On August 29, 2014, National Electric Vehicle Sweden AB, reg. no. 556889-7556, (NEVS) filed an application regarding company reorganisation to the District Court of Vanersborg. The application was granted on the same day, whereby the undersigned was appointed administrator. At a creditors’ meeting on October 8, 2014, the District Court decided that the reorganisation would continue, though at the longest until November 29, 2014.
NEVS has on this day submitted an application to the District Court, requesting that the company reorganisation shall continue for an additional time period of three months in accordance with Chapter 4 Section 8, second paragraph, first sentence of the Company Reorganisation Act (1996:764). As administrator for the reorganisation of NEVS, I hereby recommend the District Court to approve NEVS’ request. As presented below, the conditions are good to achieve a successful reorganisation of NEVS within the additional time period and thus there are special causes to grant the prolongation in accordance with NEVS’ request.
Background to the request for prolongation
The background to the request for prolongation is the following.
As described in the reorganisation plan that was presented to the District Court and NEVS’ creditors at the creditors’ meeting on October 8, 2014, NEVS’ payment difficulties arose as a result of that the shareholder Qingbo Investment Co Ltd (Qingbo) failed to complete a promised financial commitment of SEK 1,150,000,000 regarding the first phase of NEVS’ business plan. The business plan, designed to transform NEVS into a global premium brand, has constantly provided that it exists a strong owner with a willingness to finance NEVS’ manufacturing and development costs until the Phoenix platform is fully developed and the car production has reached a full scale capacity. When the loan from the shareholder Qingbo failed, NEVS intensified the negotiations with the two major Asian OEM manufacturers during the spring 2014, which is mentioned in the reorganisation plan. A deal including a direct investment in NEVS, either alone or combined in a Joint Venture, would enable a completion of NEVS’ business plan regarding its own production and ensure the continued operation of the company’s business in Trollhattan.
In the reorganisation plan, the following measures have been identified as prerequisites for a successful reorganisation of NEVS.
(i) Implementation of:
a transaction where a major OEM player acquires a part of the shares in NEVS and undertakes to continuously inject necessary funds to complete the business plan, either alone or combined in a Joint Venture with another OEM player regarding research and development, alternatively
Restructuring to contract manufacturing through NEVS Industrial Services.
(ii) Moratorium on payment of all claims without any right of priority from August 29, 2014, during at least a period of three months.
(iii) Reduction in the number of employees, at least for a transitional period.
(iv) Governmental wage guarantee compensation to NEVS’ employees, at least for a transitional period.
During the reorganisation period, NEVS has taken several measures in accordance with the reorganisation plan to make the reorganisation successful. In particular the following should be noted.
Ongoing negotiations – OEM manufacturer as a new majority owner in NEVS
The negotiations with the two major OEM manufacturers, both located in Asia, have continued during the reorganisation period. In the past weeks the negotiations have intensified considerably, especially with the OEM player which intends to become the majority owner in NEVS.
The negotiations with the above mentioned OEM player has on November 30, 2014, resulted in a signed letter of intent between the parties, a so called Term Sheet, in which the OEM player has agreed to become the majority owner in NEVS. The intention is to issue new shares in NEVS, whereby the OEM player shall subscribe to the issued shares to the extent that the OEM player achieves a majority ownership in NEVS. The name of the OEM player cannot be disclosed due to the present non-disclosure agreement between the parties. However, the creditors’ committee has been given some information regarding the negotiations with the OEM player.
The Term Sheet stipulates the form for further negotiations, commercial terms for an expected final deal, as well as the funding to be paid by the OEM player, both through a direct investment in NEVS and during the continuation of the negotiation phase until the deal is closed. The OEM player will commence an additional due diligence of NEVS and will negotiate with SAAB AB regarding the trademark license. These processes are scheduled to proceed during December, after which the Board of Directors of the OEM player is going to make a final decision whether the deal will be completed or not. If a positive decision is given by the Board of Directors, the OEM player has agreed to provide bridge loans to NEVS with EUR
5,000,000 per month to cover NEVS’ running costs for a continued reorganisation until the
negotiations have been concluded. According to the established timeframe, it is estimated that the agreements should be finalised during February 2015 at the latest.
Development cooperation with one of the OEM players
In addition to the transaction regarding direct investment, NEVS has also continued its negotiations with the other OEM player regarding the development cooperation through a Joint Venture, as previously described in the reorganisation plan. Until a Joint Venture agreement has been finalised the parties are preparing a contract development project to NEVS’ present TDC, which shall be executed against advance payments. The intention is that the assignment later shall be transferred to a future Joint Venture. Through an initial development assignment in NEVS’ existing TDC, a cooperation with the OEM player can be commenced in the near future. The progress of the negotiations is therefore assessed as positive for the carrying through of the reorganisation.
NEVS Industrial Services
Beside the above mentioned negotiations, the ongoing reorganisation has included extensive work with NEVS Industrial Services, which is described as Plan B in the reorganisation plan. Until the reorganisation started, NEVS’ business was exclusively focused on developing and manufacturing electric vehicles and conventional cars in-house. A restructuring to contract manufacturing and sales of development services requires several changes in NEVS’ current organisation and business. Intensive work has therefore been performed in order to develop a competitive and realistic business plan and organisation structure for NEVS Industrial Services. The undersigned administrator has, in joint consultation with NEVS’ management, engaged IP experts as well as financial advisors to ensure that the work is conducted with the best competence, both in terms of working with the business plans as well as ongoing negotiations with potential customers and investors.
Marketing activities of NEVS Industrial Services has been initiated during the past weeks. Sales material has been prepared and NEVS has, inter alia, conducted dialogues with several potential customers in the form of OEM companies. NEVS has visited trade fairs and has been presenting the services that NEVS can provide. The promotion activities have resulted in dialogues regarding specific assignments. Since the discussed projects are both very comprehensive and cost demanding, the work with the tenders are time consuming. Final agreements of any assignments of significant size have not yet been reached. However, it can be assessed that the potential for reaching such agreements in the upcoming three month period is good, provided that NEVS’ future ownership becomes clearer.
NEVS Industrial Services should not primarily be seen as an alternative solution to continued in-house car manufacturing, but rather as a complement to such manufacturing, since one of the OEM players has agreed to fund development and star t-up of NEVS’ in-house car manufacturing in Trollhattan, according to the Term Sheet. However, through NEVS Industrial Services, NEVS’ assets will immediately be used within projects, which will generate operating revenues until NEVS’ in-house car manufacturing can be resumed. The OEM player is also positive to a scenario where NEVS Industrial Service is a complement to the business plan regarding in-house car manufacturing.
Funding
NEVS current owners have secured funding of EUR 5,000,000 to cover NEVS’ operating costs until the bridge loan is granted. In the light of that, the funding of a continuing reorganisation period is assessed to be secured until at least the beginning of January 2015. The securement of prepayment for services and bridge loans are thereafter considered to be good.
Salaries to employees
In addition to the above mentioned measures taken, it shall be noted that NEVS has exercised the governmental wage guarantee regarding wages for August and September 1-29, 2014. NEVS itself has been able to pay wages and social security fees to the company’s remaining employees for the period after September 29, 2014. During the reorganisation period, NEVS has also decided to dismiss 155 employees. The dismissals were implemented in order to minimize NEVS’ running costs until a new, financially strong, organisational structure has been ensured. Dismissals during the reorganisation period has also led to that redundancy payments have been compensated by the governmental wage guarantee up to the ceiling amount for each employee.
Composition
It shall be noted that the expected transaction of direct investment likely requires that a composition is implemented regarding NEVS’ creditors. This is currently being discussed with the OEM player and has also been announced to the creditors by an information letter sent by the administrator on November 17, 2014. According to the current prognosis it is not unlikely that a composition proposal is designed in such manner that the composition is combined with a threshold which implies that creditors with claims below a certain amount are paid in full, and that creditors with claims in excess of such amount receives payment of a certain percentage on the excessed amount. A concrete composition proposal currently does not exist but will be prepared immediately after that the prolongation of the reorganisation is decided by the District Court. According to the current schedule, a composition proposal can be prepared and sent to the creditors in December 2014.
Summary
In summary, there exist a signed letter of intent between NEVS and a major OEM player for an upcoming direct investment in NEVS, an investment that would ensure the completion of NEVS’ business plan and a continued in-house car manufacturing in Trollhattan. The investment is expected to be implemented no later than February 2015 and the OEM player has in writing agreed to provide bridge loans for financing the ongoing reorganisation of NEVS as soon as the transaction has been approved by the Board of Directors of the OEM player. Such decision can be expected in the end of December 2014. As a complement to the transaction regarding direct investment, there are ongoing discussions with the second OEM player. These discussions focus on an extensive development project which will be executed against advance payments. Finally, NEVS Industrial Services has been developed which can generate operating revenues to the running business. The undersigned administrator’s opinion is that the aforementioned conditions entail good opportunities to implement a successful reorganisation of NEVS’ business. However, NEVS is in need of additional time in order to close the deal of direct investment in accordance with the written letter of intent.
In conclusion, it shall be mentioned that the creditors’ committee, which has been appointed by the District Court, supports NEVS’ request for a prolonged reorganisation time.
