TheEEStory.com

After a little time to reflect on Zenn's recent round of investment in EESTOR, I believe I have a very plausible explantion for KP's not buying in. They cut a deal with KP.

That deal is that Zenn has agreed to sell EESU's to Think! and Fiskar, and possibly KP's unnamed electric car company, in return for KP not buying in and reducing Zenn's stake. Without EESU's Think! and Fiskar would be toast and KP would be out 10's of millions. This deal preserves that investment.

It is a win-win for both Zenn and KP.

So, would Zenn be required to disclose such an agreement? No, not even under the more stringent US reporting requirements since it is not a "material definitive agreement". It doesn't fit the definition of "material" yet since there is no purchase commitment. But it could be an agreement to sell, if and when that day comes.

Another much more speculative reason might be that there are additional rights that KP might have been entitled to if their investment had increased and DW mght not have wanted that to happen. A big, big maybe on this one, as far as being an additional motivation.

interesting idea, have Think! or Fiskar made IPO's yet?

Then KP knows the EESU works for sure?

Of course they know at this point, Ricinro! Rhetorical question?

KP has been making car investments, I don't think they would be too excited about Lithium technology in cars, but they see it as a step toward readiness for the EESU.

The big guys will resist the Zennergy drivetrain, and the little upstarts won't, they already are in the outsourcing mindset and will love the big advantage it gives them.

The rise of the small independent carmakers will be rapid and violent for the big guys. They will wait too long to give up there ICE production lines.

Think of it as Tucker's revenge.

Eeventually, Fiskar is not public. Th!nk Global may be traded in Norway, not sure, but KP is an owner of Th!nk North America.

Thinking about the difference between Th!nk Global and Th!nk North America and why KP invested through the North America sub, this could (longshot maybe) have to do with the EESU being available only in North America for a few years, at least due manufacturing restrictions or limitations.

KP probably thought owning 20 or so percent of a company, that hasn't shown their product, is enough of an investment.

I like the other explanation better, that KP is already maxed out at 20% investment and DW won't allow them to have more of his company. This theory also explains why DW has enough money to build the production line.

It is quite possible that KP never signed a NDA (as company policy) and doesn't know any more than we do. They are in the business of taking risks.

I do not share the same euphoria as some other believers, that EEStor will change the world. It will only have a large impact if it is MUCH cheaper than batteries, since there is the additional cost of the variable DC/DC converter. GM pays LG Chem $500/kwh for their Volt batteries. At this price GM loses money on the sale of the car, and only does so in anticipation of much lower prices in the future. A vast majority of people will not buy electric cars until the price difference (to gas powered) is negligible.

I only classified myself as a believer since I read mounting evidence that the production line is real.

Ricinro, there is no downside on either outcome. If it doesn't work then they haven't poured more $$$ into it and if it does, the deal makes sense for both. Zenn had the leverage to make the deal if they wanted to.

Bill300 wrote:

After a little time to reflect on Zenn's recent round of investment in EESTOR, I believe I have a very plausible explantion for KP's not buying in. They cut a deal with KP.

That deal is that Zenn has agreed to sell EESU's to Think! and Fiskar, and possibly KP's unnamed electric car company, in return for KP not buying in and reducing Zenn's stake. Without EESU's Think! and Fiskar would be toast and KP would be out 10's of millions. This deal preserves that investment.

It is a win-win for both Zenn and KP.

So, would Zenn be required to disclose such an agreement? No, not even under the more stringent US reporting requirements since it is not a "material definitive agreement". It doesn't fit the definition of "material" yet since there is no purchase commitment. But it could be an agreement to sell, if and when that day comes.

Another much more speculative reason might be that there are additional rights that KP might have been entitled to if their investment had increased and DW mght not have wanted that to happen. A big, big maybe on this one, as far as being an additional motivation.

Though his perspective was the possibility of a threat of a sledge hammer - ZENN *refusing* to sell to Th!nk, Fiskar, ... (other KP investments), if KP did buy in and reduced the amount ZENN could get.

Innovator, Are you thinking that as investors and BOD members that KP was being told absolutely nothing? That would be inconceivable. Corporate Boards and Officers have to approve many actions and sign regulatory filings,etc. and they have to know the status of the company.

They know. It has always been about mass production costs. IT works, but can they build it at a competitive cost?

Nekote, the threat not to sell to KP investments is the leverage that I speak of. I guess B is a step ahead of me, as usual.

Redcapchew, if your assumption is true, then why has KP come in for second and third rounds of funding in their pre-revenue companies? They do it all the time. But you could be right if they believe it can't be built at a competitive price.

Any time you have to use multiple conspiracy / inside deal theories to explain someone's behaviour in business (unlike politics) - there would be a simpler explanation that is more probable. Like KP thinking this EESU thing is not real / commercializable.

Bill300, Ah yes, of course since KP must be on the board.

A VC buys a small percentage with options to buy a larger percentage later if things progress as hoped. I suspect that has already happened re KP and EEstor, tho we would never have seen that announced.

It makes no sense for KP to buy 20+% and negotiate an option for another 2-3% later. A small investor or even early non-investor might get an option for 2-3%, not a holder of 20+%.

evnow wrote:

Any time you have to use multiple conspiracy / inside deal theories to explain someone's behaviour in business (unlike politics) - there would be a simpler explanation that is more probable. Like KP thinking this EESU thing is not real / commercializable.

Agreed - this thread is getting a little far fetched. If any of this were plausible, I doubt DW would have said "we remain friends" about KP. Ocams razor supports evnow's perspective.

Rather than Zenn threatening not to sell to KP companies, they likely cut a deal for early supplies to these companies, to give them a head start in the EESU powered market, a huge thing for small upstart car companies.

Or, KP had no option. I do wonder who else had the options, and passed. They could also have gotten something from Zenn in the way of preferential supplies, or Zenn could have made concessions on EEStor's required treatment of them. Say it was Dell or some other manufacturer who had the option, but saw greater benefit from Zenn acquiescing to a smaller share of EESU early production, or a delay in delivery. Lots of scenarios; Zenn holds a lot of leverage and may have used it for mutual benefit with the option holders.

larry wrote:

A VC buys a small percentage with options to buy a larger percentage later if things progress as hoped. I suspect that has already happened re KP and EEstor, tho we would never have seen that announced.

It makes no sense for KP to buy 20+% and negotiate an option for another 2-3% later. A small investor or even early non-investor might get an option for 2-3%, not a holder of 20+%.

Negotiating an option was never an option (true, but pun intended) on this round. This was a milestone buy-in option and the terms and conditions had long since been finalized. Additional equity purchase options were not open to discussion and, for tht matter, neither was preferred stock (vs common).

Let's talk about preferred vs common for a moment. VCs invariable demand and take preferred. The preferred stock gives the holder tremendous advantages including the ability to literally take over the company if certain milestones, payout goals, etc. are not met on time. They can fire executives, including he founders. It's an onerous deal for the entrepreneurs but it's just not open to discussion and anyone wanting VC money knows that they will have to issue preferred stock to their VCs. If a VC then took common stock for an additional investment in a later round, think about what the words "anyone wanting VC money knows that they will have to issue preferred stock" would mean in the future. I think KP just had to pass on the common stock or they would see their business plan imperiled if future entrepreneurs know that KP were open to accepting common stock. As it stands, if the EESU works and is commercializable, KP's 20+/- % stake will be one of their most lucrative investments ever. Worth boatloads of money.

Last edited Sun, 02 Aug 2009, 5:28pm by Goooose4

gooooose4 is correct, kp only wants to own stock relative to voting rights

Gooose4,

You may be right about the perception of CS v Pfd. VC's don't like CS, since the CS has no preferential rights.

One thing I can add is that VC's ALWAYS have anti-dilutive rights in their stock purchase or investor rights agreements. Anti-dilution rights generally mean that if any additional equity is sold, the Pfd investor(s) have a right to purchase additional shares of a class of equity such that they will maintain the same ownership percentage.

One of the facts that has always eluded us is what rights did KP have when they first bought in. We do know that there was a formula in Zenn's stock purcahse agreement disclosing that the Pfd investors could come in for a specific amount based on Zenn's investment election.

Bill300 wrote:

Gooose4,

You may be right about the perception of CS v Pfd. VC's don't like CS, since the CS has no preferential rights.

One thing I can add is that VC's ALWAYS have anti-dilutive rights in their stock purchase or investor rights agreements. Anti-dilution rights generally mean that if any additional equity is sold, the Pfd investor(s) have a right to purchase additional shares of a class of equity such that they will maintain the same ownership percentage.

One of the facts that has always eluded us is what rights did KP have when they first bought in. We do know that there was a formula in Zenn's stock purcahse agreement disclosing that the Pfd investors could come in for a specific amount based on Zenn's investment election.

I think we can only guess at what rights KP has. The preference rights attached to the preferred shares can give the preferred holders a great deal of rights or very few or anywhere in between. It's all up to negotiation before the preferred holders hand over their checks. We do know that KP had to affirmatively pass on the purchase of additional stock when Zenn decided to increase their interest before the amount of stock Zenn was entitled to buy could be calculated.

Not so sure about all this. We are presuming that as many of the bugs in the Zennergy drive and EESU have been ironed out as are necessary for the parties to be able to see ahead clearly. The investment in EEStor by KP was relatively small for them and they may still see it as highly speculative - even now.

What about Morton Topfer and his holdings?

I think we may find the answer to the KP decision not to buy further, when we see who the "friendly people" were who participated in the recent issue of ZMC shares :-)

But we still have some time to wait on that I suppose.

Who has confirmed the "fact" that KP never exercised its right (if it even had one) to purchase common stock as outlined in Common Stock Purchase Agreement - April 30, 2007?

As I read it there were 2 entities that had options to purchase common stock at the "Milestone Notice". Failure to exercise their rights to purchase, then opened the door for additional investment by ZENN AND another "Series 'A' Holder" which refers to a holder of preferred stock...which could have been KP...or one of 3 entities listed as preferred shareholders.

I tried deciphering the agreement and to work the math with the various stock amounts referenced in the agreement a while back and finally gave up. Maybe someone can go back and summarize the various options.

We also have no idea what other amendments to this agreement exist.

Again I ask, do we have proof that KP had an option in the first place? If they did, where is the firm data that supports a decision to fore-go further investment?

If you have not read the section that triggered these hypotheses, it is the zenn_eestor_stock_purchase.pdf - Section 1 - although I recommend reading the entire agreement.

Bill300 wrote:

Redcapchew, if your assumption is true, then why has KP come in for second and third rounds of funding in their pre-revenue companies? They do it all the time. But you could be right if they believe it can't be built at a competitive price.

If my recollection of the timing of investments is correct, at least the ones we know of, I think we can safely infer that KP is one of the pfds that passed on taking CS. KP was an investor prior to the Zenn stock purchase agreement. There are 4 entities that appear to be redacted in the Zenn agreement. It would not be unusual at all for KP to have invested from two or more of its funds. The same could be said for the second ivestor who is generally believed to be Topfer. He has a charitable foundation and and a family investment vehicle, probably several.

Innovator wrote:

I like the other explanation better, that KP is already maxed out at 20% investment and DW won't allow them to have more of his company. This theory also explains why DW has enough money to build the production line.

It is quite possible that KP never signed a NDA (as company policy) and doesn't know any more than we do. They are in the business of taking risks.

I do not share the same euphoria as some other believers, that EEStor will change the world. It will only have a large impact if it is MUCH cheaper than batteries, since there is the additional cost of the variable DC/DC converter. GM pays LG Chem $500/kwh for their Volt batteries. At this price GM loses money on the sale of the car, and only does so in anticipation of much lower prices in the future. A vast majority of people will not buy electric cars until the price difference (to gas powered) is negligible.

(snip)

Other than batteries, I don't see why electric drive trains shouldnt be significantly less expensive than ICE-based. EVs should be clearly cheaper than ICE vehicles, excepting batteries.

Does anybody know the price per share of EEStor common stock?

I believe it was about $43 per share when Zenn made the $5M buyin. Not really much meaning to it though. The price was fixed in the original deal with Zenn. We have no idea what "new" money would have to pay today, and that would be a private transaction.

Thankd Bill, is the price of prefered stock and common stock the same?