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Pioneer Power Solutions, Inc. – ‘PRER14C’ on 7/24/19

On:  Wednesday, 7/24/19, at 4:15pm ET   ·   Accession #:  1387131-19-5314   ·   File #:  1-35212

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 7/24/19  Pioneer Power Solutions, Inc.     PRER14C                1:2.9M                                   Quality EDGAR So… LLC/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PRER14C     Preliminary Information Statement Relating to       HTML   1.69M 
                Merger or Acquisition                                            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14C

SCHEDULE 14C INFORMATION

Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 

(Amendment No. 1)

PRELIMINARY COPY—SUBJECT TO COMPLETION, DATED JULY 24, 2019

PIONEER POWER SOLUTIONS, Inc.
400 Kelby Street, 12th Floor

Fort Lee, New Jersey 07024

NOTICE OF ACTION TAKEN BY WRITTEN CONSENT AND
INFORMATION STATEMENT

WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY

, 2019

To the Stockholders of Pioneer Power Solutions, Inc.:

This notice of action taken by written consent and information statement is being furnished to stockholders of Pioneer Power Solutions, Inc., a Delaware corporation (“Pioneer Power” or the “Company”), in connection with the Stock Purchase Agreement, dated as of June 28, 2019 (the “Stock Purchase Agreement”) (a copy of which is attached as Annex A to the accompanying information statement), by and among the Company, Electrogroup Canada, Inc., a wholly owned subsidiary of the Company (“Electrogroup”), Jefferson Electric, Inc., a wholly owned subsidiary of the Company (“Jefferson”), JE Mexican Holdings, Inc., a wholly owned subsidiary of the Company (“JE Mexico,” and together with Electrogroup and Jefferson, the “Disposed Companies”), Nathan Mazurek, Pioneer Transformers L.P. (the “US Buyer”) and Pioneer Acquireco ULC (the “Canadian Buyer,” and together with the US Buyer, the “Buyer”).

Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to sell (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer (the “Equity Transaction”), for an aggregate base cash purchase price of $60.5 million, as well as the issuance by the Buyer of a subordinated promissory note to the Company in the aggregate principal amount of $5.0 million, in each case subject to adjustment as described in the attached information statement. The proceeds from the Equity Transaction are payable solely to the Company. You, as a stockholder, will not receive any consideration if the Equity Transaction is consummated.

If the Equity Transaction is completed, Pioneer Power would sell to the Buyer all of the assets and liabilities associated with its liquid-filled transformer and dry-type transformer manufacturing businesses within the Company’s Transmission & Distribution Solutions segment (the “T&D Segment”). However, Pioneer Power would retain its switchgear manufacturing business within the T&D segment, as well as all of the operations associated with its critical power solutions segment. Following the consummation of the Equity Transaction, Pioneer Power plans to continue to operate its retained businesses in the ordinary course and has no current plans to liquidate any of its remaining assets. Notwithstanding the foregoing, Pioneer Power’s board of directors is continuously evaluating strategic alternatives for the Company’s business, and following the Equity Transaction, may consider a sale of all or a portion of the Company’s remaining assets or a business combination transaction with a third party. The Company expects that its stock will continue to be publicly traded on the NASDAQ Capital Market under the ticker symbol “PPSI.” Importantly, the completion of the Equity Transaction will not affect your ownership of shares of Pioneer Power common stock.

On June 27, 2019, after careful consideration, Pioneer Power’s board of directors, by a unanimous vote (i) determined that it is in the best interests of Pioneer Power and its stockholders, and declared it advisable, to enter into the Stock Purchase Agreement and the other transaction documents and to consummate the transactions contemplated thereby, including the Equity Transaction, (ii) approved the execution, delivery and performance of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated by the Stock Purchase Agreement, including the Equity Transaction, and (iii) resolved, subject to the terms and conditions set forth in the Stock Purchase Agreement, to recommend adoption and approval of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction, by the stockholders of Pioneer Power.

Under the Delaware General Corporation Law (the “DGCL”), the adoption and approval of the Stock Purchase Agreement, and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction, by the Company’s stockholders requires the approval by the holders of a majority of Pioneer Power’s outstanding common stock. On June 28, 2019, the holders of 4,774,400 shares of the Company’s common stock, or approximately 54.7% of the Company’s outstanding common stock as of such date, delivered a written consent adopting and approving the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction. As a result of the delivery of the written consent, no further action by any stockholder of the Company is required under applicable law or the Stock Purchase Agreement (or otherwise) to adopt or approve the Stock Purchase Agreement and the other transaction documents and consummate the transactions contemplated thereby, including the Equity Transaction, and the Company will not be soliciting your vote for the adoption and approval of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction, and will not call a stockholders meeting for purposes of voting on the adoption and approval of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction.

This notice and the accompanying information statement shall constitute notice from the Company to the holders of record of common stock as of June 28, 2019 of the action taken by the stockholder consent required by Section 228(e) of the DGCL.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF INFORMATION STATEMENT: 

This Information Statement is available at 

https://pioneerpowersolutions.com/investors/

        We urge you to read the entire information statement carefully. 

Neither the U.S. Securities and Exchange Commission (“SEC”) nor any state securities regulatory agency has approved or disapproved the Equity Transaction, passed upon the fairness of the Equity Transaction or passed upon the adequacy or accuracy of the disclosures in this notice or the accompanying information statement. Any representation to the contrary is a criminal offense.

The accompanying information statement is dated               , 2019 and is first being mailed to stockholders on or about               , 2019.

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE EQUITY TRANSACTION

The following questions and answers are intended to briefly address commonly asked questions as they pertain to the Stock Purchase Agreement and the Equity Transaction. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the “Summary” beginning on page 1 and the more detailed information contained elsewhere in this information statement and the annexes to this information statement, each of which you should read carefully.

What is the Equity Transaction?

On June 28, 2019, Pioneer Power entered into the Stock Purchase Agreement by and among Pioneer Power, Electrogroup, Jefferson, JE Mexico, the Buyer and Nathan Mazurek, pursuant to which Pioneer Power agreed to sell all of the issued and outstanding equity interests of the Diposed Companies to the Buyer. The sale of such equity interests, collectively, is referred to herein as the “Equity Transaction.”

If the Equity Transaction is completed, Pioneer Power would sell to the Buyer all of the assets and liabilities associated with its liquid-filled transformer and dry-type transformer manufacturing businesses within the Company’s T&D segment, which is deemed to be a sale of all of substantially all of the Company’s assets under the DGCL. However, Pioneer Power would retain its switchgear manufacturing business within the T&D segment, as well as all of the operations associated with its Critical Power segment. Following the consummation of the Equity Transaction, Pioneer Power plans to continue to operate its retained businesses in the ordinary course and has no current plans to liquidate any of its remaining assets. Notwithstanding the foregoing, Pioneer Power’s board of directors is continuously evaluating strategic alternatives for the Company’s business, and following the Equity Transaction, may consider a sale of all or a portion of the Company’s remaining assets or a business combination transaction with a third party.

What consideration is payable in the Equity Transaction?

Pursuant to the terms of the Stock Purchase Agreement, at the closing, Pioneer Power shall sell, transfer, assign and convey the Disposed Companies to the Buyer for a base cash purchase price of $60.5 million, as well as the issuance by the Buyer of the Seller Note to Pioneer Power in the aggregate principal amount of $5.0 million, in each case subject to adjustment as described herein.

You, as a stockholder, will not receive any consideration as a result of the Equity Transaction. The proceeds from the Equity Transaction are payable solely to Pioneer Power.

How will Pioneer Power use the proceeds of the Equity Transaction?

Pioneer Power’s board of directors has not made any definitive plans with respect to the use of proceeds from the Equity Transaction. If the Equity Transaction is consummated, Pioneer Power expects that it may use all or a portion of the proceeds from the transaction to, among other things: (i) repay outstanding indebtedness, (ii) reinvest into its remaining businesses, (iii) make one or more special dividends to its stockholders or (iv) pursue strategic acquisitions. The amounts and timing of Pioneer Power’s actual expenditures, however, will depend upon numerous factors, and Pioneer Power may find it necessary or advisable to use portions of the proceeds from the Equity Transaction for different or presently non-contemplated purposes.

Why am I not being asked to vote on the Equity Transaction?

The Equity Transaction constitutes a sale of substantially all of Pioneer Power’s assets under the DGCL. Accordingly, under Pioneer Power’s organizational documents and Section 271 of the DGCL, the approval of Pioneer Power’s board of directors and the approval by the holders of a majority of Pioneer Power’s outstanding common stock are required to approve and adopt the Stock Purchase Agreement and the Equity Transaction.

Pioneer Power’s board of directors approved the Stock Purchase Agreement and the Equity Transaction on June 27, 2019, and the holders of approximately 54.7% of Pioneer Power’s outstanding common stock delivered a written consent approving the Stock Purchase Agreement and Equity Transaction on June 28, 2019. Accordingly, no further approvals under applicable law or the Stock Purchase Agreement are required to approve the Equity Transaction, and Pioneer Power is not asking you for you to vote on the Equity Transaction.

Why am I receiving this information statement?

Applicable laws and securities regulations require Pioneer Power to provide you with notice of the stockholder consent delivered by the controlling stockholders, as well as other information regarding the Equity Transaction, even though your vote or consent is neither required nor requested to adopt or authorize the Stock Purchase Agreement or complete the Equity Transaction.

Did Pioneer Power’s board of directors approve and recommend the Equity Transaction?

Yes, as described in this information statement, Pioneer Power’s board of directors unanimously: (i) determined that it is in the best interests of Pioneer Power and its stockholders, and declared it advisable, to enter into the Stock Purchase Agreement and the other transaction documents and to consummate the transactions contemplated thereby, including the Equity Transaction, (ii) approved the execution, delivery and performance of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated by the Stock Purchase Agreement, including the Equity Transaction in accordance with the DGCL, and (iii) resolved, subject to the terms and conditions set forth in the Stock Purchase Agreement, to recommend adoption and approval of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction, by the stockholders of Pioneer Power.

When is the Equity Transaction expected to be completed?

Pioneer Power currently expects to complete the Equity Transaction promptly after all of the conditions to the Equity Transaction have been satisfied or waived in accordance with the terms and conditions of the Stock Purchase Agreement.

Federal securities laws state that the Equity Transaction may not be completed until twenty (20) days after the date of mailing this information statement to Pioneer Power’s stockholders. Pioneer Power currently expects to consummate the Equity Transaction as soon as possible following the expiration of such twenty (20) day waiting period. However, Pioneer Power cannot assure consummation of the Equity Transaction by a particular date

Is the Equity Transaction subject to the fulfillment of certain conditions?

Yes. Before the Equity Transaction can be completed, the parties to the Stock Purchase Agreement must fulfill various closing conditions set forth in the Stock Purchase Agreement (unless any such condition is validly waived by the party entitled to waive such condition under the Stock Purchase Agreement). These conditions include, among other things, a financing condition which provides that the Buyer is not obligated to close the Equity Transaction if it is unable to obtain financing for the Equity Transaction on terms substantially similar to those set forth in the debt financing commitment letter that the Buyer has obtained or alternative financing in an amount sufficient to consummate the Equity Transaction.

If these conditions are not satisfied or validly waived, the Equity Transaction will not be completed. See “The Stock Purchase Agreement — Closing Conditions” beginning on page 50.

What happens if a third party makes an offer to acquire Pioneer Power or the Disposed Companies before the Equity Transaction is completed?

Prior to the closing of the Equity Transaction, Pioneer Power’s board of directors may, subject to certain requirements and certain rights of the Buyer, terminate the Stock Purchase Agreement in order to enter into a definitive purchase agreement in respect of an Acquisition Proposal from a third party that constitutes a Superior Proposal. For additional information, including information as to how the Stock Purchase Agreement defines Acquisition Proposal and Superior Proposal, see “The Stock Purchase Agreement — Covenants and Agreements — Covenants and Agreements of Pioneer Power and the Disposed Companies — Acquisition Proposals” beginning on page 47.

What will happen if the Equity Transaction is not completed?

The closing of the Equity Transaction is subject to the satisfaction or waiver of various conditions. Pioneer Power cannot guarantee that the closing conditions set forth in the Stock Purchase Agreement will be satisfied. If Pioneer Power is unable to satisfy the closing conditions in the Buyer’s favor or if other mutual closing conditions are not satisfied, the Buyer will not be obligated to complete the Equity Transaction.

If the Equity Transaction is not completed, Pioneer Power’s board of directors, in discharging its fiduciary obligations to Pioneer Power’s stockholders, may evaluate other strategic alternatives that may be available, which such alternatives may not be as favorable to Pioneer Power as the Equity Transaction. These alternatives may include, among other things, retaining the Disposed Companies and continuing to operate the business of the Disposed Companies in the ordinary course or seeking to sell all or a portion of the Company’s assets, which may include the Disposed Companies, in an alternative transaction.

Without the proceeds from the Equity Transaction, Pioneer Power may not have sufficient liquidity to repay its outstanding indebtedness upon maturity in the first quarter of 2020. Pioneer Power may also be unable to comply with the restrictive covenants in the instruments governing its outstanding indebtedness prior to such maturity date or obtain waivers from any such breach. For a discussion of the risks associated with the failure to consummate the Equity Transaction, please see “Risk Factors — Pioneer Power cannot be sure if or when the Equity Transaction will be completed” beginning on page 13.

Will Pioneer Power’s common stock remain listed on NASDAQ if the Equity Transaction is completed?

Pioneer Power’s common stock is currently traded on NASDAQ under the symbol “PPSI.” Following the completion of the Equity Transaction, Pioneer Power expects that its common stock will continue to be traded on NASDAQ. However, it is not possible to predict the trading price of Pioneer Power’s common stock following the closing of the Equity Transaction or the impact that the Equity Transaction may have on Pioneer Power’s remaining business.

In order to maintain the listing of Pioneer Power’s common stock on NASDAQ, Pioneer Power’s common stock must comply with certain continued listing requirements, including having:

Pioneer Power must also meet at least one of the following continued listing standards:

Pioneer Power believes that it will continue to meet NASDAQ’s continued listing requirements following the completion of the Equity Transaction. No assurances, however, can be given that Pioneer Power will continue to satisfy these requirements as some of these requirements are outside of Pioneer Power’s direct control, such as the bid price of its common stock, the number of holders of its common stock and the value of its publicly held shares. If Pioneer Power is unable to meet these requirements, NASDAQ may take action to delist Pioneer Power’s common stock. In such a case, Pioneer Power may appeal NASDAQ’s determination to delist its common stock, but such appeal may not be successful.

For a discussion of the potential risks associated with a delisting of Pioneer Power’s common stock from NASDAQ, see “Risk Factors — Pioneer Power may be delisted from NASDAQ following the consummation of the Equity Transaction” on page 15.

Can the Stock Purchase Agreement be terminated and are any termination fees payable in the event of a termination?

Yes. The Stock Purchase Agreement can be terminated at any time prior to closing by the mutual written consent of Pioneer Power and the Buyer, or by either Pioneer Power or the Buyer in certain circumstances, including certain failures by either party to satisfy the conditions to closing the Equity Transaction applicable to such party.

If the Stock Purchase Agreement is terminated in certain circumstances, Pioneer Power will be required to pay the Buyer a $4.0 million termination fee. However, if the Stock Agreement is terminated in certain other circumstances, Pioneer Power may be entitled to a $4.0 million reverse termination fee from the Buyer. The obligation of the Buyer to pay the reverse termination fee is guaranteed by Mill Point.

For additional information on termination rights and termination fees related to the Stock Purchase Agreement, see “The Stock Purchase Agreement — Termination of the Stock Purchase Agreement,” “The Stock Purchase Agreement — Termination Fee” and “The Stock Purchase Agreement — Reverse Termination Fee” beginning on pages 52 and 54, respectively.

Will Pioneer Power liquidate following the Equity Transaction?

No. Pioneer Power does not currently plan to liquidate following the consummation of the Equity Transaction. However, Pioneer Power’s board of directors is continuously evaluating strategic alternatives for the Company’s business, and following the Equity Transaction, may consider a sale of all or a portion of the Company’s remaining assets or a business combination transaction with a third party.

Am I entitled to appraisal or dissenters’ rights in connection with the Equity Transaction?

No. You are not entitled to appraisal or dissenters’ rights under Delaware law or under Pioneer Power’s organizational documents in connection with the Equity Transaction.

What are the U.S. federal income tax consequences of the Equity Transaction to Pioneer Power’s stockholders?

The Equity Transaction is a corporate action and Pioneer Power’s stockholders will not receive any proceeds from the Equity Transaction. Accordingly, Pioneer Power’s stockholders will not realize any gain or loss for U.S. federal income tax purposes as a result of the Equity Transaction.

Where can I find more information about Pioneer Power?

Pioneer Power files periodic reports and other information with the SEC. You can obtain these filings through the website maintained by the SEC at www.sec.gov or through Pioneer Power’s website at www.pioneerpowersolutions.com. The information provided on or accessible through Pioneer Power’s website is not part of this information statement and is not incorporated in this information statement by this or any other reference to its website provided in this information statement.

For a more detailed description of the available information related to Pioneer Power, please refer to “Where You Can Find More Information” beginning on page 69.

Who can help answer my other questions?

The information provided above in this “Question and Answer” format is for your convenience only and is merely a summary of the information contained in this information statement. You are urged to carefully read this entire information statement, including its annexes and the other documents referred to in this information statement. If you have additional questions about the Equity Transaction, please contact Pioneer Power’s Investor Relations Department by telephone at 646-536-7331.

RISK FACTORS

Risks Related to the Equity Transaction

The announcement and pendency of the Equity Transaction, whether or not consummated, may adversely affect Pioneer Power’s business.

The announcement and pendency of the Equity Transaction, whether or not consummated, may adversely affect the trading price of Pioneer Power’s common stock, its business or its relationships with customers, suppliers and employees. In addition, pending the completion of the Equity Transaction, Pioneer Power may be unable to attract and retain key personnel and the focus and attention of Pioneer Power’s management and employee resources may be diverted from operational matters during the pendency of the Equity Transaction.

Pioneer Power cannot be sure if or when the Equity Transaction will be completed.

The closing of the Equity Transaction is subject to the satisfaction or waiver of various conditions. Pioneer Power cannot guarantee that the closing conditions set forth in the Stock Purchase Agreement will be satisfied. If Pioneer Power is unable to satisfy the closing conditions in the Buyer’s favor or if other mutual closing conditions are not satisfied, the Buyer will not be obligated to complete the Equity Transaction. In the event that the Equity Transaction is not completed, the announcement of the termination of the Stock Purchase Agreement may adversely affect the trading price of Pioneer Power’s common stock, its business and operations or its relationships with customers, suppliers and employees.

In addition, without the proceeds from the Equity Transaction, Pioneer Power may not have sufficient liquidity to repay its outstanding indebtedness upon maturity in the first quarter of 2020. Pioneer Power may also be unable to comply with the restrictive covenants in the instruments governing its outstanding indebtedness prior to such maturity date or obtain waivers from any such breach. If Pioneer Power breaches its obligations under its outstanding indebtedness, or Pioneer Power fails to timely make payments on its indebtedness when due, the lender may declare an event of default and may seek to foreclose on all or a portion of the assets securing such indebtedness, which could force Pioneer Power into bankruptcy or liquidation.

If the Equity Transaction is not completed, Pioneer Power’s board of directors, in discharging its fiduciary obligations to Pioneer Power’s stockholders, may evaluate other strategic alternatives that may be available, which such alternatives may not be as favorable to Pioneer Power as the Equity Transaction.

The Stock Purchase Agreement limits Pioneer Power’s ability to pursue alternatives to the Equity Transaction.

The Stock Purchase Agreement contains provisions that make it more difficult for Pioneer Power to sell its assets or engage in another type of acquisition transaction with a party other than the Buyer. These provisions include a non-solicitation provision and a provision obligating Pioneer Power to pay the Buyer a termination fee of $4.0 million under certain circumstances. These provisions could discourage a third party that might have an interest in acquiring all of, or substantially all of, Pioneer Power’s assets or its common stock from considering or proposing such an acquisition, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by the Buyer.

Pioneer Power’s stockholders will not receive any of the proceeds of the Equity Transaction.

The proceeds from the Equity Transaction will be paid directly to Pioneer Power. As discussed elsewhere in this information statement, Pioneer Power’s board of directors has not made any definitive plans with respect to the use of proceeds from the Equity Transaction. If the Equity Transaction is consummated, Pioneer Power expects that it may use all or a portion of the proceeds from the transaction to, among other things: (i) repay outstanding indebtedness, (ii) reinvest into its remaining businesses, (iii) make one or more special dividends to its stockholders or (iv) pursue strategic acquisitions. The amounts and timing of Pioneer Power’s actual expenditures, however, will depend upon numerous factors, and Pioneer Power may find it necessary or advisable to use portions of the proceeds from the Equity Transaction for different or presently non-contemplated purposes.

Pioneer Power’s management will have broad discretion over the use of proceeds from the Equity Transaction and could spend the proceeds in ways that do not improve its results of operations or enhance the value of its common stock. The failure by management to apply these funds effectively could result in financial losses that could have a material adverse effect on Pioneer Power’s business or cause the price of its common stock to decline.

Pioneer Power will incur significant expenses in connection with the Equity Transaction, regardless of whether the Equity Transaction is completed and, in certain circumstances, may be required to pay a termination fee to the Buyer.

Pioneer Power expects to incur significant expenses related to the Equity Transaction. These expenses include, but are not limited to, financial advisory and opinion fees and expenses, legal fees, accounting fees and expenses, certain employee expenses, filing fees, printing expenses and other related fees and expenses. Many of these expenses will be payable by Pioneer Power regardless of whether the Equity Transaction is completed. In addition, if the Stock Purchase Agreement is terminated in certain circumstances, Pioneer Power will be required to pay the Buyer a $4.0 million termination fee. However, if the Stock Agreement is terminated in certain other circumstances, Pioneer Power may be entitled to a $4.0 million reverse termination fee from the Buyer. See “The Stock Purchase Agreement — Termination Fee” and “The Stock Purchase Agreement — Reverse Termination Fee” beginning on page 54.

Risks Related to Pioneer Power’s Future Operations

Pioneer Power’s operations will be curtailed and Pioneer Power will have limited sources of revenue following the Equity Transaction, which may negatively impact the value and liquidity of Pioneer Power’s common stock.

Upon the closing of the Equity Transaction, the size of Pioneer Power’s business operations will be reduced and its sources of revenue will be limited to its Critical Power segment and the switchgear manufacturing business of its T&D segment. Although Pioneer Power’s board of directors may use a portion of the proceeds from the Equity Transaction to support the business operations remaining following the Equity Transaction, there can be no assurance that Pioneer Power will be successful at carrying out the operations of its remaining businesses or that it will be successful at generating revenue. A failure by Pioneer Power to secure additional sources of revenue following the closing of the Equity Transaction could negatively impact the value and liquidity of its common stock.

Pioneer Power will continue to incur the expense of complying with public company reporting requirements following the closing of the Equity Transaction.

After the Equity Transaction, Pioneer Power will continue to be required to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), even though compliance with such reporting requirements is economically burdensome.

Pioneer Power may be delisted from NASDAQ following the consummation of the Equity Transaction.

Pioneer Power’s SEC reporting obligations as a public company will not be impacted as a result of the closing of the Equity Transaction and, following the completion of the Equity Transaction, Pioneer Power expects that its common stock will continue to be traded on NASDAQ. However, it is not possible to predict the trading price of Pioneer Power’s common stock following the closing of the Equity Transaction or the impact that the Equity Transaction may have on Pioneer Power’s remaining business.

In order to maintain the listing of Pioneer Power’s common stock on NASDAQ, Pioneer Power’s common stock must comply with certain continued listing requirements, including having:

Pioneer Power must also meet at least one of the following continued listing standards:

Pioneer Power believes that it will continue to meet NASDAQ’s continued listing requirements following the completion of the Equity Transaction. No assurances, however, can be given that Pioneer Power will continue to satisfy these requirements as some of these requirements are outside of Pioneer Power’s direct control, such as the bid price of its common stock, the number of holders of its common stock and the value of its publicly held shares. If Pioneer Power is unable to meet these requirements, NASDAQ may take action to delist Pioneer Power’s common stock. In such a case, Pioneer Power may appeal NASDAQ’s determination to delist its common stock, but such appeal may not be successful.

If Pioneer Power’s common stock is delisted from NASDAQ, Pioneer Power expects that its common stock would begin trading on the over-the-counter markets. The delisting of Pioneer Power’s common stock could result in a reduction in its trading price and would substantially limit the liquidity of Pioneer Power’s common stock. In addition, delisting could materially adversely impact Pioneer Power’s ability to raise capital or pursue strategic restructuring, refinancing or other transactions. Delisting from NASDAQ could also have other negative results, including the potential loss of confidence by institutional investors.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This information statement, and the documents to which you are referred in this information statement, contain certain “forward-looking” statements as that term is defined by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. These forward-looking statements include information relating future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information available when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Important factors that could cause such differences include, but are not limited to:

The forward-looking statements contained in this information statement and the documents to which you are referred in this information statement are based on assumptions that Pioneer Power’s management have made in light of their industry experience and their perceptions of historical trends, current conditions, expected future developments and other important factors Pioneer Power believes are appropriate under the circumstances. As you read and consider this information statement and the documents to which you are referred in this information statement, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond Pioneer Power’s control) and assumptions. Although Pioneer Power’s management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many important factors such as those listed above that could affect the Company’s actual operating and financial performance and cause the Company’s performance to differ materially from the performance anticipated in the forward-looking statements.

Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, Pioneer Power’s actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements.

Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, Pioneer Power undertakes no obligation to update any forward-looking statement contained in this information statement or the documents to which you are referred in this information statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New important factors that could cause Pioneer Power’s business not to develop as expected, emerge from time to time, and it is not possible to predict all of them.

THE EQUITY TRANSACTION

The following discussion provides material information about the proposed Equity Transaction. The discussion may not have all the information that is important to you, and it is qualified in its entirety by reference to the accompanying appendices, including the Stock Purchase Agreement that accompanies this information statement as Annex A. You are urged to carefully read this entire document, including the appendices, for a more complete understanding of the transaction.

The Parties to the Equity Transaction

Pioneer Power and Subsidiaries

Pioneer Power and its wholly owned subsidiaries manufacture, sell and service a broad range of specialty electrical transmission, distribution and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. Pioneer Power is headquartered in Fort Lee, New Jersey and operates from eleven (11) additional locations in the U.S., Canada and Mexico for manufacturing, centralized distribution, engineering, sales and administration.

The Company operates through two reportable segments: T&D Solutions and Critical Power. The Company’s T&D Solutions business provides equipment solutions that help customers effectively and efficiently manage their electrical power distribution systems to desired specifications through three major product offerings: liquid-filled transformers, dry-type transformers and switchgear (a finished assembly of devices that distribute, control and monitor the flow of electrical energy). The Company’s Critical Power business provides customers with sophisticated power generation equipment and an advanced data collection and monitoring platform, the combination of which is used to ensure smooth, uninterrupted power to operations during times of emergency.

Pioneer Power’s common stock is traded on the NASDAQ Capital Market under the symbol “PPSI.” The principal executive offices of Pioneer Power are located at 400 Kelby Street, 12th Floor, Fort Lee, New Jersey 07024, and its telephone number is 212-867-0700. Pioneer Power’s website is www.pioneerpowersolutions.com. The information provided on or accessible through Pioneer Power’s website is not part of this information statement and is not incorporated in this information statement by this or any other reference to its website provided in this information statement.

Buyer

US Buyer and Canadian Buyer are each indirect subsidiaries of Mill Point and were formed for the sole purpose of completing the Equity Transaction with Pioneer Power. Neither the US Buyer nor the Canadian Buyer have engaged in any business to date, except for activities incidental to their incorporation and activities undertaken in connection with the Equity Transaction and other transactions contemplated by the Stock Purchase Agreement.

Mill Point is a middle-market private equity firm focused on control-oriented investments in the business services and industrial sectors. The firm works with executive partners to leverage its investment professionals’ experience, while providing strategic and operational guidance designed to drive long-term value creation in its portfolio companies.

The principal executive offices of each of US Buyer, Canadian Buyer and Mill Point are located at c/o Mill Point Capital LLC, 104 W 40th Street, 5th Floor, New York, New York 10018, and their telephone number is 212-416-5800. Mill Point’s website is www.millpoint.com. The information provided on or accessible through Mill Point’s website is not part of this information statement and is not incorporated in this information statement by this or any other reference to its website provided in this information statement.

Effects of the Equity Transaction

Overview

Pursuant to the terms of the Stock Purchase Agreement, at the closing, Pioneer Power agreed to sell, transfer, assign and convey (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer, for an aggregate base cash purchase price of $60.5 million, as well as the issuance by the Buyer of the Seller Note to Pioneer Power in the aggregate principal amount of $5.0 million, in each case subject to adjustment as described below. This transaction is referred to herein as the “Equity Transaction.”

If the Equity Transaction is completed, Pioneer Power would sell to the Buyer all of the assets and liabilities associated with its liquid-filled transformer and dry-type transformer manufacturing businesses within the Company’s T&D segment. However, Pioneer Power would retain its switchgear manufacturing business within the T&D segment, as well as all of the operations associated with its Critical Power segment. Following the consummation of the Equity Transaction, Pioneer Power plans to continue to operate its retained businesses in the ordinary course and has no current plans to liquidate any of its remaining assets. Notwithstanding the foregoing, Pioneer Power’s board of directors is continuously evaluating strategic alternatives for the Company’s business, and following the Equity Transaction, may consider a sale of all or a portion of the Company’s remaining assets or a business combination transaction with a third party.

The Equity Transaction will not alter the rights, privileges or nature of the issued and outstanding shares of Pioneer Power’s common stock. A stockholder who owns shares of Pioneer Power’s common stock immediately prior to the closing of the Equity Transaction will continue to hold the same number of shares immediately following the closing.

The Equity Transaction constitutes a sale of substantially all of Pioneer Power’s assets under the DGCL. Accordingly, under Section 271 of the DGCL, the approval of Pioneer Power’s board of directors and the approval by the holders of a majority of Pioneer Power’s outstanding common stock are required to approve and adopt the Stock Purchase Agreement and the Equity Transaction. Pioneer Power’s board of directors approved the Stock Purchase Agreement and the Equity Transaction on June 27, 2019, and the holders of approximately 54.7% of Pioneer Power’s outstanding common stock delivered a written consent approving the Stock Purchase Agreement and Equity Transaction on June 28, 2019. Accordingly, no further approvals under applicable law or the Stock Purchase Agreement are required to approve the Equity Transaction.

Pioneer Power, and not its stockholders, will receive the proceeds from the Equity Transaction. Pioneer Power’s board of directors has not made any definitive plans with respect to the use of proceeds from the Equity Transaction. If the Equity Transaction is consummated, Pioneer Power expects that it may use all or a portion of the proceeds from the transaction to, among other things: (i) repay outstanding indebtedness, (ii) reinvest into its remaining businesses, (iii) make one or more special dividends to its stockholders or (iv) pursue strategic acquisitions. The amounts and timing of Pioneer Power’s actual expenditures, however, will depend upon numerous factors, and Pioneer Power may find it necessary or advisable to use portions of the proceeds from the Equity Transaction for different or presently non-contemplated purposes.

Impact of Equity Transaction on SEC Reporting and NASDAQ Listing

Pioneer Power’s SEC reporting obligations as a public company will not be impacted as a result of the closing of the Equity Transaction and, following the completion of the Equity Transaction, Pioneer Power expects that its common stock will continue to be traded on NASDAQ. However, it is not possible to predict the trading price of Pioneer Power’s common stock following the closing of the Equity Transaction or the impact that the Equity Transaction may have on Pioneer Power’s remaining business.

In order to maintain the listing of Pioneer Power’s common stock on NASDAQ, Pioneer Power’s common stock must comply with certain continued listing requirements, including having:

Pioneer Power must also meet at least one of the following continued listing standards:

Pioneer Power believes that it will continue to meet NASDAQ’s continued listing requirements following the completion of the Equity Transaction. No assurances, however, can be given that Pioneer Power will continue to satisfy these requirements as some of these requirements are outside of Pioneer Power’s direct control, such as the bid price of its common stock, the number of holders of its common stock and the value of its publicly held shares. If Pioneer Power is unable to meet these requirements, NASDAQ may take action to delist Pioneer Power’s common stock. In such a case, Pioneer Power may appeal NASDAQ’s determination to delist its common stock, but such appeal may not be successful.

Equity Transaction Consideration

Upon the terms and subject to the conditions of the Stock Purchase Agreement, on the closing date, the aggregate consideration to be paid to Pioneer Power by the Buyer will be a base cash amount equal to $60.5 million, as well as the issuance of the Seller Note in the aggregate principal amount of $5.0 million, in each case subject to adjustment as described below.

Pursuant to the Stock Purchase Agreement, no later than the second (2nd) business day prior to the closing, Pioneer Power is required to deliver to the Buyer a certificate setting forth Pioneer Power’s estimates of the following items which will be used in calculating the purchase price under the Stock Purchase Agreement: the balance sheet of Pioneer Power; the closing working capital of Pioneer Power; the transaction expenses of Pioneer Power and the Disposed Companies; and the closing cash of the Disposed Companies. The certificate will also set forth Pioneer Power’s calculation of the estimated purchase price to be paid at closing which is based on such estimated items and will be calculated as follows:

The amount so calculated at closing is referred to herein as the “closing date net purchase price.”

On the closing date, the Buyer shall (i) pay to Pioneer Power, by wire transfer of immediately available funds, cash in an aggregate amount equal to the closing date net purchase price, and (ii) issue the Seller Note to Pioneer Power in the aggregate principal amount of $5.0 million. The Stock Purchase Agreement does not require any of the consideration for the Equity Transaction to be held in escrow.

As soon as reasonably practical following the closing date, and in any event within ninety (90) days thereof, the Buyer will prepare and deliver to Pioneer Power (i) an unaudited consolidated balance sheet of the Disposed Companies as of immediately prior to the close of business on the closing date and (ii) a statement showing the Buyer’s calculation of the final net purchase price for the Equity Transaction, calculated in the same manner as the closing date net purchase price. The final net purchase price, as calculated by the Buyer, may be disputed by Pioneer Power in accordance with the terms of the Stock Purchase Agreement. The final net purchase price, as it becomes final and non-appealable in accordance with the terms of the Stock Purchase Agreement, is referred to herein as the “final net purchase price.”

The total amount of consideration received by Pioneer Power may be increased or decreased by the difference between the final net purchase price and the closing date net purchase price as follows:

In addition, the total amount of consideration received by Pioneer Power may be reduced as a result of various indemnification obligations of Pioneer Power and the Disposed Companies under the Stock Purchase Agreement. Pursuant to the terms of the Stock Purchase Agreement, the Buyer is required to set-off any indemnifiable losses the Buyer suffers as a result of certain actions, omissions, or misrepresentations by Pioneer Power or the Disposed Companies against amounts owed to Pioneer Power under the Seller Note, and may only recover indemnifiable losses directly from Pioneer Power in certain limited circumstances.

Background of the Equity Transaction

As part of the ongoing evaluation of Pioneer Power’s business, its board of directors and senior management periodically review, consider and assess the Company’s operations, financial performance, prospects and industry conditions as they may affect the Company’s long-term strategic goals and plans, including the consideration of potential opportunities for business combinations, dispositions, acquisitions and other financial and strategic alternatives.

Background of Initial Sale Process

Beginning in mid-2016, Pioneer Power’s senior management, in light of the Company’s future prospects and a belief that the Company’s common stock was undervalued compared to its historical trading price and suffered from relatively low liquidity, began discussing potential strategic alternatives with the Company’s board of directors in an effort to maximize stockholder value. These potential strategic alternatives included a potential business combination transaction or sale of the entire business to a third-party. In order to assist with a review of potential strategic alternatives, Mr. Mazurek invited several financial advisors to make presentations to the Company’s management concerning how such advisors would assist the Company in connection with a strategic alternative and how those advisors would implement any alternative selected. Following these discussions and acting on the recommendation of senior management, the Company determined to engage Lincoln to assist the Company in exploring a possible sale of the Company’s entire business.

On August 12, 2016, following negotiations between the Company and representatives of Lincoln, including discussions with Haynes and Boone, LLP, the Company’s outside legal counsel (“Haynes and Boone”), Lincoln agreed to serve as financial advisor in connection with the proposed sale of the Company.

Through the remainder of 2016 and leading into May 2017, the Company and representatives of Lincoln worked together to identify potential buyers, and representatives of Lincoln assisted the Company with preparing materials to market the Company, including the preparation of a confidential information presentation. In addition, during that time, the Company engaged Traverse LLC to prepare a “quality of earnings” report to deliver to potential buyers during the sale process, which was first delivered to the Company in April 2017.

In May 2017, the Company authorized Lincoln to launch the sale process, and on May 26, 2017, representatives of Lincoln began reaching out to potential acquirers. As a result of this process, representatives of Lincoln met or spoke with a total of ninety-two (92) parties to evaluate their interest in a potential transaction, twenty-three (23) of which signed confidentiality agreements with Pioneer Power. In August 2017, Pioneer Power received approximately five (5) non-binding indications of interest and informal proposals for proposed acquisitions, some of which related to an offer to purchase the entire Company and some of which related to an offer to purchase only one segment of the Company’s business.

In August 2017, representatives of Lincoln discussed with the Company’s management the status of the sale process, including the indications of interest that were delivered. Representatives of Lincoln also discussed with management the feedback they had received from certain of the potential acquirers that had declined to submit indications of interest. Based on their discussions with potential acquirers, representatives of Lincoln explained to the Company’s management that the main reasons parties declined to submit indications of interest were, among other things, that many of the potential acquirers felt that the Company’s business, as a whole, was overly complicated in light of its size, that certain segments of Pioneer Power’s business were less profitable than others and that an acquisition of the entire Company would not be a strategic fit within their organizations. Accordingly, representatives of Lincoln advised that many parties indicated an interest in acquiring only certain of Pioneer Power’s business segments as opposed to its entire product portfolio. Representatives of Lincoln also noted that a number of parties remained open to a potential transaction and were continuing to evaluate the confidential information presentation. The Company’s management presented this information to the Company’s board of directors at a quarterly meeting of the board of directors held on August 10, 2017.

In the following weeks, the parties that had submitted non-binding indications of interest for proposed acquisitions were invited to attend management presentations and participate in discussions with the senior management of Pioneer Power. Following such presentations, each party that had submitted non-binding indications of interest notified Pioneer Power that it had determined not to pursue an acquisition of the Company due largely to the complexity of the Company’s business in light of its size, the fact that certain segments of the Company’s business were more profitable than others and the fact that an acquisition of the entire Company would not be a strategic fit within such parties’ organizations.

In late 2017, in light of the negative feedback that the Company received throughout the sale process, the Company’s management determined that a sale of the entire Company was unlikely at that time. As a result, throughout the remainder of 2017 and into 2018, the Company’s management began undertaking efforts to sell its switchgear manufacturing business as a standalone unit, which was believed to be the most complicated segment of the Company’s operations. The Company’s management believed that if it were able to sell its switchgear manufacturing unit, it would result in a business that was more attractive to potential acquirers and that was more likely to maximize stockholder value in a sale. The Company’s management also believed that pursuing a sale of the switchgear manufacturing unit would make it easier for management to separately pursue a sale of the Company’s transformer business units, which, based on feedback from the sale process, appeared to be the most attractive segments of the Company’s operations, and which were complementary and could be marketed as a single platform.

Background of Transformer Business Unit Sale Process

At a quarterly meeting of Pioneer Power’s board of directors held on March 8, 2018, Mr. Mazurek provided an update to the board of directors on management’s efforts related to the marketing of the switchgear manufacturing business. Mr. Mazurek also led the board through a discussion of the feedback received during the sale process for the entire Company that took place in 2016 and 2017, including feedback received from certain parties that felt the business as a whole was overly complex and that an acquisition of only certain segments, such as the dry-type transformer manufacturing business, was a more attractive transaction opportunity. Accordingly, Mr. Mazurek asked the board of directors to consider a potential sale of one or both of the Company’s transformer business units. Mr. Mazurek also notified the board of directors that Traverse LLC had been engaged by the Company in February 2018 to prepare an updated quality of earnings report with respect to the transformer business units.

During the meeting, Pioneer Power’s board of directors considered the “pros” and “cons” of exploring a sale of its transformer business units, including the alternatives of a sale of the entire Company and continuing to operate the transformer business units in the ordinary course. The Company’s board of directors discussed the potential benefits to the Company’s stockholders of a sale of the transformer business units, including receiving immediate liquidity that could be used to repay the Company’s outstanding debt, reinvested in the Company’s remaining businesses or returned to stockholders. They also considered the possible disruption to the Company’s business that could result from another exploratory process and the resulting distraction of the attention of Company management and employees. The Company’s board of directors also considered the business trajectory of the transformer business units in light of their customer base and market penetration. In addition, the board of directors considered the impact that a sale of the transformer business units would have on the Company’s other strategic initiatives.

At the conclusion of these discussions, the Company’s board of directors determined that it was in the best interests of the Company and its stockholders to explore and prepare for a possible sale of the transformer business units separate from a disposition of the switchgear manufacturing business.

After extensive due diligence and negotiations between the parties, on May 2, 2018, Pioneer Power and to CleanSpark, Inc. (“CleanSpark”) entered into an asset purchase agreement to sell the switchgear manufacturing business to CleanSpark for consideration consisting of shares of CleanSpark’s common stock, warrants to purchase shares of CleanSpark’s common stock, a promissory note and an equipment lease. After several delays to the closing of the transaction, the Company determined not to sell its switchgear business to CleanSpark, and the asset purchase agreement was terminated. On January 22, 2019, the Company entered into an agreement and plan of merger with CleanSpark, pursuant to which Pioneer Critical Power, Inc., a wholly owned subsidiary of Pioneer Power, was merged into a subsidiary of CleanSpark and Pioneer Power retained the switchgear business.

In May 2018, Traverse LLC delivered its updated quality of earnings report.

On August 9, 2018, the board of directors of Pioneer Power held a quarterly meeting, at which the board of directors determined to authorize the Company’s senior management to formally proceed with a marketing effort for the transformer business units beginning in the third quarter of 2018. Acting on the recommendation of the Company’s management, the board of directors authorized the Company to engage Lincoln to serve as financial advisor in connection with the proposed sale due to familiarity with the Company’s business and industry and its experience advising companies considering similar transactions.

On September 12, 2018, the Company and Lincoln signed an amendment to their engagement letter in order to amend the scope of the engagement letter to contemplate Lincoln’s assistance as financial advisor in a sale of the transformer business units. In the weeks that followed, representatives of Lincoln worked with the senior management of Pioneer Power to refine their understanding of the transformer business units and prepare a confidential information presentation. Representatives of Lincoln also discussed with the senior management of Pioneer Power preliminary information regarding precedent transactions, market forecasts and financing market conditions.

Between August and early October 2018, the Company’s senior management and representatives of Lincoln continued to discuss the process of a sale of the transformer business units, potential buyers and other process and procedure considerations, as well as refine the confidential information presentation concerning the Company’s transformer business units. In addition, representatives of Lincoln assisted the Company’s senior management with preparing a management presentation to be delivered to potential bidders following the submission of an indication of interest.

On October 9, 2018, at the Company’s direction, representatives of Lincoln began approaching third parties to evaluate their interest in a potential acquisition of the Company’s transformer business units.

On November 7, 2018, with the assistance of representatives of Lincoln, Mr. Mazurek held a meeting with third party regarding a potential acquisition of the Company. However, shortly following the meeting, the third-party informed Pioneer Power that it would not be pursuing the proposed acquisition.

In December 2018, representatives of Lincoln discussed with the Company’s senior management the initial results of its marketing efforts. Representatives of Lincoln explained that, between October 9, 2018 and December 2018, they reached out to a total of two hundred seventy-two (272) potential acquirers, one hundred two (102) of which signed confidentiality agreements with Pioneer Power. All of the parties that signed confidentiality agreements were provided with the confidential information presentation and Traverse LLC’s quality of earnings report.

Lincoln’s representatives went on to state that seven (7) parties, including Mill Point, had submitted preliminary, non-binding indications of interest for a potential acquisition, with three (3) indications of interest related to an acquisition of both of the Company’s transformer business units and four (4) indications of interest related solely to an acquisition of one of the Company’s transformer business units.

Pioneer Power’s management discussed with representatives of Lincoln the proposals that were received from potential buyers, including the various interest levels of the potential buyers, the transaction value drivers and considerations expressed by potential buyers, and suggested a plan for continuing with potential buyers. After the Company’s management presented this information to the Company’s board of directors, the board of directors determined to proceed exploring a potential sale of the transformer business units with the parties that were considered to have the greatest interest in pursuing a transaction.

Between January 24, 2019 and February 5, 2019, four (4) parties, including Mill Point, and, in certain cases, potential lenders to such parties, attended management presentations at which Pioneer Power’s management, including, among others, Messrs. Mazurek and Klink, gave presentations concerning the Company’s operations, including an overview of the Company’s transformer business units, their customers, industry trends and financial results. The Company’s management also responded to questions from these parties concerning elements of the Company’s business and the proposed transaction.

On February 17, 2019, the Company provided electronic data room access to the parties that attended the management presentations, including Mill Point, and each party conducted its due diligence review of the Company.

In the weeks that followed the management presentations, Pioneer Power’s management met and had follow up discussions regarding the proposed transaction. As a result of these discussions, the Company received final offers from two parties, one of which was submitted by a third party solely to acquire the Company’s dry-type transformer manufacturing business and the other was submitted by Mill Point to acquire both of the Company’s transformer business units.

On March 12, 2019, Mill Point submitted a written offer to acquire the transformer business units for a cash purchase price of $65.0 million, calculated on a cash-free, debt-free basis and assuming that the transformer business units would achieve a certain level of annual EBITDA.

In mid-March 2019, Mr. Mazurek and representatives of Mill Point met to discuss Mill Point’s updated indication of interest, and Mr. Mazurek expressed his belief that the purchase price for the transformer business units should be higher due to his expectations that the annual EBITDA of the transformer business units would exceed the levels assumed in Mill Point’s updated proposal.

On March 20, 2019, under the assumption that an updated quality of earnings report would support the higher annual EBITDA figures expected by Mr. Mazurek, Mill Point submitted a further revised indication of interest to Pioneer Power and representatives of Lincoln to acquire the transformer business units for a cash purchase price of $70.5 million.

During the following week, the third party that delivered the offer to purchase the Company’s dry-type transformer manufacturing business delivered an updated offer and representatives of Lincoln participated in follow up discussions with the third party related to such offer.

On March 27, 2019, Mill Point engaged RSM US LLP to prepare an updated quality of earnings report for the transformer business units.

On March 28, 2019, a quarterly meeting of Pioneer Power’s board of directors was held. At the meeting, Mr. Mazurek presented an update to the board of directors on the status of the sale process of the transformer business units. Mr. Mazurek described the efforts of the marketing process, the number of potential bidders contacted and those that entered into confidentiality agreements, the results of management presentations, his ongoing negotiation efforts and the two outstanding bids that senior management was pursuing with the assistance of representatives of Lincoln: Mill Point’s proposal to acquire the transformer business units and an offer by a third party to acquire only the dry-type transformer business unit. Pioneer Power’s board of directors discussed the different proposals in detail, including proposed timelines for the transactions, approvals required, due diligence matters, financing considerations and exclusivity requirements. After a detailed discussion, the board of directors determined that Mill Point’s bid to acquire both of the transformer business units offered a better chance of maximizing value for Pioneer Power’s stockholders compared to the third party’s bid to only acquire the dry-type transformer business unit because (i) an acquisition of only the dry-type transfer business would require the Company to remain in the liquid-type transformer business and initiate a separate sale process to sell the liquid-type transformer business as a standalone unit and (ii) the third party had a limited transaction history, which created uncertainty regarding the third party’s ability to complete the proposed transaction. As a result, the board of directors determined that, due to Mill Point’s extensive transaction history, financing sources and acquisition experience, it was in the best position to complete the proposed transaction on a mutually-agreeable timeline. As a result, the board of directors determined to prioritize the Mill Point bid.

In the following weeks, Mill Point and RSM US LLP worked to prepare an updated quality of earnings report. Mr. Mazurek also began working with Haynes and Boone to evaluate potential structures for the transaction, including identifying the advantages and disadvantages of, among other things, conducting the transaction as a merger, stock sale or asset sale. Following these discussions, Pioneer Power concluded that a stock sale would be the most effective structure to accomplish its goals.

Beginning in April 2019 until early May 2019, representatives of Lincoln continued to work with the third-party bidder on due diligence items.

On April 5, 2019, Haynes and Boone distributed a first draft of the Stock Purchase Agreement to Mill Point and its legal counsel, Becker Legal Group LLC (“BLG”).

On April 25, 2019, RSM US LLP completed and delivered its quality of earnings report. The quality of earnings report indicated that the transformer business units had an annual EBITDA value that was less than the values assumed for purposes of Mill Point’s March 12 and March 20 bids and that certain cost-saving initiatives launched by management would be slower to manifest positive results than had previously been anticipated.

On April 26, 2019, based on the updated quality of earnings report, Mill Point delivered a revised bid. Mill Point’s revised bid proposed that Mill Point would acquire the transformer business units for an aggregate of $80.0 million, consisting of (i) $55.0 million of cash paid at closing, (ii) $10.0 million in the form of a non-contingent seller note and (iii) a $15.0 million earnout that was substantially dependent upon the post-closing growth of the Company, which would be based on a new management team.

Between April 26, 2019 and May 6, 2019, Pioneer Power’s senior management and representatives of Lincoln had periodic telephone calls with Mill Point to discuss RSM US LLP’s quality of earnings report and the revised bid received from Mill Point, during which Mr. Mazurek expressed his concerns with the earnout included in the revised bid and suggested removal of the earnout in exchange for an increase in the amount of cash paid at closing.

On May 6, 2019, Mill Point delivered a letter of intent to Pioneer Power and representatives of Lincoln. The letter of intent provided for an aggregate purchase price of $66.0 million, $62.5 million of which would be paid in cash at closing and $3.5 million of which would be in the form of a seller note. The letter of intent also contemplated that the acquisition of the transformer business units would be structured as a stock purchase transaction that would close in early June 2019 and that the parties would enter into a limited exclusivity agreement.

On May 6, 2019, Pioneer Power and Mill Point executed the letter of intent for the purchase of the transformer business units and Mill Point and BLG delivered a transaction issues list to Pioneer Power and Haynes and Boone. In connection with the letter of intent, on May 8, 2019, Pioneer Power and Mill Point also entered into an exclusivity agreement providing for a twenty-one (21) day exclusivity period.

On May 13, 2019, a quarterly meeting of Pioneer Power’s board of directors was held. At the meeting, Mr. Mazurek provided the board of directors with a proposed timeline for the sale of transformer business units to Mill Point, including the timing of due diligence and necessary stockholder approvals in connection with the transaction. Mr. Mazurek also discussed the need to obtain a fairness opinion with respect to the transaction, and the board of directors discussed potential candidates to render a fairness opinion. Following such discussions, Yossi Cohn, a member of Pioneer Power’s board of directors, met with, and reviewed proposals from, several financial advisors to render fairness opinions in connection with the sale.

On May 24, 2019, after considering proposals from several financial advisors, the Company engaged Lincoln to render an opinion with respect to the consideration to be received in the transaction.

On May 17, 2019, BLG and Mill Point provided comments to the draft Stock Purchase Agreement to Pioneer Power and Haynes and Boone.

On May 20, 2019, Pioneer Power, BLG, Mill Point and Haynes and Boone met at Haynes and Boone’s New York office to negotiate the terms of the Stock Purchase Agreement. Representatives of Lincoln also attended the meeting to assist Pioneer Power in its negotiations. Mr. Mazurek, as the sole representative of Pioneer Power at the meeting, led the discussion of key terms on behalf of Pioneer Power, and certain of the negotiation items discussed were matters related to the survival of representations and warranties, net working capital, the indemnity obligations of Pioneer Power, and the scope of the representations and warranties of the parties.

On May 21, 2019, Pioneer Power and Mill Point entered into an agreement to extend the exclusivity period under the exclusivity agreement from May 29, 2019 to June 14, 2019.

On May 23, 2019, Haynes and Boone distributed a revised draft of the Stock Purchase Agreement to Mill Point and BLG.

On May 30, 2019, Pioneer Power, BLG, Mill Point and Haynes and Boone met at Haynes and Boone’s New York office to negotiate the terms of the Stock Purchase Agreement. Representatives of Lincoln also attended the meeting telephonically to assist Pioneer Power in its negotiations. Mr. Mazurek again, as the sole representative of Pioneer Power at the meeting, led the discussion of the negotiations on behalf of Pioneer Power, which, among other things, included matters related to net working capital, escrow accounts, the indemnity obligations of Pioneer Power, and termination related provisions. At the meeting, Pioneer Power and Mill Point entered into an agreement to extend the exclusivity period under the exclusivity agreement from May 29, 2019 to June 14, 2019.

On June 11, 2019, BLG and Mill Point provided comments to the draft Stock Purchase Agreement to Pioneer Power and Haynes and Boone. In the following weeks, Pioneer Power, led by Mr. Mazurek, and Mill Point continued to negotiate the terms of the Stock Purchase Agreement. Among the key terms discussed were matters related to the financing of the transaction, termination rights of the parties, the scope of the representations and warranties of the parties, the restrictions on the Disposed Companies’ business in the period between signing the Stock Purchase Agreement and closing and the definition of material adverse effect in the Stock Purchase Agreement. During this period, BLG and Haynes and Boone also exchanged drafts of the form of Voting Agreement.

In mid-June 2019, Pioneer Power and Mill Point met to discuss outstanding due diligence issues in addition to outstanding purchase agreement items. Representatives of Lincoln also attended the meeting to assist Pioneer Power. As a result of these discussions, Mill Point and Mr. Mazurek, on behalf of Pioneer Power, agreed to reduce the amount of the cash consideration in the transaction from $62.5 million to $60.5 million and increase the amount of the seller note from $3.5 million to $5.0 million. The total amount of consideration to be paid in the transaction was accordingly reduced to $65.5 million. Pioneer Power received a $500,000 deductible on certain indemnifiable claims as consideration for this reduction in purchase price.

Over the following week, Haynes and Boone and BLG continued to work to finalize the terms of the Stock Purchase Agreement and the form of Voting Agreement. On June 20, 2019, Haynes and Boone provided BLG with an initial copy of Pioneer Power’s disclosure schedules and, on June 21, 2019, BLG provided Haynes and Boone with an initial draft of the form of Seller Note.

Between June 24, 2019 and June 27, 2019, the parties continued to negotiate and finalize the terms of the Stock Purchase Agreement, its related disclosure schedules, the form of Voting Agreement and the form of Seller Note.

On June 25, 2019, Pioneer Power’s board of directors convened to consider the terms of the draft Stock Purchase Agreement. Representatives from Lincoln and Haynes and Boone also attended the meeting in person or by telephone. At the request of the board of directors, Lincoln summarized the status of discussions with other potential buyers and discussed its preliminary financial analyses with respect to the consideration to be received by the Company in the proposed transaction with Mill Point. The board of directors, with the assistance of Lincoln, reviewed the status of discussions with other potential buyers and concluded that there were no acquirors for the transformer business units at the price level indicated by Mill Point and that offered the degree of deal certainty offered by Mill Point. The board of directors discussed the significant risk of losing the opportunity with Mill Point in the event of any delay. Haynes and Boone representatives then reviewed the status of the negotiations and the terms of the Stock Purchase Agreement and reviewed with the Board their fiduciary duties under Delaware law in the context of the transaction being considered. Following discussion and questions from the board of directors, Haynes and Boone reviewed the proposed board resolutions proposed to be adopted in connection with the transaction. At such time, the board of directors elected not to take any action until the completion of all negotiations of the transaction documents.

On the afternoon of June 27, 2017, the board of directors convened a meeting at which all of the members of the board of directors were in attendance. At the request of the board of directors, representatives of each of the Company’s legal and financial advisors were also in attendance in person or by telephone. Haynes and Boone updated the board of directors on the course of final negotiations relating to the Stock Purchase Agreement and all related agreements, and representatives of Lincoln, at the request of the board of directors, then presented Lincoln’s financial analyses of the consideration to be received by the Company in the proposed transaction. Thereafter, at the request of the board of directors, representatives of Lincoln orally rendered Lincoln’s opinion to the board of directors (which was subsequently confirmed in writing by delivery of Lincoln’s written opinion addressed to the board of directors dated June 27, 2019), as to, as of such date, the fairness, from a financial point of view, of the consideration to be received by the Company in the transaction pursuant to the Stock Purchase Agreement. Representatives of Lincoln and Haynes and Boone responded to questions from the board of directors and following further discussion among the members of the board of directors, the board of directors unanimously determined that it was advisable, fair to and in the best of interests of the Company and its stockholders to enter into the Stock Purchase Agreement and to consummate the transactions contemplated thereby. The board of directors then unanimously (i) approved and authorized the consummation of the Equity Transaction and the execution and delivery of, the Stock Purchase Agreement in the form presented to the board of directors, and any additional documents, agreements, exhibits, consents and other instruments, contemplated by the Stock Purchase Agreement or necessary in connection with the consummation of the transactions contemplated by the Stock Purchase Agreement (collectively, the “Transaction Documents”) and (ii) recommended that the Company’s stockholders adopt and approve the Equity Transaction and the Transaction Documents. After the approval, the meeting adjourned.

At the direction of the board of directors, the Stock Purchase Agreement was executed on June 28, 2019, and immediately thereafter the controlling stockholders delivered the written consent approving and adopting the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction. In addition, on the morning of July 1, 2019, the parties issued a joint press release announcing the execution of the Stock Purchase Agreement.

Pioneer Power’s Reasons for the Equity Transaction

As described above, on June 27, 2019, Pioneer Power’s board of directors unanimously declared the Stock Purchase Agreement advisable and recommended approval and adoption of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction, by Pioneer Power’s stockholders. In reaching its decision, Pioneer Power’s board of directors consulted with Pioneer Power’s management, as well as its outside advisors, and considered a number of factors, including that:

Pioneer Power’s board of directors also considered and discussed a number of risks, uncertainties and other countervailing factors in its deliberations relating to entering into the Stock Purchase Agreement and the transactions contemplated thereby, including that:

In addition, Pioneer Power’s board of directors believes that it was aware of, and considered, the interests its directors and named executive officers may have with respect to the transaction that differ from, or are in addition to, their interests as stockholders of Pioneer Power generally, as described in “The Equity Transaction — Interests of Certain of Pioneer Power’s Directors and Executive Officers in the Equity Transaction.”

The foregoing discussion of the factors considered by Pioneer Power’s board of directors is not intended to be exhaustive, but, rather, includes the material factors considered by Pioneer Power’s board of directors. In reaching its decision to approve and adopt the Stock Purchase Agreement and the other transactions contemplated by the Stock Purchase Agreement, Pioneer Power’s board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. Pioneer Power’s board of directors considered all these factors as a whole, including discussions with Pioneer Power’s management and advisors.

After considering these factors, Pioneer Power’s board of directors concluded that the positive factors relating to the Stock Purchase Agreement and the Equity Transaction outweighed the potential negative factors, and determined that the Equity Transaction is advisable, fair to and in the best interests of Pioneer Power and its stockholders, and recommend that Pioneer Power’s stockholders approve the Stock Purchase Agreement and the Equity Transaction.

THE CONTROLLING STOCKHOLDERS DELIVERED A WRITTEN CONSENT APPROVING THE STOCK PURCHASE AGREEMENT AND THE EQUITY TRANSACTION ON JUNE 28, 2019. CONSEQUENTLY, NO FURTHER ACTION BY ANY STOCKHOLDER OF PIONEER POWER IS REQUIRED UNDER APPLICABLE LAW OR THE STOCK PURCHASE AGREEMENT (OR OTHERWISE) TO APPROVE AND ADOPT THE STOCK PURCHASE AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE EQUITY TRANSACTION, AND THE COMPANY WILL NOT BE SOLICITING YOUR VOTE FOR ADOPTION AND APPROVAL OF THE STOCK PURCHASE AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE EQUITY TRANSACTION, AND WILL NOT CALL A STOCKHOLDERS MEETING FOR PURPOSES OF VOTING ON THE ADOPTION AND APPROVAL OF THE STOCK PURCHASE AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE EQUITY TRANSACTION.

Required Approvals for the Equity Transaction

Under Section 271 of the DGCL, the approval of Pioneer Power’s board of directors and the approval by the holders of a majority of Pioneer Power’s outstanding common stock are required to approve and adopt the Stock Purchase Agreement and the Equity Transaction. Pioneer Power’s board of directors approved the Stock Purchase Agreement and the Equity Transaction on June 27, 2019.

Under Section 228(e) of the DGCL and Pioneer Power’s organizational documents, the approval of Pioneer Power’s stockholders may be provided by written consent. On June 28, 2019, the controlling stockholders, who collectively owned on such date, approximately 54.7% of Pioneer Power’s outstanding shares of common stock, delivered a written consent adopting and approving the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction. The written consent constituted an adoption and approval of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction , by the holders of the requisite number of shares of Pioneer Power’s common stock in accordance with Section 271 of the DGCL. Accordingly, the Equity Transaction can occur without the vote of any of Pioneer Power’s other stockholders, and there will not be a meeting of Pioneer Power’s stockholders at which you will be asked to vote on the adoption and approval of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction.

Federal securities laws state that the Equity Transaction may not be completed until twenty (20) days after the date of mailing this information statement to Pioneer Power’s stockholders. Therefore, notwithstanding the execution and delivery of the written consent, the Equity Transaction will not occur until that time has elapsed. Pioneer Power expects the Equity Transaction to close as soon as possible after the end of this twenty (20) day period, which will end on                          , 2019, subject to the satisfaction or waiver of the conditions to the closing of the Equity Transaction set forth in the Stock Purchase Agreement. However, there can be no assurance that the Equity Transaction will close at that time, or at all.

Record Date; Written Consent Approving Equity Transaction

On June 28, 2019, the record date for determining stockholders entitled to act by written consent with respect to the adoption and approval of the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction, there were 8,726,045 shares of Pioneer Power common stock outstanding. Each share of Pioneer Power common stock issued and outstanding is entitled to one vote.

As of June 28, 2019, the Company received the written consent adopting and approving the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction, executed by the holders of approximately 54.7% of Pioneer Power’s outstanding shares of common stock as of the record date, which such amount was in excess of the requisite number of shares of common stock required to approve such matters in accordance with Section 271 of the DGCL.

You may be receiving this information statement because you owned shares of Pioneer Power common stock on the record date.

Forecasts

Pioneer Power does not as a matter of course publicly disclose long-term forecasts or internal projections as to future performance, revenues, earnings, financial condition or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with the board of director’s exploration of strategic alternatives, Pioneer Power’s management prepared unaudited prospective financial information on a stand-alone, pre-Equity Transaction basis. Pioneer Power is electing to provide the unaudited prospective financial information in this information statement to provide the stockholders of Pioneer Power access to certain non-public unaudited prospective financial information that was made available to Buyer’s or to Pioneer Power’s financial advisor in connection with the Equity Transaction. The unaudited prospective financial information was not prepared with a view toward public disclosure and the inclusion of this information should not be regarded as an indication that Pioneer Power or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. Neither Pioneer Power nor any of its affiliates assumes any responsibility for the accuracy of this information. Readers of this information statement are cautioned not to place undue reliance on the unaudited prospective financial information. No one has made or makes any representation to any stockholder of Pioneer Power regarding the information included in the unaudited prospective financial information or the ultimate performance of the Company compared to the information included in the unaudited prospective financial information.

The unaudited prospective financial information was not prepared with a view toward complying with Generally Accepted Accounting Principles (“GAAP”), the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants with respect to the preparation or presentation of prospective financial information. Certain of the unaudited prospective financial information presents financial metrics that were not prepared in accordance with GAAP, including EBITDA. EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Pioneer Power has not prepared, and neither Pioneer Power’s board of directors nor Pioneer Power’s financial advisor has considered, a reconciliation of EBITDA to the nearest applicable GAAP financial measure.

There can be no assurance that the assumptions made in preparing such information will prove accurate or that the projected results reflected therein will be realized. Neither Pioneer Power’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for the unaudited prospective financial information and disclaim any association with, the prospective financial information. Furthermore, the unaudited prospective financial information does not take into account any circumstance or event occurring after the date it was prepared or which may occur in the future, and, in particular, does not take into account any revised prospects of Pioneer Power’s business, changes in general business, regulatory or economic conditions, competition or any other transaction or event that has occurred since the date on which such information was prepared or which may occur in the future.

While presented with numeric specificity, the unaudited prospective financial information reflects numerous estimates and assumptions made by Pioneer Power’s management with respect to industry performance and competition, general business, economic, market and financial conditions and matters specific to Pioneer Power’s business, all of which are difficult to predict and many of which are beyond Pioneer Power’s control. As a result, the unaudited prospective financial information reflects numerous assumptions and estimates as to future events and there can be no assurance that these assumptions will accurately reflect future conditions, that the unaudited prospective financial information will be realized or that actual results will not be significantly higher or lower than estimated. Since the unaudited prospective financial information covers multiple years, such information by its nature becomes less predictive with each successive year.

Dry-Type Transformer Business Forecasts:

Liquid-Type Transformer Business Forecasts:

The unaudited prospective financial information includes forward-looking statements and is based on estimates and assumptions that are inherently subject to factors such as industry performance, competition, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of the Company, including the factors described under “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 16 and other risk factors as disclosed in Pioneer Power’s filings with the SEC that could cause actual results to differ materially from those shown below. Stockholders are urged to review Pioneer Power’s most recent SEC filings for a description of risk factors with respect to the Company’s business. See “Where You Can Find More Information” beginning on page 69. The unaudited prospective financial information does not take into account any of the transactions contemplated by the Stock Purchase Agreement, including the Equity Transaction, which might cause actual results to differ materially.

Pioneer Power’s stockholders are urged to review Pioneer Power’s most recent SEC filings for a description of Pioneer Power’s reported results of operations, financial condition and capital resources as of, and for the fiscal year and quarter ended December 31, 2018 and March 31, 2019, respectively. See “Where You Can Find More Information” beginning on page 69.

For the foregoing reasons, as well as the bases and assumptions on which the unaudited prospective financial information was compiled, the inclusion of Pioneer Power’s unaudited prospective financial information in this information statement should not be regarded as an indication that such information will be predictive of future results or events nor construed as financial guidance, and it should not be relied on as such or for any other purpose whatsoever.

PIONEER POWER HAS NOT UPDATED AND DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE PROSPECTIVE FINANCIAL INFORMATION SET FORTH ABOVE, INCLUDING, WITHOUT LIMITATION, TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE SUCH INFORMATION WAS PREPARED OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, WHICH MAY INCLUDE, WITHOUT LIMITATION, CHANGES IN GENERAL ECONOMIC, REGULATORY OR INDUSTRY CONDITIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE.

Opinion of Pioneer Power’s Financial Advisor

Lincoln orally rendered its opinion to Pioneer Power’s board of directors, subsequently confirmed in writing, by delivery of Lincoln’s written opinion addressed to Pioneer Power’s board of directors, dated June 27, 2019, based upon and subject to the qualifications, procedures, limitations and assumptions set forth therein, as to the fairness, from a financial point of view, to Pioneer Power, of the Base Purchase Price (as defined in the Stock Purchase Agreement) to be received by Pioneer Power in the Equity Transaction pursuant to the Stock Purchase Agreement.

Lincoln’s opinion was directed to Pioneer Power’s board of directors (in its capacity as such) and only addressed the fairness, from a financial point of view, to Pioneer Power of the Base Purchase Price to be received by Pioneer Power in the Equity Transaction pursuant to the Stock Purchase Agreement and did not address any other aspect or implication of the Equity Transaction, any related transaction or any other agreement, arrangement or understanding entered into in connection therewith or otherwise. The summary of Lincoln’s opinion in this information statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex D to this information statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Lincoln in connection with the preparation of its opinion. However, neither Lincoln’s opinion, nor the summary of its opinion and the related analyses set forth in this information statement are intended to be, and do not constitute, advice or a recommendation to Pioneer Power’s board of directors, any security holder of Pioneer Power or any other person as to how to act or vote with respect to any matter relating to the Equity Transaction or otherwise.

In connection with rendering its opinion, Lincoln, among other things:

For purposes of its analysis and opinion, Lincoln relied upon and assumed the accuracy and completeness of all the financial, accounting, legal, tax and other information Lincoln reviewed, and Lincoln did not assume any responsibility for the independent verification of any of such information. With respect to the financial forecasts, Lincoln assumed that they were reasonably prepared in good faith on a basis reflecting the best then-currently available estimates and judgments of the applicable parties who prepared them. Lincoln assumed no responsibility for the assumptions, estimates and judgments on which such forecasts were based. In addition, Lincoln was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent, derivative, off-balance sheet or otherwise) of the Disposed Companies, the Company or the Buyer, or any of their respective subsidiaries, nor was Lincoln furnished with any such evaluations or appraisals. With regard to the information provided to Lincoln by the Company, Lincoln relied upon the assurances of management of the Company that they were unaware of any facts or circumstances that would make such information materially incomplete or misleading. Lincoln also assumed that there had been no material change in the assets, liabilities, business, condition (financial or otherwise), results of operations or prospects of the Disposed Companies since the date of the most recent financial statements made available. Lincoln also assumed that in the course of obtaining any necessary regulatory and third party consents, approvals and agreements for the Equity Transaction, no modification, delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the Equity Transaction, and that the Equity Transaction would be consummated in accordance with the terms of the Stock Purchase Agreement, without waiver, modification or amendment of any term, condition or agreement therein that was material to Lincoln’s opinion or financial analyses related thereto. Lincoln also relied upon and assumed, without independent verification, at the direction of the Company, that any adjustments to the Base Purchase Price pursuant to the Stock Purchase Agreement would not be material to its opinion or its financial analyses underlying its opinion.

Representatives of the Company advised Lincoln, and Lincoln further assumed, that the final terms of the Stock Purchase Agreement and form of Seller Note would not vary materially from those set forth in the copies or drafts, as applicable, reviewed by Lincoln. Lincoln’s opinion was necessarily based on financial, economic, market and other conditions as they existed on and the information made available to Lincoln as of June 27, 2019. Although subsequent developments may affect Lincoln’s opinion, Lincoln does not have any obligation to update, revise or reaffirm its opinion.

Lincoln’s opinion only addressed the fairness from a financial point of view to the Company of the Base Purchase Price to be received by the Company in the Equity Transaction pursuant to the Stock Purchase Agreement (the Base Purchase Price was determined by the Company in its sole discretion) and does not address any other terms, aspects or implications of the Equity Transaction, or any agreements, arrangements or understandings entered into in connection with the Equity Transaction or otherwise. In addition, Lincoln’s opinion does not address the relative merits of the Equity Transaction as compared to other transaction structures, transactions or business strategies that may have been available to the Company or the Company’s board of directors, nor does it address or constitute a recommendation to the board of directors, any security holder or any other party as to how to act or vote with respect to any matter relating to the Equity Transaction or otherwise. The issuance of the opinion was approved by an opinion committee of Lincoln. Lincoln’s opinion does not indicate that the consideration to be received was the best possibly attainable under any circumstances; instead, it merely states whether the consideration to be received by the Company in the Equity Transaction was within a range suggested by certain financial analyses. The decision as to whether to proceed with the Equity Transaction or any related transaction depends on an assessment of factors unrelated to the financial analyses on which Lincoln’s opinion was based. Lincoln’s opinion does not constitute advice or a recommendation to Pioneer Power as to how it should act on any matter relating to the Equity Transaction. Lincoln expressed no opinion about the amount or nature of the compensation to the Company’s officers, directors or employees, or class of such persons, in connection with the Equity Transaction relative to the Base Purchase Price in the Equity Transaction.

Set forth below is a summary of the material financial analyses reviewed by Lincoln with the Pioneer Power board of directors on June 25, 2019 in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Lincoln. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Lincoln. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before June 25, 2019 and is not necessarily indicative of then-current market conditions.

The following summary of Lincoln’s financial analyses includes information presented in tabular format. Several financial analyses were employed and no one method of analysis should be regarded as critical to the overall conclusion reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Each of the analyses conducted was carried out to provide a particular perspective of the Base Purchase Price. In order to fully understand the analyses, the tables must be read together with the full text of each summary. The tables are not intended to stand-alone and alone do not constitute a complete description of Lincoln’s financial analyses. Considering the tables below without considering the full narrative description of Lincoln’s financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of such analyses. Lincoln did not form a conclusion as to whether any individual analysis, when considered in isolation, supported or failed to support its opinion as to the fairness of the Base Purchase Price. Lincoln did not place any specific reliance or weight on any individual analysis, but instead, concluded that its analyses, taken as a whole, supported its opinion.

Summary of Lincoln’s Financial Analysis

Selected Public Companies Analysis

Lincoln reviewed and compared certain financial information of the Disposed Companies to corresponding financial multiples, metrics and ratios for the following publicly traded (i) transformer and electrical production equipment manufacturers and (ii) diversified power equipment manufacturers:

Although none of these selected public companies is directly comparable to the Disposed Companies, Lincoln selected these companies for its analysis based on their relative similarity, primarily in terms of business model, industry segmentation, and primary customers, to that of the Disposed Companies. For purposes of its analysis, Lincoln used certain publicly available historical financial data and consensus equity analyst estimates for the selected public companies. This analysis produced valuation multiples of selected financial metrics which Lincoln utilized to estimate the enterprise value of the Disposed Companies.

The tables below summarize certain observed trading multiples of the selected public companies as of June 26, 2019. The EBITDA estimates for 2019 in the tables below for the selected public companies were derived based on information for the 12-month period ending closest to the Disposed Companies’ 2019 fiscal year for which information was available.

LTM = Latest twelve months for which financial information was available. 

EV = Enterprise Value = (Market Capitalization + Management Equity + Debt + Preferred Stock + Non-Controlling Interest) – (Cash & Equivalents + Net Non-Operating Assets). 

EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization. 

“n/a” refers to not available. 

Source: S&P Capital IQ, SEC Filings, Annual and Interim Reports.

None of the selected public companies were identical to the Disposed Companies. As a result, a complete valuation analysis cannot be limited to a quantitative review of the selected public companies, but also requires complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of the Disposed Companies.

Selected M&A Transactions Analysis

Lincoln reviewed publicly available information related to the precedent acquisition transactions listed in the below table. The selection of these transactions was based, among other things, on the target company’s industry, the relative size of the transaction compared to the Equity Transaction, and the availability of public information related to the selected transaction.

No company or transaction utilized in the precedent transactions analysis was identical or directly comparable to the Disposed Companies or the Equity Transaction.

Summary of Selected Public Companies / M&A Transactions Analyses

In order to estimate a range of enterprise values for the Disposed Companies, Lincoln applied valuation multiples to (i) Adjusted EBITDA for the Disposed Companies for the last twelve-month period ended March 31, 2019, and (ii) Projected Adjusted EBITDA for the Disposed Companies for the fiscal year ending December 31, 2019, as follows:

Adjusted EBITDA, for purposes of this analysis, was defined as EBITDA as further adjusted to exclude (i) costs associated with non-recurring items including restructuring, employee disability payment, sale of building, tax audit and lease classification and (ii) costs associated with pro forma standalone corporate overhead.

Valuation multiples were selected, in part, by taking into consideration historical and projected financial performance metrics of the Disposed Companies relative to such metrics of the selected public companies and selected transactions, including, but not limited to, the size of the Disposed Companies on a revenue and EBITDA basis, historical and projected EBITDA margins compared to the selected public companies, and historical and projected revenue and EBITDA growth compared to the selected public companies. Lincoln also took into consideration foreign exchange risk, geography, customer concentration and the carve-out nature of the Equity Transaction.

Based on these selected valuation multiples, the enterprise value indication for the Disposed Companies ranged from $57.9 million to $67.2 million. Lincoln then added the estimated tax amortization benefit of $1.5 million determined based on a discounted cash flow analysis, the tax amortization schedule provided by Pioneer Power and its tax advisors and a discount rate of 15.5%.

Discounted Cash Flow Analysis

Lincoln performed a discounted cash flow analysis of the projected unlevered free cash flows of the Disposed Companies for the fiscal years ending December 31, 2019 through December 31, 2022. Lincoln defines “free cash flow” as the cash generated by the Disposed Companies that is available either to reinvest, service debt or to distribute to stockholders. The discounted cash flow analysis was used to determine the net present value of projected unlevered free cash flows utilizing an appropriate cost of capital for the discount rate. Pioneer Power’s management provided Lincoln financial projections for the Disposed Companies for the fiscal years ending December 31, 2019 through December 31, 2022. The financial projections are inclusive of standalone corporate overhead.

Lincoln used a discount rate of 15.0% to 16.0% for the Disposed Companies to discount the projected unlevered free cash flows and terminal value. Lincoln calculated the Disposed Companies’ projected unlevered free cash flows by taking its earnings before interest and taxes (“EBIT”), subtracting taxes, adding back depreciation, and subtracting the change in working capital and capital expenditures. Lincoln calculated the Disposed Companies’ terminal value in 2022 using a perpetuity growth formula assuming a 2.5% terminal growth rate and the discount rate.

Based on these assumptions, Lincoln’s discounted cash flow analysis indicated an estimated enterprise value for the Disposed Companies of $62.7 million to $69.8 million. Lincoln then added the estimated tax amortization benefit of $1.5 million determined based on a discounted cash flow analysis, the tax amortization schedule provided by Pioneer Power and its tax advisors and a discount rate of 15.5%.

Summary of Analysis

The range of indicated enterprise values for the Disposed Companies that Lincoln derived from its selected public companies / M&A transactions analyses, inclusive of the tax amortization benefit, was $59.4 million to $68.7 million, and the range of enterprise values that Lincoln derived from its discounted cash flow analysis, inclusive of the tax amortization benefit, was $64.2 million to $71.3 million. Based on the analyses described above, the Disposed Companies’ enterprise value was within a range of $61.8 million to $70.0 million.

Seller Note Yield Analysis

Lincoln utilized a discounted cash flow analysis of the projected payment-in-kind (“PIK”) interest payments and outstanding principal amount of the Seller Note, together with all accrued and unpaid interest thereon, due and payable on December 31, 2022 to derive the value of the Seller Note. The market yield for the Seller Note based on its position within the capital structure and indicative pricing for subordinated debt which may be obtained by the Disposed Companies through an orderly financing process implied by this analysis was 12.0% to 14.0%.

Lincoln used the preceding selected market yields to discount the aforementioned cash flows and estimated the value of the Seller Note to be $3.6 million to $3.9 million.

Based on the foregoing analysis, Lincoln estimated that the value of the aggregate base cash purchase price and the value of the Seller Note range from $64.1 million to $64.4 million and note that this range falls within the indicated enterprise value range as discussed above.

Miscellaneous

Lincoln and its affiliates provide a range of investment banking and financial advisory services and, in that regard, Lincoln and its affiliates have provided, are currently providing and may in the future provide, investment banking and other financial services to the Buyer, the Company and each of their respective affiliates or other portfolio companies, for which Lincoln and its affiliates would expect to receive customary compensation, including acting as a financial advisor to a portfolio company of the Buyer in connection with such portfolio company’s potential sale, for which Lincoln expects to receive customary compensation. Prior to being engaged to render its opinion, Lincoln was initially engaged in 2016 to act as an exclusive financial advisor to the Company in connection with potential transactions including (a) the acquisition by a person or group in a single or series of transactions, of (i) all or a material portion of the assets or operations of the Company or (ii) fifty percent or more of the equity of the Company or (b) merger, consolidation, reorganization, recapitalization, equity issuance, business combination, joint venture, lease or other transaction, including any transaction pursuant to which either (i) the Company or substantially all of its assets or operations are transferred to, acquired by or combined with another party or (ii) the owners of the Company receive substantially all of the distributions or proceeds from such transaction. A transaction was not consummated in connection with the 2016 engagement and subsequently, Lincoln was engaged in 2018 (the “M&A Engagement”) to act as an exclusive financial advisor to the Company in connection with one or more potential transactions directly or indirectly involving the Company’s dry-type transformers business unit and the Company’s liquid-type transformers business unit. Lincoln will receive a fee of approximately $2.25 million from the Company for its services under the M&A Engagement, a portion of which has been paid, and a significant portion of which is contingent upon the successful completion of the Equity Transaction; such fee in connection with the M&A Engagement is separate from, and in addition to, a customary fee being paid to Lincoln for delivery of its opinion. In addition, Lincoln and certain of its affiliates and certain of its and their respective employees and managing directors may have committed to invest in private equity or other investment funds managed or advised by the Buyer, other participants in the Equity Transaction or certain of their respective affiliates or security holders, and in portfolio companies of such funds, and may have co-invested with the Buyer, other participants in the Equity Transaction or certain of their respective affiliates or security holders, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, distressed situations and similar matters, Lincoln and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, the Buyer, other participants in the Equity Transaction or certain of their respective affiliates or security holders, for which advice and services Lincoln and its affiliates have received and may receive compensation.

Use of Proceeds and Future Operations

Pioneer Power, and not its stockholders, will receive the proceeds from the Equity Transaction. Pioneer Power’s board of directors has not made any definitive plans with respect to the use of proceeds from the Equity Transaction. If the Equity Transaction is consummated, Pioneer Power expects that it may use all or a portion of the proceeds from the transaction to, among other things: (i) repay outstanding indebtedness, (ii) reinvest into its remaining businesses, (iii) make one or more special dividends to its stockholders or (iv) pursue strategic acquisitions. The amounts and timing of Pioneer Power’s actual expenditures, however, will depend upon numerous factors, and Pioneer Power may find it necessary or advisable to use portions of the proceeds from the Equity Transaction for different or presently non-contemplated purposes.

Financing Condition

The obligations of the Buyer to complete the Equity Transaction are subject to a financing condition. Certain lenders have entered into a debt financing commitment letter with the Buyer, and Mill Point has entered into an equity commitment letter with the Buyer, in each case committing to provide the Buyer with a portion of the funds to pay the aggregate consideration to be paid by the Buyer in connection with the Equity Transaction. The Buyer is not obligated to consummate the Equity Transaction unless it receives debt financing on substantially the same terms provided for in the debt financing commitment letter or the Buyer is able to obtain alternative financing in amount sufficient to consummate the Equity Transaction.

If the Stock Purchase Agreement is terminated by the Buyer after all conditions to closing have been satisfied, except that the Buyer has not obtained sufficient financing to consummate the Equity Transaction, the Buyer would be required to pay a $4.0 million reverse termination fee to Pioneer Power, subject to certain limitations set forth in the Stock Purchase Agreement. The obligation of the Buyer to pay the reverse termination fee is guaranteed by Mill Point.

Interests of Certain of Pioneer Power’s Directors and Executive Officers in the Equity Transaction

Certain of Pioneer Power’s directors and named executive officers have interests in the Equity Transaction that may be different from, or in addition to, those of Pioneer Power’s stockholders generally. The board of directors was aware of these interests and considered them, among other matters, (i) in evaluating the Stock Purchase Agreement, (ii) in reaching its decision to approve the Stock Purchase Agreement, and (iii) in recommending to Pioneer Power’s stockholders that the Stock Purchase Agreement and the Equity Transaction be approved and adopted. These interests include those described below.

Termination Benefits of Named Executive Officers

Nathan Mazurek, Pioneer Power’s President, Chief Executive Officer and Chairman of the board of directors, and Thomas Klink, Pioneer Power’s Chief Financial Officer, Secretary, Treasurer and Director, are each subject to an executive employment agreement with Pioneer Power and Jefferson, respectively. Although neither of the executive employment agreements provide for severance payments or benefits upon a change of control of Pioneer Power, Messrs. Mazurek and Klink are each eligible to receive certain severance payments if they are terminated by Pioneer Power or Jefferson, as applicable, without cause.

Pursuant to the terms of Mr. Mazurek’s executive employment agreement, if Mr. Mazurek is terminated without cause, he is entitled to receive (i) any unpaid base salary accrued through the date of his termination, (ii) any unreimbursed expenses properly incurred prior to the date of his termination, and (iii) severance pay equal to the base salary that would have been payable to Mr. Mazurek for the remainder of the term of his executive employment agreement, which expires on March 31, 2021, less applicable withholdings and taxes. As a precondition to receiving severance pay, Mr. Mazurek is required to execute and deliver within sixty (60) days following his termination a general release of claims against Pioneer Power and its subsidiaries and affiliates that may have arisen on or before the date of the release.

For purposes of Mr. Mazurek’s executive employment agreement, “cause” generally means termination because of: (i) an act or acts of willful or material misrepresentation, fraud or willful dishonesty by Mr. Mazurek; (ii) any willful misconduct by Mr. Mazurek with regard to Pioneer Power; (iii) any violation by Mr. Mazurek of any fiduciary duties owed by him to Pioneer Power; (iv) Mr. Mazurek’s conviction of, or pleading nolo contendere or guilty to, a felony (other than a traffic infraction) or (v) any other material breach by Mr. Mazurek of the executive employment agreement that is not cured by him within twenty (20) days after his receipt of a written notice from Pioneer Power of such breach specifying the details thereof.

Pursuant to the terms of Mr. Klink’s executive employment agreement, if Mr. Klink is terminated without cause, he is entitled to receive severance pay equal to the base salary that would have been payable to him for the remainder of the term of his executive employment agreement, which expires on April 30, 2020. Any such severance payment upon Mr. Klink’s termination without cause is subject to and conditioned upon receipt by Jefferson of a general release of claims in a form reasonably acceptable to counsel of Jefferson.

For purposes of Mr. Klink’s executive employment agreement, “cause” generally means termination because of: (i) Mr. Klink’s failure to observe or perform in any material respect any of the terms or provisions of the executive employment agreement, (ii) Mr. Klink’s failure in any material respect to comply with the instructions or directives of the Chief Executive Officer, (iii) Mr. Klink’s failure to observe or perform in any material respect any of the terms or provisions of certain agreements identified in his employment agreement, (iv) Mr. Klink’s fraud, embezzlement, defalcation, willful and material misrepresentation or willful misconduct relating to or affecting Jefferson and/or its affiliates; provided, however, that no action shall constitute willful misconduct if taken or not taken, as the case may be, by Mr. Klink in good faith as not being adverse to the best interests of Jefferson, (v) Mr. Klink’s chronic absenteeism, alcoholic, drug related or other self-induced affliction interfering in any material respect with the performance of his duties under the executive employment agreement, and (vi) Mr. Klink’s conviction of, or pleading nolo contendere or guilty to, a felony (other than a traffic infraction) or any crime involving moral turpitude.

Equity Transaction Bonuses

While the board of directors of Pioneer Power does not currently anticipate that it will award cash bonuses in connection with the Equity Transaction, the board of directors reserves its right to use a portion of the net proceeds from the Equity Transaction to award cash bonuses to certain executive officers of Pioneer Power.

Indemnification, Expenses, Exculpation and Insurance

Pursuant to the Stock Purchase Agreement, the Buyer has agreed to maintain all rights to indemnification and advancement of expenses by the Disposed Companies and the Named Subsidiaries existing in favor of each person who, as of the signing of the Stock Purchase Agreement or prior to the closing date, serves as an officer, manager or director of the Disposed Companies or the Named Subsidiaries, for a period of no less than six (6) years.

In addition, Pioneer Power has agreed to purchase a prepaid tail insurance policy providing for directors’ and officers’ liability insurance, employment practices liability insurance and fiduciary liability insurance covering acts or omissions occurring on or prior to the closing date with respect to those directors and officers of the Disposed Companies who are covered, as of the signing date of the Stock Purchase Agreement, by the Disposed Companies’ comparable insurance policies on terms with respect to such coverage and amounts no less favorable to the insured than those of such current insurance coverages for an aggregate period of not less than six (6) years.

Golden Parachute Compensation

Pioneer Power does not have any “change in control” agreements with its named executive officers that would entitle them to benefits or payments solely as a result of a change in control of the Company. However, pursuant to their employment agreements, in the event of a termination without “cause,” Pioneer Power’s named executive officers are entitled to cash severance benefits.

The following table shows the aggregate dollar value of the various elements of compensation that each of Pioneer Power’s named executive officers could receive in connection with the Equity Transaction, as required by Item 402(t) of Regulation S-K, assuming that (i) the consummation of the Equity Transaction occurred on June 28, 2019 and (ii) each named executive officer’s employment was terminated on the date of consummation of the Equity Transaction without “cause,” as such term is defined in each named executive officer’s respective executive employment agreement.

Treatment of Equity Awards

Although pursuant to the Pioneer Power Solutions, Inc. 2009 Equity Incentive Plan (the “Plan”), upon the occurrence of a “change in control” (as defined in the Plan), the board of directors may accelerate the vesting and exercisability of outstanding stock options granted under the Plan in the sole discretion of the board of directors, as of the date of this information statement, all of the stock options awarded to Pioneer Power’s directors and executive officers have vested. Accordingly, the Equity Transaction will have no effect on the outstanding equity awards of Pioneer Power’s directors and executive officers.

No Appraisal or Dissenters’ Rights

No appraisal or dissenters’ rights are available to Pioneer Power’s stockholders under Delaware law or under Pioneer Power’s organizational documents in connection with the Equity Transaction.

Regulatory Waiting Periods

Except for the expiration of the twenty (20) day waiting period from the mailing of this information statement required under federal securities laws, Pioneer Power is not aware of any material federal, state or foreign regulatory requirements or approvals required for the consummation of the Equity Transaction or the other transactions contemplated by the Stock Purchase Agreement.

Material U.S. Federal Income Tax Consequences

The following discussion is a summary of certain U.S. federal income tax consequences of the Equity Transaction. This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Department of the Treasury regulations promulgated thereunder, judicial opinions, and published positions of the Internal Revenue Service, all as in effect as of the date of this document. Such authorities are subject to change or differing interpretations at any time, possibly with retroactive effect, and any such change or interpretation could affect the accuracy of the statements in this information statement. This discussion does not address any U.S. federal tax considerations other than those relating to income tax (e.g., estate and gift taxes), nor does it address any state, local, or foreign tax considerations or any tax reporting requirements.

The Equity Transaction will not result in any immediate U.S. federal income tax consequences to Pioneer Power’s stockholders. The Equity Transaction will generally be taxable to Pioneer Power for U.S. federal income tax purposes, and it is expected that Pioneer Power will recognize income and gain for U.S. federal income tax purposes as a result of the Equity Transaction.

Accounting Treatment

Upon completion of the Equity Transaction, Pioneer Power will remove from its consolidated balance sheet all of the assets, net of related liabilities, transferred to the Buyer in connection with the Equity Transaction and Pioneer Power’s financial statements will reflect, to the extent applicable, the effect of the receipt and the use of the proceeds of the Equity Transaction. Pioneer Power will record a gain or loss on its consolidated statement of operations in connection with the Equity Transaction equal to the difference between the purchase price for the assets, net of related liabilities, transferred to the Buyer and the book value of those assets, net of related liabilities, as recorded on Pioneer Power’s consolidated balance sheet.

THE STOCK PURCHASE AGREEMENT

The following is a summary of the material provisions of the Stock Purchase Agreement, which accompanies this information statement as Annex A. This summary is qualified in its entirety by reference to the full text of the Stock Purchase Agreement. You are encouraged to read the Stock Purchase Agreement carefully and in its entirety. The summary of the Stock Purchase Agreement is included in this information statement only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding the parties or their respective businesses. You should read the information provided elsewhere in this information statement for information regarding the parties and their respective businesses.

The representations, warranties and covenants described below and included in the Stock Purchase Agreement were made only for purposes of the Stock Purchase Agreement and as of specific dates, are solely for the benefit of Pioneer Power, the Disposed Companies, the Buyer and the other parties to the Stock Purchase Agreement, as applicable, and may be subject to limitations, qualifications or exceptions agreed upon by the parties, including those included in confidential disclosures made for the purposes of, among other things, allocating contractual risk between the parties rather than establishing matters as facts, and may be subject to standards of materiality that differ from those standards relevant to stockholders. You should not rely on the representations, warranties, covenants or any description thereof as characterizations of the actual state of facts or condition of Pioneer Power, the Buyer or any of their respective subsidiaries or affiliates since they are modified by the underlying disclosure schedules. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Stock Purchase Agreement. The representations, warranties and covenants and other provisions of the Stock Purchase Agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this information statement.

Purchase and Sale of Equity Interests

Upon the terms and subject to the conditions of the Stock Purchase Agreement, Pioneer Power has agreed to sell (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer. In this information statement, the sale of such equity interests, collectively, is referred to as the “Equity Transaction,” and the businesses operated by Electrogroup, Jefferson and JE Mexico, collectively, are referred to as the “Disposed Companies.”

Effective Time and Closing

Unless the parties agree otherwise, the closing of the Equity Transaction will occur not later than the second (2nd) business day following the satisfaction or waiver of the conditions to closing the Equity Transaction. Under federal securities laws, the Equity Transaction may not close until the expiration of a twenty (20) day waiting period after the date of mailing this information statement. Pioneer Power currently expects that the Equity Transaction will close as soon as practicable following the expiration of such waiting period.

Equity Transaction Consideration

Upon the terms and subject to the conditions of the Stock Purchase Agreement, on the closing date, the aggregate consideration to be paid to Pioneer Power by the Buyer will be a base cash amount equal to $60.5 million, as well as the issuance by the Buyer of the Seller Note to Pioneer Power in the aggregate principal amount of $5.0 million, in each case subject to adjustment as described herein. The Stock Purchase Agreement does not require any of the consideration for the Equity Transaction to be held in escrow.

The Equity Transaction consideration will be paid to Pioneer Power and not to its stockholders. Pioneer Power’s board of directors has not made any definitive plans with respect to the use of proceeds from the Equity Transaction. If the Equity Transaction is consummated, Pioneer Power expects that it may use all or a portion of the proceeds from the transaction to, among other things: (i) repay outstanding indebtedness, (ii) reinvest into its remaining businesses, (iii) make one or more special dividends to its stockholders or (iv) pursue strategic acquisitions. The amounts and timing of Pioneer Power’s actual expenditures, however, will depend upon numerous factors, and Pioneer Power may find it necessary or advisable to use portions of the proceeds from the Equity Transaction for different or presently non-contemplated purposes.

Stockholder Consent; Voting Agreement

Concurrently with the signing of the Stock Purchase Agreement, the controlling stockholders entered into a Voting Agreement, pursuant to which the controlling stockholders agreed, on the terms and subject to the conditions set forth in the Voting Agreement, to vote all their shares of common stock (or execute and deliver a written consent with respect to such shares) in favor of (i) adoption and approval of the Stock Purchase Agreement, (ii) adoption and approval of the Equity Transaction and any other matters required to be approved or adopted in order to effect the Equity Transaction and (iii) the other transactions contemplated by the Stock Purchase Agreement. The Voting Agreement is described in “The Voting Agreement” beginning on page 58 of this information statement.

In connection with the execution of the Stock Purchase Agreement, on June 28, 2019, the controlling stockholders also delivered a written consent adopting and approving the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction. Therefore, no further approval or consent by Pioneer Power’s stockholders is required or needed in connection with the Stock Purchase Agreement and the other transaction documents and the consummation of the transactions contemplated thereby, including the Equity Transaction.

Representations and Warranties

The Stock Purchase Agreement contains various and representations and warranties made by the Disposed Companies, Pioneer Power and the Buyer. In some cases, these representations and warranties are subject to exceptions and qualifications contained in the Stock Purchase Agreement or in connection with a confidential disclosure schedule delivered by the disclosing party to the other parties to the Stock Purchase Agreement (which may or may not be specifically referenced in the text of the Stock Purchase Agreement).

The representations and warranties by the Disposed Companies relate to, among other things:

The representations and warranties by Pioneer Power relate to, among other things:

The representations and warranties by the Buyer relate to, among other things:

Covenants and Agreements

The Stock Purchase Agreement also contains a number of covenants and agreements that govern the actions of Pioneer Power and the Disposed Companies pending completion of the Equity Transaction and several covenants governing the actions of the Buyer and cooperation among the parties after the closing of the Equity Transaction.

Covenants and Agreements of Pioneer Power and the Disposed Companies

Pursuant to the Stock Purchase Agreement, Pioneer Power and the Disposed Companies agreed to the following covenants:

Interim Operations: Under the Stock Purchase Agreement, the Disposed Companies and the Named Subsidiaries agreed that until the earlier of the closing of the Equity Transaction or the termination of the Stock Purchase Agreement in accordance with its terms, the Disposed Companies and the Named Subsidiaries will, except as otherwise agreed by the Buyer or as otherwise required by applicable law:

Notwithstanding the above, the Disposed Businesses shall be permitted to take certain actions related to the repayment of indebtedness and settlement of intracompany obligations.

In addition to the foregoing, between the earlier of the closing of the Equity Transaction or the termination of the Stock Purchase Agreement in accordance with its terms, the Disposed Companies and the Named Subsidiaries have agreed not to take the following actions, except as otherwise agreed by the Buyer or as otherwise required by applicable law:

Notwithstanding the foregoing, the Acquired Companies shall be permitted, in their sole discretion, to make certain limited cash distributions to Pioneer Power without violating this covenant.

Reasonable Access; Confidentiality. The Disposed Companies and the Named Subsidiaries have agreed that until the earlier of the closing of the Equity Transaction or the termination of the Stock Purchase Agreement in accordance with its terms, the Disposed Companies and the Named Subsidiaries will, except as otherwise agreed by the Buyer or as otherwise required by applicable law: (i) give the Buyer and its representatives reasonable access during normal business hours, upon reasonable prior notice, to their employees and books and records, (ii) permit the Buyer to make such inspections as the Buyer may reasonably require, subject to certain limitations, and (iii) furnish information to the Buyer as it may reasonably request. The Disposed Companies and the Named Subsidiaries are not required to permit such actions if they will unreasonably disrupt their operations and the Disposed Companies and the Named Subsidiaries shall not have any obligation to make information available to the Buyer if it would, in the good faith judgment of Pioneer Power and after consultation with its outside legal counsel, reasonably be expected to jeopardize any attorney-client or other legal privilege or contravene applicable law. The Buyer has agreed to keep any such information acquired pursuant to this covenant confidential, subject to certain limitations and exceptions.

Tail Insurance. Pioneer Power has agreed to purchase a prepaid tail insurance policy providing for directors’ and officers’ liability insurance, employment practices liability insurance and fiduciary liability insurance covering acts or omissions occurring on or prior to the closing date with respect to those directors and officers of the Disposed Companies who are covered, as of the signing date of the Stock Purchase Agreement, by the Disposed Companies’ comparable insurance policies on terms with respect to such coverage and amounts no less favorable to the insured than those of such current insurance coverages for an aggregate period of not less than six (6) years.

Acquisition Proposals. Except as expressly contemplated by the Stock Purchase Agreement, each of Pioneer Power and the Disposed Companies agreed that they and their respective officers and directors will not, nor will any of their respective subsidiaries and affiliates or the officers and directors thereof, directly or indirectly:

Notwithstanding the foregoing, if, prior to the closing date, Pioneer Power, the Disposed Companies or the Named Subsidiaries receive an Acquisition Proposal that did not result in a breach of the restrictions set forth above, and which Pioneer Power’s board of directors determines in good faith to be bona fide, the recipient of such proposal may, subject to certain limitations: (i) provide information in response to such Acquisition Proposal, but only if the person requesting such information executes a confidentiality agreement on terms no less restrictive than the confidentiality agreement used between the parties to the Stock Purchase Agreement and prior to disclosing any information in response to such Acquisition Proposal, such information is made available to the Buyer to the extent it has not previously been made available; (ii) engage or participate in any discussions or negotiations with such person; or (iii) subject to compliance with the terms of the Stock Purchase Agreement, approve, recommend or otherwise declare advisable such Acquisition Proposal, if and only to the extent that, (A) prior to taking any action described in clause (i), (ii) or (iii) above, Pioneer Power’s board of directors determines in good faith after consultation with outside legal counsel that the failure to take such action, in light of the Acquisition Proposal and the terms of the Stock Purchase Agreement, would constitute a breach of the directors’ fiduciary duties under applicable law, (B) in each such case referred to in clause (i) or (ii) above, Pioneer Power’s board of directors has determined in good faith based on the information then available and after consultation with its outside legal counsel and financial advisor that such Acquisition Proposal either constitutes a Superior Proposal (as defined below) or is reasonably likely to result in a Superior Proposal, and (C) in the case referred to in clause (iii) above, Pioneer Power’s board of directors determines in good faith (after consultation with its outside legal counsel and financial advisor) that such Acquisition Proposal is a Superior Proposal and that failure to take such action would constitute a breach of the directors’ fiduciary duties under applicable law.

For purposes of the Stock Purchase Agreement, “Acquisition Proposal” means (i) any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, exchange offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving the Disposed Companies or the Named Subsidiaries, or (ii) any acquisition by any person resulting in, or proposal or offer, which if consummated would result in, any person becoming the beneficial owner of directly or indirectly, in one or a series of related transactions, 50% or more of the total voting power or of any class of equity securities of the Disposed Companies or the Named Subsidiaries, or 50% or more of the consolidated total assets, measured either by book value or fair market value (including equity securities of the Disposed Companies and the Named Subsidiaries) of Pioneer Power, in each case other than the Equity Transaction and any other transactions contemplated by the Stock Purchase Agreement; provided, however, that in no event shall an Acquisition Proposal include any inquiry, offer or proposal, or any indication of interest solely with respect to the sale or other disposition or acquisition of any subsidiary or business unit other than the Disposed Companies or the Named Subsidiaries.

For purposes of the Stock Purchase Agreement, “Superior Proposal” means a bona fide written Acquisition Proposal (i) that would result in any person becoming the beneficial owner, directly or indirectly, of (A) 50% of the consolidated assets of the Disposed Companies and the Named Subsidiaries or (B) 50% of the voting power of the equity securities of the Disposed Companies and the Named Subsidiaries and (ii) that Pioneer Power’s board of directors has determined in its good faith judgment is reasonably likely to be consummated in accordance with its terms, taking into account all legal, financial and regulatory aspects of the proposal (including any break-up fee, expense reimbursement provisions, conditions to consummation and financing terms) and the person making the proposal, and if consummated, would result in a transaction more favorable to Pioneer Power’s stockholders from a financial point of view than the Equity Transaction and any other transactions contemplated by the Stock Purchase Agreement (after taking into account any revisions to the terms of the transaction contemplated by the Stock Purchase Agreement and the time likely to be required to consummate such Acquisition Proposal).

No Change of Recommendation. Pioneer’s Power’s board of directors is not permitted to, directly or indirectly:

​Notwithstanding the above, Pioneer Power’s board of directors may, prior to the closing date, withhold, withdraw, qualify or modify the Board Recommendation or approve, recommend or otherwise declare advisable any Acquisition Proposal that was not solicited, initiated, knowingly facilitated or knowingly encouraged in breach of the Stock Purchase Agreement (a “Change of Recommendation”) or may terminate the Stock Purchase Agreement, if the board of directors determines in good faith based on information then available, after consultation with outside legal counsel and its financial advisor, that such Acquisition Proposal is a Superior Proposal and the failure to take such action would constitute a breach of directors’ fiduciary duties under applicable law.

Before taking any of the actions noted in the paragraph above, Pioneer Power’s board of directors will (A) notify the Buyer in writing, five (5) business days in advance, that it intends to effect a Change of Recommendation in connection with a Superior Proposal, or to terminate the Stock Purchase Agreement with respect to a Superior Proposal, which notice will specify the identity of the party who made such Superior Proposal and all of the material terms and conditions of such Superior Proposal and attach the most current version of the agreement reflecting such terms and conditions; (B) after providing such notice and prior to making such Change of Recommendation in connection with a Superior Proposal, or terminating the Stock Purchase Agreement with respect to a Superior Proposal, negotiate in good faith with the Buyer during such five (5) business day period (to the extent that the Buyer desires to negotiate) to make such revisions to the terms of the Stock Purchase Agreement or consider a possible alternative transaction with the Buyer so that the Acquisition Proposal that is the subject of the notice ceases to be a Superior Proposal; and (C) have considered in good faith any changes to the Stock Purchase Agreement offered in writing by the Buyer and will have determined in good faith (after consultation with its outside legal counsel and financial advisor) that the Superior Proposal would continue to constitute a Superior Proposal if such changes offered in writing by the Buyer were to be given effect.

Release. From and after the closing date, Pioneer Power, on behalf of itself and its affiliates, agreed to an unconditional and irrevocable release of claims in favor of the Disposed Companies and the Named Subsidiaries, as well as their respective agents, affiliates, successors, assigns, managers, directors, officers and employees from any and all actions, whether known or unknown, which Pioneer Power and/or its affiliates may have now or in the future, and agreed not to bring or threaten to bring or otherwise join in any such claim relating to or arising out of circumstances that were taken on or prior to the closing date, except for any such claim resulting from a breach of the Stock Purchase Agreement.

Non-Competition; Non-Solicitation. For a period of three years commencing on the closing date (the “Restricted Period”), except on behalf of the Buyer, the Disposed Companies or any of their respective affiliates in the ordinary scope of their respective duties, Pioneer Power, its affiliates, and Nathan Mazurek (the “Restricted Parties”) have agreed not to (i) directly or indirectly engage, solicit, induce, hire or attempt to engage, solicit, induce or hire, whether or not for consideration, any employee or independent contractor of the Disposed Companies, the Named Subsidiaries or the Buyer, who is (or was within seven (7) months prior to the date of the Stock Purchase Agreement) employed by any of the Disposed Companies, the Named Subsidiaries or the Buyer, subject to certain limitations, (ii) disclose or use confidential information related to the Disposed Companies or the Named Subsidiaries for the benefit of anyone other than the Buyer, the Disposed Companies or the Named Subsidiaries, subject to certain limitations and exceptions, or (iii) engage in the design, manufacture and distribution of electric transformers from 5kva – 30mva in size and 110v-72kv in voltage in certain geographic areas or have any ownership of any business within those geographic areas conducting such business or solicit business away from the Buyer, the Disposed Companies or the Named Subsidiaries, in each case subject to certain limitations and exceptions.

Covenants and Agreements of the Buyer

Records. The Buyer has agreed to, with respect to the books and records of the Disposed Companies and the Named Subsidiaries with respect to matters occurring on or prior to the closing date, (i) retain such records for a period of five (5) years after the closing date and (ii) provide Pioneer Power and its representatives and designees, upon reasonable request and with reasonable prior notice, with access to such records in connection with any legitimate purpose, including certain tax matters, subject to certain limitations.

Indemnification. The Buyer has agreed to maintain all rights to indemnification and advancement of expenses by the Disposed Companies and the Named Subsidiaries existing in favor of each person who, as of the signing of the Stock Purchase Agreement or prior to the closing date, serves as an officer, manager or director of the Disposed Companies or the Named Subsidiaries, for a period of no less than six (6) years.

Employment and Benefit Arrangements; Employee Listing. The Buyer has agreed that, for a period of twelve (12) months following the closing, it will (i) continue to sponsor certain employee compensation and benefit plans of the Disposed Companies and the Named Subsidiaries and (ii) provide the individuals employed by the Disposed Companies and the Named Subsidiaries with compensation and employee benefits that are at least as favorable as those in effect immediately prior to the closing date; provided, however, that the Buyer will not be under any obligation to continue employing such employees for any length of time after the closing date, subject to limited exceptions.

Financing. The Buyer has agreed to use commercially reasonable efforts to do all things necessary to obtain financing sufficient to consummate the Equity Transaction as promptly as reasonably practicable and to obtain alternative financing for the Equity Transaction if all or any portion of its original financing becomes unavailable. Pioneer Power has agreed to provide cooperation and assistance in connection with the arrangement of any debt financing of the Buyer as may be reasonably requested by the Buyer.

Mutual Covenants and Agreements

Publicity. Each of Pioneer Power and the Buyer has agreed not to issue any press release or make any public announcement concerning the Stock Purchase Agreement or the Equity Transaction without obtaining the prior written consent of the other party, subject to limited exceptions.

Best Efforts; Cooperation. Each of the parties agreed to use best efforts to take, or cause to be taken, all things necessary, proper or advisable to consummate the transactions contemplated by the Stock Purchase Agreement, including obtaining all necessary consents and approvals, defending any actions challenging the Stock Purchase Agreement and executing and delivering any additional instruments necessary to carry out such transactions, subject to certain limitations.

Other Covenants

In addition to the summary description of the covenants included in the Stock Purchase Agreement above, the Stock Purchase Agreement contains certain other covenants of the parties, including, among other things, covenants related to giving notices, intellectual property assignments by Pioneer Power, matters concerning the reinstatement of one of the Named Subsidiaries, matters concerning the restoration of certain facilities owned by the Disposed Companies, the cooperation of Pioneer Power and the Disposed Companies with the Buyer in obtaining representation and warranty insurance on behalf of the Buyer and matters concerning the continuance, conversion, amalgamation and reorganization of Electrogroup and the Canadian Buyer.

Closing Conditions

Under the Stock Purchase Agreement, various customary and other conditions are required to be met or waived, by mutual agreement of all parties, before each party is obligated to complete the transaction. These conditions are customary and include, among other things:

Additional closing conditions must be met by the Buyer before Pioneer Power and the Disposed Companies are obligated to effect the closing, including, among other things:

Additional closing conditions must be met by Pioneer Power and the Disposed Companies before the Buyer is obligated to effect the closing, including, among other things:

For purposes of the Stock Purchase Agreement, a “Material Adverse Effect” means any state of fact, event, change, result, circumstance, occurrence, or development that, either alone or in combination with any other fact, event, change, result, circumstance, occurrence, or development, has or would reasonably be expected to have, a material adverse effect on (a) the business, results of operations or financial condition of the Disposed Companies and the Named Subsidiaries taken as a whole, but excluding facts, events, changes, results, circumstances, occurrences, or developments, either alone or taken together, relating to or arising from (i) changes or developments in the United States or worldwide economy or credit, currency, oil, financial, banking, securities or capital markets, (ii) changes or developments in any national or international political, or regulatory conditions, including acts of terrorism, sabotage, cyber-attack, military action, national emergency or war (whether or not declared), or any escalation or worsening thereof, (iii) changes or developments in the business conditions or regulatory conditions affecting the industries or markets in which the Disposed Companies and the Named Subsidiaries operate or conduct their business generally, (iv) any earthquake, hurricane, tsunami, tornado, flood, mudslide or other natural disaster, pandemic, weather condition, explosion or fire or other force majeure event or act of God, whether or not caused by any person, or any national or international calamity or crisis, (v) the announcement of the Stock Purchase Agreement or the transactions contemplated thereby, (vi) any action taken at the specific written request of the Buyer, (vii) any changes or prospective changes in law or GAAP or enforcement or interpretation thereof, or (viii) any failure, in and of itself, to meet any budgets, projections, forecasts, estimates, plans, predictions, or milestones (whether or not shared with the Buyer or its affiliates or representatives) (but, for the avoidance of doubt, in each case, not the underlying causes of any such failure to the extent such underlying cause is not otherwise excluded from the definition of Material Adverse Effect); provided, that, with respect to the foregoing clauses (i), (ii), (iii) (iv) and (vii), any such effect shall be taken into account if and to the extent it, individually or in the aggregate with any other effect, disproportionately affects the Disposed Companies, taken as a whole, compared to other companies operating in the industries in which the Disposed Companies operate; or (b) the ability of Pioneer Power to consummate the Equity Transaction or perform its obligations under the Stock Purchase Agreement or the related ancillary agreements.

Termination of the Stock Purchase Agreement

The Stock Purchase Agreement may be terminated and the transactions contemplated thereby abandoned, at any time prior to the closing:

For purposes of the Stock Purchase Agreement, an “Applicable Adverse Event” means any state of fact, event, change, result, circumstance, occurrence, or development that, either alone or in combination with any other fact, event, change, result, circumstance, occurrence, or development, has or would reasonably be expected to have an adverse change or effect in excess of $3.5 million on (a) the business, results of operations or financial condition of the Disposed Companies and the Named Subsidiaries taken as a whole, but excluding facts, events, changes, results, circumstances, occurrences, or developments, either alone or taken together, relating to or arising from (i) changes or developments in the United States or worldwide economy or credit, currency, oil, financial, banking, securities or capital markets, (ii) changes or developments in any national or international political, or regulatory conditions, including acts of terrorism, sabotage, cyber-attack, military action, national emergency or war (whether or not declared), or any escalation or worsening thereof, (iii) changes or developments in the business conditions or regulatory conditions affecting the industries or markets in which the Disposed Companies and the Named Subsidiaries operate or conduct their business generally, (iv) any earthquake, hurricane, tsunami, tornado, flood, mudslide or other natural disaster, pandemic, weather condition, explosion or fire or other force majeure event or act of God, whether or not caused by any person, or any national or international calamity or crisis, (v) the announcement of the Stock Purchase Agreement or the transactions contemplated thereby, (vi) any action taken at the specific written request of the Buyer, (vii) any changes or prospective changes in law or GAAP or enforcement or interpretation thereof, or (viii) any failure, in and of itself, to meet any budgets, projections, forecasts, estimates, plans, predictions, or milestones (whether or not shared with the Buyer or its affiliates or representatives) (but, for the avoidance of doubt, in each case, not the underlying causes of any such failure to the extent such underlying cause is not otherwise excluded from the definition of Applicable Adverse Event), or; provided, that, with respect to the foregoing clauses (i), (ii), (iii) (iv) and (vii), any such effect shall be taken into account if and to the extent it, individually or in the aggregate with any other effect, disproportionately affects the Disposed Companies, taken as a whole, compared to other companies operating in the industries in which the Disposed Companies operate or (b) the ability of Pioneer Power to consummate the Equity Transaction or perform its obligations under the Stock Purchase Agreement or the its related ancillary agreements.

Termination Fee

The Stock Purchase Agreement provides that Pioneer Power will be required to pay a cash termination fee equal to $4.0 million to the Buyer in the event of a termination of the Stock Purchase Agreement resulting from:

Any termination fee payable by Pioneer Power is due within five (5) business days of the applicable termination date. Pioneer Power shall not be obligated to pay the termination fee on more than one occasion.

Reverse Termination Fee

The Stock Purchase Agreement provides that the Buyer will be required to pay a cash reverse termination fee equal to $4.0 million to Pioneer Power in the event of a termination of the Stock Purchase Agreement resulting from:

Any reverse termination fee payable by the Buyer is due within five (5) business days of the applicable termination date. The Buyer shall not be obligated to pay the reverse termination fee on more than one occasion.

Sponsor Guaranty

In connection with the Stock Purchase Agreement, Mill Point has entered into a guaranty, pursuant to which it has agreed to guarantee certain limited obligations of the Buyer under the Stock Purchase Agreement, including Buyer’s obligation to pay the reverse termination fee in accordance with the terms and conditions of the Stock Purchase Agreement.

Indemnification

Pioneer Power and the Buyer have each agreed to indemnify one another for any and all liabilities, losses, damages, claims, demands, suits, actions, judgments, fines, penalties, deficiencies, awards, taxes, assessments, costs or expenses (including reasonable attorney’s or other professional fees and expenses) (“Losses”) resulting from any inaccuracy or breach of the respective party’s representations and warranties or any breach or nonperformance of the respective party’s covenants and agreements in the Stock Purchase Agreement or its related ancillary agreements.

In addition, Pioneer Power has agreed to indemnify the Buyer and its affiliated parties for Losses resulting from, among other things, certain pre-closing tax matters, debt held by the Disposed Companies, transaction expenses, breaches of representations and warranties that are not covered by the Buyer’s representation and warranty insurance because the Buyer had knowledge of such breach (only to the extent such Losses would have been covered by the representation and warranty insurance had the Buyer not known of such breach) (“Interim Breaches”), certain matters related to Electrogroup’s operations, certain legal proceedings, certain matters related to Nexus Custom Magnetics, L.L.C., a wholly owned subsidiary of Jefferson, and certain matters concerning end-user software utilized by the Disposed Companies.

The indemnification obligations of Pioneer Power with respect to Losses of the Buyer resulting from inaccuracies or breaches of Pioneer Power’s representations and warranties, except for breaches of certain fundamental warranties, claims of fraud and breaches of representations, warranties or covenants relating to taxes, and claims for certain specific indemnities, are subject to (i) a true deductible equal to $330,000, (ii) a cap equal to 0.5% of the purchase price, and (iii) a per-claim threshold amount of $50,000. In addition, the indemnification rights of the Buyer with respect to Interim Breaches are subject to a cap equal to $5.0 million, and the indemnification rights of the Buyer with respect to Losses resulting from certain matters related to Electrogroup’s operations are subject to a true deductible equal to $500,000 and a cap equal to $5.0 million.

The indemnification obligations of the Buyer, except with respect to breaches of certain fundamental representations and warranties and claims of fraud, are subject to a true deductible equal to $330,000 and a cap equal to $3.3 million. In addition, each party’s total indemnification obligation is subject to a cap equal to the purchase price, except for claims of fraud.

The Buyer has obtained a customary representation and warranty insurance policy insuring the Buyer against losses resulting from a breach of representations and warranties by Pioneer Power and the Disposed Companies, and the Buyer is required to use commercially reasonable efforts to utilize the representation and warranty insurance to cover any Losses resulting from such a breach. In addition, rather than seeking recovery from Pioneer Power, the Buyer is required to setoff amounts owed to Pioneer Power under the Seller Note on a dollar-for-dollar basis by the amount of any indemnifiable losses Buyer suffers as a result of certain actions or omissions by Pioneer Power or the Disposed Companies.

Fees and Expenses

Except as otherwise provided in the Stock Purchase Agreement, all fees and expenses incurred in connection with the Stock Purchase Agreement and the transactions contemplated thereby will be paid by the party incurring such fees or expenses, whether or not the Equity Transaction is consummated.

Amendment

The Stock Purchase Agreement may only be amended or modified only by an instrument in writing specifically designated as an amendment thereto, duly executed by the Disposed Companies, Pioneer Power and the Buyer.

Specific Performance

The Stock Purchase Agreement provides that, in addition to any other remedy to which they are entitled at law or in equity, the parties are entitled to specific performance of the terms of the Stock Purchase Agreement. The parties are entitled to seek an injunction or injunctions to prevent breaches of the Stock Purchase Agreement and to enforce specifically the terms and provisions of the Stock Purchase Agreement. Notwithstanding the foregoing, if the Stock Purchase Agreement is terminated under circumstances in which Pioneer Power is required to pay the termination fee or the Buyer is required to pay the reverse termination fee, as applicable, the payment of such termination or reverse termination fee shall be the recipient’s sole remedy at law or in equity.

Governing Law

The Stock Purchase Agreement is governed by Delaware law.

THE SELLER NOTE

The following is a summary of the material provisions of the Seller Note, a form of which accompanies this information statement as Annex B. This summary is qualified in its entirety by reference to the full text of the form of Seller Note. You are encouraged to read the form of Seller Note carefully and in its entirety.

Background; Overview

As consideration for the Equity Transaction, in addition to the $60.5 million base cash purchase price, the US Buyer has agreed to issue Pioneer Power the Seller Note in the aggregate principal amount of $5.0 million. Interest on the Seller Note will accrue at a rate of four percent (4.0%) per annum, beginning on the date of issuance, and shall be paid-in-kind annually.

The outstanding principal amount of the Seller Note, together with all accrued and unpaid interest thereon, will become due and payable on December 31, 2022. However, subject to certain limitations, the Seller Note may, at any time and from time to time, be prepaid by the Buyer without penalty.

Setoff Obligation

Pursuant to the terms of the Stock Purchase Agreement and the Seller Note, the US Buyer shall setoff and reduce amounts owed to Pioneer Power under the Seller Note on a dollar-for-dollar basis by:

Any such setoff amounts will reduce the total amount of the Seller Note payable by the US Buyer at maturity.

For additional information concerning the calculation of the purchase price for the Disposed Companies, see “The Equity Transaction — Equity Transaction Consideration,” and for additional information concerning the indemnification obligations of the parties to the Stock Purchase Agreement, see “The Stock Purchase Agreement — Indemnification.”

Ranking

The Seller Note is subject to certain subordination provisions contained therein that may prevent the US Buyer from repaying the Seller Note prior to the payment in full of certain senior obligations in the event that the US Buyer or the Disposed Companies are subject to bankruptcy proceedings or are in default of such senior obligations. The senior obligations consist of the debt financings being obtained by the US Buyer under its debt commitment letter.

Events of Default

The Seller Note will include certain customary events of default, including (i) the failure of the US Buyer to pay amounts owed under the Seller Note at its maturity date and (ii) the failure of the US Buyer to perform or observe other provisions set forth in the Seller Note, subject to a limited cure period. In the event of an event of default, Pioneer Power has the right to declare the entire amount of the Seller Note, together with all accrued and unpaid interest thereon, immediately due and payable in full.

THE VOTING AGREEMENT

The following is a summary of the material provisions of the Voting Agreement, a copy of which accompanies this information statement as Annex C. This summary is qualified in its entirety by reference to the full text of the Voting Agreement. You are encouraged to read the Voting Agreement carefully and in its entirety.

Background; Support Covenants

On June 28, 2019, the record date, the Buyer entered into the Voting Agreement with the controlling stockholders, which as of such date, held 4,774,400 shares of Pioneer Power’s common stock, or approximately 54.7% of Pioneer Power’s outstanding shares.

Pursuant to the Voting Agreement, the controlling stockholders agreed, on the terms and subject to the conditions set forth in the Voting Agreement, to vote all of their shares of Pioneer Power’s common stock

(i) in favor of the adoption and approval of the Stock Purchase Agreement;

(ii) against any recapitalization, merger, sale of assets or other business combination between Pioneer or any of its subsidiaries and any person or entity other than the Buyer or any of its affiliates; and

(iii) against any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of Pioneer Power under the Stock Purchase Agreement or that would result in any of the conditions to the obligations of Pioneer Power under the Stock Purchase Agreement not being fulfilled.

While the Voting Agreement is in effect, the controlling stockholders party thereto have agreed not to transfer their shares of Pioneer Power’s common stock, subject to certain exceptions.

Termination

The Voting Agreement shall terminate on the earliest to occur of (i) the date of consummation of the Equity Transaction and (ii) the date of termination of the Stock Purchase Agreement for any reason.

Stockholder Written Consent

Subsequent to the execution of the Voting Agreement, on June 28, 2019, the controlling stockholders delivered a written consent adopting and approving the Stock Purchase Agreement. The written consent constituted an adoption and approval of the Stock Purchase Agreement by the holders of the requisite number of shares of Pioneer Power’s common stock in accordance with Section 271 of the DGCL. Accordingly, the Equity Transaction can occur without the vote of any of Pioneer Power’s other stockholders and there will not be a meeting of Pioneer Power’s stockholders at which you will be asked to vote on the adoption and approval of the Stock Purchase Agreement.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

On June 28, 2019, Pioneer Power entered into the Stock Purchase Agreement, by and among the Pioneer Power, Electrogroup, Jefferson, JE Mexico, the Buyer and Nathan Mazurek. Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to sell (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer, for a total purchase price of $65.5 million, subject to customary working capital adjustments, of which $60.5 million is payable in cash and $5.0 million is payable in the form of the Seller Note.

The Equity Transaction will transfer the ownership of the dry type and liquid type transformer businesses (referred to in this section as the “transformer business”) from Pioneer Power to Mill Point. As a result, the transformer business’ historical results will be reported in Pioneer Power’s consolidated financial statements as discontinued operations and in subsequent periods Pioneer Power’s consolidated financial statements will no longer reflect the assets, liabilities, results of operations or cash flows attributable to the transformer business.

The following unaudited pro forma condensed consolidated financial statements (“unaudited pro forma statements”) and explanatory notes are based on Pioneer Power’s historical consolidated financial statements adjusted to give effect to the Equity Transaction. The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and year ended December 31, 2018 have been prepared with the assumption that the Equity Transaction occurred as of the beginning of the statement period. The pro forma consolidated statement of operations as of December 31, 2017 has been included to present the impact of the sale of the transformer business on continuing operations. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2019 has been prepared with the assumption that the Equity Transaction was completed as of the balance sheet date.

The unaudited pro forma statements do not necessarily reflect what Pioneer Power’s financial condition or results of operations would have been had the Equity Transaction occurred on the date indicated, or which may result in the future. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma statements have been prepared by Pioneer Power based upon assumptions deemed appropriate by Pioneer Power’s management. An explanation of certain assumptions is set forth under the Notes hereto.

The unaudited pro forma statements should be read in conjunction with the audited financial statements and the notes for the year ended December 31, 2018, as well as the Company’s unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2019, each of which are included elsewhere herein. 

Pioneer Power Solutions, Inc

Unaudited Pro Forma Consolidated Balance Sheets