to exercise full control over the Guangxi Schools and the School Sponsor and consolidate the financial results of the Guangxi Schools and the School Sponsor into the accounts of the Group, have been utilized to minimize the potential conflict with relevant PRC laws and regulations.

Unwinding of the Guangxi Schools Structured Contracts

Under the Sino-Foreign Regulation, foreign investment in higher education in the PRC is required to be in the form of cooperation between PRC educational institutions and foreign educational institutions and subject to the Foreign Ownership Restriction and the Foreign Control Restriction, a foreign investor can only hold less than 50% interest in a Sino-Foreign Joint Venture Private School and not less than 50% of the governing body of the institute offering high education must be appointed by the Chinese investors.

In the event that the Qualification Requirement is removed or the Company is able to meet the Qualification Requirement and there is a change in policy, but (a) the Foreign Ownership Restriction and the Foreign Control Restriction remain, (b) the Foreign Ownership Restriction remains and the Foreign Control Restriction is removed, or (c) the Foreign Ownership Restriction is removed and the Foreign Control Restriction remains, as permitted by the applicable PRC laws and regulations at the relevant time:

• - in circumstance (a), the Company will partially unwind the Guangxi Schools Structured Contracts and directly hold an equity interest of less than 50% in the relevant schools (such as a 49.99% equity interest) as the Company or any of its subsidiaries, as a foreign investor, can only hold a portion of the total investment in a Sino-Foreign Joint Venture Private School up to no more than 50%. However, the Company will not be able to control such schools without the Guangxi Schools Structured Contracts in place with respect to the domestic interests. Accordingly, if the Foreign Ownership Restriction and the Foreign Control Restriction remain, regardless of whether the Qualification Requirement is removed or met the Company will still rely on contractual arrangements to establish control over the schools. The Company will also acquire rights to appoint members to the board of directors who together shall constitute less than 50% of the board of directors of the relevant schools. The Company will then control the voting power of the other members of the board of directors appointed by the domestic interest holder(s) by way of the Guangxi Schools Structured Contracts;

• - in circumstance (b), the Company will partially unwind the Guangxi Schools Structured Contracts and directly hold an equity interest of less than 50% in the relevant schools (such as a 49.99% equity interest) as the Company or any of its subsidiaries, as a foreign investor, can only hold a portion of the total investment in a Sino-Foreign Joint Venture Private School up to no more than 50%. However, the Company will not be able to control such school without the Guangxi Schools Structured Contracts in place with respect to the domestic interests. The Company will also acquire rights to appoint the majority members of the board of directors of the schools;

- in circumstance (c), notwithstanding the Company will be able to hold majority interests in Sino-Foreign Joint Venture Private Schools, the Sino-Foreign Regulation still dictates that there be a domestic interest in the school and the Company are ineligible to operate the schools by ourselves. Under such circumstances, the Company will acquire rights to appoint members of the board of directors who together shall constitute less than 50% of the board of directors of the relevant schools. The Company will then control the voting power of such members appointed by the domestic interest holder(s) by way of the Guangxi Schools Structured Contracts. The Company also plans to hold the maximum percentage of equity interests permissible by the relevant laws and regulations in the relevant schools directly, subject to the approval of the relevant government authorities. As for the remaining minority domestic interests which the Company intends to consolidate, the Company will then control them pursuant to the Guangxi Schools Structured Contracts.

Plan to Comply with the Qualification Requirement

We have adopted a specific plan and begun to take the following concrete steps which we reasonably believe are meaningful endeavors to demonstrate compliance with the Qualification Requirement. Please also refer to the section headed "Structured Contracts" in the Prospectus and the financial reports of the Company for the Group's efforts and actions undertaken to comply with the Qualification Requirement. As of the date of this announcement, we are still waiting for approval from the BPPE to establish the new school in the State of California.

Summary of the Material Terms of the Guangxi Schools Structured Contracts

A description of each of the specific agreements that comprise the Guangxi Schools Structured Contracts is set out below.

(1) Business Cooperation Agreement

Pursuant to the Business Cooperation Agreement, Huihuang Company shall provide technical services, management support and consulting services necessary for the private education business, and in return, the PRC Consolidated Affiliated Entities shall make payments accordingly.

To ensure the due performance of the Guangxi Schools Structured Contracts, each of the PRC Consolidated Affiliated Entities agreed to comply, and procure any of its subsidiaries to comply with, and the Registered Shareholders agreed to procure the PRC Consolidated Affiliated Entities to comply with the obligations as prescribed under the Business Cooperation Agreement set forth as follows:

• (a) to carry out its private education operations in a prudent and efficient manner in accordance with good financial and business standards while maintaining the asset value of the PRC Consolidated Affiliated Entities and the quality and standard of private education;

• (b) to prepare school development plans and annual working plans in accordance with the instructions of Huihuang Company;