8-K: Kun Peng International Reaffirms China Operations Control Through New VIE Agreements

Kun Peng International Ltd. has successfully re-established its Variable Interest Entity (VIE) structure in China, ensuring continued control and economic benefits from King Eagle (Tianjin) Technology Co., Ltd. following an equity transfer among its shareholders.

Summary

• Kun Peng International Ltd.'s wholly foreign-owned enterprise (WFOE), King Eagle (China) Co., Ltd. (King Eagle China), and its Variable Interest Entity (VIE), King Eagle (Tianjin) Technology Co., Ltd. (King Eagle Tianjin), along with King Eagle Tianjin's shareholders, terminated their original VIE agreements on June 10, 2025.
• The termination was prompted by an equity transfer where Li Chengyuan, an original shareholder, transferred his 22.74% equity interest in King Eagle Tianjin to Fan Zhandong and Zhang Yuanyuan, leading to a change in the shareholder structure.
• Simultaneously, new VIE agreements were executed on June 10, 2025, comprising a Business Operation Agreement, an Agency Agreement, an Equity Disposal Agreement, and an Equity Pledge Agreement.
• The previously amended Exclusive Consultation and Service Agreement, effective March 1, 2024, remains in force.
• These new agreements collectively ensure that King Eagle China continues to control and receive the economic benefits from King Eagle Tianjin's business operations, maintaining the established VIE structure.
• The current equity holdings in King Eagle Tianjin are: Liu Cuilian (6%), Wang Zhizhong (6%), Zhang Jinjing (6%), Hu Wanfeng (6%), Teng Hui (5%), Zhang Yuanyuan (32.74%), Wang Xiujin (10.52%), and Fan Zhandong (27.74%), totaling 100%.
• The Equity Disposal Agreement grants King Eagle China an exclusive, irrevocable option to purchase all or part of King Eagle Tianjin's equity or assets at the lowest price permitted by Chinese law, with a term of ten years, extendable at King Eagle China's request.
• Shareholders of King Eagle Tianjin are obligated to immediately pay all dividends, bonuses, or remaining property obtained from King Eagle Tianjin to King Eagle China, after paying required taxes.
• The Business Operation Agreement mandates King Eagle Tianjin and its shareholders to accept and implement King Eagle China's suggestions on operations, personnel, and financial management, and to elect King Eagle China's designated candidates as directors and senior management.
• Shareholders have irrevocably authorized King Eagle China's designee to exercise all their shareholder voting rights in King Eagle Tianjin.
• The Equity Pledge Agreement secures King Eagle China's rights and interests under all related agreements by pledging 100% of the shareholders' equity in King Eagle Tianjin, covering all expenses, liquidated damages, and compensation.
• All agreements are governed by the laws of the People's Republic of China, with disputes to be resolved through friendly consultation or arbitration by the China International Economic and Trade Arbitration Commission in Beijing.

Sentiment

Score: 7

Explanation: The document indicates a successful re-establishment of critical control mechanisms over a key operating entity in China, which is positive for operational stability and continuity. While VIE structures inherently carry risks, the company has proactively managed a shareholder change to maintain its strategic position.

Positives

• Successfully re-established the Variable Interest Entity (VIE) structure, ensuring continuity of control and economic benefits for Kun Peng International Ltd. over its key Chinese operating entity, King Eagle (Tianjin) Technology Co., Ltd.
• The new agreements provide a clear legal framework for King Eagle China to manage and direct King Eagle Tianjin's operations, including personnel appointments and financial management.
• The Equity Disposal Agreement grants King Eagle China an exclusive option to acquire King Eagle Tianjin's equity or assets, providing a potential path to direct ownership in the future, subject to Chinese law.
• The Equity Pledge Agreement provides robust security for King Eagle China's interests, ensuring the performance of obligations by King Eagle Tianjin and its shareholders.

Negatives

• The continued reliance on a Variable Interest Entity (VIE) structure introduces inherent regulatory and legal risks associated with such arrangements in China, which are subject to evolving government policies.
• The complexity of the VIE agreements, involving multiple parties and intricate contractual relationships, could lead to potential disputes or enforcement challenges.
• Shareholders of King Eagle Tianjin effectively cede significant control and economic rights over their equity and any distributions to King Eagle China, which might create misalignment of interests over time.

Risks

• Changes in the laws and regulations of the People's Republic of China could impact the legality, validity, or enforceability of the VIE agreements, potentially disrupting King Eagle China's control over King Eagle Tianjin.
• Breach of contract by King Eagle Tianjin or its shareholders could lead to legal proceedings and potential losses for King Eagle China, despite the security provided by the equity pledge.
• The enforceability of contractual control mechanisms, such as the irrevocable power of attorney and the obligation to transfer dividends, may be challenged under future legal interpretations or regulatory actions in China.
• Any litigation, arbitration, or administrative proceedings related to the equity or assets of King Eagle Tianjin, or the parties involved, could substantially affect the performance of the agreements.
• The financial stability of King Eagle Tianjin or its shareholders could deteriorate, affecting their ability to fulfill obligations under the agreements, including the payment of service fees or transfer of economic benefits.

Future Outlook

The new VIE agreements are established for a term of ten years, with provisions for extension at King Eagle China's request, indicating a long-term strategic intent to maintain the current operational control and economic benefit structure. The company acknowledges that forward-looking statements are subject to significant uncertainties and contingencies beyond its control.

Management Comments

• Zhuang Richun, Chief Executive Officer of Kun Peng International Ltd., signed the Form 8-K.
• Zhang Jianqing is the authorized representative for King Eagle (China) Co., Ltd. in the new agreements.
• Zhuang Richun is the authorized representative for King Eagle (Tianjin) Technology Co., Ltd. in the new agreements.

Industry Context

This filing reflects the common practice of using Variable Interest Entity (VIE) structures by foreign-invested enterprises to operate in sectors in China where direct foreign ownership is restricted. The re-establishment of these agreements after an internal equity transfer demonstrates the ongoing necessity and complexity of maintaining such structures to ensure operational control and financial consolidation in the Chinese market. It aligns with the broader trend of companies adapting their governance to comply with evolving regulatory landscapes while securing their business interests.

Management Changes

Corporate Governance

Legal Proceedings

• The agreements state that there are no ongoing, pending, or potential litigation, arbitration, or administrative proceedings related to the equity or assets of King Eagle Tianjin, or in connection with King Eagle Tianjin, except as disclosed.
• Any disputes arising from the agreements will be resolved through friendly consultation or arbitration by the China International Economic and Trade Arbitration Commission (Beijing).

Related Party Transactions

• The entire Variable Interest Entity (VIE) structure, including the Exclusive Consultation and Service Agreement, Business Operation Agreement, Agency Agreement, Equity Disposal Agreement, and Equity Pledge Agreement, constitutes a series of related-party transactions designed to allow King Eagle (China) Co., Ltd. to control and receive economic benefits from King Eagle (Tianjin) Technology Co., Ltd. without direct equity ownership.
• The agreements detail the flow of economic benefits from King Eagle Tianjin to King Eagle China, including the immediate payment of dividends, bonuses, or other income from King Eagle Tianjin shareholders to King Eagle China.

Stakeholder Impact

• Shareholders of Kun Peng International Ltd. benefit from the continued control over King Eagle Tianjin's operations and the flow of economic benefits, which is crucial for the company's overall financial performance and strategic objectives.
• The individual shareholders of King Eagle Tianjin (Party B/C) have their equity pledged and irrevocably delegate their voting rights and economic benefits to King Eagle China, significantly limiting their control and direct financial upside from their equity holdings.
• Employees, customers, and suppliers of King Eagle Tianjin are likely to experience continuity in operations and management, as the re-establishment of the VIE structure aims to maintain the existing business relationship and control.

Next Steps

• Continued performance and adherence to the terms of the new Business Operation Agreement, Agency Agreement, Equity Disposal Agreement, and Equity Pledge Agreement.
• King Eagle China may request extensions of the agreements' terms before their expiration.
• Shareholders of King Eagle Tianjin are expected to fulfill their obligations, including transferring dividends and complying with management directives from King Eagle China.

Key Dates

Recommendation

Keywords

VIE structure, China, corporate governance, equity transfer, SEC filing, variable interest entity, control agreement, King Eagle, foreign-invested enterprise, equity pledge, business operations