OFFERING CIRCULAR
VOLVO CAR AB (PUBL) (a public limited liability company incorporated under the laws of the Kingdom of Sweden)
EUR3,000,000,000
Euro Medium Term Note Programme
Guaranteed by
VOLVO CAR CORPORATION (a private limited liability company incorporated under the laws of the Kingdom of Sweden)
Volvo Car AB (publ) (the "Issuer") has established a Euro Medium Term Note Programme (the "Programme") for the issuance of up to EUR3,000,000,000 in aggregate principal amount of notes (the "Notes") guaranteed by Volvo Car Corporation (the "Guarantor"). The maximum aggregate principal amount of all Notes from time to time outstanding under the Programme will not exceed EUR3,000,000,000 (or its equivalent in other currencies calculated as described in the Dealer Agreement described herein), subject to increase as described herein.
Application has been made to the Luxembourg Stock Exchange, in its capacity as market operator of the Euro MTF market (the "Euro MTF Market") under the Luxembourg law of 16 July 2019 on prospectuses for securities (the "Prospectus Law") for the Notes issued under the Programme during the period of twelve months from the date of this Offering Circular to be admitted to trading on the Euro MTF Market and admitted to listing on the Official List of the Luxembourg Stock Exchange. The Euro MTF Market is not a regulated market for the purposes of Directive 2014/65/EU on markets in financial instruments (as amended, "MiFID II"). This Offering Circular is a prospectus for the purposes of the Prospectus Law and for the purposes of the admission to trading of the Notes on the Euro MTF Market in accordance with the rules and regulations of the Luxembourg Stock Exchange. This document does not constitute a prospectus for the purposes of Article 3 of Regulation (EU) 2017/1129 (the "Prospectus Regulation") and relevant measures supplementing the Prospectus Regulation in Luxembourg, and may not be used for any purpose other than the admission to trading of the Notes on the Euro MTF Market.
The Issuer's long term senior unsecured obligations have been rated BB+ by S&P Global Ratings Europe Limited ("Standard & Poor's") and Ba1 by Moody's Deutschland GmbH ("Moody's"). Standard & Poor's and Moody's are established in the European Economic Area (the "EEA") and registered under Regulation (EU) No 1060/2009 (as amended) (the "EU CRA Regulation"). The ratings Standard & Poor's and Moody's have given to the Notes to be issued under the Programme are respectively endorsed by S&P Global Ratings UK Limited and Moody's Investors Service Limited, which are established in the United Kingdom ("UK") and registered under Regulation (EU) No 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 ("EUWA") (the "UK CRA Regulation").
Tranches of Notes to be issued under the Programme will be rated or unrated. Where a Tranche (as defined herein) of Notes is to be rated, such rating will be disclosed in the Pricing Supplement and will not necessarily be the same as the rating assigned to the Programme.
A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
Investing in Notes issued under the Programme involves certain risks. The principal risk factors that may affect the abilities of the Issuer and Guarantor to fulfil their respective obligations under the Notes are discussed under "Risk Factors" below.
The Notes have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States, and Notes in bearer form are subject to U.S. tax law requirements. The Notes may not be offered, sold or (in the case of Notes in bearer form) delivered within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act ("Regulation S")) except in certain transactions exempt from the registration requirements of the Securities Act.
Arranger CITIGROUP Dealers CITIGROUP DEUTSCHE BANK ING J.P. MORGAN
Offering Circular dated 27 May 2021
CONTENTS
Page
IMPORTANT NOTICES ...... i FORWARD-LOOKING STATEMENTS ...... 1 RISK FACTORS ...... 3 INFORMATION INCORPORATED BY REFERENCE ...... 27 GENERAL DESCRIPTION OF THE PROGRAMME ...... 28 PRICING SUPPLEMENTS AND DRAWDOWN OFFERING CIRCULARS ...... 32 FORMS OF THE NOTES ...... 33 OVERVIEW OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM ...... 39 TERMS AND CONDITIONS OF THE NOTES ...... 41 FORM OF PRICING SUPPLEMENT ...... 73 USE OF PROCEEDS ...... 86 BUSINESS ...... 88 TAXATION ...... 117 SUBSCRIPTION AND SALE ...... 120 GENERAL INFORMATION ...... 125
IMPORTANT NOTICES
Responsibility for this Offering Circular
Each of the Issuer and the Guarantor accepts responsibility for the information contained in this Offering Circular and declares that, to the best of its knowledge, the information contained in this Offering Circular is, in accordance with the facts and makes no omission likely to affect its import.
Pricing Supplement/Drawdown Offering Circular
Each Tranche of Notes (as defined below) will be issued on the terms set out herein under "Terms and Conditions of the Notes" (the "Conditions") as supplemented, amended or replaced by a document specific to such Tranche called a Pricing Supplement (a "Pricing Supplement") or in a separate drawdown offering circular specific to such Tranche to be approved by the Luxembourg Stock Exchange (a "Drawdown Offering Circular") as described under "Pricing Supplements and Drawdown Offering Circulars" below.
Other Relevant Information
This Offering Circular must be read and construed together with any supplements hereto, with any information incorporated by reference herein and, in relation to any Tranche of Notes which is the subject of Pricing Supplement, must be read and construed together with the relevant Pricing Supplement. In the case of a Tranche of Notes which is the subject of a Drawdown Offering Circular, each reference in this Offering Circular to information being specified or identified in the relevant Pricing Supplement shall be read and construed as a reference to such information being specified or identified in the relevant Drawdown Offering Circular unless the context requires otherwise.
The Issuer and Guarantor have confirmed to the Dealers named under "Subscription and Sale" below that this Offering Circular contains all information which is (in the context of the Programme, the issue, offering and sale of the Notes and the Guarantee of the Notes (as defined in the Conditions)) material; that such information is true and accurate in all material respects and is not misleading in any material respect; that any opinions, predictions or intentions expressed herein are honestly held or made and are not misleading in any material respect; that this Offering Circular does not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in the context of the Programme, the issue, offering and sale of the Notes and the Guarantee of the Notes) not misleading in any material respect; and that all proper enquiries have been made to verify the foregoing.
In the case of any Notes which are to be offered to the public in a Member State of the European Economic Area (an "EEA Member State") or the UK in circumstances which would otherwise require the publication of a prospectus under the Prospectus Regulation or the Prospectus Regulation as it forms part of domestic law in the UK by virtue of the EUWA (the "UK Prospectus Regulation"), the minimum specified denomination shall be EUR100,000 (or its equivalent in any other currency as at the date of issue of the Notes).
Unauthorised Information
No person has been authorised to give any information or to make any representation not contained in or not consistent with this Offering Circular or any other document entered into in relation to the Programme or any information supplied by the Issuer or the Guarantor or such other information as is in the public domain and, if given or made, such information or representation should not be relied upon as having been authorised by the Issuer or any Dealer.
Neither the Dealers nor any of their respective affiliates have authorised the whole or any part of this Offering Circular and none of them makes any representation or warranty or accepts any responsibility as to the accuracy or completeness of the information contained in this Offering Circular. Neither the delivery of this Offering Circular or any Pricing Supplement nor the offering, sale or delivery of any Note shall, in any circumstances, create any implication that the information contained in this Offering Circular is true subsequent to the date hereof or the date upon which this Offering Circular has been most recently supplemented or that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the prospects or financial or trading position of the Issuer or the Guarantor since the date thereof or, if later, the date upon which this Offering Circular has been most recently supplemented or that any other information supplied in connection with the Programme is correct at any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same.
- i -
Restrictions on Distribution
The distribution of this Offering Circular and any Pricing Supplement and the offering, sale and delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular or any Pricing Supplement comes are required by the Issuer, the Guarantor and the Dealers to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on the distribution of this Offering Circular or any Pricing Supplement and other offering material relating to the Notes, see "Subscription and Sale". In particular, the Notes have not been, and will not be, registered under the Securities Act and are subject to U.S. tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or, delivered within the United States or to, or for the account or benefit of, U.S. persons.
Neither this Offering Circular nor any Pricing Supplement constitutes an offer or an invitation to subscribe for or purchase any Notes and should not be considered as a recommendation by the Issuer, the Guarantor, the Dealers or any of them that any recipient of this Offering Circular or any Pricing Supplement should subscribe for or purchase any Notes. Each recipient of this Offering Circular or any Pricing Supplement shall be taken to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer and the Guarantor.
IMPORTANT – EEA RETAIL INVESTORS - If the Pricing Supplement in respect of any Notes includes a legend entitled "Prohibition of Sales to EEA Retail Investors", the Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the EEA. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the "Insurance Distribution Directive"), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the "EU PRIIPs Regulation") for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the EU PRIIPs Regulation.
IMPORTANT - UK RETAIL INVESTORS – If the Pricing Supplement in respect of any Notes includes a legend entitled "Prohibition of Sales to UK Retail Investors", the Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the UK. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law in the UK by virtue of the EUWA; or (ii) a customer within the meaning of the provisions of the Financial Services and Market Act 2000 (as amended, "FSMA") and any rules or regulations made under the FSMA to implement the Insurance Distribution Directive, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law in the UK by virtue of the EUWA. Consequently no key information document required by Regulation (EU) No 1286/2014 as it forms part of domestic law in the UK by virtue of the EUWA (the "UK PRIIPs Regulation") for offering or selling the Notes or otherwise making them available to retail investors in the UK has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the UK may be unlawful under the UK PRIIPs Regulation.
MIFID II Product Governance / target market
A determination will be made in relation to each issue about whether, for the purpose of the Product Governance rules under EU Delegated Directive 2017/593 (the "MiFID Product Governance Rules"), any Dealer subscribing for any Notes is a manufacturer in respect of such Notes, but otherwise neither the Arranger nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose of the MIFID Product Governance Rules.
The Pricing Supplement in respect of any Notes may include a legend entitled "MiFID II Product Governance" which will outline the target market assessment in respect of the Notes and which channels for distribution of the Notes are appropriate. Any person subsequently offering, selling or recommending the Notes (a "distributor") should take into consideration the target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the target market assessment) and determining appropriate distribution channels.
- ii -
UK MiFIR Product Governance / target market
A determination will be made in relation to each issue about whether, for the purpose of the UK MiFIR product governance rules set out in the FCA Handbook Product Intervention and Product Governance Sourcebook (the "UK MiFIR Product Governance Rules"), any Dealer subscribing for any Notes is a manufacturer in respect of such Notes, but otherwise neither the Arranger nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose of the UK MIFIR Product Governance Rules.
The Pricing Supplement in respect of any Notes may include a legend entitled "UK MiFIR Product Governance" which will outline the target market assessment in respect of the Notes and which channels for distribution of the Notes are appropriate. Any distributor should take into consideration the target market assessment; however, a distributor subject to the UK MiFIR Product Governance Rules is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the target market assessment) and determining appropriate distribution channels.
Notification under Section 309B(1)(c) of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the "SFA")
Unless otherwise stated in the Pricing Supplement, as the case may be, in respect of any Notes and solely for the purposes of its obligations pursuant to sections 309B(1)(a) and 309B(1)(c) of the SFA, the Issuer has determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA) that all Notes to be issued under the Programme should be "prescribed capital markets products" (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore).
Programme Limit
The maximum aggregate principal amount of Notes outstanding at any one time under the Programme will not exceed EUR3,000,000,000 and for this purpose, any Notes denominated in another currency shall be translated into euros at the date of the agreement to issue such Notes (calculated in accordance with the provisions of the Dealer Agreement as defined under "Subscription and Sale"). The maximum aggregate principal amount of Notes which may be outstanding at any one time under the Programme may be increased from time to time, subject to compliance with the relevant provisions of the Dealer Agreement.
Use of Proceeds
None of the Dealers will verify or monitor the proposed use of proceeds of Notes issued under the Programme.
Notes Issued as Green Bonds
None of the Dealers nor the Arranger or their respective affiliates accept any responsibility for any social, environmental and sustainability assessment of any Notes issued as Green Bonds or makes any representation or warranty or assurance whether such Notes will meet any investor expectations or requirements regarding such "green", "social", "sustainability" or similar labels. None of the Dealers nor the Arranger or their respective affiliates are responsible for the use of proceeds for any Notes issued as Green Bonds nor the impact or monitoring of such use of proceeds. No representation or assurance is given by the Dealers as to the suitability or reliability of any opinion or certification of any third party made available in connection with an issue of Notes issued as Green Bonds nor is any such opinion or certification a recommendation by any Dealer or the Arranger or their respective affiliates to buy, sell or hold any such Notes. In the event any such Notes are, or are intended to be, listed, or admitted to trading on a dedicated "green", "social", "sustainable" or other equivalently-labelled segment of a stock exchange or securities market, no representation or assurance is given by the Dealers, the Arranger or their respective affiliates that such listing or admission will be obtained or maintained for the lifetime of the Notes.
Certain Definitions
In this Offering Circular, unless otherwise specified, references to a "Member State" are references to a Member State of the EEA, references to "U.S.$", "U.S. dollars" or "dollars" are to United States dollars, references to "SEK" are to Swedish Kroner, the lawful currency of the Kingdom of Sweden, references to "EUR" or "euro" are to the currency introduced at the start of the third stage of European economic and
- iii -
monetary union, and as defined in Article 2 of Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro, as amended.
In addition, unless otherwise specified or the context requires otherwise in this Offering Circular:
"China Development Bank Facility" means the facilities agreement dated as of 30 November 2012 (as subsequently amended and restated) between, among others, Volvo Car Corporation as borrower, the Issuer as guarantor and China Development Bank, Shenzhen Branch and Bank of China Limited, Luxembourg Branch, as arrangers and original lenders and China Development Bank, Shenzhen Branch as agent;
"Chinese Joint Ventures" means the joint ventures Daqing Volvo Car Manufacturing Co., Ltd, Zhangjiakou Volvo Car Engine Manufacturing Co., Ltd. and Shanghai Volvo Car Research and Development Co., Ltd;
"EBITDA" means income before income tax, financial income, financial expenses, and depreciation and amortisation for the period presented;
"European Investment Bank Loan" means the loan agreement dated 8 November 2017 (as subsequently amended and restated) between Volvo Car Corporation as borrower, the Issuer as guarantor and European Investment Bank as lender;
"Geely" means Zhejiang Geely Holding Group Co. Ltd., a Chinese automotive manufacturing company;
"Group" or "Volvo Cars" means the Issuer and its consolidated subsidiaries;
"Guarantor" means Volvo Car Corporation (legal name, Volvo Personvagnar Aktiebolag);
"IFRS" means the International Financial Reporting Standards of the International Accounting Standards Board, as adopted by the European Union;
"Issuer" means Volvo Car AB, as the issuer of the Notes;
"Nordic Investment Bank Loan" means the loan agreement dated 1 September 2016 (as subsequently amended and restated) between, among others, Volvo Car Corporation as borrower, the Issuer as guarantor and Nordic Investment Bank as lender;
"Revolving Credit Facility" means the sustainability-linked revolving credit facility dated 11 January 2021 between, among others, the Issuer as borrower and Volvo Car Corporation as guarantor; and
"Term Credit Facility" means the term credit facility dated as of 8 May 2020 (as subsequently amended and restated) , between Volvo Car AB (publ) as borrower, the Guarantor as guarantor and AB Svensk Exportkredit (publ) as lender.
Unless otherwise defined in this Offering Circular, capitalised terms shall have the meanings given to them in the section headed "Glossary".
Rounding
Certain figures included in this Offering Circular have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.
Ratings
Tranches of Notes issued under the Programme may be rated or unrated. Where a Tranche of Notes is rated, such rating will not necessarily be the same as the rating(s) described above or the rating(s) assigned to Notes already issued. Where a Tranche of Notes is rated, the applicable rating(s) will be specified in the relevant Pricing Supplement. Whether or not each credit rating applied for in relation to a relevant Tranche of Notes will be (1) issued or endorsed by a credit rating agency established in the EEA and registered under the EU CRA Regulation or by a credit rating agency which is certified under the EU CRA Regulation and/or (2) issued or endorsed by a credit rating agency established in the UK and registered under the UK CRA Regulation or by a credit rating agency which is certified under the UK CRA Regulation will be disclosed in the Pricing Supplement.
- iv -
In general, European regulated investors are restricted from using a rating for regulatory purposes if such rating is not issued by a credit rating agency established in the EEA and registered under the EU CRA Regulation or (1) the rating is provided by a credit rating agency not established in the EEA but is endorsed by a credit rating agency established in the EEA and registered under the EU CRA Regulation or (2) the rating is provided by a credit rating agency not established in the EEA which is certified under the EU CRA Regulation. In general, UK regulated investors are restricted from using a rating for regulatory purposes if such rating is not issued by a credit rating agency established in the UK and registered under the UK CRA Regulation or (1) the rating is provided by a credit rating agency not established in the UK but is endorsed by a credit rating agency established in the UK and registered under the UK CRA Regulation or (2) the rating is provided by a credit rating agency not established in the UK which is certified under the UK CRA Regulation.
As of the date of this Offering Circular, the Issuer's long term senior unsecured obligations have been assigned a rating of BB+ by Standard & Poor's and Ba1 by Moody's. Tranches of Notes to be issued under the Programme may be rated or unrated. Where a Tranche of Notes is rated, the applicable rating(s) will be specified in the relevant Pricing Supplement. Such rating will not necessarily be the same as the rating(s) assigned to the Issuer, the Guarantor or to Notes already issued. One or more independent credit rating agencies may also assign credit ratings to the Notes, which may not necessarily be the same ratings as the Issuer rating described above or any rating(s) assigned to the Guarantor or any Notes already issued. Ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes.
A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
Notice to Investors
The Notes may not be a suitable investment for all investors. Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor may wish to consider, either on its own or with the help of its financial and other professional advisers, whether it:
(a) has sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained or incorporated by reference in this Offering Circular or any applicable supplement;
(b) has access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio;
(c) has sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including Notes where the currency for principal or interest payments is different from the potential investor's currency;
(d) understands thoroughly the terms of the Notes and is familiar with the behaviour of financial markets; and
(e) is able to evaluate possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
Stabilisation
In connection with the issue of any Tranche of Notes, the Dealer or Dealers (if any) named as the Stabilisation Manager(s) (or persons acting on behalf of any Stabilisation Manager(s)) in the applicable Pricing Supplement may over allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, stabilisation may not necessarily occur. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Notes is made and, if begun, may cease at any time, but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotment must be conducted by the relevant
- v -
Stabilisation Manager(s) (or person(s) acting on behalf of any Stabilisation Manager(s)) in accordance with all applicable laws and rules.
- vi -
FORWARD-LOOKING STATEMENTS
This Offering Circular includes forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believe," "estimate," "anticipate," "expect," "forecast," "foresee," "aim," "intend," "may," "plan," "project," "seek," "should," "will," "would" or, in each case, similar expressions or the negative thereof, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. Such forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and that may be incapable of being realised. They appear in a number of places throughout this Offering Circular and include statements regarding the Issuer's, the Guarantor's or the Group's intentions, beliefs or current expectations concerning, among other things, statements relating to:
the Group's strategy, including statements relating to the next phase in its transformation and its next generation of cars, outlook and growth prospects;
the Group's operational and financial targets and its medium-term and long-term annual sales goals;
the Group's liquidity, capital resources, capital expenditures and access to funding, or statements relating to pending or contemplated refinancings or capital-raising efforts;
the Group's planned investments;
the Group's plans for future operations and facilities;
expectations as to future demand for the Group's cars;
general global economic trends and trends in the automotive industry and the premium passenger car segment in particular;
the impact of regulations and laws on the Group and its operations; and
the competitive environment in which the Group operates.
By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. Each of the Issuer and the Guarantor cautions prospective investors that forward-looking statements are not guarantees of future performance and that the actual results of the Group's operations, including its financial condition and liquidity, and the development of the Group's industry may differ materially from those made in or suggested by the forward-looking statements contained in this Offering Circular. In addition, even if the Group's results of operations, financial condition and liquidity, and the development of the Group's industry are consistent with the forward-looking statements contained in this Offering Circular, those results or developments may not be indicative of results or developments in subsequent periods. Factors that could cause these differences include, but are not limited to:
changes in international, national and local economic, political, regulatory, business, industry, labour and social conditions;
changes in underlying customer behaviour, including changes in customer buying trends and patterns, customer preference and demand and consumer purchasing power;
competition in the markets in which the Group operates;
changes in laws, regulations and governmental policies, including tax law and fiscal policy;
the Group's ability to successfully develop and implement new products, designs, technologies and innovations;
changes in technology and automotive trends;
the Group's ability to forecast customer trends and preferences and demand for its cars;
the availability and cost of consumer financing for cars;
- 1 -
changes in the availability and cost of suppliers, raw materials and key inputs;
disruptions to the Group's facilities;
fluctuations in currency exchange rates;
developments relating to product liability, warranties and recalls with respect to the Group's cars;
the Group's ability to protect intellectual property;
the Group's ability to generate the funds needed to service its debt and receive external financing;
changes regarding the Group's brand reputation and brand image;
changes in the Group's business strategy, development and investment plans;
announcements by the Group's competitors and others as to regulatory and similar matters, compliance with regulations, exposures to litigation and other matters of similar nature which may cause capital markets to downgrade investments in the Group's industry; and
costs associated with ensuring the Group's facilities meet the requirements of applicable environmental, health and safety laws.
Although the Issuer and the Guarantor believe the expectations reflected in any forward-looking statement are reasonable, the Issuer and the Guarantor cannot give any assurance that they will materialise or prove to be correct.
The Issuer and the Guarantor urge prospective investors to read "Risk Factors" and "Business" sections for a more complete discussion of the factors that could affect the Issuer's and the Guarantor's future performance, their industry and related regulation thereof. In light of these risks, uncertainties and assumptions, the events described or suggested by the forward-looking statements in this Offering Circular may not occur.
These forward looking statements speak only as of the date on which the statements were made. Except as required by law or applicable stock exchange rules or regulations, the Issuer and the Guarantor undertake no obligation to update or revise publicly any forward looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward looking statements attributable to the Issuer or the Guarantor or to persons acting on their behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Offering Circular.
- 2 -
RISK FACTORS
Any investment in the Notes is subject to a number of risks. Prior to investing in the Notes issued under the Programme, prospective investors should carefully consider risk factors associated with any investment in any Notes, the business of the Issuer, the Guarantor and/or the Group and the industry in which it operates together with all other information contained in this Offering Circular, including, in particular the risk factors described below. Words and expressions defined in the "Terms and Conditions of the Notes" below or elsewhere in this Offering Circular have the same meanings in this section.
The following should be used as guidance only but are the material risks that the Issuer and Guarantor believes to be the most relevant to an assessment by a prospective investor of whether to consider an investment in Notes issued under the Programme. Additional risks and uncertainties relating to the Issuer, the Guarantor and/or the Group that are not currently known to the Issuer or Guarantor at the date of this Offering Circular, or that it currently deems immaterial as at such date, may individually or cumulatively also have a material adverse effect on the business, prospects, results of operations and/or financial position of the Issuer the Guarantor and/or the Group and, if any such risk should occur, the price of the Notes may decline and investors could lose all or part of their investment. Investors should consider carefully whether an investment in Notes issued under the Programme is suitable for them in light of the information in this Offering Circular and their personal circumstances.
This Offering Circular also contains forward-looking statements that involve risks and uncertainties. The actual results of the Group may differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks described below and elsewhere in this Offering Circular (see "Forward-Looking Statements").
Risks Associated with the Automotive Industry
The outbreak of Covid-19 has affected the Group's business, sales, production and supply chains and employees. Further, the spread of Covid-19 has caused and will continue to cause severe disruptions in the European and global economy and financial markets and there is high uncertainty for how long the world will face business impact in relation to the virus.
In December 2019, a novel strain of coronavirus ("Covid-19") was reported to have surfaced in Wuhan, China. Covid-19 has since spread globally, including in the Group's primary markets: Western Europe, China and America. In March 2020, the World Health Organization declared Covid-19 a pandemic. The potential impact and duration of Covid-19 or another pandemic could have sustained repercussions on the financial markets and across regional and global economies and for both advanced economies and emerging markets, including all of the Group's core markets, disrupting global supply chains, severely decreasing consumer demand and spending, and adversely impacting the automotive industry.
The Covid-19 outbreak could, depending on national responses, the resulting economic downturn, and the shape of any potential recovery, adversely impact the Group's ability to successfully operate in the future due to, amongst other factors:
a decreased consumer demand, dealership closures and new sales channels needing to be implemented;
a further slowdown or continued suspension in production at the Group's facilities and manufacturing plants worldwide, including joint ventures and partnerships;
adverse impacts on the Group's ability to operate in affected areas, delays or disruptions in the supply chain of automotive parts, components, commodities and other materials;
difficulty accessing debt and equity capital on attractive terms, or at all;
a decline in the continued service and availability of skilled workforce and personnel, including for the Group's management team, disruptions caused by the Group's workforce, personnel and management not being available to conduct work;
disruptions, delays or other impairments to the Group's internal business processes, in particular due to working from home schemes being implemented for employees, potential increased risks in terms of IT exposure, data security and increased risk of cyber-attacks and breaches; and
- 3 -
supply chain disruptions affecting the Group's research and development activities, which may delay the scheduled rollout of products based on new technologies and may impede the Group's ability to develop and test new technologies needed to comply with intensifying environmental rules.
The constantly evolving nature of the Covid-19 pandemic makes it difficult to predict the ultimate adverse impact of Covid-19 on the Group. There is considerably uncertainty around the long-term effects on the global economy. Mutations and new strains of Covid-19, capacity in local health care systems and the progress of the vaccine programmes worldwide remain volatile factors. Consequently, Covid-19 continues to present material uncertainty and risk and could have adverse effects on the Group's revenues, net assets, cash flows, financial condition and results of operations.
Global economic conditions, fiscal policies and consumer sentiment could have a material adverse effect on the Group's sales and results of operations.
The automotive industry depends on general economic conditions around the world. Economic slowdowns in the past have significantly affected the automotive and related industries. Demand for automobiles is influenced by a variety of factors, including, among other things, the growth rate of the global economy, currency fluctuations, availability of credit and levels of indebtedness, disposable income of consumers, consumer sentiment, GDP growth, unemployment levels, interest rates, environmental policies, tax policies and duties, safety regulations, freight rates vehicle and fuel and electricity prices as well as input prices on raw materials, commodities and supplies.
In recent years, the United States, the EU and China, have imposed tariffs on imports of raw materials including steel and aluminium. Any further tariff measures imposed on cars, raw materials or products that are important in the Group's operations, may lead to higher prices on cars or the raw material or product in question, which the Group may be unable to pass on to consumers. Escalated trade barriers may affect the whole car industry as well as world economic and key economic factors, such as GDP growth rates, employment levels, interest rates and inflation in a negative manner. The increased polarisation in the global economy will likely drive further differentiation between regions and increased border protection. This would increase costs for the Group with an adverse impact on profitability.
The Group's business is mainly focused on the Western European, Chinese and American markets. Economic conditions in each of these markets can vary greatly, and are subject to changes from diverse and different causes. As such, the Group's profitability can be adversely affected by market dynamics in any of these regions. In the Group's main markets, economic conditions have been impacted by various geopolitical and other events. In Western Europe, limited economic growth coupled with uncertainty about the future relationship between the UK and the European Union and the impact of geopolitical conflicts may have a negative impact on demand. Instability in Eastern European countries will continue to be a risk to the economy of the EU. An economic slowdown in the People's Republic of China and stock market volatility may impact demand for the Group's cars and services in China and wider Asia. Negative developments in trade and fiscal policy, economic and political events, or reduced demand for cars in general, or the Group's cars in particular in any of these regions could have a material adverse effect on the financial performance and profitability of the Group.
Intensifying competition could adversely affect the Group's sales and results of operations.
The global automotive industry, including the premium car segment in which the Group operates, is highly competitive and competition is likely to further intensify. A range of factors affect the competitive environment, including, among others, design, quality and features of cars and related services, innovation, safety, development time, time to market, ability to control costs, pricing, reliability, fuel economy, environmental impact and perception thereof, consumer service and financing terms. Due to the rapid technological change in the industry allowing for the introduction of alternative ownership models such as car-sharing services, short-term use and subscription models, the Group is also increasingly subject to competition from established companies and start-ups that focus on technology and disruption to the traditional automotive industry through technology that have not traditionally been considered competitors in the automotive industry. Such companies may also have far greater resources than the Group.
To stimulate demand, the automotive industry has offered consumers and dealers price reductions on cars and services, which has led to increased price pressures and sharpened competition within the industry. Special sales incentives and increased price pressures in the new car business could also influence price
- 4 -
levels in the used car market, with a negative effect on car resale values as prices in the used car market decrease in line with price decreases for new cars. The Group is exposed to the used car market in relation to the Group's subscription service "Care by Volvo" and its mobility service "Volvo Car Mobility" ( ). Accordingly, sales incentives and increased price pressures may expose the Group to the risk that the market value of used cars declines below their residual value.
Furthermore, there is a strong trend among market participants in the premium car segment towards intensifying efforts to retain their competitive position in established markets while also developing a presence in newer markets such as China. The Group anticipates that additional competitors will seek to enter these markets and that existing market participants will aggressively try to protect or increase their market share. In addition, in China, the liberalisation of foreign investment restrictions is expected to intensify the competition in the Chinese automotive industry. Increased competition may result in pricing pressure and reduced margins, and the Group may find it difficult to gain or hold market share, which could have a material adverse effect on the Group's results of operations and financial condition.
The Group is exposed to risks relating to public health and environmental concerns relating to Internal Combustion Engines ("ICE") emissions.
Vehicle emissions standards and test procedures have been under scrutiny in many parts of the world, including the U.S. and Europe, and are subject to increasingly stringent regulatory standards and tests.
Consumers in general have developed negative perceptions of diesel-engine cars for a variety of reasons, including their potential environmental impact, uncertainty related to their resale value, unresolved questions related to performance, negative media coverage and industry scandals. There is also now an emerging trend for private individuals or groups of individuals to advance claims and lawsuits against auto manufacturers. The Group cannot exclude the possibility that it could be subject to such claims or lawsuits. There is also a risk that public health concerns relating to diesel engines in particular may influence government policies, leading to economic disincentives toward the production and purchase of diesel vehicles, or more wide-reaching restrictions on the use of certain technologies. Sales of diesel-engine cars currently account for a material proportion of the Group's total retail sales.
In addition, a number of factors may lead demand to increasingly shift from ICE vehicles to battery electric vehicles ("BEVs") sooner than expected, including reduced total cost of ownership, increased supply of different types of BEVs, simplified usage (including charging) and/or regulatory action together with infrastructure put in place to serve increased demand in BEVs and countries implementing laws and taxes favourable to electric vehicles ("EVs"). If demand for ICE cars declines at a faster rate than expected it will have a material adverse effect on the Group's business, results of operations and financial condition until the Group has phased out its ICE car offerings completely
The Group is exposed to risks relating to the development of electric vehicle technology.
The Group has placed considerable emphasis on research and development relating to electrification and battery-electric technology. The Group is therefore exposed to the risk that another technology other than battery-electric develops as a sustainable way of mobility, such as fuel cells, or that the development of battery-electric technology does not progress as fast as anticipated or different types of battery-electric technology are developed which become more competitive than those which the Group has chosen to work with.
The demand for this technology is, in part, limited by the availability of charging infrastructure. Consumers who do not have access to charging either at home, or at work, may be less likely to adopt electric vehicle solutions, restricting the pace of growth. Lithium-ion battery demand also continues to rise rapidly, and the supply chain needs to be able to respond to that demand. As well as manufacturing capability, the industry is also dependent upon the availability of raw materials. If there are insufficient suppliers of suitable battery technology, then battery-electric vehicle technology will develop more slowly than the market currently predicts.
The Group's competitors may be able to benefit from the cost savings offered by industry consolidation or alliances.
Designing, manufacturing and selling cars is capital intensive and requires substantial investments in manufacturing, machinery, research and development, product design, engineering, technology and
- 5 -
marketing in order to meet both consumer preferences and regulatory requirements. If the Group's competitors consolidate or enter into other strategic agreements such as alliances, they may be able to take better advantage of economies of scale and to benefit from the cost savings offered, which could adversely affect the Group's competitiveness with respect to those competitors. Competitors could also use consolidation or alliances as a means of enhancing their competitiveness (including through the acquisition of technology) which could also materially adversely affect the Group's business.
The Group is exposed to the risks of new technologies being developed and the resulting effects on the automobile market.
Over the past few years, the global market for automobiles, particularly in established markets, has been characterised by increasing demand for more efficient cars and technologies. This is related, in particular, to the global debate on how to address climate change. Other technological changes, including vehicle connectivity, interactive safety systems, EV technology, Autonomous driving ("AD"), Advanced Driver Assistance Systems (“ADAS”) vehicles/electric cars, In-Car Infotainment systems, 3-D printed cars and Artificial Intelligence, also have the potential to significantly change the automotive industry, expanding it into the software business. These technologies will require new expertise, attract competitors from outside the automotive industry and shift supply chains. If the Group is unable to identify, understand, and adapt to rapid technological change, it could adversely affect its results of operations and the Group's ability to remain competitive.
Although the Group invests heavily in research and development, there is a risk that these research and development activities will not achieve their planned objectives, including as a result of unresolved technological barriers, systems failures or human errors in calculating or monitoring the success of the technologies, or that competitors or joint ventures set up by competitors will develop better solutions or technologies and will be able to manufacture the resulting products more rapidly, in larger quantities, with a higher quality and/or at a lower cost. This could lead to increased demand for the products of such competitors and result in a loss of market share for the Group. There is also a risk that the money invested in researching and developing new technologies will, to a considerable extent, have been spent in vain if the technologies developed or the products derived therefrom are unsuccessful in the market or if competitors have developed better or less expensive products. It is possible that the Group could then be compelled to make new investments in researching and developing other technologies to maintain existing market share or to regain the market share lost to competitors.
In addition, promotion of new technologies encourages consumers to look beyond standard factors (such as price, design, performance, brand image or comfort/features) to differentiation of the technology used in the vehicle or the manufacturer or provider of this technology. This could lead to shifts in demand and the value-added parameters in the automotive industry at the expense of the Group's products, which could have a material adverse effect on the Group's business, results of operations and financial condition.
New or changing laws, regulations, guidelines and government policies regarding improved fuel economy, reduced greenhouse gas ("GHG") and other emissions, and car safety may have an adverse effect on the Group's cost of operations and methods of business.
The Group's products are subject to comprehensive and constantly changing laws, regulations, guidelines and policies throughout the world and the Group expects the number and extent of legal and regulatory requirements and the related costs of changes to its product portfolio to increase significantly in the future.
In Europe, for example, governmental regulations targeting the automotive industry are primarily driven by concerns about the environment (including GHG emissions), fuel economy, energy security and car safety. Evolving regulatory requirements could significantly affect the Group's product development plans and may result in substantial costs and limit the number and type of cars the Group sells and where it sells them, which may affect the Group's revenue and results of operations. Any violations of governmental regulations may result in criminal and civil penalties, including significant monetary fines, third party claims for loss or injury, loss of relevant licences, or requirements for the Group to implement costly corrective actions, as well as damage to the Group's reputation, which could have a material adverse effect on the Group's business, results of operations and financial condition. Violations of these laws may occur from errors in monitoring environmental emissions from the Group's products or production sites, such as the use of incorrect methodologies or defective or inappropriate measuring equipment, errors in manually capturing results or other mistaken or unauthorised acts of the Group's employees, suppliers or agents.
- 6 -
To comply with current and future regulations, the Group may have to incur additional capital expenditure and research and development expenditure to upgrade products and plants, which would have an impact on its cost of production and results of operations and may be difficult to pass through to its consumers through vehicle price increases due to competitive pressures. If the Group is unable to develop commercially viable technologies within the time frames set by the new standards, it could face significant civil penalties or be forced to restrict product offerings drastically to remain in compliance. The Group anticipates that the number and extent of these regulations, and their effect on its cost structure and product portfolio, will increase significantly in the future, which could have a material adverse effect on the Group's business, results of operations and financial condition.
Government regulations related to autonomous cars are also evolving and unsettled. In the United States, there is a lack of federal guidelines for the testing, certification and regulation of autonomous cars. In Europe, multiple countries have launched national initiatives to support autonomous driving, and these efforts remain ongoing. Many issues related to autonomous driving remain unregulated such as who bears legal liability in the event an autonomous car is involved in a crash, or hacked by a criminal third party. Global political tensions might also prohibit use of global solutions with regards to product and offers and thus require that the company keep local variants which will increase cost and require higher investments. As this is a newly evolving industry, the Group is not yet able to evaluate the implications of any new regulations on its business. Any safety concerns identified during the development of autonomous driving initiatives could also have an adverse effect on the Group's reputation and brand.
Changes in tax, tariff or fiscal policies could adversely affect the demand for the Group's cars.
Changes in corporate and other taxation policies as well as changes in export and other incentives given by various governments or import, tariff and tax policies could adversely affect the Group's results of operations. Such government actions may be unpredictable and are beyond the Group's control, and any adverse changes in government policy could have a material adverse effect on its business, results of operations and financial condition.
Furthermore, certain types of cars benefit from tax rebates and subsidies. For example, government incentives for plug-in hybrid electric vehicles ("PHEVs") and BEV's, have been established by several national governments and local authorities around the world as a financial incentive for consumers to purchase and use PHEVs. The phasing out of any such rebates or incentives may have a negative impact on demand for electric and hybrid vehicles, which could have a material adverse effect on the Group's electrification strategy and accordingly, its business, results of operations and financial condition.
Some Group companies receive preferential tax treatment in their respective jurisdictions, for example in China, Belgium and the US. The rules and provisions governing such preferential tax treatment are under change, and if the Group, for any other reason, would no longer be able to benefit from the preferential tax treatments that it currently enjoys, it would negatively affect its tax position and tax expenses and have a material adverse effect on its business, results of operations and financial condition.
Privacy concerns relating to the Internet are increasing, which could result in new legislation, negative public perception and/or user behaviour that negatively affect the Group's business.
Some of the Group's cars are designed, and all of the Group's future cars will be designed within the next five years, with built-in data connectivity, such as the Apple CarPlay©, Android Auto© and Volvo On Call© technologies. The Group's collection, use, retention, security and transfer of personal information of its customers is subject to consumer and data protection laws in the jurisdictions in which it operates. The interpretation and application of consumer and data protection laws in the United States, Europe and elsewhere often can be uncertain, in conflict or in a state of flux.
The European Union and many countries within the European Union have adopted privacy directives or laws that strictly regulate the collection and use of personally identifiable information of Internet users and the United States and other jurisdictions have adopted legislation which governs the collection and use of certain personal information. Accordingly, data privacy is increasingly protected and consumers are becoming increasingly reluctant to share personal data. If the access to personal data and information becomes more restricted, the Group could lack internal information and capabilities to offer captive services. In addition, the Group has to devote a substantial amount of time and resources to ensure compliance with legislation that governs the collection and use of certain personal information.
- 7 -
Given that this is an evolving and unsettled area of regulation, any new significant restrictions or technological requirements could subject the Group to potential liability or restrict the Group's present business practices, which, in turn, could have a material adverse effect on its business, results of operations and financial condition. In addition, in the event of a security breach of the Group's data management systems affecting consumer information, or in the event of the loss or corruption of consumer information, the Group could face liability, including administrative, civil and criminal liability and the imposition of fines by relevant authorities. Compliance with any applicable laws could also delay or impede the development of new products, result in negative publicity, increase the Group's operating costs, require significant management time and attention, or subject the Group to inquiries or investigations, claims or other remedies, including fines or demands that the Group modifies or ceases existing business practices.
Risks Associated with the Group's Business
The Group's future success depends on its ability to appeal to consumers.
The Group has recently completed a substantial overhaul of its product range and therefore in the near future anticipate there will only be mid-generation refreshes to its existing products and therefore the Group may not be able to achieve the same growth rate in its net revenue in the coming years as compared to the previous years. Furthermore, in order to meet its sales goals, the Group has invested heavily in car and powertrain design, engineering and manufacturing. The Group's ability to realise acceptable returns on these investments will depend in large part on consumer demand for the Group's cars.
Market success of the Group's cars depends on a number of factors, many of which are outside of its control and require it to anticipate consumer preferences and competitive products several years in advance. These factors include the market perception of technology, styling, safety, reliability, capability and cost of ownership of the Group's cars as compared to those of its competitors, as well as other factors that affect demand, including general economic conditions in a particular market and their effect on disposable income, price competition and financing or lease programmes. The Group's customers are also increasingly focussed on digital technology and connectivity, both as part of a premium consumer experience and as an enabler for safety. If the Group fails to introduce or upgrade models that can compete successfully in the market, it may have a material adverse effect on the Group's business, results of operations and financial condition.
Additionally, private and commercial users of transportation increasingly use modes of transportation other than privately-owned vehicles, especially in connection with growing urbanisation, car sharing, and consumers increasingly seeking alternatives to traditional car ownership. Short-term use, Car-as-a-Service ("CaaS") offerings, such as car-sharing and subscription solutions such as "Care by Volvo" may also become preferred models of consuming mobility. Furthermore, the development of urban mobility may increase demand for mobility solutions that are consumed as a service (Mobility-as-a-Service ("MaaS")) rather than personally-owned modes of transportation. In addition, cities are also heavily investing in environmentally friendly urban infrastructure such as tramways, light trail transit and metros. These factors and any rising costs for automotive transport of people and goods, increasing traffic density and lack of parking in major cities, fuel costs, congestion fees and environmental awareness may further accelerate a shift from privately-owned automobiles to other modes of transportation. Such a shift away from privately- owned automobiles could have a material adverse effect on the Group's business, results of operations and financial condition.
The Group is currently working on transforming the way to market to facilitate direct consumer business and online sales. There is a risk that this transformation will either not be occur fast enough or will be too fast with regards to the consumer preference. There is also a risk that the current dealer network is threatened by such change and thus challenges the change or even loses confidence in their relations with the Group. Such loss of confidence or discrepancy of timing for customer preferences is critical for the development of the Group and may have serious impact on the financial position and profitability of the Group.
The Group is more vulnerable to reduced demand for premium cars than automobile manufacturers with a more diversified product range.
The Group operates in the premium car segment, primarily in the Western European, Chinese and U.S. markets and primarily in the SUV segment. This segment of the passenger car market and these geographical markets are very competitive. Furthermore, in economic downturns, consumers are more
- 8 -
likely to shift from premium segment automobiles to automobiles in less expensive segments. In addition, original equipment manufacturers ("OEM") currently focusing on the mid-market passenger vehicle segment may try to move upstream and enter the premium segment. This may lead to increased competition in the premium segment compared to other segments. Accordingly, the Group's performance is strongly linked to market conditions and consumer demand in this segment. Other premium car manufacturers operate in a broader spectrum of market segments, which makes them comparatively less vulnerable to reduced demand for any specific segment. Any downturn or reduced demand for premium passenger cars, or any reduced demand for the Group's most popular models, in the geographic markets in which it operates could have a more pronounced effect on the Group's performance and earnings than would have been the case if it had operated in a larger number of different market segments. This could have a material adverse effect on the Group's business, results of operations and financial condition.
The Group's profitability depends in part on the Group's ability to maintain or improve pricing on the sale of its vehicles and services, and its ability to maintain profitability when entering new and developing markets as well as shifting technology.
In the global automotive industry, overall manufacturing capacity exceeds demand. Industry overcapacity has resulted in many manufacturers offering marketing incentives on vehicles in an attempt to maintain and grow market share; these incentives historically have included a combination of subsidised financing or leasing programmes, price rebates and other incentives. As a result, the Group is not necessarily able to set its prices to offset higher costs of marketing incentives, commodity or other cost increases, or the impact of adverse currency fluctuations, including pricing advantages foreign competitors may have because of their weaker home market currencies. Continuation of or increased excess capacity could have a material adverse effect on the Group's business, results of operations and financial condition.
Furthermore, developed markets such as Western Europe and the United States already have high ownership rates and both car ownership and vehicle-kilometres driven may be reaching their saturation point. This competitive trading environment and the saturation in these mature markets could lead to fewer sold cars and reduced profitability in these markets. In order to maintain profitability, the Group may be required to enter new and developing markets such as India and Latin America. However, developing markets may suffer from poor infrastructure, chronic power deficiency, and inability to cope with manufacturing standards, lack of facilities for maintenance of advanced technology of critical components and operation issues, which could make it more difficult for the Group to benefit from the potential of the developing markets. Furthermore, the increased focus on BEVs puts further pressure on developing markets to provide electricity/charging opportunities to enable customers to fully utilise the BEVs. Furthermore, the economic conditions in certain developing markets may lead to consumers preferring vehicles from a less expensive segment than the premium segment in which the Group operates. Hence, there can be no assurances that the Group will be able to maintain or improve pricing on its cars when entering new and developing markets, shifting technology or that the Group will be able to maintain its profitability when the Western European and U.S. markets have reached their respective saturation points. Any of these events could have a material adverse effect on the Group's business, results of operations and financial condition.
Availability and cost of consumer financing could adversely affect the Group's sales and results of operations.
The Group manages consumer finance arrangements and insurance offerings through its Volvo Car Financial Services programme, which operates through strategic partnerships and joint ventures with, among others, Volvofinans Bank, Santander, Bank of America, Genius AFC, CITIC, PAB and BNP Paribas. As a large proportion of vehicles in certain markets, particularly in Europe and North America, are purchased using financing (e.g. leases or sales finance packages), any reduction in the supply of available consumer financing for the purchase of new cars would make it more difficult for some consumers to purchase the Group's cars, which could in turn result in commercial pressure for the Group to offer new (or expand existing) retail or dealer incentives to maintain demand for its cars. Furthermore, higher cost of capital for banks and providers of consumer finance may lead to consumer finance companies raising their interest rates, which would make it more costly for consumers to finance their car purchases through consumer finance arrangements. Finally, due to increased regulatory scrutiny of companies providing sub- prime lending products such as peer-to-peer lending (that attract borrowers who, because of their poor credit status or the lack thereof, do not qualify for traditional bank loans), the availability of consumer finance has decreased. Any of these events could have a material adverse effect on its business, results of operations and financial condition.
- 9 -
Subscription services such as "Care by Volvo" and similar offerings may prove unsuccessful and increase the Group's need for financing.
The Group has launched its subscription service "Care by Volvo" in several markets. Care by Volvo is a usage model focused on access rather than ownership in relation to new and (for some markets) used cars. Instead of the traditional process of buying and owning the vehicle, consumers pay a ready-negotiated monthly fee. In most parts of Europe it is an open-ended subscription service where the customer can terminate with three months' notice. In the US, there is generally a 24-month subscription period. At the end of the subscription period, the vehicle is returned to the Group. Care by Volvo is still in a developing phase, and the Group's future success depends in part on consumers being willing to use subscription services such as Care by Volvo or Volvo Car Mobility which provides car sharing, and that a profitable second-hand market for cars used in Care by Volvo offerings develop. However, there can be no assurances that consumers are willing to use Care by Volvo and similar offerings. If consumers' and the market's perception of alternative product offerings is negative, the Group's subscription services may prove unsuccessful and unprofitable, which could have a material adverse effect on the Group's business, results of operations and financial condition.
Cars that are subscribed for through Care by Volvo are (other than in the United States) owned by the Group and recognised as assets in the Group's balance sheet. Consequently, any significant shift from more traditional consumer finance arrangements to subscription based models such as Care by Volvo could materially increase the Group's need for financing. Such indebtedness could adversely affect the Group's financial condition.
The Group's business operations are exposed to uncertainty as a result of the UK's withdrawal from the European Union.
The UK is an important export market for the Group's cars. The Group also sources certain components from suppliers in the UK.
Following a referendum held in the UK on the UK's continued membership of the EU on 23 June 2016, the UK left the EU on 31 January 2020 ("Brexit"). The UK is also no longer part of the EEA. An agreement in principle was reached in relation to the EU-UK Trade and Cooperation Agreement (the "Trade and Cooperation Agreement") on 24 December 2020 and the Trade and Cooperation Agreement was signed on 30 December 2020. The purpose of the Trade and Cooperation Agreement is to govern the future relations between the EU and the UK following the end of the transition period and it is expressed to include a free trade agreement, a new partnership for citizens' security and an agreement on how the Trade and Cooperation Agreement is to be governed. However, notwithstanding the Trade and Cooperation Agreement, Brexit has resulted in substantial changes to the law in the UK and the Trade and Cooperation Agreement is not comprehensive in all respects. For example, the Trade and Cooperation Agreement does not create a detailed framework to govern the cross-border provision of financial services from the UK into the EU and from the EU into the UK. Accordingly, there remains uncertainty as to the terms under which the UK will trade with EU countries as well as with third party countries with whom trade is currently conducted under EU free trade agreements. The long-term effects of Brexit and the extent of the impact of Brexit on the Group will depend in part on the Trade and Cooperation Agreement and the nature of any future arrangements (or lack thereof) that are put in place between the UK and the EU.
Heightened uncertainty around the economies of the UK and the EU may have a negative impact on consumer confidence, thereby reducing demand for cars.
Any future divergence between the EU and UK laws, particularly in relation to financial laws and regulations, tax and free trade agreements, intellectual property rights, environmental laws, health and safety laws and regulations, immigration laws and employment laws, could increase the Group's costs, depress economic activity and restrict access to capital. If the Trade and Cooperation Agreement is not ratified, or there is any future divergence between EU and UK laws, this could result in greater restrictions on the free movement of goods, services, people and capital between the UK and the EU and increased regulatory complexities, which could impact the Group's business and the jurisdictions in which the Group operates. The effects of Brexit and potentially divergent national laws and regulations may, directly or indirectly, increase compliance and operating costs for the Group and may have a material adverse effect on the Group's tax position, business, results of operations and financial condition.
- 10 -
As the Notes are subject to the jurisdiction of English courts, and no new reciprocal agreement on civil justice has been agreed with the EU, there is, as at the date of this Offering Circular, uncertainty concerning the enforcement of English court judgments in Sweden as the regulation concerning the recognition and enforcement of judgments that applied between EU Member States, that is, the Recast Brussels Regulation (Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012) has ceased to apply to the UK (and to U.K. judgments). As a result, a judgment entered against the Issuer or the Guarantor in a UK court is not directly recognised or enforceable in Sweden as a matter of law without a re-trial on its merits (but will be of persuasive authority as a matter of evidence before the courts of law, arbitral tribunals or executive or other public authorities in Sweden).
The Group's operations are subject to regulation, supervision and licensing under various laws and regulations.
As a Group with a worldwide business, the Group is required to comply with a wide variety of laws and regulations (including economic sanctions programmes and anti-corruption laws and regulations) that may be costly to adhere to and may have a material adverse effect on the Group's business operating results and its financial condition. Compliance with these laws and regulations requires that the Group maintains forms, processes, procedures, controls and infrastructure to support these requirements and these laws and regulations often involve significant compliance costs.
The Group's plants are subject to a wide range of environmental, health and safety requirements. These requirements address, among other things, air emissions, wastewater discharges, accidental releases into the environment, human exposure to hazardous materials, the storage, treatment, transportation and disposal of waste and hazardous materials, the investigation and clean-up of contamination, chemical regulation, process safety and the maintenance of safe conditions in the workplace. Many of the Group's operations require permits and controls to monitor or prevent pollution. Continuing, modifying or expanding the Group's operations may require the Group to renew, revise or obtain new permits. Further, environmental, health and safety laws and regulations tend to become more stringent over time. The Group has incurred, and will continue to incur, substantial on-going capital expenditures to ensure compliance with current and future environmental, health and safety laws and regulations or their more stringent enforcement.
Other environmental, health and safety laws and regulations, such as the European Union Regulation on the Registration, Evaluation, Authorisation and Restriction of Chemical substances (the "REACH Regulation") and similar legislation in existence or being developed in the United States, Japan and elsewhere to identify and reduce adverse health and safety impacts of chemicals and other substances, could impose restrictions or onerous conditions on the availability or the use of raw materials needed for the Group's manufacturing process. In addition, regulations that impose responsibility on vehicle manufacturers to fund the recovery, recycling and disposal of vehicle parts, including lead acid batteries, at the end of their useful life are becoming increasingly more stringent and applicable worldwide, and the Group expects that production costs will increase as a result of these regulations.
Any failure to comply with these laws could result in significant statutory civil and criminal penalties for the Group, monetary damages, and damage to the Group's reputation, brand and valued consumer relationships, which could have a material adverse effect on the Group's business, results of operations and financial condition.
Failure to maintain the Group's reputation and brand image could adversely impact its results of operations.
The Group believes that its strong brand is among its most valuable assets, and that its brand image and reputation have contributed significantly to the success of its business. The Group's continued success depends on its ability to maintain, promote and grow its brand image and reputation, including its reputation for providing safe and sustainable mobility which the Group believes is an important part of consumers' identification with the Volvo brand.
In addition, adverse publicity about regulatory or legal developments could damage its reputation and brand image, undermine consumer confidence in the Group and reduce long-term demand for its cars, even if the regulatory or legal action is unfounded or not material to the Group's operations, which would have a material adverse effect on the Group's business, results of operations and financial condition.
- 11 -
The Group may face risks associated with its dealers, distribution channels and sales models.
The Group's cars are sold and serviced through a large network of authorised dealers and service centres across the world. The Group owns a limited number of Volvo dealers, and instead mainly sells its products to dealers through various dealer agreements. This represents a new way of operating and will require a close dialogue with the Group's dealers. Furthermore, the lack of control of the Group's dealers' standard compliance, consumer satisfaction and brand consistency could negatively impact the Group's business. There can be no assurance, however, that the Group's expectations will be met by all dealers and distributors. Underperformance by its dealers, distributors or service centres could adversely affect the Group's business, results of operations and financial condition.
If dealers encounter financial difficulties and the Group's products and services cannot be sold or can be sold only in limited numbers, this would have a direct effect on the sales of such dealers. If the Group cannot replace the affected dealers with other franchisees, the financial difficulties experienced by such dealers could have an indirect adverse effect on its car deliveries, which could have a material adverse effect on the Group's business, results of operations and financial condition.
In addition to the Group's dealer model, it is now also focusing on direct sales, mobility solutions and subscription services such as Care by Volvo and M – Volvo Car Mobility, which will require the Group and the dealers to adapt their marketing and business models from buying and selling cars to become more of a service provider. If the dealers are not willing or able to adapt to new business models, the Group may be required to find and contract with new dealers. In addition, it may be more directly impacted financially by price decreases and market pressures due to the Group's increased focus on direct sales, compared to a traditional dealership model in which the dealers primarily will be affected by any price decreases or pressures. There may also be claims from the Group's dealers due to the changed dealer model. Any of these events could have a material adverse effect on the Group's business, results of operations and financial condition.
Disruptions to the Group's supply chains may adversely affect the Group's production and results of operations.
The Group relies on a global network of suppliers for sourcing raw materials, parts and components used in the manufacture of its cars. Accordingly, the Group is exposed to disruptions in the supply chain and the Group's ability to procure supplies in a cost-effective and timely manner or at all is subject to various factors, some of which are not within the Group's control.
For automatic gear boxes, the Group relies on a single supplier, Aisin Warner in Nagoya, Japan, which also manufactures automatic gear boxes for almost all of the Group's competitors. For electric vehicle batteries, the Group currently relies on two suppliers, Contemporary Amperex Technology Co. Limited (CATL) and LG Chem Ltd. The Group is thus exposed to a concentration risk should either such supplier, for any reason, fail to perform its services in a timely manner. Additionally, the Group is exposed to disruptions in the supply chain resulting from natural disasters or man-made accidents. Substantial increases in the costs or a significant delay or sustained interruption in the supply of key inputs sourced from areas affected by disasters or accidents could adversely affect the Group's ability to maintain its current and expected levels of production, and therefore negatively affect the Group's revenue and increase its operating expenses. Any significant problems with the Group's supply chain or shortages of essential raw materials in the future could affect its results of operations in an adverse manner.
Adverse economic conditions and falling car sales have had a significant financial impact on the Group's suppliers in the past. A deterioration in automobile demand and lack of access to sufficient financial arrangements for the Group's supply chain could impair the timely availability of components. In addition, if one or more of the other global automotive manufacturers were to become insolvent, this would have an adverse impact on the supply chains and may further adversely affect the Group's business, results of operations and financial condition.
Increases in input and fuel prices or shortages of essential raw materials, commodities or supplies may have a material adverse effect on the Group's business, result of operations and financial condition.
The automotive sector uses a wide range of raw materials and commodities in manufacturing. Raw materials and commodities such as aluminium, steel, resin, non-ferrous metals, precious metals, rubber, petroleum products, copper, advanced plastics and other materials such as glass are used in most
- 12 -
automobiles. Materials costs (including freight and distribution) are the Group's most significant cost item. Accordingly, the pricing of raw materials, commodities and supplies is a significant expense for the Group and any increases in input prices of raw materials, commodities and supplies would increase the Group's operating costs and could impact its profitability to the extent that such increase cannot be absorbed by the market through price increases, due to the negative impact on demand. Furthermore, increases in fuel prices or electricity may also negatively affect the Group's operating costs and decrease demand for the Group's cars. Any of these events could have a material adverse effect on the Group's business, results of operations and financial condition.
Prices of raw materials and commodities used in the manufacture of automobiles, including lithium-ion batteries, cobalt, steel, aluminium, copper, zinc, rubber, platinum, palladium and rhodium, have experienced periods of increased volatility in recent years. This increased volatility has been driven by, among other things, macroeconomic factors, supply and demand, geographical distribution of resources, political instability and regulatory restrictions, recyclability of resources and resources substitution potentials as well as speculation in the trading of raw materials.
The Group is also exposed to the risk of contraction in the supply, and a corresponding increase in the price of, rare and frequently highly sought-after raw materials, especially those used in car electronics such as rare earths, which are predominantly found in China. Rare earth metal prices and supply remain uncertain. China has, in the past, limited the export of rare earths, including those used in the production of hybrid cars, from time to time. If the Group is unable to find substitutes for such raw materials or pass price increases on to consumers by raising prices, or to safeguard the supply of scarce raw materials, it could have a material adverse effect on the Group's car production, business, results from operations and financial condition.
The Group's business relies on the protection and preservation of its intellectual property and the defence against claims of infringement.
The Group's success depends, in part, on its ability to protect its intellectual property rights. The Group owns or otherwise has rights in respect of a number of patents and trademarks relating to the products it manufactures, which have been obtained over a period of years. Pursuant to an agreement with Volvo Trademark Holding AB, a joint venture with AB Volvo, it has a licence to use the Volvo brand name indefinitely for passenger cars and certain other vehicles. As a licensee of Volvo Trademark Holding AB, the Group is subject to certain obligations and restrictions in connection with its use of the Volvo brand name and do not have the same freedom of use as if it owned the brand name itself. Furthermore, as part of its separation from Ford in 2010, a number of bilateral licensing agreements and royalty-free patent assignments and intellectual property licensing agreements remain in place with Ford, under which there are numerous restrictions that affect the Group's ability to freely use the intellectual property covered by such agreements. See "Business—Intellectual Property—Agreement with Ford" and "Business— Intellectual Property—Agreement with AB Volvo" below.
Furthermore, the Group is party to certain licensing agreements in respect of third party intellectual property rights used in its operations, and the Group also uses technical designs which are the intellectual property of third parties with such third parties' consent.
These patents and trademarks have been of value in the growth of the Group's business and may continue to be of value in the future. As the Group continues to work with various partners to develop technologies, the importance, size, value and complexity of the intellectual property it develops in collaboration with these entities may increase, particularly in relation to software. The Group may not always own all rights in the intellectual property the Group develops in collaboration with these entities and the Group may be restricted in the use that it is able to make of such intellectual property. Any failure to protect the Group's intellectual property generally, or infringement on some or a large group of the Group's intellectual property rights, would have a materially adverse effect on its results of operations, business and/or financial condition. The Group may also be affected by restrictions on the use of intellectual property rights held by third parties, and the Group may be held legally liable for the infringement of the intellectual property rights of others in its products. Moreover, intellectual property laws of some foreign countries may not protect its intellectual property rights to the same extent as Swedish laws and EU regulations, meaning that the Group's ability to enforce and protect intellectual property rights may be limited in certain jurisdictions.
The instigation of legal proceedings or claims, the Group's inability to favourably resolve or settle such proceedings or claims, or the determination of any adverse findings against it in connection with such
- 13 -
proceedings or claims could adversely affect the Group's business, financial condition and results of operations, as well as the Group's reputation.
The Group is exposed to residual value risk in the course of its operations.
In the course of the Group's operations, it is currently exposed to residual value risks in relation to cars sold with repurchase commitments or leased subject to residual value guarantees, and through cars subscribed for through Care by Volvo, as well as cars used within its mobility service Volvo Car Mobility.
The Group offers residual value guarantees on the purchase of certain leases in some markets, which means that the Group is liable for any difference between the car's residual value and the salvage value of the car, if lower, at the end of the lease. The value of these guarantees is dependent on used car valuations in those markets at the end of the lease, which is subject to change (so-called residual value risk). The Group also sells cars to external rental companies with repurchase commitments, which entails that the cars are typically repurchased at the end of the leasing period, which exposes the Group to residual value risk in relation to the repurchased cars. The Group will be increasingly exposed to residual value risk in relation to cars offered through subscription and mobility services as the Group will continue to own the car throughout its subscription cycle.
Residual value risk may be influenced by external factors such as the selection of used cars being offered, consumer confidence and consumer preferences, exchange rates, incentive programmes offered by governments and automobile manufacturers and general economic circumstances, which are beyond the Group's control.
Any disruption in the operations of the Group's manufacturing, design and research and development facilities could adversely affect the Group's business, financial condition or results of operations.
The Group operates manufacturing plants across Europe, Asia and the United States. The Group's future success depends in part on its ability to expand its production capacity, which may require the Group to upgrade its current, and establish new, plant facilities around the world. However, there can be no assurances that the Group will in the future be able to establish new facilities on favourable terms, in a timely manner or at all. Any inability to establish new facilities due to, for example, governmental or regulatory limitations, financially unfavourable terms or global or country-specific market conditions may prevent the Group from expanding the Group's production capacity. Any such inability may also require the Group to transport cars from the Group's existing plants across the world, which will increase the Group's exposure to risks relating to securing timely inbound distribution to assembly plants from global suppliers and imply higher costs for transportation, taxes and duties as well as import tariffs. In addition, large investments in plant facilities may limit the Group's ability to make near-term investments and improve flexibility in capacity elsewhere. Any of these events could have a material adverse effect on the Group's business, results of operations and financial condition.
The Group could experience disruption to its manufacturing, design and research and development capabilities for a variety of reasons, including, among others, extreme weather, fire, theft, system failures, natural catastrophes, cyber-attacks, mechanical or equipment failures and similar risks. The Group may also face challenges when new facilities are opened, particularly in jurisdictions where the Group has not previously had an extensive presence, or new product lines or technologies are introduced at existing facilities. Operational disruptions, interruptions and process problems related to start-up issues at facilities may lead to production not being commenced as planned, significant production downtimes and interruptions in early stages of production. Any significant disruptions could adversely affect the Group's ability to design, manufacture and sell its cars and therefore materially affect its business, results of operations and financial condition.
Interest rate, currency and exchange rate fluctuations could adversely affect the Group's results of operations.
The Group has both interest-bearing assets (including cash balances) and interest-bearing liabilities, certain of which bear interest at variable rates. The Group is therefore exposed to changes in interest rates. While the Group assesses the appropriateness of these arrangements in light of changes to the size or nature of its operations on an ongoing basis, it may nonetheless be adversely affected by the impact of changes in interest rates.
- 14 -
In addition to Sweden, the Group sells cars in Western Europe, China, the United States and many other markets around the world and therefore generates revenue in, and has significant exposure to movements of, the Chinese renminbi, U.S. dollar, euro, GBP and other currencies relative to the Swedish krona, its reporting currency. Additionally, the Group generates production costs and cost of raw materials in a variety of currencies, in particular euros and Chinese renminbi. As a result, the Group has significant exposure to movements of the Chinese renminbi, U.S. dollar, euro and GBP relative to the Swedish krona, and relative changes in these currency rates will have a direct impact on the Group's operating income, balance sheet and cash flow statement.
Moreover, the Group has outstanding foreign currency denominated debt and is sensitive to fluctuations in foreign currency exchange rates. The Group has experienced, and expects to continue to experience, foreign exchange losses and gains on obligations denominated in foreign currencies in respect of its borrowings and foreign currency assets and liabilities due to currency fluctuations.
The Group is also exposed to the risk that appropriate hedging lines for the type of risk exposures the Group are subject to may not be available at a reasonable cost or at all and there are risks associated with the use of such hedging instruments. Furthermore, the Group may potentially forgo benefits that might result from market fluctuations in currency exposures. Hedging transactions can also result in substantial losses. Such losses could occur under various circumstances, including, without limitation, any circumstances in which a counterparty does not perform its obligations under the applicable hedging arrangement, the arrangement is imperfect or the Group's internal hedging policies and procedures are not followed or do not work as planned.
The Group is subject to risks associated with product liability claims, product warranties and product recalls.
The Group spends substantial resources to ensure that it complies with governmental safety regulations, mobile source emissions regulations and other standards. There can be no assurances that the Group will always be in compliance with all such regulations and standards. Compliance with governmental standards, however, does not necessarily prevent individual or class actions, which can entail significant cost and risk. Accordingly, the Group may become subject to product liability claims, which could harm its business, results of operations and financial condition. The automobile industry experiences significant product liability claims, and the Group has inherent risk of exposure to claims in the event that its cars do not perform as expected or malfunction resulting in personal injury or death.
A successful product liability claim against the Group could require the Group to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about the Group's cars and business, thereby adversely affecting the Group's reputation and inhibiting or preventing the commercialisation of future cars, which could have a material adverse effect on the Group's brand, business and results of operations (should the provisions not cover the actual claim).
The Group may also decide to initiate a recall if it concludes that its cars do not or might not comply with applicable standards, or in some circumstances, governmental authorities themselves may initiate a recall as a result of their own investigations into the Group's operations. Further, the Group may initiate voluntary service campaigns if it believes that would be of value to consumers. The Group may expend considerable resources in connection with product recalls and service campaigns, and these resources may typically include the cost of the part being replaced and the labour required to remove and replace the defective part. In addition, product recalls could prevent or delay launch of new model cars or cause consumers to question the safety or reliability of the Group's cars and harm the Group's reputation.
A number of the Group's contractual and legal requirements also oblige it to provide extensive warranties to its customers, dealers and national distributors. There is also a risk that the Group will be required to extend the guarantee or warranty originally granted in certain markets for legal reasons, or provide services as a courtesy or for reasons of reputation where it is not legally obliged to do so, and for which it will generally not be able to recover from suppliers or insurance.
Any of these events could have a material adverse effect on the Group's business, results of operations and financial condition.
- 15 -
The Group's business may be adversely affected by risks associated with joint ventures and partnerships.
The Group is a party to several joint ventures. The Group has pursued and may continue to pursue significant investments in certain strategic development projects with third parties. Joint ventures often require unanimous approval of the parties to the joint venture or their representatives for certain fundamental decisions. If a unanimous decision is not reached when required, it could lead to a deadlock in the operations of the joint venture. Additionally, differences in views among joint venture participants may result in delayed decisions or failures to agree on major issues. The Group does not have majority control over all of its joint ventures and partnerships, thereby increasing the risk that it may not concur with certain actions or decisions and may not be able to control the behaviour of its joint venture partners. Any failure of such joint venture participants to meet their obligations to the Group or to third parties, or any disputes with respect to the parties' respective rights and obligations, could have a material adverse effect on the joint venture and, therefore, could have a material adverse effect on the Group's business, results of operations and financial condition.
The Group may be unable to find strategic or collaborative partnerships to pursue its strategies.
The Group may from time to time pursue strategic and collaborative partnerships that it believes will complement its current business by expanding into new geographic areas, diversifying the Group's customer base and enabling the Group to specialise in, expand or enhance relevant technological capabilities.
There can be no assurances that the Group will be able to find suitable strategic or collaborative partners with whom to form strategic alliances or joint ventures, and failure to do so in a timely manner or at all may affect the Group's ability to realise its growth objectives. In addition, there are risks and uncertainties related to these activities, including the difficulty of integrating operations and different corporate governance models and business cultures, technology and products, diversion of management's attention from other business concerns, potential unknown liabilities associated with strategic or collaborative partnerships, undisclosed risks affecting a strategic or collaborative partnership and potential adverse effects on existing business relationships with current consumers and suppliers. In addition, any partnerships could involve the incurrence of substantial additional indebtedness. There can be no assurances that the Group will be able to successfully benefit from any partnerships that it undertakes or that such partnerships will perform as planned or prove to be beneficial to the Group's operations and cash flows. Any of these events could have a material adverse effect on the Group's business, results of operations and financial condition.
The Group may be adversely affected by labour unrest.
A substantial portion of the Group's employees are members of trade unions and are subject to collective bargaining agreements. See "Business—Employees" below. The Group may in the future face labour unrest, at its own facilities or at those of its suppliers, which may delay or disrupt the Group's operations in the affected regions, including the sourcing of raw materials and parts, the manufacture, sales and distribution of cars and the provision of services. If work stoppages or lock-outs at the Group's facilities or at the facilities of its major suppliers occur or continue for a long period of time, it may have a material adverse effect on the Group's business, financial condition and results of operations.
Additionally, the Group renegotiates the collective bargaining agreement for its Swedish employees on a yearly basis. Breakdowns in these negotiations or any inability to reach an agreement may affect the Group's operations and have a material adverse effect on the Group's business, results of operations and financial condition.
The Group could be adversely affected by the loss of one or more key personnel or by an inability to attract and retain highly qualified employees.
The Group believes that its growth and future success depends in large part on the skills of its executive and other senior officers, as well as its senior designers and engineers. In a business environment that is characterised by fierce competition, disruptive change and talent shortage, it is crucial for the Group to attract and retain key personnel. For example, it can currently be challenging to recruit highly skilled software engineers for AD development, which may require the Group to carry out recruitment efforts in for example, Silicon Valley, which entails higher costs. If the Group fails to attract, train and retain qualified personnel that it needs in its operations, the Group may be unable to expand its business in line with its
- 16 -
strategy and compete for new, and keep existing, consumers, which could have a material adverse effect on the Group's business, results of operations and financial condition.
Furthermore, many of the Group's executive and other senior officers have long-standing ties within its primary lines of business and experience with the Group's operations, and have contributed significantly to the Group's growth. If the Group loses the services of one or more of them, he or she may be difficult to replace, which could have a material adverse effect on the Group's business, results of operations and financial condition.
Future pension obligations may prove more costly than currently anticipated and the market value of assets in the Group's pension plans could decline.
The Group provides post-retirement and pension benefits to its employees, some of which are defined benefit plans. The Group's pension liabilities are generally funded and its pension plan assets are particularly significant.
Under the arrangements with the trustees of the defined benefit pension schemes, an actuarial valuation of the assets and liabilities of the schemes is undertaken quarterly, with a more extensive report received before the year-end closing. There is a risk that the assets of the Group's various defined benefit pension schemes, which are long-term in nature, do not fully match the timing and amount of the schemes' liabilities, as a result of which the Group would be required or may choose to make additional contributions to the plans.
Lower return on pension fund assets, changes in market conditions, changes in interest rates, changes in inflation rates and adverse changes in other critical actuarial assumptions may impact the Group's pension liabilities or assets and consequently increase funding requirements, which will adversely affect the Group's financial condition and results of operations.
The Group's insurance coverage may not be adequate to protect it against all potential losses to which the Group may be subject.
There can be no assurance that the insurance coverage that the Group maintains is sufficient to cover normal risks associated with the operation of its business, such as coverage for people, property and assets, including construction and general, auto and product liability, in accordance with treasury policy. Furthermore, it is not possible to insure fully against all risks.
The Group has a wholly-owned captive insurance company, Volvo Car Insurance AB, which provides coverage for part of the Group's risks in relation to property damage and business interruption, general and products liability and transport. The reserves of the Group's captive insurance subsidiary are subject to periodic adjustments based upon actuarial evaluations, which affect its overall results of operations. These periodic adjustments can be favourable or unfavourable. There can be no assurance that any claim under the Group's insurance policies will be honoured fully or timely, the Group's insurance coverage will be sufficient in any respect or that its insurance premiums will not increase substantially. Accordingly, to the extent that the Group suffers loss or damage that is not covered by insurance or which exceeds the Group's insurance coverage, or have to pay higher insurance premiums, it may have a material adverse effect on the Group's business, result of operations and financial condition.
The Group is exposed to various operational risks, including risks in connection with the use of information technology.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This includes, among other things, losses that are caused by a lack of controls within internal procedures, violation of internal policies by employees, disruption or malfunction of information technology ("IT") systems, computer networks and telecommunications systems, mechanical or equipment failures, human error, natural disasters, security breaches or malicious acts by third parties (including, for example, hackers). The Group is generally exposed to risks in the field of information technology, since unauthorised access to or misuse of data processed on its IT-systems, human errors associated therewith or technological failures of any kind could disrupt its operations, including the manufacturing, design and engineering processes or result in breaches of regulations such as the GDPR. Cyber-crime may also lead to business interruption. Cyber-security breaches could cause severe disruption for the Group's business including but not limited to operational disturbances, affecting the Group as well
- 17 -
as consumers, loss of intellectual property and data leakage, which may lead to high costs and heavy fines due to breaches in data protection obligations.
Like any other business with complex manufacturing, research, procurement, sales and marketing and financing operations, the Group is exposed to a variety of operational risks and, if the protection measures put in place prove insufficient, its business, results of operations and financial condition can be materially adversely affected.
Unauthorised control or manipulation of cars' systems may cause them to operate improperly or not at all, or compromise their safety and data security, which could result in loss of confidence in the Group and harm the Group's business.
There have been reports of cars of other automobile manufacturers being "hacked" to grant access to and operation of the cars to unauthorised persons and would-be thieves. The Group's cars are technologically advanced machines requiring the inter-operation of numerous complex and evolving hardware and software systems. In the Group's connected cars, it is, based on the technology and connectivity of such vehicles, increasingly exposed to unauthorised control or manipulation of cars' systems. The Group's information technology networks and communications with the Group's cars may be vulnerable to interception, manipulation, damage, disruption or shutdown due to attacks by hackers or breaches due to errors by personnel who have access to the Group's networks and systems. Any such attacks or breaches could result in unexpected control of or changes to the functionality of the Group's cars, user interface and performance characteristics. Hackers may also use similar means to gain access to data stored in or generated by the car, such as its current geographical position, previous and stored destination address history and web browser "favourites". Any such unauthorised control of cars or access to or loss of information could result in legal claims or proceedings and negative publicity, which could negatively affect the Group's brand and reputation and have a material adverse effect on the Group's business, results of operations and financial condition. The Group also supplies cars to other companies for various purposes, and such companies may modify those vehicles from the forms in which they were provided by the Group. Even through the Group has no control over such modifications, or the purposes for which its vehicles are used, the Group's reputation may nevertheless be affected in the event of any accidents involving its cars.
The Group is subject to risks associated with legal proceedings, tax disputes and governmental investigations, including potential adverse publicity as a result thereof.
The Group is and may be involved from time to time in civil, labour or administrative proceedings arising in the ordinary course of business. It is not possible to predict the potential for, or the ultimate outcomes of, the above described or any other proceedings, disputes and matters, some of which may be unfavourable to the Group. In such cases, the Group may incur costs and any mitigating measures (including provisions taken on the Group's balance sheet) adopted to protect against the impact of such costs may not be adequate or sufficient. In addition, adverse publicity surrounding legal proceedings, government investigations or allegations may also harm the Group's reputation and brands, which could have a material adverse effect on its business, results of operations and financial condition.
The Group could be investigated in relation to anti-competition law matters, the outcome of which could result in fines and related damages.
From time to time, the Group may be subject to antitrust scrutiny and/or investigations in the jurisdictions in which it operates, which could potentially result in legal proceedings being brought against it.
Any future adverse ruling in any potential proceedings could subject the Group to administrative penalties and could lead to awards for civil damages, which could be substantial depending on the facts and circumstances. In addition to administrative and civil damages, any adverse outcome of future litigation or proceedings could result in reputational damage for the Group's business, restrict the Group's ability to conduct or expand its operations in certain countries or result in the loss of key employees or customer relationships. Any such adverse development could have material adverse effects on the Group's business, results of operations or financial condition.
Furthermore, in relation to the Group's Chinese operations, the Group must comply with Chinese anti- monopoly laws, and the Group is subject to scrutiny by the Chinese anti-trust regulator, the Bureau of Price Supervision and Anti-Monopoly of the National Development and Reform Commission (the "NDRC"). In 2014, the Chinese antitrust regulator, the Bureau of Price Supervision and Anti-Monopoly of the NDRC,
- 18 -
launched an investigation into the pricing practices of a number of automotive companies, in some cases resulting in fines, or pricing reviews. The Group was indirectly affected by the price decrease resulting therefrom and may directly or indirectly be subject to similar regulatory reviews in the future, which may have a material adverse effect on the revenue and profits generated by the Group's operations in China and hence overall revenue and profits. If the NDRC finds any violation of the Chinese anti-monopoly laws, it may order the violating company to stop such violations, confiscate the illegal gains, or impose a fine of up to 10 per cent. of the total group sales volume made in the previous year.
Accordingly, any regulatory action taken, or penalties imposed by competition or regulatory authorities globally, including China and the EU where competition authorities have been increasingly active, may have significant adverse financial and reputational consequences on the Group's business and have a material adverse effect on the Group's business, results of operations and financial condition.
The Group's shareholder can exert considerable control over the Issuer and/or engage in activities which may conflict with the Group's interests.
The Issuer is a subsidiary of Geely Sweden Holdings AB, which is owned by Shanghai Geely Zhaoyuan International Investment Co., Ltd., with ultimate ownership held by Geely. As a result of the ownership structure, Geely is able to significantly influence any matter requiring shareholder's approval, including the election of the Group's directors and approval of significant corporate transactions. Geely may also engage in activities that may conflict with the Group's interests or the interests of the holders of the Notes and, in such events, Noteholders could be disadvantaged by these actions.
The Group's indebtedness could adversely affect its financial health and ability to withstand adverse developments.
The Group's debt service obligations could have important consequences for the Group's business and Noteholders, including (see "Business – Funding"):
making it difficult for the Group to satisfy its obligations with respect to the Notes or other indebtedness;
increasing its vulnerability to, and reducing its flexibility to respond to, general adverse economic and industry conditions;
requiring the dedication of a portion of the Group's cash flow from operations to make interest and principal payments on the Group's debt, thereby reducing the availability of such cash flow for other purposes;
limiting the Group's ability to obtain additional financing to fund working capital, capital investments, acquisitions, debt service requirements, business ventures, or other general corporate purposes;
limiting the Group's flexibility in planning for, or reacting to, changes in its business, the competitive environment and the industry in which it does business; and
adversely affecting its competitive position if its debt burden is higher than that of its competitors.
In addition, a portion of the Group's debt bears interest at variable rates that are linked to changing market interest rates. As a result, an increase in market interest rates would increase the Group's interest expense and debt service obligations, which would exacerbate the risks associated with its capital structure. Any of these or other consequences or events could have a material adverse effect on the Group's business, financial condition and results of operations and its ability to satisfy its obligations under the Notes.
The Issuer, the Guarantor and their subsidiaries may also incur additional indebtedness (secured and unsecured) in the future. If additional debt is incurred, the related risks that the Group faces could intensify.
In relation to debt that is repayable, the Group's ability to make such payments at maturity will depend upon its ability to generate sufficient cash from operations, obtain additional equity or debt financing or sell assets. At the time the refinancing of each of the Group's existing debt obligations is due, it may not be able to raise equity or refinance the repayment of the debt obligation on terms as favourable as the original loan or sell the property at a price sufficient to repay the relevant debt or at all. If the Group is unable to refinance
- 19 -
its existing or future debt obligations or renew its existing or future credit facilities on acceptable terms or at all, this could have material adverse effects on its liquidity, business, financial condition and results of operations.
The Group is exposed to credit risks and liquidity risks.
Credit risk means the risk of the Group's counterparties or subscribers being unable to perform their payment obligations, thereby creating a loss for the Group. The Group's credit risk consists of financial credit risk and operational credit risk. Financial credit risk is the risk that the Group may incur losses as a result of non-payment by counterparties or subscribers related to its investments, bank deposits or derivative transactions. There is a risk that measures undertaken to counter the Group's credit risk will not be sufficient or effective, and the Group may fail to successfully implement and manage any hedging arrangements, which could have a material adverse effect on its business, results of operations and financial condition.
The Group also faces liquidity risks. Liquidity risk is the risk that the Group may be unable to meet ongoing financial obligations on time. If the Group is not able to meet ongoing financial obligations on time, it could have a material adverse effect on the Group's business, results of operations and financial condition. Such risk could be also be attributed to the geographic location of the Group's funds, in particular to China, given that a relatively high concentration of the Group's funds are allocated in China. As a result, any change in regulation in China that imposes any capital restriction on the withdrawal of funds out of China would increase the Group's liquidity risk.
Restrictive covenants in the Group's financing agreements may limit its operations and financial flexibility and adversely impact its future results and financial condition.
Some of the Group's financing agreements and debt arrangements set limits on and/or require it to obtain consents before, among other things, pledging assets as security. In addition, certain financial covenants limit the Group's ability to borrow additional funds or to incur additional liens. However, there can be no assurance that the Group will be able to obtain required lender consents for such activities in the future. If the Group's financial or growth plans require such consents and such consents are not obtained, it may be forced to forgo or alter its plans, which could adversely affect its results of operations and financial condition.
In the event that the Group breaches these covenants, the outstanding amounts due under such financing agreements could become due and payable immediately. A default under one of these financing agreements may also result in cross-defaults under other financing agreements and result in the outstanding amounts under such other financing agreements becoming due and payable immediately. Defaults under one or more of the Group's financing agreements could have a material adverse effect on its results of operations and financial condition.
Risks Related to the Structure of a Particular Issue of Notes
If the Issuer has the right to redeem any Notes at its option, this may limit the market value of the Notes concerned and an investor may not be able to reinvest the redemption proceeds in a manner which achieves a similar effective return.
An optional redemption feature of Notes is likely to limit their market value. During any period when the Issuer may elect to redeem Notes, the market value of those Notes generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period. The Issuer may be expected to redeem Notes when its cost of borrowing is lower than the interest rate on the Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time.
Zero Coupon Notes may experience price volatility in response to changes in market interest rates.
Zero Coupon Notes do not pay interest but are issued at a discount from their nominal value. Instead of periodic interest payments, the difference between the redemption price and the issue price constitutes interest income until maturity and reflects the market interest rate. A holder of Zero Coupon Notes is exposed to the risk that the price of such Notes falls as a result of changes in the market interest rate. Prices
- 20 -
of Zero Coupon Notes are more volatile than the prices of Fixed Rate Notes and are likely to respond to a greater degree to market interest rate changes than interest bearing notes with a similar maturity.
Risks related to Notes which are linked to "benchmarks"
The London Interbank Offered Rate ("LIBOR"), the Euro Interbank Offered Rate ("EURIBOR") and other interest rate or other types of rates and indices which are deemed to be "benchmarks" are the subject of ongoing national and international regulatory discussions and proposals for reform. Some of these reforms are already effective whilst others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, to disappear entirely, or have other consequences which cannot be predicted. Any such consequence could have a material adverse effect on any Notes linked to or referencing such a benchmark.
Regulation (EU) No. 2016/1011 (the "EU Benchmarks Regulation") applies, subject to transitional provisions, to the provision of benchmarks, the contribution of input data to a benchmark and the use of a benchmark within the EU. Among other things, it (i) requires benchmark administrators to be authorised or registered (or, if non-EU-based, to be subject to an equivalent regime or otherwise recognised or endorsed) and (ii) prevents certain uses by EU supervised entities of benchmarks of administrators that are not authorised or registered (or, if non-EU based, not deemed equivalent or recognised or endorsed). Regulation (EU) 2016/1011 as it forms part of domestic law in the UK by virtue of the EUWA (the "UK Benchmarks Regulation") among other things, applies to the provision of benchmarks and the use of a benchmark in the UK. Similarly, it prohibits the use in the UK by UK supervised entities of benchmarks of administrators that are not authorised by the UK Financial Conduct Authority (the "FCA") or registered on the FCA register (or, if non-UK based, not deemed equivalent or recognised or endorsed).
The EU Benchmarks Regulation and/or the UK Benchmarks Regulation, as applicable, could have a material impact on any Notes linked to LIBOR, EURIBOR or another benchmark rate or index, in particular, if the methodology or other terms of the benchmark are changed in order to comply with the terms of the EU Benchmarks Regulation and/or the UK Benchmarks Regulation, as applicable. Such changes could, amongst other things, have the effect of reducing or increasing the rate or level, or affecting the volatility of the published rate or level of the relevant benchmark.
On 21 September 2017, the European Central Bank announced that it would be part of a new working group tasked with the identification and adoption of a "risk free overnight rate" which can serve as a basis for an alternative to current benchmarks used in a variety of financial instruments and contracts in the euro area. On 13 September 2018, the working group on Euro risk-free rates recommended the new Euro short-term rate ("€STR") as the new risk-free rate for the euro area. The €STR was published for the first time on 2 October 2019. Although EURIBOR has been reformed in order to comply with the terms of the EU Benchmarks Regulation and UK Benchmarks Regulation, it remains uncertain as to how long it will continue in its current form, or whether it will be further reformed or replaced with €STR or an alternative benchmark.
Following the implementation of any such potential reforms, the manner of administration of benchmarks may change, with the result that they may perform differently than in the past, or the benchmark could be eliminated entirely, or there could be other consequences that cannot be predicted. The elimination of the LIBOR benchmark or any other benchmark, or changes in the manner of administration of any benchmark, could require or result in an adjustment to the interest calculation provisions of the Conditions (as further described in Condition 7(i) (Benchmark Discontinuation)), or result in adverse consequences to holders of any Notes linked to such benchmark (including Floating Rate Notes whose interest rates are linked to LIBOR, EURIBOR or any other such benchmark that is subject to reform). Furthermore, even prior to the implementation of any changes, uncertainty as to the nature of alternative reference rates and as to potential changes to such benchmark may adversely affect such benchmark during the term of the relevant Notes, the return on the relevant Notes and the trading market for securities (including the Notes) based on the same benchmark.
The "Terms and Conditions of the Notes" set out below provide for certain fallback arrangements in the event that a published benchmark, such as LIBOR, (including any page on which such benchmark may be published (or any successor service)) becomes unavailable, including the possibility that the rate of interest could be set by reference to a successor rate or an alternative rate and that such successor rate or alternative reference rate may be adjusted (if required) in order to reduce or eliminate, to the extent reasonably practicable in the circumstances, any economic prejudice or benefit (as applicable) to investors arising out
- 21 -
of the replacement of the relevant benchmark, although the application of such adjustment to the Notes may not achieve this objective. In certain circumstances the ultimate fallback of interest for a particular Interest Period may result in the rate of interest for the last preceding Interest Period being used. This may result in the effective application of a fixed rate for Floating Rate Notes based on the rate which was last observed on the Relevant Screen Page. In addition, due to the uncertainty concerning the availability of successor rates and alternative reference rates and the involvement of an Independent Adviser, the relevant fallback provisions may not operate as intended at the relevant time.
Any such consequences could have a material adverse effect on the value of and return on any such Notes.
Investors should consult their own independent advisers and make their own assessment about the potential risks imposed by the EU Benchmarks Regulation and UK Benchmarks Regulation reforms in making any investment decision with respect to any Notes linked to or referencing a benchmark.
If the Issuer has the right to convert the interest rate on any Notes from a fixed rate to a floating rate, or vice versa, this may affect the secondary market and the market value of the Notes concerned.
Fixed/Floating Rate Notes may bear interest at a rate that converts from a fixed rate to a floating rate, or from a floating rate to a fixed rate. Where the Issuer has the right to effect such a conversion, this will affect the secondary market and the market value of the Notes since the Issuer may be expected to convert the rate when it is likely to produce a lower overall cost of borrowing. If the Issuer converts from a fixed rate to a floating rate in such circumstances, the spread on the Fixed/Floating Rate Notes may be less favourable than then prevailing spreads on comparable Floating Rate Notes tied to the same reference rate. In addition, the new floating rate at any time may be lower than the rates on other Notes. If the Issuer converts from a floating rate to a fixed rate in such circumstances, the fixed rate may be lower than then prevailing rates on its Notes.
Notes which are issued at a substantial discount or premium may experience price volatility in response to changes in market interest rates.
The market values of securities issued at a substantial discount or premium to their principal amount tend to fluctuate more in relation to general changes in interest rates than do prices for conventional interest- bearing securities. Generally, the longer the remaining term of the securities, the greater the price volatility as compared to conventional interest-bearing securities with comparable maturities.
In respect of any Notes issued as Green Bonds, there can be no assurance that such use of proceeds will be suitable for the investment criteria of an investor.
The Pricing Supplement relating to any specific Tranche of Notes may provide that it will be the Issuer's intention to apply the proceeds from an offer of those Notes specifically for projects and activities that promote certain environmental purposes ("Eligible Projects"). Prospective investors should determine for themselves the relevance of such information for the purpose of any investment in such Notes together with any other investigation such investor deems necessary. In particular, no assurance is given by the Issuer or the Guarantor that the use of such proceeds for any Eligible Projects will satisfy, whether in whole or in part, any present or future investor expectations or requirements as regards any investment criteria or guidelines with which such investor or its investments are required to comply, whether by any present or future applicable law or regulations or by its own by-laws or other governing rules or investment portfolio mandates, in particular with regard to any direct or indirect environmental, sustainability or social impact of any projects or uses, the subject of or related to, any Eligible Projects. No assurance can be given that Eligible Projects will meet investor expectations or requirements regarding such "green", "sustainable", "social" or similar labels (including Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (the so called "EU Taxonomy") or Regulation (EU) 2020/852 as it forms part of domestic law in the UK by virtue of the EUWA) or that any adverse environmental, social and/or other impacts will not occur during the implementation of any projects or uses the subject of, or related to, any Eligible Projects.
No assurance or representation is given as to the suitability or reliability for any purpose whatsoever of any opinion or certification of any third party (whether or not solicited by the Issuer) which may be made available in connection with the issue of any Notes and in particular with any Eligible Projects to fulfil any environmental, sustainability, social and/or other criteria. For the avoidance of doubt, any such opinion or certification is not, nor shall be deemed to be, incorporated in and/or form part of this Offering Circular.
- 22 -
Any such opinion or certification is not, nor should be deemed to be, a recommendation by the Issuer, the Guarantor or any other person to buy, sell or hold any such Notes. Any such opinion or certification is only current as of the date that opinion was initially issued. Prospective investors must determine for themselves the relevance of any such opinion or certification and/or the information contained therein and/or the provider of such opinion or certification for the purpose of any investment in such Notes. Currently, the providers of such opinions and certifications are not subject to any specific regulatory or other regime or oversight.
In the event that any such Notes are listed or admitted to trading on any dedicated "green", "environmental", "sustainable" or other equivalently-labelled segment of any stock exchange or securities market (whether or not regulated), no representation or assurance is given by the Issuer, the Guarantor or any other person that such listing or admission satisfies, whether in whole or in part, any present or future investor expectations or requirements as regards any investment criteria or guidelines with which such investor or its investments are required to comply, whether by any present or future applicable law or regulations or by its own by-laws or other governing rules or investment portfolio mandates, in particular with regard to any direct or indirect environmental, sustainability or social impact of any projects or uses, the subject of or related to, any Eligible Projects. Furthermore, it should be noted that the criteria for any such listings or admission to trading may vary from one stock exchange or securities market to another. Nor is any representation or assurance given or made by the Issuer, the Guarantor or any other person that any such listing or admission to trading will be obtained in respect of any such Notes or, if obtained, that any such listing or admission to trading will be maintained during the life of the Notes.
While it is the intention of the Issuer to apply the proceeds of any Notes so specified for Eligible Projects in, or substantially in, the manner described in this Offering Circular, there can be no assurance that the relevant project(s) or use(s) the subject of, or related to, any Eligible Projects will be capable of being implemented in or substantially in such manner and/or accordance with any timing schedule and that accordingly such proceeds will be totally or partially disbursed for such Eligible Projects. Nor can there be any assurance that such Eligible Projects will be completed within any specified period or at all or with the results or outcome (whether or not related to the environment) as originally expected or anticipated by the Issuer. Any such event or failure by the Issuer will not constitute an Event of Default under the Notes.
Any such event or failure to apply the proceeds of any issue of Notes for any Eligible Projects as aforesaid and/or withdrawal of any such opinion or certification or any such opinion or certification attesting that the Issuer is not complying in whole or in part with any matters for which such opinion or certification is opining or certifying on and/or any such Notes no longer being listed or admitted to trading on any stock exchange or securities market as aforesaid may have a material adverse effect on the value of such Notes and also potentially the value of any other Notes which are intended to finance Eligible Projects and/or result in adverse consequences for certain investors with portfolio mandates to invest in securities to be used for a particular purpose.
Risks Related to the Notes Generally
Corporate benefit and financial assistance laws and other limitations may adversely affect the validity and enforceability of the Guarantee of the Notes.
The Guarantee of the Notes provides Noteholders with a right of recourse against the assets of the Guarantor. The Guarantee of the Notes and the amounts recoverable thereunder will be limited to the maximum amount that can be guaranteed in accordance with mandatory provisions of the Swedish Companies Act regulating transfers of value.
Enforcement of the Guarantee of the Notes against the Guarantor may be subject to certain challenges and defences. These may include those that relate to fraudulent conveyance, financial assistance, distribution of assets (Sw. värdeöverföringar), corporate benefit and regulations or defences affecting the rights of creditors generally. If one or more of these laws and defences are applicable, the Guarantee of the Notes may be unenforceable.
The Notes will be structurally subordinated to the liabilities of non-guarantor subsidiaries.
Not all of the Issuer's subsidiaries will guarantee the Notes. Generally, holders of indebtedness of, and trade creditors of, non-guarantor subsidiaries, are entitled to payments of their claims from the assets of such subsidiaries before these assets are made available for distribution to the Guarantor or the Issuer, as direct
- 23 -
or indirect shareholders. Accordingly, in the event that any of the non-guarantor subsidiaries becomes insolvent, liquidates or otherwise reorganises:
the creditors of the Guarantor and the Issuer (including Noteholders) will have no right to proceed against such subsidiary's assets; and
creditors of such non-guarantor subsidiary, including trade creditors, will generally be entitled to payment in full from the sale or other disposal of the assets of such subsidiary before the Guarantor and the Issuer, as direct or indirect shareholder, will be entitled to receive any distributions from such subsidiary.
As at 31 December 2020, the Issuer's non-guarantor subsidiaries had SEK 527 million of debt which would have ranked structurally senior to the Notes and the Guarantee. Under the terms of the Notes, there is no restriction on the ability of non-guarantor subsidiaries to incur additional indebtedness and no requirement that any non-guarantor subsidiaries become Guarantors. Consequently, the Notes may become structurally subordinated to substantial additional indebtedness in the future.
Claims of the secured creditors of the Issuer will have priority with respect to their collateral over the claims of unsecured creditors, such as Noteholders, to the extent of the value of the assets securing such indebtedness.
The Notes will not be secured by any of the Issuer's assets. As a result, claims of the secured creditors of the Issuer will have priority with respect to the assets securing their indebtedness over the claims of Noteholders. As such, the Notes will be effectively subordinated to any existing and future secured indebtedness and other secured obligations of the Issuer to the extent of the value of the assets securing such indebtedness or other obligations.
In the event of any foreclosure, dissolution, winding up, liquidation, reorganisation, administration or other bankruptcy or insolvency proceeding of the Issuer at a time when it has secured obligations, holders of secured indebtedness will have priority claims to the assets of the Issuer that constitute their collateral. Noteholders will participate rateably with all holders of the unsecured indebtedness of the Issuer, and potentially with all its other general creditors, based upon the respective amounts owed to each holder or creditor, in the remaining assets of the Issuer. The claims of Noteholders and other unsecured creditors will also depend on whether there is any value left in the bankruptcy estate besides any secured assets. If any of the secured indebtedness of the Issuer becomes due or the creditors thereunder proceed against the operating assets that secure such indebtedness, the Group's assets remaining after repayment of that secured indebtedness may not be sufficient to repay all amounts owing in respect of the Notes.
As of 31 December 2020, the Group had an aggregate principal amount of SEK 34.4 billion of debt outstanding, of which SEK 459 million was secured indebtedness.
The Notes will include a change of control squeeze-out redemption provision.
If 80 per cent. or more in principal amount of the Notes then outstanding have been redeemed pursuant to Condition 9(f) (Change of Control), the Issuer may, on not less than thirty nor more than sixty days' irrevocable notice to the Noteholders in accordance with Condition 19 (Notices) given within thirty days after the Optional Redemption Date (as defined in "Terms and Conditions"), redeem on a date to be specified in such notice at its option, all (but not some only) of the remaining Notes at their principal amount, together with interest accrued to but excluding the date of redemption.
The conditions of the Notes contain provisions which may permit their modification without the consent of all investors.
The Conditions of the Notes contain provisions for calling meetings (including by way of conference call or by use of a videoconference platform) of Noteholders to consider and vote upon matters affecting their interests generally, or to pass resolutions in writing or through the use of electronic consents. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting or, as the case may be, did not sign the written resolution or give their consent electronically, and including those Noteholders who voted in a manner contrary to the majority.
- 24 -
The Conditions of the Notes also provide that the Agent and the Issuer may, without the consent of Noteholders agree to the amendment of any of the provisions of the Notes in order to correct a manifest error.
Notes may be redeemed prior to their stated maturity.
If the Issuer or the Guarantor, as the case may be, has or will become obliged to pay any other additional amounts as provided or referred to in Condition 12 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the Kingdom of Sweden or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date of issue of the first Tranche of the Notes, the Issuer may redeem all outstanding Notes in accordance with the Conditions.
There is no active trading market for the Notes.
Notes issued under the Programme will be new securities which may not be widely distributed and for which there is currently no active trading market (unless in the case of any particular Tranche, such Tranche is to be consolidated with and form a single Series with a Tranche of Notes which is already issued). If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Issuer. Although applications have been made for the Notes issued under the Programme to be admitted to listing on the Official List and to trading on the Euro MTF Market of the Luxembourg Stock Exchange, there is no assurance that such applications will be accepted, that any particular Tranche of Notes will be so admitted or that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for any particular Tranche of Notes.
Because Notes in global form are held by or on behalf of Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer and payment with the Issuer and/or the Guarantor.
Notes issued under the Programme may be represented by one or more Global Notes. Such Global Notes will be deposited with a common depositary or common safekeeper for Euroclear and Clearstream, Luxembourg. Except in the circumstances described in the relevant Global Note, investors will not be entitled to receive definitive Notes. Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by one or more Global Notes, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg.
While the Notes are represented by one or more global Notes the Issuer and the Guarantor will discharge their payment obligations under the Notes by making payments to the common depositary or common safekeeper for Euroclear and Clearstream, Luxembourg for distribution to its account holders. A holder of a beneficial interest in a Global Note must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the relevant Notes. The Issuer and the Guarantor have no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Notes.
Holders of beneficial interests in the Global Notes will not have a direct right to vote in respect of the relevant Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and Clearstream, Luxembourg to appoint appropriate proxies. Similarly, holders of beneficial interests in the Global Notes will not have a direct right under the Global Notes to take enforcement action against the Issuer or the Guarantor in the event of a default under the relevant Notes but will have to rely upon their rights under the Deed of Covenant.
Notes in New Global Note and New Safekeeping Structure form.
The New Global Note and New Safekeeping Structure form has been introduced to allow for the possibility of debt instruments being issued and held in a manner which will permit them to be recognised as eligible collateral for monetary policy of the central banking system for the euro (the "Eurosystem") and intra-day credit operations by the Eurosystem either upon issue or at any or all times during their life. However in any particular case such recognition will depend upon satisfaction of the Eurosystem eligibility criteria at
- 25 -
the relevant time. Investors should make their own assessment as to whether the Notes meet such Eurosystem eligibility criteria.
Minimum Specified Denomination and higher integral multiples.
In relation to any issue of Notes in bearer form which have a denomination consisting of a minimum Specified Denomination (as defined below) plus a higher integral multiple of another smaller amount, it is possible that such Notes may be traded in amounts in excess of the minimum Specified Denomination that are not integral multiples of such Specified Denomination. In such case a Noteholder who, as a result of trading such amount, holds a principal amount not an integral amount of such Specified Denomination may not receive a Note in definitive form corresponding to such holding (should definitive Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to an integral multiple of such Specified Denomination.
If an investor holds Notes which are not denominated in the investor's home currency, he will be exposed to movements in exchange rates adversely affecting the value of his holding. In addition, the imposition of exchange controls in relation to any Notes could result in an investor not receiving payments on those Notes.
The Issuer will pay principal and interest on the Notes in the Specified Currency. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to the Specified Currency would decrease (1) the Investor's Currency-equivalent yield on the Notes, (2) the Investor's Currency equivalent value of the principal payable on the Notes and (3) the Investor's Currency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate or the ability of the Issuer to make payments in respect of the Notes. As a result, investors may receive less interest or principal than expected, or no interest or principal.
- 26 -
INFORMATION INCORPORATED BY REFERENCE
The following information shall be deemed to be incorporated in, and to form part of, this Offering Circular:
1. the audited consolidated financial statements (including the auditors' report thereon and notes thereto) of the Group in respect of the years ended 31 December 2020 as set out on pages 60 to 119 of the Volvo Car Group Annual Report 2020 (the "2020 Annual Report");
2. the audited consolidated financial statements (including the auditors' report thereon and notes thereto) of the Group in respect of the years ended 31 December 2019 as set out on pages 74 to 129 of the Volvo Car Group Annual Report 2019 (the "2019 Annual Report");
3. the terms and conditions of the Notes set out on pages 44 to 73 of the Offering Circular dated 9 November 2017 relating to the Programme.
4. the terms and conditions of the Notes set out on pages 46 to 77 of the Offering Circular dated 20 December 2019 relating to the Programme.
Copies of the documents specified above as containing information incorporated by reference in this Offering Circular may be inspected, free of charge, at http://www.volvocars.com/intl/about/our- company/investor-relations and will be published on the website of the Luxembourg Stock Exchange at www.bourse.lu. Any information contained in any of the documents specified above which is not incorporated by reference in this Offering Circular is either not relevant to investors or is covered elsewhere in this Offering Circular.
Cross Reference Table:
2020 Annual Report 2019 Annual Report
Consolidated Income Statements Page 61 Page 75 Consolidated Balance Sheets Page 64 Page 77 Consolidated Statement of Cash Flows Page 66 Page 79 Notes Pages 67 to 109 Pages 80 to 119 Audit Report Pages 118 to 119 Pages 128 to 129
The financial statements of the Issuer are fully consolidated within the financial statements of the Group, and therefore the non-inclusion of the Issuer's standalone financial statements would not be likely to mislead investors with regards to the facts and circumstances essential for assessing the Notes.
- 27 -
GENERAL DESCRIPTION OF THE PROGRAMME
The following information is derived from, and should be read in conjunction with, the full text of this Offering Circular. You should read the whole document and not just rely on the overview information, which should be read as an introduction to this Offering Circular. Any decision to invest in Notes issued under the Programme should be based on consideration of this Offering Circular as a whole.
Words and expressions defined in "Terms and Conditions of the Notes" below or elsewhere in this Offering Circular have the same meanings in this overview.
Issuer: ...... Volvo Car AB (publ)
Guarantor: ...... Volvo Car Corporation
Programme Limit: ...... Up to EUR3,000,000,000 (or the equivalent in other currencies at the date of issue) aggregate principal amount of Notes outstanding at any one time.
Risk Factors: ...... Investing in Notes issued under the Programme involves certain risks. The principal risk factors that may affect the ability of the Issuer and the Guarantor to fulfil its obligations under the Notes are discussed under "Risk Factors".
Arranger: ...... Citigroup Global Markets Limited
Dealers:...... Citigroup Global Markets Europe AG, Citigroup Global Markets Limited, Deutsche Bank AG, ING Bank N.V., J.P. Morgan Securities plc and any other Dealer appointed from time to time by the Issuer either generally in respect of the Programme or in relation to a particular Tranche of Notes.
Fiscal Agent: ...... HSBC Bank plc
Registrar: ...... HSBC Bank plc
Paying Agents and HSBC Bank plc Transfer Agents: ......
Pricing Supplement or Notes issued under the Programme may be issued either (1) pursuant to Drawdown Offering this Offering Circular and relevant Pricing Supplement or (2) pursuant to Circular: ...... a Drawdown Offering Circular. The terms and conditions applicable to any particular Tranche of Notes will be the Terms and Conditions of the Notes as completed to the extent described in the relevant Pricing Supplement or, as the case may be, as supplemented, amended and/or replaced to the extent described in the relevant Drawdown Offering Circular.
Listing and Trading: ...... Application has been made to the Luxembourg Stock Exchange for Notes to be admitted to trading on the Luxembourg Stock Exchange's Euro MTF Market and to be listed on the Official List of the Luxembourg Stock Exchange. Application may be made to trade and list Notes on such other stock exchange as may be agreed between the Issuer and the relevant Dealer or Notes may be unlisted, as specified in the relevant Pricing Supplement.
Clearing Systems: ...... Euroclear Bank SA/NV ("Euroclear") and/or Clearstream Banking, S.A. ("Clearstream, Luxembourg") and, in relation to any Tranche, such other clearing system as may be agreed between the Issuer, the Issuing and Paying Agent and the relevant Dealer(s).
- 28 -
Method of Issue: ...... The Notes will be issued in Series. Each Series of Notes may be issued in one or more Tranches on the same or different issue dates. The specific terms of each Tranche (which will be completed, where necessary, with the relevant terms and conditions and, save in respect of the issue date, issue price, first payment of interest and principal amount of the Tranche, will be identical to the terms of other Tranches of the same Series) will be completed in the Pricing Supplement.
Forms of Notes:...... Notes may be issued in bearer form or in registered form.
Each Tranche of Bearer Notes will initially be in the form of either a Temporary Global Note or a Permanent Global Note, in each case as specified in the relevant Pricing Supplement. Each Global Note which is not intended to be issued in a new global note form (a "Classic Global Note"), as specified in the relevant Pricing Supplement, will be deposited on or around the relevant issue date with a depositary or a common depositary for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system and each Global Note which is intended to be issued in new global note form (a "New Global Note"), as specified in the relevant Pricing Supplement, will be deposited on or around the relevant issue date with a common safekeeper for Euroclear and/or Clearstream, Luxembourg. Each Temporary Global Note will be exchangeable for a Permanent Global Note or, if so specified in the relevant Pricing Supplement, for Definitive Notes. If the TEFRA D Rules are specified in the relevant Pricing Supplement as applicable, certification as to non-U.S. beneficial ownership will be a condition precedent to any exchange of an interest in a Temporary Global Note or receipt of any payment of interest in respect of a Temporary Global Note. Each Permanent Global Note will be exchangeable for Definitive Notes in accordance with its terms. Definitive Notes will, if interest-bearing, have Coupons attached.
Each Tranche of Notes represented by a Global Registered Note will either be: (a) in the case of a Note which is not to be held under the new safekeeping structure ("New Safekeeping Structure" or "NSS"), registered in the name of a common depositary (or its nominee) for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system and the relevant Global Registered Note will be deposited on or about the issue date with the common depositary; or (b) in the case of a Note to be held under the New Safekeeping Structure, be registered in the name of a common safekeeper (or its nominee) for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system and the relevant Global Registered Note will be deposited on or about the issue date with the common safekeeper for Euroclear and/or Clearstream, Luxembourg.
Currencies: ...... Subject to compliance with all relevant laws, regulations and directives, Notes may be issued in any currency agreed between the Issuer and the relevant Dealer(s).
Status: ...... The Notes will constitute direct, unconditional, unsubordinated and (subject to Condition 5 (Negative Pledge)) unsecured obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.
- 29 -
Guarantee: ...... The due and punctual payment of all sums from time to time payable by the Issuer in respect of the Notes will be guaranteed by the Guarantor as set out in a deed of guarantee dated 9 November 2017 (the "Deed of Guarantee").
Issue Price: ...... Notes may be issued at any price on a fully paid basis, as specified in the relevant Pricing Supplement. The price and amount of Notes to be issued under the Programme will be determined by the Issuer and the relevant Dealer(s) at the time of issue in accordance with prevailing market conditions.
Maturities: ...... Any maturity, subject, in relation to specific currencies, to compliance with all applicable legal and/or regulatory and/or central bank requirements.
Where Notes have a maturity of less than one year and either (a) the issue proceeds are received by the Issuer in the UK or (b) the activity of issuing the Notes is carried on from an establishment maintained by the Issuer in the UK, such Notes must: (i) have a minimum redemption value of £100,000 (or its equivalent in other currencies) and be issued only to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses; or (ii) be issued in other circumstances which do not constitute a contravention of section 19 of the FSMA by the Issuer.
Redemption: ...... Notes may be redeemable at par or such other Redemption Amount as may be specified in the relevant Pricing Supplement.
Optional Redemption: ...... The Pricing Supplement issued in respect of each issue of Notes will state whether such Notes may be redeemed prior to their stated maturity at the option of the Issuer (either in whole or in part) and/or the Noteholders, and if so the terms applicable to such redemption.
Following the occurrence of a Change of Control, the Noteholders will be entitled to request the Issuer to redeem or, at the Issuer's option, procure the purchase of their Notes, as more fully set out in Condition 9(f) (Redemption and Purchase – Change of Control Put Option).
If specified in the relevant Pricing Supplement, the Issuer will have the option to redeem the Notes, in whole or in part, at any time or from time to time, prior to their Maturity Date, at the Make-Whole Redemption Amount. See Condition 9(c) (Redemption and Purchase – Redemption at the option of the Issuer).
Tax Redemption: ...... Except as described in "Optional Redemption (including Make-Whole Redemption)" above, early redemption will only be permitted for tax reasons as described in Condition 9(b) (Redemption and Purchase— Redemption for tax reasons).
Interest: ...... Notes may be interest-bearing or non-interest bearing. Interest (if any) may accrue at a fixed rate or a floating rate and the method of calculating interest may vary between the issue date and the maturity date of the relevant Series of Notes. The terms and conditions also provide for additional fallbacks in the event that one or more benchmark rates used to determine the interest payable on the Notes is discontinued.
Denominations: ...... Notes will be in such denominations as may be specified in the relevant Pricing Supplement save that in the case of any Notes which are to be
- 30 -
offered to the public in the EEA Member State or the UK in circumstances which would otherwise require the publication of a prospectus under the Prospectus Regulation or the UK Prospectus Regulation, the minimum specified denomination shall be €100,000 (or its equivalent in any other currency as at the date of issue of the Notes). Subject thereto, Notes will be issued in such denominations as may be specified in the relevant Pricing Supplement, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements.
Negative Pledge: ...... The Notes will have the benefit of a negative pledge as described in Condition 5 (Negative Pledge).
Cross Default: ...... The Notes will have the benefit of a cross default provision, as described in Condition 13(c) (Cross-default of the Issuer, Guarantor or Material Subsidiary).
Taxation: ...... All payments of principal and interest in respect of Notes and the Coupons by or on behalf of the Issuer or the Guarantor shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Kingdom of Sweden or any political subdivision therein or authority therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments or governmental charges is required by law. In that event, the Issuer (or as the case may be) the Guarantor shall (subject as provided in Condition 12 (Taxation)) pay such additional amounts as will result in the receipt by the Noteholders and the Couponholders after such withholding or deduction of such amounts as would have been received by them had no such withholding or deduction been required, all as described in "Terms and Conditions of the Notes – Taxation".
Rating: ...... Notes issued under the Programme may be rated or unrated. Where an issue of Notes is rated, its rating will be specified in the applicable Pricing Supplement or Drawdown Offering Circular. A rating is not a recommendation to buy, sell or hold securities and may be subject to supervision, change or withdrawal at any time from the assigning rating agency.
Governing Law: ...... English law
Selling Restrictions: ...... For a description of certain restrictions on offers, sales and deliveries of Notes and on the distribution of offering material in the United States of America, the EEA (including Belgium and the Kingdom of Sweden), the UK, Japan and Singapore see "Subscription and Sale" below.
- 31 -
PRICING SUPPLEMENTS AND DRAWDOWN OFFERING CIRCULARS
In this section the expression "necessary information" means, in relation to any Tranche of Notes, the information necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer and the Guarantor and of the rights attaching to the Notes and the reasons for the issuance and its impact on the Issuer. In relation to the different types of Notes which may be issued under the Programme the Issuer and the Guarantor have included in this Offering Circular all of the necessary information except for information relating to the Notes which is not known at the date of this Offering Circular and which can only be determined at the time of an individual issue of a Tranche of Notes.
Any information relating to the Notes which is not included in this Offering Circular and which is required in order to complete the necessary information in relation to a Tranche of Notes will be contained either in the relevant Pricing Supplement or in a Drawdown Offering Circular.
For a Tranche of Notes which is the subject of the Pricing Supplement, the Pricing Supplement will, for the purposes of that Tranche only, complete this Offering Circular and must be read in conjunction with this Offering Circular. The terms and conditions applicable to any particular Tranche of Notes which is the subject of the Pricing Supplement are the Conditions described in the relevant Pricing Supplement as supplemented to the extent described in the relevant Pricing Supplement.
The terms and conditions applicable to any particular Tranche of Notes which is the subject of an Offering Circular will be the Conditions as supplemented, amended and/or replaced to the extent described in the relevant Offering Circular. In the case of a Tranche of Notes which is the subject of an Offering Circular, each reference in this Offering Circular to information being specified or identified in the relevant Pricing Supplement shall be read and construed as a reference to such information being specified or identified in the relevant Offering Circular unless the context requires otherwise.
Each Offering Circular will be constituted either (1) by a single document containing the necessary information relating to the Issuer and the Guarantor and the relevant Notes or (2) by a registration document containing the necessary information relating to the Issuer and the Guarantor, a securities note containing the necessary information relating to the relevant Notes and, if necessary, a summary note.
- 32 -
FORMS OF THE NOTES
Bearer Notes
Each Tranche of Notes in bearer form ("Bearer Notes") will initially be in the form of either a temporary global note in bearer form (the "Temporary Global Note"), without interest coupons, or a permanent global note in bearer form (the "Permanent Global Note"), without interest coupons, in each case as specified in the relevant Pricing Supplement. Each Temporary Global Note or, as the case may be, Permanent Global Note (each a "Global Note") which is not intended to be issued in new global note ("NGN") form (each, a "CGN"), as specified in the relevant Pricing Supplement, will be deposited on or around the issue date of the relevant Tranche of the Notes with a depositary or a common depositary for Euroclear Bank SA/NV as operator of the Euroclear System ("Euroclear") and/or Clearstream Banking, S.A., Luxembourg ("Clearstream, Luxembourg") and/or any other relevant clearing system and each Global Note which is intended to be issued in NGN form, as specified in the relevant Pricing Supplement, will be deposited on or around the issue date of the relevant Tranche of the Notes with a common safekeeper for Euroclear and/or Clearstream, Luxembourg.
On 13 June 2006 the European Central Bank (the "ECB") announced that Notes in NGN form are in compliance with the "Standards for the use of E.U. securities settlement systems in ESCB credit operations" of the central banking system for the euro (the "Eurosystem"), provided that certain other criteria are fulfilled. At the same time the ECB also announced that arrangements for Notes in NGN form will be offered by Euroclear and Clearstream, Luxembourg as of 30 June 2006 and that debt securities in global bearer form issued through Euroclear and Clearstream, Luxembourg after 31 December 2006 will only be eligible as collateral for Eurosystem operations if the NGN form is used.
Whether or not the Notes are intended to be held in a manner which would allow Eurosystem eligibility will be set out in the relevant Pricing Supplement. Note that the designation "Yes" in the relevant Pricing Supplement means that the Notes are intended upon issue to be deposited with one of the international central securities depositories ("ICSDs") as common safekeeper and does not necessarily mean that the Notes will be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon satisfaction of the Eurosystem eligibility criteria. Where the designation is specified as "No" in the relevant Pricing Supplement, should the Eurosystem eligibility criteria be amended in the future such that the Notes are capable of meeting them, the Notes may then be deposited with one of the ICSDs as common safekeeper. Note that this does not necessarily mean that the Notes will then be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem at any time during their life. Such recognition will depend upon the ECB being satisfied that Eurosystem eligibility criteria have been met.
In the case of each Tranche of Bearer Notes, the relevant Pricing Supplement will also specify whether United States Treasury Regulation §1.163-5(c)(2)(i)(C) (the "TEFRA C Rules") or United States Treasury Regulation §1.163 5(c)(2)(i)(D) (the "TEFRA D Rules") are applicable in relation to the Notes or, if the Notes do not have a maturity of more than 365 days, that neither the TEFRA C Rules nor the TEFRA D Rules are applicable.
Temporary Global Note exchangeable for Permanent Global Note
If the relevant Pricing Supplement specifies the form of Notes as being "Temporary Global Note exchangeable for a Permanent Global Note", then the Notes will initially be in the form of a Temporary Global Note which will be exchangeable, in whole or in part, for interests in a Permanent Global Note, without interest coupons, not earlier than 40 days after the issue date of the relevant Tranche of the Notes upon certification as to non-U.S. beneficial ownership. No payments will be made under the Temporary Global Note unless exchange for interests in the Permanent Global Note is improperly withheld or refused. In addition, interest payments in respect of the Notes cannot be collected without such certification of non- U.S. beneficial ownership.
Whenever any interest in the Temporary Global Note is to be exchanged for an interest in a Permanent Global Note, the Issuer shall procure (in the case of first exchange) the delivery of a Permanent Global Note to the bearer of the Temporary Global Note or (in the case of any subsequent exchange) an increase in the principal amount of the Permanent Global Note in accordance with its terms against:
- 33 -
(i) presentation and (in the case of final exchange) presentation and surrender of the Temporary Global Note to or to the order of the Fiscal Agent; and
(ii) receipt by the Fiscal Agent of a certificate or certificates of non-U.S. beneficial ownership.
The principal amount of Notes represented by the Permanent Global Note shall be equal to the aggregate of the principal amounts specified in the certificates of non-U.S. beneficial ownership provided, however, that in no circumstances shall the principal amount of Notes represented by the Permanent Global Note exceed the initial principal amount of Notes represented by the Temporary Global Note.
If:
(a) the Permanent Global Note has not been delivered or the principal amount thereof increased by 5.00 p.m. (London time) on the seventh day after the bearer of the Temporary Global Note has requested exchange of an interest in the Temporary Global Note for an interest in a Permanent Global Note; or
(b) the Temporary Global Note (or any part thereof) has become due and payable in accordance with the Terms and Conditions of the Notes or the date for final redemption of the Temporary Global Note has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the bearer of the Temporary Global Note in accordance with the terms of the Temporary Global Note on the due date for payment, then the Temporary Global Note (including the obligation to deliver a Permanent Global Note) will become void at 5.00 p.m. (London time) on such seventh day (in the case of (a) above) or at 5.00 p.m. (London time) on such due date (in the case of (b) above) and the bearer of the Temporary Global Note will have no further rights thereunder (but without prejudice to the rights which the bearer of the Temporary Global Note or others may have under the Deed of Covenant).
The Permanent Global Note will become exchangeable, in whole but not in part only and at the request of the bearer of the Permanent Global Note, for Bearer Notes in definitive form ("Definitive Notes"):
(a) on the expiry of such period of notice as may be specified in the Pricing Supplement; or
(b) at any time, if so specified in the Pricing Supplement; or
(c) if the Pricing Supplement specifies "in the limited circumstances described in the Permanent Global Note", then if either of the following events occurs:
(i) Euroclear or Clearstream, Luxembourg or any other relevant clearing system is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business; or
(ii) any of the circumstances described in Condition 13 (Events of Default) occurs.
Whenever the Permanent Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons and Talons attached (if so specified in the Pricing Supplement), in an aggregate principal amount equal to the principal amount of Notes represented by the Permanent Global Note to the bearer of the Permanent Global Note against the surrender of the Permanent Global Note to or to the order of the Fiscal Agent within 30 days of the bearer requesting such exchange.
If:
(a) Definitive Notes have not been duly delivered by 5.00 p.m. (London time) on the thirtieth day after the bearer has requested exchange of the Permanent Global Note for Definitive Notes; or
(b) the Permanent Global Note was originally issued in exchange for part only of a Temporary Global Note representing the Notes and such Temporary Global Note becomes void in accordance with its terms; or
- 34 -
(c) the Permanent Global Note (or any part thereof) has become due and payable in accordance with the Terms and Conditions of the Notes or the date for final redemption of the Permanent Global Note has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the bearer in accordance with the terms of the Permanent Global Note on the due date for payment, then the Permanent Global Note (including the obligation to deliver Definitive Notes) will become void at 5.00 p.m. (London time) on such thirtieth day (in the case of (a) above) or at 5.00 p.m. (London time) on the date on which such Temporary Global Note becomes void (in the case of (b) above) or at 5.00 p.m. (London time) on such due date ((c) above) and the bearer of the Permanent Global Note will have no further rights thereunder (but without prejudice to the rights which the bearer of the Permanent Global Note or others may have under the Deed of Covenant).
Temporary Global Note exchangeable for Definitive Notes
If the relevant Pricing Supplement specifies the form of Notes as being "Temporary Global Note exchangeable for Definitive Notes" and also specifies that the TEFRA C Rules are applicable or that neither the TEFRA C Rules or the TEFRA D Rules are applicable, then the Notes will initially be in the form of a Temporary Global Note which will be exchangeable, in whole but not in part, for Definitive Notes not earlier than 40 days after the issue date of the relevant Tranche of the Notes.
If the relevant Pricing Supplement specifies the form of Notes as being "Temporary Global Note exchangeable for Definitive Notes" and also specifies that the TEFRA D Rules are applicable, then the Notes will initially be in the form of a Temporary Global Note which will be exchangeable, in whole or in part, for Definitive Notes not earlier than 40 days after the issue date of the relevant Tranche of the Notes upon certification as to non-U.S. beneficial ownership. Interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership.
Whenever the Temporary Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons and Talons attached (if so specified in the relevant Pricing Supplement), in an aggregate principal amount equal to the principal amount of the Temporary Global Note to the bearer of the Temporary Global Note against the surrender of the Temporary Global Note to or to the order of the Fiscal Agent within 30 days of the bearer requesting such exchange.
If:
(a) Definitive Notes have not been duly delivered by 5.00 p.m. (London time) on the thirtieth day after the bearer has requested exchange of the Temporary Global Note for Definitive Notes; or
(b) the Temporary Global Note (or any part thereof) has become due and payable in accordance with the Terms and Conditions of the Notes or the date for final redemption of the Temporary Global Note has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the bearer in accordance with the terms of the Temporary Global Note on the due date for payment, then the Temporary Global Note (including the obligation to deliver Definitive Notes) will become void at 5.00 p.m. (London time) on such thirtieth day (in the case of (a) above) or at 5.00 p.m. (London time) on such due date (in the case of (b) above) and the bearer of the Temporary Global Note will have no further rights thereunder (but without prejudice to the rights which the bearer of the Temporary Global Note or others may have under the Deed of Covenant).
Permanent Global Note exchangeable for Definitive Notes
If the relevant Pricing Supplement specifies the form of Notes as being "Permanent Global Note exchangeable for Definitive Notes", then the Notes will initially be in the form of a Permanent Global Note which will be exchangeable in whole, but not in part, for Definitive Notes:
(a) on the expiry of such period of notice as may be specified in the relevant Pricing Supplement; or
(b) at any time, if so specified in the relevant Pricing Supplement; or
- 35 -
(c) if the relevant Pricing Supplement specifies "in the limited circumstances described in the Permanent Global Note", then if either of the following events occurs:
(i) Euroclear or Clearstream, Luxembourg or any other relevant clearing system is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business; or
(ii) any of the circumstances described in Condition 13 (Events of Default) occurs.
Whenever the Permanent Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons and Talons attached (if so specified in the Pricing Supplement), in an aggregate principal amount equal to the principal amount of Notes represented by the Permanent Global Note to the bearer of the Permanent Global Note against the surrender of the Permanent Global Note to or to the order of the Fiscal Agent within 30 days of the bearer requesting such exchange.
If:
(a) Definitive Notes have not been duly delivered by 5.00 p.m. (London time) on the thirtieth day after the bearer has requested exchange of the Permanent Global Note for Definitive Notes; or
(b) the Permanent Global Note (or any part thereof) has become due and payable in accordance with the Terms and Conditions of the Notes or the date for final redemption of the Permanent Global Note has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the bearer in accordance with the terms of the Permanent Global Note on the due date for payment, then the Permanent Global Note (including the obligation to deliver Definitive Notes) will become void at 5.00 p.m. (London time) on such thirtieth day (in the case of (a) above) or at 5.00 p.m. (London time) on such due date ((b) above) and the bearer of the Permanent Global Note will have no further rights thereunder (but without prejudice to the rights which the bearer of the Permanent Global Note or others may have under the Deed of Covenant).
Rights under Deed of Covenant
Under the Deed of Covenant, persons shown in the records of Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system as being entitled to an interest in a Temporary Global Note or a Permanent Global Note which becomes void will acquire directly against the Issuer all those rights to which they would have been entitled if, immediately before the Temporary Global Note or Permanent Global Note became void, they had been the holders of Definitive Notes in an aggregate principal amount equal to the principal amount of Notes they were shown as holding in the records of Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system.
Terms and Conditions applicable to the Notes
The terms and conditions applicable to any Definitive Note will be endorsed on that Note and will consist of the terms and conditions set out under "Terms and Conditions of the Notes" below and the provisions of the relevant Pricing Supplement which supplement, amend and/or replace those terms and conditions.
The terms and conditions applicable to any Note in global form will differ from those terms and conditions which would apply to the Note were it in definitive form to the extent described under "Overview of Provisions Relating to the Notes while in Global Form" below.
Legend Concerning United States Persons
In the case of any Tranche of Bearer Notes having a maturity of more than 365 days, the Notes in global form, the Notes in definitive form and any Coupons and Talons appertaining thereto will bear a legend to the following effect:
"Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code."
- 36 -
Registered Notes
Each Tranche of Notes in registered form ("Registered Notes") will be represented by either individual Note Certificates in registered form ("Individual Note Certificates") or a global Note in registered form (a "Global Registered Note"), in each case as specified in the relevant Pricing Supplement.
In a press release dated 22 October 2008, "Evolution of the custody arrangement for international debt securities and their eligibility in Eurosystem credit operations", the ECB announced that it has assessed the new holding structure and custody arrangements for registered notes which the ICSDs had designed in cooperation with market participants and that Notes to be held under the new structure (the "New Safekeeping Structure" or "NSS") would be in compliance with the "Standards for the use of E.U. securities settlement systems in ESCB credit operations" of the central banking system for the euro (the "Eurosystem"), subject to the conclusion of the necessary legal and contractual arrangements. The press release also stated that the new arrangements for Notes to be held in NSS form will be offered by Euroclear and Clearstream, Luxembourg as of 30 June 2010 and that registered debt securities in global registered form issued through Euroclear and Clearstream, Luxembourg after 30 September 2010 will only be eligible as collateral in Eurosystem operations if the New Safekeeping Structure is used.
Each Note represented by a Global Registered Note will either be: (a) in the case of a Note which is not to be held under the NSS, registered in the name of a common depositary (or its nominee) for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system and the relevant Global Registered Note will be deposited on or about the issue date with the common depositary; or (b) in the case of a Note to be held under the New Safekeeping Structure, be registered in the name of a common safekeeper (or its nominee) for Euroclear and/or Clearstream, Luxembourg and the relevant Global Registered Note will be deposited on or about the issue date with the common safekeeper for Euroclear and/or Clearstream, Luxembourg.
Whether or not the Notes are intended to be held in a manner which would allow Eurosystem eligibility will be set out in the relevant Pricing Supplement. Note that the designation "Yes" in the relevant Pricing Supplement means that the Notes are intended upon issue to be deposited with one of the ICSDs as common safekeeper and registered in the name of a nominee of one of the ICSDs acting as common safekeeper, and does not necessarily mean that the Notes will be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon satisfaction of the Eurosystem eligibility criteria. Where the designation is specified as "No" in the relevant Pricing Supplement, should the Eurosystem eligibility criteria be amended in the future such that the Notes are capable of meeting them, the Notes may then be deposited with one of the ICSDs as common safekeeper and registered in the name of a nominee of one of the ICSDs acting as common safekeeper. Note that this does not necessarily mean that the Notes will then be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem at any time during their life. Such recognition will depend upon the ECB being satisfied that Eurosystem eligibility criteria have been met.
If the relevant Pricing Supplement specifies the form of Notes as being "Individual Note Certificates", then the Notes will at all times be represented by Individual Note Certificates issued to each Noteholder in respect of their respective holdings.
Global Registered Note Exchangeable for Individual Note Certificates
If the relevant Pricing Supplement specifies the form of Notes as being "Global Registered Note exchangeable for Individual Note Certificates", then the Notes will initially be represented by one or more Global Registered Notes each of which will be exchangeable in whole, but not in part, for Individual Note Certificates:
(i) on the expiry of such period of notice as may be specified in the relevant Pricing Supplement; or
(ii) at any time, if so specified in the relevant Pricing Supplement; or
- 37 -
(iii) if the relevant Pricing Supplement specifies "in the limited circumstances described in the Global Registered Note", then:
(a) if Euroclear, Clearstream, Luxembourg or any other relevant clearing system is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business; and
(b) in any case, if any of the circumstances described in Condition 13 (Events of Default) occurs.
Whenever a Global Registered Note is to be exchanged for Individual Note Certificates, the Issuer shall procure that Individual Note Certificates will be issued in an aggregate principal amount equal to the principal amount of the Global Registered Note within five business days of the delivery, by or on behalf of the registered holder of the Global Registered Note to the Registrar of such information as is required to complete and deliver such Individual Note Certificates against the surrender of the Global Registered Note at the specified office of the Registrar.
Such exchange will be effected in accordance with the provisions of the Agency Agreement and the regulations concerning the transfer and registration of Notes scheduled to the Agency Agreement and, in particular, shall be effected without charge to any holder, but against such indemnity as the Registrar may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such exchange.
Terms and Conditions applicable to the Notes
The terms and conditions applicable to any Individual Note Certificate will be endorsed on that Individual Note Certificate and will consist of the terms and conditions set out under "Terms and Conditions of the Notes" below and the provisions of the relevant Pricing Supplement which complete those terms and conditions.
The terms and conditions applicable to any Global Registered Note will differ from those terms and conditions which would apply to the Note were it in definitive form to the extent described under "Overview of Provisions Relating to the Notes while in Global Form" below.
- 38 -
OVERVIEW OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM
Clearing System Accountholders
In relation to any Tranche of Notes represented by a Global Note in bearer form, references in the Terms and Conditions of the Notes to "Noteholder" are references to the bearer of the relevant Global Note which, for so long as the Global Note is held by a depositary or a common depositary, in the case of a CGN, or a common safekeeper, in the case of an NGN for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system, will be that depositary or common depositary or, as the case may be, common safekeeper.
In relation to any Tranche of Notes represented by one or more Global Registered Notes, references in the Terms and Conditions of the Notes to "Noteholder" are references to the person in whose name the relevant Global Registered Note is for the time being registered in the Register which for so long as the Global Registered Note is held by or on behalf of a depositary or a common depositary or a common safekeeper for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system, will be that depositary or common depositary or common safekeeper or a nominee for that depositary or common depositary or common safekeeper.
Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg and/or any other relevant clearing system as being entitled to an interest in a Global Note or a Global Registered Note (each an "Accountholder") must look solely to Euroclear, Clearstream, Luxembourg and/or such other relevant clearing system (as the case may be) for such Accountholder's share of each payment made by the Issuer or the Guarantor, as applicable, to the holder of such Global Note or Global Registered Note and in relation to all other rights arising under such Global Note or Global Registered Note. The extent to which, and the manner in which, Accountholders may exercise any rights arising under a Global Note or Global Registered Note will be determined by the respective rules and procedures of Euroclear and Clearstream, Luxembourg and any other relevant clearing system from time to time. For so long as the relevant Notes are represented by a Global Note or Global Registered Note, Accountholders shall have no claim directly against the Issuer or the Guarantor, as applicable, in respect of payments due under the Notes and such obligations of the Issuer and the Guarantor will be discharged by payment to the holder of such Global Note or Global Registered Note.
Transfers of Interests in Global Notes and Global Registered Notes
Transfers of interests in Global Notes and Global Registered Notes within Euroclear and Clearstream, Luxembourg or any other relevant clearing system will be in accordance with their respective rules and operating procedures. None of the Issuer, the Guarantor, the Registrar, the Dealers or the Agents will have any responsibility or liability for any aspect of the records of any Euroclear and Clearstream, Luxembourg or any other relevant clearing system or any of their respective participants relating to payments made on account of beneficial ownership interests in a Global Note or Global Registered Note or for maintaining, supervising or reviewing any of the records of Euroclear and Clearstream, Luxembourg or any other relevant clearing system or the records of their respective participants relating to such beneficial ownership interests.
For a further description of restrictions on the transfer of Notes, see "Subscription and Sale".
Conditions Applicable to Global Notes
Each Global Note and Global Registered Note will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Global Note or Global Registered Note. The following is a summary of certain of those provisions:
Payments: All payments in respect of the Global Note or Global Registered Note which, according to the Terms and Conditions of the Notes, require presentation and/or surrender of a Note, Note Certificate or Coupon will be made against presentation and (in the case of payment of principal in full with all interest accrued thereon) surrender of the Global Note or Global Registered Note to or to the order of any Paying Agent and will be effective to satisfy and discharge the corresponding liabilities of the Issuer and the Guarantor in respect of the Notes. On each occasion on which a payment of principal or interest is made in respect of the Global Note, the Issuer shall procure that in respect of a CGN the payment is noted in a
- 39 -
schedule thereto and in respect of an NGN the payment is entered pro rata in the records of Euroclear and Clearstream, Luxembourg.
Payment Business Day: in the case of a Global Note or a Global Registered Note, shall be: if the currency of payment is euro, any day which is a TARGET Settlement Day and a day on which dealings in foreign currencies may be carried on in each (if any) Additional Financial Centre; or, if the currency of payment is not euro, any day which is a day on which dealings in foreign currencies may be carried on in the Principal Financial Centre of the currency of payment and in each (if any) Additional Financial Centre.
Payment Record Date: Each payment in respect of a Global Registered Note will be made to the person shown as the Noteholder in the Register at the close of business (in the relevant clearing system) on the Clearing System Business Day before the due date for such payment (the "Record Date") where "Clearing System Business Day" means a day on which each clearing system for which the Global Registered Note is being held is open for business.
Exercise of put option: In order to exercise the option contained in Condition 9(e) (Redemption at the option of Noteholders) the bearer of a Permanent Global Note or the holder of a Global Registered Note must, within the period specified in the Conditions for the deposit of the relevant Note and put notice, give written notice of such exercise to the Principal Paying Agent specifying the principal amount of Notes in respect of which such option is being exercised. Any such notice will be irrevocable and may not be withdrawn.
Partial exercise of call option: In connection with an exercise of the option contained in Condition 9(c) (Redemption at the option of the Issuer) in relation to some only of the Notes, the Permanent Global Note or Global Registered Note may be redeemed in part in the principal amount specified by the Issuer in accordance with the Conditions and the Notes to be redeemed will not be selected as provided in the Conditions but in accordance with the rules and procedures of Euroclear and/or Clearstream, Luxembourg (to be reflected in the records of Euroclear and/or Clearstream, Luxembourg as either a pool factor or a reduction in principal amount, at their discretion).
Notices: Notwithstanding Condition 19 (Notices), while all the Notes are represented by a Permanent Global Note (or by a Permanent Global Note and/or a Temporary Global Note) or a Global Registered Note and the Permanent Global Note is (or the Permanent Global Note and/or the Temporary Global Note are), or the Global Registered Note is, deposited with a depositary or a common depositary for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system or a common safekeeper, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system and, in any case, such notices shall be deemed to have been given to the Noteholders in accordance with Condition 19 (Notices) on the date of delivery to Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system except that so long as the Notes are listed on the Luxembourg Stock Exchange's Euro MTF Market and the rules of that exchange so require, notices shall also be published either on the website of the Luxembourg Stock Exchange (www.bourse.lu) or in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort). Whilst any of the Notes held by a Noteholder are represented by a Global Note, notices to be given by such Noteholder may be given by such Noteholder to the Fiscal Agent or Registrar (as applicable) through Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system, and otherwise in such manner as the Fiscal Agent or the Registrar, as the case may be, and/or Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system, as the case may be, may approve for this purpose.
- 40 -
TERMS AND CONDITIONS OF THE NOTES
The following is the text of the terms and conditions which, as completed by the relevant Pricing Supplement, will be endorsed on each Note in definitive form issued under the Programme. The terms and conditions applicable to any Note in global form will differ from those terms and conditions which would apply to the Note were it in definitive form to the extent described under "Overview of Provisions Relating to the Notes while in Global Form" above.
1. INTRODUCTION
(a) Programme: Volvo Car AB (publ) (the "Issuer") has established a Euro Medium Term Note Programme (the "Programme") for the issuance of up to EUR3,000,000,000 (or the equivalent in other currencies at the date of issue) in aggregate principal amount of EUR notes (the "Notes") guaranteed by Volvo Car Corporation, the ("Guarantor").
(b) Pricing Supplement: Notes issued under the Programme are issued in series (each a "Series") and each Series may comprise one or more tranches (each a "Tranche") of Notes. Each Tranche is the subject of a pricing supplement (the "Pricing Supplement") which supplements, amends or replaces these terms and conditions (the "Conditions"). The terms and conditions applicable to any particular Tranche of Notes are these Conditions as supplemented, amended and/or replaced by the relevant Pricing Supplement. In the event of any inconsistency between these Conditions and the relevant Pricing Supplement, the relevant Pricing Supplement shall prevail.
(c) Agency Agreement: The Notes are the subject of an issue and paying agency agreement dated 27 May 2021 (the "Agency Agreement") between the Issuer, the Guarantor, HSBC Bank plc as fiscal agent (the "Fiscal Agent", which expression includes any successor fiscal agent appointed from time to time in connection with the Notes), HSBC Bank plc as registrar (the "Registrar", which expression includes any successor registrar appointed from time to time in connection with the Notes), the paying agents named therein (together with the Fiscal Agent, the "Paying Agents", which expression includes any successor or additional paying agents appointed from time to time in connection with the Notes) and the transfer agents named therein (together with the Registrar, the "Transfer Agents", which expression includes any successor or additional transfer agents appointed from time to time in connection with the Notes). In these Conditions references to the "Agents" are to the Paying Agents and the Transfer Agents and any reference to an "Agent" is to any one of them.
(d) Deed of Guarantee: The Notes are the subject of a deed of guarantee dated 9 November 2017 (the "Deed of Guarantee") entered into by the Guarantor.
(e) Deed of Covenant: The Notes may be issued in bearer form ("Bearer Notes"), or in registered form ("Registered Notes"). Registered Notes are constituted by a deed of covenant dated 9 November 2017 (the "Deed of Covenant") entered into by the Issuer.
(f) The Notes: All subsequent references in these Conditions to "Notes" are to the Notes which are the subject of the relevant Pricing Supplement. Copies of the relevant Pricing Supplement are available for viewing, and copies may be obtained from, the registered office of the Issuer at Avd. 50090 HB3S, 405 31 Göteborg, Sweden.
(g) Summaries: Certain provisions of these Conditions are summaries of the Agency Agreement, the Deed of Guarantee and the Deed of Covenant and are subject to their detailed provisions. Noteholders and the holders of the related interest coupons, if any, (the "Couponholders" and the "Coupons", respectively) are bound by, and are deemed to have notice of, all the provisions of the Agency Agreement, the Deed of Guarantee and the Deed of Covenant applicable to them. Copies of the Agency Agreement, the Deed of Guarantee and the Deed of Covenant are available for inspection by Noteholders during normal business hours at the Specified Offices of each of the Agents, the initial Specified Offices of which are set out below.
- 41 -
2. INTERPRETATION
(a) Definitions: In these Conditions the following expressions have the following meanings:
"Accrual Yield" has the meaning given in the relevant Pricing Supplement;
"Additional Business Centre(s)" means the city or cities specified as such in the relevant Pricing Supplement;
"Additional Financial Centre(s)" means the city or cities specified as such in the relevant Pricing Supplement;
"Benchmark Security" has the meaning given it in Condition 9(c) (Redemption at the option of the Issuer);
"Business Day" means:
(a) in relation to any sum payable in euro, a TARGET Settlement Day and a day on which commercial banks and foreign exchange markets settle payments generally in each (if any) Additional Business Centre; and
(b) in relation to any sum payable in a currency other than euro, a day on which commercial banks and foreign exchange markets settle payments generally in London, in the Principal Financial Centre of the relevant currency and in each (if any) Additional Business Centre;
"Business Day Convention", in relation to any particular date, has the meaning given in the relevant Pricing Supplement and, if so specified in the relevant Pricing Supplement, may have different meanings in relation to different dates and, in this context, the following expressions shall have the following meanings:
(a) "Following Business Day Convention" means that the relevant date shall be postponed to the first following day that is a Business Day;
(b) "Modified Following Business Day Convention" or "Modified Business Day Convention" means that the relevant date shall be postponed to the first following day that is a Business Day unless that day falls in the next calendar month in which case that date will be the first preceding day that is a Business Day;
(c) "Preceding Business Day Convention" means that the relevant date shall be brought forward to the first preceding day that is a Business Day;
(d) "FRN Convention", "Floating Rate Convention" or "Eurodollar Convention" means that each relevant date shall be the date which numerically corresponds to the preceding such date in the calendar month which is the number of months specified in the relevant Pricing Supplement as the Specified Period after the calendar month in which the preceding such date occurred provided, however, that:
(i) if there is no such numerically corresponding day in the calendar month in which any such date should occur, then such date will be the last day which is a Business Day in that calendar month;
(ii) if any such date would otherwise fall on a day which is not a Business Day, then such date will be the first following day which is a Business Day unless that day falls in the next calendar month, in which case it will be the first preceding day which is a Business Day; and
(iii) if the preceding such date occurred on the last day in a calendar month which was a Business Day, then all subsequent such dates will be the last day which is a Business Day in the calendar month which is the specified
- 42 -
number of months after the calendar month in which the preceding such date occurred; and
(e) "No Adjustment" means that the relevant date shall not be adjusted in accordance with any Business Day Convention;
"Calculation Agent" means the Fiscal Agent or such other Person specified in the relevant Pricing Supplement as the party responsible for calculating the Rate(s) of Interest and Interest Amount(s) and/or such other amount(s) as may be specified in the relevant Pricing Supplement;
"Calculation Amount" has the meaning given in the relevant Pricing Supplement;
"Change of Control" has the meaning given to it in Condition 9(f) (Change of Control Put Option);
"Change of Control Period" has the meaning given to it in Condition 9(f) (Change of Control Put Option);
"Change of Control Put Event Notice" has the meaning given to it in Condition 9(f) (Change of Control Put Option);
"Change of Control Put Option Notice" has the meaning given to it in Condition 9(f) (Change of Control Put Option);
"Change of Control Put Period" has the meaning given to it in Condition 9(f) (Change of Control Put Option);
"Coupon Sheet" means, in respect of a Note, a coupon sheet relating to the Note;
"Day Count Fraction" means, in respect of the calculation of an amount for any period of time (the "Calculation Period"), such day count fraction as may be specified in these Conditions or the relevant Pricing Supplement and:
(a) if "Actual/Actual (ICMA)" is so specified, means:
(i) where the Calculation Period is equal to or shorter than the Regular Period during which it falls, the actual number of days in the Calculation Period divided by the product of (1) the actual number of days in such Regular Period and (2) the number of Regular Periods in any year; and
(ii) where the Calculation Period is longer than one Regular Period, the sum of:
(A) the actual number of days in such Calculation Period falling in the Regular Period in which it begins divided by the product of (1) the actual number of days in such Regular Period and (2) the number of Regular Periods in any year; and
(B) the actual number of days in such Calculation Period falling in the next Regular Period divided by the product of (a) the actual number of days in such Regular Period and (2) the number of Regular Periods in any year;
(iii) if "Actual/Actual (ISDA)" is so specified, means the actual number of days in the Calculation Period divided by 365 (or, if any portion of the Calculation Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365);
- 43 -
(iv) if "Actual/365 (Fixed)" is so specified, means the actual number of days in the Calculation Period divided by 365;
(v) if "Actual/360" is so specified, means the actual number of days in the Calculation Period divided by 360;
(vi) if "30/360" is so specified, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows
360 Y Y 30 M M D D Day Count Fraction = 2 1 2 1 2 1 360
where:
"Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls;
"Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;
"M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls;
"M2" is the calendar month, expressed as number, in which the day immediately following the last day included in the Calculation Period falls;
"D1" is the first calendar day, expressed as a number, of the Calculation Period, unless such number would be 31, in which case D1 will be 30; and
"D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless such number would be 31 and D1 is greater than 29, in which case D2 will be 30";
(vii) if "30E/360" or "Eurobond Basis" is so specified, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows:
360 Y Y 30 M M D D Day Count Fraction = 2 1 2 1 2 1 360
where:
"Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls;
"Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;
"M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls;
"M2" is the calendar month, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;
"D1" is the first calendar day, expressed as a number, of the Calculation Period, unless such number would be 31, in which case D1 will be 30; and
- 44 -
"D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless such number would be 31, in which case D2 will be 30; and
if "30E/360 (ISDA)" is so specified, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows:
360 Y Y 30 M M D D Day Count Fraction = 2 1 2 1 2 1 360
where:
"Y1" is the year, expressed as a number, in which the first day of the Calculation Period falls;
"Y2" is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;
"M1" is the calendar month, expressed as a number, in which the first day of the Calculation Period falls;
"M2" is the calendar month, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls;
"D1" is the first calendar day, expressed as a number, of the Calculation Period, unless (i) that day is the last day of February or (ii) such number would be 31, in which case D1 will be 30; and
"D2" is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless (i) that day is the last day of February but not the Maturity Date or (ii) such number would be 31, in which case D2 will be 30,
provided, however, that in each such case the number of days in the Calculation Period is calculated from and including the first day of the Calculation Period to but excluding the last day of the Calculation Period;
"Early Redemption Amount (Tax)" means, in respect of any Note, its principal amount or such other amount as may be specified in the relevant Pricing Supplement;
"Early Termination Amount" means, in respect of any Note, its principal amount or such other amount as may be specified in these Conditions or the relevant Pricing Supplement;
"EBITDA" means income before income tax, financial income, financial expenses, and depreciation and amortisation;
"EURIBOR" means, in respect of any specified currency and any specified period, the interest rate benchmark known as the Euro zone interbank offered rate which is calculated and published by a designated distributor (currently Thomson Reuters) in accordance with the requirements from time to time of the European Money Markets Institute (or any other person which takes over the administration of that rate);
"Extraordinary Resolution" means a resolution passed at a Meeting duly convened and held in accordance with the provisions for meetings of Noteholders scheduled to the Agency Agreement by a majority of not less than three quarters of the votes cast;
"Final Redemption Amount" means, in respect of any Note, its principal amount or such other amount as may be specified in the relevant Pricing Supplement;
- 45 -
"First Interest Payment Date" means the date specified in the relevant Pricing Supplement;
"Fixed Coupon Amount" has the meaning given in the relevant Pricing Supplement;
"Group" means the Issuer and its Subsidiaries taken as a whole;
"Guarantee" means, in relation to any Indebtedness of any Person, any obligation of another Person to pay such Indebtedness including (without limitation):
(a) any obligation to purchase such Indebtedness;
(b) any obligation to lend money, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness;
(c) any indemnity against the consequences of a default in the payment of such Indebtedness; and
(d) any other agreement to be responsible for such Indebtedness;
"Guarantee of the Notes" means the guarantee of the Notes given by the Guarantor in the Deed of Guarantee;
"Holder", in the case of Bearer Notes, has the meaning given in Condition 3(b) (Form, Denomination, Title and Transfer—Title to Bearer Notes) and, in the case of Registered Notes, has the meaning given in Condition 3(d) (Form, Denomination, Title and Transfer—Title to Registered Notes);
"IFRS" means the International Financial Reporting Standards as adopted by the European Union;
"Indebtedness" means any indebtedness of any Person for money borrowed or raised including (without limitation) any indebtedness for or in respect of:
(a) amounts raised by acceptance under any acceptance credit facility;
(b) amounts raised under any note purchase facility;
(c) the amount of any liability in respect of leases or hire purchase contracts which would, in accordance with applicable law and generally accepted accounting principles, be treated as finance or capital leases;
(d) the amount of any liability in respect of any purchase price for assets or services the payment of which is deferred for a period in excess of 90 days; and
(e) amounts raised under any other similar transaction (including, without limitation, any forward sale or purchase agreement) having the commercial effect of a borrowing;
"Interest Amount" means, in relation to a Note and an Interest Period, the amount of interest payable in respect of that Note for that Interest Period;
"Interest Commencement Date" means the Issue Date of the Notes or such other date as may be specified as the Interest Commencement Date in the relevant Pricing Supplement;
"Interest Determination Date" has the meaning given in the relevant Pricing Supplement;
"Interest Payment Date" means the First Interest Payment Date and any other date or dates specified as such in, or determined in accordance with the provisions of, the relevant Pricing Supplement and, if a Business Day Convention is specified in the relevant Pricing Supplement:
- 46 -
(a) as the same may be adjusted in accordance with the relevant Business Day Convention; or
(b) if the Business Day Convention is the FRN Convention, Floating Rate Convention or Eurodollar Convention and an interval of a number of calendar months is specified in the relevant Pricing Supplement as being the Specified Period, each of such dates as may occur in accordance with the FRN Convention, Floating Rate Convention or Eurodollar Convention at such Specified Period of calendar months following the Interest Commencement Date (in the case of the first Interest Payment Date) or the previous Interest Payment Date (in any other case);
"Interest Period" means each period beginning on (and including) the Interest Commencement Date or any Interest Payment Date and ending on (but excluding) the next Interest Payment Date;
"ISDA Definitions" means the 2006 ISDA Definitions (as amended and updated as at the date of issue of the first Tranche of the Notes of the relevant Series (as specified in the relevant Pricing Supplement) as published by the International Swaps and Derivatives Association, Inc.);
"Issue Date" has the meaning given in the relevant Pricing Supplement;
"LIBOR" means, in respect of any specified currency and any specified period, the interest rate benchmark known as the London interbank offered rate which is calculated and published by a designated distributor (currently Thomson Reuters) in accordance with the requirements from time to time of ICE Benchmark Administration Limited (or any other person which takes over the administration of that rate);
"Make Whole Margin" has the meaning given to it in Condition 9(c) (Redemption at the option of the Issuer);
"Make Whole Redemption Amount" has the meaning given to it in Condition 9(c) (Redemption at the option of the Issuer);
"Margin" has the meaning given in the relevant Pricing Supplement;
"Material Subsidiary" means at any relevant time a Subsidiary of the Issuer:
(a) whose total consolidated (or, if applicable, unconsolidated) assets (excluding intercompany loans, intercompany payables, intercompany receivables and intercompany unrealised gains and losses in inventories) represent not less than 5 per cent. of the total consolidated assets of the Issuer, or whose gross consolidated EBITDA (or, if applicable, unconsolidated) represents not less than 5 per cent. of the gross consolidated EBITDA of the Issuer, in each case as determined by reference to the most recent publicly available annual or interim financial statements of the Issuer prepared in accordance with IFRS and the latest financial statements of the Subsidiary determined in accordance with IFRS; or
(b) to which is transferred all or substantially all of the assets and undertakings of a Subsidiary which immediately prior to such transfer is a Material Subsidiary;
"Maturity Date" has the meaning given in the relevant Pricing Supplement;
"Maximum Redemption Amount" has the meaning given in the relevant Pricing Supplement;
"Meeting" means a meeting of Noteholders (whether originally convened or resumed following an adjournment);
"Minimum Redemption Amount" has the meaning given in the relevant Pricing Supplement;
- 47 -
"Noteholder", in the case of Bearer Notes, has the meaning given in Condition 3(b) (Form, Denomination, Title and Transfer—Title to Bearer Notes) and, in the case of Registered Notes, has the meaning given in Condition 3(d) (Form, Denomination, Title and Transfer—Title to Registered Notes);
"Optional Redemption Amount (Call)" means, in respect of any Note, its principal amount, the Make Whole Redemption Amount, or such other amount as may be specified in the relevant Pricing Supplement;
"Optional Redemption Amount (Put)" means, in respect of any Note, its principal amount or such other amount as may be specified in the relevant Pricing Supplement;
"Optional Redemption Date (Call)" has the meaning given in the relevant Pricing Supplement;
"Optional Redemption Date (Put)" has the meaning given in the relevant Pricing Supplement;
"Par Redemption Date" has the meaning given to it in Condition 9(c) (Redemption at the option of the Issuer);
"Participating Member State" means a Member State of the European Union which adopts the euro as its lawful currency in accordance with the Treaty;
"Payment Business Day" means:
(a) if the currency of payment is euro, any day which is:
(i) a day on which banks in the relevant place of presentation are open for presentation and payment of bearer debt securities and for dealings in foreign currencies; and
(ii) in the case of payment by transfer to an account, a TARGET Settlement Day and a day on which dealings in foreign currencies may be carried on in each (if any) Additional Financial Centre; or
(b) if the currency of payment is not euro, any day which is:
(i) a day on which banks in the relevant place of presentation are open for presentation and payment of bearer debt securities and for dealings in foreign currencies; and
(ii) in the case of payment by transfer to an account, a day on which dealings in foreign currencies may be carried on in the Principal Financial Centre of the currency of payment and in each (if any) Additional Financial Centre;
"Permitted Restructuring" means:
(a) any disposal by any Material Subsidiary of all or any part of its business, undertaking or assets, to the Issuer or any other Subsidiary of the Issuer;
(b) any solvent amalgamation, consolidation or merger of a Material Subsidiary with the Issuer or any other Subsidiary of the Issuer; or
(c) any amalgamation, consolidation, restructuring, merger or reorganisation on terms previously approved by an Extraordinary Resolution;
"Permitted Security Interest" means:
(a) a Security Interest created in connection with any asset-backed securities which are issued in order to finance any vehicle leasing or financing arrangements entered into by the Issuer, the Guarantor or any member of the Group; or
- 48 -
(b) any Security Interest created over any asset of any company which becomes a Subsidiary after the Issue Date of the first Tranche of the Notes, where such Security Interest is created prior to the date on which the company becomes a Subsidiary, provided that:
(i) such Security Interest was not created in contemplation of the acquisition of such company; and
(ii) the principal amount secured was not increased in contemplation of or since the acquisition (or proposed acquisition) of that company;
"Person" includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium, partnership or other entity (whether or not having separate legal personality).
"Principal Financial Centre" means, in relation to any currency, the principal financial centre for that currency provided, however, that:
(a) in relation to euro, it means the principal financial centre of such Member State of the European Communities as is selected (in the case of a payment) by the payee or (in the case of a calculation) by the Calculation Agent; and
(b) in relation to New Zealand dollars, it means either Wellington or Auckland as is selected (in the case of a payment) by the payee or (in the case of a calculation) by the Calculation Agent;
"Put Option Notice" means a notice which must be delivered to a Paying Agent by any Noteholder wanting to exercise a right to redeem a Note at the option of the Noteholder;
"Put Option Receipt" means a receipt issued by a Paying Agent to a depositing Noteholder upon deposit of a Note with such Paying Agent by any Noteholder wanting to exercise a right to redeem a Note at the option of the Noteholder;
"Rate of Interest" means the rate or rates (expressed as a percentage per annum) of interest payable in respect of the Notes specified in the relevant Pricing Supplement or calculated or determined in accordance with the provisions of these Conditions and/or the relevant Pricing Supplement;
"Rating Event" has the meaning given to it in Condition 9(f) (Change of Control Put Option);
"Rating Agency" means any of S&P Global Ratings, Moody's Deutschland GmbH or Fitch Ratings Limited and their successors and/or any other rating agency of equivalent standing notified by the Issuer to the Noteholders in accordance with Condition 19 (Notices).
"Redemption Amount" means, as appropriate, the Final Redemption Amount, the Early Redemption Amount (Tax), the Optional Redemption Amount (Call), the Optional Redemption Amount (Put), the Early Termination Amount or such other amount in the nature of a redemption amount as may be specified in the relevant Pricing Supplement;
"Reference Banks" means four major banks selected by the Calculation Agent in the market that is most closely connected with the Reference Rate;
"Reference Price" has the meaning given in the relevant Pricing Supplement;
"Reference Rate" means EURIBOR or LIBOR as specified in the relevant Pricing Supplement in respect of the currency and period specified in the relevant Pricing Supplement;
"Reference Time" has the meaning given to it in Condition 9(c) (Redemption at the option of the Issuer);
- 49 -
"Regular Period" means:
(a) in the case of Notes where interest is scheduled to be paid only by means of regular payments, each period from and including the Interest Commencement Date to but excluding the first Interest Payment Date and each successive period from and including one Interest Payment Date to but excluding the next Interest Payment Date;
(b) in the case of Notes where, apart from the first Interest Period, interest is scheduled to be paid only by means of regular payments, each period from and including a Regular Date falling in any year to but excluding the next Regular Date, where "Regular Date" means the day and month (but not the year) on which any Interest Payment Date falls; and
(c) in the case of Notes where, apart from one Interest Period other than the first Interest Period, interest is scheduled to be paid only by means of regular payments, each period from and including a Regular Date falling in any year to but excluding the next Regular Date, where "Regular Date" means the day and month (but not the year) on which any Interest Payment Date falls other than the Interest Payment Date falling at the end of the irregular Interest Period.
"Relevant Date" means, in relation to any payment, whichever is the later of (a) the date on which the payment in question first becomes due and (b) if the full amount payable has not been received in the Principal Financial Centre of the currency of payment by the Fiscal Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Noteholders;
"Relevant Financial Centre" has the meaning given in the relevant Pricing Supplement;
"Relevant Indebtedness" means any Indebtedness which is in the form of or represented by any bond, note, debenture, debenture stock, loan stock, certificate or other instrument which is, or is intended by the Issuer to be, listed, quoted or traded on any stock exchange or in any securities market (including, without limitation, any over-the-counter market);
"Relevant Screen Page" means the page, section or other part of a particular information service (including, without limitation, Reuters) specified as the Relevant Screen Page in the relevant Pricing Supplement, or such other page, section or other part as may replace it on that information service or such other information service, in each case, as may be nominated by the Person providing or sponsoring the information appearing there for the purpose of displaying rates or prices comparable to the Reference Rate;
"Relevant Time" has the meaning given in the relevant Pricing Supplement;
"Reserved Matter" means any proposal to change any date fixed for payment of principal or interest in respect of the Notes, to reduce the amount of principal or interest payable on any date in respect of the Notes, to alter the method of calculating the amount of any payment in respect of the Notes or the date for any such payment, to change the currency of any payment under the Notes or to change the quorum requirements relating to meetings or the majority required to pass an Extraordinary Resolution;
"Security Interest" means any mortgage, charge, pledge, lien or other security interest including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction;
"Specified Currency" has the meaning given in the relevant Pricing Supplement;
"Specified Denomination(s)" has the meaning given in the relevant Pricing Supplement;
"Specified Office" has the meaning given in the Agency Agreement;
"Specified Period" has the meaning given in the relevant Pricing Supplement;
- 50 -
"Subsidiary" means a subsidiary within the meaning of Chapter 1, Section 11 of the Swedish Companies Act (Sw. Aktiebolagslagen (2005:551) or its equivalent from time to time).
"Talon" means a talon for further Coupons;
"TARGET2" means the Trans-European Automated Real-Time Gross Settlement Express Transfer payment system which utilises a single shared platform and which was launched on 19 November 2007;
"TARGET Settlement Day" means any day on which TARGET2 is open for the settlement of payments in euro;
"Treaty" means the Treaty of the Functioning of the European Union, as amended; and
"Zero Coupon Note" means a Note specified as such in the relevant Pricing Supplement;
(b) Interpretation: In these Conditions:
(i) if the Notes are Zero Coupon Notes, references to Coupons and Couponholders are not applicable;
(ii) if Talons are specified in the relevant Pricing Supplement as being attached to the Notes at the time of issue, references to Coupons shall be deemed to include references to Talons;
(iii) if Talons are not specified in the relevant Pricing Supplement as being attached to the Notes at the time of issue, references to Talons are not applicable;
(iv) any reference to principal shall be deemed to include the Redemption Amount, any additional amounts in respect of principal which may be payable under Condition 12 (Taxation), any premium payable in respect of a Note and any other amount in the nature of principal payable pursuant to these Conditions;
(v) any reference to interest shall be deemed to include any additional amounts in respect of interest which may be payable under Condition 12 (Taxation) and any other amount in the nature of interest payable pursuant to these Conditions;
(vi) references to Notes being "outstanding" shall be construed in accordance with the Agency Agreement;
(vii) if an expression is stated in Condition 2(a) (Definitions) to have the meaning given in the relevant Pricing Supplement, but the relevant Pricing Supplement gives no such meaning or specifies that such expression is "not applicable" then such expression is not applicable to the Notes; and
(viii) any reference to the Agency Agreement or the Deed of Guarantee shall be construed as a reference to the Agency Agreement or the Deed of Guarantee, as the case may be as amended and/or supplemented up to and including the Issue Date of the Notes.
3. FORM, DENOMINATION, TITLE AND TRANSFER
(a) Bearer Notes: Bearer Notes are in the Specified Denomination(s) with Coupons and, if specified in the relevant Pricing Supplement, Talons attached at the time of issue. In the case of a Series of Bearer Notes with more than one Specified Denomination, Bearer Notes of one Specified Denomination will not be exchangeable for Bearer Notes of another Specified Denomination.
(b) Title to Bearer Notes: Title to Bearer Notes and the Coupons will pass by delivery. In the case of Bearer Notes, "Holder" means the holder of such Bearer Note and "Noteholder" and "Couponholder" shall be construed accordingly.
- 51 -
(c) Registered Notes: Registered Notes are in the Specified Denomination(s), which may include a minimum denomination specified in the relevant Pricing Supplement and higher integral multiples of a smaller amount specified in the relevant Pricing Supplement.
(d) Title to Registered Notes: The Registrar will maintain the register in accordance with the provisions of the Agency Agreement. A certificate (each, a "Note Certificate") will be issued to each Holder of Registered Notes in respect of its registered holding. Each Note Certificate will be numbered serially with an identifying number which will be recorded in the Register. In the case of Registered Notes, "Holder" means the person in whose name such Registered Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof) and "Noteholder" shall be construed accordingly.
(e) Ownership: The Holder of any Note or Coupon shall (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing thereon or, in the case of Registered Notes, on the Note Certificate relating thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft thereof) and no Person shall be liable for so treating such Holder. No person shall have any right to enforce any term or condition of any Note under the Contracts (Rights of Third Parties) Act 1999.
(f) Transfers of Registered Notes: Subject to paragraphs (i) (Closed periods) and (j) (Regulations concerning transfers and registration) below, a Registered Note may be transferred upon surrender of the relevant Note Certificate, with the endorsed form of transfer duly completed, at the Specified Office of the Registrar or any Transfer Agent, together with such evidence as the Registrar or (as the case may be) such Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer; provided, however, that a Registered Note may not be transferred unless the principal amount of Registered Notes transferred and (where not all of the Registered Notes held by a Holder are being transferred) the principal amount of the balance of Registered Notes not transferred are Specified Denominations. Where not all the Registered Notes represented by the surrendered Note Certificate are the subject of the transfer, a new Note Certificate in respect of the balance of the Registered Notes will be issued to the transferor.
(g) Registration and delivery of Note Certificates: Within five business days of the surrender of a Note Certificate in accordance with paragraph (f) (Transfers of Registered Notes) above, the Registrar will register the transfer in question and deliver a new Note Certificate of a like principal amount to the Registered Notes transferred to each relevant Holder at its Specified Office or (as the case may be) the Specified Office of any Transfer Agent or (at the request and risk of any such relevant Holder) by uninsured first class mail (airmail if overseas) to the address specified for the purpose by such relevant Holder. In this paragraph, "business day" means a day on which commercial banks are open for general business (including dealings in foreign currencies) in the city where the Registrar or (as the case may be) the relevant Transfer Agent has its Specified Office.
(h) No charge: The transfer of a Registered Note will be effected without charge by or on behalf of the Issuer or the Registrar or any Transfer Agent but against such indemnity as the Registrar or (as the case may be) such Transfer Agent may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer.
(i) Closed periods: Noteholders may not require transfers to be registered during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Registered Notes.
(j) Regulations concerning transfers and registration: All transfers of Registered Notes and entries on the Register are subject to the detailed regulations concerning the transfer of Registered Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Registrar. A copy of the current
- 52 -
regulations will be mailed (free of charge) by the Registrar to any Noteholder who requests in writing a copy of such regulations.
4. STATUS AND GUARANTEE
(a) The Notes constitute direct, unconditional, unsubordinated and (subject to Condition 5 (Negative Pledge)) unsecured obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.
(b) Guarantee of the Notes: The Guarantor has in the Deed of Guarantee unconditionally and irrevocably guaranteed the due and punctual payment of all sums from time to time payable by the Issuer in respect of the Notes. This Guarantee of the Notes constitutes direct, general, unsecured, unsubordinated and unconditional obligations of the Guarantor which will at all times rank at least pari passu with all other present and future unsecured obligations of the Guarantor, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.
5. NEGATIVE PLEDGE
So long as any Note remains outstanding, neither the Issuer nor the Guarantor shall, and the Issuer and the Guarantor shall procure that no Material Subsidiary will, create or permit to subsist any Security Interest, other than a Permitted Security Interest, upon the whole or any part of their present or future business, undertaking, assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness or Guarantee of Relevant Indebtedness without (a) at the same time or prior thereto securing the Notes equally and rateably therewith or (b) providing such other security for the Notes as may be approved by an Extraordinary Resolution of Noteholders.
6. FIXED RATE NOTE PROVISIONS
(a) Application: This Condition 6 (Fixed Rate Note Provisions) is applicable to the Notes only if the Fixed Rate Note Provisions are specified in the relevant Pricing Supplement as being applicable.
(b) Accrual of interest: The Notes bear interest from the Interest Commencement Date at the Rate of Interest payable in arrear on each Interest Payment Date, subject as provided in Condition 10 (Payments—Bearer Notes). Each Note will cease to bear interest from the due date for final redemption unless, upon due presentation, payment of the Redemption Amount is improperly withheld or refused, in which case it will continue to bear interest in accordance with this Condition 6 (after as well as before judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (ii) the day which is seven days after the Fiscal Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).
(c) Fixed Coupon Amount: The amount of interest payable in respect of each Note for any Interest Period shall be the relevant Fixed Coupon Amount and, if the Notes are in more than one Specified Denomination, shall be the relevant Fixed Coupon Amount in respect of the relevant Specified Denomination.
(d) Calculation of interest amount: The amount of interest payable in respect of each Note for any period for which a Fixed Coupon Amount is not specified shall be calculated by applying the Rate of Interest to the Calculation Amount, multiplying the product by the relevant Day Count Fraction, rounding the resulting figure to the nearest sub-unit of the Specified Currency (half a sub-unit being rounded upwards) and multiplying such rounded figure by a fraction equal to the Specified Denomination of such Note divided by the Calculation Amount. For this purpose a "sub-unit" means, in the case of any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, in the case of euro, means one cent.
- 53 -
(e) Notes accruing interest otherwise than a Fixed Coupon Amount: This Condition 6(e) shall apply to Notes which are Fixed Rate Notes only where the Pricing Supplement for such Notes specify that the Interest Payment Dates are subject to adjustment in accordance with the Business Day Convention specified therein. The relevant amount of interest payable in respect of each Note for any Interest Period for such Notes shall be calculated by the Calculation Agent by multiplying the product of the Rate of Interest and the Calculation Amount by the relevant Day Count Fraction and rounding the resultant figure to the nearest sub-unit of the Specified Currency (half a sub-unit being rounded upwards). The Calculation Agent shall cause the relevant amount of interest and the relevant Interest Payment Date to be notified to the Issuer, the Paying Agents, the Registrar (in the case of Registered Notes) and the Noteholders in accordance with Condition 19 (Notices) and, if the Notes are listed on a stock exchange and the rules of such exchange so requires, such exchange as soon as possible after their determination or calculation but in no event later than the fourth Business day thereafter or, if earlier in the case of notification to the stock exchange, the time required by the rules of the relevant stock exchange.
7. FLOATING RATE NOTE PROVISIONS
(a) Application: This Condition 7 (Floating Rate Note Provisions) is applicable to the Notes only if the Floating Rate Note Provisions are specified in the relevant Pricing Supplement as being applicable.
(b) Accrual of interest: The Notes bear interest from the Interest Commencement Date at the Rate of Interest payable in arrear on each Interest Payment Date, subject as provided in Condition 10 (Payments—Bearer Notes). Each Note will cease to bear interest from the due date for final redemption unless, upon due presentation, payment of the Redemption Amount is improperly withheld or refused, in which case it will continue to bear interest in accordance with this Condition (after as well as before judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (ii) the day which is seven days after the Fiscal Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).
(c) Screen Rate Determination: If Screen Rate Determination is specified in the relevant Pricing Supplement as the manner in which the Rate(s) of Interest is/are to be determined, the Rate of Interest applicable to the Notes for each Interest Period will be determined by the Calculation Agent on the following basis:
(i) if the Reference Rate is a composite quotation or customarily supplied by one entity, the Calculation Agent will determine the Reference Rate which appears on the Relevant Screen Page as of the Relevant Time on the relevant Interest Determination Date;
(ii) if Linear Interpolation is specified as applicable in respect of an Interest Period in the applicable Pricing Supplement, the Rate of Interest for such Interest Period shall be calculated by the Calculation Agent by straight-line linear interpolation by reference to two rates which appear on the Relevant Screen Page as of the Relevant Time on the relevant Interest Determination Date, where:
(A) one rate shall be determined as if the relevant Interest Period were the period of time for which rates are available next shorter than the length of the relevant Interest Period; and
(B) the other rate shall be determined as if the relevant Interest Period were the period of time for which rates are available next longer than the length of the relevant Interest Period; provided, however, that if no rate is available for a period of time next shorter or, as the case may be, next longer than the length of the relevant Interest Period, then the Calculation Agent shall determine such rate at such time and by reference to such sources as it determines appropriate;
- 54 -
(iii) in any other case, the Calculation Agent will determine the arithmetic mean of the Reference Rates which appear on the Relevant Screen Page as of the Relevant Time on the relevant Interest Determination Date;
(iv) if, in the case of (i) above, such rate does not appear on that page or, in the case of (iii) above, fewer than two such rates appear on that page or if, in either case, the Relevant Screen Page is unavailable, the Calculation Agent will:
(A) request the principal Relevant Financial Centre office of each of the Reference Banks to provide a quotation of the Reference Rate at approximately the Relevant Time on the Interest Determination Date to prime banks in the Relevant Financial Centre interbank market in an amount that is representative for a single transaction in that market at that time; and
(B) determine the arithmetic mean of such quotations; and
(v) if fewer than two such quotations are provided as requested, the Calculation Agent will determine the arithmetic mean of the rates (being the nearest to the Reference Rate, as determined by the Calculation Agent) quoted by major banks in the Principal Financial Centre of the Specified Currency, selected by the Calculation Agent, at approximately 11.00am (local time in the Principal Financial Centre of the Specified Currency) on the first day of the relevant Interest Period for loans in the Specified Currency to leading European banks for a period equal to the relevant Interest Period and in an amount that is representative for a single transaction in that market at that time,
and the Rate of Interest for such Interest Period shall be the sum of the Margin and the rate or (as the case may be) the arithmetic mean so determined; provided, however, that if the Calculation Agent is unable to determine a rate or (as the case may be) an arithmetic mean in accordance with the above provisions in relation to any Interest Period, the Rate of Interest applicable to the Notes during such Interest Period will be the sum of the Margin and the rate or (as the case may be) the arithmetic mean last determined in relation to the Notes in respect of a preceding Interest Period.
(d) ISDA Determination: If ISDA Determination is specified in the relevant Pricing Supplement as the manner in which the Rate(s) of Interest is/are to be determined, the Rate of Interest applicable to the Notes for each Interest Period will be the sum of the Margin and the relevant ISDA Rate where "ISDA Rate" in relation to any Interest Period means a rate equal to the Floating Rate (as defined in the ISDA Definitions) that would be determined by the Calculation Agent under an interest rate swap transaction if the Calculation Agent were acting as Calculation Agent for that interest rate swap transaction under the terms of an agreement incorporating the ISDA Definitions and under which:
(i) the Floating Rate Option (as defined in the ISDA Definitions) is as specified in the relevant Pricing Supplement;
(ii) the Designated Maturity (as defined in the ISDA Definitions) is a period specified in the relevant Pricing Supplement;
(iii) the relevant Reset Date (as defined in the ISDA Definitions) is either (A) if the relevant Floating Rate Option is based on LIBOR for a currency, the first day of that Interest Period or (B) in any other case, as specified in the relevant Pricing Supplement; and
(iv) if Linear Interpolation is specified as applicable in respect of an Interest Period in the applicable Pricing Supplement, the Rate of Interest for such Interest Period shall be calculated by the Calculation Agent by straight-line linear interpolation by reference to two rates based on the relevant Floating Rate Option, where:
- 55 -
(A) one rate shall be determined as if the Designated Maturity were the period of time for which rates are available next shorter than the length of the relevant Interest Period; and
(B) the other rate shall be determined as if the Designated Maturity were the period of time for which rates are available next longer than the length of the relevant Interest Period provided, however, that if there is no rate available for a period of time next shorter than the length of the relevant Interest Period or, as the case may be, next longer than the length of the relevant Interest Period, then the Calculation Agent shall determine such rate at such time and by reference to such sources as it determines appropriate.
(e) Maximum or Minimum Rate of Interest: If any Maximum Rate of Interest or Minimum Rate of Interest is specified in the relevant Pricing Supplement, then the Rate of Interest shall in no event be greater than the maximum or be less than the minimum so specified.
(f) Calculation of Interest Amount: The Calculation Agent will, as soon as practicable after the time at which the Rate of Interest is to be determined in relation to each Interest Period, calculate the Interest Amount payable in respect of each Note for such Interest Period. The Interest Amount will be calculated by applying the Rate of Interest for such Interest Period to the Calculation Amount, multiplying the product by the relevant Day Count Fraction, rounding the resulting figure to the nearest sub-unit of the Specified Currency (half a sub- unit being rounded upwards) and multiplying such rounded figure by a fraction equal to the Specified Denomination of the relevant Note divided by the Calculation Amount. For this purpose a "sub-unit" means, in the case of any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, in the case of euro, means one cent.
(g) Publication: The Calculation Agent will cause each Rate of Interest and Interest Amount determined by it, together with the relevant Interest Payment Date, and any other amount(s) required to be determined by it together with any relevant payment date(s) to be notified to the Paying Agents and each competent authority, stock exchange and/or quotation system (if any) by which the Notes have then been admitted to listing, trading and/or quotation as soon as practicable after such determination but (in the case of each Rate of Interest, Interest Amount and Interest Payment Date) in any event not later than the first day of the relevant Interest Period. Notice thereof shall also promptly be given to the Noteholders. The Calculation Agent will be entitled to recalculate any Interest Amount (on the basis of the foregoing provisions) without notice in the event of an extension or shortening of the relevant Interest Period. If the Calculation Amount is less than the minimum Specified Denomination the Calculation Agent shall not be obliged to publish each Interest Amount but instead may publish only the Calculation Amount and the Interest Amount in respect of a Note having the minimum Specified Denomination.
(h) Notifications etc: All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of this Condition by the Calculation Agent will (in the absence of manifest error) be binding on the Issuer, the Guarantor, the Paying Agents, the Noteholders and the Couponholders and (subject as aforesaid) no liability to any such Person will attach to the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions for such purposes.
(i) Benchmark Discontinuation:
(i) If a Benchmark Event occurs in relation to the Reference Rate when the Rate of Interest (or any component part thereof) for any Interest Period remains to be determined by reference to such Reference Rate, then the Issuer shall use its reasonable endeavours to appoint an Independent Adviser, as soon as reasonably practicable, to determine a Successor Rate, failing which an Alternative Rate (in accordance with Condition 7(i)(ii)) and, in either case, an Adjustment Spread, if
- 56 -
any (in accordance with Condition 7(i)(iii)) and any Benchmark Amendments (in accordance with Condition 7(i)(iv)).
In the absence of bad faith or fraud, the Independent Adviser shall have no liability whatsoever to the Issuer, the Fiscal Agent, the Agents or the Noteholders for any determination made by it pursuant to this Condition 7(i).
If (i) the Issuer is unable to appoint an Independent Adviser or (ii) the Independent Adviser appointed by it fails to determine a Successor Rate or, failing which, an Alternative Rate in accordance with this Condition 7(i) prior to the relevant Interest Determination Date, the Reference Rate applicable to the immediate following Interest Period shall be the Reference Rate applicable as at the last preceding Interest Determination Date. If there has not been a first Interest Payment Date, the Reference Rate shall be the Reference Rate applicable to the first Floating Rate Interest Period. For the avoidance of doubt, any adjustment pursuant to this final paragraph of Condition 7(i) shall apply to the immediately following Interest Period only. Any subsequent Interest Period may be subject to the subsequent operation of this Condition 7(i).
(ii) If the Independent Adviser determines in its discretion that:
(A) there is a Successor Rate, then such Successor Rate shall (subject to adjustment as provided in Condition 7(i)(iii)) subsequently be used in place of the Reference Rate to determine the Rate of Interest for the immediately following Interest Period and all following Interest Periods, subject to the subsequent operation of this Condition 7(i); or
(B) there is no Successor Rate but that there is an Alternative Rate, then such Alternative Rate shall (subject to adjustment as provided in Condition 7(i)(iii)) subsequently be used in place of the Reference Rate to determine the Rate of Interest for the immediately following Interest Period and all following Interest Periods, subject to the subsequent operation of this Condition 7(i).
(iii) If the Independent Adviser determines in its discretion (A) that an Adjustment Spread is required to be applied to the Successor Rate or the Alternative Rate (as the case may be) and (B) the quantum of, or a formula or methodology for determining, such Adjustment Spread, then such Adjustment Spread shall apply to the Successor Rate or the Alternative Rate (as the case may be).
(iv) If any relevant Successor Rate, Alternative Rate or Adjustment Spread is determined in accordance with this Condition 7(i) and the Independent Adviser determines in its discretion (i) that amendments to these Conditions are necessary to ensure the proper operation of such Successor Rate, Alternative Rate and/or Adjustment Spread (such amendments, the "Benchmark Amendments") and (ii) the terms of the Benchmark Amendments, then the Issuer shall, following consultation with the Fiscal Agent (or the person specified in the applicable Pricing Supplement as the party responsible for calculating the Rate of Interest and the Interest Amount(s)), subject to giving notice thereof in accordance with Condition 7(i)(v), without any requirement for the consent or approval of relevant Noteholders, vary these Conditions to give effect to such Benchmark Amendments with effect from the date specified in such notice (and for the avoidance of doubt, the Fiscal Agent shall, at the direction and expense of the Issuer, consent to and effect such consequential amendments to the Agency Agreement and these Conditions as may be required in order to give effect to this Condition 7(i)).
(v) Any Successor Rate, Alternative Rate, Adjustment Spread and the specific terms of any Benchmark Amendments, determined under this Condition 7(i) will be notified promptly by the Issuer to the Fiscal Agent, the Calculation Agent, the Paying Agent and, in accordance with Condition 19, the Noteholders. Such notice
- 57 -
shall be irrevocable and shall specify the effective date of the Benchmark Amendments, if any.
(vi) No later than notifying the Fiscal Agent of the same, the Issuer shall deliver to the Fiscal Agent a certificate signed by two authorised signatories of the Issuer:
(A) confirming (x) that a Benchmark Event has occurred, (y) the relevant Successor Rate, or, as the case may be, the relevant Alternative Rate and, (z) where applicable, any relevant Adjustment Spread and/or the specific terms of any relevant Benchmark Amendments, in each case as determined in accordance with the provisions of this Condition 7(i); and
(B) certifying that the relevant Benchmark Amendments are necessary to ensure the proper operation of such relevant Successor Rate, Alternative Rate and/or Adjustment Spread.
(vii) The Successor Rate or Alternative Rate and the Adjustment Spread (if any) and the Benchmark Amendments (if any) specified in such certificate will (in the absence of manifest error or bad faith in the determination of such Successor Rate or Alternative Rate and such Adjustment Spread (if any) and such Benchmark Amendments (if any)) be binding on the Issuer, the Fiscal Agent, the Calculation Agent, the Paying Agents and the Noteholders.
(viii) Without prejudice to the obligations of the Issuer under Condition 7(i)(i), (ii), (iii) and (iv), the Reference Rate and the fallback provisions provided for in the definition of the term "Reference Rate" in Condition 5(b)(i) will continue to apply unless and until a Benchmark Event has occurred.
(ix) As used in this Condition 7(i):
"Adjustment Spread" means either a spread (which may be positive or negative or zero), or the formula or methodology for calculating a spread, in either case, which the Independent Adviser determines is required to be applied to the relevant Successor Rate or the relevant Alternative Rate (as the case may be) to reduce or eliminate, to the extent reasonably practicable in the circumstances, any economic prejudice or benefit (as the case may be) to Noteholders as a result of the replacement of the Reference Rate with the Successor Rate or the Alternative Rate (as the case may be) and is the spread, formula or methodology which:
(A) in the case of a Successor Rate, is formally recommended in relation to the replacement of the Reference Rate with the Successor Rate by any Relevant Nominating Body; or
(B) (if no such recommendation has been made, or in the case of an Alternative Rate) the Independent Adviser determines, is recognised or acknowledged as being the industry standard for over-the-counter derivative transactions which reference the Reference Rate, where such rate has been replaced by the Successor Rate or the Alternative Rate (as the case may be); or
(C) (if the Independent Adviser determines that no such industry standard is recognised or acknowledged) the Independent Adviser determines to be appropriate.
"Alternative Rate" means an alternative benchmark or screen rate which the Independent Adviser determines in accordance with Condition 7(i)(ii) is customary in market usage in the international debt capital markets for the purposes of determining floating rates of interest (or the relevant component part thereof) in the Specified Currency.
"Benchmark Amendments" has the meaning given to it in Condition 7(i)(i).
- 58 -
"Benchmark Event" means:
(A) the Reference Rate ceasing to be published for a period of at least five (5) Business Days or ceasing to exist; or
(B) a public statement by the administrator of the Reference Rate that it will cease publishing the Reference Rate permanently or indefinitely (in circumstances where no successor administrator has been appointed that will continue publication of the Reference Rate); or
(C) a public statement by the supervisor of the administrator of the Reference Rate, that the Reference Rate has been or will permanently or indefinitely discontinued; or
(D) a public statement by the supervisor of the administrator of the Reference Rate as a consequence of which the Reference Rate will be prohibited from being used either generally, or in respect of the relevant Floating Rate Notes; or
(E) it has become unlawful for any Paying Agent, the Calculation Agent, the Issuer or any other party to calculate any Rate of Interest using the Reference Rate.
"Independent Adviser" means an independent financial institution of international repute or other independent financial adviser experienced in the international capital markets, in each case appointed by the Issuer at its own expense under Condition 7(i)(i).
"Relevant Nominating Body" means, in respect of a benchmark or screen rate (as applicable):
(A) the central bank for the currency to which the benchmark or screen rate (as applicable) relates, or any central bank or other supervisory authority which is responsible for supervising the administrator of the benchmark or screen rate (as applicable); or
(B) any working group or committee sponsored by, chaired or co-chaired by or constituted at the request of (a) the central bank for the currency to which the benchmark or screen rate (as applicable) relates, (b) any central bank or other supervisory authority which is responsible for supervising the administrator of the benchmark or screen rate (as applicable), (c) a group of the aforementioned central banks or other supervisory authorities or (d) the Financial Stability Board or any part thereof.
"Successor Rate" means a successor to or replacement of the Reference Rate which is formally recommended by any Relevant Nominating Body.
8. ZERO COUPON NOTE PROVISIONS
(a) Application: This Condition 8 (Zero Coupon Note Provisions) is applicable to the Notes only if the Zero Coupon Note Provisions are specified in the relevant Pricing Supplement as being applicable.
(b) Late payment on Zero Coupon Notes: If the Redemption Amount payable in respect of any Zero Coupon Note is improperly withheld or refused, the Redemption Amount shall thereafter be an amount equal to the sum of:
(i) the Reference Price; and
(ii) the product of the Accrual Yield (compounded annually) being applied to the Reference Price on the basis of the relevant Day Count Fraction from (and including) the Issue Date to (but excluding) whichever is the earlier of (i) the day
- 59 -
on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (ii) the day which is seven days after the Fiscal Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).
9. REDEMPTION AND PURCHASE
(a) Scheduled redemption: Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed at their Final Redemption Amount on the Maturity Date, subject as provided in Condition 10 (Payments— Bearer Notes) or Condition 11 (Payments— Registered Notes), as applicable.
(b) Redemption for tax reasons: The Notes may be redeemed at the option of the Issuer in whole, but not in part:
(i) at any time (unless the Floating Rate Note Provisions are specified in the relevant Pricing Supplement as being applicable); or
(ii) on any Interest Payment Date (if the Floating Rate Note Provisions are specified in the relevant Pricing Supplement as being applicable);
on giving not less than 30 nor more than 60 days' notice to the Noteholders, or such other period(s) as may be specified in the relevant Pricing Supplement, (which notice shall be irrevocable), at their Early Redemption Amount (Tax), together with interest accrued (if any) to the date fixed for redemption, if on the occasion of the next payment due in respect of the Notes:
(A) (1) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 12 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the Kingdom of Sweden or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date of issue of the first Tranche of the Notes; and (2) such obligation cannot be avoided by the Issuer taking reasonable measures available to it; or
(B) (1) the Guarantor has or (if a demand was made under the Guarantee of the Notes) would become obliged to pay additional amounts as provided or referred to in Condition 12 (Taxation) the Guarantee of the Notes as a result of any changes in, or amendment to, the laws or regulations of the Kingdom of Sweden or any political subdivision or any authority thereof or therein having power to tax, or any change in the application of official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after the date of issue of the first Tranche of the Notes and (2) such obligation cannot be avoided by the Guarantor taking reasonable measures available to it,
provided, however, that no such notice of redemption shall be given earlier than:
(1) where the Notes may be redeemed at any time, 90 days (or such other period as may be specified in the relevant Pricing Supplement) prior to the earliest date on which the Issuer or the Guarantor would be obliged to pay such additional amounts if a payment in respect of the Notes were then due or (as the case may be) a demand under the Guarantee of the Notes were then made; or
(2) where the Notes may be redeemed only on an Interest Payment Date, 60 days (or such other period as may be specified in the relevant Pricing Supplement) prior to the Interest Payment Date occurring immediately before the earliest date on which the Issuer or the Guarantor would be obliged to pay such additional amounts if a payment in respect of the Notes
- 60 -
were then due or (as the case may be) a demand under the Guarantee of the Notes were then made.
Prior to the publication of any notices of redemption pursuant to this paragraph, the Issuer shall deliver or procure that there is delivered to the Fiscal Agent (i) a certificate signed by two directors of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred; and (ii) an opinion of independent legal advisers of recognised standing to the effect that the Issuer or, as the case may be, the Guarantor has or will become obliged to pay such additional amounts as a result of such change or amendment. Upon the expiry of any such notice as is referred to in this Condition 9(b), the Issuer shall be bound to redeem the Notes in accordance with this Condition 9(b).
(c) Redemption at the option of the Issuer: If the Call Option is specified in the relevant Pricing Supplement as being applicable, the Notes may be redeemed at the option of the Issuer in whole or, if so specified in the relevant Pricing Supplement, in part on any Optional Redemption Date (Call) at the relevant Optional Redemption Amount (Call) on the Issuer's giving not less than 30 nor more than 60 days' notice to the Noteholders, or such other period(s) as may be specified in the relevant Pricing Supplement (which notice shall be irrevocable and shall oblige the Issuer to redeem the Notes or, as the case may be, the Notes specified in such notice on the relevant Optional Redemption Date (Call) at the relevant Optional Redemption Amount (Call) plus accrued interest (if any) to such date).
If the Optional Redemption Amount (Call) specified in the relevant Pricing Supplement is the "Make-Whole Redemption Amount", the Optional Redemption Amount (Call) will be the higher of:
(i) 100 per cent. of the principal amount of the Notes to be redeemed; and
(ii) the sum of the then present values of each of the remaining scheduled payments of principal and interest on such Notes (from but excluding the Optional Redemption Date (Call) up to, and including, the Maturity Date) discounted to the relevant Optional Redemption Date (Call) on an annual basis (based on the Day Count Fraction specified in the applicable Pricing Supplement) at a rate equal to the sum of (x) the current yield to maturity (determined by reference to the Benchmark Security Price) at the Reference Time on the Reference Date of the relevant Benchmark Security(ies) plus (y) the Make-Whole Margin, as determined by the Financial Adviser,
provided however that, if the Optional Redemption Date occurs on or after the Par Redemption Date (if specified in the relevant Pricing Supplement), the Make-Whole Redemption Amount will be the principal amount of the Notes.
The "Benchmark Security", the "Reference Time", the "Make-Whole Margin" and the "Par Redemption Date" will be specified in the relevant Pricing Supplement, provided however that, if "Linear Interpolation" is specified as applicable in the relevant Pricing Supplement, the current yield of the Benchmark Security shall be determined by linear interpolation (calculated to the nearest one twelfth of a year) of the yield of the two Benchmark Securities specified in the Pricing Supplement.
If the Benchmark Security is not specified in the relevant Pricing Supplement, or is not outstanding at the relevant time, the Benchmark Security shall be the FA Selected Bond.
"Benchmark Security Price" means, with respect to the relevant Optional Redemption Date (Call), (a) the arithmetic average of the Benchmark Security Dealer Quotations for such date of redemption, after excluding the highest and lowest such quotations, or (b) if the Financial Adviser obtains fewer than four such quotations, the arithmetic average of all such quotations;
- 61 -
"Benchmark Security Dealer" means each of five banks selected by the Issuer, or their affiliates, which are (a) primary government securities dealers, and their respective successors, or (b) market makers in pricing corporate bond issues;
"Benchmark Security Dealer Quotations" means, with respect to each Benchmark Security Dealer and the relevant Optional Redemption Date (Call), the arithmetic average, as determined by the Financial Adviser, of the bid and offered prices for the Benchmark Security (expressed in each case as a percentage of its nominal amount) at the Reference Time specified in the applicable Pricing Supplement on the Reference Date quoted in writing to the Financial Adviser by such Benchmark Security Dealer;
"FA Selected Bond" means a government security or securities selected by the Financial Adviser as having an actual or interpolated maturity comparable with the remaining term of the Notes that would be utilised, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities denominated in the same currency as the Notes and of a comparable maturity to the remaining term of the Notes; and
"Financial Adviser" means an independent and internationally recognised financial adviser selected by the Issuer at its own expense;
The "Reference Date" means the date which is the third London Business Day prior to the date fixed for redemption.
(d) Partial redemption: If the Notes are to be redeemed in part only on any date in accordance with Condition 9(c) (Redemption at the option of the Issuer), in the case of Bearer Notes, the Notes to be redeemed shall be selected by the drawing of lots in such place as the Fiscal Agent approves and in such manner as the Fiscal Agent considers appropriate, subject to compliance with applicable law, the rules of each competent authority, stock exchange and/or quotation system (if any) by which the Notes have then been admitted to listing, trading and/or quotation and the notice to Noteholders referred to in Condition 9(c) (Redemption at the option of the Issuer) shall specify the serial numbers of the Notes so to be redeemed, and, in the case of Registered Notes, each Note shall be redeemed in part in the proportion which the aggregate principal amount of the outstanding Notes to be redeemed on the relevant Optional Redemption Date (Call) bears to the aggregate principal amount of outstanding Notes on such date. If any Maximum Redemption Amount or Minimum Redemption Amount is specified in the relevant Pricing Supplement, then the Optional Redemption Amount (Call) shall in no event be greater than the maximum or be less than the minimum so specified.
(e) Redemption at the option of Noteholders: If the Put Option is specified in the relevant Pricing Supplement as being applicable, the Issuer shall, at the option of the Holder of any Note redeem such Note on the Optional Redemption Date (Put) specified in the relevant Put Option Notice at the relevant Optional Redemption Amount (Put) together with interest (if any) accrued to such date. In order to exercise the option contained in this Condition 9(e), the Holder of a Note must, not less than 30 nor more than 60 days before the relevant Optional Redemption Date (Put) (or such other period(s) as may be specified in the relevant Pricing Supplement), deposit with any Paying Agent such Note together with all unmatured Coupons relating thereto and a duly completed Put Option Notice in the form obtainable from any Paying Agent. The Paying Agent with which a Note is so deposited shall deliver a duly completed Put Option Receipt to the depositing Noteholder. No Note, once deposited with a duly completed Put Option Notice in accordance with this Condition 9(e), may be withdrawn; provided, however, that if, prior to the relevant Optional Redemption Date (Put), any such Note becomes immediately due and payable or, upon due presentation of any such Note on the relevant Optional Redemption Date (Put), payment of the redemption moneys is improperly withheld or refused, the relevant Paying Agent shall mail notification thereof to the depositing Noteholder at such address as may have been given by such Noteholder in the relevant Put Option Notice and shall hold such Note at its Specified Office for collection by the depositing Noteholder against surrender of the relevant Put Option Receipt. For so long as any outstanding Note is held
- 62 -
by a Paying Agent in accordance with this Condition 9(e), the depositor of such Note and not such Paying Agent shall be deemed to be the Holder of such Note for all purposes.
(f) Change of Control Put Option: If at any time while any Note remains outstanding, (A) there occurs a Change of Control (as defined below), and (B) within the Change of Control Period, a Rating Event in respect of that Change of Control occurs (such Change of Control and Rating Event not having been cured prior to the expiry of the Change of Control Period, together, a "Change of Control Put Event"), each Noteholder will have the option (the "Change of Control Put Option") (unless, prior to the giving of the Change of Control Put Event Notice (as defined below), the Issuer gives notice to redeem the Notes under Condition 9(b) or 9(c)) to require the Issuer to redeem or, at the Issuer's option, to procure the purchase of, all or part of its Notes, on the Optional Redemption Date (as defined below) at the principal amount outstanding of such Notes together with (or where purchased, together with an amount equal to) interest accrued to, but excluding, the Optional Redemption Date.
Where:
"acting in concert" means a group of persons who, pursuant to an agreement or understanding (whether formal or informal) actively co-operate through acquisition of shares in the Issuer by any of them, either directly or indirectly, to obtain or consolidate control of the Issuer.
"Change of Control" means:
(i) prior to an Initial Public Offering (a) the Issuer ceasing to be the beneficial and legal owner directly or indirectly through wholly-owned Subsidiaries of the entire issued share capital of Volvo Car Corporation; or (b) other than pursuant to or in connection with an Initial Public Offering, Zhejiang Geely Holding Group Co. Ltd. (the "Existing Shareholder") ceasing to be the beneficial and legal owner directly or indirectly of at least 50.1 per cent. of the issued share capital of the Issuer; or
(ii) following an Initial Public Offering, any person or group of persons acting in concert (other than the Existing Shareholder) gaining control over the Issuer.
"Change of Control Period" means the period beginning on the date (the "Relevant Announcement Date") that is the earlier of (A) the first public announcement by or on behalf the Issuer, the Guarantor or any bidder or any designated advisor, of the relevant Change of Control; and (B) the date of the earliest Potential Change of Control Announcement, and ending 120 days after the Relevant Announcement Date (such 120th day, the "Initial Longstop Date"); provided that, unless any other Rating Agency has on or prior to the Initial Longstop Date effected a Rating Event in respect of its rating of the Issuer or the Guarantor, if a Rating Agency publicly announces, at any time during the period commencing on the date which is 60 days prior to the Initial Longstop Date and ending on the Initial Longstop Date, that it has placed its rating of the Issuer or Guarantor under consideration for rating review either entirely or partially as a result of the relevant public announcement of the Change of Control or Potential Change of Control Announcement, the Change of Control Period shall be extended to the date which falls 60 days after the date of such public announcement by such Rating Agency.
"control" means acquiring more than 50 per cent. of the issued share capital or the voting rights of the Issuer.
"Initial Public Offering" means a listing and/or public offering of the shares in the Issuer on any recognised investment exchange or on any exchange or market replacing the same or any other exchange or market in any country.
"Potential Change of Control Announcement" means any public announcement or statement by the Issuer, the Guarantor, any actual or potential bidder or any designated adviser thereto relating to any specific and near-term potential Change of Control (where
- 63 -
"near-term" shall mean that such potential Change of Control is reasonably likely to occur, or is publicly stated by the Issuer, the Guarantor, any such actual or potential bidder or any such designated adviser to be intended to occur, within 120 days of the date of such announcement of statement).
A "Rating Event" shall be deemed to have occurred in respect of a Change of Control if (within the Change of Control Period) either (i) (A) the rating previously assigned to the Notes or to the Issuer or Guarantor by any Rating Agency solicited by (or with the consent of) the Issuer or the Guarantor is (x) withdrawn or (y) changed from an investment grade rating (BBB-/Baa3 or its equivalent for the time being, or better) to a non-investment grade rating (BB+/Ba1 or its equivalent for the time being, or worse) or (z) (if the rating previously assigned to the Notes or to the Issuer or Guarantor by any Rating Agency solicited by the Issuer or the Guarantor was below an investment grade rating (as described above)), lowered by at least one full rating notch (for example, from BB+ to BB, or their respective equivalents) and (B) such rating is not within the Change of Control Period subsequently upgraded (in the case of a downgrade) or reinstated (in the case of a withdrawal) either to an investment grade credit rating (in the case of (x) and (y)) or to its earlier credit rating or better (in the case of (z)) by such Rating Agency or (ii) the Notes or the Issuer or the Guarantor have not been previously assigned a credit rating solicited by the Issuer, or the Guarantor and no Rating Agency assigns the Issuer or the Notes an investment grade rating solicited by the Issuer, or the Guarantor within the Change of Control Period, provided that the Rating Agency making the reduction in rating or deciding not to assign an investment grade rating announces or publicly confirms or, having been so requested by the Issuer, or the Guarantor informs the Issuer or Guarantor in writing that the lowering or failure to assign an investment grade rating was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Rating Event). If on the Relevant Announcement Date the Issuer, the Guarantor or the Notes carry a credit rating from more than one Rating Agency, at least one of which is an investment grade rating, then sub- paragraph (z) above will not apply.
Promptly upon the Issuer or the Guarantor becoming aware that a Change of Control Put Event has occurred, the Issuer or the Guarantor shall give notice (a "Change of Control Put Event Notice") to the Noteholders in accordance with Condition 19 (Notices) specifying the nature of the Change of Control Put Event and the circumstances giving rise to it and the procedure for exercising the Change of Control Put Option contained in this Condition 9(f).
To exercise the Change of Control Put Option, a Noteholder must transfer or cause to be transferred its Notes to be so redeemed or purchased to the account of the Fiscal Agent specified in the Change of Control Put Option Notice (as defined below) for the account of the Issuer within the period (the "Change of Control Put Period") of forty-five (45) days after a Change of Control Put Event Notice is given together with a duly signed and completed notice of exercise in the then current form obtainable from the Fiscal Agent (a "Change of Control Put Option Notice") and in which the Noteholder may specify a bank account to which payment is to be made under this Condition 9(f).
A Change of Control Put Option Notice once given shall be irrevocable. The Issuer shall redeem or, at the option of the Issuer procure the purchase of, the Notes in respect of which the Change of Control Put Option has been validly exercised as provided above, and subject to the transfer of such Notes to the account of the Fiscal Agent for the account of the Issuer as described above by the date which is the fifth Business Day following the end of the Change of Control Put Period (the "Optional Redemption Date"). Payment in respect of such Notes will be made on the Optional Redemption Date by transfer to the bank account specified in the Change of Control Put Option Notice.
For the avoidance of doubt, the Issuer shall have no responsibility for any cost or loss of whatever kind (including breakage costs) which the Noteholder may incur as a result of or in connection with such Noteholder's exercise or purported exercise of, or otherwise in
- 64 -
connection with, any Change of Control Put Option (whether as a result of any purchase or redemption arising therefrom or otherwise).
If 80 per cent. or more in principal amount of the Notes then outstanding have been redeemed pursuant to this Condition 9(f), the Issuer may, on not less than thirty (30) nor more than sixty (60) days' irrevocable notice to the Noteholders in accordance with Condition 19 (Notices) given within thirty (30) days after the Optional Redemption Date, redeem on a date to be specified in such notice at its option, all (but not some only) of the remaining Notes at their principal amount, together with interest accrued to but excluding the date of redemption.
(g) No other redemption: The Issuer shall not be entitled to redeem the Notes otherwise than as provided in paragraphs (a) to (f) above.
(h) Early redemption of Zero Coupon Notes: Unless otherwise specified in the relevant Pricing Supplement, the Redemption Amount payable on redemption of a Zero Coupon Note at any time before the Maturity Date shall be an amount equal to the sum of:
(i) the Reference Price; and
(j) the product of the Accrual Yield (compounded annually) being applied to the Reference Price from (and including) the Issue Date to (but excluding) the date fixed for redemption or (as the case may be) the date upon which the Note becomes due and payable.
Where such calculation is to be made for a period which is not a whole number of years, the calculation in respect of the period of less than a full year shall be made on the basis of such Day Count Fraction as may be specified in the Pricing Supplement for the purposes of this Condition 9(h) or, if none is so specified, a Day Count Fraction of 30E/360.
(k) Purchase: The Issuer, the Guarantor or any of their respective Subsidiaries may at any time purchase Notes in the open market or otherwise and at any price, provided that all unmatured Coupons are purchased therewith.
(l) Cancellation: All Notes so redeemed or purchased by the Issuer, the Guarantor or any of their Subsidiaries and any unmatured Coupons attached to or surrendered with them may at the option of the Issuer be cancelled and all Notes so cancelled may not be reissued or resold.
10. PAYMENTS—BEARER NOTES
This Condition 10 is only applicable to Bearer Notes.
(a) Principal: Payments of principal shall be made only against presentation and (provided that payment is made in full) surrender of Bearer Notes at the Specified Office of any Paying Agent outside the United States by cheque drawn in the currency in which the payment is due on, or by transfer to an account denominated in that currency (or, if that currency is euro, any other account to which euro may be credited or transferred) and maintained by the payee with, a bank in the Principal Financial Centre of that currency.
(b) Interest: Payments of interest shall, subject to paragraph (h) below, be made only against presentation and (provided that payment is made in full) surrender of the appropriate Coupons at the Specified Office of any Paying Agent outside the United States in the manner described in paragraph (a) above.
(c) Payments in New York City: Payments of principal or interest may be made at the Specified Office of a Paying Agent in New York City if (i) the Issuer has appointed Paying Agents outside the United States with the reasonable expectation that such Paying Agents will be able to make payment of the full amount of the interest on the Notes in the currency in which the payment is due when due, (ii) payment of the full amount of such interest at the offices of all such Paying Agents is illegal or effectively precluded by exchange controls or other similar restrictions and (iii) payment is permitted by applicable United States law.
- 65 -
(d) Payments subject to fiscal laws: All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 12 (Taxation).
(e) Deductions for unmatured Coupons: If the relevant Pricing Supplement specifies that the Fixed Rate Note Provisions are applicable and a Bearer Note is presented without all unmatured Coupons relating thereto:
(i) if the aggregate amount of the missing Coupons is less than or equal to the amount of principal due for payment, a sum equal to the aggregate amount of the missing Coupons will be deducted from the amount of principal due for payment; provided, however, that if the gross amount available for payment is less than the amount of principal due for payment, the sum deducted will be that proportion of the aggregate amount of such missing Coupons which the gross amount actually available for payment bears to the amount of principal due for payment;
(ii) if the aggregate amount of the missing Coupons is greater than the amount of principal due for payment:
(A) so many of such missing Coupons shall become void (in inverse order of maturity) as will result in the aggregate amount of the remainder of such missing Coupons (the "Relevant Coupons") being equal to the amount of principal due for payment; provided, however, that where this sub- paragraph would otherwise require a fraction of a missing Coupon to become void, such missing Coupon shall become void in its entirety; and
(B) a sum equal to the aggregate amount of the Relevant Coupons (or, if less, the amount of principal due for payment) will be deducted from the amount of principal due for payment; provided, however, that, if the gross amount available for payment is less than the amount of principal due for payment, the sum deducted will be that proportion of the aggregate amount of the Relevant Coupons (or, as the case may be, the amount of principal due for payment) which the gross amount actually available for payment bears to the amount of principal due for payment.
Each sum of principal so deducted shall be paid in the manner provided in paragraph (a) above against presentation and (provided that payment is made in full) surrender of the relevant missing Coupons.
(f) Unmatured Coupons void: If the relevant Pricing Supplement specifies that this Condition 10(f) is applicable or that the Floating Rate Note Provisions are applicable, on the due date for final redemption of any Note or early redemption in whole of such Note pursuant to Condition 9(b) (Redemption for tax reasons), Condition 9(e) (Redemption at the option of Noteholders), Condition 9(f) (Change of Control Put Option), Condition 9(c) (Redemption at the option of the Issuer) or Condition 13 (Events of Default), all unmatured Coupons relating thereto (whether or not still attached) shall become void and no payment will be made in respect thereof.
(g) Payments on business days: If the due date for payment of any amount in respect of any Bearer Note or Coupon is not a Payment Business Day in the place of presentation, the Holder shall not be entitled to payment in such place of the amount due until the next succeeding Payment Business Day in such place and shall not be entitled to any further interest or other payment in respect of any such delay.
(h) Payments other than in respect of matured Coupons: Payments of interest other than in respect of matured Coupons shall be made only against presentation of the relevant Bearer Notes at the Specified Office of any Paying Agent outside the United States (or in New York City if permitted by paragraph (c) above).
- 66 -
(i) Partial payments: If a Paying Agent makes a partial payment in respect of any Bearer Note or Coupon presented to it for payment, such Paying Agent will endorse thereon a statement indicating the amount and date of such payment.
(j) Exchange of Talons: On or after the maturity date of the final Coupon which is (or was at the time of issue) part of a Coupon Sheet relating to the Bearer Notes, the Talon forming part of such Coupon Sheet may be exchanged at the Specified Office of the Fiscal Agent for a further Coupon Sheet (including, if appropriate, a further Talon but excluding any Coupons in respect of which claims have already become void pursuant to Condition 14 (Prescription). Upon the due date for redemption of any Bearer Note, any unexchanged Talon relating to such Note shall become void and no Coupon will be delivered in respect of such Talon.
11. PAYMENTS—REGISTERED NOTES
This Condition 11 is only applicable to Registered Notes.
(a) Principal: Payments of principal shall be made by cheque drawn in the currency in which the payment is due drawn on, or, upon application by a Holder of a Registered Note to the Specified Office of the Fiscal Agent not later than the fifteenth day before the due date for any such payment, by transfer to an account denominated in that currency (or, if that currency is euro, any other account to which euro may be credited or transferred) and maintained by the payee with, a bank in the Principal Financial Centre of that currency (in the case of a sterling cheque, a town clearing branch of a bank in the City of London) and (in the case of redemption) upon surrender (or, in the case of part payment only, endorsement) of the relevant Note Certificates at the Specified Office of any Paying Agent.
(b) Interest: Payments of interest shall be made by cheque drawn in the currency in which the payment is due drawn on, or, upon application by a Holder of a Registered Note to the Specified Office of the Fiscal Agent not later than the fifteenth day before the due date for any such payment, by transfer to an account denominated in that currency (or, if that currency is euro, any other account to which euro may be credited or transferred) and maintained by the payee with, a bank in the Principal Financial Centre of that currency (in the case of a sterling cheque, a town clearing branch of a bank in the City of London) and (in the case of interest payable on redemption) upon surrender (or, in the case of part payment only, endorsement) of the relevant Note Certificates at the Specified Office of any Paying Agent.
(c) Payments subject to fiscal laws: All payments in respect of the Registered Notes are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 12 (Taxation). No commissions or expenses shall be charged to the Noteholders in respect of the payments.
(d) Payments on business days: Where payment is to be made by transfer to an account, payment instructions (for value the due date, or, if the due date is not Payment Business Day, for value the next succeeding Payment Business Day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed (i) (in the case of payments of principal and interest payable on redemption) on the later of the due date for payment and the day on which the relevant Note Certificate is surrendered (or, in the case of part payment only, endorsed) at the Specified Office of a Paying Agent and (ii) (in the case of payments of interest payable other than on redemption) on the due date for payment. A Holder of a Registered Note shall not be entitled to any interest or other payment in respect of any delay in payment resulting from (A) the due date for a payment not being a Payment Business Day or (B) a cheque mailed in accordance with this Condition 11 arriving after the due date for payment or being lost in the mail.
(e) Partial payments: If a Paying Agent makes a partial payment in respect of any Registered Note, the Issuer shall procure that the amount and date of such payment are noted on the Register and, in the case of partial payment upon presentation of a Note Certificate, that a statement indicating the amount and the date of such payment is endorsed on the relevant Note Certificate.
- 67 -
(f) Record date: Each payment in respect of a Registered Note will be made to the person shown as the Holder in the Register at the opening of business in the place of the Registrar's Specified Office on the fifteenth day before the due date for such payment (the "Record Date"). Where payment in respect of a Registered Note is to be made by cheque, the cheque will be mailed to the address shown as the address of the Holder in the Register at the opening of business on the relevant Record Date.
12. TAXATION
(a) Gross up: All payments of principal and interest in respect of the Notes and the Coupons by or on behalf of the Issuer or the Guarantor shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Kingdom of Sweden or any political subdivision therein or any authority therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments, or governmental charges is required by law. In that event, the Issuer or (as the case may be) the Guarantor shall pay such additional amounts as will result in receipt by the Noteholders and the Couponholders after such withholding or deduction of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Note or Coupon:
(i) held by or on behalf of a Holder which is liable to such taxes, duties, assessments or governmental charges in respect of such Note or Coupon by reason of its having some connection with the Kingdom of Sweden other than the mere holding of the Note or Coupon;
(ii) where the relevant Note or Coupon or Note Certificate is presented or surrendered for payment more than 30 days after the Relevant Date except to the extent that the Holder of such Note or Coupon would have been entitled to such additional amounts on presenting or surrendering such Note or Coupon or Note Certificate for payment on the last day of such period of 30 days;
(iii) in respect of taxes, duties, assessments or governmental charges that would not have been imposed, assessed, levied or collected had the Holder or beneficial owner of the Notes complied to the extent it is legally entitled to do so, on a timely basis, with a written request (at least 90 days prior to the Relevant Date) of the Issuer or Guarantor for any applicable information, documentation or certification concerning the nationality, residence or identity or connection with the Kingdom of Sweden of the Holder or beneficial owner, which if provided on a timely basis, would have permitted the payment to be made without withholding or deduction (or with a reduced rate of withholding or deduction); or
(iv) required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the "Code") or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, or any law implementing an intergovernmental approach thereto.
(b) Taxing jurisdiction: If the Issuer or the Guarantor becomes subject at any time to any taxing jurisdiction other than the Kingdom of Sweden, references in these Conditions to Issuer's taxing jurisdiction or Guarantor's taxing jurisdiction shall be construed as references to the Kingdom of Sweden.
13. EVENTS OF DEFAULT
If any of the following events occurs and is continuing:
(a) Non-payment: the Issuer fails to pay any amount of principal in respect of the Notes on the due date for payment thereof or fails to pay any amount of interest in respect of the
- 68 -
Notes on the due date for payment thereof and such default continues for a period of 15 days; or
(b) Breach of other obligations: the Issuer or the Guarantor defaults in the performance or observance of any of its other obligations under or in respect of the Notes or the Guarantee of the Notes and such default remains unremedied for at least 60 days after written notice thereof, addressed to the Issuer and the Guarantor by any Noteholder, has been delivered to the Issuer and the Guarantor or to the Specified Office of the Fiscal Agent; or
(c) Cross-default of Issuer, Guarantor or Material Subsidiary:
(i) any Indebtedness of the Issuer, the Guarantor or any Material Subsidiary is not paid when due or (as the case may be) within any originally applicable grace period;
(ii) any Indebtedness of the Issuer, the Guarantor or any Material Subsidiary becomes due and payable prior to its stated maturity by reason of an event of default, howsoever described; or
(iii) the Issuer, the Guarantor or any Material Subsidiary fails to pay when due any amount payable by it under any Guarantee of any Indebtedness;
provided that the amount of Indebtedness referred to in sub-paragraph (i) and/or sub- paragraph (ii) above and/or the amount payable under any Guarantee referred to in sub- paragraph (iii) above individually or in the aggregate exceeds EUR 40,000,000 (or its equivalent in any other currency or currencies); or
(d) Unsatisfied judgment: one or more judgment(s) or order(s) (not covered by insurance) from which no further appeal or judicial review is permissible under applicable law for the payment of an aggregate amount in excess of EUR 40,000,000 (or its equivalent in any other currency or currencies) is rendered against the Issuer, the Guarantor or any Material Subsidiary and continue(s) unsatisfied and unstayed for a period of 60 days after the date(s) thereof or, if later, the date therein specified for payment; or
(e) Security enforced: a secured party takes possession, or a receiver, manager or other similar officer is appointed, of the whole or any substantial part of the undertaking, assets and revenues of the Issuer, the Guarantor or any Material Subsidiary; or
(f) Insolvency etc: (i) the Issuer, the Guarantor or any Material Subsidiary becomes insolvent or is unable to pay its debts as they fall due, (ii) an administrator or liquidator is appointed (or application for any such appointment is made) in respect of the Issuer, the Guarantor or any Material Subsidiary or the whole or any substantial part of the undertaking, assets and revenues of the Issuer, the Guarantor or any Material Subsidiary, unless the petition to commence such proceedings or procedure is discharged, stayed or dismissed within 60 days of such commencement, (iii) the Issuer, the Guarantor or any Material Subsidiary takes any action for a readjustment or deferment of any of its obligations or makes a general assignment or an arrangement or composition with or for the benefit of its creditors or declares a moratorium in respect of any of its Indebtedness or any Guarantee of any Indebtedness given by it or (iv) the Issuer, the Guarantor or any Material Subsidiary ceases or threatens to cease to carry on all or substantially all of its business otherwise than, in the case of a Material Subsidiary, for the purposes of a Permitted Restructuring; or
(g) Winding up etc: an order is made or an effective resolution is passed for the winding up, liquidation or dissolution of the Issuer, the Guarantor or any Material Subsidiary otherwise than, in the case of a Material Subsidiary, for the purposes of a Permitted Restructuring; or
(h) Analogous event: any event occurs which under the laws of the Kingdom of Sweden has an analogous effect to any of the events referred to in paragraphs (d) to (g) above; or
- 69 -
(i) Unlawfulness: it is or will become unlawful for the Issuer or the Guarantor to perform or comply with any of its obligations under or in respect of the Notes or the Deed of Guarantee; or
(j) Guarantee not in force: the Guarantee of the Notes is not (or is claimed by the Guarantor not to be) in full force and effect.
then any Note may, by written notice addressed by the Holder thereof to the Issuer and the Guarantor and delivered to the Issuer and the Guarantor or to the Specified Office of the Fiscal Agent, be declared immediately due and payable, whereupon it shall become immediately due and payable at its Early Termination Amount together with accrued interest (if any) without further action or formality.
14. PRESCRIPTION
Claims for principal in respect of Bearer Notes shall become void unless the relevant Bearer Notes are presented for payment within ten years of the appropriate Relevant Date. Claims for interest in respect of Bearer Notes shall become void unless the relevant Coupons are presented for payment within five years of the appropriate Relevant Date. Claims for principal and interest on redemption in respect of Registered Notes shall become void unless the relevant Note Certificates are surrendered for payment within ten years of the appropriate Relevant Date.
15. REPLACEMENT OF NOTES AND COUPONS
If any Note, Note Certificate or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the Fiscal Agent, in the case of Bearer Notes, or the Registrar, in the case of Registered Notes (and, if the Notes are then admitted to listing, trading and/or quotation by any competent authority, stock exchange and/or quotation system which requires the appointment of a Paying Agent or Transfer Agent in any particular place, the Paying Agent or Transfer Agent having its Specified Office in the place required by such competent authority, stock exchange and/or quotation system), subject to all applicable laws and competent authority, stock exchange and/or quotation system requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may reasonably require. Mutilated or defaced Notes, Note Certificates or Coupons must be surrendered before replacements will be issued.
16. AGENTS
In acting under the Agency Agreement and in connection with the Notes and the Coupons, the Agents act solely as agents of the Issuer and the Guarantor and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders or Couponholders.
The initial Agents and their initial Specified Offices are listed below. The initial Calculation Agent (if any) is specified in the relevant Pricing Supplement. The Issuer and the Guarantor reserves the right at any time to vary or terminate the appointment of any Agent and to appoint a successor fiscal agent or registrar or Calculation Agent and additional or successor paying agents; provided, however, that:
(a) the Issuer and the Guarantor shall at all times maintain a fiscal agent and a registrar; and
(b) if a Calculation Agent is specified in the relevant Pricing Supplement, the Issuer and the Guarantor shall at all times maintain a Calculation Agent; and
(c) if and for so long as the Notes are admitted to listing, trading and/or quotation by any competent authority, stock exchange and/or quotation system which requires the appointment of a Paying Agent and/or a Transfer Agent in any particular place, the Issuer and the Guarantor shall maintain a Paying Agent and/or a Transfer Agent having its Specified Office in the place required by such competent authority, stock exchange and/or quotation system.
Notice of any change in any of the Agents or in their Specified Offices shall promptly be given to the Noteholders.
- 70 -
17. MEETINGS OF NOTEHOLDERS; MODIFICATION AND WAIVER
(a) Meetings of Noteholders: The Agency Agreement contains provisions for convening meetings (including by way of conference call or by use of videoconference platform) of Noteholders to consider matters relating to the Notes, including the modification of any provision of these Conditions. Any such modification may be made if sanctioned by an Extraordinary Resolution. Such a meeting may be convened by the Issuer and the Guarantor (acting together) and shall be convened by them upon the request in writing of Noteholders holding not less than one-tenth of the aggregate principal amount of the outstanding Notes. The quorum at any meeting convened to vote on an Extraordinary Resolution will be two or more Persons holding or representing one more than half of the aggregate principal amount of the outstanding Notes or, at any adjourned meeting, two or more Persons being or representing Noteholders whatever the principal amount of the Notes held or represented; provided, however, that Reserved Matters may only be sanctioned by an Extraordinary Resolution passed at a meeting of Noteholders at which two or more Persons holding or representing not less than three-quarters or, at any adjourned meeting, one quarter of the aggregate principal amount of the outstanding Notes form a quorum. Any Extraordinary Resolution duly passed at any such meeting shall be binding on all the Noteholders and Couponholders, whether present or not.
In addition, a resolution in writing signed by or on behalf of all Noteholders who for the time being are entitled to receive notice of a meeting of Noteholders will take effect as if it were an Extraordinary Resolution. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.
(b) Modification: The Notes, these Conditions, the Deed of Guarantee and the Deed of Covenant may be amended without the consent of the Noteholders or the Couponholders to correct a manifest error or as a result of the operation of Condition 7(i) (Benchmark Discontinuation). In addition, the parties to the Agency Agreement may agree to modify any provision thereof, but the Issuer and the Guarantor shall not agree, without the consent of the Noteholders, to any such modification unless it is of a formal, minor or technical nature or it is made to correct a manifest error or it is, in the opinion of such parties, not materially prejudiced to the interests of the noteholders.
18. FURTHER ISSUES
The Issuer may from time to time, without the consent of the Noteholders or the Couponholders, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest) so as to form a single series with the Notes.
19. NOTICES
(a) Bearer Notes: Notices to the Holders of Bearer Notes shall be valid if published in a leading English language daily newspaper published in London (which is expected to be the Financial Times) and, if the Bearer Notes are admitted to trading on the Luxembourg Stock Exchange and it is a requirement of applicable law or regulations, a leading newspaper having general circulation in Luxembourg (which is expected to be Luxemburger Wort) or published on the website of the Luxembourg Stock Exchange (www.bourse.lu) or in either case, if such publication is not practicable, in a leading English language daily newspaper having general circulation in Europe. Any such notice shall be deemed to have been given on the date of first publication (or if required to be published in more than one newspaper, on the first date on which publication shall have been made in all the required newspapers). Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the Holders of Bearer Notes.
(b) Registered Notes: Notices to the Holders of Registered Notes shall be sent to them by first class mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses on the Register and, if the Registered Notes are admitted to trading on the Luxembourg Stock Exchange and it is a requirement of applicable law or regulations, notices to Noteholders will be published on the date of such mailing in a
- 71 -
leading newspaper having general circulation in Luxembourg (which is expected to be Luxemburger Wort) or published on the website of the Luxembourg Stock Exchange (www.bourse.lu) or in either case, if such publication is not practicable, in a leading English language daily newspaper having general circulation in Europe. Any such notice shall be deemed to have been given on the fourth day after the date of mailing.
20. ROUNDING
For the purposes of any calculations referred to in these Conditions (unless otherwise specified in these Conditions or the relevant Pricing Supplement), (a) all percentages resulting from such calculations will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with 0.000005 per cent. being rounded up to 0.00001 per cent.), (b) all United States dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one half cent being rounded up), (c) all Japanese Yen amounts used in or resulting from such calculations will be rounded downwards to the next lower whole Japanese Yen amount, and (d) all amounts denominated in any other currency used in or resulting from such calculations will be rounded to the nearest two decimal places in such currency, with 0.005 being rounded upwards.
21. GOVERNING LAW AND JURISDICTION
(a) Governing law: The Notes and any non-contractual obligations arising out of or in connection with the Notes are governed by English law.
(b) English courts: The courts of England have exclusive jurisdiction to settle any dispute (a "Dispute") arising out of or in connection with the Notes (including any non-contractual obligation arising out of or in connection with the Notes).
(c) Appropriate forum: The Issuer agrees that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that it will not argue to the contrary.
(d) Rights of the Noteholders to take proceedings outside England: Notwithstanding Condition 21(b) (English courts), any Noteholder may take proceedings relating to a Dispute ("Proceedings") in any other courts with jurisdiction. To the extent allowed by law, Noteholders may take concurrent Proceedings in any number of jurisdictions.
(e) Service of process: The Issuer agrees that the documents which start any Proceedings and any other documents required to be served in relation to those Proceedings may be served on it by being delivered to Volvo Car UK Limited at its registered office at Scandinavia House, Norreys Drive, Maidenhead, SL6 4FL, or to such other person with an address in England or Wales and/or at such other address in England or Wales as the Issuer may specify by notice in writing to the Noteholders. Nothing in this paragraph shall affect the right of any Noteholder to serve process in any other manner permitted by law. This Condition applies to Proceedings in England and to Proceedings elsewhere.
(f) Waiver of immunity: To the extent that the Issuer has any immunity from the jurisdiction of any court or from any process, the Issuer hereby irrevocably agrees not to claim, and hereby waives, any such immunity.
- 72 -
FORM OF PRICING SUPPLEMENT
Set out below is the form of Pricing Supplement which will be completed for each Tranche of Notes issued under the Programme.
[PROHIBITION OF SALES TO EEA RETAIL INVESTORS – The Notes are not intended to be offered, sold or otherwise made available to, and should not be offered, sold or otherwise made available to, any retail investor in the European Economic Area ("EEA"). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, "MiFID II"); or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the "Insurance Distribution Directive"), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the "EU PRIIPs Regulation") for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the EU PRIIPs Regulation.][Include unless the Pricing Supplement specifies "Prohibition of Sales to EEA Retail Investors" as "Not Applicable"]
[PROHIBITION OF SALES TO UK RETAIL INVESTORS – The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the United Kingdom ("UK"). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 ("EUWA"); (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (as amended, the "FSMA") and any rules or regulations made under the FSMA to implement the Directive (EU) 2016/97 (as amended, the "Insurance Distribution Directive") /[the Insurance Distribution Directive], where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law in the UK by virtue of the EUWA. Consequently no key information document required by Regulation (EU) No 1286/2014 as it forms part of domestic law in the UK by virtue of the EUWA (the "UK PRIIPs Regulation") for offering or selling the Notes or otherwise making them available to retail investors in the UK has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the UK may be unlawful under the UK PRIIPs Regulation.]
[MIFID II product governance / Professional investors and ECPs only target market – Solely for the purposes of [the/each] manufacturer's product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties and professional clients only, each as defined in [Directive 2014/65/EU (as amended, "MiFID II")] [MiFID II]; and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. [Consider any negative target market.] Any person subsequently offering, selling or recommending the Notes (a "distributor") should take into consideration the manufacturer['s/s'] target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturer['s/s'] target market assessment) and determining appropriate distribution channels.]
[UK MIFIR product governance / Professional investors and ECPs only target market – Solely for the purposes of [the/each] manufacturer's product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is only eligible counterparties, as defined in the FCA Handbook Conduct of Business Sourcebook ("COBS"), and professional clients, as defined in Regulation (EU) No 600/2014 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 ("UK MiFIR"); and (ii) all channels for distribution of the [Notes] to eligible counterparties and professional clients are appropriate. [Consider any negative target market]. Any person subsequently offering, selling or recommending the Notes (a "distributor")]/[distributor] should take into consideration the manufacturer['s/s'] target market assessment; however, a distributor subject to the FCA Handbook Product Intervention and Product Governance Sourcebook (the "MiFIR Product Governance Rules") is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturer['s/s'] target market assessment) and determining appropriate distribution channels.]
[Singapore Securities and Futures Act Product Classification – Solely for the purposes of its obligations pursuant to sections 309B(1)(a) and 309B(1)(c) of the Securities and Futures Act (Chapter 289 of
- 73 -
Singapore)(the "SFA"), the Issuer has determined, and hereby notifies all relevant persons (as defined in Section 309A of the SFA) that the Notes are ["prescribed capital markets products "]/["capital markets products other than prescribed capital markets products"] (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018).]
Pricing Supplement dated [•]
VOLVO CAR AB (PUBL)
(a public limited liability company incorporated in the Kingdom of Sweden)
Legal Entity Identifier (LEI): 5299000EAMGGBEYP7J33
Issue of [Aggregate Principal Amount of Tranche][Title of Notes]
Guaranteed by VOLVO CAR CORPORATION
(a private limited liability company incorporated in the Kingdom of Sweden)
under the EUR3,000,000,000 Euro Medium Term Note Programme
PART A—CONTRACTUAL TERMS
Terms used herein shall be deemed to be defined as such for the purposes of the Terms and Conditions of the Notes (the "Conditions") set forth in the Offering Circular dated 27 May 2021 [and the supplemental Offering Circular dated [•]]. This document constitutes the Pricing Supplement relating to the issue of Notes described herein. This Pricing Supplement contains the final terms of the Notes and must be read in conjunction with such Offering Circular [as so supplemented].
The following alternative language applies if the first tranche of an issue which is being increased was issued under an Offering Circular with an earlier date:
[Terms used herein shall be deemed to be defined as such for the purposes of the Terms and Conditions of the Notes (the "Conditions") set forth in the Offering Circular dated [original date] and incorporated by reference in to the Offering Circular dated 27 May 2021 [as supplemented by the supplemental Offering Circular[s] dated [•]] ([as so supplemented, ]the "Offering Circular"). This document constitutes the Pricing Supplement relating to the issue of Notes described herein. This Pricing Supplement contains the final terms of the Notes and must be read in conjunction with the Offering Circular [as so supplemented].
Full information on the Issuer, the Guarantor and the offer of the Notes described herein is only available on the basis of the combination of this Pricing Supplement and the Offering Circular [as so supplemented]. The Offering Circular [and the supplemental Offering Circular] [is] [are] available for viewing [at [website]] [and] during normal business hours at [address] [and copies may be obtained from [address]].
[Include whichever of the following apply or specify as "Not Applicable" (N/A). Note that the numbering should remain as set out below, even if "Not Applicable" is indicated for individual paragraphs or sub- paragraphs. Italics denote guidance for completing the Pricing Supplement.]
[When completing a pricing supplement, or adding any other Pricing Supplement or information, consideration should be given as to whether such terms or information constitute "significant new factors" and consequently trigger the need for a supplement to the Offering Circular in accordance with the rules of the Luxembourg Stock Exchange]
1. (i) Issuer: Volvo Car AB (publ)
(ii) Guarantor: Volvo Car Corporation
2. (i) Series Number: [•]
[(ii) Tranche Number: [•]
- 74 -
[(iii) Date on which the Notes [Not Applicable/The Notes shall be consolidated, form a become fungible: single series and be interchangeable for trading purposes with the [•] on [[•]/the Issue Date/exchange of the Temporary Global Note for interests in the Permanent Global Note, as referred to in paragraph [22] below [which is expected to occur on or about [•]].]
3. Specified Currency or [•] Currencies:
4. Aggregate Principal Amount: [•]
[(i)] Series: [•]
[(ii) Tranche: [•]]
5. Issue Price: [•] per cent. of the Aggregate Principal Amount [plus accrued interest from [•]]
6. (i) Specified [•] [and integral multiples of [•] in excess thereof up to and Denominations: including [•]. No notes in definitive form will be issued with a denomination above [•]]
(ii) Calculation Amount: [•]
7. (i) Issue Date: [•]
(ii) Interest [Specify/Issue Date/Not Applicable] Commencement Date:
8. Maturity Date: [•]
9. Interest Basis: [[•] per cent. Fixed Rate]
[•] [•] [EURIBOR] +/– [•] per cent. Floating Rate]
[Zero Coupon]
(further particulars specified below in paragraph(s) [14/15/16])
10. Redemption/Payment Basis: Subject to any purchase and cancellation or early redemption, the Notes will be redeemed on the Maturity Date at [[•]/[100]] per cent. of their principal amount.
11. Change of Interest or [Applicable/Not Applicable] Redemption/Payment Basis:
12. Put/Call Options: [Not Applicable]
[Investor Put]
[Change of Control Put]
[Issuer Call]
(See paragraph(s) [17/18/19] below)
13. [(i)] Status of the Notes: Senior
[(ii)] Status of the Guarantee: Senior
- 75 -
[(iii)] [Date [Board] approval [•] for issuance of Notes [and Guarantee] [respectively] obtained]:
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
14. Fixed Rate Note Provisions [Applicable/Not Applicable]
(i) Rate[(s)] of Interest: [•] per cent. per annum payable in arrear on each Interest Payment Date
(ii) Interest Payment [[•] [and [•]] in each year up to and including the Maturity Date(s): Date]
(iii) Fixed Coupon [•] per Calculation Amount Amount[(s)]:
(iv) Broken Amount(s): [•] per Calculation Amount, payable on the Interest Payment Date falling [in/on] [•]/[Not Applicable]
(v) Day Count Fraction: [Actual/Actual (ICMA)/Actual/Actual (ISDA)/Actual/365 (Fixed)/Actual/360/30/360/30E/360]
(vi) Determination Dates: [[•] in each year/Not Applicable]
(vii) Business Day [Floating Rate Convention/Following Business Day Convention: Convention/Modified Following Business Day Convention/Preceding Business Day Convention/No Adjustment]
15. Floating Rate Note Provisions [Applicable/Not Applicable]
(i) Specified Period [•]
(ii) Specified Interest [•] in each year Payment Dates:
(iii) First Interest Payment [•] Date:
(iv) Business Day [Floating Rate Convention/Following Business Day Convention: Convention/Modified Following Business Day Convention/Preceding Business Day Convention/No Adjustment]
(v) Additional Business [Not Applicable/[•]] Centre(s):
(vi) Manner in which the [Screen Rate Determination/ISDA Determination] Rate(s) of Interest is/are to be determined:
(vii) Party responsible for [[•] shall be the Calculation Agent] [name and address of calculating the Rate(s) Calculation Agent to be inserted]] Amount(s) (if not the of Interest and/or Fiscal Agent): Interest Amount(s) (if not the [Fiscal Agent])
(viii) Screen Rate [•] [•] [EURIBOR] Determination:
- 76 -
Reference [•] Rate:
Interest [•] Determination Date(s):
Relevant [•] Screen Page:
Relevant Time [•]
Relevant [•] Financial Centre
(ix) ISDA Determination: [•]
Floating Rate [•] Option:
Designated [•] Maturity:
Reset Date: [•]
(x) [Linear Interpolation: Not Applicable / Applicable – the Rate of Interest for the [long/short] [first/last] Interest Period shall be calculated using Linear Interpolation]
(xi) Margin(s): [+/-][•] per cent. per annum
(xii) Minimum Rate of [•] per cent. per annum Interest:
(xiii) Maximum Rate of [•] per cent. per annum Interest:
(xiv) Day Count Fraction: [Actual/Actual (ICMA)/Actual/Actual (ISDA)/Actual/365 (Fixed)/Actual/360/30/360/30E/360]
16. Zero Coupon Note Provisions [Applicable/Not Applicable]
(i) Accrual Yield: [•] per cent. per annum
(ii) Reference Price: [•]
(iii) Day Count Fraction in [Actual/Actual (ICMA/Actual/Actual/(ISDA)/Actual/365 relation to early (Fixed)/Actual/360/30/360/30E/360] Redemption Amounts:
PROVISIONS RELATING TO REDEMPTION
17. Call Option [Applicable/Not Applicable]
(i) Optional Redemption [•] Date(s) (Call):
- 77 -
(ii) Optional Redemption [•] per Calculation Amount/Make-Whole Amount] Amount(s) (Call) of each Note:
[(a) Benchmark [•] Security(ies):
[(b) Reference Time: [•]
[(c) Make-Whole [•] per cent. Margin:
[(d) Par Redemption [[•] [Not Applicable]] Date:
[(e) Linear [Applicable/Not Applicable] Interpolations:
(iii) If redeemable in part:
(a) Minimum [•] per Calculation Amount Redemption Amount:
(b) Maximum [•] per Calculation Amount Redemption Amount
(iv) Notice period: [•]
18. Put Option [Applicable/Not Applicable]
(i) Optional Redemption [•] Date(s) (Put):
(ii) Optional Redemption [•] per Calculation Amount Amount(s) (Put) of each Note and method, if any, of calculation of such amount(s):
(iii) Notice period: [•]
19. Final Redemption Amount of [[•] per Calculation Amount/Not Applicable] each Note
20. Early Redemption Amount [[•] per Calculation Amount/Not Applicable] (Tax)
21. Early Termination Amount [[•] per Calculation Amount/Not Applicable]
GENERAL PROVISIONS APPLICABLE TO THE NOTES
22. Form of Notes [Bearer Notes:]
[Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Notes on [•] days' notice/at any time/in the limited circumstances specified in the Permanent Global Note]
[Temporary Global Note exchangeable for Definitive Notes on [•] days' notice]
- 78 -
[Permanent Global Note exchangeable for Definitive Notes on [•] days' notice/at any time/in the limited circumstances specified in the Permanent Global Note]
(N.B. The exchange upon notice/at any time options should not be expressed to be applicable if the Specified Denomination of the Notes includes language substantially to the following effect: "EUR100,000 and integral multiples of EUR1,000 in excess thereof up to and including EUR199,000". Furthermore, such Specified Denomination construction is not permitted in relation to any issuance of Notes which is to be represented on issue by Permanent Bearer Global Notes exchangeable for Definitive Notes.)
[Registered Notes:]
Global Registered Note registered in the name of a nominee for [a common depositary for Euroclear and Clearstream, Luxembourg/a common safekeeper for Euroclear and Clearstream, Luxembourg (that is, held under the New Safekeeping Structure (NSS))]
23. New Global Note: [Yes] [No] [Not Applicable]
24. Additional Financial Centre(s): [Not Applicable/[•]]
25. Talons for future Coupons to be [Yes/No. As the Notes have more than 27 coupon attached to Definitive Notes (and payments, talons may be required if, on exchange into dates on which such Talons definitive form, more than 27 coupon payments are left.] mature):
THIRD PARTY INFORMATION
[[•] has been extracted from [•].] The Issuer and the Guarantor confirm that such information has been accurately reproduced and that, so far as it is aware, and is able to ascertain from information published by [•], no facts have been omitted which would render the reproduced information inaccurate or misleading.
Signed on behalf of Volvo Car AB
By: ...... By: ...... (duly authorised) (duly authorised)
Signed on behalf of Volvo Car Corporation
By: ...... By: ...... (duly authorised) (duly authorised)
- 79 -
PART B – OTHER INFORMATION
1. LISTING AND ADMISSION TO TRADING
(i) Listing: [Official List of the Luxembourg Stock Exchange/[•]/None]
(ii) Admission to Trading: [Application has been made by the Issuer (or on its behalf) for the Notes to be admitted to trading on the Euro MTF Market of the Luxembourg Stock Exchange with effect from [•].] [Not Applicable.]
[Application has been made for the Notes to be displayed on the Luxembourg Green Exchange (LGX)]
(iii) Estimate of total expenses [•] related to admission to trading:
2. RATINGS [The Notes to be issued [have been/are expected to be] rated]/[are unrated]
Ratings: [Standard & Poor's: [•]]
[Moody's: [•]]
[•]
Option 1 - CRA established in the EEA and registered under the EU CRA Regulation and details of whether rating is endorsed by a credit rating agency established and registered in the UK or certified under the UK CRA Regulation
[Insert legal name of particular credit rating agency entity providing rating] is established in the EEA and registered under Regulation (EU) No. 1060/2009, as amended (the "EU CRA Regulation"). [[Insert legal name of particular credit rating agency entity providing rating] appears on the latest update of the list of registered credit rating agencies (as of [insert date of most recent list]) on the ESMA website http://www.esma.europa.eu.]. [The rating [Insert legal name of particular credit rating agency entity providing rating] has given to the Notes is endorsed by [insert legal name of credit rating agency], which is established in the UK and registered under Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 (the "UK CRA Regulation").]/[[ Insert legal name of particular credit rating agency entity providing rating] has been certified under Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 (the "UK CRA Regulation").]/ [[Insert legal name of particular credit rating agency entity providing rating] has not been certified under Regulation (EU) No. 1060/2009, as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 (the "UK CRA Regulation") and the rating it has given to the Notes is
- 80 -
not endorsed by a credit rating agency established in the UK and registered under the CRA Regulation (UK).]
Option 2 - CRA established in the EEA, not registered under the CRA Regulation but has applied for registration and details of whether rating is endorsed by a credit rating agency established and registered in the UK or certified under the CRA Regulation (UK)
[Insert legal name of particular credit rating agency entity providing rating] is established in the EEA and has applied for registration under Regulation (EU) No. 1060/2009, as amended (the "EU CRA Regulation"), although notification of the corresponding registration decision has not yet been provided by the [relevant competent authority]/[European Securities and Markets Authority]. [[Insert legal name of particular credit rating agency entity providing rating] appears on the latest update of the list of registered credit rating agencies (as of [insert date of most recent list]) on the ESMA website http://www.esma.europa.eu.]. [The rating [Insert legal name of particular credit rating agency entity providing rating] has given to the Notes is endorsed by [insert legal name of credit rating agency], which is established in the UK and registered under Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 (the "UK CRA Regulation").]/[[Insert legal name of particular credit rating agency entity providing rating] has been certified under Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 (the "UK CRA Regulation").]/[[Insert legal name of particular credit rating agency entity providing rating] has not been certified under Regulation (EU) No. 1060/2009, as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 (the "UK CRA Regulation") and the rating it has given to the Notes is not endorsed by a credit rating agency established in the UK and registered under the UK CRA Regulation.]
Option 3 - CRA established in the EEA, not registered under the EU CRA Regulation and not applied for registration and details of whether rating is endorsed by a credit rating agency established and registered in the UK or certified under the UK CRA Regulation
[Insert legal name of particular credit rating agency entity providing rating] is established in the EEA and is neither registered nor has it applied for registration under Regulation (EU) No. 1060/2009, as amended (the "EU CRA Regulation"). [[Insert legal name of particular credit rating agency entity providing rating] appears on the latest update of the list of registered credit rating agencies (as of [insert date of most recent list]) on the ESMA website http://www.esma.europa.eu.]. [The rating [Insert legal name of particular credit rating agency entity providing rating] has given to the Notes is endorsed by [insert legal name of credit rating agency], which is established in the UK and registered under Regulation (EU) No. 1060/2009 as it forms part of
- 81 -
domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 ( the "UK CRA Regulation").] /[[Insert legal name of particular credit rating agency entity providing rating] has been certified under Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 ( the "UK CRA Regulation").]/ [[Insert legal name of particular credit rating agency entity providing rating] has not been certified under Regulation (EU) No. 1060/2009, as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 ( the "UK CRA Regulation") and the rating it has given to the Notes is not endorsed by a credit rating agency established in the UK and registered under the UK CRA Regulation.]
Option 4 - CRA established in the UK and registered under the UK CRA Regulation and details of whether rating is endorsed by a credit rating agency established and registered in the EEA or certified under the EU CRA Regulation
[Insert legal name of particular credit rating agency entity providing rating] is established in the UK and registered under Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 ( the "UK CRA Regulation"). [[Insert legal name of particular credit rating agency entity providing rating] appears on the latest update of the list of registered credit rating agencies (as of [insert date of most recent list]) on [FCA]. [The rating [Insert legal name of particular credit rating agency entity providing rating] has given to the Notes to be issued under the Programme is endorsed by [insert legal name of credit rating agency], which is established in the EEA and registered under Regulation (EU) No. 1060/2009, as amended (the "EU CRA Regulation").] [[Insert legal name of particular credit rating agency entity providing rating] has been certified under Regulation (EU) No. 1060/2009, as amended (the "EU CRA Regulation").] [[Insert legal name of particular credit rating agency entity providing rating] has not been certified under Regulation (EU) No. 1060/2009, as amended (the "UK CRA Regulation") and the rating it has given to the Notes is not endorsed by a credit rating agency established in the EEA and registered under the EU CRA Regulation.]
Option 5 - CRA not established in the EEA or the UK but relevant rating is endorsed by a CRA which is established and registered under the CRA Regulation (EU) AND/OR under the CRA Regulation (UK)
[Insert legal name of particular credit rating agency entity providing rating] is not established in the EEA or the UK but the rating it has given to the Notes to be issued under the Programme is endorsed by [[insert legal name of credit rating agency], which is established in the EEA and registered under Regulation (EU) No. 1060/2009, as amended (the "EU CRA Regulation")][and][[insert legal name of credit rating agency], which is established
- 82 -
in the UK and registered under Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 ( the "UK CRA Regulation")].
Option 6 - CRA not established in the EEA or the UK and relevant rating is not endorsed under the CRA Regulation (EU) or the CRA Regulation (UK) but CRA is certified under the CRA Regulation (EU) AND/OR under the CRA Regulation (UK)
[Insert legal name of particular credit rating agency entity providing rating] is not established in the EEA or the UK but is certified under [Regulation (EU) No. 1060/2009, as amended (the "EU CRA Regulation")][and][ Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 (the "UK CRA Regulation"].
Option 7 - CRA neither established in the EEA or the UK nor certified under the EU CRA Regulation or the UK CRA Regulation and relevant rating is not endorsed under the EU CRA Regulation or the UK CRA Regulation
[Insert legal name of particular credit rating agency entity providing rating] is not established in the EEA or the UK and is not certified under Regulation (EU) No. 1060/2009, as amended (the "EU CRA Regulation") or Regulation (EU) No. 1060/2009 as it forms part of domestic law in the UK by virtue of the European Union (Withdrawal) Act 2018 (the "UK CRA Regulation") and the rating it has given to the Notes is not endorsed by a credit rating agency established in either the EEA and registered under the EU CRA Regulation or in the UK and registered under the UK CRA Regulation.
3. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE/OFFER
[Save for any fees payable to the [Dealers], so far as the Issuer and the Guarantor are aware, no person involved in the offer of the Notes has an interest material to the offer. The [Dealers] and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform other services for, the Issuer, the Guarantor and their affiliates in the ordinary course of business.]/[•]/[Not Applicable]
4. REASONS FOR THE OFFER
[See "Use of Proceeds" wording in Offering Circular.] [The Notes are intended to be issued as Green Bonds, [further particulars to be provided].] [The Issuer will allocate the net proceeds towards the financing and/or refinancing of eligible green projects (see "Use of Proceeds" section in the Offering Circular)/[specify other uses for the green bond proceeds]]
5. [Fixed Rate Notes only – YIELD [Applicable/Not Applicable]
Indication of yield: [•]
[The yield is calculated at the Issue Date on the basis of the Issue Price. It is not an indication of future yield.]
- 83 -
6. Floating Rate Notes only – [Applicable/Not Applicable] HISTORIC INTEREST RATES
7. OPERATIONAL INFORMATION
ISIN Code: [•]
Common Code: [•]
[FISN Code: [[See/[[include code], as updated, as set out on] the website of the Association of National Numbering Agencies (ANNA) or alternatively sourced from the responsible National Numbering Agency that assigned the ISIN/Not Applicable/Not Available]
[CFI Code: [[See/[[include code], as updated, as set out on] the website of the Association of National Numbering Agencies (ANNA) or alternatively sourced from the responsible National Numbering Agency that assigned the ISIN/Not Applicable/Not Available]
Delivery Delivery [against/free of] payment
Names and addresses of additional [•] Paying Agent(s) (if any):
Intended to be held in a manner which would allow Eurosystem eligibility:
8. DISTRIBUTION
[Intended to be held in a manner [Yes. Note that the designation "yes" simply means that which would allow Eurosystem the Notes are intended upon issue to be deposited with eligibility: one of the ICSDs as common safekeeper [[, and registered in the name of a nominee of one of the ICSDs acting as common safekeeper,] [include this text for registered notes]] and does not necessarily mean that the Notes will be recognised as eligible collateral for Eurosystem monetary policy and intra day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon the ECB being satisfied that Eurosystem eligibility criteria have been met.] /
[No. Whilst the designation is specified as "no" at the date of this Pricing Supplement, should the Eurosystem eligibility criteria be amended in the future such that the Notes are capable of meeting them the Notes may then be deposited with one of the ICSDs as common safekeeper [[and registered in the name of a nominee of one of the ICSDs acting as common safekeeper,][include this text for registered notes]]. Note that this does not necessarily mean that the Notes will then be recognised as eligible collateral for Eurosystem monetary policy and intra day credit operations by the Eurosystem at any time during their life. Such recognition will depend upon the ECB being satisfied that Eurosystem eligibility criteria have been met.]
- 84 -
(i) Method of distribution: [Syndicated/Non-syndicated]
(ii) If syndicated: [Not Applicable/give names]
(a) Names of Dealers: [•]
(b) Date of [•] subscription agreement:
(c) Stabilising [Not Applicable/[•]] Manager(s) (if any):
(iii) If non-syndicated, name of [Not Applicable/give name] Dealer:
(iv) Prohibition of Sales to EEA [Applicable/Not Applicable] Retail Investors: (If the Notes clearly do not constitute "packaged" products or the Notes do constitute "packaged" products and key information document will be prepared, "Not Applicable" should be specified. If the offer of the Notes may constitute "packaged" products and no key information document will be prepared, "Applicable" should be specified.)
(v) Prohibition of Sales to UK [Applicable/Not Applicable] Retail Investors: (If the Notes clearly do not constitute "packaged" products or the Notes do constitute "packaged" products and key information document will be prepared, "Not Applicable" should be specified. If the offer of the Notes may constitute "packaged" products and no key information document will be prepared, "Applicable" should be specified.)
(vi) Prohibition of Sales to [Applicable/Not Applicable] Belgian Consumers: (N.B. advice should be taken from Belgian counsel before disapplying this selling restriction)
(vii) US Selling Restrictions [Reg. S Compliance Category 2]; [TEFRA C/TEFRA D/TEFRA not applicable]
9. PROVISIONS RELATING TO GREEN BONDS
Green Bonds: [Yes/No]
[Reviewer(s):] [Name of sustainability rating agency(ies)[ and name of third party assurance agent] and [give details of compliance opinion(s) and availability]]
[Date of Third Party Opinion(s):] [Not Applicable/give details]
- 85 -
USE OF PROCEEDS
The Issuer will use the net proceeds from the issue of each Series of Notes for its general corporate purposes or as may otherwise be disclosed in the applicable Pricing Supplement.
If the applicable Pricing Supplement indicates that the Notes are intended to constitute green bonds ("Green Bonds"), an amount equivalent to the net proceeds of such Green Bonds will be used to finance or refinance, in whole or in part, new or existing, projects, assets or activities that meet the eligibility criteria set out in the Green Financing Framework (as defined below) and which originated no more than three years prior to the year in which such Green Bonds were issued (the "Eligible Projects").
Eligible Projects will include those which involve the design, development and manufacturing of zero emission vehicles (such as battery electric vehicles and powertrains) and the construction of new or the upgrading of existing manufacturing facilities to produce zero emission vehicles or related components, including electric vehicle batteries.
The application of the net proceeds of any such Green Bonds as described above will be subject to specific eligibility criteria to be applied to the new or existing projects, as detailed in Volvo Cars Green Financing Framework (the "Green Financing Framework"). Until the full allocation of the net proceeds of the relevant Green Bonds to the Eligible Green Project(s), the balance of unallocated net proceeds will be earmarked and invested in cash and/or cash equivalent and/or other liquid marketable instruments, as per the Issuer's cash management policy.
The Green Financing Framework is in accordance with the Green Bond Principles 2018 (updated as of June 2018) published by the International Capital Markets Association (the "Green Bond Principles"). The Issuer has also considered, on a best efforts basis, the recommendations set out in the EU Technical Expert Group on Sustainable Finance Report on the EU Taxonomy published in March 2020, in establishing the eligibility criteria set out in the Green Financing Framework.
The Issuer has appointed CICERO Shades of Green ("CICERO") to provide a second party opinion on the alignment of the Green Financing Framework with the Green Bond Principles.
The Group has established the Green Financing Committee (the "GFC"). The role of the GFC is to review and validate the selection of the Eligible Projects. It will be made up of representatives from the following teams and departments: (i) Sustainability, (ii) Treasury, (iii) Business Control, (iv) Investor Relations and (v) other functional departments (as deemed necessary).
The GFC will meet on a semi-annual basis and will be responsible for:
reviewing and validating the pool of Eligible Projects in accordance with the eligibility criteria set out in the Green Financing Framework;
monitoring the Eligible Projects pool during the life of the relevant Green Bonds;
preparing and recommending any changes or updates to the Green Financing Framework;
reviewing and preparing the Green Financing Report (defined below) for investors; and
monitoring the on-going developments related to the sustainable financing markets in terms of disclosure and reporting in order to be in-line with market best practices.
The Group will publish an allocation report (the "Green Financing Report") within one year of the Issue Date of the relevant Green Bonds which will be updated annually until full allocation of an amount equivalent to the net proceeds or until none of the relevant Green Bonds remains outstanding, whichever is earlier.
The Green Financing Report, which will be reviewed by an independent third party, will provide information on the allocation of the net proceeds of the Green Bonds and where possible, on the environmental impact of Eligible Projects portfolio financed by the Green Bonds. The Group will also report on relevant environmental impact metrics where feasible, and it will disclose measurement methodology for quantitative indicators.
- 86 -
The Green Financing Framework, CICERO second party opinion and information on the Eligible Projects are available on the Group's website at https://investors.volvocars.com/. The Group may amend or update the Green Financing Framework in the future. Any changes to the Green Financing Framework would be publicly announced on the Group's website.
For the avoidance of doubt, the Green Financing Framework, CICERO second party opinion and information on the Eligible Projects on the Group's website are not incorporated by reference into, and do not form part of, this Offering Circular.
- 87 -
BUSINESS
History and Overview
Volvo Cars was founded upon the concept of quality and safety by Assar Gabrielsson and Gustaf Larson in Gothenburg, Sweden, and in 1927 the first vehicle ever produced by Volvo Cars, the ÖV4, nicknamed Jakob was released. In 1999, Volvo Cars was acquired by the Ford Motor Company ("Ford") and remained part of its premier automotive group until 2010.
When Ford sold its ownership in the Group to Geely in 2010, Volvo Cars implemented a strategic transformation, from its status as a division within a large automobile group into a standalone premium automobile brand. Between 2010 and 2015, Volvo Cars made significant investments in technology, its geographical footprint and internal organisation to establish a solid foundation for future growth. Volvo Cars has since been able to build on this foundation to substantially refresh and refocus its product portfolio, while expanding its global presence in Europe, China, the United States as well as other markets in the Americas, the Middle East and the Asia-Pacific region.
Volvo Cars is one of the world’s fastest growing premium automotive brands with a purpose to provide its customers with the freedom to move in a personal, sustainable and safe way. Volvo Cars is focused on the design, engineering, manufacture, distribution and sale of premium cars, as well as subscription and other mobility services. Volvo Cars believes that its human-centric approach to the design of products and services is key to the long-term success of its business and strives to reflect its core values of safety and sustainability throughout its business.
Volvo Cars believes that a fundamental shift is taking place in the automotive industry with regards to the importance of sustainability and digitalisation. As a result, in 2017 Volvo Cars was the first traditional carmaker to announce a transition to total electrification, and has committed to offer an electrified option (in the form of either a mild hybrid electric vehicle ("MHEV") where the vehicle’s electric motor assists the engine, PHEV, which can be recharged by plugging a charging cable into an electric power source, or battery electric vehicles ("BEVs"), which use electric motors, motor controllers and rechargeable battery packs), for every car model launched from 2019 onwards with the goal of being a pure electric car company by 2030. Since 2017, Volvo Cars has ceased investing in new diesel engine development and has planned a gradual phase-out of cars purely powered by internal combustion engines ("ICE") and intends to merge its existing ICE plants together with its parent company, Geely into a standalone business. The final agreements are not yet signed and will be subject to the approval of the EGM of Geely Automobile Holdings Ltd. and various other approvals.
In 2020, Volvo Cars continued to make progress on its transformation into a premium electric car brand as it introduced its first fully electric vehicle, the XC40 Recharge and, in March 2021, it announced the launch of a new C Series model (crossover) and the first vehicle in this series, the fully electric C40 Recharge. Volvo Cars plans to launch a fully electric car every year in the years leading up to 2024, and the new electric vehicle architectures are being developed for a new range of electric cars, with the XC90 as the first model to be launched in 2022.
From 2021 onwards, all of Volvo Cars fully electric cars will be offered mainly online where legally possible. The updated www.volvocars.com website which exists in addition to Volvo Cars other existing sales channels, such as partners and inner-city studio concepts, aims to ensure that customers can access all Volvo Cars products wherever they are and however they would like, to further strengthen customer relations, both online and offline. Volvo Cars is also working to reduce the complexity of its offerings and make more cars available for quick delivery. Furthermore, in order to make online sales even more customer friendly, Volvo Cars intends to enhance online offers to include insurance and service.
The Group has a global manufacturing footprint with an integrated third-party supply chain that allows for production flexibility, responsiveness to market demand and cost optimisation. The Group owns and operates five car plants, two engine plants, and one body component plant across Europe and Asia. The Group is also contracted with the Geely owned Luqiao plant in China as a contract manufacturer to which the Group provides management and operational support. Additionally, the Group operates assembly plants in Malaysia and India and has research and design centres in Europe, Asia and North America.
- 88 -
The following table presents the Group's total retail sales, including retail sales in its key markets as a percentage of total retail sales, net revenue, and EBITDA for the years ended 31 December 2020 and 2019.
(SEK millions, except retail sales) Year ended 31 December 2020 2019 Retail sales ...... 661,713 705,452 Europe ...... 44% 48% US ...... 17% 15% China ...... 25% 22% Other ...... 14% 15% Net revenue ...... 262,833 274,117 EBITDA ...... 22,965 29,851 ______Other includes markets such as Japan, Russia and South Korea.
Group Structure
The Group includes Volvo Car AB (publ.) and its subsidiaries, including Volvo Car Corporation. Subsidiaries are all entities over which the Group has control. In addition, the Group has ownership interests in numerous strategic affiliates (for instance Lynk & Co and Polestar (see "The Group's Strategic Affiliates", below, for further details)). The Group is managed by the Executive Management Team, led by the CEO and overseen by the Board of Directors of Volvo Car AB (publ.).
The Issuer's principal activity is to act as the holding company of the Guarantor and the Group. The Issuer was incorporated on 7 June 2010 as a limited liability company of indefinite duration. As at the date of this Offering Circular, the registered share capital of the Issuer consists of 50,000,000 fully paid ordinary A- shares of SEK 1 in nominal value, all of which are owned by Geely Sweden Holdings AB, and 1,138,794 fully paid preference C-shares of SEK 1 in nominal value which are owned by institutional investors.
The Guarantor was incorporated on 11 October 1960 as a private limited liability company of indefinite duration. The Guarantor's registered share capital consists of 723,530 fully paid ordinary shares of SEK 1,000 in nominal value.
The operating activities of the Group are conducted wholly through the Guarantor and its wholly-owned subsidiaries and joint venture interests, and the Issuer has no other material activities or assets. A structure diagram for the Group is set out below. The financial statements of the Guarantor are fully consolidated in the financial statements of the Issuer.
- 89 -
Recent Developments
On 12 May 2021, the Board of Directors of the Issuer (the "Board") announced its intention to evaluate an initial public offering of Volvo Cars on Nasdaq Stockholm (the "IPO"). If the IPO proceeds, it would be expected to occur in 2021, but no decision has been taken and there can be no certainty that a listing will proceed.
Key Strengths and Competitive Advantages
The Group is one of the fastest growing car makers in the world as it continues to gain market share and generate strong cash flow. To many, the Volvo Cars brand is synonymous with safety and the Group has one of the most ambitious climate plans in the industry. As a leader in electrification, connectivity and autonomous driving, the Group is collaborating with some of the world's leading technology companies as well as its sister companies within the Geely Group.
Since 2019, every new Volvo car model launched is offered with an electric motor and Volvo Cars aims to launch a new BEV every year. Volvo Cars mid-term ambition is to sell 50 per cent. fully electric cars of its total sale volume by mid-decade.
The Group is investing in online sales and actively explores new ways of giving its customers access to a car. All of this is enabled by the Group's global and diverse workforce – a group of highly-skilled people demonstrating unique competences within the areas of safety and autonomous driving technology, electrification and connectivity, as well as wide-ranging experience in manufacturing and selling Volvo cars.
The Group has a set of distinct competitive strengths that the Group believes leave it well-positioned to grow in the transforming automotive market:
1. Superior growth;
2. Strong brand leading the way in safety and sustainability;
3. Frontrunner in commercial transformation;
4. Delivering on the electrification strategy;
- 90 -
5. Creating value with strong partnerships; and
6. Strong cash flow and solid financial position.
1. Superior Growth
The continued strengthening of the Volvo Cars brand has had a clear and positive effect on the Group's products and market position as well as its operations and financial development. It is one of the fastest growing global OEMs with a strong track record of superior growth and market share gains. For example, the Group's revenue growth since 2012 until 2020 has been above 100 per cent., much higher than the growth of the Group's main German premium car-manufacturer peers, and the Group's revenue per car has grown 18 per cent. since between 2016 until and 2020. Margin improvements are expected to be realised through fixed and variable cost efficiencies and revenue management. The Group also intends to merge its existing combustion engine operations with those of Geely's to maximise economies of scale and reduce the fixed cost base as well as capital employed.
The award-winning portfolio of cars continues to be key to the Group's success. The portfolio has been continuously expanded and includes sedans, wagons and SUVs of various sizes.
The Group expects the portfolio expansion to continue with the possibility of adding large and extra small cars as well as aerodynamically designed SUV derivatives. This is expected to expand the potential market and enhance profitability for the Group. The portfolio strategy is complemented by the following key aims:
Continue strategy with a portfolio focused on the premium car segment and aligned with consumer preferences.
Widen the portfolio in profitable growing segments without too much diversification (and a focus on aerodynamically designed SUVs).
Ensure that all models have the option for a BEV variant and to position Polestar as a vanguard for electrification, including one new BEV model launch per year.
Continue to produce vehicles within the car line concept "Recharge" to drive branding and adoption of BEVs and PHEVs.
Utilise synergies within the Geely group, for example on the electric vehicle architectures and battery sourcing.
The Group believes being owned by Geely, a privately-owned Chinese automotive group, positions the Group well to seize new growth opportunities in China as well as globally. Other drivers affecting profitability and costs include:
Widen the portfolio in profitable growing segments without too much diversification (and a focus on modern aerodynamically designed SUVs) using an updated order to delivery system which is expected to reduce lead times, increase transparency with customers and dealers, as well as increase stability in the Group's own planning and production; and an integrated sales production system to reduce discounts and optimise the sales mix. This is expected to improve average selling price and increase sales of higher margin vehicles.
Initiatives to reduce material costs as well as opportunities for more cost-efficient distribution and servicing. This is expected to improve variable costs.
Increase operational leverage as volumes of sales are expected to grow above the level of the Group's cost base as well as increased coordination with strategic affiliates and the rest of the Geely group to share costs and leverage group scale.
2. Strong Brand Leading the Way in Safety and Sustainability
The Group places people at the centre of the Group's brand and design philosophy – every product and service the Group offers to its consumers should make their lives easier, better and safer. The Group's human-centric brand is reinforced by the Group's long-standing history as an undisputable leader in
- 91 -
innovation related to safety, the Group's commitment to the highest standards in sustainable mobility and the Group's responsible business conduct. The Group believes these attributes, along with the Scandinavian design aesthetic of its products, help define the Volvo Cars brand and align it with current societal and industry growth trends.
In April 2020, Volvo Cars and Veoneer, the automotive safety equipment company, announced their intention to divide Zenuity, the 50/50 joint venture focused on the development of assisted and autonomous driving software, in order for each company to focus more effectively on their respective strategies. On 1 July 2020, the two companies signed and implemented the final agreement whereby Volvo Cars acquires, through a wholly-owned separate subsidiary, certain part of Zenuity’s net assets and personnel. The initial focus will be on the development of technology for Volvo Cars’ next generation Scalable Platform Architecture, the SPA 2.
The Group believes that the brand's long-standing reputation for safety is an important competitive advantage for the Group when addressing the trend towards AD. The Group's history of technological innovations related to safety and Advanced Driver Assistance Systems ("ADAS"), has helped the Group to develop the initial know-how and technology, as well as the AD and ADAS technology developed by Zenseact for Volvo Cars' next generation electric vehicle architectures.
The Group's brand association with a commitment to sustainability, dating back to the Group's introduction of the first catalytic converter in 1976 and continuing to the recent progressive strategy towards engine downsizing, phasing out diesel engines and electrification (see "–History and Overview" for further details), positions the Group to take advantage of trends towards electrification and sustainable driving. The Group continues its bold commitments to sustainability with ambitions to be a climate neutral company by 2040, a circular business by 2040 as well as being a recognised leader in ethical and responsible business. The Group believes this brand positioning is reinforced by the Group's responsible business conduct, having been named several times as one of the world's most ethical companies by the Ethisphere Institute.
Within the area of electrification which is core to the Group's sustainability ambitions, the Group believes it is positioned to compete profitably due to:
Early preparation, as it was the first premium brand to downsize engines, announce an end to diesel, as well as announce a fully electrified portfolio strategy.
Progressive brand image conducive to electrification together with the continued potential to raise the average selling price and increase sales of higher margin vehicles.
Less limiting legacy, including the intention to merge its existing combustion engine plants together with Geely into a standalone business, effectively removing ICE operations from the Group's balance sheet. The new entity would supply ICEs for hybrid engines in Volvo Cars, other Geely Group entities as well as potentially third-party customers. This would allow Volvo Cars to focus research and development ("R&D") efforts exclusively on electrification, simplify the manufacturing footprint ahead of the transition to BEVs, and reduce the fixed cost and capital employed.
Flexible and focused strategy with production narrowed down to several electric vehicle architectures which are flexible for hybrid electric vehicles, PHEVs and BEVs, all of which will be based on the core product range rather than a separate product line. The battery deals signed with CATL and LG Chem provide flexibility to increase scale in stages subject to demand.
Sharing costs with strategic affiliates and the broader Geely group.
New routes to customers are expected to facilitate BEV adoption for consumers while enabling the Group to leverage the total cost of ownership benefits of BEVs. As a result, dealer compensation models are being revised to reduce the costs of selling EVs.
The Group is committed to ensuring that Volvo Cars customers can drive electrified Volvos knowing that the material for the batteries has been sourced responsibly. The Group aims to be the first carmaker to implement global traceability of cobalt used in its batteries by applying blockchain technology.
3. Frontrunner in Commercial Transformation
- 92 -
The Group is actively implementing new ways to go to market by changing what it sells, how it sells and where it sells its products and services. Moving towards direct consumer business and increased online sales, the Group continues its development of new business models for subscription services (Care by Volvo) and convenient access to a car (M – Volvo Car Mobility). Investments in online sales channels are ongoing which are developed in collaboration with its existing retailer network.
4. Delivering on the Electrification Strategy
The Group believes the future is electric and continues to deliver highly competitive electrified products based on advanced technology shared with its strategic affiliate and progressive performance brand Polestar. By 2025, the Group expects that around approximately 80 per cent of its total capitalised expenditures will be referenced to electrification. Represented by the Recharge concept, the launch pipeline of only all- electric and hybrid cars is strong; the first fully electric XC40 Recharge rolled out to customers in 2020, the launch of the all-new C40 Recharge took place early in 2021, and the Group will launch a whole family of new, fully electric cars in coming years. Taking advantage of its clear leadership in sales of PHEVs and exceeding the EU CO2 emissions target with a significant margin, the Group has entered to a pooling arrangement with Ford, offering the excess credits for sale. The Group continues to be responsive in terms of ramp-up and has rapidly increased its BEV and PHEV capacity.
5. Creating Value with Strong Partnerships
The automotive industry is undergoing significant technological and commercial changes including the impact of electrification, autonomous, connected and shared driving and the evolution towards a service- based business model. Additionally, public concerns surrounding the effects of combustion engine emissions on the environment are increasing, leading consumers and regulators alike to search for sustainable solutions and sustainable products. The Group believes that it is in a position to take advantage of industry changes as it is a flexible and fast moving organisation, the Group has flexible vehicle and powertrain production platforms, it has a progressive electrification strategy and is open to partnerships.
Together with Geely, the strategic affiliates Polestar and Lynk & Co as well as with companies outside the broader Geely Group, Volvo Cars continues to explore new areas of cooperation and ways to achieve synergies, competitiveness and deliver long-term value. Examples include e.g. joint development and investments in next-generation scalable platforms and manufacturing as well as partnerships within the areas of charging infrastructure, connectivity, safety and autonomous driving.
The Group has been able to benefit from fully integrating the Group's Chinese production into the Group's global industrial footprint, enabling the Group to ensure they are operated in accordance with the Group's global standards, and therefore giving the Group the flexibility to use China as an export base. For example, the Group can produce XC60s in China to meet local demand or export these to other countries around the world.
The Group has started to benefit from synergies within this broader Geely ecosystem. A key driver of many of these synergies is the use of common vehicle platforms and shared technology as well as powertrain architectures across Volvo Cars and those of the Group's strategic affiliates. This gives the Group a powerful platform to extract synergies across numerous of areas, such as the ability to:
Share the Group's R&D costs over a broader base, thereby reducing R&D costs per unit of production and facilitating a profitable transition to BEVs: R&D cost sharing between the wider Geely group continues in many areas, such as for example between Volvo Cars and Polestar. Geely-owned CEVT is an additional example where investment costs for the CMA architecture were shared equally between the Group and Geely Automobile Holdings Ltd., and the Group further benefitted by only paying for the Group's share of the research and development costs in 2017 once the CMA platform was fully-developed and launched its first vehicle using the architecture in 2017 (see "Technology" for further details). Another example is the intention to merge the Group's existing combustion engine plants together with Geely into a standalone business, effectively removing ICE operations from the Group's balance sheet, allowing Volvo Cars to focus R&D efforts exclusively on electrification, simplify the manufacturing footprint ahead of the transition to BEVs, and reduce the fixed cost and capital employed.
Reduce procurement costs by leveraging the greater scale of common components purchased from suppliers to negotiate lower prices and secure availability of necessary parts: There is a high level
- 93 -
of commonality of components in relation to the CMA based cars used across different models on the same vehicle architectures – the majority of which are non-consumer facing. GVAT coordinates procurement savings within the Geely group leveraging group scale, such as for example the new battery supply agreements.
Use the Group's manufacturing and logistics footprint more flexibly by producing different brands and models in the same plants: As vehicles designed on the same vehicle architecture can be produced on the same manufacturing lines, the Group is able to use the combined manufacturing footprint of Volvo Cars and Geely flexibly to maximise its utilisation and to adapt quickly to changes in demand for different models in different regions. For example, the Group operates and produces both the XC40's and the Polestar 2 in Geely's Luqiao facility.
Distribution and servicing channels: The Group has the opportunity to support its affiliates globally, adding further scale for dealers, and facilitating cost savings for Volvo Cars. Additionally, the digital systems can potentially be shared in the background (i.e. on non-consumer facing interfaces).
6. Strong Cash Flow and Solid Financial Position
The Group continues to generate strong cash flow and a solid financial position, funding its investments, profitable growth and dividend distribution.
The Group's strategic framework is built upon its purpose – Freedom to move in a personal, sustainable and safe way. The Group commits to the highest standard of sustainability in mobility to protect the world everyone shares. It considers itself to be an authentic, responsible change-maker. The Group's commitment to responsible business conduct and ethical values run through everything it does.
Volvo Cars' approach to sustainability management is central to its business and key to its future success and sustainability is as important to the company as safety. Volvo Cars is committed to protecting and improving the environment and wider society, as well as the lives of its customers and employees. Volvo Cars' sustainability strategy is fully integrated into the corporate strategy and provides guidance to strategic and operational decisions. The Group's sustainability strategy is also challenged frequently by regular analysis, that includes climate-related risks and opportunities.
International commitments
Volvo Cars is proud to be a founding member of the UN Global Compact in 2000. Since then, Volvo Cars has endeavoured to observe the Ten Principles of the Global Compact. This includes Principle 7, the adoption of a precautionary approach to environmental challenges. Furthermore, Volvo Cars is committed to supporting the United Nations Sustainable Development Goals (SDGs). The SDGs act as its guide, where it focuses on and addresses 5 of the 17 goals through its sustainability strategy. The SDGs relevant to the Group's business are:
In addition to the UN Global Compact, Volvo Cars' own Code of Conduct (Our Code – How We Act) reflects the following international conventions and guidelines:
The eight core conventions of the UN Agency, the International Labour Organisation (ILO); child Labour (138 and 182), Forced Labour and Compulsory Labour (29 and 105), Equal Remuneration and Discrimination (100 and 111), and Freedom of Association and Collective Bargaining (87 and 98).
The 10 Principles of the Global Compact.
The Universal Declaration of Human Rights.
UN Convention on the Rights of the Child.
- 94 -
OECD Guidelines for Multinational Companies.
UN Guiding Principles on Business and Human Rights.
Sustainability Governance
Volvo Cars has put in place a governance structure to monitor the progress of its sustainability strategy, ambitions and initiatives.
Board of Directors ("BoD")
The BoD sets the strategic direction and approves Volvo Cars' strategy including sustainability.
People and Sustainability Committee ("PSC")
The BoD follows up progress mainly in the PSC meetings. The Group's climate action plan with its risks and opportunities is discussed at least twice a year. PSC also brings a diverse and outside perspective to sustainability issues for the company.
Executive Management Team ("EMT")
The EMT is responsible for the overall governance, execution and implementation of the sustainability strategy and regularly monitors progress through numerous key performance indicators. The climate action plan with risks and opportunities is reviewed quarterly.
Global Sustainability Committee ("GSC")
The GSC is chaired by the Head of Global Sustainability and consists of members that are authorised line organisation representatives with the mandate to take decisions, provide guidance and support initiatives to drive the strategy and performance forward. The purpose is to improve cross-departmental collaboration and understanding as well as act on major sustainability issues and risks. The GSC regularly updates and reports to relevant EMT boards for decision. Climate related risks and opportunities are discussed and fed into the Enterprise Risk Management process, where the Head of Global Sustainability is one of the corporate Risk Managers.
Functional Management Teams
Functional Management Teams are responsible for ensuring that sustainability becomes an integrated part of everyone's daily work. They are sounding boards for the GSC members and can be requested to secure resources and funding for sustainability initiatives.
Global Sustainability Team ("GST")
The GST is centrally responsible for the day-to-day governance and coordination of sustainability. It develops and refines the sustainability strategy, leads and supports the strategic initiatives and follows up the progress of the Group's key performance indicators. It also gathers business intelligence on sustainability matters.
Green Finance Committee ("GFC")
The GFC reviews and validates the selection of the Eligible green Projects.
- 95 -
Sustainability Reporting
Volvo Cars published its first Environmental Report in 1992. It was expanded to a Sustainability Report in 2003 in line with the guideline of the Global Reporting Initiative (GRI). The 2020 report is prepared in accordance with GRI Standards, accordance level core. Volvo Cars reports on an annual basis, and covers the period January 1st to December 31st. Volvo Cars' Sustainability Report has been prepared to meet the statutory requirements in accordance with the Swedish Annual Accounts Act 6 chapter 11§.
Volvo Cars' Sustainability Strategy
The materiality analysis and input from the Group's stakeholders have been aligned with its internal strategies, scenario and gap analyses, risk assessments, benchmarking, forecasts and consumer perception data in order to define what the Group considers to be its most relevant material topics. It then developed the structure of its sustainability strategy with clear focus areas, ambitions and strategic initiatives.
The Group commits to the highest standard of sustainability in mobility. It believes that by working towards climate neutrality, embracing the circular economy and conducting business responsibly, it will help the planet, contribute to a fairer and more equal society, as well as support its profitable growth. In partnership with its stakeholders, it can increase the impact of its efforts to make a global difference and promote sustainable development.
- 96 -
Climate Action – Be a Climate Neutral Company by 2020
Action to reduce the Group's carbon emissions has the highest priority in its sustainability strategy. It is a contributor to climate change. It is part of the problem, but also part of the solution. Therefore, it is taking actions across its whole value chain. It has the ambition to be a climate neutral company by 2040, in line with the 2015 Paris Agreement which seeks to limit global warming to 1.5°c above pre-industrial levels and supporting SDG 13. Through the implementation of its electrification strategy, it is also supporting SDG 11 by increasing access to sustainable transportation and improved air quality.
The Group is aiming to reduce its lifecycle carbon footprint per car by 40 per cent. between 2018 and 2025. It plans to achieve this through the following carbon reductions (per car) across its value chain:
50 per cent. reduction in tailpipe emissions.
25 per cent. reduction in supply chain emissions.
25 per cent. reduction in operational emissions (including from logistics and manufacturing).
In 2020, its total CO2 emissions amounted to 34.3 million tonnes, or 52.1 tonnes/car, which is a 6.2 per cent. per car reduction between 2018 and 2020. This reduction is mainly due to increased sales of electrified vehicles, but also due to decreased emissions from downstream transportation and distribution, as well as business travel and commuting.
The lifecycle performance of the Group's products
The Group has a long history of carrying out environmental assessments with a holistic perspective. It carries out simplified Life cycle Assessments (LCAs) on all its models and it continuously develop and improve its methods. LCAs also enable the Group to work within its own operations and supply chain to target carbon intensive materials and processes.
Circular Economy – Be a Circular Business by 2040
The Group recognises the benefits of the circular economy in keeping its products and components in use for longer; minimising the need to extract finite resources, efficiently use resources, eliminating wastage
- 97 -
and helping reduce its overall carbon emissions. The Group also acknowledges that the circular economy can help generate substantial savings, as well as create new revenue streams, including through greater material efficiency and component value retention.
The Group is moving away from the linear economic model and is applying circular economic principles in order to meet its climate ambitions, secure future availability of materials, as well as ensure efficient raw material usage and waste management practices. This means that the Group is transforming the way its products are designed, produced and used, and that it support SDG 12 and SDG 13 (United Nations Sustainable Development Goals, SDG's).
Volvo Cars has the ambition to be a circular business by 2040. From 2025, its aim is that its adoption of the circular economy generates annual cost savings of MSEK 1,000 and carbon emission reductions of 2.5 million tonnes (2018 baseline). This will be done by:
Using 25 per cent. recycled and bio-based materials in its cars by 2025, and by using the most sustainable options when selecting materials such as wool and wood.
Increasing resource utilisation and minimising waste, including through reducing production related waste by 20 per cent. per produced unit between 2018 and 2025.
Retaining component value, including through reusing, refurbishing and remanufacturing parts.
Developing new business opportunities which optimise the efficient lifecycle of its products and components.
Volvo Cars recently became a member of the Ellen MacArthur Foundation (EMF), the world's leading organisation driving the transition to a circular economy. This will help both drive the Group's internal adoption of the circular economy, as well as promote wider adoption within industry.
Ethical and Responsible Business – Be a Recognised Leader in Ethical and Responsible Business
Volvo Cars aims to be a recognised leader in Ethical and Responsible Business. By acting ethically and responsibly, on both a corporate and individual level, the Group believes that this will not only enhance its brand appeal, attract investment and the best talent, and avoid reputational damage, but, importantly, help address global environmental and social challenges, including within its industry. Volvo Cars recognises that acting as a responsible company makes business sense and supports its profitability. Volvo Cars will work in partnership with others and aim to be an industry change-maker.
A strong corporate culture that focuses on ethics and leadership, as well as equal opportunities (SDG 5) and decent work for all (SDG 8), is critical towards achieving this, which the Group intends to do by:
Setting a new global people standard for our industry.
Putting sustainability on a par with cost and quality in its sourcing decisions.
Engaging in sustainable financing.
Tackling corruption and unethical business practices.
- 98 -
Sustainability Scorecard
1) Emissions are calculated based on the guidance of the Green House Gas protocol including emissions within our financial control. The following categories have been excluded; capital goods, Fuel and energy related activities, Processing of sold products and investments. due to an updated methodology as well as new input data from an external service provider, the figures for 2018 and 2019 are adjusted compared to prior communication to ensure accuracy, completeness and comparability. Company facilities: GHG emissions from our global manufacturing plants include the energy used, multiplied with an emission factor for each different energy type. GHG emissions from our global offices are reported based on purchased energy and generic emission factors. Where emissions in offices are missing, accessible data is extrapolated to represent global emissions. Emissions are calculated using a market-based methodology. Company vehicles: GHG emissions from company vehicles are related to the fuel consumed by our test cars, estimated using external emission factors from DEFRA and global procured volume of fuels for test cars. Emissions related to the production and end of life treatment of test cars are reported in Scope 3. Purchased electricity, steam, heating and cooling for own use: indirect GHG emissions for manufacturing facilities are calculated based on purchased energy and supplier specific emission factors, where such are available. Emissions from global offices as well as Volvo cars owned warehouses are reported based on purchased energy and generic emission factors. in cases where a location-based approach is taken, the energy mix per location is used. Where emissions from energy in offices is missing, accessible data is extrapolated to represent global emissions. Emissions are calculated using a market-based methodology. if calculated using a location-based methodology, total emissions for purchased electricity, steam, heating and cooling for own use would be 228,000 tons CO2. Purchased goods and services: Emissions from purchased materials are derived from material compositions of representative vehicles and CO2e emission factors from Sphera's LCA modelling software Gabi (including the greenhouse gases CO2, cH4, N20, HFc, PFc and SF6, among others), multiplied with the global manufactured volume. GHG emissions caused by materials and services not directly relating to the car are calculated on a spend-based approach using an extended environmental input-output life cycle assessment model developed by CIRAIG, deemed to have enough accuracy for selected emissions. Emissions from parts packaging for spare parts not captured in the spend-based model is calculated based on kg materials and relevant emissions factors. Transportation and distribution: GHG emissions from logistics is calculated by including inbound, outbound and parts supply logistics transports managed and paid for by Volvo cars, as well as emission factors derived from NTM. Radiative forcing is added for air freight. Waste generated in operations: GHG emissions from waste generated in our operations are calculated by categorizing waste volumes into types and treatment methods, as well as using external generic emissions factors from DEFRA.
- 99 -
Business travel: GHG emissions from air travel are calculated by using the flight distance reported by our travel agency, as well as emissions factors from NTM. Radiative forcing factor for domestic flights of 1.0; for both continental and intercontinental flights, radiative forcing factor of 2.0 is used. Emissions caused by other modes of business travel are calculated on a spend-based approach, using relevant emissions factors from public sources. Employee commuting: GHG emissions from employee commuting are based on global commuting distances and patterns for the reported years, based on simulation conducted with 31,000 employees with travel choice taken into account for the different regions. Leased assets upstream: Emissions from leased assets upstream includes emissions from the manufacturing plant in Luqiao, china, owned by Geely. Energy used is multiplied with an emission factor per energy type. Volvo cars' share of Luqiao emissions is calculated based on the total number of produced Volvo cars in Luqiao compared to the total number of cars produced in Luqiao. Emissions from waste generated by the production of Volvo cars is added by categorizing waste volumes into types and treatment methods, as well as using external generic emissions factors from DEFRA. Use of sold products: Average GHG emissions from use of sold products are based on official data Worldwide Harmonized Light Vehicle Test Procedure (WLTP) of Volvo sold cars in Europe (EU28), applied on car types and the global number of manufactured cars. Volvo cars product offer is global and EU data is a fair estimate of similar products worldwide. Total GHG emissions from use of produced products are then calculated by applying the CO2e emissions per km, mentioned above, on our global manufactured volume and an average mileage of 200,000 km per car. The accuracy of the calculation method can be influenced by real world factors not covered by the official data such as driving behaviour and different usage of auxiliary loads. Volvo cars ambition is to increase knowledge and accuracy over time and to be as transparent as possible regarding our GHG emissions from the use of our products. Many markets have car variants that are not tested on WLTP. These variants have previous years been assigned a fuel consumption based on a manually selected similar WLTP tested variant. From this year this process has instead been rule-based, automated and applied on all years in this report to ensure consistency. End of life treatment of sold products: GHG emissions caused by the end of life treatment of sold products are estimated based on emission factors from the battery electric Xc40 Recharge carbon footprint study and our global manufactured volume. Leased assets downstream: Emissions from leased assets downstream is calculated by summarizing the Volvo cars share of emissions reported by leased spare parts warehouses. Retailers: GHG emissions caused by retailers are based on financial data of EMEA Volvo cars retailers and a detailed analysis of seven selected retail sites and their CO2 per sold car. This is multiplied with total number of sold cars globally. 2) based on manufactured vehicles. 3) Percentage change versus 2018 baseline year. Note that figures may differ due to rounding.
The Group's Strategic Affiliates
Polestar – Electric Performance Brand
Polestar was established by Volvo Cars and is a new EV performance premium brand and is still a strategic affiliate of the Group although operating on a stand alone basis. With sustainability high on the agenda, Polestar is offering its customers progressive, electrified performance cars combined with convenient ownership and comprehensive customer experience. With the Polestar 1 and 2 models, the company offers a driving style and design aesthetic which is notably different from Volvo cars and therefore appeals to different consumers than those that the Volvo brand typically serves. This allows the Group to access the performance sub-segment of the premium market, which is characterised by high margin potentials and an opportunity to grow faster than the broader premium segment. Polestar is set up for global sales and will be leveraging on a close collaboration in many areas with Volvo and the broader Geely group, for example by leveraging on Volvo Cars' existing manufacturing capabilities.
Polestar is owned 46.1 per cent. by Volvo Cars.
Lynk & Co – Capturing New Consumer Groups
Lynk & Co is offering its customers in-car connectivity, vehicle sharing, online sales and a subscription model. During 2020, Lynk & Co launched two new models (05 and 06) and the Chinese consumers can now choose between five different models through the company's dealer network. In Europe, the first Lynk & Co model (01) was revealed and has this quarter reached the market.
The commercial launch is a cooperation between Volvo Cars and Lynk & Co, which includes workshop networks, technical support, aftermarket as well as vehicle and parts logistics.
Lynk & Co is owned by Volvo Cars (30 per cent.), Zhejiang Geely Holding Group (20 per cent.) and Geely Automobile Holdings Ltd. (50 per cent.).
- 100 -
The Group's Cars
The Group designs, develops, manufactures and sells a range of premium cars, including sedans, wagons, cross country vehicles and SUVs. The Group's range of premium cars is recognised for its design, safety and technological innovation.
The Group categorises its models by model range (40, 60, and 90) as well body type (Sedan (S), Estate (V) and SUV (XC)). In addition, it offers variants such as R-Design, Inscription and Cross Country on certain models to cater for consumer demands in respect of both driving experience, comfort and styling. Since 2019, all new models launched have been offered with an electric motor; either purely electric, plug-in hybrid or as a mild hybrid (B-badged cars). Chargeable cars are collectively called Recharge.
The table below presents the Group's retail sales by model for the years ended 31 December 2020 and 2019.
Year ended 31 December 2020 2019 XC60/XC60 Classic ...... 191,696 204,981 XC40 ...... 185,406 139,847 XC90 ...... 92,458 100,729 V60V60/V60 Cross Country ...... 64,912 68,577 S60/S60 Cross Country ...... 52,251 42,795 S90 ...... 46,027 56,355 V90/V90 Cross Country ...... 25,569 40,621 V40/V40 Cross Country ...... 3,394 51,542 Total ...... 661,713 705,452
Product Creation
For over a century, the internal combustion engine was the dominate force in the auto industry. But as the world enters a new era for the automotive industry in the world, the Group believes that the internal combustion engine has run its course and that the Group needs to change gears.
That is why, in 2017, the Group announced a shift to all-out electrification. In 2020 the Group continued to make good progress on its transformation towards becoming a premium electric car brand. The XC40 Recharge is the first of several fully electric Volvos to be introduced in the coming years. Electric Volvos deliver on everything that customers expect from a Volvo, with the bonus of zero tailpipe emissions.
The Group is well positioned to benefit from the demand growth in coming years, as the only car maker on the market that offers a plug-in hybrid variant on every model in its portfolio. The Group also offers mild- hybrid variants of its ICE cars, which reduce fuel consumptions by recovering kinetic energy during braking. The Group continues to invest in more fully electric models, new vehicle platforms designed for electrification, as well as in-house electric motor, design development and production.
Research and Development
The Group's highly advanced global product development platform consists of R&D facilities located in Sweden, China and the United States. The Group's R&D platform supports its long-term strategic mission to be the world's most progressive and desired premium car company and to make people's lives less complicated. The Group continues to invest steadily in R&D in order to strengthen the Group's product portfolio to meet consumer and regulatory demands, with a focus on technology and fuel efficiency. In recent years, R&D has focused on electrification, autonomous driving technologies and connectivity. In co- operation with other companies and institutions Volvo Cars has developed CMA, a three-cylinder engine, new connectivity and on-demand solutions. The following table details the Group's R&D expenses for the years ended 31 December 2020 and 2019.
Year ended 31 December 2020 2019 (SEK in millions) Research and development spending ...... –14,828 –14,662 Capitalised development costs ...... 7,517 8,088 Amortisation and depreciation of research and development* ..... –4,051 –4,872 Research and development expenses ...... -11,362 -11,446
- 101 -
______*The amortisation expenses has decreased by SEK 666 million, due to adjustments of the useful life period to reflect updated assumptions and cycle plan changes.
One of the main focuses for product development is to continuously improve efficiency and reduce lead times for cars. With shorter lead times and higher efficiency for the same R&D spend, the Group will be better positioned to respond to changing consumer needs.
Going forward, leveraging on co-investments with its Strategic Affiliates, the Group plans to maintain a relatively stable level of R&D investments (as a percentage of revenue) each year and will focus resources on areas such as electrical propulsion, base software and core computer, infotainment operating system and in-car digital applications.
Design
The Group's cars are designed and developed by award-winning teams at design centres in Sweden, China and the United States. The Group's three-stage design process focuses on functionality, quality and precision of detail and visual expression. Inspired by the design of modern high-tech sports equipment, the Group believes that its cars are sophisticated, safe and capable cars for people with an active lifestyle. In addition, the Group's Swedish heritage and strong connection to the Scandinavian lifestyle is reflected in the Group's "Scandinavian Design".
Technology
The Group has invested heavily in the development of technologically advanced cars and is at the forefront of advances to capitalise on current premium market trends, including vehicle architecture, engine architecture, safety, electrification, autonomous driving, CO2 emissions and connectivity.
Vehicle Architecture
With the development and introduction of the two flexible modular architectures SPA and CMA, the Group has been taking advantage of commonality between SPA and CMA and thereby creating economies of scale, lowering new model development costs and reducing time to market. Both architectures were designed from the outset to embrace electrification, providing for an excellent base for updated fully electrified versions of the platforms.
Scalable Product Architecture
The Volvo XC90 launched in 2015, was the first car built on SPA. SPA is a global, full-size architecture that was developed in-house between 2010 and 2014. SPA utilises shared modules and scalable systems and components, allowing a wide range of cars, all with differing complexity, to be fitted on the same architecture, generating significant economies of scale and cost optimisation. The new Volvo XC90, which is expected to launch in 2022, will be based on the next generation electric vehicle architecture.
Compact Modular Architecture
Since 2014, the Group has been co-developing with Ningbo Geely and its wholly owned subsidiary, CEVT, the next-generation C-segment vehicle architecture for smaller compact cars, CMA, which forms the basis of its C-segment cars (i.e., the 40 models). The development costs for CMA have been shared equally between Ningbo Geely and the Group. The cash investment for R&D required to develop this architecture was funded by Ningbo Geely. The Group will pay its share of the R&D costs when the architecture was finalised The technology, however, is owned by Ningbo Geely, and the Group has an irrevocable, perpetual licence to use such technology which is coordinated through GVAT.
The first CMA car produced for Volvo Cars was the XC40. Production started in Ghent in 2017. CMA is a modular architecture that allows for the development of different cars with different performance levels to be fitted on the same architecture, ensuring tailor made solutions for the Geely and Volvo Cars brands. With CMA, the Group and Geely Auto are able to cost share across models of smaller cars with different levels of performance, and leverage Geely's Chinese sourcing and procurement capabilities. CMA allows Volvo Cars to offer consumers of compact cars the same type of premium engineering benefits as owners of its larger cars built on SPA. CMA has been designed from the outset to embrace electrification and offers Twin Engine PHEVs and BEVs. In March 2021, the Group announced the launch of the C40 Recharge,
- 102 -
which will be based on the CMA platform. The C40 Recharge is the first Volvo model designed to be launched purely as an electric car and production is expected to commence in Ghent in the autumn of 2021.
Electrification
In 2020, Volvo Cars opened a brand-new electric motor lab in Shanghai, for the development and testing of electric car components. Volvo Cars will assemble electric motors at its powertrain plant in Skövde, Sweden, and plans to establish a complete in-house e-motor production by mid-decade.
Volvo Cars has implemented an electrification strategy intended to reduce CO2 emissions, align its global operations with the carbon neutrality goals of the Paris Agreement and ensure ownership of electric vehicles is as convenient as possible for consumers. As part of its sustainability efforts, Volvo Cars was the first global premium automotive brand to publicly announce its commitment to phase out diesel engines, and since 2017 Volvo Cars no longer develops new generations of diesel engines. Since 2019, every new Volvo Cars car model launched is offered with an electric motor and Volvo Cars aims to regularly launch BEVs.
Safety
Safety is core to what the Group's brand and company stands for, and the Group believes that safety should be central to everything it does. Throughout 2020, the Group continued to push safety boundaries towards our vision of zero casualties or serious injuries and all the Group's models are among the safest available on the market.
The Group has developed and introduced many safety features, including the three-point safety belt, the rear-facing child safety seat and child booster cushion features and side impact protection and whiplash protection. Further achievements in safety include Driver Alert and the low speed collision avoidance system, pedestrian air-bag and cyclist detection with full auto-brake.
In coming years the Group will continue to develop new safety technologies, focusing on three main areas: advanced driver assistance systems, autonomous driving and driver behaviour. These areas offer great possibilities to further advance safety and reduce injuries and fatalities in traffic.
The Group plans to introduce an autonomous driving feature called Highway Pilot in its next generation of cars based on modular electric vehicle architectures. Those cars will be available as hardware-ready for autonomous drive from production start and have a LIDAR sensor seamlessly integrated into the roof. That LIDAR sensor, supplied by the Group's technology partner Luminar, is key in creating cars that can navigate safely in autonomous mode.
While legislation and technology still have some catching up to do before autonomous driving is widespread, the Group continues to develop safety systems in other areas as well.
Protecting and Supporting People
With run-off road accidents being a common cause of fatal traffic accidents, the Group has developed a run-off road protection package, which includes Safe Positioning, Lane Keeping Aid, Driver Alert Control and Rest Stop Guidance, to protect occupants from run-off road scenarios. The Safe Positioning capability detects a run-off road scenario and tightens the front safety belts to keep occupants in position. To prevent such run-off road scenarios, safety technologies such as the Lane Keeping Aid apply extra steering torque if the car is about to leave the lane unintentionally, while Driver Alert Control detects and warns inattentive drivers and Rest Stop Guidance directs drivers to the nearest rest area. City Safety, the Group's standard offering of auto brake functions, includes collision-avoidance and mitigation technologies as well as the world's first auto brake at intersection capability.
Volvo Cars' Accident Research Team has compiled real-world data since the 1970s to better understand what happens during a collision. This research suggests that women and men appear equally in this data, which is why Volvo Cars believes they should be equally represented in testing. With the "Equal Vehicles for All" initiative, Volvo Cars is sharing the results of more than 40 years of research. By letting everyone download this data, Volvo Cars hope to make every car safer, regardless of gender and size.
Research by Volvo Cars has identified three remaining concerns for safety that constitute so-called 'gaps' in the Group's ambition to completely end serious injuries and fatalities in its cars, with speeding a very prominent one. Hence, in 2020 the Group imposed a 180 kilometres per hour (kph) speed limit on all cars
- 103 -
to highlight dangers of speeding. Apart from limiting top speeds, the Group is also investigating how a combination of smart speed control and geofencing technology could automatically limit speeds around schools and hospitals in future.
The other two 'gaps' are intoxication and distraction, which the Group addresses with the help of in-car cameras and other sensors that help to ensure the driver is engaged in the driving. If a clearly distracted (or intoxicated) driver does not respond to warning signals and risk a serious, potentially lethal accident, the car could intervene as a last resort by actively slowing down and stopping the car. These cameras are planned to be introduced on the next generation of Volvo Cars' electric vehicle architectures.
Industrial Operations
The Group's industrial operations are organised around a clear principle: "we do all we can to build where we sell and source where we build".". With car plants in Europe, China and the United States the Group is a truly global company in terms of manufacturing footprint, which allows the Group to quickly adjust to changes in customer demand or market conditions.
Manufacturing
The Group owns and operates five car plants, two assembly plants, two engine plants and numerous other component production plants in Sweden, Belgium, China, the United States, Malaysia and India. The Group has also contracted with the Geely-owned Luqiao plant in China as a contract manufacturer to which it will provide management and operational support to ensure that the plant operates according to Volvo Cars' standards. Due to the Chinese regulatory framework, the Group owns a 50 per cent. interest in its plants in China, with Geely owning the remaining 50 per cent. interest, while its plants outside of China are wholly owned. All of the Group's facilities utilise global technology and global sourcing and adhere to the Group's global Volvo Cars Manufacturing System ("VCMS"), enabling each facility to operate under the same global quality standards. All of the Group's plants adhere to the Volvo Cars Global Environmental Standards, which ensure that the Group's manufacturing operations limit their environmental impact. The global network, with clear roots in our home markets, also allows the Group to constantly take steps forward in terms of sustainability by consistently reducing our carbon emission levels. The Group also sets similar requirements on its suppliers. The Group measures capacity at its plants based on theoretical maximum expandable capacity and operational capacity. Theoretical maximum expandable capacity states the potential of a fully installed and utilised plant. Operational capacity states the current utilisation. The Group manages the logistics of its production materials and vehicles in-house.
Procurement and Logistics
The Group aims to implement its overall value chain principle in all aspects of production and seeks to source materials in the regions where its plants are located. The Group also believes that its ability to
- 104 -
integrate suppliers into the process of car development and production is an important component of its competitive position. The Group has long-standing, strong relationships with many of its key tier 1 suppliers, which typically participate in the development phase of new models and invest alongside its plants to ensure a quick and efficient supply of key components and systems. The Group's purchasing team works closely with its R&D team and has long-standing relationships with a broad base of suppliers across the world, enabling the Group to maximise technical expertise and optimise costs.
The Group believes that the diverse nature of its supplier base allows it to have reliable supply sources, and sufficient supplier competition to ensure cost optimisation. While the coronavirus pandemic provided an unfortunate interruption for the Group's procurement teams, the Group continued its work to make its supply chain and logistics operations increasingly sustainable. The Group also expects outstanding sustainability standards from its suppliers if they want to build a long-lasting business relationship with the Group.
Our suppliers are on regular basis subjected to sustainability assessments and audits, with the aim of both checking whether they meet our requirements but also to identify areas where they can further improve.
The principal materials and components required by the Group for use in its cars are steel and aluminium in sheet (for in-house stamping) or externally pre-stamped form, aluminium castings and extrusions, iron/steel castings and forgings. Special initiatives are also undertaken to reduce material consumption through value engineering and value analysis techniques.
Commercial Operations
Volvo Cars
The Group believes there is a fundamental shift in the business world, both in terms of sustainability and e-commerce. The Group consider itself to be an important player in this shift and, given its ambition of becoming the leading premium electric car maker globally, can benefit from it. From 2021, all the Group's fully electric cars will be offered online only, through a completely revamped online sales channel. A renewed volvocars.com will be an addition to the Group's other sales channels such as partners and inner- city studio concepts, making sure that customers can access a Volvo where and how they want.
At the same time, the Group will reduce the complexity of its offer and make more cars available for quick delivery. For those buying online, the Group will enhance the offer to add convenience and include insurance and service – all for a nationally, pre-negotiated price where legally possible.
The Group has a comprehensive marketing programme which focuses on brand campaigns, marketing tools, digital leadership and consumers' retail and ownership experiences. Digital commerce is one of the Group's strategic focus areas. Working in collaboration with the Group's dealer network around the world, the Group aims to expand its digital commerce activities and use the online channel and tools, including the re-launched car configurator, to enhance the online buying experience as well as the physical network and ownership experience.
The Group's premium car subscription service, incorporated under the Group’s global online sales channel Care by Volvo, has been successful in Germany and in the US, two early adopter markets for subscription, and has proven to be an effective way of winning over customers from other brands. Rollouts of Care by Volvo in the UK, Norway and the Netherlands have proven equally successful and more markets will follow.
Established in 2017, with the ambition to provide consumers in cities on-demand access to cars for shorter periods as an alternative to ownership, the mobility brand M – Volvo Car Mobility was founded. Launched in several Swedish cities, M has continuously increased on-demand easy access to Volvo Cars, building direct relationships with new consumer groups.
Volvo Selekt* is the Group's global certified pre-owned programme. Volvo Selekt cars are typically under 5 years old with less than 150,000 km and prepared to the highest standards to make the used car customer experience as good as a new car. Each car is certified using the Volvo Cars approved checks, including the latest software upgrades and warranty. Annual sales for 2020 were 152,926 units, an increase of 14 per cent. from 134,638 in 2019.
- 105 -
Volvo Car Financial Services ("VCFS")
VCFS provides Volvo branded financial, insurance and related products and services for Volvo Cars consumers and dealers. VCFS operates through strategic partnerships and joint ventures with financing and insurance partners outside of the Group. One of the benefits of these partnerships is that they often require limited Volvo Cars capital and human resources and carry no or a limited credit and residual value risk. fully dedicated teams, whereby the Group can leverage the partners' infrastructure, geographical presence and competitive funding. VCFS' key partners include Santander Consumer Bank, BNP Paribas, VolvoFinans Bank (50 per cent. owned by Volvo Cars and is non-consolidated), Bank of America, Société Générale, Nordea, Pinang Bank, China Merchant Bank and Genius AFC.
People and Culture
The Group's culture and its diverse workforce is central to its success. Attracting and retaining talent from all over the world is crucial, and so is bringing out the best in the Group's people to deliver on its growth plans. By doing so, the Group will remain a leading player in the highly competitive premium car and mobility industry.
The Group has an objective to become the employer of choice that attracts the best people available. Having an effective workforce and human resources strategy is fundamental to the Group's vision of becoming the world's most progressive and desired premium car brand. Through leadership development programmes, numerous internal initiatives to increase product knowledge and common awareness of Volvo Cars' activities and a global change programme aimed at creating an attractive and efficient workplace structured around employees and their activities, the Group strives to create a suitable and structured working environment.
Becoming the employer of choice will be enabled through the Group's culture, leadership and competence. Its recent Employee Survey demonstrated its strength. The Group's employees rewarded it with a 75 per cent. engagement score, which is above global benchmark. The survey showed they were especially happy with their closest colleagues, their ability to be themselves at work and their contribution to the company's overall success. The Group also scored well on accountability and its open culture.
The Group's Global Diversity and Inclusion Plan is an integral part of Volvo Cars and includes a series of activities to improve awareness training and utilise the benefits and opportunities of diversity within the company. The Group actively works towards making its potential talent pool as large as possible by identifying potential talents in underrepresented groups. The Group addresses unconscious bias, aims to increase diversity in recruitment and to inspire the next generation of innovators and leaders. The Group has made a commitment to gender diversity in leadership by applying 50/50 approach in recruitments.
Volvo Cars' People Policy clearly states that all employees have the right to form or join labour organisations of their choice and to bargain collectively. Volvo Cars encourages dialogue with its employees, whether that is through cooperation with the unions, other employee representatives or employees directly. Approximately 79 per cent. of its global workforce is covered by collective labour agreements. The social dialogue between Volvo Cars and the unions, where applicable, regarding information and consultation, creates value and contributes to the development of the company. Members of the unions are represented at every board meeting through their elected representatives.
As of December 31 2020, the Group employed on average 38,343 full-time employees. Furthermore, the Group employed on average 3,389 agency personnel.
Intellectual Property
The Group believes that its intellectual property rights have been, and will continue to be, vital to its success and accordingly actively protects all of its intellectual property developed. The Group files patent applications in Europe and around the world (including the United States) to protect technology and improvements considered important to its business. No single patent is material to its business as a whole. Additionally, the Group owns registered trademarks, designs and patents registered in several countries and across a number of classes.
- 106 -
Agreement with Ford
As part of the Group's separation from Ford in August 2010, there are extensive royalty-free patent assignments and intellectual property licensing agreements in place between Ford and Volvo Cars in relation to the intellectual property developed during Ford's ownership of Volvo Cars covering patents, other non-patented intellectual property and certain confidential information. Intellectual property developed by Volvo Cars after Geely's acquisition is primarily owned by Volvo Cars. The overall purpose of the assignments and licence agreements was for the Group to be able to continue its current and future business following the sale by Ford. The agreements are still effective but have limited importance as the Group’s current cars are predominantly based on new technology developed by the Group.
Agreement with AB Volvo
The Volvo brand name is owned by Volvo Trademark Holding AB, an entity that is jointly owned by AB Volvo and Volvo Cars. The Group has the right to use the brand name indefinitely for passenger cars, light trucks with pay-load up to 1,500 kilograms, sport utility vehicles and other vehicles while AB Volvo has the right to use the brand name for trucks, buses, construction equipment, marine and industrial engines, aerospace equipment and all other products.
Agreement with Ningbo Geely
The Group has an irrevocable, perpetual licence to the intellectual property developed as part of the CMA collaboration with Ningbo Geely and CEVT.
Chinese Joint Ventures
As a result of the Chinese Joint Ventures, the Group is uniquely positioned with Geely as its joint venture partner, enabling quick decision-making in China and financial transparency. The incorporation of the Chinese Joint Ventures was an important step towards the long-term objective of capturing growth and sourcing potential in China while simplifying the Group's legal structure.
The Group holds a 50 per cent. interest in each of the Chinese Joint Ventures. Additionally, Daqing Volvo Car Manufacturing Co., Ltd acquired from Shanghai Geely holds 100 per cent. of the shares in three other entities, including Volvo Car (Asia Pacific). Volvo Car (Asia Pacific) holds 100 per cent. of the shares of Zhongjia Automobile Manufacturing (Chengdu) Co., Ltd., a Chinese entity that owns the Chengdu car plant. The Group also has the power to control these entities through shareholder agreements and consolidates them in its accounts.
Insurance
The Group has its own captive insurance company, Volvo Car Insurance AB, which has a captive insurance licence from the Swedish Financial Supervisory Authority (Finansinspektionen). Volvo Car Insurance AB insures part of the group's risks in relation to property damage and business interruption, general and products liability, contractual liability and transport.
Legal Proceedings
The Group is party to various litigation matters, including regulatory and administrative proceedings, arising out of the normal course of business. As at the date of this Offering Circular, the Group is not party to any legal proceedings that it believes could reasonably be expected to have a material adverse effect on its operations or consolidated financial position. Provisions or contingent liabilities have been disclosed in the Group's financial statements where it is reasonably estimated that a liability could arise.
The Group is not in breach of any applicable environmental laws, in a manner that could reasonably be expected to have a material adverse effect on its operations or consolidated financial position. Provisions or contingent liabilities have been disclosed in the Group's financial statements where it is reasonably estimated that a liability could arise.
Regulation
The worldwide automotive industry is subject to various laws and governmental regulations including those related to vehicle design and safety and environmental matters such as exhaust and evaporative emissions,
- 107 -
fuel economy, GHG emissions, noise, and pollution. In many jurisdictions, Volvo Cars and other manufacturers are subject to increasingly stringent vehicle emission control standards governing vehicle exhaust and evaporative emissions and related matters. Volvo Cars and other manufacturers face motor vehicle fuel economy and GHG emissions regulations that are ratcheting up fuel economy requirements and ratcheting down permitted GHG emissions levels over time. Automotive manufacturers such as Volvo Cars are required to implement safety measures including recalls for vehicles that do not or may not comply with governmental safety standards. Volvo Cars' current and potentially former manufacturing and assembly operations are subject to laws regulating the emission, discharge, release, and disposal of pollutants, hazardous substances, and wastes. Various other environmental, health, and safety compliance and permitting requirements apply to Volvo Cars' facilities. Volvo Cars has incurred, and expects to incur in the future, significant costs in complying with these regulations.
Board of Directors
The Board consists of twelve members nominated and elected by the Issuer's owners, as well as three union representatives and their two deputies. The Swedish Corporate Governance Code, which the Group adheres to voluntarily, (Sw. Svensk kod för bolagsstyrning) requires that a majority of the members of the Board are independent of both the Issuer and its management and at least two of the members of the Board are independent of both the Issuer and its major shareholders. The table below sets out the Board members' name, year of birth, Board position as well as year of appointment. Outlined below also a selection of the members' experience in terms of previous positions, as well as other current assignments.
Year first Name Born Position appointed Li Shufu ...... 1963 Chairman 2010 Lone Fønss Schrøder ...... 1960 Vice Chairman 2010 Jonas Samuelson ...... 1968 Director 2020 Diarmuid O'Connell ...... 1963 Director 2021 Lila Tretikov ...... 1978 Director 2021 Li Donghui ...... 1970 Director 2011 Håkan Samuelsson ...... 1951 Director 2010 Thomas Johnstone ...... 1955 Director 2015 Betsy Atkins ...... 1953 Director 2016 Michael Jackson ...... 1962 Director 2018 Jim Zhang...... 1955 Director 2018 Winfried Vahland ...... 1957 Director 2019 Glenn Bergström ...... 1955 Union Representative 2010 Marko Peltonen ...... 1965 Union Representative 2010 Jörgen Olsson ...... 1968 Union Representative 2016 Björn Ohlsson ...... 1963 Deputy Union Representative 2009 Anna Margitin Blomberg ...... 1969 Deputy Union Representative 2016
Li Shufu. Mr. Li is the Chairman of the Issuer and the Founder and Chairman of Geely. Mr. Li started his career in the refrigerator and refrigerator parts manufacturing business in 1986, and then transferred to motorcycle manufacturing in 1993. In 1997, he entered the automobile manufacturing industry and has been devoted to the development of China's auto industry over the past two decades. Under Mr. Li's leadership, Geely has been committed to independent innovation and development. Geely has been undergoing a strategic transformation since 2007, including the acquisition of Volvo Cars in 2010. Mr. Li has received numerous awards, including the "Top 10 Private Sector Entrepreneurs in China", "Outstanding Figures in Chinese Automotive Industry", "Top 10 Philanthropists in China" and 2009 CCTV Top 10 Businessmen of the Year.
In addition to the above, Mr. Li has the following current assignments:
Chairman of the Board Geely Sweden Holdings AB
Member of the Board in other entities within the Zhejiang Geely Holding Group and affiliated companies
Lone Fønss Schrøder. Ms. Fønss Schrøder is the Vice Chairman of the Board. Ms. Fønss Schrøder started her career at A.P. Möller-Maersk A/S, where she worked for more than 20 years and held several senior positions. From 2005 to 2010, she served as President and CEO of Wallenius Lines, a leading provider of global factory-to-dealer transport solutions for, among others, the automotive industry. Ms. Fønss Schrøder has extensive experience across the automotive logistics industry.
- 108 -
In addition to the above, Ms. Fønss Schrøder has the following current assignments:
Vice Chairman of the Board and Chairman of the Audit Committee Akastor ASA
Member of the Board and Chairman of the Audit Committee AKSO ASA
Member of the Board and Audit Committee INGKA Holding BV
Member of the Board Geely Sweden Holdings AB
Member of the Board Queen's Gambit Growth Capital SPAC
CEO Concordium AG
Jonas Samuelson. Mr. Samuelson is a Director of the Board. Jonas Samuelson, currently chief executive officer at Electrolux, is a seasoned senior executive with wide experience from the consumer products and automotive industries. He joined Electrolux in 2008 and, prior to his current CEO role, held the chief financial officer, chief operating officer and CEO Major Appliances EMEA positions. In the early 2000s and late 1990s Mr Samuelson worked at General Motors and Saab Automobile in various commercial and finance positions.
In addition to the above, Mr. Samuelson has the following current assignments:
Member of the Board Polygon AB
Member of the Board Axel Johnson AB
Diarmuid O'Connell. Mr O'Connell is a seasoned executive with extensive experience in a wide range of roles. He spent over a decade with Tesla Motors in a variety of executive roles, overseeing multiple strategic projects that facilitated the company's expansion. Before that he served in the US government and held senior marketing positions at Young and Rubicam and McCann Ericksen. He has been involved in numerous of technology start-ups and has also served as a strategy consultant with Accenture. As a result, Mr. O'Connell has extensive experience within the areas of electrification and premium car brands, and has a deep knowledge of developing strategic partnerships, retail models, direct-to-consumer business, regulatory and homologation issues, connectivity, autonomous drive and related energy transition topics.
In addition to the above, Mr. O'Connell has the following current assignments:
Director of the Board, Chairman of the Technology and Sustainability Committee as well as serving the Compensation Committee Dana Inc.
Director of the Board Albemarle Corp
Director of the Board Tech and Energy Transition Corp
Member of the Supervisory Board The Mobility House AG
Lila Tretikov. Ms. Tretikov is a leading expert in artificial intelligence and business transformation and brings extensive innovation and technology experience to the Board. She also brings valuable perspectives from her experience in applying a cross-disciplinary approach to creating solutions that both address some of the world's most challenging problems and empower humanity through technology. Ms Tretikov founded a company in the field of computational genomics while at college and has numerous patents and articles to her name in the field of technology-enabled business transformation.
In addition to the above, Ms. Tretikov has the following current assignments:
Director of the Board Xylem Inc.
Director of the Board nam.R
Director of the Board Onfido
- 109 -
Li Donghui. Mr. Donghui is a Director of the Board. Mr. Donghui has extensive experience within the automotive sector. In the late 1990s, he was a member of management at ASIMCO Braking System, after which he moved to Chinese manufacturer Brilliance and was involved in the company's partnership with BMW. Between 2006 and 2009, he worked at U.S. automotive conglomerate Cummins. He subsequently served as CFO at Chinese machinery manufacturer Liugong before joining Geely in 2011.
In addition to the above, Mr. Donghui has the following current assignments:
Chairman of the Board Lotus Advance Technologies Sdn. Bhd.
Chairman of the Board Group Lotus Plc.
Chairman of the Board Saxo Bank
Vice Chairman of the Board Geely Automobile Holdings Ltd.
Member of the Board Zhejiang Geely Holding Group Co. Ltd. and affiliated companies
Member of the Board Geely Sweden Holdings AB
Member of the Board Proton Holdings Berhad
Member of the Board YTO Express (International) Holdings Ltd.
Håkan Samuelsson. Mr. Samuelsson is a Director of the Board and President and CEO. Mr. Samuelsson was appointed President and CEO in October 2012. Mr. Samuelsson started his professional career in 1977 at Scania Group ("Scania"), where he worked for more than 20 years. Mr. Samuelsson held leading positions within Scania's technical division before he joined the executive board in 1996. He brought his truck experience from Scania to MAN AG in 2000 and became CEO of MAN in 2005 and initiated a broad restructuring of the group.
In addition to the above, Mr. Samuelsson has the following current assignments:
Chairman of the Board Polestar Automotive Holding Ltd.
Member of the Board Teknikföretagen
Member of the Board Lynk & Co Investment Co. Ltd.
Member of the Board Volvo Trademark Holding AB
Thomas Johnstone. Mr. Johnstone is a Director of the Board. Mr. Johnstone has over 38 years' experience within the SKF Group in Gothenburg, Sweden, and previously served as President and CEO. Mr. Johnstone left the SKF Group on 31 December 2014 and has extensive industrial experience in the automotive industry.
In addition to the above, Mr. Johnstone has the following current assignments:
Chairman of the Board Husqvarna AB
Chairman of the Board Combient AB
Chairman of the Board The British Swedish Chamber of Commerce
Chairman of the Board The English School Gothenburg
Chairman of the Board Wärtsila
Member of the Board Investor AB
Member of the Board NorthVolt AB
- 110 -
Betsy Atkins. Ms. Atkins is a Director of the Board. Ms. Atkins is the founder of Baja Corp, an American early-stage venture capital firm focusing on investments in global technology companies.
In addition to the above, Ms. Atkins has the following current assignments:
Member of the Board Wynn Re-sorts
Member of the Board SL Green
Member of the Board JAMF
Michael Jackson. Mr. Jackson is a Director of the Board. Mr Jackson has a long career in technology and finance. An engineer by education, he held positions with Digital Mobile Communications, Motorola and NKT before joining telecom firm Tele2 in 1996, where he was instrumental in expanding the company's mobile business in Europe. In 2004, he joined Skype as Chief Operating Officer, contributing to the company's operational growth. Also, he has been a partner at Mangrove Capital focusing on investments in technology start-ups.
In addition to the above, Mr. Jackson has the following current assignments:
Member of the Board and Audit and Risk Committee AXA UK Group Plc.
Member of the Board and Audit and Risk Committee Luminor AB
Member of the Board Kneip Communications SA
Jim Zhang. Mr. Zhang is a Director of the Board. Mr. Zhang is a highly experienced telecom executive and investor, In the late 1980s he joined the China International Telecom Construction Corporation, a part of the Ministry of Posts and Telecommunications. Some years later, in 1992, he joined Ericsson's China operations and held a variety of positions before becoming Executive Vice President and Chief Marketing Officer for Ericsson China. Between 2003 and 2005 he held the position President & CEO of Asiainfo, followed by a stint as Chairman of Beijing Link Capital and Managing Director for the North Asia Region of The Nature Conservancy.
In addition to the above, Mr. Zhang has the following current assignments:
Founding Partner Daotong Capital
Founding Partner Haiying Capital
Winfried Vahland. Mr. Vahland is a Director of the Board. Mr. Vahland has heavy experience within the automotive sector. He began his professional career at Opel AG, a subsidiary of General Motors GM, in 1984. In 1990, he joined Audi AG as Director of Controlling. From that date onwards, he spent 25 years within the Volkswagen Group in several senior management positions. In 2005, he was appointed as President and CEO of Volkswagen Group China as well as Global Executive Vice President of Volkswagen Group. From 2010 to 2015, he was Chairman of the Executive Board of Škoda Auto. Mr. Vahland terminated his contract with Volkswagen in October 2015.
In addition to the above, Mr. Vahland has the following current assignments:
Chairman of the Supervisory Board Eldor Corporation S.p.A.
Honorary Chairman of the Supervisory Board EuroCar AG
Member of the Supervisory Board Proton Holdings Berhad
Member of the Supervisory Board and Personnel and Nomination Committee Vibracoustic AG
Glenn Bergström. Mr. Bergström is a union representative on the Board.
Marko Peltonen. Mr. Peltonen is a union representative on the Board.
- 111 -
Jörgen Olsson. Mr. Olsson is a union representative on the Board.
Björn Ohlsson. Mr. Ohlsson is a deputy union representative on the Board.
Anna Margitin. Ms. Margitin is a deputy union representative on the Board.
Executive Management Team
The table below sets forth the name and ages of certain current executive officers of the Issuer.
Name Born Position Håkan Samuelsson ...... 1951 Chief Executive Officer Björn Annwall ...... 1975 Chief Financial Officer Henrik Green ...... 1973 Chief Technology Officer Hanna Fager ...... 1975 Corporate Functions Anders Gustafsson ...... 1968 Americas Maria Hemberg ...... 1964 General Counsel, Group Legal and Corporate Governance Lex Kerssemakers ...... 1960 Commercial Operations Javier Varela ...... 1964 Industrial Operations and Quality Xiaolin Yuan ...... 1969 APAC
Håkan Samuelsson. See "—Board of Directors—Håkan Samuelsson".
Björn Annwall. Mr. Annwall is Chief Financial Officer having previously served as Senior Vice President for EMEA as well as Strategy, Brand & Retail. In October 2015 Mr Annwall became a member of the Executive Management Team. Prior to joining Volvo Cars, Mr. Annwall was a partner at McKinsey & Company, where he worked on growth strategy, marketing and sales and transformation, primarily within the automotive and assembly sectors.
Henrik Green. Mr. Green is Chief Technology Officer. Mr. Green started his professional career at Volvo Cars in 1996 and has since served in Sweden, USA and China, including heading Complete Powertrain Engineering and Product Strategy & Vehicle Line Management. Mr. Green joined the Volvo Cars Executive Management Team in December 2016.
Hanna Fager. Ms. Fager is Head of Corporate Functions. Ms. Fager joined Volvo Cars in 2002 and has held various positions within Compensation & Benefits and Human Resources, including the Human Resources Management team. Ms. Fager joined the Volvo Cars Executive Management Team in October 2016.
Anders Gustafsson. Mr. Gustafsson is Head of Americas having previously served as Senior Vice President for EMEA. In 2009, he joined Volvo Cars Sweden as Deputy President and Sales Director Nordic and became President for Volvo Cars Sweden in 2011. In August 2017 Mr. Gustafsson joined Volvo Cars as a member of the Executive Management Team.
Maria Hemberg. Ms. Hemberg is General Counsel and Head of Group Legal and Corporate Governance and has been a member of the Executive Management Team since March 2012. Ms. Hemberg serves as secretary of the Board. Ms. Hemberg has more than 25 years of experience practicing law, in particular corporate law, mergers and acquisitions (M&A) and contract law, as well as corporate governance. Immediately before joining Volvo Cars, Ms Hemberg served as in-house counsel at AB SKF for 12 years.
Lex Kerssemakers. Mr. Kerssemakers is Head of Commercial Operations having previously served as Senior Vice President for EMEA and before that the Americas. Mr. Kerssemakers joined Volvo Cars in 1996 and has served in a variety of marketing and business strategy positions and became a member of the Executive Management Team in 2004. Mr. Kerssemakers has served under Swedish, U.S. and Chinese ownership, and helped align shareholder and consumer perspectives.
Javier Varela. Mr. Varela is Head of Industrial Operations and Quality. Mr. Varela has over 25 years of experience within the automotive industry in various roles, including manufacturing, industrial strategy and sales. Prior to joining Volvo Cars, he was the Executive Vice President for Toyota Peugeot Citroën Automobile's operations in Kolin, Czech Republic. Mr. Varela joined the Volvo Cars Executive Management Team in November 2016.
- 112 -
Xiaolin Yuan. Mr. Yuan is Head of Asia Pacific. As a former diplomat, Xiaolin Yuan started his professional career in BP plc. Mr. Yuan joined Geely as head of Mergers and Acquisitions and oversaw the purchase of Volvo Cars by Zhejiang Geely Holding in 2010. After four years as the head of Chairman's office and a member of Volvo Cars' Board of Directors, Mr. Yuan went back to China in 2014 and became Deputy Senior Vice President for Asia Pacific. In March 2017, he was appointed as Senior Vice President for the Asia Pacific Region and became a member of the Executive Management Team of the Group.
Board Practices
The Board continually monitors the Issuer's performance, evaluates the Issuer's strategic direction and business plan and other aspects such as business conduct in a responsible manner, sustainability and Code of Conduct adherence. The responsibilities of the Board are regulated by the Swedish Companies Act, the articles of association of the Issuer and the formal working procedures. The Board is expected to meet four to eight times per year. The Board conducts a yearly survey regarding its board work. Based on the result of the survey, the Board evaluates the performance and identifies possible areas of improvement.
Board Committees
The Audit Committee, the People and Sustainability Committee, the Product Strategy & Investment Committee and the Commercial Transformation Committee, each of whose members are appointed by the Board, handle certain tasks assigned to the committees on behalf of the Board. The Nomination Committee is elected by the shareholders' meeting.
Audit Committee
The Board of Volvo cars has assigned an Audit Committee to oversee the corporate governance, financial reporting and risks and compliance with external and internal regulations. The Audit committee is responsible for identifying and reporting relevant issues to the Volvo Cars Board within the Audit Committee's areas of responsibility. The Audit Committee shall monitor the integrity of Volvo Cars' financial reporting system, internal controls, operation procedure and enterprise risk management framework, recommend to the Volvo Cars Board the appointment, removal and remuneration for the statutory auditors (subject to approval at the shareholders' meeting) in accordance with the Swedish Companies Act, monitor the independence of the statutory auditors and review the effectiveness of the internal Audit and compliance and Ethics' function. The internal Audit function reports directly to the Audit Committee and the compliance and Ethics function has a direct reporting line to the Audit Committee for escalation. The Audit Committee has held seven meetings during 2020, whereof four ordinary and three extraordinary interim meetings. Lone Fønss Schrøder (chairman), Li Donghui and Michael Jackson are currently members of the Audit Committee.
People and Sustainability Committee
The Board has assigned a People and sustainability Committee to prepare remuneration principles for the CEO and EMT members, approve the remuneration to the EMT members and support the chairman or vice chairman of the Board, as applicable, with the approval of the remuneration and benefits for the CEO and various other people and remuneration matters. The committee is also responsible for supervising and providing guidance with regards to the People strategy. The company's performance in the sustainability area, including Volvo cars' progress in delivering on its ambitions outlined in the sustainability strategy is also on the agenda for the People and Sustainability Committee twice a year. The People and Sustainability Committee has held seven meetings during 2020, whereof five ordinary and two extraordinary. Thomas Johnstone (chairman), Betsy Atkins and Jim Zhang are currently members of the People and Sustainability Committee.
Product Strategy and Investment Committee
The Board has assigned a Product Strategy and Investment Committee to oversee Volvo cars' product strategy and the investments linked to it. The purpose of the Product Strategy and Investment Committee is to review Volvo Cars' product strategy, cycle plan and product programs to confirm that the strategy and the plans as well as programs for the overall strategy, meet customer demand and market development and addresses new technology and business opportunities in all segments relevant to Volvo cars. The Product Strategy and Investment Committee has held five meetings during 2020, whereof four ordinary and one
- 113 -
extraordinary. Winfried Vahland (chairman), Thomas Johnstone, Betsy Atkins together with Håkan Samuelsson are members of the Product Strategy and Investment Committee.
Commercial Transformation Committee
In December 2019 the Board decided to establish a new temporary Commercial Transformation Committee with effect from January 1, 2021. The Board has assigned to the Commercial Transformation Committee to oversee the implementation of Volvo Cars Commercial Strategy involving aspects as Care by Volvo, Global Online sales and the retailer collaboration in the new operational model as well as the financial implications of the transformation. Michael Jackson (chairman) and Jonas Samuelson and Jim Zhang will be members of the Commercial Transformation Committee.
Nomination Committee
The shareholders' meeting has elected a Nomination Committee, which shall nominate members to the Volvo Cars Board, proposes appropriate remuneration principles for the Volvo Cars Board and on a yearly basis proposes the remuneration and other terms for the Volvo Cars Board to be decided by the Annual General Meeting. Reference is made to the table under 'The Volvo Cars Board, regarding relevant remuneration for 2020.
Any changes to the Nomination Committee's duties are subject to approval at a shareholders' meeting. Appointment or removal of a member of the Volvo cars Board shall be proposed by the Nomination Committee but is subject to the approval of the shareholders' meeting. The Nomination Committee shall comprise of three representatives. currently Hans Olov Olsson (chairman), Lone Fønss Schrøder and Carl- Peter Forster are members of the Nomination Committee.
The Nomination Committee has adopted a framework for nomination of members to the Board, which stipulates that the composition of the Board shall be diverse in terms of gender, nationality, professional background and other competences. This is to ensure that the Board has the appropriate balance of expert knowledge, which matches the scale and complexity of Volvo cars, supports a sustainable development and meets the independency requirements of Volvo cars. it is Volvo cars' aim to have a balanced composition when it comes to gender and it is the ambition that each gender shall have a share of at least some 40 per cent of the Board members elected by the shareholders' meeting, an ambition not yet fully reached. The Unions represented in the Volvo cars Board shall be encouraged to apply the corresponding goal when appointing their representatives. The Nomination Committee evaluates the performance of the members of the Board once a year.
Compensation
The Group's executive compensation programme is comprised of base salary, benefits, two short-term incentive programmes and a long-term incentive programme. Base salaries paid to the Group's executives are consistent with the scope of each executive's responsibilities such that base salaries reflect the fixed compensation necessary to recruit key leadership. Benefits paid to the Group's executives are benefits packages in line with those of other companies in the same sector and appropriate for the respective jurisdictions.
The Group has three global incentive programs. Volvo Bonus is a short-term incentive program that includes all employees. The STVP for Senior Leaders is a short-term incentive program for the CEO, EMT and certain senior executives. The long-term incentive programme, Long Term Variable Pay (LTVP) is a program for EMT and certain senior executives. The design and pay-out of the programs are subject to the Board of Directors' annual approval.
Principal Shareholder
The Issuer is a subsidiary of Geely Sweden Holdings AB, which is owned by Shanghai Geely Zhaoyuan International Investment Co., Ltd., with ultimate ownership held by Geely. Balances and transactions with Geely and its subsidiaries (not including the Issuer and its subsidiaries), are classified in the Consolidated Financial Statements as balances and transactions with related companies. The Guarantor is a direct wholly owned subsidiary of the Issuer. As at the date of this Offering Circular, the share capital of the Issuer consists of 50,000,000 ordinary A-shares, all of which are owned by Geely Sweden Holdings AB, and 1,138,794 preference C-shares owned by institutional investors.
- 114 -
Related Party Transactions
In the course of the Group's ordinary business activities, it regularly enters into agreements with or renders services to related parties. In turn, such related parties may render services or deliver goods to the Group as part of their business. Purchase and supply agreements between subsidiaries and affiliated companies and with associated companies or shareholders of such associated companies are entered into on a regular basis within the ordinary course of business.
All transactions with affiliated companies are negotiated and conducted on a basis equivalent to what is achievable on an arm's-length basis, and that the terms of these transactions are comparable to those currently contracted with unrelated third-party suppliers, manufacturers and service providers.
Funding
In addition to any Notes issued from time to time under the Programme, the Group's funding principally comprises the China Development Bank Facility, the Term Credit Facility, the Revolving Credit Facility, the Nordic Investment Bank Loan, the European Investment Bank Loan and certain outstanding bond issues.
The facilities made available under the China Development Bank Facility comprise:
a €815,334,125 term loan facility ("Facility A"), the purpose of which is the prepayment of certain outstanding indebtedness;
a €106,977,229 term loan facility ("Facility B"), the purpose of which is to refinance project costs associated with the future car emissions research and development project and related chassis development; and
a US$800,000,000 term loan facility ("Facility C"), the purpose of which is the financing of certain XC90 project costs.
As of the date of this Offering Circular, Facility A and Facility B have been fully drawn and have been fully repaid. Facility C have been fully drawn and have been partly repaid in accordance with the agreed amortisation profile.
Volvo Car AB (publ.), as borrower, and the Guarantor, as guarantor, entered into the Term Credit Facility with AB Svensk Exportkredit (publ.), as lender, for a total amount of SEK 4,000,000,000. Borrowings under the Term Credit Facility may be used for general corporate purposes including refinancing of indebtedness previously incurred by the Group. As of the date of this Offering Circular, the Group had drawn the total committed amount of SEK 4,000,000,000 under the facility.
In January 2021, the Issuer, as borrower, and Volvo Car Corporation, as guarantor, entered into the Revolving Credit Facility for a total amount of up to €1.3 billion. Borrowings under the Revolving Credit Facility may be used for general corporate purposes including refinancing of existing indebtedness. As of the date of this Offering Circular, the borrower has not drawn upon the facility.
Volvo Car Corporation, as borrower, and the Issuer, as guarantor, entered into a loan agreement (the "Nordic Investment Bank Loan") with the Nordic Investment Bank, as lender, providing the borrower with a term loan in the aggregate principal amount of SEK 1.0 billion. Borrowings under the Nordic Investment Bank Loan may be used by Volvo Car Corporation for R&D and engineering investments from 2016 to 2019 with respect to a modular based engine development programme. The full amount of the Nordic Investment Bank Loan has been drawn.
In November 2017, Volvo Car Corporation, as borrower, and the Issuer, as guarantor, entered into the European Investment Bank Loan. It is a facility of up to €245million to support R&D activities in active safety, connectivity, development of battery electric vehicles and the next generation of petrol engines. The full amount of the European Investment Bank Loan has been drawn, in USD. In December 2020, a top-up amendment agreement was signed for a B tranche of up to an additional €100 million. As of the date of this Offering Circular, Volvo Car Corporation has not drawn upon the B tranche.
1 The Issuer has also issued €500 million aggregate principal amount of 3 /4 per cent. Senior Notes due 2021 and SEK 2.5 billion Senior Floating Rate Notes due 2022, SEK 0.5 billion 2.5 per cent. Senior Notes due
- 115 -
2022. Furthermore, the Issuer has previously issued €500 million 2.0 per cent. Notes due 2025, SEK 2.0 billion Floating Rate Notes due 2023 and €600 million 2.125 per cent. Notes due 2024, under the Euro Medium Term Note Programme. In October 2020, the Issuer issued its debut "green bond" under the Programme, which amounted to €500 million 2.5000 per cent. Notes due 2027.
All Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF market.
- 116 -
TAXATION
The following is a general description, inter alia, of certain tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes, whether in those countries or elsewhere. Prospective purchasers of Notes should consult their own tax advisers as to which countries' tax laws could be relevant to acquiring, holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes and the consequences of such actions under the tax laws of those countries. This summary is based upon the law as in effect on the date of this Offering Circular and is subject to any change in law that may take effect after such date.
Kingdom of Sweden Taxation
The following overview outlines certain Swedish tax consequences of the acquisition, ownership and disposal of Notes. The overview is based on the laws of the Kingdom of Sweden as currently in effect and is intended to provide general information only. The overview is not exhaustive and does thus not address all potential aspects of Swedish taxation that may be relevant for a potential investor in the Notes and is neither intended to be nor should be construed as legal or tax advice. In particular, the overview does not address situations where Notes are held in an investment savings account (Sw. investeringssparkonto) that are subject to a specific tax regime or the rules regarding reporting obligations for, among others, payers of interest. Specific tax consequences may be applicable to certain categories of corporations, e.g. investment companies and life insurance companies, not described below. Investors should consult their professional tax advisors regarding the Swedish and foreign tax consequences (including the applicability and effect of double taxation treaties) of acquiring, owning and disposing of Notes in their particular circumstances.
Non-resident holders of Notes
As used herein, a non-resident holder means a holder of Notes who is (a) an individual who is not a resident of the Kingdom of Sweden for tax purposes and who has no connection to the Kingdom of Sweden other than his/her investment in the Notes, or (b) an entity not organised under the laws of the Kingdom of Sweden.
Payments of any principal amount or any amount that is considered to be interest for Swedish tax purposes to a non-resident holder of any Notes should not be subject to Swedish income tax provided that such holder does not carry on business activities through a permanent establishment in the Kingdom of Sweden to which the Notes are effectively connected. Under Swedish tax law, no withholding tax is imposed on payments of principal or interest to a non-resident holder of any Notes.
Under Swedish tax law, a capital gain on a sale of Notes by a non-resident holder will not be subject to Swedish income tax unless the non-resident holder of Notes carries on business activities in the Kingdom of Sweden through a permanent establishment to which the Notes are effectively connected.
Private individuals who are not resident in the Kingdom of Sweden for tax purposes may be liable to capital gains taxation in the Kingdom of Sweden upon disposal or redemption of certain financial instruments, depending on the classification of the particular financial instrument for Swedish income tax purposes, if they have been resident in the Kingdom of Sweden for tax purposes due to habitual abode in the Kingdom of Sweden or have stayed in the Kingdom of Sweden for six consecutive months at any time during the calendar year of disposal or redemption or the ten calendar years preceding the year of disposal or redemption. This liability may, however, be limited by tax treaties between the Kingdom of Sweden and other countries.
Resident holders of Notes
As used herein, a resident holder means a holder of Notes who is (a) an individual who is a resident in the Kingdom of Sweden for tax purposes or (b) an entity organised under the laws of the Kingdom of Sweden.
Generally, for Swedish corporations and private individuals (and estates of deceased individuals) that are resident holders of any Notes, all capital income (e.g. income that is considered to be interest for Swedish tax purposes and capital gains on Notes) will be taxable.
If the Notes are registered with Euroclear Sweden AB or held by a Swedish nominee in accordance with the Swedish Financial Instruments Accounts Act (SFS 1998:1479), Swedish preliminary taxes are withheld by Euroclear Sweden AB or by the nominee on payments of amounts that are considered to be interest for
- 117 -
Swedish tax purposes to a private individual (or an estate of a decease individual) that is a resident holder of any Notes.
Luxembourg Taxation
The following information is of a general nature only and is based on the laws presently in force in Luxembourg at the date of this prospectus, which are subject to changes or different interpretation. It does not purport to be a comprehensive description of all the tax considerations which may be relevant to a decision to purchase, own or dispose of the Notes. It is not intended to be, nor should it be construed to be, legal or tax advice. The information contained within this section is limited to Luxembourg withholding tax issues and prospective investors in the Notes should therefore consult their own professional advisors as to the effects of state, local or foreign laws, including Luxembourg tax law, to which they may be subject. Please be aware that the residence concept used under the respective headings below applies for Luxembourg income tax assessment purposes only. A holder of the Notes may not become resident, or deemed to be resident, in Luxembourg by reason only of the holding of the Notes, or the execution, performance, delivery and/or enforcement of the Notes. Any reference in the present section to a withholding tax or a tax of a similar nature, or to any other concepts, refers to Luxembourg tax law and/or concepts only.
Withholding Tax, Income Tax
Taxation of interest
There is no withholding tax for Luxembourg residents and non-residents on payments of interest in respect of the Notes, nor is any Luxembourg withholding tax payable on payments received upon repayment of the principal or upon an exchange of Notes except that in certain circumstances a withholding tax may be required to be paid on interest pursuant to the law of 23 December 2005, as amended (the "Relibi Law").
Under the Relibi Law, a withholding tax of 20 per cent. applies on savings income in the form of interest paid or secured by a Luxembourg paying agent to the benefit of beneficial owners, who are individuals, resident in Luxembourg. For an individual Holder of the Notes who is a resident of Luxembourg and who acts in the course of the management of his/her private wealth, the 20 per cent. withholding tax is a final levy. Responsibility for the withholding of tax in application of the Relibi Law is assumed by the Luxembourg paying agent (within the meaning of the Relibi Law).
Furthermore, a Luxembourg resident individual who acts in the course of the management is his/her private wealth and who is the beneficial owner of an interest payment made by a paying agent established outside Luxembourg in an EU Member State or in a member of the European Economic Area may also, in accordance with the Relibi Law, opt for a final 20 per cent. levy (the "20 per cent. Levy"). In such case, the 20 per cent. Levy is calculated on the same amounts as for the payments made by Luxembourg resident paying agents. Responsibility for the declaration and the payment of the 20 per cent. Levy is assumed by the individual resident beneficial owner of the interest or similar income.
A Holder of Notes is subject to Luxembourg income tax in respect of the interest paid or accrued on the Notes only if such Holder (i) is or is deemed to be a resident of Luxembourg for tax purposes and the interest falls within the scope of the 20 per cent. Levy but the holder has not opted for the application of the 20 per cent. Levy, (ii) is or is deemed to be a resident of Luxembourg for tax purposes and the interest has not been received by him/her in the course of the management of his/her private wealth, or (iii) such income is attributable to an enterprise or part thereof, which is carried on through a fixed place of business, a permanent establishment or a permanent representative in Luxembourg.
The Proposed Financial Transactions Tax ("FTT")
On 14 February 2013, the European Commission published a proposal (the "Commission's proposal") for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the "participating Member States"). However, Estonia has ceased to participate.
The Commission's proposal has very broad scope and could, if introduced, apply to certain dealings in Notes (including secondary' market transactions) in certain circumstances. The issuance and subscription of Notes should, however, be exempt.
- 118 -
Under the Commission's proposal, FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in Notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, "established" in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.
However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which, remains unclear. Additional EU Member States may decide to participate.
Prospective holders of Notes are advised to seek their own professional advice in relation to the FTT.
FATCA
Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA, a "foreign financial institution" may be required to withhold on certain payments it makes ("foreign passthru payments") to persons that fail to meet certain certification, reporting, or related requirements. A number of jurisdictions (including Sweden) have entered into, or have agreed in substance to, intergovernmental agreements with the United States to implement FATCA ("IGAs"), which modify the way in which FATCA applies in their jurisdictions. Under the provisions of IGAs as currently in effect, a foreign financial institution in an IGA jurisdiction would generally not be required to withhold under FATCA or an IGA from payments that it makes. Certain aspects of the application of the FATCA provisions and IGAs to instruments such as the Notes, including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Notes, are uncertain and may be subject to change. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Notes, such withholding would not apply prior to the date that is two years after the publication of the final regulations defining "foreign passthru payment" and Notes characterised as debt (or which are not otherwise characterised as equity and have a fixed term) for U.S. federal tax purposes that are issued on or prior to the date that is six months after the date on which final regulations defining "foreign passthru payments" are published generally would be "grandfathered" for purposes of FATCA withholding unless materially modified after such date. However, if additional notes that are not distinguishable from previously issued Notes are issued after the expiration of the grandfathering period and are subject to withholding under FATCA, then withholding agents may treat all Notes, including the Notes offered prior to the expiration of the grandfathering period, as subject to withholding under FATCA. Holders should consult their own tax advisors regarding how these rules may apply to their investment in the Notes. In the event any withholding would be required pursuant to FATCA or an IGA with respect to payments on the Notes, no person will be required to pay additional amounts as a result of the withholding.
- 119 -
SUBSCRIPTION AND SALE
Notes may be sold from time to time by the Issuer to any one or more of Citigroup Global Markets Limited, Deutsche Bank AG, ING Bank N.V. and J.P. Morgan Securities plc (the "Dealers"). The arrangements under which Notes may from time to time be agreed to be sold by the Issuer to, and subscribed by, Dealers are set out in a Dealer Agreement dated 27 May 2021 (the "Dealer Agreement") and made between the Issuer, the Guarantor and the Dealers. If in the case of any Tranche of Notes the method of distribution is an agreement between the Issuer, the Guarantor and a single Dealer for that Tranche to be issued by the Issuer and subscribed by that Dealer, the method of distribution will be described in the relevant Pricing Supplement as "Non-Syndicated" and the name of that Dealer and any other interest of that Dealer which is material to the issue of that Tranche beyond the fact of the appointment of that Dealer will be set out in the relevant Pricing Supplement. If in the case of any Tranche of Notes the method of distribution is an agreement between the Issuer, the Guarantor and more than one Dealer for that Tranche to be issued by the Issuer and subscribed by those Dealers, the method of distribution will be described in the relevant Pricing Supplement as "Syndicated", the obligations of those Dealers to subscribe the relevant Notes will be joint and several and the names and addresses of those Dealers and any other interests of any of those Dealers which is material to the issue of that Tranche beyond the fact of the appointment of those Dealers (including whether any of those Dealers has also been appointed to act as Stabilising Manager in relation to that Tranche) will be set out in the relevant Pricing Supplement.
Any such agreement will, inter alia, make provision for the form and terms and conditions of the relevant Notes, the price at which such Notes will be subscribed by the Dealer(s) and the commissions or other agreed deductibles (if any) payable or allowable by the Issuer in respect of such subscription. The Dealer Agreement makes provision for the resignation or termination of appointment of existing Dealers and for the appointment of additional or other Dealers either generally in respect of the Programme or in relation to a particular Tranche of Notes.
United States of America:
Regulation S Category 2; TEFRA D or TEFRA C as specified in the relevant Pricing Supplement or neither if TEFRA is specified as not applicable in the relevant Pricing Supplement.
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S.
The Bearer Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the United States Internal Revenue Code and regulations thereunder.
Each Dealer has agreed that, except as permitted by the Dealer Agreement, it will not offer, sell or deliver Notes, (i) as part of their distribution at any time or (ii) otherwise until 40 days after the completion of the distribution of the Notes comprising the relevant Tranche within the United States or to, or for the account or benefit of, U.S. persons, and such Dealer will have sent to each dealer to which it sells any Notes during the distribution compliance period relating thereto a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons.
In addition, until 40 days after the commencement of the offering of Notes comprising any Tranche, any offer or sale of Notes within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with an available exemption from registration under the Securities Act.
United Kingdom
Prohibition of sales to UK Retail Investors
Unless the Pricing Supplement in respect of any Notes specifies "Prohibition of Sales to UK Retail Investors" as "Not Applicable", each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered, sold or otherwise made
- 120 -
available and will not offer, sell or otherwise make available any Notes which are the subject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement in relation thereto to any retail investor in the UK. For the purposes of this provision: the expression "retail investor" means a person who is one (or more) of the following:
(a) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No. 2017/565 as it forms part of domestic law by virtue of the EUWA; or
(b) a customer within the meaning of the provisions of the FSMA and any rules or regulations made under the FSMA to implement the Insurance Distribution Directive, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the EUWA.
If the Pricing Supplement in respect of any Notes specifies "Prohibition of Sales to UK Retail Investors" as "Not Applicable", each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not made and will not make an offer of Notes which are the subject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement in relation thereto to the public in the UK except that it may make an offer of such Notes to the public in the UK:
(a) Qualified investors: at any time to any legal entity which is a qualified investor as defined in Article 2 of the UK Prospectus Regulation;
(b) Fewer than 150 investors: at any time to fewer than 150 natural or legal persons (other than qualified investors as defined in Article 2 of the UK Prospectus Regulation) in the United Kingdom subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or
(c) Other exempt offers: at any time in any other circumstances falling within section 86 of the FSMA, provided that no such offer of Notes referred to in (a) to (c) above shall require the Issuer or any Dealer to publish a prospectus pursuant to section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
For the purposes of this provision, the expression an "offer of Notes to the public" in relation to any Notes means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes.
Other UK regulatory restrictions
Each Dealer has represented, warranted and agreed, and each future Dealer appointed under the Programme will be required to represent, warrant and agree, that:
(a) No deposit-taking: in relation to any Notes having a maturity of less than one year:
(i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business; and:
(ii) it has not offered or sold and will not offer or sell any Notes other than to persons:
(A) whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses; or
(B) who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses,
where the issue of the Notes would otherwise constitute a contravention of Section 19 of the FSMA by the Issuer;
(b) Financial promotion: it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment
- 121 -
activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer or the Guarantor; and
(c) General compliance: it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the UK.
European Economic Area
Unless the Pricing Supplement in respect of any Notes specifies the "Prohibition of Sales to EEA Retail Investors" as "Not Applicable", each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes which are the subject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement in relation thereto to any retail investor in the European Economic Area. For the purposes of this provision:
(i) the expression "retail investor" means a person who is one (or more) of the following:
(a) a retail client as defined in point (11) of Article 4(1) of MiFID II; or
(b) a customer within the meaning of the Insurance Distribution Directive, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.
(ii) the expression "offer" includes the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes.
If the Pricing Supplement in respect of any Notes specifies "Prohibition of Sales to EEA Retail Investors" as "Not Applicable", in relation to each Member State of the European Economic Area, each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not made and will not make an offer of Notes which are the subject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement in relation thereto to the public in that Member State except that it may make an offer of such Notes to the public in that Member State:
(i) Qualified investors: at any time to any legal entity which is a qualified investor as defined in the Prospectus Regulation;
(ii) Fewer than 150 offerees: at any time to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Regulation), subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or
(iii) Other exempt offers: at any time in any other circumstances falling within Article 1(4) of the Prospectus Regulation, provided that no such offer of Notes referred to in (i) to (iii) above shall require the Issuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an "offer of Notes to the public" in relation to any Notes in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes..
Kingdom of Sweden
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that the Notes will only be offered to the public in Sweden provided that the procedure and provisions under "Subscription and Sale – European Economic Area" in this Offering Circular (as such procedures and provisions have been implemented in Sweden, as applicable) and the Swedish law on supplementary provisions to the Prospectus Regulation (Lag (2019:414) med
- 122 -
kompletterande bestämmelser till EU:s prospektförordning) or a prospectus in relation to such Notes has been approved by Finansinspektionen ("FI") and published or, where a prospectus has been approved by the competent authority of another Member State of the European Economic Area, where such approval has been notified to FI, in each case provided that the Notes have not been and will not be offered to a retail investor (as defined above).
Belgium
Other than in respect of Notes for which "Prohibition of Sales to Belgian Consumers" is specified as "Not Applicable" in the applicable Pricing Supplement, each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that an offering of Notes may not be advertised to any individual in Belgium qualifying as a consumer within the meaning of Article I.1 of the Belgian Code of Economic Law, as amended from time to time (a "Belgian Consumer") and that it has not offered, sold or resold, transferred or delivered, and will not offer, sell, resell, transfer or deliver, the Notes, and that it has not distributed, and will not distribute, any prospectus, memorandum, information circular, brochure or any similar documents in relation to the Notes, directly or indirectly, to any Belgian Consumer.
Japan
The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the "FIEA") and, accordingly, each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it will not, directly or indirectly, offer or sell any Notes in Japan or to, or for the benefit of, any resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949, as amended)), or to others for re-offering or resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEA and other applicable laws, regulations and ministerial guidance of Japan.
Singapore
Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be required to acknowledge, that this Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Dealer has represented, warranted and agreed, and each further Dealer appointed under the Programme will be required to represent, warrant and agree, that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the "SFA")) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except:
- 123 -
(1) to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
(2) where no consideration is or will be given for the transfer;
(3) where the transfer is by operation of law;
(4) as specified in Section 276(7) of the SFA; or
(5) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018.
General
Each Dealer has represented, warranted and agreed, and each future Dealer appointed under the Programme will be required to represent, warrant and agree that, it has complied and will comply with all applicable laws and regulations in each country or jurisdiction in or from which it purchases, offers, sells or delivers Notes or possesses, distributes or publishes this Offering Circular or any Pricing Supplement or any related offering material, in all cases at its own expense. Other persons into whose hands this Offering Circular or any Pricing Supplement comes are required by the Issuer, the Guarantor and the Dealers to comply with all applicable laws and regulations in each country or jurisdiction in or from which they purchase, offer, sell or deliver Notes or possess, distribute or publish this Offering Circular or any Pricing Supplement or any related offering material, in all cases at their own expense.
The Dealer Agreement provides that the Dealers shall not be bound by any of the restrictions relating to any specific jurisdiction (set out above) to the extent that such restrictions shall, as a result of change(s) or change(s) in official interpretation, after the date hereof, of applicable laws and regulations, no longer be applicable but without prejudice to the obligations of the Dealers described in the paragraph headed "General" above.
Selling restrictions may be supplemented or modified with the agreement of the Issuer. Any such supplement or modification may be set out in the relevant Pricing Supplement (in the case of a supplement or modification relevant only to a particular Tranche of Notes) or in a supplement to this Offering Circular.
- 124 -
GENERAL INFORMATION
Authorisation
1. The establishment and subsequent update of the Programme was authorised by a resolution of the Board of Directors of the Issuer passed on 27 October 2017. The giving of the Guarantee has been authorised by a resolution of the Board of Directors of the Guarantor dated 8 November 2017. Each of the Issuer and the Guarantor has obtained or will obtain from time to time all necessary consents, approvals and authorisations in connection with the issue and performance of the Notes and the giving of the guarantee relating to them.
Legal and Arbitration Proceedings
2. There are no governmental, legal or arbitration proceedings, (including any such proceedings which are pending or threatened, of which the Issuer or the Guarantor is aware), which may have, or have had during the 12 months prior to the date of this Offering Circular, a significant effect on the financial position or profitability of the Issuer, the Guarantor or the Group (together, the "Group").
Significant/Material Change
3. Since 31 December 2020 there has been no material adverse change in the prospects of the Issuer, the Guarantor or the Group. Since 31 December 2020 there has there been no significant change in the financial or trading position of the Issuer, the Guarantor or the Group.
Auditors
4. Deloitte AB, audited the financial statements for the years ended 31 December 2020 and 31 December 2019 for the Issuer. Deloitte AB of Rehnsgatan 11, 113 57 Stockholm, Sweden, is associated with FAR SRS, the professional institute for authorised public accountants, approved public accountants and other highly qualified professionals in the accountancy sector in Sweden.
Documents on Display
5. Copies of the following documents (together with English translations thereof) may be inspected free of charge during normal business hours at the offices of the Issuer at Avd 50090, 4050 31 Göteborg, Sweden, for so long as any Notes remain outstanding:
(a) the constitutive documents of the Issuer;
(b) the constitutive documents of the Guarantor;
(c) the most recently published consolidated audited annual financial statements of the Group and the most recently published interim financial statements (if any) of the Group (with a direct and accurate English translation thereof), in each case together with any audit or review reports prepared in connection therewith;
(d) the Agency Agreement;
(e) the Deed of Covenant;
(f) the Deed of Guarantee;
(g) the Programme Manual (which contains the forms of the Notes in global and definitive form); and
(h) the Issuer-ICSDs Agreement (which is entered into between the Issuer and Euroclear and/or Clearstream, Luxembourg with respect to the settlement in Euroclear and/or Clearstream, Luxembourg of Notes in New Global Note or NSS form).
- 125 -
Clearing of the Notes
6. The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The appropriate common code and the International Securities Identification Number in relation to the Notes of each Tranche will be specified in the relevant Pricing Supplement. The relevant Pricing Supplement shall specify any other clearing system as shall have accepted the relevant Notes for clearance together with any further appropriate information.
The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L-1855 Luxembourg.
Issue Price and Yield
7. Notes may be issued at any price. The issue price of each Tranche of Notes to be issued under the Programme will be determined by the Issuer, the Guarantor and the relevant Dealer(s) at the time of issue in accordance with prevailing market conditions and the issue price of the relevant Notes or the method of determining the price and the process for its disclosure will be set out in the applicable Pricing Supplement. In the case of different Tranches of a Series of Notes, the issue price may include accrued interest in respect of the period from the interest commencement date of the relevant Tranche (which may be the issue date of the first Tranche of the Series or, if interest payment dates have already passed, the most recent interest payment date in respect of the Series) to the issue date of the relevant Tranche.
The yield of each Tranche of Notes set out in the applicable Pricing Supplement will be calculated as of the relevant issue date on an annual or semi-annual basis using the relevant issue price. It is not an indication of future yield.
The Legal Entity Identifier
8. The Legal Entity Identifier (LEI) code of the Issuer is 5299000EAMGGBEYP7J33.
Dealers transacting with the Issuer
9. Certain of the Dealers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform other services for, the Issuer and its affiliates in the ordinary course of business. In addition, in the ordinary course of their business activities, the Dealers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer, the Guarantor or their affiliates. Certain of the Dealers or their respective affiliates that have a lending relationship with the Issuer and/or the Guarantor routinely hedge their credit exposure to the Issuer and/or the Guarantor, as applicable, consistent with their customary risk management policies. Typically, such Dealers and their respective affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in securities, including potentially the Notes issued under the Programme. Any such short positions could adversely affect future trading prices of Notes issued under the Programme. The Dealers and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
- 126 -
REGISTERED OFFICE OF THE ISSUER
Volvo Car AB (publ) Avd 50090, HB3S 4050 31 Göteborg Sweden
REGISTERED OFFICE OF THE GUARANTOR
Volvo Car Corporation Avd 50090, HB3S 4050 31 Göteborg Sweden
ARRANGER AND DEALER
Citigroup Global Markets Limited Citigroup Centre Canada Square Canary Wharf London E14 5LB United Kingdom
DEALERS
Citigroup Global Markets Deutsche Bank AG ING Bank N.V. Europe AG Taunusanlage 12 Foppingadreef 7 Reuterweg 16 60325 Frankfurt am Main 1102 BD Amsterdam 60323 Frankfurt am Main Germany The Netherlands Germany
J.P. Morgan Securities plc 25 Bank Street Canary Wharf London E14 5JP United Kingdom
FISCAL AGENT, PAYING AGENT, TRANSFER AGENT AND REGISTRAR
HSBC Bank plc 8 Canada Square London E14 5HQ United Kingdom
LUXEMBOURG LISTING AGENT
Banque Internationale à Luxembourg S.A. 69, route d'Esch L-2953 Luxembourg Grand Duchy of Luxembourg
LEGAL ADVISERS
To the Issuer and the Guarantor as to English law: To the Issuer and the Guarantor as to Swedish law: Clifford Chance LLP Setterwalls Advokatbyrå AB 10 Upper Bank Street Sankt Eriksgatan 5 London E14 5JJ 411 05 Göteborg United Kingdom Sweden
To the Dealers as to English law: Allen & Overy LLP 1 Bishop's Square London E1 6AD United Kingdom
AUDITORS
Deloitte AB Rehnsgatan 11 113 57 Stockholm Sweden