Elektrobit Group Oyj - TERRESTAR CORPORATION AND CERTAIN OF ITS PREFERRED SHAREHOLDERS FILED AN OBJECTION TO ELEKTROBIT CORPORATION'S CLAIMS IN THE REORGANISATION CASE OF TERRESTAR CORPORATION
November 18, 2011
TERRESTAR CORPORATION AND CERTAIN OF ITS PREFERRED SHAREHOLDERS FILED AN OBJECTION TO ELEKTROBIT CORPORATION'S CLAIMS IN THE REORGANISATION CASE OF TERRESTAR CORPORATION
STOCK EXCHANGE RELEASE
Free for publication on November 18, 2011, at 8.30 a.m. (CET+1)
TERRESTAR CORPORATION AND CERTAIN OF ITS PREFERRED SHAREHOLDERS FILED AN OBJECTION TO ELEKTROBIT CORPORATION'S CLAIMS IN THE REORGANISATION CASE OF TERRESTAR CORPORATION
EB (Elektrobit Corporation) has been informed that TerreStar Corporation and certain of its preferred shareholders, yesterday filed objections to claims asserted by EB's subsidiary, Elektrobit Inc, in the Chapter 11 reorganization case of TerreStar Corporation. EB's claims are partly based on a guarantee issued by TerreStar Corporation on EB's accounts receivable from TerreStar Corporation's subsidiary, TerreStar Networks Inc, and partly based on TerreStar Corporation's direct contractual obligations towards EB. The objection includes a request to the United States Bankruptcy Court to disallow the portion of claims based on the guarantee and reduce the portion of claim based on the TerreStar Corporation's direct contractual obligations towards EB. Specifically, the objectors seek to disallow a portion of EB's claims against TerreStar Corporation totaling approximately USD 25.5 million (including approximately USD 24.8 million in obligations that were guaranteed by TerreStar Corporation and USD 650,890 for goods supplied to and payable by TerreStar Networks in due course on a priority basis in its Chapter 11 liquidation case), as well as claims by EB for payment of attorneys' fees, costs and interest in unliquidated amounts.
Under the United States Bankruptcy Code, with limited exceptions a creditor's filed claim is presumed to be valid in the amount filed unless another party objects. The filing of an objection commences a litigation process in which the creditor is generally required to prove to the Bankruptcy Court the validity and amount of its claim. Thus, due to the objection filed by TerreStar Corporation and the joint objection filed by the preferred shareholder group, EB's claims will be subject to litigation in the United States Bankruptcy Court. EB expects to vigorously defend its claims against the objections, but speculation regarding the likely outcome of the dispute is premature at this time.
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. Generally in a Chapter 11 case, any distribution of cash or other assets by a debtor to satisfy pre-bankruptcy claims of its creditors must be made under a Chapter 11 plan of reorganization or liquidation. As part of the process of reconciling accounts in preparation for making distributions under a plan, often Chapter 11 debtors (and occasionally other parties in interest) challenge the amount or validity of some creditor claims. More particularly, in cases when a proposed Chapter 11 plan is disputed, it is not uncommon for the debtor or other plan proponents to seek to challenge the amount or validity of the claim of a creditor who has objected to the plan. Here, EB has lodged objections to the proposed plan and related creditor disclosures submitted by TerreStar Corporation to the Bankruptcy Court, and the parties objecting to EB's claim have scheduled the hearing on their objections on January 10, 2012, the date scheduled for a hearing on TerreStar Corporation's proposed creditor disclosures.
On November 17, 2011, EB's receivables from TerreStar amounted to approximately USD 25.8 million (EUR 19.2 million as per exchange rate of November 17, 2011), which it has claimed 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 1.6 million as per exchange rate of November 17, 2011) (at least) 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 20.7 million as per exchange rate of November 17, 2011). 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.
The objection now filed does not change the current assumption that there will be no further bookings of impairments of EB's accounts receivable from TerreStar Networks and TerreStar Corporation and therefore does not affect EB's profit outlook for the second half of 2011. It is possible that, based on later information related to Chapter 11 cases of TerreStar Networks and TerreStar Corporation and litigation on EB's claim, the above-mentioned outlook may need to be reconsidered. Due to the uncertainties related to the outcome of reorganization processes of TerreStar Networks and TerreStar Corporation, the credit risk may still grow during the second half of 2011. Should the accounts receivable not be collected at all, either from TerreStar Networks or TerreStar Corporation, an impairment loss and costs related to the collection process would additionally lower EB's operating result on a non-recurring basis by approximately EUR 10 million, at maximum (USD-nominated items as per exchange rate of November 17, 2011). However, this would not have any significant negative effect on EB's cash flow.
Information on TerreStar Networks' and TerreStar Corporation's reorganizations and related risks and uncertainties are presented in the October 20 and 25, November 20, December 30, 2010, and February 17, 2011, stock exchange releases as well as in EB's interim reports and financial statement at www.elektrobit.com .
Oulu, November 18, 2011
EB, Elektrobit Corporation
Jukka Harju
CEO
Further Information:
Jukka Harju
CEO
Tel. +358 40 344 5466
Päivi Timonen
CLO
Tel. +358 40 344 2794
For further information on TerreStar Corporation and TerreStar Networks, please see www.terrestar.com , www.TerreStarInfo.com and www.terrestarcorprestructuring.com .
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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 2010 totaled MEUR 161.8. Elektrobit Corporation is listed on NASDAQ OMX Helsinki. www.elektrobit.com
