SEC Company Response from Ambow Education Holding Ltd. (AMBO) (CIK 0001494558) (AMBO) — Mar 18, 2013
Ambow Education Holding Ltd. (AMBO) (CIK 0001494558)
Date: March 18, 2013 · CIK: 0001494558 · Accession: 0001104659-13-021455
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-34824
Referenced dates: December 21, 2012, February 15, 2013
Letter
Division of Corporate Finance Securities and Exchange Commission Form 20-F for Fiscal Year Ended December 31, 2011 Filed May 29, 2012 Comment Letter Dated February 15, 2013 File No. 001-34824
Dear Mr. Spirgel, Mr. Suehiro, Mr. Littlepage, Mr. Hooper and Ms. Murphy:
I refer to your letter to Ms. Jin Huang, dated February 15, 2013, relating to Ambow Education Holding Ltd.’s (“Ambow” or the “Company”) annual report on Form 20-F for the fiscal year ended December 31, 2011, filed with the U.S. Securities and Exchange Commission (the “Commission”) on May 29, 2012 (the “2011 Form 20-F”).
Set forth below are the Company’s responses to the comments contained in the letter dated February 15, 2013 from the staff of the Commission (the “Staff”) (the numbered paragraphs below correspond to the paragraphs of the Staff’s comment letter, which have been retyped below in bold for your ease of reference).
Form 20-F for Fiscal Year Ended December 31, 2011
General
1. We note your responses indicating that you will provide the proposed revised disclosure in future filings. Please note that we expect this disclosure to be included in an amendment to your filing.
The Company confirms that the Staff’s comment is duly noted and the Company will file an amendment to the 2011 Form 20-F to include all changes in disclosure committed to the Staff.
2. We note your response to comment 2 from our letter dated December 21, 2012. Please expand your proposed disclosure to identify the nature of the “more stringent restrictions” imposed on foreign-invested entities providing tutoring services.
In response to the Staff’s comment, the Company will file an amendment to the 2011 Form 20-F include the following disclosure under “Item 3. Key Information — D. Risk Factors — Risks Related to Regulation of Our Business and Our Corporate Structure —All aspects of our business are subject to extensive regulation in China, we may not be in full compliance with these regulations and our ability to conduct business is highly dependent on our compliance with this regulatory framework. If the PRC government finds that the agreements that establish the structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties” and “Item 4.B Information on the Company—Business Overview—Regulations—Foreign investment in education service industry” (changes made to proposed revised disclosure in our responses to the Staff’s letter dated December 21, 2012 are underlined and in bold for your ease of reference):
“Currently, PRC laws and regulations do not explicitly impose restrictions on foreign investment in the tutoring service sector in China. However, some local government authorities in the PRC have adopted different approaches in granting licenses and permits (particularly, imposing more stringent restrictions on foreign-invested entities) for entities providing tutoring services. In some areas, local government authorities do not allow foreign-invested entities to establish private schools to engage in tutoring services, other than in the forms of Sino-foreign cooperative schools or international schools. Under current PRC laws, the foreign contributors of Sino-foreign cooperative schools shall be foreign educational institutions such as universities or colleges instead of foreign companies. As a foreign company, we are not qualified to run Sino-foreign cooperative schools in China. International schools are schools only for children of aliens in China and shall not admit any children of Chinese citizens.”
“We conduct our K-12 school and tutoring business and provide online services in China primarily through contractual arrangements between Ambow Online, our principal operating subsidiary in China, and our VIEs, and their respective shareholders.”
“According to the Foreign Investment Industries Guidance Catalog, or Foreign Investment Catalog, which was amended and promulgated by the National Development and Reform Commission, or NDRC, and the MOFCOM on December 24, 2011 and became effective on January 30, 2012, foreign investment is encouraged to participate in higher education and vocational training services. The foreign investment in higher education has to take the form of a Sino-foreign equity or cooperative joint venture. Senior high school education in grades 10-12 is a restricted industry. The foreign investment in senior high school education has to take the form of a cooperative joint venture. Foreign investment is banned from compulsory education, which means grades 1-9. Foreign investment is allowed to invest in after-
school tutoring services which do not grant diplomas. However, many local government authorities in the PRC have adopted different approaches in granting licenses and permits (particularly, imposing more stringent restrictions on foreign-invested entities) for entities providing tutoring services. In some areas, local government authorities do not allow foreign-invested entities to establish private schools to engage in tutoring services, other than in the forms of Sino-foreign cooperative schools or international schools. Under current PRC laws, the foreign contributors of Sino-foreign cooperative schools shall be foreign educational institutions such as universities or colleges instead of foreign companies. As a foreign company, we are not qualified to run Sino-foreign cooperative schools in China. International schools are schools only for children of aliens in China and shall not admit any children of Chinese citizens. As of December 31, 2011, we had a total of 183 centers and schools, comprised of 150 tutoring centers, five K-12 schools, 25 career enhancement centers, two career enhancement campuses and one college. We conduct our education business in China primarily through contractual arrangements among our subsidiaries in China and VIEs. Our VIEs and their respective subsidiaries, as PRC domestic entities, hold the requisite licenses and permits necessary to conduct our education business in China and operate our tutoring centers, K-12 schools, career enhancement centers and colleges.”
Agreements that provide effective control over our VIEs, page 49
3. We note your response to comment 18 from our letter dated December 21, 2012 and your assertion that public auction would only be a remedy when Ambow Online “does not have control over the VIE shareholders and thus cannot cause the VIE shareholders to enter into equity transfer agreements.” Please tell us whether you believe you currently have “control” over the VIE shareholders and explain the basis for that assertion. If the control you are referencing is derived from your contractual agreements with such shareholders, please expand your proposed disclosure to address the fact that your control is solely based upon the parties’ compliance with the terms of such contracts.
The Company respectfully advises the Staff that the Company believes it currently has control over the VIEs and their shareholders. With the share pledge arrangements, powers of attorney and call option rights in place, Ambow Online, the Company’s Wholly Foreign Owned Enterprise, has obtained pledges of the VIEs shares from the VIE shareholders, obtained the right to attend the shareholders’ meetings of VIEs and make all significant decisions relating to the VIEs such as the appointment of directors or liquidation of VIEs, and acquired options to purchase from VIE shareholders all or part of their shares of VIEs to the extent permitted by PRC laws. Without the consent of the Company, VIE shareholders may not transfer their shares or conduct any other acts that will materially affect the business and operations of VIEs.
Although control over VIEs is derived from the contractual agreements with the VIE shareholders, the control over VIE shareholders is not solely based upon the parties’ compliance with the terms of such contracts:
(1) Under the current contractual arrangements, all the shares of VIEs held by VIE shareholders are pledged for the benefit of Ambow Online. Since the pledge under each of the share pledge agreements has been registered with the local SAIC, according to PRC laws and regulations, the VIE shareholders shall not transfer the pledged equity without the consent of Ambow Online. If VIEs fail to comply with their obligations under the contractual agreements, the Company may dispose of the pledged equity in accordance with relevant laws and regulations without the consent or cooperation of the VIE shareholders.
(2) By entering into the call option agreements, the Company has acquired call options to purchase from VIE shareholders all or part of their shares of VIEs to the extent permitted by PRC laws. Prior to the exercise of such call options, VIE shareholders shall not transfer all or part of their shares to any third party without the consent of the Company. However, the Company may designate, at any time, any person to purchase the shares of VIEs from current VIE shareholders. Therefore, in the event of any breach by VIE shareholders of the contractual agreements, the Company may exercise the call option to replace the defaulting shareholders with persons designated by the Company.
(3) Pursuant to powers of attorney , VIE shareholders have entrusted all the rights to exercise their voting powers to Ambow Online, including without limitation, the power to sell, transfer or pledge, in whole or in part, such shareholder’s equity interests in VIEs and to nominate and appoint the legal representative, directors, supervisors, general managers and other senior management of VIEs. As such, all significant matters concerning VIEs are decided by Ambow Online.
Based on the abovementioned reasons, the Company believes that it currently has control over the VIEs and their shareholders and such control is not solely based upon the parties’ compliance with the terms of such contracts.
4. We note your response to comment 19 from our letter dated December 21, 2012. Please revise your disclosure to clearly state that the company has, in its discretion, determined that no further service fees will be charged.
In response to the Staff’s comment, the Company will in an amendment to 2011 Form 20-F include the following disclosure under “Item 5.B — Liquidity and Capital Resources” (changes made to existing disclosure are underlined and in bold for your ease of reference):
“As a result of software sales agreements, service agreements and management consulting agreements entered into between Ambow Online and the VIEs’ subsidiaries in the ordinary course of business on an ongoing basis, we, through Ambow Online, have been receiving revenues (in the form of cash) from VIEs and its subsidiaries and thus leaving the VIEs together with their subsidiaries with no profit. Therefore, to date, we have, at our discretion, determined that no further services under technology service agreements and exclusive cooperation agreements will be charged for the time being and have not received any payments under these agreements.”
5. We note your response to comment 20 from our letter dated December 21, 2012 and your assertion that the current shareholders could not “effectively revoke” the power of attorney as a result of the prohibition on transferring the equity interests of Ambow Shida without AECL’s prior written consent. However, it does not appear that there would be any limitation on Messrs. Xie and Xue’s ability to take other corporate actions including transferring funds, chops or assets of Ambow Shida prior to AECL’s transfer of equity interests of Ambow Shida under the equity pledge agreements. Please explain.
The Company respectfully advises the Staff that pursuant to Article 8 of the call option agreement entered into by and among AECL, Xuejun Xie and Jianguo Xue, Messrs. Xie and Xue agreed not to, and shall cause Ambow Shida not to, sell, assign, mortgage or otherwise dispose of any assets, lawful income and business revenues of Ambow Shida, or enter into any transactions that may substantially affect the Company’s assets, liabilities, operations, equity and other legitimate interests (other than those made in the ordinary course of business or have been disclosed to and approved by AECL in writing) before AECL or an entity designated by AECL in writing exercises call option to obtain all the equity interest and assets.
Furthermore, the chops of Ambow Shida have been, and will continue to be, held and managed by the Company and any use of the chops requires the prior consent of the Company in accordance with Ambow’s internal policy, Ambow Regulation of Chops Management. No one, including Messrs. Xie and Xue, is authorized to use the chops without the Company’s approval. Therefore, chops of Ambow Shida may not be transferred by Messrs. Xie and Xue without the Company’s consent as a practical matter.
Holding company structure, page 74
6. We note your response to comment 27 from our letter dated December 21, 2012. Please tell us why the fees payable from the VIE to Ambow Online have significantly increased since 2009 and why the VIE is not paying Ambow Online.
In response to the Staff’s comment, the Company respectfully advises the Staff that in order to facilitate the plans of VIEs’ subsidiary schools for expansion and development after the Company’s IPO, the Company intentionally reserves more cash at the school level to avoid frequent cash transfers among the Group which would incur additional costs to comply with relevant PRC laws and regulations. In addition, the Company wants to further clarify that, after an ongoing effort in enhancing the cash control of the whole group, by the end of 2012, other than accounts of Applied Technology College, Kunshan Zhouzhuang Taishidian Tourism Scenic Area Development Co., Ltd and some small branches of Beijing Jinghan Yingcai Education and Technology Co., Ltd., the Company has already included all the cash accounts of all other entities in a centrally controlled cash pool through a contractual system among all the entities and China Merchant Bank, and the Company, as the holding company, thus has been granted the authority and capability to extract cash from VIEs and their subsidiaries anytime at its sole discretion. However, currently, the Company
mainly uses the system to monitor the daily transactions of the entities, not to actually extract cash from the VIEs or their subsidiaries.
Item 6. Directors, Senior Management and Employees, page 75
E. Share Ownership, page 84
7. We note your response to comment 28 from our letter dated December 21, 2012. Please revise your disclosures to incorporate your response including your response to our comment 20.
In response to the Staff’s comment, the Company will in an amendment to 2011 Form 20-F that includes the following disclosure under “Item 6.E — Share Ownership”:
“We believe that under the Company’s current corporate structure, where the shareholders of the VIEs are also our shareholders and officers, the interests of the VIEs and their shareholders largely are aligned with the Company and its shareholders as a practical matter. In addition, each shareholder of the VIEs has signed a power of attorney for Ambow Online to exercise his or her voting power. If shareholders of VIEs attempt to revoke the powers of attorney, the Company will instruct AECL,
Show Raw Text
CORRESP 1 filename1.htm [Letterhead of Ambow Education Holding Ltd.] March 18, 2013 Larry Spirgel Dean Suehiro Robert Littlepage Reid Hooper Celeste M. Murphy Division of Corporate Finance Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-7010 Re: Ambow Education Holding Ltd. Form 20-F for Fiscal Year Ended December 31, 2011 Filed May 29, 2012 Comment Letter Dated February 15, 2013 File No. 001-34824 Dear Mr. Spirgel, Mr. Suehiro, Mr. Littlepage, Mr. Hooper and Ms. Murphy: I refer to your letter to Ms. Jin Huang, dated February 15, 2013, relating to Ambow Education Holding Ltd.’s (“Ambow” or the “Company”) annual report on Form 20-F for the fiscal year ended December 31, 2011, filed with the U.S. Securities and Exchange Commission (the “Commission”) on May 29, 2012 (the “2011 Form 20-F”). Set forth below are the Company’s responses to the comments contained in the letter dated February 15, 2013 from the staff of the Commission (the “Staff”) (the numbered paragraphs below correspond to the paragraphs of the Staff’s comment letter, which have been retyped below in bold for your ease of reference). Form 20-F for Fiscal Year Ended December 31, 2011 General 1. We note your responses indicating that you will provide the proposed revised disclosure in future filings. Please note that we expect this disclosure to be included in an amendment to your filing. The Company confirms that the Staff’s comment is duly noted and the Company will file an amendment to the 2011 Form 20-F to include all changes in disclosure committed to the Staff. 2. We note your response to comment 2 from our letter dated December 21, 2012. Please expand your proposed disclosure to identify the nature of the “more stringent restrictions” imposed on foreign-invested entities providing tutoring services. In response to the Staff’s comment, the Company will file an amendment to the 2011 Form 20-F include the following disclosure under “Item 3. Key Information — D. Risk Factors — Risks Related to Regulation of Our Business and Our Corporate Structure —All aspects of our business are subject to extensive regulation in China, we may not be in full compliance with these regulations and our ability to conduct business is highly dependent on our compliance with this regulatory framework. If the PRC government finds that the agreements that establish the structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties” and “Item 4.B Information on the Company—Business Overview—Regulations—Foreign investment in education service industry” (changes made to proposed revised disclosure in our responses to the Staff’s letter dated December 21, 2012 are underlined and in bold for your ease of reference): “Currently, PRC laws and regulations do not explicitly impose restrictions on foreign investment in the tutoring service sector in China. However, some local government authorities in the PRC have adopted different approaches in granting licenses and permits (particularly, imposing more stringent restrictions on foreign-invested entities) for entities providing tutoring services. In some areas, local government authorities do not allow foreign-invested entities to establish private schools to engage in tutoring services, other than in the forms of Sino-foreign cooperative schools or international schools. Under current PRC laws, the foreign contributors of Sino-foreign cooperative schools shall be foreign educational institutions such as universities or colleges instead of foreign companies. As a foreign company, we are not qualified to run Sino-foreign cooperative schools in China. International schools are schools only for children of aliens in China and shall not admit any children of Chinese citizens.” “We conduct our K-12 school and tutoring business and provide online services in China primarily through contractual arrangements between Ambow Online, our principal operating subsidiary in China, and our VIEs, and their respective shareholders.” “According to the Foreign Investment Industries Guidance Catalog, or Foreign Investment Catalog, which was amended and promulgated by the National Development and Reform Commission, or NDRC, and the MOFCOM on December 24, 2011 and became effective on January 30, 2012, foreign investment is encouraged to participate in higher education and vocational training services. The foreign investment in higher education has to take the form of a Sino-foreign equity or cooperative joint venture. Senior high school education in grades 10-12 is a restricted industry. The foreign investment in senior high school education has to take the form of a cooperative joint venture. Foreign investment is banned from compulsory education, which means grades 1-9. Foreign investment is allowed to invest in after- 2 school tutoring services which do not grant diplomas. However, many local government authorities in the PRC have adopted different approaches in granting licenses and permits (particularly, imposing more stringent restrictions on foreign-invested entities) for entities providing tutoring services. In some areas, local government authorities do not allow foreign-invested entities to establish private schools to engage in tutoring services, other than in the forms of Sino-foreign cooperative schools or international schools. Under current PRC laws, the foreign contributors of Sino-foreign cooperative schools shall be foreign educational institutions such as universities or colleges instead of foreign companies. As a foreign company, we are not qualified to run Sino-foreign cooperative schools in China. International schools are schools only for children of aliens in China and shall not admit any children of Chinese citizens. As of December 31, 2011, we had a total of 183 centers and schools, comprised of 150 tutoring centers, five K-12 schools, 25 career enhancement centers, two career enhancement campuses and one college. We conduct our education business in China primarily through contractual arrangements among our subsidiaries in China and VIEs. Our VIEs and their respective subsidiaries, as PRC domestic entities, hold the requisite licenses and permits necessary to conduct our education business in China and operate our tutoring centers, K-12 schools, career enhancement centers and colleges.” Agreements that provide effective control over our VIEs, page 49 3. We note your response to comment 18 from our letter dated December 21, 2012 and your assertion that public auction would only be a remedy when Ambow Online “does not have control over the VIE shareholders and thus cannot cause the VIE shareholders to enter into equity transfer agreements.” Please tell us whether you believe you currently have “control” over the VIE shareholders and explain the basis for that assertion. If the control you are referencing is derived from your contractual agreements with such shareholders, please expand your proposed disclosure to address the fact that your control is solely based upon the parties’ compliance with the terms of such contracts. The Company respectfully advises the Staff that the Company believes it currently has control over the VIEs and their shareholders. With the share pledge arrangements, powers of attorney and call option rights in place, Ambow Online, the Company’s Wholly Foreign Owned Enterprise, has obtained pledges of the VIEs shares from the VIE shareholders, obtained the right to attend the shareholders’ meetings of VIEs and make all significant decisions relating to the VIEs such as the appointment of directors or liquidation of VIEs, and acquired options to purchase from VIE shareholders all or part of their shares of VIEs to the extent permitted by PRC laws. Without the consent of the Company, VIE shareholders may not transfer their shares or conduct any other acts that will materially affect the business and operations of VIEs. Although control over VIEs is derived from the contractual agreements with the VIE shareholders, the control over VIE shareholders is not solely based upon the parties’ compliance with the terms of such contracts: 3 (1) Under the current contractual arrangements, all the shares of VIEs held by VIE shareholders are pledged for the benefit of Ambow Online. Since the pledge under each of the share pledge agreements has been registered with the local SAIC, according to PRC laws and regulations, the VIE shareholders shall not transfer the pledged equity without the consent of Ambow Online. If VIEs fail to comply with their obligations under the contractual agreements, the Company may dispose of the pledged equity in accordance with relevant laws and regulations without the consent or cooperation of the VIE shareholders. (2) By entering into the call option agreements, the Company has acquired call options to purchase from VIE shareholders all or part of their shares of VIEs to the extent permitted by PRC laws. Prior to the exercise of such call options, VIE shareholders shall not transfer all or part of their shares to any third party without the consent of the Company. However, the Company may designate, at any time, any person to purchase the shares of VIEs from current VIE shareholders. Therefore, in the event of any breach by VIE shareholders of the contractual agreements, the Company may exercise the call option to replace the defaulting shareholders with persons designated by the Company. (3) Pursuant to powers of attorney , VIE shareholders have entrusted all the rights to exercise their voting powers to Ambow Online, including without limitation, the power to sell, transfer or pledge, in whole or in part, such shareholder’s equity interests in VIEs and to nominate and appoint the legal representative, directors, supervisors, general managers and other senior management of VIEs. As such, all significant matters concerning VIEs are decided by Ambow Online. Based on the abovementioned reasons, the Company believes that it currently has control over the VIEs and their shareholders and such control is not solely based upon the parties’ compliance with the terms of such contracts. 4. We note your response to comment 19 from our letter dated December 21, 2012. Please revise your disclosure to clearly state that the company has, in its discretion, determined that no further service fees will be charged. In response to the Staff’s comment, the Company will in an amendment to 2011 Form 20-F include the following disclosure under “Item 5.B — Liquidity and Capital Resources” (changes made to existing disclosure are underlined and in bold for your ease of reference): “As a result of software sales agreements, service agreements and management consulting agreements entered into between Ambow Online and the VIEs’ subsidiaries in the ordinary course of business on an ongoing basis, we, through Ambow Online, have been receiving revenues (in the form of cash) from VIEs and its subsidiaries and thus leaving the VIEs together with their subsidiaries with no profit. Therefore, to date, we have, at our discretion, determined that no further services under technology service agreements and exclusive cooperation agreements will be charged for the time being and have not received any payments under these agreements.” 4 5. We note your response to comment 20 from our letter dated December 21, 2012 and your assertion that the current shareholders could not “effectively revoke” the power of attorney as a result of the prohibition on transferring the equity interests of Ambow Shida without AECL’s prior written consent. However, it does not appear that there would be any limitation on Messrs. Xie and Xue’s ability to take other corporate actions including transferring funds, chops or assets of Ambow Shida prior to AECL’s transfer of equity interests of Ambow Shida under the equity pledge agreements. Please explain. The Company respectfully advises the Staff that pursuant to Article 8 of the call option agreement entered into by and among AECL, Xuejun Xie and Jianguo Xue, Messrs. Xie and Xue agreed not to, and shall cause Ambow Shida not to, sell, assign, mortgage or otherwise dispose of any assets, lawful income and business revenues of Ambow Shida, or enter into any transactions that may substantially affect the Company’s assets, liabilities, operations, equity and other legitimate interests (other than those made in the ordinary course of business or have been disclosed to and approved by AECL in writing) before AECL or an entity designated by AECL in writing exercises call option to obtain all the equity interest and assets. Furthermore, the chops of Ambow Shida have been, and will continue to be, held and managed by the Company and any use of the chops requires the prior consent of the Company in accordance with Ambow’s internal policy, Ambow Regulation of Chops Management. No one, including Messrs. Xie and Xue, is authorized to use the chops without the Company’s approval. Therefore, chops of Ambow Shida may not be transferred by Messrs. Xie and Xue without the Company’s consent as a practical matter. Holding company structure, page 74 6. We note your response to comment 27 from our letter dated December 21, 2012. Please tell us why the fees payable from the VIE to Ambow Online have significantly increased since 2009 and why the VIE is not paying Ambow Online. In response to the Staff’s comment, the Company respectfully advises the Staff that in order to facilitate the plans of VIEs’ subsidiary schools for expansion and development after the Company’s IPO, the Company intentionally reserves more cash at the school level to avoid frequent cash transfers among the Group which would incur additional costs to comply with relevant PRC laws and regulations. In addition, the Company wants to further clarify that, after an ongoing effort in enhancing the cash control of the whole group, by the end of 2012, other than accounts of Applied Technology College, Kunshan Zhouzhuang Taishidian Tourism Scenic Area Development Co., Ltd and some small branches of Beijing Jinghan Yingcai Education and Technology Co., Ltd., the Company has already included all the cash accounts of all other entities in a centrally controlled cash pool through a contractual system among all the entities and China Merchant Bank, and the Company, as the holding company, thus has been granted the authority and capability to extract cash from VIEs and their subsidiaries anytime at its sole discretion. However, currently, the Company 5 mainly uses the system to monitor the daily transactions of the entities, not to actually extract cash from the VIEs or their subsidiaries. Item 6. Directors, Senior Management and Employees, page 75 E. Share Ownership, page 84 7. We note your response to comment 28 from our letter dated December 21, 2012. Please revise your disclosures to incorporate your response including your response to our comment 20. In response to the Staff’s comment, the Company will in an amendment to 2011 Form 20-F that includes the following disclosure under “Item 6.E — Share Ownership”: “We believe that under the Company’s current corporate structure, where the shareholders of the VIEs are also our shareholders and officers, the interests of the VIEs and their shareholders largely are aligned with the Company and its shareholders as a practical matter. In addition, each shareholder of the VIEs has signed a power of attorney for Ambow Online to exercise his or her voting power. If shareholders of VIEs attempt to revoke the powers of attorney, the Company will instruct AECL,