Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 22, 2012
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CHINA EDUCATION INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
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Nevada
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000-53247
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20-4854568
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(State or other jurisdiction of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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100 E Linton Blvd. Suite 401A
Delray Beach, Florida
(Address of principal executive offices)
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33483
(Zip Code)
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Registrant's telephone number, including area code:
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(561) 266-3059
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Not Applicable
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(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement.
Item 2.01. Completion of Acquisition or Disposition of Assets.
Item 3.02. Unregistered Sales of Equity Securities.
On August 19, 2012, China Education International, Inc.’s (“we”, “us”, or “ours”) subsidiaries, China Education Schools, Ltd. (“China Education”) and Hangzhou Kunjiang Education and Technology Co., Ltd. (“Hangzhou Technology”) entered into a series of agreements with Shanghai Fuyi Education Information Consulting Co., Ltd., a Chinese company “Shanghai Fuyi”), located at 335 Guoding Road, Building 2-1501, Yang Pu District, Shanghai, China, and its shareholders which permit us to operate Shanghai Fuyi and the right to purchase all of its equity interests from its shareholders as summarized below (the “Shanghai Fuyi Agreements”).
Established in 2009, Shanghai Fuyi provides education and training programs that include art design, adult education, accounting, human resources, and an 18 month Executive MBA program with emphasis on international business. Some of these programs are in conjunction with Fudan University, where Shanghai Fuyi has offices. Shanghai Fuyi has projected more than 2,000 students for enrollment in 2012.
Due to Chinese regulatory restrictions on foreign investments in Chinese companies, we conduct our business in China through contractual arrangements which make up the Shanghai Fuyi Agreements among China Education, Hangzhou Technology, and Shanghai Fuyi. Shanghai Fuyi will be treated as a variable interest entity in which China Education does have direct or controlling equity interest but whose historical financial results will be consolidated in our financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The Shanghai Fuyi Agreements include:
Exclusive Cooperation Agreement. Pursuant to the exclusive cooperation agreement, dated August 19, 2012, between Hangzhou Technology and the Shanghai Fuyi, Hangzhou Technology has the exclusive right to provide to Shanghai Fuyi technical and systems support, marketing consulting services, training for technical personnel and technical consulting services and to lend the Shanghai Fuyi funds from its fees under this agreement. As payment for these services, Shanghai Fuyi has agreed to pay Hangzhou Technology a service fee equal to 65% Shanghai Fuyi’s pre-tax profit (90% if there are no taxes due). The initial term of this agreement is 20 years and the term can be renewed upon expiration by mutual agreement of the parties. Hangzhou Technology has the unilateral right to adjust the level of the service fee based on the level of operations at Shanghai Fuyi. The agreement can be terminated by mutual agreement, by written notice from the non-breaching party upon a breaching party’s failure to cure its breach, or by either party’s written notice upon non-performance of the agreement for 30 days as a result of any force majeure.
Share Pledge Agreement. Pursuant to the share pledge agreement, dated August 19, 2012, among Hangzhou Technology and Fenglong Xu and Wei Xu, who collectively own 100% of the equity of Shanghai Fuyi (the “Founders”), the Founders pledged all of their equity interest in Shanghai Fuyi to Hangzhou Technology to secure the performance of Shanghai Fuyi under the Exclusive Cooperation Agreement. The Founders also agreed not to transfer, dispose of or otherwise directly or indirectly create any encumbrance over their equity interest in Shanghai Fuyi, or take any actions that may reduce the value of their equity interest in Shanghai Fuyi without the prior written consent of Hangzhou Technology.
Power of Attorney. Pursuant to the power of attorney dated August 19, 2012, the Founders irrevocably entrusted all the rights to exercise its voting power of Shanghai Fuyi to China Education for an indefinite period of time.
Option Agreement. Pursuant to an agreement entered into between the Founders and Crown Union Resources Limited, a British Virgin Islands company (“Crown Union”), the Founders have a five year right to acquire up to 11,000,000 shares of our unregistered common stock (the “Acquisition Shares”) from Crown Union, upon the occurrence of the conditions described below (the “Option Agreement”). The Acquisition Shares will be issued to Crown Union by us in consideration for the Shanghai Fuyi Agreements.
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Condition
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Number of Shares
which may be acquired
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Entry by the Founders and the respective parties of Shanghai Fuyi Agreements, which condition was met on August 19, 2012.
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6,000,000
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Shanghai Fuyi achieving not less than $5,000,000 in Gross Revenues, as determined under US GAAP for any consecutive 12 months during the period from April 1, 2012 through March 31, 2014.
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3,000,000
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Shanghai Fuyi achieving not less than $3,000,000 in net income, as determined under US GAAP for any consecutive 12 months during the period from April 1, 2012 through March 31, 2014.
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2,000,000
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The purpose of the Option Agreement is to facilitate compliance with Chinese laws which regulate the acquisition of Chinese companies by non-Chinese entities.
We will issue Crown Union a total of 11,000,000 shares of our unregistered common stock under the terms of the Option Agreement, representing approximately 13% of our outstanding shares after taking into effect the issuance, and valued at approximately $10,120,000 based on the last quoted closing price of our common stock on August 20, 2012. The number of Acquisition Shares the Founders may purchase from Crown Union was determined based on the projected income of Shanghai Fuyi for the 12 month period commencing on April 1, 2012 which amount is $3,000,000 (the “Income Target”). The number of Acquisition Shares shall be reduced by 2 1/2 shares for each $1.00 that the Income Target exceeds the actual income for Shanghai Fuyi during any 12 month consecutive period from April 1, 2012 through March 31, 2014 as computed in accordance with US GAAP, and the number of Acquisition Shares so reduced shall be returned to China Education for cancellation.
The issuance of the shares by us to Crown Union is exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient is an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters and was capable of evaluating the merits and risks of the prospective investment in our securities. In addition, the recipient had access to business and financial information concerning our company.
Call Option Agreement. Pursuant to the call option agreement dated August 19, 2012 between China Education and the shareholders of Shanghai Fuyi (the “Founders”), China Education or its designee has an option to purchase from the Founders, to the extent permitted under the laws of the Peoples Republic of China, all or part of their 100% equity interest in Shanghai Fuyi (the “Equity Interest”) in one or more installments. As payment for the rights under the Call Option Agreement, the Founders agreed that China Education shall have the right to offset the value of any other consideration they are entitled to receive in connection with this and its related agreements against the transfer price for the Equity Interest to the fullest extent permitted by Chinese law, and China Education and any third party designated by China Education shall not be required to make any cash payment to the Founders separately. We have sole discretion to decide when to exercise the option, whether in part or in full. Currently, we do not expect to exercise such option in the foreseeable future.
The description of the Shanghai Fuyi Agreements included in this report is qualified in its entirety by reference to the Exclusive Cooperation Agreement, the Share Pledge Agreement, the Power of Attorney, the Option Agreement and the Call Option Agreement which are attached hereto as exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to this report.
Item 7.01 Regulation FD Disclosure.
On August 23, 2011, China Education International, Inc. issued a press release announcing the Shanghai Fuyi Agreements. A copy of this press release is included as Exhibit 99.1 to this report.
Pursuant to General Instruction B.2 of Form 8-K, the information in this Item 7.01 of Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise be subject to the liabilities of that section, nor is it incorporated by reference into any filing of China Education International, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
The financial information that is required pursuant to this Item will be filed by amendment not later than 71 calendar days after the date that this initial report on Form 8-K is required to be filed.
(b) Pro-forma Financial Information
The pro-forma financial information that is required pursuant to this Item will be filed by amendment not later than 71 calendar days after the date that this initial report on Form 8-K is required to be filed.
(d) Exhibits
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Exhibit No.
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Description of Exhibit
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10.1
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Exclusive Cooperation Agreement dated August 19, 2012 between Hangzhou Kunjiang Education Technology Co., Ltd. and Shanghai Fuyi Education Information Consulting Co. Ltd.
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10.2
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Share Pledge Agreement dated August 19, 2012 between Hangzhou Kunjiang Education Technology Co., Ltd. and Fenlong Xu and Wei Xu
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10.3
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Power of Attorney dated August 19, 2012 between China Education Schools Co., Ltd and Shanghai Fuyi
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10.4
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Option Agreement dated August 19, 2012 between Crown Union Resources Limited and Fenglong Xu and Wei Xu and China Education, as Collateral Agent.
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10.5
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Call Option Agreement dated August 19, 2012 between Fenglong Xu and Wei Xu and China Education Schools Co., Ltd.
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99.1
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Press release of China Education International, Inc. dated August 23, 2012 Regarding Agreements with Shanghai Fuyi.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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CHINA EDUCATION INTERNATIONAL, INC.
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Date: August 23, 2012
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By: /s/ Joel Mason
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Joel Mason,
Chief Executive Officer
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