UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

For the month of: November 2021

 

Commission File Number: 001-38544

 

NAKED BRAND GROUP LIMITED

(Translation of registrant’s name into English)

 

Level 61, MLC Centre, 25 Martin Place, Sydney, NSW 2000, Australia

(Address of Principal Executive Offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

  

 

 

 

Exhibits

 

Exhibit No.   Description
     
99.1   Notice of Extraordinary General Meeting.
     
99.2   Notice of Availability of Proxy Materials.
     
99.3   Form of Proxy Card.

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated:  November 24, 2021      
         
      NAKED BRAND GROUP LIMITED
         
      By: /s/ Justin Davis-Rice
      Name: Justin Davis-Rice
      Title: Executive Chairman

 

 

 

 

 

 

Exhibit 99.1

 

 

Naked Brand Group Limited

(ACN 619 054 938)

 

 

 

Extraordinary General Meeting

 

Notice of Meeting and Explanatory Memorandum

 

 

10:00am (AEDT), Tuesday, 21 December 2021

6:00pm (EST), Monday, 20 December 2021

BDO Sydney, Level 11, 1 Margaret Street, Sydney NSW 2000, Australia

 

Independent Expert’s Report: Shareholders should carefully consider the Independent Expert’s Report, which is attached to this Notice of Meeting as Annexure A. The Independent Expert has concluded that the Proposed Transaction, as set out in the Explanatory Memorandum, is not fair but reasonable to Shareholders in the absence of a superior proposal, for the reasons set out in the Independent Expert’s Report.

 

Important Notes: This document, which includes the Notice of Meeting, Explanatory Memorandum and Independent Expert’s Report, is important and should be read in its entirety.

 

This Notice of Meeting does not take into account the individual investment objectives, financial situation or particular needs of any person. Shareholders should seek professional advice from a licensed financial adviser, accountant, stockbroker, legal adviser or other professional adviser before deciding whether or not to approve the Resolutions set out in this Notice.

 

 

 

 

2 EXECUTIVE CHAIRMAN’S LETTER

 

Executive Chairman’s Letter

 

Dear Shareholder

 

On behalf of the Board, I am pleased to invite you to attend an Extraordinary General Meeting on Tuesday, 21 December 2021 at 10:00am (Australian Eastern Daylight Time) / Monday, 20 December 2021 at 6:00pm (Eastern Standard Time) (Meeting), to consider and vote on resolutions in relation to approving the proposed acquisition of the Cenntro electric commercial vehicles design and manufacturing business (ECV Business), as announced on 8 November 2021.

 

On 5 November 2021, Naked Brand Group Limited (Company) entered into a definitive stock purchase agreement (Stock Purchase Agreement) with Cenntro Automotive Group Limited (CAG), under which it is proposed that the Company will acquire certain wholly owned subsidiaries of CAG which conduct the ECV Business, in exchange for approximately 67.9% of the fully paid ordinary shares in the Company post-Closing (Shares) (on a fully diluted basis, as determined in accordance with the Stock Purchase Agreement) (Proposed Transaction). These Shares will then be distributed by CAG to its shareholders promptly following Closing. In addition, each CAG employee stock option will be converted into an option to purchase an equivalent number of Shares at an equivalent option exercise price. The Proposed Transaction is conditional on the Company and CAG obtaining all necessary regulatory and shareholder approvals.

 

The Non-Executive Directors have carefully considered the advantages, disadvantages and risks associated with the Proposed Transaction and believe that the Proposed Transaction presents Shareholders with a compelling opportunity to acquire a position in an industry leader with strong growth prospects and disruptive technology.

 

The Independent Expert appointed to assess the Proposed Transaction considers that the Proposed Transaction is not fair but reasonable to Shareholders in the absence of a superior proposal. Further details regarding the Proposed Transaction (including the Independent Expert’s Report) and the Resolutions are set out in the Notice of Meeting and Explanatory Memorandum which you are strongly encouraged to read in its entirety.

 

The Non-Executive Directors unanimously believe that the Proposed Transaction is in the best interests of Shareholders. Accordingly:

 

each Non-Executive Director recommends that Shareholders vote in favour of the Transaction Resolutions; and
   
each Non-Executive Director confirms that they intend to vote any Shares that they own in favour of the Transaction Resolutions.

 

The Board strongly encourages you to submit a proxy vote online ahead of the Meeting. Proxy votes can be lodged at www.cstproxyvote.com.

 

On behalf of the Board I would like to thank you for your continued support.

 

Yours sincerely,

Justin Davis-Rice
Executive Chairman

 

 

 

 

3 KEY INFORMATION

 

Key Information in respect of the Proposed Transaction

 

Question Answer Reference
Proposed Transaction
What is the Proposed Transaction?

The Company proposes to acquire the electric commercial vehicles design and manufacturing business (ECV Business) conducted by certain subsidiaries of Cenntro Automotive Group Limited (CAG).

On 5 November 2021, the Company entered into a definitive stock purchase agreement (Stock Purchase Agreement) providing for the Company to complete a combination with Cenntro Automotive Group Limited, a Hong Kong company (CAG HK), Cenntro Automotive Corporation, a Delaware corporation (CAC), and Cenntro Electric Group, Inc., a Delaware corporation (CEG and, collectively with CAG HK and CAC, the CAG Subs), by acquiring all of their issued and outstanding shares (Cenntro Shares), (Proposed Transaction).

In exchange, CAG will receive the number of fully paid ordinary shares in the Company (Shares) equal to seven-thirds (7/3) times (i) the number of fully diluted Shares outstanding immediately prior to consummation of the Proposed Transaction (Closing), less (ii) each CAG employee stock option outstanding immediately prior to the Closing that will be converted into an option to purchase a number of Shares equal to the number of CAG shares for which such stock option was exercisable immediately prior to the Closing multiplied by the Exchange Ratio (as defined below) at an option exercise price equal to the exercise price per share of such stock option immediately prior to the Closing divided by the Exchange Ratio (Converted CAG Option), all as determined in accordance with the Stock Purchase Agreement (Acquisition Shares). The Acquisition Shares will then be distributed by CAG to its shareholders promptly following Closing.

Section 1.1

 

 

 
 

 

4 KEY INFORMATION

 

Question Answer Reference
What are the key aspects of the Proposed Transaction and Stock Purchase Agreement?

Closing of the Proposed Transaction is expected to occur by 31 December 2021, after receipt of the required approval by Shareholders and CAG Shareholders and the satisfaction or waiver of the other closing conditions set forth in the Stock Purchase Agreement, including the condition that the Company has cash of at least US$282 million and liabilities of no more than US$10 million in the aggregate immediately prior to the Closing, FIRB Approval for the Proposed Transaction having been obtained, and that The Nasdaq Stock Market LLC (Nasdaq) has approved the initial listing application in connection with the Proposed Transaction with respect to the Acquisition Shares and the Acquisition Shares have been approved for listing on Nasdaq as of the Closing.

FIRB Approval was obtained for the Proposed Transaction on 12 November 2021. There can be no assurance, however, that the other closing conditions set forth in the Stock Purchase Agreement will be satisfied or waived.

Concurrently with the execution of the Stock Purchase Agreement, the Company also entered into:

(a)   a loan agreement for, and funded, a US$30 million secured loan to the CAG Subs (Loan Agreement);

(b)   lock-up agreements with certain CAG Shareholders who agreed not to transfer Shares beneficially owned or owned of record by them for a period of 180 days after consummation of the Proposed Transaction;

(c)   a relationship agreement with Peter Wang, Cenntro Enterprise Limited (CEL) and Trendway Capital Limited (TCL) (both entities ultimately owned by Mr. Wang) (together the Wang Parties), providing director nomination powers to the Wang Parties in limited circumstances (Relationship Agreement);

in addition:

(d)   the shareholders and holders of secured convertible notes of CAG and certain officers of the Company will enter into a registration rights agreement under which they will be granted certain rights to have registered for resale under the U.S. Securities Act of 1933 (Securities Act) the Shares received by them in the Proposed Transaction or granted as compensation;

(e)  certain CAG Shareholders, who hold sufficient ordinary and preferred shares of CAG to approve the Proposed Transaction, entered into support agreements to execute written consents to approve the Proposed Transaction;

(f)   certain Shareholders have delivered statements of intention to vote in favour of the Proposed Transaction at the Meeting; and

in order to meet the US$282 million minimum cash closing condition for the Proposed Transaction, the Company entered into:

(g)   an equity distribution agreement for an “at-the-market” offering, through Maxim Group, LLC (Maxim), of up to US$300 million of Shares (ATM Offering); and

(h)   a securities purchase agreement for a private placement to certain accredited investors of US$30 million of Shares and warrants to purchase Shares (Private Placement).

Summaries of the above agreements are set out in Section 1.1. Full copies of the agreements are attached as exhibits to the Form 6-K filed by the Company with the SEC on 8 November 2021 which is available on the SEC website at http://www.sec.gov or upon request to the Company.

Section 1.1

 

 

 
 

   

5 KEY INFORMATION

 

Question Answer Reference
Who is Cenntro?

Cenntro is a designer and manufacturer of electric light- and medium-duty commercial vehicles (ECVs). Its purpose-built ECVs are designed to serve a variety of corporate and governmental organizations in support of city services, last-mile delivery and other commercial applications. As of June 30, 2021, Cenntro has sold or put into service more than 3,100 units of its first ECV model, the Metro®, in 16 countries across North America, Europe and Asia.

Cenntro plans to introduce four new ECV models to serve the light- and medium-duty market by the end of 2021. Cenntro’s mission is to leverage its technological and research and development capabilities in areas such as vehicle design, digital component development, vehicle control software, and “smart” driving to become a technology leader in the ECV market.

Prior to the Closing of the Proposed Transaction, the entities that comprise Cenntro (being the CAG Subs) are wholly owned subsidiaries of CAG. As of the date of this Explanatory Memorandum, the Chief Executive Officer of CAG, Peter Wang, indirectly owns approximately 40.318% of CAG, on a fully diluted basis, which ownership he holds through CEL and TCL. Mr. Wang has a significant influence over all corporate matters relating to CAG.

Section 1.2
Why is Shareholder approval being sought for the Proposed Transaction?

The Proposed Transaction is conditional on the Company and CAG obtaining all necessary regulatory and shareholder approvals.

Shareholder approval is being sought pursuant to and in accordance with item 7 of section 611 of the Corporations Act in relation to the issue of the Acquisition Shares by the Company to CAG as consideration for the acquisition by the Company of the Cenntro Shares from CAG, the subsequent Distribution of the Acquisition Shares by CAG to the CAG Shareholders promptly following Closing, and entry into the Lock-up Agreements.

Section 1.3
What will the shareholding in the Company be as a result of the Proposed Transaction being approved? Refer to the table at Section 1.4.1 “Effect of the Proposed Transaction on the capital structure of the Company” showing the anticipated pro-forma ownership of the Company post-Closing. Section 1.4.1
What are the future intentions for the Company?

Following Closing, it is contemplated that CAG will immediately distribute the Acquisition Shares and no longer remain a shareholder of the enlarged group of the Company (that will include the CAG Subs) that will exist after Closing (Enlarged Group). The Wang Parties, as principal shareholders of CAG and the Company following the Closing, currently:

(a)   intend to be supportive of the continued operation of the existing ECV Business and projects and do not intend to make any significant changes to the ECV Business, other than with respect to the proposed expansion of current operations, including, for instance, establishing new assembly facilities in Dusseldorf, Germany and Jacksonville, Florida, as previously disclosed to the Company;

(b)   have no intention of injecting further capital into the Enlarged Group;

(c)   have no intention of making material changes regarding the future employment of substantially all the present employees of the Enlarged Group;

(d)   intend to retain the composition of the Board as it will be constituted at completion of the Proposed Transaction;

(e)   do not intend to redeploy any fixed assets of the Enlarged Group, other than with respect to the proposed expansion of current operations described above;

(f)    do not intend to transfer any property between the Enlarged Group and CAG, the Wang Parties or any of their respective associates; and

(g)   have no intention to change the Enlarged Group's existing policies in relation to financial matters or dividends.

Section 1.4.2

 

 
 

  

6 KEY INFORMATION

 

Question Answer Reference
What is the proposed structure of the Board following Closing?

Under the Stock Purchase Agreement, immediately following the Closing Date, the Board will consist of up to five Directors, which will initially include (subject to the approval of Resolution 3 to amend the Constitution to introduce staggered classes):

(a)   one Director nominee designated by the Company, namely Justin Davis-Rice, an existing Director, as a class II Director;

(b)   four Director nominees designated by the Wang Parties (Wang Parties Nominee Directors), namely:

(i)    Peter Wang, as managing Director and chairman of the Board;

(ii)   Chris Thorne, as a class I Director;

(iii)   Joe Tong, as a class II Director; and

(iv)  Simon Charles Howard Tripp, an existing Director, as a class III Director. Refer to Section 1.1.7 for why Mr. Tripp has been designated a Director nominee by the Wang Parties.

Biographies of Mr. Davis-Rice and Mr. Tripp, who will stay on the Board, are set out at Section 1.4.3.1. Biographies of Mr. Wang, Mr. Thorne and Mr. Tong, who will be appointed to the Board subject to the approval of Resolution 4, are set out at Section 1.4.3.2.

Section 1.4.3.2

Section 4

Why is Shareholder approval being sought for the Company to change its name?

Sections 157(1) and 136(2) of the Corporations Act require that the Company pass a special resolution to change the name of the Company from “Naked Brand Group Limited” to “Cenntro Electric Group Limited” and to amend the Constitution to reflect the Company’s new name.

This change of name is consistent with the Company becoming the holding company for the CAG Subs that will continue to operate the ECV Business following consummation of the Proposed Transaction.

Section 2
Why is Shareholder approval being sought for the Company to amend its Constitution?

Section 136(2) of the Corporations Act requires that the Company pass a special resolution to amend the Constitution.

It is proposed that existing sub-rules 19.1-19.3 of rule 19 “Directors” of the Constitution be deleted in their entirety and replaced with the new sub-rules 19.1-19.3 set out in Section 3 to permit three staggered classes of directors. The Company and CAG believe that having staggered classes of directors will encourage stability in leadership following the Proposed Transaction and will assure desirable continuity in policy following the Proposed Transaction.

Section 3

 

 
 

 

7 KEY INFORMATION

 

Question Answer Reference
Assessment of the Proposed Transaction and Non-Executive Directors’ Recommendations
What are the reasons to vote in favour of, or against the Proposed Transaction?

The Non-Executive Directors are of the view that the following are some of the reasons why Shareholders may decide to vote in favour of the Proposed Transaction:

The Non-Executive Directors unanimously recommend that you vote in favour of the Transaction Resolutions in the absence of a Superior Proposal.

The Non-Executive Directors believe that the Proposed Transaction is in the best interests of Shareholders and are of the view that the following non-exhaustive list of advantages may be relevant to a Shareholder’s decision on how to vote on the Transaction Resolutions:

●    (attractive investment opportunity) the Proposed Transaction represents an attractive investment opportunity for the Company to change its business focus to that of an electric commercial vehicle design and manufacturing business;

●    (existing ECV business) the Company will obtain ownership of the ECV Business through the acquisition of the CAG Subs;

●    (extensive ECV experience) the appointment to the Board of the Wang Parties Nominee Directors provides the Company with extensive experience within the ECV industry; and

●    (strong cash position) the consideration for the Proposed Transaction is Shares, thereby allowing the Company to use its strong cash position to grow the ECV Business and potentially increase Shareholder value.

The Independent Expert has concluded that the Proposed Transaction is not fair but reasonable to Shareholders in the absence of a superior proposal.

FTI Consulting (Australia) Pty Limited was engaged by the Non-Executive Directors to prepare the Independent Expert’s Report for Shareholders in respect of the Proposed Transaction.

The Independent Expert’s Report comments on the fairness and reasonableness of the Proposed Transaction to Shareholders. The Independent Expert has concluded that the Proposed Transaction is not fair but reasonable to Shareholders in the absence of a superior proposal.

The Independent Expert has identified the following advantages of the Proposed Transaction (note this is a summary of the advantages to Shareholders of the Proposed Transaction, Shareholders should read the Independent Expert’s Report in its entirety before deciding how to vote):

●    (Participation in the anticipated high growth, ECV industry) If the Proposed Transaction is approved, Shareholders will have the opportunity to participate in an industry that, overall, is expected by many investors and industry analysts to achieve high growth.

Section 1.5

Section 1.8

 

 
 

  

8 KEY INFORMATION

 

Question Answer Reference
 

●    (Cenntro’s potential competitive advantages in the ECV industry) If the Proposed Transaction is approved, Shareholders will have the opportunity to participate in the potential returns expected to be generated by Cenntro, an early-stage company that, while facing significant uncertainty and risks, also appears to have developed some competitive advantages in the electric light commercial vehicle sector.

●    (Only option currently available) The Directors have advised that the Proposed Transaction is the only option currently available to NBG and that there are no other offers or transactions that the Directors are considering. Whilst proceeding with the Proposed Transaction is likely to preclude NBG from pursuing alternative major opportunities which may arise in the future, there is no guarantee that such opportunities may arise and be superior propositions to the Proposed Transaction.

●   (Impact on NBG’s share price) If the Proposed Transaction is not approved, NBG’s Share price may experience a significant decrease, since the market seems to already be pricing into NBG’s Shares a likelihood of a value-accretive transaction. That premium might disappear if the Proposed Transaction is not approved.

The Non-Executive Directors are of the view that the following are some of the reasons why Shareholders may decide to vote against the Proposed Transaction:

●    (Shareholders may disagree with the Non-Executive Directors’ unanimous recommendation) Notwithstanding the unanimous recommendation of the Non-Executive Directors in the absence of a Superior Proposal, Shareholders may believe the Proposed Transaction is not in their best interests.

●   (Dilution of shareholding and voting power) The aggregate percentage shareholding of existing Shareholders will be diluted by the issue of the Acquisition Shares to CAG (and the subsequent Distribution to the CAG Shareholders) as well as the Additional Financings. Based on the assumptions described in Section 1.1.3, following the Proposed Transaction, the existing Shareholders’ ownership interest will be reduced from 100% to approximately 24.5% on a fully diluted basis and the collective entitlement to any dividends and the voting power of existing Shareholders will also be reduced accordingly. Please refer to Section 1.4.1 for further details on the impact of the Proposed Transaction of the Company’s capital structure.

●   (Change of business) The Company will be changing the nature and scale of its activities which may not be consistent with the objective of all Shareholders. There are additional risk factors associated with the change in nature of the Company’s activities resulting from the Proposed Transaction. Some of the risk factors are summarised in the row below and in Section 1.6, and set out in more detail in Schedule 2.

 

 

 
 

 

9 KEY INFORMATION

 

Question Answer Reference
 

●    (Additional funding) The Company may need additional funding in the future to achieve its long term goals and could result in further dilution at the time.

In addition, the Independent Expert also identified the following disadvantages to the Shareholders of accepting the Proposed Transaction (note this is a summary of the disadvantages, Shareholders should read the Independent Expert’s Report in its entirety before deciding how to vote):

●    (Difficulty in estimating the fair market value of Cenntro) The Independent Expert is of the opinion that there is insufficient information to form an opinion, to the level of certainty required by ASIC guidance, whether the Proposed Transaction is fair. Given that, in their view, the fair market value cannot be reliably estimated as of the date of the Independent Expert’s Report, due to lack of sufficiently reliable and supportable prospective financial information, they cannot opine on the financial benefits of the Proposed Transaction.

●    (The ECV industry is high risk) There is a high degree of risk inherent in an investment in a company in the ECV industry since, while there appears to be significant opportunity for attractive investment returns, it is a new industry with significant challenges and uncertainty. There are numerous competitors in the industry, and it is not possible, at this stage, to determine with reasonable certainty, which companies will be successful.

●    (Cenntro is a high-risk investment) There is a high degree of risk inherent in an investment in Cenntro as it is an early-stage company with significant hurdles to overcome to be a successful player in the ECV industry.

●    (Cenntro has very different investment characteristics to NBG) The investment characteristics (e.g. risks and opportunities) of the ECV industry Cenntro is targeting are very different than the investment characteristics of the fashion and ecommerce industries NBG has historically participated in before the Proposed Transaction. While NBG’s share price has responded positively to NBG’s 24 September 2021 announcement that it was looking at a “disruptive opportunity in the clean technology sector”, there is still a risk some investors may prefer NBG’s historical industry focus over Cenntro’s.

●    (Prospects of a future takeover) The prospects of future takeover offers may be reduced due to the concentration of ownership resulting from the Proposed Transaction. The Wang Parties, having a major shareholding in CAG, will have a significant ownership stake after the Proposed Transaction (beneficial ownership estimated at approximately 27.6% of the outstanding Shares, or 26.2% on a fully diluted basis), which may dissuade potential buyers due to their ability to block potential transactions.

●    (Impact on control) If the Proposed Transaction is approved, there will be an impact on the voting power and ownership of the Enlarged Group. In summary, Shareholders will cede a majority of their voting rights to CAG Shareholders.

The Non-Executive Directors believe that the advantages of the Proposed Transaction outweigh the potential disadvantages. The Non-Executive Directors intend to cause any Shares in which they have a relevant interest to be voted in favour of the Transaction Resolutions in the absence of a Superior Proposal.

 

 

 
 

 

10 KEY INFORMATION

 

Question Answer Reference
What are the potential risks associated with the Proposed Transaction?

Following Closing, the business, assets and operations of the Enlarged Group may be subject to certain risk factors that have the potential to influence its operating and financial performance in the future. These risks can impact the value of an investment in Shares.

The Board (including the future board of the Company post-Closing) intends to manage these risks by careful planning and implementing appropriate risk control measures. Some risks are, however, highly unpredictable and the extent to which the Board can effectively manage them is limited.

Based on the information available, the key risk factors affecting the Enlarged Group include:

Specific risks associated with the business and operations of the Enlarged Group

Risks related to Cenntro’s business and financial results

●    (operations risk) Cenntro has a limited operating history and faces significant challenges (including ramp-up, competitors) in an emerging industry.

●    (financials risk) Cenntro historically incurred losses and may not be profitable in the future.

●    (business development risk) Future success depends on the ability to develop and manufacture ECVs of quality, on schedule and at large scale, and the ability to introduce new models.

●    (channel partner risk) Cenntro relies on relatively few of its channel partners for a large portion of its sales; reliance on channel partners to market, sell and service ECV products subjects Cenntro to substantial risk; channel partners may reduce or cancel orders; and the ECV Business may fail to establish new channel partners to penetrate new markets.

●    (supply chain risk) Cenntro is subject to risk of supply-chain disruption since it relies on suppliers and manufacturers for substantially all of its components and vehicle kits for new models; Cenntro is dependent on single-source suppliers for a number of necessary components of Cenntro’s ECVs; the suppliers and manufacturers may not deliver acceptable quality, volume or prices, or fail to deliver such components, or fail to use ethical business practices or comply with laws, which could harm Cenntro's reputation and operations.

●    (COVID-19 risk) COVID-19 has harmed and may continue to harm Cenntro’s business, financial condition, operating results and prospects.

●    (business model risk) Cenntro’s distributed manufacturing and channel partner network model is different from the predominant automobile manufacturing model. This makes evaluating Cenntro’s business, financial condition, operating results and prospects difficult.

Section 1.6

Schedule 2

 

 
 

 

11 KEY INFORMATION

 

Question Answer Reference
 

●    (capital risk) Cenntro’s business plans require significant amounts of capital, which in the future may not be readily available or available on acceptable terms, or at all.

●    (supply and demand risk) Cenntro may not be able to accurately estimate supply and demand for its vehicles, which may result in inefficiencies in predicting manufacturing requirements, cause Cenntro to incur costs or delays, and hinder revenue generation.

●    (material weakness in reporting) Cenntro has identified a material weakness in its internal control over financial reporting that could materially harm it. If Cenntro fails to remediate the material weakness, or experiences material weaknesses in the future, it may not be able to accurately and timely report its financial condition or results of operations, which may adversely affect investor confidence in it.

Risks related to Cenntro’s industry

●    (government incentives and policies) The unavailability or reduction of government and economic incentives or elimination of regulatory policies favourable for ECVs could adversely affect Cenntro, its financial condition, operating results and prospects.

●    (market adoption of ECVs) Future growth is dependent on end-users’ willingness to adopt ECVs.

●    (supply risk) Cenntro’s ECV production is subject to risk relating to cost increases or disruption in supply of raw materials or components, including for instance shortages of key components such as semiconductors or lithium-ion batteries.

●    (competition risk) Cenntro may not be successful in competing in the highly competitive automotive market, particularly if it is unable to keep up with advances in electric vehicle technology.

Risks related to legal and regulatory matters

●    (regulatory risk) Evolving or unfavourable changes to regulations, or failure by Cenntro or its channel partners to comply with regulatory, political, legal, economic, tax and labour conditions could materially adverse its business, financial condition, operating results and prospects.

●    (intellectual property) Failure to protect intellectual property rights from unauthorised use or infringement by third parties may adversely affect Cenntro’s business. Defending against patent or trademark infringement claims may be time-consuming and cause Cenntro to incur substantial costs.

●    (environmental regulations) Compliance with environmental regulations can be costly, and noncompliance may result in adverse publicity and monetary damages and fines.

●     (cyber security) Breaches and cyber-attacks could disrupt Cenntro’s business and operations, and its operating results and reputation could be harmed.

●    (data collection) Data collection of personal information is governed by restricting regulations.

 

 

 
 

 

12 KEY INFORMATION

 

Question Answer Reference
 

Risks related to doing business in China

●    (government policies) Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on Cenntro’s business, results of operations, financial condition and prospects. The PRC government may intervene or exert more control over foreign investment in China-based entities.

●    (legal risks) Uncertainties with respect to the PRC legal system could adversely affect Cenntro and may restrict the level of legal protections to foreign investors.

●    (compliance risks) Cenntro currently conducts substantially all its operations through its subsidiaries in China, and any adverse regulatory developments in China may subject Cenntro to additional regulatory review or approval, and additional disclosure requirements. Recent tensions between the United States and China may impose additional compliance requirements including an increase in compliance costs and additional disclosure requirements.

●    (labour) Increases in labour costs and enforcement of stricter labour laws in China may adversely affect Cenntro’s business and profitability.

●    (currency) Fluctuations in the value of the Renminbi (RMB) and restrictions on currency exchange may adversely affect Cenntro’s business.

●    (PRC subsidiaries) Cenntro may rely on dividends and other distributions on equity paid by its PRC subsidiaries to fund any cash and financing requirements. Any limitation on the ability of its PRC subsidiaries to make payments to Cenntro could adversely affect its ability to conduct its business.

●    (international policies) Changes in U.S. and international trade policies with regard to China may adversely impact Cenntro’s business and operation.

●    (PRC regulations of offshore loans and investments) PRC regulation of loans to and direct investment in PRC entities may delay or prevent Cenntro from making loans or additional capital contributions to its PRC subsidiaries, which could materially and adversely affect its liquidity and ability to fund and expand its business. PRC regulations relating to offshore investment activities by PRC residents may limit Cenntro’s PRC subsidiaries’ ability to increase their registered capital or distribute profits.

●    (foreign laws) There may be difficulty enforcing foreign judgements or bringing actions in China against Cenntro based on foreign laws.

●    (foreign investigations) It may be difficult for overseas regulators to conduct investigations or collect evidence within China.

●    (holding company structure) The Enlarged Group is subject to unique risks due to uncertainty regarding the interpretation and application of PRC laws and regulations, any future actions of the PRC government relating to the foreign listing of companies with significant PRC operations, and the possibility of sanctions imposed by PRC if it fails to comply with their rules and regulations.

 

 

 
 

  

13 KEY INFORMATION

 

Question Answer Reference
 

●    (securities) Cenntro may face heightened scrutiny and negative publicity, which could materially affect the operations of the Enlarged Group or significantly limit the ability of the Enlarged Group to offer or continue to offer securities to investors and cause the value of such securities to significantly decline. The PRC government may intervene or exert more control over securities offerings conducted overseas and/foreign investment in China-based issuers.

●    (regulatory risks) Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations, including increasing enforcement and regulatory oversight over certain activities in the securities market, enhancing supervision over China-based companies listed overseas, extending the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. It is uncertain what the impact such modified or new laws and regulations will have on Cenntro’s business operations or the ability to accept foreign investments and list its securities on a U.S. or other foreign exchange.

●    (dividends) Cenntro currently conducts substantially all its operations in various countries including China, through wholly owned subsidiaries with direct equity ownership, and does not directly own any substantive business operations in China. As a result, Cenntro’s ability to pay dividends to its shareholders and to service any debt it may incur may depend upon dividends paid by its PRC subsidiaries, as well as certain taxes and regulatory approvals. Any debt incurred by its PRC subsidiaries may be governed by instruments restricting the ability of any such subsidiary to pay dividends to Cenntro, which could limit the amount of dividends that Cenntro may make to shareholders in the future.

●    (PRC statutory reserves) Each of Cenntro’s subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside is determined at the discretion of its board of directors. The reserve funds are not distributable as cash dividends except in the event of liquidation.

●    (intercompany transfers) Cenntro can send capital investments to its PRC subsidiaries for working capital to be used at their discretion. To the extent one of its PRC subsidiaries declares and pays a dividend, such subsidiary must pay a transfer tax of 15% to repatriate any profit distributed to the U.S. Cenntro’s PRC subsidiaries, as Wholly Foreign Owned Enterprises (WFOEs) under PRC law, can make dividends up to CAG HK without prior PRC regulatory approval. However, any such subsidiary will only be able to pay dividends during periods in which it has positive net income and no accumulated net losses.

●    (foreign exchange) The Foreign Exchange Control Regulations of the PRC, as amended, is the main regulation of foreign exchange management in the PRC.

 

 

 
 

 

14 KEY INFORMATION

 

Question Answer Reference
 

Transaction-specific risks

●    (failure to complete) Failure to satisfy the Conditions under the Stock Purchase Agreement may mean the Proposed Transaction fails to complete, and the Company would still incur costs relating to the Proposed Transaction, with no guarantee of an alternate transaction proceeding.

●    (dilution of existing Shareholders’ voting power) The Company estimates that it will issue approximately 35.0 million Shares in the ATM Offering, 133.2 million Shares in the Private Placement, 112.7 million Shares upon settlement of the Incentive Award and 2,332.7 million Shares to CAG to be distributed to CAG Shareholders, in addition to options and warrants to purchase 185.4 million Shares outstanding . Based on the assumptions described in Section 1.1.3, the issuance of these Shares will significantly dilute the equity interest of Shareholders from 100% to approximately 24.5% on a fully diluted basis and the collective entitlement to any dividends and the voting power of existing Shareholders will also be reduced accordingly. The dilution may adversely affect prevailing market prices for the Shares.

●    (Wang Parties as significant shareholder) Upon completion of the Proposed Transaction and the distribution of Acquisition Shares by CAG to its shareholders, the Wang Parties are expected to beneficially own approximately 27.6% of the outstanding Shares (or 26.2% on a fully diluted basis). These shareholders will be able to exercise a significant level of influence over all matters requiring shareholder approval, including the election of Directors (including their rights under the Relationship Agreement), amendments to the Company’s constitution and approval of significant corporate transactions, and will be able to block special resolutions of the Company.

●    (reliance on Cenntro business) After the Proposed Transaction, the Company will be solely dependent on the success of Cenntro’s business.

●    (beyond management expertise) Cenntro operates in an industry that is outside of the Company management’s area of expertise. The Company has undertaken financial, commercial and other analyses of Cenntro to determine its attractiveness as an acquisition target, and whether to pursue the Proposed Transaction, but such analyses, and the best-estimate assumptions made by the Company, may not be realized, and the Share price may decline.

●    (limited claims) NBG will likely have no remedy available if the Proposed Transaction is consummated and it is later revealed that there was a breach of any of the representations, warranties and covenants made by CAG and Cenntro at the time of the signing of the Stock Purchase Agreement or the Closing.

●    (management interests) The Company’s management has interests in the Proposed Transaction that are different than Shareholders generally (for example, the Phantom Warrants and Incentive Award), which may influence management’s decision to pursue and structure the Proposed Transaction.

 

 

 
 

 

15 KEY INFORMATION

 

Question Answer Reference
 

General investment risks

●    (share price) Economic, government policy, taxation laws and other factors may affect the market price of Shares despite the Enlarged Group’s performance.

●    (tax risks) Tax consequences may result from the Proposed Transaction and Shareholders should seek their own professional advice.

●    (compliance risks and de-listing) There is no guarantee that the Company will be able to comply with the requirements to maintain a listing on the Nasdaq Capital Market. If the Company receives a notice of de-listing, the Company would take actions to restore compliance, but provides no assurance that any action taken would result in the Shares maintaining listing, or would stabilise the market price or improve the liquidity of shares.

●    (dividends) Future payment of dividends by the Enlarged Group will be at the discretion of the new Board and no assurance in relation to the payment of dividends can be given by the Enlarged Group.

●    (earnings) Changes to accounting policy standards may occasionally affect the reported earnings and financial position of the Enlarged Group.

●    (other factors) Changes in general economic and business conditions nationally and globally, e.g. inflation, interest rates, taxation and regulatory policies, pandemic, natural disasters or Acts of God, have an adverse impact on the Enlarged Group’s operating and financial performance, financial position and market price of Shares.

Risks are set out in summary form in Section 1.6 and in more detail in Schedule 2. These risks are non-exhaustive and do not take into account the investment objectives, financial situation, taxation position or particular needs of any specific Shareholder.

 

 

 
 

 

16 KEY INFORMATION

 

Question Answer Reference
What will happen if Shareholder approval is not obtained or the Proposed Transaction does not otherwise proceed? Resolutions 1 to 4 are interdependent, meaning if any of these resolutions are not passed, then none of these resolutions will be taken to have been passed and the Proposed Transaction cannot proceed. These resolutions are also conditional on the passing of Resolution 5. Section 1.7
What is the opinion of the Independent Expert?

The Independent Expert’s Report concluded that the Proposed Transaction is “not fair but reasonable” to Shareholders in the absence of a superior proposal. This is on the basis that:

Fairness assessment

In forming the Independent Expert’s opinion regarding the fairness of the Proposed Transaction, they are required to compare:

A.    the fair market value of an issued share of NBG before the Proposed Transaction, on a controlling interest basis, (representing the consideration deemed to be paid by the Shareholders if approved)

to

B.    the fair market value of an issued share of NBG after the Proposed Transaction, on a minority interest basis (representing the value of the investment security that will be owned by the Shareholders if approved).

For the Proposed Transaction to be “fair” under ASIC Regulatory Guide 111, the fair market value of A must be equal to, or greater than, B.

While the Independent Expert considered that they have had sufficiently reliable information to form an opinion on A, the fair market value of an NBG share before the Proposed Transaction, they have, for the reasons in the Independent Expert’s Report and summarised below in Section 1.8, had insufficiently reliable information that due to the nature of the ECV industry and the quality of the financial information of Cenntro did not represent “reasonable grounds” to form an opinion on B, the fair market value of an NBG share after the Proposed Transaction.

Reasonableness assessment

The Independent Expert has assessed the reasonableness of the Proposed Transaction, and has concluded that the advantages of the Proposed Transaction outweigh the disadvantages and therefore, in their opinion, the Proposed Transaction is reasonable to Shareholders.

The Independent Expert’s assessment of the potential advantages and disadvantages are set out in detail in the Independent Expert’s Report and summarised above in “What are the reasons to vote in favour of, or against the Proposed Transaction?” and in Section 1.8.

The assessment is set out in summary form in Section 1.8 and Shareholders are strongly encouraged to read the Independent Expert’s Report, a full copy of which is set out in Annexure A.

Section 1.8

Annexure A

 

 
 

 

17 KEY INFORMATION

 

Question Answer Reference
What are the Directors’ recommendations?

Having regard to the opinion of the Independent Expert and the advantages and disadvantages and risks associated with the Proposed Transaction, the Non-Executive Directors believe that the Proposed Transaction is in the best interests of the Company and its Shareholders.

The Non-Executive Directors unanimously recommend that Shareholders vote in favour of the Proposed Transaction.

Section 1.9
How do the Directors intend to vote? Each Non-Executive Director intends to vote in favour of the Proposed Transaction and Resolutions 1, 2, 3 and 4 in respect of all Shares they hold or control and any undirected proxies they receive. Section 1.9
Will the Directors receive any benefits under the Proposed Transaction?

None of the Directors will receive Acquisition Shares, however:

(a)   subject to the passing of Resolution 6.1, and subject to and conditional on the passing of the Transaction Resolutions, each of the Non-Executive Directors will receive a cash payment of US$1,000,000 in connection with the successful Closing; and

(b)   subject to the passing of Resolution 6.2, JADR Consulting Group Pty Limited, an entity associated with Mr. Davis-Rice, will receive approximately US$11.9 million in cash in relation to the acceleration of the third tranche of the Phantom Warrants (based on a Share price of $0.6017), and approximately 112.7 million Shares in relation to the grant of the Incentive Award. This will equate to approximately 3.2% of the Company’s outstanding Shares (refer to the pro forma ownership table at Section 1.4.1). For the avoidance of any doubt, Resolution 6.2 is not subject to and conditional on the passing of the Transaction Resolutions, but the acceleration of the third tranche of Phantom Warrants is conditional on the consummation of the Proposed Transaction. The value of these benefits is directly linked to the Company’s share price. Over the past 6 months, the market price of the Company’s shares has been volatile (see Section 6.6 below). Section 6.6 includes further examples of the value of these benefits based on different Share prices.

More detail is set out below in the rows relating to “Director benefits”.

Section 6

 

 
 

 

18 KEY INFORMATION

 

Question Answer Reference
Share Consolidation
Why is the Company seeking approval to undertake the Share Consolidation?

Section 254H(1) of the Corporations Act requires that the Company pass an ordinary resolution at a general meeting to consolidate its shares.

The Proposed Transaction is subject to a Condition that the Five Day Average Trading Price for the five consecutive trading days ending on (and inclusive of) the Closing Date (after giving effect to the Share Consolidation) is not less than US$5.00 per Share.

On 26 April 2021, the Company received a first notice from the Listing Qualifications Department of Nasdaq stating that, for the prior 30 consecutive business days, the closing bid price for Shares had been below the minimum of US$1.00 per share required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). On 26 October 2021, the Company received a second notice from Nasdaq’s Listing Qualifications Department, stating that Nasdaq’s staff had determined that the Company was eligible for an additional 180 calendar day period (until 25 April 2022) to regain compliance.

In order to regain compliance during the additional compliance period, the bid price for shares of Shares must close at US$1.00 per share or more for a minimum of ten consecutive business days.

The Company intends to cure the deficiency during the second compliance period by effecting the Share Consolidation.

Accordingly, the Share Consolidation seeks to accomplish two goals: enabling the Company to meet one of the Conditions for the Proposed Transaction and enabling the Company to regain compliance with the minimum bid price requirement.

The exact consolidation ratio for the Share Consolidation will be set by the Directors at least 7 days prior to the Meeting and notified in a Form 6-K to be filed by the Company with the SEC. That ratio will be between consolidating every 10 Shares into 1 Share and consolidating every 20 Shares into 1 Share. The exact consolidation ratio will be included in Resolution 5 that is put to the Meeting.

Section 5
What are the Directors’ recommendations? The Board unanimously recommends that Shareholders vote in favour of Resolution 5. Section 5
How do the Directors intend to vote? Each Director intends to vote in favour of Resolution 5 in respect of all Shares they hold or control and any undirected proxies they receive. Section 5

 

 
 

 

19 KEY INFORMATION

 

Question Answer Reference
Director benefits
Why is the Company seeking approval for the Non-Executive Director Benefits? The Directors consider that Shareholder approval by way of ordinary resolution pursuant to Chapter 2E and sections 195(4) and 200B of the Corporations Act is required in respect of the provision of the cash payment by the Company of US$1,000,000 to each of Mr. Andrew Shape, Mr. Kelvin Fitzalan and Mr. Simon Tripp (Non-Executive Directors) (or their related entities), being a total cash payment by the Company of US$3,000,000 in aggregate, in connection with a successful Closing of the Proposed Transaction (Non-Executive Director Benefits). Section 6
Why is the Company seeking approval for the acceleration of the Phantom Warrants and the grant of the Incentive Award?

The Directors consider the acceleration of Phantom Warrants and grant of Incentive Award are on arm’s length terms. As such, neither the acceleration of the Phantom Warrants nor the grant of the Incentive Award was subject to Shareholder approval. However, the Company is seeking Shareholder approval for completeness, due to the impact of the Proposed Transaction on the timing of the exercise of the Phantom Warrants and the calculation of Shares to be issued under the Incentive Award.

The proposed financial benefits in respect of which Shareholder approvals being sought are:

(a)  the acceleration of the third tranche of the Phantom Warrants issued to JADR Consulting Group Pty Limited, an entity associated with Mr. Davis-Rice; and

(b)  the grant of the Incentive Award to JADR Consulting Group Pty Limited, an entity associated with Mr. Davis-Rice.

Section 6
What are the Directors’ recommendations? The Directors all have a material personal interest in the outcome of Resolutions 6.1 and 6.2. Therefore, the Directors do not consider it appropriate to make a recommendation on how to vote on these resolutions. Section 6
How do the Directors intend to vote? The Directors will be abstaining from voting their own shares on Resolutions 6.1 and 6.2. Section 6
Further information
Where can Shareholders find out further information?

Further information about the Proposed Transaction is available through the Form 6-K filed by the Company with the SEC on 8 November 2021 which is available on the SEC website at http://www.sec.gov or upon request to the Company.

The Company files annual and other reports and documents with the SEC under the Securities Exchange Act. The Company’s SEC filings made electronically through the SEC’s EDGAR system are available to the public at the SEC’s website. You may also read and copy any document we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549-1004. Please call the SEC at (800) SEC-0330 for further information on the operation of the public reference room.

 

  

 
 

 

20 NOTICE OF MEETING

 

Notice of Meeting

 

Notice is hereby given that the Extraordinary General Meeting of Shareholders (Notice or Notice of Meeting) of Naked Brand Group Limited (ACN 619 054 938) (Company or NBG) will be held at BDO Sydney, Level 11, 1 Margaret Street, Sydney NSW 2000, Australia on Tuesday, 21 December 2021 at 10:00am (Australian Eastern Daylight Time) / Monday, 20 December 2021 at 6:00pm (Eastern Standard Time) (Extraordinary General Meeting or Meeting).

 

The Company strongly encourages all Shareholders to submit a proxy vote online ahead of the Meeting. Proxy votes can be lodged at www.cstproxyvote.com.

 

The Explanatory Memorandum, which accompanies and forms part of this Notice, describes the matters to be considered at the Meeting. Unless specified otherwise, capitalised terms used in this Notice and the Explanatory Memorandum are defined in the Glossary to the Explanatory Memorandum.

 

 

 

Business of the Meeting

 

The business to be considered at the Meeting is to consider, and if thought fit, to pass the following Resolutions.

 

Closing of the Proposed Transaction is conditional on the passing of all Resolutions other than Resolutions 6.1 and 6.2 (Transaction Resolutions). Resolution 5 is however not conditional on the passing of any other Resolution.

 

Resolution 1 – Approval of the Proposed Transaction

 

To consider and, if thought fit, pass the following Resolution as an ordinary resolution:

 

“That, subject to and conditional on all other Transaction Resolutions being passed and Closing of the Proposed Transaction, for the purposes of item 7 of section 611 of the Corporations Act and for all other purposes, approval be given for the Proposed Transaction and each acquisition of relevant interests in Shares in the Company summarised in the Explanatory Memorandum, including each relevant interest arising out of:

 

  (a) CAG’s acquisition of the Acquisition Shares;
     
  (b) the distribution of the Acquisition Shares by CAG to the CAG Shareholders; and
     
  (c) the entry into the Lock-up Agreements (refer to the table at section 1.3.3 of the Explanatory Memorandum),

 

on the terms and conditions set out in the Stock Purchase Agreement.”

 

Independent Expert’s Report

 

Shareholders should carefully consider the Independent Expert’s Report prepared for the purposes of the Shareholder approval required under item 7 of section 611 of the Corporations Act for this Resolution. The Independent Expert’s Report comments on the fairness and reasonableness of the Proposed Transaction to Shareholders. The Independent Expert has concluded that the Proposed Transaction, as set out in the Explanatory Memorandum and in the Independent Expert’s Report attached to this Notice, is not fair but reasonable to Shareholders in the absence of a superior proposal.

 

Non-Executive Directors’ Recommendation

 

The Non-Executive Directors unanimously recommend that Shareholders VOTE IN FAVOUR of Resolution 1.

 

 

 

 

21 NOTICE OF MEETING

 

Voting exclusion statement

 

The Company will disregard any votes cast in favour of this Resolution by or on behalf of:

 

(a) the persons proposing to make the acquisitions and their associates; or
   
(b) the persons from whom the acquisitions are to be made and their associates.

 

However, this does not apply to a vote cast in favour of this Resolution by:

 

(a) a person as proxy for a person who is entitled to vote on this Resolution, in accordance with the directions on the Proxy Form;
   
(b) the person chairing the meeting as proxy for a person who is entitled to vote on this Resolution, in accordance with a direction on the Proxy Form to vote as the proxy decides; or
   
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:

 

  (i) the beneficiary provides written confirmation to the holder that the beneficiary is not excluded from voting, and is not an associate of a person excluded from voting, on the Resolution; and
     
  (ii) the holder votes on the Resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

 

Resolution 2 – Approval of change of Company Name

 

To consider and, if thought fit, pass the following Resolution as a special resolution:

 

“That, subject to and conditional on all other Transaction Resolutions being passed and Closing of the Proposed Transaction, for the purposes of sections 157(1) and 136(2) of the Corporations Act and for all other purposes, the Company change its name from “Naked Brand Group Limited” to “Cenntro Electric Group Limited” and all references in the Company’s Constitution to “Naked Brand Group Limited” be amended to “Cenntro Electric Group Limited” to reflect the Company’s new name.”

 

Non-Executive Directors’ Recommendation

 

The Non-Executive Directors unanimously recommend that Shareholders VOTE IN FAVOUR of Resolution 2.

 

Resolution 3 – Approval to amend Constitution

 

To consider and, if thought fit, pass the following Resolution as a special resolution:

 

“That, subject to and conditional on all other Transaction Resolutions being passed and Closing of the Proposed Transaction, for the purpose of section 136(2) of the Corporations Act and for all other purposes, approval is given for the Company to amend its existing Constitution in the manner outlined in the Explanatory Memorandum, with effect from Closing of the Proposed Transaction.”

 

Non-Executive Directors’ Recommendation

 

The Non-Executive Directors unanimously recommend that Shareholders VOTE IN FAVOUR of Resolution 3.

 

 

 

 

22 NOTICE OF MEETING

 

Resolutions – Election of Directors

 

Resolution 4.1 – Election of Peter Wang as a Director

 

To consider and, if thought fit, pass the following Resolution as an ordinary resolution:

 

“That, subject to and conditional on all other Transaction Resolutions being passed and Closing of the Proposed Transaction, for the purpose of clause 19 of the Constitution and for all other purposes, Peter Wang, being eligible and having offered himself for election, be elected as a Director of the Company, with effect from Closing of the Proposed Transaction.”

 

Resolution 4.2 – Election of Chris Thorne as a Director

 

To consider and, if thought fit, pass the following Resolution as an ordinary resolution:

 

“That, subject to and conditional on all other Transaction Resolutions being passed and Closing of the Proposed Transaction, for the purpose of clause 19 of the Constitution and for all other purposes, Chris Thorne, being eligible and having offered himself for election, be elected as a Director of the Company, with effect from Closing of the Proposed Transaction.”

 

Resolution 4.3 – Election of Joe Tong as a Director

 

To consider and, if thought fit, pass the following Resolution as an ordinary resolution:

 

“That, subject to and conditional on all other Transaction Resolutions being passed and Closing of the Proposed Transaction, for the purpose of clause 19 of the Constitution and for all other purposes, Joe Tong, being eligible and having offered himself for election, be elected as a Director of the Company, with effect from Closing of the Proposed Transaction.”

 

Non-Executive Directors’ Recommendation

 

The Non-Executive Directors unanimously recommend Shareholders VOTE IN FAVOUR of Resolutions 4.1 to 4.3.

 

Resolution 5 – Approval of Share Consolidation

 

To consider and, if thought fit, pass the following Resolution as an ordinary resolution:

 

“That, for the purpose of section 254H of the Corporations Act and for all other purposes, the ordinary shares of the Company be consolidated through the conversion of every [#] ordinary shares in the Company held by a Shareholder into one (1) ordinary share, with fractional entitlements rounded in the manner and on the terms and conditions set out in the Explanatory Memorandum.”

 

The exact consolidation ratio will be set by the Directors at least 7 days prior to the Meeting. The Company shall notify Shareholders of the exact consolidation ratio by a means reasonably calculated to inform Shareholders, including by issuing a press release or filing a Form 6-K with the SEC. The exact consolidation ratio will be between consolidating every 10 Shares into 1 Share and consolidating every 20 Shares into 1 Share and will be included in Resolution 5 that is put to the Meeting.

 

Board Recommendation

 

The Directors unanimously recommend Shareholders VOTE IN FAVOUR of Resolution 5.

 

 

 

 

23 NOTICE OF MEETING

 

Resolutions – Approval of director benefits

 

Resolution 6.1 – Approval of Non-Executive Director Benefits

 

To consider and, if thought fit, pass the following Resolution as an ordinary resolution:

 

“That, subject to and conditional on the Transaction Resolutions being passed and Closing of the Proposed Transaction, approval is given for all purposes (including for sections 195(4) and 208 and Division 2 of Part 2D.2 of the Corporations Act) for the giving of cash payment by the Company of US$1,000,000 to each of the Non-Executive Directors (or their related entities) in connection with the Closing of the Proposed Transaction (Non-Executive Director Benefits), on the terms and conditions set out in the Explanatory Memorandum.”

 

Resolution 6.2 – Approval of acceleration of Phantom Warrants and grant of Incentive Award

 

To consider and, if thought fit, pass the following Resolution as an ordinary resolution:

 

“That approval is given for all purposes for the acceleration of Phantom Warrants and grant of Incentive Award by the Company to JADR Consulting Group Pty Limited, an entity associated with Justin Davis-Rice, on the terms and conditions set out in the Explanatory Memorandum.”

 

Board Recommendation

 

The Directors all have a material personal interest in the outcome of Resolutions 6.1 and 6.2. Therefore, the Directors do not consider it appropriate to make a recommendation on how to vote on these resolutions.

 

Voting exclusion statement

 

The Directors will be abstaining from voting their own shares on Resolutions 6.1 and 6.2. The Company will disregard any votes cast in favour of Resolution 6.1 and 6.2 by or on behalf of the Directors, or any of their associates. However, this does not apply to a vote cast in favour of the Resolutions by:

 

(a) a person as a proxy or attorney for a person who is entitled to vote on Resolutions 6.1 and 6.2, in accordance with the directions or attorney to vote on the Resolutions in that way; or
   
(b) the Chair as proxy or attorney for a person who is entitled to vote on Resolutions 6.1 and 6.2, in accordance with a direction given to the Chair to vote on the Resolutions in that way.

 

A person appointed as a proxy must not vote, on the basis of that appointment, on Resolutions 6.1 and 6.2 if:

 

(a) the proxy is either:

 

  (i) a member of the Key Management Personnel of the Company; or
     
  (ii) a Closely Related Party of such a member; and
(b) the appointment does not specify the way the proxy is to vote on Resolutions 6.1 and 6.2.

 

Further information in relation to the Resolutions set out in this Notice of Meeting is set out in the Explanatory Memorandum which accompanies and forms part of this Notice.

 

Other Business

 

To consider any other business that may be brought before the Meeting in accordance with the Constitution of the Company and the Corporations Act.

 

By order of the Board

Mark Ziirsen

Company Secretary

23 November 2021

 

 

 

 

24 NOTICE OF MEETING

 

Voting and other information

This information should be read together with and forms part of the Notice of Meeting.

 

a) Registered ownership and beneficial ownership

 

If your shares are registered in your name with our transfer agent, Continental Stock Transfer & Trust Company, then you are considered the “registered owner” for those shares. If you are the registered holder of your shares, you have the right to vote your shares by proxy or to attend the Meeting and vote in person.

 

If your shares are held through a bank, broker or other nominee, then you are considered to hold your shares in “street name”. While you are the “beneficial owner” of those shares, you are not considered the registered owner. As the beneficial owner of the shares, you have the right to instruct your bank, broker or other nominee how to vote your shares. However, since you are not the registered owner of your shares, you may not attend the Meeting and vote these shares in person unless you obtain a “legal proxy” through your bank, broker or other nominee.

 

If you are a beneficial owner and do not provide your bank, broker or other nominee with voting instructions and do not obtain a “legal proxy” from your bank, broker or other nominee, under the rules of various national and regional securities exchanges, the bank, broker or other nominee may generally vote on routine matters but cannot vote on non-routine matters. If the bank, broker or other nominee that holds your shares votes on one or more matters, but does not receive instructions from you on how to vote your shares on one or more non-routine matters, the bank, broker or other nominee will inform us that it does not have the authority to vote on such non-routine matters with respect to your shares. This is generally referred to as a “broker non-vote”. We do not expect any broker non-votes at the Meeting, because we expect that all the Resolutions will be considered non-routine. In such event, banks, brokers and nominees will not be able to vote on any matters at the Meeting, and accordingly will not vote at all, unless they receive voting instructions from the beneficial owners. If any of the Resolutions are considered routine, however, broker non-votes may occur with respect to the non-routine matters.

 

b) Determination of entitlement to attend and vote

 

The Board has determined that a person’s entitlement to vote at the Meeting will be the entitlement of that person set out in the register of Shareholders as at 10:00am (AEDT) on Tuesday, 21 December 2021 (6:00pm (EST) on Monday, 20 December 2021). Accordingly, transactions registered after that time will be disregarded in determining Shareholders entitled to vote at the Meeting.

 

Eligible Shareholders or their proxies and attorneys wishing to vote in person should attend the Meeting and are asked to arrive at least 30 minutes prior to commencement of the Meeting so that their shareholding may be checked against the register and their attendance recorded.

 

If you hold your shares in street name and you wish to vote in person at the Meeting, please contact your bank, broker or other nominee for the procedures necessary to allow you to do so.

 

c)

Voting by proxy

   

(a)

A Shareholder entitled to attend and vote at the Meeting may appoint one proxy or, if the Shareholder is entitled to cast 2 or more votes at the Meeting, 2 proxies, to attend and vote instead of the Shareholder.
   
(b) Where 2 proxies are appointed to attend and vote at the Meeting, each proxy may be appointed to represent a specified proportion or number of the Shareholder’s voting rights at the Meeting.

 

 

 

 

25 NOTICE OF MEETING

 

(c) A proxy need not be a shareholder of the Company.
   
(d) A proxy may be an individual or a body corporate. If a body corporate is appointed, the proxy form must indicate the full name of the body corporate and the full name or title of the individual representative of the body corporate for the Meeting.
   
(e) A proxy vote may be submitted by Internet at www.cstproxyvote.com and following the instructions on the Proxy Form. To be valid, a proxy submitted by Internet must be submitted by the date and time stipulated on the Proxy Form.
   
(f) A Proxy Form accompanies this Notice. A return envelope, which requires no postage if mailed in the United States, is enclosed for your convenience. The Proxy Form also may be returned by email. For the Proxy Form to be valid it must be signed, dated and received, together with the power of attorney or other authority (if any) under which the form is signed, or a (notarially) certified copy of that power of attorney, by 10:00am (AEDT) on Sunday, 19 December 2021 (6:00pm (EST) on Saturday, 18 December 2021):
   
  Post to: Continental Stock Transfer & Trust Co., 1 State Street - Floor 30, New York, NY 10275-0741
   
  Email to: proxy@continentalstock.com

 

If you hold your shares in street name and you wish to vote by proxy, please follow the directions provided to you by your bank, broker or other nominee in order to instruct your bank, broker or other nominee how to vote your shares.

Any proxy given pursuant to solicitation under paragraph (e) or (f) and received in time for the Meeting will be voted in accordance with your specific instructions. If you provide a proxy, but you do not provide specific instructions on how to vote on each proposal, the proxy holders will vote in their own discretion according to their best judgment, to the extent permitted by applicable laws and regulations.

 

WHETHER OR NOT YOU EXPECT TO ATTEND, YOU ARE REQUESTED BY THE BOARD TO PROMPTLY RETURN THE ENCLOSED PROXY FORM OR TO SUBMIT YOUR PROXY BY INTERNET. SHAREHOLDERS WHO EXECUTE PROXIES RETAIN THE RIGHT TO REVOKE THEM AT ANY TIME PRIOR TO THE VOTING THEREOF.

 

PLEASE NOTE: IF YOUR SHARES ARE HELD IN STREET NAME, YOUR BROKER, BANK OR OTHER NOMINEE CANNOT VOTE YOUR SHARES ON NON-ROUTINE ITEMS OF BUSINESS, SUCH AS THE ELECTION OF DIRECTORS, UNLESS YOU INSTRUCT YOUR NOMINEE HOW TO VOTE IN ACCORDANCE WITH THE DIRECTIONS YOU RECEIVE FROM YOUR NOMINEE.

 

d) Proxy voting by the Directors

 

If you appoint a Director as a proxy and do not direct the proxy how to vote on Resolution 6.1 or 6.2, the Director will abstain from voting your Shares on those Resolutions. The Directors intend to vote all undirected proxies in favour of all other Resolutions.

 

If you appoint the Chairman as a proxy and do not direct the proxy how to vote on any of the Transaction Resolutions, Resolution 6.1 or 6.2, the Chairman will abstain from voting your Shares on those Resolutions. The Chairman intends to vote all undirected proxies in favour of Resolution 5.

 

With respect to any other proposal that properly comes before the Meeting, the Chairman will vote in his own discretion according to his best judgment, to the extent permitted by applicable laws and regulations.

 

 

 

 

26 NOTICE OF MEETING

 

e) Revoking a Proxy

 

You may revoke any proxy by notifying the Company in writing by mail at Attention: Continental Stock Transfer & Trust Co., 1 State Street - Floor 30, New York, NY 10275-0741, or by email at proxy@continentalstock.com. You also may revoke any proxy by submitting a later-dated proxy or by voting in person at the Meeting. Attendance at the Meeting does not alone serve to revoke a proxy. For a written revocation or later-dated proxy to be valid, it must be received by 10:00am (AEDT) on 21 December 2021 (6:00pm (EST) on 20 December 2021).

 

If you hold your shares in street name, please follow the directions provided to you by your bank or broker in order to revoke your voting instructions.

 

f) Voting by Corporate Representatives

 

A body corporate may elect to appoint an individual to act as its representative in accordance with section 250D of the Corporations Act, in which case the Company will require a certificate of appointment of the corporate representative executed in accordance with the Corporations Act. The certificate of appointment must be lodged with the Company before the Meeting.

 

g) Quorum and voting rights

 

Two or more Shareholders present at the Meeting and entitled to vote on a resolution at the Meeting shall constitute a quorum.

 

Each share is entitled to one vote upon all items of business to be acted upon at the Meeting.

 

h) Required votes

 

Other than Resolutions 2 and 3, all Resolutions are ordinary resolutions, which require a simple majority of votes cast by Shareholders present and entitled to vote on the resolution to be in favour of the resolution.

 

Resolutions 2 and 3 are special resolutions, which require at least 75% of the votes cast by Shareholders present and entitled to vote on the resolution to be in favour of the resolution.

 

Any shares that are not voted (whether by abstention, broker non-vote or otherwise) will have no effect on an ordinary resolution or a special resolution. A “broker non-vote” occurs when your ordinary shares are held in street name and the bank, broker or other nominee does not have authority to vote on an item of business on your behalf (but does have authority to vote on other items of business). This may occur if the item of business is non-routine, and you do not provide voting instructions to your bank, broker or other nominee. See “Registered ownership and beneficial ownership” above.

 

i) Shareholder questions

 

In order to provide an equal opportunity for all Shareholders to ask questions of the Board, we ask you to submit in writing any questions to the Company. Please send your questions via email or mail to:

 

Company Secretary

Naked Brand Group Limited

Level 61, MLC Centre

25 Martin Place

Sydney NSW 2000, Australia

cosec@nakedbrands.com

 

Written questions must be received by no later than 10:00am (AEDT) on Sunday, 19 December 2021 (6:00pm (EST) on Saturday, 18 December 2021). Your questions should relate to matters that are relevant to the business of the Meeting, as outlined in this Notice and Explanatory Memorandum.

 

 

 

 

27 NOTICE OF MEETING

 

During the course of the Meeting, the Chairman will seek to address as many Shareholder questions as reasonably practicable, and where appropriate, will give a representative of the auditor the opportunity to answer written questions addressed to it. However, there may not be sufficient time available to answer all questions at the Meeting. Please note that individual responses may not be sent to Shareholders.

 

j) Availability of meeting materials

 

The Meeting materials, including the Notice and Explanatory Memorandum, are available at our corporate website, ir.nakedbrands.com. You may also obtain a copy of these materials and the Proxy Form, free of charge, by contacting us by mail c/- Continental Proxy Services, 1 State Street, New York NY 10004, by email at proxy@continentalstock.com or by logging on to https://www.cstproxy.com/nakedbrands/egm2021 including the Company name and your control number in the subject line.

 

If you hold your shares in “street name” through a bank, broker or other nominee, you must use the voter instruction form provided to you by your bank, broker or other nominee to vote your shares. If you hold your shares in “street name,” do not use a proxy card provided by our transfer agent, Continental Stock Transfer & Trust Company. Only if your shares are registered in your name with our transfer agent may you use a proxy card provided by our transfer agent. If you hold your shares in “street name” and you wish to attend the meeting and vote in person, you must first obtain a “legal proxy” from your bank, broker or other nominee.

 

k) Costs

 

The Company will bear the cost of preparing, printing, assembling and mailing these materials, the Proxy Form, and any other material which may be sent to Shareholders in connection with the Meeting. It is contemplated that brokerage houses will forward these materials and the Proxy Form to beneficial owners at the Company’s request. In addition to the solicitation of proxies by mail, our officers and regular employees may solicit proxies without additional compensation, by telephone or other electronic means. We may reimburse brokers or other persons holding shares in their names or the names of their nominees for the expenses of forwarding soliciting material to their principals and obtaining their proxies.

 

l) Where you can find more information

 

The Company files annual and other reports and documents with the SEC under the Securities Exchange Act of 1934, as amended. The Company’s SEC filings made electronically through the SEC’s EDGAR system are available to the public at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549-1004. Please call the SEC at (800) SEC-0330 for further information on the operation of the public reference room.

 

 

 

 

28 EXPLANATORY MEMORANDUM

 

Explanatory Memorandum to the Notice of Extraordinary General Meeting

 

Purpose of this Explanatory Memorandum

 

This document is an important document. This Explanatory Memorandum explains the items of business to be considered at the Extraordinary General Meeting and should be read in conjunction with the Notice of Meeting. This Explanatory Memorandum provides Shareholders with the necessary information to assist them in deciding how to vote on the items of business to be considered at the Extraordinary General Meeting.

 

This Explanatory Memorandum does not take into account the individual investment objectives, financial situation and particular needs of Shareholders or any other person. Accordingly, it should not be relied upon as the sole basis for any decision in relation to the items of business to be considered at the Extraordinary General Meeting. You should read this Explanatory Memorandum in its entirety before making a decision as to how to vote at the Extraordinary General Meeting. If you have any doubt as to what you should do once you have read this Explanatory Memorandum, you should consult your financial or legal adviser as soon as possible.

 

Forward looking statements

 

Certain statements in this Explanatory Memorandum relate to the future. Those statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by those statements. These statements reflect views only as of the date of this Explanatory Memorandum.

 

While the Company believes that the expectations reflected in the forward-looking statements of the Company in this document are reasonable, neither the Company nor any other person gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statements in this Explanatory Memorandum will actually occur and you are cautioned not to place undue reliance on those forward looking statements.

 

Notice to persons outside Australia

 

This Explanatory Memorandum has been prepared in accordance with Australian laws, disclosure requirements and accounting standards. These laws, disclosure requirements and accounting standards may be different to those in other countries.

 

Disclaimer

 

No person is authorised to give any information or make any representation in connection with the items of business to be considered at the Extraordinary General Meeting which is not contained in this Explanatory Memorandum.

 

Any information or representation not contained in this Explanatory Memorandum may not be relied on as having been authorised by the Company or the Directors in connection with the items of business to be considered at the Extraordinary General Meeting.

 

 

 

 

29 EXPLANATORY MEMORANDUM

 

Privacy

 

To assist the Company to conduct the Extraordinary General Meeting, the Company may collect personal information including names, contact details and shareholding of Shareholders and the names of persons appointed by Shareholders to act as proxies at the Meeting. Personal information of this nature may be disclosed by the Company to its share registry and print and mail service providers. Shareholders have certain rights to access their personal information that has been collected and should contact the Company Secretary if they wish to access their personal information.

 

Responsibility statement

 

The information contained in this Explanatory Memorandum other than the CAG Information and Independent Expert’s Report, including information as to the views and recommendations of the Directors, (Company Information) has been prepared by the Company and is the responsibility of the Company. None of CAG, the Wang Parties, their respective associates or advisers assume any responsibility for the accuracy or completeness of the Company Information.

 

The CAG Information, which includes information as to the intentions of CAG and the Wang Parties and their proposed nominee directors, has been provided by CAG and is its responsibility. None of the Company, its Directors or advisers assume any responsibility for the accuracy or completeness of the CAG Information.

 

CAG has given and has not withdrawn, before the date of this Explanatory Memorandum, its written consent to the inclusion of the CAG Information in the form and context in which it is included and to all references in this Explanatory Memorandum to the CAG Information in the form and context in which they appear.

 

The Independent Expert has prepared the Independent Expert’s Report pertaining to the Proposed Transaction and takes responsibility for the Independent Expert’s Report contained in Annexure A. It has consented to the inclusion of the Independent Expert’s Report in this Explanatory Memorandum. The Independent Expert is not responsible for any other information contained within this Explanatory Memorandum. Shareholders are urged to read the Independent Expert’s Report carefully and, in its entirety, to understand the scope of that report, the methodology of the assessment, the sources of information and the assumptions made.

 

To the extent that the Independent Expert’s Report contains financial projections, forecasts, valuations or other content prepared by the Independent Expert, none of the Directors, the Company or its advisers represent, adopt or otherwise assume any responsibility for that content. Projections, forecasts, valuations and other forward looking statements are by their nature uncertain and dependent on a number of future events. Any such statements should not be regarded as guidance and the Company does not propose to report or make disclosures relative to those statements.

 

The Independent Expert has given and has not withdrawn, before the date of this Explanatory Memorandum, its written consent to the inclusion in this Explanatory Memorandum of the information prepared by it in the form and context in which it is included and to all references in this Explanatory Memorandum to that information in the form and context in which they appear.

 

 

 

 

30 EXPLANATORY MEMORANDUM

 

ASIC and SEC

 

A copy of this Notice of Meeting has been lodged on 10 November 2021 with ASIC pursuant to ASIC Regulatory Guides 74 and 76. ASIC nor any of its officers take any responsibility for the contents of this Notice of Meeting and Explanatory Memorandum.

 

This Notice and Explanatory Memorandum will be filed with the SEC. Neither the SEC nor any state securities commission has approved or disapproved of the securities described herein or passed upon the adequacy or accuracy of this Notice of Meeting or any filing made with the SEC in connection with the proposed transactions discussed herein. Any representation to the contrary is a criminal offense.

 

The Shares issuable in the Proposed Transaction are being offered and sold pursuant to the exemption provided by Section 4(a)(2) and Rule 506(b) of Regulation D of the U.S. Securities Act of 1933 (Securities Act), for transactions not involving any public offering, and pursuant to the exemption provided by Regulation S for offers and sales outside the U.S.

 

Glossary

 

Terms and abbreviations used in the Notice of Meeting and this Explanatory Memorandum have the same meaning and are defined in the Explanatory Memorandum’s Glossary in Schedule 1, other than in the Independent Expert’s Report which contains its own glossary.

 

Indicative timetable

 

Event Date
Date of this Notice of Meeting and Explanatory Memorandum Tuesday, 23 November 2021
Latest time for receipt of Proxy Forms 10:00am on Sunday, 19 December 2021 (AEDT) / 6:00pm on Saturday, 18 December 2021 (EST)
Determination of voting entitlements for Meeting 10:00am on Tuesday, 21 December 2021 (AEDT) / 6:00pm on Monday, 20 December 2021 (EST)
Extraordinary General Meeting 10:00am on Tuesday, 21 December 2021 (AEDT) / 6:00pm on Monday, 20 December 2021 (EST)
Share Consolidation Thursday, 23 December 2021 (AEDT) / Wednesday, 22 December 2021 (EST)
Target Closing Date for the Proposed Transaction* by 31 December 2021
Target date for Distribution by 31 December 2021

 

*Assuming the Transaction Resolutions are passed and all other Conditions to the Proposed Transaction are satisfied or waived.

 

All dates and times in the above timetable are indicative only and subject to change. The Company will provide reasonable notice of any such variation on their website at ir.nakedbrands.com.

 

 

 

 

 

31 EXPLANATORY MEMORANDUM

 

1 Resolution 1 – Approval of Proposed Transaction

 

1.1 Overview of the Proposed Transaction

 

On 5 November 2021, NBG entered into a definitive stock purchase agreement providing for NBG to complete a combination with Cenntro Automotive Group Limited, a Hong Kong company (CAG HK), Cenntro Automotive Corporation, a Delaware corporation (CAC), and Cenntro Electric Group, Inc., a Delaware corporation (CEG and, collectively with CAG HK and CAC, the CAG Subs). Concurrently with the execution of the definitive stock purchase agreement for the combination, NBG entered into a definitive loan agreement for, and funded, a US$30 million secured loan to the CAG Subs (NBG Loan).

 

In addition, NBG has entered into definitive agreements for (i) an “at-the-market” offering, through Maxim Group, LLC (Maxim), of up to US$300 million of Shares (ATM Offering) and (ii) a private placement to certain accredited investors of US$30 million of Shares and warrants to purchase Shares (Private Placement).

 

Summaries of the definitive agreements are set out below; copies of the full agreements are available as exhibits to the Form 6-K filed by NBG with the SEC on 8 November 2021 which is available on the SEC website or upon request to the Company, as referenced below.

 

1.1.1 Stock Purchase Agreement

 

On 5 November 2021, NBG entered into a stock purchase agreement (Stock Purchase Agreement) with CAG and the CAG Subs.

 

Pursuant to the Stock Purchase Agreement, NBG will purchase from CAG, and CAG will sell to NBG (Proposed Transaction), (i) all of the issued and outstanding ordinary shares of CAG HK, (ii) all of the issued and outstanding shares of common stock, par value $0.001 per share, of CAC, and (iii) all of the issued and outstanding shares of common stock, par value $0.01 per share, of CEG, (together, the Cenntro Shares).

 

The consummation of the Proposed Transaction (Closing) is expected to occur by 31 December 2021, after the required approval by the NBG Shareholders and CAG Shareholders and the satisfaction or waiver of the other closing conditions set forth in the Stock Purchase Agreement, including the condition that NBG have cash of at least US$282 million and liabilities of no more than US$10 million in the aggregate immediately prior to the Closing, and that The Nasdaq Stock Market LLC (Nasdaq) has approved the initial listing application in connection with the Proposed Transaction with respect to the Acquisition Shares (defined below) and the Acquisition Shares have been approved for listing on Nasdaq as of the Closing.

 

There can be no assurance, however, that the closing conditions set forth in the Stock Purchase Agreement will be satisfied or waived. For instance, NBG may be unsuccessful in completing Additional Financings (defined below) in order to satisfy the US$282 million minimum cash condition, Nasdaq may not approve the initial listing application, or the NBG Shareholders or the CAG Shareholders may not approve the Proposed Transaction. Accordingly, there can be no assurance that the Proposed Transaction will be consummated on the terms described in this Explanatory Memorandum, or at all.

 

The Stock Purchase Agreement is attached as Exhibit 10.1 to the Form 6-K. The following summary of the Stock Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.1 to the Form 6-K which is available on the SEC website or upon request to NBG.

 

 

 

 

32 EXPLANATORY MEMORANDUM

 

Consideration

 

The aggregate purchase price for the Cenntro Shares will be a number of Shares equal to seven-thirds (7/3) times (i) the number of fully diluted Shares outstanding immediately prior to the Closing (as determined in accordance with the Stock Purchase Agreement and described below), less (ii) the number of Shares underlying the Converted CAG Options (defined below) (Acquisition Shares). Promptly following the Closing, CAG will distribute the Acquisition Shares to the holders of capital stock of CAG in accordance with the distribution described in the Stock Purchase Agreement (Distribution). Each CAG employee stock option outstanding immediately prior to the Closing will be converted into an option to purchase a number of Shares equal to the number of CAG shares for which such stock option was exercisable immediately prior to the Closing multiplied by the Exchange Ratio (as defined below) at an option exercise price equal to the exercise price per share of such stock option immediately prior to the Closing divided by the Exchange Ratio, as determined in accordance with the Stock Purchase Agreement (Converted CAG Option). Following the Closing, the Acquisition Shares will be registered for resale with the SEC by NBG.

 

The number of fully diluted Shares outstanding, as determined in accordance with the Stock Purchase Agreement, will be equal to the sum of (i) the number of issued and outstanding Shares (including restricted stock) immediately prior to the Closing, plus (ii) the number of Shares underlying restricted stock units and performance units and issuable upon the exercise, conversion, or other exchange of options, warrants, preferred shares, convertible debt securities, or similar rights issued outstanding immediately prior to the Closing or that a third party otherwise has the right to acquire. However, the number of fully diluted Shares outstanding will exclude (i) a number of Shares issued in up to $100 million of Additional Financings that corresponds to the amount of cash in excess of US$282 million held by NBG immediately prior to the Closing, divided by the volume weighted average price, based on the greater of (A) the additional financing price per share and (B) the additional financing floor price per share, of the Shares issued in such Additional Financings, as determined in accordance with the Stock Purchase Agreement, and (ii) the Shares issuable under the Incentive Award (as defined below) granted to JADR Consulting Group Pty Limited, an entity associated with Justin Davis-Rice, NBG’s Executive Chairman and Chief Executive Officer.

 

The exchange ratio, as determined in accordance with the Stock Purchase Agreement, will be equal to (i) (a) the Acquisition Shares, less the number of Acquisition Shares distributable by CAG to the holders of its preferred shares in satisfaction of their liquidation preference, as determined in accordance with the Stock Purchase Agreement, multiplied by (b) the ratio of (I) the aggregate number of shares of CAG capital stock underlying the CAG employee stock options that are outstanding immediately prior to the Closing over (II) the fully diluted shares of CAG capital stock outstanding, divided by (ii) the aggregate number of shares of CAG capital stock underlying the CAG employee stock options that are outstanding immediately prior to the Closing (Exchange Ratio).

 

U.S. Tax Treatment

 

The parties intend that the Proposed Transaction will qualify as a “reorganization” within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended (Code), and the Stock Purchase Agreement was adopted as a “plan of reorganization” within the meaning of Section 368 of the Code.

 

 

 

 

33 EXPLANATORY MEMORANDUM

 

Representations and Warranties

 

The Stock Purchase Agreement contains representations and warranties of CAG relating to, among other things, organization and qualification; authority relative to the Stock Purchase Agreement; no conflicts; required filings and consents; capitalization; ownership of the Cenntro Shares; and board, shareholder, and other necessary approvals.

 

The Stock Purchase Agreement also contains representations and warranties of the CAG Subs, relating to, among other things, organization and qualification; subsidiaries; capitalization; authority relative to the Stock Purchase Agreement; no conflicts; required filings and consents; compliance with laws; CAG Subs financial statements; no undisclosed liabilities; absence of certain changes or events; absence of litigation; employee benefit plans; labor and employment matters; restrictions on business activities; title to property; intellectual property; taxes; environmental matters; agreements; insurance; governmental actions and filings; customers and suppliers; inventory; anti-corruption laws; interested party transactions; board, shareholder, and other necessary approvals; and brokers.

 

The Stock Purchase Agreement contains representations and warranties of NBG relating to, among other things, organization and qualification; subsidiaries; capitalization; authority to enter into and consummate the Stock Purchase Agreement; absence of conflicts, required filings and consents; compliance with laws; financial statements; absence of undisclosed liabilities; absence of certain changes or events; absence of litigation; employee benefit plans; labor matters; restrictions on business activities; title to property; intellectual property; taxes; environmental matters; agreements; insurance; governmental actions and filings; anti-corruption laws; interested party transactions; listing of securities; board, shareholder, and other necessary approvals; and brokers.

 

Covenants

 

The Stock Purchase Agreement includes customary covenants of the parties with respect to business operations prior to consummation of the Proposed Transaction and efforts to satisfy conditions to the consummation of the Proposed Transaction. The Stock Purchase Agreement also contains additional customary covenants of the parties, as well as the following:

 

  As promptly as practicable, NBG will prepare and file with ASIC this Notice of Meeting for the purpose of convening the Extraordinary General Meeting to consider and, if thought fit, vote in favour of the Transaction Resolutions.
     
  NBG will take all action within its power as may be necessary and appropriate such that, immediately following the Closing, the Board of Directors of NBG will consist of up to five directors, which will initially include one director nominee to be designated by NBG, in its sole discretion, prior to the Closing, and four director nominees to be designated by the Wang Parties (as defined below), in their sole discretion, prior to the Closing. In addition, NBG will take all action within its power as may be necessary or appropriate such that, immediately following the Closing, the current executive officers of Cenntro will be the initial executive officers of NBG after the Proposed Transaction, as follows: Peter Wang, Chief Executive Officer; Edmond Cheng, Chief Financial Officer; Wei Zhong, Chief Technology Officer; and Marianne McInerney, Chief Marketing Officer.

 

 

 

 

34 EXPLANATORY MEMORANDUM

 

  NBG will completely divest itself of the business operated through FOH Online Corp., a wholly owned subsidiary of NBG.
     
  NBG, CAG and CAG Subs will cooperate to establish an equity incentive plan and an employee stock purchase plan.
     
  At any time on or prior to the Closing Date, NBG may consummate the sale of newly issued Shares or Share equivalents, for cash, in one or more public or private additional financings, provided that the additional financings will not exceed gross proceeds of US$100 million in the aggregate, on such terms as NBG, after consultation with CAG, will determine, in its reasonable discretion (Additional Financing), and provided further that all such Additional Financings meet certain other conditions as set forth in the Stock Purchase Agreement.

 

Conditions to Closing

 

The Closing of the Proposed Transaction is estimated to occur on 31 December 2021 and is subject to a number of conditions precedent (Conditions) under the Stock Purchase Agreement. FIRB Approval was obtained for the Proposed Transaction on 12 November 2021.The parties are still working towards satisfying the other Conditions as at the date of this Explanatory Memorandum, including the Company seeking the approval of Shareholders for the Transaction Resolutions at the Extraordinary General Meeting in accordance with this Explanatory Memorandum, NBG having cash of at least US$282 million and no more than $10 million in liabilities immediately prior to the Closing and Nasdaq having approved the initial listing application for the Shares in connection with the Proposed Transaction.

 

General Conditions

 

Consummation of the Proposed Transaction is conditioned on approval by NBG’s Shareholders. In addition, the consummation of the Proposed Transaction contemplated by the Stock Purchase Agreement is conditioned upon, among other things:

 

  Either (i) CAG will have received a written no objection notification under the FATA from the Australian Commonwealth Treasurer (or its delegate) in respect of CAG and certain holders of the capital stock of CAG acquiring the Acquisition Shares in accordance with the Stock Purchase Agreement, either on an unconditional basis or subject to such conditions acceptable to CAG (acting reasonably and in good faith), or (ii) the Australian Commonwealth Treasurer, by reason of lapse of time, will no longer be empowered to make an order under the FATA in respect of the acquisition of the Acquisition Shares by CAG and certain holders of the capital stock of CAG in the manner contemplated by the Stock Purchase Agreement on grounds that the Australian Commonwealth Treasurer was otherwise empowered to make under the FATA.
     
  The Proposed Transaction will have been approved by (i) the prior written consent of China Logistic Investment Holding (5) Limited and (ii) approved and authorized by holders of issued and outstanding shares of CAG capital stock, which carry, in the aggregate, not less than two-thirds of the total voting power of all the issued and outstanding shares of CAG.
     
  The Transaction Resolutions will have been approved by the required affirmative vote of the Shareholders of NBG.

 

 

 

 

35 EXPLANATORY MEMORANDUM

 

  No governmental authority will have enacted, issued, promulgated, enforced or entered any law, rule, regulation, award, injunction, judgment, regulatory or supervisory mandate, order, writ, decree or ruling which is then in effect and has the effect of making the Proposed Transaction illegal or otherwise prohibiting consummation of the Proposed Transaction.
     
  All specified waiting periods (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act) will have expired or been terminated.
     
  The initial listing application filed with Nasdaq in connection with the transactions contemplated by the Stock Purchase Agreement with respect to the Acquisition Shares will have been approved and the Acquisition Shares will have been approved for listing on Nasdaq, as at the date of the Closing.
     
  NBG will have entered into the registration rights agreement as described below.

 

NBG’s Conditions to Closing

 

The obligations of NBG to consummate the Proposed Transaction are also conditioned upon, among other things:

 

  The representations and warranties of CAG and the CAG Subs will be true and correct as of the Closing (subject to certain bring-down standards).
     
  CAG and CAG Subs will have performed or complied in all material respects with all agreements and covenants required by the Stock Purchase Agreement to be performed or complied with by them on or prior to the date of the Closing.
     
  No material adverse effect with respect to CAG Subs, taken as a whole, will have occurred between the date of the Stock Purchase Agreement and the Closing.
     
  No litigation, suit, claim, action, proceeding or investigation shall be pending or threatened by any governmental entity which is reasonably likely to prevent consummation of the transactions contemplated by the Stock Purchase Agreement, cause any of the transactions contemplated by the Stock Purchase Agreement to be rescinded following consummation, or affect materially and adversely the right of CAG Subs to own, operate, or control the CAG Subs or any of their assets and operations following the Proposed Transaction and no award, injunction, judgment, regulatory or supervisory mandate, order, writ, decree or ruling issued by a governmental authority to any such effect will be in effect.
     
  CAG will have obtained certain consents and approvals described in the Stock Purchase Agreement.

 

CAG’s and CAG Subs’ Conditions to Closing

 

The obligations of CAG and the CAG Subs to consummate the Proposed Transaction are also conditioned upon, among other things:

 

  The representations and warranties of NBG will be true and correct as of the Closing (subject to certain bring-down standards).

 

 

 

 

36 EXPLANATORY MEMORANDUM

 

  NBG will have performed or complied with in all material respects with all agreements and covenants required by the Stock Purchase Agreement to be performed or complied with by it on or prior to the date of the Closing.
     
  No material adverse effect with respect to NBG and its subsidiaries, taken as a whole, will have occurred between the date of the Stock Purchase Agreement and the Closing.
     
  No litigation, suit, claim, action, proceeding or investigation will be pending or threatened by any governmental entity which is reasonably likely to prevent consummation of the transactions contemplated by the Stock Purchase Agreement, cause any of the transactions contemplated by the Stock Purchase Agreement to be rescinded following consummation, or affect materially and adversely or otherwise encumber the title of the Acquisition Shares to be issued to CAG by NBG in connection with the Proposed Transaction and no award, injunction, judgment, regulatory or supervisory mandate, order, writ, decree or ruling issued by a governmental authority to any such effect will be in effect.
     
  NBG will have obtained certain consents and approvals described in the Stock Purchase Agreement.
     
  NBG will have been in compliance in all material respects with the reporting requirements under the Securities Act and the U.S. Securities Exchange Act of 1934, as amended (Exchange Act) between the date of the Stock Purchase Agreement and the Closing.
     
  NBG’s chief executive officer and chief financial officer will have resigned from all of their positions and offices with NBG.
     
  NBG will have completed the divestiture of the business operated through FOH Online Corp., in compliance with the terms and conditions of the Stock Purchase Agreement.
     
  NBG will have cash of at least US$282 million immediately prior to the Closing.
     
  The five-day average trading price for the five consecutive trading days ending on (and inclusive of) the date of the Closing (after giving effect to the consolidation of share capital of NBG under Resolution 5) will not be less than US$5.00 per NBG ordinary share.
     
  NBG and its subsidiaries will not have any liabilities in excess of US$10 million in the aggregate, other than certain non-monetary or contingent liabilities described in the Stock Purchase Agreement.

 

Waivers

 

At any time prior to the Closing, any party may (a) extend the time for the performance of any obligation or other act of any other party, (b) waive any inaccuracy in the representations and warranties of any other party contained in the Stock Purchase Agreement or in any document delivered pursuant thereto, or (c) waive compliance with any agreement of any other party or any condition to its own obligations contained herein. Any such extension or waiver will be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. Delay in exercising or failure to assert any right under the Stock Purchase Agreement will not constitute a waiver of such right. Any waiver of any term or condition will not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of the Stock Purchase Agreement.

 

 

 

 

37 EXPLANATORY MEMORANDUM

 

Termination

 

The Stock Purchase Agreement may be terminated at any time prior to the Closing:

 

  by mutual written consent of NBG and CAG at any time;
     
  by either NBG or CAG if the Proposed Transaction is not consummated on or before 5 May 2022 (Outside Date), provided that the right to terminate the Stock Purchase Agreement will not be available to any party whose action or failure to act has been a principal cause of or primarily resulted in the failure of the Closing to occur on or before such date and such action or failure to act constitutes a breach of the Stock Purchase Agreement;
     
  by either NBG or CAG if a governmental entity shall have enacted, issued, promulgated, enforced or entered any award, injunction, judgment, regulatory or supervisory mandate, order, writ, decree or ruling which has become final and non-appealable and has the effect of permanently making consummation of the Proposed Transaction illegal or otherwise preventing or prohibiting consummation of the Proposed Transaction;
     
  by either NBG or CAG upon a material breach of any covenant or agreement set forth in the Stock Purchase Agreement on the part of CAG or CAG Subs or NBG, as applicable, or if any representation or warranty of CAG or CAG Subs or NBG, as applicable, has become inaccurate or untrue such that the conditions to Closing would not be satisfied as of the time of such breach or as of the time such representation or warranty having become untrue, and if curable, has not cured by the earlier of 30 days after notice of such breach and the Outside Date, provided that the terminating party is itself not in material breach of the Stock Purchase Agreement that has not been cured;
     
  by NBG, if CAG fails to obtain requisite approval of the Proposed Transaction by CAG’s shareholders within 20 business days following the date of the Stock Purchase Agreement; or
     
  by CAG or NBG, if the Transaction Resolutions fail to receive the requisite vote for approval at the Extraordinary General Meeting called for the purpose of voting in favor of such matters.

 

1.1.2 Interests of Management

 

Certain of NBG’s executive officers have interests in the Proposed Transaction that are different from, or in addition to, those of other shareholders generally. NBG’s Directors were aware of and considered these interests, among other matters, in evaluating the Proposed Transaction and in recommending it to Shareholders. These interests include, among other things, the fact that:

 

 

 

 

38 EXPLANATORY MEMORANDUM

 

Phantom Warrants

 

In January 2021, NBG’s Board granted to JADR Consulting Group Pty Limited, an entity associated with Justin Davis-Rice, NBG’s Executive Chairman and Chief Executive Officer, phantom warrants with a strike price equal to US$0.37 (the 20-day volume-weighted average price of the Shares) (Phantom Warrants). The Phantom Warrants vest in three tranches, with the first tranche having vested immediately, the second tranche having vested on 21 July 2021 and the third tranche vesting on 21 January 2022. Each tranche will cover 1.5% of the outstanding Shares as of the date of vesting and will expire three years after its vesting date. Upon exercise, NBG will net cash settle the Phantom Warrants. The first and second tranches have both been exercised and settled. CAG required that the Phantom Warrants be exercised and paid out on or prior to consummation of the Proposed Transaction. The Phantom Warrants did not contain any right for the Company to accelerate vesting or require their early exercise. As such, agreement was reached with the holder for the vesting to be accelerated on the basis that the Phantom Warrants would retain the right to participate in the Shares to be issued as part of the Proposed Transaction and for the holder to relinquish the right to exercise the Phantom Warrants during the three years following vesting. This will enable the Phantom Warrants to be paid out at or prior to consummation of the Proposed Transaction. Based on the assumptions described in Section 1.1.3 “Pro Forma Ownership” below, NBG estimates that Mr. Davis-Rice’s associated entity will receive approximately US$11.9 million in cash in settlement of the Phantom Warrants. The actual amount may be substantially more or less than this estimate, depending on the future market price of the Shares and the number of Shares issued in the ATM Offering and the Private Placement.

 

The Non-Executive Directors consider that the acceleration of Phantom Warrants is on arms’ length terms. As such, the acceleration of the Phantom Warrants was not subject to Shareholder approval. However, the Company is seeking Shareholder approval at Resolution 6.2 for completeness, due to the impact of the Proposed Transaction on the timing of the exercise of the Phantom Warrants. See further detail at Section 6.2.

 

Incentive Award

 

In September 2021, NBG’s Board granted to JADR Consulting Group Pty Limited, an entity associated with Mr. Davis-Rice an incentive award (Incentive Award), as follows: on the first, second and third anniversary of the grant of the award, JADR Consulting Group Pty Limited will be granted Shares with a market value equal to 1.5% of the increase in NBG’s total market capitalization since the grant of the award. The market value of the Shares to be issued and the total market capitalization will be determined based on the daily VWAP for NBG’s Shares for the five trading days immediately prior to the applicable anniversary. The payment of the Incentive Award will be accelerated in the event of a change in control of NBG (including the combination with CAG Subs), and the Shares issued in the change in control generally will be included in determining the total market capitalization (and will be so included in the case of the combination with CAG Subs). Based on the assumptions described in Section 1.1.3 “Pro Forma Ownership” below, NBG estimates that it will issue approximately 112.7 million Shares upon settlement of the Incentive Award in connection with the Proposed Transaction. The actual amount may be substantially more or less than this estimate, depending on the future market price of the Shares and the number of Shares issued in the Proposed Transaction, the ATM Offering and the Private Placement.

 

The Non-Executive Directors consider that the grant of the Incentive Award is on arms’ length terms. The grant of the Incentive Award was not subject to Shareholder approval. However, the Company is seeking Shareholder approval at Resolution 6.2 for completeness, due to the impact of the Proposed Transaction on the calculation of Shares to be issued under the Incentive Award. See further detail at Section 6.2.

 

 

 

 

39 EXPLANATORY MEMORANDUM

 

1.1.3 Pro Forma Ownership

 

NBG estimates that Additional Financings in an aggregate amount of approximately US$50 million will be necessary in order to satisfy the US$282 million minimum cash condition. NBG intends to consummate the Private Placement and sell shares in the ATM Offering (each of which may qualify as an Additional Financing) in order to raise such amount. Assuming that NBG raises approximately $20 million in the ATM Offering and $30 million in the Private Placement, such that it has exactly US$282 million of cash immediately prior the Closing and that the Warrants (as defined below) are exercised through a Black-Scholes cashless exercise, and using (i) an assumed price of US$0.6017 per Share (the closing price as of 29 October 2021) for determining the number of Shares to be issued upon Black-Scholes cashless exercise of the Warrants and upon acceleration of the Incentive Award, and (ii) an assumed sales price per Share of US$0.5716 (95% of the closing price as of October 29, 2021) for sales in the ATM Offering, NBG estimates that it will issue approximately 35.0 million Shares in the ATM Offering, 133.2 million Shares in the Private Placement, 112.7 million Shares upon settlement of the Incentive Award, and 2,332.7 million Shares to CAG to be distributed to CAG Shareholders. In addition, there would be options and warrants to purchase 185.4 million Shares outstanding (including the Converted CAG Options).

 

Immediately after the Closing, based on the assumptions set forth above, the shares issued to CAG to be distributed to CAG Shareholders would represent 62.9% of the fully diluted Shares, the Shares of existing NBG Shareholders as of the date of this Explanatory Memorandum would represent 24.5% of the fully diluted Shares, the Shares issued in the Private Placement would represent 3.6% of the fully diluted Shares, the Shares issued in the ATM Offering would represent 0.9% of the fully diluted Shares, the Shares issued to JADR Consulting Group Pty Limited, an entity associated with Mr. Davis-Rice under the Incentive Award would represent 3.0% of the fully diluted Shares, and the aggregate number of Shares underlying options and warrants (including the Converted CAG Options) would represent 5.0% of the fully diluted Shares.

 

The foregoing amounts are estimates only and depend to a high degree on assumptions about the future market price of Shares, which is inherently unpredictable. The number of Shares issued in the transactions is likely to be different to, and may be substantially more or less than, the amounts set forth above, depending on the future market price of the Shares. However, because the number of Shares issuable to the shareholders of CAG generally is based on the number of fully diluted Shares outstanding immediately prior to the Closing, issuances of additional Shares in the ATM Offering or the Private Placement will dilute the existing shareholders of NBG, but not the shareholders of CAG, except to the extent NBG has in excess of US$282 million in cash at the Closing that was raised in Additional Financings, subject to certain requirements detailed in the Stock Purchase Agreement. The Shares issued to JADR Consulting Group Pty Limited, an entity associated with Mr. Davis-Rice under his Incentive Award will dilute both the existing shareholders of NBG and the shareholders of CAG.

 

1.1.4 Loan Agreement

 

In connection with the execution of the Stock Purchase Agreement, NBG and the CAG Subs entered into a loan agreement (Loan Agreement) pursuant to which NBG made a loan to the CAG Subs in an aggregate principal amount of US$30 million (NBG Loan). The aggregate principal amount of the NBG Loan and accrued and unpaid interest will mature on the date that is 90 calendar days after the termination of the Stock Purchase Agreement (Maturity Date), or 90 days after written demand for payment, if the Proposed Transaction is consummated. Interest on the outstanding principal amount of the NBG Loan will accrue at the rate of 10% per annum, payable on the Maturity Date. The NBG Loan is secured by substantially all of the assets of the CAG Subs and, upon the reasonable request of NBG, the subsidiaries of CAG Subs.

 

The Loan Agreement is attached as Exhibit 10.2 to the Form 6-K. The foregoing description of the Loan Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.2 to the Form 6-K which is available on the SEC website or upon request to the Company.

 

 

 

 

40 EXPLANATORY MEMORANDUM

 

1.1.5 Support Agreements and Statements of Intention

 

In connection with the execution of the Stock Purchase Agreement, certain CAG Shareholders, who hold sufficient ordinary and preferred shares of CAG to approve the Proposed Transaction, have entered into support agreements pursuant to which they have agreed, among other things, to execute written consents to approve the Proposed Transaction. In connection with the execution of the Stock Purchase Agreement, certain Shareholders have delivered statements of intention to vote in favor of the Proposed Transaction at the Meeting called to approve the Proposed Transaction by the Shareholders.

 

The form of support agreement is attached as Exhibit 10.3 to the Form 6-K. The foregoing description of the form of support agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.3 to the Form 6-K which is available on the SEC website or upon request to the Company.

 

1.1.6 Lock-up Agreements

 

In connection with the execution of the Stock Purchase Agreement, certain CAG Shareholders entered into lock-up agreements with NBG, pursuant to which they agreed not to transfer the Shares beneficially owned or owned of record by them for a period of 180 days after consummation of the Proposed Transaction. The book-entry positions evidencing the Acquisition Shares issued under the Stock Purchase Agreement will each include prominent disclosure or bear a prominent legend evidencing the fact that such shares are subject to such lock-up provisions.

 

The form of lock-up agreement is attached as Exhibit 10.4 to the Form 6-K. The foregoing description of the form of lock-up agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.4 to the Form 6-K which is available on the SEC website or upon request to the Company.

 

1.1.7 Relationship Agreement

 

In accordance with clause 6.13 of the Stock Purchase Agreement, on Closing, the Board will consist of up to five Directors, which will initially include Mr. Davis-Rice as the Director nominee designated by NBG, and Peter Wang, Chris Thorne, Joe Tong and Simon Charles Howard Tripp (together, the Wang Parties Nominee Directors). The Wang Parties and the Company have entered into a relationship agreement (Relationship Agreement) which provides that Mr. Tripp, who is one of the existing Directors, will be a Wang Parties Nominee Director to satisfy the legal requirement of having at least two Directors resident in Australia. Further, in the event that any of the Wang Parties Nominee Directors are removed as a Director by members pursuant to section 203D of the Corporations Act, Peter Wang may give notice in writing to NBG of the person that Peter Wang, Cenntro Enterprise Limited and Trendway Capital Limited (each a company ultimately owned by Peter Wang) (together, the Wang Parties) and any other party controlled by Peter Wang which holds Shares, wishes to nominate in place of that previous Wang Parties Nominee Director, together with their signed consent to act, and NBG must ensure such individual is appointed as a Wang Parties Nominee Director of the same class of Director as the previous nominee within two business days of receipt of such notice and signed consent to act, for so long as the Wang Parties collectively beneficially own at least 10% of the issued and outstanding Shares.

 

The Relationship Agreement is attached as Exhibit 10.5 to the Form 6-K. The foregoing description of the Relationship Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.5 to the Form 6-K which is available on the SEC website or upon request to the Company.

 

 

 

 

41 EXPLANATORY MEMORANDUM

 

1.1.8 Registration Rights Agreement

 

The shareholders of CAG, holders of secured convertible notes of CAG and certain of the directors and officers of NBG will enter into a registration rights agreement pursuant to which they will be granted certain rights to have registered for resale under the Securities Act the Shares received by them in the Proposed Transaction (in the case of the shareholders of CAG and holders of secured convertible notes of CAG) or granted to them as compensation (in the case of the directors and officers of NBG), subject to certain conditions set forth therein. Pursuant to the registration rights agreement, NBG will be required to file a registration statement registering the resale of the securities within five business days following the completion of the Proposed Transaction.

 

The form of registration rights agreement is attached as Exhibit 10.6 to the Form 6-K. The foregoing description of the registration rights agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.6 to the Form 6-K which is available on the SEC website or upon request to the Company.

 

1.1.9 ATM Offering

 

On 8 November 2021, NBG and Maxim entered into an equity distribution agreement (Equity Distribution Agreement) for the ATM Offering, pursuant to which NBG may sell, from time to time, through Maxim, Shares having an aggregate offering price of up to US$300 million.

 

Sales of the Shares, if any, will be made by any method permitted that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act. Maxim is not required to sell any specific amount but will act as NBG’s exclusive sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between Maxim and NBG. NBG has no obligation to sell any of Shares under the Equity Distribution Agreement and may at any time suspend solicitation and offers under the Equity Distribution Agreement.

 

As compensation for its services, NBG agreed to pay to Maxim a commission of 3% of the gross proceeds received by NBG from the sales of Shares under the Equity Distribution Agreement. NBG also agreed to reimburse Maxim up to US$30,000 for its costs and expenses relating to the Equity Distribution Agreement, including legal expenses.

 

The Equity Distribution Agreement contains customary representations, warranties and covenants of NBG and is subject to customary closing conditions. In addition, NBG and Maxim have agreed to indemnify each other against certain liabilities, including indemnification of Maxim by NBG for liabilities arising from breaches of the representations, warranties, or obligations contained in the Equity Distribution Agreement.

 

NBG is party to an existing equity distribution agreement (February EDA) with Maxim, dated as of 24 February 2021, pursuant to which NBG may sell from time to time, through Maxim, Shares having an aggregate offering price of up to US$99.5 million. Pursuant to the February EDA, through the date of this Notice, NBG has sold an aggregate of approximately 72.1 million Shares for gross proceeds of approximately US$70.8 million and net proceeds of approximately US$68.6 million, after payment to Maxim of an aggregate of approximately US$2.1 million in commissions. In connection with the execution of the Equity Distribution Agreement, NBG terminated the offering under the February EDA.

 

The Equity Distribution Agreement is attached as Exhibit 10.7 to the Form 6-K. The foregoing description of the Equity Distribution Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.7 to the Form 6-K which is available on the SEC website or upon request to the Company.

 

The Shares are being offered pursuant to a registration statement on Form F-3 (File No. 333-256258), filed by the Company on 18 May 2021, which became effective automatically upon filing, and a prospectus supplement for the offer and sale of Shares in the ATM Offering filed on 8 November 2021.

 

 

 

 

42 EXPLANATORY MEMORANDUM

 

1.1.10 Private Placement

 

On 5 November 2021, NBG entered into a securities purchase agreement (Securities Purchase Agreement) for the Private Placement with certain accredited investors (Investors), pursuant to which NBG will sell to the Investors an aggregate of 49,900,200 Shares, at a purchase price of US$0.6012 per share, for an aggregate purchase price of US$30 million. In addition, each Investor will receive (i) a five-year warrant (Five-Year Warrant) to purchase a number of Shares equal to the number of shares for which such Investor subscribed, or 49,900,200 Shares (Five-Year Warrant Shares) and (ii) a one-year warrant (One-Year Warrant, and each of the Five-Year Warrant and One-Year Warrant, a Warrant) to purchase a number of Shares equal to 0.65 multiplied by the number of shares for which such Investor subscribed, or 32,435,130 Shares (the One-Year Warrant Shares, and together with the Five-Year Warrant Shares, the Warrant Shares). The Warrants have an exercise price of US$0.7348 per Share (Exercise Price).

 

The sale of Shares and Warrants pursuant to the Securities Purchase Agreement is expected to close by 12 November 2021, subject to customary closing conditions, including the review and non-objection by Nasdaq. If NBG does not receive the non-objection from Nasdaq by 20 November 2021, the market price of Shares closes below US$0.401, or the closing under the Securities Purchase Agreement does not occur on or prior to 29 November 2021, the Investors have the right to terminate the Securities Purchase Agreement.

 

The Securities Purchase Agreement

 

The Securities Purchase Agreement includes certain customary representations and warranties and covenants of NBG and the Investors. In addition, NBG has certain customary indemnification obligations under the Securities Purchase Agreement. In addition, the Securities Purchase Agreement provides:

 

  Beneficial Ownership Limit: Notwithstanding the Investors’ agreement to purchase Shares, the Securities Purchase Agreement provides that no Investor will purchase securities to the extent that such purchase will result in the Investor beneficially owning in excess of 9.9% of the then issued and outstanding Shares on the date of the closing under the Securities Purchase Agreement (Beneficial Ownership Limit).
     
  Ownership Requirement: The Investors are required to own at least the number of Shares purchased on the date of the closing under the Securities Purchase Agreement through the date of the Extraordinary General Meeting called for the purpose of voting in favor of the Transaction Resolutions.
     
  Prospectus Supplement: NBG agreed to file a prospectus supplement to the automatic shelf registration statement on Form F-3 (File No. 333-256258) which will offer for resale the Shares sold to the Investors (including the Warrant Shares, in an amount equal to 150% of the number of Warrant Shares initially issuable upon cash exercise of the Warrants).

 

The Securities Purchase Agreement is attached as Exhibit 10.8 to the Form 6-K The foregoing description of the Securities Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.8 to the Form 6-Kwhich is available on the SEC website or upon request to the Company.

 

 

 

 

43 EXPLANATORY MEMORANDUM

 

The Warrants

 

The Warrants expire on the date that is the earlier of: (i) one year (for the One-Year Warrants) or five years (for the Five-Year Warrants) from the issuance date or (ii) the date that the Proposed Transaction is completed. In addition, the Warrants provide:

 

  Net Share Cashless Exercise: The Warrants can be exercised on a cashless, net share exercise basis at any time and from time to time commencing six months after the date of issuance.
     
  Black-Scholes Cashless Exercise: At any time, the Warrants may be exercised on a cashless basis for a number of Warrant Shares equal to the Black-Scholes value per Warrant Share, multiplied by the number of Shares as to which the Warrant is being exercised, divided by the Closing Bid Price (defined below) as of two trading days prior to the exercise date (but not less than the floor price specified in the Warrants). For this purpose, the Black-Scholes value per Warrant Share is calculated using an underlying price of US$0.701; a risk-free interest rate corresponding to the U.S. Treasury rate; a strike price equal to the Exercise Price; an expected volatility equal to 135%; and a deemed remaining term of five years (regardless of the actual remaining term of the Warrant). Accordingly, the Black-Scholes value calculation will not change as a result of future changes in the stock price, risk-free interest rate, volatility or remaining life of the Warrants. As a result of the Black-Scholes cashless exercise provision, the number of Shares issued upon exercise of the Warrants may substantially exceed 82,335,329 Shares. In no event, however, will the number of Shares issued upon exercise of the Warrants exceed 247,005,988 Shares.
     
  Automatic Exercise. Immediately prior to the consummation of the Proposed Transaction, the Warrants will automatically be exercised pursuant to a Black-Scholes cashless exercise.
     
  Beneficial Ownership Limit: Except for an automatic exercise of the Warrants as described above, the Warrants may not be exercised to the extent the holder or any of its affiliates would beneficially own more than the Beneficial Ownership Limit after giving effect to such exercise.
     
  Structural Anti-Dilution: The Exercise Price and number of Warrant Shares covered by the Warrants are subject to adjustment for stock splits, stock combinations and certain other transactions affecting NBG’s share capital as a whole.

 

The form of Warrant is as Exhibit 4.1 to the Form 6-K. The foregoing description of the Warrants does not purport to be complete and is qualified in its entirety by reference to Exhibit 4.1 to the Form 6-K which is available on the SEC website or upon request to the Company.

 

Use of Proceeds

 

NBG intends to use the net proceeds from the sale of the securities in the Private Placement and from the sale of shares in the ATM Offering to meet the US$282 million minimum cash closing condition for the Proposed Transaction, after payment of transaction fees and expenses incurred by NBG. NBG believes that its available cash after the Proposed Transaction, including a portion of the proceeds from the Private Placement and the ATM Offering, will be used as working capital for Cenntro’s business and for other general corporate purposes. If the Proposed Transaction is not consummated, NBG intends to use the net proceeds from the Private Placement and ATM Offering for other strategic acquisitions of businesses or technologies, as well as for working capital and other general corporate purposes.

 

 

 

 

44 EXPLANATORY MEMORANDUM

 

1.1.11 Key elements for Shareholder approval

 

The Proposed Transaction involves the following key elements that are subject to Shareholder approval:

 

the issue of the Acquisition Shares to CAG on Closing, the Distribution of the Acquisition Shares by CAG to the CAG Shareholders promptly following Closing, and each other acquisition of a relevant interest in Shares under the Proposed Transaction for the purposes of item 7 of section 611 of the Corporations Act (see Resolution 1);
   
the change of the name of the Company to Cenntro Electric Group Limited from Closing (see Resolution 2);
   
the amendment of the Constitution to permit three staggered classes of Directors from Closing (see Resolution 3) (Amended Constitution);
   
the appointment of Peter Wang, Chris Thorne, and Joe Tong as Directors from Closing (see Resolution 4); and
   
the consolidation of the Shares in the Company (see Resolution 5). The exact consolidation ratio will be set by the Directors at least 7 days prior to the Meeting. The Company shall notify Shareholders of the exact consolidation ratio by a means reasonably calculated to inform Shareholders, including by issuing a press release or filing a Form 6-K with the SEC. The exact consolidation ratio will be between consolidating every 10 Shares into 1 Share and consolidating every 20 Shares into 1 Share and will be included in Resolution 5 that is put to the Meeting.

 

1.2 About Cenntro

 

1.2.1 ECV Business

 

Cenntro is a designer and manufacturer of electric light- and medium-duty commercial vehicles (ECVs). Its purpose-built ECVs are designed to serve a variety of corporate and governmental organizations in support of city services, last-mile delivery and other commercial applications. As of June 30, 2021, Cenntro has sold or put into service more than 3,100 units of its first ECV model, the Metro®, in 16 countries across North America, Europe and Asia. The Metro® has been driven over seven million miles by commercial end-users in China alone. Cenntro plans to introduce four new ECV models to serve the light- and medium-duty market by the end of 2021. Cenntro’s mission is to leverage its technological and research and development capabilities in areas such as vehicle design, digital component development, vehicle control software, and “smart” driving to become a technology leader in the ECV market.

 

Cenntro has established an asset-light, distributed manufacturing business model through which it can distribute its unique modular vehicles in unassembled semi-knockdown vehicle kits (“vehicle kits”) for local assembly in addition to fully assembled vehicles. Cenntro’s business model allows it to both (i) design, manufacture, assemble, homologate and sell ECVs to third parties for distribution and service to end-users and (ii) distribute manufactured vehicle kits, which are then assembled, homologated, sold and serviced by third parties in their respective markets. Cenntro refers to these third parties as its “channel partners.” Each of Cenntro’s vehicle models has a modular design that allows for local assembly in small factory facilities that require less capital investment. It currently manufactures its own vehicle kits for the Metro® in its facilities in China. Cenntro plans to leverage the economies of scale of its manufacturing partners in China to manufacture vehicle kits for each of its new models for local assembly at its facilities in the United States and Europe to further reduce overhead costs compared to its competitors. Cenntro believes its distributed manufacturing methodology allows it to execute its business plan with less capital than would be required by the traditional, vertically integrated automotive model and, in the long-term, drive higher profit margins.

 

 

 

 

45 EXPLANATORY MEMORANDUM

 

Cenntro began pilot production of its first-generation, U.S. Class 1 (0–6,000 lbs.), electric light-duty commercial vehicle, the Metro®, in 2018, and, as of June 30, 2021, it has sold approximately 1,800 units in over 16 countries across Europe, North America and Asia, and put into service approximately 1,300 additional units in China through affiliated parties. The Metro® is a customizable ECV used in commercial applications such as city services (i.e., street cleaners, fire trucks, food trucks and garbage trucks) and last-mile delivery. The Metro® was “born electric,” meaning that, unlike many other ECVs that are converted from existing internal combustion engine vehicle (ICE) designs, the Metro® was purpose-built from inception to be highly cost-effective and energy efficient, implementing a number of proprietary design elements including a lightweight structure and efficient power system. With Cenntro’s developed supply chain and relationships with component vendors and its growing channel partner network, it believes it is in position for larger scale production and distribution of the Metro®. For the year ended December 31, 2020 and the six months ended June 30, 2021, Cenntro generated US$4.8 million and US$2.0 million in revenue, respectively, from sales of its Metro®.

 

Since its inception, Cenntro has invested resources in the research and development not only of ECV design and manufacturing processes, but also in digitally enabled components, intra-vehicle communication, vehicle control and vehicle automation, or what it collectively refers to as “vehicle digitization.” Cenntro has developed a prototype system-on-chip (which it sometimes refer to as an SOC) for vehicle control and an open-platform, programmable chassis, with potential for both programmable and autonomous driving capabilities. Cenntro has also designed and developed in-house a proprietary telematics box, sometimes referred to as a T-Box, which allows its ECVs to send and receive data relating to location, speed, acceleration, braking and battery consumption, among others, to end-users. Additionally, Cenntro’s engineers have worked closely with certain of its qualified suppliers to co-design digitally enabled components in areas such as steering, braking, acceleration and signalling.

 

Cenntro plans to introduce four new ECV models in 2021, which are designed for specific geographic markets and to address additional commercial applications. The CityPorter™ is a U.S. Class 4 (over 14,000 lbs.) medium-duty electric commercial truck designed to meet U.S. city delivery and service needs. Cenntro completed homologation of the CityPorter™ in the United States in the third quarter of 2021. The CityPorter™ is expected to be commercially available in the United States during the fourth quarter of 2021. The CityPorter™ will be offered in four configurations: cargo-box, van, flatbed truck, and basic chassis for upfitters. The Neibor® 200 is a European Union and UK L7e (heavy quadricycle) Class compact electric commercial vehicle designed to meet European neighborhood delivery and neighborhood service needs. The Neibor® 200 is expected to be homologated and commercially available in the European market in the fourth quarter of 2021. The Logistar™ is a European Union N1 Class electric commercial vehicle designed to meet the European Union’s city delivery and city service requirements and complement Cenntro’s smaller Neibor® 200 model. It is expected to be homologated and commercially available in the European market in the fourth quarter of 2021. Cenntro is also developing the Terramak™, an off-road electric commercial vehicle for U.S. off-road use with essentially no homologation requirements and limited certification requirements. The Terramak™ is currently in preparation for production and is expected to be commercially available in the United States during the fourth quarter of 2021. See “Risk Factors—Risks related to Cenntro’s business and financial results—Cenntro’s future success depends on its ability to introduce new models and it may experience delays in launching and ramping up production of its new ECV models”.

 

 

 

 

46 EXPLANATORY MEMORANDUM

 

Cenntro has also developed the e-Portee, an open-platform and programmable chassis product. The e-Portee is designed to be a basic modular building block for use by auto makers and special vehicle upfitters in the design of automated or autonomous driving vehicles. Through its advancements in vehicle digitization and smart components, Cenntro has equipped the e-Portee with digital control capabilities. The e-Portee allows third-party developers to integrate detection devices (i.e., lidar, radar, ultra-sound, infrared and other sensory devices) and third-party or proprietary decision-making software to allow for vehicles based on the programmable chassis to be driven autonomously.

 

The electrification of the global automotive industry has been a major policy focus of governments worldwide. Certain countries, such as the United States, China, Canada, Germany, and various other European countries, have announced aggressive electric vehicle (EV) initiatives designed to reduce carbon emissions, through the replacement of fossil fuels, and have begun incentivizing the development and sale of ECVs through government subsidy programs. According to a June 2020 market study on sales of light-duty ECVs and urban logistics by Frost & Sullivan, a global growth strategy consulting and research firm, total sales volume of light-duty ECVs in the European Union are expected to increase from approximately 21,000 units in 2019 to approximately 204,900 units in 2024, representing a CAGR of 57.7%, and total sales volume of light ECVs in the United States will increase from less than a thousand units in 2019 to approximately 52,600 units in 2024.

 

1.2.2 CAG and the Wang Parties

 

Prior to the Closing of the Proposed Transaction, the entities that comprise Cenntro are wholly owned subsidiaries of CAG. As of the date hereof, the Chief Executive Officer of CAG, Peter Z. Wang, indirectly owns approximately 40.318% of CAG, on a fully diluted basis, which ownership Mr. Wang holds through CEL and TCL. Mr. Wang has a significant influence over all corporate matters relating to CAG.

 

For further information on CAG and the Wang Parties’ voting power in the Company following the Proposed Transaction and their intentions for the Company, please see Sections 1.3.3, 1.4.2 and 1.4.3.2.

 

1.3 Why is Shareholder approval required?

 

1.3.1 General

 

Resolution 1 seeks Shareholder approval pursuant to and in accordance with item 7 of section 611 of the Corporations Act for the Proposed Transaction, including in relation to the issue of the Acquisition Shares by the Company to CAG as consideration for the acquisition by the Company of the Cenntro Shares from CAG, the subsequent Distribution of the Acquisition Shares by CAG to the CAG Shareholders promptly following Closing and entry into the Lock-up Agreements.

 

Please refer to section 1.3.3 for a table summarising each proposed acquisition of a relevant interest in Shares under the Proposed Transaction that Shareholder approval is being sought for under Resolution 1.

 

 

 

 

47 EXPLANATORY MEMORANDUM

 

1.3.2 Section 611 item 7 of the Corporations Act

 

(a) Takeover prohibitions under section 606 of the Corporations Act

 

Section 606(1) of the Corporations Act prohibits the acquisition of a relevant interest in the issued voting shares of a public company if, as a result of that transaction, that person’s (or another person’s) voting power in the company increases:

 

  from 20% or below to more than 20%; or
     
  from a starting point that is above 20% and below 90%.

 

(b) Voting power

 

The voting power of a person in a company is determined in accordance with section 610 of the Corporations Act. The calculation of a person’s voting power in a company involves determining the votes attached to the voting shares in the company in which the person and that person’s associates have a relevant interest.

 

(c) Relevant Interest

 

Under section 608(1) of the Corporations Act, a person has a “relevant interest” in securities if they are the holder of the securities, have the power to exercise, or control the exercise of, a right to vote attached to the securities, or have power to dispose of, or control the exercise of a power to dispose of, the securities.

 

Under section 608(3) of the Corporations Act, a person has the relevant interest in any securities that a company has, in which the person’s voting power is above 20% or that the person controls.

 

(d) Section 611 item 7 exception

 

Item 7 of section 611 of the Corporations Act provides an exception to the prohibition in section 606 of the Corporations Act. The exception provides that a person may acquire a relevant interest in a company’s voting shares that would otherwise be a breach of section 606 of the Corporations Act if shareholders of the company approve the acquisition, provided that:

 

  no votes are cast in favour of the resolution by the person proposing to make the acquisition and their associates, or the persons (if any) from whom the acquisition is to be made and their associates; and
     
  shareholders of the company are required to be given all information known to the person proposing to make the acquisition or their associates, or known to the company, that is material to the decision on how to vote on the resolution.

 

Please refer to sections 1.3.3 and 1.4 below for the information required to be provided to Shareholders under item 7 of section 611 of the Corporations Act. Shareholders are also referred to the Independent Expert’s Report attached as Annexure A.

 

 

 

 

48 EXPLANATORY MEMORANDUM

 

1.3.3 Acquisitions requiring Shareholder approval under Resolution 1

 

The following table summarises each proposed acquisition of a relevant interest in Shares under the Proposed Transaction that Shareholder approval is being sought for under Resolution 1:

 

Required information Explanation
A.    CAG’s acquisition of the Acquisition Shares
Identity of the acquirer and its associates

On Closing, it is proposed that CAG will be issued the Acquisition Shares, which will be equal to seven-thirds (7/3) times (i) the number of fully diluted Shares outstanding immediately prior to Closing, less (ii) the number of Shares underlying the Converted CAG Options in accordance with the terms of the Stock Purchase Agreement, as summarised in Section 1.1.

 

Mr. Peter Wang controls both CEL and TCL who are shareholders in CAG.

 

CEL holds approximately 36.852% and TCL holds approximately 3.466% of the fully diluted share capital in CAG.

 

Please see Section 1.2.2 for further information on CAG, CEL, TCL and Mr. Peter Wang.

The voting power that the acquirer and its associates would have as a result of the acquisition

 

 

As at the date of this Explanatory Memorandum, neither CAG, Peter Wang, CEL nor TCL nor any of their respective associates has any voting power in the Company.

 

As a result of the issue of the Acquisition Shares to CAG under the Proposed Transaction, on Closing each of CAG, Peter Wang and CEL will have a relevant interest in up to 2,332,679,328 Shares (pre-Share Consolidation) or approximately 66.20% of the voting shares in the Company (non-diluted).

 

Promptly following Closing, CAG will Distribute all of the Acquisition Shares to the CAG Shareholders. The impact on the Distribution is detailed in Section B below.

Details of the terms of any other relevant agreement between the acquirers and the Company (or any of their associates) that is conditional on (or directly or indirectly depends on) Shareholders’ approval of the acquisition

Please see Section C below on ‘Lock-up Agreements’.

 

 

B.    Distribution of Acquisition Shares by CAG to the CAG Shareholders
Identity of the acquirer and its associates

Promptly following the Closing, CAG will Distribute the Acquisition Shares to the CAG Shareholders in accordance with the terms of the Stock Purchase Agreement, as summarised in Section 1.1.1.

 

Following this Distribution:

 

●     CAG will no longer have a relevant interest in any Shares;

 

     CEL will have a relevant interest in up to 1,257,321,456 Shares (pre-Share Consolidation) or approximately 35.7% of the Shares (which includes a deemed relevant interest as a result of the Lock-up Agreements referred to below);

 

     TCL will have a relevant interest in up to 1,257,321,456 Shares (pre-Share Consolidation) or approximately 35.7% of the Shares (which includes a deemed relevant interest as a result of the Lock-up Agreements referred to below); and

 

    Mr. Peter Wang, as the controller of both CEL and TCL will have a relevant interest in up to 1,257,321,456 Shares (pre-Share Consolidation) or approximately 35.7% of the Shares (which includes a deemed relevant interest as a result of the Lock-up Agreements referred to below).

 

The Company will also be deemed to have a relevant interest in up to 35.7% of its voting shares as a result of the Lock-up Agreements referred to in Section C below.

 

Please see Section 1.2.2 for further information on CAG, CEL, TCL and Mr. Peter Wang.

The voting power that the acquirer and its associates would have as a result of the acquisition

CEL, TCL, Mr. Peter Wang and the Company will each have voting power in up to 35.7% of the Shares.

 

 

Details of the terms of any other relevant agreement between the acquirers and the Company (or any of their associates) that is conditional on (or directly or indirectly depends on) Shareholders’ approval of the acquisition

Please see Section C below on ‘Lock-up Agreements’.

 

 

 

 

C.    Lock-up Agreements
Identity of the acquirer and its associates

Prior to Closing, it is proposed that CEL, TCL and China Leader Group Limited (Restricted Shareholders) will enter into the Lock-up Agreements to agree in favour of the Company not to transfer the Restricted Shares beneficially owned or owned of record by them during the Restricted Period, subject to certain exceptions.

 

Please see Section 1.1.6 for further information on the Lock-up Agreements.

The voting power that the acquirer and its associates would have as a result of the acquisition

The agreement by the Restricted Shareholders not to transfer the Restricted Shares gives the Company a relevant interest in all of the Restricted Shares. In addition, as CEL, TCL and Mr. Wang will have voting power in excess of 20% of the Shares post-Distribution, they will also be deemed to have the Company’s relevant interest in all of the Restricted Shares.

 

As a result, CEL, TCL, Mr. Wang and the Company’s voting power in the Company for the Restricted Period will be 35.7% of the Shares (which includes China Leader Group Limited’s 8.1% voting power in the Shares). Please see Section B above.

Details of the terms of any other relevant agreement between the acquirers and the Company (or any of their associates) that is conditional on (or directly or indirectly depends on) Shareholders’ approval of the acquisition

Please see Sections A and B above.

 

 

 

 

 

 

49 EXPLANATORY MEMORANDUM

 

1.4 Other material information required by section 611 item 7 of the Corporations Act

 

1.4.1 Effect of the Proposed Transaction on the capital structure of the Company

 

The following table provides an estimate of the Company’s Shares that are anticipated to be outstanding, and fully diluted, immediately subsequent to consummation of the Proposed Transaction:

 

Pro-forma ownership of the Company immediately after Closing:

 

    Number of Shares     % (Issued)     % (Fully diluted)  
NBG     909,986,504       25.8 %     24.5 %
Cenntro -ex option holders     2,332,679,328       66.2 %     62.9 %
Private Placement     133,214,741       3.8 %     3.6 %
ATM     34,988,585       1.0 %     0.9 %
Justin Davis-Rice and Associates     112,729,597       3.2 %     3.0 %
Total outstanding Shares     3,523,598,755       100.0 %        
Options/warrants     185,385,637               5.0 %
Total fully diluted after Closing     3,708,984,393               100.0 %
                         
Cenntro fully diluted after Closing  (Cenntro -ex option holders + Converted CAG Options)     2,517,378,356               67.9 %
                         
Cenntro preference shares - NBG share entitlement     105,986,809                  
Converted CAG Options %     7.6594 %                
Converted CAG Options     184,699,028                  
                         
NBG     503,423               0.0136 %
NBG Non-Executive Directors     183,186               0.0049 %
Converted CAG Options     184,699,028               4.9798 %
Total options/warrants     185,385,637               5.0 %

 

 

 

 

50 EXPLANATORY MEMORANDUM 

 

1.4.2 Future intentions for the Company

 

Other than as disclosed elsewhere in this Explanatory Memorandum, following the Closing of the Proposed Transaction, it is contemplated that CAG will immediately distribute the Acquisition Shares and no longer remain a shareholder of the Enlarged Group. Assuming consummation of the Proposed Transaction occurs, the Wang Parties, as principal shareholders of CAG and the Company following the Closing, currently:

 

a. intend to be supportive of the continued operation of Cenntro’s existing business and projects and do not intend to make any significant changes to the business of Cenntro other than with respect to the proposed expansion of current operations, including, for instance, establishing new assembly facilities in Dusseldorf, Germany and Jacksonville, Florida, as previously disclosed to the Company;
   
b. have no intention of injecting further capital into substantially all of the Enlarged Group;
   
c. have no intention of making material changes regarding the future employment of substantially all the present employees of the Enlarged Group;
   
d. intend to retain the composition of the Board as it will be constituted at completion of the Proposed Transaction;
   
e. do not intend to redeploy any fixed assets of the Enlarged Group, other than with respect to the proposed expansion of current operations described above;
   
f. do not intend to transfer any property between the Enlarged Group and CAG, the Wang Parties or any of their respective associates; and
   
g. have no intention to change the Enlarged Group’s existing policies in relation to financial matters or dividends.

 

These intentions are based on information concerning the Company, its business and the business environment which is known to the Wang Parties at the date of this Explanatory Memorandum.

 

These present intentions may change as new information becomes available, as circumstances change or in the light of all material information, facts and circumstances necessary to assess the operational, commercial, taxation and financial implications of those decisions at the relevant time. The Company did not cause its preparation and neither the Company nor its advisers assume any responsibility for the accuracy or completeness of that statement of intention.

 

1.4.3 Board of Directors and Officers of the Company

 

1.4.3.1 Current Board

 

As at the date of this Explanatory Memorandum, the current Directors of the Company are as follows.

 

If the Proposed Transaction does not proceed, the current Directors will remain.

 

(a) Justin Ashley Davis-Rice – Executive Chairman and CEO

 

Mr. Davis-Rice is currently Chairman and Chief Executive Officer Naked Brand Group. Prior to becoming Executive Chairman, Mr. Davis-Rice served as Chief Executive Officer of Bendon Limited from 2010 to 2017. As CEO, he transformed the company through an operational restructuring and a re-engineering of key functional and operational aspects of the business including, supply chain, human resources, design and development, sourcing, wholesale and retail sales bringing the group to operating profits from being loss making. Prior to joining Bendon Limited, in 2004 Mr. Davis-Rice co-founded Pleasure State, an intimate apparel company which he merged with Bendon Limited in May 2010. In 2007, Mr. Davis-Rice licensed Pleasure State’s BIOFIT technology and trademark for what became a US$25m unit royalty agreement generating in excess of US$45m in free cashflow over 3 years and Victoria’s Secret’s biggest bra launch in its history.

 

 

 

 

51 EXPLANATORY MEMORANDUM

 

In April 2021, Mr. Davis-Rice completed an MBO from NBG of the Bendon business, decoupling the Australia and New Zealand company from the public company.

 

Mr. Davis-Rice has wide knowledge and experience in all facets of business operations within the apparel sector, as well as extensive legal, financial and US capital markets expertise.

 

Mr. Davis-Rice has served as a member of the Company’s Board of Directors since January 2017.

 

(b) Andrew Shape – Independent Non-Executive Director

 

Mr. Shape has over 25 years of merchandising, marketing, branding, licensing, and management experience. He is the co-founder and current President of Stran & Company, Inc. — a top 50 promotional merchandise and marketing agency that provides leading consumer brands with promotional merchandise and marketing support. Mr. Shape has also provided consulting and management services to early stage brands on how to launch the brand, create a marketing plan, establish distribution models, earn market share, and formulate an exit strategy.

 

Prior to forming Stran & Company in 1994, Mr. Shape worked at Copithorne & Bellows Public Relations (a Porter Novelli company) as an Account Executive covering the technology industry.

 

(c) Kelvin Dean Fitzalan – Independent Non-Executive Director  

 

Mr. Fitzalan is a tax professional with approximately 33 years of experience and he continues to work with closely held active businesses and their owners across a wide range of industries. He is also currently non-executive Chairman for Sumo Australia Limited.

 

He also is a Chartered Accountant with the Chartered Accountants of Australia and New Zealand and a chartered tax advisor with The Tax Institute (Australia).

 

(d) Simon Charles Howard Tripp – Independent Non-Executive Director  

 

Mr. Tripp has an honours degree in Chemical Engineering from Cape Town University and an MBA from Massey University in New Zealand. Simon has an extensive background in investment banking and capital markets. He was previously a director of Ord Minnett (subsequently acquired by JP Morgan) in Sydney where he was involved in many significant transactions involving IPO’s, capital raisings, M&A and divestments across many sectors including aviation, media, tourism, property and financial services. Mr. Tripp then established a fund with two other partners that raised the funding for and developed the Citibank Centre, a major commercial and retail centre in the Sydney CBD. The development was listed on the Australian ASX. During this time, the fund also managed the Sydney Olympic Stadium and Mr. Tripp was on the board of the stadium during the Sydney 2000 Olympics. Since divesting his interests in the fund, Mr. Tripp has been involved in a number of venture capital deals across many sectors including financial services, mining, retail and property.

 

 

 

 

52 EXPLANATORY MEMORANDUM

 

1.4.3.2 Proposed changes to the Board and Officers

 

Under the Stock Purchase Agreement, the Company is required to take all such action within its power as may be necessary or appropriate such that, immediately following the Closing Date:

 

(a) the Board will consist of up to five Directors, which will initially include:

 

  (i) one (1) director nominee to be designated by the Company, in its sole discretion, prior to the Closing (who shall serve as a class II Director in accordance with the Amended Constitution of the Company following the Closing Date) (Company Nominee Director); and
     
  (ii) four (4) director nominees to be designated by the Wang Parties, in their sole discretion, prior to the Closing (one of whom shall serve as the managing Director, one of whom shall serve as a class I Director, one of whom shall serve as a class II Director, and one of whom shall serve as a class III Director, in accordance with the Amended Constitution of the Company following the Closing Date and the Relationship Agreement) (Wang Parties Nominee Directors);

 

(b) the Board will have a majority of independent Directors for the purposes of Nasdaq and each of whom will serve in such capacity in accordance with the terms of the Amended Constitution of the Company following the Closing Date;
   
(c) to the extent and so long as required by applicable law, the Board will have two (2) Directors who are ordinarily resident in Australia; and
   
(d) the initial officers of the Company will be as follows (as may be updated by CAG prior to Closing following written notice to the Company), who will serve in such capacity in accordance with the terms of the Amended Constitution following the Closing Date:

 

  (i) Peter Wang - CEO;
     
  (ii) Edmond Cheng - CFO;
     
  (iii) Marianne McInerney – CMO;
     
  (iv) Wei Zhong – CTO; and
     
  (v) Tony Tsai - VP and Corporate Secretary.

 

 

 

 

53 EXPLANATORY MEMORANDUM

 

If the Proposed Transaction is approved and subject to Closing, it is proposed that the Company’s Board members will be as follows:

 

Company Nominee Director: Justin Davis-Rice – Director (class II Director);
   
Wang Parties Nominee Directors:

 

Peter Wang  
Proposed role and class Director and Chairman of the Board (Managing Director)
Qualifications and experience Peter Wang is the founder of CAG and Cenntro and has served as Chairman and Chief Executive Officer of CAG, Cenntro’s parent corporation, since 2013. Mr. Wang is an entrepreneur and investor in the electric vehicle and technology industries, and has founded or co-founded a number of companies in his career, including UTStarcom (a global telecom infrastructure provider), which went public in 2000, World Communication Group, an international telecommunication company, and Sinomachinery Group, a diesel power system (engine and transmission) manufacturer. Mr. Wang was named one of the Outstanding 50 Asian Americans in Business by Asian American Business Development Center in 2004, one of China’s 100 Most Innovative Businessmen by Fast Company Magazine in 2017, and one of the Most Intriguing Entrepreneurs by Goldman Sachs in 2019. Mr. Wang is also the chairman of the board of directors of Cenntro Enterprise Limited, a principal stockholder of the Cenntro, and Greenland Technologies Holding Corp. (NASDAQ: GTEC), a transmission products manufacturing company. Mr. Wang holds Bachelor of Science degrees in Computer Science and Math, as well as a Master of Science degree in Electrical Engineering, from the University of Illinois at Chicago. Mr. Wang also holds a Master of Business Administration from Nova Southeastern University.
Associations N/A
Interests As of the date hereof, Mr. Wang owns 40.318% of CAG, on a fully diluted basis, through CEL and TCL, and will receive a significant portion of the Acquisition Shares following the Distribution.

 

Chris Thorne  
Proposed role and class Director (class I Director)
Qualifications and experience Chris Thorne has served as Chairman of the Board of Broadline Capital, a global private equity firm focused on growth capital and impact investments primarily in Asia and North America, since 2005. Mr. Thorne has been the Chairman of the Board for Cytonus Therapeutics since November 2019, Endosphere, Inc. since December 2010 and has been the Chairman of the Board of Powermers, Inc. since January 2010. Mr. Thorne received his Juris Doctor from Harvard Law School with honors, Master of Business Administration from Harvard Business School with final year honors, and a Bachelor’s degree from Harvard University, magna cum laude, where he founded the Harvard Negotiation Law Review and served as president of the university-wide student government. Mr. Thorne is qualified to serve on the Board post-Closing due to his substantial private equity and board of directors experience.
Associations N/A
Interests N/A

 

 

 

 

54 EXPLANATORY MEMORANDUM

 

Joe Tong  
Proposed role and class Director (class II Director)
Qualifications and experience Joe Tong co-founded MeetChina, a leading B2B e-commerce website for China in 1998 and served as its Chief Executive Officer and Director from 1998 to 2003. In 2007, Mr. Tong joined Testra Sensis as its President of China, and helped build Fang.com (NASDAQ: SFUN), a leading real-estate company website in China, and Autohome Inc. (NYSE: ATHM), a leading automotive company website. In 2016, Mr. Tong joined Ford Motor Company as its Head of Smart Mobility, China. Mr. Tong holds a Bachelor’s degree in Computational Mathematics from Nanjing University, and a Master of Business Administration in Finance and Strategic Marketing from the University of Pennsylvania’s Wharton School of Business. Mr. Tong is qualified to serve on the Board post-Closing due to his past experience with business-to-business enterprises and in the automotive industry.
Associations N/A
Interests N/A

 

Simon Charles Howard Tripp
Proposed role and class Director (class III Director)
Qualifications and experience

Refer to Section 1.4.3.1 above.

 

As mentioned in Section 1.1.7, Mr. Tripp, who is one of the existing Directors, will be a Wang Parties Nominee Director to satisfy the legal requirement of having at least two Directors resident in Australia.

Associations Refer to Section 1.4.3.1 above.
Interests Refer to Section 1.4.3.1 above.

 

Resolutions 4.1 to 4.3 are ordinary resolutions that seek approval from Shareholders, subject to and conditional on the Transaction Resolutions being passed and Closing, for the election of the Wang Parties Nominee Directors (who are not already Directors) as Directors of the Company, with effect from Closing.

 

Please refer to Section 4 for further information on Resolution 4.1 to 4.3 and the proposed election of the Wang Parties Nominee Directors as Directors and Section 3 for information on the proposed amendments to the Constitution to permit three staggered classes of Directors.

 

1.5 Reasons to vote on the Proposed Transaction

 

1.5.1 Reasons to vote in favour of the Proposed Transaction

 

Based on its due diligence investigations of the CAG Subs and the industry in which they operate, including the financial and other information provided by CAG in the course of the negotiations, the Company believes that the Proposed Transaction will provide Shareholders with an opportunity to participate in a company with significant growth potential.

 

 

 

 

55 EXPLANATORY MEMORANDUM

 

The Non-Executive Directors consider that the reasons why Shareholders may consider voting in favour of the Transaction Resolutions include:

 

The Non-Executive Directors unanimously recommend that you vote in favour of the Transaction Resolutions in the absence of a Superior Proposal

 

The Non-Executive Directors believe that the Proposed Transaction is in the best interests of Shareholders and are of the view that the following non-exhaustive list of advantages may be relevant to a Shareholder’s decision on how to vote on the Transaction Resolutions:

 

  the Proposed Transaction represents an attractive investment opportunity for the Company to change its business focus to that of an electric commercial vehicle design and manufacturing business;
     
  the Company will obtain ownership of the ECV Business through the acquisition of the Cenntro Group;
     
  the appointment to the Board of the Wang Parties Nominee Directors provides the Company with extensive experience within the ECV industry; and
     
  the consideration for the Proposed Transaction is Shares, thereby allowing the Company to use its strong cash position to grow the ECV Business and potentially increase Shareholder value.

 

In giving their unanimous recommendation for the Proposed Transaction, the Non-Executive Directors have, among other things:

 

  assessed the Proposed Transaction having regard to the Company’s alternatives if the Proposed Transaction does not proceed;
     
  obtained advice from the Company’s advisers; and
     
  considered the Independent Expert’s Report.

 

The Non-Executive Directors intend to cause any Shares in which they have a relevant interest to be voted in favour of the Transaction Resolutions in the absence of a Superior Proposal.

 

The Independent Expert has concluded that the Proposed Transaction is not fair but reasonable to Shareholders in the absence of a superior proposal

 

FTI Consulting (Australia) Pty Limited was engaged by the Non-Executive Directors to prepare the Independent Expert’s Report for Shareholders in respect of the Proposed Transaction. The explanation of why the Independent Expert has concluded the Proposed Transaction is not fair but reasonable to Shareholders in the absence of a superior proposal is set out in Section 1.8.

 

The Independent Expert has identified the following advantages of the Proposed Transaction (note this is a summary of the advantages to Shareholders of the Proposed Transaction, Shareholders should read the Independent Expert’s Report in its entirety before deciding how to vote):

 

  (Participation in the anticipated high growth, ECV industry) If the Proposed Transaction is approved, Shareholders will have the opportunity to participate in an industry that, overall, is expected by many investors and industry analysts to achieve high growth.

 

 

 

 

56 EXPLANATORY MEMORANDUM

 

  (Cenntro’s potential competitive advantages in the ECV industry) If the Proposed Transaction is approved, Shareholders will have the opportunity to participate in the potential returns expected to be generated by Cenntro, an early-stage company that, while facing significant uncertainty and risks, also appears to have developed some competitive advantages in the electric light commercial vehicle sector.
     
  (Only option currently available) The Directors have advised that the Proposed Transaction is the only option currently available to NBG and that there are no other offers or transactions that the Directors are considering. Whilst proceeding with the Proposed Transaction is likely to preclude NBG from pursuing alternative major opportunities which may arise in the future, there is no guarantee that such opportunities may arise and be superior propositions to the Proposed Transaction.
     
  (Impact on NBG’s share price) If the Proposed Transaction is not approved, NBG’s share price may experience a significant decrease, since the market seems to already be pricing into NBG’s shares a likelihood of a value-accretive transaction. That premium might disappear if the Proposed Transaction is not approved.

 

The Independent Expert’s Report is set out in full at Annexure A of the Explanatory Memorandum. Shareholders should read the Independent Expert’s Report in its entirety as part of their assessment of the Proposed Transaction and before casting their vote in relation to the Transaction Resolutions.

 

1.5.2 Reasons to vote against the Proposed Transaction

 

The Non-Executive Directors consider that the reasons why Shareholders may consider voting against the Transaction Resolutions include:

 

Shareholders may disagree with the Non-Executive Directors’ unanimous recommendation

 

Notwithstanding the unanimous recommendation of the Non-Executive Directors in the absence of a Superior Proposal, Shareholders may believe the Proposed Transaction is not in their best interests.

 

Shareholders are not obliged to follow the unanimous recommendation of the Non-Executive Directors.

 

Dilution of shareholding and voting power

 

The aggregate percentage shareholding of an existing Shareholder will be diluted by the issue of the Acquisition Shares to CAG (and the subsequent Distribution to the CAG Shareholders). Based on the assumptions described in Section 1.1.3, following the Proposed Transaction, the existing Shareholders’ ownership interest will be reduced from 100% to approximately 24.5% on a fully diluted basis and the collective entitlement to any dividends and the voting power of existing Shareholders will also be reduced accordingly. Please refer to Section 1.4.1 for further details on the impact of the Proposed Transaction of the Company’s capital structure.

 

 

 

 

57 EXPLANATORY MEMORANDUM

 

Change of business

 

The Company will be changing the nature and scale of its activities which may not be consistent with the objective of all Shareholders. There are additional risk factors associated with the change in nature of the Company’s activities resulting from the Proposed Transaction. Some of the risk factors are summarised in Section 1.6.

 

Additional funding

 

The Company may need additional funding in the future to achieve its long term goals and could result in further dilution at the time.

 

Additional disadvantages

 

In addition, the Independent Expert identified the following disadvantages to the Shareholders of accepting the Proposed Transaction:

 

  (Difficulty in estimating the fair market value of Cenntro) The Independent Expert is of the opinion that there is insufficient information to form an opinion, to the level of certainty required by ASIC guidance, whether the Proposed Transaction is fair. Given that, in their view, the fair market value cannot be reliably estimated as of the date of the Independent Expert’s Report, due to lack of sufficiently reliable and supportable prospective financial information, they cannot opine on the financial benefits of the Proposed Transaction.
     
  (The ECV industry is high risk) There is a high degree of risk inherent in an investment in a company in the ECV industry since, while there appears to be significant opportunity for attractive investment returns, it is a new industry with significant challenges and uncertainty. There are numerous competitors in the industry, and it is not possible, at this stage, to determine with reasonable certainty, which companies will be successful.
     
  (Cenntro is a high-risk investment) There is a high degree of risk inherent in an investment in Cenntro as it is an early-stage company with significant hurdles to overcome to be a successful player in the ECV industry.
     
  (Cenntro has very different investment characteristics to NBG) The investment characteristics (e.g. risks and opportunities) of the ECV industry Cenntro is targeting are very different than the investment characteristics of the fashion and ecommerce industries NBG has historically participated in before the Proposed Transaction. While NBG’s share price has responded positively to NBG’s 24 September 2021 announcement that it was looking at a “disruptive opportunity in the clean technology sector”, there is still a risk some investors may prefer NBG’s historical industry focus over Cenntro’s.
     
  (Prospects of a future takeover) The prospects of future takeover offers may be reduced due to the concentration of ownership resulting from the Proposed Transaction. The Wang Parties, having a major shareholding in CAG, will have a significant ownership stake after the Proposed Transaction (beneficial ownership estimated at approximately 27.6% of the outstanding Shares, or 26.2% on a fully diluted basis), which may dissuade potential buyers due to their ability to block potential transactions.
     
  (Impact on control) If the Proposed Transaction is approved, there will be an impact on the voting power and ownership of the Enlarged Group. In summary, Shareholders will cede a majority of their voting rights to CAG Shareholders.

 

 

 

 

58 EXPLANATORY MEMORANDUM

 

1.6 Key risk factors – Summary

 

1.6.1 Overview

 

In considering the Proposed Transaction, you should be aware that there are a number of risk factors, general and specific, which could materially adversely affect the value of the Shares, the Company’s options and future dividends, the future operating and financial performance of the Enlarged Group, its products and systems, the industry in which it operates and the outcome of an investment in the Enlarged Group. These risks will only be relevant to you if the Proposed Transaction is approved and implemented and you remain a Shareholder on Closing.

 

Before voting at the Meeting, Shareholders should carefully consider the risks summarised in this Section and set out in more detail in Schedule 2, as well as your personal circumstances. These risk factors do not take into account the investment objectives, financial situation, taxation position or particular needs of any specific Shareholder. The information below and in Schedule 2 does not purport to be, nor should it be construed as representing, an exhaustive description of all possible risks.

 

1.6.2 Specific risks associated with the business and operations of the Enlarged Group

 

Risks related to Cenntro’s business and financial results

 

Cenntro has a limited operating history and face significant challenges in an emerging industry.
   
Cenntro has historically incurred losses from its operations and may not be profitable in the future.
   
Cenntro’s ability to develop and manufacture ECVs of sufficient quality, on schedule and on a large scale is still evolving.
   
Cenntro’s future success depends on its ability to introduce new models and it may experience delays in launching and ramping up production of its new ECV models.
   
Cenntro’s operating results may be more volatile due to a high concentration of sales in relatively few channel partners.
   
Cenntro’s reliance on its channel partners to market, sell and service (and in certain limited cases, assemble and/or homologate) its vehicles is subject to substantial risks.
   
Cenntro’s channel partners may reduce or cancel their orders at any time, which could adversely affect its business.
   
Cenntro’s channel partner network may not grow or develop as it currently expects, and if it fails to establish new channel partners in current markets in which it sells ECVs or fails to penetrate new markets, its revenue and financial condition would be adversely affected.
   

Cenntro’s business is subject to the risk of disruption in its supply chain.

   
 

 

 

59 EXPLANATORY MEMORANDUM

 

Cenntro is dependent on its suppliers, certain of which are single-source suppliers, and the inability of these suppliers to continue to deliver, or their refusal to deliver, necessary components of Cenntro’s ECVs at prices and volumes acceptable to it would have a material adverse effect on its business, prospects and operating results.
   
As Cenntro shifts component manufacturing to qualified suppliers and vehicle kit manufacturing to manufacturing partners, it will be relying on third parties to deliver substantially all of its components and vehicle kits for each of its new models. Cenntro’s qualified suppliers and manufacturing partners may fail to deliver components and vehicles kits, respectively, according to schedules, prices, quality and volumes that are acceptable to it.
   
If Cenntro’s suppliers, channel partners or assembly partners fail to use ethical business practices and comply with applicable laws and regulations, Cenntro’s brand image and business could be harmed due to negative publicity.
   
The COVID-19 pandemic has harmed and may continue to harm Cenntro’s business, financial condition, operating results and prospects.
   
Cenntro’s distributed manufacturing methodology and channel partner network model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating its business, financial condition, operating results and prospects difficult.
   
Cenntro’s business plans require a significant amount of capital, which may not be available to it on acceptable terms or at all.
   
Cenntro may not be able to accurately estimate the supply and demand for its vehicles, which could result in a variety of inefficiencies in its business and hinder its ability to generate revenue. If Cenntro fails to accurately predict its manufacturing requirements, it could incur additional costs or experience delays.
   
Cenntro has identified a material weakness in its internal control over financial reporting that could materially harm it. If Cenntro fails to remediate the material weakness, or if it experiences material weaknesses in the future, it may not be able to accurately and timely report its financial condition or results of operations, which may adversely affect investor confidence in it.

 

Risks related to Cenntro’s industry

 

The unavailability or reduction of government and economic incentives or the elimination of regulatory policies which are favourable for ECVs could materially and adversely affect Cenntro’s business, financial condition, operating results and prospects.
   
Cenntro’s future growth is dependent upon end-users’ willingness to adopt ECVs.
   
Cenntro could experience cost increases or disruptions in the supply of raw materials or components used in its vehicles, and a shortage of key components, such as semiconductors, can disrupt its production of ECVs.
   
Increases in the cost, disruptions of supply or shortages of lithium-ion batteries could harm Cenntro’s business.

 

 

 

 

60 EXPLANATORY MEMORANDUM

 

Developments in alternative technologies or improvements in the internal combustion engine may materially and adversely affect the demand for Cenntro’s ECVs.
   
The automotive market is highly competitive, and Cenntro may not be successful in competing in this industry.
   
If Cenntro is unable to keep up with advances in electric vehicle technology, it may suffer a decline in its competitive position.

 

Risks related to legal and regulatory matters

 

Cenntro’s business is subject to substantial regulations, which are evolving, and unfavorable changes or the failure by Cenntro or its channel partners to comply with these regulations could materially and adversely affect its business, financial condition, operating results and prospects. Cenntro faces risks associated with its global operations and expansion, including unfavorable regulatory, political, legal, economic, tax and labor conditions, and with establishing itself in new markets, all of which could harm its business. Cenntro’s business will be adversely affected if it is unable to protect its intellectual property rights from unauthorized use or infringement by third parties.
   
Cenntro may need to defend itself against patent or trademark infringement claims, which may be time-consuming and could cause it to incur substantial costs.
   
Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.
   
Cenntro seeks to continuously expand and improve its information technology systems and use security measures designed to protect its systems against breaches and cyber-attacks. If these efforts are not successful, Cenntro’s business and operations could be disrupted, and its operating results and reputation could be harmed.
   
Data collection is governed by restrictive regulations governing the use, processing, and cross-border transfer of personal information.

 

Risks related to doing business in China

 

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on Cenntro’s business, results of operations, financial condition and prospects.
   
The PRC government may intervene or otherwise adversely affect Cenntro’s operations at any time, or may exert more control over securities offerings conducted overseas and/or foreign investment in China-based issuers, which could materially affect its operations.
   
Uncertainties with respect to the PRC legal system could materially and adversely affect Cenntro and may restrict the level of legal protections to foreign investors.
   
Cenntro currently conducts substantially all of its operations through its subsidiaries established in China. Adverse regulatory developments in China may subject Cenntro to additional regulatory review or regulatory approval, and additional disclosure requirements. Also, regulatory scrutiny in response to recent tensions between the United States and China may impose additional compliance requirements for companies like Cenntro with significant China-based operations. These developments could increase Cenntro’s compliance costs, subject it to additional disclosure requirements, and/or adversely affect its ability to remain listed on Nasdaq.

 

 

 

 

61 EXPLANATORY MEMORANDUM

 

Increases in labour costs and enforcement of stricter labour laws and regulations in China may adversely affect Cenntro’s business and profitability.
   
Fluctuations in the value of the Renminbi, or RMB, and restrictions on currency exchange may adversely affect Cenntro’s business.
   
Cenntro may rely on dividends and other distributions on equity paid by its PRC subsidiaries to fund any cash and financing requirements it may have, and any limitation on the ability of its PRC subsidiaries to make payments to Cenntro could have a material and adverse effect on its ability to conduct its business.
   
Changes in U.S. and international trade policies, particularly with regard to China, may adversely impact Cenntro’s business and operating results.
   
It may be difficult for overseas regulators to conduct investigations or collect evidence within China.
   
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent Cenntro from making loans to or make additional capital contributions to its PRC subsidiaries, which could materially and adversely affect its liquidity and its ability to fund and expand its business.
   
PRC regulations relating to offshore investment activities by PRC residents may limit Cenntro’s PRC subsidiaries’ ability to increase their registered capital or distribute profits to Cenntro or otherwise expose Cenntro or its PRC resident beneficial owners to liability and penalties under PRC law.
   
You may experience difficulties in enforcing foreign judgments or bringing actions in China against Cenntro based on foreign laws.
   
Cenntro currently conducts substantially all of its operations through its subsidiaries established in the People’s Republic of China. The Enlarged Group is subject to unique risks due to uncertainty regarding the interpretation and application of currently enacted PRC laws and regulations, any future actions of the PRC government relating to the foreign listing of companies with significant PRC operations, and the possibility of sanctions imposed by PRC regulatory agencies, including the China Securities Regulatory Commission, if it fails to comply with their rules and regulations.
   
There may be a substantial degree of risk associated with Cenntro’s operations conducted in China. Cenntro may face heightened scrutiny and negative publicity, which could materially affect the operations of the Enlarged Group or significantly limit the ability of the Enlarged Group to offer or continue to offer securities to investors and cause the value of such securities to significantly decline. Additionally, recent statements by PRC authorities and changes in PRC internal regulatory mandates may target Cenntro’s corporate structure and impact its ability to conduct business, accept foreign investments, or list on a U.S. or other foreign exchange. For a description of some of the China-related risks, see ‘‘Risk Factors—Risks Relating to Doing Business in China”.

 

 

 

 

62 EXPLANATORY MEMORANDUM

 

The PRC government may intervene or otherwise adversely affect Cenntro’s operations at any time, or may exert more control over securities offerings conducted overseas and/or foreign investment in China-based issuers, which could materially affect Cenntro’s operations. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and Internet industries, and Cenntro cannot rule out the possibility that the PRC government will in the future release regulations or policies regarding the electric commercial vehicle or any other related industry that could adversely affect its the business, financial condition and results of operations. Furthermore, the PRC government has also recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas, as well as foreign investment in China-based companies. Rules and regulations in China can change with little advance notice. Any such action, once taken by the PRC government, could significantly limit or completely hinder Cenntro’s ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline.
   
Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including increasing enforcement and regulatory oversight over certain activities in the securities market, enhancing supervision over China-based companies listed overseas (particularly those using variable interest entity structures), adopting new measures to extend the scope of cybersecurity reviews (particularly for companies that process large amounts of sensitive consumer data), and expanding efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative bodies will respond, what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on Cenntro’s business operations or the ability to accept foreign investments and list its securities on a U.S. or other foreign exchange.
   
Cenntro currently conducts substantially all of its operations in various countries, including China, through wholly owned subsidiaries with direct equity ownership, and does not directly own any substantive business operations in China. Cenntro’s ability to pay dividends to its shareholders and to service any debt it may incur may depend upon dividends paid by its PRC subsidiaries. To the extent any of its operating subsidiaries incur debt, the instruments governing such debt may restrict the ability of any such subsidiary to pay dividends to Cenntro, which could limit the amount of dividends that Cenntro may make to shareholders in the future. Furthermore, distributions from PRC subsidiaries to Cenntro will be subject to certain transfer taxes and regulatory approvals, as described below.
   
Current PRC regulations permit Cenntro’s PRC subsidiaries to pay dividends to it through CAG HK only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of Cenntro’s subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.

 

 

 

 

63 EXPLANATORY MEMORANDUM

 

Under applicable PRC accounting standards and regulations, intercompany transfers are accounted for under either a general account, for cash transfers in the ordinary course of business, or a capital account, for cash transfers on investments (i.e. dividends and loan repayments). Cenntro can send capital investments to its PRC subsidiaries for working capital and its PRC subsidiaries can use such capital at their discretion. To the extent one of its PRC subsidiaries declares and pays a dividend, such subsidiary must pay a transfer tax of 15% to repatriate any profit distributed to the U.S. Cenntro’s PRC subsidiaries, as Wholly Foreign Owned Enterprises (WFOEs) under PRC law, can make dividends up to CAG HK without prior PRC regulatory approval. However, any such subsidiary is limited in its ability to make dividends while that subsidiary has either net losses in the current period or accumulated net losses from prior periods and will only be able to pay dividends during periods in which it has positive net income and no accumulated net losses. To date, there have been no net profits recognized at any of Cenntro’s PRC subsidiaries and thus there have not been any dividends or distributions made by any such subsidiary. With respect to Cenntro’s general account, Cenntro’s subsidiaries purchase and pay for materials and parts, and receive funds for the sale of vehicle kits and vehicles. There is no PRC government approval required for transactions in the general account, where funds can be sentand received in the ordinary course of business freely without government approvals.

 

1.6.3 Transaction specific risks

 

There can be no assurance that the Conditions (such as approval of the Transaction Resolutions, that NBG has cash of at least $282 million and liabilities of no more than US$10 million in the aggregate immediately prior to Closing, and that Nasdaq has approved the listing of the Acquisition Shares) under the Stock Purchase Agreement as summarised in Section 1.1 will be satisfied or waived. In such circumstances, the Company may be compelled to either restructure the Proposed Transaction or abandon it, and accordingly there can be no assurance that the Proposed Transaction will be consummated on the terms described in this Explanatory Memorandum, or at all.
   
Based on the assumptions in Section 1.1.3, the Company estimates that it will issue approximately 35.0 million Shares in the ATM Offering, 133.2 million Shares in the Private Placement, 112.7 million Shares upon settlement of the Incentive Award, and 2,332.7 million Shares to CAG to be distributed to CAG Shareholders. In addition, there would be options and warrants to purchase 185.4 million Shares outstanding (including the Converted CAG Options). This will significantly dilute the equity interest of Shareholders from 100% to approximately 24.5% on a fully diluted basis and the collective entitlement to any dividends and the voting power of existing Shareholders will also be reduced accordingly, which may also adversely affect prevailing market prices for the Shares.
   
Based on the assumptions in Section 1.1.3, upon completion of the Proposed Transaction and the distribution of Acquisition Shares by CAG to its shareholders, the Wang Parties are expected to beneficially own approximately 27.6% of the outstanding Shares (or 26.2% on a fully diluted basis) and will be able to exercise a significant level of influence over all matters requiring Shareholder approval, and can block special resolutions. This may delay or prevent a change of control of the Company or changes in management and make approval of certain transactions difficult without their support. Further, in accordance with the Relationship Agreement, the Wang Parties may nominate a Wang Parties Nominee Director in the event that an existing Wang Parties Nominee Director is removed as a Director by Shareholders pursuant to section 203D of the Corporations Act.

 

 

 

 

64 EXPLANATORY MEMORANDUM

 

The Company will be solely dependent on the success of Cenntro’s business after the Proposed Transaction.
   
Although the Company’s management has endeavoured to evaluate the risks inherent in Cenntro’s business, it operates in an industry that is outside of management’s area of expertise. It is possible that such analyses, and the best-estimate assumptions made by the Company, may not be realized, and the Share price may decline.
   
Resources expended in pursuit of the Proposed Transaction, including substantial costs for accountants, lawyers and consultants, would be wasted if the Proposed Transaction is not completed.
   
The Stock Purchase Agreement provides that all of the representations, warranties and covenants of the parties shall not survive the Closing, except for those covenants that apply or are to be performed in whole or in part after the Closing, and then only with respect to breaches occurring after Closing, and any claims for actual fraud. As a result, NBG likely will have no remedy available to it if the Proposed Transaction is consummated and it is later revealed that there was a breach of any of the representations, warranties and covenants made by CAG and Cenntro at the time of the signing of the Stock Purchase Agreement or the Closing.
   
The Company’s management has interests in the Proposed Transaction that are different than Shareholders generally, for example, the Phantom Warrants and Incentive Award and the Non-Executive Director Benefits. These financial interests may have influenced the decision of management to pursue the Proposed Transaction, and may influence decisions to amend the Stock Purchase Agreement, consent to certain Cenntro actions or waive certain rights of the Company under the Stock Purchase Agreement.

 

1.6.4 General investment risks

 

Economic, government policy, taxation laws and other factors may affect the market price of Shares despite the Enlarged Group’s performance. Past performance of the Company or the Cenntro Group is not necessarily an indication as to the future performance of the Enlarged Group. If a significant number of Shareholders sell Shares post-Proposed Transaction, this may adversely impact Share price. There is no guarantee that there will continue to be an active market for Shares or that the price of Shares will increase.
   
There may be tax consequences (e.g. exposure to higher capital gains liability) resulting from the Proposed Transaction. Shareholders should seek their own professional advice regarding the individual tax consequences applicable to them.
   
The Company cannot provide assurance that it will be able to continue to comply with the standards required to maintain a listing on the Nasdaq Capital Market. In the event that the Company receives a notice of de-listing, the Company would plan to take actions to restore compliance with the Nasdaq Capital Market’s listing requirements, but can provide no assurance that any action taken would result in the Shares maintaining listing, or that any such action would stabilise the market price or improve the liquidity of Shares.
   
Future determination as to payment of dividends by the Enlarged Group will be at the discretion of the new Board. No assurance in relation to the payment of dividends can be given by the Enlarged Group.
   
Changes to accounting policy standards may affect the reported earnings of the Enlarged Group and its financial position from time to time.
   
Changes in general economic and business conditions nationally and globally, for example due to consumer spending, commodity prices, inflation, interest rates and exchange rates, supply and demand, industrial disruption, access to debt and capital markets and government fiscal, monetary, taxation and regulatory policies, significant acts of terrorism, hostilities, war, civil commotion, epidemic, pandemic, quarantine, natural disasters or Acts of God, have an adverse impact on the Enlarged Group’s operating and financial performance, financial position and market price of Shares.

 

 

 

 

65 EXPLANATORY MEMORANDUM

 

1.7 What will happen if the Transaction Resolutions are not passed?

 

Resolution 1 is conditional on all other Transaction Resolutions being approved.

 

If the Transaction Resolutions are not approved by Shareholders, the Proposed Transaction cannot proceed.

 

1.8 Opinion of the Independent Expert’s Report

 

The Independent Expert was commissioned by the Non-Executive Directors of the Company to provide an Independent Expert’s Report to assess whether the Proposed Transaction is fair and reasonable to Shareholders.

 

The Independent Expert’s Report concluded that the Proposed Transaction is “not fair but reasonable” to Shareholders in the absence of a superior proposal. This is on the basis that the Independent Expert concluded that:

 

Fairness assessment

 

In undertaking the Independent Expert’s fairness assessment, the Independent Expert had regard to ASIC Regulatory Guide 111 Content of expert reports (RG 111).

 

RG 111 states that the Proposed Transaction should be assessed on the basis that NBG is subject to a change of control transaction. This reflects the possibility that Shareholders, in approving the Proposed Transaction, may give up the opportunity to realise the benefits of control (control premium).

 

Shareholders will continue to hold their shares if the Proposed Transaction is approved. However, the Shareholders’ interests will be diluted from a combined 100.0% interest in the total issued shares of NBG, on a standalone basis, to a combined 24.5% interest in the total issued shares of after the Proposed Transaction comprising the combined entity of NBG and Cenntro on a fully diluted basis.

 

In forming the Independent Expert’s opinion regarding the fairness of the Proposed Transaction, they are required to compare:

 

  A. the fair market value of an issued share of NBG before the Proposed Transaction, on a controlling interest basis, (representing the consideration deemed to be paid by the Shareholders if approved)

 

to

 

  B. the fair market value of an issued share of NBG after the Proposed Transaction, on a minority interest basis (representing the value of the investment security that will be owned by the Shareholders if approved).

 

 

 

 

66 EXPLANATORY MEMORANDUM

 

For the Proposed Transaction to be “fair” under ASIC Regulatory Guide 111, the fair market value of A must be equal to, or greater than, B.

 

While the Independent Expert considered that they have had sufficiently reliable information to form an opinion on A, the fair market value of an NBG share before the Proposed Transaction, they have, for the reasons in the Independent Expert’s Report and summarised below, had insufficiently reliable information that due to the nature of the ECV industry and the quality of the financial information of Cenntro did not represent “reasonable grounds” to form an opinion on B, the fair market value of an NBG share after the Proposed Transaction.

 

A. Valuation of an issued share in NBG before the Proposed Transaction

 

The Independent Expert has assessed the fair market value of an issued share in NBG before the Proposed Transaction, based on its net asset value and, in the Independent Expert’s opinion, the fair market value per share of approximately $0.254.

 

The Independent Expert’s fair market value per NBG share, before the Proposed Transaction, effectively represents the value of a “cash shell”, a business that has no material operations, assets or liabilities other than cash. This valuation range is lower than the historical trading prices of a NBG share over the last ten months for reasons discussed in detail in Section 9 of the Independent Expert’s Report.

 

B. Valuation of an issued share in NBG after the Proposed Transaction

 

The Independent Expert has been unable to form an opinion regarding the fair market value of a share in NBG after the Proposed Transaction for the following reasons:

 

Similar to its competitors in the ECV industry, Cenntro is in an early stage of development and has not generated significant revenue and has also incurred significant losses to date as a result of the investments and operating costs incurred to build its business. Therefore, in the Independent Expert’s opinion, the measurement and application of valuation multiples based on historical revenue or earnings is unsuitable as a valuation technique.
   
In the Independent Expert’s view, due to the lack of historical revenue and earnings of companies in the ECV industry, the most appropriate valuation methodologies for the valuation of Cenntro include those based on prospective financial information.
   
While the market is placing value on Cenntro’s competitors in the ECV industry based on their disclosed forecasts with minimal definitive support, the Independent Expert’s Report is subject to regulatory guidance that, based on their interpretation, does not permit them to rely on prospective financial information of a quality that does not clearly represent ‘reasonable grounds’ as per RG 111 and RG 170 Prospective financial information.

 

 

 

 

67 EXPLANATORY MEMORANDUM

 

In the Independent Expert’s view, Cenntro’s prospective financial information provided to the Independent Expert does not represent reasonable grounds to use as a basis for their valuation for reasons including:

 

  Stemming from the early stage of development of Cenntro’s operations and hence the uncertainty of the future revenue, costs, and earnings of Cenntro, as well as the early stage of development of the wider ECV industry, Cenntro’s projected revenue and profitability are very difficult to forecast since many assumptions are not capable of independent and objective substantiation.
     
  While not atypical compared to other companies in the ECV industry, there is limited evidence of forward sales contracts that would allow testing of the reasonableness of Cenntro’s prospective financial information.
     
  It is the Independent Expert’s view that Cenntro has not yet developed a strong finance function with the ability to produce reliable financial projections. However, as at the date of the Independent Expert’s Report, the Independent Expert understands that Cenntro has engaged an external advisor to assist with improving the robustness and reliability of Cenntro’s financial projections. These financial projections were not available as at the date of the Independent Expert’s Report.

 

Therefore, because the Independent Expert was unable to value Cenntro, they have been unable to estimate the fair market value of a NBG share after the Proposed Transaction.

 

As the Independent Expert has been unable, in their view, to estimate B, the fair market value of a share in NBG after the Proposed Transaction while at the same time conforming to ASIC guidance, the Independent Expert is unable to conclude whether or not the Proposed Transaction is fair or not fair. However, their interpretation of ASIC’s guidance set out in RG 111 is that, as a result, the Independent Expert must conclude that the Proposed Transaction is “not fair” to Shareholders.

 

Reasonableness assessment

 

The Independent Expert has assessed the reasonableness of the Proposed Transaction. In this assessment, they have considered the potential advantages and disadvantages of the Proposed Transaction to Shareholders and evaluated whether the advantages outweigh the disadvantages.

 

The Independent Expert’s assessment of the potential advantages and disadvantages to Shareholders of the Proposed Transaction are summarised in Sections 1.5.1 and 1.5.2 and discussed in detail in Section 11 of the Independent Expert’s Report.

 

The Independent Expert has concluded that the advantages of the Proposed Transaction outweigh the disadvantages and therefore, in their opinion, the Proposed Transaction is reasonable to Shareholders.

 

The Independent Expert’s Report is attached in full at Annexure A. Shareholders are strongly urged to carefully read the Independent Expert’s Report to understand the scope of that report, the methodology of the assessment and sources of information and assumptions made.

 

1.9 Recommendation of the Non-Executive Directors in relation to the Proposed Transaction

 

The Non-Executive Directors have carefully considered the Independent Expert’s Report and the potential advantages, disadvantages and risks associated with the Proposed Transaction.

 

The Non-Executive Directors unanimously believe that the benefits of proceeding with the Proposed Transaction outweigh potential disadvantages and that the Proposed Transaction is in the best interests of Shareholders, and accordingly, each Non-Executive Director:

 

recommends that Shareholders vote in favour of the Transaction Resolutions;
   
confirms that they intend to vote any Shares that they own in favour of the Transaction Resolutions; and
   
who receives undirected proxies, intends to vote any such undirected proxies in favour of the Transaction Resolutions,

 

in the absence of a Superior Proposal emerging between the date of this Notice and the time of the Meeting.

 

2 Resolution 2 – Approval of change of Company Name

 

Pursuant to sections 157(1) and 136(2) of the Corporations Act, Resolution 2 is a special resolution that seeks the approval of Shareholders to change the name of the Company from “Naked Brand Group Limited” to “Cenntro Electric Group Limited” and to amend the Constitution to reflect the Company’s new name.

 

This change of name is consistent with the Company becoming the holding company for the Cenntro Group that will continue to operate the ECV Business following consummation of the Proposed Transaction.

 

The proposed new name has been reserved by the Company with ASIC. If Resolution 2 is passed and subject to Closing of the Proposed Transaction, the Company will lodge a copy of the special resolution with ASIC promptly following Closing of the Proposed Transaction in order to effect the change of name. The change of name will take effect when ASIC alters the details of the Company’s registration.

 

Resolution 2 is conditional on all other Transaction Resolutions being approved. If the Transaction Resolutions are not approved by Shareholders, the Proposed Transaction cannot proceed.

 

Non-Executive Directors’ recommendation: The Non-Executive Directors unanimously recommend that Shareholders VOTE IN FAVOUR of Resolution 2.

 

3 Resolution 3 – Approval to amend Constitution

 

Section 136(2) of the Corporations Act requires that the Company pass a special resolution at a general meeting to amend the Constitution.

 

 
 

 

68 EXPLANATORY MEMORANDUM

 

It is proposed that existing sub-rules 19.1-19.3 of rule 19 “Directors” of the Constitution be deleted in their entirety and replaced with the following new sub-rules 19.1-19.3 to permit three staggered classes of directors. NBG and CAG believe that having staggered classes of directors will encourage stability in leadership following the Proposed Transaction. NBG and CAG also believe that having staggered classes of directors will assure desirable continuity in policy following the Proposed Transaction:

 

 

19 Directors

 

19.1 Number of directors

 

The minimum number of directors is three. The maximum number of directors is 12 unless the company in general meeting resolves otherwise. The directors may set a maximum number of directors less than current maximum in accordance with the Relevant Law. The directors must not determine a maximum which is less than the number of directors in office at the time the determination takes effect.

 

19.1A Staggered Board

 

For the purposes of determining when directors must stand for election at an AGM, all directors, other than one managing director, must be either a class I, II or III director. Once appointed or elected, a director cannot change classes.

 

19.2 Power to appoint directors

 

  (a) The directors may appoint any individual to be a director, either as an addition to the existing directors or to fill a casual vacancy, but so that the total number of directors does not exceed the maximum number fixed under this constitution.
     
  (b) A director appointed under rule 19.2(a), who is not the managing director referred to in clause 19.1A, must be appointed as a class I, II or III director.

 

19.3 Retirement of directors

 

  (a) The company must hold an election of directors at each AGM.
     
  (b) At the AGM held in 2022 and at every third AGM thereafter, if a person eligible for election to the office of a class III director has been validly nominated by the members for election as a director in their place, each class III director must retire and, unless he or she gives notice to the contrary, will be submitted for re-election.
     
  (c) At the AGM held in 2023 and at every third AGM thereafter, if a person eligible for election to the office of a class II director has been validly nominated by the members for election as a director in their place, each class II director must retire and, unless he or she gives notice to the contrary, will be submitted for re-election.
     
  (d) At the AGM held in 2024 and at every third AGM thereafter, if a person eligible for election to the office of a class I director has been validly nominated by the members for election as a director in their place, each class I director must retire and, unless he or she gives notice to the contrary, will be submitted for re-election.
     
  (e) The company, may by resolution at an AGM, fill an office vacated by a director under rules 19.3(b), (c) or (d) by electing or re-electing an eligible person to the same class of directors who were required to retire at that AGM under clause 19.3(b), (c) or (d).
     
  (f) If the company, by resolution at that AGM, elects or appoints a director, other than under clause 19.3(e), then such director will be appointed to the same class as the directors who were required to retire at that AGM under clause 19.3(b), (c) or (d).
     
  (g) If the company in general meeting elects or appoints a director other than at an AGM, the director must be elected or appointed as either a class I, II or III director.
     
  (h) The retirement of a director from office under this constitution and the re-election of a director or the election of another person to that office (as the case may be) takes effect at the conclusion of the meeting at which the retirement and re-election or election occurs.
     
  (i) A person is eligible for election to the office of a director at a general meeting only if:

 

  (i) the person is in office as a director immediately before that meeting;
     
  (ii) the person has been nominated by the directors for election at that meeting; or
     
  (iii) where a person, or some member intending to nominate the person, has given written notice signed by the nominee giving consent to the nomination and signifying either candidature for the office or the intention of the member to nominate the nominee.

 

  (j) To be a valid notice under rule 19.3(i)(iii), the notice is required to be left at the company’s registered office not less than the period permitted by the Relevant Law, before the meeting.
     
  (k) A partner, employer or employee of an auditor of the company may not be appointed or elected as a director.

 

 

 

 

 

69 EXPLANATORY MEMORANDUM

 

Resolution 3 is conditional on all other Transaction Resolutions being approved. If the Transaction Resolutions are not approved by Shareholders, the Proposed Transaction cannot proceed.

 

Non-Executive Directors’ recommendation: The Non-Executive Directors unanimously recommend that Shareholders VOTE IN FAVOUR of Resolution 3.

 

4 Resolution 4 – Election of Directors

 

In accordance with the Stock Purchase Agreement, CAG is entitled to nominate four directors to the Board of the Company on and from Closing. Simon Charles Howard Tripp, who is one of the existing Directors, will be a Wang Parties Nominee Director to satisfy the legal requirement of having at least two Directors resident in Australia

 

Resolutions 4.1 to 4.3 seek Shareholder approval for the appointment of the Wang Parties Nominee Directors who are not already Directors, being Peter Wang, Chris Thorne and Joe Tong.

 

Please see Section 1.4.3.2 for a profile of each of the Wang Parties Nominee Directors as well as further information on the proposed election of the Wang Parties Nominee Directors as Directors and the retirement of certain current Directors under the Proposed Transaction.

 

Resolutions 4.1 to 4.3 are conditional on all other Transaction Resolutions being approved. If the Transaction Resolutions are not approved by Shareholders, the Proposed Transaction cannot proceed.

 

Non-Executive Directors’ recommendation: The Non-Executive Directors unanimously recommend that Shareholders VOTE IN FAVOUR of Resolutions 4.1 to 4.3.

 

 

 

 

70 EXPLANATORY MEMORANDUM

 

5 Resolution 5 – Approval of Share Consolidation

 

The Company proposes to consolidate its share capital in accordance with section 254H(1) of the Corporations Act. The exact consolidation ratio will be between consolidating every 10 Shares into 1 Share and consolidating every 20 Shares into 1 Share. The exact consolidation ratio will be set by the Directors at least 7 days prior to the Meeting and the Company shall notify Shareholders of the exact consolidation ratio by a means reasonably calculated to inform Shareholders, including by issuing a press release or filing a Form 6-K with the SEC (Share Consolidation). Other Company securities whose value is derived in part from the value of the Shares, including without limitation warrants, options, performance rights, convertible notes or other securities, will be proportionately adjusted to account for the Share Consolidation, in accordance with their respective terms.

 

Fractional entitlements

 

Not all Shareholders in the Company will hold a number of Shares which can be evenly divided by the consolidation ratio for the Share Consolidation. Where a fractional entitlement occurs, the Company will round that fraction up to the nearest whole Share.

 

Reasons for the Share Consolidation

 

The Proposed Transaction is subject to a Condition that the Five Day Average Trading Price for the five consecutive trading days ending on (and inclusive of) the Closing Date (after giving effect to the Share Consolidation) is not less than US$5.00 per Share.

 

On 26 April 2021, the Company received a notice from the Listing Qualifications Department of Nasdaq stating that, for the prior 30 consecutive business days, the closing bid price for Shares had been below the minimum of US$1.00 per Share required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notification letter stated that the Company would be afforded an initial period of 180 calendar days (or until 25 October 2021) to regain compliance with the minimum bid price requirement. The notification letter also stated that in the event the Company did not regain compliance within the initial 180 day period, the Company could be eligible for additional time.

 

The Company did not regain compliance with the minimum bid price requirement during the initial 180 calendar day compliance period. However, on 26 October 2021, the Company received a second notice from Nasdaq’s Listing Qualifications Department, stating that Nasdaq’s staff had determined that the Company was eligible for an additional 180 calendar day period (until 25 April 2022) to regain compliance. In order to regain compliance during the additional compliance period, the bid price for Shares must close at US$1.00 per Share or more for a minimum of ten consecutive business days. The Company intends to cure the deficiency during the second compliance period by effecting the Share Consolidation contemplated hereby.

 

Accordingly, the Share Consolidation seeks to accomplish two goals: enabling the Company to meet one of the closing conditions for the Proposed Transaction and enabling the Company to regain compliance with the minimum bid price requirement.

 

Failure to approve the Share Consolidation may potentially have serious, adverse effects on the Company and its Shareholders. The Shares could be delisted from Nasdaq because the Shares may continue to trade below the requisite US$1.00 per share price needed to maintain the Company’s listing in accordance with Nasdaq Listing Rule 5550(a)(2). The Shares may then trade on the OTC Bulletin Board or other small trading markets, such as the pink sheets. In that event, the Shares could trade thinly as a microcap or penny stock, and may be avoided by retail and institutional investors, resulting in the impaired liquidity of the Shares. In addition, if the Share Consolidation is not approved, the Proposed Transaction may not be consummated.

 

 

 

 

71 EXPLANATORY MEMORANDUM

 

On 22 November 2021 (EST), the Shares closed at US$0.6875 per share on Nasdaq. The Share Consolidation, if effected, will have the immediate effect of increasing the price of the Shares as reported on Nasdaq, therefore reducing the risk that the Shares could be delisted from Nasdaq.

 

The Board strongly believes that the Share Consolidation is necessary to maintain the Company’s listing on Nasdaq and to complete the Proposed Transaction. Accordingly, the Board has approved the Share Consolidation and directed that it be submitted to Shareholders for approval at the Meeting.

 

Management and the Board have considered the potential harm to the Company and its Shareholders should Nasdaq delist the Shares from trading on Nasdaq. Delisting could adversely affect the liquidity of the Shares since alternatives, such as the OTC Bulletin Board and the pink sheets, are generally considered to be less efficient markets. An investor likely would find it less convenient to sell, or to obtain accurate quotations in seeking to buy, the Shares on an over-the-counter market. Many investors likely would not buy or sell the Shares due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange, or other reasons.

 

Management and the Board have also considered the risk that the Proposed Transaction would not be completed. As discussed elsewhere in this Explanatory Memorandum, the Board has determined that the Proposed Transaction is in the best interests of the Company’s shareholders.

 

In addition, the proposed Share Consolidation will rationalise the share capital of the Company by reducing the number of Shares issued and outstanding and result in the Company having a more appropriate number of Shares on issue. The Board believes that this may help to make investing in the Company’s shares more attractive to a broader range of institutional and professional investors and other members of the investing public. In addition, low-priced shares may be more prone to speculation, and therefore are generally more volatile as compared to higher-priced shares. Accordingly, the Board believes that the proposed Share Consolidation will help reduce short-term share price volatility and offset the effects of share-term share price speculation and reduce fluctuations in the Company’s market capitalisation.

 

Taxation

 

The summary in this section is general in nature. In addition, particular taxation implications will depend upon the circumstances of each Shareholder. Accordingly, Shareholders are encouraged to seek and rely only on their own professional advice in relation to their tax position. Neither the Company nor any of its officers, employees or advisers assumes any liability or responsibility for advising Shareholders about the tax consequences for them from the proposed Share Consolidation.

 

The Share Consolidation will be undertaken in accordance with section 254H of the Corporations Act. Subject only to rounding, there will be no change to the proportionate interests held by each Shareholder in the Company as a result of the Share Consolidation.

 

No capital gains tax (CGT) event should occur as a result of the Share Consolidation and therefore there should be no taxation implications arising for the Shareholders.

 

 

 

 

72 EXPLANATORY MEMORANDUM

 

Timetable

 

If Resolution 5 is passed, the Company authorises management to implement the Share Consolidation on Wednesday, 22 December 2021 (EST). The completion of the Share Consolidation will be announced by press release and by filing with the SEC a Report of Foreign Private Issuer on Form 6-K.

 

If Resolution 5 and the other Transaction Resolutions are not approved by Shareholders, the Proposed Transaction cannot proceed.

 

Board recommendation: The Board unanimously recommends that Shareholders VOTE IN FAVOUR of Resolution 5.

 

6 Resolution 6 – Approval of director benefits

 

6.1 Non-Executive Director Benefits

 

Resolution 6.1 seeks Shareholder approval for the cash payment by the Company of US$1,000,000 to each of the Non-Executive Directors, Mr. Andrew Shape, Mr. Kelvin Fitzalan and Mr. Simon Tripp (Non-Executive Directors) (or a related entity of the Non-Executive Directors), being a total cash payment by the Company of US$3,000,000 in aggregate, in connection with a successful Closing of the Proposed Transaction (Non-Executive Director Benefits).

 

The Directors consider that Shareholder approval pursuant to Chapter 2E and sections 195(4) and 200B of the Corporations Act is required in respect of the provision of the Non-Executive Director Benefits to the Non-Executive Directors.

 

Resolution 6.1 is an ordinary resolution and is subject to and conditional on the passing of the Transaction Resolutions. However, the Transaction Resolutions are not subject to and conditional on Resolution 6.1 being passed. The payment of the Non-Executive Director Benefits to the Non-Executive Directors is also subject to and conditional on Closing of the Proposed Transaction.

 

6.2 Acceleration of Phantom Warrants and grant of Incentive Award

 

Resolution 6.2 seeks Shareholder approval of the acceleration of the Phantom Warrants held by JADR Consulting Group Pty Limited, an entity associated with Justin Davis-Rice, NBG’s Executive Chairman and Chief Executive Officer, such that the Phantom Warrants will be exercised and paid out at or prior to consummation of the Proposed Transaction rather than 21 January 2022, and of the grant of the Incentive Award to JADR Consulting Group Pty Limited. For more detail, refer to Section 1.1.2, and the pro forma ownership table in Section 1.4.1 which shows the potential dilution to Shareholders.

 

Resolution 6.2 is an ordinary resolution and is not subject to and conditional on the passing of the Transaction Resolutions, but the acceleration of the third tranche of Phantom Warrants is conditional on the consummation of the Proposed Transaction.

 

 
 

 

73 EXPLANATORY MEMORANDUM

 

6.3 Chapter 2E of the Corporations Act

 

In accordance with section 208 of the Corporations Act, for a public company to give a financial benefit to a related party of the public company, the public company must:

 

(a) obtain the approval of the public company’s members in the manner set out in sections 217 to 227 of the Corporations Act; and
   
(b) give the financial benefit within 15 months following such approval,

 

unless the giving of the financial benefit falls within an exception set out in sections 210 to 216 of the Corporations Act.

 

The Non-Executive Directors consider the acceleration of Phantom Warrants and grant of Incentive Award are on arms’ length terms, in accordance with section 210 of the Corporations Act. As such, neither the acceleration of the Phantom Warrants nor the grant of the Incentive Award was subject to Shareholder approval, including under Chapter 2E and section 200B of the Corporations Act. However, the Company is seeking Shareholder approval for completeness, due to the impact of the Proposed Transaction on the timing of the exercise of the Phantom Warrants and the calculation of Shares to be issued under the Incentive Award.

 

6.4 Division 2 of Part 2D.2 of the Corporations Act

 

Section 200B of the Corporations Act prevents a company from giving a benefit to a director in connection with the director’s retirement or removal from office unless the company’s shareholders approve that benefit under section 200E of the Corporations Act or the benefit falls within certain exceptions set out in the Corporations Act. A “benefit” includes a payment or other valuable consideration.

 

6.5 Division 2 of Part 2D.1 of the Corporations Act

 

Section 195(1) of the Corporations Act requires that a director of a public company who has a material personal interest in a matter that is being considered at a directors’ meeting must not be present while the matter is being considered at the meeting or vote on the matter. Due to section 195(1), there are not enough directors to form a quorum for a directors’ meeting to consider and vote on the Non-Executive Director Benefits.

 

However, section 195(4) of the Corporations Act provides that if there are not enough directors to form a quorum for a directors’ meeting because of section 195(1), one or more of the directors (including those who have a material personal interest in that matter) may call a general meeting and the general meeting may pass a resolution to deal with the matter. Accordingly, Shareholder approval of the Non-Executive Director Benefits under Resolutions 6.1 is also sought pursuant to section 195(4) of the Corporations Act.

 

 

 

 

74 EXPLANATORY MEMORANDUM

 

6.6 Information required by section 219 of the Corporations Act

 

Pursuant to and in accordance with the requirements of section 219 of the Corporations Act and ASIC Regulatory Guide 76, the following information is provided in relation the giving of the Non-Executive Director Benefits to the Non-Executive Directors and the acceleration of Phantom Warrants and grant of Incentive Award.

 

Identity of the related parties Mr. Andrew Shape, Mr. Kelvin Fitzalan, Mr. Simon Tripp and Mr. Justin Davis-Rice are each a related party of the Company by reason of being a current Director.

 

Nature of the financial benefit

In respect of Resolution 6.1, the proposed financial benefit is the cash payment by the Company of US$1,000,000 to each Non-Executive Director (or a related entity of the Non-Executive Director), being a total cash payment by the Company of US$3,000,000 in aggregate, for their service in connection with the Closing of the Proposed Transaction.

In respect of Resolution 6.2, the proposed financial benefits are:

(a)   the acceleration of the third tranche of the Phantom Warrants held by JADR Consulting Group Pty Limited, an entity associated with Mr. Davis-Rice, covering 1.5% of the outstanding Shares at the date of vesting, so that they vest and are paid out at or prior to consummation of the Proposed Transaction at net cash value; and

(b)   the grant of the Incentive Award to JADR Consulting Group Pty Limited, such that Shares with a market value equal to 1.5% of the increase in NBG’s total market capitalization since the grant of the award will be issued to such entity at or prior to consummation of the Proposed Transaction (due to acceleration upon change of control).

Directors’ recommendations The Directors all have a material personal interest in the outcome of Resolutions 6.1 and 6.2. Therefore, the Directors do not consider it appropriate to make a recommendation on how to vote on these resolutions.
Directors’ interest in the outcome As noted above, the Directors all have a material personal interest in the outcome of Resolutions 6.1 and 6.2. As a result, the Directors will be abstaining from voting their own shares on Resolutions 6.1 and 6.2. The Company will disregard any votes cast in favour of Resolution 6.1 and 6.2 by or on behalf of the Directors, or any of their associates. However, this does not apply to a vote cast in favour of the Resolutions by a Director as a proxy or attorney for a person who is entitled to vote on Resolutions 6.1 and 6.2, in accordance with the directions or attorney to vote on the Resolutions in that way (but otherwise must not vote if no voting instructions are specified on those Resolutions).

 

 

 

 

75 EXPLANATORY MEMORANDUM

 

Valuation of the financial benefit

In respect of Resolution 6.1, the valuation of the proposed financial benefit is the cash payment by the Company of US$1,000,000 to each Non-Executive Director (or a related entity of the Non-Executive Director), being a total cash payment by the Company of US$3,000,000 in aggregate.

 

In respect of Resolution 6.2, the valuation of the proposed financial benefits varies in accordance with the Share price.

 

The closing price of Shares on the Nasdaq as at the date prior to the date of the public announcement of the Proposed Transaction (i.e. Friday 5 November 2021) was $0.668 per Share.

 

 

The current price of Shares on the Nasdaq can be obtained from the Nasdaq website (www.nasdaq.com) or the NBG website (www.ir.nakedbrands.com).

 

Phantom Warrants

 

Indicative values based on range of prices proposed above:

 

 

The actual value may be substantially more or less than the above estimates, depending on the future market price of Shares and number of Shares issued in the ATM Offering and Private Placement.

 

Incentive Awards

 

Indicative values based on range of prices proposed above:

 

 

The actual value may be substantially more or less than the above estimates, depending on the future market price of Shares and number of Shares issued in the Proposed Transaction, ATM Offering and Private Placement.

 

 
 

 

76 EXPLANATORY MEMORANDUM

 

Directors’ total remuneration package

 

The current total annual remuneration package of each of the Non-Executive Directors for the financial year ending 31 January 2022, each before the proposed payment of the Non-Executive Director Benefits the subject of Resolution 6.1, is as follows:

 

(a) Andrew Shape

 

 

(b) Kelvin Fitzalan

 

 

(c) Simon Tripp

 

 

The share and option plans are payable quarterly in arrears with the number of shares and options calculated on the basis of the volume weighted average price of Shares over the 20 trading days immediately preceding the end of the relevant quarter.

 

The current total annual remuneration package of Mr. Davis-Rice for the financial year ending 31 January 2022, before the proposed acceleration of Phantom Warrants and grant of Incentive Award the subject of Resolution 6.2 is as follows:

 

 

Apart from the Phantom Warrants and Incentive Award, JADR Consulting Group Pty Limited does not hold any other existing interests in the Company

 

Related party’s existing interest

As at the date of this Explanatory Memorandum, the Directors’ relevant interests in securities of the Company are set out below:

 

 

 

 

 

 

 

 

77 EXPLANATORY MEMORANDUM

 

Schedule 1 Glossary

 

The following terms and abbreviations used in the Notice and Explanatory Memorandum have the meaning given to them below, unless the context otherwise requires:

 

Acquisition Share Pool   means a number of Shares equal to the Consideration Ratio, multiplied by the number of Fully Diluted Company Shares Outstanding immediately prior to the Closing (rounded down to the nearest whole number of shares).
     
Acquisition Shares   means an aggregate number of Shares equal to:

 

    (a) the Acquisition Share Pool; less
       
    (b) the Converted CAG Option Acquisition Shares.

 

Additional Financing  

means, not withstanding anything to the contrary in the Stock Purchase Agreement, at any time on or prior to the Closing Date, the Company may consummate the sale of newly issued Shares or Share Equivalents, for cash, in one or more public or private offerings, provided that all such financings shall not exceed gross proceeds of US$100 million in the aggregate, on such terms as the Company, after consultation with CAG, shall determine, in its reasonable discretion;

 

provided, further that:

 

    (a) any such Share Equivalent issued in any Additional Financing shall be exercised or exchanged for, or converted into, Shares prior to the Closing;
       
    (b) except as disclosed in a specified schedule to the Stock Purchase Agreement, no registration rights shall be granted by the Company to any person that will obligate the Company to file a registration statement with the SEC prior to one hundred eighty (180) days following the Closing Date;
       
    (c) no such Shares or Share Equivalents issued in any Additional Financing shall be senior to or have voting rights different than the Shares; and
       
    (d) no Additional Financing shall impose any liabilities (including tax liabilities) on the Company or any Company subsidiary following the Closing or have any materially adverse effect on the Company or any Company subsidiary following the Closing.

 

Additional Financing Floor Price Per Share   means, for each Share issued in an Additional Financing (including any Shares issued upon exercise, conversion, or exchange of a Share Equivalent issued in such Additional Financing), eighty percent (80%) of the most recent closing sale price of one Share on Nasdaq on the trading day that immediately precedes the time of sale of such Share in such Additional Financing (or the time of sale of the Share Equivalent pursuant to which such Share was issued). The time of sale shall be (i) if sold on an exchange or similar market, the time of the trade, (ii) if sold pursuant to a contract providing for a fixed purchase price, the time of formation of such contract, or (iii) if sold pursuant to a contract providing for the purchase price to be fixed in the future, the time such purchase price becomes fixed. For the avoidance of doubt, in the event of an Additional Financing that involves the sale of a unit or similar security comprised of one Share and a warrant to purchase one Share, for both the Shares issued at the closing of such Additional Financing and the Shares issued upon the exercise of such warrants, the Additional Financing Floor Price Per Share shall be eighty percent (80%) of the last closing sale price of one Share on Nasdaq on the Trading Day immediately preceding the date of the sale of such unit or similar security.

 

 

 

 

78 EXPLANATORY MEMORANDUM

 

Additional Financing Price   means, for each Additional Financing, the greater of the Additional Financing Price Per Share and the Additional Financing Floor Price Per Share.
     
Additional Financing Price Per Share   means, for each Additional Financing, (i) the aggregate cash purchase price of the Shares and Share Equivalents, if any, issued by the Company in such Additional Financing (including any exercise price actually paid in cash in connection with the exercise, prior to the Closing, of any Share Equivalents issued in such Additional Financing), divided by (ii) the sum of (A) the number of Shares issued in such Additional Financing, and (B) the number of Shares issued upon any exercise, exchange or conversion, prior to the Closing, of any Share Equivalents issued in such Additional Financing (it being understood that such Share Equivalents shall be exercised, exchanged or converted in full prior to the Closing).
     
Additional Financing Surplus Shares   means a number of Shares equal to:

 

    (a) the amount of Cash held by the Company in excess of US$282 million immediately prior to the Closing; divided by
       
    (b) the Additional Financing Volume Weighted Average Price Per Share (rounded down to the nearest whole number of shares).

 

Additional Financing Volume Weighted Average Price Per Share   means the volume weighted average Additional Financing Price of the Shares issued in the Additional Financings (including any Shares issued upon exercise, conversion or exchange of Share Equivalents issued in the Additional Financings).
     
Amended Constitution   has the meaning given to that term in Section 1.1.11.
     
Annexure   means an Annexure to this Explanatory Memorandum.
     
ASIC   means the Australian Securities and Investments Commission.
     
ASIC Regulatory Guide   means a regulatory guide published by ASIC.
     
ATM Offering   has the meaning given to that term in Section 1.1.
     
Beneficial Ownership Limit   has the meaning given to that term in Section 1.1.10.
     
Board   means the board of Directors of the Company.
     
CAC   means Cenntro Automotive Corporation, a Delaware corporation and a wholly owned subsidiary of CAG.
     
CAG   means Cenntro Automotive Group Limited, a Cayman Islands company limited by shares.

 

 

 

 

79 EXPLANATORY MEMORANDUM

 

CAG 2016 Incentive Stock Option Plan   means the incentive stock option plan in respect of CAG dated 2016.
     
CAG HK   means Cenntro Automotive Group Limited, a Hong Kong private company limited by shares and a wholly owned subsidiary of CAG.
     
CAG Information   means the information prepared by CAG expressly for inclusion in this Explanatory Memorandum and for which CAG is responsible, concerning CAG, the Wang Parties and the Cenntro Group, as contained in Sections 1.2, 1.4.2, 1.4.3.2(d) (but not including the Director biography for Mr. Tripp) and the questions and answers contained in “Key Information in respect of the Proposed Transaction”, being “Who is Cenntro?”, “What are the future intentions for the Company?”, and the risks under “Specific risks associated with the business and operations of the Enlarged Group” in “What are the potential risks associated with the Proposed Transaction?”, Section 1.6.2 and Schedule 2, but in each case, solely to the extent such information relates to CAG, the Wang Parties or the Cenntro Group.
     
CAG Options   means options to purchase CAG Shares granted under the CAG 2016 Incentive Stock Option Plan.
     
CAG Preferred Shares   means the Series A-1 Preferred Shares of par value US$0.000001 each and the Series A-2 Preferred Shares of par value US$0.000001 each of CAG.
     
CAG Shareholders   means the holders of issued and outstanding shares of CAG.
     
CAG Shares   means the ordinary shares of par value US$0.000001 each of CAG.
     
CAG Subs   means CAC, CAG HK and CEG.
     
Cash   means, without duplication:

 

    (a) the cash and cash equivalents held by the Company and the Company Subsidiaries, after giving effect to the receipt of any cash consideration received by the Company at the closing of the Divestiture; plus
       
    (b) the outstanding principal amount plus the accrued interest of the NBG Loan; plus
       
    (c) the outstanding principal amount and accrued interest of loans and advances made to Bendon Limited in an amount not to exceed US$5 million.

 

CEG   means Cenntro Electric Group, Inc., a Delaware corporation and a wholly owned subsidiary of CAG.
     
CEL   means Cenntro Enterprise Limited, a Hong Kong private company limited by shares and ultimately owned by Peter Wang.
     
Cenntro Group or Cenntro   means the CAG Subs and their wholly owned subsidiaries.
     
Cenntro Shares   has the meaning given to that term in Section 1.1.1.

 

 

 

 

80 EXPLANATORY MEMORANDUM

 

Chair or Chairman   means the person appointed to chair the Meeting convened by the Notice.
     
Charter Documents   means complete and correct copies of the certificate of incorporation and by-laws (or other comparable governing instruments with different names, including, any shareholders agreement or similar agreement).
     

Closely Related Party

 

has the meaning given to that term in section 9 of the Corporations Act.

     
Closing   means the consummation of the Proposed Transaction under the Stock Purchase Agreement.
     
Closing Date   means the date of the Closing.
     
Code   means the U.S. Internal Revenue Code of 1986.
     
Company or NBG   means Naked Brand Group Limited (ACN 619 054 938).
     
Company Information   means the information regarding the Company, the Company’s subsidiaries and the Proposed Transaction, other than the CAG Information and the Independent Expert’s Report, contained in this Explanatory Memorandum.
     
Competing Proposal   means any proposal, agreement, arrangement, or transaction that, if entered into or completed, would mean a person (other than CAG or the holders of capital stock in CAG) (either alone or together with any affiliate) may (i) directly or indirectly acquire a Relevant Interest in, or have the right to acquire, a legal, beneficial, or economic interest in, or control of, 30% or more of the Shares, (ii) acquire control of, or otherwise merge with, the Company or any of its controlled entities or a substantial portion of their assets, or (iii) enter into any agreement, arrangement, or understanding requiring the Company to abandon, cease to recommend, or otherwise fail to proceed with the Proposed Transaction.
     
Conditions   means the conditions to Closing set out in the Stock Purchase Agreement and summarised in Section 1.1.
     
Consideration Ratio   means seven-thirds (7/3).
     
Constitution   means the constitution of the Company as at the commencement of the Meeting.
     
Converted CAG Option   means each CAG Option outstanding immediately prior to the Closing, whether vested or unvested, to be converted into an option exercisable for that number of Shares equal to the product of:

 

    (a) the aggregate number of CAG Shares for which such CAG Option was exercisable immediately prior to the closing; multiplied by
       
    (b) the Exchange Ratio (rounded down to the nearest whole number of Shares).

 

Converted CAG Option Acquisition Shares   means the aggregate number of Shares issuable upon exercise of the Converted CAG Options immediately after the Closing (rounded down to the nearest whole number of shares).
     
Corporations Act   means the Corporations Act 2001 (Cth).

 

 

 

 

81 EXPLANATORY MEMORANDUM

 

Daily VWAP   means, for any trading day, the per share volume-weighted average price of the Shares as reported by Bloomberg, L.P. through its VWAP function (or its equivalent successor if such service is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such trading day on Nasdaq. The Daily VWAP will be determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.
     
Director   means a director of the Company.
     
Distribution   has the meaning given to that term in Section 1.1.1 and Distribute or Distributed has a corresponding meaning.
     
Dollars, USD, US$ or $   is a reference to United States Dollars.
     
ECV Business   has the meaning given to that term in the Executive Chairman’s letter.
     
Enlarged Group   means the enlarged group of the Company (that will include Cenntro) that will exist after Closing.
     
Equity Distribution Agreement   has the meaning given to that term in Section 1.1.9.
     
Exchange Act   means the U.S. Securities Exchange Act of 1934, as amended.
     
Exchange Ratio   means:

 

    (a) the number of shares constituting the Acquisition Share Pool; less the number of Liquidation Preference Acquisition Shares (but in any event, not less than zero); multiplied by
       
    (b) the ratio of the aggregate number of CAG Shares underlying the CAG Options that are outstanding immediately prior to the Closing over the number of Fully Diluted CAG Shares Outstanding; divided by
       
    (c) the aggregate number of CAG Shares underlying the CAG Options that are outstanding immediately prior to the Closing.

 

Exercise Price   has the meaning given to that term in Section 1.1.10.
     
Explanatory Memorandum   means the explanatory memorandum contained in and forming part of the Notice of Meeting.
     
Extraordinary General Meeting or Meeting   means the extraordinary general meeting of the holders of Shares convened by the Notice of Meeting.
     
FATA   means the Foreign Acquisitions and Takeovers Act 1975 (Cth) of the Commonwealth of Australia, and any regulations made under it.
     
February EDA   has the meaning given to that term in Section 1.1.9.
     
FIRB   means the Foreign Investment Review Board.
     
FIRB Approval   means either:

 

    (a) CAG has received a written no objection notification under FATA from the Australian Commonwealth Treasurer (or its delegate) in respect of CAG and certain holders of the capital stock of CAG acquiring the Shares in accordance with the Stock Purchase Agreement, either on an unconditional basis or subject to such conditions acceptable to CAG (acting reasonably and in good faith); or

 

 

 

 

82 EXPLANATORY MEMORANDUM

 

    (b) the Australian Commonwealth Treasurer is, by reason of lapse of time, no longer empowered to make an order under the FATA in respect of the acquisition of the Shares by CAG and certain holders of the capital stock of CAG in the manner contemplated by the Stock Purchase Agreement on grounds that the Australian Commonwealth Treasurer was otherwise empowered to make under the FATA.

 

Five Day Average Trading Price   means the average of the Daily VWAP for the five (5) trading days ending on (and inclusive of) the trading day immediately preceding the Closing Date (as adjusted as appropriate to reflect any stock splits, stock dividends, combinations, reorganisations, reclassifications or similar events).
     
Five-Year Warrant   has the meaning given to that term in Section 1.1.10.
     
Five-Year Warrant Shares   has the meaning given to that term in Section 1.1.10.
     
Form 6-K   means the Report of Foreign Private Issuer on Form 6-K filed by NBG with the SEC on 8 November 2021.
     
Fully Diluted CAG Shares Outstanding   means, without duplication:

 

    (a) the number of issued and outstanding CAG Shares (including restricted stock) immediately prior to the Closing; plus
       
    (b) the number of CAG Shares underlying restricted stock units and performance units and issuable upon the exercise, conversion or other exchange of options, warrants, preferred shares, convertible debt securities, or similar rights issued and outstanding immediately prior to the Closing or that a third party otherwise has the right to acquire.

 

Fully Diluted Company Shares Outstanding  

means, without duplication:

 

    (a) the number of issued and outstanding Shares (including restricted stock) immediately prior to the Closing; plus
       
    (b) the number of Shares underlying restricted stock units and performance units and issuable upon the exercise, conversion or other exchange of options, warrants, preferred shares, convertible debt securities, or similar rights issued and outstanding immediately prior to the Closing or that a third party otherwise has the right to acquire, including, for the avoidance of doubt, shares issuable in connection with the Company’s director compensation plan, incentive equity compensation awarded to the Company’s executive officers, employees, consultants, and independent contractors, and the Warrants;
       
      provided, that the Fully Diluted Company Shares Outstanding shall exclude any Additional Financing Surplus Shares and shares identified in a specified schedule to the Stock Purchase Agreement.

 

 

 

 

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Governmental Authority   means any federal, state, provincial, municipal, local or foreign government or political subdivision thereof, any regulatory, tax, administrative or other agency, authority, commission, department, board, bureau, or instrumentality of any such government or political subdivision, any court, arbitral body (public or private) or tribunal, or any self-regulatory organization or quasi-governmental authority (including Nasdaq).
     
Independent Expert   FTI Consulting (Australia) Pty Limited (ACN 160 397 811).
     
Independent Expert’s Report   means the report on the Proposed Transaction prepared by the Independent Expert which is included as Annexure A.
     
Investors   has the meaning given to that term in Section 1.1.10.
     
JADR Consulting Group Pty Limited   means JADR Consulting Group Pty Limited (ACN 629 649 369).
     
Key Management Personnel   has the meaning given to that term in section 9 of the Corporations Act.
     
Legal Requirements   means any material federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, rule, regulation, Order or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Authority.
     
Liquidation Preference Acquisition Shares   means the number of Shares issuable to CAG, and distributable by CAG to the holders of the CAG Preferred Shares in satisfaction of their liquidation preference in connection with the Distribution, in accordance with the CAG Charter Documents, and contracts binding on CAG and applicable Legal Requirements (rounded down to the nearest whole number of shares), but in any event not more than the number of shares constituting the Acquisition Share Pool.
     
Loan Agreement   has the meaning given to that term in Section 1.1.4.
     
Lock-up Agreement   has the meaning given to that term in Section 1.1.6.
     
Maxim   means Maxim Group, LLC.
     
Nasdaq   means the Nasdaq Capital Market or The Nasdaq Stock Market LLC (as appropriate).
     
NBG Loan   has the meaning given to that term in Section 1.1.4.
     
Non-Executive Director   has the meaning given to that term in Section 6.1.
     
Non-Executive Director Benefits   has the meaning given to that term in Section 6.1.
     
Notice of Meeting or Notice   means the notice of meeting for the Meeting which accompanies this Explanatory Memorandum.

 

 

 

 

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One-Year Warrant   has the meaning given to that term in Section 1.1.10.
     
One-Year Warrant Shares   has the meaning given to that term in Section 1.1.10.
     
Order   means any award, injunction, judgment, regulatory or supervisory mandate, order, writ, decree or ruling entered, issued, made, or rendered by any Governmental Authority that possesses competent jurisdiction.
     
Phantom Warrant   has the meaning given to that term in Section 1.1.2.
     
PRC   means the People’s Republic of China.
     
Proposed Transaction   has the meaning given to that term in Section 1.1.1.
     
Proxy Form   means the proxy form attached to this Notice.
     
Relationship Agreement   has the meaning given to that term in Section 1.1.7.
     
Relevant Interest   has the meaning given to that term in Chapter 6 of the Corporations Act.
     
Resolutions   means each of the resolutions to be voted on at the Meeting as set out in the Notice of Meeting.
     
Restricted Period   means a period of one hundred eighty (180) days from the Closing Date.
     
Restricted Shareholder   means Cenntro Enterprise Limited, China Leader Group Limited, and Trendway Capital Limited.
     
Restricted Shares   means the Shares beneficially owned by the Restricted Shareholders as of immediately after the Closing Date.
     
RMB   means Renminbi.
     
Schedule   means a schedule to this Explanatory Memorandum.
     
SEC   means the U.S. Securities and Exchange Commission.
     
Section   means a section in this Explanatory Memorandum.
     
Securities Act   means U.S. Securities Act of 1933, as amended.
     
Securities Purchase Agreement   has the meaning given to that term in Section 1.1.10.
     
Share Consolidation   has the meaning given to that term in Section 5.
     
Share Equivalents   means any security exercisable or exchangeable for, or convertible into, newly issued Shares.
     
Shares   means a fully paid ordinary share in the Company.
     
Shareholder   means a holder of Shares.
     
Stock Purchase Agreement   has the meaning given to that term in Section 1.1.1.

 

 

 

 

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Superior Proposal   means a publicly announced, bona fide Competing Proposal of the kind referred to in any of clause (ii) of the definition of Competing Proposal (and not resulting from a breach by the Company of any of its ‘no solicitation’ obligations under the Stock Purchase Agreement, that a majority of the Directors of Company, acting in good faith, and after receiving written legal advice from its legal advisor and written advice from its financial advisor, determines (1) is reasonably capable of being valued and completed in a timely fashion taking into account all aspects of the Competing Proposal, including any timing considerations, any conditions precedent, and the identity of the proponent; and (2) would, if completed substantially in accordance with its terms, be more favourable to the holders of the Shares (as a whole) than the Proposed Transaction, taking into account all terms and conditions of the Competing Proposal.
     
TCL   means Trendway Capital Limited, a Hong Kong private company limited by shares and ultimately owned by Peter Wang.
     
Transaction Resolutions   means Resolutions 1, 2, 3, 4 and 5.
     
Wang Parties   has the meaning given to that term in Section 1.1.7.
     
Wang Parties Nominee Directors   has the meaning given to that term in Section 1.4.3.2.
     
Warrant   has the meaning given to that term in Section 1.1.10.
     
Warrant Shares   has the meaning given to that term in Section 1.1.10.

 

 

 

 

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Schedule 2 Risks relating to the Proposed Transaction

 

The following is a list of, but not all, risks associated with the Proposed Transaction. Each of the risks set out below could, if it eventuates, have a material adverse impact on the Company’s Shares, options and future dividends, the Enlarged Group’s operating performance, profits, products, the industry in which it operates and the outcome of an investment in the Enlarged Group. No assurances or guarantees are given in relation to the future performance of, or profitability of, the Enlarged Group.

 

The value of Shares will depend on the future performance of the Enlarged Group and the market price of Shares from time to time. The future performance of the Enlarged Group and the market price of Shares may be influenced by factors associated with investing in both the ECV industry and listed securities generally which are beyond the control of the Company.

 

This Schedule outlines:

 

specific risks relating to the ECV Business, to which the Enlarged Group will be exposed (see paragraph A);
   
specific risks that arise from the Proposed Transaction (see paragraph B); and
   
general investment risks (see paragraph C).

 

Many of these risks are outside the control of the Company and Cenntro. Although the Company will have in place a number of strategies to minimise exposure to, and mitigate the effects of, some of the risks outlined in this section, there can be no guarantee that such arrangements will protect the Enlarged Group from these risks.

 

A. Specific risks associated with the business and operations of the Enlarged Group

 

Cenntro, which will form part of the Enlarged Group post-Proposed Transaction, operates in the ECV design and manufacturing industry which is exposed to a number of risk factors. In addition, due to the presence of channel partners and parts of the supply chain in China, Cenntro is exposed to risks of doing business in China. Accordingly, any investment in the Enlarged Group will be subject to the following risks.

 

Risks related to Cenntro’s business and financial results

 

Cenntro has a limited operating history and face significant challenges in an emerging industry.

 

Cenntro began pilot production of its first-generation, U.S. Class 1 (0 – 6,000 lbs.), electric light-duty commercial vehicle, the Metro®, in 2018, and, as of June 30, 2021, it has sold approximately 1,800 units throughout Europe, North America and Asia and deployed approximately 1,300 additional units in China through affiliated parties. Cenntro’s revenues were approximately US$5.5 million for the year ended December 31, 2020 and approximately US$2.5 million for the six months ended June 30, 2021. To date, it has derived its revenues principally from sales of the Metro®. Cenntro intends to launch four new ECVs by the end of 2021, the CityPorter™ (a U.S. Class 4 medium-duty commercial truck), the Neibor® 200 (a small truck designed to meet the European Union and the UK’s L7e (heavy quadricycle) qualification), the Logistar™ (a small delivery truck designed to meet the European Union’s N1 requirements) and the Terramak™ (an off-road ECV). Cenntro has finalized the design, engineering and manufacturing plans for each of these ECV models; however, the expected dates of commercial availability for each of these new ECV models may be delayed. See “—Cenntro’s future success depends on its ability to introduce new models and it may experience delays in launching and ramping up production of its new ECV models.”

 

Cenntro has a limited operating history on which you can base an evaluation of its business and prospects. You should consider its business and prospects in light of the risks and challenges it faces in an emerging industry with limited experience to date in high volume manufacturing of ECVs, including challenges related to its ability to:

 

design and manufacture safe, reliable and quality ECVs on an ongoing basis;
   
establish additional assembly facilities in the United States and European Union;

 

 

 

 

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maintain and expand its network of local assembly facilities, channel partners, assembly partners and suppliers;
   
execute on its growth plan to regionalize supply chains, manufacturing and assembly of its ECVs;
   
maintain and improve its operational efficiency;
   
maintain a reliable, high quality, high-performance and scalable manufacturing infrastructure;
   
attract, retain and motivate talented employees including its production workforce in existing and planned facilities, including the challenges it faces with COVID-19 and the impact on its workforce stability;
   
anticipate and adapt to changing market conditions, including technological developments and changes in the competitive landscape;
   
protect its intellectual property; and
   
navigate an evolving and complex regulatory environment.

 

If Cenntro fails to address any or all of these risks and challenges, its business, financial condition, operating results and prospects may be materially and adversely affected. As it continues to grow its business, Cenntro cannot assure you that it will be able to develop effective and cost-efficient manufacturing capabilities and processes, and maintain reliable sources of component supplies, that will enable it to meet the production demands required to successfully sell its ECVs.

 

Cenntro has historically incurred losses from its operations and may not be profitable in the future.

 

Cenntro incurred losses from operations of approximately US$10.6 million and US$17.8 million in 2020 and 2019, respectively. Cenntro has made significant up-front investments in research and development, supply chain establishment, establishment of local assembly facilities and capacity, and channel partner development to develop and expand its business. Cenntro has spent approximately US$74.0 million in research and development activities related to its operations from inception through June 30, 2021. It expects to continue to invest significantly in research and development, manufacturing and supply chain operations to expand its business, and these investments may not result in profitability within its expected timeframe or at all.

 

Cenntro may not generate sufficient revenues to be profitable in the future and it may incur substantial losses for a number of reasons, including lack of demand for its ECVs and increasing competition. In addition, Cenntro may incur unforeseen expenses, or encounter difficulties, complications and delays in market penetration for its products, generating revenue or achieving profitability. If it is unable to achieve profitability and raise additional financing, it may have to reduce the scale of its operations, which may impact its planned growth and adversely affect its business, financial condition, operating results and prospects.

 

Cenntro’s ability to develop and manufacture ECVs of sufficient quality, on schedule and on a large scale is still evolving.

 

Cenntro’s business depends in large part on its ability to execute on its plans to develop, manufacture and sell its ECVs to its channel partners. Cenntro began pilot production of the Metro® in 2018 and, as of June 30, 2021, it has sold approximately 1,800 units in North America, Europe, Asia and other markets and put into service approximately 1,300 units. It plans to manufacture ECVs in higher volumes than it has historically and its production capabilities, including its facilities and those of its manufacturing partners, may not be able to handle the anticipated volumes in its business plan. Development and manufacturing of its current and future ECVs, such as the Metro®, CityPorter™, Terramak™, Neibor® 200 and the Logistar™, are and will be subject to risks, including:

 

accurately manufacturing components within appropriate design tolerances;
   
securing additional manufacturing and local assembly facilities in its various target markets;
   
compliance with environmental, workplace safety and similar regulations;

 

 

 

 

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securing necessary high-quality components and materials from its supply chain on acceptable terms and in a timely manner;
   
its ability to execute on its growth plan to regionalize its supply chain and manufacturing;
   
quality controls;
   
delays or disruptions in the supply chain, including as a result of pandemics such as COVID-19;
   
delays or disruptions in ocean transit or transportation from its suppliers to its manufacturing or local assembly facilities and/or from its manufacturing facilities (or manufacturing partners’ facilities) to its local assembly facilities and assembly partners;
   
its ability to establish, maintain and rely upon relationships with its suppliers, channel partners, assembly partners and manufacturing partners; and
   
other delays, backlog in manufacturing and research and development of new models, and cost overruns.

 

Any of the foregoing could materially and adversely affect its business, financial condition, operating results and prospects.

 

Cenntro’s future success depends on its ability to introduce new models and it may experience delays in launching and ramping up production of its new ECV models.

 

Cenntro’s future success depends on its ability to introduce four new ECV models in 2021, each of which are designed for specific geographic markets and to address additional commercial applications. In order to introduce new ECV models, it has to coordinate with its suppliers, assembly partners, manufacturing partners, channel partners and other third parties in order to ensure timely execution of the manufacturing and assembly processes. If it fails to coordinate these efforts and achieve market introduction and acceptance of its new ECV model in a timely manner, its business, financial condition, operating results and prospects could be adversely affected. In addition, Cenntro has limited experience to date in manufacturing each of the CityPorter™, the Terramak™, the Neibor® 200 and the Logistar™ as well as limited experience building and ramping up multiple vehicle production lines across multiple factories in different geographies. In order to be successful, it will need to implement, maintain and ramp-up efficient and cost-effective manufacturing capabilities between manufacturing partners, assembly partners, its own facilities in Changxing and its local assembly facilities. Manufacturing bottlenecks and other unexpected challenges may arise during its production ramp-up, and Cenntro must address them promptly. Cenntro may face delays in establishing and/or sustaining production of its new ECV models. Any delay or other complication in ramping up the production of its current or future ECV models may harm its business, financial condition, operating results and prospects.

 

Cenntro’s operating results may be more volatile due to a high concentration of sales in relatively few channel partners.

 

For the year ended December 31, 2020 and six months ended June 30, 2021, Cenntro’s three largest channel partners accounted for approximately 82% and 88% of its sales, respectively. Due to the concentration of sales in relatively few channel partners, the loss of one or more of these channel partners will have a significant and adverse effect on its operating results. In the event that any relationship with a channel partner changes negatively, its operating results could be materially adversely affected. During the year ended December 31, 2020, Cenntro ceased doing business with one of its channel partners that had previously accounted for a significant portion of its revenues in prior periods.

 

Cenntro’s reliance on its channel partners to market, sell and service (and in certain cases, assemble and/or homologate) its vehicles is subject to substantial risks.

 

Cenntro’s channel partners are responsible for the sale, marketing and servicing (and in certain cases, assembly and/or homologation) of the ECV products it sells to them in the countries in which they operate. Cenntro does not control the actions of its channel partners. For example, it does not control how its channel partners market or sell assembled ECVs or the quality of their service to its ECVs and, with respect to the private label channel partners, it does not oversee their assembly of its ECVs.

 

 

 

 

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Cenntro’s channel partners are not subject to any minimum annual purchase requirements. In the event its channel partners are not successful in the markets in which they operate or fail to satisfy sales targets, meet customer service objectives or experience adverse regulatory actions or other operational challenges, Cenntro could experience a reduction in sales. Furthermore, if any of its channel partners fail to successfully operate their business or lack liquidity to support their operations, they may be unable to continue to purchase and sell Cenntro’s ECVs in the countries in which they operate, which could limit its sales to such market for an extended period and adversely affect its business.

 

In addition, Cenntro’s ECVs are highly technical products that require maintenance and support, which it relies on its channel partners to provide to their customers. If Cenntro’s channel partners were to cease or cut back operations at any time in the future, end-user customers of its ECVs may encounter difficulties in maintaining their vehicles and obtaining satisfactory support, which may negatively impact Cenntro’s reputation.

 

Disputes may occur between Cenntro and its channel partners or its channel partners and their customers, and Cenntro could be affected by adverse publicity related to such disputes, whether or not such publicity is related to their collaboration with it. Cenntro’s ability to successfully build and maintain its brand can be adversely impacted by perceptions about the quality of its channel partners’ servicing (and in some cases, assembly) processes. Cenntro’s arrangements with its channel partners typically specify general quality standards that the partners may meet, but do not provide it with any direct control or oversight over the assembly, marketing and selling behavior of such channel partners. Cenntro relies on its channel partners to meet quality standards, but it cannot assure you that they will successfully maintain quality standards, which could adversely affect Cenntro’s reputation.

 

Cenntro may be unable to enter into new agreements or extend existing agreements with channel partners on terms and conditions acceptable to it or at all. In addition, even if Cenntro is able to expand its channel partner network, it can take between six months and two years from the time it enters into an agreement with a new channel partner for them to be operational and selling its ECVs, depending on their familiarity with ECVs and the types of services they will provide to Cenntro. As of June 30, 2021, only three of Cenntro’s 16 channel partners are “private label” channel partners that assemble and sell its Metro® under their own brand names. In addition, if Cenntro were to lose one or more of its channel partners, there is no assurance that it would be able to find a suitable replacement channel partner to take up the role of marketing and distributing its ECVs in the relevant market in the necessary timeframe or at all. The expense and time required to complete the channel partner onboarding process, and to confirm that Cenntro’s channel partners will be able to meet its quality standards and regulatory requirements, may be greater than anticipated, or Cenntro may never complete the onboarding process after having invested significant resources on such channel partner. Any of the foregoing could adversely affect Cenntro’s business, financial condition, operating results and prospects.

 

Cenntro’s channel partners may reduce or cancel their orders at any time, which could adversely affect its business.

 

Cenntro’s relationships with its channel partners are typically subject to definitive agreements that it has with them. Under these agreements, Cenntro’s channel partners do not have any minimum or binding purchase obligations. Because Cenntro’s sales are made pursuant to standard purchase orders, orders may be cancelled, reduced, or rescheduled with little or no notice. Cenntro’s vehicles may not meet the expectations of its channel partners, the end-users or market requirements. In the future, Centro’s channel partners or their customers may decide to purchase fewer ECVs than they have in the past, may alter their purchasing patterns at any time with limited or no notice, or may decide not to continue to purchase Cenntro’s ECVs at all. Cancellations of, reductions in, or rescheduling of orders could also result in the loss of anticipated sales without allowing Cenntro sufficient time to reduce its inventory and operating expenses, as a substantial portion of its expenses are fixed at least in the short term. In addition, changes in forecasts or the timing of orders expose Cenntro to the risks of inventory shortages or excess inventory. Any of the foregoing events could materially and adversely affect Cenntro’s business, financial condition, operating results and prospects.

 

 

 

 

90 EXPLANATORY MEMORANDUM

 

Cenntro’s channel partner network may not grow or develop as it currently expects, and if it fails to establish new channel partners in current markets in which it sells ECVs or penetrate new markets, its revenue and financial condition would be adversely affected.

 

Substantially all of Cenntro’s revenue for the years ended December 31, 2020 and 2019 and the six months ended June 30, 2021 were derived from sales of its ECVs in North America, Europe and Asia. As of June 30, 2021, Cenntro has established relationships with 16 channel partners, three that assemble its vehicle kits and sell them in their respective markets, two that upfit its vehicles and sell them in Korea and the United States and the remainder that sell the fully assembled vehicles that are designed and manufactured by Cenntro and assembled by it or its assembly partners in China. Cenntro aims to increase the size of its channel partner network in its target markets, which is necessary for its expansion in both existing and new markets. If Cenntro fails to successfully establish new channel partners in these key markets, its expected expansion will be materially impacted, which would adversely affect its business, financial condition, operating results and prospects. Furthermore, Cenntro’s future revenue growth will depend in part on its ability to penetrate new geographic markets by establishing new channel partners in those markets. Each new geographic market presents distinct and substantial challenges and risks and, in many cases, requires Cenntro to develop new customized solutions to address the particular technical and regulatory requirements of that market. Meeting the technical and regulatory requirements in any of these new markets will require a substantial investment of Cenntro’s time and resources. Cenntro cannot assure you that it will be able to establish new channel partners in these new markets, or that it will achieve meaningful revenue from sales in these markets. If any of these markets do not develop as Cenntro currently anticipates, its business, financial condition, operating results and prospects could be adversely affected.

 

Cenntro does not provide charging solutions for its channel partners or their customers.

 

Cenntro’s ECVs have two ways to charge – slow charging from a regular power outlet and fast charging from a public EV charging station. However, Cenntro does not intend to install charging stations in the markets in which its ECVs are sold through its channel partners. As such, Cenntro relies on its channel partners in such markets to ensure charging solutions are available for end-user customers. If a market in which Cenntro’s ECVs are sold has few options for charging, the customers of its channel partners may need to rely on their own power outlets for charging, which may make its vehicles less attractive in such markets.

 

The battery capacity of Cenntro’s ECVs will decline over time, which may negatively influence purchasing decisions by its channel partners and end-users.

 

Cenntro’s ECVs can experience battery capacity and performance loss over time depending on the use of the battery. Cenntro anticipates the battery capacity in its ECVs will decline over time as the battery deteriorates. Cenntro currently expects up to a 5% decline in the energy capacity retention per year, which will decrease the capacity of its ECVs over five years by up to 25% under normal use. Other factors such as usage, time and stress patterns may also impact the battery’s ability to hold a charge, which would decrease Cenntro’s ECVs range before needing to recharge. Such battery deterioration and the related decrease in range may negatively influence purchase decisions by channel partners and end-users.

 

Cenntro’s business is subject to the risk of disruption in its supply chain.

 

Cenntro depends on suppliers for the sourcing of ECV components and principal raw materials. Its suppliers (and those they depend upon for materials and services) are subject to risks, including labor disputes or constraints, financial liquidity, inclement weather, natural disasters, significant public health and safety events, supply constraints or shortages, and general economic and political conditions that could limit their ability to provide Cenntro with materials. Cenntro’s business and operations would be adversely affected if any of its key suppliers were to experience significant disruption affecting the price, quality, availability or timely delivery of parts they supply to it or if any one or more or its key suppliers discontinued operations. Furthermore, if Cenntro experiences significant increased demand, or need to replace its existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are favorable to Cenntro, or at all, or that any supplier would allocate sufficient supplies to it in order to meet its requirements or fill its orders in a timely manner. The partial or complete loss of these suppliers, or a significant adverse change in the sourcing of ECV components, could result in lost revenue, added costs and distribution delays that could harm Cenntro’s business and channel partner relationships. In addition, concentration in Cenntro’s supply chain can exacerbate its exposure to risks associated with the termination by key suppliers of its supply-chain arrangements or any adverse change in the terms of such arrangements, which could adversely affect its business, financial condition, operating results and prospects.

 

 

 

 

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Cenntro may be unsuccessful in its continuous efforts to source less expensive suppliers for certain parts, redesign certain parts to make them less expensive to produce and negotiate with existing suppliers to obtain cost reductions and avoid unfavorable changes to terms. Any of these occurrences may harm its business, prospects, financial condition and operating results. Cenntro cannot assure you that it will be able to maintain its existing relationships with its suppliers and continue to be able to source key components it uses in its ECVs on a stable basis and at reasonable prices or at all. For example, Cenntro’s suppliers may increase the prices for the components it purchases and/or experience disruptions in their production of the components.

 

Cenntro is dependent on its suppliers, certain of which are single-source suppliers, and the inability of these suppliers to continue to deliver, or their refusal to deliver, necessary components of its ECVs at prices and volumes acceptable to it could have a material adverse effect on its business, prospects and operating results.

 

Historically, Cenntro has generally obtained components from multiple sources whenever possible, similar to other automobile manufacturers. However, certain components used in its ECVs are purchased from a single-source. Cenntro refers to these component suppliers as its single-source suppliers. For example, while several sources for the steering wheel and airbag module for the Metro® are available, Cenntro currently has only one supplier for these components. Additionally, Cenntro only has one supplier of a type of adhesive that is used in connection with its driving cab.

 

To date, Cenntro has not qualified alternative sources for most of the single-sourced components used in its vehicles. Cenntro generally does not maintain long-term agreements with its single-source suppliers. Any disruption in the supply of the steering wheel and airbag module or a type of driving cab bounding glue from its single-source suppliers could temporarily disrupt production of its ECVs. While Cenntro believes that it may be able to establish alternate supply relationships for its single-source components and can obtain or engineer replacement components, it may be unable to do so in the short term or at all at prices or costs that are favorable to it. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to delays in vehicle deliveries to Cenntro’s channel partners, which could hurt its relationships with them and their end-user customers and also materially adversely affect its business, prospects and operating results.

 

In the long-term, Cenntro intends to establish supply chain relationships in North America and the European Union to support its manufacturing and assembly needs in these markets, thereby reducing the time in transit and potentially the duties associated with importing its components and spare parts from China. Cenntro believes that its deep supply chain development know-how will provide it significant advantages; however, substantially all of its supply chain experience is limited to China. If Cenntro is unable to effectively manage the sourcing of its components and the responsiveness of its supply chain in areas outside of China, its business and results of operations may be harmed. It is also likely that in the early stages of Cenntro’s supply chain expansion, it can expect most component sources will be single-source suppliers.

 

As Cenntro shifts component manufacturing to qualified suppliers and vehicle kit manufacturing to manufacturing partners, it will be relying on third parties to deliver substantially all of its components and vehicle kits for each of its new models. Cenntro’s qualified suppliers and manufacturing partners may fail to deliver components and vehicle kits, respectively, according to schedules, prices, quality and volumes that are acceptable to it.

 

Cenntro intends to shift component manufacturing processes for its new vehicles to qualified suppliers. The continuous and stable supply of components needed in the manufacture and assembly of its ECVs that meet its standards will be crucial to its operations and production. This exposes Cenntro to multiple potential sources of component shortages. Unexpected changes in business conditions, materials pricing, labor issues, wars, governmental changes, tariffs, natural disasters, health epidemics such as the global COVID-19 pandemic, trade and shipping disruptions and other factors beyond Cenntro’s or its suppliers’ control could affect their ability to deliver components to it.

 

 

 

 

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The unavailability of any component or supplier could result in production delays, idle manufacturing facilities, product design changes and loss of access to important technology and tools for producing and supporting its products. Moreover, significant increases in Cenntro’s production or product design changes by it may require it to procure additional components in a short amount of time. Cenntro’s suppliers may not be willing or able to sustainably meet its timelines or its cost, quality and volume needs, or to do so may cost it more, which may require it to replace them with other sources. While Cenntro believes that it will be able to secure additional or alternate sources or develop its own replacements for most of its components, there is no assurance that it will be able to do so quickly or at all.

 

Cenntro intends to shift manufacturing of vehicle kits for each of its new models to manufacturing partners as part of its light-asset distributed manufacturing business model and methodology. From time to time, these manufacturing partners may experience production problems or delays and may not be able to meet its demand for vehicle kits. Cenntro may be required to retain additional third-party manufacturing partners to assure continuity in production, but finding additional manufacturing partners in a timely and cost-effective manner may be difficult. Any delays in the manufacture of Cenntro’s vehicle kits could cause the loss of sales, and harm its brand, all of which could adversely affect its business, financial condition, operating results or prospects.

 

If Cenntro’s suppliers, channel partners, assembly partners or manufacturing partners fail to use ethical business practices and comply with applicable laws and regulations, Cenntro’s brand image and business could be harmed due to negative publicity.

 

Cenntro’s core values, which include developing high quality ECVs while operating with integrity, are an important component of its brand image, which makes its reputation sensitive to allegations of unethical business practices. Cenntro does not control its independent suppliers, channel partners, assembly partners or manufacturing partners or their respective business practices. Accordingly, it cannot guarantee their compliance with ethical business practices, such as environmental responsibilities, fair wage practices, and compliance with child labor laws, among others. A failure in compliance could lead Cenntro to seek alternative suppliers, channel partners, assembly partners or manufacturing partners, which could increase its costs or result in delayed delivery of its products, product shortages or other disruptions of its operations.

 

Violation of labor or other laws by Cenntro’s suppliers channel partners, assembly partners or manufacturing partners or the divergence of an independent supplier’s labor or other practices from those generally accepted as ethical in the markets in which Cenntro does business could also attract negative publicity for Cenntro and its brand. This could diminish the value of Cenntro’s brand image and reduce demand for its ECVs if, as a result of such violation, it was to attract negative publicity. Any negative publicity that results from unethical practices by third parties could harm its brand image, business, financial condition, operating results or prospects. If other manufacturers in Cenntro’s industry encounter similar problems with their third-party partners, any negative publicity with respect to the ECV industry could negatively impact Cenntro.

 

The commercial viability of Cenntro’s e-Portee relies on third-party hardware and software that may not be available, which could render the product less marketable and negatively impact its business, prospects and operating results.

 

The commercial viability of Cenntro’s e-Portee depends in large part on third-party developers utilizing hardware and software that is required for autonomous driving. The e-Portee is an open-platform and programmable chassis product, designed to act as a basic and core execution unit of an automated or autonomous driving vehicle. An automated system typically runs within a well-defined set of parameters and is restricted in what tasks can be performed. In contrast, an autonomous system learns and adapts to dynamic environments, and evolves as the environment around it changes. To be driven autonomously, the e-Portee requires hardware and software that Cenntro does not produce, such as detection devices and decision-making software. The e-Portee can only be utilized if such hardware and software is otherwise available and third parties are willing to integrate such technology with the e-Portee. To the extent Cenntro’s competitors develop and market a fully integrated autonomous EV, Cenntro may be at a commercial disadvantage. The marketability of the e-Portee is dependent on the willingness of third-party autonomous driving vehicle producers to either adopt Cenntro’s programmable chassis technology over other similar technologies or develop their own proprietary programmable chassis, as well as the willingness of end-users to purchase autonomous driving vehicles from such third parties. If any of these factors is not present then the marketability of Cenntro’s e-Portee will suffer, which could negatively impact its business, prospects and operating results. Furthermore, there are many uncertainties relating to the homologation of autonomous driving vehicles, and Cenntro is unable to predict when the market for autonomous driving vehicles will develop more fully.

 

 

 

 

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Cenntro’s business depends substantially on the continuing efforts of its executive officers, and its business may be severely disrupted if it loses their services.

 

Cenntro’s future success depends substantially on the continued services of its executive officers, especially its CEO and Chairman, Mr. Peter Z. Wang. Cenntro does not currently maintain key man life insurance on any of its executive officers. If any of its executive officers are unable or unwilling to continue in their present positions, it may not be able to replace them readily, if at all. Therefore, Cenntro’s business may be severely disrupted, and it may incur additional expenses to recruit and retain new officers. In addition, if any of Cenntro’s executive officers joins a competitor or forms a competing company, its business, financial condition, operating results or prospects could be harmed.

 

Cenntro’s facilities or operations could be damaged or adversely affected as a result of disasters or unpredictable events.

 

Cenntro has manufacturing and research facilities currently located in Changxing, China. Cenntro (i) recently opened a local assembly facility in Freehold, New Jersey for the trial production of its CityPorter™ and Terramak™ and (ii) plans to open a local assembly facility in Dusseldorf, Germany to support the local assembly of its Metro®, Logistar™ and Neibor® 200 for sales within the European Union, and a local assembly facility in Jacksonville, Florida to assemble the CityPorter™ and the Terramak™ for distribution to its channel partners for sales in the North American market. In addition, Cenntro works with three “private label” channel partners with local assembly facilities in the United States and in the European Union, and two assembly partners with assembly facilities in China. If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics (such as COVID-19) or other unpredictable events, such as cyber-attacks, occur that impact Cenntro’s facilities or the facilities of its channel and assembly partners, it may have to stop or delay production and shipment of its ECVs, and its operations may be seriously damaged. Cenntro may incur expenses relating to such delays or damages, which could materially and adversely affect its business, financial condition, operating results and prospects.

 

The COVID-19 pandemic has harmed and may continue to harm Cenntro’s business, financial condition, operating results and prospects.

 

The COVID-19 pandemic and associated containment measures have caused economic and financial disruptions globally, affecting regions in which Cenntro sells its ECVs and conducts its business operations. Cenntro is unable to predict the full impact the pandemic may have on its results of operations, financial condition, liquidity, and cash flows due to numerous uncertainties, including the progression of the pandemic, governmental and other responses, vaccine availability and effectiveness, and the timing of economic recovery. In addition, new variant strains of COVID-19 have emerged in different locations around the world, including the new Delta variant, which appears to be the most transmissible variant to date. The impact of the Delta and other variants cannot be predicted at this time and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against new variants and the response by governmental bodies and regulators.

 

Cenntro is also unable to predict the extent of the impact of the pandemic on its customers, suppliers, and other partners, which could materially adversely affect demand for its ECVs and its results of operations and financial condition. For the year ended December 31, 2020 and the six months ended June 30, 2021, the COVID-19 pandemic contributed to uncertainty in the demand environment for Cenntro’s ECVs. Cenntro’s business was adversely affected by supply constraints resulting from the pandemic that affected the timing of shipments of certain components in desired quantities or configurations. During the early stages of the pandemic, Cenntro’s facilities were completely closed for more than one month, its ability to ship into the European Union was halted and it had no new orders for its ECVs between March 2020 through October 2020. Additionally, the pandemic negatively impacted its channel partner network, including opportunities to grow the network, and most of its channel partners at least temporarily shut down their businesses. During the six months ended June 30, 2021, Cenntro’s business was negatively impacted by the resurgence of COVID-19. its supply chains and manufacturing were impacted by lock-downs and containment measures implemented by local governments. As a result, production lead times for its existing models as well as the release dates of its new models were extended. Additional COVID-related precautionary measures taken at ports have resulted in delays in customs clearing. The resurgence of COVID-19 may also adversely impact its inventory and account receivables collection cycle, which may negatively affect its liquidity position.

 

 

 

 

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Measures taken to contain the COVID-19 pandemic, such as travel restrictions, quarantines, shelter-in-place, and shutdowns, have affected and may continue to affect Cenntro’s workforce and operations, and those of its vendors, suppliers, and channel and assembly partners. Restrictions on Cenntro’s operations or workforce, or similar limitations for others, may affect its ability to meet customer demand. Cenntro has taken and will continue to take risk mitigation actions that it believes are in the best interests of its employees, customers, suppliers, and other partners. Work-from-home and other measures may create additional operational risks, including heightened cybersecurity risks. These measures may not be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and impair Cenntro’s ability to perform critical functions.

 

Cenntro is closely monitoring the development of the COVID-19 pandemic. The COVID-19 pandemic may continue to cause disruption and volatility in the global debt and capital markets, which may increase Cenntro’s cost of capital and adversely affect its access to capital. The COVID-19 pandemic may adversely affect its business, results of operations, and financial condition and it also may have the effect of exacerbating the other risks discussed in this “Risk Factors” section. Developments related to the COVID-19 pandemic have been unpredictable, and additional impacts and risks may arise that Cenntro is not aware of or is not able to respond to in an effective manner.

 

Global economic conditions could materially and adversely affect Cenntro’s business, financial condition, operating results and prospects.

 

The global macroeconomic environment is facing challenges, and the uncertain state of the global economy continues to impact businesses around the world, including as a result of COVID-19. If global economic and financial market conditions do not improve or further deteriorate, Cenntro’s business, financial condition, operating results and prospects may be materially and adversely affected. Some of the factors that could materially and adversely affect Cenntro include:

 

Slower consumer spending may result in reduced demand for its ECVs, reduced orders from its channel partners, order cancellations, lower revenues, higher discounts, increased inventories and lower gross margins.
   
Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on its reported operating results and financial condition. Cenntro conducts transactions in various currencies, which increases its exposure to fluctuations in foreign currency exchange rates relative to the U.S. Dollar.
   
Volatility in the availability and prices for commodities and raw materials it uses in its ECVs from its supply chain could have a material adverse effect on its costs, gross margins and profitability.
   
Instability in global financial and capital markets may impair its ability to raise additional equity or debt financing on reasonable terms or at all in order to grow its business.

 

 

 

 

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Cenntro’s financial results may vary significantly from period-to-period due to the seasonality of its business and fluctuations in its operating costs.

 

Cenntro’s operating results may vary significantly from period-to-period due to many factors, including seasonal factors that may have an effect on the demand for its ECVs. Demand for vehicles in the automotive industry in general typically decline over the winter season, while sales are generally higher during the spring and summer months. Cenntro’s limited operating history makes it difficult for it to judge the exact nature or extent of the seasonality of its business. Also, any unusually severe weather conditions in some markets may impact demand for its vehicles. Cenntro’s operating results could also suffer if it does not achieve revenue consistent with its expectations for this seasonal demand. Cenntro also expects its period-to-period operating results to vary based on its operating costs which it anticipates will increase significantly in future periods as it, among other things, designs and develops additional ECVs and components, establishes new channel partners relationships, establishes new local assembly facilities and technology support and research and developments centers, and increases its general and administrative functions to support its growing operations. As a result of these factors, Cenntro believes that period-to-period comparisons of its operating results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.

 

Cenntro’s distributed manufacturing methodology and channel partner network model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating its business, financial condition, operating results and prospects difficult.

 

Cenntro’s business model allows it to both (i) design, manufacture, assemble, homologate and sell ECVs to third parties for distribution and service to end-users and (ii) distribute manufactured vehicle kits, which are then assembled, homologated, sold and serviced by third parties in their respective markets. This model of vehicle distribution is relatively new and unproven and subjects Cenntro to substantial risk. For example, Cenntro’s success depends in large part on its ability to effectively establish and maintain successful relationships with channel partners and for them to implement successful processes for marketing, sales, and servicing (and in cases related to Cenntro’s private label channel partners, homologation and assembly).

 

Cenntro’s business model is subject to numerous significant challenges and uncertainties, some of which are outside of its control, and it may not be successful in addressing these challenges. For instance, Cenntro has limited control or oversight over its channel partners. To the extent a channel partner is not conducting its business in an ethical manner or is not performing to the required standards, Cenntro has limited recourse. Cenntro’s channel partner network is based solely on contractual arrangements and such contractual arrangements do not currently, and may not into the future, provide Cenntro with adequate oversight over its channel partners to protect its reputation. Additionally, in some cases it may effectively compete with its private label channel partners.

 

Additionally, in certain markets Cenntro may sell directly to end-users such as fleet providers which will mean it will add an overhead and business structure to service a direct sale business model that it does not have in place at this time.

 

Cenntro’s business plans require a significant amount of capital, which may not be available to it on acceptable terms or at all.

 

Cenntro expects to need significant capital in connection with its current and planned operations, including to open new local assembly facilities, grow the number of its channel partners and markets in which it operates and support the introduction and production of four new ECV models. Cenntro expects that its level of capital expenditures will be significantly affected by channel partners’ customer demand for its ECVs. The fact that it has a limited operating history means it has limited historical data regarding the demand for its products and services and its future capital requirements. As a result, Cenntro’s future actual capital requirements may be uncertain and actual capital requirements may be materially different from those it currently anticipate.

 

Cenntro may seek equity or debt financing to finance a portion of its capital requirements. Such financing might not be available to it in a timely manner or on terms that are acceptable, or at all. Cenntro’s ability to obtain the necessary financing to carry out its business plan is subject to a number of factors, including general market conditions and investor acceptance of its business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to Cenntro. If Cenntro is unable to raise sufficient funds, it will have to significantly reduce its spending, and delay or cancel its planned activities.

 

 

 

 

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Cenntro may be unable to obtain financing for its working capital needs on favorable terms.

 

Cenntro’s success and growth are largely dependent upon having adequate working capital to fund its business objectives and planned growth on favorable terms. Cenntro cannot assure you that it will be able to generate cash flow or that it will be able to borrow funds in amounts sufficient to enable it to meet its working capital requirements. Cenntro previously maintained lines of credit with various financial institutions; however, as of June 30, 2021, it has no outstanding borrowings under any of its prior lines of credit and such lines of credit are no longer available to it. As of June 30, 2021, Cenntro’s only borrowings outstanding were approximately US$3.4 million and US$1.9 million in loans (including accrued interest) made by third parties and related parties, respectively. If Cenntro is not able to establish a new line of credit suitable for its growth plans on favorable terms, or otherwise borrow sufficient funds to meet its working capital requirements, it may be required to sell equity or change its plans to reduce planned expenditures. Cenntro cannot assure you that it will be able to sell equity on terms acceptable to it, if at all, and any sale or reduction in expenditures could have a negative impact on its business, financial condition, operating results and prospects.

 

As Cenntro shifts component and vehicle kit manufacturing to qualified suppliers and manufacturing partners, it may have to shorten the useful lives of any equipment to be retired as a result, and the resulting acceleration in its depreciation could adversely affect its financial results.

 

Cenntro has invested in what it believes is state of the art tooling, machinery and other manufacturing equipment, and it depreciates the cost of such equipment over their expected useful lives. However, Cenntro intends to shift component and vehicle kit manufacturing for each of its new models to qualified suppliers and manufacturing partners, respectively, and focus its efforts on the assembly of its ECVs for marketing. As Cenntro shifts component and vehicle kit manufacturing (in some instances) to its qualified suppliers and manufacturing partners, respectively, Cenntro may have to shorten the useful lives of any equipment to be retired as a result. The useful life of any equipment that would be retired early as a result would be shortened, causing the depreciation on such equipment to be accelerated, and to the extent Cenntro owns such equipment, its results of operations could be adversely affected.

 

Cenntro may not be able to accurately estimate the supply and demand for its vehicles, which could result in a variety of inefficiencies in its business and hinder its ability to generate revenue. If Cenntro fails to accurately predict its manufacturing requirements, it could incur additional costs or experience delays.

 

Cenntro may have limited insight into trends that may emerge and affect its business. This may result in its inability to accurately estimate the supply and demand for its vehicles. For instance, Cenntro plans to introduce four new vehicles in 2021, including two new vehicles in the North American market and two new vehicles for the European market. Cenntro cannot predict whether these new ECV models will be readily adopted by channel partners and end-users in their respective markets. Cenntro may need to provide forecasts of its demand to its suppliers several months prior to the scheduled delivery of products to its channel partners. Currently, there is no or limited historical basis for making judgments on the demand for its planned or existing vehicles or its ability to develop, manufacture, and deliver vehicles, or its profitability in the future. If Cenntro underestimates its requirements, its suppliers may have inadequate inventory, which could interrupt manufacturing of Cenntro’s products and result in delays in shipments and revenues. In addition, lead times for materials and components that Cenntro’s suppliers order may vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. If Cenntro fails to order sufficient quantities of product components in a timely manner, the delivery of vehicles to its channel partners could be delayed, which would harm its business, financial condition and operating results.

 

Cenntro’s ECVs use lithium-ion battery cells, which have the potential to catch fire or vent smoke and flame and may lead to additional concerns about batteries used in automotive applications.

 

The battery packs in Cenntro’s ECVs use lithium-ion cells, and Cenntro intends to use lithium-ion cells in its future ECV products. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. Extremely rare incidents of laptop computers, cell phones and EV battery packs catching fire have focused consumer attention on the safety of these cells.

 

 

 

 

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These events have raised concerns about batteries used in automotive applications. To address these questions and concerns, a number of battery cell manufacturers are pursuing alternative lithium-ion battery cell chemistries to improve safety. The battery packs used in Cenntro’s ECVs may need to be redesigned, which would be time-consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications or any future incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve Cenntro, could seriously harm its business.

 

The majority of the battery packs Cenntro uses in its ECVs are shipped in a “just in time” fashion so that Cenntro is generally not housing them for a long period of time. Nonetheless, it may in the future store lithium-ion cells at its facilities from time to time. Any incident involving battery cells may cause disruption to the operation of its facilities. While Cenntro has implemented safety procedures related to the handling of the cells, it cannot assure you that a safety issue or fire related to the cells would not disrupt its operations. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any type of battery failure in relation to a competitor’s ECV may cause indirect adverse publicity for Cenntro and its ECVs. Such adverse publicity could negatively affect its brand and harm its business, financial condition, operating results and prospects.

 

Cenntro has identified a material weakness in its internal control over financial reporting that could materially harm the Enlarged Group. If Cenntro fails to remediate the material weakness, or if it experiences material weaknesses in the future, it may not be able to accurately and timely report its financial condition or results of operations, which may adversely affect investor confidence in Cenntro and, as a result, the value of the Shares.

 

Prior to Closing, the group members of Cenntro (the Cenntro Group) will have been private companies with limited accounting personnel and other resources with which to address their internal control over financial reporting in accordance with requirements applicable to public companies. As private companies, historically the Cenntro Group has not retained a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters under U.S. Generally Accepted Accounting Principles (GAAP).

 

A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. While Cenntro’s independent registered public accounting firm did not and was not required to perform an audit of its internal control over financial reporting in connection with the audits of its 2019 and 2020 combined financial statements, management identified a material weakness in its internal control over financial reporting. Specifically, Cenntro’s material weakness is that it does not have adequate accounting staff generally in its finance and accounting department, particularly with respect to (i) the preparation of financial statements prepared in accordance with GAAP and the inclusion of proper disclosures in the related footnotes, and (ii) the design, documentation and implementation of internal controls surrounding risk management and financial reporting processes.

 

Management has taken and is continuing to take actions to remediate this material weakness and is taking steps to strengthen Cenntro’s internal control over financial reporting and risk management, such as the hiring of an experienced Chief Financial Officer, Mr. Edmond Cheng, in April 2021. Cenntro intends to hire additional personnel with greater familiarity with GAAP and SEC reporting requirements and upon Closing the Enlarged Group will have an audit committee with significant experience in overseeing the preparation of financial statements in accordance with GAAP and compliance with SEC reporting requirements. Additionally, with the assistance of outside consultants, Cenntro plans to (i) further develop and implement formal policies, processes and documentation procedures relating to its financial reporting as well as (ii) address the accounting function’s staffing needs and training and build out an internal audit function. Cenntro cannot assure you that the measures it has taken to date will be sufficient to remediate the material weakness it identified or avoid the identification of additional material weaknesses in the future. To the extent Cenntro is unable to remediate this material weakness or unable to identify future material weaknesses in its internal control over financial reporting, such material weakness could severely inhibit its ability to accurately report its financial condition or results of operations and could cause future investors to lose confidence in the accuracy and completeness of its financial reports, it could become subject to litigation from investors and stockholders, and it could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in Cenntro’s internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict its future access to the capital markets.

 

 

 

 

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Risks Related to Cenntro’s industry

 

The unavailability or reduction of government and economic incentives or the elimination of regulatory policies which are favorable for ECVs could materially and adversely affect Cenntro’s business, financial condition, operating results and prospects.

 

Cenntro’s business depends significantly on government subsidies, economic incentives and government policies that support the growth of new energy vehicles generally and ECVs specifically. Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived success of ECVs, fiscal tightening or other factors may result in the diminished competitiveness of the alternative fuel vehicle industry generally or Cenntro’s ECVs in particular. Any of the foregoing could materially and adversely affect Cenntro’s business, financial condition, operating results and prospects.

 

Cenntro’s future growth is dependent upon end-users’ willingness to adopt ECVs.

 

Cenntro’s growth is highly dependent upon the adoption by national and local governments and the commercial vehicle market of, and Cenntro is subject to a risk of any reduced demand for, alternative fuel vehicles in general and ECVs in particular. The market for alternative fuel vehicles (including ECVs) is relatively new and rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. If the market for ECVs in North America, Europe, Asia or elsewhere does not develop as Cenntro expects, or develops more slowly than it expects, its business, financial condition, operating results and prospects will be harmed. Other factors that may influence the adoption of alternative fuel vehicles, and specifically ECVs, include:

 

perceptions about electric vehicle quality, safety, design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles, whether or not such vehicles are produced by Cenntro or other manufacturers;
   
perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology, including electric vehicle systems;
   
the limited range over which electric vehicles may be driven on a single battery charge and the speed at which batteries can be recharged;
   
the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge;
   
concerns about electric grid capacity and reliability;
   
the availability of new energy vehicles, including plug-in hybrid electric vehicles and vehicles powered by hydrogen fuel;
   
improvements in the fuel economy of the internal combustion engine;
   
the availability of service for electric vehicles;
   
the environmental consciousness of end-users;
   
access to charging stations, standardization of electric vehicle charging systems and consumers’ perceptions about convenience and cost to charge an electric commercial vehicle;
   
the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles;
   
perceptions about and the actual cost of alternative fuel; and
   
macroeconomic factors.

 

Any of the factors described above may cause Cenntro’s channel partners and their customers not to purchase Cenntro’s ECVs. If the market for ECVs does not develop as Cenntro expects or develops more slowly than it expects, its business, financial condition, operating results and prospects will be adversely affected.

 

 

 

 

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Cenntro could experience cost increases or disruptions in the supply of raw materials or components used in its vehicles, and a shortage of key components, such as semiconductors, can disrupt its production of ECVs.

 

Cenntro incurs significant costs related to the procuring of raw materials and components required to manufacture its vehicles. Its ECVs use various raw materials including aluminum, steel, carbon fiber, non-ferrous metals such as copper, lithium, nickel and cobalt, as well as key component inputs such as semiconductors. The prices for these raw materials fluctuate depending on factors beyond Cenntro’s control, including market conditions and global demand for these materials, and could adversely affect its business and operating results. In particular, the automotive industry is currently facing a significant shortage of semiconductors. The global semiconductor supply shortage is having wide-ranging effects across multiple industries, particularly the automotive industry, and it has impacted multiple suppliers that incorporate semiconductors into the parts they supply to Cenntro. As a result, the semiconductor supply shortage has had, and will continue to have, a negative impact on Cenntro’s vehicle production. Due to shortages related to the impact of COVID-19 and other factors, Cenntro’s vendors are also experiencing substantial increases in the price of commodities such as steel and lithium, which are key raw materials in the manufacture of its chassis and batteries, respectively. Such shortages have had, and will continue to have, a negative impact on Cenntro’s gross margin.

 

Increases in the cost, disruptions of supply or shortages of lithium-ion batteries could harm Cenntro’s business.

 

Cenntro’s business depends on the continued supply of battery cells for its vehicles. Battery cell manufacturers may refuse to supply battery cells to electric vehicle manufacturers to the extent they determine that the vehicles are not sufficiently safe. Cenntro is exposed to multiple risks relating to availability and pricing of quality lithium-ion battery cells. These risks include:

 

the inability or unwillingness of current battery cell manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric vehicle industry as demand for such cells increases;
   
disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and
   
an increase in the cost or shortages of raw materials, such as lithium, nickel and cobalt, used in lithium-ion cells.

 

Cenntro’s business depends on the continued supply of battery cells for its vehicles. Any disruption in the supply of battery cells could temporarily disrupt the planned production of Cenntro’s ECVs until such time as a different supplier is fully qualified. Furthermore, strong growth in sales of Cenntro’s ECVs may in some instances outpace the production and availability of lithium-ion batteries, which could result in substantial increases in the price of its batteries. Substantial increases in the prices for lithium-ion batteries would increase Cenntro’s operating costs, and could reduce its gross margins if it cannot recoup the increased costs through increased ECV prices.

 

Developments in alternative technologies or improvements in the internal combustion engine may materially and adversely affect the demand for Cenntro’s ECVs.

 

Significant developments in alternative technologies, such as advanced diesel, ethanol, hydrogen fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect Cenntro’s business, financial condition, operating results and prospects in ways it does not currently anticipate. Any failure by Cenntro to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay the development and introduction of new and enhanced EVs, which could result in the loss of competitiveness of its vehicles, decreased revenue and a loss of market share to competitors.

 

 

 

 

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The automotive market is highly competitive, and Cenntro may not be successful in competing in this industry.

 

Both the automobile industry generally, and the ECV segment in particular, are highly competitive, and Cenntro will be competing for sales with both ICE commercial vehicles and other ECVs. Many of its current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than Cenntro does and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of ECVs. Cenntro expects competition for ECVs to intensify due to increased demand and a regulatory push for alternative fuel vehicles, continuing globalization, and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, fuel economy, customer service, and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in downward price pressure and adversely affect Cenntro’s business, financial condition, operating results, and prospects.

 

If Cenntro is unable to keep up with advances in electric vehicle technology, it may suffer a decline in its competitive position.

 

Cenntro may be unable to keep up with changes in ECV technology, and may suffer a resulting decline in its competitive position, which would materially and adversely affect its business, financial condition, operating results and prospects. Cenntro’s research and development efforts, as well as its manufacturing and supply chain capacity, may not be sufficient to adapt to changes in ECV technology. As technologies change, Cenntro plans to upgrade or adapt its ECVs and introduce new models in order to continue to provide its ECVs with the latest technology, including battery cell technology. However, Cenntro’s ECVs may not compete effectively with ECVs manufactured and marketed by its competitors if it is not able to develop and integrate the latest technology into its ECVs.

 

Risks related to legal and regulatory matters

 

Cenntro’s business is subject to substantial regulations, which are evolving, and unfavorable changes or the failure by Cenntro or its channel partners to comply with these regulations could materially and adversely affect its business, financial condition, operating results and prospects.

 

Motor vehicles are subject to substantial regulation under U.S. federal, state and local laws as well as the laws of each of Cenntro’s target markets. Cenntro incurs significant costs to comply with these regulations, including obtaining required vehicle certifications in the jurisdictions in which its ECVs are sold, and may be required to incur additional costs related to any changes to such regulations. Any failures by Cenntro or its channel partners to comply with existing or future regulations could result in significant expenses, vehicle recalls, delays or fines. Cenntro and its channel partners are subject to laws and regulations applicable to the supply, manufacture, import, sale and service of automobiles internationally. For example, in countries outside of the United States, Cenntro or its channel partners are required to meet standards relating to vehicle safety and testing, fuel economy, battery safety, transportation, testing and recycling and greenhouse gas emissions, among other things, that are often materially different from requirements in the United States, thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance in those countries. This process may include official review and certification of Cenntro’s vehicles by foreign regulatory agencies prior to market entry, as well as compliance with foreign reporting and recall management systems requirements. See “Business—Governmental Regulations.”

 

Compliance with various regulations pertaining to ECVs in Cenntro’s various target markets may limit its ability to sell certain of its ECV models in such markets. For example, under the Small Series Type Approval for N1 qualification in the European Union, Cenntro’s new model of the Metro® is limited to annual sales of only 1,500 units in the EU market (excluding sales by Cenntro’s private label channel partners in the European Union).

 

 

 

 

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To the extent U.S. or international laws change, some or all of Cenntro’s vehicles may not comply with any new applicable international, federal, state or local laws, which would have an adverse effect on its business. Compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with new regulations is cost prohibitive, Cenntro’s business, prospects, financial condition and operating results will be adversely affected.

 

Cenntro’s ECVs may be subject to product liability claims or recalls which could cause it to incur expenses, damage its reputation or result in a diversion of management resources.

 

Historically, Cenntro has not carried product liability insurance as its private label channel partners, who represent the majority of Cenntro’s sales revenue for the year ended December 31, 2020 and the six months ended June 30, 2021, are regarded as the manufacturer of record of the ECVs Cenntro assembles and sells. Additionally, Cenntro has not carried business interruption insurance. Cenntro intends to obtain product liability insurance and business interruption insurance prior to the consummation of this Proposed Transaction.

 

As manufacturer of record of Cenntro’s ECVs (except in the case of vehicles assembled by its private label channel partners), Cenntro may be responsible for product liability claims or costs associated with product recalls. Cenntro may be subject to lawsuits resulting from injuries associated with the use of the ECVs that it designs, manufactures and sells to its channel partners. Cenntro may incur losses relating to these claims or the defense of these claims. Cenntro’s ECVs may also be subject to recalls if any of its ECV designs prove to be defective, or its channel partners may voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or the need to maintain good customer relationships. Such a recall would result in a diversion of resources and could damage Cenntro’s reputation with both its channel partners and their customers. Any claims or recalls associated with Cenntro’s ECVs could exceed its insurance coverage and materially and adversely affect its business, financial condition, operating results and prospects.

 

Cenntro faces risks associated with its global operations and expansion, including unfavorable regulatory, political, legal, economic, tax and labor conditions, and with establishing itself in new markets, all of which could harm its business.

 

Cenntro currently has international operations and subsidiaries in various countries and jurisdictions, and it expects to expand and optimize its channel partner network internationally and to invest in new manufacturing and assembly facilities in various jurisdictions as part of its growth plan. Accordingly, Cenntro and its products are subject to a variety of legal, political and regulatory requirements and social and economic conditions over which it has little control. For example, Cenntro may be impacted by trade policies, political uncertainty and economic cycles involving geographic regions where it has significant sales or operates.

 

Cenntro is subject to a number of risks associated with international business activities that may increase its costs, impact its ability to sell its ECVs and require significant management attention. These risks include:

 

conforming its products to various international regulatory and safety requirements in establishing, staffing and managing foreign operations;
   
challenges in attracting channel partners;
   
compliance with foreign government taxes, regulations and permit requirements;
   
its ability to enforce its contractual rights and intellectual property rights;
   
compliance with trade restrictions and customs regulations as well as tariffs and price or exchange controls;
   
fluctuations in freight rates and transportation disruptions;
   
fluctuations in the values of foreign currencies;
   
compliance with certification and homologation requirements; and
   
preferences of foreign nations for domestically manufactured products.

 

 

 

 

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In many of these markets, long-standing relationships between potential customers and their local partners and protective regulations and disparate networks and systems used by each country, will create barriers to entry.

 

In many cases, Cenntro will have limited or no experience in many target markets where it intends to expand its channel partner network. Moreover, Cenntro’s entry into any such markets may be complicated by local consumer preferences, differing technology standards and language barriers, which may negatively impact its business and planned growth.

 

Cenntro is currently selling its ECVs in North America, Europe and Asia, and, as a result, it is subject to laws and regulations in those jurisdictions that are applicable to the import and/or sale of electric vehicles. For example, Cenntro is required to meet vehicle-specific safety standards that are often materially different across markets, thus resulting in additional investment into the vehicles and systems to ensure regulatory compliance. For each of the markets in which Cenntro sells its ECVs, it must obtain advanced approval from regulatory agencies regarding the proper certification or homologation of its vehicles to enter into these markets. This process necessitates that regulatory officials in each market review and certify Cenntro’s vehicles prior to market entry. Cenntro completed homologation of its CityPorter™ in North America during the third quarter of 2021 and is currently in the process of homologating the Logistar™ and the Neibor® 200 in the European Union. Cenntro has also homologated its new model of the Metro® in Europe under the N1 small series designation as various improvements to the model increased its weight over the allowable weight under its prior L7e classification. Any delay in the homologation process could adversely impact Cenntro’s ability to introduce any of these ECV models in their respective markets on its planned timeframe, which could adversely affect Cenntro’s business, financial condition and operating results and harm its reputation.

 

Cenntro’s business will be adversely affected if it is unable to protect its intellectual property rights from unauthorized use or infringement by third parties.

 

Any failure to adequately protect Cenntro’s proprietary rights could result in the weakening or loss of such rights, which may allow Cenntro’s competitors to offer similar or identical products or use identical or confusingly similar branding, potentially resulting in the loss of some of Cenntro’s competitive advantage, a decrease in its revenue or an attribution of potentially lower quality products to Cenntro, which would adversely affect its business, financial condition, operating results and prospects. Cenntro’s success depends, at least in part, on its ability to protect its core technology and intellectual property. To accomplish this, Cenntro relies on a combination of patents, patent applications, trade secrets (including know-how), employee and third-party nondisclosure agreements, copyright protection, trademarks, intellectual property licenses and other contractual rights to establish and protect its proprietary rights in its technology. While Cenntro has seven PCT patents pending (which are given reciprocal protection pursuant to the Patent Coordination Treaty), substantially all of its registered patents are under PRC law and have not been given reciprocal treatment and protection under the laws of either the United States or the European Union. Cenntro may be unable to adequately protect its proprietary technology and intellectual property from use by third parties. In addition, Cenntro’s protection from trademark infringement by third parties in the United States and/or the European Union is currently limited to the extent it is not able to attain reciprocal trademark protection and there is no assurance that it will be able to obtain such trademark protection in these jurisdictions.

 

The protection provided by patent laws is and will be important to Cenntro’s business. However, such patents and agreements and various other measures Cenntro takes to protect its intellectual property from use by others may not be effective for various reasons, including the following:

 

Cenntro’s pending patent applications may not result in the issuance of patents;
   
Cenntro’s patents may not be broad enough to protect its commercial endeavors;
   
the patents Cenntro has been granted may be challenged, invalidated or circumvented because of the pre-existence of similar patented or unpatented technology or for other reasons;
   
the costs associated with obtaining and enforcing patents in the countries in which Cenntro operates, confidentiality and invention agreements or other intellectual property rights may make enforcement impracticable; or
   
current and future competitors may independently develop similar technology, duplicate Cenntro’s vehicles or design new vehicles in a way that circumvents its intellectual property protection.

 

 

 

 

103 EXPLANATORY MEMORANDUM

 

Existing trademark and trade secret laws and confidentiality agreements afford only limited protections. In addition, the laws of some foreign countries do not protect Cenntro’s proprietary rights to the same extent as do the laws of the United States and policing the unauthorized use of Cenntro’s intellectual property is difficult. For example, historically the implementation and enforcement of PRC intellectual property-related laws have been limited. Accordingly, protection of intellectual property rights in China may not be as effective as in the United States or other countries.

 

Some of the components in Cenntro’s supply chain are co-designed with third-party vendors, who are generally restricted from selling parts that are co-designed with Cenntro to other parties. However, in the event Cenntro discontinues its purchases of such co-designed components from its vendors, these vendors may no longer be restricted from selling such co-designed components to third parties.

 

Cenntro may need to defend itself against patent or trademark infringement claims, which may be time-consuming and could cause it to incur substantial costs.

 

Companies, organizations or individuals, including Cenntro’s competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with Cenntro’s ability to make, use, develop or sell its vehicles or vehicle kits, which could make it more difficult for Cenntro to operate its business. From time to time, Cenntro receives notices from holders of patents or trademarks regarding their proprietary rights. Companies holding patents or other intellectual property rights may bring suits against Cenntro alleging infringement of such rights or otherwise assert their rights and seek licenses. Even if Cenntro is successful in these proceedings, any intellectual property infringement claims against Cenntro could be costly, time-consuming, harmful to Cenntro’s reputation, and could divert the time and attention of its management and other personnel or result in injunctive or other equitable relief that may require Cenntro to make changes to its business, any of which could have a material adverse effect on its financial condition, cash flows, results of operations or prospects. In addition, if Cenntro is determined to have infringed upon a third party’s intellectual property rights, it may be required to do one or more of the following:

 

cease selling, incorporating or using vehicles or offering goods or services that incorporate or use the challenged intellectual property;
   
pay substantial damages;
   
obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or
   
redesign its vehicles or other goods or services.

 

In the event of a successful claim of infringement against Cenntro and its failure or inability to obtain a license to the infringed technology or other intellectual property right, Cenntro’s business, financial condition, operating results and prospects could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources and management attention.

 

In addition, Cenntro has agreed, and expect to continue to agree, to indemnify its channel partners for certain intellectual property infringement claims regarding its products. As a result, if infringement claims are made against its channel partners, Cenntro may be required to indemnify them for damages (including expenses) resulting from such claims or to refund amounts they have paid to Cenntro.

 

Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

 

Cenntro’s business operations may generate noise, wastewater, end-of-life batteries, gaseous byproduct and other industrial waste. Cenntro is required to comply with all applicable national and local regulations regarding the protection of the environment. Cenntro believes it is in compliance with current environmental protection requirements and have all necessary environmental permits to conduct its business. However, if more stringent regulations are adopted in the future, the costs of compliance with these new regulations could be substantial. Additionally, if Cenntro fails to comply with present or future environmental rules or regulations, it may be liable for clean up costs or be required to pay substantial fines, suspend production or cease operations. Any failure by Cenntro to control the use of, or to adequately restrict the unauthorized discharge of, hazardous substances or comply with other environmental regulations could subject it to potentially significant monetary damages and fines or suspensions to its business operations. Additionally, as Cenntro expands its local assembly capabilities in its target markets, its expansion will necessarily increase its exposure to liability with respect to environmental regulations and the fines and injunctive actions related thereto and require Cenntro to spend further resources and time complying with complex environmental regulations in such jurisdictions.

 

 

 

 

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Contamination at properties currently or formerly owned or operated by Cenntro, and properties to which hazardous substances were sent by Cenntro, may result in liability for Cenntro under environmental laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The U.S. government can impose liability on Cenntro under CERCLA for the full amount of remediation-related costs of a contaminated site without regard to fault. Such costs can include those associated with the investigation and clean up of contaminated soil, ground water and buildings as well as to reverse impacts to human health and damages to natural resources.

 

Pursuant to the Environmental Protection Law of the PRC, which was adopted on December 26, 1989, and amended on April 24, 2014, effective on January 1, 2015, any entity which discharges pollutants must adopt measures to prevent and treat waste gas, waste water, waste residue, medical waste, dust, malodorous gas, radioactive substances generated in manufacturing, construction or any other activities as well as environmental pollution and hazards such as noise, vibration, ray radiation, electromagnetic radiation etc. Environmental protection authorities impose various administrative penalties on entities in violation of the Environmental Protection Law, including warnings, fines, orders to rectify within a prescribed period, cease construction, restrict or suspend production, make recovery, disclose relevant information or make an announcement, or seize and confiscate facilities and equipment which cause pollutant emissions, the imposition of administrative action against relevant responsible persons, and orders to shut down enterprises. In addition, pursuant to the Civil Code of the PRC, which was adopted on May 28, 2020, and effective on January 1, 2021, in the event of damage caused to others as a result of environmental pollution and ecological destruction, the actor will bear tortious liability. In the event a party, in violation of laws and regulations, intentionally pollutes the environment or damages the ecology, thereby causing serious consequences, the infringed party is entitled to claim appropriate punitive damages. Any violations of the Environmental Protection Law or the Civil Code could expose Cenntro to liabilities including fines and damages that could impact its business, prospects, financial condition and operating results.

 

The EU has specific regulations on batteries and the disposal of batteries to minimize the negative environmental effects of batteries and hazardous waste. The EU Battery Directive (2006/66/EC) (EU Battery Directive) is intended to cover all types of batteries regardless of their shape, volume, weight, material composition or use. It is aimed at reducing mercury, cadmium, lead and other metals in the environment by minimizing the use of these substances in batteries and by treating and re-using old batteries. This directive applies to all types of batteries except those used to protect European Member States’ security, for military purposes, or sent into space. To achieve these objectives, the EU Battery Directive prohibits the marketing of some batteries containing hazardous substances. It establishes processes aimed at high levels of collection and recycling of batteries with quantified collection and recycling targets. The directive sets out minimum rules for producer responsibility and provisions with regard to labelling of batteries and their removability from equipment. Product markings are required for batteries and accumulators to provide information on capacity and to facilitate reuse and safe disposal. Cenntro currently ships its ECVs pursuant to the requirements of the directive. Cenntro’s current estimated costs associated with its compliance with these directives based on its current market share are not significant. However, Cenntro continues to evaluate the impact of these directives as European Union member states implement guidance, and actual costs could differ from Cenntro’s current estimates.

 

In December 2020, the European Commission adopted a proposal for a new regulation on batteries and waste batteries. Although in its early stages, the proposal is designed to modernize the EU’s regulatory framework for batteries to secure the sustainability and competitiveness of battery value chains. It would introduce mandatory requirements on sustainability (such as carbon footprint rules, minimum recycled content, performance and durability criteria), safety and labelling for the marketing and putting into service of batteries, and requirements for end-of-life management. The proposal also includes due diligence obligations for economic operators as regards the sourcing of raw materials.

 

 

 

 

105 EXPLANATORY MEMORANDUM

 

The EU Restriction of Hazardous Substances Directive 2002/95/EC (RoHS Directive) places restrictions on the use of certain hazardous substances in electrical and electronic equipment. All applicable products sold in the European Union market after July 1, 2006 must comply with EU RoHS Directive. While this directive does not currently affect Cenntro’s ECVs in any meaningful way, should any changes occur in the directive that would affect its ECVs, Cenntro will need to comply with any new regulations that are imposed.

 

China has implemented several regulations, policies and measures to regulate the batteries used in ECVs, which cover the security standards, recycling activities and other specifications. For example, the Interim Measures for the Management of the Recycling of Power Battery in New Energy Vehicles (PRC Battery Measures) regulate the recycling and disposal of end-of-life batteries for new energy vehicles. The PRC Battery Measures provide that manufacturers of new energy vehicles must take primary responsibilities of the recycling of batteries and are required, for instance, to transfer batteries that have been damaged during manufacturing to vendors that provide recycling services, and to maintain records of the vehicles they have manufactured, the identification codes of the batteries incorporated into the vehicles, and the owners of the vehicles. The batteries used in Cenntro’s ECVs are also subject to a number of national standards in China, including functional safety requirements and testing methods for the battery management system of electric vehicles.

 

Cenntro’s noncompliance with any of these regulations may materially and adversely affect its operations or financial condition.

 

Cenntro seeks to continuously expand and improve its information technology systems and use security measures designed to protect its systems against breaches and cyber-attacks. If these efforts are not successful, Cenntro’s business and operations could be disrupted, and its operating results and reputation could be harmed.

 

Cenntro seeks to continuously expand and improve its information technology systems, including implementing new internally developed systems, to assist it in the management of its business. Cenntro maintains information technology measures designed to protect it against intellectual property theft, data breaches and other cyber-attacks. The implementation, maintenance and improvement of these systems require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving and expanding Cenntro’s core systems as well as implementing new systems, including the disruption of its data management, procurement, manufacturing execution, finance and supply chain processes. These risks may affect Cenntro’s ability to manage its data and inventory, procure parts or supplies or manufacture, sell, deliver ECVs, or achieve and maintain compliance with, or realize available benefits under, tax laws and other applicable regulations.

 

Cenntro cannot assure you that any of its new information technology systems or their required functionality will be effectively implemented, maintained or expanded as planned. If Cenntro does not successfully maintain its information technology or expand these systems as planned, its operations may be disrupted, its ability to accurately or timely report its financial results could be impaired, and deficiencies may arise in its internal control over financial reporting, which may adversely affect its ability to certify its financial results. Moreover, Cenntro’s proprietary information could be compromised or misappropriated, and its reputation may be adversely affected. If these systems or their functionality do not operate as Cenntro expects them to, it may be required to expend significant resources to make corrections or find alternative sources for performing these functions.

 

Data collection is governed by restrictive regulations governing the use, processing, and cross-border transfer of personal information.

 

International jurisdictions have their own data security and privacy legal framework with which companies or their customers must comply. The collection, use, storage, transfer, and other processing of personal data regarding individuals in the European Economic Area is governed by the General Data Protection Regulation (GDPR), which came into effect in May 2018. It contains numerous requirements and changes from previously existing EU law, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Among other things, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States. The European Data Protection Board has issued draft guidance requiring additional measures be implemented to protect EU personal data from foreign law enforcement, including in the U.S. These additional measures may require additional resources to comply.

 

 

 

 

106 EXPLANATORY MEMORANDUM

 

The GDPR also introduced numerous privacy-related changes for companies operating in the EU, including greater control for data subjects, increased data portability for EU consumers, data breach notification requirements and increased fines. Fines of up to 20 million Euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain GDPR requirements. Such penalties are in addition to any civil litigation claims by customers and data subjects. The GDPR requirements apply not only to third-party transactions but also to transfers of information between Cenntro and its subsidiaries, including employee information.

 

The European Commission has another draft regulation in the approval process that focuses on a person’s right to conduct a private life, in contrast to the GDPR, which focuses on protection of personal data. The proposed legislation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive. While the new legislation contains protections for those using communications services (for example, protections against online tracking technologies), the timing of its proposed enactment following the GDPR means that additional time and effort may need to be spent addressing differences between the ePrivacy Regulation and the GDPR. New rules related to the ePrivacy Regulation are likely to include enhanced consent requirements to use communications content and communications metadata.

 

In addition, China has laws relating to the supervision of data and information protection. The Cybersecurity Law regulates the activities of “network operators,” which include companies that manage any network under PRC jurisdiction. As such, certain of Cenntro’s PRC subsidiaries may be regarded as network operators under the Cybersecurity Law, since Cenntro’s ECVs are fitted with networking devices. The Cybersecurity Law requires that the collection of personal data is subject to consent by the person whose data is being collected.

 

On June 10, 2021, China enacted the Data Security Law of the PRC (DSL), which will be effective as of September 1, 2021. The DSL introduces several changes and new features to data security regulation and a comprehensive data security regime, which authorizes national departments to conduct stricter supervision of data in China. For example, the PRC government will establish a catalogue of crucial data categories and promulgate stricter regulations over the protection of such crucial data listed in the catalogue. The DSL also will introduce the concept of “National Core Data,” which refers to data related to, among other topics, national security, the PRC economy, and significant public interests, and provides that stricter regulations may be imposed on such National Core Data. The cross-border transfer of domestic data as required by non-PRC judicial or enforcement authorities is also subject to the approval of competent Chinese authorities.

 

Compliance with the GDPR, the new ePrivacy Regulation, as well as the Cybersecurity Law and DSL in China, may involve substantial operational costs or require Cenntro to change business practices. Cenntro currently does not have a substantial presence in the European Union (other than through its channel partner network) and its business model relies on channel partners rather than direct-to-consumer sales operations. As a result, it is unlikely that Cenntro will need to incur any materials costs in the near term to comply with such privacy laws and regulations. However, given Cenntro’s plans to open an assembly facility in Dusseldorf, Germany, and thus establish a presence in the European Union, it will likely be required to comply with certain provisions of the GDPR and the new ePrivacy Regulation (once effective). If Cenntro is required to comply with the GDPR and ePrivacy Regulation due to its Dusseldorf facility, it will need to undertake an update of certain of its business practices, including (i) updating internal records, policies and procedures; (ii) updating publicly facing privacy notices and consent mechanisms, where required; (iii) implementing employee privacy training; (iv) appointing an individual responsible for privacy compliance; (v) implementing an inter-group data transfer agreement; (vi) reviewing/updating contracts with vendors that process data on Cenntro’s behalf, and (vii) implementing an audit framework. Furthermore, if Cenntro begins selling its ECVs directly to end-users in either of these markets, it would likely be required to comply with additional regulatory requirements. To the extent Cenntro becomes subject to any such regulations, its noncompliance could result in proceedings by governmental entities, customers, data subjects or others and may result in fines, penalties and civil litigation claims.

 

 

 

 

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Cenntro’s ECVs are fitted with a networking device connecting the vehicle to its proprietary cloud-based software, which enables end-users to collect data about vehicle configuration, vehicle status and user efficiency through a system of digitally enabled components, which Cenntro sometimes refer to as “smart components.” With the permission of the end-users of the vehicles, Cenntro received data collected from approximately 950 Metro® units that it put into service through an affiliated company in the Chinese market. This data included vehicle-specific data collected for operational analysis, which Cenntro used to make improvements in the quality and durability of such components. Cenntro enables end-users to collect, store and analyze data using tools that it has developed but Cenntro does not have access to this end-user collected data unless it requests and receives access from the end-user. Cenntro does not currently and does not intend to collect, use or store any vehicle-specific or driver-specific data in the future in any region. If Cenntro is required in the future to comply with regulations under the GDPR, the Cybersecurity Law and the DSL (collectively, Data Security Regulations), this could adversely affect its business, financial condition, results of operations and prospects. Compliance with Data Security Regulations may be a rigorous and time-intensive process that may increase Cenntro’s cost of doing business or require Cenntro to change its business practices, and despite those efforts, there is a risk that Cenntro may be subject to fines and penalties, litigation, and reputational harm in connection with any future activities.

 

Any unauthorized control or manipulation of Cenntro’s ECV’s information technology systems could result in loss of confidence in Cenntro and its ECVs and harm Cenntro’s business.

 

Cenntro’s ECVs are equipped with complex information technology systems. For example, its ECVs are designed with built-in data connectivity to improve their functionality. Cenntro has designed, implemented and tested security measures intended to prevent unauthorized access to its information technology networks, its ECVs and their systems. However, hackers may attempt in the future to gain unauthorized access to modify, alter and use such networks and ECV systems to gain control of, or to change, Cenntro’s ECVs’ functionality, user interface and performance characteristics, or to gain access to data stored in or generated by Cenntro’s ECVs. In addition, there are limited preventative measures that Cenntro can take to prevent unauthorized access to its information technology network by an employee that is knowledgeable about its information technology network and its various safeguards. Cenntro encourages reporting of potential vulnerabilities in the security of its ECVs, and aims to remedy any reported and verified vulnerability. However, there can be no assurance that vulnerabilities will not be exploited in the future before they can be identified, or that Cenntro’s remediation efforts are or will be successful.

 

Any unauthorized access to or control of Cenntro’s ECVs or their systems or any loss of data could result in legal claims or proceedings. In addition, regardless of their veracity, reports of unauthorized access to Cenntro’s ECVs, their systems or data, as well as other factors that may result in the perception that its ECVs, their systems or data are capable of being “hacked,” could adversely affect Cenntro’s brand, business, financial condition, operating results and prospects.

 

Cenntro is subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject it to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect its business, results of operations, financial condition, prospects and reputation.

 

Cenntro is subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which it conducts activities, including the U.S. Foreign Corrupt Practices Act, or FCPA and other anti-corruption laws and regulations. The FCPA prohibits Cenntro and its officers, directors, employees and business partners acting on its behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. A violation of these laws or regulations could adversely affect Cenntro’s business, results of operations, financial condition, prospects and reputation.

 

 

 

 

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Cenntro has direct or indirect interactions with officials and employees of government agencies and state-owned affiliated entities in the ordinary course of business. These interactions subject Cenntro to an increased level of compliance-related concerns. Cenntro is in the process of implementing policies and procedures designed to ensure compliance by Cenntro and its directors, officers, employees, representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, Cenntro’s policies and procedures may not be sufficient, and its directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which Cenntro may be held responsible.

 

Noncompliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject Cenntro to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect Cenntro’s business, results of operations, financial condition, prospects and reputation. In addition, changes in economic sanctions laws in the future could adversely affect Cenntro’s business.

 

Risks related to doing business in China

 

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on Cenntro’s business, results of operations, financial condition and prospects.

 

A substantial amount of Cenntro’s assets and operations are located in China. Accordingly, its business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. In some instances, these regulatory measures could negatively impact Cenntro. For instance, the Chinese government restricts foreign direct investment in certain industries, which could in the future, if such restrictions are expanded to include the ECV industry, limit Cenntro’s ability to own manufacturing and research facilities in China and operate through Chinese subsidiaries.

 

Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect Cenntro’s business and operating results, lead to reduction in demand for its ECVs and adversely affect its competitive position. While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on Cenntro. For example, Cenntro’s business, results of operations, financial condition and prospects may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustments, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may also adversely affect Cenntro’s business, results of operations, financial condition and prospects.

 

 

 

 

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The PRC government may intervene or otherwise adversely affect Cenntro’s operations at any time, or may exert more control over securities offerings conducted overseas and/or foreign investment in China-based issuers, which could materially affect its operations.

 

The PRC government may intervene or otherwise adversely affect Cenntro’s operations at any time, or may exert more control over securities offerings conducted overseas and/or foreign investment in China-based issuers which could materially affect Cenntro’s operations. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and Internet industries, and Cenntro cannot rule out the possibility that it will in the future release regulations or policies regarding the electric commercial vehicle or any other related industry that could adversely affect Cenntro’s business, financial condition and results. Furthermore, the PRC government has also recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas, as well as foreign investment in China-based companies. Rules and regulations in China can change with little advance notice. Any such action, once taken by the PRC government, could significantly limit or completely hinder Cenntro’s ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline.

 

Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on certain activities in the securities market, enhancing supervision over China-based companies listed overseas (particularly those using variable interest entity structures), adopting new measures to extend the scope of cybersecurity reviews (particularly for companies that process large amounts of sensitive consumer data), and expanding efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative bodies will respond, what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on Cenntro’s daily business operations or the ability to accept foreign investments and list Cenntro’s securities on a U.S. or other foreign exchange.

 

Uncertainties with respect to the Chinese legal system could materially and adversely affect Cenntro and may restrict the level of legal protections to foreign investors.

 

China’s legal system is based on statutory law. Unlike the common law system, statutory law is based primarily on written statutes. Previous court decisions may be cited as persuasive authority but do not have a binding effect. Although the Supreme People’s Court has determined and issued guiding caselaw that courts should refer to when trying similar cases, it may not sufficiently cover all aspects of economic activities in China. Since 1979, the Chinese government has been promulgating and amending laws, regulations and relevant interpretations regarding economic matters, such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, since these laws and regulations are relatively new, and the Chinese legal system continues to rapidly evolve, the interpretation of many laws, regulations and rules is not always uniform, and enforcement of these laws, regulations and rules may involves uncertainties, which may limit legal protections available to Cenntro as well as pose a risk in connection with the potential tax treatment of the Proposed Transaction.

 

In addition, any litigation in China may be protracted and may result in substantial costs and diversion of resources and management’s attention. The legal system in China may not provide investors with the same level of protection as in the United States. Cenntro is governed by laws and regulations generally applicable to local enterprises in China. Many of these laws and regulations are still being continuously revised and improved. Interpretation, implementation and enforcement of the existing laws and regulations can be uncertain and unpredictable and therefore may restrict the legal protections available to foreign investors.

 

 

 

 

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Cenntro currently conducts substantially all of its operations through its subsidiaries established in China. Adverse regulatory developments in China may subject Cenntro to additional regulatory review or regulatory approval, and additional disclosure requirements. Also, regulatory scrutiny in response to recent tensions between the United States and China may impose additional compliance requirements for companies like Cenntro with significant China-based operations. These developments could increase Cenntro’s compliance costs or subject it to additional disclosure requirements.

 

Cenntro currently conducts substantially all of its operations through its subsidiaries established in China. Because of its corporate structure, Cenntro and its investors are subject to unique risks due to uncertainty regarding the interpretation and application of currently enacted PRC laws and regulations and any future actions of the PRC government relating to the foreign listing of companies with significant PRC operations, and the possibility of sanctions imposed by PRC regulatory agencies, including the China Securities Regulatory Commission, if Cenntro fails to comply with their rules and regulations. For example, as a result of its PRC operations, Cenntro is subject to PRC laws relating to, among others, data security and restriction over foreign investments. Recent regulatory developments in China, in particular with respect to restrictions on China-based companies raising capital offshore, including companies that process large amounts of sensitive consumer data and companies with a variable interest entities structure, or a VIE structure, may lead to additional regulatory review or approval in China over Cenntro’s financing and capital raising activities in the United States. On July 10, 2021, the Cyberspace Administration of China (CAC) publicly solicited comments on the draft Cybersecurity Review Measures, which provides, among other things, that large data operators (i.e., over one million users) must apply for security review prior to public listings outside of China. Under the draft rules, the CAC will have jurisdiction to review and limit foreign public listings of critical information infrastructure operators (data operators in industries such as energy, water conservancy and public services) and data processors with more than one million users (for example, companies that operate consumer platforms such as ride-sharing, personal banking or retail). In addition, on July 30, 2021, in response to the recent regulatory developments in China and actions adopted by the PRC government, the Chairman of the SEC issued a statement asking the SEC staff to seek additional disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective, including detailed disclosure related to VIE structures and whether the VIE and the issuer, when applicable, received or were denied permission from Chinese authorities to list on U.S. exchanges and the risks that such approval could be denied or rescinded.

 

Cenntro may face heightened scrutiny and negative publicity, which could result in a material change in the operations of the Enlarged Group or significantly limit the ability of the Enlarged Group to offer or continue to offer securities to investors and cause the value of such securities to significantly decline. Additionally, recent statements by PRC authorities and changes in PRC internal regulatory mandates, such as certain rules surrounding mergers and acquisitions, the Data Security Law, and rules related to entities using a variable interest entity structure, may target the Company’s corporate structure and impact Cenntro’s ability to conduct business, accept foreign investments, or maintain a listing on a U.S. or other foreign exchange. Cenntro cannot predict the effects of future developments in the PRC legal system. Cenntro may be required in the future to procure additional permits, authorizations and approvals for its existing and future operations, which may not be obtainable in a timely fashion or at all and which could materially affect its operations as a business. The occurrence of any of the aforementioned regulatory obstacles or the inability to obtain such permits or authorizations may have a material and adverse effect on Cenntro’s business, financial condition and results of operations.

 

Increases in labor costs and enforcement of stricter labor laws and regulations in China may adversely affect Cenntro’s business and profitability.

 

China’s overall economy and the average wage in China have increased in recent years and are expected to grow. The average wage level for Cenntro’s employees has also increased in recent years. Cenntro expects that its labor costs, including wages and employee benefits, will increase. Unless Cenntro is able to take effective measures to reduce labor costs or pass on these increased labor costs to those who pay for its ECVs, its profitability and results of operations may be materially and adversely affected.

 

 

 

 

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In addition, Cenntro has been subject to stricter regulatory requirements in terms of entering into labor contracts with its employees, limitation with respect to utilization of labor dispatching, applying for foreigner work permits, labor protection and labor condition and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of its employees. Pursuant to the PRC Labor Contract Law and its implementation rules, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employee’s probation and unilaterally terminating labor contracts. In the event that Cenntro decides to terminate some of its employees or otherwise change its employment or labor practices, the PRC Labor Contract Law and its implementation rules may limit Cenntro’s ability to effect those changes in a desirable or cost-effective manner, which could adversely affect its business and results of operations.

 

In October 2010, the Standing Committee of the National People’s Congress promulgated the PRC Social Insurance Law, which came into effect on July 1, 2011 and was amended on December 29, 2018. On April 3, 1999, the State Council promulgated the Regulations on the Administration of Housing Funds, which was amended on March 24, 2002 and March 24, 2019. Companies registered and operating in China are required under the Social Insurance Law and the Regulations on the Administration of Housing Funds to apply for social insurance registration and housing fund deposit registration within 30 days of their establishment, and to pay for their employees different social insurance including pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to the extent required by law, as well as housing provident funds. If Cenntro is deemed to have violated relevant social insurance and housing funds regulations, it could be subject to orders by the competent authorities for rectification and failure to comply with such orders may further subject Cenntro to administrative fines or other corresponding measures.

 

As the interpretation and implementation of labor-related laws and regulations are still evolving, Cenntro’s employment practices may violate labor-related laws and regulations in China, which may subject it to labor disputes or government investigations. Cenntro cannot assure you that it has complied or will be able to comply with all labor-related law and regulations including those relating to obligations to make social insurance payments and contribute to the housing provident funds. If Cenntro is deemed to have violated relevant labor laws and regulations, it could be required to provide additional compensation to its employees or assume other responsibilities and its business, financial condition and results of operations will be adversely affected.

 

Fluctuations in the value of the RMB and restrictions on currency exchange may adversely affect Cenntro’s business.

 

The reporting currency of Cenntro’s U.S. subsidiary is the U.S. Dollar while Cenntro’s Chinese subsidiaries’ functional currency is RMB. Cenntro’s combined financial statements are presented in USD and will be affected by the foreign exchange rate of the RMB against the USD. During the years ended December 31, 2020 and 2019 and the six months ended June 30, 2021, significant portions of Cenntro’s revenues were derived from the sales in the European Union and United States, denominated in Euros or USD, respectively, while its costs and expenses were primarily incurred in the PRC (and denominated in RMB). The value of the RMB against the Euro, USD and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, as well as currency market conditions and other factors.

 

Since July 21, 2005, the RMB has been permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. During the years ended December 31, 2020 and December 31, 2019, the RMB appreciated against the USD by approximately 6.5% and depreciated against the USD by approximately 1.2%, respectively. During the six months ended June 30, 2021 and 2020, the RMB appreciated against the USD by approximately 0.05% and depreciated against the USD by approximately 1.45%, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the USD in the future.

 

Currency exchange rate fluctuation in either direction can negatively impact Cenntro’s results of operations or financial condition. Appreciation in RMB could have the effect of increasing Cenntro’s operating costs so long as a material amount of its current operations occur in China. Conversely, appreciation of USD against the RMB could have the effect of reducing the value of Cenntro’s cash and cash equivalents in China for the purpose of paying dividends.

 

 

 

 

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Cenntro may rely on dividends and other distributions on equity paid by its PRC subsidiaries to fund any cash and financing requirements it may have, and any limitation on the ability of its PRC subsidiaries to make payments to Cenntro could have a material and adverse effect on its ability to conduct its business.

 

Cenntro conducts operations in various countries, including China, through wholly owned subsidiaries with direct equity ownership. As a result, Cenntro may rely on dividends and other distributions on equity from its PRC subsidiaries for its cash requirements. If Cenntro’s PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to Cenntro. Under PRC laws and regulations, Cenntro’s PRC subsidiaries, which are foreign-owned enterprises, may pay dividends only out of their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to Cenntro as dividends. At its discretion, a foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund, or a staff welfare and bonus fund. To date, Cenntro has not been required to set aside and fund any such statutory reserve fund, as Cenntro has, since its inception, incurred net losses.

 

Under applicable PRC accounting standards and regulations, intercompany transfers are accounted for under either a general account, for cash transfers in the ordinary course of business, or a capital account, for cash transfers on investments (i.e. dividends and loan repayments). With respect to Cenntro’s capital account, it can send capital investments to its PRC subsidiaries for working capital and its PRC subsidiaries can use such capital at their discretion. To the extent one of its PRC subsidiaries declares and pays a dividend, such subsidiary must pay a transfer tax of 15% to repatriate any profit distributed to the United States. Cenntro’s PRC subsidiaries, as Wholly Foreign Owned Enterprises (WFOEs) under PRC law, can make dividends up to CAG HK without prior PRC regulatory approval. However, any such subsidiary is limited in its ability to make dividends while that subsidiary has either net losses in the current period or accumulated net losses from prior periods and will only be able to pay dividends during periods in which it has positive net income and no accumulated net losses. Cenntro has not made any cash distributions or transfers of other assets between Cenntro and any of its subsidiaries. To date, there have been no net profits recognized at any of Cenntro’s PRC subsidiaries and thus there have not been any dividends or distributions made by any such subsidiary. With respect to Cenntro’s general account, Cenntro’s subsidiaries purchase and pay for materials and parts, and receive funds for the sale of vehicle kits and vehicles. There is no PRC government approval required for transactions in the general account, where funds can be sent and received in the ordinary course of business freely without government approvals.

 

Revenue generated in Renminbi by Cenntro’s PRC Subsidiaries is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of Cenntro’s PRC subsidiaries to use their Renminbi revenues to pay dividends to Cenntro.

 

The PRC government may continue to strengthen its capital controls and more restrictions and substantial vetting processes may be put forward by the State Administration of Foreign Exchange, or SAFE, for cross-border transactions. Any limitation on the ability of Cenntro’s PRC subsidiaries to pay dividends or make other kinds of payments to Cenntro could materially and adversely limit Cenntro’s ability to grow, make investments or acquisitions that could be beneficial to its business, pay dividends, or otherwise fund and conduct its business. In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

 

 

 

 

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Changes in U.S. and international trade policies, particularly with regard to China, may adversely impact Cenntro’s business and operating results.

 

Since the beginning of 2018, there has been increasing rhetoric, in some cases coupled with legislative or executive action, from several U.S. and foreign leaders regarding tariffs against foreign imports of certain materials. More specifically, there have been several rounds of U.S. tariffs on Chinese goods taking effect in the past few years, some of which prompted retaliatory Chinese tariffs on U.S. goods. The institution of trade tariffs both globally and between the U.S. and China specifically carries the risk of negatively affecting both countries’ overall economic condition. If these tariffs continue or additional new tariffs are imposed in the future, they could have a negative impact on Cenntro as it has significant operations in China.

 

The Chinese government has adopted legislation and new regulations designed to counteract U.S. trade policies towards China, including the Anti-Foreign Sanctions Law and the Ministry of Commerce of the People’s Republic of China Order No. 1 of 2021 on Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures. Pursuant to the Anti-Foreign Sanctions Law, all entities and individuals (including subsidiaries of multinational companies and foreign citizen) in China (including Hong Kong and Macao) risk being on the anti-sanctions list if they are deemed to aid and abet in the implementation of sanctions imposed by foreign countries. Continuing trade tensions between China and the United States could adversely affect Cenntro’s business and operations.

 

It may be difficult for overseas regulators to conduct investigations or collect evidence within China.

 

Stockholder claims or regulatory investigations that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigations or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.

 

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent Cenntro from making loans to or make additional capital contributions to its PRC subsidiaries, which could materially and adversely affect its liquidity and its ability to fund and expand its business.

 

Under PRC laws and regulations, Cenntro is permitted to utilize the proceeds of any financing outside China to fund its PRC subsidiaries by making loans to or additional capital contributions to its PRC subsidiaries, subject to applicable government registration, statutory limitations on amount and approval requirements. These PRC laws and regulations may limit Cenntro’s ability to use Renminbi converted from the net proceeds of any financing outside China to make future loans to its PRC subsidiaries or future capital contributions by Cenntro to its PRC subsidiaries. If Cenntro fails to complete such registrations or obtain such approvals, its ability to capitalize or otherwise fund its PRC operations may be negatively affected, which could materially and adversely affect Cenntro’s liquidity and its ability to fund and expand its business.

 

PRC regulations relating to offshore investment activities by PRC residents may limit Cenntro’s PRC subsidiaries’ ability to increase their registered capital or distribute profits to Cenntro or otherwise expose Cenntro or its PRC resident beneficial owners to liability and penalties under PRC law.

 

SAFE requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes certain material events.

 

 

 

 

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If Cenntro’s stockholders who are PRC residents or entities do not complete their registration with the local SAFE branches, Cenntro’s PRC subsidiaries may be prohibited from distributing their profits and any proceeds from any reduction in capital, share transfer or liquidation to us, and Cenntro may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply with SAFE registration requirements could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

 

However, Cenntro may not be informed of the identities of all the PRC residents or entities holding direct or indirect interests in its company, nor can it compel its beneficial owners to comply with SAFE registration requirements. As a result, Cenntro cannot assure you that all of its stockholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain, any applicable registrations or approvals required by, SAFE regulations. Failure by such stockholders or beneficial owners to comply with SAFE regulations, or failure by Cenntro to amend the foreign exchange registrations of its PRC subsidiaries, could subject Cenntro to fines or legal sanctions, restrict its overseas or cross-border investment activities, limit its PRC subsidiaries’ ability to make distributions or pay dividends to Cenntro or affect its ownership structure, which could adversely affect Cenntro’s business and prospects.

 

Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or Cenntro to fines and other legal or administrative sanctions.

 

Under SAFE regulations, PRC residents who participate in a stock incentive plan in an overseas publicly listed company may be required to register with SAFE or its local branches and complete certain other procedures. Cenntro and its PRC resident employees who participate in Cenntro’s share incentive plans may become subject to these regulations upon Closing, given NBG is a public company listed in the United States. If Cenntro or any of these PRC resident employees fail to comply with these regulations, Cenntro or such employees may be subject to fines and other legal or administrative sanctions. Cenntro also faces regulatory uncertainties that could restrict its ability to adopt additional incentive plans for its directors, executive officers and employees under PRC law.

 

You may experience difficulties in enforcing foreign judgments or bringing actions in China against Cenntro based on foreign laws.

 

The recognition and enforcement of foreign judgments in China are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, PRC courts will not enforce a foreign judgment if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States against any of Cenntro’s subsidiaries or assets located in China.

 

B. Transaction specific risks

 

NBG may be unable to satisfy the Conditions to Closing the Proposed Transaction.

 

The consummation of the Proposed Transaction is subject to approval by the shareholders of NBG and CAG and the satisfaction or waiver of the other Closing Conditions set forth in the Stock Purchase Agreement, including the condition that NBG have cash of at least US$282 million and liabilities of no more than $10 million in the aggregate immediately prior to the Closing, and that Nasdaq have approved the initial listing application in connection with the Proposed Transaction with respect to the Acquisition Shares and the Acquisition Shares have been approved for listing on Nasdaq as of the Closing. There can be no assurance, however, that the closing conditions set forth in the Stock Purchase Agreement will be satisfied or waived. For instance, NBG may be unsuccessful in completing Additional Financings in order to satisfy the US$282 million minimum cash condition, Nasdaq may not approve the initial listing application, or the shareholders of NBG or CAG may not approve the Acquisition. To the extent that additional financing in excess of NBG’s current resources and commitments is required, but is unavailable when needed to complete the Proposed Transaction, or is only available on unfavorable terms, NBG may be compelled to either restructure the transaction or abandon it. Accordingly, there can be no assurance that the Proposed Transaction will be consummated on the terms described in this Explanatory Memorandum, or at all.

 

 

 

 

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Shareholders will experience dilution as a result of the issuance of Acquisition Shares in the Proposed Transaction.

 

NBG will issue a substantial number of additional Shares to complete the Proposed Transaction. Based on the assumptions described in Section 1.1.3, NBG estimates that it will issue approximately 35.0 million Shares in the ATM Offering, 133.2 million Shares in the Private Placement, 112.7 million Shares upon settlement of the Incentive Award, and 2,332.7 million Shares to CAG to be distributed to CAG Shareholders. In addition, there would be options and warrants to purchase 185.4 million Shares outstanding (including the Converted CAG Options). In addition, the equity incentive plan and the employee stock purchase plan to be adopted by NBG in connection with the Proposed Transaction are expected to reserve for issuance a number of Shares equal to 10% and 3%, respectively, of the Shares outstanding immediately after the Proposed Transaction. Based on the assumptions described in Section 1.1.3, the issuance of these Shares will significantly dilute the equity interest of Shareholders and may adversely affect prevailing market prices for the Shares.

 

Concentration of ownership among Cenntro’s management and their affiliates may prevent other Shareholders from influencing significant corporate decisions.

 

Upon completion of the Proposed Transaction and the Distribution of Acquisition Shares by CAG to its shareholders, the Wang Parties are expected to beneficially own approximately 27.6% of the outstanding Shares (or 26.2% on a fully diluted basis), based on the assumptions described in Section 1.1.3. As a result, these shareholders will be able to exercise a significant level of influence over all matters requiring shareholder approval, including the election of Directors, amendments to NBG’s constitution and approval of significant corporate transactions, and will be able to block special resolutions of NBG. This control could have the effect of delaying or preventing a change of control of NBG or changes in management and will make the approval of certain transactions difficult or impossible without the support of these shareholders.

 

Furthermore, under the Stock Purchase Agreement and the Relationship Agreement, NBG will grant the Wang Parties the right to designate four individuals for appointment or election as Directors in the event a Director designated by the Wang Parties ceases to serve as a Director due to removal by Shareholders pursuant to section 203D of the Corporations Act, so long as the Wang Parties collectively beneficially own at least 10% of the issued and outstanding Shares.

 

NBG will be solely dependent on Cenntro’s business after the Proposed Transaction.

 

After the Proposed Transaction, NBG will be solely dependent on the success of Cenntro’s business. As a result, NBG will be subject to the numerous economic, competitive and regulatory risks attendant to such business, as described elsewhere in this Explanatory Memorandum, any of which could have an adverse impact upon the Enlarged Group’s results of operations and financial condition. For a more detailed description of the risk related to Cenntro’s business, see the following sections below “⸻Risks related to Cenntro’s business and financial results,” “⸻Risks related to Cenntro’s industry,” “⸻Risks related to legal and regulatory matters” and “⸻Risks related to doing business in China.”

 

Cenntro operates in an industry that is outside of NBG management’s area of expertise.

 

Although NBG management has endeavoured to evaluate the risks inherent in Cenntro’s business, there can be no assurance that NBG has adequately ascertained or assessed all of the significant risk factors. Although its officers and Directors have experience in mergers and acquisition and finance, its management’s primary area of operational expertise is in the retail apparel industry. NBG has undertaken financial, commercial and other analyses of Cenntro to determine its attractiveness as an acquisition target, and whether to pursue the Proposed Transaction. It is possible that such analyses, and the best-estimate assumptions made by NBG, may not be realized. If management misjudges the risks or benefits of Cenntro’s business, the Share price may decline.

 

 

 

 

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Resources expended in pursuit of the Proposed Transaction would be wasted if the Proposed Transaction is not completed.

 

The investigation of Cenntro, the negotiation, drafting and execution of the agreements signed in connection with the Proposed Transaction, and the preparation of related disclosure documents and other filings required substantial management time and attention and substantial costs for accountants, attorneys, consultants and others. If NBG fails to complete the Proposed Transaction for any number of reasons, many of which are beyond NBG’s control, it will result in a loss to NBG of the related costs incurred.

 

NBG likely will have no right to make damage claims against Cenntro, CAG or CAG Shareholders for the breach of any representation, warranty or covenant made by Cenntro or CAG in the Stock Purchase Agreement.

 

The Stock Purchase Agreement provides that all of the representations, warranties and covenants of the parties contained therein shall not survive the Closing, except for those covenants that by their terms apply or are to be performed in whole or in part after the Closing, and then only with respect to breaches occurring after Closing, and any claims for actual fraud. As a result, NBG likely will have no remedy available to it if the Proposed Transaction is consummated and it is later revealed that there was a breach of any of the representations, warranties or covenants made by CAG and Cenntro at the time of the signing of the Stock Purchase Agreement or the Closing.

 

NBG’s management has interests in the Proposed Transaction that are different than Shareholders generally.

 

NBG’s management interests in the Proposed Transaction are different from, or in addition to, those of other Shareholders generally. For example, the payment due under the third tranche of the Phantom Warrants granted to JADR Consulting Group Pty Limited, an entity associated with Justin Davis-Rice, NBG’s Executive Chairman and Chief Executive Officer, will be accelerated upon consummation of the Proposed Transaction. Based on the assumptions described in Section 1.1.3, NBG estimates that Mr. Davis-Rice’s associated entity will receive approximately US$11.9 million in cash in settlement of the Phantom Warrants. The actual amount may be substantially more or less than this estimate, depending on the future market price of the Shares and the number of Shares issued in the ATM Offering and the Private Placement. Furthermore, the payment of the Incentive Award granted to JADR Consulting Group Pty Limited, an entity associated with Mr. Davis-Rice will be accelerated in the event of the completion of the Proposed Transaction. Based on the assumptions described in Section 1.1.3, NBG estimates that it will issue approximately 112.7 million Shares to Mr. Davis-Rice’s associated entity upon settlement of the Incentive Award. The actual amount may be substantially more or less than this estimate, depending on the future market price of the Shares and the number of Shares issued in the Proposed Transaction, the ATM Offering and the Private Placement. Additionally, subject to approval by the Shareholders, each of the Non-Executive Directors will receive a cash payment of US$1,000,000 in connection with the Closing.

 

These financial interests may have influenced the decision of management to pursue the Proposed Transaction. In addition, in the period leading up to the closing of the Proposed Transaction, events may occur that, pursuant to the Stock Purchase Agreement, would require NBG to agree to amend the Stock Purchase Agreement, to consent to certain actions taken by Cenntro or to waive rights to which NBG is entitled under the Stock Purchase Agreement. The existence of the financial and personal interests of management described in this risk factor may result in a conflict of interest on the part of NBG’s management between what they may believe is best for NBG and what they may believe is best for themselves in determining whether or not to take the requested action.

 

C. General investment risks

 

Share market conditions

 

There are risks associated with any investment in securities. General factors that may affect the market price of Shares include economic conditions in the US, Australia and internationally, investor sentiment, local and international share market conditions, changes in interest rates and the rate of inflation, changes to government regulation, policy or legislation, changes which may occur to the taxation of companies as a result of changes in Australian or US taxation laws, and changes in exchange rates.

 

 

 

 

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These factors may materially affect the market price of Shares regardless of the Enlarged Group’s performance. As such, the past performance of the Company or Cenntro Group is not necessarily an indication as to the future performance of the Enlarged Group.

 

The Company will issue a significant number of new Shares as part of the Proposed Transaction. Some Shareholders may not intend to continue to hold their Shares following Closing and may wish to sell them on Nasdaq. There is a risk that if a significant number of Shareholders seek to sell their Shares, this may adversely impact the price of Shares.

 

There can be no guarantee that there will continue to be an active market for Shares or that the price of Shares will increase. Neither the Company nor the Board make any warranty as to the future performance of the Enlarged Group or any return on an investment in the Enlarged Group.

 

Tax consequences

 

If the Proposed Transaction is implemented, there may be tax consequences for Shareholders. Shareholders should seek their own professional advice regarding the individual tax consequences of the Proposed Transaction applicable to them. For example, Shareholders may be exposed to potentially higher capital gains tax liability when compared to their current investment in the Company.

 

De-listing due to failure to comply with Nasdaq Capital Market listing standards

 

The Company cannot provide assurance that it will be able to continue to comply with the standards required to maintain a listing on the Nasdaq Capital Market, such as the corporate governance, minimum stockholder’s equity, minimum bid price or minimum market value of publicly held shares requirements. Failure to do so may result in the Nasdaq Capital Market taking steps to de-list the Shares. A notice of de-listing or any de-listing would likely have a negative effect on the Share price and may impair Shareholders’ ability to sell Shares when they wish to do so. In the event that the Company receives a notice of de-listing, the Company would plan to take actions to restore compliance with the Nasdaq Capital Market’s listing requirements, but can provide no assurance that any action taken would result in the Shares maintaining listing, or that any such action would stabilise the market price or improve the liquidity of Shares.

 

Dividends

 

Any future determination as to the payment of dividends by the Enlarged Group will be at the discretion of the Board and will depend on the financial condition of the Enlarged Group, future capital requirements and general business and other factors considered relevant by the Board at the time. No assurance in relation to the payment of dividends can be given by the Enlarged Group.

 

Changes in accounting policy

 

Accounting policy standards may change. This may affect the reported earnings of the Enlarged Group and its financial position from time to time. The Enlarged Group will assess and disclose, when known, the impact of these change in its periodic financial reporting.

 

Economic conditions

 

The assets, operations and financial performance of the Enlarged Group will be influenced by a variety of general economic and business conditions on a national and global scale, including levels of consumer spending, commodity prices, inflation, interest rates and exchange rates, supply and demand, industrial disruption, access to debt and capital markets and government fiscal, monetary, taxation and regulatory policies.

 

Changes in general economic conditions may result from many factors including government policy, international economic conditions, significant acts of terrorism, hostilities, war, civil commotion, epidemic, pandemic, quarantine, natural disasters or Acts of God. A prolonged deterioration in general economic conditions, including an increase in interest rates or a decrease in consumer and business demand, could be expected to have an adverse impact on the Enlarged Group’s operating and financial performance, financial position and market price of Shares.

 

 

 

 

Annexure A Independent Expert’s Report

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

  

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

  

 
 

 

 

 
 

 

 

 
 

  

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

  

 

 
 

 

 

 
 

 

  

 
 

 

 

 
 

 

 

 
 

 

 

 
 

  

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

  

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

  

 

 

Exhibit 99.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 99.3