DEFA14A: Xos and ElectraMeccanica Address Stockholder Lawsuits with Supplemental Disclosures Regarding Proposed Merger

Xos and ElectraMeccanica are supplementing their joint proxy statement to address stockholder lawsuits challenging disclosures related to their proposed business combination.

Summary

• Xos and ElectraMeccanica are providing supplemental disclosures to their joint proxy statement/management information circular following demands and lawsuits from Xos stockholders.
• The lawsuits challenge the disclosures in the Joint Proxy Statement/Circular regarding the proposed business combination.
• To avoid the burden and expense of litigation, Xos and ElectraMeccanica are voluntarily supplementing certain disclosures.
• The supplemental disclosures relate to the claims in the demands and complaints.
• The original Joint Proxy Statement/Circular was filed on February 13, 2024, concerning Xos's acquisition of ElectraMeccanica.
• The supplemental disclosures include details about Houlihan Lokey's engagement as Xos's financial advisor, clarifying they have never worked for or been compensated by ElectraMeccanica.
• Additional information is provided regarding the negotiation of the pro forma ownership split, including the initial proposal of 15-21% ownership for ElectraMeccanica shareholders and the final agreement of 21%, subject to ElectraMeccanica's net cash position at closing.
• The supplemental disclosures also clarify the composition of the future, post-closing Xos Board, including the number of ElectraMeccanica nominees.
• Greenhill's financial analysis, including comparable companies and valuation methodologies, is further detailed.
• The analysis includes EV/Revenue and EV/EBITDA multiples for comparable companies like Rivian, Nikola, and Lion Electric.
• Greenhill's DCF analysis used a WACC range of 22.5-27.5% and considered the utilization of Xos's net operating losses, estimated at $337 million as of December 31, 2023.
• Details of Greenhill's fees are disclosed, including a retainer fee, a fixed fee, and a transaction fee upon successful consummation of the arrangement.
• The ElectraMeccanica Wind-Down Analysis, representing a range of estimates of ElectraMeccanica's aggregate net cash which could be available for distribution to ElectraMeccanica Shareholders in a scenario in which ElectraMeccanica winds down its operations and liquidates, is further detailed.
• The ElectraMeccanica Wind-Down Analysis assumes wind-down processes commencing on an assumed date of March 31, 2024 and the assumed completion of the liquidation and dissolution process and a distribution of all remaining net cash to ElectraMeccanica Shareholders by June 30, 2025.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the document addresses lawsuits, the companies are proactively providing additional disclosures and believe the original disclosures were compliant. The future outlook is subject to risks, but the companies are working towards completing the merger.

Positives

• The companies are proactively addressing stockholder concerns by providing additional disclosures.
• The supplemental disclosures aim to provide greater transparency regarding the transaction.
• The companies believe the original disclosures comply with all applicable laws.
• The companies are working to avoid any disruption to the proposed business combination.

Negatives

• The lawsuits and demands from stockholders indicate potential dissatisfaction with the initial disclosures.
• The need for supplemental disclosures suggests possible deficiencies or lack of clarity in the original proxy statement.
• The lawsuits could potentially delay or complicate the proposed business combination, although the companies are trying to avoid this.

Risks

• The pending lawsuits could result in unexpected costs and delays.
• The satisfaction of closing conditions, including stockholder approval, is still required.
• The combined company faces various risks, including market conditions, competition, and regulatory changes.
• ElectraMeccanica's ability to maintain its net cash balance prior to the effective time of the Arrangement.
• The combined company's ability to achieve the expected benefits from the proposed transaction within the expected time frames or at all.

Future Outlook

The document includes forward-looking statements regarding the timing and completion of the Arrangement, expected ownership percentages, and expectations for the combined company's future performance, all of which are subject to various risks and uncertainties.

Management Comments

• Xos and ElectraMeccanica believe that the disclosures set forth in the Joint Proxy Statement/Circular comply fully with all applicable law.
• Xos and ElectraMeccanica specifically deny all allegations in the demands and complaints described above that any additional disclosure was or is required or material.

Industry Context

The document references comparable companies in the electric vehicle industry, such as Rivian, Nikola, and Lion Electric, to provide context for the valuation analysis. It also mentions other industrial verticals with similar growth rates and margins to Xos, including Chart Industries, FormFactor, Generac Holdings, MaxLinear, Methode Electronics, NN, Semtech Corporation and MDA.

Comparison to Industry Standards

• Greenhill's analysis uses EV/Revenue and EV/EBITDA multiples, which are standard valuation metrics in the automotive and electric vehicle industries.
• The comparable companies used in the analysis, such as Rivian, Nikola, and Lion Electric, are direct competitors or peers of Xos and ElectraMeccanica.
• The WACC range of 22.5-27.5% used in the DCF analysis reflects the risk profile of companies in the electric vehicle sector, which is characterized by high growth potential but also significant uncertainty.
• The document references comparable companies in other industrial verticals with similar growth rates and margins to Xos, including Chart Industries, FormFactor, Generac Holdings, MaxLinear, Methode Electronics, NN, Semtech Corporation and MDA.

Legal Proceedings

• The document discusses two lawsuits filed by purported stockholders of Xos challenging the disclosures in the Joint Proxy Statement/Circular: Moore v. Xos, Inc., et al., No. 1:24-cv-00270 (D. Del. filed Feb. 29, 2024), and Philips v. Xos, Inc. et al., No. 1:24-cv-00282 (D. Del. filed Mar. 4, 2024).

Stakeholder Impact

• The supplemental disclosures aim to address concerns raised by Xos stockholders.
• The outcome of the proposed business combination will impact both Xos stockholders and ElectraMeccanica shareholders.
• The combined company's future performance will affect employees, customers, and other stakeholders.

Next Steps

• Xos stockholders and ElectraMeccanica shareholders are urged to read the Joint Proxy Statement/Circular (including any amendments or supplements thereto) before making any voting decision.
• Xos and ElectraMeccanica will continue to file relevant documents with the SEC and the CSA.

Key Dates

Keywords

Xos, ElectraMeccanica, Merger, Acquisition, Proxy Statement, Supplemental Disclosures, Stockholder Lawsuits, Arrangement Agreement, Financial Advisor, Greenhill, Houlihan Lokey, Valuation, EV/EBITDA, DCF Analysis, WACC, Net Operating Losses, Wind-Down Analysis