THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Parenting Network Holdings Limited, you should at once hand this circular with the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

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China Parenting Network Holdings Limited 中國育兒網絡控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1736)

(1) CONNECTED TRANSACTION – PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES; (2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION; AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee

and the Independent Shareholders

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A letter from the Board is set out on pages 6 to 25 of this circular.

A letter from the Independent Board Committee is set out on pages 26 to 27 of this circular and a letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 28 to 40 of this circular.

A notice convening the EGM to be held at Room 1905, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong on Monday, 26 November 2018 at 2:00 p.m. is set out on pages 47 to 51 of this circular. A form of proxy for use at the EGM is also enclosed. Such form of proxy is also published on the website of the Stock Exchange (http:// www.hkexnews.hk). Whether or not you are able to attend the meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrar in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM (i.e. by Saturday, 24 November 2018 at 2:00 p.m.) or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting at the meeting or any adjournment thereof if they so wish and in such event, the proxy shall be deemed to be revoked.

8 November 2018

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . .	26
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . .	28
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . .	47

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings:

‘‘Announcement’’

the announcement dated 10 October 2018 made by the Company in relation to the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association

‘‘Articles of Association’’

the articles of association of the Company, as amended from time to time

‘‘associates’’

has the meaning ascribed to it under the Listing Rules

‘‘Board’’
the board of Directors
‘‘CBM’’
children, babies and maternity（孕嬰童）, refers to infants and kids aged between 0 and 12, and their parents (including expectant mothers)
‘‘Company’’

China Parenting Network Holdings Limited, an exempted company incorporated under the laws of the Cayman Islands on 13 October 2014 with limited liability, the Shares of which are listed on the main board of the Stock Exchange

‘‘connected person’’

has the meaning ascribed to it under the Listing Rules

‘‘Contractual Arrangement’’
the contractual arrangement entered into by the Contractual Control Entities, the PRC Contractual Entities and the Relevant Shareholders, details of which are described in the Transfer Announcement
‘‘Contractual Control Entities’’ Nanjing Xibai and Khorgos Xizhi
‘‘controlling shareholder(s)’’
has the meaning ascribed to it under the Listing Rules
‘‘Director(s)’’
the director(s) of the Company

– 1 –

DEFINITIONS

‘‘EGM’’

the extraordinary general meeting of the Company to be convened and held at Room 1905, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong, on Monday, 26 November 2018 at 2:00 p.m. to consider and, if thought fit, approve the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association

‘‘Group’’ the Company and its subsidiaries
‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the People’s Republic of China

‘‘Independent Board Committee’’
the independent board committee of the Company, comprising all the independent non-executive Directors, formed to advise the Independent Shareholders as to the fairness and reasonableness of the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association
‘‘Independent Financial Adviser’’ or ‘‘Red Sun Capital’’
Red Sun Capital Limited, a licensed corporation under the SFO licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders on the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association
‘‘Independent Shareholders’’
the Shareholders who are not required to abstain from voting at the EGM to approve the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association
‘‘Khorgos Xizhi’’ 霍爾果斯矽智信息技術有限公司 ( K h o r g o s X i z h i Information Technology Company Limited*), a limited liability company established in the PRC on 28 June 2017 and is an indirect wholly owned subsidiary of the Company

– 2 –

DEFINITIONS

‘‘Latest Practicable Date’’
5 November 2018, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
‘‘Listing Committee’’ the Listing Committee of the Stock Exchange
‘‘Listing Rules’’
the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Loyal Alliance’’ Loyal Alliance Management Limited（忠聯管理有限公司）, a limited liability company incorporated in the British Virgin Islands on 18 August 2014 and is direct wholly owned by Ms. Li Juan
‘‘Model Code’’
the Model Code for Securities Transactions by Directors of Listed Companies under Appendix 10 of the Listing Rules
‘‘MOFCOM’’
Ministry of Commerce of the PRC (formerly known as Ministry of Foreign Trade and Economic Cooperation of the PRC)（中華人民共和國商務部）
‘‘Nanjing Xibai’’
矽柏（南京）信息技術有限公司 ( X i b a i ( N a n j i n g ) Information Technology Company Limited*), a limited liability company established in the PRC on 10 December 2014 and is an indirect wholly owned subsidiary of the Company
‘‘Nanjing Xihui’’ 南京矽滙信息技術有限公司 (Nanjing Xihui Information Technology Company Limited*), a limited liability company established in the PRC on 24 May 2013 and is deemed to an indirect wholly owned subsidiary of the Company pursuant to the Contractual Arrangement
‘‘Nanjing Xinchuang’’
南京芯創微機電技術有限公司 (Nanjing Xinchuang Micro Machinery and Electric Technology Company Limited*), a limited liability company established in the PRC on 14 April 2005 and is deemed to an indirect wholly owned subsidiary of the Company pursuant to the Contractual Arrangement
‘‘Nomination Committee’’
the nomination committee of the Board

– 3 –

DEFINITIONS

‘‘Original VIE Undertaking’’

the undertaking given by Ms. Li Juan and Mr. Cheng Li to the Company in relation to the Contractual Arrangement, details of which are summarized in the section headed ‘‘Letter from the Board – B. Proposed Replacement of the Original VIE Undertaking with the Revised Measures’’ of this circular

‘‘PRC’’ the People’s Republic of China, which for the purpose of this circular, does not include Hong Kong, the Macau Special Administrative Region and Taiwan
‘‘PRC Contractual Entities’’ Nanjing Xihui and Nanjing Xinchuang
‘‘PRC Legal Advisers’’ King & Wood Mallesons, the legal advisers to the Company as to the PRC laws
‘‘Prime Wish’’ Prime Wish Holdings Limited（冠望控股有限公司）, a limited liability company incorporated in the British Virgin Islands on 18 August 2014 and is direct wholly owned by Ms. Li Juan
‘‘Prospectus’’ the prospectus of the Company dated 30 June 2015
‘‘Principal Business’’
the principal business of the Group of operation of online platform focusing on the CBM market
‘‘Revised Measures’’
the measures proposed to be adopted in relation to the Contractual Arrangement, details of which are summarized in the section headed ‘‘Letter from the Board – C. Reasons for and Benefits of the Proposed Replacement of the Original VIE Undertaking with the Revised Measures’’ of this circular
‘‘SFO’’
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time
‘‘Share(s)’’ ordinary share(s) of nominal value of HKD0.01 each in the capital of the Company
‘‘Shareholder(s)’’

the holder(s) of the Share(s)

– 4 –

DEFINITIONS

‘‘Stock Exchange’’

The Stock Exchange of Hong Kong Limited

‘‘subsidiary(ies)’’

has the meaning ascribed to it under the Listing Rules

‘‘Transfer Announcement’’ the announcement dated 28 September 2018 made by the Company in relation to the transfer of listing of the Company from GEM to the main board of the Stock Exchange
‘‘Victory Glory’’ Victory Glory Holdings Limited, a limited liability company incorporated in the British Virgin Islands on 8 August 2014 and is direct wholly owned by Mr. Cheng Li
‘‘VIE structure’’ variable interest entities structure where a foreign owned entity effectively controls a Chinese owned entity through an elaborate series of contracts
‘‘%’’ per cent
All English translation of the Chinese names of the companies established in the PRC is for identification purpose only.

– 5 –

LETTER FROM THE BOARD

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China Parenting Network Holdings Limited 中國育兒網絡控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1736)

Executive Directors Mr. Cheng Li Mr. Hu Qingyang Mr. Zhang Lake Mozi

Non-executive Directors Ms. Li Juan Mr. Wu Haiming Mr. Hsieh Kun Tse

Independent Non-executive Directors Mr. Wu Chak Man Mr. Zhao Zhen Mr. Ge Ning

Registered office: Cricket Square Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Principal place of business in Hong Kong: Room 1905 China Resources Building 26 Harbour Road Wanchai, Hong Kong

8 November 2018

To the Shareholders

Dear Sir or Madam

(1) CONNECTED TRANSACTION – PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES; (2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION; AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

Reference is made to the Announcement regarding the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association. The purpose of this circular is to provide you with, amongst others, (a) further details of the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association; (b) a letter from the Independent Board Committee containing its recommendation to the Independent Shareholders in respect of the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association; (c) a letter from the Independent Financial Adviser containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association; and (d) information on the notice of EGM for approving the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association.

– 6 –

LETTER FROM THE BOARD

B. PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES

Draft new Foreign Investment Law

On 19 January 2015, the MOFCOM published the new draft of the Foreign Investment Law（中華人民共和國外國投資法）(the ‘‘Draft New Law’’) for public comment. The new Foreign Investment Law (the ‘‘New Foreign Investment Law’’), if finally adopted, will have significant impact on the foreign investment regime of the PRC. The Draft New Law introduces a new standard in defining the nature of a domestic enterprise. An onshore enterprise will no longer be deemed as a foreign-invested enterprise even if its immediate shareholders involve foreign individuals or foreign entities, as long as such onshore enterprise’s ultimate control person(s) is/are solely PRC investors, upon the competent authorities’ approval. ‘‘PRC investors’’ refers to the following bodies under the Draft New Law: (1) natural persons with Chinese nationality; (2) the PRC government and its affiliated departments or offices; and (3) domestic enterprises controlled by any of the aforesaid two bodies. ‘‘ultimate control person’’ refers to natural persons or enterprises that control, directly or indirectly foreign investors or foreign-invested enterprises. According to the Draft New Law, the term ‘‘control’’ means that any of the following conditions is met in respect of an enterprise:

Holding, directly or indirectly, more than 50% of shares, equity, share of property, voting power or other similar equities in the enterprise;
Holding, directly or indirectly, less than 50% of shares, equity, share of property, voting power or other similar equities in the enterprise, but are under any of the following circumstances:
(i) being entitled to, directly or indirectly, more than half of the members of the enterprise’s board of director or the similar decision-making body;
(ii) being capable of ensuring that its nominated personnel can occupy more than 50% of seats of the enterprise’ board of directors or the similar decision-making body; and
(iii) the voting power it holds is sufficient to have significant impact on the resolutions of the board of shareholders, general assembly of shareholders, board of directors or other decision making body.
Exerting decisive impact on the enterprise’s management, finance, human resources or technologies by contracts, trust or other ways.

– 7 –

LETTER FROM THE BOARD

The Draft New Law was accompanied by the MOFCOM’s notes (the ‘‘Notes’’) on, among others, the background, guidelines and principle, and main content of the Draft New Law and elaboration on several issues including the treatment of existing contractual arrangement, or ‘‘VIE structure’’, which has established before the Draft New Law taking effect.

MOFCOM proposed three possible ways to deal with the existing VIE structure, if the business in which the company is involved still belongs to restricted or prohibited foreignentry areas, namely the prohibited category and the restricted category for foreign investment to be formulated and promulgated by the State Council, and both PRC investors and foreign investors ultimately controlling the existing VIE structures shall comply with the corresponding procedures as to be finally adopted in the formally promulgated and implemented New Foreign Investment Law:

(i) reporting: if the reporting regime is finally adopted, the existing VIE structure being permitted to continue following reporting to MOFCOM of the VIE structure being ultimately controlled by a PRC investor, but the Draft New Law and the Notes have not mentioned how to deal with the existing VIE structures ultimately controlled by a foreign investor and whether the relevant entity could continue its business operations under the reporting regime;
(ii) verification: if the verification regime is finally adopted, the existing VIE structure being permitted to continue following verification, on the application of the investor, by MOFCOM of the VIE structure being ultimately controlled by a PRC investor, but the Draft New Law and the Notes have not mentioned how to deal with the existing VIE structures ultimately controlled by a foreign investor and whether the relevant entity could continue its business operations under the verification regime; and
(iii) approval: if the approval regime is finally adopted, the existing VIE structure being permitted to continue following approval by MOFCOM after taking into account a number of considerations including, without limitation, the identity (whether PRC investor or foreign investor) of the ultimate control person.

It is not certain which one of the three possible regimes will be finally adopted in the New Foreign Investment Law. Based on the Draft New Law, a VIE structure which is ultimately controlled by a PRC investor is permitted to continue following reporting to, verification or approval by MOFCOM.

The Company will unwind the Contractual Arrangement as soon as the relevant PRC laws and regulations including without limitation the New Foreign Investment Law and relevant industry policies and regulations and practice of industry competent authorities allow the Principal Business to be conducted and operated by owned subsidiaries of the Company without VIE structure in place.

– 8 –

LETTER FROM THE BOARD

The Company will disclose, as soon as possible: (i) updates of changes to the Draft New Law that will materially and adversely affect the Company as and when they occur; and (ii) a clear description and analysis of the final New Foreign Investment Law as implemented, specific measures taken by the Company to fully comply with the final New Foreign Investment Law supported by a PRC legal opinion and any material impact of the final New Foreign Investment Law on its operations and financial position.

Risk relating to the Draft New Law

As advised by the PRC Legal Advisers, as of the Latest Practicable Date, the Draft New Law and the Notes are both drafts without any legal effect and have been released for the purpose of public consultation, and a number of legislative procedures have to be undergone before the promulgation and implementation of the New Foreign Investment Law. Given this, there is uncertainty as to the potential impact of the Draft New Law.

Under the Notes, MOFCOM proposed three possible ways, namely the reporting, verification or approval regimes, to deal with existing contractual arrangement, or VIE structure, that has been established before the New Foreign Investment Law taking effect and operates restricted or prohibited foreign-entry areas of business. It is not certain which one of the three possible regimes will be finally adopted in the New Foreign Investment Law. Based on the Draft New Law, if the ultimate control person of the VIE structure is a PRC investor, depending on which regime is finally adopted, then by reporting to, verification or approval by MOFCOM, such VIE structure can continue to operate. Considering the analysis set out in the section headed ‘‘C. Reasons for and Benefits of the Proposed Replacement of the Original VIE Undertaking with the Revised Measures – 1. Advice of the PRC Legal Advisers on the interpretation of the Draft New Law and the Notes’’ in this circular and based on the facts that the Group is currently participating in a restricted industry category for foreign investment and Ms. Li Juan and Mr. Cheng Li, the controlling shareholders, are PRC investors as defined under the Draft New Law, subject to the New Foreign Investment Law and relevant interpretations and regulations to be formally promulgated and implemented by MOFCOM in the future, the PRC Legal Advisers are of the view that if the Draft New Law and the Notes take effect in its current form and content, and the competent authorities interpret and implement the Draft New Law strictly in accordance with such forms and contents, the Contractual Arrangement will be likely to be permitted to continue, and the risk that the Group will be prohibited from retaining its Contractual Arrangement or the PRC Contractual Entities are prohibited from continuing their business operations is relatively low. On the premises, and subject to other amendments before its formal promulgation and implementation, the Draft New Law will have minimal impact on the Contractual Arrangement and the control over the PRC Contractual Entities by the Group and the operations of the Group as a whole.

– 9 –

LETTER FROM THE BOARD

Nevertheless, the PRC Legal Advisers cannot exclude the possibility that MOFCOM may have contrary or different interpretation of the Draft New Law and the Notes, and there may be amendments to the Draft New Law and the Notes before formal promulgation and implementation of the New Foreign Investment Law which may have material adverse impact on the Group at the time when the New Foreign Investment Law becomes effective. There is uncertainty as to whether the Group will be treated as domestic investment based on the New Foreign Investment Law. There is no guarantee that the Revised Measures to be adopted for replacement of the Original VIE Undertaking will be sufficient to ensure ‘‘control’’ by PRC nationals pursuant to the New Foreign Investment Law, as finally adopted. In such circumstances, and if there is a change in the ultimate controlling shareholders of the Company to non-PRC nationals, the Group’s business may be regarded as not being held by PRC investors. In the event of the Group’s business is not regarded as being held by PRC investors and still belongs to the restricted or prohibited category under the New Foreign Investment Law or other future PRC laws and regulations including industry policies and regulations and practice of industry competent authorities, in the worst case scenario, the Company will have to unwind the Contractual Arrangement and discontinue its business under the VIE structure, which contributes substantially to its revenue. As a result, the Company may be forced to dispose of its Principal Business to comply with such regulatory requirements and the Company will not be sustainable. If the Company has no sustainable business after such disposal, the Stock Exchange may delist the Company.

Potential impact on the Group

According to current contents of the Draft New Law and the Notes:

(i) foreign investor which participates in restricted industry category under the Guidance of Foreign Investment Industries（外商投資產業指導目錄）and is ultimately controlled by PRC investors, can apply for being defined as a domestic investment by PRC investors; and
(ii) with respect to investment arrangement through VIE structure before the Draft New Law taking effect, if the relevant investment still falls within restricted or prohibited industry category for foreign investment, as mentioned above, it will be subject to (a) reporting, (b) verification or (c) approval requirement.

– 10 –

LETTER FROM THE BOARD

Considering the abovementioned basis and based on the facts that the Group is currently participated in restricted industry category for foreign investment and Ms. Li Juan and Mr. Cheng Li, the controlling shareholders, are PRC investors as defined under the Draft New Law, subject to the New Foreign Investment Law and relevant interpretations and regulations to be formally promulgated and implemented by MOFCOM in the future, the PRC Legal Advisers advise that, provided that the Draft New Law and the Notes take effect in its current form and content, and the competent authorities interpret and implement the Draft New Law strictly in accordance with such forms and contents, the Contractual Arrangement will likely to be permitted to continue, and the risk that the Group will be prohibited from retaining its Contractual Arrangement or the PRC Contractual Entities will be prohibited from continuing their business operations is relatively low. On these premises, and subject to other amendments before its formal promulgation and implementation, the Draft New Law will not have any material adverse impact on the Contractual Arrangement and the control over the PRC Contractual Entities by the Group. However, the PRC Legal Advisers cannot exclude the possibility that MOFCOM may have contrary or different interpretation of the Draft New Law and the Notes, and there may be amendments to the Draft New Law and the Notes before formal promulgation and implementation of the New Foreign Investment Law which may have a material adverse impact on the Group at the time when the New Foreign Investment Law becomes effective. For further discussion on the risk relating to the Draft New Law, please refer to the paragraph headed ‘‘Risk relating to the Draft New Law’’ in this section.

To ensure that the Contractual Arrangement remains a domestic investment so that the Group can maintain control over and receive all economic benefits derived from the PRC Contractual Entities, the Revised Measures, details of which are set out in the section headed ‘‘C. Reasons for and Benefits of the Proposed Replacement of the Original VIE Undertaking with the Revised Measures – 3. Revised Measures’’ in this circular, have been/ will be adopted. The compliance of the Company with the Draft New Law depends on its adherence to the Revised Measures. In the event of any failure to comply with such measures, the Contractual Arrangement may be deemed invalid and illegal and the Group may be required to unwind the Contractual Arrangements and/or dispose of the PRC Contractual Entities, which could have a material and adverse effect on its business, financial condition and results of operations. In addition, it is uncertain whether the measures to be adopted by the Company to maintain control over and receive economic benefits from the PRC Contractual Entities alone will be effective in ensuring compliance with the Draft New Law (if and when it becomes effective).

– 11 –

LETTER FROM THE BOARD

Original VIE Undertaking

As disclosed on pages 187 and 188 of the Prospectus, Ms. Li Juan and Mr. Cheng Li have given an undertaking (the ‘‘Original VIE Undertaking’’) to the Company, and the Company has agreed with the Stock Exchange to enforce the Original VIE Undertaking, that during the subsistence of the Contractual Arrangement, each of them will use his/her best efforts to do and procure the Company to do all such possible acts which are necessary to give effect to the Contractual Arrangement and/or to enable the continuation of business operations of the PRC Contractual Entities as a result of any impact due to the promulgation and implementation of the New Foreign Investment Law and other future laws and regulations, including without limitation:

(i) he/she will not dispose any of his/her interests in the Company (including without limitation procure the Company not to issue and allot any Shares) such that they together would hold (or their aggregate shareholdings be diluted to) less than 51% of the issued share capital of the Company or would otherwise cease to control the Company for the purposes of the New Foreign Investment Law; and
(ii) he/she will maintain his/her PRC nationality so as to be qualified as a ‘‘PRC investor’’ as defined under the Draft New Law, save that they may transfer their interests in the Company to PRC investor(s) (the ‘‘Transferee(s)’’) who alone or together as parties acting in concert (where applicable) will be ‘‘ultimate control persons’’ as defined under the Draft New Law and hold not less than 51% of the then issued share capital of the Company, and against the Transferee(s) giving an undertaking to the Company with similar effect to the Original VIE Undertaking. Prior to such transfer(s), Ms. Li Juan and Mr. Cheng Li shall demonstrate to the satisfaction of the Company and the Stock Exchange that PRC investor(s) will be the ultimate control persons of the Company as defined under the Draft New Law.

– 12 –

LETTER FROM THE BOARD

C. REASONS FOR AND BENEFITS OF THE PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES

The Company has made an application to seek the Stock Exchange’s consent to revise the contents of the Original VIE Undertaking. Subject to Independent Shareholders’ approval at the EGM, the Listing Committee has no comments on (i) the removal of the Original VIE Undertaking, and (ii) the Revised Measures.

1. Advice of the PRC Legal Advisers on the interpretation of the Draft New Law and the Notes

As advised by the PRC Legal Advisers, taking into account the evaluation of the interpretation of the Draft New Law and the Notes as evidenced by the subsequent cases being listed on the Stock Exchange, provided that the Draft New Law and the Notes take effect in its current form and content, and the competent authorities interpret and implement the Draft New Law strictly in accordance with such forms and contents, notwithstanding Ms. Li Juan and Mr. Cheng Li holding less than 50% of the issued share capital of the Company, the Company (and therefore the Contractual Control Entities as its wholly owned subsidiaries) is likely to be considered controlled by PRC nationals based on the definition of ‘‘control’’ set out in the Draft New Law, and the Contractual Arrangement will likely be permitted to continue under the Draft New Law and there will not cause any material adverse impact on the Group’s business operation by the implementation of the Contractual Arrangement with the introduction of the New Foreign Investment Law in the future on the following basis:

(i) Based on the Contractual Arrangement, the PRC Contractual Entities are controlled by the Contractual Control Entities (which are PRC established) pursuant to the third limb of the definition of ‘‘control’’ under the Draft New Law (i.e. exerting decisive impact on the enterprise’s management, finance, human resources or technologies by contracts, trust or other ways).
(ii) Each of the Contractual Control Entities is a wholly owned subsidiary of the Company. The Board currently comprises of three executive Directors, namely Mr. Cheng Li, Mr. Hu Qingyang and Mr. Zhang Lake Mozi, three non-executive Directors, namely Ms. Li Juan, Mr. Wu Haiming and Mr. Hsieh Kun Tse, and three independent non-executive Directors, namely Mr. Wu Chak Man, Mr. Zhao Zhen and Mr. Ge Ning. Among the Directors and except for Mr. Zhang Lake Mozi, Mr. Hsieh Kun Tse, Mr. Wu Chak Man and Mr. Zhao Zhen, all of them are PRC nationals as defined under the Draft New Law. Further, Ms. Li Juan is the chairperson of the Board and Mr. Cheng Li is chief executive officer of the Company.

– 13 –

LETTER FROM THE BOARD

(iii) The Board is the governing body of Company and makes material decisions with respect to the Company. As demonstrated in (ii) above, majority of the Board members are currently PRC nationals. Therefore, the Company (and therefore the Contractual Control Entities as its wholly owned subsidiaries) will be considered as controlled by PRC nationals pursuant to the third limb of the definition of ‘‘control’’ under the Draft New Law (i.e. exerting decisive impact on the enterprise’s management, finance, human resources or technologies by contracts, trust or other ways).

2. Flexibility in financing

Since Ms. Li Juan and Mr. Cheng Li are currently holding approximately 51.6% of the issued share capital of the Company, any significant issue of new shares or convertible securities of the Company will dilute their aggregate shareholding to less than 51% in breach of the Original VIE Undertaking. The 51% restriction in the Original VIE Undertaking with respect to the aggregate shareholdings of Ms. Li Juan and Mr. Cheng Li (or the Transferee(s)) has therefore resulted in technical restriction on the normal corporate finance activities which involve the issue of new equity securities or convertible securities of the Company which in turn restrict the financing channels of the Company for its business development which is not in the best interests of the Company and the Shareholders as a whole. As at the Latest Practicable Date, the Company has no intention to issue any securities and has not entered into any negotiation or discussion with any third parties in relation to the issue of any securities. The Company considers that the proposed replacement of the Original VIE Undertaking with the Revised Measures will provide more flexibility in its financing, particularly in the current market situations when the costs of loan financing are fairly high, while maintain a balance to ensure the control by PRC nationals for the sake of certainty in compliance with the Draft New Law and the Notes.

3. Revised Measures

Subject to the approval by the Independent Shareholders at the EGM, the following measures (the ‘‘Revised Measures’’) have been/will be implemented:

(a) The Company’s corporate governance measures

The Articles of Association will be amended to the effect that the majority of the Board shall consist of PRC nationals (the ‘‘PRC Nationals Control Clause’’).

– 14 –

LETTER FROM THE BOARD

The Articles of Association provides that a Director may only be elected or appointed either (i) by the Shareholders voting upon the resolutions that have been proposed by a majority of the Directors; or (ii) by a majority of the Directors (the ‘‘Director Election/Appointment Clause’’). The Articles of Association will be amended to the effect that the Board is in turn restricted to appoint or propose to the Shareholders to elect Directors from candidates nominated by the Nomination Committee in accordance with the terms of the reference of the Nomination Committee.
The Articles of Association provides that the Board has the power, from time to time and at any time, to appoint any person as an additional Director to the Board, subject to the requirement that any Director so appointed shall hold office only until the next annual general meeting and shall then be eligible for re-election. If the Shareholders do not vote to reelect any Director nominated or appointed by the Board, it is in any event within the power of the Board to appoint one or more additional Directors, subject to the Directors being subject to re-election at the next annual general meeting of the Company (the ‘‘Additional Directors Appointment Clause’’).
The Nomination Committee is responsible for recommending nominees to the Board for appointment as Directors. The terms of reference of the Nomination Committee will be revised to provide that when nominating Directors, the Nomination Committee shall be bound by the PRC Nationals Control Clause. The Articles of Association will be amended to provide that the Shareholders have no right to propose any amendment to the terms of reference of the Nomination Committee which has not been proposed by the Board.

The Company’s legal advisers on Cayman Islands laws, Conyers Dill & Pearman, have confirmed that the PRC Nationals Control Clause (and its reference in the terms of reference of the Nomination Committee as mentioned above), the Director Election/ Appointment Clause, and the Additional Directors Appointment Clause do not contravene or violate Cayman Islands law currently in force.

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LETTER FROM THE BOARD

(b) Relevant Measures to be implemented by the Company

Furthermore, the Company will implement the following measures (the ‘‘Relevant Measures’’):

(i) it will ensure that a majority of the Directors on the Board are PRC nationals, to the extent permitted by applicable laws, regulations and rules; and
(ii) if the Company receives any proposal either from the Board or the Shareholder(s) with no less than one-tenth of the voting right at general meetings of the Company to amend any of the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause, it will make full disclosure of the potential risks associated with such proposal and the scenario which may arise from such amendment, including but not limited to delisting of the Shares from the Stock Exchange, in the circular to be dispatched to the Shareholders of the Company. A special resolution passed by the Shareholders is required to approve any proposal to amend any of the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause.

The Relevant Measures will be subject to approval of the Independent Shareholders in the EGM and remain effective until the earliest to occur of the following events:

(i) compliance with the relevant requirements under the Draft New Law or applicable foreign investment laws (together with, if any, all subsequent amendments or updates, as promulgated) as finally enacted is not required by the Stock Exchange has consented to this;
(ii) compliance with the Relevant Measures is no longer required, as advised by the Stock Exchange;
(iii) the Stock Exchange and any applicable PRC regulatory departments have consented to such termination;
(iv) the Company unwinds and terminates the Contractual Arrangement; or
(v) the Company is delisted from the Stock Exchange.

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LETTER FROM THE BOARD

To the extent that only part of the Relevant Measures is no longer required as a result of the above, only such part of the Relevant Measures that is no longer required shall case to be effective. To the extent that the Relevant Measures (or any part thereof) is no longer effective, the Company will issue an announcement as soon as possible.

(c) The Controlling Shareholders’ Undertakings

Furthermore, Loyal Alliance, Prime Wish and Victory Glory, who are the controlling shareholders of the Company, have jointly undertaken to the Company (the ‘‘Controlling Shareholders’ Undertakings’’), to the extent of all their shareholdings in the Company from time to time that:

(i) they will not, severally or jointly, propose any resolution to amend the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause in the Company’s constitutional documents at the general meeting of the Company; and
(ii) they will vote against any proposal to amend the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause in the Company’s constitutional documents at the general meeting of the Company.

The Controlling Shareholders’ Undertakings will be subject to approval of the Independent Shareholders in the EGM and remain effective until the earliest to occur of the following events:

(i) compliance with the relevant requirements under the Draft New Law or applicable foreign investment laws (together with, if any, all subsequent amendments or updates, as promulgated) as finally enacted is not required by the Stock Exchange has consented to this;
(ii) compliance with the Controlling Shareholders’ Undertakings is no longer required, as advised by the Stock Exchange;
(iii) the Stock Exchange and any applicable PRC regulatory departments have consented to such termination;

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LETTER FROM THE BOARD

(iv) the Company unwinds and terminates the Contractual Arrangement; or
(v) the Company is delisted from the Stock Exchange.

To the extent that only part of the Controlling Shareholders’ Undertakings is no longer required as a result of the above, only such part of the Controlling Shareholders’ Undertakings that is no longer required shall case to be effective. To the extent that the Controlling Shareholders’ Undertakings (or any part thereof) is no longer effective, the Company will issue an announcement as soon as possible.

If there is a change in the ultimate controlling shareholders of the Company to non-PRC nationals, while the Revised Measures to be adopted for replacement of the Original VIE Undertaking will be sufficient to ensure ‘‘control’’ by PRC nationals pursuant to the New Foreign Investment Law, as finally adopted, the Group’s business may be regarded as not being held by PRC investors. In such event, and if the Group’s business still belongs to the restricted or prohibited category under the New Foreign Investment Law or other future PRC laws and regulations including industry policies and regulations and practice of industry competent authorities, in the worst case scenario, the Company has to unwind the Contractual Arrangement and discontinue its business under the VIE structure. For further discussion on the risk relating to the Draft New Law, please refer to the section headed ‘‘B. Proposed Replacement of the Original VIE Undertaking with the Revised Measures – Risk relating to the Draft New Law’’ in this circular.

As at the Latest Practicable Date, Mr. Cheng Li and Ms. Li Juan, the controlling shareholders, have no intention to dispose any of their interests in the Company. The Company will adopt the following measures as mitigating measures with respect to any potential impact on the Contractual Arrangement as a result of change in controlling shareholders:

(a) as part of the internal control measures, the Board will continue to monitor the shareholding changes of the Company including any change in controlling shareholders on a regular basis;
(b) (if required) the Board will seek advice from legal advisers and/or other professionals of the potential impact on the Contractual Arrangement in relation to any change in controlling shareholders of the Company; and

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LETTER FROM THE BOARD

(c) the Company has instructed its Hong Kong share registrar, Tricor Investor Services Limited, not to register any subscription, purchase and transfer of Shares which will result in any change in controlling shareholders, unless and until the Board is satisfied that the same will not result in material adverse impact on the Contractual Arrangement.

Subject to Independent Shareholders’ approval at the EGM, the Listing Committee has no comments on (i) the removal of the Original VIE Undertaking; and (ii) the Revised Measures.

D. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

As one of the Revised Measures, a special resolution will be proposed to the Shareholders to amend the Articles of Association at the EGM.

The proposed amendments to the Articles of Association will have the following effects:

the majority of the Board shall consist of PRC nationals;
the Board is restricted to appoint or propose to the Shareholders to elect Directors from candidates nominated by the Nomination Committee in accordance with the terms of the reference of the Nomination Committee; and
the Shareholders have no right to propose any amendment to the terms of reference of the Nomination Committee which has not been proposed by the Board.

Subject to and conditional upon the passing of the special resolution set out in the notice of the EGM on pages 47 to 51 of this circular at the EGM, the Board proposes to amend the Articles of Association by:

(a) inserting the following new definition of ‘‘Nomination Committee’’ immediately after the definition of ‘‘month’’ in Article 2(1) of the Articles of Association:
‘‘‘‘Nomination Committee’’ a committee established by the Board in accordance with Article 117(3) and as further defined in these Articles.’’
(b) inserting the following new definition of ‘‘PRC Nationals’’ immediately after the definition of ‘‘paid up’’ in Article 2(1) of the Articles of Association:

‘‘‘‘PRC Nationals’’

a person who is a Chinese national in accordance with the Nationality Law of the People’s Republic of China.’’

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LETTER FROM THE BOARD

(c) inserting the following new definition of ‘‘Terms of Reference of the Nomination Committee’’ immediately after the definition of ‘‘substantial shareholder’’ in Article 2(1) of the Articles of Association:
‘‘‘‘Terms of Reference of the the terms of reference of the Nomination Nomination Committee’’ Committee adopted by the Board from time to time.’’
(d) deleting the existing Article 83(1) of the Articles of Association in its entirety and replacing it with the following:

‘‘83. (1) Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two (2). There shall be no maximum number of Directors unless otherwise determined from time to time by the Members in general meeting. A majority of the Directors shall at all times be PRC Nationals. The Directors shall be elected or appointed in accordance with Article 83 and Article 84 called for such purpose and who shall hold office for such term as the Members and the Board may determine in accordance with Article 83 and Article 84 or until their successors are elected or appointed or their office is otherwise vacated.’’

(e) deleting the existing Article 83(2) of the Articles of Association in its entirety and replacing it with the following:

‘‘83. (2) Subject to the Articles and the Law, and provided that (i) any person so elected has been proposed by a resolution passed by the Directors, and (ii) following any such election, a majority of the Directors shall be PRC Nationals, the Company may by ordinary resolution elect any person to be a Director either to fill a casual vacancy on the Board, or as an addition to the existing Board.’’

(f) deleting the existing Article 83(3) of the Articles of Association in its entirety and replacing it with the following:

‘‘83. (3) The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the Board or as an addition to the existing Board, provided that following any such election, a majority of the Directors shall be PRC Nationals. Any Director appointed by the Board to fill a casual vacancy shall hold office until the first general meeting of Members after his appointment and be subject to re-election at such meeting and any Director appointed by the Board as an addition to the existing Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for reelection.’’

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LETTER FROM THE BOARD

(g) deleting the existing Article 83(5) of the Articles of Association in its entirety and replacing it with the following:

‘‘83. (5) The Members may, upon recommendation by the Board, at any general meeting convened and held in accordance with these Articles, by ordinary resolution remove a Director at any time before the expiration of his period of office notwithstanding anything to the contrary in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under any such agreement).’’

(h) deleting the existing Article 83(6) of the Articles of Association in its entirety and replacing it with the following:

‘‘83. (6) A vacancy on the Board created by the removal of a Director under the provisions of subparagraph (5) above may be filled by the election or appointment, upon recommendation by the Board, by ordinary resolution of the Members at the meeting at which such Director is removed, provided that following any such election, a majority of the Directors shall be PRC Nationals.’’

(i) inserting the following new Article 83(8) after the existing Article 83(7) of the Articles of Association:

‘‘83. (8) The Board shall only (i) appoint, propose to the Members at general meetings to elect Director(s) from the candidate(s) nominated by the Nomination Committee, and (ii) remove Director(s) as proposed by the Nomination Committee.’’

(j) inserting the following new Article 117(3) after the existing Article 117(2) of the Articles of Association:

‘‘117. (3) Subject to the Articles and the Law, the Company may by ordinary resolution amend the Terms of Reference of the Nomination Committee provided that such amendment has been proposed by a resolution passed by the Directors.’’

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LETTER FROM THE BOARD

E. LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, Ms. Li Juan and Mr. Cheng Li are together deemed to be interested in approximately 51.6% of the entire issued share capital of the Company and are the controlling shareholders as well as the Directors. Therefore, the proposed replacement of the Original VIE Undertaking with the Revised Measures shall constitute a connected transaction of the Company and will be subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

As Ms. Li Juan and Mr. Cheng Li are deemed to have a material interest in the proposed replacement of the Original VIE Undertaking and the proposed amendments to the Articles of Association, they had abstained from voting on the board resolutions approving the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association. As Mr. Wu Haiming, a non-executive Director, is the spouse of Ms. Li Juan, he had also abstained from voting on the board resolutions approving the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association.

An Independent Board Committee, consisting of Mr. Wu Chak Man, Mr. Zhao Zhen and Mr. Ge Ning, being all the independent non-executive Directors, has been formed to advise the Independent Shareholders on the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association. Red Sun Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association in accordance with the Listing Rules.

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LETTER FROM THE BOARD

F. EXTRAORDINARY GENERAL MEETING

The notice convening the EGM is set out on pages 47 to 51 of the circular. The EGM will be held at Room 1905, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong on Monday, 26 November 2018 at 2:00 p.m. to consider and, if thought fit, approve the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association. In accordance with Rule 13.39(4) of the Listing Rules, votes for the resolution at the EGM shall be taken by poll except where the Chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be noted on a show of hands. Announcement of the poll results of the EGM will be published on the date of the EGM or not later than 8:30 a.m. on the business day following the EGM.

As at the Latest Practicable Date, Loyal Alliance and Prime Wish together held approximately 39.9% of the issued share capital of the Company. Each of Loyal Alliance and Prime Wish is wholly-owned by Ms. Li Juan. As at the Latest Practicable Date, Victory Glory held approximately 11.7% of the issued share capital of the Company. Victory Glory is whollyowned by Mr. Cheng Li. Each of Loyal Alliance, Prime Wish and Victory Glory is deemed to have material interests in the proposed replacement of the Original VIE Undertaking and the proposed amendments to the Articles of Association and shall abstain from voting in respect of the resolutions approving the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association at the EGM.

G. ACTION TO BE TAKEN

A proxy form for use at the EGM is accompanied with this circular. Such form of proxy is also published on the website of the Stock Exchange (http://www.hkexnews.hk). Whether or not you are able to attend the meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrar in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the meeting (i.e. by Saturday, 24 November 2018 at 2:00 p.m.) or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting at the meeting or any adjournment thereof if they so wish and in such event, the proxy shall be deemed to be revoked. The resolution to be proposed at the EGM is required to be voted by way of poll.

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LETTER FROM THE BOARD

H. GENERAL INFORMATION

The Group is an online platform focusing on users who are interested in information on and/ or services related to the CBM (children, babies, and maternity) market in the PRC and is mainly engaged in (i) provision of marketing and promotional service; (ii) e-commerce business; and (iii) licensing of smart-hardware devices through its large and engaged user base of CBM consumers.

Ms. Li Juan is one of the founders of the Group, the chairperson of the Company and a nonexecutive Director, and one of the controlling shareholders.

Mr. Cheng Li is an executive Director and the chief executive officer of the Company and one of controlling shareholders.

I. RECOMMENDATION

Having taken into account the factors as disclosed in the section headed ‘‘C. Reasons for and benefits of the proposed replacement of the Original VIE Undertaking with the Revised Measures’’ of this circular, the Directors (excluding (i) the independent non-executive Directors who have formed their view after having been advised by the Independent Financial Adviser, details of which is set out in the section headed ‘‘Letter from the Independent Board Committee’’ of this circular; and (ii) Ms. Li Juan, Mr. Cheng Li and Mr. Wu Haiming who had abstained from voting on the board resolutions approving the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association) consider that the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association.

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LETTER FROM THE BOARD

Your attention is drawn to the letter from the Independent Board Committee sets out on pages 26 to 27 of this circular and the letter from the Independent Financial Adviser sets out on pages 28 to 40 of this circular containing their advice and recommendation to the Independent Board Committee and the Independent Shareholders regarding the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association as well as the principal factors and reasons taken into consideration in arriving at their advice.

J. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendix to this circular.

Yours faithfully

By order of the Board China Parenting Network Holdings Limited Li Juan Chairperson

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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China Parenting Network Holdings Limited 中國育兒網絡控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1736)

8 November 2018

To: the Independent Shareholders

Dear Sir or Madam,

(1) CONNECTED TRANSACTION – PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES; (2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION; AND (3) NOTICE OF EXTRAORDINARY GENERAL MEETING

We refer to the circular of the Company dated 8 November 2018 of the Company (the ‘‘Circular’’) to the Shareholders, of which this letter forms part. Terms defined in the Circular bear the same meanings in this letter unless the context otherwise requires.

We have been appointed as the members of the Independent Board Committee to consider and advise the Independent Shareholders in respect of the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association, details of which are set out in the Circular.

We wish to draw your attention to the letter from the Board and the letter of advice from Red Sun Capital set out on pages 6 to 25 and pages 28 to 40 of the Circular respectively.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account of the advice of Red Sun Capital (together with the principal factors and reasons considered in arriving at such advice), we consider that the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM in respect of the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association.

Yours faithfully,

Mr. Wu Chak Man, Mr. Zhao Zhen and Mr. Ge Ning Independent Board Committee

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of the letter of advice from Red Sun to the Independent Board Committee and the Independent Shareholders in relation to the proposed replacement of the Original VIE Undertaking with the Revised Measures and proposed amendments to the Articles of Association prepared for the purpose of incorporation in this circular.

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8 November 2018

To the Independent Board Committee and the Independent Shareholders

(1) CONNECTED TRANSACTION – PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES AND

(2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

Dear Sir/Madam,

1. INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the connected transaction about the proposed replacement of the Original VIE Undertaking with the Revised Measures and (ii) the proposed amendments to the Articles of Association, details of which are set out in the letter from the Board (the ‘‘Letter from the Board’’) contained in the circular of the Company dated 8 November 2018 (the ‘‘Circular’’), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

The Board proposes to replace the Original VIE Undertaking with the Revised Measures and amend the Articles of Association. The replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association are proposed to the Independent Shareholders and will be subject to the Independent Shareholders’ approval by way of poll at the EGM of the Company pursuant to the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, as Ms. Li Juan and Mr. Cheng Li are deemed to have a material interest in the Revised Measures, therefore they had abstained from voting on the board resolutions approving the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association. As Mr. Wu Haiming, a non-executive Director, is the spouse of Ms. Li Juan, he had also abstained from voting on the board resolutions approving the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association.

2. THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising Mr. Wu Chak Man, Mr. Zhao Zhen and Mr Ge Ning, all being independent non-executive Directors, has been established to advise the Independent Shareholders as to (i) whether the proposed replacement of the Original VIE Undertaking with the Revised Measures is fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) how to vote in respect of the above after taking into account the advice of the Independent Financial Adviser.

As at the Latest Practicable Date, we did not have any relationships or interests with the Company or any other parties that could reasonably be regarded as relevant to our independence. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we had or will receive any fees or benefits from the Company or any other party to the transactions. Accordingly, we consider that we are independent under Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with the replacement of the Original VIE Undertaking with the Revised Measures.

3. BASIS OF OUR ADVICE

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have reviewed, inter alia, the Prospectus dated 30 June 2015, the Original VIE Undertaking, proposed amendments on the Articles of Association, the PRC legal opinion and the legal opinion related to Cayman Island law. We have also relied on the accuracy of the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, Directors and management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true and accurate as at the date of the EGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors have collectively and individually accepted full responsibility for the Circular which includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirmed that, to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular misleading. We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Group. We have no reason to believe that any information and representations made to us is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. Our opinion was necessarily based on the financial, economic, market and other conditions in effect, and the information made available to us, as at the Latest Practicable Date.

4. PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinions in respect of the replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association, we have taken into consideration the following principal factors and reasons:

1. The Contractual Arrangement

The Group is an online platform focusing on users who are interested in information on and/or services related to the CBM (children, babies, and maternity) market in China and is mainly engaged in (i) provision of marketing and promotional service; (ii) e-commerce business; and (iii) licensing of smart-hardware devices through its large and engaged user base of CBM consumers.

As mentioned in the Prospectus, PRC regulations limit foreign ownership in PRC companies that provide value-added telecommunication services (excluding on-line data processing and transaction processing services, also called operating e-commerce), which include operating the internet content platform, to 50%. In addition, foreigners and whollyforeign owned enterprises are currently not eligible to apply for required licences for operating the internet content platform in the PRC (excluding a limited number of sectors for wholly-foreign owned enterprises located in Shanghai Free Trade Zone).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company and the Contractual Control Entities (i.e. Nanjing Xibai and Khorgos Xizhi), which are indirect wholly owned subsidiaries of the Company, are foreigners and wholly-foreign owned enterprises under PRC laws and accordingly are ineligible to apply for the relevant licences to operate the internet content platform. In order to comply with foreign ownership restrictions, the Company’s business in the PRC are mainly operated through the PRC Contractual Entities. As a result of the Contractual Arrangement, the Company is able to govern the financial and operating policies of the PRC Contractual Entities and to obtain substantially all economic benefits from the activities conducted by the PRC Contractual Entities.

According to the Draft New Law and the Notes and the interpretation of the PRC Legal Advisers of the Company on the Draft New Law and the Notes, it is noted that the adoption of VIE structure of the Company is necessary in order to continue its business operation in the PRC as a foreign company listed in Hong Kong.

2. Risk relating to the VIE arrangement in the event of change of Controlling Shareholders in the future

As advised by the PRC Legal Advisers, as of the Latest Practicable Date, the Draft New Law and the Notes are both drafts without any legal effect and have been released for the purpose of public consultation, and a number of legislative procedures have to be undergone before the promulgation and implementation of the New Foreign Investment Law. In light of that, we are of the view that there is uncertainty as to the potential impact of the Draft New Law.

Under the Notes, MOFCOM proposed three possible ways, namely the reporting, verification or approval regimes, to deal with existing contractual arrangement, or VIE structure, that has been established before the New Foreign Investment Law taking effect and operates restricted or prohibited foreign-entry areas of business. It is not certain which one of the three possible regimes will be finally adopted in the New Foreign Investment Law. Based on the Draft New Law, if the ultimate control person of the VIE structure is a PRC investor, depending on which regime is finally adopted, then by reporting to, verification or approval by MOFCOM, such VIE structure can continue to operate. Considering the analysis set out in the section headed ‘‘C. Reasons for and Benefits of the Proposed Replacement of the Original VIE Undertaking with the Revised Measures – 1. Advice of the PRC Legal Advisers on the interpretation of the Draft New Law and the Notes’’ in this circular and based on the facts that the Group is currently participating in a restricted industry category for foreign investment and Ms. Li Juan and Mr. Cheng Li, the controlling shareholders, are PRC investors as defined under the Draft New Law, subject to the New Foreign Investment Law and relevant interpretations and regulations to be formally promulgated and implemented by MOFCOM in the future, we are of the view with reference to the PRC legal opinion, that if the Draft New Law and the Notes take effect in its current form and content, and the competent authorities interpret and implement the Draft New Law strictly in accordance with such forms and contents, the Contractual Arrangement will likely to be permitted to continue, and the risk that the Group will be prohibited from retaining its Contractual Arrangement or the PRC Contractual Entities are prohibited from continuing their business operations is relatively low.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Nevertheless, we are of the view that MOFCOM may have contrary or different interpretation of the Draft New Law and the Notes, and there may be amendments to the Draft New Law and the Notes before formal promulgation and implementation of the New Foreign Investment Law which may have material adverse impact on the Group at the time when the New Foreign Investment Law becomes effective. There is uncertainty as to whether the Group will be treated as domestic investment based on the New Foreign Investment Law. There is no guarantee that the Revised Measures to be adopted for replacement of the Original VIE Undertaking will be sufficient to ensure ‘‘control’’ by PRC nationals pursuant to the New Foreign Investment Law, as finally adopted. In such circumstances, and if there is a change in the ultimate controlling shareholders of the Company to non-PRC nationals, the Group’s business may be regarded as not being held by PRC investors. In the event of the Group’s business is not regarded as being held by PRC investors and still belongs to the restricted or prohibited category under the New Foreign Investment Law or other future PRC laws and regulations including industry policies and regulations and practice of industry competent authorities, we understand, after discussing with the PRC Legal Adviser, that the Company may have to unwind the Contractual Arrangement and discontinue its business under the VIE structure which would significantly affect the operation sufficiency of the Group under the Listing Rules’ requirements.

3. The Controlling Shareholders’ undertakings

According to the Controlling Shareholders’ Undertakings disclosed in the Letter from the Board, the controlling shareholders (i) will not, severally or jointly, propose any resolution to amend the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause in the Company’s constitutional documents at the general meeting of the Company and (ii) will vote against any proposal to amend the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause in the Company’s constitutional documents at the general meeting of the Company. The Directors confirmed that, as part of the Company’s internal control measures, the Company will continue to monitor its shareholding changes including any change in controlling shareholders on a regular basis. We further discussed with the Directors and noted that the Company will instruct its Hong Kong Share Registrar, Tricor Investor Services Limited, not to register any subscription, purchase and transfer of Shares which will result in any change in controlling shareholders, unless and until the Company is satisfied that the same will not result in material adverse impact on the Contractual Arrangement.

In light of the above, we are of the view that the Company will be able to monitor if there is any potential change in control in the Company’s share interests and ensure undertakings being similar to the Controlling Shareholders’ Undertakings will be obtained if change of Controlling Shareholders happens.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. The Revised Measures

As mentioned in the Letter from the Board, subject to the Independent Shareholders’ approval at the EGM, the followings will be implemented: (i) the Articles of Association will be revised to the effect that the majority of the Board shall consist of PRC nationals (the ‘‘PRC Nationals Control Clause’’); (ii) the Articles of Association will be revised to the effect that the Board is in turn restricted to appoint or propose to the Shareholders to elect Directors from candidates nominated by the Nomination Committee in accordance with the terms of the reference of the Nomination Committee; (iii) if the Shareholders of the Company do not vote to re-elect any Director nominated or appointed by the Board, it is in any event within the power of the Board to appoint one or more additional Directors, subject to the Directors being subject to re-election at the next annual general meeting of the Company (the ‘‘Additional Directors Appointment Clause’’); and (iv) the terms of reference of the Nomination Committee will be revised to provide that when nominating Directors, the Nomination Committee shall be bound by the PRC Nationals Control Clause. The Articles of Association will be revised to provide that the Shareholders of the Company have no right to propose any amendment to the terms of reference of the Nomination Committee which has not been proposed by the Board.

With reference to the PRC Legal Advisers opinions as disclosed in the Letter from the Board that, taking into account the evaluation of the interpretation of the Draft New Law and the Notes as evidenced by the subsequent cases being listed on the Stock Exchange, provided that the Draft New Law and the Notes take effect in its current form and content, and the competent authorities interpret and implement the Draft New Law strictly in accordance with such forms and contents, notwithstanding Ms. Li Juan and Mr. Cheng Li holding less than 50% of the issued share capital of the Company, we are of the view that the Company (and therefore the Contractual Control Entities as its wholly owned subsidiaries) is likely to be considered controlled by PRC nationals based on the definition of ‘‘control’’ set out in the Draft New Law, and the Contractual Arrangement will likely be permitted to continue under the Draft New Law and there will not cause any material adverse impact on the Group’s business operation by the implementation of the Contractual Arrangement with the introduction of the Draft Foreign Investment Law in the future on the following basis:

(i) Based on the Contractual Arrangement, the PRC Contractual Entities are controlled by the Contractual Control Entities (which are PRC established) pursuant to the third limb of the definition of ‘‘control’’ under the Draft New Law (i.e. exerting decisive impact on the enterprise’s management, finance, human resources or technologies by contracts, trust or other ways);

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Each of the Contractual Control Entities is a wholly owned subsidiary of the Company. The Board currently comprises of three executive Directors, namely Mr. Cheng Li, Mr. Hu Qingyang and Mr. Zhang Lake Mozi, three non-executive Directors, namely Ms. Li Juan, Mr. Wu Haiming and Mr. Hsieh Kun Tse, and three independent non-executive Directors, namely Mr. Wu Chak Man, Mr. Zhao Zhen and Mr. Ge Ning. Among the Directors and except for Mr. Zhang Lake Mozi, Mr. Hsieh Kun Tse, Mr. Wu Chak Man and Mr. Zhao Zhen, all of them are PRC nationals as defined under the Draft New Law. Further, Ms. Li Juan is the chairperson of the Board and Mr. Cheng Li is chief executive officer of the Company; and
(iii) The Board is the governing body of Company and makes all material decisions with respect to the Company. As demonstrated in (ii) above, majority of the Board members are currently PRC nationals. Therefore, the Company (and therefore the Contractual Control Entities as its wholly owned subsidiaries) will be considered as controlled by PRC nationals pursuant to the third limb of the definition of ‘‘control’’ under the Draft New Law (i.e. exerting decisive impact on the enterprise’s management, finance, human resources or technologies by contracts, trust or other ways).

In order to understand the shareholders’ undertaking and the trend of the restrictions of control in equity interests in the companies with VIE structure listed on the main board of the Stock Exchange (the ‘‘Main Board’’) recently, we have studied the undertakings given by the single largest shareholder of companies successfully listed on the Main Board with VIE structure since 1 January 2017 up to 30 September 2018 (the ‘‘Research Period’’). When selecting companies for the purpose of comparison, we focus on companies listed on the Main Board whose principal activities are restricted businesses as ascribed under the PRC’s industrial policy to foreign investment via VIE structure like the Company and do not have restrictions on the disposal of equity interests of the single largest shareholder(s). Sets out below, to the best of our knowledge, a table showing the nine companies successfully listed on the Main Board which we believe to be exhaustive list based on the aforementioned criteria.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Shareholding of
				the largest
				shareholder as at
Stock	Date of			30 September
code	Listing	Name	Restricted Business	2018
772	26/10/2017	China Literature Limited	Internet publication; audio-visual program	66.27%
			services to the public; and online games
2858	6/11/2017	Yixin Group Limited	Operation of mobile apps, websites, and	54.40%
			the provision of online information
			service
1833	23/4/2018	Ping An HealthCare	(i) Provision of value-added	41.31%
		and Technology	telecommunication services; (ii) online
		Company Limited	medical institutions; (iii) internet cultural
			business; and (iv) radio and television
			program production and operation
			business
1806	1/6/2018	Huifu Payment Limited	Provision of value-added	24.60%
			telecommunication services
6100	19/6/2018	Wise Talent Information	Provision of talent intermediary services	60.89%
		Technology Co., Ltd	and value-added telecommunication
			services
1739	21/6/2018	Qeeka Home (Cayman) Inc.	Provision of Internet information services	26.10%
1810	25/6/2018	Xiaomi Corporation	(i) Operation of online culture business;	18.96%
			(ii) Internet audio-visual program service;
			(ii) internet publication business; and (iv)
			news business
797	29/6/2018	7Road Holdings Limited	Provision of value-added	23.07%
			telecommunication services
3690	7/9/2018	Meituan Dianping	(i) Operation of online culture business;	66.56%
			and (ii) radio and television program
			services

The principal activities of both the Company and the comparable companies are restricted businesses in relation to the PRC’s industrial policy to foreign investment. Therefore both of them are affected by the Draft New Law and both are required to establish VIE structure to fulfil the underlying requirements such as the ‘‘control’’ by PRC national as they go listed on the Stock Exchange although the comparable companies did not provide similar Original VIE Undertaking as the Company, particularly there is no undertaking in relation to the restrictions on disposal of equity interests while the Company did undertake in the Original VIE Undertaking.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Our research was further extended to Hong Kong listed companies with similar undertakings regarding the restrictions in disposing equity interests but subsequently proposed to cancel such restriction in the Research Period and identified one listed company who is engaged in the provision of pawn loan business and online art auction operation which also fall within the restricted businesses as ascribed under the PRC’s industrial policy to foreign investment via VIE structure like the Company for further comparison. The controlling shareholder of China Art Financial Holdings Limited (‘‘China Art Financial’’) had given similar undertakings regarding the restriction on the disposal of equity interests when it was listed in October 2016 but had proceeded to the non-enforcement of such undertakings on 7 September 2018 after its independent shareholders’ approval at the extraordinary general meeting on the same day.

We are given to understand from the Directors and the PRC Legal Adviser that the listed comparable companies and China Art Financial who should meet the requirements under the Draft New Law like the Company have demonstrated that controlling shareholder’s undertakings on the restrictions on the disposal of the respective equity interests is no longer a compulsory requirements under the Draft New Law and the Company will be able to comply with the requirements under the Draft New Law even without such restrictions with the Revised Measures.

Furthermore, the Company will undertake to the Stock Exchange that (i) it will ensure that a majority of the Directors on the Board are PRC nationals, to the extent permitted by applicable laws, regulations and rules; and (ii) if the Company receives any proposal either from the Board or the Shareholder(s) with no less than one-tenth of the voting right at general meetings of the Company to amend any of the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause, it will make full disclosure of the potential risks associated with such proposal and the scenario which may arise from such amendment, including but not limited to delisting of the Shares from the Stock Exchange, in the circular to be dispatched to the Shareholders of the Company. A special resolution passed by the Shareholders is required to approve any proposal to amend any of the PRC National Control Clause, the Director Election/ Appointment Clause and/or the Additional Directors Appointment Clause. The Relevant Measures will be subject to approval of the independent Shareholders in general meeting and remain effective until the earliest to occur of some events. For details, please refer to the section headed ‘‘C. Reasons for and benefit of the proposed replacement of the Original VIE Undertakings with the Revised Measures’’ in the Letter from the Board.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As aforementioned, the controlling shareholders of the Company, will jointly undertake to the Company and the Stock Exchange, to the extent of all their shareholdings in the Company from time to time that (i) they will not, severally or jointly, propose any resolution to amend the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause in the Company’s constitutional documents at the general meeting of the Company and (ii) they will vote against any proposal to amend the PRC Nationals Control Clause, the Director Election/Appointment Clause and/or the Additional Directors Appointment Clause in the Company’s constitutional documents at the general meeting of the Company. However, the Controlling Shareholders’ Undertakings will be subject to approval of the Independent Shareholders in the EGM and remain effective until the earliest to occur of some events. According to the Letter from the Board, subject to Independent Shareholders’ approval at the EGM, the Listing Committee has no comments on (i) the removal of the Original VIE Undertaking; and (ii) the Revised Measures. For details, please refer to the section headed ‘‘C. Reasons for and benefit of the proposed replacement of the Original VIE Undertakings with the Revised Measures’’ in the Letter from the Board.

Based on the aforementioned research and views from the PRC Legal Advisers of the Company and the Directors, we are of the opinion that the undertakings together with the amendments to the Articles of Association, especially the PRC Nationals Control Clause (i.e. majority of the Board shall consist of PRC nationals), shall enable the Company to comply with the requirements under the Draft New Law.

5. The current restriction in corporate finance activities under the Original VIE Undertakings

Pursuant to the announcement in relation to the transfer of listing dated 28 September 2018 (the ‘‘Transfer of Listing Announcement’’), the Company had transferred its listing position from the GEM to the Main Board of the Stock Exchange of Hong Kong Limited (the ‘‘Transfer of Listing’’). After the Transfer of Listing, the capital base of the Company has been enlarged as the number of investors has to be increased significantly pursuant to the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Since Ms. Li Juan and Mr. Cheng Li are currently holding approximately 51% of the issued share capital of the Company, any issue of new Shares or convertible securities of the Company will dilute their aggregate shareholding to less than 51% which will be in breach of the Original VIE Undertaking. The 51% restriction in the Original VIE Undertaking with respect to the aggregate shareholdings of Ms. Li Juan and Mr. Cheng Li (or the Transferee(s)) has therefore resulted in technical restriction on the normal corporate finance activities which involve the issuance of new equity securities or convertible securities of the Company. Furthermore, any equity financing activity will be difficult to proceed due to the restriction of the Original VIE Undertaking. Taking the issuance of new Shares under the general mandate, a simple and commonly seen equity financing activity in the market, would require the controlling shareholders to utilise his personal resources to maintain his shareholding in the Company. The Directors consider that this is not a fair treatment to the controlling shareholder. We agree that to be a reasonable concern as that might affect the morale of the controlling shareholder as to his/her dedication in improving the business operation and financial performance of the Group and therefore might not be in the best interests to the Company and the Shareholders as a whole.

6. The Share Option Scheme

The Share Option Scheme was adopted by the Company on 19 June 2015 for the purpose of enabling the Group to grant options to selected eligible participants as incentives or rewards for their contribution to the Group and shall be valid for a period of 10 years. Subject to the early termination provisions contained in the Share Option Scheme, the remaining life of the Share Option Scheme will be until 18 June 2025.

The Company has nevertheless never issued any share option to any staff even if they had demonstrated an elite performance and great contribution to the Company due to the technical limitation of the Original VIE Undertaking as discussed in this letter. The Directors are of the view and we concur that the Revised Measures would allow the Company to show its good faith to the elite employees by issuing new share to them as incentives under the Share Option Scheme and would have a positive effect on the retaining of performing employees which is beneficial to the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

7. Potential investment in the future

The Directors confirmed that there is no potential acquisition target as at the Latest Practicable Date but are concerned that if there are favourable acquisition targets in the future with the issuance of new Shares as the consideration which is not uncommon in the market, the aforementioned technical restriction due to the Original VIE Undertaking would sabotage the opportunities and potentially obstruct the Company to harvest potential gains that could have been brought by the acquisition. We concur with the Directors that the Revised Measures would provide the flexibility to the Company to advance and capture the opportunities when they come.

8. Potential funding needs in the future

Pursuant to the Transfer of Listing Announcement, the Group recorded a net operating cash inflow of approximately RMB41.0 million for the year ended 31 December 2016, which was mainly due to the profit before tax of approximately RMB43.4 million for the year ended 31 December 2016, net off by the decrease of working capital, which was mainly attributable by the increase in trade receivables of RMB3.0 million and the decrease in other payables and accruals of RMB3.3 million. The Group also recorded a net operating cash inflow of approximately RMB27.2 million for the year ended 31 December 2017, which was mainly due to the profit before tax of approximately RMB42.0 million for the year ended 31 December 2017, net off by decrease of working capital, which mainly attributable by the increase in trade receivables of RMB12.7 million. The Group also recorded a net operating cash inflow of approximately RMB7.7 million for the six months ended 30 June 2018, which was mainly due to the profit of approximately RMB18.1 million for the six months ended 30 June 2018, net off by the decrease of working capital, which mainly attributable by the increase in trade receivables of approximately RMB6.3 million.

Albeit the Group does not have emergent needs for cash at the moment, the Directors believe that there might be funding needs in the future as the operation of the Group develops. Despite the aforementioned technical restriction, the Directors are of the view that it could be difficult for the Group to come to agreements with potential broker(s)/ underwriter(s) (if any) on fund raising activities in the future with the Original VIE Undertaking as it would be unlikely for such potential broker(s)/underwriter(s) to take the risk of market fluctuation between the time of the entering into the agreement and completion of the fund raising due to the additional condition required for amending the Original VIE Undertakings and the Articles of Association. In light of the above, we concur with the Directors that the Original VIE Undertaking would limit the flexibility of corporate finance activities of the Company which is considered not favourable to its business development and may not be in the best interests of the Company and the Shareholders as a whole especially with the enlarged capital base and it is fair and reasonable to replace it with the Revised Measures.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, and having considered that (i) the background of the Contractual Arrangement; (ii) the Revised Measures; (iii) the proposed amendments to the Articles of Association would provide the Group with flexibility in its corporate finance activities and ensure the Company meets the requirement under the Draft New Law and the Notes; (iv) the flexibility in the issuance of new Shares under Share Option Scheme in order to retain performing and outstanding employees; (v) the needs and flexibility required for potential investment in the future; and (vi) the potential funding needs of the Company in the future, we concur with the Directors that the proposed replacement of Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association are beneficial to the potential growth and development of the Group, fair, reasonable, and in the interests of the Company and the Shareholders as a whole.

5. RECOMMENDATION

Since the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association are special arrangements to be made having regard to the Contractual Arrangement, we are of the view that the proposed replacement of the Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association are not made in the ordinary and usual course of business of the Company and are not on normal commercial terms or better. Nevertheless, having taken into account the principal factors and reasons as stated in this letter, we are of the opinion that the proposed replacement of Original VIE Undertaking with the Revised Measures and the proposed amendments to the Articles of Association are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Shareholders, and the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the ordinary resolution to be proposed at the EGM to approve the proposed replacement of Original VIE Undertaking and the proposed amendments to Articles of Association.

Yours faithfully For and on behalf of Red Sun Capital Limited Robert Siu Managing Director

Mr. Robert Siu is a licensed person registered with the Securities and Futures Commission of Hong Kong and a responsible officer of Red Sun Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has over 20 years of experience in corporate finance industry.

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DIRECTORS’ AND CHIEF EXECUTIVE’S DISCLOSURE OF INTERESTS

(a) Interests and short positions of directors in the share capital of the Company

As at the Latest Practicable Date, save as disclosed below, the interest and short positions of the Directors and chief executive in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required pursuant to Section 352 of the SFO to be entered in the register maintained by the Company referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:-

Long positions in the shares of the company

Name of Director Nature of Interest Ms. Li Juan(1) Interest in a controlled corporation Interest of concert party Total: Mr. Wu Haiming(1) Interest of spouse Mr. Cheng Li(2) Interest in a controlled corporation Interest of concert party Total:	Number of Shares or Underlying Shares Approximate Percentage of Shareholding 409,200,000 120,000,000 529,200,000 51.60% 529,200,000 51.60% 120,000,000 409,200,000 529,200,000 51.60%

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GENERAL INFORMATION

APPENDIX

Notes:

(1) Each of Loyal Alliance and Prime Wish is directly and wholly owned by Ms. Li Juan, who is therefore deemed to be interested in all the shares held by each of Loyal Alliance and Prime Wish. Ms. Li Juan and Mr. Cheng Li entered into an acting in concert party agreement dated 19 June 2015, and are therefore deemed to be interested in the interests of each other. Mr. Wu Haiming, a nonexecutive Director, is the spouse of Ms. Li Juan, and therefore is deemed to be interested in the interests of Ms. Li Juan.
(2) Victory Glory is directly and wholly owned by Mr. Cheng Li, who is therefore deemed to be interested in all the shares held by Victory Glory. Ms. Li Juan and Mr. Cheng Li entered into an acting in concert party agreement dated 19 June 2015, and are therefore deemed to be interested in the interests of each other.

Interests in other members of the group (long position)

			Approximate
			Percentage of
Name of Director	Name of Subsidiary	Nature of Interest	Shareholding
Ms. Li Juan(1)	Nanjing Xihui Information Technology	Beneficial owner	85%
	Company Limited*（南京矽滙信息
	技術有限公司）(‘‘Nanjing Xihui’’)(2)
	Nanjing Xinchuang Micro Machinery	Beneficial owner	85%
	and Electronic Technology
	Company Limited*（南京芯創微機
	電技術有限公司）(‘‘Nanjing
	Xinchuang’’)(2)
Mr. Wu Haiming(1)	Nanjing Xihui(2)	Interest of spouse	85%
	Nanjing Xinchuang(2)	Interest of spouse	85%
Mr. Cheng Li	Nanjing Xihui(2)	Beneficial owner	15%
	Nanjing Xinchuang(2)	Beneficial owner	15%

Notes:

(1) Mr. Wu Haiming, a non-executive Director, is the spouse of Ms. Li Juan, and therefore deemed to be interested in the interests of Ms. Li Juan.
(2) Pursuant to the Contractual Arrangement, each of Nanjing Xinchuang and Nanjing Xihui is deemed to be a wholly owned subsidiary of the Company.

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GENERAL INFORMATION

APPENDIX

(b) Substantial shareholders’ and other persons’ interests and/or short positions in the shares and underlying shares of the Company

So far as the Directors are aware, as at the Latest Practicable Date, the following persons (not being Directors or chief executives of the Company) have or be deemed or taken to have interests and/or short positions in the shares or the underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which would be recorded in the register required to be kept under Section 336 of the SFO:

Long positions in the shares of the Company

		Number of Shares	Approximate
		or Underlying	Percentage of
Name	Nature of Interest	Shares	Shareholding
Loyal Alliance (1)	Beneficial owner	193,200,000	18.84%
Prime Wish (1)	Beneficial owner	216,000,000	21.06%
Victory Glory (2)	Beneficial owner	120,000,000	11.70%
Properous Commitment (3)	Beneficial owner	51,600,000	5.03%
TMF Trust (HK) Limited (3)	Trustee	51,600,000	5.03%

Notes:

(1) Each of Loyal Alliance and Prime Wish is directly and wholly owned by Ms. Li Juan.
(2) Victory Glory is directly and wholly owned by Mr. Cheng Li.
(3) Properous Commitment is directly held by TMF Trust (HK) Limited, a professional trustee engaged by the Company for the operation of the share award plan adopted by the Company on 6 July 2016.

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any other persons who had any interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which would be recorded in the register required to be kept under Section 336 of the SFO.

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GENERAL INFORMATION

APPENDIX

3. COMPETING INTEREST

As at the Latest Practicable Date, in so far as the Directors are aware, none of the Directors or any of their respective associates had an interest in a business that competes or may compete with the business of the Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or was proposing to enter, into any service contract with the Company or its subsidiaries which is not expiring or may not be terminated by the Company within a year without payment of any compensation (other than statutory compensation).

5. INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTEREST

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been, since 31 December 2017, being the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement which was significant in relation to the business of the Company.

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2017, the date to which the latest published audited accounts of the Company were made up.

7. EXPERT

The following is the qualification of the experts who have given opinion or advice contained in this circular:

Name Qualifications

Red Sun Capital Limited A licensed corporation under the SFO licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

King & Wood Mallesons Qualified legal advisers as to PRC law

Conyers Dill & Pearman Cayman Islands attorneys-at-law

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GENERAL INFORMATION

APPENDIX

As at the Latest Practicable Date, the experts above have given and have not withdrawn their written consents to the issue of this circular with the inclusion of their letter or opinion as set out in this circular and references to their names in the form and context in which they appear in this circular.

As at the Latest Practicable Date, none of the experts above had any shareholding, directly or indirectly, in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, none of the experts above had any interest, direct or indirect, in any asset which since 31 December 2017, being the date to which the latest published audited consolidated financial statements of the Group were made up, have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

8. GENERAL

In the event of any inconsistency, the English language text of this circular and the proxy form shall prevail over the Chinese language text.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong at Room 1905, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong during normal business hours up to and including the date of the EGM (and any adjournment thereof):-

(a) the memorandum and articles of association of the Company;
(b) the Original VIE Undertaking;
(c) the Relevant Measures, details of which are set out on pages 16 to 17 in this circular;
(d) the Controlling Shareholders’ Undertakings, details of which are set out on pages 17 to 19 in this circular;
(e) the letter from the Board, the text of which is set out on pages 6 to 25 in this circular;
(f) the letter from the Independent Board Committee, the text of which is set out on pages 26 to 27 in this circular;

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GENERAL INFORMATION

APPENDIX

(g) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 28 to 40 of this circular;
(h) the letter of advice from the PRC Legal Advisers;
(i) the written consent of the experts referred to in section headed ‘‘Experts’’ in this appendix; and
(j) this circular.

– 46 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [14 x 13] intentionally omitted <==

==> picture [44 x 37] intentionally omitted <==

China Parenting Network Holdings Limited 中國育兒網絡控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1736)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the extraordinary general meeting of China Parenting Network Holdings Limited (the ‘‘Company’’) will be held at Room 1905, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong on Monday, 26 November 2018 at 2:00 p.m. for the purpose of considering and, if thought fit, passing the following resolutions of the Company:

ORDINARY RESOLUTION

‘‘THAT:
(a) the following be and are hereby approved, confirmed and/or ratified:
- (i) the Original VIE Undertaking (as defined in the circular of the Company dated 8 November 2018 (the ‘‘Circular’’)) be removed and replaced with the adoption and implementation of the Revised Measures (as defined in the Circular)
- (ii) any one director of the Company or (if the affixation of the common seal is necessary, any two directors of the Company) be and is/are hereby authorized for and on behalf of the Company to sign, seal, execute, perfect, perform and deliver all such agreements, instruments, documents and deeds and do all such acts, matters and things and take all such steps as they may in their discretion consider necessary, desirable or expedient to implement and/or to give effect to the removal and replacement of the Original VIE Undertaking (as defined in the Circular) and the adoption and implementation of the Revised Measures (as defined in the Circular)’’

– 47 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

SPECIAL RESOLUTION

‘‘THAT the articles of association of the Company (the ‘‘Articles of Association’’) be and are hereby amended as follows:
(a) by inserting the following new definition of ‘‘Nomination Committee’’ immediately after the definition of ‘‘month’’ in Article 2(1) of the Articles of Association:
- ‘‘‘‘Nomination Committee’’ a committee established by the Board in accordance with Article 117(3) and as further defined in these Articles.’’
(b) by inserting the following new definition of ‘‘PRC Nationals’’ immediately after the definition of ‘‘paid up’’ in Article 2(1) of the Articles of Association:
- ‘‘‘‘PRC Nationals’’ a person who is a Chinese national in accordance with the Nationality Law of the People’s Republic of China.’’
(c) by inserting the following new definition of ‘‘Terms of Reference of the Nomination Committee’’ immediately after the definition of ‘‘substantial shareholder’’ in Article 2(1) of the Articles of Association:
- ‘‘‘‘Terms of Reference of the the terms of reference of the Nomination Nomination Committee’’ Committee adopted by the Board from time to time.’’
(d) by deleting the existing Article 83(1) of the Articles of Association in its entirety and replacing it with the following:

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NOTICE OF EXTRAORDINARY GENERAL MEETING

(e) by deleting the existing Article 83(2) of the Articles of Association in its entirety and replacing it with the following:

(f) by deleting the existing Article 83(3) of the Articles of Association in its entirety and replacing it with the following:

(g) by deleting the existing Article 83(5) of the Articles of Association in its entirety and replacing it with the following:

(h) by deleting the existing Article 83(6) of the Articles of Association in its entirety and replacing it with the following:

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NOTICE OF EXTRAORDINARY GENERAL MEETING

(i) by inserting the following new Article 83(8) after the existing Article 83(7) of the Articles of Association:

(j) by inserting the following new Article 117(3) after the existing Article 117(2) of the Articles of Association:

By order of the board of the directors China Parenting Network Holdings Limited Li Juan Chairperson

Nanjing, the People’s Republic of China, 8 November 2018

Registered office: Principal place of business in Hong Kong: Cricket Square Room 1905 Hutchins Drive, P.O. Box 2681 China Resources Building Grand Cayman KY1-1111 26 Harbour Road Cayman Islands Wanchai, Hong Kong

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

(i) A shareholder entitled to attend and vote at the above meeting is entitled to appoint another person as his/her/its proxy to attend and vote instead of him/her/it; a proxy need not be a shareholder of the Company.
(ii) In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the vote(s) of the other joint holder(s) and for this purpose seniority shall be determined as that one of the said persons so present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect thereof.
(iii) In order to be valid, a form of proxy must be deposited at the Company’s share registrar in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong together with the power of attorney or other authority (if any) under which it is signed (or a notarially certified copy thereof) not less than 48 hours before the time appointed for the holding of the above meeting (i.e. by Saturday, 24 November 2018 at 2:00 p.m.) or any adjournment thereof. The completion and return of the form of proxy shall not preclude shareholders of the Company from attending and voting in person at the above meeting (or any adjourned meeting thereof) if they so wish.
(iv) Pursuant to Rule 13.39(4) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, all votes of the shareholders at the EGM will be taken by poll except where the Chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be noted on a show of hands.
(v) As at the date hereof, the executive Directors are Mr. CHENG Li, Mr. HU Qingyang, and Mr. ZHANG Lake Mozi; the non-executive Directors are Ms. LI Juan, Mr. WU Haiming and Mr. HSIEH Kun Tse; and the independent nonexecutive Directors are Mr. WU Chak Man, Mr. ZHAO Zhen and Mr. GE Ning.

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AI assistant

China Parenting Network Holdings Limited — Proxy Solicitation & Information Statement 2018

50129_rns_2018-11-07_f9c7f37b-56ab-417e-a06b-6e517ac23ac8.pdf

China Parenting Network Holdings Limited 中國育兒網絡控股有限公司

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

China Parenting Network Holdings Limited 中國育兒網絡控股有限公司

(1) CONNECTED TRANSACTION – PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES; (2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION; AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

LETTER FROM THE BOARD

B. PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES

Draft new Foreign Investment Law

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Risk relating to the Draft New Law

LETTER FROM THE BOARD

Potential impact on the Group

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Original VIE Undertaking

LETTER FROM THE BOARD

C. REASONS FOR AND BENEFITS OF THE PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES

1. Advice of the PRC Legal Advisers on the interpretation of the Draft New Law and the Notes

LETTER FROM THE BOARD

2. Flexibility in financing

3. Revised Measures

(a) The Company’s corporate governance measures

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(b) Relevant Measures to be implemented by the Company

LETTER FROM THE BOARD

(c) The Controlling Shareholders’ Undertakings

LETTER FROM THE BOARD

D. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

LETTER FROM THE BOARD

E. LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

F. EXTRAORDINARY GENERAL MEETING

G. ACTION TO BE TAKEN

LETTER FROM THE BOARD

H. GENERAL INFORMATION

I. RECOMMENDATION

LETTER FROM THE BOARD

J. ADDITIONAL INFORMATION

China Parenting Network Holdings Limited 中國育兒網絡控股有限公司

(1) CONNECTED TRANSACTION – PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES; (2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION; AND (3) NOTICE OF EXTRAORDINARY GENERAL MEETING

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

(1) CONNECTED TRANSACTION – PROPOSED REPLACEMENT OF THE ORIGINAL VIE UNDERTAKING WITH THE REVISED MEASURES AND

(2) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

1. INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. THE INDEPENDENT BOARD COMMITTEE

3. BASIS OF OUR ADVICE

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. PRINCIPAL FACTORS AND REASONS CONSIDERED

1. The Contractual Arrangement

2. Risk relating to the VIE arrangement in the event of change of Controlling Shareholders in the future

3. The Controlling Shareholders’ undertakings

4. The Revised Measures

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. The current restriction in corporate finance activities under the Original VIE Undertakings

6. The Share Option Scheme

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

7. Potential investment in the future

8. Potential funding needs in the future

5. RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DIRECTORS’ AND CHIEF EXECUTIVE’S DISCLOSURE OF INTERESTS

(a) Interests and short positions of directors in the share capital of the Company

Long positions in the shares of the company

Interests in other members of the group (long position)

(b) Substantial shareholders’ and other persons’ interests and/or short positions in the shares and underlying shares of the Company

Long positions in the shares of the Company

3. COMPETING INTEREST

China Parenting Network Holdings Limited Proxy Solicitation & Information Statement 2018