DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.)

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to § 240.14a-12

SEVCON, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of filing fee (Check the appropriate box):

  No fee required
  Fee computed on table below per Exchange Act Rules 14a-(6) (i) (1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

  (2)  

Aggregate number of securities to which transaction applies:

 

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

  (4)  

Proposed maximum aggregate value of transaction:

 

  (5)  

Total fee paid:

 

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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Dated August 21, 2017

SEVCON, INC.

155 Northboro Road

Southborough, Massachusetts 01772

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

 

TO THE STOCKHOLDERS OF SEVCON, INC.:

You are cordially invited to attend the special meeting of stockholders of Sevcon, Inc., a Delaware corporation, which we refer to as Sevcon, to be held at 12:00 p.m., Eastern Time, on September 22, 2017, at the offices of Locke Lord LLP, 111 Huntington Avenue at Prudential Center, Boston, Massachusetts.

At the special meeting, you will be asked to consider and vote on a proposal to approve and adopt the Agreement and Plan of Merger (as it may be amended from time to time) dated July 14, 2017, which we refer to as the merger agreement, by and among Sevcon, BorgWarner Inc., which we refer to as Parent, and Slade Merger Sub Inc., which we refer to as Merger Sub, a wholly owned subsidiary of Parent. Under the merger agreement, Merger Sub will merge with and into Sevcon, and Sevcon will become a wholly owned subsidiary of Parent, which we refer to as the merger. Your vote to approve and adopt the merger agreement will also approve the transactions contemplated by the merger agreement, including the merger. You will also be asked to consider and vote on: (i) a proposal to approve and adopt an amendment to Sevcon’s Amended and Restated Certificate of Incorporation, which we refer to as the charter amendment, to provide that, at the effective time of the merger, you will be entitled to receive the consideration provided for in the merger agreement for each share of Series A Convertible Preferred Stock, par value $0.10 per share, which we refer to as Series A preferred stock, you own; (ii) a proposal to adjourn the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement and/or the charter amendment at the time of the special meeting or in the absence of a quorum; (iii) a proposal to approve by non-binding, advisory vote, compensation that will or may become payable by Sevcon to its named executive officers in connection with the merger; and (iv) such other business as may properly come before the special meeting or any adjournment or postponement thereof.

If the merger is consummated, you will be entitled to receive $22.00 in cash, without interest, less any required withholding, for each share of our common stock, par value $0.10 per share, that you own (unless you do not vote in favor of the adoption of the merger agreement (or consent thereto in writing) and have properly perfected your appraisal rights with respect to such shares). This represents a premium of approximately 61% over the closing share price of our common stock on July 14, 2017, the last trading day before the merger agreement was signed. If the charter amendment also becomes effective, you will be entitled to receive $66.00 in cash, without interest, less any required withholding, for each share of our Series A preferred stock that you own (unless you have properly perfected your appraisal rights with respect to such shares). Each share of Series A preferred stock is convertible into three shares of common stock; accordingly, the per preferred share merger consideration represents the consideration each share of Series A preferred stock would receive on an as-converted basis. Immediately prior to the effective time of the merger, the Board of Directors of Sevcon intends to declare and pay a special dividend on the Series A preferred stock representing the amount of the accrued and unpaid dividends on the Series A preferred stock.

Concurrently with the execution of the merger agreement, Sevcon stockholders Meson Capital LP, Meson Constructive Capital LP and Ryan J. Morris (which we refer to collectively as Meson Capital) and Bassi Holding S.r.l. (which we refer to as Bassi) entered into separate voting and support agreements with Parent, in which such stockholders agreed, on the terms and subject to the conditions set forth in the voting and support agreements, to vote all Sevcon shares owned by them (representing, with respect to Meson Capital, approximately 13.74% of Sevcon’s issued and outstanding common stock and 1.91% of Sevcon’s issued and outstanding Series A preferred stock, based on Amendment No. 4 to the Schedule 13D filed by Meson Capital in respect of its interest in Sevcon on July 21, 2017, and with respect to Bassi, approximately 10.71% of Sevcon’s issued and outstanding common


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stock, based on the Schedule 13G filed by Bassi in respect of its interest in Sevcon on October 13, 2016) in favor of the adoption of the merger agreement and the charter amendment and the approval of the transactions contemplated by the merger agreement, including the merger, and any other matter to be approved by the stockholders of Sevcon to facilitate such transactions, and not to vote in favor of any alternative transactions.

After consideration of, and based—among other factors—on, the recommendation of a special committee of independent and disinterested directors, the Board of Directors of Sevcon unanimously (i) determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, and the charter amendment are fair to and in the best interests of Sevcon and its stockholders; (ii) approved, adopted and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, and the charter amendment; (iii) recommended that Sevcon’s stockholders approve and adopt the merger agreement and the merger and the charter amendment; and (iv) directed that the approval of the merger and the adoption of the merger agreement and the charter amendment be submitted to Sevcon’s stockholders.

Our Board unanimously recommends that you vote “FOR” each of the proposals to be presented at the special meeting so that we can accomplish this important transaction.

We encourage you to read the enclosed proxy statement and its appendices, including the merger agreement, carefully and in their entirety. You may also obtain more information about Sevcon from documents we file with the Securities and Exchange Commission from time to time.

Your vote is very important, regardless of the number of shares that you own. We cannot consummate the merger unless (i) the proposal to approve and adopt the merger agreement is approved by the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting and (ii) unless Parent and Merger Sub waive the condition to their obligation to close the merger that the charter amendment has become effective, the proposal to approve and adopt the charter amendment is approved by the affirmative vote of (a) a majority of the outstanding shares of our common stock entitled to vote thereon and (b) a majority of the outstanding shares of Series A preferred stock entitled to vote thereon, voting as separate classes. The failure of any stockholder to vote will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement and “AGAINST” the proposal to approve and adopt the charter amendment. Similarly, if you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement and “AGAINST” the proposal to approve and adopt the charter amendment.

We hope that you will be able to attend the special meeting. However, whether or not you plan to attend in person, please complete, sign, date and return the enclosed proxy card in the postage prepaid envelope provided as promptly as possible. You also may grant your proxy by using the toll-free telephone number, or by accessing the Internet website, specified on your proxy card. If you attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as voting by ballot will not revoke any proxy previously submitted. If you have any questions or need assistance voting your shares, please contact The Proxy Advisory Group, LLC, our proxy solicitor, by calling 1-844-99PROXY (1-844-997-7699) toll-free.

We thank you for your support and appreciate your consideration of this matter.

Sincerely,

 

LOGO

President and Chief Executive Officer

  

LOGO

Chairman of the Board

The accompanying proxy statement is dated August 21, 2017, and is first being sent to Sevcon’s stockholders on or about August 22, 2017.

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the merger, or determined whether the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.


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PLEASE SIGN, DATE AND RETURN

THE ENCLOSED PROXY PROMPTLY

TO SAVE US THE EXPENSE

OF ADDITIONAL SOLICITATION.


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DATED AUGUST 21, 2017

SEVCON, INC.

155 Northboro Road

Southborough, Massachusetts 01772

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON SEPTEMBER 22, 2017

 

 

TO THE STOCKHOLDERS OF SEVCON, INC.:

Notice is hereby given that a special meeting of stockholders of Sevcon, Inc., a Delaware corporation, will be held at 12:00 p.m., Eastern Time on September 22, 2017, at the offices of Locke Lord LLP, 111 Huntington Avenue at Prudential Center, Boston, Massachusetts, for the following purposes:

 

1. To consider and vote on the proposal to approve and adopt the Agreement and Plan of Merger dated July 14, 2017, by and among Sevcon, Inc., BorgWarner Inc., and Slade Merger Sub Inc., as it may be amended from time to time;

 

2. To consider and vote on the proposal to approve and adopt the amendment to the Amended and Restated Certificate of Incorporation of Sevcon, Inc. to provide that, at the effective time of the merger, each holder of Series A preferred stock will be entitled to receive the consideration provided for in the merger agreement for each share of Series A preferred stock owned by such holder;

 

3. To consider and vote on the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement or the charter amendment at the time of the special meeting or in the absence of a quorum;

 

4. To consider and vote on the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Sevcon, Inc. to its named executive officers in connection with the merger contemplated by the merger agreement; and

 

5. To consider and act upon such other business as may properly come before the special meeting or any adjournment or postponement thereof.

Only stockholders of record as of the close of business on August 15, 2017, are entitled to notice of the special meeting and to vote at the special meeting or at any adjournment or postponement thereof.

Under Delaware law, holders of Sevcon common stock who do not, among other things, vote in favor of the adoption of the merger agreement (or consent thereto in writing) and holders of shares of Series A preferred stock that are outstanding immediately prior to the effective time of the merger, in each case, who are entitled to demand and who properly demand appraisal of such shares, and do not thereafter fail to perfect, effectively withdraw, or otherwise lose their right to appraisal in accordance with Section 262 of the Delaware General Corporation Law, or the DGCL, will have the right to seek appraisal of the fair value of their shares in cash as determined by the Delaware Court of Chancery if the merger is completed, but only if they properly submit a written demand for such an appraisal prior to the vote on the adoption of the merger agreement and strictly comply with all of the applicable requirements of Section 262 of the DGCL, which are summarized in the attached proxy statement and set forth in their entirety in Section 262 of the DGCL, which is reproduced in its entirety in Annex C to the attached proxy statement, and a summary of these provisions can be found under “The Merger—Appraisal Rights” in the accompanying proxy statement. Failure to strictly comply with Section 262 of the DGCL may result in your loss of, or inability to exercise, appraisal rights.


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After consideration of, and based—among other factors—upon, the recommendation of a special committee of the Board consisting of independent and disinterested directors, our Board unanimously recommends that you vote (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement and/or the charter amendment at the time of the special meeting or in the absence of a quorum; and (iv) “FOR” the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Sevcon to its named executive officers in connection with the merger.

By Order of the Board of Directors,

LOGO

Secretary

Dated August 21, 2017

 

YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IF YOU DO NOT PLAN TO ATTEND THE MEETING, PLEASE BE SURE YOU ARE REPRESENTED AT THE MEETING BY MARKING, SIGNING, DATING AND MAILING YOUR PROXY IN THE REPLY ENVELOPE PROVIDED.


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YOUR VOTE IS IMPORTANT

Holders of shares of Series A preferred stock will receive a separate proxy card to vote such shares on Proposal 2. If you own shares of Series A preferred stock and shares of common stock, please return BOTH proxy cards.

If your shares are registered directly in your name: If you are a stockholder of record, you may vote your shares by the Internet, by telephone or by mail as described below. Please help us save time and postage costs by voting through the Internet or by telephone. Each method is generally available 24 hours a day and will ensure that your vote is confirmed and posted immediately. To vote:

 

1. BY THE INTERNET

 

  a. Go to the website at www.voteproxy.com, 24 hours a day, seven days a week, until 11:59 p.m. Eastern Time on September 21, 2017.

 

  b. Please have your proxy card available to verify your identity and create an electronic ballot.

 

  c. Follow the simple instructions provided.

 

2. BY TELEPHONE

 

  a. On a touch-tone telephone, call toll-free 1-800-776-9437 (or 1-718-921-8500 from outside the U.S.), 24 hours a day, seven days a week, until 11:59 p.m. Eastern Time on September 21, 2017.

 

  b. Please have your proxy card available to verify your identity.

 

  c. Follow the simple instructions provided.

 

3. BY MAIL

 

  a. Mark, sign and date your proxy card.

 

  b. Return it in the postage-paid envelope provided with this proxy statement.

If your shares are held in the name of a broker, bank or other nominee: As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares in your account. You have received voting instructions from the organization holding your account and you must follow those instructions to vote your shares. Your broker, bank or other nominee cannot vote on any of the proposals, including the proposal to approve and adopt the merger agreement, without your instructions.

If you fail to return your proxy card, grant your proxy electronically over the Internet or by telephone or vote by ballot in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. If you hold your shares through a broker, bank or other nominee, you must obtain from the record holder a valid proxy issued in your name in order to vote in person at the special meeting. A stockholder providing a proxy may revoke it at any time before it is exercised by providing written notice of revocation to our Secretary or by providing a proxy of a later date.

We encourage you to read the accompanying proxy statement, including all documents incorporated by reference into the accompanying proxy statement, and its appendices carefully and in their entirety. If you have any questions concerning the merger, the special meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock and/or Series A preferred stock, please contact our proxy solicitor:

The Proxy Advisory Group, LLC

1-844-99PROXY (1-844-997-7699)


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SUMMARY

     1  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     15  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     25  

PARTIES TO THE MERGER

     26  

Sevcon, Inc.

     26  

BorgWarner Inc.

     26  

Slade Merger Sub Inc.

     26  

THE SPECIAL MEETING

     27  

Date, Time and Place

     27  

Purpose of the Special Meeting

     27  

Record Date; Shares Entitled to Vote; Quorum

     27  

Vote Required; Abstentions and Broker Non-Votes

     27  

Shares Held by Sevcon’s Directors and Executive Officers

     28  

Voting of Proxies

     29  

Revocability of Proxies

     30  

Adjournment

     30  

Solicitation of Proxies

     30  

Anticipated Date of Completion of the Merger

     31  

Householding of Special Meeting Materials

     31  

Right of Stockholders to Assert Appraisal Rights

     31  

Appraisal Rights

     31  

Questions and Additional Information

     32  

THE MERGER

     33  

Merger Consideration

     33  

The Charter Amendment

     33  

Treatment of Warrants

     33  

Background of the Merger

     34  

Recommendation of the Board and Reasons for the Merger

     45  

Fairness Opinion of Financial Advisor

     49  

Certain Financial Forecasts

     57  

Interests of the Directors and Executive Officers of Sevcon in the Merger

     62  

Financing of the Merger

     67  

Closing and Effective Time of the Merger

     67  

Appraisal Rights

     67  

Accounting Treatment

     72  

U.S. Federal Income Tax Consequences of the Merger

     72  

Regulatory Approvals Required for the Merger

     74  

Dividends

     75  

THE MERGER AGREEMENT

     76  

Explanatory Note Regarding the Merger Agreement

     76  

Effects of the Merger; Directors and Officers; Certificate of Incorporation; Bylaws

     76  

Closing and Effective Time of the Merger

     77  

Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards

     77  

Exchange and Payment Procedures

     78  

Representations and Warranties

     80  

Conduct of Our Business Pending the Merger

     84  

Solicitation of Acquisition Proposals; Board Recommendation Changes

     87  

Stockholders Meeting

     91  

Filings; Other Actions; Notification

     91  

Other Efforts

     93  

 

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Financing

     94  

Transaction Litigation

     94  

Employee Benefits Matters

     94  

Conditions to the Merger

     95  

Termination

     97  

Termination Fees and Expense Reimbursement

     99  

Expenses

     100  

Remedies

     101  

Indemnification; Directors’ and Officers’ Insurance

     101  

Amendment or Supplement

     102  

THE VOTING AND SUPPORT AGREEMENTS

     103  

Explanatory Note Regarding the Voting and Support Agreements

     103  

Summary

     103  

PROPOSAL 1: APPROVAL AND ADOPTION OF THE MERGER AGREEMENT

     104  

PROPOSAL 2: APPROVAL AND ADOPTION OF THE CHARTER AMENDMENT

     105  

PROPOSAL 3: ADJOURNMENT OF THE SPECIAL MEETING

     106  

PROPOSAL 4: ADVISORY VOTE ON MERGER-RELATED NAMED EXECUTIVE OFFICER COMPENSATION

     107  

MARKET PRICES AND DIVIDEND DATA

     108  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     109  

FUTURE STOCKHOLDER PROPOSALS

     111  

OTHER MATTERS

     111  

WHERE YOU CAN FIND MORE INFORMATION

     111  

Annex A—Agreement and Plan of Merger

     A-1  

Annex B—Opinion of Rothschild Inc.

     B-1  

Annex C—Section  262 of the General Corporation Law of the State of Delaware

     C-1  

Annex D-1—Voting and Support Agreement (Bassi)

     D-1-1  

Annex D-2—Voting and Support Agreement (Meson Capital)

     D-2-1  

 

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SUMMARY

The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that topic. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page 111.

This proxy statement is dated August 21, 2017, and is first being mailed to stockholders of Sevcon, Inc. on or about August 22, 2017.

Parties to the Merger (page 26)

Sevcon, Inc.

155 Northboro Road

Southborough, Massachusetts 01772

(508) 281 5510

Sevcon, Inc., which we refer to as Sevcon, we, us or our is a company which through wholly-owned subsidiaries located in the United States, England, France, Germany, Canada, South Korea, Japan and China, and through an international dealer network, designs and sells, under the Sevcon name, motor controllers for zero emission electric and hybrid vehicles. The controls are used to vary the speed and movement of vehicles, to integrate specialized functions and to optimize the energy consumption of the vehicle’s power source. Through a wholly-owned subsidiary in Italy, the Company also designs, manufactures and sells battery chargers for electric vehicles and power management and uninterrupted power source systems for industrial, medical and telecom applications, as well as electronic instrumentation for battery laboratories. Sevcon’s customers are manufacturers of on and off-road vehicles, including cars, trucks, buses, motorcycles, fork lift trucks, aerial lifts, mining vehicles, airport tractors, sweepers and other electrically powered vehicles. Through another subsidiary located in the United Kingdom, Sevcon manufactures special metalized film capacitors that are used as components in the power electronics, including Sevcon’s new automotive controller families, signaling and audio equipment markets.

See also “Where You Can Find More Information” beginning on page 111.

Our common stock is currently listed on the NASDAQ Capital Market, which we refer to as NASDAQ, under the symbol “SEV.”

BorgWarner Inc.

3850 Hamlin Road

Auburn Hills, Michigan 48326

(248) 754 0872

BorgWarner Inc., a Delaware corporation, which we refer to as BorgWarner or Parent, is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. These products help improve vehicle performance, propulsion efficiency, stability and air quality. These products are manufactured and sold worldwide, primarily to original equipment manufacturers of light vehicles (passenger cars, sport-utility vehicles, vans and light trucks). BorgWarner’s products are also sold to other original equipment manufacturers of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). BorgWarner also manufactures and sells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. BorgWarner operates manufacturing facilities serving customers in Europe, the Americas, and Asia and is an original equipment supplier to every major automotive original equipment manufacturer in the world.


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Slade Merger Sub Inc.

Slade Merger Sub Inc., which we refer to as Merger Sub, is a Delaware corporation and a wholly owned subsidiary of Parent. It was formed solely for the purpose of effecting the merger and the transactions contemplated by the merger agreement, and it has not engaged in any other business.

Certain Effects of the Merger on Sevcon (page 76)

Upon the terms and subject to the conditions of the merger agreement, Merger Sub will merge with and into Sevcon, with Sevcon continuing as the surviving company and a wholly owned subsidiary of Parent. Throughout this proxy statement, we use the term surviving company to refer to Sevcon as the surviving company following the merger. If the merger is consummated, you will not own any shares of the common stock of the surviving company, and if the charter amendment becomes effective, you will not own any shares of Series A Convertible Preferred Stock, par value $0.10 per share, which we refer to as Series A preferred stock, of the surviving company.

The time at which the merger will become effective, which we refer to as the effective time of the merger, will occur upon the filing of the certificate of merger with the Secretary of State of the State of Delaware (or at such later time as we and Parent may agree and specify in the certificate of merger).

Effect on Sevcon if the Merger is Not Completed (page 76)

If the merger agreement is not adopted by Sevcon stockholders or if the merger is not completed for any other reason, Sevcon stockholders will not receive any payment for their shares of common stock or Series A preferred stock. Instead, Sevcon will remain a public company, our common stock will continue to be listed and traded on NASDAQ and registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we will continue to file periodic reports with the Securities and Exchange Commission, or the SEC. Under specified circumstances, Sevcon may be required to pay Parent or its designee a termination fee or an expense reimbursement amount as described under “The Merger Agreement—Termination Fees and Expense Reimbursement” beginning on page 99.

The Charter Amendment (page 33)

Sevcon has two classes of stock outstanding, common stock and Series A preferred stock. Under the terms of Sevcon’s Amended and Restated Certificate of Incorporation, which we refer to as our charter, related to the Series A preferred stock, the effects of a transaction such as the merger on the Series A preferred stock may not be certain and accordingly, if the Series A preferred stock remains outstanding, the rights of a holder of Series A preferred stock of the surviving company may not be certain. To address the risk of this potential uncertainty, it is a condition to Parent and Merger Sub’s obligation to close the merger that our charter be amended to provide that, at the effective time of the merger, each holder of Series A preferred stock will be entitled to receive the consideration provided for in the merger agreement for each share of Series A preferred stock owned by such holder. This amendment, which we refer to as the charter amendment, requires the affirmative vote of holders of a majority of both the outstanding common stock and the outstanding Series A preferred stock, voting as separate classes. If the charter amendment does not become effective, and Parent waives this condition, the shares of our Series A preferred stock may remain outstanding as securities of the surviving company.

According to Sevcon’s records, stockholders GGCP, Inc., Mario J. Gabelli, Teton Advisors, Inc., Gabelli Funds, LLC, GAMCO Investors, Inc., Associated Capital Group, Inc., GAMCO Asset Management Inc. or Gabelli & Company Investment Advisers, Inc. (which we refer to collectively as GAMCO) collectively beneficially own a majority of the outstanding shares of our Series A preferred stock. Because of GAMCO’s ownership of a majority of our Series A preferred stock, votes of the GAMCO entities in favor of the charter amendment proposal would be necessary to secure stockholder adoption of the charter amendment.

 

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Merger Consideration (page 33)

In the merger, each outstanding share of our common stock (other than (i) shares owned by Parent, Merger Sub or Sevcon or any of their respective subsidiaries, except to the extent held by any such person on behalf of a third party, which we refer to as excluded shares, and (ii) shares held by stockholders who do not vote in favor of the merger and the adoption of the merger agreement and who have properly perfected, and not withdrawn or lost, a demand for appraisal rights under Delaware General Corporation Law, or the DGCL, as of the effective time of the merger, which we refer to as dissenting shares) will be converted automatically into the right to receive $22.00 in cash, without interest and less any applicable withholding taxes, which amount we refer to as the per common share merger consideration. In addition, each share of Series A preferred stock issued and outstanding immediately prior to the effective time (other than excluded shares and dissenting shares) will automatically be converted into the right to receive $66.00 in cash, without interest and less any applicable withholding taxes, which amount we refer to as the per preferred share merger consideration. Each share of Series A preferred stock is convertible into three shares of common stock; accordingly, the per preferred share merger consideration represents the consideration each share of Series A preferred stock would receive on an as-converted basis. Immediately prior to the effective time of the merger, the Board of Directors of Sevcon intends to declare and pay a special dividend on the Series A preferred stock representing the amount of the accrued and unpaid dividends on the Series A preferred stock. All shares converted into the right to receive the per common share merger consideration or per preferred share merger consideration will cease to be outstanding, will be cancelled and cease to exist, and each certificate formerly representing any of such shares (other than excluded shares and dissenting shares) will thereafter represent only the right to receive the per common share merger consideration or the per preferred share merger consideration, as the case may be. As described further in “The Merger Agreement—Exchange and Payment Procedures” beginning on page 78, at or immediately prior to the effective time of the merger, Parent will deposit or cause to be deposited cash sufficient to pay the aggregate per common share merger consideration and the per preferred share merger consideration with a designated paying agent. Shortly after completion of the merger, you will receive a letter of transmittal instructing you to send your stock certificates to the paying agent in order to receive the per common share merger consideration or per preferred share merger consideration for each share of our common stock or Series A preferred stock represented by the stock certificates.

After the merger is completed, you will have the right to receive the per common share merger consideration or per preferred share merger consideration, as the case may be, but you will no longer have any rights as a Sevcon stockholder (except that stockholders who have properly perfected and not withdrawn or lost their demand for appraisal rights would have the right to receive a payment for the “fair value” of their shares as contemplated by Delaware law, as described below under “The Merger—Appraisal Rights” beginning on page 67), nor will you be entitled to receive any shares in Parent or the surviving company.

Treatment of Warrants (page 33)

In 2016, Sevcon issued warrants to purchase 562,000 shares of our common stock at an exercise price of $10.00 per share, which we refer to as the warrants, of which 556,482 remain outstanding as of the date of this proxy statement. Under the terms of the warrants, the effects of a transaction such as the merger on the warrants may not be certain and accordingly, if the warrants remain outstanding, the rights of a holder of warrants of the surviving company may not be certain. To address the risk of this potential uncertainty, it is a condition to Parent and Merger Sub’s obligation to close the merger that each of the holders of outstanding warrants has executed an agreement with Sevcon agreeing to cancel such warrants in exchange for an amount equal to the product of the per common share merger consideration and the number of shares issuable upon exercise of such warrants, less the aggregate exercise price for such warrants, which we refer to as warrant acknowledgement agreements. If Sevcon fails to obtain warrant acknowledgement agreements from holders of all outstanding warrants, and Parent waives this condition, the warrants held by any such holder may remain outstanding as securities of the surviving company. Prior to the date of this proxy statement, holders of all of the outstanding warrants have executed such agreements, and provided that each such agreement remains in full force and effect and is not amended, modified or waived in whole or in part without the prior written consent of Parent, the condition related to the warrant acknowledgement agreements will be satisfied.

 

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Treatment of Equity Awards (page 77)

The merger agreement generally provides for the following treatment of options to purchase shares of Sevcon common stock which are outstanding immediately prior to the effective time of the merger (which we refer to as options) and awards of shares of Sevcon common stock outstanding immediately prior to the effective time of the merger that are subject to forfeiture or other restrictions (which we refer to as restricted stock awards), in each case, granted to our directors, director emeritus, and certain employees under our 1996 Equity Incentive Plan (which we refer to as the equity plan):

Options. At the effective time of the merger, each option will be cancelled and converted into the right to receive, with respect to each share of Sevcon common stock subject to such option, an amount in cash, without interest, equal to the excess, if any, of $22.00 over the applicable per share exercise price of such option, less any applicable withholding taxes, which we refer to as the option payment. Option payments in respect of options that vest in accordance with their terms at the effective time of the merger or that would have vested assuming the holder’s continued employment or service through December 31, 2018, and achievement of any applicable performance-based vesting conditions, including those held by certain of our executive officers, will be paid to the holder promptly following the effective time of the merger. Option payments in respect of options that do not vest in accordance with their terms at the effective time of the merger and that would have vested in accordance with their terms on or after January 1, 2019, assuming the holder’s continued employment or service through the date on which the options are scheduled to become vested and the achievement of performance based vesting conditions, will vest and become payable in accordance with the vesting schedule, terms and conditions applicable to such options immediately prior to the effective time; provided that pro rata option payments may be made in connection with certain qualifying terminations of employment and any performance-based vesting conditions applicable to such options will no longer apply and such options will be subject to service-based vesting only.

Restricted Stock Awards. At the effective time of the merger, each restricted stock award will be converted into the right to receive, with respect to each share of common stock subject to such restricted stock award, an amount in cash, without interest, equal to $22.00, less any applicable withholding taxes, which we refer to as the restricted stock award payment. Restricted stock award payments (or portions thereof) in respect of restricted stock awards (or portions thereof) that vest by their terms at the effective time of the merger or that would have vested assuming the holder’s continued employment or service through December 31, 2018 and achievement of any applicable performance-based vesting conditions, including, in each case, those held by our directors, director emeritus, and certain of our executive officers, will be paid to the holder promptly following the effective time of the merger. Restricted stock award payments (or portions thereof) in respect of restricted stock awards (or portions thereof) that do not vest in accordance with their terms prior to or at the effective time of the merger and that would have vested in accordance with their terms on or after January 1, 2019 assuming the holder’s continued employment or service through the date on which the restricted stock awards (or portions thereof) are scheduled to become vested and the achievement of performance based vesting conditions, will vest and become payable in accordance with the vesting schedule, terms and conditions applicable to such restricted stock awards immediately prior to the effective time; provided that pro rata restricted stock award payments may be made in connection with certain qualifying terminations of employment and any performance-based vesting conditions applicable to such restricted stock awards will no longer apply and such restricted stock awards will be subject to service-based vesting only.

The Special Meeting (page 27)

Date, Time and Place

This proxy statement is furnished in connection with the solicitation by the Board of Directors of Sevcon of proxies to be voted at a special meeting of our stockholders to be held at 12:00 p.m., Eastern Time, on September 22, 2017, at the offices of Locke Lord LLP, 111 Huntington Avenue at Prudential Center, Boston, Massachusetts.

 

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Record Date; Shares Entitled to Vote

You are entitled to vote at the special meeting if you owned shares of our common stock or Series A preferred stock at the close of business on August 15, 2017, the record date for the special meeting. You will have one vote at the special meeting for each share of our common stock or Series A preferred stock you owned at the close of business on the record date.

Purpose

At the special meeting, we will ask our stockholders of record as of the record date to vote on (i) a proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) a proposal to approve and adopt the charter amendment; (iii) a proposal to adjourn the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement and/or the charter amendment at the time of the special meeting or in the absence of a quorum, which we refer to as the adjournment proposal; (iv) to approve, by non-binding, advisory vote, compensation that will or may become payable by Sevcon to its named executive officers in connection with the merger, which we refer to as the executive officer compensation proposal; and (v) such other business as may properly come before the special meeting or any adjournment or postponement thereof.

Quorum

As of the record date, there were 5,693,408 shares of common stock and 421,084 shares of Series A preferred stock outstanding and entitled to be voted at the special meeting. A quorum of stockholders is necessary to hold a special meeting. The holders of a majority of the outstanding shares of common stock as of the record date for the meeting will constitute a quorum, except that with respect to the proposal to approve the charter amendment, the holders of a majority of the outstanding shares of Series A preferred stock as of the record date for the meeting will also be required to constitute a quorum. Accordingly, with respect to each proposal, 2,846,705 shares of common stock must be represented by proxy or by stockholders present and entitled to vote at the special meeting to have a quorum, and with respect to the proposal to adopt the charter amendment, 210,543 shares of Series A preferred stock must also be represented by proxy or by stockholders present and entitled to vote at the special meeting to have a quorum. Because, according to Sevcon’s records, the GAMCO entities own a majority of the Series A preferred stock, the presence at the meeting or representation by proxy of a portion of the GAMCO entities will be required to have a quorum with respect to the charter amendment proposal.

Required Vote

Approval and adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote at the special meeting. Approval of the charter amendment requires the affirmative vote of (a) a majority of the outstanding shares of common stock entitled to vote at the special meeting and (b) a majority of the outstanding shares of Series A preferred stock entitled to vote at the special meeting, voting as separate classes. Approval of each of the adjournment proposal and the executive officer compensation proposal requires the affirmative vote of a majority of the shares of common stock represented and entitled to vote at the special meeting.

Share Ownership of Our Directors and Executive Officers

As of the close of business on August 15, 2017, the record date, our directors, director emeritus and executive officers beneficially owned and were entitled to vote, in the aggregate, 2,141,887 shares of common stock, representing approximately 37.6% of the outstanding shares of common stock, and 146,568 shares of Series A preferred stock, representing approximately 34.8% of the outstanding shares of Series A preferred stock. Our directors, director emeritus and executive officers have informed us that they currently intend to vote all of their

 

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shares of common stock and Series A preferred stock (as applicable) (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; and (iv) “FOR” the executive officer compensation proposal.

Voting of Proxies

If your shares are registered in your name with our transfer agent, American Stock Transfer and Trust Company, you may cause your shares to be voted by returning a signed proxy card, or you may vote in person at the special meeting. Additionally, you may submit electronically over the Internet or by phone a proxy authorizing the voting of your shares by following the instructions on your proxy card. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy electronically over the Internet or by telephone. Based on your proxy cards or Internet or telephone proxies, the proxy holders will vote your shares according to your directions.

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. If your shares are registered in your name, you are encouraged to vote by proxy even if you plan to attend the special meeting in person. If you attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as your vote by ballot will not revoke any proxy previously submitted.

Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. Properly executed proxies that do not contain voting instructions will be voted (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; and (iv) “FOR” the executive officer compensation proposal.

The failure to submit a proxy or to attend and vote in person at the special meeting or, if you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement and “AGAINST” the proposal to approve and adopt the charter amendment, but will not have any effect on the adjournment proposal or the executive officer compensation proposal.

For both registered stockholders and holders of shares in street name, abstentions will have the same effect as votes “AGAINST” each of the proposals.

Holders of shares of Series A preferred stock will receive a separate proxy card to vote such shares on Proposal 2.

Recommendation of the Board of Directors and Reasons for the Merger (page 45)

Sevcon’s Board of Directors, which we refer to as the Board, after considering various factors described in the section entitled “The Merger—Recommendation of the Board of Directors and Reasons for the Merger,” unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, and the charter amendment are fair to and in the best interests of Sevcon and its stockholders, approved, adopted and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, and the charter amendment, and directed that the approval of the merger and the adoption of the merger agreement and the approval and adoption of the charter amendment be submitted to Sevcon’s stockholders.

 

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The Board unanimously recommends that you vote (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; and (iv) “FOR” the executive officer compensation proposal.

Fairness Opinion of Financial Advisor (page 49)

In connection with the merger, the Board and the Special Committee received a written opinion from the Special Committee’s financial advisor, Rothschild, to the effect that, as of July 14, 2017, and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Rothschild, the $22.00 in cash per share to be paid to the holders of outstanding shares of common stock, par value $0.10 per share, of Sevcon, other than (i) shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and (ii) dissenting shares, pursuant to the merger agreement was fair, from a financial point of view, to such holders of shares of our common stock other than shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares as described under “The Merger—Fairness Opinion of Financial Advisor” beginning on page 49.

The full text of Rothschild’s written opinion dated July 14, 2017, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. We encourage you to read this opinion carefully and in its entirety. This summary is qualified in its entirety by reference to the full text of such opinion. Rothschild’s opinion was provided for the benefit of the Board and the Special Committee in connection with their evaluation of the merger. Rothschild’s opinion should not be construed as creating any fiduciary duty on Rothschild’s part to any party. Rothschild’s opinion was limited to the fairness, from a financial point of view, to the holders of outstanding shares of common stock, par value $0.10 per share, of Sevcon, other than shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares, on the date of the opinion, of the $22.00 in cash per share to be paid to such holders pursuant to the merger agreement, and Rothschild expressed no opinion as to any underlying decision that Sevcon may have made to engage in the merger or any alternative transaction, the relative merits of the merger as compared to any alternative transaction or the terms (other than the $22.00 in cash per share to be paid pursuant to the merger agreement to the holders of outstanding shares of common stock of Sevcon, other than shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares, to the extent expressly set forth in the written opinion) of the merger, the merger agreement or any other agreement entered into in connection with the merger. Rothschild’s opinion did not constitute a recommendation to the Board or the Special Committee as to whether to approve the merger or a recommendation as to how any holder of shares of common stock of Sevcon should vote or otherwise act with respect to the merger or any other matter. In addition, Rothschild did not express any opinion or view with respect to (i) the fairness to, or any other consideration of, the holders of any class of securities (other than holders of shares of common stock of Sevcon and then only to the extent expressly set forth in its written opinion) or creditors or other constituencies, including the fairness to, or any other consideration of, the holders of shares of Series A preferred stock, or the holders of the warrants, (ii) the fairness to the holders of shares of common stock of Sevcon of the consideration or other payments to be paid to the holders of shares of Series A preferred stock and the warrants pursuant to the merger, (iii) the fairness to the holders of shares of common stock of Sevcon of the allocation of the total consideration and other payments pursuant to the merger among the holders of shares of common stock of Sevcon, shares of Series A preferred stock and the warrants or (iv) the fairness to the holders of shares of common stock of Sevcon of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Parent or Sevcon, or any class of such persons, whether relative to the $22.00 in cash per share to be paid to the holders of shares of common stock of Sevcon, other than shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares, pursuant to the merger agreement or otherwise.

 

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Interests of the Directors and Executive Officers of Sevcon in the Merger (page 62)

When considering the recommendation of the Board that you vote to approve the proposal to approve and adopt the merger agreement and to approve and adopt the charter amendment, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder. The special committee of the Board, which we refer to as the Special Committee, was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement, and in recommending that the Board approve the merger agreement and the merger. The Board was also aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be adopted by the stockholders of Sevcon. These interests include the following:

 

    The treatment of outstanding equity awards described under “The Merger Agreement—Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards” beginning on page 77.

 

    The entitlement of certain of Sevcon’s executive officers to receive payments and benefits upon certain terminations of employment under their respective service agreements and non-competition and non-solicitation agreements with Sevcon.

 

    Continued indemnification and directors’ and officers’ liability insurance to be provided by Parent and the surviving company.

If the proposal to approve and adopt the merger agreement is approved by our stockholders and the merger closes, any shares of Sevcon stock held by our directors and executive officers will be treated in the same manner as outstanding shares of Sevcon stock held by all other Sevcon stockholders entitled to receive the per common or per preferred share merger consideration, respectively, and as applicable.

Financing of the Merger (page 67)

The merger agreement is not subject to any financing contingency. Parent and Merger Sub have informed Sevcon that they expect the funds needed by them in connection with the merger will be derived from a combination of cash on hand and committed financing.

Employee Benefits Matters (page 94)

The merger agreement generally provides for the following treatment with respect to those employees of Sevcon and its subsidiaries who continue to be employed by Parent, the surviving corporation or any of their subsidiaries following the effective time of the merger, which we refer to as the continuing employees:

 

    During the period following the effective time of the merger and ending on the earlier of the first anniversary of such time or December 31, 2018 (which we refer to as the continuation period), each continuing employee will receive (i) at least the same base salary, wage rate and cash incentive compensation opportunity as provided immediately before the effective time of the merger, (ii) employee benefits that are no less favorable in the aggregate than those provided immediately before the effective time of the merger (excluding long-term equity incentive opportunities and any defined benefit pension plan), and (iii) long-term equity incentive opportunities that are no less favorable than those provided to similarly situated employees of Parent or its subsidiaries.

 

    Each continuing employee who incurs a termination of employment during the continuation period will receive severance payments and benefits that are no less favorable than the severance payments and benefits that such continuing employee was eligible to receive under any applicable severance plan, policy, practice or arrangement sponsored or maintained by Sevcon or its subsidiaries in accordance with the terms of such arrangement as in effect immediately before the date of the merger agreement or, if greater, the severance payments and benefits that are provided to similarly situated employees of Parent and its subsidiaries at the time of such termination.

 

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    Each continuing employee will receive credit for service with Sevcon or its subsidiaries to the extent such service would be recognized if it had been performed as an employee of Parent for all purposes (including eligibility, vesting and determination of the level of benefits but not for any purpose with respect to defined benefit pension plans or other plans providing for post-employment benefits) under any employee benefit plans maintained by Parent, its subsidiaries or the surviving company in which the continuing employee participates, except where such credit would result in a duplication of benefits. No continuing employee will be retroactively eligible for any employee benefit plan maintained by Parent or any of its subsidiaries, including any such employee benefit plan that was frozen prior to the effective time of the merger.

Appraisal Rights (page 67)

Under the DGCL, holders of Sevcon common stock who do not vote in favor of adoption of the merger agreement (or consent thereto in writing), who are entitled to demand and who properly demand appraisal of such shares, and do not thereafter fail to perfect, effectively withdraw, or otherwise lose their right to appraisal in accordance with Section 262 of the DGCL, will have the right to seek appraisal of the fair value of their shares of Sevcon common stock in cash as determined by the Delaware Court of Chancery in lieu of receiving the per common share merger consideration if the merger is completed, but only if they strictly comply with the procedures and requirements set forth in Section 262 of the DGCL. Any holder of record of shares of Sevcon common stock intending to exercise appraisal rights, among other things, must properly submit a written demand for appraisal to us prior to the taking of the vote on the proposal to adopt the merger agreement, must not vote or otherwise submit a proxy in favor of (or consent in writing to) the proposal to adopt the merger agreement, must continue to hold the shares of Sevcon common stock through the effective time of the merger and must otherwise comply with all of the procedures required by Section 262 of the DGCL. Failure to strictly comply with Section 262 of the DGCL may result in your loss of, or inability to exercise, appraisal rights.

Holders of Series A preferred stock are not entitled to vote on the proposal to adopt the merger agreement, but holders of shares of Series A preferred stock that are outstanding immediately prior to the effective time of the merger who are entitled to demand and who properly demand appraisal of such shares, and do not thereafter fail to perfect, effectively withdraw, or otherwise lose their right to appraisal in accordance with Section 262 of the DGCL, will have the right to seek appraisal of the fair value of their shares of Series A preferred stock in cash as determined by the Delaware Court of Chancery in lieu of receiving the per preferred share merger consideration if the merger is completed, but only if they strictly comply with the procedures and requirements set forth in Section 262 of the DGCL. Any holder of record of shares of Series A preferred stock intending to exercise appraisal rights, among other things, must properly submit a written demand for appraisal to us prior to the vote by the holders of Sevcon common stock on the proposal to adopt the merger agreement, must continue to hold the shares of Series A preferred stock through the effective time of the merger and must otherwise comply precisely with all of the procedures required by Section 262 of the DGCL. Failure to strictly comply with Section 262 of the DGCL may result in your loss of, or inability to exercise, appraisal rights.

Sevcon stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 of the DGCL could be more than, the same as, or less than the value of the consideration that they would receive under the merger agreement if they did not seek appraisal of their shares.

The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, and Section 262 of the DGCL is attached as Annex C to this proxy statement. If you hold your shares of stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal on your behalf by your bank, broker or other nominee.

 

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U.S. Federal Income Tax Consequences of the Merger (page 72)

For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined under “The Merger—U.S. Federal Income Tax Consequences of the Merger” beginning on page 72) in exchange for such U.S. Holder’s shares of Sevcon common stock or Series A preferred stock in the merger generally will result in the recognition of gain or loss in an amount measured by the difference, if any, between the amount of cash that such U.S. Holder receives in the merger and such U.S. Holder’s adjusted tax basis in the shares of common stock or Series A preferred stock, as the case may be, surrendered in the merger. Stockholders should refer to the discussion in the section entitled “The Merger—U.S. Federal Income Tax Consequences of the Merger,” beginning on page 72 and consult their own tax advisors concerning the U.S. federal income tax consequences relating to the merger in light of their particular circumstances and any consequences arising under the laws of any state, local or foreign taxing jurisdiction.

Regulatory Approvals Required for the Merger (page 74)

Under the merger agreement, the merger cannot be completed until the parties have received approval from the Austrian Federal Competition Authority. Sevcon and Parent and its affiliates filed the required Austrian regulatory filing on July 26, 2017. We cannot assure you that an anti-trust or other regulatory challenge to the merger will not be made.

Solicitation of Acquisition Proposals; Board Recommendation Changes (page 87)

The merger agreement provides that from the date of the merger agreement until the earlier of the termination of the merger agreement and the effective time of the merger, we are not permitted to, directly (or indirectly through third parties), solicit, initiate or knowingly encourage, or knowingly induce or facilitate, any inquiry or the making of any proposal that constitutes, would reasonably be expected to lead to, an acquisition proposal from any person, make available non-public information regarding Sevcon or any of its subsidiaries to any person in connection with or in response to an acquisition proposal or any proposal, inquiry or offer that would reasonably be expected to lead to an acquisition proposal, or engage in discussions or negotiations with respect to any acquisition proposal or any proposal, inquiry or offer that would reasonably be expected to lead to an acquisition proposal.

Notwithstanding these restrictions, under certain circumstances, we may, prior to the time the merger agreement is adopted by our stockholders, make available information regarding Sevcon and its subsidiaries with respect to certain unsolicited written acquisition proposals, or engage in discussions or negotiations with a person with respect to certain unsolicited written acquisition proposals.

At any time before the merger agreement is adopted by our stockholders, to the extent that the Board determines in good faith that failure to take such action would be inconsistent with the fiduciary duties of its directors under applicable law, we may terminate the merger agreement to enter into an alternative acquisition agreement (defined as any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement with respect to an acquisition proposal, other than certain confidentiality agreements) with respect to an acquisition proposal that the Board has determined in good faith is a superior proposal (as defined under the merger agreement, see “The Merger Agreement—Solicitation of Acquisition Proposals; Board Recommendation Changes” beginning on page 87), or make an adverse recommendation change (as defined under the merger agreement, see “The Merger Agreement—Solicitation of Acquisition Proposals; Board Recommendation Changes” beginning on page 87) in respect of a superior proposal or an intervening event, so long as we have first complied with certain terms of the merger agreement, including (i) negotiating with Parent in good faith regarding revisions proposed by Parent to the terms of the merger agreement (to the extent Parent desires to negotiate) for a period of three business days, subject, in the case of a superior proposal, to additional two business days negotiation periods if the terms of the superior proposal materially change during such negotiation period and (ii) paying a termination fee to Parent.

 

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Conditions to the Merger (page 95)

The respective obligations of Sevcon, Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver of certain conditions, including:

 

    the adoption of the merger agreement by our stockholders;

 

    receipt of the approval of the Austrian Federal Competition Authority; and

 

    the absence of any legal prohibitions on the consummation of the merger.

The obligations of Parent and Merger Sub to effect the merger are also subject to the satisfaction or waiver by Parent of certain conditions, including:

 

    the adoption of the charter amendment by our stockholders and the effectiveness of the charter amendment;

 

    the receipt of warrant acknowledgement agreements from all holders of outstanding warrants;

 

    the absence of any legal prohibitions on the consummation of the charter amendment;

 

    the absence of a material adverse effect on Sevcon;

 

    no more than 10% of the outstanding shares of our common stock and Series A preferred stock (on an as if converted to common stock basis) having exercised appraisal rights; and

 

    the accuracy of the representations and warranties of Sevcon and compliance by Sevcon with its respective obligations under the merger agreement.

The obligations of Sevcon to effect the merger are also subject to the satisfaction or waiver by Sevcon of the accuracy of the representations and warranties of Parent and Merger Sub and compliance by Parent and Merger Sub with their respective obligations under the merger agreement.

See “The Merger Agreement—Conditions to the Merger” beginning on page 95.

Termination (page 97)

We and Parent may, by mutual written consent, terminate the merger agreement and abandon the merger at any time prior to the effective time of the merger, whether before or after the adoption of the merger agreement or the charter amendment by our stockholders.

The merger agreement may also be terminated and the merger and charter amendment abandoned at any time prior to the effective time of the merger as follows:

 

    by either Parent or Sevcon, if any of a government order merger termination event, stockholder merger vote termination event or an outside date termination event (each, as defined in the section of this proxy statement entitled “The Merger Agreement—Termination” beginning on page 97) has occurred;

 

    by Parent, if a Sevcon breach termination event, an adverse recommendation change termination event, stockholder charter amendment vote termination event, quorum failure termination event, warrant termination event, appraisal rights termination event or government order charter amendment termination event (each, as defined in the section of this proxy statement entitled “The Merger Agreement—Termination” beginning on page 97) has occurred; or

 

    by Sevcon, if a Parent breach termination event or an alternative acquisition proposal termination event (each, as defined in the section of this proxy statement entitled “The Merger Agreement—Termination” beginning on page 97) has occurred.

 

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Termination Fees and Expense Reimbursement (page 99)

Termination Fees and Expense Reimbursement Payable by Sevcon

In certain circumstances, we may be required to pay Parent a termination fee or expense reimbursement amount if the merger agreement is terminated. The termination fee would be payable in the following circumstances:

 

    If (i) an acquisition proposal is made directly to Sevcon’s stockholders or is otherwise publicly disclosed or made directly to or otherwise communicated to GAMCO or their respective affiliates (and is not withdrawn at least two business days prior to the Sevcon stockholders meeting), (ii) the merger agreement is subsequently terminated by Sevcon or Parent pursuant to a stockholder merger vote termination event or by Parent pursuant to a stockholder charter amendment vote termination event, quorum failure termination event or an appraisal rights termination event (provided that more than 20% of the applicable outstanding shares of our common stock and Series A preferred stock (on an as if converted to common stock basis) as of immediately prior to the termination are dissenting shares), and (iii) concurrently with or within 12 months after the date of termination of the merger agreement: (x) Sevcon or any of its subsidiaries enters into a definitive agreement providing for the consummation of an acquisition proposal, (y) our Board or any committee of the Board recommends that Sevcon stockholders vote in favor of or tender into an acquisition proposal that (either within 12 months following the termination of the merger agreement or afterwards) is subsequently consummated or (z) any acquisition proposal is consummated;

 

    If (i) the merger agreement is terminated by Parent pursuant to a warrant termination event, (ii) prior to such termination, an acquisition proposal is made directly to Sevcon’s stockholders or is otherwise publicly disclosed (and is not withdrawn at least two business days prior to such termination) or is made directly to or otherwise communicated to any holder of warrants for which Sevcon has not entered into a warrant acknowledgement agreement, and (iii) concurrently within 12 months after the date of any such termination of the merger agreement: (x) Sevcon or any of its subsidiaries enters into a definitive agreement providing for the consummation of an acquisition proposal, (y) our Board or any committee of the Board recommends that Sevcon stockholders vote in favor of or tender into an acquisition proposal (either within 12 months following the termination of the merger or afterwards) is subsequently consummated or (z) any acquisition proposal is consummated;

 

    If (i) an acquisition proposal is made directly to Sevcon’s stockholders or otherwise publicly disclosed or otherwise communicated to Sevcon, the Board or any committee thereof (and is not withdrawn prior to the termination of the merger agreement), and (ii) the merger agreement is thereafter terminated by Sevcon or Parent pursuant to an outside date termination event, and at the time of such termination any of the stockholder merger approval condition, the stockholder charter amendment approval condition or the warrant condition (each, as defined in the section of this proxy statement entitled “The Merger Agreement—Conditions to the Merger” beginning on page 95) have not been satisfied or waived, and (iii) concurrently with or within 12 months after the date of any such termination of the merger agreement, (x) Sevcon or any of its subsidiaries enters into a definitive agreement providing for the consummation of an acquisition proposal, (y) the Board recommends that Sevcon stockholders vote in favor of or tender into an acquisition proposal that (either within 12 months following the termination of the merger or afterwards) is subsequently consummated or (z) any acquisition proposal is consummated;

 

    If the merger agreement is terminated by Parent due to an adverse recommendation change termination event; or

 

    If the merger agreement is terminated by Sevcon due to an alternative acquisition proposal termination event.

In the case of the first, second and third bullets above, we must promptly pay Parent the termination fee concurrently with the entry by Sevcon or any of its subsidiaries into an alternative acquisition agreement with

 

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respect to, or upon consummation of, an acquisition proposal meeting the conditions specified in those bullets (substituting “50%” for “15%” and “85%” in the definition of acquisition proposal), whether or not such acquisition proposal is the same acquisition proposal referred to in the first, second or third bullet above.

In the case of the fourth bullet above, we must promptly pay Parent the termination fee no later than two business days after the date of the termination of the merger agreement.

In the case of the fifth bullet above, we must promptly pay Parent the termination fee prior to or concurrently with, and as a condition to, the termination of the merger agreement.

The termination fee is a cash amount equal to $4,800,000, except if the merger agreement has been validly terminated:

 

    by Sevcon pursuant to an alternative acquisition proposal termination event with respect to an acquisition proposal that the Board has determined is a superior proposal at or before 11:59 p.m., Chicago Time, on August 31, 2017, which time we refer to as the tier 1 fee deadline, or an acquisition proposal that is determined by the Board to be a superior proposal after the tier 1 fee deadline that reflects modifications as a result of Sevcon’s compliance with Parent’s match rights to an acquisition proposal that the Board has determined is a superior proposal at or before the tier 1 fee deadline; or

 

    by Parent pursuant to an adverse recommendation change termination event in connection with an adverse recommendation change effected by the Board in connection with an acquisition proposal that the Board has determined at or before the tier 1 fee deadline is a superior proposal (or an acquisition proposal that is determined by the Board to be a superior proposal after the tier 1 fee deadline that reflects modifications as a result of Sevcon’s compliance with Parent’s match rights to an acquisition proposal that the Board has determined is a superior proposal at or before the tier 1 fee deadline);

in which case the termination fee is a cash amount equal to $1,600,000.

The expense reimbursement amount would be payable if the merger agreement is terminated by Sevcon or Parent pursuant to the stockholder merger vote termination event or by the Parent pursuant to the stockholder charter amendment termination event, quorum failure termination event, the appraisal rights termination event or the warrant termination event. We must promptly pay Parent the expense reimbursement amount no later than two business days after the date of the termination of the merger agreement.

The expense reimbursement amount is a cash amount equal to $2,400,000.

Expenses (page 100)

All fees and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated by the merger agreement will be borne and timely paid by the party incurring such fees or expenses, whether or not the merger is consummated.

Market Prices and Dividend Data (page 108)

Our common stock is listed on NASDAQ under the symbol “SEV.” On July 14, 2017, the last trading day before the public announcement of the execution of the merger agreement, the closing price of our common stock on NASDAQ was $13.69 per share. On August 18, 2017, the latest practicable trading day before the printing of this proxy statement, the closing price of our common stock on NASDAQ was $21.88 per share.

 

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Questions and Additional Information

If you have any questions concerning the merger, the special meeting or the proxy statement or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact our proxy solicitor:

The Proxy Advisory Group, LLC

1-844-99PROXY (1-844-997-7699)

Brokers and banks may call 1-212-616-2180.

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement, the charter amendment and the special meeting. These questions and answers may not address all questions that may be important to you as a stockholder of Sevcon. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents incorporated by reference or referred to in this proxy statement, which you should read carefully and in their entirety.

 

Q: Why am I receiving these materials?

 

A: The Board is furnishing this proxy statement and form of proxy card to the holders of Sevcon common stock and Series A preferred stock in connection with the solicitation of proxies to be voted at a special meeting of stockholders or at any adjournments or postponements of the special meeting.

 

Q: When and where is the special meeting?

 

A: The special meeting will take place at 12:00 p.m., Eastern Time, on September 22, 2017, at the offices of Locke Lord LLP, 111 Huntington Avenue at Prudential Center, Boston, Massachusetts.

 

Q: Who is entitled to vote at the special meeting?

 

A: Only holders of record of our common stock and Series A preferred stock at the close of business on August 15, 2017, will be entitled to notice of, and to vote at, the special meeting. On August 15, 2017, there were 5,693,408 shares of common stock outstanding and 421,084 shares of Series A preferred stock outstanding. Each outstanding share as of the close of business on that date entitles its holder to one vote, in person or by proxy, on each matter to be voted on by the respective class of shares at the special meeting.

 

Q: May I attend the special meeting and vote in person?

 

A: Yes. All stockholders as of the record date may attend the special meeting and vote in person. Seating will be limited. Stockholders will need to present proof of ownership of their Sevcon shares, such as a bank or brokerage account statement, and a form of personal identification to be admitted to the special meeting. If you hold your shares in “street name,” because you are not the stockholder of record, you may not vote your shares in person at the special meeting unless you obtain and present a valid proxy from your broker, bank or other nominee. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the special meeting. Even if you plan to attend the special meeting in person, we encourage you to complete, sign, date and return the enclosed proxy or vote electronically over the Internet or via telephone to ensure that your shares will be represented at the special meeting. If you attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as your vote by ballot will not revoke any proxy previously submitted.

 

Q: What am I being asked to vote on at the special meeting?

 

A: You are being asked to consider and vote on the following proposals:

 

    To approve and adopt the merger agreement, pursuant to which Merger Sub will merge with and into Sevcon, and Sevcon will become a wholly owned subsidiary of Parent;

 

    To approve and adopt the amendment to our charter to provide that, at the effective time of the merger, each holder of Series A preferred stock will be entitled to receive the consideration provided for in the merger agreement for each share of Series A preferred stock owned by such holder;

 

    To approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement or the charter amendment at the time of the special meeting or if a quorum is not present;

 

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    To approve, by non-binding, advisory vote, compensation that will or may become payable by Sevcon to its named executive officers in connection with the merger; and

 

    Such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

Q: What is the proposed merger and what effects will it have on Sevcon?

 

A: The proposed merger is the acquisition of Sevcon by Parent pursuant to the merger agreement. If the proposal to approve and adopt the merger agreement is approved by the holders of common stock, the proposal to approve the charter amendment is approved by the holders of common stock and Series A preferred stock, voting as separate classes, or the charter amendment condition is waived by Parent, and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will merge with and into Sevcon, with Sevcon continuing as the surviving company. As a result of the merger, Sevcon will become a wholly owned subsidiary of Parent. Sevcon will cooperate with Parent to delist our common stock from NASDAQ and terminate our registration under the Exchange Act, after which we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the merger is consummated, you will not own any shares of the capital stock of the surviving company, and if the charter amendment becomes effective, you will not own any shares of Series A preferred stock of the surviving company.

 

Q: What is the purpose of the charter amendment?

 

A: In addition to our common stock, Sevcon has outstanding shares of Series A preferred stock. Under the terms of our charter related to the Series A preferred stock, the effects of a transaction such as the merger on the Series A preferred stock may not be certain and accordingly if the Series A preferred stock remains outstanding, the rights of a holder of Series A preferred stock of the surviving company may not be certain. To address the risk of this potential uncertainty, it is a condition to Parent and Merger Sub’s obligation to close the merger that our charter be amended to provide that, at the effective time of the merger, each holder of Series A preferred stock will be entitled to receive the consideration provided for under the merger agreement for each share of Series A preferred stock owned by such holder. Each share of Series A preferred stock is convertible into three shares of common stock; accordingly, the per preferred share merger consideration represents the consideration each share of Series A preferred stock would receive on an as-converted basis. The charter amendment requires the affirmative vote of holders of a majority of both the outstanding common stock and the outstanding Series A preferred, voting as separate classes. If the charter amendment does not become effective, and Parent waives this condition, the shares of our Series A preferred stock may remain outstanding as securities of the surviving company.

According to Sevcon’s records, GAMCO collectively beneficially owns a majority of the outstanding shares of our Series A preferred stock. Accordingly, votes of the GAMCO entities in favor of the charter amendment proposal would be necessary to secure stockholder adoption of the charter amendment.

 

Q: What will I receive if the merger is completed?

 

A:

Upon completion of the merger, (i) holders of our common stock will be entitled to receive the per common share merger consideration of $22.00 in cash, without interest and less any applicable withholding taxes, for each share of common stock that they own, unless such holder does not vote in favor of the merger and has properly perfected and not withdrawn or lost its appraisal rights under DGCL with respect to such shares. If the charter amendment has become effective, holders of Series A preferred stock will be entitled to receive the per preferred share merger consideration of $66.00 in cash, without interest and less any applicable withholding taxes, for each share of Series A preferred stock owned. For example, if you own 100 shares of common stock, you will receive $2,200.00 in cash in exchange for your shares of common stock, less any

 

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  applicable withholding taxes. In either case, you will not own shares of common stock in the surviving company, and if the charter amendment becomes effective, you will not own any shares of Series A preferred stock in the surviving company, unless Parent waives the condition to its obligation to close the merger that the charter amendment has become effective.

 

Q: How does the merger consideration compare to the market price of Sevcon common stock prior to the public announcement of the merger agreement?

 

A: The per common share merger consideration represents a premium of approximately 61% over the closing share price of $13.69 on July 14, 2017, the last trading day before the public announcement that Sevcon entered into the merger agreement.

 

Q: How was the per preferred share merger consideration calculated?

 

A: Because each share of Series A preferred stock is convertible into three shares of common stock, the per preferred share merger consideration is three times the per common share merger consideration. Immediately prior to the effective time of the merger, the Board of Directors of Sevcon intends to declare and pay a special dividend on the Series A preferred stock representing the amount of the accrued and unpaid dividends on the Series A preferred stock.

 

Q: Why am I being asked to consider and vote on a proposal to approve, by non-binding, advisory vote, certain compensation arrangements for Sevcon’s named executive officers in connection with the merger?

 

A: Under SEC rules, we are required to seek a non-binding, advisory vote with respect to the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger, or “golden parachute” compensation.

 

Q: What will happen if Sevcon’s stockholders do not approve the golden parachute compensation?

 

A: Approval of the compensation that may be paid or become payable to Sevcon’s named executive officers that is based on or otherwise relates to the merger is not a condition to completion of the merger. The vote is an advisory vote and will not be binding on Sevcon or the surviving corporation in the merger. Because the merger-related compensation to be paid to the named executive officers in connection with the merger is based on contractual arrangements with the named executive officers, such compensation may be payable, regardless of the outcome of this advisory vote, if the merger agreement is adopted (subject only to the contractual obligations applicable thereto).

 

Q: What do I need to do now?

 

A: We encourage you to read this proxy statement, the appendices to this proxy statement, including the merger agreement and the documents we refer to in this proxy statement, carefully and then complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope or grant your proxy electronically over the Internet or by telephone, so that your shares can be voted at the special meeting.

If you hold your shares in “street name,” please refer to the voting instruction form provided by your broker, bank or other nominee to vote your shares.

 

Q: Should I send in my stock certificates now?

 

A:

No. After the merger is completed, under the terms of the merger agreement, you will receive a letter of transmittal instructing you how to send your stock certificates to the paying agent in order to receive the

 

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  cash payment of the per share merger consideration for each share of our common stock or Series A preferred stock represented by the stock certificates. You must use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled upon completion of the merger. Please do not send in your stock certificates now.

 

Q: What happens if I sell or otherwise transfer my shares of Sevcon common stock or Series A preferred stock after the record date but before the special meeting?

 

A: The record date for the special meeting is earlier than the date of the special meeting and the date the merger is expected to be completed. If you sell or transfer your shares of our common stock or Series A preferred stock after the record date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies Sevcon in writing of such special arrangements, you will transfer the right to receive the per-share merger consideration, if the merger is completed, to the person to whom you sell or transfer your shares of our common stock or Series A preferred stock, but you will retain your right to vote these shares at the special meeting. Even if you sell or otherwise transfer your shares of common stock or Series A preferred stock after the record date, we encourage you to complete, date, sign and return the enclosed proxy or vote via the Internet or telephone.

 

Q: Who will solicit and pay the cost of soliciting proxies?

 

A: The Board is soliciting your proxy, and Sevcon will bear the cost of this solicitation of proxies, including the preparation, assembly and mailing of the proxies and soliciting material, as well as the cost of forwarding such material to the beneficial owners of our common stock and Series A preferred stock.

We have retained The Proxy Advisory Group, LLC, a proxy solicitation firm, to solicit proxies and provide related advice and informational support in connection with the special meeting for a services fee, plus customary disbursements, which are not expected to exceed $15,000 in total. Proxies may be solicited by mail, personal interview, e-mail, telephone, facsimile or via the Internet by The Proxy Advisory Group, LLC or, without additional compensation, by certain of Sevcon’s directors, officers and employees.

 

Q: How does Sevcon’s Board of Directors recommend that I vote?

 

A: The Board unanimously recommends that you vote (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; and (iv) “FOR” the executive officer compensation proposal.

 

Q: What happens if the merger is not completed?

 

A: If the merger agreement is not adopted by Sevcon stockholders or if the merger is not consummated for any other reason, Sevcon stockholders will not receive any payment for their shares of common stock or Series A preferred stock. Instead, Sevcon will remain a public company, the common stock will continue to be listed and traded on NASDAQ and registered under the Exchange Act and we will continue to file periodic reports with the SEC.

Under specified circumstances, Sevcon may be required to pay Parent or its designee a termination fee or expense reimbursement amount upon the termination of the merger agreement as described under “The Merger Agreement—Termination Fees and Expense Reimbursement” beginning on page 99.

 

Q: What happens if the charter amendment does not become effective?

 

A:

Under the terms of our charter related to the Series A preferred stock, the effects of a transaction such as the merger on the Series A preferred stock may not be certain and accordingly if the Series A preferred stock

 

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  remains outstanding, the rights of a holder of Series A preferred stock of the surviving company may not be certain. To address the risk of this potential uncertainty, it is a condition to Parent and Merger Sub’s obligation to close the merger that our charter be amended to provide that, at the effective time of the merger, each holder of Series A preferred stock will be entitled to receive the consideration provided for under the merger agreement for each share of Series A preferred stock owned by such holder. If the charter amendment does not become effective and Parent does not waive this condition, the merger will not be consummated and Sevcon stockholders will not receive any payment for their shares of common stock or Series A preferred stock. Instead, Sevcon will remain a public company, the common stock will continue to be listed and traded on NASDAQ and registered under the Exchange Act and we will continue to file periodic reports with the SEC.

Under specified circumstances, Sevcon may be required to pay Parent or its designee a termination fee or expense reimbursement amount upon the termination of the merger agreement in connection with the failure of the charter amendment to become effective as described under “The Merger Agreement—Termination Fees and Expense Reimbursement” beginning on page 99.

 

Q: Do any of Sevcon’s directors or officers have interests in the merger that may differ from those of Sevcon stockholders generally?

 

A: In considering the recommendation of the Board that stockholders approve and adopt the merger agreement and the charter amendment, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement and in recommending that the Board approve the merger agreement and the merger. The Board was also aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be adopted by Sevcon’s stockholders. For a description of the interests of our directors and executive officers in the merger, see “The Merger—Interests of the Directors and Executive Officers of Sevcon in the Merger” beginning on page 62.

 

Q: What vote is required to approve and adopt the merger agreement?

 

A: The affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting is required to approve the proposal to approve and adopt the merger agreement. Holders of shares of Series A preferred stock, as such, are not entitled to vote on the proposal to approve and adopt the merger agreement.

 

Q: What vote is required to approve and adopt the charter amendment?

 

A: The affirmative vote of a majority of the outstanding shares of our common stock entitled to vote at the special meeting and a majority of the outstanding shares of our Series A preferred stock entitled to vote at the special meeting, voting as separate classes, is required to approve the proposal to approve and adopt the charter amendment.

 

Q: What vote is required to approve the adjournment proposal and the executive officer compensation proposal?

 

A: Approval of each of the adjournment proposal and the executive officer compensation proposal requires the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting. Holders of shares of Series A preferred stock, as such, are not entitled to vote on these proposals.

 

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Q: What happens if I do not vote or do not instruct my broker or bank how to vote?

 

A: The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement or the proposal to approve the charter amendment. If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will result in a broker non-vote and will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement or the proposal to approve the charter amendment. Abstentions will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement or the proposal to approve the charter amendment. With respect to the adjournment proposal or the executive officer compensation proposal, the failure to submit a valid proxy or to instruct your broker, bank or other nominee on how to vote will not affect the vote, but an abstention will have the same effect as a vote “AGAINST” such proposal.

 

Q: How many votes do I have?

 

A: You are entitled to one vote for each share of common stock with respect to each of the proposals and one vote for each share of Series A preferred stock with respect to the proposal to approve the charter amendment, in each case held of record as of the record date, August 15, 2017. As of close of business on the record date, there were 5,693,408 outstanding shares of common stock and 421,084 outstanding shares of Series A preferred stock.

 

Q: What is a quorum?

 

A: The holders of a majority of the outstanding shares of common stock as of the record date for the meeting will constitute a quorum, except that with respect to the proposal to approve the charter amendment, the holders of a majority of the outstanding shares of Series A preferred stock as of the record date for the meeting will also be required to constitute a quorum. Because, according to Sevcon’s records, the GAMCO entities own a majority of the Series A preferred stock, the presence at the meeting or representation by proxy of a portion of the GAMCO entities will be required to have a quorum with respect to the charter amendment proposal. If you are a record holder of shares of common stock or Series A preferred stock as of the close of business on August 15, 2017, and you submit a proxy, regardless of whether you abstain from voting on one or more matters, your shares will be counted as present at the meeting for the purpose of determining the presence of a quorum. If your shares are held in an account by a broker, bank or other nominee and you do not provide voting instructions with respect to your shares, your shares will not be considered present and entitled to vote for the purpose of determining a quorum; however, if you provide voting instructions and your bank, broker, or other nominee submits a proxy for your shares, your shares will count towards a quorum.

 

Q: What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A: If your shares are registered directly in your name with our transfer agent, American Stock Transfer and Trust Company, you are considered, with respect to those shares, to be the “stockholder of record.” In this case, this proxy statement and your proxy card have been sent directly to you by Sevcon.

If your shares are held through a broker, bank or other nominee, you are considered the “beneficial owner” of the shares of Sevcon stock held in “street name.” In that case, this proxy statement has been forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, to be the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by following their instructions for voting. You are also invited to attend the special meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the special meeting unless you request and present at the meeting a valid proxy from your broker, bank or other nominee.

 

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Q: How may I vote?

 

A: If you are a stockholder of record (that is, if your shares of stock are registered in your name with American Stock Transfer and Trust Company, our transfer agent), there are four ways to vote:

 

    Attend the special meeting and voting in person by ballot;

 

    Via the Internet at the address on your proxy card;

 

    Call toll-free (within the U.S. or Canada) at the phone number on your proxy card; or

 

    Complete, date, sign and return the enclosed proxy card in the accompanying prepaid reply envelope.

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of stock, and to confirm that your voting instructions have been properly recorded when voting electronically over the Internet or by telephone. Please be aware that, although there is no charge for voting your shares, if you vote electronically over the Internet or by telephone, you may incur costs such as telephone and Internet access charges for which you will be responsible.

Even if you plan to attend the special meeting in person, you are strongly encouraged to vote your shares of stock by proxy. If you are a record holder or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares of stock in person at the special meeting if you deliver to our Secretary a written revocation of any proxy you previously submitted.

If your shares are held in “street name” through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and returning the voting form provided by your broker, bank or other nominee, or electronically over the Internet or by telephone through your broker, bank or other nominee if such a service is provided. To vote via the Internet or via telephone through your broker, bank or other nominee, you should follow the instructions on the voting form provided by your broker, bank or nominee.

 

Q: If my broker holds my shares in “street name,” will my broker vote my shares for me?

 

A: Not without your direction. Your broker, bank or other nominee will only be permitted to vote your shares on any proposal if you instruct your broker, bank or other nominee how to vote. Under applicable stock exchange rules, brokers, banks or other nominees have the discretion to vote your shares on routine matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. The proposals in this proxy statement are considered non-routine matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions. Therefore, it is important that you instruct your broker, bank or nominee on how you wish to vote your shares.

You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares of Sevcon stock. Without instructions, a broker non-vote will result, and your shares will not be voted. A broker non-vote will have the same effect as if you voted against the proposals to approve and adopt the merger agreement and to approve and adopt the charter amendment, but will have no effect on the adjournment proposal or the executive officer compensation proposal.

 

Q: May I change my vote after I have mailed my signed proxy card or otherwise submitted my vote by proxy?

 

A: Yes. If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by:

 

    Submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy;

 

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    Delivering a written notice of revocation to our Secretary;

 

    Signing another proxy card with a later date and returning it to us prior to the special meeting; or

 

    Attending the special meeting, revoking your proxy by delivering notice of revocation to our Secretary, and voting in person.

If you hold your shares of common stock in “street name,” you should contact your broker, bank or other nominee for instructions regarding how to change your vote. You may also vote in person at the special meeting if you obtain and present at the meeting a valid proxy from your broker, bank or other nominee.

 

Q: What is a proxy?

 

A: A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of Sevcon common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of Sevcon common stock is called a “proxy card.” The Board has designated David R. A. Steadman, a member of the Board, Paul N. Farquhar, Sevcon’s Vice President and Chief Financial Officer, and Matthew C. Dallett, Secretary of the Company, and each of them, with full power of substitution, as proxies for the special meeting.

 

Q: If a stockholder gives a proxy, how are the shares voted?

 

A: Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, your proxies, will vote your shares in the way that you indicate. When completing the Internet or telephone process or the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; and (iv) “FOR” the executive officer compensation proposal.

 

Q: What should I do if I receive more than one set of voting materials?

 

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, date, sign and return (or vote via the Internet or telephone with respect to) each proxy card and voting instruction card that you receive.

 

Q: Where can I find the voting results of the special meeting?

 

A: Sevcon intends to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that Sevcon files with the SEC are publicly available when filed. See “Where You Can Find More Information” beginning on page 111 of this proxy statement.

 

Q: Will I be subject to U.S. federal income tax upon the exchange of Sevcon stock for cash pursuant to the merger?

 

A:

If you are a U.S. Holder (as defined under “The Merger—U.S. Federal Income Tax Consequences of the Merger” beginning on page 72), the exchange of Sevcon common stock or Series A preferred stock for cash

 

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  pursuant to the merger generally will require you to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash you received pursuant to the merger and your adjusted tax basis in the shares of stock surrendered pursuant to the merger.

You should consult your own tax advisor to determine the U.S. federal income tax consequences of the merger to you in light of your own particular circumstances and any consequences arising under the laws of any state, local or foreign taxing jurisdiction. A more complete description of certain U.S. federal income tax consequences of the merger is provided under “The Merger—U.S. Federal Income Tax Consequences of the Merger” beginning on page 72 of this proxy statement.

 

Q: If I hold warrants to purchase Sevcon common stock, how will they be treated?

 

A: Under the terms of the warrants, the effects of a transaction such as the merger on the warrants may not be certain and accordingly, if the warrants remain outstanding, the rights of a holder of warrants of the surviving company may not be certain. To address the risk of this potential uncertainty, it is a condition to Parent and Merger Sub’s obligation to close the merger that each of the holders of outstanding warrants has executed a warrant acknowledgement agreement with Sevcon agreeing to cancel such warrants in exchange for an amount equal to the product of the per common share merger consideration and the number of shares issuable upon exercise of such warrants, less the aggregate exercise price for such warrants. If Sevcon fails to obtain warrant acknowledgement agreements from holders of all outstanding warrants, and Parent waives this condition, the warrants held by any such holder may remain outstanding as securities of the surviving company. If all of the holders of outstanding warrants do not execute a warrant acknowledgement agreement and Parent does not waive this condition, the merger will not be consummated and neither Sevcon stockholders nor warrantholders will receive any payment for their securities. Instead, Sevcon will remain a public company, the common stock will continue to be listed and traded on NASDAQ and registered under the Exchange Act and we will continue to file periodic reports with the SEC. Prior to the date of this proxy statement, holders of all of the outstanding warrants have executed such agreements, and provided that each such agreement remains in full force and effect and is not amended, modified or waived in whole or in part without the prior written consent of Parent, the condition related to the warrant acknowledgement agreements will be satisfied.

Under specified circumstances, Sevcon may be required to pay Parent or its designee a termination fee or expense reimbursement amount upon the termination of the merger agreement in connection with the failure of the Company to obtain warrant acknowledgement agreements from holders of all outstanding warrants as described under “The Merger Agreement—Termination Fees and Expense Reimbursement” beginning on page 99.

 

Q: What will the holders of Sevcon stock options and restricted stock receive in the merger?

 

A: Options. At the effective time of the merger, each option will be cancelled and converted into the right to receive, with respect to each share of Sevcon common stock subject to such option, an amount in cash, without interest, equal to the excess, if any, of $22.00 over the applicable per share exercise price of such option, less any applicable withholding taxes. Option payments in respect of options that vest in accordance with their terms at the effective time of the merger or that would have vested assuming the holder’s continued employment or service through December 31, 2018, and achievement of any applicable performance-based vesting conditions, including those held by certain of our executive officers, will be paid to the holder promptly following the effective time of the merger. Option payments in respect of options that do not vest in accordance with their terms at the effective time of the merger and that would have vested in accordance with their terms on or after January 1, 2019, assuming the holder’s continued employment or service through the date on which the options are scheduled to become vested and the achievement of performance based vesting conditions will vest and become payable in accordance with the vesting schedule, terms and conditions applicable to such options immediately prior to the effective time; provided that pro rata option payments may be made in connection with certain qualifying terminations of employment and any performance-based vesting conditions applicable to such options will no longer apply and such options will be subject to service-based vesting only.

 

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Restricted Stock Awards. At the effective time of the merger, each restricted stock award will be converted into the right to receive, with respect to each share of common stock subject to such restricted stock award, an amount in cash, without interest, equal to $22.00, less any applicable withholding taxes. Restricted stock award payments (or portions thereof) in respect of restricted stock awards (or portions thereof) that vest by their terms at the effective time of the merger or that would have vested assuming the holder’s continued employment or service through December 31, 2018 and achievement of any applicable performance-based vesting conditions, including, in each case, those held by our directors, director emeritus, and certain of our executive officers, will be paid to the holder promptly following the effective time of the merger. Restricted stock award payments (or portions thereof) in respect of restricted stock awards (or portions thereof) that do not vest in accordance with their terms prior to or at the effective time of the merger and that would have vested in accordance with their terms on or after January 1, 2019 assuming the holder’s continued employment or service through the date on which the restricted stock awards (or portions thereof) are scheduled to become vested and the achievement of performance based vesting conditions will vest and become payable in accordance with the vesting schedule, terms and conditions applicable to such restricted stock awards immediately prior to the effective time; provided that pro rata restricted stock award payments may be made in connection with certain qualifying terminations of employment and any performance-based vesting conditions applicable to such restricted stock awards will no longer apply and such restricted stock awards will be subject to service-based vesting only.

 

Q: When do you expect the merger to be completed?

 

A: We anticipate that the merger will be completed in the third or fourth calendar quarter of 2017, assuming satisfaction or waiver of all of the conditions to the merger. However, the merger is subject to the satisfaction or waiver of various conditions, and it is possible that factors outside the control of Sevcon and Parent could result in the merger being completed at a later time or not at all.

 

Q: Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares of Sevcon common stock or Series A preferred stock?

 

A: Holders of Sevcon common stock and Series A preferred stock are entitled to appraisal rights under Section 262 of the DGCL so long as they follow the procedures precisely and satisfy the conditions set forth in Section 262 of the DGCL. See “The Merger—Appraisal Rights” beginning on page 67. In addition, the Section 262 of the DGCL is reproduced in its entirety in Annex C to this proxy statement. Failure to strictly comply with Section 262 of the DGCL may result in your loss of, or inability to exercise, appraisal rights.

 

Q: Who can help answer my questions?

 

A: If you have any questions concerning the merger, charter amendment, the special meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of common stock or Series A preferred stock, please contact our proxy solicitor:

The Proxy Advisory Group, LLC

1-844-99PROXY (1-844-997-7699)

Brokers and banks may call 1-212-616-2180.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are predictions based on expectations and projections about future events, and are not statements of historical fact. Forward-looking statements include statements concerning business strategy, plans and prospects, among other things, including anticipated trends and developments in and management plans for our business and the markets in which we operate. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” and “continue,” the negative or plural of these words and other comparable terminology. All forward-looking statements included in this proxy statement are based upon information available to us as of the filing date of this proxy statement, and we undertake no obligation to update any of these forward-looking statements for any reason. You should not place undue reliance on forward-looking statements. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. Important factors that could cause actual results to differ materially from those contained in any forward-looking statement include the factors identified in Sevcon’s Annual Report on Form 10-K for the year ended September 30, 2016, under the heading “Risk Factors,” as updated from time to time by Sevcon’s Quarterly Reports on Form 10-Q and other documents of Sevcon on file or in this proxy statement filed with the Securities and Exchange Commission, or the SEC, by Sevcon, including the following factors:

 

    one or more closing conditions to the merger may not be satisfied or waived, on a timely basis or at all, including that the required approval by the stockholders of Sevcon may not be obtained;

 

    there may be a material adverse change to Sevcon or the business of Sevcon may suffer as a result of uncertainty surrounding the transaction;

 

    the merger may involve unexpected costs, liabilities or delays;

 

    legal proceedings may be initiated related to the merger; and

 

    changes in economic conditions, political conditions, changes in federal or state laws or regulation may occur.

There can be no assurance that the merger will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the merger will be realized. Consequently, all of the forward-looking statements we make in this proxy statement are qualified by the information contained or incorporated by reference herein, including, but not limited to, the information contained under the headings “Risk Factors” and information in our consolidated financial statements and notes thereto included in our most recent filing on Form 10-K and subsequent periodic and interim report filings (see “Where You Can Find More Information” beginning on page 111). No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

 

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PARTIES TO THE MERGER

Sevcon, Inc.

155 Northboro Road

Southborough, Massachusetts 01772

(508) 281 5510

Sevcon, Inc., which we refer to as Sevcon, we, us or our is a company which through wholly-owned subsidiaries located in the United States, England, France, Germany, Canada, South Korea, Japan and China, and through an international dealer network, designs and sells, under the Sevcon name, motor controllers for zero emission electric and hybrid vehicles. The controls are used to vary the speed and movement of vehicles, to integrate specialized functions and to optimize the energy consumption of the vehicle’s power source. Through a wholly-owned subsidiary in Italy, the Company also designs, manufactures and sells battery chargers for electric vehicles and power management and uninterrupted power source systems for industrial, medical and telecom applications, as well as electronic instrumentation for battery laboratories. Sevcon’s customers are manufacturers of on and off-road vehicles, including cars, trucks, buses, motorcycles, fork lift trucks, aerial lifts, mining vehicles, airport tractors, sweepers and other electrically powered vehicles. Through another subsidiary located in the United Kingdom, Sevcon manufactures special metalized film capacitors that are used as components in the power electronics, including Sevcon’s new automotive controller families, signaling and audio equipment markets.

See also “Where You Can Find More Information” beginning on page 111.

Our common stock is currently listed on the NASDAQ Capital Market, which we refer to as NASDAQ, under the symbol “SEV.”

BorgWarner Inc.

3850 Hamlin Road

Auburn Hills, Michigan 48326

(248) 754 0872

BorgWarner Inc., a Delaware corporation, which we refer to as BorgWarner or Parent, is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. These products help improve vehicle performance, propulsion efficiency, stability and air quality. These products are manufactured and sold worldwide, primarily to original equipment manufacturers of light vehicles (passenger cars, sport-utility vehicles, vans and light trucks). BorgWarner’s products are also sold to other original equipment manufacturers of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). BorgWarner also manufactures and sells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. BorgWarner operates manufacturing facilities serving customers in Europe, the Americas, and Asia and is an original equipment supplier to every major automotive original equipment manufacturer in the world.

Slade Merger Sub Inc.

Slade Merger Sub Inc. is a Delaware corporation and a wholly owned subsidiary of Parent. It was formed solely for the purpose of effecting the merger and the transactions contemplated by the merger agreement and it has not engaged in any other business.

 

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THE SPECIAL MEETING

The enclosed proxy is solicited on behalf of the Board for use at the special meeting of stockholders or at any adjournments or postponements thereof.

Date, Time and Place

We will hold the special meeting at 12:00 p.m., Eastern Time, on September 22, 2017, at the offices of Locke Lord LLP, 111 Huntington Avenue at Prudential Center, Boston, Massachusetts.

Purpose of the Special Meeting

At the special meeting, we will ask our stockholders of record as of the record date to vote on (i) a proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) a proposal to approve and adopt the charter amendment; (iii) a proposal to adjourn the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement and/or the charter amendment at the time of the special meeting or in the absence of a quorum; (iv) a proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Sevcon to its named executive officers in connection with the merger; and (v) such other business as may properly come before the special meeting or any adjournment or postponement thereof.

Record Date; Shares Entitled to Vote; Quorum

Only stockholders of record as of the close of business on August 15, 2017, are entitled to notice of the special meeting and to vote at the special meeting or at any adjournments or postponements thereof. A list of stockholders entitled to vote at the special meeting will be available in our offices located at 155 Northboro Road, Southborough, Massachusetts 01772, during regular business hours for a period of at least ten days before the special meeting and at the place of the special meeting during the meeting.

As of the record date, there were 5,693,408 shares of our common stock and 421,084 shares of our Series A preferred stock outstanding and entitled to be voted at the special meeting.

A quorum of stockholders is necessary to hold a special meeting. Our bylaws provide that the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute quorum for the transaction of business. Shares represented by proxies marked “Abstain” or “Withheld” are counted as present in determining whether a quorum is present.

In the event that a quorum is not present at the special meeting with respect to any proposal, it is expected that the meeting would be adjourned to a later date to solicit additional proxies, subject to the terms and conditions of the merger agreement.

Vote Required; Abstentions and Broker Non-Votes

The affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote at the meeting is required to approve the proposal to approve and adopt the merger agreement. Approval of the charter amendment requires the affirmative vote of a majority of the outstanding shares of our common stock entitled to vote at the special meeting and a majority of the outstanding shares of Series A preferred stock entitled to vote at the special meeting, voting as separate classes. Approval and adoption of both the merger agreement and the charter amendment by our stockholders is a condition to the closing of the merger, although Parent may waive the charter amendment condition.

Approval of both the adjournment proposal and the executive officer compensation proposal require the affirmative vote of a majority of the voting power of all shares of our common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting.

 

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If your shares are registered in your name, your failure to submit a proxy or to attend and vote in person at the special meeting will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement and “AGAINST” the proposal to approve and adopt the charter amendment, but will not have any effect on either the adjournment proposal or the executive officer compensation proposal.

If you hold your shares in “street name” the failure to instruct your broker, bank or other nominee on how to vote your shares will result in a broker non-vote. Each broker non-vote will count as a vote “AGAINST” the proposal to approve and adopt the merger agreement and the proposal to approve and adopt the charter amendment, but will have no effect on either the adjournment proposal or the executive officer compensation proposal.

For both registered stockholders and holders of shares in street name, abstentions will have the same effect as votes “AGAINST” each of the proposals.

According to Amendment No. 4 to the Schedule 13D filed by Sevcon stockholders Meson Capital LP, Meson Constructive Capital LP and Ryan J. Morris (which we refer to collectively as Meson Capital) in respect of their interests in Sevcon on July 21, 2017, Meson Capital collectively beneficially owned, as of July 20, 2017, 782,262 shares of our common stock, representing approximately 13.74% of the outstanding shares of our common stock, and 8,037 shares of our Series A preferred stock, representing approximately 1.91% of the outstanding shares of our Series A preferred stock. Sevcon has been informed by Meson Capital that, consistent with the terms of the voting and support agreement executed by Meson Capital with Parent, they intend to vote all of the Sevcon shares held by them (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; and (iv) “FOR” the executive officer compensation proposal.

According to the Schedule 13G filed by Sevcon stockholder Bassi Holding S.r.l. (which we refer to as Bassi) in respect of its interests in Sevcon on October 13, 2016, as of that date, Bassi collectively beneficially owned 610,000 shares of our common stock, representing approximately 10.71% of the outstanding shares of our common stock. Sevcon has been informed by Bassi that, consistent with the terms of the voting and support agreement executed by Bassi with Parent, it intends to vote all of the Sevcon shares held by it (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; and (iv) “FOR” the executive officer compensation proposal.

Shares Held by Sevcon’s Directors and Executive Officers

At the close of business on August 15, 2017, our directors, executive officers and director emeritus beneficially owned and were entitled to vote, in the aggregate, 2,141,887 shares of our common stock (which excludes any shares of our common stock that would be delivered upon exercise of warrants or stock options), which represented approximately 37.6% of the shares of our outstanding common stock on that date, and 146,568 shares of our Series A preferred stock, which represented approximately 34.8% of the shares of our outstanding Series A preferred stock on that date. These include the shares held by Meson Capital and Bassi. Our directors, executive officers and director emeritus have informed us that they currently intend to vote all of their shares of our common stock and Series A preferred stock (as applicable) (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; and (iv) “FOR” the executive officer compensation proposal.

Concurrently with the execution of the merger agreement, each of our directors (other than Ryan J. Morris, who executed a voting and support agreement in his capacity as a principal of Meson Capital) and director emeritus entered into separate support agreements with Parent, in which our directors and director emeritus agreed, on the terms and subject to the conditions set forth in the support agreements, to be subject to the restrictions on the

 

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solicitation or initiation of other acquisition proposals and on engaging in discussions regarding such proposals as are applicable to Sevcon’s representatives pursuant to the merger agreement, and certain restrictions on the transfer of shares of our common stock or Series A preferred stock.

Voting of Proxies

If your shares are registered in your name with our transfer agent, American Stock Transfer and Trust Company, you may cause your shares to be voted by returning a signed proxy card, or you may vote in person at the special meeting. Additionally, you may submit electronically over the Internet or by phone a proxy authorizing the voting of your shares by following the instructions on your proxy card. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy electronically over the Internet or by telephone. Based on your proxy cards or Internet and telephone proxies, the proxy holders will vote your shares according to your directions.

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. If your shares are registered in your name, you are encouraged to vote by proxy even if you plan to attend the special meeting in person. If you attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as your vote by ballot will not revoke any proxy previously submitted.

Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. Properly executed proxies that do not contain voting instructions will be voted (i) “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) “FOR” the proposal to approve and adopt the charter amendment; (iii) “FOR” the adjournment proposal; (iv) “FOR” the executive officer compensation proposal; and (v) in the discretion of the proxies named therein with respect to such other business as may properly come before the special meeting or any adjournment or postponement thereof. No proxy that is specifically marked “AGAINST” the proposal to approve and adopt the merger agreement will be voted in favor of the executive officer compensation proposal unless it is specifically marked “FOR” the approval of such proposal.

If your shares are held in “street name” through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and returning the voting form provided by your broker, bank or other nominee, or by the Internet or telephone through your broker, bank or other nominee if such a service is provided. To vote via the Internet or telephone through your broker, bank or other nominee, you should follow the instructions on the voting form provided by your broker, bank or other nominee. Under applicable stock exchange rules, brokers, banks or other nominees have the discretion to vote your shares on routine matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. The proposals in this proxy statement are non-routine matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions. If you do not return your broker’s, bank’s or other nominee’s voting form, do not vote via the Internet or telephone through your broker, bank or other nominee, if applicable, or do not attend the special meeting and vote in person with a proxy from your broker, bank or other nominee, such actions will result in a broker non-vote and will have the same effect as if you voted “AGAINST” the proposal to approve and adopt the merger agreement or to approve and adopt the charter amendment, but will not have any effect on the adjournment proposal or the executive officer compensation proposal.

Holders of shares of Series A preferred stock will receive a separate proxy card to vote such shares on Proposal 2.

 

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Revocability of Proxies

If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by:

 

    Submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy;

 

    Delivering a written notice of revocation to our Secretary;

 

    Signing another proxy card with a later date and returning it to us prior to the special meeting; or

 

    Attending the special meeting, revoking your proxy by delivering notice of revocation to our Secretary, and voting in person.

Please note that to be effective, your new proxy card, Internet or telephonic voting instructions or written notice of revocation must be received by our Secretary prior to the special meeting and, in the case of Internet or telephonic voting instructions, must be received before 11:59 p.m. Eastern Time on September 21, 2017. If you have submitted a proxy but instead attend the special meeting and wish to vote in person, you must deliver to our Secretary a written revocation of any proxy you previously submitted, as your vote by ballot will not revoke any proxy previously submitted.

If you hold your shares of common stock in “street name,” you should contact your broker, bank or other nominee for instructions regarding how to change your vote. You may also vote in person at the special meeting if you obtain and present at the meeting a valid proxy from your broker, bank or other nominee. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow Sevcon stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting, as adjourned.

Adjournment

In addition to the proposals to approve the merger, the merger agreement and the other actions and transactions contemplated by the merger agreement and the charter amendment, holders of common stock are being asked to approve any proposal submitted to a vote of stockholders to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to solicit additional votes or proxies in favor of the approval of the merger, the merger agreement and the other actions and transactions contemplated by the merger agreement and the charter amendment if there are insufficient votes at the time of the special meeting to approve such items or if a quorum is not present. If a quorum is not present, the affirmative vote of a majority of our shares of common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the meeting may adjourn the meeting to such day as they shall, by majority vote, agree upon. If a quorum was present in person or by proxy at the time a duly called or held meeting convened, a meeting may be adjourned from time to time without notice other than announcement at the meeting. In addition, the special meeting could be postponed before it commences. If the special meeting is adjourned or postponed, stockholders who have already submitted their proxies will be able to revoke them at any time prior to the final vote on the proposals.

Solicitation of Proxies

The Sevcon Board is soliciting your proxy, and Sevcon will bear the cost of this solicitation of proxies, including the preparation, assembly and mailing of the proxies and soliciting material, as well as the cost of forwarding such material to the beneficial owners of our common stock.

We have retained The Proxy Advisory Group, LLC, a proxy solicitation firm, to solicit proxies and provide related advice and informational support in connection with the special meeting for a services fee, plus customary disbursements, which are not expected to exceed $15,000 in total. Proxies may be solicited by mail, personal interview, e-mail, telephone, facsimile or via the Internet by The Proxy Advisory Group, LLC or, without additional compensation, by certain of Sevcon’s directors, officers and employees.

 

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Anticipated Date of Completion of the Merger

We anticipate that the merger will be completed in the third or fourth calendar quarter of 2017, assuming satisfaction or waiver of all of the conditions to the merger. However, the merger is subject to the satisfaction or waiver of various conditions, and it is possible that factors outside the control of Sevcon and Parent could result in the merger being completed at a later time or not at all.

Householding of Special Meeting Materials

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement for the special meeting may have been sent to multiple stockholders in each household. We will promptly deliver a separate copy of our proxy statement to any stockholder upon written or oral request to Sevcon, Inc., Attention: Investor Relations, 155 Northboro Road, Southborough, Massachusetts 01772; (508) 281-5522. Any stockholder who wants to receive separate copies of any proxy statement or annual report to stockholders in the future, or any stockholder who is receiving multiple copies and would like to receive only one copy per household, should contact the stockholder’s bank, broker, or other nominee record holder, or the stockholder may contact Sevcon at the above address and phone number.

Right of Stockholders to Assert Appraisal Rights

Appraisal Rights

Under the DGCL, holders of Sevcon common stock who do not vote in favor of adoption of the merger agreement (or consent thereto in writing) who are entitled to demand and who properly demand appraisal of such shares, and do not thereafter fail to perfect, effectively withdraw, or otherwise lose their right to appraisal in accordance with Section 262 of the DGCL, will have the right to seek appraisal of the fair value of their shares of Sevcon common stock in cash as determined by the Delaware Court of Chancery in lieu of receiving the per common share merger consideration if the merger is completed, but only if they strictly comply with the procedures and requirements set forth in Section 262 of the DGCL. Any holder of record of shares of Sevcon common stock intending to exercise appraisal rights, among other things, must properly submit a written demand for appraisal to us prior to the taking of the vote on the proposal to adopt the merger agreement, must not vote or otherwise submit a proxy in favor of (or consent in writing to) the proposal to adopt the merger agreement, must continue to hold the shares of Sevcon common stock through the effective time of the merger and must otherwise comply with all of the procedures required by Section 262 of the DGCL. Failure to strictly comply with Section 262 of the DGCL may result in your loss of, or inability to exercise, appraisal rights.

Holders of Series A preferred stock are not entitled to vote on the proposal to adopt the merger agreement, but holders of shares of Series A preferred stock that are outstanding immediately prior to the effective time of the merger who are entitled to demand and who properly demand appraisal of such shares, and do not thereafter fail to perfect, effectively withdraw, or otherwise lose their right to appraisal in accordance with Section 262 of the DGCL, will have the right to seek appraisal of the fair value of their shares of Series A preferred stock in cash as determined by the Delaware Court of Chancery in lieu of receiving the per preferred share merger consideration if the merger is completed, but only if they strictly comply with the procedures and requirements set forth in Section 262 of the DGCL. Any holder of record of shares of Series A preferred stock intending to exercise appraisal rights, among other things, must properly submit a written demand for appraisal to us prior to the vote by the holders of Sevcon common stock on the proposal to adopt the merger agreement, must continue to hold the shares of Series A preferred stock through the effective time of the merger and must otherwise comply precisely with all of the procedures required by Section 262 of the DGCL. Failure to strictly comply with Section 262 of the DGCL may result in your loss of, or inability to exercise, appraisal rights.

Sevcon stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 of the DGCL could be more than, the same as, or less than the value of the consideration that they would receive under the merger agreement if they did not seek appraisal of their shares.

 

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The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, and Section 262 of the DGCL is attached as Annex C to this proxy statement. If you hold your shares of stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal on your behalf by your bank, broker or other nominee.

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact our proxy solicitor:

The Proxy Advisory Group, LLC

1-844-99PROXY (1-844-997-7699)

 

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THE MERGER

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is included with this proxy statement as Annex A and incorporated into this proxy statement by reference. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

Merger Consideration

In the merger, (i) each share of common stock issued and outstanding immediately prior to the effective time of the merger (other than excluded shares and dissenting shares) will be converted automatically into the right to receive the per common share merger consideration of $22.00 in cash, and (ii) if the charter amendment becomes effective, each share of Series A preferred stock issued and outstanding immediately prior to the effective time (other than excluded shares and dissenting shares) will automatically be converted into the right to receive the per preferred share merger consideration of $66.00 in cash, in each case without interest and subject to any withholding of taxes. Each share of Series A preferred stock is convertible into three shares of common stock; accordingly, the per preferred share merger consideration represents the consideration each share of Series A preferred stock would receive on an as-converted basis. Immediately prior to the effective time of the merger, the Board of Directors of Sevcon intends to declare and pay a special dividend on the Series A preferred stock representing the amount of the accrued and unpaid dividends on the Series A preferred stock.

The Charter Amendment

Sevcon has two classes of stock outstanding, common stock and Series A preferred stock. Under the terms of our charter related to the Series A preferred stock, the effects of a transaction such as the merger on the Series A preferred stock may not be certain and accordingly, if the Series A preferred stock remains outstanding, the rights of a holder of Series A preferred stock of the surviving company may not be certain. To address the risk of this potential uncertainty, it is a condition to Parent and Merger Sub’s obligation to close the merger that our Amended and Restated Certificate of Incorporation, which we refer to as our charter, be amended to provide that, at the effective time of the merger, each holder of Series A preferred stock will be entitled to receive the consideration provided for in the merger agreement for each share of Series A preferred stock owned by such holder. The charter amendment requires the affirmative vote of holders of a majority of both the outstanding common stock and the outstanding Series A preferred stock, voting as separate classes. If the charter amendment does not become effective, and Parent waives this condition, the shares of our Series A preferred stock may remain outstanding as securities of the surviving company.

According to Sevcon’s records, stockholders GGCP, Inc., Mario J. Gabelli, Teton Advisors, Inc., Gabelli Funds, LLC, GAMCO Investors, Inc., Associated Capital Group, Inc., GAMCO Asset Management Inc. or Gabelli & Company Investment Advisers, Inc. (which we refer to collectively as GAMCO) collectively beneficially own a majority of the outstanding shares of our Series A preferred stock. Because of GAMCO’s ownership of a majority of our Series A preferred stock, votes of the GAMCO entities in favor of the charter amendment proposal would be necessary to secure stockholder adoption of the charter amendment.

Treatment of Warrants

In 2016, Sevcon issued warrants to purchase 562,000 shares of Sevcon common stock at an exercise price of $10.00 per share, of which 556,482 remain outstanding as of the date of this proxy statement. Under the terms of the warrants, the effects of a transaction such as the merger on the warrants may not be certain and accordingly, if the warrants remain outstanding, the rights of a holder of warrants of the surviving company may not be certain. To mitigate the risk of this potential uncertainty, it is a condition to Parent and Merger Sub’s obligation to close the merger that each of the holders of outstanding warrants has executed an agreement with Sevcon agreeing to cancel such warrants in exchange for an amount equal to the product of the per common share merger consideration and the number of shares issuable upon exercise of such warrants, less the aggregate exercise price for such warrants, which we refer to as warrant acknowledgement agreements. If Sevcon fails to obtain warrant

 

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acknowledgement agreements from holders of all outstanding warrants, and Parent waives this condition, the warrants held by any such holder may remain outstanding as securities of the surviving company. Prior to the date of this proxy statement, holders of all of the outstanding warrants have executed such agreements, and provided that each such agreement remains in full force and effect and is not amended, modified or waived in whole or in part without the prior written consent of Parent, the condition related to the warrant acknowledgement agreements will be satisfied.

Background of the Merger

Our Board, together with senior management and with the assistance of Sevcon’s advisors, has periodically reviewed and considered strategic and business alternatives to maximize value for our stockholders over the years. These reviews took into consideration Sevcon’s performance, competitive dynamics, macroeconomic developments and industry trends. They have included discussions as to whether the continued execution of our strategy as a standalone company offered the best avenue to enhance stockholder value, as compared with the possible sale of Sevcon to, or combination of Sevcon with, a third party, and the potential benefits and risks of each course of action.

Sevcon had an extensive commercial relationship with Remy International, Inc., a manufacturer of electrical components for the automotive and commercial vehicle industry, prior to its acquisition by BorgWarner in November 2015. During the following year, Sevcon responded to a number of requests for quotation of commercial business from BorgWarner and began to develop a relationship with BorgWarner. On November 3, 2016, representatives of Sevcon, including Matt Boyle, our President and CEO, met at Sevcon’s offices in Gateshead, UK, with Martin Fischer, Vice President, General Manager, Europe and South America of BorgWarner Turbo Systems, and Stefan Demmerle, BorgWarner’s Head of Power Drivetrain Systems, to discuss possible commercial opportunities for the two companies and BorgWarner’s strategy for hybrid and electric systems. In that meeting, the BorgWarner representatives expressed BorgWarner’s interest in potentially acquiring Sevcon. Mr. Boyle informed Messrs. Fischer and Demmerle that he was not in a position to discuss a potential acquisition of Sevcon by BorgWarner and would notify the Board of BorgWarner’s potential interest. On November 4, 2016, Mr. Boyle called Matt Goldfarb, Sevcon’s then-Lead Independent Director and Chair of the Nominating and Governance Committee of the Board, to discuss in detail BorgWarner’s expression of interest. On November 6, 2016, Mr. Boyle informed the full Board of BorgWarner’s expression of interest.

On November 6, 2016, the Nominating and Governance Committee held a meeting with representatives of Locke Lord LLP, outside legal counsel to Sevcon, which we refer to as Locke Lord, present. At the meeting, BorgWarner’s unsolicited expression of interest was discussed. The committee members reviewed various commercial and other considerations relevant to pursuing the matter, following which the committee decided to recommend that the Board form a special committee of independent directors in light of BorgWarner’s expression of interest. A special committee was not proposed to be formed to address any actual or potential conflict of interest.

On November 8, 2016, at Sevcon’s request, a representative of BorgWarner sent Mr. Boyle a draft nondisclosure agreement.

On November 14, 2016, the Board held a meeting with representatives of Locke Lord present. At the meeting, BorgWarner’s expression of interest was discussed at length. The directors agreed in principle with the recommendation of the Nominating and Governance Committee to form a special committee consisting of Matt Goldfarb, David R.A. Steadman and Walter M. Schenker to, among other things, facilitate the Board’s review and evaluation of BorgWarner’s expression of interest and any potential proposals from other parties and review, evaluate, investigate, pursue and negotiate the terms and conditions of a potential transaction with BorgWarner or any potential transaction with another party. The members of the proposed committee were chosen based on their significant experience related to mergers and acquisition transactions and their availability in light of the additional time commitment that would likely be required to consider and negotiate a potential transaction.

 

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On November 16, 2016, Mr. Boyle introduced Mr. Demmerle to Mr. Goldfarb, who stated that the Board was considering BorgWarner’s expression of interest.

On November 19, 2016, Messrs. Goldfarb, Steadman and Schenker, comprising all of the members of the proposed special committee, met to discuss and consider the competitive landscape, Sevcon’s perceived importance to BorgWarner as an acquisition target, the expected due diligence process and the ramifications of discussing a potential transaction in light of BorgWarner’s potential significance as a customer. They also considered the assistance that a financial advisor would provide in prioritizing and managing the process, as well as typical engagement terms for such an advisor.

On November 22, 2016, the Board held a meeting with representatives of Locke Lord present, at which the Board formed the Special Committee with the members and authority described above.

On November 23, 2016, Mr. Goldfarb contacted a representative of Rothschild and another investment bank to discuss their credentials and obtain engagement proposals from each firm.

Also on November 23, 2016, the Special Committee held a meeting with representatives of Locke Lord present to discuss the draft nondisclosure agreement provided by BorgWarner.

On November 30, 2016, the Special Committee held a meeting with representatives of Locke Lord present to consider the proposals and qualifications of the two investment banks. The Special Committee reviewed and discussed the qualifications of each investment bank and each such advisor’s potential to assist Sevcon with its exploration of strategic alternatives in light of the rapidly changing industry landscape.

On December 2, 2016, following negotiations on the terms of a nondisclosure agreement over the preceding weeks, Sevcon and BorgWarner executed the nondisclosure agreement.

On December 5, 2016, the Nominating and Governance Committee held a meeting during which Messrs. Boyle and Morris, then Executive Chairman of Sevcon, were present. During this meeting, Mr. Morris was informed that the Nominating and Governance Committee would recommend to the Board that Mr. Morris’ role as Executive Chairman be terminated, and that Mr. Goldfarb would be nominated to serve as non-executive Chairman of the Board.

Also on December 5, 2016, a representative of BorgWarner sent an initial due diligence request list to Sevcon.

On December 6, 2016, the Special Committee held a meeting with representatives of Locke Lord present to interview representatives of Rothschild about Rothschild’s relevant experience and qualifications. Representatives of Rothschild disclosed a past financial advisory engagement with BorgWarner and stated that Rothschild did not receive any fee for such engagement, which the Special Committee considered and determined would not impact Rothschild’s ability to represent Sevcon. The Special Committee determined to engage Rothschild based on, among other factors, the strength of the investment banking team that Rothschild proposed to dedicate to Sevcon, Rothschild’s experience advising clients in the automotive industry with respect to strategic transactions, and Rothschild’s proposed fee structure, which would incentivize Rothschild to seek the highest price for Sevcon.

Later on December 6, 2016, the Board held a meeting with representatives of Locke Lord present. At the meeting, Mr. Goldfarb provided the directors with an update on the status of BorgWarner’s expression of interest, and Sevcon’s management reviewed for the Board the financial projections prepared by management for fiscal years 2017, 2018 and 2019. In addition, consistent with the recommendation of the Nominating and Governance Committee, Mr. Morris was terminated as Executive Chairman of Sevcon (but remained serving as a director), and Mr. Goldfarb was appointed as non-executive Chairman of the Board of Sevcon.

On December 9, 2016, Sevcon executed an engagement letter with Rothschild for Rothschild to serve as financial advisor to the Special Committee to provide advice to Sevcon with respect to a possible transaction with BorgWarner or another party.

 

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On December 17, 2016, the Special Committee held a meeting with representatives of Locke Lord present to further discuss the strategy for responding to BorgWarner’s expression of interest.

On December 19, 2016, the Nominating and Governance Committee, at the request of Mr. Morris, held a meeting to discuss Mr. Morris’ concerns regarding board composition. During this meeting, Mr. Morris made certain demands as to board composition, which the Nominating and Governance Committee determined not to recommend to the Board. Later on December 19, 2016, Mr. Morris, on behalf of Meson Capital, notified Sevcon of its intention to run a proxy contest at Sevcon’s upcoming annual meeting.

Also on December 19, 2016, Mr. Boyle, as instructed by the Special Committee, provided Mr. Demmerle with an update on Sevcon’s response to BorgWarner’s due diligence requests, also informing him that, prior to BorgWarner’s expression of interest, the Board had not determined that selling Sevcon was in the best interests of its stockholders, but had nonetheless engaged Rothschild to provide advice on BorgWarner’s expression of interest due to the Board’s objective of maximizing stockholder value and to properly assess and analyze all strategic opportunities available to Sevcon for the benefit of its stockholders.

On January 6, 2017, a financial sponsor, which we refer to as Party A, contacted Mr. Boyle expressing interest in obtaining more information about Sevcon in connection with a possible acquisition of Sevcon. Mr. Boyle and a representative of Party A subsequently agreed to meet to discuss Party A’s interest further at a mutually convenient time and place.

On January 12, 2017, Messrs. Boyle and Goldfarb met with Mr. Demmerle, Christopher Vance, BorgWarner’s Vice President, Business Development and M&A, and Tania Wingfield, Vice President, Product and Manufacturing Strategy of BorgWarner Power Drivetrain Systems, in Detroit, Michigan, with representatives of Rothschild present, to further discuss BorgWarner’s interest in acquiring Sevcon. During this meeting, representatives of BorgWarner reiterated their interest in exploring a potential transaction to acquire Sevcon, indicating its requirement that any further negotiations would need to provide for exclusivity in order for BorgWarner to expend the necessary resources and time to perform due diligence. Mr. Goldfarb informed representatives of BorgWarner that the Board viewed Sevcon’s share price at the time, which as of the close of markets on January 11, 2017 was $8.31 per share, as failing to reflect Sevcon’s inherent opportunity to participate in the rapid growth in the on-road electrification market, and accordingly the Board would view any standard market premium to Sevcon’s existing share price as unattractive relative to executing on Sevcon’s stand-alone business plan.

Between mid-December 2016 and February 7, 2017, Sevcon was actively engaged in the proxy contest with Meson Capital regarding the election of directors, with the proxy contest resulting in the failure of Sevcon’s stockholders to elect any of the members of Meson Capital’s dissident slate. Between mid-December and January 19, 2017, BorgWarner was actively conducting initial due diligence and engaged in preliminary discussions relating to a potential acquisition of Sevcon. On January 19, 2017, in a telephone conversation between Mr. Vance and Mr. Goldfarb, Mr. Vance indicated BorgWarner’s desire to put discussions on hold pending Sevcon’s resolution of its proxy contest. Accordingly, the interaction with BorgWarner was reduced, although Sevcon’s management continued to respond to BorgWarner’s due diligence requests and Mr. Goldfarb remained in contact with Mr. Vance to advise BorgWarner of the status of Sevcon’s proxy contest.

On February 2, 2017 after market close, Sevcon announced a significant customer win in its drivetrain business. On February 3, 2017, the trading price of our common stock closed at $13.51 per share.

On February 7, 2017, Sevcon held its annual meeting of stockholders and Sevcon’s stockholders overwhelmingly voted for Sevcon’s incumbent slate of directors, ending the proxy contest.

On February 13, 2017, Sevcon announced the voting results of its annual meeting of stockholders. Following the announcement, Mr. Goldfarb informed Mr. Vance that Sevcon’s proxy contest was resolved, and that Sevcon remained willing to re-engage in discussions with BorgWarner.

 

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On March 2, 2017, Mr. Vance delivered to Mr. Boyle BorgWarner’s written, preliminary proposal to acquire Sevcon at a price per share of our common stock (on a fully-diluted basis) of $19.00 in cash. The proposal was based on certain stated assumptions about Sevcon’s outstanding securities and debt and did not include a financing contingency. It was conditioned on Sevcon entering into a 60-day exclusivity agreement with BorgWarner.

Also on March 2, 2017, representatives of Sevcon and Party A met in Gateshead, UK to discuss Party A’s interest in potentially acquiring Sevcon.

On March 3 and March 6, 2017, the Special Committee held meetings to discuss BorgWarner’s proposal, with representatives of Locke Lord present at each meeting and representatives of Rothschild present at the earlier meeting. The Special Committee considered additional information about Sevcon’s prospects and potential synergies with BorgWarner that BorgWarner would need to understand and evaluate in order to be persuaded to improve the financial terms of its proposal. The Special Committee determined that Sevcon would seek improved financial terms from BorgWarner, which the Special Committee deemed necessary for it to agree to BorgWarner’s requirement that it be granted exclusivity.

On March 6, 2017, the Board held a meeting with representatives of Locke Lord and Rothschild present. The Board discussed a memorandum provided by Locke Lord regarding the fiduciary duties of directors in considering an acquisition proposal. Representatives of Rothschild reviewed Rothschild’s preliminary financial analyses with respect to Sevcon and discussed BorgWarner’s request for exclusivity and potential responses to such request. Following discussion by the Board, with the advice of legal counsel, the Board determined that representatives of Rothschild should inform BorgWarner that it would need to improve the financial terms of its proposal in order for Sevcon to be willing to proceed with discussions regarding a potential transaction and that Sevcon was not prepared to enter into exclusive negotiations at that time. Later on March 6, 2017, in separate telephone calls, Mr. Goldfarb and a representative of Rothschild conveyed that position to Mr. Vance and a representative of Deutsche Bank, financial advisor to BorgWarner, respectively.

On March 8, 2017, following Sevcon’s response, Mr. Vance delivered a revised written proposal from BorgWarner, indicating that it was prepared to increase its cash purchase price from $19.00 per share to $21.00 per share and reducing the requested exclusivity period from 60 days to 45 days. Also on March 8, 2017, a representative of Deutsche Bank contacted a representative of Rothschild to reiterate the terms of BorgWarner’s written proposal.

Later on March 8, 2017, the Special Committee held a meeting with representatives of Locke Lord and Rothschild present to discuss BorgWarner’s revised proposal and to consider Sevcon’s response. The Special Committee discussed approaching other parties that may have an interest in acquiring Sevcon, and determined that any such approaches had to be conducted in a manner so as not to risk BorgWarner’s proposal before it was fully developed.

Also on March 8, 2017, an investment banker purportedly representing a strategic party, which we refer to as Party B, contacted Mr. Boyle regarding Party B’s interest in potentially acquiring Sevcon.

On March 9, 2017, the Board held a meeting with representatives of Locke Lord and Rothschild present to review BorgWarner’s revised proposal. Following discussion by the Board, the Board determined that further improvement of the financial terms of the proposal would be sought in order to grant exclusivity to BorgWarner on the terms proposed. During the same meeting, representatives of Rothschild noted several parties that may have interest in acquiring Sevcon. Mr. Boyle noted that of all the parties, a strategic party, which we refer to as Party C, appeared to be best positioned to offer a competitive price for Sevcon and would likely be interested in pursuing a potential acquisition of Sevcon. Mr. Boyle also noted his recent contact with Party B’s representative. The Board further determined that Mr. Boyle should contact Party C and the representative who had contacted him on behalf of Party B, and that representatives of Rothschild should informally approach six other parties that

 

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were discussed that may have an interest in acquiring Sevcon to assess the level of their knowledge of Sevcon and potential interest, if any. The Board agreed with the Special Committee’s concerns about losing BorgWarner’s proposal. The Board also discussed Sevcon’s longer-term standalone prospects in light of the significant risks in realizing Sevcon’s growth projections.

Later on March 9, 2017, a representative of Rothschild sent an e-mail to the Special Committee confirming the six parties that would be approached regarding a potential transaction with Sevcon and Mr. Boyle contacted the investment banker that had previously contacted him on behalf of Party B. The investment banker indicated that he would have a representative of Party B call Mr. Boyle.

On March 10, 2017, representatives of Rothschild, as instructed by the Special Committee, contacted the six parties discussed with the Board at its meeting on March 9, 2017, including representatives of two strategic parties, which we refer to as Party D and Party E.

On March 12, 2017, the Special Committee held a meeting with representatives of Locke Lord and Rothschild present and discussed the contacts that had been made with other parties that may have an interest in acquiring Sevcon, which the Special Committee determined yielded only preliminary expressions of interest compared to the more fully developed proposal from BorgWarner. Nevertheless, the Special Committee determined not to agree at that time to grant exclusivity to BorgWarner and that management and representatives of Rothschild should continue to explore interest from other parties, though Sevcon would continue to engage with BorgWarner on its proposal. The Special Committee instructed representatives of Rothschild to inform representatives of BorgWarner that the Board believed the improved price of $21.00 per share did not reflect the full value of Sevcon but that the Special Committee would be prepared to provide BorgWarner with additional due diligence information and hold a meeting with members of Sevcon’s senior management in an effort to help BorgWarner understand the value proposition Sevcon could bring to BorgWarner, though Sevcon would not provide BorgWarner with exclusivity. Later on March 12, 2017, Mr. Goldfarb conveyed to Mr. Vance on a telephone call Sevcon’s reluctance to agree to exclusivity on the terms proposed.

Also on March 12, 2017, Mr. Boyle contacted a representative of Party C to inquire whether Party C would have interest in a potential acquisition of Sevcon. The representative informed Mr. Boyle that he did not believe that Party C would have interest in pursuing an acquisition of Sevcon but would have further discussions with executives of Party C to determine whether there would be any such interest. A representative of Party C subsequently confirmed to Mr. Boyle that Party C did not have interest in considering an acquisition of Sevcon.

On March 13, 2017, representatives of Rothschild conveyed to representatives of Deutsche Bank the Special Committee’s position as outlined by the Special Committee on March 12, 2017, including that Sevcon was not prepared to provide BorgWarner with exclusivity and that $21.00 per share failed to fully reflect the value of Sevcon.

Also on March 13, 2017, a representative of Party B contacted Mr. Boyle regarding its interest in potentially acquiring Sevcon, and Sevcon and Party B subsequently entered into a nondisclosure agreement, although no material confidential information was provided to Party B. A representative of Party B subsequently informed Mr. Boyle that Party B was not interested in pursuing further discussions regarding an acquisition of Sevcon.

On March 14, 2017, representatives of Deutsche Bank informed representatives of Rothschild that BorgWarner would be prepared to attend a meeting with Sevcon’s senior management and to continue their due diligence but would only be prepared to do so if Sevcon would commit not to engage with other parties potentially interested in acquiring Sevcon prior to the management meeting. Representatives of Deutsche Bank also informed representatives of Rothschild that Mr. Vance would be contacting Mr. Goldfarb directly to convey this position.

On March 15, 2017, Mr. Vance contacted Mr. Goldfarb and described BorgWarner’s position. Mr. Goldfarb reiterated Sevcon’s reluctance to agree to exclusivity on the terms proposed by BorgWarner. Mr. Goldfarb also indicated to Mr. Vance that BorgWarner was not the only party that had expressed interest in acquiring Sevcon.

 

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Later on March 15, 2017, the Special Committee held a meeting with representatives of Locke Lord and Rothschild present to consider the contacts with other parties that may have an interest in acquiring Sevcon and Mr. Goldfarb’s conversation earlier that day with Mr. Vance.

On March 18, 2017, the Board held a meeting with representatives of Locke Lord and Rothschild present to discuss the latest developments regarding BorgWarner’s proposal and contacts with other parties that may have an interest in acquiring Sevcon.

On March 21, 2017, a representative of Party D sent a letter to a representative of Rothschild expressing an interest in learning more about Sevcon in connection with a potential acquisition of Sevcon.

On March 22, 2017, the Special Committee held a meeting with representatives of Locke Lord and Rothschild present to discuss the contacts that management and representatives of Rothschild had made with other parties that may have an interest in acquiring Sevcon, taking into consideration such parties’ knowledge about and level of interest expressed in Sevcon relative to BorgWarner’s knowledge and interest, the considerations attendant to BorgWarner’s continuing request for exclusivity from Sevcon and the need to focus on the due diligence process with BorgWarner, the risk of losing BorgWarner’s proposal and the fact that the Board had not made any decision to sell Sevcon. The Special Committee instructed representatives of Rothschild and Mr. Goldfarb to focus on improving the terms of BorgWarner’s proposal. Prior to March 22, 2017, Sevcon’s management and representatives of Rothschild contacted seven potentially interested parties, including Party C, Party D and Party E, in addition to the contacts made by representatives of Party A and Party B. After initial contact by representatives of Rothschild, none of the remaining four parties contacted representatives of Rothschild or Sevcon’s management further.

On March 27, 2017, Party A provided to Messrs. Goldfarb and Boyle a written indication of interest to potentially acquire Sevcon at a price per share of our common stock (on a fully-diluted basis) of $15.50 in cash.

On March 29, 2017, a representative of Party E sent an e-mail to a representative of Rothschild expressing an interest in analyzing a possible acquisition of Sevcon.

On March 31, 2017, Sevcon management, with representatives of Rothschild present, held a management presentation for representatives of BorgWarner in Detroit.

On April 1, 2017, the Special Committee held a meeting with representatives of Locke Lord and Rothschild present to discuss, among other things, communications received from other parties that may have an interest in acquiring Sevcon, including Party A, Party D and Party E. For the same reasons described above at the March 22, 2017 meeting, the Special Committee determined that it would continue to focus on improving the terms of BorgWarner’s proposal, including non-financial terms that would provide Sevcon with flexibility in responding to competing offers.

Later on April 1, 2017, the Board held a meeting with representatives of Locke Lord and Rothschild present to review the status of contacts made by management and representatives of Rothschild with other parties that may have an interest in acquiring Sevcon. Mr. Goldfarb reported that certain parties only expressed interest in learning more about Sevcon and that Party A had expressed a desire potentially to acquire Sevcon but at a price significantly below BorgWarner’s proposal.

On April 3, 2017, Skadden, Arps, Slate, Meagher & Flom LLP, which we refer to as Skadden, was engaged by the Special Committee as a legal advisor to the Special Committee to provide advice to Sevcon with respect to a possible transaction with BorgWarner or another party.

Also on April 3, 2017, in a telephone call between Mr. Goldfarb and Mr. Vance, Mr. Vance raised the possibility of BorgWarner reducing the offered price to $19.00 per share unless Sevcon agreed to a period of exclusivity.

 

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Also on April 3, 2017, the Special Committee held a meeting with representatives of Skadden, Locke Lord and Rothschild present to discuss the potential of BorgWarner reducing its offer if an exclusivity period was not agreed to. Following discussion by the Special Committee, the Special Committee determined to respond to BorgWarner that, while the Board had concerns about entering into exclusive negotiations, and would not do so based on a proposed price of $21.00 per share, the Board might consider doing so with a higher indication of value and with a commitment from BorgWarner to agree to deal protection measures intended to give the Board flexibility in fulfilling its fiduciary duties to Sevcon’s stockholders, including a so-called “go shop” period, a two-tiered termination fee structure for any other party making a superior proposal during an initial period after signing the merger agreement, no condition related to appraisal rights, and the requirement, as a condition to continued exclusivity, to reaffirm these terms at specified points in time.

On April 4, 2017, Mr. Goldfarb informed Mr. Vance of the Special Committee’s position regarding exclusivity in a telephone call. During this telephone call, Mr. Goldfarb and Mr. Vance discussed the concerns of the parties relating to the proposed transaction price, deal protections and exclusivity, which conversation led to Mr. Vance agreeing, on behalf of BorgWarner, to an increase in the proposed transaction price of $22.00 per share conditioned upon the extension of exclusivity. Mr. Vance subsequently provided to Sevcon a form of exclusivity agreement providing for a 30-day exclusivity period.

From April 4, 2017 to April 6, 2017, representatives of Skadden, Rothschild, BorgWarner’s legal advisor, Sidley Austin LLP, which we refer to as Sidley, and Deutsche Bank, held multiple conference calls. Representatives of Rothschild and Skadden, at the Special Committee’s instruction, presented the terms the Special Committee would require as a condition to granting BorgWarner exclusivity. In the course of these calls, representatives of BorgWarner stated that our charter would be required to be amended prior to the closing of the merger to clarify that the holders of the Series A preferred stock would receive merger consideration on an as-converted into common stock basis and that the holders of the warrants would be required to surrender the warrants at the closing of the merger in exchange for the per common share merger consideration, minus the exercise price of the warrants. Representatives of BorgWarner also proposed requiring that Sevcon’s directors, director emeritus and certain other stockholders (including GAMCO) execute voting and support agreements in respect of the merger concurrently with the execution of the merger agreement. Each of these proposals by BorgWarner was subject to negotiation for much of the period until the principal terms of the merger agreement were resolved in a series of meetings in late June 2017 described below.

On April 6, 2017, the Special Committee held a meeting with representatives of Skadden, Locke Lord and Rothschild present to consider the recent discussions among the representatives of Sevcon and BorgWarner. A representative of Rothschild reported that on April 5, 2017, a representative of Deutsche Bank had reiterated BorgWarner’s position that BorgWarner would not proceed to negotiate a transaction at $22.00 per share or continue its due diligence of Sevcon without exclusivity. The Special Committee instructed Mr. Goldfarb to discuss the terms of exclusivity further with Mr. Vance. Later that day, Mr. Goldfarb called Mr. Vance and discussed the terms of exclusivity, including the non-financial terms that Sevcon would require as a condition to entering exclusive negotiations with BorgWarner. After the call concluded, the Special Committee held another meeting in which Mr. Goldfarb reported on his conversation with Mr. Vance.

On April 11, 2017, the Special Committee approved entering into an exclusivity agreement with BorgWarner on the terms discussed between Mr. Goldfarb and Mr. Vance. Sevcon and BorgWarner subsequently executed an agreement on such terms, specifically providing for a 30-day exclusivity period provided that on the dates two weeks and three weeks after the date of the exclusivity agreement, if requested by Sevcon, BorgWarner would provide a written statement that, among other things, it has no current intention to decline to proceed with an acquisition of Sevcon on the following terms: a price per share of $22.00, a two-tier termination fee structure for any other party making a superior proposal during a 30-day period after signing the merger agreement, with the fees being equal to 1.5% and 3.0% of Sevcon’s aggregate equity value implied by the transaction, and that no voting and support agreement would be required to be obtained from GAMCO, which we refer to collectively as the exclusivity condition terms. The exclusivity condition terms did not include a go shop period or limit appraisal rights conditionality as representatives of Sevcon had previously requested.

 

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During the following weeks, Sevcon’s management and representatives of Locke Lord continued to respond to BorgWarner’s due diligence requests, and BorgWarner personnel visited Sevcon locations and continued its due diligence review of Sevcon. The parties and their representatives continued to discuss the issues of obtaining voting and support agreements from Sevcon’s directors, director emeritus and certain other stockholders (excluding GAMCO) and the conditions related to the Series A preferred stock and the warrants. During this period, BorgWarner also informed Sevcon that as a condition to BorgWarner’s executing the merger agreement, Sevcon would need to execute an agreement to buy out its Chinese joint venture partner.

On April 17, 2017 and April 22, 2017, the Board held meetings with representatives of Locke Lord present. The Board discussed, among other things, the status of negotiations with BorgWarner.

On April 25, 2017, BorgWarner provided, pursuant to the exclusivity agreement, a written statement that it had no current intention to decline to proceed with an acquisition of Sevcon on the exclusivity condition terms.

On April 28, 2017, the Special Committee held a meeting with representatives of Skadden, Locke Lord and Rothschild present. Mr. Goldfarb updated the committee members on BorgWarner’s position that an agreement would need to be executed to buy out Sevcon’s Chinese joint venture partner prior to execution of the merger agreement.

On May 1, 2017, BorgWarner provided, pursuant to the exclusivity agreement, a written statement that it had no current intention to decline to proceed with an acquisition of Sevcon on the exclusivity condition terms.

On May 2, 2017, Sidley delivered to Skadden initial drafts of the merger agreement and a form of voting and support agreement that it proposed would be executed by Sevcon’s directors, director emeritus and certain other stockholders concurrently with the execution of the merger agreement.

On May 5, 2017, the Board held a meeting with representatives of Skadden, Locke Lord and Rothschild present. At the meeting, Mr. Goldfarb updated the Board on BorgWarner’s position that Sevcon would be required to execute an agreement to buy out its Chinese joint venture partner prior to execution of the merger agreement, and the directors considered the ramifications of terminating the joint venture in the event the merger did not close, as well as the allocation of risk relating to the potential cost of such buyout and whether it would be advisable for Sevcon to assume such risk at the behest of BorgWarner. Mr. Boyle stated that, independent of BorgWarner’s interest in acquiring Sevcon and its request that the joint venture be terminated, it was in Sevcon’s interest to buy out the Chinese joint venture partner given Mr. Boyle’s view that Sevcon had outgrown the utility of the existing Chinese joint venture partner. The Board determined that Sevcon should proceed with negotiations with its Chinese joint venture partner on a buyout. In addition, Sevcon’s management presented to the directors a preliminary version of updated financial projections.

On May 11, 2017, the Special Committee approved, and Sevcon agreed, to extend the exclusivity period to May 25, 2017. Sevcon subsequently agreed to a series of one-week extensions to the exclusivity period until the execution of the merger agreement on July 14, 2017. Beginning with the extension executed on June 8, 2017, in each extension, BorgWarner confirmed that it had no current intention to decline to proceed with an acquisition of Sevcon at $22.00 per share.

On May 13, 2017, the Special Committee held a meeting with representatives of Skadden, Locke Lord and Rothschild present. Mr. Goldfarb reported to the committee members that BorgWarner’s business due diligence was largely complete, but that BorgWarner continued to insist that an agreement to buy out the Chinese joint venture partner be executed prior to entering into the merger agreement.

 

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On May 15, 2017, the Board held a meeting with representatives of Locke Lord present. At the meeting, Mr. Goldfarb provided the directors general updates regarding exclusivity, progress towards a negotiated buyout of the Chinese joint venture partner and the terms of the initial drafts of the merger agreement and form of voting and support agreement.

On May 17, 2017, the Special Committee held a meeting with representatives of Skadden, Locke Lord and Rothschild present. Representatives of Skadden reviewed the principal issues in the initial drafts of the merger agreement and form of voting and support agreement, including requiring that each of Sevcon’s directors, director emeritus and certain other stockholders execute a voting and support agreement concurrently with the execution of the merger agreement and that the GAMCO entities execute a voting and support agreement within 14 days of the date of the merger agreement, requiring approval of the charter amendment as a condition to closing, requiring the holders of the warrants to execute warrant acknowledgement agreements as a condition to closing and a related termination right if the condition were not satisfied within 14 days of the date of the merger agreement, requiring no more than 10% of our common stock and Series A preferred stock (on an as-converted into common stock basis) having exercised appraisal rights as a condition to closing, and the circumstances under which termination fees would be payable (including in the event of failure to satisfy the conditions related to stockholder approval of the merger and charter amendment, warrant acknowledgement agreements and appraisal rights or the failure to obtain the GAMCO voting and support agreement). The Special Committee provided direction to Skadden on each of these issues and noted in particular that a requirement that GAMCO execute a voting and support agreement at any point was inconsistent with prior discussions and the exclusivity condition terms.

On May 19, 2017, Skadden delivered to Sidley revised drafts of the merger agreement and form of voting and support agreement.

On May 25, 2017, representatives of Skadden and Sidley met via conference call to discuss the drafts of the merger agreement and form of voting and support agreement provided by Skadden on May 19, 2017. The representatives discussed the principal issues in the merger agreement and form of voting and support agreement, including, among other things, the warrants and related conditions and termination rights, the parties required to execute a voting and support agreement (including GAMCO) and related termination rights, the appraisal rights condition, and the circumstances under which termination fees would be payable and the amount of the termination fee for certain termination events unrelated to a superior proposal or adverse recommendation change.

On May 26, 2017, the Special Committee and Board held meetings with representatives of Skadden, Locke Lord and Rothschild present. At the meeting, representatives of Skadden reviewed the principal outstanding issues in the drafts of the merger agreement and form of voting and support agreement provided by Skadden on May 19, 2017 based on Skadden’s conference call with Sidley the previous day. In addition, Mr. Goldfarb provided updates to the Special Committee and the Board regarding the buyout of the Chinese joint venture partner. At the Board meeting, the Board approved the buyout of the Chinese joint venture partner.

On May 27, 2017, Mr. Vance informed Mr. Goldfarb on a telephone call that execution of a definitive Chinese joint venture buyout agreement would not be sufficient for BorgWarner to enter into the merger agreement. Rather, BorgWarner would require that the buyout of the Chinese joint venture partner be closed, including governmental acceptance of all required official filings—a process that could take 30 days or more from execution of a definitive agreement regarding the buyout of Sevcon’s Chinese joint venture partner.

On May 28, 2017, the Special Committee held a meeting with representatives of Skadden, Locke Lord and Rothschild present to discuss, among other things, BorgWarner’s position that it would not execute a merger agreement prior to closing the buyout of Sevcon’s Chinese joint venture partner. Following discussion, in light of the incremental delay in execution of the merger agreement as a result of BorgWarner’s revised position on the buyout of Sevcon’s Chinese joint venture partner, the Special Committee determined that additional concessions

 

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on deal protections in the merger agreement should be requested from BorgWarner, including that the termination fee payable in the event Sevcon receives a superior proposal from another party within 45 days of execution of the merger agreement and subsequently accepts such proposal would be 1.0% of Sevcon’s equity value (instead of 30 days and 1.5%, respectively), with no requirement that Sevcon accept such proposal within such 45 day period.

Later that day, the Board held a meeting with representatives of Skadden, Locke Lord and Rothschild present. Mr. Goldfarb informed the directors of BorgWarner’s position that it would not execute a merger agreement prior to closing the buyout of the Chinese joint venture partner. Following discussion, the Board agreed with the Special Committee’s proposal to request additional concessions on deal protections and determined to extend exclusivity with BorgWarner on only a week-to-week basis to enhance Sevcon’s ability to respond to inquiries from other potentially interested parties to the extent any such inquiries materialized.

On June 3, 2017, Sevcon and its Chinese joint venture partner executed an equity transfer agreement to provide for the buyout of the Chinese joint venture partner. The negotiations leading up to the execution of the equity transfer agreement resulted in a higher than expected purchase price payable by Sevcon, and notwithstanding such higher price, BorgWarner agreed not to reduce the per share merger consideration.

On June 6, 2017, a representative of Party A contacted Mr. Goldfarb regarding its prior indication of interest and was informed by Mr. Goldfarb that Sevcon was not in a position to respond to Party A’s indication of interest at that time.

On June 8, 2017, the Special Committee and Board held meetings with representatives of Skadden and Locke Lord present at each meeting and Rothschild present at the Special Committee meeting. At the meetings, the directors were updated by Mr. Goldfarb on the status of the buyout of the Chinese joint venture partner and negotiations with BorgWarner. In addition, Sevcon management presented to the Board management’s updated five-year financial projections. The presentation included “optimistic” and “pessimistic” sensitivities to the projections presented by management, which were not considered reliable by management or the Board or adopted by the Board, but which were included with the financial projections provided to BorgWarner. Following the presentation and discussion by the Board, the Board adopted and approved the updated five-year financial projections presented by management for distribution to BorgWarner and Rothschild for purposes of a possible fairness opinion in connection with a transaction.

Also on June 8, 2017, Sidley delivered to Skadden revised drafts of the merger agreement and form of voting and support agreement. The draft merger agreement reflected an agreement reached previously by Mr. Vance and Mr. Goldfarb that the termination fee payable in the event Sevcon accepts a superior proposal from another party within 45 days of execution of the merger agreement would be 1.0% of Sevcon’s equity value, an improvement on the prior terms of 30 days and 1.5%, respectively. In addition, the draft merger agreement no longer included a requirement that GAMCO execute a voting and support agreement or any related termination rights for GAMCO failing to evidence its support for the merger or charter amendment prior to the stockholder meeting.

On June 12, 2017, the Special Committee held a meeting with representatives of Skadden, Locke Lord and Rothschild present. Representatives of Skadden reviewed the principal issues presented by the drafts of the merger agreement and form of voting and support agreement provided by Sidley on June 8, 2017, including requiring Sevcon’s directors and director emeritus execute a voting and support agreement, requiring Sevcon to bear the risk of challenges to the buyout of the Chinese joint venture partner, providing BorgWarner a termination right if the holders of the warrants (other than GAMCO) do not execute warrant acknowledgement agreements within 21 days of the date of the merger agreement, requiring no more than 10% of our common stock and Series A preferred stock (on an as-converted into common stock basis) having exercised appraisal rights as a condition to closing, the circumstances under which termination fees would be payable (including in the event of failure to satisfy the conditions related to stockholder approval of the merger and charter amendment, warrant acknowledgement agreements and appraisal rights) and the amount of the termination fee for certain termination events unrelated to a superior proposal or adverse recommendation change.

 

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On June 13, 2017, Skadden delivered to Sidley revised drafts of the merger agreement and form of voting and support agreement.

On June 15, 2017, representatives of Skadden and Sidley met via conference call to discuss the principal issues in the drafts of the merger agreement and form of voting and support agreement provided by Skadden on June 13, 2017.

On June 19, 2017, Sidley delivered to Skadden revised drafts of the merger agreement and form of voting and support agreement.

On June 20, 2017, the Special Committee held a meeting with representatives of Skadden and Rothschild present. Representatives of Skadden reviewed the remaining principal outstanding issues in the drafts of the merger agreement and form of voting and support agreement provided by Sidley on June 19, 2017, which remained largely the same since Sidley’s prior drafts of the documents.

On June 22, 2017 and June 23, 2017, Messrs. Goldfarb and Boyle and representatives of BorgWarner, including Mr. Vance, and representatives of Skadden and Sidley held a series of meetings via conference call to negotiate the principal outstanding issues in the drafts of the merger agreement and form of voting and support agreement provided by Sidley on June 19, 2017. During these meetings, the parties agreed to the following resolutions of the principal outstanding issues: (i) only Meson Capital and Bassi would be required to execute voting and support agreements concurrently with the execution of the merger agreements, and Sevcon’s director and director emeritus would be required to execute a support agreement (see “The Voting and Support Agreements” beginning on page 103), (ii) certain representations and warranties regarding the buyout of the Chinese joint venture partner would be qualified by concepts of material adverse effect on Sevcon, (iii) no more than 10% of our common stock and Series A preferred stock (on an as-converted into common stock basis) having exercised appraisal rights would be a condition to closing, (iv) termination rights for failure to obtain warrant acknowledgement agreements or to satisfy the appraisal rights condition would not be exercisable until after the stockholder meeting (or if earlier, two business days prior to the outside date), and (v) an expense reimbursement amount of 1.5% of Sevcon’s equity value would be payable if the merger agreement were terminated for failure to obtain stockholder approval of the merger agreement or charter amendment, failure to obtain the warrant acknowledgement agreements or failure to satisfy the appraisal rights condition.

On June 25, 2017, Skadden delivered to Sidley a revised draft of the merger agreement reflecting the agreements reached during the meetings on June 22, 2017 and June 23, 2017, and indicated that Sevcon and Skadden had no further comments to the form of voting and support agreement. Representatives of Meson Capital and Bassi were subsequently provided drafts of the form of voting and support agreement and agreed to execute a voting and support agreement subject to execution of the merger agreement.

Also on June 25, 2017, a representative of Party E contacted a representative of Rothschild reiterating its interest in a potential acquisition of Sevcon. As instructed by the Special Committee, due to Sevcon’s exclusivity with BorgWarner, the advanced stage of the negotiations with BorgWarner and the fact that BorgWarner had substantially completed its due diligence, representatives of Rothschild did not engage Party E further.

On June 27, 2017, a representative of Party A contacted Mr. Goldfarb expressing continued interest in a potential acquisition of Sevcon. As instructed by the Special Committee, for the same reasons described in respect of Party E’s contact, Mr. Goldfarb did not engage Party A further.

On June 29, 2017, the Board held a meeting with representatives of Skadden, Locke Lord and Rothschild present. Representatives of Rothschild reviewed their preliminary financial analyses with respect to Sevcon.

On July 3, 2017, Sidley delivered to Skadden a revised draft of the merger agreement. Over the following two weeks, the parties and their representatives negotiated resolution of remaining issues in the merger agreement.

 

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On July 13, 2017, the buyout of the Chinese joint venture partner was completed.

On July 14, 2017, the Board held a meeting at Rothschild’s offices in New York, with representatives of Skadden, Locke Lord and Rothschild present. Representatives of Skadden reviewed with the directors their fiduciary duties under Delaware law, as well as the principal terms of the merger agreement. Representatives of Rothschild presented Rothschild’s financial analyses with respect to Sevcon. Representatives of Skadden then asked the representatives of Rothschild to confirm that Rothschild’s only prior engagement with BorgWarner was the engagement it disclosed to the Special Committee at its December 6, 2016 meeting. A representative of Rothschild stated that the engagement disclosed to the Special Committee during its meeting on December 6, 2016 was Rothschild’s only engagement with BorgWarner in the three year period preceding July 14, 2017. The Board meeting was then adjourned. After market close that day, the Board meeting reconvened as a joint meeting of the Board and Special Committee with representatives of Skadden, Locke Lord and Rothschild present. Representatives of Rothschild rendered Rothschild’s oral opinion to the Board and the Special Committee, subsequently confirmed by delivery of a written opinion to the Board and the Special Committee dated July 14, 2017, to the effect that, as of such date and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Rothschild, the $22.00 in cash per share to be paid to the holders of outstanding shares of our common stock, other than (i) shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and (ii) dissenting shares, pursuant to the merger agreement was fair, from a financial point of view, to such holders of shares of our common stock other than shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares. The Special Committee then held a meeting with representatives of Skadden, Locke Lord and Rothschild present at which it unanimously determined to recommend to the Board that the Board determine that the merger agreement and the transactions contemplated thereby, including the merger, and the charter amendment were advisable, fair to and in the best interests of Sevcon’s stockholders. The Board meeting then reconvened, and the Board unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, and the charter amendment, are fair to and in the best interests of Sevcon and its stockholders, approved, adopted and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, and the charter amendment, and directed that the approval of the merger and the adoption of the merger agreement and the approval and adoption of the charter amendment be submitted to Sevcon’s stockholders.

Following the Board meeting on July 14, 2017, Sevcon, BorgWarner and Merger Sub executed the merger agreement, Meson Capital and Bassi executed separate voting and support agreements with BorgWarner, and each of Sevcon’s directors and director emeritus executed separate support agreements with BorgWarner. On the morning of July 17, 2017, Sevcon and Parent publicly announced the proposed merger through the issuance of separate press releases.

Recommendation of the Board and Reasons for the Merger

Recommendation of the Board

The Board unanimously recommends that (i) holders of our common stock vote “FOR” the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger; (ii) holders of our common stock and our Series A preferred stock vote “FOR” the proposal to approve and adopt the charter amendment; and (iii) holders of our common stock vote “FOR” the adjournment proposal and “FOR” the executive officer compensation proposal.

Reasons for the Merger and the Charter Amendment

On July 14, 2017, the Special Committee unanimously approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, and the charter amendment, and unanimously recommended that the full Board approve the merger agreement and the transactions contemplated by the merger

 

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agreement, including the merger, and the charter amendment. Later the same day, the full Board unanimously (i) determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, and the charter amendment are fair to and in the best interests of Sevcon and its stockholders; (ii) approved, adopted and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, and the charter amendment; (iii) recommended that Sevcon’s stockholders approve and adopt the merger agreement and the merger and the charter amendment; and (iv) directed that the approval of the merger and the adoption of the merger agreement and the charter amendment be submitted to Sevcon’s stockholders.

In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, and the charter amendment, the Board and Special Committee consulted with Sevcon’s senior management, outside legal counsel and the Special Committee’s financial advisor, Rothschild Inc., which we refer to as Rothschild. In recommending that holders of our common stock vote their shares in favor of the proposal to approve and adopt the merger agreement and holders of our common stock and Series A preferred stock vote their shares in favor of the proposal to approve and adopt the charter amendment, the Board and Special Committee also considered a number of potentially positive factors, including the following (not necessarily in order of relative importance):

 

    A review of Sevcon’s current and historical financial condition, results of operations, business, competitive position and prospects as well as Sevcon’s future business plan and potential long-term value taking into account its future prospects and risks if it were to remain an independent company, including:

 

    Sevcon’s recent financial performance, including the financial results of fiscal 2016 and the financial results of the first three quarters of fiscal 2017;

 

    Sevcon’s current prospects for continued growth, including the potential benefits inherent in, as well as the risks associated with, continuing to execute upon and achieve management’s stand-alone plan, including the ability to raise capital; and

 

    The ability of Sevcon to find, attract, hire and retain a sufficiently large and competent workforce, given the global scarcity of talented engineers and the competition for their services.

 

    A consideration of potential strategic alternatives available to Sevcon, including execution of management’s stand-alone plan, the possibility of generating growth from acquisitions with other companies and other transactions, as well as the potential benefits, risks and uncertainties associated with such alternatives.

 

    The belief of the Board, based on the view of Sevcon’s management, that on road electrification suppliers may increasingly favor competitors with stronger balance sheets to support volume auto production and the associated engineering, working capital and risk management.

 

    The Board’s judgment, after discussion with Rothschild and management, that there could be consolidation in the automotive electrification industry because, among other reasons, original equipment manufacturers and other customers will increasingly prefer to deal with one supplier on a systems-based approach and that Sevcon would be better positioned to maximize stockholder value by participating in such consolidation earlier in time.

 

    The amount of the aggregate per share merger consideration offered in relation to the Board’s estimate of the current and future value of Sevcon as an independent entity, assuming the full realization of management’s five year financial projections included in this proxy statement, and also the challenges associated with the attainment of such projections.

 

   

The Board’s judgment, after discussions with Rothschild and management, that (i) there were few, if any, potentially interested and capable alternative acquirers to Parent that would likely be able to compete with the financial terms proposed by Parent and (ii) if any such potential acquirer is interested

 

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in pursuing a transaction on terms more favorable to Sevcon and its stockholders than the merger, such acquirer would be able to pursue such an offer for Sevcon, and the Board would be able to respond to such an offer, pursuant to the terms of the merger agreement.

 

    That Parent’s initial indication of interest contemplated a price of $19.00 per share and in the course of the negotiations with Parent, Parent raised its proposal to $21.00 per share, and then finally to $22.00 per share, and the Board’s belief that this was highest price Parent would pay and is higher than the price that any other party would reasonably be expected to pay.

 

    The belief that (i) the merger consideration of $22.00 per share of our common stock ($66.00 per share of Series A preferred stock) represents full and fair value for the shares, taking into account the Board’s and the Special Committee’s familiarity with Sevcon’s current and historical financial condition, results of operations, business and prospects as well as Sevcon’s financial forecasts and its future prospects and risks if it were to remain an independent company, and the opinion of Rothschild that, as of July 14, 2017, and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Rothschild, the $22.00 in cash per share to be paid to the holders of outstanding shares of our common stock, other than (x) shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and (y) dissenting shares, pursuant to the merger agreement was fair, from a financial point of view, to such holders of shares of our common stock other than shares of our common stock owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares, and (ii) that the per share merger consideration represents the highest per share consideration reasonably attainable.

 

    The fact that the per common share merger consideration of $22.00 per share constitutes a significant premium over the current and historical market price of shares of our common stock, including:

 

    A premium of approximately 61% over the closing price per share on July 14, 2017, the last trading day prior to public announcement of the merger;

 

    A premium of approximately 64% over the volume weighted average closing price per share for the 30 trading days prior to the public announcement of the merger; and

 

    A premium of approximately 62% over the volume weighted average closing price per share for the year prior to the public announcement of the merger.

 

    The lack of significant trading volume for shares of our common stock may make it difficult for a stockholder to obtain liquidity for shares of our common stock without negatively affecting the stock price.

 

    The fact that the consideration to be paid in the merger is all cash, which provides certainty of value and complete liquidity to Sevcon’s stockholders compared to stock or other forms of consideration.

 

    The likelihood that the merger would be completed based on, among other things:

 

    the fact that there is no financing condition to the completion of the merger in the merger agreement;

 

    the business reputation and capabilities of Parent, and the Board’s perception that Parent is willing to devote the resources necessary to close the merger in an expeditious manner;

 

    Parent’s financial condition and Parent’s representation that Parent has, through a combination of cash on hand and committed financing, all funds necessary for the payment of the aggregate per share merger consideration and to satisfy all of Parent’s other obligations under the merger agreement; and

 

    the Company’s ability, under certain circumstances pursuant to the merger agreement, to seek specific performance to prevent breaches of the merger agreement by Parent and Merger Sub and to enforce specifically the terms of the merger agreement.

 

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    The belief that the terms of the merger agreement were the product of arms-length negotiations between the Special Committee and Sevcon’s advisors, on the one hand, and Parent and its advisors, on the other hand.

 

    The belief that the terms of the merger agreement would be unlikely to deter third parties from making a superior proposal, including the fact that, subject to compliance with the terms and conditions of the merger agreement, Sevcon is permitted to furnish information to and conduct negotiations with third parties that make certain unsolicited acquisition proposals and, upon payment of a termination fee, terminate the merger agreement in order to approve a superior proposal. The termination fee would be $4,800,000 (approximately 3.0% of Sevcon’s equity value implied by the merger agreement); provided that, if the Board has determined that the other proposal was a superior proposal by August 31, 2017, the termination fee would be only $1,600,000 (approximately 1.0% of Sevcon’s equity value implied by the merger agreement).

 

    The requirement that Sevcon obtain stockholder approval as a condition to completion of the merger.

 

    The rights of Sevcon stockholders to demand appraisal of their shares and receive payment of the “fair value” of such shares pursuant to Section 262 of the DGCL if they comply in all respects with Section 262 of the DGCL.

 

    With respect to the holders of Series A preferred stock, the fact that adoption of the charter amendment by Sevcon stockholders and the effectiveness of the charter amendment are conditions to Parent and Merger Sub’s obligation to close the merger, and that even if this condition were waived by Parent, the uncertainty of the treatment of any remaining Series A preferred stock as an outstanding security of the surviving company.

The Board and Special Committee also considered a variety of potentially negative factors in its deliberations concerning the merger agreement and the merger and the charter amendment, including the following (not necessarily in order of relative importance):

 

    The fact that Sevcon’s stockholders will cease to participate in Sevcon’s future earnings growth or benefit from any future increase in its value following the merger and the possibility that the price of the common shares might increase in the future to a price greater than $22.00 per share if Sevcon remained an independent company.

 

    The fact that there can be no assurances that the conditions in the merger agreement to the obligations of Parent to complete the merger agreement will be satisfied and, as a result, the merger may not be consummated.

 

    The fact that it is a condition to closing to obtain a warrant acknowledgement agreement from all holders of outstanding warrants.

 

    The fact that it is a condition to closing to obtain the approval of the charter amendment by the holders of Series A preferred stock, voting as a class.

 

    The fact that it is a condition to closing that no more than 10% of the shares of our common stock and Series A preferred stock (on an as if converted to common stock basis) as of immediately prior to the closing may be dissenting shares.

 

    The fact that the announcement and pendency of the merger, or the failure to complete the merger, may cause substantial harm to our relationships with our employees, including making it more difficult to attract and retain key personnel and the possible loss of key management and other personnel, vendors and customers.

 

    The fact that gains from an all-cash transaction will generally be taxable to Sevcon’s U.S. Holders for U.S. federal income tax purposes.

 

   

The fact that the merger agreement contains restrictions on the conduct of Sevcon’s business prior to the completion of the merger, including generally requiring Sevcon to conduct its business only in the

 

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ordinary course, subject to specified limitations, and that Sevcon will not undertake various actions related to the conduct of its business without the prior written consent of Parent, which may delay or prevent Sevcon from undertaking business opportunities that may arise pending completion of the merger.

 

    The fact that the merger agreement contains a number of provisions that may potentially discourage a third party from making a superior proposal to acquire Sevcon, but that were conditions to Parent’s willingness to enter into the merger agreement including:

 

    The prohibition on Sevcon and its advisors from soliciting competing proposals;

 

    The requirement that Sevcon must pay a termination fee of up to $4,800,000 if the merger agreement is terminated under specified circumstances, including if Sevcon accepts a superior proposal; and

 

    The right afforded to Parent to match acquisition proposals that the Board determines in good faith are superior proposals.

 

    The fact that significant costs are involved in connection with entering into and completing the merger and substantial time and effort of management is required to complete the merger, potentially resulting in disruptions to the operation of Sevcon’s business.

 

    The fact that Sevcon’s directors and executive officers may have interests in the merger that may be deemed to be different from, or in addition to, those of Sevcon’s stockholders.

 

    With respect to the holders of Series A preferred stock, the fact that the holders of Series A preferred stock would no longer accrue the dividends to which they would be entitled under our charter after adoption of the charter amendment and the consummation of the merger, although we are permitted to declare a dividend before closing in respect of accrued but unpaid dividends on the Series A preferred stock.

After taking into account all of the factors set forth above, as well as others, the Board and Special Committee concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the merger and the charter amendment were outweighed by the potential benefits of the merger and charter amendment to Sevcon’s stockholders.

The foregoing discussion of factors considered by the Board and Special Committee is not intended to be exhaustive, but summarizes the material factors considered by the Board and Special Committee. In light of the variety of factors considered in connection with their evaluation of the merger and the charter amendment, the Board and Special Committee did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their determinations and recommendations. Moreover, each member of the Board and Special Committee applied his own personal business judgment to the process and may have given different weight to different factors. The Board and Special Committee did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support their ultimate determinations. The Board and Special Committee based their recommendations on the totality of the information presented, including thorough discussions with, and questioning of, Sevcon’s senior management, Rothschild, and legal counsel. It should be noted that this explanation of the reasoning of the Board and Special Committee and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 25.

Fairness Opinion of Financial Advisor

Rothschild Inc.

In connection with the merger of Merger Sub with and into Sevcon with Sevcon surviving the merger as a wholly owned subsidiary of Parent, the Board and the Special Committee received a written opinion from the Special

 

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Committee’s financial advisor, Rothschild, to the effect that, as of July 14, 2017, and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Rothschild, the $22.00 in cash per share to be paid to the holders of outstanding shares of common stock, par value $0.10 per share, of Sevcon, other than shares of common stock of Sevcon owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares, pursuant to the merger agreement, was fair, from a financial point of view, to such holders of shares of common stock of Sevcon other than other than shares of common stock of Sevcon owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares.

The full text of Rothschild’s written opinion dated July 14, 2017, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. We encourage you to read this opinion carefully and in its entirety. This summary is qualified in its entirety by reference to the full text of such opinion. Rothschild’s opinion was provided for the benefit of the Board and the Special Committee in connection with their evaluation of the merger. Rothschild’s opinion should not be construed as creating any fiduciary duty on Rothschild’s part to any party. Rothschild’s opinion was limited to the fairness, from a financial point of view, to the holders of outstanding shares of common stock, par value $0.10 per share, of Sevcon, other than shares of common stock of Sevcon owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares, on the date of the opinion, of the $22.00 in cash per share to be paid to such holders pursuant to the merger agreement, and Rothschild expressed no opinion as to any underlying decision that Sevcon may have made to engage in the merger or any alternative transaction, the relative merits of the merger as compared to any alternative transaction or the terms (other than the $22.00 in cash per share to be paid pursuant to the merger agreement to the holders of outstanding shares of common stock of Sevcon, other than shares of common stock of Sevcon owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares, to the extent expressly set forth in the written opinion) of the merger, the merger agreement or any other agreement entered into in connection with the merger. Rothschild’s opinion did not constitute a recommendation to the Board or the Special Committee as to whether to approve the merger or a recommendation as to how any holder of shares of common stock of Sevcon should vote or otherwise act with respect to the merger or any other matter. In addition, Rothschild did not express any opinion or view with respect to (i) the fairness to, or any other consideration of, the holders of any class of securities (other than holders of shares of common stock of Sevcon and then only to the extent expressly set forth in its written opinion) or creditors or other constituencies, including the fairness to, or any other consideration of, the holders of shares of Series A preferred stock, or the holders of the warrants, (ii) the fairness to the holders of shares of common stock of Sevcon of the consideration or other payments to be paid to the holders of shares of Series A preferred stock and the warrants pursuant to the merger, (iii) the fairness to the holders of shares of common stock of Sevcon of the allocation of the total consideration and other payments pursuant to the merger among the holders of shares of common stock of Sevcon, shares of Series A preferred stock and the warrants or (iv) the fairness to the holders of shares of common stock of Sevcon of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Parent or Sevcon, or any class of such persons, whether relative to the $22.00 in cash per share to be paid to the holders of shares of common stock of Sevcon, other than shares of common stock of Sevcon owned by Sevcon, Parent, Merger Sub or any of their respective subsidiaries and dissenting shares, pursuant to the merger agreement or otherwise.

In arriving at its opinion, Rothschild, among other things:

 

    reviewed the draft of the merger agreement dated July 13, 2017;

 

    reviewed certain publicly available business and financial information that Rothschild deemed to be generally relevant concerning Sevcon and the industry in which it operates, including certain research analyst reports and the reported price and historical trading activity for shares of common stock of Sevcon;

 

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    compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies Rothschild deemed generally relevant and the consideration received in such transactions;

 

    compared the financial and operating performance of Sevcon with publicly available information concerning certain other public companies Rothschild deemed generally relevant, including data related to public market trading levels and implied trading multiples;

 

    reviewed certain internal financial and operating information with respect to the business, operations and prospects of Sevcon furnished to or discussed with Rothschild by the management of Sevcon;

 

    reviewed certain financial forecasts relating to Sevcon prepared by the management of Sevcon, including the June forecasts (the “Forecasts”);

 

    performed such other financial studies and analyses and considered such other information as Rothschild deemed appropriate for the purposes of its opinion; and

 

    held discussions with certain members of the management of Sevcon regarding the merger, the past and current business operations and financial condition and prospects of Sevcon, the Forecasts and certain other matters Rothschild believed necessary or appropriate to its inquiry.

In arriving at its opinion, Rothschild, with the Special Committee’s consent, relied upon and assumed, without independent verification, the accuracy and completeness of all information that was publicly available or was furnished or made available to Rothschild by Sevcon and its associates, affiliates and advisors, or otherwise reviewed by or for Rothschild, and Rothschild did not assume any responsibility or liability therefor. Rothschild did not conduct any valuation or appraisal of any assets or liabilities of Sevcon (including, without limitation, real property owned by Sevcon or to which Sevcon holds a leasehold interest), nor were any such valuations or appraisals provided to Rothschild, and Rothschild did not express any opinion as to the value of such assets or liabilities. Rothschild did not evaluate the solvency or fair value of Sevcon or Parent under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. In addition, Rothschild did not assume any obligation to conduct any physical inspection of the properties or the facilities of Sevcon or Parent. At the direction of the management of Sevcon, Rothschild used and relied upon the Forecasts for purposes of its opinion. In relying on the Forecasts, Rothschild assumed, at the direction of Sevcon, that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by Sevcon’s management as to the expected future results of operations and financial condition of Sevcon. Rothschild expressed no view as to the reasonableness of the Forecasts and the assumptions on which they were based. Rothschild assumed that the transactions contemplated by the merger agreement will be consummated as contemplated in the merger agreement without any waiver, amendment or delay of any term or condition, including, among other things, that the parties will comply with all material terms of the merger agreement and that in connection with the receipt of all necessary governmental, regulatory or other approvals and consents required for the merger, no material delays, limitations, conditions or restrictions will be imposed.

For purposes of rendering its opinion, Rothschild assumed that there had not occurred any material change in the assets, financial condition, results of operations, business or prospects of Sevcon since the date of the most recent financial statements and other information, financial or otherwise, relating to Sevcon made available to Rothschild, and that there was no information or any facts that would make any of the information reviewed by Rothschild incomplete or misleading. Rothschild did not express any opinion as to any tax or other consequences that may result from the merger, nor did its opinion address any legal, tax, regulatory or accounting matters. Rothschild relied as to all legal, tax and regulatory matters relevant to rendering its opinion upon the assessments made by Sevcon and Sevcon’s other advisors with respect to such issues. In arriving at its opinion, Rothschild did not take into account any litigation, regulatory or other proceeding that was pending or may be brought against Sevcon or any of its affiliates. In addition, Rothschild relied upon and assumed, without independent verification, that the final form of the merger agreement would not differ in any material respect from the latest draft of the merger agreement reviewed by Rothschild.

 

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Rothschild’s opinion was necessarily based on securities markets, economic, monetary, financial and other general business and financial conditions as they existed and could be evaluated on, and the information made available to Rothschild as of, the date of its opinion and the conditions and prospects, financial and otherwise, of Sevcon as they were reflected in the information provided to Rothschild and as they were represented to Rothschild in discussions with the management of Sevcon. Rothschild expressed no opinion as to the price at which shares of common stock of Sevcon will trade at any future time.

Rothschild employed several analytical methodologies in connection with rendering the opinion described above and no one method of analysis should be regarded as critical to the overall conclusion reached by Rothschild. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The conclusion reached by Rothschild was based on all analyses and factors taken as a whole and also on application of Rothschild’s experience and judgment, which conclusion may involve significant elements of subjective judgment and qualitative analysis. In its analyses, Rothschild considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Sevcon. No company, transaction or business used in those analyses as a comparison is identical to Sevcon or the merger, and an evaluation of those analyses is not entirely mathematical. Rather, the analyses involved complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed.

The estimates contained in Rothschild’s analyses and the valuation ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, Rothschild’s analyses and estimates are inherently subject to substantial uncertainty.

Summary of Financial Analyses of Rothschild Inc.

The financial analyses summarized below include information presented in tabular format. In order to fully understand Rothschild’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Rothschild’s financial analyses. The order of analyses described below does not represent the relative importance or weight given to the analysis by Rothschild.

Selected Public Companies Analysis

Rothschild analyzed the market values and trading multiples of the following publicly traded developers and producers of powertrain products, electric motors, controllers or inverters, and automotive technology which were selected based upon the experience and judgment of Rothschild and were deemed by Rothschild to be generally relevant for comparative purposes to Sevcon from a business and financial perspective:

Powertrain Products:

 

    Continental Aktiengesellschaft

 

    Delphi Automotive PLC

 

    Schaeffler AG

 

    BorgWarner Inc.

 

    Allison Transmission Holdings, Inc.

 

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Electric Motors, Controllers or Inverters:

 

    DENSO Corporation

 

    Eaton Corporation plc

 

    Nidec Corporation

 

    Mitsubishi Electric Corporation

 

    Mabuchi Motor Co., Ltd.

 

    Johnson Electric Holdings Limited

Automotive Technology:

 

    Sensata Technologies Holding N.V.

 

    Gentex Corporation

 

    CTS Corporation

 

    MiX Telematics Limited

 

    First Sensor AG

Although none of the companies listed above is identical or directly comparable to Sevcon, these companies are publicly traded companies with business or operating characteristics, such as product portfolio, lines of business, geographic markets, business risks, revenue drivers and growth prospects, that for purposes of its analysis Rothschild considered similar to Sevcon. In evaluating the selected companies, Rothschild made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Sevcon, such as the impact of competition on the business of Sevcon or the industry generally, industry growth and the absence of any material adverse change in the financial condition and prospects of Sevcon or the industry or in the financial markets in general.

Rothschild calculated and compared various financial multiples for the selected companies and Sevcon.

For purposes of this analysis, (i) for each of the selected companies, Rothschild reviewed closing stock prices on July 14, 2017, public filings made by such companies for certain historic financial information and research analyst estimates for forecasts for such companies and (ii) for Sevcon, Rothschild reviewed the closing price per share of common stock of Sevcon on July 14, 2017, certain historic financial information for Sevcon, as provided by the management of Sevcon and approved for Rothschild’s use, the June forecasts and the number of fully diluted shares of common stock of Sevcon outstanding, , as provided by the management of Sevcon and approved for Rothschild’s use, and calculated the following metrics for each selected company and Sevcon:

 

    enterprise value (“EV”), as a multiple (“EV/Sales Ratio”) of estimated revenue (“Sales”) for calendarized fiscal years ended September 30, 2017, September 30, 2018 and September 30, 2019;

 

    EV, as a multiple (“EV/EBITDA Ratio”) of estimated non-GAAP earnings before interest, taxes, depreciation and amortization (“EBITDA”) for calendarized fiscal years ended September 30, 2017, September 30, 2018 and September 30, 2019;

 

    EV, as a multiple (“EV/EBIT Ratio”) of estimated non-GAAP earnings before interest and taxes (“EBIT”) for calendarized fiscal years ended September 30, 2017, September 30, 2018 and September 30, 2019;

 

    closing stock price as of July 14, 2017, as a multiple (“P/E Ratio”) of estimated earnings per share (“EPS”) for calendarized fiscal years ended September 30, 2017 and September 30, 2018; and

 

    P/E ratio, as a multiple (“PEG Ratio”) of growth rate of its EPS (“Growth Ratio”) for calendarized fiscal years ended September 30, 2017 and September 30, 2018.

 

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Unless otherwise noted in the chart below, EV for the above metrics was calculated as fully diluted market value based on closing stock prices on July 14, 2017 plus, with respect to each of selected company, such selected company’s most recently disclosed net debt or, with respect to Sevcon, net debt as of July 13, 2017 as provided by the management of Sevcon.

All references to “fully diluted shares of common stock of Sevcon outstanding” and phrases of similar import, when used in relation to Sevcon, used in “The Merger—Fairness Opinion of Financial Advisor” in relation to Sevcon, mean the number of fully diluted outstanding shares of common stock (in case of options and warrants, calculated on a treasury method basis) including Series A preferred stock on an as converted basis.

The results of Rothschild’s review of the above metrics are summarized in the chart below:

 

    EV/Sales Ratio     EV/EBITDA Ratio     EV/EBIT Ratio     PE Ratio     PEG Ratio  
    2017E     2018E     2019E     2017E     2018E     2019E     2017E     2018E     2019E     2017E     2018E     2017E     2018E  

Selected Public Companies

 

Min.

    0.78x       0.75x       0.73x       5.2x       4.9x       4.6x       7.6x       7.2x       6.8x       8.3x       7.4x       0.2x       0.7x  

Avg.

    1.80x       1.71x       1.62x       9.1x       8.3x       7.8x       13.1x       11.7x       10.7x       16.8x       15.1x       2.6x       1.5x  

Med.

    1.51x       1.45x       1.37x       8.1x       7.5x       7.0x       11.9x       10.3x       9.5x       15.3x       14.1x       1.5x       1.5x  

Max.

    4.15x       3.92x       3.75x       16.3x       14.1x       12.3x       23.0x       19.7x       17.4x       28.4x       24.7x       13.1x       2.5x  

Sevcon

 

$13.691

    2.10x       1.75x       1.16x       n.a.       52.0x       7.4x       n.a 3      n.a. 3      8.9x       n.a. 3      n.a. 3      n.a. 3      n.a. 3 

$22.002

    3.11x       2.60x       1.73x       n.a.       77.2x       10.9x       n.a 3      n.a. 3      13.2x       n.a. 3      n.a. 3      n.a. 3      n.a. 3 

 

1 Closing price of shares of common stock of Sevcon on June 14, 2017.
2 EV calculated as fully diluted market value based on $22.00 per share of common stock of Sevcon, plus net debt.
3 Reflects negative EBITDA, EBIT, EPS or PEG Ratio, as applicable.

Based on the EV/Sales Ratios calculated above and on Rothschild’s professional judgment, Rothschild applied an illustrative range of EV/Sales Ratios of 1.5x to 2.0x to the estimated Sales of Sevcon for fiscal year 2018, as provided in the June forecasts, to reach a range of implied EVs. To calculate implied equity values, Rothschild then subtracted from such implied EVs the estimated amount of net debt of Sevcon as of July 13, 2017, as provided by the management of Sevcon and approved for Rothschild’s use. Rothschild then divided such implied equity values by the number of fully diluted shares of common stock of Sevcon outstanding, as provided by the management of Sevcon and approved for Rothschild’s use, to reach the following range of implied values per share of common stock of Sevcon, rounded to the nearest $0.25: $11.25 to $16.00.

Selected Precedent Transactions Analysis

Rothschild calculated and compared various transaction value multiples paid in selected transactions involving automotive technology suppliers and financial multiples for Sevcon.

For purposes of this analysis, (i) for each of the selected companies, Rothschild reviewed closing stock prices on July 14, 2017, public filings made by such companies and other publicly available information for certain historic financial information and (ii) for Sevcon, Rothschild reviewed the closing price per share of common stock of Sevcon on July 14, 2017, certain historic financial information for Sevcon, as provided by the management of Sevcon and approved for Rothschild’s use, the June forecasts and the number of fully diluted shares of common stock of Sevcon outstanding, as provided by the management of Sevcon and approved for Rothschild’s use, and calculated the following metrics for each selected transaction and Sevcon:

 

    the implied EV of the target of the selected transaction as a multiple (“EV/LTM Sales Ratio”) of last-twelve-months (“LTM”) revenue of the target publicly disclosed at the time each such selected transaction was announced;

 

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    the implied EV of the target of the selected transaction as a multiple (“EV/LTM EBITDA Ratio”) of LTM EBITDA of the target publicly disclosed at the time each such selected transaction was announced; and

 

    the implied EV of the target of the selected transaction as a multiple (“EV/LTM EBIT Ratio”) of LTM EBIT of the target publicly disclosed at the time each such selected transaction was announced.

Unless otherwise noted in the chart below, EV for the above metrics was calculated as fully diluted market value based on the purchase price in the transaction plus, with respect to each of the selected transactions, the net debt of the target in such transaction most recently disclosed prior to the announcement of such transaction or, with respect to Sevcon, net debt as of July 13, 2017 as provided by the management of Sevcon.

The results of Rothschild’s analysis are summarized in the chart below:

 

Announcement Date

  

Bidder

  

Target

  EV/
LTM Sales
Ratio
    EV/
LTM EBITDA
Ratio
    EV/
LTM EBIT
Ratio
 

December 2016

   Investor group including Dalian Wanda Group    ZhuhaiYinlong New Energy Co Ltd
(minority stake)
    3.83x       16.5x       18.9x  

December 2016

   Investor-led consortium   

JICO Co. Ltd.

(minority stake)

    0.94x       26.5x       n.a. 4 

November 2016

   Samsung Electronics Co Ltd    Harman Intl Industries Inc     1.31x       11.1x       15.8x  

September 2016

   Knorr-Bremse AG    Haldex AB     1.38x       13.8x 5      20.0x 5 

March 2016

   Yinyi Group Co Ltd    Punch PowerTrain NV     3.10x       16.0x       n.a. 4 

December 2015

   TT Electronics PLC    Aero Stanrew Ltd     2.56x       13.2x       14.2x  

July 2015

   Delphi Automotive PLC    Hellermann Tyton Group PLC     2.50x       15.6x       18.7x  

July 2015

   BorgWarner Inc.    Remy International Inc     1.03x       11.3x       38.0x  

May 2015

   Continental AG    Elektrobit Automotive GmBH     3.28x       26.7x       37.3x  

April 2015

   Jiangxi Special Electric Motor    Hangzhou Mige Electric Co. Ltd     2.61x       13.7x       14.3x  

Overall Minimum

    0.94x       11.1x       14.2x  

Overall Average

    2.25x       16.4x 5      22.1x 5 

Overall Median

    2.53x 5      14.7x 5      18.8x 5 

Overall Maximum

    3.83x       26.7x       38.0x  

Sevcon ($13.696 per share)

    2.33x       n.a. 7      n.a. 4 

Sevcon ($22.00 per share)

    3.46x       n.a. 7      n.a. 4 

 

4 Reflects negative EBIT.
5 The financial analyses reviewed with the Special Committee on July 14, 2017 contained an incorrect presentation of the median of the EV/LTM Sales Ratios and the following incorrect multiples relating to the acquisition of Haldex AB: EV/LTM EBITDA Ratio and EV/LTM EBIT Ratio. This table corrects such multiples relating to the acquisition of Haldex AB as well as the overall average and median for such multiples and the median of the EV/LTM Sales Ratios. Rothschild has confirmed that these incorrect multiples, averages and medians were not material to its financial analyses or its opinion.
6 EV calculated as fully diluted market value based on the closing price per share of common stock of Sevcon on July 14, 2017, plus net debt of Sevcon as of July 13, 2017 as provided by the management of Sevcon.
7 Reflects negative EBITDA.

Based on the EV/LTM Sales Ratios calculated for the selected transactions involving automotive technology suppliers and on Rothschild’s professional judgment, Rothschild applied an illustrative range of EV/LTM Sales

 

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Ratios of 2.0x to 3.0x to the estimated LTM Sales for third quarter 2017 of approximately $59 million, as provided in the June forecasts, to reach a range of implied EVs. Rothschild then subtracted from such implied EVs the estimated amount of net debt of Sevcon as of July 13, 2017, as provided by the management of Sevcon and approved for Rothschild’s use, to reach implied equity values. Rothschild then divided such implied equity values by the number of fully diluted shares of common stock of Sevcon outstanding, as provided by the management of Sevcon and approved for Rothschild’s use, to reach the following range of implied values per share of common stock of Sevcon, rounded to the nearest $0.25: $12.00 to $19.75.

Illustrative Discounted Cash Flow Analysis

Rothschild performed an illustrative discounted cash flow analysis of Sevcon to derive a range of implied values per share of Sevcon. Rothschild calculated a range of implied EVs, by adding (x) the estimated unlevered, after-tax free cash flows over fourth quarter 2017 and fiscal years 2018 through 2022, as provided in the June forecasts, assuming $1.6 million in estimated benefits of Sevcon’s net operating losses for each of the years 2019 through 2022, as provided by Sevcon’s management and approved for Rothschild’s use, after the application of a range of illustrative after-tax discount rates of 14.00% to 16.00%, which was based on the estimated weighted average cost of capital for Sevcon, to (y) the terminal value of Sevcon, after the application of a range of illustrative after-tax discount rates of 14.00% to 16.00%. Rothschild estimated the terminal value of Sevcon by applying an illustrative range of growth rates in perpetuity of 3.0% to 5.0%, which Rothschild selected using its experience and professional judgment, to the estimated unlevered, after-tax free cash flows for the terminal period generated by Rothschild. Unlevered, after-tax free cash flows for the terminal period were calculated as EBIAT (earnings before interest after tax) after application of the illustrative range of growth rates described above, less increases in net working capital after application of the such illustrative range of growth rates to Sevcon’s net working capital as of September 30, 2022, plus depreciation, less capital expenditures, each of the foregoing (other than the illustrative range of growth rates) as reflected in the June forecasts for fiscal year 2022. Rothschild then subtracted from such illustrative EVs the estimated amount of net debt of Sevcon as of July 13, 2017, as provided by the management of Sevcon and approved for Rothschild’s use, to reach a range of implied equity values. Rothschild then divided such implied equity values by the number of fully diluted shares of common stock of Sevcon outstanding, as provided by the management of Sevcon and approved for Rothschild’s use, to reach the following range of implied values per share of common stock of Sevcon, rounded to the nearest $0.25: $15.00 to $22.75.

Other Factors

In rendering its opinion, for illustrative purposes only and not relied upon in reaching its conclusion, Rothschild also reviewed and considered other factors, including:

 

    historic closing prices of shares of common stock of Sevcon, noting, as a reference point, that the closing price of a share of common stock of Sevcon, rounded to the nearest $0.25, ranged from $8.25 to $16.50 in the 52-week period preceding July 14, 2017;

 

    the most recent future public market trading price target published by Craig-Hallum Capital Group LLC, the only research analyst covering Sevcon, noting that the one (1)-year target price of $24.00 per share of common stock of Sevcon published by Craig-Hallum Capital Group LLC on May 16, 2017 discounted to July 14, 2017 at a discount rate of 17.00%, reflecting an estimate of Sevcon’s cost of equity and rounded to the nearest $0.25 would be $20.50 per share of common stock of Sevcon;

 

   

the premiums paid in selected precedent transactions involving U.S.-listed targets announced between September 1, 2010 and June 21, 2017 with implied equity values between $50 million and $200 million (excluding financial institutions and real estate companies), noting that the first (1st) and third (3rd) quartile of premiums paid in these selected transactions relative to the target company’s closing stock prices one (1) day, one (1) week and one (1) month prior to the public announcement of the transaction, ranged from 20% to 70% and that when a premium of 20% to 70% was applied to the closing price of

 

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$13.69 per share of common stock of Sevcon on July 14, 2017 the resulting range of implied prices, rounded to the nearest $0.25, was $16.50 to $23.25 per share of common stock of Sevcon; and

 

    a range of implied present values of the future price per share of common stock of Sevcon, which was calculated by:

 

    deriving a range of illustrative prices per share of common stock of Sevcon by (a) applying illustrative EV/EBIT multiples ranging from 12.0x to 15.0x to estimated EBIT of Sevcon for fiscal year 2019, as provided in the June forecasts, (b) subtracting the estimated net debt as of the end of fiscal year 2019, as provided in the June forecasts, and (c) dividing by the number of fully diluted shares of common stock of Sevcon outstanding, as provided by the management of Sevcon and approved for Rothschild’s use;

 

    discounting the range of illustrative future prices per share of common stock of Sevcon at fiscal year-end 2019 back to July 14, 2017 using a discount rate of 17.0%, reflecting an estimate of Sevcon’s cost of equity;

which resulted in an illustrative range of implied present values, rounded to the nearest $0.25, of $17.25 to $21.50 per share of common stock of Sevcon.

Miscellaneous

Rothschild is acting as financial advisor to Sevcon with respect to the merger and was entitled to receive a fee of $500,000.00 upon delivery of its opinion and will be entitled to receive a fee currently estimated to be approximately $3.5 million upon consummation of the merger. In addition, Sevcon agreed to reimburse Rothschild’s expenses and indemnify Rothschild against certain liabilities that may arise out of its engagement. In the past Rothschild has provided certain financial advisory services to Parent. During the two year period ended July 14, 2017, Rothschild has not been engaged by Sevcon or its affiliates known to Rothschild to provide financial advisory services for which Rothschild received compensation. Rothschild and its affiliates may in the future provide financial services to Sevcon, Parent and/or their respective affiliates in the ordinary course of our businesses from time to time and may receive fees for the rendering of such services.

Rothschild and its affiliates are engaged in a wide range of financial advisory and investment banking activities. In addition, in the ordinary course of their asset management, merchant banking and other business activities, Rothschild’s affiliates may trade in the securities of Sevcon, Parent and any of their respective affiliates, for their own accounts or for the accounts of their affiliates and customers, and may at any time hold a long or short position in such securities.

Rothschild’s opinion was given and speaks only as of its date. Subsequent developments may affect Rothschild’s opinion and the assumptions used in preparing it, and Rothschild does not have any obligation to update, revise, or reaffirm its opinion. Rothschild’s opinion was approved by the Global Advisory Commitment Committee of Rothschild.

Certain Financial Forecasts

We do not, as a matter of course, publicly disclose forecasts or projections as to future performance, earnings or other results due to the inherent unpredictability of the underlying long-term assumptions, estimates and projections. Our management prepared and provided to our Board estimated forward-looking financial information for the years 2017 through 2022, which we refer to as the financial forecasts, for use in connection with the evaluation of a possible transaction. The financial forecasts were provided to the Board and to Parent, and to their respective advisors, and to Rothschild in connection with its financial analyses summarized under “The Merger—Fairness Opinion of Financial Advisor” beginning on page 49.

The information set forth below is included solely to give Sevcon’s stockholders access to relevant portions of the financial forecasts and is not included in this proxy statement in order to influence any stockholder of Sevcon

 

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to vote in favor of the merger or the charter amendment or for any other purpose, including whether or not to seek appraisal rights with respect to a stockholder’s shares of our common stock or Series A preferred stock.

The financial forecasts were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or generally accepted accounting principles. In addition, the financial forecasts were not prepared with the assistance of or reviewed, compiled or examined by independent accountants. The financial forecasts do not comply with U.S. generally accepted accounting principles, which we refer to as GAAP. The financial forecasts may differ from published analyst estimates and forecasts and do not take into account any events or circumstances after the date they were prepared, including the announcement of the merger.

The financial forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond our management’s control. Important factors that may affect actual results and result in such forecasts not being achieved include: the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement and the inability to complete the merger due to the failure to obtain stockholder approval for the merger or the failure to satisfy other conditions to completion of the merger, including that a governmental authority may prohibit, delay or refuse to grant approval for the consummation of the transaction, and risks and uncertainties pertaining to our business, including the risks and uncertainties detailed in our public periodic filings with the SEC. In addition, the financial forecasts may be affected by our ability to achieve strategic goals, objectives and targets over the applicable period. These assumptions, upon which the financial forecasts were based, necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which we operate, and the risk and uncertainties described under “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 25, all of which are difficult or impossible to predict accurately and many of which are beyond our control and, upon consummation of the merger, will be beyond the control of the surviving company. The financial forecasts also reflect assumptions as to certain business decisions that are subject to change.

The financial forecasts were developed by Sevcon without giving effect to the transactions contemplated by the merger agreement, and therefore the financial forecasts do not give effect to the merger or any changes to Sevcon’s operations or strategy that may be implemented after the consummation of the merger, including any costs incurred in connection with the merger. Furthermore, the financial forecasts do not take into account the effect of any failure of the transactions contemplated by the merger agreement to be completed and should not be viewed as accurate or continuing in that context.

Accordingly, there can be no assurance that the financial forecasts will be realized, and actual results may vary materially from those shown. The inclusion of the financial forecasts in this proxy statement should not be regarded as an indication that any of Sevcon, Rothschild, Parent and Merger Sub or their respective affiliates, officers, directors, advisors or other representatives considered or consider the financial forecasts necessarily predictive of actual future events, and the financial forecasts should not be relied upon as such. None of Sevcon, Rothschild, Parent, Merger Sub or their respective affiliates, officers, directors, advisors or other representatives can give any assurance that actual results will not differ from the financial forecasts, and Sevcon undertakes no obligation to update or otherwise revise or reconcile the financial forecasts to reflect circumstances existing after the date such financial forecasts were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the financial forecasts are shown to be in error. None of Sevcon, or, to the knowledge of Sevcon, Parent and Merger Sub, intends to make publicly available any update or other revisions to the financial forecasts. None of Sevcon or its respective affiliates, officers, directors, advisors or other representatives has made or makes any representation to any stockholder or other person regarding the ultimate performance of Sevcon compared to the information contained in the financial forecasts or that

 

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forecasted results will be achieved. Sevcon has made no representation to Parent or Merger Sub, in the merger agreement or otherwise, concerning the financial forecasts.

The financial forecasts include certain measures, including EBITDA, EBIT and EBIAT (in each case, as defined below), that may be considered non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Sevcon may not be comparable to similarly titled measures used by other companies.

In light of the foregoing factors and the uncertainties inherent in these projections, stockholders of Sevcon are cautioned not to place undue, if any, reliance on the financial forecasts.

June 2017 Forecasts

The following is a summary of certain of the Sevcon financial forecasts prepared by management of Sevcon, and given to Rothschild, the Board and to Parent, and to their respective advisors, in each case in June 2017, which as subsequently adjusted as described in the footnotes to the table below, we refer to as the June forecasts, and which were used by Rothschild for the purpose of its fairness opinion. See “The Merger—Fairness Opinion of Financial Advisor” beginning on page 49. All amounts in the table below are expressed in thousands unless otherwise specified.

 

US$000’ yle Sep-30

   2015A     2016A     2017E     2018E     2019E     2020E     2021E     2022E  

Revenue

     41,142       49,801       62,000       74,086       111,527       140,632       150,479       165,704  

Revenue growth %

     8.5     21.1     24.5     19.5     50.5     26.1     7.0     10.1

EBITDA(1)

     2,552       (3,135     (3,045     2,496       17,635       28,763       32,140       38,552  

EBITDA margin %

     6.2     (6.3 %)      (4.9 )%      3.4     15.8     20.5     21.4     23.3

EBIT(2)

     1,893       (5,334     (5,263     (136     14,584       25,475       28,691       34,854  

EBIT margin %

     4.6     (10.7 %)      (8.5 )%      (0.2 )%      13.1     18.1     19.1     21.0

Income Tax(3)

     (406     (42     1,157       140       (1,228     (4,797     (7,173     (8,713

EBIAT(4)

     1,487       (5,376     (4,106     4       13,356       20,678       21,518       26,140  

Depreciation & Amortization(5)

     659       2,199       2,218       2,633       3,051       3,288       3,449       3,698  

Capex

     (1,309     (1,432     (2,425     (1,500     (1,825     (2,301     (2,462     (2,712

Change in NWC

     (2,845     (3,410     (579     1,113       (1,748     (3,936     (1,312     (2,109

FCF(6)

     (2,008     (8,019     (4,892     2,250       12,835       17,729       21,193       25,018  

 

(all $ figures expressed in thousands)

A = Actual

E = Estimates prepared by Sevcon management

 

(1) The non-GAAP measurement of EBITDA in the above table is calculated by adding to, or deducting from net income, charges or benefits for interest, income taxes and depreciation and amortization.

EBITDA as defined by Sevcon may differ from EBITDA used by other companies and is not a measurement under U.S. GAAP. There are limitations inherent in non-U.S. GAAP financial measures in that they exclude a variety of charges and credits that are required to be included in a U.S. GAAP presentation, and therefore do not present the full measure of Sevcon’s recorded costs against its revenue. EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP or as a measure of a company’s profitability or liquidity.

 

(2) The non-GAAP measurement of EBIT in the above table is calculated by adding to, or deducting from net income, interest and income taxes.

 

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(3) The forecasts provided to the Board on June 8, 2017 and to Parent contained an incorrect presentation of Income Tax for 2018 and 2019 resulting in differences of $427,000 and $2,038,000, respectively, which accordingly resulted in different EBIAT and FCF calculations. Each of these items was corrected in the forecasts provided to Rothschild and approved for Rothschild’s use. The table above reflects the corrected Income Tax, EBIAT and FCF. In addition, for the purpose of its fairness opinion, based on information provided by Sevcon, Rothschild assumed $1,571,000 of net operating losses used to offset Income Tax expense for 2019 and 2020, which also accordingly resulted in different EBIAT and FCF calculations and are reflected in the table above.
(4) The non-GAAP measurement of EBIAT (earnings before interest after taxes) in the above table is equivalent to after-tax EBIT and is an indicator of Sevcon’s actual and forecast operating performance.
(5) The forecast increase in the charge for depreciation and amortization between fiscal years 2016 and 2017 represents the full year impact in 2017 of the acquisition of Bassi S.r.l. in January 2016. The forecast increase in depreciation and amortization between 2017 and 2022 represents the additional depreciation charge arising from the investment in a refurbished U.K. head-office facility in late fiscal year 2017 and ongoing investment in research and development equipment.
(6) FCF (Free Cash Flow) is calculated as EBIT after Tax plus Depreciation and Amortization, minus Capex, Changes in NWC and Changes in Deferred Tax Assets.

The key assumptions underlying the Sevcon financial forecasts set forth above, include the following:

 

    Revenue forecasts for 2017 through 2022 are highly dependent on the growth in sales to manufacturers of on-road hybrid and electric vehicles.

 

    Forecast revenue from the sale of controls to on-road automotive manufacturers represents 50% of the production forecasts received from original equipment manufacturers’ for awarded business for fiscal years 2018 through 2022.

 

    The Sevcon revenue forecasts assume that sales to manufacturers of industrial off-road vehicles will remain broadly flat at $35 million for fiscal years 2016 through 2022.

 

    The forecast sales of battery chargers in 2017 and 2018 represent the annualized sales of the post-acquisition eight month period of fiscal 2016 together with awarded business from existing customers; thereafter it is assumed that the charger segment will grow at 5% per annum.

 

    Sevcon sells and produces products across the globe and as such our results are highly dependent on global currency exchange rates, principally the EURO/USD and EURO/Sterling exchange rates. The Sevcon financial forecasts assume that exchange rates for the dollar (USD) against each of the Euro (EURO), Pound Sterling (GBP) in 2017, 2018, 2019, 2020, 2021 and 2022 would be as set forth in the table below.

 

Exchange Rate

   2017E      2018E      2019E      2020E      2021E      2022E  

EURO/GBP

     1.30        1.30        1.30        1.30        1.30        1.30  

EURO/USD

     1.12        1.12        1.12        1.12        1.12        1.12  

 

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A GAAP reconciliation of Net Income (Loss) to EBITDA, EBIT and EBIAT is provided below:

 

US$000’ yle Sep-30

  2015A     2016A     2017E     2018E     2019E     2020E     2021E     2022E  

Revenue

    41,142       49,801       62,000       74,086       111,527       140,632       150,479       165,704  

Revenue growth %

    8.5     21.1     24.5     19.5     50.5     26.1     7.0     10.1

Gross Profit

    15,834       16,108       15,993       24,598       39,454       50,683       54,178       60,853  

Operating Expenses

    (13,844     (21,568     (21,256     (24,734     (24,870     (25,208     (25,487     (26,000

Net Income (Loss)

    1,539       (5,866     (5,986     (560     11,221       19,107       21,518       26,140  

Interest Expense

    76       423       1,880       564       564       —         —         —    

Interest Income

    (31     (16     —         —         —         —         —         —    

Income Tax(1)

    406       (1     (1,157     (140     2,799       6,368       7,173       8,713  

Depreciation & Amortization(2)

    637       1,767       2,218       2,633       3,051       3,288       3,449       3,698  

EBITDA(3)

    2,627       (3,693     (3,045     2,496       17,635       28,763       32,140       38,552  

EBITDA margin %

    6.4     (7.4 %)      (4.9 )%      3.4     15.8     20.5     21.4     23.3

EBIT

    1,990       (5,460     (5,263     (136     14,584       25,475       28,691       34,854  

EBIT margin %

    4.8     (11.0 %)      (8.5 )%      (0.2 )%      13.1     18.1     19.1     21.0

EBIAT

    1,584       (5,459     (4,106     4       11,785       19,107       21,518       26,140  

 

(1) The forecasts provided to the Board on June 8, 2017 and to Parent and Rothschild and approved for Rothschild’s use contained an incorrect presentation of the Income Tax for 2016 resulting in a difference of $(43,000).
(2) The forecasts provided to the Board on June 8, 2017 and to Parent and Rothschild and approved for Rothschild’s use contained an incorrect presentation of Depreciation & Amortization resulting in a difference of $22,000 in 2015 due to a typographical error. Such forecasts also contained an incorrect presentation of Depreciation & Amortization resulting in a difference of $432,000 in 2016 due to the inclusion in this category of the amortization of fair value adjustments relating to certain tangible assets following the acquisition of Bassi S.r.l. in January 2016.
(3) There were differences in EBITDA in 2015 and 2016 of $(75,000) and $558,000 respectively, between the forecasts provided to the Board on June 8, 2017 and to Parent and Rothschild and approved for Rothschild’s use and EBITDA for 2015 and 2016 as presented in the table above. These differences were due to the inclusion in the measure of EBITDA provided to the Board on June 8, 2017 and to Parent and Rothschild and approved for Rothschild’s use of certain foreign currency gains and losses and minor items of other income and expense, together with the depreciation and amortization differences noted in (2) above.

December 2016 Forecasts

In addition to the Sevcon financial forecasts above, Sevcon provided financial forecasts in December 2016, prepared by management of Sevcon, to the Board, its advisors and Rothschild and in February 2017 to Parent, its advisors and Rothschild. These forecasts were prepared by members of management in connection with Sevcon’s three-year strategic plan for the fiscal years 2017 through 2019.

 

US$000’ yle Sep-30

   2017E     2018E     2019E  

Revenue(1)

     62,206       80,371       138,123  

Revenue growth %

     24.9     29.2     71.9

Operating Expenses

     (20,315     (21,318     (21,517

Net Income (Loss)

     (2,324     1,149       19,347  

Interest Expense

     601       604       604  

Interest Income

     (13    

Tax

     (581     287       4,837  

Depreciation & Amortization

     2,218       2,633       3,051  

EBITDA(2)

     (99     4,673       27,839  

EBIT(2)

     (2,317     2,040       24,788  

 

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(1) The Revenue shown above reflects the forecast provided to the Board in December 2016. The forecast provided to Parent and Rothschild in February 2017 contained slightly revised Revenues which were $594,000 higher for 2017, $529,000 higher for 2018 and $44,000 higher for 2019.
(2) In each of 2017, 2018 and 2019, EBITDA and EBIT, as presented in the forecasts to Parent and Rothschild in February 2017, were lower by $40,000 than is presented in the table above, due to an amount of forecast sundry income being incorrectly excluded from those line items in the February 2017 presentation.

The definitions of EBITDA and EBIT are the same as noted above in explanation of the June forecasts.

The key assumptions underlying the December 2016 Sevcon financial forecasts set forth above, include the following:

 

    Revenue forecasts for 2017 through 2019 are, as noted for the June forecasts, highly dependent on the growth in sales to manufacturers of on-road hybrid and electric vehicles.

 

    The revenue forecasts assume that sales to manufacturers of industrial off-road vehicles will remain broadly flat at $35 million for fiscal years 2017 through 2019.

 

    Forecast revenue from the sale of controls to on-road automotive manufacturers represents the production forecasts received from original equipment manufacturers’ for awarded business only for fiscal years 2017 through 2019.

 

    The forecast sales of battery chargers in 2017 through 2019 represents the annualized sales of the post-acquisition eight-month period of fiscal 2016 together with awarded business from existing customers.

 

    The Sevcon financial forecasts in the table above assume that exchange rates for the dollar against the Euro and the Pound Sterling would be $1.12 and $1.30, respectively.

Interests of the Directors and Executive Officers of Sevcon in the Merger

When considering the recommendation of the Board that you vote to approve the proposals to approve and adopt the merger agreement, and thereby approve the merger, and approve and adopt the charter amendment, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement, and in recommending that the Board approve the merger agreement and the merger and approve the charter amendment. The Board was also aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be adopted by the stockholders of Sevcon. These interests are described below.

In General

Our directors and certain of our executive officers hold equity awards whose vesting will be accelerated upon and by reason of the consummation of the merger as described in “The Merger Agreement—Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards” beginning on page 77. Our directors have no other interests in the merger that are different from or in addition of the interests of stockholders generally, except that the Board approved a per-meeting fee of $500 for each Special Committee member, which, based on the number of Special Committee meetings held through the date of this proxy statement, represents approximately $17,000 for each such member, and the Board also approved an additional fee of $100,000 for Matt Goldfarb (net of any per-meeting fees received by Mr. Goldfarb), payable upon and subject to completion of the merger, in consideration for the additional time commitment and effort required of him in his capacity as Chairman of the Special Committee.

Two of our executive officers, Matt Boyle, our President and Chief Executive Officer, and Paul Farquhar, our Vice President and Chief Financial Officer, have service and non-competition/non-solicitation agreements with Sevcon that provide certain severance benefits upon a change in control. Moreover, prior to or following the closing, our executive officers may discuss or enter into agreements with Parent or its affiliates regarding employment with, or the right to purchase equity or participate in equity incentive compensation plans of, Parent or its affiliates.

 

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Payment of Equity Award Values

Pursuant to the terms of the merger agreement and the Equity Plan, Sevcon equity awards held by the directors and certain executive officers that are outstanding immediately prior to the effective time of the merger will be subject to the following treatment.

Options

Each of Messrs. Boyle and Farquhar holds options that would have vested in accordance with their terms on or before December 31, 2018, assuming his continued employment or service through the date on which such options are scheduled to become vested and achievement of any applicable performance-based vesting conditions. At the effective time of the merger, such options will be cancelled and converted into the right to receive the option payment, which will be paid to each of Messrs. Boyle and Farquhar promptly following the effective time of the merger (and not later than the first regularly scheduled payroll date not less than five business days after the effective time of the merger) as further described in the section of this proxy statement entitled “The Merger Agreement—Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards” beginning on page 77.

Restricted Stock Awards

Each of our nonemployee directors and two of our executive officers, Messrs. Boyle and Farquhar, holds restricted stock awards that vest in accordance with their terms at the effective time of the merger or that would have vested in accordance with their terms on or before December 31, 2018, assuming the holder’s continued employment or service through the date on which such restricted stock awards are scheduled to become vested and achievement of any applicable performance-based vesting conditions. At the effective time of the merger, such restricted stock awards will be converted into the right to receive the restricted stock award payment, which will be paid to each of our nonemployee directors and Messrs. Boyle and Farquhar promptly following the effective time of the merger (and not later than the first regularly scheduled payroll date not less than five business days after the effective time of the merger) as further described in the section of this proxy statement entitled “The Merger Agreement—Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards” beginning on page 77. The performance-based vesting conditions underlying the restricted stock award held by Andrea Bassi, Sevcon’s General Manager—Chargers, will be deemed to have been satisfied in full and his restricted stock award payment will vest and become payable one-third promptly following the effective time of the merger (and not later than the first regularly scheduled payroll date not less than five business days after the effective time of the merger) and, assuming he remains employed on the respective date, one-third on February 27, 2019, and one-third on February 7, 2020, or on a pro-rata basis upon his termination of employment by reason of death, disability or retirement (as determined by Parent under its equity compensation practices) before such respective date, all as further described in the section of this proxy statement entitled “The Merger Agreement—Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards” beginning on page 77.

 

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Quantification of Unvested Equity Awards

The following table shows the estimated cash amounts that each Sevcon director and executive officer would be eligible to receive upon the effectiveness of the merger or following the effectiveness of the merger with regard to the options and restricted stock awards held by the director or executive officer, assuming the effective date of the merger occurs on August 1, 2017.

 

Name (1)

   Options      Restricted Stock
Awards
     Total Value
($)
 
     Shares (#)      Value ($)(2)      Shares (#)      Value
($)
    

Executive Officers

              

Mr. Boyle

     4,615        61,887        55,385        1,218,470        1,280,357  

Mr. Farquhar

     4,615        61,887        37,385        822,470        884,357  

Mr. Bassi (3)

     —          —          10,000        222,000        222,000  

Non-Employee Directors (4)(5)

              

Mr. Angiolillo

     —          —          4,700        103,400        103,400  

Mr. Goldfarb

     —          —          4,700        103,400        103,400  

Mr. Ketelhut

     —          —          4,700        103,400        103,400  

Mr. Morris

     —          —          4,700        103,400        103,400  

Mr. Schenker

     —          —          4,700        103,400        103,400  

Mr. Steadman

     —          —          4,700        103,400        103,400  

Mr. Stump

           4,700        103,400        103,400  

 

(1) David Sidlow, Managing Director of Sevcon Limited, an executive officer, is omitted from this table as he began his employment with Sevcon on July 10, 2017, and does not hold any options or restricted stock awards.
(2) The exercise price of each option is denominated in British Pounds. The values shown in the table equal the difference between $22.00 and the exercise price (determined using the exchange rate ($1.3216 per Pound) in effect as of August 1, 2017) multiplied by the number of shares subject to the option.
(3) This amount reflects Mr. Bassi’s full award that is being converted into the right to receive the restricted stock award payment. Subject to continued employment or service through the date on which the restricted stock award is scheduled to become vested and satisfaction of any terms and conditions applicable to such restricted stock immediately prior to the effective time of the merger, one-third of this amount will be payable promptly following the effective time of the merger (and not later than the first regularly scheduled payroll date not less than five business days after the effective time of the merger) and the remaining amount will vest and become payable as to one-third on each of February 27, 2019 and February 7, 2020, provided that if his employment or service is terminated prior to either such date as a result of death, disability or retirement (as determined by Parent under its equity compensation practices), he will be entitled to receive a pro rata portion of such amount, as further described in the section of this proxy statement entitled “The Merger Agreement—Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards” beginning on page 77.
(4) Maarten Hemsley and Frederick Wang ceased to be non-employee directors of Sevcon on February 2, 2016 and March 16, 2016, respectively, and do not hold any options or restricted stock awards.
(5) Marvin Schorr, director emeritus of Sevcon, holds a restricted stock award in the same amount as each of the non-employee directors.

Payments to Executive Officers Upon Termination Following Change in Control

Sevcon has entered into service agreements with each of its executive officers, as well as non-competition/non-solicitation agreements with each of Messrs. Boyle and Farquhar.

 

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Service Agreements

Mr. Boyle’s service agreement continues until terminated by Sevcon upon at least 12 months’ notice, or by Mr. Boyle upon at least three months’ notice. Mr. Farquhar’s service agreement continues until terminated by Sevcon upon at least six months’ notice, or by Mr. Farquhar upon at least three months’ notice. For the first 12 months after a change of control (which would include the merger), the notice period for termination by Sevcon is increased to 18 months with respect to Mr. Boyle and 12 months with respect to Mr. Farquhar. Sevcon may, in its discretion, make a payment of salary in lieu of the whole or any part of any unexpired notice period, together with a sum equivalent to the fair value of any other benefits of employment provided under the terms of the service agreement on the date that the payment of salary in lieu of notice is made. If Sevcon (or Parent, following the merger) terminates the employment of either officer for cause, the officer would not be entitled to notice or compensation. The officers are also not entitled to the notice or compensation described herein if their respective service agreements expire on the officer’s 65th birthday and are only entitled to six months’ notice for termination due to the officer’s disability. Neither agreement provides for severance or any other special benefit as a result of the merger except as described herein.

Sevcon also has service agreements with Messrs. Sidlow and Bassi that require Sevcon to give prior written notice of termination without cause, but neither provides for a longer notice period, nor severance or any other special benefit, as a result of the merger.

Non-Competition and Non-Solicitation Agreements

In addition, Sevcon has entered into a non-competition and non-solicitation agreement with each of Messrs. Boyle and Farquhar. These and the service agreements prohibit Mr. Boyle, for up to 24 months after his termination, and Mr. Farquhar, for up to 12 months after his termination, from (i) soliciting or enticing customers and employees away from Sevcon or any of its subsidiaries, (ii) having business dealings with any customer which is in competition with the business, and (iii) interfering with the continuance of supplies and services from Sevcon’s suppliers. Additionally, for 12 months following Mr. Boyle’s termination and six months following Mr. Farquhar’s termination, such executive officer may not be involved with any business concern which is (or intends to be) in competition with the business, and at any time following termination, neither may represent himself as connected with or disparage Sevcon or any of its subsidiaries or fail to comply with his obligations to protect confidential information (with certain exception). The periods for which the foregoing restrictions apply are reduced by any period that Messrs. Boyle or Farquhar spend on “garden leave” immediately prior to termination. The non-competition and non-solicitation agreements further provide that if the employment of either Mr. Boyle or Mr. Farquhar is terminated other than for cause, upon expiration of the agreement on the officer’s 65th birthday or due to disability, each then-outstanding equity award will vest, with performance-based awards vesting in full, and each then-outstanding option will remain exercisable through the term of such award. However, as described above, their outstanding equity awards will vest in full upon the effectiveness of the merger.

See the following section entitled “Quantification of Potential Payments and Benefits to Named Executive Officers in Connection with the Merger” for an estimate of the amounts that would become payable to each of Messrs. Boyle and Farquhar under the merger agreement, their service agreements and their non-competition/non-solicitation agreements upon the effectiveness of the merger.

Sevcon’s service agreements with Messrs. Sidlow and Bassi also impose non-competition and non-solicitation restrictions on those officers. For Mr. Bassi, the restricted period is three years; however, he is entitled to payment of 40% of his final annual gross salary divided by 12 and multiplied by the number of months of validity of the non-competition covenant. In Mr. Sidlow’s case, the restrictions as described above run for six months after termination of employment and he is also subject to restrictions regarding confidentiality.

 

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Quantification of Payments and Benefits to Named Executive Officers in Connection with the Merger

In accordance with Item 402(t) of Regulation S-K under the Securities Act, the table below sets forth the estimated amounts that each of Sevcon’s named executive officers could receive that is based on or otherwise related to the merger. The amounts have been calculated assuming that (i) the effective time of the merger is August 1, 2017, (ii) each named executive officer experiences a qualifying termination of employment immediately after such date, and (iii) Sevcon elects to make a discretionary payment in lieu of notice in the maximum amount provided by his respective service agreement. See the section entitled “Interests of the Directors and Officers of Sevcon in the Merger” above for further information about the compensation disclosed in the table below. The amounts set forth in the table below are the subject of a non-binding, advisory vote of all stockholders, as described in the section entitled “Advisory Vote on Merger-Related Named Executive Officer Compensation” beginning on page 107 of this proxy statement.

Sevcon’s named executive officers for the purposes of this disclosure are Matt Boyle, President and Chief Executive Officer, and Paul N. Farquhar, Vice President and Chief Financial Officer.

The amounts in the table below do not include amounts the named executive officers were already entitled to receive irrespective of the merger or that were vested as of August 1, 2017. They also do not include amounts they would receive as stockholders of Sevcon on the same basis as all other stockholders. In addition, the amounts indicated below are estimates of amounts that would be payable to the named executive officers and the estimates are based on multiple assumptions that may not prove correct, including assumptions described in this proxy statement. Accordingly, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below.

Golden Parachute Compensation

 

Name

   Cash
($)(1)
     Equity
($)(2)
     Total
($)
 

Mr. Boyle

     487,783        1,280,357        1,768,140  

Mr. Farquhar

     200,636        884,357        1,084,993  

 

(1) Cash. Represents the total value of the cash payment and ancillary benefits that Parent, the surviving corporation or one of their subsidiaries would pay to the named executive officer if his employment was terminated following a qualifying termination of employment within 12 months after the change in control, which would be paid over an 18 month, with respect to Mr. Boyle, or 12 month, with respect to Mr. Farquhar, notice period or, at Sevcon’s option, in a lump sum in lieu thereof. This amount includes the additional six months’ notice period to which the named executive officers’ are entitled following a qualifying termination of employment within 12 months after a change in control, and such amount will be paid in a cash lump sum in lieu of notice. Such lump sum with respect to Mr. Boyle is equal to $162,594, and with respect to Mr. Farquhar is equal to $100,318. Any such payment would be made in British Pounds. The respective amounts shown in the table were determined using each named executive officer’s salary as of August 1, 2017, and the exchange rate ($1.3216 per Pound) in effect as of that date. The amounts in this column and in this footnote are “double-trigger” in nature, which means that the payment of these amounts is conditioned upon a qualifying termination of employment on or after the completion of the merger. As described in the section of this proxy statement entitled “Payments to Executive Officers Upon Termination Following Change in Control” beginning on page 64, Messrs. Boyle and Farquhar are subject to non-competition and non-solicitation restrictive covenants under the terms of their service agreements and their non-competition and non-solicitation agreements.
(2) Equity. Represents the aggregate cash payments to be made in respect of unvested options and restricted stock awards, which are “single-trigger” in nature, which means that the payment of these amounts is conditioned solely on the completion of the merger. The surviving corporation would cause these amounts to be paid in a lump sum. Refer to the section of this proxy statement entitled “The Merger Agreement—Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards” beginning on page 77 for additional information regarding the treatment of equity awards.

 

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Financing of the Merger

The merger agreement is not subject to any financing contingency. Parent and Merger Sub have informed Sevcon that they expect the funds needed by them in connection with the merger will be derived from a combination of cash on hand and committed financing.

Closing and Effective Time of the Merger

Unless otherwise mutually agreed in writing among Sevcon, Parent and Merger Sub, the closing of the merger will take place on the third business day following the day on which the last of the conditions to the closing of the merger (described under “The Merger Agreement—Conditions to the Merger” beginning on page 95) have been satisfied or waived (other than those conditions that by their nature may only be satisfied at the closing of the merger, but subject to the satisfaction or waiver of those conditions on such date).

Assuming timely satisfaction of the necessary closing conditions, we currently expect the closing of the merger to occur in the third or fourth calendar quarter of 2017. The effective time of the merger will occur upon the certificate for the merger having been duly filed with, and accepted by, the Secretary of State of the State of Delaware (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).

Appraisal Rights

If the merger agreement is adopted by the stockholders of the Company and the merger is consummated, any stockholders who did not vote in favor of the adoption of the merger agreement (or consent thereto in writing) and who are entitled to demand and have properly made a demand for appraisal and do not thereafter fail to perfect, effectively withdraw, or otherwise lose their right to appraisal in accordance with Section 262 of the DGCL, which we refer to as Section 262, shall be entitled to have the fair value of their shares of Sevcon common stock or Series A preferred stock appraised by the Delaware Court of Chancery in accordance with Section 262. Holders of Sevcon common stock or Series A preferred stock electing to exercise appraisal rights must comply precisely with the provisions of Section 262 in order to perfect their rights. Strict compliance with the statutory procedures is required to perfect appraisal rights under Delaware law.

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a holder of Sevcon common stock or Series A preferred stock, as applicable, in order to demand appraisal of such shares of Sevcon common stock or Series A preferred stock and perfect appraisal rights. All references in this summary to a “stockholder” are to the record holder of shares of Sevcon common stock or Series A preferred stock, as applicable, unless otherwise indicated.

THIS SUMMARY, HOWEVER, IS NOT A COMPLETE STATEMENT OF ALL APPLICABLE REQUIREMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262, THE FULL TEXT OF WHICH APPEARS IN ANNEX C TO THIS PROXY STATEMENT. FAILURE TO FOLLOW PRECISELY ANY OF THE STATUTORY PROCEDURES SET FORTH IN SECTION 262 MAY RESULT IN THE LOSS OF YOUR APPRAISAL RIGHTS. MOREOVER, DUE TO THE COMPLEXITY OF THE PROCEDURES FOR EXERCISING THE RIGHT TO SEEK APPRAISAL, STOCKHOLDERS WHO ARE CONSIDERING EXERCISING SUCH RIGHTS ARE ENCOURAGED TO SEEK THE ADVICE OF LEGAL COUNSEL. THIS SUMMARY DOES NOT CONSTITUTE ANY LEGAL OR OTHER ADVICE, NOR DOES IT CONSTITUTE A RECOMMENDATION THAT YOU EXERCISE YOUR RIGHTS TO SEEK APPRAISAL UNDER SECTION 262.

Only a holder of record of shares of Sevcon common stock or Series A preferred stock is entitled to demand appraisal rights for the shares registered in that holder’s name.

Beneficial owners of shares of Sevcon common stock or Series A preferred stock who do not also hold such shares of record must act promptly to cause the record holder, such as a broker, bank or other nominee, to follow

 

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the steps summarized below properly and in a timely manner to perfect appraisal rights in respect of those shares of Sevcon common stock or Series A preferred stock. If shares of Sevcon common stock or Series A preferred stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the record owner, and if the shares of Sevcon common stock or Series A preferred stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. In the event a record owner, such as a broker, who holds shares of Sevcon common stock or Series A preferred stock as a nominee for others, exercises his or her right of appraisal with respect to the shares of Sevcon common stock or Series A preferred stock held for one or more beneficial owners, while not exercising this right for other beneficial owners, the written demand should state the number of shares of Sevcon common stock or Series A preferred stock as to which appraisal is sought. Where no number of shares is expressly mentioned, we will presume that the demand covers all shares held in the name of the record owner.

IF YOU HOLD YOUR SHARES OF SEVCON COMMON STOCK OR SERIES A PREFERRED STOCK IN A BROKERAGE ACCOUNT OR BANK ACCOUNT OR IN OTHER NOMINEE FORM AND YOU WISH TO EXERCISE APPRAISAL RIGHTS, YOU SHOULD CONSULT WITH YOUR BROKER, BANK OR THE OTHER NOMINEE TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE MAKING OF A DEMAND FOR APPRAISAL BY THE NOMINEE. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER, BANK OR IN OTHER NOMINEE FORM, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL RIGHTS.

Where a merger agreement is to be submitted for adoption at a meeting of stockholders, Section 262 requires that stockholders for whom appraisal rights are available be notified not less than 20 days before the stockholders’ meeting to vote on the merger in connection with which appraisal rights will be available. A copy of Section 262 must be included with such notice. This proxy statement constitutes our notice to Sevcon stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262, and the full text of Section 262 is attached to this proxy statement as Annex C. In connection with the merger, any holder of Sevcon common stock or Series A preferred stock who wishes to exercise appraisal rights, or who wishes to preserve such holder’s right to do so, should review Annex C carefully. Failure to strictly comply with the requirements of Section 262 in a timely and proper manner will result in the loss of appraisal rights under the DGCL. A stockholder who loses his, her or its appraisal rights will be entitled to receive the merger consideration described in the merger agreement.

If you elect to demand appraisal of your shares, you must satisfy EACH of the following conditions:

 

    You must deliver to us a written demand for appraisal of your shares before the vote with respect to the merger is taken. This written demand for appraisal is separate from any proxy or vote abstaining from or voting against the adoption of the merger agreement that you may choose to submit with respect to shares of Sevcon common stock you hold. Voting against or abstaining from voting or failing to vote for the adoption of the merger agreement by itself does not constitute a demand for appraisal within the meaning of Section 262. The demand must reasonably inform us of the identity of the stockholder and state that the stockholder intends to demand appraisal of his, her or its shares.

 

   

If you are a holder of Sevcon common stock, you must not vote in favor of, or consent in writing to, the adoption of the merger agreement. A vote in favor of the adoption of the merger agreement and merger, by proxy submitted by mail, over the Internet, by telephone or in person, will constitute a waiver of your appraisal rights in respect of the shares so voted and will nullify any previously filed written demands for appraisal. A proxy that does not contain voting instructions will, unless revoked, be voted

 

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in favor of the adoption of the merger agreement and will also constitute a waiver of your appraisal rights in respect of the shares so voted and nullify any previously filed written demands for appraisal. Therefore, a holder of Sevcon common stock who submits a proxy and who wishes to exercise appraisal rights must instruct the proxy holder to vote against the adoption of the merger agreement or abstain from voting on the adoption of the merger agreement. Holders of Series A preferred stock are not entitled to vote on the proposal to adopt the merger agreement.

 

    You must hold shares of Sevcon common stock or Series A preferred stock on the date of the written demand for appraisal and must continue to hold your shares of Sevcon common stock or Series A preferred stock through the effective time of the merger. Therefore, a stockholder who is the record holder of shares of Sevcon common stock or Series A preferred stock on the date the written demand for appraisal is made but who thereafter transfers the shares prior to the effective time of the merger will lose any right to appraisal with respect to such shares.

 

    You must file a petition in the Delaware Court of Chancery requesting a determination of the fair value of the shares within 120 days after the effective time of the merger. The surviving corporation is under no obligation to file any petition and has no intention of doing so.

If you are a holder of Sevcon common stock and you fail to comply with any of these conditions with respect to any shares of Sevcon common stock, or fail to perfect or otherwise lose or effectively withdraw, your right to appraisal, and the merger is completed, your shares of Sevcon common stock will be deemed to have been converted at the effective time into the right to receive the per common share merger consideration, without interest and less any applicable withholding taxes, but you will have no appraisal rights with respect to such shares of Sevcon common stock. If you are a holder of Series A preferred stock and you fail to comply with any of these conditions with respect to any shares of Series A preferred stock, or fail to perfect or otherwise lose or effectively withdraw, your right to appraisal, and the merger is completed, your shares of Sevcon Series A preferred stock will be deemed to have been converted at the effective time into the right to receive the per preferred share merger consideration, without interest and less any applicable withholding taxes, but you will have no appraisal rights with respect to such shares of Series A preferred stock.

All demands for appraisal pursuant to Section 262 must be delivered to and received by the Company at the following address: Sevcon, Inc., Attention: Corporate Secretary, 155 Northboro Road, Southborough, Massachusetts 01772 USA, and must be delivered before the vote on the adoption of the merger agreement is taken at the special meeting and should be executed by, or on behalf of, the record holder of the shares of Sevcon common stock or Series A preferred stock. The demand must reasonably inform us of the identity of the stockholder and state that the stockholder intends to demand appraisal of his, her or its shares.

If the merger is completed, within 10 days after the effective time of the merger, the surviving corporation must give written notice that the merger has become effective and the effective date thereof to each holder of Sevcon common stock and each holder of Series A preferred stock who has properly made a written demand for appraisal pursuant to Section 262 and who has not failed to perfect, effectively withdrawn or otherwise lost their right to appraisal in accordance with Section 262, and, in the case of Sevcon common stock, who did not vote in favor of (or otherwise consent in writing to) the adoption of the merger agreement. At any time within 60 days after the effective time of the merger, any holder of Sevcon common stock or Series A preferred stock who has demanded an appraisal pursuant to Section 262, and who has not commenced an appraisal proceeding or joined an appraisal proceeding as a named party, has the right to withdraw such stockholder’s demand for appraisal and to accept the cash payment specified by the merger agreement for his or her shares of Sevcon common stock or Series A preferred stock; after this period, the holder of Sevcon common stock or Series A preferred stock may withdraw such demand for appraisal only with the consent of the surviving corporation. Within 120 days after the effective time of the merger, any stockholder who has complied with Section 262 will, upon written request to the surviving corporation, be entitled to receive from the surviving corporation a written statement setting forth the aggregate number of shares not voted in favor of the adoption of the merger agreement and with respect to which demands for appraisal rights have been received by us and the aggregate number of holders of such shares.

 

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A person who is the beneficial owner of shares of Sevcon common stock or Series A preferred stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, request from the corporation the statement described in the previous sentence. Such written statement will be mailed to the requesting stockholder within 10 days after such written request is received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective time of the merger, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 and who is otherwise entitled to appraisal rights may file a petition in the Delaware Court of Chancery demanding a determination of the “fair value” of the shares held by all stockholders entitled to appraisal. A person who is the beneficial owner of shares of Sevcon common stock or Series A preferred stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file the petition described in the previous sentence. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon Sevcon, as the surviving corporation. The surviving corporation has no obligation to file such a petition in the event there are stockholders seeking appraisal. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s demand for appraisal. There is no present intent on the part of Sevcon to file an appraisal petition, and stockholders seeking to exercise appraisal rights should not assume that Sevcon will file such a petition or that Sevcon will initiate any negotiations with respect to the “fair value” of such shares. If no party files a petition for appraisal within 120 days after the effective time of the merger, then the holders of Sevcon common stock and Series A preferred stock will lose the right to an appraisal and will instead be entitled to receive the applicable merger consideration offered pursuant to the merger agreement. Accordingly, stockholders who desire to have their shares appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time periods and in the manner prescribed in Section 262. The Court of Chancery will dismiss any appraisal proceeding as to all holders of Sevcon common stock who are otherwise entitled to appraisal rights unless (1) the total number of shares of Sevcon common stock and Series A preferred stock entitled to appraisal exceeds 1% of the outstanding shares of Sevcon common stock and Series A preferred stock eligible for appraisal or (2) the value of the consideration provided in the merger for such total number of shares of Sevcon common stock and Series A preferred stock seeking appraisal exceeds $1,000,000.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. The Register in Chancery, if so ordered by the Delaware Court of Chancery, must give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving corporation and to the stockholders shown on the verified list at the addresses therein stated. Such notice must also be given by one or more publications at least one week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Delaware Court of Chancery deems advisable.

The forms of the notices by mail and by publication must be approved by the Delaware Court of Chancery, and the costs thereof will be borne by the surviving corporation.

At the hearing on such petition, the Delaware Court of Chancery will determine the stockholders who have complied with Section 262 and who have become entitled to appraisal rights. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares and who hold stock represented by certificates to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

After determination of the holders of Sevcon common stock entitled to appraisal of their shares of Sevcon common stock, the appraisal proceeding will be conducted in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding, the

 

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Delaware Court of Chancery will appraise the shares of Sevcon common stock, determining their “fair value” exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the “fair value”. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, and except as provided in Section 262, interest from the effective time of the merger through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest will accrue thereafter only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Court of Chancery, and (2) interest theretofore accrued, unless paid at that time. Sevcon is under no obligation to make such voluntary cash payment prior to such entry of judgment.

After determination of the holders of Series A preferred stock entitled to appraisal of their shares of Series A preferred stock, the appraisal proceeding will be conducted in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding, the Delaware Court of Chancery will appraise the shares of Series A preferred stock, determining their “fair value” in accordance with the DGCL, together with interest, if any, to be paid upon the amount determined to be the “fair value”. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective time of the merger through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest will accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Court of Chancery, and (2) interest theretofore accrued, unless paid at that time. Sevcon is under no obligation to make such voluntary cash payment prior to such entry of judgment.

Upon application by the surviving corporation or by any stockholder entitled to participate in the appraisal proceeding, the Delaware Court of Chancery may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the verified list filed by the surviving corporation and who has submitted such stockholder’s certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under Section 262.

When the “fair value” is determined, the Delaware Court of Chancery will direct the payment of such value, with interest thereon, if any, by the surviving corporation to the stockholders entitled to receive the same, in the case of holders of uncertificated stock forthwith, and in the case of holders of shares represented by certificates upon the surrender to the surviving corporation of the certificates representing such stock.

In determining “fair value”, the Delaware Court of Chancery will take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining “fair value” in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that “fair value” is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.”

You should be aware that the “fair value” of your shares of Sevcon common stock or Series A preferred stock as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to

 

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receive under the terms of the merger agreement. Although the Company believes that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the merger consideration.

Moreover, we and Parent each reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of Sevcon common stock or Series A preferred stock is less than the applicable merger consideration.

Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who had demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time of the merger; however, if no petition for appraisal is filed within 120 days after the effective time of the merger, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective time of the merger or thereafter with the written approval of Sevcon as the surviving corporation, then the right of that stockholder to appraisal will cease. Any such attempt to withdraw an appraisal demand more than 60 days after the effective time of the merger will require our written approval. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the prior approval of the Court, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will maintain the right to withdraw its demand for appraisal and to accept the cash that such holder would have received pursuant to the merger agreement within 60 days after the effective time of the merger.

In view of the complexity of Section 262, holders of Sevcon common stock who may wish to pursue appraisal rights and holders of Series A preferred stock who may wish to pursue appraisal rights should consult their legal advisors. To the extent there are any inconsistencies between the foregoing summary and Section 262, Section 262 will govern.

Accounting Treatment

The merger will be accounted for as a “purchase transaction” for financial accounting purposes.

U.S. Federal Income Tax Consequences of the Merger

The following discussion is a summary of U.S. federal income tax consequences of the merger relevant to holders of shares of Sevcon common stock or Series A preferred stock whose shares are converted into the right to receive cash pursuant to the merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (which we refer to as the Code), Treasury Regulations promulgated under the Code, court decisions, published positions of the Internal Revenue Service (which we refer to as the IRS), and other applicable authorities, all as in effect on the date of this proxy statement and all of which are subject to change or differing interpretations, possibly with retroactive effect. This discussion is limited to holders who hold their shares of Sevcon common stock or Series A preferred stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment purposes). This discussion does not describe any of the tax consequences arising under the laws of any state, local or foreign tax jurisdiction and does not consider any aspects of U.S. federal tax law other than income taxation (e.g., estate or gift taxation) or the alternative minimum tax or the Medicare net investment income surtax that may be relevant or applicable to a particular

 

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holder in connection with the merger. For purposes of this discussion, a “holder” means a U.S. Holder (as defined below).

This discussion does not address all of the tax consequences that may be relevant to holders in light of their particular circumstances. For example, this discussion does not address:

 

    holders who may be subject to special treatment under U.S. federal income tax laws, such as financial institutions; tax-exempt organizations; S-corporations or any other entities or arrangements treated as partnerships or pass-through entities for U.S. federal income tax purposes; insurance companies; mutual funds; dealers in stocks and securities; traders in securities that elect to use the mark-to-market method of accounting for their securities; regulated investment companies; real estate investment trusts; entities subject to the U.S. anti-inversion rules; or certain former citizens or long-term residents of the United States;

 

    holders holding the shares as part of a hedging, constructive sale or conversion, straddle or other risk reduction transaction;

 

    holders who received their shares of Sevcon common stock in a compensatory transaction;

 

    holders who own an equity interest, actually or constructively, in Parent or the surviving corporation following the merger;

 

    holders whose “functional currency” is not the U.S. dollar;

 

    holders who hold their common stock or Series A preferred stock through a bank, financial institution or other entity, or a branch thereof, located, organized or resident outside the United States;

 

    holders who are not U.S. Holders;

 

    holders who have, at any point, actually or constructively owned 5% or more of Sevcon common stock or Series A preferred stock; or

 

    holders that do not vote in favor of the merger and who properly demand appraisal of their shares under Section 262 of the DGCL.

If a partnership (including an entity or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares of Sevcon common stock or Series A preferred stock, then the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partner and the partnership. Partnerships holding shares of Sevcon common stock or Series A preferred stock and partners therein should consult their tax advisors regarding the consequences of the merger.

No ruling has been or will be obtained from the IRS regarding the U.S. federal income tax consequences of the merger described below. No assurance can be given that the IRS will agree with the views expressed in this discussion, or that a court will not sustain any challenge by the IRS in the event of litigation.

THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY HOLDER. EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.

U.S. Holders

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of shares of Sevcon common stock or Series A preferred stock who or that is for U.S. federal income tax purposes:

 

    A citizen or individual resident of the United States;

 

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    A corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

 

    An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

    A trust (1) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in Section 7701(a)(30) of the Code; or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.

The receipt of cash by a U.S. Holder in exchange for shares of common stock or Series A preferred stock pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes. In general, such U.S. Holder’s gain or loss will be equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares surrendered pursuant to the merger. A U.S. Holder’s adjusted tax basis generally will equal the amount that such U.S. Holder paid for the shares. Such gain or loss generally will be capital gain or loss, and generally will be long-term capital gain or loss if such U.S. Holder’s holding period in such shares is more than one year at the time of the completion of the merger. A reduced tax rate on capital gain generally will apply to long-term capital gain of a non-corporate U.S. Holder (including individuals). There are limitations on the deductibility of capital losses.

If a U.S. Holder acquired different blocks of common stock or Series A preferred stock at different times or different prices, such U.S. Holder must determine its tax basis, holding period, and gain or loss separately with respect to each block of common stock or Series A preferred stock, as the case may be.

Regulatory Approvals Required for the Merger

Under the merger agreement, the merger cannot be completed until the parties have received approval from the Austrian Federal Competition Authority. Sevcon and Parent and its affiliates filed the required Austrian regulatory filing on July 26, 2017.

At any time before or after consummation of the merger, the Department of Justice, or the DOJ, or the Federal Trade Commission, or the FTC (notwithstanding that no filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, was required or made), could take such action under antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger and seeking divestiture of substantial assets of Sevcon, Parent or Merger Sub. At any time before or after the completion of the merger, any state or non-U.S. government entity could take such action under antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger and seeking divestiture of substantial assets of Sevcon, Parent or Merger Sub. Private parties may also seek to take legal action under antitrust laws under certain circumstances.

There can be no assurance that the approval of the Austrian Federal Competition Authority described above, or any other regulatory approvals that might be required to consummate the merger, will be obtained and, if obtained, there can be no assurance as to the timing of any approvals, ability to obtain the approvals on satisfactory terms or the absence of any litigation challenging such approvals. There can also be no assurance that the DOJ, the FTC or any other governmental entity or any private party will not attempt to challenge the merger on antitrust grounds, and, if such a challenge is made, there can be no assurance as to its result. For a description of the parties’ obligations with respect to regulatory approvals related to the merger, see “The Merger Agreement—Filings; Other Actions; Notification” beginning on page 91.

 

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Dividends

Sevcon suspended the payment of cash dividends on shares of our common stock in fiscal year 2009 to meet the needs of the business during the global recession. Under the terms of the merger agreement, Sevcon is prohibited from declaring, setting a record date for, setting aside for payment or paying any dividends on, or making any other distributions in respect of, its capital stock, except for (i) any dividend or distribution by a subsidiary of Sevcon to Sevcon or to another wholly owned subsidiary of Sevcon or (ii) dividends accrued on the Series A preferred stock pursuant to the terms of our charter during the period beginning immediately after the end of the most recent semi-annual period with respect to which a dividend was declared on the Series A preferred stock prior to the date of the merger agreement and ending immediately prior to the effective time of the merger.

 

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THE MERGER AGREEMENT

This section describes the material terms of the merger agreement. The description of the merger agreement in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety.

Explanatory Note Regarding the Merger Agreement

The merger agreement and this summary of its terms are included to provide you with information regarding its terms. Factual disclosures about Sevcon contained in this proxy statement or in Sevcon’s public reports filed with the SEC may supplement, update or modify the factual disclosures about Sevcon contained in the merger agreement. The representations, warranties and covenants made in the merger agreement by Sevcon, Parent and Merger Sub were made solely to the parties to, and solely for the purposes of, the merger agreement and as of specific dates and were qualified and subject to important limitations agreed to by Sevcon, Parent and Merger Sub in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC and in some cases were qualified by the matters contained in the disclosure letter that Sevcon delivered in connection with the merger agreement, which disclosures were not reflected in the merger agreement. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement. Investors should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts of Sevcon, Parent, Merger Sub or any of their respective subsidiaries or affiliates.

Effects of the Merger; Directors and Officers; Certificate of Incorporation; Bylaws

The merger agreement provides for the merger of Merger Sub with and into Sevcon upon the terms, and subject to the conditions, set forth in the merger agreement, and upon which the separate corporate existence of Merger Sub will cease. As the surviving corporation, Sevcon will continue to exist following the merger. As a result of the merger, the surviving corporation will be a wholly owned direct or indirect subsidiary of Parent.

The directors of Merger Sub immediately prior to the effective time will, from and after the effective time, be the directors of the surviving corporation and the officers of Sevcon immediately prior to the effective time will, from and after the effective time, be the officers of the surviving corporation, in each case until their respective successors have been duly elected or appointed and qualified, or until their earlier death, resignation or removal in accordance with the surviving corporation’s certificate of incorporation and bylaws and applicable laws.

At the effective time of the merger, (i) if the charter amendment becomes effective, the certificate of incorporation of Sevcon will be amended and restated to read as set forth in Exhibit B to the merger agreement until changed or amended in accordance with its terms or by applicable law or (ii) if the charter amendment does not become effective, the certificate of incorporation of Sevcon will be the certificate of incorporation of the surviving corporation until changed or amended in accordance with its terms or by applicable law. At the effective time, the bylaws of Merger Sub in effect immediately prior to the effective time will be the bylaws of the surviving corporation until changed or amended in accordance with their terms or by applicable law.

 

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Following the completion of the merger, our common stock will be delisted from the NASDAQ, deregistered under the Exchange Act and cease to be publicly traded.

Closing and Effective Time of the Merger

Unless otherwise mutually agreed in writing among Sevcon, Parent and Merger Sub, the closing of the merger will take place on the third business day following the day on which the last of the conditions to the closing of the merger (described under “The Merger Agreement—Conditions to the Merger” beginning on page 95) have been satisfied or waived (other than those conditions that by their nature may only be satisfied at the closing of the merger, but subject to the satisfaction or waiver of those conditions on such date).

Assuming timely satisfaction of the necessary closing conditions, we currently expect the closing of the merger to occur in the third or fourth calendar quarter of 2017. The effective time of the merger will occur upon the certificate for the merger having been duly filed with, and accepted by, the Secretary of State of the State of Delaware (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).

Treatment of Common and Preferred Stock, Warrants and Stock-Based Awards

Common and Preferred Stock

At the effective time of the merger, each share of our common stock issued and outstanding immediately prior to such time (other than excluded shares and dissenting shares) will be converted into the right to receive cash in an amount, without interest, equal to the per common share merger consideration of $22.00, subject to and reduced by the amount of withholding that is required under any applicable tax law. If the charter amendment becomes effective, each share of Series A preferred stock issued and outstanding immediately prior to the effective time (other than excluded shares and dissenting shares) will automatically be converted into the right to receive cash in an amount, without interest, equal to the per preferred share merger consideration of $66.00, subject to and reduced by the amount of withholding that is required under any applicable tax law. Immediately prior to the effective time of the merger, the Board intends to declare and pay a special dividend on the Series A preferred stock representing the amount of the accrued and unpaid dividends on the Series A preferred stock. Each share of our common stock and Series A preferred stock owned immediately prior to the effective time of the merger by Parent, Merger Sub or Sevcon, or any subsidiary of Parent, Merger Sub or Sevcon (except to the extent held by any such person on behalf of a third party), which we refer to collectively in this proxy statement as excluded shares, will be cancelled without payment of consideration and will cease to exist. Our shares of common stock and Series A preferred stock owned by stockholders who are entitled to demand appraisal rights and properly demand appraisal of such shares of common stock or Series A preferred stock pursuant to, and comply in all respects with, Section 262 of the DGCL, which shares we refer to in this proxy statement as dissenting shares, will not be converted into the right to receive per common share merger consideration or per preferred share merger consideration, as applicable. Instead, holders of dissenting shares will be entitled to the appraisal rights provided under the DGCL as described under “The Merger—Appraisal Rights” beginning on page 67.

Options

At the effective time of the merger, each option will be cancelled and converted into the right to receive an amount in cash, without interest, equal to the product of the total number of shares of Sevcon common stock subject to such cancelled option assuming that all performance–based vesting conditions have been satisfied in full and the excess, if any, of $22.00 over the applicable exercise price per share of Sevcon common stock subject to such cancelled option, less any applicable withholding taxes (which we refer to as the option payment). The option payments (or portions thereof), in respect of options (or portions thereof) that are vested as of immediately prior to the effective time of the merger, that vest in accordance with their terms at the effective time of the merger or that would have vested in accordance with their terms on or before December 31, 2018 assuming the holder’s continued employment or service through the date on which such options are scheduled to become vested and achievement of any applicable performance-based vesting conditions, including those held by

 

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certain of our executive officers, will be paid to the holder promptly following the effective time of the merger (and not later than the first regularly scheduled payroll date not less than five business days after the effective time of the merger). The option payments (or portions thereof) in respect of options (or portions thereof) that do not vest in accordance with their terms prior to or at the effective time of the merger and that would have vested in accordance with their terms on or after January 1, 2019 assuming the holder’s continued employment or service through the date on which the options (or portions thereof) are scheduled to become vested and the achievement of performance-based vesting conditions will vest and become payable in accordance with the vesting schedule, terms and conditions applicable to such options immediately prior to the effective time of the merger; provided that if any such holder’s employment or service, as applicable, is terminated prior to the vesting of any such options (or portions thereof) as a result of death, disability or retirement (as determined by Parent under its equity compensation practices), such holder will be entitled to receive a pro rata portion of the option payments, which is equal to the option payments multiplied by a fraction, the numerator of which is the number of days in the period beginning on the closing date and ending on the date of termination and the denominator of which is the number of days in the period beginning on the closing date and ending on the day that the options would have been fully vested; provided, further that any performance-based vesting conditions applicable to such options will no longer apply and such options will be subject to service-based vesting only.

Restricted Stock Awards

At the effective time of the merger, each restricted stock award will be converted into the right to receive an amount in cash, without interest, equal to $22.00, less any applicable withholding taxes, with respect to the number of shares of Sevcon common stock subject to each such restricted stock award assuming that any applicable performance-based vesting conditions have been fully satisfied (which we refer to as the restricted stock award payment). The restricted stock award payments (or portions thereof) in respect of restricted stock awards (or portions thereof) that are vested as of immediately prior to the effective time of the merger, that vest in accordance with their terms at the effective time of the merger or that would have vested in accordance with their terms on or before December 31, 2018 assuming the holder’s continued employment or service through the date on which such restricted stock awards are scheduled to become vested and achievement of any applicable performance-based vesting conditions, including, in each case, those held by our directors, director emeritus, and certain of our executive officers, will be paid to the holder promptly following the effective time of the merger (and not later than the first regularly scheduled payroll date not less than five business days after the effective time of the merger). The restricted stock award payments (or portions thereof) in respect of restricted stock awards (or portions thereof) that do not vest in accordance with their terms prior to or at the effective time of the merger and that would have vested in accordance with their terms on or after January 1, 2019 assuming the holder’s continued employment or service through the date on which the restricted stock awards (or portions thereof) are scheduled to become vested and the achievement of performance-based vesting conditions will vest and become payable in accordance with the vesting schedule, terms and conditions applicable to such restricted stock awards immediately prior to the effective time of the merger; provided that if any such holder’s employment or service, as applicable, is terminated prior to the vesting of any such restricted stock awards (or portions thereof) as a result of death, disability or retirement (as determined by Parent under its equity compensation practices), such holder will be entitled to receive a pro rata portion of the restricted stock award payments, which is equal to the restricted stock award payments multiplied by a fraction, the numerator of which is the number of days in the period beginning on the closing date and ending on the date of termination and the denominator of which is the number of days in the period beginning on the closing date and ending on the day that the restricted stock awards would have been fully vested; provided further that any performance-based vesting conditions applicable to such restricted stock awards will no longer apply and such restricted stock awards will be subject to service-based vesting only.

Exchange and Payment Procedures

Prior to or at the closing, Parent will deposit with the paying agent cash in immediately available funds in the amount necessary to make payment of the aggregate per common share merger consideration and, if the charter

 

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amendment has become effective, the aggregate per preferred share merger consideration to the holders of shares of our common stock and Series A preferred, as applicable (other than with respect to excluded shares or dissenting shares).

As soon as possible, and in any event within three business days, after the date of the effective time of the merger, each holder of record of a certificate representing shares of our common stock or Series A preferred stock, if applicable (other than holders who solely hold excluded shares or dissenting shares), will be sent a letter of transmittal and instructions describing how such record holder may surrender his, her or its shares of our common stock or Series A preferred stock, if applicable (or affidavits of loss in lieu thereof), in exchange for the applicable amount of per common share merger consideration or per preferred share merger consideration, as applicable (less any tax withholdings).

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

Any holder of book entry shares will not be required to deliver a certificate or an executed letter of transmittal to the paying agent to receive the per common share merger consideration or per preferred share merger consideration that such holder is entitled to receive. In lieu thereof, each holder of record of one or more book entry shares whose shares of our common stock or Series A preferred stock were converted into the right to receive the per common share merger consideration or per preferred share merger consideration, as applicable, will upon receipt by the paying agent of an “agent’s message” in customary form (or such other evidence, if any, as the paying agent may reasonably request), be entitled to receive, and Parent shall cause the paying agent to pay and deliver as promptly as reasonably practicable after the effective time of the merger, the applicable amount of per common share merger consideration or per preferred share merger consideration (less any tax withholdings) in respect of each such share of our common stock or Series A preferred stock and the book entry shares of such holder will forthwith be cancelled.

If you are a record holder of certificated shares of our common stock or Series A preferred stock, you will not be entitled to receive the applicable per common share merger consideration or per preferred share merger consideration until you deliver a duly completed and executed letter of transmittal to the paying agent, and you must also surrender your stock certificate or certificates (or affidavits of loss in lieu thereof) to the paying agent. In the event of a transfer of ownership of shares that is not registered in the transfer records of Sevcon, payment may be made to a person other than the person in whose name the certificate is registered only if such certificate is properly endorsed or otherwise in proper form for transfer and the person requesting such payment pays any transfer or other taxes required by reason of the payment of the per common share merger consideration or per preferred share merger consideration to a person other than the registered holder of such certificate or establishes to the satisfaction of Parent that such tax has been paid or is not applicable.

No interest will be paid or accrued on the cash payable as the per common share merger consideration or per preferred share merger consideration upon your surrender of your book entry shares or certificates.

Sevcon, Parent, the surviving corporation and the paying agent will be entitled to deduct and withhold any applicable taxes from the per common share merger consideration or per preferred share merger consideration. Any sum that is withheld will be deemed to have been paid to the holder of shares with regard to whom it is withheld.

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the per common share merger consideration or per preferred share merger consideration, you will have to make an affidavit of the loss, theft or destruction, and if required by Parent or the paying agent, post a bond in such reasonable and customary amount as Parent or the paying agent may direct as indemnity against any claim that may be made against it or the surviving corporation with respect to such lost, stolen or destroyed certificate. These procedures will be described in the letter of transmittal and instructions that you will receive, which you should read carefully in their entirety.

 

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From and after the effective time of the merger, our stock transfer books will be closed. Thereafter there will be no transfers on the records of Sevcon of shares of our common stock or Series A preferred stock that were outstanding immediately prior to the effective time of the merger. If, after the effective time of the merger, any person presents to the surviving corporation, Parent or the paying agent any certificate or book entry share (other than certificates and book entry shares in respect of excluded shares or dissenting shares), such certificate or book entry share will be cancelled and exchanged for the cash amount to which such person is entitled pursuant to the merger agreement.

Any portion of the per common share merger consideration or per preferred share merger consideration deposited with the paying agent that remains unclaimed by our stockholders for six months after the effective time of the merger will be delivered to the surviving corporation. Holders of our common stock or Series A preferred stock (other than excluded shares or dissenting shares) who have not complied with the above-described exchange and payment procedures may thereafter only look to the surviving corporation, and only as general creditors of the surviving corporation and Parent, for payment of the per common share merger consideration or per preferred share merger consideration, as applicable (subject to abandoned property, escheat or similar laws).

None of Parent, Merger Sub, the surviving corporation, Sevcon or the paying agent, or any employee, officer, director, agent, representative or affiliate thereof, shall be liable to any person for any cash properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

Representations and Warranties

Representations and Warranties of Sevcon

We made customary representations and warranties in the merger agreement that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement, in the disclosure letter that Sevcon delivered in connection with the merger agreement, or in certain reports filed with the SEC. These representations and warranties relate to, among other things:

 

    Our and our subsidiaries’ due organization, existence and good standing and authority to carry on our and their businesses;

 

    The effectiveness of, and absence of violations of, our organizational documents and those of our subsidiaries;

 

    The buyout of our former joint venture partner with respect to our Chinese business, Xuchang Fuhua Glass Co., Ltd., including the absence of defaults under, and validity and effectiveness of the definitive agreements with respect to the buyout, which we refer to as the Chinese joint venture buyout agreements, the absence of violations of, or conflicts with, our or our subsidiaries’ governing documents and certain agreements as a result of our entering into and performing under the Chinese joint venture buyout agreements, compliance with applicable laws and the absence of certain legal proceedings, investigations and governmental orders against us or our subsidiaries;

 

    Our capitalization, including:

 

    Regarding our ownership of the equity interests of our subsidiaries;

 

    The number of shares of our common stock, shares of Series A preferred stock, warrants and equity awards outstanding;

 

    The absence of securities of us or our subsidiaries convertible into or exchangeable for shares of capital stock or voting securities of us or our subsidiaries, the absence of encumbrances on such equity interests and our and our subsidiaries not owning any material interests in entities other than our subsidiaries;

 

   

The absence of options, calls, warrants, preemptive rights, anti-dilution rights or shareholder rights plans or other similar rights that obligate Sevcon or any of its subsidiaries to issue or sell

 

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any shares of their capital stock or other equity securities or give any person a right to subscribe for or acquire any equity securities of Sevcon or any of its subsidiaries or any securities or obligations convertible into or exchangeable for capital stock or voting securities of us or any of our subsidiaries;

 

    The absence of certain obligations of us or any subsidiary to repurchase, redeem or otherwise acquire any of our or their capital stock, voting securities, or securities convertible into or exchangeable for our or their capital stock or voting securities;

 

    The absence of certain obligations of us or any subsidiary to provide funds to, or make any investment in, any Sevcon subsidiary not wholly owned by Sevcon;

 

    The absence of certain stock appreciation rights and of any phantom stock, restricted stock units or other contractual rights the value of which is determined in whole or in part by the value of any capital stock of us or any subsidiary;

 

    The absence of certain voting trusts or other agreements or understandings with respect to the voting of capital stock of us or any subsidiary;

 

    The absence of any bonds, debentures, notes or other indebtedness the holders of which have the right to vote, or which are convertible or exchangeable into the right to vote, with our stockholders on any matter; and

 

    The exercise prices of and certain other details regarding equity awards and warrants;

 

    Our corporate power and authority related to the merger agreement and the warrant acknowledgement agreements, including:

 

    Our power to enter into, perform our obligations under, and consummate the transactions under, the merger agreement and the warrant acknowledgements agreements, and the enforceability of the merger agreement and the warrant acknowledgement agreements against us; and

 

    The declaration of advisability of the merger agreement, the merger and the charter amendment by the Board, and the approval of the merger agreement, the merger and the charter amendment by the Board;

 

    The absence of violations of, or conflicts with, our or our subsidiaries’ governing documents, governmental orders, applicable law and certain agreements as a result of our entering into, performing under or consummating the merger agreement, the warrant acknowledgement agreements or the charter amendment, as applicable;

 

    Required governmental consents, approvals, notices and filings;

 

    Our SEC filings since January 1, 2012, and the financial statements included therein, and our disclosure controls and procedures and internal controls over financial reporting;

 

    The absence of complaints regarding auditing or accounting practices or reports of material violations of law or breach of fiduciary duties;

 

    The absence of unresolved SEC comments and government investigations regarding Sevcon accounting practices;

 

    The absence of certain undisclosed liabilities;

 

    The compliance of this proxy statement with requirements under applicable law;

 

    The conduct of business in the ordinary course since October 1, 2016, and the absence since October 1, 2016, of certain conditions, events, changes, circumstances or effects that have had or would be reasonably expected to have a material adverse effect (as described below);

 

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    The absence between October 1, 2016, and the date of the merger agreement of any action taken or not taken that would have breached certain merger agreement interim covenants if taken after the execution of the merger agreement;

 

    The absence of certain legal proceedings, investigations and governmental orders against us or our subsidiaries;

 

    Compliance with applicable laws, the existence, effectiveness and status of necessary licenses and permits and the absence of whistleblower claims and certain types of investigations by governmental entities;

 

    Employee benefit plans;

 

    Labor matters;

 

    Environmental matters;

 

    Tax matters;

 

    The provision of certain material contracts and compliance with, absence of defaults under, and validity and effectiveness of, certain material contracts;

 

    Insurance policies;

 

    Good title to, and absence of liens and rights of first refusal on, real property, and disclosure of, compliance with, and absence of default under, material leases of real property;

 

    Intellectual property, software and information technology systems;

 

    Our relationship with persons that were our largest customers and suppliers for the six months ended April 1, 2017;

 

    The absence of undisclosed affiliate arrangements;

 

    Compliance with Sevcon’s hedging policy;

 

    Quality and safety of Sevcon products;

 

    The absence of any undisclosed broker’s or finder’s fees;

 

    The inapplicability of any anti-takeover law or anti-takeover provision of Sevcon’s certificate of incorporation or bylaws to the merger; and

 

    Receipt of a fairness opinion from Rothschild.

Material Adverse Effect

Many of our representations and warranties are qualified by, among other things, exceptions relating to the absence of a “material adverse effect,” which means any condition, event, change, circumstance or effect that has a material adverse effect on the business, properties, assets, financial condition or results of operations of Sevcon and its subsidiaries, taken as a whole, or on Sevcon’s ability to fulfill its obligations under the merger agreement or consummate the merger or the charter amendment; provided, however:

 

    That none of the following will be taken into account in determining whether there has been, is or would be a material adverse effect:

 

    The public announcement of the identity of Parent as a party to the merger agreement, including the impact thereof on the relationships, contractual or otherwise, of Sevcon or any of its subsidiaries with its customers, employees, or suppliers, or with any other third party (other than as the definition of material adverse effect applies to the representation that the execution and performance of the merger agreement will not violate law or the contracts or organizational documents of Sevcon and its subsidiaries (including as such representation applies for purposes of the related closing condition));

 

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    Any action required to be taken (or required not to be taken) pursuant to the merger agreement, other than (i) pursuant to Sevcon’s covenant to conduct its business in the ordinary course between the date of the merger agreement and the effective time of the merger or (ii) as the definition of material adverse effect applies to the representation that the execution and performance of the merger agreement will not violate law or the contracts or organizational documents of Sevcon and its subsidiaries (including as such representation applies for purposes of the related closing condition); and

 

    Any action taken following the date of the merger agreement at the written request or instruction, or with the written consent, of Parent or Merger Sub;

 

    That none of the following will be taken into account in determining whether there has been, is or would be a material adverse effect, except to the extent such condition, event, change, circumstance or effect has a disproportionate adverse effect on Sevcon and its subsidiaries, taken as a whole, relative to the adverse effect that such changes have on other companies primarily engaged in the designing, manufacturing or selling of motor controllers for zero emission electric and hybrid vehicles, designers, manufacturers or sellers of battery chargers for electric vehicles, or designers, manufacturers or sellers of capacitors for use in railroad signaling:

 

    Changes, trends or developments generally affecting designers, manufacturers or sellers of motor controllers for zero emission electric and hybrid vehicles, designers, manufacturers or sellers of battery chargers for electric vehicles, or designers, manufacturers or sellers of capacitors for use in railroad signaling;

 

    Changes in global, national or regional economic, business, regulatory, legislative, political, or market conditions or in national or global financial markets;

 

    Any geopolitical conditions, disease, the outbreak or escalation of hostilities, an act of war (whether or not declared), sabotage, terrorism, civil disorder, military actions or the escalation thereof;

 

    Changes or proposed changes in GAAP or in laws applicable to Sevcon or any of its subsidiaries; and

 

    Any change resulting from or arising out of a hurricane, earthquake, tornado, flood, or other weather-related condition or natural disaster; or

 

    That none of the following will be taken into account in determining whether there has been, is or would be a material adverse effect, but will not prevent or otherwise affect a determination that any condition, event, change, circumstance or effect underlying such decline or failure has resulted in, or contributed to, a material adverse effect:

 

    Any decline in the market price or change in the trading volume of Sevcon’s securities on any national securities exchange or other trading market; and

 

    Any failure, in and of itself, by Sevcon or any of its subsidiaries to meet any internal or published projections, forecasts, estimates or predictions in respect of revenues, earnings or other financial or operating metrics for any period.

Representations and Warranties of Parent and Merger Sub

The merger agreement also contains customary representations and warranties made by Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement. The representations and warranties of Parent and Merger Sub relate to, among other things:

 

    Their due organization, existence, good standing and authority to carry on their businesses;

 

    Their corporate or similar power and authority to enter into, perform their obligations under, and consummate the transactions under, the merger agreement, and the enforceability of the merger agreement against them;

 

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    The absence of violations of, or conflicts with, their subsidiaries’ governing documents, governmental orders, applicable law and certain agreements as a result of them entering into and performing under the merger agreement;

 

    The accuracy of information supplied by the Parent or Merger Sub for inclusion in this proxy statement;

 

    The capitalization, ownership and operations of Merger Sub;

 

    The absence of certain legal proceedings, investigations and governmental orders against Parent and Merger Sub;

 

    Parent and Merger Sub having sufficient funds for the merger and all other obligations under the merger agreement;

 

    The votes or consents required to approve the merger agreement, merger and the other transactions contemplated by the merger agreement;

 

    The absence of any undisclosed broker’s or finder’s fees;

 

    Parent, Merger Sub and their affiliates not being or having been during the prior three years an “interested stockholder”, as defined by the DGCL, of Sevcon;

 

    Ownership of Sevcon securities by Parent, Merger Sub and their affiliates; and

 

    Acknowledgement as to the absence of any Sevcon representations and warranties with respect to any estimates, projections, forecasts, forward-looking statements or business plans provided by Sevcon.

The representations and warranties in the merger agreement of each of Sevcon, Parent and Merger Sub will not survive the consummation of the merger or the termination of the merger agreement pursuant to its terms.

Conduct of Our Business Pending the Merger

Under the merger agreement, we have agreed that, subject to certain exceptions in the merger agreement and the disclosure letter we delivered in connection with the merger agreement, between the date of the merger agreement and the effective time of the merger, unless Parent gives its prior written approval (which cannot be unreasonably withheld, conditioned or delayed) or unless required by applicable law or by a governmental entity, or required or specifically permitted by the merger agreement, we and our subsidiaries will conduct our businesses in the ordinary course of business, consistent with past practice and will use our commercially reasonable efforts to preserve substantially intact our business organizations and maintain satisfactory relationships with our material customers, suppliers and distributors and other persons with which we have material business relations.

Except as required by applicable law or a governmental entity or set forth in the disclosure letter that we delivered in connection with the merger agreement, or with prior written approval by Parent, we will not, and we will not cause our subsidiaries to:

 

    Make changes to organizational documents, other than the charter amendment;

 

    Adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;

 

    Issue, grant, deliver, sell, pledge, dispose of or encumber (i) any equity interests or voting securities (except for the issuance of Sevcon common stock pursuant to the conversion of shares of Series A Preferred stock or the exercise of Sevcon options or warrants outstanding on the date of the merger agreement) or securities convertible into or exercisable or exchangeable for equity interests or voting securities of, Sevcon or any of its subsidiaries, (ii) any other right to acquire equity interests in or voting securities of Sevcon or any Sevcon subsidiary, (iii) any contractual rights based on the sale of securities of Sevcon or any Sevcon subsidiary or (iv) any debt having, or convertible or exchangeable into, the right to vote with the equity securities of Sevcon or any Sevcon subsidiary on any matter;

 

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    Declare, make, pay or proffer any dividend, distribution or other payment, except for (i) any dividend or distribution by a subsidiary of Sevcon to Sevcon or to another wholly owned subsidiary of Sevcon or (ii) dividends accrued on the Series A preferred stock pursuant to the terms of our charter during the period beginning immediately after the end of the most recent semi-annual period with respect to which a dividend was declared on the Series A preferred stock prior to the date of the merger agreement and ending immediately prior to the effective time of the merger;

 

    Enter into any interest rate, derivatives or hedging transaction;

 

    Adjust, split, combine, redeem, repurchase or otherwise acquire any shares of capital stock or other equity interests of Sevcon or any Sevcon subsidiary (except in connection with the cashless exercises or similar transactions pursuant to the exercise of Sevcon stock options or warrants or to pay withholding taxes due to the vesting of restricted stock outstanding as of the date of the merger agreement);

 

    Reclassify, combine, split or subdivide the capital stock or other equity interests of Sevcon or any Sevcon subsidiary;

 

    Amend or modify the terms of, or grant any waiver adverse to Sevcon, Merger Sub or Parent with respect to the capital stock or other equity interests of Sevcon;

 

    Enter into any agreement with respect to the voting of any of Sevcon’s capital stock or other securities or the capital stock or other securities of a subsidiary of Sevcon;

 

    Acquire any corporation, partnership or other business organization or division thereof or any material assets, other than (i) purchases of inventory and other assets in the ordinary course of business, (ii) pursuant to contracts disclosed to Parent and in effect on the date of the merger agreement, (iii) pursuant to transactions solely among Sevcon and its subsidiaries or between its subsidiaries or (iv) with respect to the acquisition of assets, the making of permitted capital expenditures;

 

    Sell, lease, exchange, mortgage, pledge, transfer, subject to any lien or otherwise dispose of any corporation, partnership or other business organization or division thereof or any material assets, other than (i) sales, leases, exchanges or other dispositions of inventory and other assets in the ordinary course of business, (ii) grants of permitted liens, (iii) pursuant to transactions solely among Sevcon and its subsidiaries or between its subsidiaries or (iv) pursuant to contracts disclosed to Parent and in effect on the date of the merger agreement;

 

    Enter into any joint venture or partnership;

 

    Make any loans, advances or capital contributions to, or investments in, any other person (other than Sevcon or a Sevcon subsidiary), other than trade credit and similar loans and advances made to customers and suppliers pursuant to written contracts in the ordinary course of business, consistent with past practice;

 

    Incur any additional indebtedness for borrowed money other than (i) for additional indebtedness for borrowed money (in excess of amounts outstanding as of the date of the merger agreement) pursuant to the term loan agreement between the Company and FrontFour Capital Group, LLC, dated as of May 22, 2017, which we refer to as the FrontFour term loan, in an aggregate amount outstanding at any time not in excess of the availability as of the date of the merger agreement pursuant to the FrontFour term loan or (ii) trade credit or similar loans or advances in the ordinary course of business (to the extent they would be deemed to be indebtedness for borrowed money);

 

    Assume, guarantee, endorse or otherwise become liable or responsible for the indebtedness for borrowed money of any person other than Sevcon or its subsidiaries;

 

   

Subject to certain exceptions, and except to the extent required by law, or the terms of any employee benefit plan, (i) increase the compensation or benefits of any current or former director or officer or increase the compensation or benefits of any current or former employee (who is not a current or

 

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former director or officer) except for such increase to employees who are not directors or officers which are in the ordinary course of business consistent with past practice and in an amount that does not exceed $20,000 individually or $350,000 in the aggregate, (ii) establish, amend, terminate or adopt any compensation or benefit plan, (iii) accelerate the vesting of, or the lapsing of restrictions with respect to, any Sevcon equity award, (iv) fail to make any required contributions under any employee benefit plan or (v) terminate, other than for cause, the employment, or enter into or modify the contractual relationship of, any director or officer or employee with an annual base salary in excess of $125,000, or (vi) hire any individual except for new hires filling positions that were open as of the date of the merger agreement, or replacing persons who left the employ of Sevcon in the ordinary course of business after the date of the merger agreement, provided, that in each case, the annual base salary for such hire shall not exceed that of the person he or she replaced or $100,000;

 

    Make any changes with respect to its method of financial accounting, except as required by law or GAAP, change its fiscal year or make any material change in internal accounting controls and or disclosure controls or procedures that would reasonably be expected to negatively affect Sevcon or any Sevcon subsidiary;

 

    Settle or compromise, or propose to settle or compromise, any action before a governmental entity; provided, that Sevcon and any Sevcon subsidiary may at any time, without Parent’s consent, settle warranty or product liability claims received in the ordinary course of business in a manner and amounts that is consistent with past practice or any other claim received in the ordinary course of business solely for the monetary damages not to exceed $25,000, (so long as such settlement (i) does not involve any finding or admission of any violation of law or any violation of the rights of any person by Sevcon or any Sevcon subsidiary, (ii) does not disparage Parent, Merger Sub, Sevcon, the surviving corporation, any of their respective affiliates or any of their respective businesses, (iii) involves only the payment of money damages and does not impose an injunction or other equitable relief upon Parent, Merger Sub, Sevcon, the surviving corporation, any of their respective affiliates or any of their respective businesses, (iv) completely, finally and unconditionally releases Sevcon and any Sevcon subsidiary in connection with such action, and (v) does not or would not reasonably be expected to otherwise adversely affect Parent, Merger Sub, Sevcon, the surviving corporation, any of their respective affiliates or any of their respective businesses in any material respect);

 

    Other than non-exclusive licenses embedded in products sold in the ordinary course of business, enter into any agreement, arrangement or commitment to grant a license of material owned intellectual property to any other person that is not Sevcon or a Sevcon subsidiary;

 

    Dispose of or permit to lapse any ownership or right to use, or fail to maintain registration of any material owned intellectual property;

 

    Waive, extend, renew or enter into any non-compete, most favored nation, exclusivity, non-solicitation or similar contract that (i) would, following the closing, apply such a restriction to Parent or any of its subsidiaries (other than Sevcon and its subsidiaries) or (ii) would restrict or limit, in any material respect, the freedom of Sevcon and its subsidiaries in conducting their operations or business after the closing of the merger;

 

    Effectuate a “plant closing” or “mass layoff”, as those terms are defined in the Workers Adjustment and Retraining Notification Act;

 

    Create any subsidiary;

 

    Enter into any new line of business;

 

    Enter into, amend or modify any union recognition agreement, collective bargaining agreement or similar agreement with any trade union or representative body of Sevcon or any Sevcon subsidiary, or, except to the extent required by applicable law, enter into negotiations regarding any such agreement;

 

    Sell, pledge, dispose of or encumber any owned real property other than, in the case of pledges and encumbrances, for liens permitted under the merger agreement; or

 

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    Agree to, authorize, or enter into any contract obligating it to take any of the actions described in any of the bullet points above.

Except as required by applicable law or a governmental entity or set forth in the disclosure letter that we delivered in connection with the merger agreement, or with prior written approval by Parent (which cannot be unreasonably withheld, conditioned or delayed), we will not, and we will not cause our subsidiaries to:

 

    Authorize, or make any binding commitment with respect to, any capital expenditure, other than (i) capital expenditures that are set forth in the most recent version of Sevcon’s budget made available to Parent prior to the date of the merger agreement, (ii) additional capital expenditures not in excess of $100,000 in the aggregate or (iii) capital expenditures that are reasonably necessary in response to operational emergencies, equipment failures or outages so long as the aggregate amount of such expenditures does not exceed a further $100,000;

 

    Engage in any transactions or agreements with any person that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act;

 

    (i) On any material tax return change any election or adopt any method of tax accounting, in either case in a manner that is materially inconsistent with positions taken or elections made in preparing or filing any similar tax returns in prior periods, (ii) settle or compromise any material tax liability or refund in a manner that is materially inconsistent with past practice, (iii) file any amended tax return involving a material amount of taxes, or (iv) waive or extend the statute of limitations in respect of material taxes;

 

    Terminate (other than a termination in accordance with its terms) or materially amend or materially modify (in a manner adverse to Sevcon and its subsidiaries) any material contract, or real property lease or contract that would be a material contract or real property lease if in effect on the date of the merger agreement; or

 

    Agree to, authorize, or enter into any contract obligating it to take any of the actions described in any of the bullet points above.

The merger agreement is not intended to give Parent or Merger Sub, directly or indirectly, the right to control or direct our or our subsidiaries’ operations prior to the effective time of the merger, or to give us, directly or indirectly, the right to control or direct Parent’s or its subsidiaries’ operations. Prior to the effective time of the merger, each of Parent and us will exercise, consistent with the terms and conditions of the merger agreement, complete control and supervision over our and our subsidiaries’ respective operations.

Solicitation of Acquisition Proposals; Board Recommendation Changes

Except as permitted by the terms of the merger agreement described below, we have agreed in the merger agreement that neither the Board nor a committee of the Board will:

 

    Fail to include a recommendation in favor of the merger agreement and the charter amendment, or the Board’s determination that the merger agreement, the merger and the charter amendment are fair to and in the best interests of Sevcon and its stockholders (other than Parent and its subsidiaries), in Sevcon’s proxy statement;

 

    Withhold, withdraw or adversely qualify or modify its recommendation in favor of the merger agreement and the charter amendment, or the Board’s determination that the merger agreement, the merger and the charter amendment are fair to and in the best interests of Sevcon and its stockholders (other than Parent and its subsidiaries), or publicly propose to do so;

 

    Make any recommendation in connection with a tender offer or exchange offer for Sevcon shares, other than a recommendation against such offer or a “stop, look and listen” communication by the Board (as contemplated under the Exchange Act);

 

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    Fail to recommend against acceptance of a tender or exchange offer, including by taking no position with respect to acceptance of such tender or exchange offer, within the earlier of ten business days after the offer is commenced and three business days before the date of the stockholder’s meeting to approve the merger;

 

    Adopt, approve, recommend to the stockholders, endorse or otherwise declare advisable any acquisition proposal or publicly propose to take any such actions;

 

    Fail to publicly reaffirm Sevcon’s recommendation in favor of the merger and the charter amendment within the earlier of (i) five business days and (ii) three business days prior to Sevcon stockholder meeting, in each case following receipt of a written notice from Parent, delivered after the public announcement of an acquisition proposal, which notice requests such reaffirmation (provided that Parent is entitled to make such a written request only twice for each such acquisition proposal, except to the extent there are material developments or changes with respect to Sevcon or its subsidiaries or relating to such acquisition proposal) (any of the actions described in this and the preceding bullets are referred to in this proxy statement as an adverse recommendation change); or

 

    Subject to certain limited exceptions described below, cause or permit Sevcon to enter into any alternative acquisition agreement relating to any acquisition proposal.

No-Shop Provisions

From the time of the execution of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, we, our subsidiaries and the officers or directors of us or our subsidiaries may not, and we have agreed to use reasonable best efforts to cause our and our subsidiaries’ other representatives not to, directly or indirectly through third parties:

 

    Solicit, initiate or knowingly encourage, or knowingly induce or facilitate the making, submission or announcement of any inquiries or the making of any proposal or offer constituting or that would reasonably be expected to lead to an acquisition proposal, which we refer to as a possible acquisition proposal;

 

    Make available non-public information regarding Sevcon or any of its subsidiaries to any person in connection with or in response to an acquisition proposal or possible acquisition proposal;

 

    Engage in discussions or negotiations with any person with respect to any acquisition proposal or any possible acquisition proposal (other than to state that they are not currently permitted to have discussions);

 

    Enter into any letter of intent or agreement in principle or any contract concerning any acquisition proposal or any possible acquisition proposal (other than an acceptable confidentiality agreement); or

 

    Reimburse or agree to reimburse the expenses of any other person (other than Sevcon’s representatives) in connection with an acquisition proposal or any possible acquisition proposal.

The merger agreement also provides that any action taken or not taken by any representative of Sevcon or any of its subsidiaries at the express or implied direction of Sevcon that, if taken or not taken by Sevcon, would constitute a breach of the provisions of the merger agreement described in this section “Solicitation of Acquisition Proposals; Board Recommendation Changes”, will be deemed a breach of the merger agreement by Sevcon.

 

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No-Shop Exceptions; Permitted Adverse Recommendation Changes and Permitted Termination to Enter into a Superior Proposal

At any time prior to the time our stockholders adopt the merger agreement, Sevcon may take the following actions if our Board determines in good faith (after consultation with outside legal counsel) that failure to take any of the following actions would be inconsistent with the directors’ fiduciary duties under applicable law:

 

    Make available information regarding Sevcon and its subsidiaries to a person who has made an unsolicited bona fide written acquisition proposal after the date of the merger agreement that did not result from a breach of the no-shop and other applicable provisions of the merger agreement and that the Board determines in good faith (after consultation with its financial advisor and outside legal counsel) either constitutes a superior proposal or would reasonably be expected to lead to a superior proposal if, prior to providing such information, we receive from that person an executed confidentiality agreement on terms that, taken as a whole, are not materially less restrictive to the other party than those contained in the confidentiality agreement between Sevcon and Parent, it being understood that such confidentiality agreement need not contain a standstill or otherwise prohibit the making, or amendment, of an acquisition proposal; provided that any non-public information made available to any such person will have been previously made available to Parent or shall be made available to Parent prior to, concurrently with or within 24 hours after the time it is provided or made available to such person. Sevcon and its subsidiaries are required to, and to cause their representatives to, cease the activities described in this bullet point promptly following the time that the Board determines in good faith (after consultation with its financial advisor and outside counsel) that the applicable acquisition proposal has ceased to be a superior proposal and has ceased to be an acquisition proposal that would reasonably be expected to lead to a superior proposal;

 

    Participate in any discussions or negotiations with any person who has made such an unsolicited bona fide acquisition proposal that did not result from a breach of the no-shop and other applicable provisions of the merger agreement and that the Board determines in good faith (after consultation with its financial advisors and outside legal counsel) either constitutes a superior proposal or would reasonably be expected to lead to a superior proposal. Sevcon and its subsidiaries are required to, and to cause their representatives to, cease the activities described in this bullet point promptly following the time that the Board determines in good faith (after consultation with its financial advisor and outside counsel) that the applicable acquisition proposal has ceased to be a superior proposal and has ceased to be an acquisition proposal that would reasonably be expected to lead to a superior proposal;

 

    Terminate, waive or amend or release a counterparty from, modify or fail to enforce, standstills and confidentiality agreements, provided that Sevcon notifies Parent within 24 hours after executing any such release or waiver;

 

    Make an adverse recommendation change, or cause Sevcon to terminate the merger agreement, pay the applicable termination fee to Parent and enter into an alternative acquisition agreement with respect to an acquisition proposal, in each case if (i) an acquisition proposal is made that did not result from a breach of the no-shop and other applicable provisions of the merger agreement and that the Board determines in good faith (after consultation with its financial advisors and outside legal counsel) constitutes a superior proposal and (ii) Sevcon has complied with its match right obligations, which are described below; and

 

    Make an adverse recommendation change with respect to an intervening event if (i) the Board determines in good faith (after consultation with its outside counsel) that failure to make an adverse recommendation change with respect to the intervening event would be inconsistent with the directors’ fiduciary duties under applicable law and (ii) Sevcon has complied with its match right obligations, which are described below.

 

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Match Rights

Prior to effecting an adverse recommendation change or terminating the merger agreement to enter into a superior proposal as described above:

 

    Sevcon must provide Parent at least three (3) business days’ notice of its intention to effect such adverse recommendation change or to terminate the merger agreement, including in response to an intervening event. The notice must state that Sevcon has received a superior proposal, or that an intervening event has occurred, and in the case of (i) a superior proposal, specify the material terms and conditions of such proposal, identify the person making such proposal, and enclose the most recent draft of any agreements intended to be entered into with the person making or providing the superior proposal (or any affiliate of such person), or (ii) an intervening event, provide a reasonably detailed description of the intervening event;

 

    To the extent the Parent has requested, Sevcon will and will cause its representatives to negotiate in good faith, during the three business days following delivery of the notice described above, with Parent any revisions to the terms and conditions of the merger agreement Parent proposes in response to the superior proposal or intervening event, as applicable; and

 

    The Board must have determined, after complying with the two requirements above, (i) in the case of a superior proposal, that the other acquisition proposal continues to constitute a superior proposal, and that in the case of a superior proposal or intervening event, the failure to make an adverse recommendation change with respect to the other acquisition proposal or intervening event or enter into an alternative acquisition agreement with respect to the other acquisition proposal continues to be inconsistent with the directors’ fiduciary duties under applicable law, in each case after giving due consideration to any changes proposed to be made to the merger agreement by Parent in a signed writing that is binding and irrevocable.

In the event the other acquisition proposal is materially modified by the party making such acquisition proposal after Sevcon notifies Parent of such acquisition proposal in the manner described above, Sevcon must notify Parent in writing of such modification and must again comply with the requirements noted above, except that the Parent’s negotiation period would thereafter be the longer of two business days and the period, if any, remaining on the original three-business day negotiation period.

Nothing in the no-shop provisions of the merger agreement is deemed to prevent us or the Board from complying with our or their disclosure obligations under U.S. federal or state law with regard to an acquisition proposal, including taking and disclosing to our stockholders a position contemplated by Rules 14d-9 or 14e-2(a) under the Exchange Act or making any “stop, look and listen” communication of the type contemplated by Rule 14d-9(f) under the Exchange Act to our stockholders; provided that no adverse recommendation change may be made except as provided above.

In this proxy statement, an “acquisition proposal” means: any proposal or offer (whether or not in writing) with respect to any (i) merger, consolidation, share exchange, other business combination or similar transaction involving Sevcon, (ii) sale, lease, contribution or other disposition, directly or indirectly (including by way of merger, consolidation, share exchange, other business combination, partnership, joint venture, sale of capital stock of or other equity interests in a subsidiary of Sevcon or otherwise) of any business or assets of Sevcon or any of its subsidiaries representing 15% or more of the consolidated revenues, net income or assets of Sevcon and its subsidiaries, taken as a whole, (iii) issuance, sale or other disposition, directly or indirectly, to any person (or the stockholders of any person) or group of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 15% or more of the voting power of Sevcon, (iv) transaction in which the holders of the voting power of Sevcon immediately prior to such transaction own 85% or less of the voting power of Sevcon immediately following the transaction, (v) transaction in which any person (or the stockholders of any person) shall acquire, directly or indirectly, beneficial ownership, or the right to acquire beneficial ownership, or formation of any group which beneficially owns or has the right to acquire

 

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beneficial ownership of, 15% or more of our common shares, preferred shares and warrants (taken together on a fully-diluted basis) or (vi) any combination of the foregoing (in each case, other than the merger).

In this proxy statement, an “intervening event” means an event or circumstance that is material to Sevcon and its subsidiaries (taken as a whole) first arising after the execution and delivery of the merger agreement and prior to the time our stockholders adopt the merger agreement and that was not known to or reasonably foreseeable by the Board prior to the execution and delivery of the merger agreement, which event or circumstance becomes known to the Board after the execution and delivery of the merger agreement by Sevcon and prior to the time our stockholders adopt the merger agreement; provided, however, that in no event shall any of the following events or circumstances constitute an intervening event: (i) the receipt, existence or terms of an acquisition proposal or any matter relating thereto or consequence thereof; (ii) any other matter relating to the merger agreement, the merger or the charter amendment, including events or developments relating to the seeking of Sevcon stockholder approval; (iii) events or circumstances related to Parent or Merger Sub or any of their affiliates; or (iv) any change in the trading price or trading volume of Sevcon’s securities on any national securities exchange or other trading market (provided that the exception in clause (iv) shall not prevent or otherwise affect the event or circumstance underlying such change from being taken into account).

In this proxy statement, a “superior proposal” means: any bona fide written offer made by a third party or group pursuant to which such third party or group would acquire, directly or indirectly, more than 50% of each of the then outstanding common shares, preferred shares and warrants or more than 50% of the assets of Sevcon and its subsidiaries, taken as a whole, on terms which the Board determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation), taking into account all factors the Board considers relevant, including financial, regulatory, legal and other aspects of such acquisition proposal (and any changes proposed by Parent to the terms of the merger agreement in a signed writing), is more favorable to holders of Sevcon shares than the merger from a financial point of view.

Stockholders Meeting

We are required to duly call, give notice of, convene and hold a meeting of our stockholders to vote on the adoption of the merger agreement. Except as noted in the following sentence, we are required to convene and hold the stockholders meeting within 25 business days following clearance from the SEC. We may not postpone or adjourn the stockholders meeting without the prior written consent of Parent, other than for any postponements or adjournments (i) required by the SEC or the order of a court of competent jurisdiction, (ii) that are otherwise required by law or to allow reasonable additional time for any supplemental or amended disclosure if the Board has determined in good faith after consultation with outside counsel that the failure to take such action would be inconsistent with its fiduciary duties under applicable law and then only for the minimum time as the Board has determined in good faith after consultation with outside counsel is reasonably necessary to give stockholders of Sevcon the required time to evaluate any application information or disclosure, or (iii) of not more than seven days in the event of a failure of a quorum to be present on the date scheduled for such meeting or if Sevcon determines in good faith that a postponement or adjournment is necessary or appropriate in order to obtain sufficient votes to obtain the stockholder approval of the merger or the charter amendment. Subject to the provisions of the merger agreement discussed under “The Merger Agreement—Solicitation of Acquisition Proposals; Board Recommendation Changes” beginning on page 87, the Board will recommend that our stockholders vote to adopt the merger agreement and the charter amendment and, unless there has been an adverse recommendation change, Sevcon will include its recommendation in the proxy statement, and use reasonable best efforts to solicit the adoption of the merger agreement. Sevcon has also agreed not to include in the proxy statement any proposal to vote upon or consider any acquisition proposal other than the merger, the merger agreement or the Charter Amendment.

Filings; Other Actions; Notification

We and Parent will cooperate with each other and use (and cause our respective subsidiaries to use) our respective reasonable best efforts to take or cause to be taken all actions and do or cause to be done all things

 

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necessary, proper or advisable under applicable law to consummate the merger and the charter amendment as soon as reasonably practicable.

We and Parent have agreed to make, if required, appropriate filings under any antitrust law as promptly as reasonably practicable.

We and Parent have also agreed to provide to every federal, state, local or foreign court with jurisdiction over enforcement of any applicable antitrust law all non-privileged information and documents requested by such entity that are necessary, proper or advisable to permit the consummation of the transactions contemplated by the merger agreement or charter amendment.

In connection with the efforts to obtain all requisite approvals and authorizations for the transactions under any antitrust law, we, Parent and Merger Sub have agreed to use our respective reasonable best efforts to, among other things:

 

    Reasonably cooperate in all respects with each other in connection with any filing or submission to and in connection with any investigation or other inquiry by a governmental entity;

 

    Keep each other reasonably informed of the status of any notice, approval, investigation or inquiry under antitrust law, or any other material investigation or other inquiry by a governmental entity, relating to the completion of the merger; and

 

    Permit each other a reasonable opportunity to review and comment on any substantive written communication to be given to a governmental entity in connection with the matters that are the subject of the merger agreement and to have such comments considered in good faith.

Neither Sevcon nor Parent will permit any of its officers or any other representatives to participate in any meeting or substantive telephone discussion with any governmental entity in respect of any filings, investigation or other inquiry with respect to the merger or the charter amendment or other transactions contemplated by the merger agreement unless to the extent practicable (i) it consults with the other party in advance, and (ii) to the extent permitted by such governmental entity, gives the other party the opportunity to attend and participate.

 

    Parent has also agreed to the prompt use of its reasonable best efforts to avoid the entry of any permanent, preliminary or temporary injunction or other order, decree, decision, determination or judgment under antitrust laws that would delay, restrain, prevent, enjoin or otherwise prohibit consummation of the transactions contemplated by the merger agreement, including the defense through litigation on the merits of any claim asserted in any court, agency or other proceeding by any person under antitrust laws, including any government entity, that seeks to delay, restrain, prevent, enjoin or otherwise prohibit the consummation of the transactions contemplated by the merger agreement; and

 

    We and Parent have also agreed to the prompt use of our respective reasonable best efforts to take, in the event that any permanent, preliminary or temporary injunction, decision, order, judgment, determination or decree under antitrust laws is entered, issued or enacted, or becomes reasonably foreseeable to be entered, issued or enacted, in any proceeding, review or inquiry of any kind that would make consummation of the transactions contemplated by the merger agreement in accordance with the terms of the merger agreement unlawful or that would delay, restrain, prevent, enjoin or otherwise prohibit consummation of the transactions contemplated by the merger agreement, any and all steps necessary to resist, vacate, modify, reverse, suspend, prevent, eliminate, avoid or remove such actual, anticipated or threatened injunction, decision, order, judgment, determination, decree or enactment so as to permit such consummation on a schedule as close as possible to that contemplated by the merger agreement.

Except as provided in the paragraph directly below, the forgoing efforts do not require Parent or any of its subsidiaries to, in connection with any antitrust law or pursuant to the request or order of any government

 

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antitrust entity, (i) proffer to, agree to or become subject to any order, judgment or decree to sell, license or dispose of or hold separate, before or after the closing of the merger, any assets, businesses, product lines or interest in any assets or businesses of Parent or any of its affiliates or Sevcon or any of its subsidiaries, or to consent to any sale, license, or disposition, or agreement to sell, license or dispose, by Sevcon or any of its subsidiaries, of any of their assets or businesses or product lines, (ii) proffer to, agree to, or become subject to any order, judgment or decree to make or accept, any changes, modifications, limitations or restrictions in the operations of any assets or businesses of Parent or Sevcon or any of their respective subsidiaries, or (iii) proffer to or agree to any new concession, accommodation or liability.

Parent is required to consent to the sale, license, disposition, holding separate of, or an agreement to sell, license, dispose of or hold separate, assets of Sevcon and Sevcon’s subsidiaries or any changes, modifications, limitations or restrictions in the operations of any assets or businesses of Sevcon or any of Sevcon’s subsidiaries or any concession, accommodation or liability, solely with respect to the assets, businesses or product lines (or interests therein), or operations, of Sevcon and its subsidiaries, to the extent that (i) such sale, license, disposition, holding separate, change, modification, limitation, restriction, concession, accommodation or other matter or agreement to sell, license, dispose of, hold separate, modify, limit, restrict, make a concession or accommodation or incur a liability, or other matter, is required by a government antitrust entity in order to obtain any consent or approval under any applicable antitrust law and (ii) such sale, license, disposition, holding separate or agreement to sell, license, dispose of, hold separate, change, modification, limitation, restriction, concession, accommodation, liability or other matter (or agreement to do any of the foregoing), taken together with all other such sales, licenses, dispositions, holdings separate, changes, modifications, limitations, restrictions, concessions, accommodations, liabilities or other matters (and agreements to do any of the foregoing) Parent and its subsidiaries have agreed or become subject to, would not materially diminish the value of Sevcon and its subsidiaries taken as a whole.

Neither Sevcon nor any of its subsidiaries are permitted to proffer to, agree to or become subject to any of the items described in the paragraph above without the prior written consent of Parent, and none of Sevcon and its subsidiaries are required to agree to any of the items described in the preceding paragraph that is not conditioned on the occurrence of the effective time of the merger.

Sevcon, Parent and Merger Sub have also agreed that in the event any “moratorium,” “control share acquisition,” “fair price,” “business combination” or other similar state anti-takeover laws and regulations are or become applicable to the merger or other transactions contemplated by the merger agreement, they will take all actions reasonably necessary to permit the consummation of the merger and other transactions contemplated by the merger agreement, and otherwise act reasonably to eliminate or minimize the effect of such laws on the merger and such other transactions.

Other Efforts

In the event that Parent notifies Sevcon at least ten (10) ten business days prior to the effective time of the merger that Parent has determined to repay amounts outstanding under certain credit agreements that Sevcon has entered into with creditors or other outstanding indebtedness for borrowed money, Sevcon will, at Parent’s request and sole cost, use commercially reasonable efforts to obtain customary payoff letters and instruments of discharge providing for the payoff, discharge and termination in full of all obligations under, and the release of all liens made in connection with, such credit agreement or other indebtedness for borrowed money. Parent is required to provide the funds needed to repay such debt and has agreed to indemnify and hold harmless Sevcon, its subsidiaries and its representatives from and against any damages or losses incurred by Sevcon as a result of or in connection with the performance of such obligations.

We have agreed to use our reasonable best efforts to obtain all necessary consents, approvals or waivers in connection with the merger and charter amendment from third parties in connection with any contracts to which Sevcon is bound or any permits necessary for Sevcon to own, lease, operate or use its properties and carry on its business as conducted as of the date of the merger agreement.

 

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We have agreed that, from the date of the merger agreement until the earlier of the effective time of the merger and the termination of the merger agreement, we will use our reasonable best efforts to provide Parent, Merger Sub and their respective representatives with reasonable access to our and our subsidiaries’ officers, employees, properties, offices, other facilities and books and records and to provide Parent, Merger Sub and their respective representatives with financial, operating and other data and information, in each case subject to certain conditions and exceptions.

Financing

Parent’s and Merger Sub’s obligation under the merger agreement are not subject to the availability of any financing.

Parent and Merger Sub have represented to Sevcon in the merger agreement that they had available to them on the date of the merger agreement (through a combination of cash on hand and committed financing), and will have available to them, in cash, at the effective time for the merger and at the closing of the merger, all funds necessary (i) for the payment to the paying agent in cash of the aggregate per common share merger consideration and the per preferred share merger consideration and (ii) to satisfy all of their other obligations under the merger agreement.

Transaction Litigation

The merger agreement requires that Sevcon provide Parent with prompt notice of and copies of all proceedings and correspondence relating to any action against Sevcon, any of its subsidiaries or any of their respective directors or officers by any stockholder or other securityholder of Sevcon arising out of or relating to the merger agreement, the merger or the other transactions contemplated by the merger agreement. Sevcon will give Parent the opportunity to participate in the defense or settlement of any such action, will give due consideration to Parent’s advice with respect to such action and will not settle or offer to settle any such action without the prior written consent of Parent, provided that Sevcon may at any time, without Parent’s consent, settle such actions pursuant to settlements providing solely for (i) money damages and the payment of attorney’s fees in an aggregate amount (together with all other settlements entered in connection with transaction litigation) not in excess of amounts equal to the dollar amount of the limits of the directors’ and officers’ insurance policies of Sevcon and/or (ii) providing additional disclosure in the proxy statement that does not disparage Parent, Merger Sub, Sevcon, the surviving corporation, any of their respective affiliates or any of their respective businesses.

Employee Benefits Matters

The merger agreement provides that during the continuation period, each continuing employee, will receive (i) at least the same base salary, wage rate and cash incentive compensation opportunity as those provided to such continuing employee immediately before the effective time of the merger, (ii) employee benefits that are no less favorable in the aggregate (including with respect to the proportion of employee cost) than the employee benefits (excluding long term equity incentive opportunities and any defined benefit pension plan) provided to such continuing employee immediately before the effective time of the merger, and (iii) long-term equity incentive opportunities that are no less favorable than those provided to similarly situated employees of Parent or its subsidiaries. Each continuing employee who incurs a termination of employment during the continuation period will receive severance payments and benefits that are no less favorable than the severance payments and benefits that such continuing employee was eligible to receive under any applicable severance plan, policy, practice or arrangement sponsored or maintained by Sevcon or its subsidiaries in accordance with the terms of such arrangement as in effect immediately before the date of the merger agreement or, if greater, the severance payments and benefits that are provided to similarly situated employees of the Parent and its subsidiaries at the time of such termination; and

The merger agreement further provides that, each continuing employee will receive credit for service with Sevcon or its subsidiaries to the extent such service would be recognized if it had been performed as an employee

 

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of Parent for all purposes (including eligibility, vesting and determination of the level of benefits but not for any purpose with respect to defined benefit pension plans or other plans providing for post-employment benefits) under any employee benefit plans maintained by Parent, its subsidiaries or the surviving company in which the continuing employee participates, except where such credit would result in a duplication of benefits.

In addition, each continuing employee will be immediately eligible to participate, without any waiting time, in all employee benefit plans maintained by Parent or its subsidiaries (other than any defined benefit pension plans) to the extent coverage under such plans is replacing comparable coverage under an employee benefit plan in which such continuing employee participated immediately before the effective time of the merger. No continuing employee will be retroactively eligible for any employee benefit plan maintained by Parent or any of its subsidiaries, including any such employee benefit plan that was frozen prior to the effective time of the merger. For purposes of each such employee benefit plan providing medical, dental, pharmaceutical and/or vision benefits to any continuing employee, Parent or its subsidiaries will use commercially reasonable efforts to cause (i) all pre-existing condition exclusions and actively-at-work requirements to be waived for continuing employees and their covered dependents, to the extent that such conditions were inapplicable or waived under comparable employee benefit plans of Sevcon or any of its subsidiaries in which such continuing employees participated immediately prior to the effective time of the merger and (ii) for purposes of satisfying deductible, coinsurance and maximum out-of-pocket requirements applicable to continuing employees and their dependents participating in employee benefit plans of Parent or its subsidiaries, eligible expenses incurred by any continuing employee and his or her covered dependents during the portion of the plan year that such continuing employee was participating in employee benefit plans of Sevcon or any of its subsidiaries, will be taken into account under the corresponding employee benefit plan of Parent and its subsidiaries.

The merger agreement further provides that, from and after the effective time, Parent will cause the surviving corporation and its subsidiaries to honor, in accordance with their terms, all of the employee benefit plans, agreements, programs, payroll practices, policies or other arrangements in which current or former employees, directors and consultants have a right to current or future benefits or pursuant to which Sevcon or any of its subsidiaries have liability, in each case, which have been disclosed to Parent; however, the surviving corporation may amend or terminate any such plan in accordance with its terms.

Conditions to the Merger

The respective obligations of Sevcon, Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver at or prior to the closing of the merger of the following conditions:

 

    The merger agreement must have been duly adopted by holders of at least a majority of the outstanding shares of Sevcon common stock entitled to vote thereon, which we refer to as the stockholder merger approval condition;

 

    The approval of the Austrian Federal Competition Authority must have been obtained and remain in full force and effect; and

 

    No governmental entity of competent jurisdiction may have enacted, issued, promulgated, enforced or entered any law (whether temporary, preliminary or permanent) that is in effect that restrains or enjoins, or otherwise prohibits or makes illegal, the consummation of the merger.

The obligations of Parent and Merger Sub to effect the merger are also subject to the satisfaction or waiver by Parent at or prior to the closing of the merger of the following additional conditions:

 

    Our representations and warranties regarding certain aspects of our capitalization must be true and correct both when made and on the closing date for the merger (except to the extent any such representation or warranty is expressly made as of an earlier date, in which case it shall only be required to be true and correct as of such earlier date), except for de minimis inaccuracies;

 

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    Our representations and warranties regarding the absence of any material adverse effect on Sevcon must be true and correct in all respects both when made and on the closing date for the merger;

 

    Certain of our representations and warranties regarding ownership of our subsidiaries, due organization, corporate power and authority and corporate approvals, the Chinese joint venture buyout agreements, absences of conflicts with our or our subsidiaries’ governing documents, disclosure of brokers and broker’s fees, inapplicability of certain anti-takeover statutes and anti-takeover provisions in our certificate of incorporation and bylaws, and receipt of a fairness opinion from Rothschild must be true and correct in all material respects when made and at and as of the closing date (except to the extent any such representation or warranty is expressly made as of an earlier date, in which case it shall only be required to be true and correct as of such earlier date);

 

    Our other representations and warranties set forth in the merger agreement, and disregarding all qualifications and exceptions relating to materiality or material adverse effect or similar qualifications, must be true and correct both when made and at and as of the closing date for the merger (except to the extent such representation or warranty is expressly made as of an earlier date, in which case it shall only be required to be true and correct as of such earlier date), except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect;

 

    Sevcon having performed or complied in all material respects with all agreements and covenants required by the merger agreement to be performed or complied with by it at or prior to the effective time of the merger;

 

    Since the date of the merger agreement, there having been no material adverse effect and there having not been and be continuing any condition, event, change, circumstance, effect, state of facts or development that, individually or in the aggregate, would reasonably be expected to have a material adverse effect;

 

    Parent having received a certificate signed by the chief executive officer of Sevcon, dated as of the closing date of the merger, certifying that all of the above conditions with respect to the representations and warranties, performance of agreements and covenants of Sevcon and absence of material adverse effect have been satisfied;

 

    No more than 10% of the shares of our common stock and Series A preferred stock (on an as if converted to common stock basis) as of immediately prior to the closing may be dissenting shares, which we refer to as the appraisal rights condition;

 

    The charter amendment must have been duly adopted by holders of at least a majority of the outstanding shares of Sevcon common stock entitled to vote thereon and a majority of the outstanding shares of Series A preferred stock entitled to vote thereon, voting as separate classes, which we refer to as the stockholder charter amendment approval condition;

 

    No governmental entity of competent jurisdiction may have enacted, issued, promulgated, enforced or entered any law (whether temporary, preliminary or permanent) that is in effect that restrains or enjoins, or otherwise prohibits or makes illegal, the consummation of the charter amendment; and

 

    Sevcon and each holder of any warrants outstanding as of the closing having entered into a warrant acknowledgement agreement and each such warrant acknowledgement agreement must be in full force and effect and may not have been amended, modified or waived in whole or in part without the prior written consent of Parent, which we refer to as the warrant condition.

Our obligation to effect the merger and the charter amendment is also subject to the satisfaction or waiver by us at or prior to the closing of the merger of the following additional conditions:

 

   

The representations and warranties of Parent and Merger Sub set forth in the merger agreement must be true and correct in all respects both when made and at and as of the closing date of the merger (except

 

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to the extent any such representation and warranty is expressly made as of an earlier date, in which case it shall only be required to be true and correct as of such earlier date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any qualification as to materiality or similar qualification set forth in the merger agreement), individually or in the aggregate, would not reasonably be expected to prevent, materially delay or impair the consummation by Parent and Merger Sub of the merger in the manner contemplated by the merger agreement;

 

    Each of Parent and Merger Sub having performed or complied in all material respects with all agreements and covenants required by the merger agreement to be performed or complied with by it at or prior to the effective time of the merger; and

 

    Our having received a certificate signed on behalf of Parent and Merger Sub by an authorized officer of each of Parent and Merger Sub, dated as of the closing date of the merger, certifying that all of the above conditions with respect to the representations and warranties and the agreement and covenant of Parent and Merger Sub have been satisfied.

The conditions to each of the parties’ obligations to complete the merger are for the sole benefit of such party and may be waived by such party in whole or in part (to the extent permitted by applicable laws).

Termination

We and Parent may, by mutual written consent, terminate the merger agreement and abandon the merger and the charter amendment at any time prior to the effective time of the merger, notwithstanding any adoption of the merger agreement or the charter amendment by our stockholders.

The merger agreement may also be terminated and the merger and charter amendment abandoned at any time prior to the effective time of the merger, notwithstanding any adoption of the merger agreement or the charter amendment by our stockholders, as follows:

 

    by either Parent or Sevcon, if:

 

    Any judgment, order, injunction, rule or decree that permanently restrains or enjoins, or otherwise permanently prohibits or makes illegal, the consummation of the merger is issued by a governmental entity of competent jurisdiction and becomes final and non-appealable, which we refer to as a government order merger termination event; provided that this termination right will not be available to a party whose breach of any covenant or agreement in the merger agreement materially contributed to the issuance of such judgment, order, injunction, rule or decree, or to such judgment, order, injunction, rule or decree becoming final and non-appealable;

 

    Our stockholders do not, upon a vote taken, adopt the merger agreement at any duly held stockholders meeting or any adjournment or postponement of such meeting ,which we refer to as a stockholder merger vote termination event; or

 

    The merger has not been consummated on or before January 14, 2018, which we refer to as an outside date termination event; provided that this termination right will not be available to any party whose breach of the merger agreement materially contributed to the failure of the merger to be consummated on or prior to January 14, 2018, which date we also refer to as the outside date.

 

    by Parent, if:

 

   

Any of the representations or warranties made by Sevcon in the merger agreement are or become untrue or inaccurate, or Sevcon breaches or fails to perform when required any of its covenants or agreements as set forth in the merger agreement, such that the condition to the closing that is related to the accuracy of the representations and warranties of Sevcon or of the condition to closing related to Sevcon’s compliance with its covenants would not be satisfied if measured at the time of such breach or failure, and such breach, untruth or inaccuracy cannot be cured, or if

 

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curable, is not cured prior to the earlier of (i) 30 days after written notice is given by Parent to us and (ii) two business days prior to the outside date, which we refer to as a Sevcon breach termination event; provided that the Parent shall not have this termination right if Parent or Merger Sub is then in material breach of any of its representations, warranties, covenants or agreements set forth in the merger agreement such that any conditions to Sevcon’s obligation to effect the closing that relate to the truth and accuracy of Parent’s and Merger Sub’s representations or compliance by Parent and Merger Sub with their covenants would not be satisfied if they were to be measured as of the time of such breach;

 

    The Board effects an adverse recommendation change, which we refer to as an adverse recommendation change termination event;

 

    Any judgment, order, injunction, rule or decree that permanently restrains or enjoins, or otherwise permanently prohibits or makes illegal, the consummation of the charter amendment is issued by a governmental entity of competent jurisdiction and becomes final and non-appealable, which we refer to as a government order charter amendment termination event;

 

    Our stockholders do not, upon a vote taken, adopt the charter amendment at any duly held stockholders meeting or any adjournment or postponement of such meeting, which we refer to as a stockholder charter amendment vote termination event, or such vote or a vote to adopt the merger agreement is not taken at any such stockholders meeting within seven days after the later of the date of the Sevcon stockholders meeting set forth in the proxy statement initially distributed to the Sevcon stockholders and the date to which the stockholders meeting is postponed or adjourned in compliance with the terms of the merger agreement as described under “The Merger Agreement—Stockholders Meeting”, which we refer to as a quorum failure termination event;

 

    If at any time on or after the earlier of (i) the date of the Sevcon stockholders meeting (subject to any adjournment or postponement thereof), and (ii) the date that is two business days prior to the outside date, Sevcon has not entered into a warrant acknowledgement agreement with each holder of any warrants outstanding if the closing were to occur at such time, which we refer to as a warrant termination event, provided that this termination right will expire ten business days after the date on which the termination right first becomes available to be exercised; or

 

    If at any time prior to the earlier of (i) after the fourteenth day following any duly held stockholders meeting held to obtain Sevcon stockholder approval and (ii) the date that is two business days prior to the outside date, the appraisal rights condition is not satisfied if the closing were to occur at such time, which we refer to as an appraisal rights termination event.

 

    by Sevcon:

 

    If any of the representations or warranties made by the Parent or Merger Sub set forth in the merger agreement are or become untrue or inaccurate, or Parent or Merger Sub breach or fail to perform when required any of their respective covenants or agreements set forth in the merger agreement, such that the condition to the closing that is related to the accuracy of the representations and warranties of the Parent or Merger Sub or of the condition to closing related to their compliance with their respective covenants would not be satisfied if measured at the time of such breach or failure, and such breach, untruth or inaccuracy cannot be cured, or if curable, is not cured prior to the earlier of (i) 30 days after we give written notice to Parent or (ii) two business days prior to the outside date, which we refer to as a Parent breach termination event; provided that we will not have this termination right if we are then in material breach of any of our representations, warranties, covenants or agreements set forth in the merger agreement such that any conditions to Parent’s and Merger Sub’s obligation to effect the closing that relate to the truth and accuracy of Sevcon’s representations or compliance by Sevcon with its covenants would not be satisfied if they were to be measured as of the time of such breach; or

 

   

At any time prior to the adoption of the merger agreement by our stockholders, to enter into an alternative acquisition agreement with respect to a superior proposal in accordance with the

 

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merger agreement, which we refer to as an alternative acquisition proposal termination event, if (i) Sevcon has notified Parent in writing that it intends to enter into such an agreement and provided the Parent opportunity to negotiate in good faith concerning any revisions to the merger agreement for the period required by the merger agreement, (ii) Sevcon, substantially concurrently with the termination of the merger agreement, enters into an alternative acquisition agreement providing for the consummation of that superior proposal (and has otherwise complied with the no-shop and other applicable requirements of the merger agreement with respect to such acquisition proposal, including the matching rights provisions) and (iii) prior to or concurrently with such termination, Sevcon pays Parent the termination fee discussed under “The Merger Agreement—Termination Fees and Expense Reimbursement—Termination Fees and Expense Reimbursement Payable by Sevcon” below.

Termination Fees and Expense Reimbursement

Termination Fees and Expense Reimbursement Payable by Sevcon

In certain circumstances, we may be required to pay Parent a termination fee or expense reimbursement amount if the merger agreement is terminated. The termination fee would be payable in the following circumstances:

 

    If (i) an acquisition proposal is made directly to Sevcon’s stockholders or is otherwise publicly disclosed or made directly to or otherwise communicated to GAMCO or their respective affiliates (and is not withdrawn at least two business days prior to the Sevcon stockholders meeting), (ii) the merger agreement is subsequently terminated by Sevcon or Parent pursuant to a stockholder merger vote termination event or by Parent pursuant to a stockholder charter amendment vote termination event, quorum failure termination event or an appraisal rights termination event (provided that more than 20% of the applicable outstanding shares of our common stock and Series A preferred stock (on an as if converted to common stock basis) as of immediately prior to the termination are dissenting shares), and (iii) concurrently with or within 12 months after the date of termination of the merger agreement: (x) Sevcon or any of its subsidiaries enters into a definitive agreement providing for the consummation of an acquisition proposal, (y) our Board or any committee of the Board recommends that Sevcon stockholders vote in favor of or tender into an acquisition proposal that (either within 12 months following the termination of the merger agreement or afterwards) is subsequently consummated or (z) any acquisition proposal is consummated;

 

    If (i) the merger agreement is terminated by Parent pursuant to a warrant termination event, (ii) prior to such termination, an acquisition proposal is made directly to Sevcon’s stockholders or is otherwise publicly disclosed (and has not been withdrawn at least two business days prior to such termination) or is made directly to or otherwise communicated to any holder of warrants for which Sevcon has not entered into a warrant acknowledgement agreement, and (iii) concurrently within 12 months after the date of any such termination of the merger agreement: (x) Sevcon or any of its subsidiaries enters into a definitive agreement providing for the consummation of an acquisition proposal, (y) our Board or any committee of the Board recommends that Sevcon stockholders vote in favor of or tender into an acquisition proposal (either within 12 months following the termination of the merger or afterwards) is subsequently consummated or (z) any acquisition proposal is consummated;

 

   

If (i) an acquisition proposal is made directly to Sevcon’s stockholders or otherwise publicly disclosed or otherwise communicated to Sevcon, the Board or any committee thereof (and is not withdrawn prior to the termination of the merger agreement), and (ii) the merger agreement is thereafter terminated by Sevcon or Parent pursuant to an outside date termination event, and at the time of such termination any of the stockholder merger approval condition, the stockholder charter amendment approval condition or the warrant condition have not been satisfied or waived, and (iii) concurrently with or within 12 months after the date of any such termination of the merger agreement, (x) Sevcon or any of its subsidiaries enters into a definitive agreement providing for the consummation of an acquisition proposal, (y) the Board recommends that Sevcon stockholders vote in favor of or tender into an acquisition proposal that

 

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(either within 12 months following the termination of the merger or afterwards) is subsequently consummated or (z) any acquisition proposal is consummated;

 

    If the merger agreement is terminated by Parent due to an adverse recommendation change termination event; or

 

    If the merger agreement is terminated by Sevcon due to an alternative acquisition proposal termination event.

In the case of the first, second and third bullets above, we must pay Parent the termination fee concurrently with the entry by Sevcon or any of its subsidiaries into an alternative acquisition agreement with respect to, or upon consummation of, an acquisition proposal meeting the conditions specified in those bullets (substituting “50%” for “15%” and “85%” in the definition of acquisition proposal), whether or not such acquisition proposal is the same acquisition proposal referred to in the first, second or third bullet above.

In the case of the fourth bullet above, we must pay Parent the termination fee no later than two business days after the date of the termination of the merger agreement.

In the case of the fifth bullet above, we must promptly pay Parent the termination fee prior to or concurrently with, and as a condition to, the termination of the merger agreement.

The termination fee is a cash amount equal to $4,800,000, except if the merger agreement has been validly terminated:

 

    By Sevcon pursuant to an alternative acquisition agreement termination event with respect to an acquisition proposal that the Board has determined is a superior proposal at or before 11:59 p.m., Chicago Time, on August 31, 2017, which time we refer to as the tier 1 fee deadline, or an acquisition proposal that is determined by the Board to be a superior proposal after the tier 1 fee deadline that reflects modifications as a result of Sevcon’s compliance with Parent’s match rights to an acquisition proposal that the Board has determined is a superior proposal at or before the tier 1 fee deadline; or

 

    By Parent pursuant to an adverse recommendation change termination event in connection with an adverse recommendation change effected by the Board in connection with an acquisition proposal that the Board has determined at or before the tier 1 fee deadline is a superior proposal (or an acquisition proposal that is determined by the Board to be a superior proposal after the tier 1 fee deadline that reflects modifications as a result of Sevcon’s compliance with Parent’s match rights to an acquisition proposal that the Board has determined is a superior proposal at or before the tier 1 fee deadline);

in which case the termination fee is a cash amount equal to $1,600,000.

The expense reimbursement amount would be payable if the merger agreement is terminated by Sevcon or Parent pursuant to the stockholder merger vote termination event or by the Parent pursuant to the stockholder charter amendment termination event, the quorum failure termination event, the appraisal rights termination event or the warrant termination event. We must promptly pay Parent the expense reimbursement amount no later than two business days after the date of the termination of the merger agreement.

The expense reimbursement amount is a cash amount equal to $2,400,000.

Expenses

All fees and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated by the merger agreement will be borne and timely paid by the party incurring such fees or expenses, whether or not the merger is consummated.

 

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Remedies

No termination of the merger agreement will relieve any party to the merger agreement of any liability resulting from any willful or intentional breach of the merger agreement, fraud, or as may arise under any voting and support agreement, director support agreement or warrant acknowledgement agreement.

Except as provided above, upon termination of the merger agreement, Parent’s right to receive the termination fee and/or the expense reimbursement amount (and any additional interest due on the termination fee amount as a result of Sevcon failing to promptly pay when due the termination fee or expense reimbursement amount) will be the sole and exclusive remedy of Parent and Merger Sub, and their respective affiliates, against Sevcon, its subsidiaries and any of Sevcon’s respective former, current or future stockholders, directors, officers, affiliates, agents or other representatives, for any loss suffered as a result of any breach of any representation, warranty, covenant or agreement in the merger agreement, or the failure of the merger or the other transactions contemplated by the merger agreement or the charter amendment to be consummated; provided, however that no termination of the merger agreement will relieve any party to the merger agreement of any liability resulting from any willful or intentional breach of the merger agreement, fraud, or as may arise under any voting and support agreement, director support agreement or warrant acknowledgement agreement.

The parties are entitled to an injunction or injunctions to prevent breaches of the merger agreement, and to enforce specifically the terms of the merger agreement without proof of actual damages.

Indemnification; Directors’ and Officers’ Insurance

From and after the effective time of the merger through the sixth anniversary of the merger, Parent and the surviving corporation will indemnify and hold harmless to the fullest extent permitted under applicable law (and Parent will, subject to repayment under certain limited circumstances, advance expenses to, to the fullest extent permitted under applicable law) our and our subsidiaries’ present and former directors and officers against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding whether civil, criminal, administrative, or investigation, arising out of or related to such director’s or officer’s service as a director or officer of Sevcon or its subsidiaries (or services performed at our or our subsidiaries’ request) at or prior to the effective time of the merger (including in connection with the merger and the other transactions contemplated by the merger agreement and the charter amendment and actions to enforce such indemnification or advancement rights), to the fullest extent permitted by law.

For a period of six years from the effective time of the merger, all rights of our directors and officers to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the effective time, and rights to advancement of expenses relating thereto now existing in favor of any director or officer of us or our subsidiaries in any of our or our subsidiaries’ organizational documents or any indemnified agreement between an officer or director and us or one of our subsidiaries, will survive the merger and continue in full force and effect. For the six-year period following the merger, such existing rights shall not be amended, repealed or otherwise modified in any manner that would adversely affect any right thereunder of any indemnified party.

We are required to (and if we are unable to do so, Parent will cause the surviving corporation to) obtain a six-year “tail” insurance policy with respect to the currently existing directors’ and officers’ liability insurance policies and fiduciary liability insurance policies. Such policy must be obtained from an insurance carrier with the same or better credit rating as our insurance carrier as of the date of the merger agreement with respect to directors’ and officers’ liability insurance and fiduciary liability insurance and must have terms, conditions, retentions and limits of liability that are at least as favorable to the insureds as our existing policies with respect to any actual or alleged error, misstatement, misleading statement, act, omission, neglect, breach of duty or any matter claimed against a director or officer of Sevcon or any of its subsidiaries by reason of him or her serving in such capacity matters that existed or occurred at or prior to the effective time of the merger. This obligation is subject to a cap of 200% of the annual premium amount we are currently paying for such insurance.

 

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If we and the surviving corporation fail to purchase such policies, then Parent has agreed to cause the surviving corporation to continue to maintain the current policies in place or to use reasonable best efforts to purchase comparable policies, in each case, for the six-year period following the effective time of the merger. Parent’s or the surviving corporation’s obligation to provide this insurance will be capped at 200% of the annual premium amount we are currently paying for such insurance. If the annual premium amount for such coverage exceeds the cap, the surviving corporation must obtain a policy with the greatest coverage available for a cost not exceeding the amount of the cap.

The present and former directors and officers of Sevcon, together with their respective heirs and legal representatives, will have the right to enforce the provisions of the merger agreement relating to their indemnification.

Amendment or Supplement

The merger agreement may be amended, modified or supplemented by the parties any time prior to the effective time of the merger, whether before or after Sevcon stockholder approval has been obtained. Any such amendment, modification or supplement must be in a writing and signed on behalf of each of the parties, and after Sevcon stockholder approval has been obtained, no amendment can be made that pursuant to applicable law would require further approval or adoption by the stockholders of Sevcon without such further approval or adoption.

 

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THE VOTING AND SUPPORT AGREEMENTS

This section describes the material terms of the voting and support agreements. The description of the voting and support agreements in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the voting and support agreements, copies of which are attached as Annex D-1 and Annex D-2 and are incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the voting and support agreements that is important to you. We encourage you to read the voting and support agreements carefully and in their entirety.

Explanatory Note Regarding the Voting and Support Agreements

The voting and support agreements and this summary of their terms are included to provide you with information regarding their terms. The representations, warranties and covenants made in the respective voting and support agreements by Meson Capital, Bassi and Parent were made solely to the parties to, and solely for the purposes of, the applicable voting and support agreement and as of specific dates and were qualified and subject to important limitations agreed to by the parties to the voting and support agreements in connection with negotiating the terms of the voting and support agreements. Investors should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts of Meson Capital, Bassi and Parent or any of their respective subsidiaries or affiliates.

Summary

On July 14, 2017, concurrently with the execution of the merger agreement, Meson Capital and Bassi entered into separate voting and support agreements with Parent, pursuant to which, among other things and subject to the terms and conditions of the voting and support agreements, Meson Capital and Bassi agreed to vote all of the shares of our common stock and Series A preferred stock beneficially owned by Meson Capital and Bassi, representing, with respect to Meson Capital, approximately 13.74% of the outstanding shares of our common stock and 1.91% of the shares of our Series A preferred stock, and with respect to Bassi approximately 10.71% of the outstanding shares of our common stock, in favor of the adoption of the merger agreement and the charter amendment and the approval of the transactions contemplated by the merger agreement, including the merger, and any other matter to be approved by the stockholders of Sevcon to facilitate such transactions, and not to vote in favor of any alternative transactions. Meson Capital and Bassi also agreed to be subject to the same restrictions on the solicitation or initiation of other acquisition proposals and on engaging in discussions regarding such proposals as are applicable to Sevcon’s representatives pursuant to the merger agreement, and certain restrictions on the transfer of shares of our common or Series A preferred stock.

In the voting and support agreements, each of Meson Capital and Bassi additionally irrevocably (until the applicable voting and support agreement is terminated) appoints Parent as their proxy to vote Meson Capital’s and Bassi’s shares, on behalf of Meson Capital and Bassi, respectively, at any annual or special meeting, or at any adjournment thereof, for the adoption of the merger agreement and the charter amendment and approval of the merger if Meson Capital or Bassi, as applicable, fails to vote (including through delivery of a proxy to vote) for the adoption of the merger agreement and the charter amendment and approval of the merger not less than two business days prior to such meeting.

The voting and support agreements terminate upon the earlier of:

 

    the closing of the merger;

 

    the termination of the merger agreement in accordance with its terms; or

 

    delivery of written notice from Meson Capital or Bassi (as the case may be) to Parent after any amendment, modification or waiver of the merger agreement that would reduce or change the form of the per common share merger consideration or per preferred share merger consideration.

 

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PROPOSAL 1: APPROVAL AND ADOPTION OF THE MERGER AGREEMENT

We are asking you to approve the proposal to approve and adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement, including the merger. For a detailed discussion of the terms and conditions of the merger agreement, see the section entitled “The Merger Agreement.” A copy of the merger agreement is attached to this proxy statement as Annex A.

Vote Required and Board Recommendation

As discussed in the section entitled “The Merger—Recommendation of the Board of Directors and Reasons for the Merger,” acting upon the recommendation of the Special Committee and after considering various factors described in such section, the Board has determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interests of Sevcon and its stockholders. The Board has unanimously approved, adopted and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, and the Board unanimously recommends that you vote “FOR” the proposal to approve and adopt the merger agreement.

Approval of this proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Sevcon common stock entitled to vote at the special meeting. Abstentions and broker non-votes, if any, will have the same effect as a vote “AGAINST” the proposal.

The Board unanimously recommends that you vote “FOR” the proposal to approve and adopt the merger agreement.

 

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PROPOSAL 2: APPROVAL AND ADOPTION OF THE CHARTER AMENDMENT

Sevcon has two classes of stock outstanding, common stock and Series A preferred stock. Each share of Series A preferred stock is convertible at the option of the holder into three shares of common stock. We are asking you to approve an amendment to our Amended and Restated Certificate of Incorporation to provide that, at the effective time of the merger, each holder of Series A preferred stock will be entitled to receive the consideration provided for in the merger agreement for each share of Series A preferred stock such holder owns. For more information about the charter amendment, see the section entitled “The Merger—The Charter Amendment” beginning on page 33.

It is a condition to Parent and Merger Sub’s obligation to close the merger that the charter amendment has been adopted by our stockholders and has become effective under the DGCL.

Required Vote

The charter amendment requires the affirmative vote of holders of a majority of each of the outstanding common stock and the outstanding Series A preferred stock, voting as separate classes. Accordingly, abstentions and broker non-votes will have the same effect as votes cast against the proposal.

The Board unanimously recommends that you vote “FOR” the proposal to approve and adopt the charter amendment.

 

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PROPOSAL 3: ADJOURNMENT OF THE SPECIAL MEETING

We are asking you to approve a proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve and adopt the merger agreement and/or the charter amendment at the time of the special meeting or if we do not have a quorum at the special meeting. If our stockholders approve the adjournment proposal, we could adjourn the special meeting and any adjourned session of the special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders that have previously returned properly executed proxies voting against adoption of the merger agreement and/or the charter amendment. Among other things, approval of the adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against adoption of the merger agreement and/or the charter amendment such that the proposal to approve and adopt the merger agreement and/or the charter amendment would be defeated, we could adjourn the special meeting without a vote on the adoption of the merger agreement and/or the charter amendment and seek to convince the holders of those shares to change their votes to votes in favor of adoption of the merger agreement and/or the charter amendment. Additionally, we may seek to adjourn the special meeting if a quorum is not present at the special meeting.

Vote Required and Board Recommendation

Approval of the proposal to approve one or more adjournments of the special meeting, whether or not a quorum is present, requires the affirmative vote of a majority of the shares of our common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting.

The Board believes that it is in the best interests of Sevcon and its stockholders to be able to adjourn the special meeting to a later date or dates if necessary or appropriate for the purpose of soliciting additional proxies in respect of the proposal to approve and adopt the merger agreement and/or the charter amendment if there are insufficient votes to approve and adopt the merger agreement and/or the charter amendment at the time of the special meeting or in the absence of a quorum.

The Board unanimously recommends that you vote “FOR” the proposal to approve one or more adjournments of the special meeting.

 

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PROPOSAL 4: ADVISORY VOTE ON MERGER-RELATED NAMED EXECUTIVE OFFICER COMPENSATION

In accordance with Section 14A of the Exchange Act, Sevcon is providing its stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be paid or become payable to the named executive officers of Sevcon in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable, the value of which is set forth under “The Merger—Quantification of Payments and Benefits of Named Execution Officers in Connection with the Merger—Golden Parachute Compensation” beginning on page 66.

For purposes of this proxy statement, our named executive officers are Matthew Boyle, President and Chief Executive Officer, and Paul N. Farquhar, Vice President and Chief Financial Officer.

The Board encourages you to carefully review the named executive officer merger-related compensation information disclosed in this proxy statement. As required by Section 14A of the Exchange Act, Sevcon is asking its stockholders to vote on the adoption of the following resolution:

“RESOLVED, that the stockholders approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Sevcon, Inc.’s named executive officers in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable, as disclosed under “The Merger—Quantification of Payments and Benefits of Named Execution Officers in Connection with the Merger—Golden Parachute Compensation,” of this proxy statement.”

Stockholders should note that this proposal is not a condition to completion of the merger, and as an advisory vote, the result will not be binding on Sevcon, the Board or Parent. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is consummated, our named executive officers will be eligible to receive the compensation that is based on or otherwise relates to the merger in accordance with the terms and conditions applicable to those payments.

Vote Required and Board Recommendation

Approval of the proposal to approve by non-binding, advisory vote, compensation that will or may become payable by Sevcon to its named executive officers in connection with the merger whether or not a quorum is present, requires the affirmative vote of a majority of the shares of common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the special meeting.

The Board unanimously recommends that you vote “FOR” the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable by Sevcon to its named executive officers in connection with the merger.

 

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MARKET PRICES AND DIVIDEND DATA

Sevcon’s common stock is listed on NASDAQ under the symbol “SEV.” As of August 15, 2017, there were 5,693,408 shares of our common stock outstanding, held by approximately 113 stockholders of record. The Series A preferred stock is not listed on any exchange.

The following table sets forth, for the indicated periods, the high and low sales prices of Sevcon’s common stock for the periods shown as reported by NASDAQ:

 

            Quarter 1      Quarter 2      Quarter 3      Quarter 4      Year  

FY 2017 (through August 18, 2017)

                 

Common stock price per share

     High      $ 9.80      $ 16.43      $ 16.61      $ 22.10      $ 22.10  
     Low      $ 8.10      $ 8.19      $ 11.31      $ 12.56      $ 8.10  

FY 2016

                 

Common stock price per share

     High      $ 10.95      $ 11.08      $ 10.48      $ 9.70      $ 11.08  
     Low      $ 9.11      $ 9.00      $ 9.04      $ 8.20      $ 8.20  

FY 2015

                 

Common stock price per share

     High      $ 9.33      $ 8.79      $ 12.94      $ 11.32      $ 12.94  
     Low      $ 6.53      $ 7.05      $ 6.74      $ 7.20      $ 6.53  

FY 2014

                 

Common stock price per share

     High      $ 9.33      $ 8.79      $ 12.94      $ 11.32      $ 12.94  
     Low      $ 6.53      $ 7.05      $ 6.74      $ 7.20      $ 6.53  

We have not paid dividends on the common stock since 2009. Since October 2014, we have paid a 4% cumulative annual dividend semi-annually on the Series A preferred stock, which has a stated value of $24 per share.

The closing price of our common stock on NASDAQ on July 14, 2017, the last trading day prior to the public announcement of the merger agreement, was $13.69 per share. On August 18, 2017, the latest practicable trading day before the printing of this proxy statement, the closing price of our common stock on NASDAQ was $21.88 per share. You are encouraged to obtain current market quotations for our common stock.

Following the merger, there will be no further market for our common stock and our stock will be delisted from NASDAQ and deregistered under the Exchange Act. As a result, following the merger and such deregistration, we will no longer file periodic reports with the SEC.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information as to the ownership of Sevcon’s common stock as of August 15, 2017, by (i) persons known to Sevcon to be the beneficial owners of more than 5% of Sevcon’s outstanding common stock, (ii) each of our directors and named executive officers, and (iii) all executive officers and directors as a group. In calculating the number and percentage of shares beneficially owned by any person, we have included shares that could be acquired by such person upon conversion of Series A preferred stock to common stock and shares issuable upon exercise of warrants. Except as specified below, the business address of each person is c/o Sevcon, Inc., 155 Northboro Road, Southborough, Massachusetts 01772.

 

Name and Address Of Beneficial Owner

   Amount
Beneficially
Owned (1)
    Percent of
Class
 

Mario J. Gabelli/GGCP, Inc. /Teton Advisors, Inc.

One Corporate Center

Rye, NY 10580-1435

     2,562,362 (2)      38.95

Ryan J. Morris/Meson Capital Partners LLC

One Sansome Street,

San Francisco, CA 94960

     1,140,873 (3)      18.85

Andrea Bassi/Bassi Holding S.r.l.

Via Mensa 3/2

48022—Lugo (RA), Italy

     675,000 (4)      11.74

Dr. Marvin G. Schorr

330 Beacon Street

Boston, MA 02116

     432,636 (5)      7.51

Glenn J. Angiolillo

     15,014 (6)      *  

Matthew Boyle

     159,265 (7)      2.78

Matthew Goldfarb

     8,000 (8)      *  

William J. Ketelhut

     45,002 (9)      *  

Walter M. Schenker

     43,893 (10)      *  

David R.A. Steadman

     49,500 (11)      *  

Paul Stump

     39,724 (12)      *  

Paul N. Farquhar

     86,548 (13)      1.52

All current executive officers and directors as a group
(11 persons)

     2,262,819 (14)      36.68

 

(1) Unless otherwise indicated, each owner has sole voting and investment power with respect to the shares listed or shares that power with his spouse.
(2)

As reported on Schedule 13D/A filed with the Securities and Exchange Commission (“SEC”) on August 17, 2017, Mr. Gabelli, GGCP, Inc. and Teton Advisers, Inc. are the ultimate beneficial owners of the shares shown, which are held in investment advisory accounts. GAMCO Asset Management, Inc., Gabelli Funds LLC, and Gabelli & Company Investment Advisers, Inc., investment advisers, are indirect subsidiaries of GGCP, Inc. with beneficial ownership as follows: (i) GAMCO Asset Management, Inc., has sole investment power with respect to 1,033,449 of such shares (17.29% of the class) and sole voting power with respect to 982,121 of such shares; its beneficial ownership includes a total of 351,648 shares of common stock issuable upon conversion of shares of Series A preferred stock and exercise of warrants; (ii) Gabelli Funds LLC, has sole investment power with respect to 728,794 of such shares (12.25% of the class) and sole voting power with respect to 15,700 of such shares, while the proxy voting committee of funds advised by Gabelli Funds LLC has sole voting power over the remainder of such shares; the beneficial ownership of Gabelli Funds LLC includes a total of 253,594 shares of common stock issuable upon conversion of shares

 

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  of Series A preferred stock and exercise of warrants; and (iii) Gabelli & Company Investment Advisers, Inc. has sole investment and voting power with respect to 2,000 of such shares. Teton Advisors, Inc., which is controlled by Mr. Gabelli, has sole voting and investment power with respect to 798,119 of such shares (13.36% of the class), including a total of 279,611 shares of common stock issuable upon conversion of shares of Series A preferred stock and exercise of warrants.
(3) Mr. Morris is a director of the Company. These parties filed Schedules 13D/A with the SEC on July 20, 2017, reporting membership in a group. The number of shares shown in the table above includes (i) 1,014 shares issuable upon conversion of Series A preferred stock that are owned directly by Mr. Morris, (ii) a total of 50,597 shares issuable upon conversion of Series A preferred stock and exercise of warrants owned by Meson Capital LP, and (iii) 307,000 shares issuable upon the exercise of warrants owned by Meson Constructive Capital LP (which has beneficial ownership of 15.35% of the class). Meson Capital Partners LLC serves as investment adviser to Meson Capital LP and Meson Constructive Capital LP, with which Meson Capital Partners LLC and Mr. Morris share voting and investment power over all such shares.
(4) Mr. Bassi is an executive officer of the Company. Includes 55,000 shares issuable upon exercise of warrants.
(5) Dr. Schorr is the founder and director emeritus of the Company. Includes 67,344 shares issuable upon conversion of Series A preferred stock. Also includes 1,800 outstanding shares and 702 shares issuable upon conversion of Series A preferred stock that are owned by Dr. Schorr’s wife, as to which he disclaims beneficial ownership.
(6) Mr. Angiolillo is a director of the Company. Includes 1,014 shares issuable upon conversion of Series A preferred stock.
(7) Mr. Boyle is Chief Executive Officer and a director of the Company. Includes 27,369 shares issuable upon conversion of Series A preferred stock. Also includes 4,000 shares that are owned by Mr. Boyle’s wife, as to which he disclaims beneficial ownership.
(8) Mr. Goldfarb is Chairman of the Company’s Board of Directors.
(9) Mr. Ketelhut is a director of the Company. Includes 7,212 shares issuable upon conversion of Series A preferred stock.
(10) Mr. Schenker is a director of the Company. Includes 1,614 shares issuable upon conversion of Series A preferred stock owned by Mr. Schenker directly and 7,500 shares issuable upon exercise of warrants that are owned by MAZ Partners LP.
(11) Mr. Steadman is a director of the Company. Includes 3,000 shares issuable upon conversion of Series A preferred stock.
(12) Mr. Stump is a director of the Company. Includes 7,224 shares issuable upon conversion of Series A preferred stock.
(13) Mr. Farquhar is Chief Financial Officer of the Company. Includes 6,978 shares issuable upon conversion of Series A preferred stock.
(14) Includes a total of 475,522 shares issuable upon conversion of Series A preferred stock and 397,000 shares issuable upon exercise of warrants.

 

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FUTURE STOCKHOLDER PROPOSALS

If the merger is consummated, we will have no public stockholders and there will be no public participation in any future meetings of stockholders of Sevcon. However, if the merger is not completed, our stockholders will continue to be entitled to attend and participate in our stockholders’ meetings.

Our stockholders may submit proposals on matters appropriate for stockholder action at meetings of our stockholder in accordance with Rule 14a-8 of the Exchange Act. To be submitted for inclusion in the proxy statement for the annual meeting of stockholders to be held on February 6, 2018, for the fiscal year ending September 30, 2017, which we refer to as the 2018 Annual Meeting, such stockholder proposals must have satisfied all applicable requirements of Rule 14a-8 and must have been received by the Secretary of the Company no later than the close of business on September 13, 2017.

Under the Company’s bylaws, in order for a stockholder to bring business before or propose director nominations at the 2018 Annual Meeting, the stockholder must give written notice to the Secretary or other specified officer of the Company no earlier than November 23, 2017, and no later than December 18, 2017, except that if notice thereof is mailed to stockholders or publicly disclosed less than 65 days in advance, the notice given by the stockholder must be received not later than the fifteenth day following the day on which the notice of such annual meeting date was mailed or public disclosure made, whichever occurs first. The notice must contain specified information about the proposed business or each nominee and the stockholder making the proposal or nomination.

Pursuant to Rule 14a-4 under the Exchange Act, we intend to retain discretionary authority to vote proxies with respect to stockholder proposals for which the proponent does not seek inclusion of the proposed matter in our proxy statement for the 2018 Annual Meeting, except in circumstances where we receive reasonable notice of the proposed matter before we send our proxy materials for the 2018 Annual Meeting, and the proponent complies with the other requirements set forth in Rule 14a-4.

OTHER MATTERS

As of the date of this proxy statement, our Board knows of no matters that will be presented for consideration at the special meeting other than as described in this proxy statement. However, if any other matter is properly presented at the special meeting, the shares represented by proxies in the form of the enclosed proxy card will be voted in the discretion of the named proxy holders.

WHERE YOU CAN FIND MORE INFORMATION

The SEC allows us to “incorporate by reference” information into this proxy statement, which means that we can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement, except for any information superseded by information in this proxy statement or incorporated by reference subsequent to the date of this proxy statement. This proxy statement incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important information about us and our financial condition and are incorporated by reference into this proxy statement.

The following Sevcon filings with the SEC are incorporated by reference:

 

    Sevcon’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016, filed with the SEC on December 23, 2016;

 

    Sevcon’s Quarterly Reports on Form 10-Q for the quarters ending December 31, 2016 and April 1 and July 1, 2017, filed with the SEC on February 14, May 16 and August 14, 2017, respectively; and

 

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    Sevcon’s Current Reports on Form 8-K filed with the SEC on November 2 and December 5, 2016 and February 13, May 24, June 8, July 10 and July 17, 2017 (other than the portions of such documents not deemed to be filed).

We also incorporate by reference into this proxy statement additional documents that we may file with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act between the date of this proxy statement and the earlier of the date of the special meeting or the termination of the merger agreement. These documents include periodic reports, such as Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as well as Current Reports on Form 8-K and proxy soliciting materials. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference herein.

You may read and copy any reports, statements or other information that we file with the SEC at the SEC’s public reference room at the following location: 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of those documents at prescribed rates by writing to the Public Reference Section of the SEC at that address. Please call the SEC at (800) SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from commercial document retrieval services and at www.sec.gov. In addition, stockholders may obtain free copies of the documents filed with the SEC by Sevcon through the Investor Relations section of our website, www.sevcon.com, and the “SEC Filings” section therein.

You may obtain any of the documents we file with the SEC, without charge, by requesting them in writing or by telephone from us at the following address:

Sevcon, Inc.

155 Northboro Road

Southborough, Massachusetts 01772

(508) 281-5522

Attn: Investor Relations

If you would like to request documents from us, please do so by September 15, 2017, to receive them before the special meeting. If you request any documents from us, we will mail them to you by first class mail, or another equally prompt method, within one business day after we receive your request. Please note that all of our documents that we file with the SEC are also promptly available through the Investor Relations section of our website, www.sevcon.com, and the “SEC Filings” section therein. The information included on our website is not incorporated by reference into this proxy statement.

If you have any questions about this proxy statement, the special meeting or the merger or need assistance with voting procedures, you should contact our proxy solicitor:

The Proxy Advisory Group, LLC

1-844-99PROXY (1-844-997-7699)

You should rely only on the information contained in this proxy statement, the appendices to this proxy statement and the documents we refer to in this proxy statement to vote on the merger. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated August 21, 2017. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date (or as of an earlier date if so indicated in this proxy statement) and the mailing of this proxy statement to stockholders does not create any implication to the contrary. This proxy statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make a proxy solicitation.

 

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Annex A

EXECUTION VERSION

 

AGREEMENT AND PLAN OF MERGER

by and among

BORGWARNER INC.,

SLADE MERGER SUB INC.

and

SEVCON, INC.

Dated as of July 14, 2017


Table of Contents

TABLE OF CONTENTS

 

         Page  
  PREAMBLE   
  RECITALS   
  ARTICLE I   
  THE MERGER   

Section 1.1

  The Merger      A-2  

Section 1.2

  Effective Time      A-2  

Section 1.3

  Closing      A-2  

Section 1.4

  Directors and Officers of the Surviving Corporation      A-2  
  ARTICLE II   
  MERGER CONSIDERATION; CONVERSION OF STOCK   

Section 2.1

  Conversion of Company Stock      A-3  

Section 2.2

  Disposition of Certificates and Book-Entry Shares      A-4  

Section 2.3

  Charter Amendment      A-8  
  ARTICLE III   
  REPRESENTATIONS AND WARRANTIES OF THE COMPANY   

Section 3.1

  Organization, Standing and Power      A-8  

Section 3.2

  Capital Stock      A-10  

Section 3.3

  Authority      A-12  

Section 3.4

  No Conflict; Consents and Approvals      A-13  

Section 3.5

  SEC Reports; Financial Statements      A-13  

Section 3.6

  No Undisclosed Liabilities      A-15  

Section 3.7

  Proxy Statement; Company Information      A-15  

Section 3.8

  Absence of Certain Changes or Events      A-16  

Section 3.9

  Litigation      A-16  

Section 3.10

  Compliance with Laws      A-16  

Section 3.11

  Benefit Plans      A-17  

Section 3.12

  Labor Matters      A-20  

Section 3.13

  Environmental Matters      A-21  

Section 3.14

  Taxes      A-22  

Section 3.15

  Contracts      A-24  

Section 3.16

  Insurance      A-26  

Section 3.17

  Properties      A-27  

Section 3.18

  Intellectual Property; Software and Information Technology Systems      A-27  

Section 3.19

  Customers and Suppliers      A-29  

Section 3.20

  Affiliate Transactions      A-29  

Section 3.21

  Hedging      A-29  

Section 3.22

  Quality and Safety of Products      A-29  

Section 3.23

  Brokers      A-29  

Section 3.24

  Takeover Statutes      A-30  

Section 3.25

  Fairness Opinion      A-30  


Table of Contents
 

TABLE OF CONTENTS

(Continued)

  
  ARTICLE IV  
  REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB      Page  

Section 4.1

  Organization, Standing and Power      A-30  

Section 4.2

  Authority      A-30  

Section 4.3

  No Conflict; Consents and Approvals      A-31  

Section 4.4

  Information in the Proxy Statement      A-31  

Section 4.5

  Ownership and Operations of Merger Sub      A-31  

Section 4.6

  Litigation      A-31  

Section 4.7

  Financing      A-32  

Section 4.8

  Vote/Approval Required      A-32  

Section 4.9

  Brokers      A-32  

Section 4.10

  Ownership of Company Shares      A-32  

Section 4.11

  Acknowledgement of No Other Representations or Warranties      A-32  
  ARTICLE V   
  COVENANTS   

Section 5.1

  Conduct of Business of the Company      A-32  

Section 5.2

  Obligations of Merger Sub and Surviving Corporation      A-36  

Section 5.3

  Acquisition Proposals      A-36  

Section 5.4

  Preparation of the Proxy Statement; Stockholders Meeting      A-41  

Section 5.5

  Access to Information; Confidentiality      A-42  

Section 5.6

  Further Action; Efforts      A-42  

Section 5.7

  Employee Benefits Matters      A-45  

Section 5.8

  Company Equity Awards      A-47  

Section 5.9

  Notification of Certain Matters      A-47  

Section 5.10

  Indemnification, Exculpation and Insurance      A-47  

Section 5.11

  Rule 16b-3      A-49  

Section 5.12

  Anti-Takeover Statutes      A-49  

Section 5.13

  Transaction Litigation      A-49  

Section 5.14

  Public Announcements; Other Statements      A-50  

Section 5.15

  Transfer Taxes      A-50  

Section 5.16

  Stock Exchange Delisting      A-50  

Section 5.17

  Warrant Acknowledgement Agreements      A-50  
  ARTICLE VI   
  CONDITIONS PRECEDENT   

Section 6.1

  Conditions to Each Party’s Obligations to Effect the Merger      A-51  

Section 6.2

  Conditions to Obligations of Parent and Merger Sub      A-51  

Section 6.3

  Conditions to Obligations of the Company      A-52  
  ARTICLE VII   
  TERMINATION, AMENDMENT AND WAIVER   

Section 7.1

  Termination      A-52  

Section 7.2

  Effect of Termination      A-54  

 

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Table of Contents
 

TABLE OF CONTENTS

(Continued)

  
         Page  

Section 7.3

  Fees and Expenses      A-54  

Section 7.4

  Amendment or Supplement      A-57  

Section 7.5

  Extension of Time; Waiver      A-57  
  ARTICLE VIII   
  GENERAL PROVISIONS   

Section 8.1

  Survival      A-57  

Section 8.2

  Notices      A-57  

Section 8.3

  Certain Definitions      A-58  

Section 8.4

  Interpretation      A-62  

Section 8.5

  Entire Agreement      A-62  

Section 8.6

  Parties in Interest      A-62  

Section 8.7

  Obligations of Parent and of the Company      A-62  

Section 8.8

  Governing Law      A-63  

Section 8.9

  Submission to Jurisdiction      A-63  

Section 8.10

  Assignment; Successors      A-63  

Section 8.11

  Enforcement      A-63  

Section 8.12

  Currency      A-64  

Section 8.13

  Severability      A-64  

Section 8.14

  Waiver of Jury Trial      A-64  

Section 8.15

  Counterparts      A-64  

Section 8.16

  Electronic Signature      A-64  

Section 8.17

  No Presumption Against Drafting Party      A-64  

Section 8.18

  Disclosure Letters      A-64  

Annex I

  Defined Terms      A-66  

Exhibit A

  Form of Amendment to the Certificate of Incorporation of the Corporation      A-69  

Exhibit B

  Form of Certificate of Incorporation of the Surviving Corporation      A-70  

Exhibit C

  Form of Warrant Acknowledgement Agreement      A-72  

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of July 14, 2017, is by and among BorgWarner Inc., a Delaware corporation (“Parent”), Slade Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”) and Sevcon, Inc., a Delaware corporation (the “Company” and together with Parent and Merger Sub, the “Parties”).

RECITALS

WHEREAS, pursuant to this Agreement, and upon the terms and subject to the conditions set forth herein, Merger Sub will be merged with and into the Company with the Company as the surviving corporation (the “Merger”), in accordance with the Delaware General Corporation Law (the “DGCL”), and each issued and outstanding share of common stock of the Company, par value $0.10 per share (each a “Common Share”) (other than Excluded Shares and other than Dissenting Shares) will be converted into the right to receive $22.00 per Common Share in cash (the “Per Common Share Merger Consideration”) and, if the Charter Amendment is enacted, each issued and outstanding share of preferred stock designated as Series A Preferred Stock of the Company, par value $0.10 per share (each a “Preferred Share”, and together with the Common Shares, each a “Company Share”) (other than Excluded Shares and other than Dissenting Shares) will be converted into the right to receive $66.00 per Preferred Share in cash (the “Per Preferred Share Merger Consideration”), in each case without interest and subject to any withholding of Taxes required by applicable Law;

WHEREAS, the board of directors of the Company (the “Company Board”) has unanimously (i) approved and declared advisable this Agreement and the Charter Amendment and the transactions contemplated by this Agreement, including the Merger, upon the terms and subject to the conditions set forth herein, and (ii) determined that this Agreement and such transactions are fair to, and in the best interests of, the Company and its stockholders (other than Parent and its Subsidiaries);

WHEREAS, the board of directors of Parent has (i) approved and declared advisable this Agreement and the Charter Amendment and the transactions contemplated by this Agreement, including the Merger, upon the terms and subject to the conditions set forth herein and (ii) determined that this Agreement and such transactions are fair to, and in the best interests of, Parent;

WHEREAS, the board of directors of Merger Sub has (i) approved and declared advisable this Agreement and the transactions contemplated by this Agreement, including the Merger, upon the terms and subject to the conditions set forth herein and (ii) determined that this Agreement and such transactions are fair to, and in the best interests of, Merger Sub;

WHEREAS, concurrently with the execution of this Agreement, (i) Meson Capital LP, Meson Constructive Capital LP and Ryan J. Morris (collectively, “Meson Group”) are entering into a Voting and Support Agreement with Parent (the “Meson Voting and Support Agreement”), (ii) Bassi Holding S.r.l ( “Bassi”) is entering into a Voting and Support Agreement with Parent (the “Bassi Voting and Support Agreement” and collectively with the Meson Voting and Support Agreement, the “Voting and Support Agreements”), and (iii) each member of the Company Board and its director emeritus (other than Ryan J. Morris, who has entered into the Meson Voting and Support Agreement) (collectively, the “Director Group”) are entering into Support Agreements with Parent (collectively, the “Director Agreements”);

WHEREAS, concurrently with the execution of this Agreement, each of the Meson Group, Bassi and each member of the Director Group that is a holder of Warrants is entering into a Warrant Acknowledgement Agreement with the Company with respect to each Warrant held by such Persons;

WHEREAS, the parties hereto wish to effect an amendment to the certificate of incorporation of the Company (the “Charter Amendment”) in the form attached hereto as Exhibit A; and

 

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WHEREAS, each of Parent, Merger Sub and the Company desires to make certain representations, warranties, covenants and agreements in connection with the Merger and Charter Amendment and also to prescribe various conditions to the Merger and Charter Amendment.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

THE MERGER

Section 1.1 The Merger.

(a) Upon the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, the Company and Merger Sub shall consummate the Merger, and as a result thereof: (i) Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease, (ii) the Company shall be the surviving corporation in the Merger and shall continue to be governed by the DGCL, and (iii) the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger, except as set forth in this Section 1.1 and in Section 1.2. The corporation surviving the Merger is sometimes hereinafter referred to as the “Surviving Corporation.” As a result of the Merger, the Surviving Corporation will be a direct or indirect Subsidiary of Parent. The Merger shall have the effects set forth in this Agreement and specified in the DGCL.

(b) At the Effective Time, (i) if the Charter Amendment is enacted, the certificate of incorporation of the Company shall be amended and restated to read as set forth on Exhibit A hereto and shall thereafter be the certificate of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law or (ii) if the Charter Amendment is not enacted, the certificate of incorporation of the Company shall be the certificate of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law. At the Effective Time, the bylaws of Merger Sub in effect immediately prior to the Effective Time, which shall comply with Section 5.10(b), shall be the bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law.

Section 1.2 Effective Time. At the Closing, Parent, Merger Sub and the Company shall cause a certificate of merger (the “Certificate of Merger”) to be duly executed and filed, in accordance with the DGCL, with the Secretary of State of the State of Delaware and shall make all other filings or recordings required in connection with the Merger. The Merger shall become effective at the time such Certificate of Merger shall have been duly filed with, and accepted by, the Secretary of State of the State of Delaware or such later date and time as is agreed upon by the Parties and specified in the Certificate of Merger (such date and time hereinafter referred to as the “Effective Time”).

Section 1.3 Closing. Upon the terms and subject to the conditions set forth in this Agreement, the closing of the Merger (the “Closing”) will take place at 10:00 a.m., Chicago time, on the third (3rd) Business Day after satisfaction or waiver of the last of the conditions set forth in Article VI (other than those conditions that by their nature may only be satisfied on the Closing Date, but subject to the satisfaction or waiver of such conditions on the Closing Date), by electronic exchange of documents and signatures, unless another time or date is agreed to in writing by the Parties hereto. The date on which the Closing actually occurs is referred to herein as the “Closing Date.”

Section 1.4 Directors and Officers of the Surviving Corporation. The directors of Merger Sub immediately prior to the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation

 

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and the officers of the Company immediately prior to the Effective Time shall, from and after the Effective Time, be the officers of the Surviving Corporation, in each case until their respective successors shall have been duly elected or appointed and qualified, or until their earlier death, resignation or removal in accordance with the Surviving Corporation’s certificate of incorporation and bylaws and applicable Laws.

ARTICLE II

MERGER CONSIDERATION; CONVERSION OF STOCK

Section 2.1 Conversion of Company Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, the Company or Merger Sub or any holder of any securities of any of the foregoing:

(a) Capital Stock of Merger Sub. Each share of common stock of Merger Sub, par value $0.10 per share, issued and outstanding immediately prior to the Effective Time shall be converted into and become one (1) validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation, par value $0.10 per share.

(b) Cancellation of Company Shares. Each outstanding or issued Applicable Company Share that is owned by Parent, Merger Sub or the Company, or by any Subsidiary of Parent, Merger Sub or the Company, immediately prior to the Effective Time (except to the extent held by any such person on behalf of a third party) (collectively, the “Excluded Shares”), shall automatically be canceled and shall cease to exist, and no cash, stock or other consideration shall be delivered or deliverable in exchange therefor.

(c) Conversion of Company Shares.

(i) Each Common Share issued and outstanding immediately prior to the Effective Time (other than Excluded Shares and Dissenting Shares) shall automatically be converted into the right to receive cash in an amount, without interest, equal to the Per Common Share Merger Consideration.

(ii) If the Charter Amendment becomes effective in accordance with Section 2.3, each Preferred Share issued and outstanding immediately prior to the Effective Time (other than Excluded Shares and Dissenting Shares) shall automatically be converted into the right to receive cash in an amount, without interest, equal to the Per Preferred Share Merger Consideration.

(iii) As of the Effective Time, all of the Applicable Company Shares referenced in subsections (i) and (ii) above shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate representing any such Company Shares (a “Certificate”) or book-entry Company Shares (“Book-Entry Shares”) (other than Dissenting Shares and Excluded Shares) shall cease to have any rights with respect to such Company Shares, except, in all cases, the right to receive, with respect to the Common Shares, the Per Common Share Merger Consideration and, if the Charter Amendment becomes effective in accordance with Section 2.3, with respect to the Preferred Shares, the Per Preferred Share Merger Consideration, in each case without interest and in accordance with Section 2.2, and each Certificate formerly representing Dissenting Shares (and each Dissenting Share that is a Book-Entry Share) shall thereafter only represent the right to receive the payment to which reference is made in Section 2.2(i). The right of any holder of any Company Share to receive either the Per Common Share Merger Consideration or the Per Preferred Share Merger Consideration, if and as applicable, shall be subject to and reduced by the amount of any withholding that is required under applicable Tax Law.

(d) Company Stock Awards. The Company and the Company Board shall take all requisite action, including adopting resolutions as are necessary to effect the transactions in this Section 2.1(d), so that:

(i) Each option outstanding immediately prior to the Effective Time to purchase Common Shares (“Company Stock Option”) under any stock option plan of the Company, including the Company’s 1996

 

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Equity Incentive Plan, as amended and restated, and any other plan, agreement or arrangement of the Company (collectively, the “Company Equity Plan”), shall, automatically and without any required action on the part of the holder thereof, be canceled and, in exchange therefor, each holder of any such canceled Company Stock Option shall be entitled to receive, in consideration of the cancellation of such Company Stock Option and in settlement therefor, a payment in cash of an amount, equal to the product of (i) the total number of Common Shares subject to such cancelled Company Stock Option assuming all performance-based vesting conditions have been fully satisfied and (ii) the excess, if any, of (A) the Per Common Share Merger Consideration over (B) the exercise price per Common Share subject to such canceled Company Stock Option, without interest (such amounts payable hereunder, the “Option Payments”); provided, however, that (i) any such Company Stock Option with respect to which the exercise price per Common Share subject thereto is equal to or greater than the Per Common Share Merger Consideration shall be canceled in exchange for no consideration and (ii) such Option Payments may be reduced by the amount of any required Tax withholdings. The Option Payments shall be made in accordance with Section 2.2(j), including any vesting schedule referred to therein. From and after the Effective Time, no Company Stock Option shall be exercisable and each Company Stock Option shall only entitle the holder thereof to the payment provided for in this Section 2.1(d)(i).

(ii) Each award of Common Shares outstanding immediately prior to the Effective Time that is subject to forfeiture or other restrictions (“Restricted Shares”) granted pursuant to a Company Equity Plan shall, at the Effective Time, automatically and without any required action on the part of the holder thereof, be converted into the right to receive the Per Common Share Merger Consideration pursuant to Section 2.1(c), with respect to the number of Common Shares subject to such award assuming all performance-based vesting conditions have been fully satisfied (such amounts payable hereunder, the “Restricted Share Payments”). The Restricted Share Payments shall be made in accordance with Section 2.2(j), including any vesting schedule referred to therein.

(iii) At or prior to the Effective Time, the Company and the Company Board shall adopt any resolutions and take any actions that are necessary to (x) effectuate the treatment of the Company Stock Options and Restricted Shares (collectively, the “Company Equity Awards”) pursuant to Section 2.1(d)(i) through Section 2.1(d)(ii) and (y) cause the Company Equity Plan to terminate at or prior to the Effective Time. The Company and the Company Board shall take all actions necessary to ensure that from and after the Effective Time neither Parent nor the Surviving Corporation will be required to deliver Common Shares or other capital stock of the Company to any Person pursuant to or in settlement of Company Equity Awards.

(e) Anti-Dilution. Notwithstanding anything in this Agreement to the contrary, if, from the date of this Agreement until the Effective Time, the number of outstanding Applicable Company Shares shall have been changed into a different number of Applicable Company Shares or different class by reason of any reclassification, stock split (including a reverse stock split), recapitalization, business combination, tender or exchange offer, readjustment or other similar transaction, or a stock dividend or stock distribution thereon shall be declared with a record date within said period, the Per Common Share Merger Consideration and/or Per Preferred Share Merger Consideration, as and if applicable, shall be appropriately adjusted to provide the holders of such Applicable Company Shares the same economic effect as contemplated by this Agreement prior to such event; provided, however, that (i) in no event shall the aggregate amount payable by Parent pursuant to Section 2.2 after giving effect to any such event exceed the amount that would have been payable pursuant to Section 2.2 had such event not occurred and (ii) nothing in this Section 2.1 shall permit the Company to take any action with respect to its securities that is expressly prohibited by the terms of this Agreement.

Section 2.2 Disposition of Certificates and Book-Entry Shares.

(a) Paying Agent. Prior to the Closing, Parent shall appoint a U.S.-based nationally recognized bank or trust company reasonably acceptable to the Company to act as paying agent (the “Paying Agent”) for the payment of the Per Common Share Merger Consideration to the holders of the Common Shares and, if the Charter

 

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Amendment becomes effective in accordance with Section 2.3, the Per Preferred Share Merger Consideration to the holders of Preferred Shares. Parent will enter into a paying agent agreement with the Paying Agent (the “Paying Agent Agreement”) on terms reasonably acceptable to the Company prior to the Closing. Prior to or at the Closing, Parent shall deposit with the Paying Agent cash in immediately available funds in the amount necessary for payment in accordance with Section 2.1 and this Section 2.2 of the aggregate Per Common Share Merger Consideration and, if the Charter Amendment becomes effective in accordance with Section 2.3, Per Preferred Share Merger Consideration payable pursuant to this Agreement (such total deposited cash being hereinafter referred to as the “Payment Fund”). The Paying Agent shall make payments of the Per Common Share Merger Consideration and, if the Charter Amendment becomes effective in accordance with Section 2.3, Per Preferred Share Merger Consideration out of the Payment Fund in accordance with this Agreement and the Paying Agent Agreement. The Payment Fund shall not be used for any other purpose.

(b) Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of Applicable Company Shares on the records of the Company. From and after the Effective Time, the holders of Certificates and Book-Entry Shares representing ownership of Applicable Company Shares outstanding immediately prior to the Effective Time shall cease to have rights with respect to such Applicable Company Shares except as otherwise provided for herein. From and after the Effective Time, any Certificates or Book-Entry Shares presented to the Paying Agent, Parent or the Surviving Corporation for any reason (other than Certificates or Book-Entry Shares representing Excluded Shares and Dissenting Shares) shall be canceled and exchanged for the Per Common Share Merger Consideration or, if the Charter Amendment becomes effective in accordance with Section 2.3, Per Preferred Share Merger Consideration, as applicable, payable in respect of such Applicable Company Shares pursuant to this Article II.

(c) Payment Procedures.

(i) As soon as possible after the Effective Time (and in any event within three (3) Business Days thereafter), Parent and the Surviving Corporation shall cause the Paying Agent to mail to each holder of record of a Certificate or Certificates that immediately prior to the Effective Time represented outstanding Applicable Company Shares (other than Excluded Shares and Dissenting Shares) (A) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass to the Paying Agent, only upon delivery of the Certificates (or affidavits of loss in lieu thereof) to the Paying Agent, and which letter shall be in such form and have such other provisions as Parent and the Company may reasonably agree) and (B) instructions for use in effecting the surrender of the Certificates (or affidavits of loss in lieu thereof) in exchange for the Per Common Share Merger Consideration or Per Preferred Share Merger Consideration, as and if applicable, to which the holder thereof is entitled. Upon surrender of any Certificate (or affidavit of loss in lieu thereof) to the Paying Agent, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may be reasonably required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor an amount of cash in immediately available funds equal to (x) with respect to Certificates representing Common Shares: (1) the number of Common Shares represented by such Certificate (or affidavits of loss in lieu thereof) multiplied by (y) the Per Common Share Merger Consideration (less any required Tax withholdings as provided in Section 2.2(h)) and (y) if the Charter Amendment becomes effective in accordance with Section 2.3, with respect to Certificates representing Preferred Shares: (1) the number of Preferred Shares represented by such Certificate (or affidavits of loss in lieu thereof) multiplied by (y) the Per Preferred Share Merger Consideration (less any required Tax withholdings as provided in Section 2.2(h)), and in each case the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Applicable Company Shares that is not registered in the transfer records of the Company, payment may be made to a Person other than the Person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such Tax has been paid or is not applicable. No interest shall be paid or accrue on any cash payable pursuant to this Section 2.2.

 

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(ii) Notwithstanding anything to the contrary in this Agreement, any holder of Book-Entry Shares shall not be required to deliver a Certificate or an executed letter of transmittal to the Paying Agent to receive the Per Common Share Merger Consideration or Per Preferred Share Merger Consideration that such holder is entitled to receive pursuant to this Article II. In lieu thereof, each holder of record of one or more Book-Entry Shares whose Applicable Company Shares were converted into the right to receive the Per Common Share Merger Consideration or Per Preferred Share Merger Consideration, as and if applicable, shall upon receipt by the Paying Agent of an “agent’s message” in customary form (or such other documentation or evidence, if any, as the Paying Agent may reasonably request), be entitled to receive, and Parent shall cause the Paying Agent to pay and deliver as promptly as reasonably practicable after the Effective Time (x) with respect to each Book-Entry Share representing a Common Share, the Per Common Share Merger Consideration in respect of each such Common Share (less any required Tax withholdings as provided in Section 2.2(h)) and (y) if the Charter Amendment becomes effective in accordance with Section 2.3, with respect to each Book-Entry Share representing a Preferred Share, the Per Preferred Share Merger Consideration in respect of each such Preferred Share (less any required Tax withholdings as provided in Section 2.2(h)), and the Book-Entry Shares of such holder shall forthwith be cancelled.

(d) Termination of Payment Fund. Any portion of the Payment Fund which remains unclaimed for six (6) months after the Effective Time shall be delivered to the Surviving Corporation, and any holders of Applicable Company Shares prior to the Effective Time who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation and Parent, and the Surviving Corporation and Parent shall be jointly and severally liable and only as general creditors thereof for payment of the Per Common Share Merger Consideration or, if the Charter Amendment becomes effective in accordance with Section 2.3, Per Preferred Share Merger Consideration (subject to abandoned property, escheat or similar Laws).