Subsidiary of Elektrobit Corporation, Elektrobit Inc. and the TerreStar Networks Inc. liquidating trustee enter into conditional settlement agreement in the liquidation case
ET | Source:Bittium Oyj
Stock exchange release
Free for publication on July 11, 2014 at 8 p.m. (CEST+1)
Subsidiary of Elektrobit Corporation, Elektrobit Inc. and the TerreStar Networks
Inc. liquidating trustee enter into conditional settlement agreement in the
Elektrobit Inc. (EB), a subsidiary of Elektrobit Corporation, has entered into a
conditional agreement of settlement (the "Settlement") with the liquidating
trustee of The Liquidating Trust (the "Trust") of TerreStar Networks Inc.
("TSN"), the Trust formed in connection with TSN's Court-approved Chapter 11
liquidation plan (the "Plan"). On July 10, 2014, the trustee filed a motion with
the United States Bankruptcy Court seeking approval of the Settlement. According
to the Settlement, if the conditions to its effectiveness are fulfilled (as
described below), the Trust shall be obligated to pay to EB, an immediate cash
payment of USD 1,075,000 (EUR 0.8 million as per exchange rate of July
10, 2014) (the "Settlement Payment") in full and final satisfaction of its
claims against TSN and in resolution of all disputes between EB and the
bankruptcy estate of TSN and certain of its subsidiaries and affiliates.
If the Settlement is approved by the Bankruptcy Court and becomes effective by
its terms, the Settlement Payment would be paid within ten days after the
Settlement becomes effective, i.e. during the third year quarter of 2014. The
Settlement Payment would result a non-recurring positive effect of approximately
EUR 0.8 million as on Elektrobit Corporation's operating result and a positive
effect on Elektrobit Corporation's cash flow of approximately EUR 0.8 million on
the third quarter 2014.
The Settlement will not become effective without Court approval by an order that
has become final and unappealable. The Court hearing is now scheduled to be held
on August 11, 2014 and before the hearing other stakeholders in the TSN Chapter
11 cases may file objections, if any, to the Settlement. At this time there is
no assurance that these contingencies will be fulfilled.
EB asserted claims for its accounts receivable in the amount of approximately
USD 25.8 million (EUR 19.0 million as per exchange rate of July 10, 2014) in the
Chapter 11 cases of its customers TSN and its parent company, TerreStar
Corporation ("TSC"), filed in 2010 and 2011. In addition to the booked
receivables, EB asserted claims for additional costs in the amount of
approximately USD 2.1 million (EUR 1.6 million as per exchange rate of July
10, 2014) resulting mainly from the ramp down of the business operations between
the parties. Thus, EB asserted claims against each of the TerreStar entities in
amounts totaling USD 27.9 million (EUR 20.5 million as per exchange rate of July
10, 2014). Due to uncertainties related to the receivables, Elektrobit
Corporation booked an impairment of the accounts receivable in the amount of EUR
8.3 million during the second half of 2010.
The Settlement follows a settlement previously entered into between EB and TSC
and certain of its preferred shareholders in TSC's Chapter 11 reorganization
case. Pursuant to that settlement, on August 28, 2012 TSC made a cash payment to
Elektrobit Inc. of USD 13.5 million in full and final satisfaction of EB's claim
against that entity and the parties exchanged mutual releases. That settlement
did not include TSN and did not include any distribution from the TSN Chapter
11 cases. On October 24, 2012, the Bankruptcy Court entered an order approving a
plan of reorganization for TSC and a subsidiary of TSC (but not including TSN)
that preserved EB's rights with respect to EB's claim against TSN.
According to the terms of the Settlement, EB's remaining claims against TSN are
fixed and allowed as a general unsecured non-priority claim in the amount of USD
19,551,147.65 (EUR 14.4 million as per exchange rate of July 10, 2014) (the
"Allowed Non-priority Claim") and the Trust will pay to EB in full and final
satisfaction of the Allowed Non-priority Claim a distribution equal to 5.4984%
of the Allowed Non-priority Claim, which the parties agree equals the amount of
the USD 1,075,000 Settlement Payment. This amount supplements a USD 650,890
distribution received by EB under the Plan in March, 2012, on that portion of
its claim entitled to payment priority under U.S. bankruptcy law. The Settlement
also provides for an exchange of comprehensive mutual releases. The releases
resolve, e.g., an informal objection by the trustee to certain amounts claimed
by EB and an informal demand by the trustee for return by EB of certain payments
received by EB within 90 days prior to TSN's bankruptcy filing.
The full implications of the TSN and TSC Chapter 11 cases on EB's profit,
financial position and outlook can be finally determined only when EB has
accounted for all costs related to collecting the receivables and the tax
treatment of its receivables is confirmed. As more fully discussed in EB's
interim reports and financial statement at www.elektrobit.com, EB has appealed a
ruling by the U.S. Internal Revenue Service ("IRS") disallowing a deduction
taken on Elektrobit Corporation's subsidiary's, Elektrobit Inc.'s 2010 U.S.
federal income tax return for the impairment of the receivables from the
TerreStar companies. The appeal is presently pending before the IRS Office of
Oulu, July 11, 2014
Tel. +358 40 344 5466
Chief Legal Officer
Tel. +358 40 344 2794
NASDAQ OMX Helsinki
Elektrobit Corporation (EB)
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 in 2013 totaled EUR 199.3
million and operating profit was EUR 8.1 million. Elektrobit Corporation is
listed on NASDAQ OMX Helsinki. www.elektrobit.com
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