Item 1.01. Entry into a Material Definitive Agreement.
On July 14, 2017, Sevcon, Inc., a Delaware corporation (Sevcon or the Company), entered into an Agreement and Plan of Merger (the
Merger Agreement) with BorgWarner Inc., a Delaware corporation (BorgWarner or Parent), and Parents wholly-owned subsidiary, Slade Merger Sub Inc., a Delaware corporation (Merger Sub), providing
for the merger of Merger Sub with and into the Company (the Merger), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Pursuant to the Merger Agreement, at the effective time of the Merger, (i) each share
of common stock, par value $0.10 per share of the Company issued and outstanding immediately prior to the effective time of the Merger (each, a Common Share) (other than (A) any Common Shares owned by Parent, Merger Sub or the
Company, or by any subsidiary of Parent, Merger Sub or the Company, in each case except to the extent held by any such person on behalf of a third party and (B) any shares that are owned by stockholders who have perfected and not withdrawn a
demand for appraisal rights pursuant to Delaware law) will be cancelled and converted into the right to receive cash in an amount, without interest, equal to $22.00, and (ii) if the Charter Amendment (as described below) becomes effective, each
share of Series A Convertible Preferred Stock, par value $0.10 per share of the Company issued and outstanding immediately prior to the effective time of the Merger (each of which is convertible into three Common Shares) (each, a Preferred
Share) (other than (A) any Preferred Shares owned by Parent, Merger Sub or the Company, or by any subsidiary of Parent, Merger Sub or the Company, in each case except to the extent held by any such person on behalf of a third party and
(B) any shares that are owned by stockholders who have perfected and not withdrawn a demand for appraisal rights pursuant to Delaware law), will be cancelled and converted into the right to receive cash in an amount, without interest, equal to
$66.00. Immediately prior to the effective time of the Merger, the board of directors of the Company intends to declare and pay a special dividend on the Preferred Shares representing the amount of the accrued and unpaid dividends on the Preferred
Shares.
Consummation of the Merger is subject to the satisfaction or waiver of specified closing conditions, including (i) the approval of the
Merger by the holders of a majority of the outstanding Common Shares, (ii) the approval of an amendment to the Companys amended and restated certificate of incorporation to provide that, at the effective time of the Merger, each holder of
Preferred Shares will be entitled to receive the consideration provided for in the Merger Agreement for each Preferred Share owned by such holder (the Charter Amendment), by the holders of a majority of the outstanding Common Shares and
a majority of the outstanding Preferred Shares, voting as separate classes, (ii) the receipt of the approval of the Austrian Federal Competition Authority, (iii) the receipt from each holder of outstanding warrants to purchase Common
Shares of an agreement with the Company in a form attached to the Merger Agreement agreeing to cancel such warrants in exchange for an amount equal to the product of the per Common Share merger consideration ($22.00) and the number of shares
issuable upon exercise of such warrants, less the aggregate exercise price for such warrants, (iv) no more than 10% of the Common Shares and Preferred Shares (on an as if converted to common stock basis) having exercised appraisal rights and
(v) other customary closing conditions, including (a) the accuracy of each partys representations and warranties (subject to customary materiality qualifiers), (b) each partys compliance with its agreements and covenants
contained in the Merger Agreement and (c) the absence of any law, ordinance, rule, regulation, order, judgment or decree being in effect that restrains or enjoins, or otherwise prohibits or makes illegal, the consummation of the Merger or the
Charter Amendment.
The Merger Agreement includes customary representations, warranties and covenants of the Company, Parent, and Merger Sub. The Company
has agreed to operate its business in all material respects in the ordinary course of business consistent with past practice until the completion of the Merger. The Company has also agreed not to solicit, initiate or knowingly encourage, or
knowingly induce or facilitate, proposals regarding alternative transactions and to certain restrictions on its ability to respond to any such proposals. Parent and Merger Sub have agreed to use reasonable best efforts to obtain approval of the
proposed transactions under any applicable Antitrust Laws (as defined in the Merger Agreement), as more fully set forth in and subject to the terms and conditions of the Merger Agreement.
The Merger Agreement allows the Company to terminate the Merger Agreement prior to the approval of the Merger by the holders of Common Shares to enter into an
agreement with respect to an unsolicited alternative acquisition proposal from a third party that the board of directors of the Company has determined is superior to the Merger (as described in further detail in the Merger Agreement, a
Superior Proposal) and also includes other specified termination rights for both the Company and Parent. In certain circumstances, the Company has agreed to
pay to Parent a termination fee in connection with the termination of the Merger Agreement. The Company must pay
Parent the termination fee in the event that the Merger Agreement is terminated by Parent following a change of recommendation by the board of directors of the Company or if the Company terminates the Merger Agreement to enter into a Superior
Proposal, in each case, as is described in further detail in the Merger Agreement. Under certain additional circumstances described in the Merger Agreement, the Company must also pay Parent the termination fee if the Merger Agreement is terminated
and, within twelve months following such termination, (i) the Company enters into a definitive agreement for, or consummates, a transaction of the type described in the relevant provisions of the Merger Agreement, or (ii) the
Companys board of directors recommends to stockholders an alternative acquisition proposal for a transaction of the type described in the relevant provisions of the Merger Agreement and, subsequent to making such recommendation, consummates
the proposal so recommended to Company stockholders. In addition, under certain circumstances described in the Merger Agreement, the Company must also pay Parent the expense reimbursement amount if the Merger Agreement is terminated. The termination
fee is $1.6 million if it becomes payable in connection with a Superior Proposal on or prior to 11:59 p.m., Chicago Time, on August 31, 2017 (and in certain other limited circumstances described in the Merger Agreement), and, otherwise, the
termination fee is $4.8 million. The expense reimbursement amount is $2.4 million.
The parties to the Merger Agreement are also entitled to an injunction
or injunctions to prevent breaches of the Merger Agreement, and to enforce specifically the terms of the Merger Agreement.
In addition, concurrently with
the execution of the Merger Agreement, Company 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. 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 Company shares owned by them 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 the Company to facilitate such transactions, and not to vote in favor of
any alternative transactions, and to be subject to the restrictions on the solicitation or initiation of other acquisition proposals and on engaging in discussions regarding such proposals as are applicable to the Companys representatives
pursuant to the Merger Agreement, and certain restrictions on the transfer of shares of our Common Shares or Preferred Shares. Also, 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 our director emeritus entered into separate support agreements with Parent, in which they agreed, on the terms and subject to the conditions set forth in the support agreements, to be subject to the restrictions on
the solicitation or initiation of other acquisition proposals and on engaging in discussions regarding such proposals as are applicable to the Companys representatives pursuant to the merger agreement, and certain restrictions on the transfer
of our Common Shares or Preferred Shares. Each of the voting and support agreements and support agreements automatically terminates upon the termination of the Merger Agreement.
The board of directors of the Company unanimously (i) approved and declared advisable the Merger Agreement and the transactions contemplated by the
Merger Agreement, including the Merger, upon the terms and subject to the conditions set forth therein, and the Charter Amendment, (ii) determined that the Merger Agreement, the Charter Amendment and the transactions contemplated by the Merger
Agreement, including the Merger, are fair to, and in the best interests of, the Company and its stockholders and (iii) adopted a resolution recommending that the Merger Agreement and the Charter Amendment be adopted by the stockholders of the
Company in accordance with the provisions of the Delaware General Corporation Law.
The foregoing summary of the principal terms of the Merger Agreement
does not purport to be complete and is qualified in its entirety by reference to the full copy of the Merger Agreement filed as Exhibit 2.1 hereto and incorporated herein by reference. The summary and the copy of the Merger Agreement are intended to
provide information regarding the terms of the Merger Agreement and are not intended to modify or supplement any factual disclosures about the Company or Parent in its public reports filed with the SEC. In particular, the Merger Agreement and
related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to any party to the Merger Agreement. The Merger Agreement includes representations, warranties and covenants of the
Company, Parent and Merger Sub made solely for the benefit of the parties to the Merger Agreement. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement among the Company, Parent and
Merger Sub and may be subject to important qualifications and limitations agreed to by the Company, Parent and Merger Sub in connection with the negotiated terms. Moreover, some of those representations and warranties may not be accurate or complete
as of any
specified date, may be subject to a contractual standard of materiality different from those generally applicable to the Companys or Parents SEC filings or may have been used for
purposes of allocating risk among the Company, Parent and Merger Sub rather than establishing matters as facts. Investors should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual
state of facts of the Company, Parent, Merger Sub or any of their respective subsidiaries or affiliates.