BEIJING, April 18,
2023 /PRNewswire/ -- Gravitas Education
Holdings, Inc. ("GEHI" or the "Company") (NYSE: GEHI) announced
today that it has entered into an agreement and plan of merger (the
"Merger Agreement") with Bright Sunlight Limited, a Cayman Islands exempted company and a direct,
wholly owned subsidiary of the Company ("Merger Sub"), Best
Assistant Education Online Limited, a Cayman Islands exempted company ("Best
Assistant") and a controlled subsidiary of NetDragon Websoft
Holdings Limited (HKEX: 0777, "NetDragon"), a Cayman Islands exempted company, and solely
for purposes of certain named sections thereof, NetDragon. It's
contemplated that Best Assistant will form a Cayman Islands exempted company limited by
shares ("eLMTree") as its wholly owned subsidiary and transfer
the education business of NetDragon outside of the PRC to eLMTree.
Pursuant to the Merger Agreement, Merger Sub will merge with and
into eLMTree with eLMTree continuing as the surviving company
and becoming a wholly owned subsidiary of the Company (the
"Merger").
The Company is valued at US$50
million by equity value (the "GEHI Equity
Value") on a fully-diluted basis (after consummation of the
Divestiture (as defined below)) assuming that the net cash of the
Company will be US$15 million at the
closing of the Merger (the "Closing"), implying an enterprise value
of GEHI at US$35 million (the
"GEHI Implied Enterprise Value"), and eLMTree is valued at
US$750 million by equity value on a
fully-diluted basis (the "eLMTree Equity Value") assuming a
normalized level of working capital at Closing. The Merger
Agreement also contemplates that the Company will change its name
to "Mynd.ai, Inc." or such other name as determined by Best
Assistant and adopt an amended and restated memorandum and articles
of association (the "GEHI A&R MAA"), in each case
immediately before the effective time of the Merger (the "Effective
Time"), following which the authorized share capital of the Company
shall only consist of ordinary shares ("GEHI Shares"). Pursuant to
the Merger Agreement, at the Effective Time (which is expected to
occur on the date of Closing), each ordinary share of eLMTree
issued and outstanding immediately prior to the Effective Time
(excluding the Dissenting Shares and the Excluded Shares, each as
defined in the Merger Agreement) will be cancelled in exchange for
the right to receive a number of validly issued, fully paid and
non-assessable GEHI Shares equal to (a) the eLMTree per share value
(which is in turn calculated by (i) the eLMTree Equity Value
divided by (ii) the number of ordinary shares of eLMTree
that are outstanding immediately prior to the Effective Time),
divided by (b) the GEHI per share value (which is in turn
calculated by (i) the GEHI Equity Value, divided by (ii) the
number of all GEHI Class A ordinary shares that are outstanding
immediately prior to the Effective Time on a fully-diluted basis)
(the aggregate number of GEHI Shares to be issued by GEHI, the
"Merger Consideration").
Concurrent with the execution of the Merger Agreement, NetDragon
WebSoft, Inc. ("ND BVI"), a company incorporated in the
British Virgin Islands and a
wholly-owned subsidiary of NetDragon, has entered into a share
purchase agreement (the "Secondary SPA") with Joy Year Limited,
Bloom Star Limited, Ascendent Rainbow (Cayman) Limited (and its
affiliates, "ACP"), Trump Creation Limited and China Growth Capital
Limited (collectively, the "Founding Shareholders"), pursuant
to which ND BVI will acquire 8,588,960 Class A ordinary shares of
the Company (representing approximately 30% of the outstanding
share capital of the Company as of the date hereof) from the
Founding Shareholders immediately prior to the Closing at an
aggregate consideration of US$15
million (the "Secondary Sale").
Concurrent with the execution of the Merger Agreement, the
Company has entered into a share purchase agreement (the
"Divestiture Agreement") with Rainbow Companion, Inc. (the
"Divestiture Purchaser"), a purchaser consortium formed by the
Founding Shareholders and their affiliates. Pursuant to Divestiture
Agreement, immediately prior to the Closing, the Company will
transfer all its education business in China to the Divestiture Purchaser (the
"Divestiture") at a consideration of US$15
million (the "Divestiture Consideration"). Upon completion
of the Divestiture, the Company will cease to operate any education
business in China.
Concurrent with the execution of the Merger Agreement, ACP, the
Company and Best Assistant have also entered into a senior
secured convertible note purchase agreement (the "Note Purchase
Agreement", together with the Divestiture Agreement, the Merger
Agreement, the Secondary SPA and the exhibits and schedules
thereto, collectively, the "Transaction Documents"), pursuant to
which, at the Closing, ACP will purchase US$65 million principal amount of secured
convertible notes issued by the Company (the "ACP CB") at the
Closing (the "ACP CB Investment", together with the Divestiture,
the Merger, the Secondary Sale and other transactions as
contemplated by the Transaction Documents, the "Transactions").
Upon consummation of the Merger, the Divestiture and the
Secondary Sale, NetDragon will become the controlling shareholder
of the Company holding approximately 72.9% of all outstanding GEHI
Shares (after a special dividend is made to the shareholders of
NetDragon by way of the distribution in specie of certain GEHI
Shares to be held by NetDragon (indirectly through ND BVI) after
the Closing but assuming the ACP CB is not converted and the share
awards are not granted under the new equity compensation plan that
the Company plans to adopt after the Closing).
The Company's board of directors (the "Board"), acting upon the
unanimous recommendation of the special committee of the Board (the
"Special Committee") consisting solely of independent and
disinterested directors, approved the Transaction Documents and the
Transactions and resolved to recommend that the Company's
shareholders vote to authorize and approve the Transaction
Documents and the Transactions when and if they are submitted for
shareholder approval. The Special Committee received a fairness
opinion from its independent financial advisor, Somerley Capital
Limited, covering that each of (a) the consideration to be received
by the Company from the Divestiture, (b) the Merger Consideration
payable by the Company for the acquisition of eLMTree, and (c) the
GEHI Implied Enterprise Value, is, as of such date and based upon
and subject to the assumptions, limitations and qualifications set
forth in the written fairness opinion, from a financial point of
view, fair to GEHI.
The Company and Netdragon anticipate that the Transactions will
be completed by the end of the third quarter of 2023, subject to
the satisfaction of closing conditions set forth in the Transaction
Documents, including, among other things, receipt of NetDragon's
shareholder approval, the Company's shareholder approval and
certain regulatory approvals.
Skadden, Arps, Slate, Meagher & Flom LLP is serving as U.S.
legal counsel to the Special Committee. Somerley Capital Limited is
serving as independent financial advisor to the Special
Committee
Cleary Gottlieb Steen &
Hamilton LLP is serving as U.S. legal counsel to NetDragon's
controlled subsidiary, Best Assistant, and Kirkland and Ellis is
serving as Hong Kong legal counsel
to NetDragon.
eLMTree Overview
eLMTree is expected to comprise the non-PRC education business
operated by NetDragon, including through the following subsidiaries
(i) Promethean World Limited ("Promethean"); (ii) Edmodo, LLC.
("Edmodo"); (iii) Elernity (Thailand) Co., Ltd. ("Elernity Thailand"); and
(vi) Sky Knight Investments Limited ("Sky
Knight").
Promethean is principally engaged in developing and
manufacturing of interactive displays for education and interactive
boards for schools and local governments in the US and other
countries, including, inter alia, United
Kingdom, Germany,
Italy and France.
Edmodo is principally engaged in developing and operating an
online education platform under the brands Edmodo and Edmodo World.
Prior to the termination of the free-to-use Edmodo.com platform,
Edmodo was used in many countries and offered a communication,
collaboration, and coaching platform to K-12 teachers, students and
parents. After the termination of the free Edmodo.com platform,
Edmodo continues to operate a paid platform under the Edmodo World
brand, which is only available in Hong
Kong and Thailand as of the
date hereof (the "Edmodo Paid Platform"). The Edmodo Paid Platform
is geared toward facilitating classes, assignments, calendars,
discussions and more. Specifically, teachers, students and parents
can interact through the Edmodo Paid Platform such as content
sharing, distribution of quizzes and assignments, and
communication.
Elernity Thailand is a company established in Thailand principally engaged in the sale of
Promethean's interactive displays and the Edmodo Paid
Platform in Thailand.
Sky Knight is an indirect
wholly-owned subsidiary of Best Assistant, and holds 57% of
Promethean Middle East and Africa Limited ("Promethean Africa"), a joint venture established in the
Cayman Islands in April 2021. The remaining 43% interests of
Promethean Africa are held by an independent third party. The
purpose of establishing Promethean Africa is for the sale of
products and services of Promethean and Edmodo, among others, in
Egypt through the Ministry of
Education of Egypt.
Safe Harbor Statement
This announcement contains forward-looking statements.
These statements are made under the "safe harbor" provisions of the
U.S. Private Securities Litigation Reform Act of 1995. These
forward-looking statements can be identified by terminology such as
"will," "expects," "anticipates," "future," "intends," "plans,"
"believes," "estimates," "confident" and similar statements.
Statements that are not historical facts, including statements
about the Company's beliefs and expectations, are forward-looking
statements. Forward-looking statements involve inherent risks
and uncertainties. A number of factors could cause actual
results to differ materially from those contained in any
forward-looking statement, including but not limited to the
following: the Company's brand recognition and market reputation;
student enrollment in the Company's teaching facilities; the
Company's growth strategies; its future business development,
results of operations and financial condition; trends and
competition in China's early childhood education market;
changes in its revenues and certain cost or expense items; the
expected growth of the Chinese early childhood education market;
Chinese governmental policies relating to the Company's industry
and general economic conditions in China. Further
information regarding these and other risks is included in the
Company's filings with the SEC. All information provided in
this press release and in the attachments is as of the date of this
press release, and the Company undertakes no obligation to update
any forward-looking statement, except as required under applicable
law.
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SOURCE Gravitas Education Holdings Inc.
