Elektrobit Group Oyj - SUBSIDIARY OF EB, ELEKTROBIT CORPORATION, ELEKTROBIT INC. AND TERRESTAR CORPORATION AND CERTAIN OF ITS PREFERRED SHAREHOLDERS ENTER INTO CONDITIONAL SETTLEMENT AGREEMENT IN THE REORGANIZATION CASE ...
August 03, 2012
SUBSIDIARY OF EB, ELEKTROBIT CORPORATION, ELEKTROBIT INC. AND TERRESTAR CORPORATION AND CERTAIN OF ITS PREFERRED SHAREHOLDERS ENTER INTO CONDITIONAL SETTLEMENT AGREEMENT IN THE REORGANIZATION CASE ...
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Free for publication on August 3, 2012 at 8.00 a.m. (CEST+1)
SUBSIDIARY OF EB, ELEKTROBIT CORPORATION, ELEKTROBIT INC. AND TERRESTAR CORPORATION AND CERTAIN OF ITS PREFERRED SHAREHOLDERS ENTER INTO CONDITIONAL SETTLEMENT AGREEMENT IN THE REORGANIZATION CASE OF TERRESTAR CORPORATION
On August 2, 2012, Elektrobit Inc., a subsidiary of Elektrobit Corporation ("EB"), and TerreStar Corporation and certain of its preferred shareholders, entered into a conditional agreement of settlement (the "Settlement") of the various disputes between them in TerreStar Corporation Chapter 11 reorganization cases. TerreStar Corporation has filed a motion seeking approval from the United States Bankruptcy Court for the terms and conditions set forth for the Settlement and authorization to TerreStar Corporation to enter into the Settlement. Additionally, TerreStar Corporation has filed a motion seeking an approval for new financing to enable TerreStar Corporation to satisfy its obligations under the proposed Settlement. According to the Settlement, if conditions to its effectiveness are fulfilled (as described below), TerreStar Corporation shall be obligated to pay to Elektrobit Inc., an immediate cash payment of USD 13.5 million (EUR 10.9 million as per exchange rate of August 2, 2012) (the "Settlement Payment") in full and final satisfaction of its claim against TerreStar Corporation and in resolution of all disputes between EB and the other parties in the TerreStar Corporation reorganization cases. The Settlement does not include the TerreStar Networks Chapter 11 cases, which remain pending, and does not include any distribution therefrom that may be available for EB.
The implications of the TerreStar Corporation and TerreStar Networks Chapter 11 cases on EB's profit, financial position and outlook can be finally determined only when the outcome of both Chapter 11 cases is known, including all costs related to collecting the receivables, and e.g. confirmed tax treatment. If approved by the Bankruptcy Court and funded by TerreStar Corporation, the Settlement Payment in the TerreStar Corporation Chapter 11 cases alone, and without any further distribution from the TerreStar Networks Chapter 11 cases, would result a positive effect of approximately USD 1.6 million (EUR 1.3 million as per exchange rate of August 2, 2012) on EB's result and a positive effect on EB's cash flow of approximately USD 13.0 million (EUR 10.5 million as per exchange rate of August 2, 2012) after estimated tax effects. If the Settlement is approved by the Bankruptcy Court and TerreStar Corporation receives the requested new financing, the Settlement Payment would be paid within two business days after the Settlement becomes effective by its terms, i.e. during the third year quarter of 2012.
The Settlement will not become effective without Bankruptcy Court approval, and EB expects that the Settlement Payment will not be made unless and until the agreed funding is actually received by TerreStar Corporation. The Court hearing is now scheduled to be held on August 23, 2012 and before the hearing other stakeholders in the TerreStar Corporation Chapter 11 cases may file their objections, if any, to the abovementioned Settlement and financing motions. At this time there is no assurance that the motions for the Settlement and new financing will be approved by the Court and that the agreed funding is received by TerreStar Corporation. In the event that these contingencies are not fulfilled, nothing contained in the Settlement motion shall be deemed to be a waiver of any claims or an admission of liability by any party thereto and, in such event, all rights and remedies of the parties shall be preserved.
The now filed Settlement motion does not include the TerreStar Networks Chapter 11 cases or any distribution therefrom that may be available for EB. Based upon information contained in the TerreStar Networks debtors' disclosure statement accompanying the their reorganization plan, the reorganized debtors' first post-confirmation status report, or otherwise available to EB, EB estimates that its pro rata distribution under the TerreStar Networks plan may be in the range of 8-10% of the face amount of its allowed claim. However, this estimate is subject to various assumptions, and therefore the amount and timing of EB's distribution on the remaining portion of its claim in the TerreStar Networks re-organization cases cannot be predicted with certainty at this time. On March 29, 2012 EB received a USD 650,890 distribution on the priority portion of its claim from TerreStar Networks. As part of the process of reconciling accounts in preparation for making distributions under a plan, Chapter 11 debtors and other estate representatives often challenge the amount or validity of some creditor claims. To date neither TerreStar Networks nor the liquidating trustee of The TerreStar Networks, Inc. Liquidating Trust (the trust having been formed in connection with confirmation of the Chapter 11 plan of TerreStar Networks) has asserted an objection to the amount or validity of EB's claims in its bankruptcy proceeding, and EB is not aware that any such objection is contemplated.
On October 19, 2010, TerreStar Networks and certain other affiliates of TerreStar Corporation and on February 16, 2011, the parent company TerreStar Corporation filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code to strengthen their financial position. EB has claimed its receivables in the amount of approximately USD 25.8 million (EUR 20.9 million as per exchange rate of August 2, 2012), in the Chapter 11 cases of both TerreStar Networks and TerreStar Corporation. In addition to the booked receivables, EB has also claimed additional costs in the amount of approximately USD 2.1 million (EUR 1.7 million as per exchange rate of August 2, 2012) and resulting mainly from the ramp down of the business operations between the parties. Thus, EB has asserted claims against each of the TerreStar entities in amounts totaling USD 27.9 million (EUR 22.6 million as per exchange rate of August 2, 2012). Due to uncertainties related to the accounts receivable, EB booked an impairment of the accounts receivable in the amount of EUR 8.3 million during the second half of 2010.
Information on TerreStar Networks' and TerreStar Corporation's reorganizations are presented in the October 20 and 25, November 20 and December 30, 2010, February 17, 2011, November 18, 2011 and June 21, 2012 stock exchange releases as well as in EB's interim reports and financial statement at www.elektrobit.com .
Oulu, August 3,2012
EB, Elektrobit Corporation
Jukka Harju
CEO
Further information:
Jukka Harju
CEO
Tel. + 358 40 344 5466
Päivi Timonen
CLO
Tel. +358 40 344 2794
Distribution:
NASDAQ OMX Helsinki
Principal media
EB, Elektrobit Corporation
EB creates advanced technology and turns it into enriching end-user experiences. EB is specialized in demanding embedded software and hardware solutions for wireless and automotive industries. The net sales for the year 2011 totaled MEUR 162.2. Elektrobit Corporation is listed on NASDAQ OMX Helsinki. www.elektrobit.com
