UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule
14a-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by
the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the
appropriate box:
☐
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Preliminary Proxy Statement
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☐
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Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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☐
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Definitive Proxy Statement
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☑
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Definitive Additional Materials
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☐
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Soliciting Material Pursuant to § 240.14a-12
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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):
☐
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Fee computed on table below per Exchange Act Rules 14a-(6) (i) (1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transactions applies:
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(3)
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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):
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(4)
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Proposed maximum aggregate value of transaction:
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☐
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Fee paid previously with preliminary materials.
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☐
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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.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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On August 22, 2017, a putative class action lawsuit captioned Louis Scarantino v. Sevcon, Inc., et al., Case
No. 1:17-cv-11580, was filed in the United States District Court for the District of Massachusetts by Louis Scarantino, a purported stockholder of Sevcon, Inc. (the Company), against the Company, its directors, BorgWarner Inc.
(BorgWarner) and Slade Merger Sub Inc. (Merger Sub), challenging the proposed merger (Scarantino Action). The complaint asserts a claim for violations of Section 14(a) of the Securities Exchange Act of 1934,
as amended (the Exchange Act) and Securities and Exchange Commission (the SEC) Rule 14a-9 against the Company and its directors, and a claim for violations of Section 20(a) of the Exchange Act against the Companys
directors and BorgWarner for allegedly disseminating a materially misleading proxy statement, in connection with the proposed merger. The complaint seeks, among other things, injunctive relief enjoining the consummation of the proposed merger,
rescissory damages, and costs, including attorneys and experts fees.
On August 28, 2017, a second putative class action lawsuit
captioned Jack Wilkinson v. Sevcon, Inc., et al., C.A. No. 1:17-cv-11618, was also filed in the United States District Court for the District of Massachusetts by Jack Wilkinson, a purported stockholder of the Company, against the Company and
its directors, challenging the proposed merger (Wilkinson Action). The Wilkinson Action contains allegations similar to those in the Scarantino Action. On August 30, 2017, plaintiffs in the Scarantino Action, on behalf of plaintiffs
in both the Scarantino Action and the Wilkinson Action, sent a letter demanding certain disclosures related to the filed complaints (the Letter).
The Company believes that both lawsuits are without merit.
The
Company is hereby disclosing certain additional information (the Supplemental Disclosures) in response to the two putative class action complaints and solely for the purpose of mooting the allegations contained therein. The Company
denies the allegations of the two class action complaints, and denies any violations of law. The Company believes that the Proxy disclosed all material information, and denies that the Supplemental Disclosures are material, or are otherwise
required. The Company is disclosing the Supplemental Disclosures solely for the purpose of avoiding the expense and burden of litigation.
Supplemental Disclosures to the Definitive Proxy Statement
This supplemental information should be read in connection with the Companys definitive proxy statement on Schedule 14A (the Definitive Proxy
Statement) filed with the SEC on August 24, 2017, which should be read in its entirety. Nothing herein shall be deemed an admission of the legal necessity or materiality of any of the disclosures set forth herein. All page references in
the information below are to pages in the Definitive Proxy Statement, and all terms used below shall have the meanings set forth in the Definitive Proxy Statement.
***
(1)
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The sixth full paragraph on page 38 of the section beginning on page 34 entitled The MergerBackground of the Merger is hereby amended and restated as follows (the additional language is underlined):
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2
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.
Under the terms of the nondisclosure agreement between the Company and Party B and the merger agreement, Party B is not prohibited from making a
proposal to acquire Sevcon.
(2)
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The table on page 54 of the section beginning on page 52 entitled Fairness Opinion of Financial AdvisorSelected Public Companies Analysis is hereby amended and restated as follows:
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EV/Sales Ratio
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EV/EBITDA Ratio
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EV/EBIT Ratio
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PE Ratio
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PEG Ratio
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2017E
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2018E
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2019E
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2017E
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2018E
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2019E
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2017E
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2018E
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2019E
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2017E
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2018E
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2017E
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2018E
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Selected Public Companies
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Continental Aktiengesellschaft
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1.05x
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1.00x
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0.95x
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6.8x
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6.2x
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5.8x
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9.7x
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8.7x
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8.2x
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12.5x
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11.2x
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1.0x
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1.0x
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Delphi Automotive PLC
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1.71x
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1.64x
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1.55x
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10.0x
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9.3x
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8.7x
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13.1x
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12.1x
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11.2x
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14.0x
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12.9x
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1.6x
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1.6x
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Schaeffler AG
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0.92x
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0.88x
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0.85x
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5.2x
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4.9x
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4.6x
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7.6x
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7.2x
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6.8x
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8.3x
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7.4x
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0.2x
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0.7x
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BorgWarner Inc.
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1.32x
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1.27x
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1.20x
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7.6x
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7.4x
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7.1x
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10.1x
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9.9x
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9.4x
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13.2x
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12.2x
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1.5x
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1.5x
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Allison Transmission Holdings, Inc.
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4.15x
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3.92x
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3.75x
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11.7x
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10.9x
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10.4x
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15.7x
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14.4x
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13.4x
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23.2x
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19.7x
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0.6x
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1.1x
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DENSO Corporation
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0.78x
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0.75x
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0.73x
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6.1x
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5.7x
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5.4x
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10.6x
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9.9x
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9.1x
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14.6x
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13.7x
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2.5x
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2.1x
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Eaton Corporation plc
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2.28x
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2.21x
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2.15x
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13.4x
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12.5x
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11.9x
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18.6x
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17.0x
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15.7x
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17.7x
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16.1x
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2.5x
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1.5x
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Nidec Corporation
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2.71x
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2.42x
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2.26x
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16.3x
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14.1x
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12.3x
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23.0x
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19.7x
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17.4x
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28.4x
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24.7x
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1.5x
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1.6x
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Mitsubishi Electric Corporation
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0.81x
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0.78x
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0.76x
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7.8x
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7.0x
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6.5x
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11.9x
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10.6x
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9.7x
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16.0x
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14.5x
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13.1x
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1.4x
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Mabuchi Motor Co., Ltd.
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1.85x
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1.74x
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1.64x
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8.4x
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7.6x
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6.9x
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10.8x
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9.9x
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9.0x
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19.1x
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17.8x
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6.7x
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2.5x
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Johnson Electric Holdings Limited
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1.21x
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1.13x
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1.05x
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7.6x
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7.0x
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6.5x
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11.4x
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10.3x
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9.5x
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12.9x
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11.9x
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0.6x
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1.5x
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Sensata Technologies Holding N.V.
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3.27x
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3.20x
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3.11x
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13.4x
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11.9x
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11.6x
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15.6x
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13.7x
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12.9x
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14.6x
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13.5x
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1.9x
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1.6x
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3
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EV/Sales Ratio
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EV/EBITDA Ratio
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EV/EBIT Ratio
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PE Ratio
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PEG Ratio
|
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|
|
2017E
|
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2018E
|
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2019E
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2017E
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2018E
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2019E
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2017E
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2018E
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2019E
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2017E
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2018E
|
|
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2017E
|
|
|
2018E
|
|
Selected Public Companies
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Gentex Corporation
|
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2.61x
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2.44x
|
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2.25x
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7.3x
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6.8x
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6.3x
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8.6x
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8.1x
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7.3x
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14.6x
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13.4x
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1.5x
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1.5x
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CTS Corporation
|
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1.70x
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1.63x
|
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1.57x
|
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|
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8.8x
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8.2x
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7.7x
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n.m.
|
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n.m.
|
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n.m.
|
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19.3x
|
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17.7x
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2.1x
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1.9x
|
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MiX Telematics Limited
|
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1.27x
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1.18x
|
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1.10x
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6.2x
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5.1x
|
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4.6x
|
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|
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12.8x
|
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10.3x
|
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9.1x
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|
|
21.1x
|
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18.3x
|
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n.a.
3
|
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1.2x
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First Sensor AG
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1.13x
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1.08x
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1.00x
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9.5x
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8.6x
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7.8x
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|
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16.7x
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13.9x
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11.9x
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19.5x
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16.8x
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1.4x
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1.1x
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Min.
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0.78x
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0.75x
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0.73x
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5.2x
|
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|
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4.9x
|
|
|
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4.6x
|
|
|
|
7.6x
|
|
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|
7.2x
|
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6.8x
|
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8.3x
|
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|
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7.4x
|
|
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0.2x
|
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0.7x
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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
|
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|
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1.5x
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Med.
|
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1.51x
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|
1.45x
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|
1.37x
|
|
|
|
8.1x
|
|
|
|
7.5x
|
|
|
|
7.0x
|
|
|
|
11.9x
|
|
|
|
10.3x
|
|
|
|
9.5x
|
|
|
|
15.3x
|
|
|
|
14.1x
|
|
|
|
1.5x
|
|
|
|
1.5x
|
|
|
|
|
|
|
|
|
|
|
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|
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Max.
|
|
|
4.15x
|
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|
|
3.92x
|
|
|
|
3.75x
|
|
|
|
16.3x
|
|
|
|
14.1x
|
|
|
|
12.3x
|
|
|
|
23.0x
|
|
|
|
19.7x
|
|
|
|
17.4x
|
|
|
|
28.4x
|
|
|
|
24.7x
|
|
|
|
13.1x
|
|
|
|
2.5x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Sevcon
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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$13.69
1
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$22.00
2
|
|
|
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
|
|
(3)
|
Footnote 5 to the table on page 55 of the section beginning on page 54 entitled Fairness Opinion of Financial AdvisorSelected Precedent Transactions Analysis is hereby amended and restated as
follows (the additional language is underlined and the deleted language is struck through):
|
The
Subsequent to the
execution of the merger agreement, Rothschild notified the Special Committee that 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.
(4)
|
The first full paragraph of the section beginning on page 56 entitled Fairness Opinion of Financial AdvisorIllustrative Discounted Cash Flow Analysis is hereby amended and restated as follows (the
additional language is underlined and the deleted language is struck through):
|
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 Sevcons net operating losses for each of the years 2019 through 2022, as provided by Sevcons management and approved for Rothschilds
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
derived by application of the
capital asset pricing model, which requires certain inputs including Sevcons beta, betas for comparable companies, the estimated cost of long-term debt for Sevcon, the estimated marginal cash tax rate for Sevcon and the estimated marginal cash
tax rates of comparable companies, the capital structure weightings for Sevcon and the capital structure weightings of comparable companies, the risk-free rate and an equity risk premium,
4
including a size risk premium, to (y) the estimated
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
selected by
Rothschild
selected
using its experience and professional judgment, to
the estimated unlevered, after-tax free cash flows for the terminal period generated by Rothschild
.
, which resulted in a range of estimated terminal values, after the application of an illustrative after-tax discount rates of
14.00% to 16.00%, the midpoint of which was $114.6 million.
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 Sevcons 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
$32.5 million
estimated amount of net debt of Sevcon as of
July 13, 2017, as provided by the management of Sevcon and approved for Rothschilds use, to reach a range of implied equity values. Rothschild then divided such implied equity values by the
number of fully diluted
7,226,629
shares of common stock of Sevcon outstanding
, as
on a fully diluted basis calculated by Rothschild using the treasury method and equity capitalization information
provided by the management of Sevcon
and approved for Rothschilds 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.
(5)
|
The section beginning on page 56 entitled Fairness Opinion of Financial AdvisorOther Factors is hereby amended and restated as follows (the additional language is underlined and the deleted language
is struck through):
|
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 Sevcons 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 companys 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 $13.69 per share of common stock of Sevcon on July
|
5
|
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
$2.5 million
net debt
of Sevcon
as of the end of fiscal year 2019
, as provided in
calculated by Rothschild using
the June forecasts
and information
provided by the management of Sevcon and approved for Rothschilds use
, and (c) dividing by the number of fully diluted shares of common stock of Sevcon outstanding,
as
which ranged from 7,302,812 to 7,352,886
shares, as calculated by Rothschild using the treasury method and equity capitalization information
provided by the management of Sevcon and approved for Rothschilds 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 Sevcons cost of
equity
derived by application of the capital asset pricing model, which requires certain inputs including Sevcons beta, betas for comparable companies, the estimated marginal cash tax rate for Sevcon and the estimated marginal cash tax
rates of comparable companies, the capital structure weightings for Sevcon and the capital structure weightings of comparable companies, the risk-free rate and an equity risk premium, including a size risk premium
;
|
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.
(6)
|
The last paragraph on page 62 of the section entitled The MergerInterests of the Directors and Officers of Sevcon in the Merger is hereby amended and restated as follows (the additional language is
underlined):
|
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.
As of the date of this proxy statement,
there have been no amendments to those service and non-competition/non-solicitation agreements and no new employment agreements with Parent or its affiliates.
6
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