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As filed with the Securities and Exchange Commission on October 19, 2015

No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form F-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

WESTPORT INNOVATIONS INC.

(Exact name of registrant as specified in its charter)

 

 

 

Alberta		3537		Not Applicable
(State or other jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
incorporation or organization)		Classification Code Number)		Identification Number)

Suite 101, 1750 West 75th Avenue

Vancouver, British Columbia

Canada V6P 6G2

(604) 718-2000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

CT Corporation System

111 Eighth Avenue

New York, NY 10011

USA

(212) 590-9070

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

Gordon Caplan Matthew J. Guercio Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 USA		Bruce Hibbard Bennett Jones LLP 4500 Bankers Hall East 855 2nd Street SW Calgary, AB T2P 4K7 Canada

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this registration statement and all other conditions to the proposed transaction described herein have been satisfied or waived.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to Be Registered		Amount to be Registered (1)		Proposed Maximum Offering Price Per Share		Proposed Maximum Aggregate Offering Price (2)		Amount of Registration Fee (3)
Common Shares, par value $0.001		38,521,193		N/A		$128,826,161.44		$12,972.80

(1)	Represents the maximum number of common shares of the registrant to be issued to holders of shares of common stock of Fuel Systems Solutions, Inc. (“Fuel Systems”) in connection with the proposed merger of Fuel Systems with and into a wholly-owned subsidiary of the registrant.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) of the Securities Act of 1933, as amended (the “Securities Act”). The proposed aggregate maximum offering price was calculated based upon the market value of shares of Fuel Systems common stock (the securities to be cancelled in the merger) in accordance with Rule 457(c) as follows: (i) the product of (A) $7.12, the average of the high and low price per share of Fuel Systems common stock on the NASDAQ Stock Market on October 14, 2015 and (B) 18,093,562, the maximum possible number of shares of Fuel Systems common stock that may be cancelled and exchanged in the merger.

(3)	Computed in accordance with Section 6(b) of the Securities Act at a rate equal to $100.70 per $1,000,000 of the proposed maximum aggregate offering price.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer, solicitation or sale is not permitted.

PRELIMINARY—SUBJECT TO COMPLETION—DATED [●], 2015

 

 

[●], 2015

PROPOSED MERGER—YOUR VOTE IS VERY IMPORTANT

To our Stockholders:

Each of the boards of directors of Westport Innovations Inc. (“Westport”) and Fuel Systems Solutions, Inc. (“Fuel Systems”) has unanimously approved a strategic transaction for the combination of Westport and Fuel Systems, as described below (the “merger”). Fuel Systems is sending you this proxy statement/prospectus to invite you to attend a special meeting of Fuel Systems stockholders being held to vote on the merger and to ask you to vote at the special meeting in favor of adopting the agreement and plan of merger.

The Merger

Westport and Fuel Systems entered into an agreement and plan of merger on September 1, 2015 (the “merger agreement”) pursuant to which, subject to Fuel Systems and Westport stockholder approval and certain other customary closing conditions, Fuel Systems and Westport will combine their businesses through the merger of Whitehorse Merger Sub Inc. (“Merger Sub”) a newly formed, wholly owned subsidiary of Westport with Fuel Systems, with Fuel Systems thereupon becoming a wholly owned subsidiary of Westport.

Share Consolidation

If the merger is completed, each Fuel Systems stockholder will receive 2.129 common shares of Westport for each share of Fuel Systems common stock owned. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing. No fractional shares of Westport common shares will be issued in the merger, and holders of shares of Fuel Systems common stock will, instead, receive cash in lieu of any fractional shares of Westport common shares. Upon completion of the merger, Fuel Systems’ former stockholders will own approximately 37.6% of the then outstanding Westport common shares, based on the number of shares and equity awards of Westport and Fuel Systems outstanding on October 9, 2015. The value of the merger consideration to be received in exchange for each share of Fuel Systems common stock will fluctuate with the market value of Westport common shares until the merger is completed.

The Premium

Based on the closing sale price for Westport common shares on August 31, 2015, the last trading day before public announcement of the merger, the 2.129 exchange ratio represented approximately $7.54 per share in value for each share of Fuel Systems common stock. Based on the closing sale price for Westport common shares on [●], 2015, the last trading day before the printing of this proxy statement/prospectus, the 2.129 exchange ratio represented approximately $[●] in value for each share of Fuel Systems common stock.

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Westport common shares are listed on the NASDAQ Stock Market (“NASDAQ”) under the symbol “WPRT” and on the Toronto Stock Exchange (the “TSX”) under the symbol “WPT.” Fuel Systems common stock is listed on NASDAQ under the symbol “FSYS.” The shares listed on the TSX are expressed in Canadian dollars and the shares listed on NASDAQ are in U.S. dollars. We urge you to obtain current market quotations for the common shares of Westport and the shares of common stock of Fuel Systems.

Your Vote is Important

The vote of Fuel Systems stockholders is very important regardless of the number of shares of Fuel Systems common stock you own. The merger cannot be completed unless Fuel Systems stockholders adopt the merger agreement. Fuel Systems is holding a special meeting of its stockholders to vote on the proposal necessary to complete the merger and certain related matters. Information about this meeting, the merger and the other business to be considered by Fuel Systems stockholders at the special meeting is contained in this proxy statement/prospectus. We urge you to read this proxy statement/prospectus carefully. You should also carefully consider the risks that are described in the “Risk Factors” section beginning on page [●].

Whether or not you plan to attend Fuel Systems’ special meeting of stockholders, please submit your proxy as soon as possible to make sure that your shares are represented at that meeting.

The Fuel Systems board of directors unanimously recommends that Fuel Systems stockholders vote “FOR” the proposal to adopt the merger agreement, which is necessary to complete the merger.

Sincerely,

 

Mariano Costamagna

Chief Executive Officer

Fuel Systems Solutions, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger or the other transactions described in this proxy statement/prospectus or the securities to be issued in connection with the merger or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated [●], 2015, and is first being mailed to stockholders of Fuel Systems on or about [●], 2015.

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [●], 2015

To the Stockholders of Fuel Systems Solutions, Inc.:

Notice is hereby given that a special meeting of stockholders of Fuel Systems Solutions, Inc. will be held at the offices of Day Pitney LLP, 7 Times Square, 20th Floor, New York, New York 10036, on [●], 2015 at [●], Eastern Time, for the following purposes:

 

1.

Merger proposal: To approve the merger and adopt the merger agreement, dated as of September 1, 2015, by and among Westport Innovations Inc., Whitehorse Merger Sub Inc. and Fuel Systems Solutions, Inc., as the same may be amended from time to time, a copy of which is attached as Annex A to the proxy statement/prospectus accompanying this notice.

 

2.

Amendments to Non-Employee Directors’ Restricted Stock Awards proposal: To approve amendments to awards of restricted stock issued to Fuel Systems’ non-employee directors providing that the vesting date shall be the earlier of the vesting date set forth in the award or a change in control of Fuel Systems.

 

3.

Advisory Compensation proposal: To consider and vote on a proposal to approve, on an advisory (non-binding) basis, the payments that will or may be paid by Fuel Systems to its named executive officers in connection with the merger.

 

4.

Adjournment proposal: To consider and vote on a proposal to approve any motion to adjourn the Fuel Systems special meeting, if necessary to solicit additional proxies if there are not sufficient votes to approve the Merger proposal at the time of the Fuel Systems special meeting.

Approval of the Merger proposal is required for completion of the merger. The Amendments to Non-Employee Directors’ Restricted Stock Awards proposal, the Advisory Compensation proposal, and the Adjournment proposal are not a condition to the obligations of Westport or Fuel Systems to complete the merger.

Fuel Systems will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.

The Fuel Systems board of directors has set [●], 2015 as the record date for the special meeting. Only holders of record of shares of Fuel Systems common stock at the close of business on [●], 2015 will be entitled to notice of and to vote at the Fuel Systems special meeting and any adjournments or postponements thereof.

Your vote is very important. To ensure your representation at the Fuel Systems special meeting, please complete and return the enclosed proxy card or submit your proxy by telephone or through the Internet. Please vote promptly whether or not you expect to attend the Fuel Systems special meeting. Submitting a proxy now will not prevent you from being able to vote in person at the Fuel Systems special meeting.

The Fuel Systems board of directors has unanimously approved the merger agreement and the transactions contemplated thereby and recommends that you vote “FOR” the Merger proposal, “FOR” the Amendments to Non-Employee Directors’ Restricted Stock Awards proposal, “FOR” the Advisory Compensation proposal, and “FOR” the Adjournment proposal.

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By Order of the Board of Directors,

 

Kevin Buckley

Secretary

[●], 2015

New York, New York

PLEASE SUBMIT YOUR PROXY PROMPTLY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT SUBMITTING A PROXY FOR YOUR SHARES, PLEASE CALL LAUREL HILL ADVISORY GROUP AT (888) 742-1305 (BANKS AND BROKERS CALL COLLECT AT (516) 933-3100).

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ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about Westport and Fuel Systems from other documents that are not included in or delivered with this proxy statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/prospectus, see “Where You Can Find More Information” beginning on page [●].

You can obtain any of the documents incorporated by reference into this proxy statement/prospectus by requesting them in writing or by telephone from Laurel Hill Advisory Group, Fuel Systems’ proxy solicitor, at the following address and telephone number:

2 Robbins Lane, Suite 201

Jericho, New York 11753

Banks and Brokers Call (516) 933-3100

All Others Call Toll-Free (888) 742-1305

To receive timely delivery of the documents in advance of the special meeting, you should make your request no later than [●], 2015.

You may also obtain any of the documents incorporated by reference into this proxy statement/prospectus without charge through the Securities and Exchange Commission, or the SEC, website at www.sec.gov. In addition, you may obtain copies of documents filed by Westport with the SEC by accessing Westport’s website at www.westport.com under the tab “Company” and then under the heading “Investors.” You may also obtain copies of documents filed by Fuel Systems with the SEC by accessing Fuel Systems’ website at www.fuelsystemssolutions.com under the tab “Investor Relations.”

We are not incorporating the contents of the websites of the SEC, Westport, Fuel Systems or any other entity into this proxy statement/prospectus. We are providing the information about how you can obtain certain documents that are incorporated by reference into this proxy statement/prospectus at these websites only for your convenience.

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form F-4 filed with the SEC by Westport (File No. [●]), constitutes a prospectus of Westport under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to Westport common shares to be issued pursuant to the merger agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the special meeting of Fuel Systems stockholders, at which Fuel Systems stockholders will be asked to consider and vote on, among other matters, a proposal to adopt the merger agreement and approve the merger.

You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated [●], 2015. The information contained in this proxy statement/prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. Neither the mailing of this proxy statement/prospectus to Fuel Systems stockholders nor the issuance by Westport of its shares pursuant to the merger agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which it is unlawful to make any such offer or solicitation in such jurisdiction.

The information concerning Westport contained in this proxy statement/prospectus or incorporated by reference has been provided by Westport, and the information concerning Fuel Systems contained in this proxy statement/prospectus or incorporated by reference has been provided by Fuel Systems.

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TABLE OF CONTENTS

 

		Page
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING			iv
SUMMARY			S-1
Information About the Companies			S-1
The Merger			S-2
Consideration to be Received in the Merger by Fuel Systems Stockholders			S-2
Treatment of Fuel Systems Stock Options and Other Stock-based Awards			S-2
Board of Directors and Executive Officers After Completion of the Merger			S-3
Recommendation of the Fuel Systems Board of Directors			S-4
Opinion of Fuel Systems’ Financial Advisor			S-4
Interests of Fuel Systems Directors and Executive Officers in the Merger			S-4
U.S. Federal Income Tax Considerations			S-4
Certain Canadian Tax Consequences of the Merger			S-5
Accounting Treatment of the Merger			S-5
Westport’s Status as a Foreign Private Issuer under the United States Securities Exchange Act of 1934			S-5
No Appraisal Rights			S-5
Regulatory Matters			S-5
Conditions to Completion of the Merger			S-6
No Solicitation of Other Offers			S-7
Termination of the Merger Agreement			S-7
Matters to be Considered at the Special Meeting			S-8
Voting by Fuel Systems Directors and Fuel Systems Officers			S-8
Risk Factors			S-9
Comparison of Rights of Stockholders of Fuel Systems and Shareholders of Westport			S-9
Litigation Related to the Merger			S-9
SELECTED HISTORICAL FINANCIAL DATA OF WESTPORT			11
SELECTED HISTORICAL FINANCIAL DATA OF FUEL SYSTEMS			12
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA			14
COMPARATIVE PER SHARE DATA			15
MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS			16
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			18
RISK FACTORS			20
Risks Relating to the Merger			20
Risks Relating to Tax Matters			24
Risks Relating to the Combined Company Following the Merger			28
THE MERGER			34
Background of the Merger			34
Westport Board of Directors’ Recommendation and its Reasons for the Merger			43
Fuel Systems Board of Directors’ Recommendation and its Reasons for the Merger			44
Opinion of Fuel Systems’ Financial Advisor			47
Certain Unaudited Financial and Operating Forecasts			55
Board of Directors and Executive Officers of the Combined Company After Completion of the Merger; Headquarters and Name			59
Accounting Treatment of the Merger			59
Regulatory Approvals Required for the Merger			59

 

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Appraisal Rights			60
Restrictions on Sales of Shares of Westport Common Shares Received in the Merger			60
NASDAQ and TSX Listing of Westport Common Shares; Delisting and Deregistration of Fuel Systems Common Stock			60
Interests of Directors and Executive Officers in the Merger			61
Treatment of Fuel Systems Stock Options and Other Equity-based Awards			64
U.S. FEDERAL INCOME TAX CONSIDERATIONS			66
In General			66
U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Fuel Systems Common Stock			67
U.S. Federal Income Tax Considerations to U.S. Holders of Owning and Disposing of Westport Common Shares Received in the Merger			69
U.S. Information Reporting and Backup Withholding			73
U.S. Federal Income Tax Consequences of the Merger for Non-U.S. Holders of Fuel Systems Common Stock			73
MATERIAL CANADIAN FEDERAL TAX CONSEQUENCES			74
Certain Canadian Federal Income Tax Consequences			74
THE MERGER AGREEMENT			76
Terms of the Merger Agreement			76
Exchange of Fuel Systems Stock Certificates			77
Treatment of Fuel Systems Stock Options and Other Equity-based Awards			77
Completion of the Merger			79
Conditions to Completion of the Merger			79
Representations and Warranties			79
Covenants and Agreements			81
No Solicitations of Other Offers			85
Board Recommendation			87
Reasonable Best Efforts to Obtain Required Stockholder Approval			88
Agreement to Take Further Action and to Use Reasonable Best Efforts			89
Employee Benefits Matters			90
Other Covenants and Agreements			91
Termination of the Merger Agreement			94
Effect of Termination; Termination Fees			95
Amendment and Waiver			96
Fees and Expenses			97
Assignment			97
Specific Performance			97
Governing Law			97
THE VOTING AGREEMENTS			98
Douglas Voting Agreement			98
Costamagna Voting Agreement			99
Becker Voting Agreement			99
INFORMATION ABOUT WESTPORT			101
Security Ownership of Certain Beneficial Owners			101
INFORMATION ABOUT FUEL SYSTEMS			102
Business Overview			102
Security Ownership of Certain Beneficial Owners			102

 

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		Page
INFORMATION ABOUT MERGER SUB			103
FUEL SYSTEMS SPECIAL MEETING			103
Date, Time and Place			103
Purpose of the Fuel Systems Special Meeting			103
Recommendation of the Fuel Systems Board			104
Fuel Systems Record Date; Stock Entitled to Vote			104
Quorum			104
Required Vote			105
Voting of Proxies; Incomplete Proxies			105
Revocability of Proxies and Changes to a Fuel Systems’ Stockholder’s Vote			106
Solicitation of Proxies			106
Voting by Fuel Systems’ Directors and Executive Officers			106
Stockholders Should Not Send Certificates with Their Proxies			106
Attending the Fuel Systems Special Meeting			107
No Other Business			107
FUEL SYSTEMS PROPOSALS			108
Item 1. The Merger Proposal			108
Item 2. Amendments to Non-Employee Directors’ Restricted Stock Awards Proposal			108
Item 3. The Advisory Compensation Proposal			109
Item 4. The Adjournment Proposal			110
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION			111
Westport Innovations Inc. Unaudited Pro Forma Condensed Combined Balance Sheet As At June  30, 2015			112
Westport Innovations Inc. Unaudited Pro  Forma Condensed Combined Statement Of Operations And Comprehensive Loss For the Year Ended December 31, 2014			113
Westport Innovations Inc. Unaudited Pro  Forma Condensed Combined Statement Of Operations And Comprehensive Loss For the Six Months Ended June 30, 2015			114
Westport Innovations Inc. Notes to the Unaudited Pro Forma Condensed Combined Financial Information			115
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FUEL SYSTEMS AND SHAREHOLDERS OF WESTPORT			127
LEGAL MATTERS			139
EXPERTS			139
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING			139
Westport			139
Fuel Systems			139
WHERE YOU CAN FIND MORE INFORMATION			140

Annex A—Merger Agreement

Annex B—Opinion of J.P. Morgan Securities LLC

Annex C—Douglas Voting Agreement

Annex D—Costamagna Voting Agreement

Annex E—Becker Voting Agreement

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

The following questions and answers briefly address some commonly asked questions about the Fuel Systems special meeting. They do not include all the information that is important to stockholders of Fuel Systems. Stockholders should carefully read this entire proxy statement/prospectus, including the annexes and the other documents referred to herein.

 

Q:	Why am I receiving this proxy statement/prospectus?

 

A:

Westport and Fuel Systems have agreed to a merger, pursuant to which Fuel Systems will merge with Merger Sub, a newly formed, direct wholly owned subsidiary of Westport. Fuel Systems is sending these materials to its stockholders to help them decide how to vote their shares of Fuel Systems common stock with respect to the merger and other matters to be considered at the special meeting.

The merger cannot be completed unless Fuel Systems stockholders adopt the merger agreement. Fuel Systems is holding a special meeting of its stockholders to vote on the proposals necessary to complete the merger. Information about the special meeting, the merger and the other business to be considered by stockholders at the special meeting is contained in this proxy statement/prospectus.

This document constitutes both a proxy statement of Fuel Systems and a prospectus of Westport. It is a proxy statement because the board of directors of Fuel Systems is soliciting proxies from its stockholders. It is a prospectus because Westport will issue its common shares in exchange for outstanding shares of Fuel Systems common stock in the merger as described in this proxy statement/prospectus.

Fuel Systems’ board of directors is soliciting proxies for the special meeting. You are receiving a proxy statement because you owned shares of Fuel Systems’ common stock on [●], 2015, and that entitles you to vote at the meeting. By use of a proxy, you can vote whether or not you attend the meeting. This proxy statement describes the matters on which we would like you to vote and provides information on those matters so that you can make an informed decision.

 

Q:	What will happen in the merger?

 

A:	Under the merger agreement, Merger Sub, a direct wholly owned subsidiary of Westport, will merge with and into Fuel Systems, with Fuel Systems continuing as the surviving entity and a wholly owned subsidiary of Westport, in a transaction which is referred to as the merger.

 

Q:	What will I receive in the merger?

 

A:

You will receive 2.129 Westport common shares for each share of Fuel Systems common stock held by you, which is referred to as the exchange ratio. This exchange ratio will not be adjusted to reflect changes in the stock price of either company before the merger is completed. No fractional Westport common shares will be issued in the merger, and holders of shares of Fuel Systems common stock will, instead, receive cash in lieu of any fractional Westport common shares.

 

Q:	When do Westport and Fuel Systems expect to complete the merger?

 

A:

Westport and Fuel Systems are working to complete the merger as soon as practicable. If the stockholders of Fuel Systems approve the merger, Westport and Fuel Systems currently expect that the merger will be completed by December 31, 2015. Neither Westport nor Fuel Systems can predict, however, the actual date on which the merger will be completed because it is subject to conditions beyond each company’s control, including the approval of the Merger proposal by Fuel Systems’ stockholders and the approval of the issuance of the merger consideration by Westport’s shareholders. See “The Merger Agreement—Conditions to Completion of the Merger” beginning on page [●].

 

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Q:	What happens if the merger is not completed?

 

A:

If the Merger proposal is not approved by Fuel Systems stockholders or if the merger is not completed for any other reason, you will not receive any form of consideration for your shares of Fuel Systems common stock in connection with the merger. Instead, Fuel Systems will remain an independent publicly traded corporation and its common stock will continue to be listed and traded on NASDAQ. If the merger agreement is terminated under specified circumstances, including in certain circumstances in connection with an alternative proposal, or if there is a change in recommendation by the Fuel Systems board, Fuel Systems will be required to pay a termination fee in the amount USD $5.5 million. Following payment of the termination fee, Fuel Systems will not have any further liability to Westport in respect of the merger agreement (other than liability for any willful breach or fraud). See “The Merger Agreement—Effect of Termination; Termination Fees” beginning on page [●].

 

Q:	What am I being asked to vote on?

 

A:	Fuel Systems stockholders are being asked to vote on the following proposals:

 

1.

The Merger proposal: To approve the merger and adopt the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus.

 

2.

The Amendments to Non-Employee Directors’ Restricted Stock Awards proposal: To approve amendments to awards of restricted stock issued to Fuel Systems’ non-employee directors providing that the vesting date shall be the earlier of the vesting date set forth in the award or a change in control of Fuel Systems.

 

3.

The Advisory Compensation proposal: To consider and vote on a proposal to approve, on an advisory (non-binding) basis, the payments that will or may be paid by Fuel Systems to its named executive officers in connection with the merger.

 

4.

The Adjournment proposal: To consider and vote on a proposal to approve any motion to adjourn the Fuel Systems special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the Merger proposal at the time of the Fuel Systems special meeting.

 

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

 

A:

Only Fuel Systems stockholders of record at the close of business on [●], 2015, which is referred to herein as the record date, are entitled to receive notice of and to participate in the special meeting. If you were a Fuel Systems stockholder of record at the close of business on the record date, you will be entitled to vote all of the shares that you held on that date at the meeting, or any postponements or adjournments of the special meeting.

 

Q:	How many votes do I have?

 

A:

You will be entitled to one vote for each outstanding share of Fuel Systems’ common stock you owned as of the record date on each matter considered at the meeting. As of the record date, there were [●] shares of Fuel Systems’ common stock outstanding and eligible to vote. There is no cumulative voting.

 

Q:	What vote is required to approve each proposal at the Fuel Systems Special Meeting?

 

A:	The vote required to approve each proposal at the Fuel Systems Special Meeting is as follows:

 

1.

The Merger proposal: The affirmative vote of holders of a majority of the outstanding shares of Fuel Systems’ common stock entitled to vote. Abstentions and broker non-votes would have the same effect as a vote “AGAINST” the proposal.

 

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2.

The Amendments to Non-Employee Directors’ Restricted Stock Awards proposal: The affirmative vote of holders of a majority of the shares of Fuel Systems’ common stock present in person or by proxy and entitled to vote at the special meeting. Abstentions would have the same effect as a vote “AGAINST” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

 

3.

The Advisory Compensation proposal: The affirmative vote of holders of a majority of the shares of Fuel Systems’ common stock present in person or by proxy and entitled to vote at the special meeting. This vote is advisory and therefore not binding on Fuel Systems board of directors. In reviewing the results of this advisory vote, the Fuel Systems board of directors expects to consider votes cast “FOR” or “AGAINST” the proposal. Due to the unique nature of this advisory vote, the Fuel Systems board of directors does not expect to consider abstentions as votes cast either in favor of or against the proposal in determining the outcome of this advisory vote. Broker non-votes will have no effect on the outcome of this proposal.

 

4.

The Adjournment proposal: The affirmative vote of holders of a majority of the shares of Fuel Systems’ common stock present in person or by proxy and entitled to vote at the special meeting. Abstentions would have the same effect as a vote “AGAINST” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

 

Q:	What constitutes a quorum?

 

A:

The presence at the meeting, in person or by proxy, of the holders of one-third of the aggregate voting power of Fuel Systems’ common stock outstanding on the record date will constitute a quorum, permitting the conduct of business at the special meeting. Abstentions and broker non-votes, if any, which are described below, will be treated as present for the purposes of determining the presence or absence of a quorum for each special meeting.

 

Q:	How does the board of directors of Fuel Systems recommend that I vote?

 

A:	The Fuel Systems board of directors recommends that Fuel Systems stockholders vote “FOR” the Merger proposal, “FOR” the Amendments to Non-Employee Directors’ Restricted Stock Awards proposal, “FOR” the Advisory Compensation proposal, and “FOR” the Adjournment proposal.

 

Q:	What do I need to do now?

 

A:

After carefully reading and considering the information contained in this proxy statement/prospectus, please vote your shares as soon as possible so that your shares will be represented at Fuel Systems’ special meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker, bank or other nominee.

 

Q:	How do I vote?

 

A:

Stockholders may vote by attending the special meeting and voting in person. We urge you to vote by proxy even if you plan to attend the special meeting so that Fuel Systems will know as soon as possible that enough votes will be present for it to hold the meeting. If you attend the meeting in person, you may vote at the special meeting and your proxy will not be counted.

You may also vote your shares without attending the special meeting. Stockholders may vote by using one of these alternative methods:

 

(1)

Via the Internet at www.proxyvote.com;

 

(2)

By telephone at 1-800-690-6903 and follow the instructions for telephone voting; or

 

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(3)

By completing and mailing a proxy card to Voting Processing c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

Proxy cards submitted by mail must be received by Broadridge no later than [●], 2015 to be voted at the special meeting.

If you hold your shares in “street name” and you plan to vote in person at the special meeting, you must obtain a proxy from the bank, broker or other record holder to vote at the meeting. Please refer to the voter instruction cards used by your bank, broker or other record holder for specific instructions on methods of voting, including by telephone or using the Internet.

Your shares will be voted as you indicate. If you submit your proxy but you do not indicate your voting preferences, then the individuals named on the proxy will vote your shares in accordance with the recommendations of the Fuel Systems board of directors. The Fuel Systems board of directors and management do not currently intend to present any matters at the special meeting other than those outlined in the notice of the special meeting. Should any other matter requiring a vote of stockholders arise, stockholders submitting their proxy confer upon the individuals named in the proxy discretionary authority to vote the shares represented by such proxy on any such other matter in accordance with their best judgment.

 

Q:	When and where is the Fuel Systems special meeting?

 

A:	The special meeting of Fuel Systems stockholders will be held at the offices of Day Pitney LLP, 7 Times Square, 20th Floor, New York, New York 10036, on [●], 2015 at [●], Eastern Time.

 

Q:	Who can attend the meeting?

 

A:

All Fuel Systems’ stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Fuel Systems’ invited guests may also attend the meeting. If you attend, please note that you will be asked to present valid picture identification and your proxy card to enter the meeting. Cameras (including cell phones with photographic capabilities), recording devices and other electronic devices will not be permitted at the meeting.

Please also note that if you hold your shares in “street name”, you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting. Please note that the document evidencing your stockholdings to be used to gain entry to the meeting is non-transferable.

 

Q:	My shares are held in “street name” by my broker, so I am a non-registered stockholder. Will my broker automatically vote my shares for me?

 

A:

No. If your shares are held in the name of a bank, broker or other nominee, you are considered the “beneficial owner” of the shares held for you in what is known as “street name.” You are not the “record holder” or “registered holder” of such shares. If this is the case, this proxy statement/prospectus has been forwarded to you by your bank, broker or other nominee. As the beneficial owner, you have the right to direct your bank, broker or other nominee as to how to vote your shares. If you do not provide voting instructions to your bank, broker or other nominee, your shares will not be voted on any proposal, unless your bank, broker or other nominee has discretionary authority to vote with respect to the proposal, which is called a “broker non-vote.” Banks, brokers or other nominees do not have discretionary authority with respect to any of the proposals being voted on at the special meeting, and therefore, if you do not provide voting instructions, your shares will not be voted. Broker non-votes will have the same effect as a vote “AGAINST” the Merger proposal and will have no effect on the Amendment to Non-Employee Directors’ Restricted Stock Awards proposal, the Advisory Compensation proposal or the Adjournment proposal. However, Fuel Systems anticipates that there will not be any broker non-votes cast in connection with any of the proposals.

 

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Please follow the voting instructions provided by your bank, broker or other nominee so that it may vote your shares on your behalf. Please note that you may not vote shares held in street name by returning a proxy card directly to Fuel Systems or by voting in person at the special meeting, unless you first provide a proxy from your bank, broker or other nominee.

 

Q:	What will happen if I return my proxy or voting instruction card without indicating how to vote?

 

A:

If you sign and return your proxy or voting instruction card without indicating how to vote on any particular proposal, the Fuel Systems common stock represented by your proxy will be voted as recommended by the Fuel Systems board of directors with respect to that proposal. Unless a Fuel Systems stockholder checks the box on its proxy card to withhold discretionary authority, the proxy holders may use their discretion to vote on other matters relating to the Fuel Systems special meeting.

 

Q:	May I revoke my proxy or change my vote after I have delivered my proxy or voting instruction card?

 

A:	Yes. You may change your vote at any time before your proxy is voted at the Fuel Systems special meeting. You may do this by:

 

•

sending a written notice, which is received prior to your vote being cast at the Fuel Systems special meeting, to the Secretary of Fuel Systems;

 

•

submitting a valid, later-dated proxy by mail, telephone or via the Internet that is received prior to your vote being cast at the Fuel Systems special meeting; or

 

•

attending the Fuel Systems special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself, revoke any proxy that you have previously given).

If you hold your shares of Fuel Systems common stock through a broker or other nominee, you must follow the directions you receive from your broker or other nominee in order to revoke your proxy or change your voting instructions.

 

Q:	How are we soliciting this proxy and who is bearing the associated costs?

 

A:

Fuel Systems is soliciting this proxy on behalf of its board of directors by mail and will pay all expenses associated with this solicitation. Fuel Systems has engaged Laurel Hill Advisory Group to assist in the solicitation of proxies for the meeting and Fuel Systems estimates it will pay Laurel Hill Advisory Group a fee of approximately $7,500 (plus reimbursement of expenses) for these services. In addition to mailing or providing access to these proxy materials, certain of Fuel Systems’ officers, directors and other employees may, without compensation other than their regular compensation, solicit proxies by further mailing or personal conversations, or by e-mail, telephone, facsimile or other electronic means. Fuel Systems will also, upon request, reimburse brokers and other persons holding stock in their names, or in the names of nominees, for their reasonable out-of-pocket expenses for forwarding proxy materials to the beneficial owners of Fuel Systems common stock and obtaining proxies.

 

Q:	Can the special meeting be adjourned?

 

A:

Any adjournment of the special meeting may be made without notice, by approval of the holders of a majority of the shares of Fuel Systems’ common stock present in person or represented by proxy at the special meeting, whether or not a quorum exists. In the event that a quorum is not present at the time the special meeting is convened, or if for any other reason we believe that additional time should be allowed for the solicitation of proxies, we may adjourn the special meeting and the persons named in the enclosed proxy will vote all shares of common stock for which they have voting authority “FOR” such adjournment.

 

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Q:	What happens if I sell my shares of Fuel Systems common stock after the record date but before the special meeting?

 

A:

The record date for the Fuel Systems special meeting is earlier than the date of the special meeting and earlier than the date that the merger is expected to be completed. If you sell or otherwise transfer your shares of Fuel Systems’ common stock after the record date but before the date of the Fuel Systems special meeting, you will retain your right to vote at the special meeting. However, you will not have the right to receive the merger consideration to be received by Fuel Systems’ stockholders in the merger. In order to receive the merger consideration, you must hold your shares of Fuel Systems common stock through completion of the merger.

 

Q:	What does it mean if I receive more than one proxy card or voting instruction card?

 

A:

Your receipt of more than one proxy card or voting instruction card may mean that you have multiple accounts with Fuel Systems’ transfer agent or with a brokerage firm, bank or other nominee. If voting by proxy by mail, you will need to sign and return all proxy cards or voting instruction cards to ensure that all of your shares of Fuel Systems common stock are voted. Each proxy card or voting instruction card represents a distinct number of shares of Fuel Systems common stock and it is the only means by which those particular shares of Fuel Systems common stock may be voted by proxy.

 

Q:	What are the U.S. federal income tax consequences of the merger to U.S. Holders of Fuel Systems common stock?

 

A:

The merger is intended to qualify as a tax-free reorganization under Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended and in effect from time to time (the “Code”). It is uncertain, however, whether the application of Section 367(a)(1) of the Code (discussed in “U.S. Federal Income Tax Considerations—U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Fuel Systems Common Stock—Application of Section 367(a)(1)” beginning on page [●]) would require recognition of gain for holders of Fuel Systems common stock who receive Westport common shares in the merger. Assuming the merger qualifies as a tax-free reorganization under Section 368(a) of the Code, and the application of Section 367(a)(1) of the Code does not require the recognition of gain for holders of Fuel Systems common stock who receive Westport common shares in the merger, then, except as described below with respect to a U.S. Holder of Fuel Systems common stock that owns, directly or by attribution, 5% or more of Westport common shares immediately after the consummation of the merger (a “5% U.S. Holder”), you will not recognize any gain or loss with respect to your Fuel Systems common stock exchanged therefor, other than with respect to any cash received in lieu of a fractional Westport common share. A 5% U.S. Holder that receives Westport common shares pursuant to the merger will generally qualify for the treatment described above only if the 5% U.S. Holder timely files a “gain recognition agreement,” as defined in applicable U.S. Treasury Regulations promulgated under Section 367(a) of the Code, with the U.S. Internal Revenue Service (the “IRS”).

If application of Section 367(a)(1) of the Code does require recognition of gain to holders of Fuel Systems common stock who receive Westport common shares in the merger, you generally will recognize capital gain (but not loss) in an amount equal to the excess, if any, of the fair market value as of the closing date of the merger of any Westport common shares (including fractional shares) received in such exchange, over your tax basis in the Fuel Systems common stock surrendered in such exchange. For more information regarding the U.S. federal income tax consequences of the merger to holders of Fuel Systems common stock, see “U.S. Federal Income Tax Considerations—U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Fuel Systems Common Stock” beginning on page [●].

 

Q:	Do I have appraisal rights in connection with the merger?

 

A:	No. Under Delaware law, holders of Fuel Systems common stock will not be entitled to exercise any appraisal rights in connection with the merger.

 

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Q:	What will holders of Fuel Systems stock options and other equity based awards receive in the merger?

 

A:

Stock Options. Upon completion of the merger, each outstanding in-the-money option (whether or not then vested or exercisable) to purchase shares of Fuel Systems common stock will automatically vest and become exercisable, and will be assumed by Westport and will otherwise continue to have, and be subject to, the same terms and conditions as were applicable to such options prior to the completion of the merger, except that (i) each such in-the-money option will be exercisable for that number of common shares of Westport equal to the product (rounded down to the nearest whole) of the number of shares of Fuel Systems common stock subject to such in-the-money option immediately prior to the completion of the merger and 2.129, and (ii) the per share exercise price for shares of Westport issuable upon exercise of such assumed in-the-money option will be equal to the quotient (rounded up to the nearest whole cent) determined by dividing the per share exercise price of each Fuel Systems common stock at which such assumed in-the-money option was exercisable immediately prior to the completion of the merger by 2.129. Any outstanding option that has an exercise price per share of Fuel Systems common stock greater than or equal to the per share dollar value of the merger consideration immediately prior to the completion of the merger will automatically be cancelled and forfeited for no consideration and all rights with respect to such option will terminate.

Restricted Stock Units. Upon completion of the merger, each outstanding restricted stock unit of Fuel Systems will be assumed by Westport and will continue to have, and be subject to, the same terms and conditions (including vesting terms), as were applicable prior to the completion of the merger, except that each restricted stock unit award of Fuel Systems will be converted into a number of restricted stock units of Westport (convertible into shares of Westport common shares on vesting) equal to the product (rounded down to the nearest whole number) of the number of shares of Fuel Systems common stock subject to such restricted stock unit award immediately prior to the completion of the merger multiplied by 2.129.

Restricted Stock. Upon completion of the merger, each outstanding share of restricted stock of Fuel Systems will be assumed by Westport and will continue to have, and be subject to, the same terms and conditions (including applicable restrictions and vesting terms) as were applicable immediately prior to the completion of the merger, except that each such share of restricted stock of Fuel Systems will be converted into a number of restricted shares of Westport equal to the product (rounded down to the nearest whole number) of the number of shares of Fuel Systems restricted stock immediately prior to the closing of the merger multiplied by 2.129. Notwithstanding the foregoing, restricted stock held by the non-employee directors of Fuel Systems will immediately vest upon consummation of the merger and will not be subject to vesting conditions if the Amendments to Non-Employee Directors’ Restricted Stock Awards proposal is approved by stockholders at the special meeting.

Phantom Shares. Upon completion of the merger, each outstanding phantom share of Fuel Systems will become fully vested and all restrictions will lapse and each such phantom share will be converted into an amount, payable in cash, equal to the product of (i) the number of shares of Fuel Systems common stock subject to the Fuel Systems phantom share multiplied by (ii) the difference between (x) the per share dollar value of the merger consideration and (y) the applicable “exercise price” for such Fuel Systems phantom share. Any outstanding phantom share that has an exercise price per share of Fuel Systems common stock greater than or equal to the per share dollar value of the merger consideration will automatically be cancelled and forfeited for no consideration and all rights with respect to such phantom share will terminate.

 

Q:	Whom should I contact if I have any questions about the proxy materials or voting?

 

A:

If you have any questions about the merger or if you need assistance submitting your proxy or voting your shares or need additional copies of this proxy statement/prospectus or the enclosed proxy card, you should contact the proxy solicitation agent Laurel Hill Advisory Group, toll-free at (888) 742-1305.

 

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SELECTED HISTORICAL FINANCIAL DATA OF WESTPORT

The selected historical consolidated financial data of Westport for each of the years ended December 31, 2014, 2013 and 2012 and as of December 31, 2014 and 2013, have been derived from Westport’s audited annual financial information and related notes contained in Westport’s second amended Annual Report on Form 40-F/A for the year ended December 31, 2014, which is incorporated by reference in this proxy statement/prospectus. The selected historical consolidated financial data as of and for the six months ended June 30, 2015 and June 30, 2014 have been derived from Westport’s unaudited consolidated financial information and related notes thereto contained in Westport’s Current Report on Form 6-K filed with the SEC on July 29, 2015, which is incorporated by reference in this proxy statement/prospectus.

The selected historical consolidated financial data for the nine months ended December 31, 2011 and the year ended March 31, 2011 and as of December 31, 2012 and 2011 and March 31, 2011 have been derived from Westport’s audited consolidated financial information as of and for such years, which have not been incorporated by reference into this proxy statement/prospectus. The selected historical consolidated financial data as of June 30, 2014 have been derived from Westport’s unaudited interim consolidated financial information and related notes thereto contained in Westport’s Current Report on Form 6-K filed with the SEC on August 1, 2014, which has not been incorporated by reference into this proxy statement/prospectus.

Historical results are not indicative of the results that should be expected in the future. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Westport or the combined company, and you should read the following information together with Westport’s audited consolidated financial information, the notes related thereto and the document entitled “Management’s Discussion and Analysis” contained in Westport’s second amended Annual Report on Form 40-F/A for the fiscal year ended December 31, 2014 and Westport’s unaudited consolidated financial information, the notes related thereto and the document entitled “Management’s Discussion and Analysis” contained in Westport’s Form 6-K filed with the SEC on July 29, 2015, which are incorporated by reference in this proxy statement/prospectus. For more information, see the section titled “Where You Can Find More Information” beginning on page [●]. Unless specifically stated otherwise, all dollar amounts set forth in this section are presented in U.S. dollars.

 

		Six Months Ended June 30,								Year Ended December 31,												Nine months ended December 31,				Year Ended March 31,
		2015				2014				2014				2013				2012				2011				2011
		(in thousands, except share amounts)
Revenues and Income
Total Revenues		$	55,868			$	77,789			$	130,569			$	164,032			$	155,626			$	87,696			$	36,775
Loss from Continuing Operations		$	(43,593	)		$	(57,303	)		$	(159,387	)		$	(194,210	)		$	(108,298	)		$	(59,075	)		$	(47,963	)
Net Loss		$	(37,693	)		$	(59,224	)		$	(149,618	)		$	(185,410	)		$	(98,774	)		$	(45,794	)		$	(42,142	)
Per Share Data
Loss Per Share—Basic and Diluted		$	(0.59	)		$	(0.94	)		$	(2.37	)		$	(3.22	)		$	(1.83	)		$	(0.96	)		$	(1.00	)
Weighted Average Shares Outstanding
Basic			63,985,492				63,005,649				63,130,022				57,633,190				54,072,513				47,933,348				42,305,889
Diluted			63,985,492				63,005,649				63,130,022				57,633,190				54,072,513				47,933,348				42,305,889
Financial Position
Total Assets		$	277,755			$	444,983			$	337,695			$	491,671			$	490,077			$	325,762			$	232,193
Long-Term Debt		$	71,661			$	79,121			$	78,542			$	66,013			$	80,722			$	86,145			$	25,222
Stockholders’ Equity		$	128,061			$	268,892			$	168,008			$	322,902			$	336,081			$	152,590			$	181,228

 

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SELECTED HISTORICAL FINANCIAL DATA OF FUEL SYSTEMS

The selected historical consolidated financial data of Fuel Systems for each of the years ended December 31, 2014, 2013 and 2012 and as of December 31, 2014 and 2013 have been derived from Fuel Systems’ audited consolidated financial information and related notes thereto contained in Fuel Systems’ Annual Report on Form 10-K for the year ended December 31, 2014, which is incorporated by reference into this proxy statement/prospectus. The selected historical consolidated financial data for the six months ended June 30, 2015 and June 30, 2014 and as of June 30, 2015 have been derived from Fuel Systems’ unaudited interim consolidated financial information and related notes thereto contained in Fuel Systems’ Quarterly Report on Form 10-Q for the six months ended June 30, 2015, which is incorporated by reference into this proxy statement/prospectus.

The selected historical consolidated financial data for the years ended December 31, 2011 and 2010 and as of December 31, 2012, 2011 and 2010 have been derived from Fuel Systems’ audited consolidated financial information as of and for such years, which have not been incorporated by reference into this proxy statement/prospectus. The selected historical consolidated financial data as of June 30, 2014 have been derived from Fuel Systems’ unaudited interim consolidated financial information and related notes thereto contained in Fuel Systems’ Quarterly Report on Form 10-Q for the six months ended June 30, 2014, which has not been incorporated by reference into this proxy statement/prospectus.

Historical results are not indicative of the results that should be expected in the future. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Fuel Systems or the combined company, and you should read the following information together with Fuel Systems’ audited consolidated financial information, the notes related thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Fuel Systems’ Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and Fuel Systems’ unaudited consolidated financial information, the notes related thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Fuel Systems’ Quarterly Report on Form 10-Q for the six months ended June 30, 2015, which are incorporated by reference in this proxy statement/prospectus. For more information, see the section titled “Where You Can Find More Information” beginning on page [●].

 

		Six Months Ended June 30,								Years Ended December 31,
		2015				2014				2014				2013				2012				2011				2010
		(in thousands, except as noted)
Statements of Operations:
Revenue		$	130,478			$	168,687			$	339,128			$	399,841			$	393,947			$	418,134			$	430,632
Operating (loss) income			(9,719	)			(50,190	)			(54,219	)			4,409				(13,286	)			11,825				58,301
Net (loss) income attributable to Fuel Systems		$	(17,869	)		$	(46,196	)		$	(53,416	)		$	(460	)		$	(15,632	)		$	5,168			$	39,702
Per Share Data:
Net (loss) income attributable to Fuel Systems per common share
Basic			(.95	)			(2.30	)			(2.66	)			(0.02	)			(0.78	)			0.26				2.24
Diluted			(.95	)			(2.30	)			(2.66	)			(0.02	)			(0.78	)			0.26				2.23
Number of shares used in per share calculation
Basic			18,885,109				20,098,532				20,074,773				20,073,360				20,020,487				19,972,969				17,725,049
Diluted			18,885,109				20,098,532				20,074,773				20,073,360				20,020,487				20,004,236				17,807,330

 

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		Six Months Ended June 30,								Years Ended December 31,
		2015				2014				2014				2013				2012				2011				2010
		(in thousands, except as noted)
Balance Sheets:
Cash and cash equivalents		$	48,583			$	69,649			$	85,180			$	80,961			$	75,675			$	96,740			$	124,775
Total current assets			201,246				283,081				254,659				290,147				282,941				299,285				306,928
Total assets			262,660				359,980				324,241				415,299				419,818				450,002				454,563
Total liabilities			73,891				92,237				87,506				96,247				102,771				120,180				115,996
Long-term debts			—				107				0				215				713				3,698				7,571
Total equity		$	188,769			$	267,743			$	236,735			$	319,052			$	317,047			$	329,822			$	338,567

 

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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The unaudited pro forma condensed combined financial information of Westport for the six months ended June 30, 2015 and the year ended December 31, 2014 included in this proxy statement/prospectus have been prepared by Westport using the acquisition method of accounting for business combinations under U.S. GAAP. The following selected unaudited pro forma condensed combined statements of operations data for the six months ended June 30, 2015 and year ended December 31, 2014 have been prepared to give effect to the merger as if the merger had been completed on January 1, 2014. The unaudited pro forma condensed combined balance sheet data at June 30, 2015 has been prepared to give effect to the merger as if the merger was completed on June 30, 2015.

The unaudited pro forma condensed combined financial information assume that, at the effective time, each outstanding Fuel Systems share will be converted into the right to receive 2.129 Westport common shares. Pro forma book value per share is calculated by dividing total assets (including both tangible and intangible assets) minus total liabilities of Westport as at June 30, 2015 by the total number of Westport common shares outstanding at such date (including issuance of Westport common shares to Fuel Systems stockholders as of such date).

The selected unaudited pro forma condensed combined financial data is based on estimates and assumptions that are preliminary, presented for illustrative purposes only and is not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The assumptions underlying the selected unaudited pro forma condensed combined financial data are described in the notes to the unaudited pro forma condensed combined financial information of Westport as at June 30, 2015, for the six months ended June 30, 2015 and for the year ended December 31, 2014 and should be read in conjunction with the selected unaudited pro forma condensed combined financial data presented below. The following information should also be read in conjunction with (i) the unaudited condensed consolidated financial information of Westport as at June 30, 2015 and for the six months ended June 30, 2015, including the notes thereto, contained in Westport’s Form 6-K filed with the SEC on July 29, 2015 and the audited consolidated financial information of Westport as at December 31, 2014 and for the year ended December 31, 2014, including the notes thereto, contained in Westport’s second amended Form 40-F filed with the SEC on October 16, 2015, and (ii) the unaudited consolidated financial information of Fuel Systems, including the notes thereto, contained in Fuel Systems’ Quarterly Report on Form 10¬-Q for the quarter ended June 30, 2015 and the audited consolidated financial information of Fuel Systems, including the notes thereto, contained in Fuel Systems’ Annual Report on Form 10-K for the year ended December 31, 2014, each of which are incorporated by reference into this proxy statement/prospectus. See “Unaudited Pro Forma Condensed Combined Financial Information” on page [●] of this proxy statement/prospectus. All dollar amounts set forth in this section are presented in U.S. dollars.

 

		Six Months Ended June 30, 2015				Year Ended December 31, 2014
		(in thousands, except per share amounts)
Pro Forma Statement of Operations Data
Net Loss		$	(54,576	)		$	(203,030	)
Loss Per Share, Basic		$	(0.53	)			(1.92	)
Loss Per Share, Diluted		$	(0.53	)		$	(1.92	)

 

		At June 30, 2015
		(in thousands)
Pro Forma Balance Sheet Data
Cash and Cash Equivalents		$	108,520
Total Assets			533,299
Total Liabilities			240,616
Stockholder’s Equity			292,683

 

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COMPARATIVE PER SHARE DATA

The following table shows per share data regarding earnings (losses) from continuing operations, book value per share and cash dividends for Westport and Fuel Systems on a historical and pro forma combined basis. The pro forma earnings (losses) from continuing operations information was computed as if the merger had been completed on January 1, 2014. The pro forma book value per share information was computed as if the merger had been completed on June 30, 2015.

Westport and Fuel Systems present basic loss per share for their common shares, calculated by dividing the loss attributable to their common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share does not adjust the loss attributable to common shareholders or the weighted average number of common shares outstanding when the effect is anti-dilutive. Historical book values for Westport and Fuel Systems are calculated by dividing total assets (including both tangible and intangible assets) minus total liabilities as at the dates indicated below by the total number of common shares outstanding as of such dates.

The following comparative per share data is derived from the historical consolidated financial statements of each of Westport and Fuel Systems. The information below should be read in conjunction with “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page [●]. All dollar amounts set forth in this section are presented in U.S. dollars.

 

		As of and for the Year Ended December 31, 2014				As of and for the Six Months Ended June 30, 2015
Westport Innovations Inc.
Earnings (Loss) Per Share, Basic		$	(2.37	)		$	(0.59	)
Earnings (Loss) Per Share, Diluted		$	(2.37	)		$	(0.59	)
Book value per share		$	2.66			$	2.00
Cash dividends		$	—			$	—
Fuel Systems Solutions, Inc.
Earnings (Loss) Per Share, Basic		$	(2.66	)		$	(0.95	)
Earnings (Loss) Per Share, Diluted		$	(2.66	)		$	(0.95	)
Book value per share		$	11.98			$	10.43
Cash dividends			—				—
Pro Forma Combined (Unaudited)
Earnings (Loss) Per Share, Basic		$	(1.92	)		$	(0.53	)
Earnings (Loss) Per Share, Diluted		$	(1.92	)		$	(0.53	)
Book value per share		$	NA	(a)		$	2.84

 

 

(a)	The book value per common share had not been presented for the year ended December 31, 2014 given that Article 11 of SEC Regulation S-X requires that the pro forma balance sheet be presented as at the latest balance sheet (i.e., June 30, 2015), which is the assumed date of the merger.

 

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MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS

Stock Prices

The table below sets forth, for the calendar quarters indicated, the high and low sales prices per Westport common shares, which trade on NASDAQ under the symbol “WPRT” and on the TSX under the symbol “WPT” and Fuel Systems common stock, which trades on NASDAQ under the symbol “FSYS.”

 

		Westport Common Shares TSX (in C$)												Westport Common Shares NASDAQ (in US$)												Fuel Systems Common Stock (in US$)
		High				Low				Dividend				High				Low				Dividend				High				Low				Dividend
2013
First Quarter		$	33.24			$	26.36				—			$	32.89			$	26.50				—			$	18.13			$	13.38				—
Second Quarter		$	36.14			$	27.80				—			$	34.44			$	27.50				—			$	18.10			$	13.34				—
Third Quarter		$	36.57			$	24.70				—			$	35.40			$	23.95				—			$	21.44			$	17.34				—
Fourth Quarter		$	26.65			$	18.29				—			$	25.87			$	17.07				—			$	19.90			$	12.25				—
2014
First Quarter		$	24.11			$	15.34				—			$	22.50			$	13.84				—			$	14.20			$	10.02				—
Second Quarter		$	19.34			$	13.67				—			$	18.14			$	12.42				—			$	11.48			$	9.25				—
Third Quarter		$	20.32			$	11.62				—			$	18.98			$	10.37				—			$	11.40			$	8.70				—
Fourth Quarter		$	9.22			$	3.95				—			$	8.25			$	3.40				—			$	11.88			$	8.00				—
2015
First Quarter		$	8.41			$	3.82				—			$	6.74			$	3.24				—			$	11.64			$	9.47				—
Second Quarter		$	7.46			$	4.92				—			$	6.18			$	3.90				—			$	11.57			$	7.20				—
Third Quarter (through October 9, 2015)		$	6.61			$	3.23							$	5.10			$	2.42							$	7.73			$	4.79

The following table presents trading information on the last full trading day prior to the public announcement of the merger and on the latest practicable date before the date of this proxy statement/prospectus. On August 31, 2015, the last trading day before the public announcement of the signing of the merger agreement, the closing sale price per share of Westport common shares was $3.54 on NASDAQ and $4.63 CAD on the TSX, and the closing sale price per share of Fuel Systems common stock was $6.85 on NASDAQ. On October 9, 2015, the latest practicable date before the date of this proxy statement/prospectus, the last sales price per share of Westport common shares was $3.92 on NASDAQ and $5.06 CAD on the TSX, and the closing sale price per share of Fuel Systems common stock was $7.43 on NASDAQ.

 

		Westport common shares TSX (in C$)		Westport common shares NASDAQ (in US$)		Fuel Systems Common Stock (in US$)
August 31, 2015		$4.63		$3.54		$6.85
October 9, 2015		$5.06		$3.92		$7.43

Fuel Systems stockholders are advised to obtain current market quotations for Westport common shares. The market prices of Westport common shares will fluctuate between the date of this proxy statement/prospectus and the completion of the merger. No assurance can be given concerning the market price of Westport common shares before or after the effective date of the merger.

Fuel Systems has never paid or declared any dividends on its common stock.

 

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Number of Holders of Common Stock and Number of Shares Outstanding

As of October 9, 2015, there were 158 shareholders of record of Westport common shares who held an aggregate of 64,197,763 of Westport common shares.

As of October 9, 2015, there were 228 shareholders of record of Fuel Systems common stock who held an aggregate of 18,093,562 shares of Fuel Systems common stock.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking information about Westport, Fuel Systems and the combined company that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as: “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “predict,” “potential,” “continue,” “seeks,” “on-going” or the negative of these terms or other comparable terminology often identify forward-looking statements, although not all forward-looking statements contain these words. The statements contained in this proxy statement/prospectus that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. These statements may be made directly in this proxy statement/prospectus or may be incorporated by reference to other documents and may include statements for the period after completion of the merger. These forward-looking statements relate to outlooks or expectations for earnings, revenues, expenses, asset quality or other future financial or business performance, strategies or expectations, or the effect of legal, regulatory or supervisory matters on business, results of operations or financial condition, and include, among other things, statements regarding the anticipated timing for and ultimate completion of the merger, result, timing and financial metrics associated with Westport’s and Fuel Systems’ combined operating business units and consolidated business, revenue and cash usage expectations, the effect of the proposed reorganization and restructuring of Westport’s and Fuel Systems’ business, continued research and development investment, future of Westport’s and Fuel Systems’ development programs, timing for launch, delivery and completion of milestones related to the products referenced herein, Westport’s and Fuel Systems’ expected actions and results relating to the key components of their business strategy in 2015 and to the integration of Westport’s and Fuel Systems’ businesses, future sales of assets and the benefits therefrom, the demand for the companies’ products, the future success of the business and technology strategies, investment in new product and technology development and otherwise, cash and capital requirements, intentions of partners and potential customers, the performance and competitiveness of Westport’s and Fuel Systems’ products and expansion of product coverage, future market opportunities, speed of adoption of natural gas for transportation and terms and timing of future agreements as well as the combined company’s management’s response to any of the aforementioned factors.

Forward-looking statements reflect management judgment based on currently available information and involve a number of factors, risks and uncertainties. With respect to these forward-looking statements, each of Westport’s and Fuel Systems’ management has made assumptions regarding, among other things, future demand and market prices for natural gas, capacity, fuel and emission allowances, operating, general and administrative costs, financial and economic market conditions and legislative, regulatory and/or market developments. The future and assumptions about the future cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors, risks and uncertainties that could cause actual results to differ include:

 

•

Fuel Systems or Westport may be unable to obtain governmental and regulatory approvals required for the merger, or required governmental and regulatory approvals may delay the merger or result in the imposition of conditions that could cause the parties to abandon the merger;

 

•

a condition to closing of the merger may not be satisfied;

 

•

the timing to consummate the proposed merger;

 

•

the businesses will not be integrated successfully;

 

•

insufficient capital and liquidity to achieve the business plan of the combined company;

 

•

expected cost savings and any other synergies from the transaction may not be fully realized within the expected time frames or at all;

 

•

disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers;

 

•

the actions and determinations of joint venture and development partners;

 

•

the diversion of management time on merger-related issues;

 

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•

revenues following the merger may be lower than expected;

 

•

government regulation or other actions;

 

•

unpredictable nature of the developing alternative fuel U.S. automotive market;

 

•

the growth of non-gaseous alternative fuel products and other new technologies;

 

•

the price differential between alternative gaseous fuels and gasoline;

 

•

the repeal or implementation of government regulations relating to reducing vehicle emissions;

 

•

the ability of management to execute its plans to meet its goals;

 

•

other risks inherent in Westport’s and Fuel Systems’ business that are discussed in Westport’s and Fuel Systems’ most recent annual reports on Form 40-F and Form 10-K, respectively, and in other Westport and Fuel Systems reports on file with the SEC; and

 

•

those set forth in or incorporated by reference into this proxy statement/prospectus in the section entitled “Risk Factors” beginning on page [●].

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this proxy statement/prospectus, or in the case of a document incorporated by reference, as of the date of that document. Neither Westport nor Fuel Systems undertakes any obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date that they were made or to reflect the occurrence of unanticipated events.

Additional factors, risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Westport and Fuel Systems. See “Where You Can Find More Information” beginning on page [●] for a list of the documents incorporated by reference.

 

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RISK FACTORS

In addition to the other information included or incorporated by reference in this proxy statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [●], you should carefully consider the following risks before deciding how to vote. Although Westport and Fuel Systems believe that the matters described below cover the material risks related to the merger, they may not contain all of the information that is important to you in evaluating the merger. Accordingly, we urge you to read this entire proxy statement/prospectus, including the annexes and the information included or incorporated by reference in this documents. Please also refer to the additional risk factors identified in the periodic reports and other documents of Westport and Fuel Systems incorporated by reference into this proxy statement/prospectus and listed in the section entitled “Where You Can Find More Information.” Realization of any of the risks described below, any of the events described under “Cautionary Statement Regarding Forward-Looking Statements” or any of the risks or events described elsewhere in this proxy statement/prospectus or in the documents incorporated herein by reference could have a material adverse effect on Westport’s, Fuel Systems’ or the combined company’s businesses, financial condition, cash flows and results of operations and could result in a decline in the trading prices of their respective shares.

Risks Relating to the Merger

Because the exchange ratio is fixed and the market price of shares of Westport common shares will fluctuate, Fuel Systems stockholders cannot be sure of the value of the merger consideration they will receive.

Upon completion of the merger, each outstanding share of Fuel Systems common stock will be converted into the right to receive 2.129 Westport common shares. The number of Westport common shares to be issued pursuant to the merger agreement for each share of Fuel Systems common stock is fixed and will not change to reflect changes in the market price of Westport common shares or Fuel Systems common stock. The market price of Westport common shares at the time of completion of the merger may vary significantly from the market prices of Westport common shares on the date the merger agreement was executed, the date of this proxy statement/prospectus and the date of the respective special stockholder meetings. Accordingly, at the time of the Fuel Systems special meeting, you will not know or be able to calculate the market value of the merger consideration you will receive upon completion of the merger.

In addition, the merger might not be completed until a significant period of time has passed after the Fuel Systems special meeting. Because the exchange ratio will not be adjusted to reflect any changes in the market value of Westport common shares or Fuel Systems common stock, the market value of the Westport common shares issued in connection with the merger and the Fuel Systems common stock surrendered in connection with the merger may be higher or lower than the values of those shares on earlier dates. Stock price changes may result from, among other things, changes in the business, operations or prospects of Westport or Fuel Systems prior to or following the merger, litigation or regulatory considerations, general business, market, industry or economic conditions and other factors both within and beyond the control of Westport and Fuel Systems. Neither Westport nor Fuel Systems is permitted to terminate the merger agreement solely because of changes in the market price of either company’s common stock.

The merger agreement contains provisions that limit Fuel Systems’ ability to pursue alternatives to the merger, which could discourage a potential acquirer of Fuel Systems from making an alternative transaction proposal and, in certain circumstances, could require Fuel Systems to pay to Westport a significant termination fee.

The merger agreement contains “no shop” provisions that, subject to limited exceptions, prohibit Fuel Systems, its subsidiaries and their respective representatives from, directly or indirectly, soliciting, initiating, knowingly encouraging or knowingly facilitating any inquiry in respect of, discussing or negotiating, or furnish any non-public information in connection with, or entering into any understanding or agreement in respect of, a

 

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competing third-party proposal for the acquisition of Fuel Systems’ stock or assets. In addition, the parties are generally required to negotiate in good faith to modify the terms of the merger in response to any competing acquisition proposals before Fuel Systems’ board may withdraw or qualify its recommendation with respect to the merger. In some circumstances, upon termination of the merger agreement, Fuel Systems may be required to pay Westport a termination fee of USD $5.5 million.

See “The Merger Agreement—No Solicitations of Other Offers” beginning on page [●]; “The Merger Agreement—Termination of the Merger Agreement” beginning on page [●]; and “The Merger Agreement—Effect of Termination; Termination Fees” beginning on page [●].

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of Fuel Systems’ stock or assets from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger. Similarly, these provisions might result in a potential third-party acquirer proposing to pay a lower price to Fuel Systems stockholders than it might otherwise have proposed to pay before of the added expense of the termination fee that may become payable in certain circumstances. If the merger agreement is terminated and Fuel Systems determines to seek another business combination, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.

Fuel Systems will be subject to various uncertainties and contractual restrictions while the merger is pending that could adversely affect its financial results.

Uncertainty about the effect of the merger on employees, suppliers and customers may have an adverse effect on Fuel Systems. These uncertainties may impair Fuel Systems’ ability to attract, retain and motivate key personnel until the merger is completed and for a period of time thereafter, and could cause customers, suppliers and others that deal with Fuel Systems to seek to change existing business relationships with Fuel Systems. Employee retention and recruitment may be particularly challenging prior to completion of the merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.

The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect Fuel Systems’ financial results.

In addition, the merger agreement restricts Fuel Systems from making certain acquisitions and dispositions and taking other specified actions while the merger is pending without Westport’s consent. These restrictions may prevent Fuel Systems from pursuing attractive business opportunities and making other changes to their respective businesses prior to completion of the merger or termination of the merger agreement. See “The Merger Agreement—Covenants and Agreements” beginning on page [●].

The issuance of Westport common shares in connection with the merger could decrease the market price of Westport common shares.

In connection with the merger and as part of the merger consideration, Westport will issue Westport common shares to Fuel Systems stockholders. The issuance of Westport common shares in the merger may result in fluctuations in the market price of Westport common shares, including a share price decrease.

Certain rights of holders of Fuel Systems common stock will change as a result of the merger.

Fuel Systems is incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of Fuel Systems are currently governed by the DGCL. Westport is incorporated under the laws of

 

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Alberta, Canada and, accordingly, the rights of the shareholders of Westport are currently governed by the Business Corporations Act (Alberta) (the “ABCA”). Following the completion of the merger, holders of Fuel Systems common stock will no longer be stockholders of Fuel Systems, but instead will be shareholders of Westport. There will be certain differences between your current rights as a stockholder of Fuel Systems, on the one hand, and the rights to which you will be entitled as a shareholder of Westport, on the other hand. For a more detailed discussion of the differences in the rights of stockholders in Fuel Systems and Westport, see “Comparison of Rights of Stockholders of Fuel Systems and Shareholders of Westport” beginning on page [●].

Purported class action lawsuits have been filed against the individual members of the board of directors of Fuel Systems and against Fuel Systems, Westport and Merger Sub, and additional lawsuits may be filed, challenging the merger and seeking injunctive relief. An adverse judgment in any pending case or additional lawsuits could prevent the merger from occurring or could have a material adverse effect on Fuel Systems or Westport following the merger.

On September 11, 2015, a putative class action lawsuit challenging the merger was filed in the Court of Chancery of the State of Delaware by a purported stockholder of Fuel Systems. The lawsuit, captioned Peck v. Fuel Systems Solutions, Inc., et al., C.A. No. 11495-CB, names as defendants the individual members of the Fuel Systems board of directors, Fuel Systems, Westport and Merger Sub. The Peck lawsuit alleges, among other things, that the individual members of the Fuel Systems board of directors breached their fiduciary duties by approving the proposed merger between Fuel Systems and Westport because, among other things, the merger consideration is allegedly inadequate and the merger agreement allegedly contains unreasonable deal protection provisions. The Peck lawsuit also alleges that Westport and Merger Sub aided and abetted such breaches of fiduciary duty. The Peck lawsuit seeks, among other things, declaratory and injunctive relief prohibiting the defendants from consummating the proposed merger and awarding compensatory damages against the defendants.

On September 17, 2015, another purported stockholder of Fuel Systems filed a putative class action complaint, captioned Nehamen v. Fuel Systems Solutions, Inc., et al., C.A. No. 11517-CB, in the Court of Chancery of the State of Delaware, containing substantially similar allegations and claims and seeking substantially the same relief as the Peck lawsuit and naming as defendants the individual members of the Fuel Systems board of directors, Westport and Merger Sub.

On September 21, 2015, another purported stockholder of Fuel Systems filed a putative class action complaint, captioned Barrie v. Fuel Systems Solutions, Inc., et al., C.A. No. 11530-CB, in the Court of Chancery of the State of Delaware. The Barrie suit asserts substantially the same allegations and claims in the Peck and Nehamen suits, and also asserts an aiding and abetting claim against Fuel Systems. The Barrie lawsuit names as defendants the individual members of the Fuel Systems board of directors, Fuel Systems, Westport and Merger Sub.

On October 2, 2015, another purported stockholder of Fuel Systems filed a putative class action complaint, captioned Nami v. Becker, et al., C.A. No. 11569-CB, in the Court of Chancery of the State of Delaware. The Barrie suit asserts substantially the same allegations and claims in the Peck, Nehamen and Barrie suits. The Nami lawsuit names as defendants the individual members of the Fuel Systems board of directors, Westport and Merger Sub. The parties intend to vigorously defend the Peck, Nehamen, Barrie and Nami lawsuits.

Additional lawsuits may be filed against the board of directors of Fuel Systems, Fuel Systems, Westport and/or Merger Sub in connection with the merger, and they may seek to enjoin the proposed merger or to obtain monetary relief from any or all of the defendants. An unfavorable resolution of any such litigation could delay or prevent the consummation of the merger. The cost of defending the litigation, even if resolved favorably, could be substantial, and the litigation could substantially divert the attention and resources of Fuel Systems’ and Westport’s management. There can also be no assurance that the board of directors of Fuel Systems, Fuel Systems, Westport, and/or Merger Sub, as applicable, will prevail in defense of any such lawsuits to which they are a party, even in an event where such company believes that the claims made in such lawsuits are without merit and vigorously defends against such claims.

 

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One of the conditions to the completion of the merger is that no law, order, judgment or injunction shall have been enacted or adopted that prohibits consummation of the merger. A preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger. An adverse judgment for rescission or for monetary damages could have a material adverse effect on Fuel Systems and Westport following the merger. For more information on the lawsuit, see “Summary—Litigation Related to the Merger.”

The merger and related transactions are subject to approval by Fuel Systems stockholders and the issuance of the merger consideration is subject to approval by Westport shareholders.

In order for the merger to be completed, Fuel Systems stockholders must adopt the merger agreement, which requires the approval of the holders of a majority of the outstanding shares of Fuel Systems common stock entitled to vote on the Merger proposal as of the record date for the Fuel Systems special meeting and Westport shareholders must approve, among other things, the issuance of the merger consideration and the assumption by Westport of Fuel Systems’ restricted stock units and restricted stock, which requires the approval of the majority of the total votes cast to approve the merger consideration.

The merger is subject to conditions, including certain conditions that may not be satisfied, or completed on a timely basis, if at all.

The merger is subject to certain other conditions beyond Westport’s and Fuel Systems’ control that may prevent, delay or otherwise materially adversely affect its completion, including the approval of the Merger proposal by Fuel Systems’ stockholders and the approval of the merger consideration by Westport’s shareholders, the termination or expiration of the waiting period required under the HSR Act, and the relevant approvals under the antitrust and competition laws of Turkey. Neither Westport nor Fuel Systems can predict whether and when these other conditions will be satisfied. Any delay in completing the merger could cause the combined company not to realize some or all of the synergies expected to be achieved if the merger is successfully completed within its expected time frame. See “The Merger Agreement—Conditions to Completion of the Merger” beginning on page [●].

Failure to complete the merger could negatively affect Fuel Systems’ stock price, its future business and financial results.

If the merger is not completed, Fuel Systems’ ongoing businesses may be adversely affected and Fuel Systems will be subject to several risks and consequences, including the following:

 

•

under the merger agreement, Fuel Systems may be required, under certain circumstances, to pay Westport a termination fee of USD $5.5 million;

 

•

Fuel Systems will be required to pay the costs and expenses it incurred related to the merger, whether or not the merger is completed, such as the fees and expenses of its legal, accounting and financial advisors, including in connection with certain due diligence investigations related thereto. In addition, the fees and expenses related to the printing and filing of this proxy statement/prospectus will be shared by Fuel Systems and Westport, other than attorneys’ and accountants’ fees;

 

•

Fuel Systems would not realize the expected benefits of the merger;

 

•

under the merger agreement, Fuel Systems is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies;

 

•

matters relating to the merger may require substantial commitments of time and resources by Fuel Systems management, which could otherwise have been devoted to other opportunities that may have been beneficial to Fuel Systems as an independent company; and

 

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•

Fuel Systems may lose key employees during the period in which Fuel Systems and Westport are pursuing the merger, which may adversely affect Fuel Systems in the future if it is not able to hire and retain qualified personnel to replace departing employees.

In addition, if the merger is not completed, Fuel Systems may experience negative reactions from the financial markets and from its customers and employees. Fuel Systems also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against Fuel Systems to attempt to force it to perform their respective obligations under the merger agreement.

Certain directors and executive officers of Fuel Systems have interests in the merger that are different from, or in addition to, those of other Fuel Systems stockholders, which could have influenced their decisions to support or approve the merger.

In considering whether to approve the proposals at the Fuel Systems special meeting, Fuel Systems stockholders should recognize that certain directors and executive officers of Fuel Systems have interests in the merger that differ from, or that are in addition to, their interests as stockholders of Fuel Systems. These interests include, among others, continued service as a director or an executive officer of the combined company, and the accelerated vesting of certain equity awards, certain transaction-related bonuses and/or certain severance benefits, in connection with the merger. These interests, among others, may influence the directors and executive officers of Fuel Systems to support or approve the Merger proposal. See the section entitled “The Merger—Interests of Directors and Executive Officers in the Merger” beginning on page [●].

Completion of the merger may trigger change in control or other provisions in certain agreements to which Fuel Systems is a party.

The completion of the merger may trigger change in control or other provisions in certain agreements to which Fuel Systems is a party. If Westport and Fuel Systems are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if Westport and Fuel Systems are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Fuel Systems or the combined company.

Risks Relating to Tax Matters

You should read the discussion under the caption “U.S. Federal Income Tax Considerations” below for a more complete discussion of U.S. federal income tax considerations relating to the merger and the ownership and disposition of Westport common shares received in the merger.

The IRS may not agree that Westport should be treated as a foreign corporation for U.S. federal income tax purposes following the merger.

A corporation is generally considered a tax resident in the jurisdiction of its organization or incorporation for U.S. federal income tax purposes. Because Westport is a Canadian entity, it would generally be classified as a foreign corporation (and, therefore, not a U.S. tax resident) under these rules. Even so, the IRS may assert that Westport should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to Section 7874 of the Code.

Under Section 7874 of the Code, if the former stockholders of Fuel Systems hold 80% or more of the vote or value of the shares of Westport by reason of holding Fuel Systems common stock (the percentage (by vote and value) of Westport common shares considered to be held (for purposes of Section 7874 of the Code) by former Fuel Systems stockholders immediately after the merger by reason of holding Fuel Systems common stock is referred to in this disclosure as the “Section 7874 Percentage”), and Westport’s expanded affiliated group after

 

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the merger does not have substantial business activities in Canada relative to its worldwide business activities, Westport would be treated as a U.S. corporation for U.S. federal income tax purposes. If the Section 7874 Percentage were determined to be at least 60% (but less than 80%), Section 7874 of the Code would cause Westport to be treated as a “surrogate foreign corporation” if Westport does not have substantial business activities in Canada relative to its worldwide business activities.

Under current law, Westport should not be treated as a U.S. corporation for U.S. federal income tax purposes. However, determining the Section 7874 Percentage is complex and is subject to factual and legal uncertainties, including that such determination takes into account several factors other than the estimated ratio of ownership of Westport by former Fuel Systems stockholders following the merger, which ratio is expected to be approximately 37.6%. For example, the IRS recently announced that it intends to issue U.S. Treasury Regulations that would disregard, for purposes of determining the Section 7874 Percentage, certain distributions made by Fuel Systems during the 36 months preceding the closing of the merger. Such U.S. Treasury Regulations have not yet been issued and their scope and precise effect are unclear, but they would likely have the effect of increasing the Section 7874 Percentage. Even taking into account these uncertainties, we currently expect the Section 7874 Percentage will be significantly less than 60% (in which case, Westport should not be treated as a U.S. corporation and the limitations described in the paragraph below should not apply to Fuel Systems). However, there can be no assurance that the IRS will agree with the position that the Section 7874 Percentage is less than 60%.

If the Section 7874 Percentage were determined to be at least 60% (but less than 80%), several limitations could apply to Fuel Systems. For example, Fuel Systems would be prohibited from using its net operating losses, foreign tax credits or other tax attributes to offset the income or gain recognized by reason of the transfer of property to a foreign related person during the 10-year period following the merger or any income received or accrued during such period by reason of a license of any property by Fuel Systems to a foreign related person. In addition, the IRS has announced that it will promulgate new rules, which, in that situation, may limit the ability to restructure the non-U.S. members of the Fuel Systems tax group or access cash earned in its non-U.S. subsidiaries. Moreover, in such case, Section 4985 of the Code and rules related thereto would impose an excise tax on the value of certain Fuel Systems stock compensation held directly or indirectly by certain “disqualified individuals” (including officers and directors of Fuel Systems) at a rate equal to 15%, but only if gain is otherwise recognized by Fuel Systems stockholders as a result of the merger.

Changes in law could affect Westport’s status as a foreign corporation for U.S. federal income tax purposes or limit the U.S. tax benefits from Westport engaging in certain transactions.

Westport believes that, under current law, it should be treated as a foreign corporation for U.S. federal income tax purposes. However, changes to Section 7874 of the Code or the U.S. Treasury Regulations promulgated thereunder could adversely affect Westport’s status as a foreign corporation for U.S. federal tax purposes, and any such changes could have prospective or retroactive application. If Westport were to be treated as a U.S. corporation for U.S. federal income tax purposes, it could be subject to materially greater U.S. tax liability than currently contemplated as a non-U.S. corporation. Specifically, if Westport were to be treated as a U.S. corporation for U.S. federal income tax purposes, Westport would be subject to U.S. corporate income tax on its worldwide income, and the income of its foreign subsidiaries would be subject to U.S. tax when repatriated or when deemed recognized under the U.S. federal income tax rules for controlled foreign subsidiaries. Moreover, in such a case, a non-U.S. Holder of Westport common shares would be subject to U.S. withholding tax on the gross amount of any dividends paid by Westport to such shareholder.

Recent legislative proposals have aimed to expand the scope of U.S. corporate tax residence, including by potentially causing Westport to be treated as a U.S. corporation if the management and control of Westport and its affiliates were determined to be located primarily in the United States, or by reducing the Section 7874 Percentage at or above which Westport would be treated as a U.S. corporation. In addition, other recent legislative proposals would cause Westport and its affiliates to be subject to certain intercompany financing

 

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limitations, including with respect to their ability to use certain interest expense deductions, if the Section 7874 Percentage were to be at least 60%. Thus, the rules under Section 7874 and other relevant provisions could change on a prospective or retroactive basis in a manner that could adversely affect Westport and its affiliates.

Future changes in U.S. and non-U.S. tax laws could adversely affect Westport.

The U.S. Congress, the Organization for Economic Co-operation and Development and government agencies in jurisdictions where Westport and its affiliates do business have had an extended focus on issues related to the taxation of multinational corporations. In particular, specific attention has been paid to “base erosion and profit shifting,” where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the U.S. and other countries in which Westport and its affiliates do business could change on a prospective or retroactive basis, and any such change could adversely affect Westport.

If Westport is, or becomes, a “passive foreign investment company,” adverse U.S. federal income tax consequences may result for U.S. shareholders of Westport.

U.S. Holders of Westport common shares should be aware that Westport believes it was not classified as a passive foreign investment company (“PFIC”) for its tax year ended December 31, 2014, and based on current business plans and financial expectations, Westport expects that it will not be a PFIC for the current tax year. Westport has not made any determination as to its PFIC status for future tax years. PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually. Consequently, there can be no assurance that Westport will not become a PFIC for any tax year during which U.S. Holders own Westport common shares.

If Westport is a PFIC for any year during a U.S. Holder’s holding period, then such U.S. Holder generally will be required to treat any gain realized upon a disposition of Westport common shares, or any “excess distribution” received on its Westport common shares, as ordinary income, and to pay an interest charge on a portion of such gain or distribution, unless the U.S. Holder makes a timely and effective “qualified electing fund” election (“QEF Election”) or a “mark-to-market” election with respect to its Westport common shares. A U.S. Holder who makes a QEF Election generally must report on a current basis its share of Westport’s net capital gain and ordinary earnings for any year in which Westport is a PFIC, whether or not Westport distributes any amounts to its shareholders. However, U.S. Holders should be aware that there can be no assurance that Westport will satisfy the record keeping requirements that apply to a qualified electing fund, or that Westport will supply U.S. Holders with information that such U.S. Holders require to report under the QEF Election rules, in the event that Westport is a PFIC and a U.S. Holder wishes to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their Westport common shares. A U.S. Holder who makes a mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the Westport common shares over such holder’s tax basis therein. This risk factor is qualified in its entirety by the discussion below under the heading “U.S. Federal Income Tax Considerations.” Each U.S. Holder should consult its own tax advisors regarding the PFIC rules and the U.S. federal income tax consequences of the merger and the acquisition, ownership, and disposition of Westport common shares.

The merger is expected to result in an ownership change for Fuel Systems, and may result in an ownership change for Westport, under Section 382 of the Code, potentially limiting the use of Westport’s and Fuel Systems’ net operating loss carryforwards and certain other tax attributes in future years. In addition, each of Westport’s and Fuel Systems’ ability to use its net operating loss carryforwards may be further limited if taxable income does not reach sufficient levels.

As of July 31, 2015, Fuel Systems had approximately $108.3 million of net operating loss (“NOL”) carryforwards available to reduce U.S. federal taxable income in future years. As of June 30, 2015, Westport had approximately $64.0 million of NOL carryforwards available to reduce U.S. federal taxable income in future

 

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years. Under Section 382 of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period.

The merger is expected to result in an ownership change under Section 382 of the Code for Fuel Systems, potentially limiting the use of Fuel Systems’ NOL carryforwards in future taxable years for U.S. federal income tax purposes. These limitations may affect the timing of when these NOL carryforwards can be used which, in turn, may impact the timing of when cash is used to pay the taxes of Fuel Systems and have a negative impact on Fuel Systems’ financial position and results of operations. In addition, Fuel Systems’ ability to use its NOL carryforwards will be dependent on its ability to generate taxable income. Some portion of the NOL carryforwards could expire before Fuel Systems generates sufficient taxable income.

The merger, together with other transactions, may result in an ownership change under Section 382 of the Code for Westport, potentially limiting the use of Westport’s NOL carryforwards in future taxable years for U.S. federal income tax purposes. These limitations may affect the timing of when these NOL carryforwards can be used which, in turn, may impact the timing of when cash is used to pay the taxes of Westport and have a negative impact on Westport’s financial position and results of operations. In addition, Westport’s ability to use its NOL carryforwards will be dependent on its ability to generate taxable income. Some portion of the NOL carryforwards could expire before Westport generates sufficient taxable income.

The application of Section 367(a)(1) of the Code may result in your recognition of taxable gain (but not loss) in respect of the Fuel Systems common stock you exchange for Westport common shares in the merger.

The receipt of Westport common shares for Fuel Systems common stock pursuant to the merger should qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code. However, Section 367(a)(1) of the Code and the applicable Treasury Regulations thereunder provide that where a U.S. shareholder exchanges stock in a U.S. corporation for stock in a non-U.S. corporation in a transaction that would otherwise constitute a tax-free exchange, the U.S. shareholder is required to recognize gain, but not loss, realized on such exchange unless certain requirements are met. While Westport and Fuel Systems generally expect such requirements to be met, one such requirement is that the value of Westport equal or exceed the value of Fuel Systems, as specifically determined for purposes of Section 367 of the Code, as of the closing date of the merger. Whether this requirement is met cannot be known until the closing date of the merger. In determining the value of Westport for these purposes, acquisitions of assets by Westport made outside of the ordinary course of business during the 36 months preceding the merger will be disregarded unless such acquisitions either (i) consist of interests in certain foreign corporations or partnerships, or (ii) do not consist of passive assets (including cash) and are not undertaken with a principal purpose of satisfying such requirement.

In addition, the IRS has announced an intention to issue regulations effective prior to the date of the merger whereby, for purposes of determining the value of Fuel Systems, certain distributions made by Fuel Systems during the 36 months preceding the merger will be added back to the value of Fuel Systems for purposes of this requirement. Under such regulations, distributions (including share repurchases) made by Fuel Systems over the 36 months preceding the merger would be added back to the value of Fuel Systems to the extent that amounts distributed during a given year exceed 110 percent of the average amounts distributed over the 3 preceding years. Regulations addressing the specific method for determining the amount that would be added back for this purpose have not been issued. If the application of Section 367(a)(1) requires recognition of gain to a holder of Fuel Systems common stock in the merger, such holder of Fuel Systems common stock would recognize gain (but not loss) in an amount equal to the excess, if any, of the fair market value as of the closing date of the merger of any Westport common shares (including fractional shares) received in the merger, over such holder’s tax basis in the shares of Fuel Systems common stock surrendered by the holder in the merger. Any gain so recognized would generally be long-term capital gain if the holder has held the Fuel Systems common stock for more than one year at the time the merger is completed. If you do not expect that the value of Westport will equal

 

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or exceed the value of Fuel Systems, as specifically determined for purposes of Section 367 of the Code (as discussed above), as of the closing date of the merger, you should assume, for purposes of deciding how to vote, that the merger will be treated in such manner.

Risks Relating to the Combined Company Following the Merger

The market price of Westport’s common shares has been, and may continue to be, volatile, and Fuel Systems stockholders could lose all or part of their investment.

The market price of Westport’s common shares has fluctuated substantially, may continue to do so, and may be higher or lower than the initial price received upon the exchange. As a result, Westport’s future stock price may be volatile. Over the twelve month period ending on September 30, 2015, the market price of Westport’s common shares on the TSX has ranged from a low of C$3.29 to a high of C$9.22. Over the twelve month period ending on September 30, 2015, the market price of Westport’s common shares on NASDAQ has ranged from a low of $2.47 to a high of $8.25. The market price of Westport’s common shares following the merger will depend on a number of factors, many of which are beyond Westport’s control. These fluctuations could cause Fuel Systems stockholders to lose all or part of their investment in Westport common shares since Fuel Systems stockholders might be unable to sell their shares at or above the price initially received upon the exchange of shares of Fuel Systems common stock. Factors that could cause fluctuations in the market price of Westport’s common shares include the following:

 

•

price and volume fluctuations in the overall stock market from time to time;

 

•

changes in operating performance and stock market valuations of other companies generally, or those in Westport’s industry in particular;

 

•

announcements of technological innovations, new products or services by Westport or its competitors;

 

•

the addition or loss of Westport’s customers;

 

•

future capital raising activities of Westport and the use of proceeds;

 

•

sales of Westport common shares by holders thereof or Westport;

 

•

failure of securities analysts to maintain coverage of Westport, changes in financial estimates by securities analysts who follow Westport, or Westport’s failure to meet these estimates or the expectations of investors;

 

•

the financial projections Westport may provide to the public, any changes in those projections or Westport’s failure to meet those projections;

 

•

the announcements by Westport or its competitors of significant acquisitions, strategic relationships, joint ventures, capital commitments or divestitures;

 

•

the public’s reaction to Westport’s press releases, other public announcements and filings with the SEC and the applicable Canadian securities regulatory authorities;

 

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rumors and market speculation involving Westport or other companies in Westport’s industry;

 

•

actual or anticipated changes in Westport’s operating results or fluctuations in Westport’s operating results;

 

•

actual or anticipated developments in Westport’s business, Westport’s competitors’ businesses or the competitive landscape generally;

 

•

litigation involving Westport, Westport’s industry or both, or investigations by regulators into Westport’s operations or those of Westport’s competitors;

 

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additions or departures of key employees;

 

•

announced or completed acquisitions of businesses by Westport or Westport’s competitors;

 

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•

new laws or regulations or new interpretations of existing laws or regulations applicable to Westport and its business;

 

•

changes in accounting standards, policies, guidelines, interpretations or principles;

 

•

any significant change in Westport’s management; and

 

•

general economic conditions and slow or negative growth of Westport’s markets.

Current Fuel Systems stockholders will have reduced ownership and voting interests after the merger.

Based on 18,093,562 shares of common stock of Fuel Systems outstanding on [●], the record date for the special meeting, and the exchange ratio, it is anticipated that Westport will issue 38,521,193 Westport common shares to the shareholders of Fuel Systems upon completion of the merger. Based on the number of common shares of Westport outstanding on October 9, 2015, current Fuel Systems stockholders and current Westport shareholders would own approximately 37.6% and 62.4% of Westport’s common shares, respectively, upon the completion of the merger, assuming no additional issuances of common shares by either Westport or Fuel Systems between October 9, 2015 and the effective time, which is expected to occur by December 31, 2015. However, Westport could issue up to 1,239,300 common shares upon the exercise of outstanding Westport options prior to the effective time, and Fuel Systems could issue up to 117,020 shares of common stock (equivalent to 249,136 Westport common shares) upon the exercise of outstanding Fuel Systems options prior to the effective time. In addition, following the effective time, Westport may issue additional common shares pursuant to the exercise of outstanding Westport options, including pursuant to those Fuel Systems options assumed by Westport in connection with the merger. Further, Westport may issue additional common shares in connection with future financings or other transactions.

At the closing of the merger, each Fuel Systems stockholder who receives Westport common shares will become a shareholder of Westport. As a result, the percentage ownership of Westport held by each current Fuel Systems stockholder will be smaller than such shareholder’s percentage ownership of Fuel Systems prior to the merger. Fuel Systems’ current stockholders will, therefore, have proportionately less ownership and voting interests in Westport following the merger than they have now in Fuel Systems.

The merger will result in changes to Westport’s board of directors and management that may affect the strategy and operations of the combined company as compared to that of Fuel Systems and Westport as they currently exist.

If the merger is completed, the composition of Westport’s board of directors and management team will change. Upon completion of the merger, the board of directors of the combined company will consist of ten members. On the closing of the merger, three members of the current Westport board of directors are anticipated to resign and three new members will be appointed to fill the vacancies created by such resignations. These three individuals are Mariano Costamagna and [●] and [●].

In addition, it is expected that the combined company will create a new business unit called “Fuel Systems Automotive and Industrial Group” that will be led by members of Westport’s and Fuel Systems’ management teams. This new unit will represent the combination of Fuel Systems with Westport’s Operations unit. Its automotive division will be headquartered in Cherasco, Italy, and its industrial division will be headquartered in Santa Ana, California.

There can be no assurance that the newly constituted board of directors and new management of the combined company will function effectively as a team and that there will not be any adverse effect on the combined company’s business as a result.

Any delay in completing the merger may reduce or eliminate the benefits expected to be achieved thereunder.

In addition to the required regulatory approvals and clearances, the merger is subject to certain other conditions beyond shareholders’ control that may prevent, delay, or otherwise materially adversely affect its

 

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completion. It is not predicable whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger could cause shareholders not to realize some or all of the synergies and other benefits that are expected to be achieved if the merger is successfully completed within its expected time frame.

Uncertainties associated with the merger may cause a loss of management personnel and other key employees which could adversely affect the future business and operations following the merger.

The combined company will be dependent on the experience and industry knowledge of Fuel Systems and Westport officers and other key employees to execute its business plans. Westport’s success after the merger will depend in large part upon its ability to retain key management personnel and other key employees. As the combined company develops additional capabilities, it may require more skilled employees. Given the highly specialized nature of Westport’s and Fuel Systems’ products, these employees must be highly skilled and have a sound understanding of the combined company’s industry, business or technology. Fuel Systems’ and Westport’s current and prospective employees may experience uncertainty about their roles within Westport following the merger or other concerns regarding its operations following the merger, any of which may have an adverse effect on Westport’s ability to attract or retain key management and other key personnel. Accordingly, no assurance can be given that Fuel Systems and Westport will be able to attract or retain key management personnel and other key employees until the merger is consummated or following the merger to the same extent that Fuel Systems and Westport have previously been able to attract or retain such employees.

The expected benefits of the merger may not be realized.

To be successful after the merger, Westport will need to combine and integrate the operations of Fuel Systems and Westport. Integration will require substantial management attention and resources and could detract attention and resources from the day-to-day business of Westport. Westport could encounter difficulties in the integration process, such as:

 

•

the potential inability to successfully combine Fuel Systems’ business with Westport’s business in a manner that permits it to achieve the operational and cost synergies expected to be achieved as a result of the completion of the merger and other benefits anticipated to result from the merger;

 

•

complexities associated with managing the combined businesses, including difficulty addressing possible differences in corporate cultures and management philosophies and the challenge of integrating different development and manufacturing methods and assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, clients, employees, lenders, and other constituencies;

 

•

the loss of key employees, customers, suppliers, vendors and partners;

 

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insufficient capital and liquidity to achieve the business plan;

 

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the inability of the combined company to meet its cost and sales expectations;

 

•

potential unknown liabilities and unforeseen increased expenses or delays associated with the merger.

If Westport cannot integrate Fuel Systems’ business successfully with its own, Westport may fail to realize the expected benefits of the merger. In addition, there is no assurance that all of the goals and anticipated benefits of the merger will be achievable, particularly as the achievement of the benefits are in many important respects subject to factors that neither Westport nor Fuel Systems controls. These factors include such things as the reactions of third parties with whom contracts are entered into and with which business is undertaken and the reactions of investors and analysts.

In addition, Fuel Systems and Westport have operated and, until the completion of the merger, will continue to operate independently. It is possible that the integration process could result in diversion of the attention of

 

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each company’s management which could adversely affect each company’s ability to maintain relationships with customers, clients, employees, and other constituencies or Westport’s ability to achieve the anticipated benefits of the merger, or could reduce each company’s operating results or otherwise adversely affect Westport’s business and financial results following the merger.

The obligations and liabilities of Westport, some of which may be unanticipated or unknown, may be greater than anticipated, which may diminish the value of Westport’s shares.

Westport’s obligations and liabilities, some of which may be unanticipated or unknown, or may be greater than anticipated, may not be reflected or reserved for in Westport’s historical financial statements. The obligations and liabilities of Westport could have a material adverse effect on Westport’s business, financial condition, or results of operations following the merger. Fuel Systems stockholders will not be entitled to indemnification from Westport under the merger agreement with respect to obligations or liabilities of Westport, whether known or unknown. Any such liabilities could substantially reduce Westport’s earnings and cash flows or otherwise materially and adversely affect its business, financial condition, or results of operations following the merger.

Westport’s future results following the merger may differ materially from the unaudited pro forma condensed combined financial information included in this proxy statement/prospectus.

The unaudited pro forma condensed combined financial information contained in this proxy statement/prospectus is presented for purposes of presenting Westport’s historical consolidated financial information with Fuel Systems’ historical consolidated financial information as adjusted to give effect to the merger as though the merger had occurred on June 30, 2015, and is not necessarily indicative of the financial condition or results of operations of Westport following the merger. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect Westport’s financial condition and results of operations following the merger. Any change in Westport’s financial condition or results of operations may cause significant variation in the value of the Westport common shares issued to shareholders of Fuel Systems as part of the merger. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page [●] for more information.

Westport expects to maintain its status as a “foreign private issuer” in the U.S. and thus will be exempt from a number of rules under the Exchange Act and will be permitted to file less information with the SEC than a company incorporated in the U.S.

Westport is considered a “foreign private issuer” under the rules of the SEC. As a foreign private issuer, Westport is subject to the reporting requirements under the Exchange Act applicable to foreign private issuers. Westport is required to file its annual report on Form 40-F with the SEC at the time it files its annual information form with the applicable Canadian securities regulatory authorities. In addition, Westport must furnish reports on Form 6-K to the SEC regarding certain information required to be publicly disclosed by Westport in Canada or filed with the TSX and which was made public by the TSX, or regarding information distributed or required to be distributed by Westport to its shareholders. Moreover, although Westport is required to comply with Canadian disclosure requirements, in some circumstances Westport is not required to file periodic reports and financial information with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. Furthermore, Westport is not required to comply with Regulation FD, which addresses certain restrictions on the selective disclosure of material information, although it must comply with Canadian disclosure requirements. In addition, among other matters, Westport’s officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Westport common shares. Therefore, Westport’s shareholders may not know on as timely a basis when its officers, directors and principal shareholders purchase or sell common shares as the reporting periods under the corresponding Canadian insider reporting requirements are longer.

 

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Fuel Systems and Westport expect to incur substantial expenses related to the merger and the integration of the two companies.

Westport and Fuel Systems expect to incur significant transaction costs and significant synergy planning and integration costs in connection with the merger. While Westport and Fuel Systems have assumed that this level of expense will be incurred, there are many factors beyond its control that could affect the total amount or the timing of the merger and integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. To the extent these transaction and integration expenses are higher than anticipated or are incurred at different times than anticipated, Westport’s future operating results and financial condition may be materially adversely affected. The companies cannot be certain that the elimination of duplicative costs or the realization of other efficiencies related to the integration of the two businesses will offset the transaction and the merger related costs in the near term, or at all.

Westport’s future results will suffer if it does not effectively manage its expanded operations following the merger.

Following the merger, the size of Westport’s business will increase significantly. Its future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations, and associated increased costs and complexity. There can be no assurances that Westport will be successful following the merger.

The merger may result in a loss of customers, clients, suppliers and strategic alliances.

Some of the customers, clients, suppliers, potential customers or clients or strategic partners of Fuel Systems or Westport may terminate their business relationship with Fuel Systems or Westport following the merger. Potential clients, suppliers, or strategic partners may delay entering into, or decide not to enter into, a business relationship with Fuel Systems or Westport because of the merger. Further, certain of Fuel Systems’ existing customer contracts may require the purchaser’s consent to the change of control of Fuel Systems, and there can be no assurance that such consent will be forthcoming. If customer, supplier or client relationships or strategic alliances are adversely affected by the merger, Westport’s business and financial performance following the merger would suffer.

The market price of the combined company’s common shares may be affected by factors different from those affecting Westport’s common shares or Fuel Systems’ common stock prior to consummation of the merger.

Westport’s historical business differs from that of Fuel Systems. Accordingly, the results of operations of the combined company and the market price of the combined company’s common shares may be affected by factors different from those that previously affected the independent results of operations and the market price of the common shares of each of Fuel Systems and Westport.

Current financing requirements of the combined business may not be adequate.

The combined company may need additional financing in connection with the implementation of its business and strategic plans from time to time after closing of the merger. The development and manufacture of Westport’s and Fuel Systems’ products requires a substantial amount of capital and may depend on the combined company’s ability to obtain financing through joint ventures, debt financing, equity financing or other means. The combined entity may accordingly need further capital depending on operational results and market conditions, including the prices at which the combined company sells its products, or in order to take advantage of further opportunities or acquisitions. The combined company’s financial condition, general market conditions, volatile interest rates, a claim against the combined company, a significant disruption to the combined company’s business or operations or other factors may make it difficult to secure financing necessary for the expansion of its business or to take advantage of opportunities for acquisitions. Further, continuing volatility in the credit markets

 

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may increase costs associated with debt instruments due to increased spreads over relevant interest rate benchmarks, or may affect the ability of the combined company, or third parties it seeks to do business with, to access those markets. There is no assurance that the combined company will be successful in obtaining required financing as and when needed on acceptable terms, if at all. If the combined company raises additional funding by issuing additional equity securities or securities convertible, exercisable or exchangeable for equity securities, such financing may substantially dilute the interests of the shareholders of the combined company and reduce the value of their investment.

Risks Inherent in an Investment in Westport

You should read and consider the other risk factors specific to Westport’s businesses that will also affect Westport after the consummation of the merger described in Westport’s second amended Annual Report on Form 40-F/A for the year ended December 31, 2014 filed with the SEC on October 16, 2015 and other documents that have been filed by Westport with the SEC and which are incorporated by reference into this proxy statement/prospectus.

 

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THE MERGER

The following is a discussion of the merger and the material terms of the merger agreement between Westport and Fuel Systems. You are urged to read carefully the merger agreement in its entirety, a copy of which is attached as Annex A to this proxy statement/prospectus and incorporated by reference herein.

Background of the Merger

As part of their ongoing evaluation of Fuel Systems’ business, the Fuel Systems board of directors and senior management, with the assistance of financial and legal advisors, regularly review and assess Fuel Systems’ strategic and financial alternatives in light of developments in Fuel Systems’ business, in the sectors in which it competes, in the economy and in the financial markets. In particular, beginning in early 2014, following a review of Fuel Systems’ results of operations for 2013, the board of directors began to take steps to mitigate losses, reduce costs, rationalize programs, develop a strategic plan and discuss the potential engagement of a third party consultant to assist the company with such efforts.

On September 10, 2014, in order to further facilitate recommendations to the Fuel Systems board of directors on potential business strategies, the Fuel Systems board of directors created a strategic oversight committee (the “strategy committee”), including Mr. DiToro as chair, with Mr. Nall, Mr. Clarke and Mr. Johnston as members. The strategy committee was tasked with overseeing the development of a strategic plan, including review and assessment of business combinations and strategic transactions. The Fuel Systems board of directors authorized the strategy committee to hire advisors as the committee deemed necessary to carry out its functions.

On September 16, 2014, Fuel Systems engaged J.P. Morgan, for a flat fee of $100,000 per quarter, to assist Fuel Systems in its strategic and financial analysis. J.P. Morgan was selected based on, among other things, J.P. Morgan’s reputation and its experience in mergers and acquisitions, valuation, financing, and capital markets. During September, Fuel Systems also engaged a third party consultant to assist in continuing to develop a strategic plan for the company.

On October 21 and October 22, 2014, at a meeting of the Fuel Systems board of directors, members of Fuel Systems’ senior management and board of directors discussed with representatives of J.P. Morgan and a third party consultant a variety of financial and strategic alternatives for Fuel Systems, including pursuing a potential business combination, possible capital raising alternatives, a stock repurchase program and cost saving initiatives. J.P. Morgan and the Fuel Systems board of directors and management discussed the relative benefits, detriments and considerations in the context of various alternatives, as well as the anticipated value creation, from both qualitative and quantitative perspectives. The third party consultant developed an initial business plan, including restructuring plans, which was used as a basis of an analysis of strategic alternatives. J.P. Morgan also presented a list of certain entities that might be interested in a potential transformative transaction with Fuel Systems, including both strategic investors and U.S. based, Italian based and/or Italian focused financial sponsor parties, based on, among other criteria, financial strength, quality of assets and management and relative performance of publicly traded equity securities. Some of these possible counterparties were proposed by Fuel Systems based on such parties’ previous communications with Fuel Systems about possible transactions.

On October 29, 2014, Fuel Systems and Becker Drapkin (a stockholder in Fuel Systems, owning at the time approximately 8.9% of the Fuel Systems’ outstanding common stock) entered into an agreement pursuant to which, among other things, the Fuel Systems board of directors appointed Mr. Steven A. Becker to the Fuel Systems board of directors, to the nominating & corporate governance committee and to the position of chair of the strategy committee. Following Mr. Becker’s appointment as chair, the strategy committee consisted of Messrs. Becker, Di Toro, Nall, and Clarke. The Fuel Systems board of directors believed it was in the best interests of Fuel Systems to appoint Mr. Becker to these positions because of his financial and business acumen, broad range of experience as a public company director and his perspective as a major stockholder.

 

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On November 6, 2014, Fuel Systems announced a $25 million share repurchase program to deliver returns to its stockholders through a return of capital within the overall context of a prudent capital allocation strategy.

On November 14, 2014, at a telephonic meeting of the strategy committee, J.P. Morgan discussed with the strategy committee available strategic options, including a review of potential strategic investors and financial sponsors that could be considered as potential counterparties to a transaction. The members of the strategy committee discussed various potential transaction structures concerning Fuel Systems as a whole or its industrial (“Industrial”) or automotive (“Automotive”) divisions separately. The strategy committee recommended that a meeting of the board of directors of Fuel Systems should be convened prior to the regularly scheduled Fuel Systems board of directors meeting in order to discuss the strategy committee’s recommendation that J.P. Morgan be instructed to make initial contact with a select group of potential interested parties, subject to customary nondisclosure agreements. This initial targeted group was comprised of four strategic buyers, whose characteristics and history of interest in Fuel Systems made them reasonable initial potential counterparties in the judgment of the strategy committee. In deciding not to expand the initial list of targeted buyers, the strategy committee considered competitive concerns as well as execution risk.

On November 18, 2014, at a telephonic meeting of the Fuel Systems board of directors, the Fuel Systems board of directors and J.P. Morgan reviewed the various alternatives and options available to Fuel Systems, including selling the company as a whole, the sale of its Industrial or Automotive division and potential transformative transactions. The Fuel Systems board of directors also reviewed the list of potential counterparties to a transaction that was discussed at the earlier meetings of the Fuel Systems board of directors held on October 21 and October 22, 2014, as well as the recommendations of the strategy committee. Based on this review with J.P. Morgan and the recommendation of the strategy committee, the Fuel Systems board of directors instructed J.P. Morgan to engage in an initial dialogue with the select group of four potential strategic counterparties recommended by the strategy committee, including Westport.

Later in the week of November 17, 2014 and continuing through the week of November 24, 2014, the representatives of Party A, Party B, Party C and Westport that previously had made initial inbound inquiries were contacted. Within the previous year, each of these parties had communicated with Fuel Systems about possible strategic transactions with Fuel Systems, but specific terms, including price, were not discussed. No company that had made an initial inbound inquiry to Fuel Systems within the prior year was excluded from the group of initial potential buyers that J.P. Morgan had been instructed to contact.

On November 30, 2014, at a regularly scheduled meeting of the Fuel Systems board of directors, and based on its confidential inquiries, J.P. Morgan informed the Fuel Systems board of directors that all four strategic counterparties, including Westport, verbally expressed interest in obtaining additional information regarding Fuel Systems. Also at the meeting, Mr. Costamagna, Fuel Systems’ chief executive officer, outlined a proposed restructuring plan involving certain expense reductions and related initiatives within Fuel Systems, as well as the rationale for such restructuring. It was anticipated that the restructuring would take approximately two years to complete once commenced. At a meeting of the strategy committee later in the day, the strategy committee unanimously approved hiring Skadden, Arps, Meagher & Flom LLP (“Skadden”) as counsel to the strategy committee and the Fuel Systems board of directors to supplement and work with Day Pitney LLP, Fuel Systems’ outside counsel.

On December 1, 2014, at a reconvened regularly scheduled meeting of the Fuel Systems board of directors, Mr. Costamagna continued his report on the contemplated restructuring plan and reviewed its potential impact on operating income. After the presentation, the Fuel Systems board of directors approved the engagement of a third party consultant to participate with management in developing a detailed restructuring plan (the “Restructuring Plan”), which provides for (i) promptly implementing certain changes in the short-term while allowing exploratory discussion and strategic analysis to occur concurrently, and (ii) developing a longer-term, detailed business plan for 2015-2020, taking into account the initiatives and impact of the first two years of the Restructuring Plan with high-level financial projections for the following years.

 

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During the months of December 2014 and January and February 2015, the Fuel Systems board of directors and the strategy committee each continued to meet and discuss with J.P. Morgan and members of senior management, among other things, the list of prospective bidders, financial forecasts and the draft confidential memorandum of Fuel Systems that would be shared with prospective bidders (the “Information Materials”). During this same period, Fuel Systems entered into confidentiality agreements with Party A, Party B, Party C and a financial sponsor affiliated with Party B. The confidentiality agreements entered into with these parties contained customary “standstill” provisions, each of which was later waived in connection with the execution of the merger agreement.

On December 19, 2014, at a telephonic meeting of the strategy committee, J.P. Morgan updated the committee on the status of the process with the four strategic bidders, and the committee reviewed drafts of the Information Materials.

On January 23, 2015, at a telephonic meeting of the strategy committee, the third party consultant presented materials relating to the Restructuring Plan, including in respect of operating profit improvement initiatives, providing an overview of each initiative and illustrative examples of various anticipated enhancements. In the meeting, J.P. Morgan provided an update regarding the status of the negotiation of the confidentiality agreements with the four strategic parties.

On January 30, 2015, at a telephonic meeting of the Fuel Systems board of directors, the third party consultant presented materials relating to the Restructuring Plan similar to the presentation given to the strategy committee the previous week, which included summaries of preliminary initiatives associated with possible operating optimization alternatives, product range streamlining and rationalization, among other matters. The third party consultant also discussed the next steps in the Restructuring Plan, including a completion of its financial analysis based on 2014 data, and the implementation of initiatives with clear, approved plans and low risk profiles. Fuel Systems’ projected financials for 2015 through 2017, prepared by Fuel Systems’ management and its third party consultants, were presented to the Fuel Systems board of directors (the “Forecasts”) and were later provided to Westport and Rothschild, Inc. (“Rothschild”). Also at the meeting, J.P. Morgan provided an update in regards to process with the four strategic parties. A draft of the Information Materials was also presented for the board’s review.

Between the weeks of February 23, 2015 and March 16, 2015, at the request of the Fuel Systems board of directors, J.P. Morgan reached out to an additional three strategic parties and 11 sponsor parties to gauge interest and negotiate confidentiality agreements. The Fuel Systems board of directors also instructed J.P. Morgan to send Information Materials and letters describing the bidding process to Parties A, B, C and Westport.

On February 27, 2015, Party C sent a preliminary indication of interest noting its willingness to pay between $60 million and $70 million in cash for the Industrial division, subject to satisfactory due diligence and a 90-day exclusivity period. Also on February 27, 2015, Rothschild, Westport’s financial advisor, contacted J.P. Morgan and indicated that Westport would potentially be interested in a stock-for-stock merger. On the same day, Party A sent a request for exclusivity with no indication of proposed value or transaction terms.

On March 6, 2015, at a telephonic meeting of the strategy committee, J.P. Morgan updated the strategy committee on the status of the process with the initial four strategic bidders, including that Party C had been advised, at the direction of the Fuel Systems board of directors, that its initial bid was too low and that initial contacts with the additional 14 parties had not yet resulted in any acceptable preliminary indications of interests.

On March 11, 2015, Party C provided a revised indication of interest contemplating a cash asset purchase of the Industrial division for an increased purchase price of $80 million, subject to financing and satisfactory due diligence, among other items.

On March 16, 2015, Fuel Systems entered into a confidentiality agreement with Westport. On the same day, Party A provided a preliminary indication of interest for the purchase of the Industrial division, contemplating a

 

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cash asset purchase of the Industrial division for a purchase price between $50 million and $60 million and indicated that it would also be open to a reverse merger transaction, which would require entering into an exclusivity period and would be conditioned upon finding an alternative solution for Automotive. No value was proposed by Party A for the reverse merger transaction.

On March 17, 2015, at a telephonic meeting of the strategy committee, Mr. Becker provided an update on the process, including a review of the history of contacts with the initial four strategic parties and how the list of the additional 14 potential counterparties was developed. The 14 additional counterparties included, among others, parties that had made individual calls to either Fuel Systems’ management or individual members of the Fuel Systems board of directors subsequent to the meetings held on October 21 and October 22, 2014, during which the initial list of potential counterparties was reviewed and certain other parties that the Fuel Systems board of directors determined to be likely candidates. At the direction of the special committee J.P. Morgan responded to one party that had contacted Mr. Becker and found that such party had determined it was not capable of an acquisition. This party was not included in the additional 14 potential counterparties discussed above.

On March 18 and March 19, 2015, at a meeting of the Fuel Systems board of directors, J.P. Morgan provided an update as to the process with the initial four strategic contacts as well as the additional 14 potential counterparties and their preliminary indications of interest, noting that the then-current deadline for preliminary indications of interest for the parties was March 24, 2015. J.P. Morgan recommended the deadline be extended due to the addition of the other 14 potential counterparties to the process and certain potential counterparties’ requests for additional time to evaluate the opportunity.

On March 23, 2015, Party B provided a preliminary indication of interest contemplating a stock-for-stock transaction between Party B and Fuel Systems; however, no price, governance terms or transaction structure for the business combination was proposed.

On March 24, 2015, representatives of Rothschild, on behalf of Westport, provided a preliminary indication of interest proposing a stock-for-stock transaction valued at prevailing market prices with no premium.

On March 27, 2015, at a telephonic meeting of the strategy committee, representatives of J.P. Morgan reported on the status of the strategic process and provided an update on recent discussions and meetings, including a summary of each of the indications of interest received from Westport, Party A, Party B and Party C. J.P. Morgan also updated the committee on the status of several potential sponsor bidders (that were among the group of 14) whom J.P. Morgan had contacted but that had declined the opportunity. In consultation with its advisors, the Fuel Systems strategy committee also considered certain issues that could arise in connection with a stock-for-stock transaction with Party B due to Party B’s current overseas stock exchange listing and local currency, requiring additional complex structuring considerations, and determined that potential antitrust issues with the four parties that had indicated interest should be analyzed early in the process. The strategy committee agreed to move forward with management presentations with Westport, Party A, Party B and Party C and to begin a preliminary level of due diligence review, including reciprocal due diligence with Westport and Party B, due to each of their proposals including stock consideration.

During the period between March 2015 and May 2015, Fuel Systems entered into additional confidentiality agreements with an additional seven potential counterparties, which included six financial sponsors and one strategic party, three of whom were among the group of 14. Each of the confidentiality agreements included a customary “standstill” provision with substantially the same terms, each of which were later waived in connection with the execution of the merger agreement. Each of these seven additional bidders declined to make bids.

On April 20, 2015, at a telephonic meeting of the Fuel Systems board of directors, J.P. Morgan updated the board on the process with each of Westport, Party A, Party B and Party C, and discussed the upcoming meetings

 

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for Fuel Systems’ management presentations. The third party consultant also provided an update in regards to the overall initiatives in the Restructuring Plan, including a status overview of revenue enhancement, cost reductions, cost optimization, manufacturing optimization and inventory reduction alternatives.

Following a public announcement of Fuel Systems’ review of strategic alternatives on April 27, 2015, one additional strategic party and three additional sponsor parties reached out to Fuel Systems to indicate interest in a potential transaction, each of which later signed a confidentiality agreement (as discussed above). None of these four parties submitted a bid.

On April 30, 2015, representatives of Fuel Systems, Party B, Skadden, J.P. Morgan and certain other advisors to both parties participated in a conference call to discuss Party B’s preliminary indication of interest, including stock exchange listings, potential synergies, and anticipated governance and antitrust issues and concerns, among other items. Both parties agreed that additional work would need to be done in regards to structuring due to the cross-border nature of the transactions and potential antitrust implications.

In May 2015, Fuel Systems granted Westport, Party A, Party B and Party C access to Fuel Systems’ electronic data room to permit such parties to conduct a preliminary due diligence review of Fuel Systems.

On May 8, 2015, Party A provided two revised indication of interests, the first contemplating a cash asset purchase of Industrial for an increased purchase price of $72.5 million, requiring new debt financing, and the second reflecting a merger transaction between Party A and Fuel Systems and a concurrent divestiture of Automotive, valuing the Industrial division at $76 million.

During the week of May 11, 2015, members of Fuel Systems’ senior management, and representatives of J.P. Morgan and Fuel Systems’ legal advisors, held management meetings with each of Westport, Party A, Party B and Party C, at which Fuel Systems’ and its advisors gave management presentations to each party, and both Westport and Party B provided reciprocal management presentations.

On May 18, 2015, Party C provided a revised indication of interest contemplating a cash asset purchase of the Industrial division for a decreased purchase price of $55 million.

On May 21, 2015, Westport provided a revised indication of interest, reiterating its proposal for an all-stock merger transaction with an implied offer price of $8.53 per share of Fuel Systems common stock based on prevailing market prices and diluted number of shares as of March 31, 2015. Under the revised Westport proposal, existing Fuel Systems stockholders and Westport shareholders would own approximately 30% and 70%, respectively, of the combined company. The combined company would remain incorporated in Canada and its equity would be dual listed on NASDAQ and the TSX.

Also on May 21, 2015, Party B provided a revised indication of interest with a fixed pro-forma ownership split, resulting in 50% Fuel Systems ownership and 50% Party B ownership of the combined company, reflecting a 10.9% discount to Fuel Systems’ then-current share price and an implied offer price of $7.60 per share based on prevailing market prices and diluted number of shares as of March 31, 2015. The indication of interest failed to include other items which had been requested by Fuel Systems’ representatives, including additional details regarding transaction structure, country of exchange listing for the combined company and currency of consideration.

On May 22, 2015, Party A provided two revised indications of interest, the first contemplating a cash asset purchase of Industrial for a decreased purchase price of $67.5 million, requiring new debt financing, and the second reflecting a combination of Party A and Fuel Systems while retaining the public company vehicle and a concurrent divestiture of the Automotive division, valuing the Industrial division at a decreased price of $73 million.

On May 26, 2015 and May 27, 2015, at a regularly scheduled meeting of the Fuel Systems board of directors, Mr. Becker, on behalf of the strategy committee, provided an update on the strategic process. The

 

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directors were briefed by representatives of J.P. Morgan on the overview and history of the strategic process as well as an update of recent discussions and meetings, including a summary of the terms of each of the transaction proposals received from Party A, Party B, Party C and Westport. The directors were also presented with a preliminary antitrust analysis prepared by Fuel Systems’ legal advisors with respect to the strategic transactions presented by Westport and Party B. Management also briefed the Fuel Systems’ board on an update of the ongoing restructuring program, including detailed action plans and an overview of the 2015 through 2017 initiatives and cost optimizations for Industrial. The Fuel Systems board of directors further agreed to direct management to develop and oversee a Fuel Systems team to assist with the continued due diligence and analysis of potential transactions with Party A, Party B and Westport, including working with the company’s advisors to further analyze certain items of Westport’s proposal from the perspective of technical, commercial, market, financial and tax matters over the course of the next several weeks. Party C was not included as a potential party moving forward due to its reduction in purchase price for the Industrial division and unwillingness to consider an increase in purchase price. The Fuel Systems board of directors also directed J.P. Morgan to simultaneously continue dialogue with Party B and seek a revised offer.

On June 9, 2015, certain members of Fuel Systems’ management and J.P. Morgan met with certain members of Westport management in Vancouver, B.C., to further diligence Westport’s financial projections, joint ventures, cost reduction initiatives and certain Westport development programs. Also on June 9, 2015, Party B submitted a revised indication of interest to J.P. Morgan, with a fixed pro-forma ownership split, resulting in 55% Fuel Systems’ stockholder ownership and 45% Party B’s stockholder ownership, a 0.1% premium to Fuel Systems’ then current share price and an implied offer price of $7.89 per share based on prevailing market prices and diluted number of shares as of March 31, 2015. No additional information was provided by Party B concerning the foreign stock exchange listing of Party B, the currency of merger consideration to be issued in the proposed transaction or structural issues regarding the proposed merger that had previously been identified to Party B. Additionally, Party B and its advisors did not supply information in response to requests regarding potential antitrust issues, and failed to put forth any proposals in regards to the governance of the combined company.

On June 12, 2015, members of Fuel Systems’ management and J.P. Morgan met with members of Westport management in Cherasco, Italy, to provide a tour of Fuel Systems’ Cherasco facilities as well as to further diligence Automotive. Based upon these meetings and as a result of further diligence on Fuel Systems, Westport provided a revised indication of interest later in the day, with a fixed exchange ratio reflecting a 10.0-12.5% premium to Fuel Systems’ stock price the day before the announcement of the merger, subject to a collar, which represented an implied offer price of between $8.68 and $8.88 per share based on prevailing market prices and diluted number of shares as of March 31, 2015 with a pro-forma ownership of the combined company of between approximately 30.1% and 30.6% for Fuel Systems stockholders. Westport’s offer, based on share prices as of June 12, 2015, had a share price premium between 10.1% to 12.6% greater than Party B’s prior offer.

In light of the time commitments and costs Westport was incurring as a result of the process, in mid-June, Westport began insisting that Fuel Systems enter into an exclusivity agreement with them if Westport were to continue committing resources to exploring a proposed transaction. Fuel Systems initially declined in order to continue its process with the other potential transaction parties and explore strategic alternatives.

On June 15, 2015, at a telephonic meeting of the Fuel Systems board of directors, representatives of J.P. Morgan provided an update on the bid process, including follow-up due diligence requests and revised indications of interest provided by Westport and Party B, a review of Westport’s and Party B’s offers, and projections and related analysis of the values of the proposals, including Westport management’s projections for 2015 through 2020, which had been sent by Rothschild. Following discussions surrounding views of the various scenarios, the Fuel Systems board of directors authorized J.P. Morgan, together with Fuel Systems’ management input and support, to, among other things, (i) commence the next steps with respect to a possible transaction with Westport, including confirming an upcoming management meeting with Westport in Italy, (ii) inquire with Party B about its interest in pursuing an Automotive-only transaction, and (iii) continue to maintain discussions with Party A. The Fuel Systems board of directors also agreed that the strategy committee would reconvene each Friday for weekly status updates, as necessary.

 

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On June 19, 2015, at a telephonic meeting of the strategy committee, the committee discussed, among other things, management’s perspective on potential deal terms with Westport, including in regards to valuation, premium and exchange ratios, corporate deal structure, Westport’s high pressure direct injection technology, or HPDI technology, and corporate governance and management matters in respect to the combined company. J.P. Morgan and advisors to the strategy committee suggested to the Fuel Systems’ board of directors next steps to be undertaken in the process, including working with Fuel Systems’ management to develop a reciprocal due diligence list for Westport, integrating strategy committee input for a proposed counterproposal to Westport and coordinating with advisors on preparation of a draft merger agreement.

On June 26, 2015, at a telephonic meeting of the Fuel Systems board of directors, representatives from J.P. Morgan provided an updated overview of the process undertaken to date with Party B and Westport. In consultation with its advisors, the Fuel Systems board of directors further considered antitrust issues and concerns, and the antitrust analysis performed with respect to Party B and Westport. Fuel Systems’ board of directors subsequently determined that a transaction with Party B had significant additional regulatory risks when compared to a potential strategic transaction with Westport, including: (i) that a regulatory reviewing agency might seek to challenge the proposed transaction or otherwise require a remedy that would reduce the anticipated benefits of the transaction; (ii) that a reviewing agency may request further information regarding the proposed transaction, likely in one or more jurisdictions, which could cause significant delays in the timing of a transaction with Party B when compared to a potential transaction with Westport, and (iii) that Fuel Systems could incur significant additional costs relating to structuring and antitrust considerations. The Fuel Systems’ board of directors agreed that the increased execution risk associated with a transaction with Party B favored a potential transaction with Westport.

On July 10, 2015, at a telephonic meeting of the Fuel Systems board of directors, representatives of J.P. Morgan provided an update on the process with Westport. In light of the significant concerns relating to Party B’s prior proposal, including its ability to be executed upon (as discussed above), Fuel Systems’ board of directors authorized a conversation between Mr. Becker and David R. Demers, Westport’s Chief Executive Officer, to determine whether a transaction between Fuel Systems and Westport could be negotiated in a prompt manner. The Fuel Systems board of directors also discussed Westport’s continued requests for an exclusivity agreement and entry into such an agreement. As the Fuel Systems’ board of directors had determined an entire company transaction was preferable, J.P. Morgan noted, at the direction of the strategy committee, that they would re-engage with Party A for a potential sale of the Industrial division, if an entire company transaction could not be realized.

Also on July 10, 2015, Mr. Becker held a telephonic conversation with Mr. Demers, during which Mr. Demers indicated he was of the belief that a potential transaction between Fuel Systems and Westport made sense for both companies and was committed to pursuing the potential transaction aggressively to see if there can be a meeting of the minds. Mr. Demers also indicated his requirement that Fuel Systems and Westport enter into an exclusivity letter for a limited period of time in order to continue to evaluate a potential transaction and negotiate a definitive agreement.

In view of the increased regulatory risks involved in executing a transaction with Party B and the view that the then-current offers by Party A and C represented less value to Fuel Systems stockholders compared to Westport’s proposal, Fuel Systems entered into an exclusivity agreement with Westport dated as of July 14, 2015 (the “Westport Exclusivity Letter”), which, among other things, provided for Fuel Systems to engage in exclusive negotiations with Westport regarding the merger of Fuel Systems and Westport, until August 12, 2015.

Over the next several weeks, certain Westport employees, accountants and advisors, including representatives from Willkie Farr & Gallagher LLP (“Willkie”), Westport’s outside counsel, continued their due diligence with respect to Fuel Systems, and certain Fuel Systems employees, accountants and advisors, and representatives from Skadden and Day Pitney were granted access to Westport’s electronic dataroom.

 

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On July 17, 2015, at a telephonic meeting of the strategy committee, Mr. Becker reported on his recent discussion with Mr. Demers and updated the strategy committee on the status of discussions with Westport, including upcoming meetings of management and board members from both companies. Fuel Systems’ advisors discussed Westport’s current board composition, and potential negotiating options relating to proportional board representation in the combined company.

On July 24, 2015, at a telephonic meeting of the strategy committee, Mr. Becker updated the strategy committee on the status of discussions with Westport, including the upcoming meetings between representatives of Fuel Systems and Westport and discussed the various governance matters for the combined company to be discussed at those sessions. The Fuel Systems board discussed various scenarios for representation on the combined company’s board and unanimously agreed that three directors from Fuel Systems on the combined company board would be appropriate given the deal terms.

From late July 2015 until the end of August 2015, the parties worked to complete their due diligence reviews and negotiate the definitive transaction documentation. During this time, Fuel Systems management and advisors periodically updated the Fuel Systems board of directors regarding the status of due diligence and negotiations.

On July 30, 2015, certain members of both parties’ boards of directors, including Mr. Hodge, Mr. Horvath, and Mr. Demers from Westport, and Mr. Becker, Mr. Clarke and Mr. Di Toro from Fuel Systems, met in Chicago to discuss the timing of the transaction, post-merger governance and board composition of the combined company, questions regarding Westport’s strategy for cash management and capital options, and issues surrounding personnel retention and transition and to review certain technologies under development, including HPDI.

On July 31, 2015, certain members of both parties’ management, including Mr. Demers, Ms. Gougarty, Mr. Achuthan and Mr. Grando from Westport and Mr. Costamagna, Mr. Alghisi, Mr. Bersani and Mr. Fissore from Fuel Systems, as well as representatives from Willkie and Skadden, met in Chicago to discuss timing considerations surrounding the transaction, potential cost-savings and synergies resulting from a potential merger, a high level overview of research and development activities, staffing at certain locations and retention of key employees, and Cherasco automotive headquarters, among other items. The parties agreed to work diligently on both completing their respective due diligence investigations and a draft merger agreement.

On August 7, 2015, at a telephonic meeting of the strategy committee, J.P. Morgan provided an update on the process with Westport, including the status of diligence items, site visits and related matters. It was noted that the Westport Exclusivity Letter would expire on August 12, 2015 and that Westport had requested an extension to August 31, 2015, to which the strategy committee agreed. Additionally, the committee members discussed their views on Westport’s technology and adoption by the larger market of that technology, including in regards to Westport’s HPDI technology. Additionally, on August 7, 2015, at a telephonic meeting of the Fuel Systems board of directors, Mr. Becker, on behalf of the strategy committee, updated the board on the status of the transaction with Westport.

On August 10, 2015, Fuel Systems’ management distributed a version of the Forecasts to J.P. Morgan, with downwardly revised financial projections for fiscal year 2015, reflecting softening in the automotive markets as a result of lower oil prices, continued aggressive competition in the transportation market and a significant slowdown in the Argentinian aftermarket (the “Revised Forecast”), which was also distributed to Rothschild, who in turn distributed the Revised Forecast to Westport’s management. For a more detailed discussion concerning the Revised Forecast, please see “—Certain Unaudited Financial and Operating Forecasts” beginning on page [●].

On August 12, 2015, Fuel Systems and Westport executed an extension of the Westport Exclusivity Letter, which provided for an extension for Fuel Systems to engage in exclusive negotiations with Westport regarding the merger of Fuel Systems and Westport until August 31, 2015.

 

 

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Between August 12, 2015 and September 1, 2015, Fuel Systems and representatives of Skadden continued to negotiate the terms of the merger agreement with Westport and its counsel.

On August 14, 2015, at a telephonic meeting of the strategy committee, J.P. Morgan provided an update on the process with Westport, including the status of diligence items and other open items. Fuel Systems’ advisors noted that in the latest draft of the merger agreement, Westport had requested stockholder voting agreements with certain large stockholders of Fuel Systems and that terms such as a collar, exchange ratio and other material items could not be determined until due diligence was completed.

On August 21, 2015, at a telephonic meeting of the strategy committee, J.P. Morgan provided an update on the process with Westport, including the status of diligence items, open items, a review of illustrative timelines for similar transactions and the schedule for upcoming management meetings. J.P. Morgan also explained various possible pricing structures for the transaction, including the use of an exchange ratio, collar mechanisms and a related illustration of their uses, share premium and the differences between fixed and floating exchange ratios. The committee discussed the views of certain members of the Fuel Systems board of directors on Westport’s HPDI technology. At the committee’s request, J.P. Morgan requested Westport to schedule a diligence session regarding the HPDI technology, which later took place.

On August 22, 2015, Westport provided revised unaudited financial projections to be used by Fuel Systems’ management as part of their due diligence review of Westport and which were reported to the Fuel Systems board of directors on August 31, 2015, as discussed below (the “Westport Projections”). For a more detailed discussion concerning the Westport Projections, please see “—Certain Unaudited Financial and Operating Forecasts” beginning on page [●].

On August 24, 2015, at a telephonic meeting of the strategy committee, the strategy committee, with the assistance of J.P. Morgan, discussed and compared a fixed versus floating exchange ratio and the use of a collar in regards to the proposed transaction with Westport, including in relation to the range of premiums previously discussed, the impact of current market instability, and their advantages and disadvantages. The strategy committee requested J.P. Morgan to favor a fixed exchange ratio, and to press Westport for a premium percentage in the upper-teens rather than pressing for a collar. Also on August 24, 2015, Fuel Systems’ management distributed to J.P. Morgan the Revised Forecast, plus extrapolated financials for the years 2018 and 2019 based on the Revised Forecast (the “Five Year Forecast”) for use in J.P. Morgan’s analysis of the proposed transaction with Westport.

On August 26, 2015, the Fuel Systems board of directors held a telephonic meeting at which representatives of J.P. Morgan updated the Fuel Systems board on negotiations that had occurred the prior day between Mr. Costamagna, Mr. Demers and their respective advisors, including assurances regarding capital for Automotive and a proposed name change for Westport, which Mr. Demers agreed to consider. Additionally, Mr. Clarke discussed the company’s diligence in regards to HPDI following the scheduled HPDI diligence session on August 25, 2015, and discussed above. Skadden advised the board as to remaining open items in the merger agreement, with a draft and summary of material terms to follow shortly after the meeting.

On August 27, 2015, Fuel Systems provided extrapolated financial projections for fiscal years 2020 through 2025 for Fuel Systems based on the Five Year Forecast, to be used in connection with J.P. Morgan’s discounted cash flow analysis for Fuel Systems.

On August 28, 2015, the Fuel Systems board of directors held a telephonic meeting at which representatives of J.P. Morgan updated the Fuel Systems board on negotiations in respect of the exchange ratio. Westport had previously orally proposed a 1.9458 exchange ratio, which implied a 33% to 34% ownership for Fuel Systems’ stockholders following the merger, based on then-current market prices. J.P. Morgan advised that, at the Fuel Systems board of directors request, it was working to increase the ownership to 35%. Representatives of Skadden then noted the progress in regards to diligence matters and terms surrounding the combined company operations

 

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and that Westport had agreed to three members of the Fuel Systems board of directors sitting on the combined company’s board following the merger until at least the combined company’s 2018 annual shareholder meeting.

On August 30, 2015, the Fuel Systems board of directors held a telephonic meeting at which representatives of J.P. Morgan updated the Fuel Systems board on negotiations with Westport relating to the exchange ratio, which had been increased from 1.946 to 2.0573 following extensive negotiations between representatives of J.P. Morgan, Rothschild and Mr. Becker on behalf of the strategy committee. The increased exchange ratio provided Fuel Systems stockholders approximately 35% of the combined company, and represented a 6.7% premium for Fuel Systems’ stockholders’ shares based upon the spot price on August 28, 2015, a 6.7% premium based upon the 10–day volume weighted average price (the “VWAP”), an 11% premium based upon the 20–day VWAP and a 21% premium based upon the 30–day VWAP, which equated to an implied value of $7.08 per share. Due to the recent volatility in the financial markets, representatives of J.P. Morgan recommended reaching an agreement as to the exchange ratio and explained that a possible next step would be to attempt to negotiate an increased exchange ratio which would provide Fuel Systems’ stockholders with approximately 35.7% of the combined company. To facilitate discussions regarding the merger agreement, copies of the draft merger agreement, along with a summary of the material terms of the merger agreement were distributed to the Fuel Systems board of directors prior to the meeting. Representatives of Skadden presented a summary of the merger agreement and the outstanding issues.

On August 31, 2015, the Fuel Systems board of directors held a telephonic meeting at which representatives of J.P. Morgan advised that the exchange ratio had significantly been improved from 2.0573 to 2.129, which represented a 10.5% premium based upon the 10–day VWAP, a 13.7% premium based upon the 20–day VWAP and a 23.9% premium based upon the 30–day VWAP, providing Fuel Systems stockholders with between approximately 34.7% and 35.8% of the combined company. Representatives of Skadden updated the directors on the merger agreement.

On the morning of September 1, 2015, the Fuel Systems board of directors held a telephonic meeting to again discuss the proposed transaction with Westport. At the meeting, representatives of Skadden reviewed the most recent changes to the merger agreement, including a reduction in the termination fee to $5.5 million. Representatives of J.P. Morgan reviewed with the Fuel Systems board of directors the process that J.P. Morgan had undertaken on behalf of Fuel Systems in connection with exploring a potential transformative transaction, including that, at the direction of the Fuel Systems board of directors representatives of J.P. Morgan had communicated with 22 prospective counterparties, Fuel Systems had executed 11 confidentiality agreements, representatives of J.P. Morgan and members of senior management had met with four bidders and Fuel Systems had received four initial indications of interest. A representative of J.P. Morgan then reviewed and discussed its analysis with respect to Fuel Systems and the proposed merger with Westport. Thereafter, at the request of Fuel Systems board of directors, J.P. Morgan then rendered its oral opinion, which was subsequently confirmed in writing, to the Fuel Systems board of directors that, as of that date, and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to the holders of Fuel Systems’ common stock. Following the discussion, the board unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, were advisable and in the best interests of Fuel Systems and its stockholders and resolved, among other things, to authorize and approve the merger agreement and the transactions contemplated thereby, including the merger and to recommend that Fuel Systems’ stockholders vote to adopt the merger agreement.

Later in the morning on September 1, 2015, the parties executed the merger agreement, and, shortly after the opening of the financial markets on September 1, 2015, Fuel Systems and Westport issued a joint press release publicly announcing the execution of the merger agreement and the details of the proposed merger.

Westport Board of Directors’ Recommendation and its Reasons for the Merger

On August 31, 2015, Westport’s board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Westport and its shareholders.

 

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In the course of their due diligence and evaluation of the merger agreement and the merger, the Westport board of directors consulted Westport’s executive management team and legal counsel as well as its financial advisor, Rothschild Inc. The Westport board of directors also reviewed a significant amount of information and considered a number of factors related to the merger, and believes that the merger will provide Westport and its shareholders with a number of benefits, including but not limited to:

 

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The combined company will have a broad global reach, with increased scale and product diversity enhancing the ability to serve some of the world’s largest and fastest growing markets through an enhanced geographic footprint, greater product diversity, and a distribution network spanning 70 countries.

 

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The merger would combine Westport’s development expertise in medium- and heavy-duty and high horsepower applications with Fuel Systems’ core focus and development efforts in automotive and industrial applications. Together, the combined technological expertise and future product development will span passenger cars to heavy-duty trucks to locomotives and from marine applications to stationary power.

 

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Westport and Fuel Systems will combine their industry experience and complementary portfolio of products and technologies, resulting in a comprehensive solutions offering across light- and heavy-duty transportation applications and industrial-focused applications. The complementary customer bases and communities will be served with a combined asset base and facilities strategically located across five continents and a shared commitment to providing exceptional products, service and related solutions.

 

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The merger will broaden the combined company’s OEM relationships, bringing together the long standing relationships with several key global OEMs of Fuel Systems and Westport.

 

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The combined company is expected to have a strengthened track record of product development as a result of the merger, and benefit from capital-efficient and optimized research and development programs and a highly skilled employee base. The combined company is anticipated to be well positioned to create a stronger innovation platform to invest in developing new products and new technologies, and to be positioned to fuel future growth better than either company on a standalone basis.

 

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The combined company will benefit from the combination of Westport and Fuel Systems intellectual property portfolios.

 

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The combined company is anticipated to generate substantial synergies, including reductions in corporate management costs, manufacturing costs and operating expenses.

 

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The combined company will also benefit from a strengthened balance sheet and enhanced liquidity and will be positioned for continued investment and long-term financial stability.

Fuel Systems Board of Directors’ Recommendation and its Reasons for the Merger

At a meeting on September 1, 2015, the Fuel Systems board, by unanimous vote, determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Fuel Systems and its stockholders, approved the merger agreement and the transactions contemplated thereby, including the merger, and determined to recommend that Fuel Systems’ stockholders vote to adopt the merger agreement.

In evaluating the merger, the Fuel Systems board consulted with Fuel Systems’ management, as well as Fuel Systems’ legal and financial advisors, and, in reaching its conclusion, considered the following factors:

 

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The board’s knowledge of Fuel Systems’ business, operations, financial condition, earnings and prospects and of Westport’s business, operations, financial condition, earnings and prospects, taking into account the results of Fuel Systems’ due diligence review of Westport, as well as the prevailing economic conditions in the industry in which Fuel Systems and Westport operate.

 

•

The merger agreement provides that each Fuel Systems stockholder will receive 2.129 common shares of Westport for each share of Fuel Systems common stock.

 

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•

Based upon closing trading prices on August 31, 2015, the merger consideration represents an implied value to Fuel Systems’ shareholders of $7.54 per share, a 10.5% premium based upon the 10–day VWAP, a 13.7% premium based upon the 20–day VWAP, and a 23.9% premium based upon the 30–day VWAP.

 

•

Based on the implied value of the merger consideration as of August 31, 2015, Fuel Systems stockholders would own approximately 36% of the combined company on a fully diluted basis.

 

•

The exchange ratio is fixed and therefore the value of the consideration payable to Fuel Systems stockholders will increase in the event that the market price of Westport’s common shares increases prior to the closing of the merger. Following the merger, former Fuel Systems stockholders who continue to hold Westport common shares will participate in future increases in the market price of Westport common shares.

 

•

The Fuel Systems board retained financial and legal advisors with knowledge and experience with respect to public merger and acquisition transactions, Fuel Systems’ and Westport’s industry generally and Fuel Systems’ particularly, as well as substantial experience advising other companies with respect to transactions similar to the merger.

 

•

The Fuel Systems board’s review, based in part on the due diligence performed by Fuel Systems’ management and its financial, legal and tax advisors, in connection with the transaction, of Westport’s business, financial condition, potential options for capital raises, results of operations and management, the strategic fit between the parties, the potential synergies expected from the merger, the geographic fit between Fuel Systems and Westport’s service areas, and the business risks associated with the merger.

 

•

The opinion, dated September 1, 2015 of J.P. Morgan to the Fuel Systems board as to the fairness, from a financial point of view and as of the date of the opinion, to the holder of Fuel Systems common stock of the exchange ratio in the merger, as more fully described under “The Merger—Opinion of Fuel Systems’ Financial Advisor” and Annex B to this proxy statement/prospectus, which contains the full text of the J.P. Morgan opinion.

 

•

The Fuel Systems board’s view as to the expected pro forma financial impact of the transaction, taking into account anticipated cost savings and other factors, on both Fuel Systems stockholders and Westport shareholders.

 

•

Fuel Systems’ management’s recommendation in favor of the merger.

 

•

The Fuel Systems board’s review, in consultation with Fuel Systems’ legal and financial advisors, of the structure of the merger and the financial and other terms and conditions of the merger agreement, including the merger consideration and the Fuel Systems board’s view of the likelihood of completing the merger on the anticipated schedule.

 

•

The terms of the merger agreement, principally:

 

•

the provisions allowing the Fuel Systems board to withdraw or change its recommendation of or to terminate the merger agreement, subject to the payment of a specified termination fee upon termination under certain circumstances, in the event of a superior proposal, or to change its recommendation in the event of certain intervening events, if the board makes a good faith determination that the failure to change its recommendation or terminate the merger agreement would be inconsistent with its fiduciary duties under applicable law;

 

•

Westport’s agreement, upon the closing of the merger, to appoint three individuals who are directors of Fuel Systems as directors of the combined company, which is expected to provide a degree of continuity and enhance the likelihood that the strategic benefits that Fuel Systems expects to achieve as a result of the merger will be realized; and

 

•

Westport’s agreement, upon the closing of the merger, to change the name of the combined company for purposes of reassuring Fuel Systems’ customers.

 

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The Fuel Systems board also considered potential risks and potentially negative factors concerning the merger in connection with its deliberations of the proposed transaction, including:

 

•

The regulatory and other approvals required in connection with the merger and the expectation that such regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions.

 

•

The potential for diversion of management and employee attention, and for employee attrition, during the period prior to the completion of the merger and the potential effect on Fuel Systems’ business and relations with customers, service providers and other stakeholders, whether or not the merger is completed.

 

•

The fact that the exchange ratio is fixed and therefore the value of the consideration payable to Fuel Systems stockholders will decrease in the event that the market price of Westport’s common shares decreases prior to the closing of the merger.

 

•

The possibility that the merger may not be completed, or that completion may be unduly delayed, for reasons beyond the control of Fuel Systems and Westport, which could result in significant costs and disruption to Fuel Systems’ normal business.

 

•

The expected benefits and synergies sought in the merger, including cost savings, may not be realized or may not be realized within the expected time period.

 

•

Westport’s history of net losses and likely losses in the near future due to, among other things, Westport’s substantial investment in new technologies, including HPDI.

 

•

The potential that the exchange of shares of Fuel Systems common stock for shares of Westport common shares pursuant to the merger agreement may be taxable to U.S. stockholders of Fuel Systems common stock.

 

•

Certain terms of the merger agreement, principally:

 

•

restrictions on the ability of Fuel Systems to solicit offers for alternative proposals or to engage in discussions regarding such proposals, subject to exceptions, which could have the effect of discouraging such proposals from being made or pursued;

 

•

the termination fee that would be payable by Fuel Systems in connection with a termination of the merger agreement as a result of a superior proposal for Fuel Systems, which could have the effect of discouraging an alternative proposal for Fuel Systems; and

 

•

restrictions on the conduct of Fuel Systems’ business during the period between the signing of the merger agreement and completion of the merger.

 

•

Fuel Systems’ stockholders will be forgoing the potential benefits, if any, that could be realized by remaining as stockholders of Fuel Systems as a standalone entity.

 

•

The substantial costs to be incurred in connection with the merger, including the costs of integrating the businesses of Fuel Systems and Westport and the transaction expenses arising from the merger.

 

•

The risks of the type and nature described under “Risk Factors,” and the matters described under “Cautionary Statement Regarding Forward-Looking Statements.”

The foregoing discussion is not intended to be exhaustive, but is intended to address the material information and principal factors considered by the Fuel Systems board in considering the merger. In view of the number and variety of factors and the amount of information considered, the Fuel Systems board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the Fuel Systems board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the Fuel Systems board may have given different weights to different factors.

 

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The Fuel Systems board made its recommendation based on the totality of information presented to, and the investigation conducted by, the Fuel Systems board. It should be noted that certain statements and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

The Fuel Systems board of directors recommends that Fuel Systems stockholders vote “FOR” the Merger proposal, “FOR” the Amendments to Non-Employee Directors’ Restricted Stock Awards proposal, “FOR” the Advisory Compensation proposal and “FOR” the Adjournment proposal.

Opinion of Fuel Systems’ Financial Advisor

Pursuant to an engagement letter dated April 20, 2015, Fuel Systems retained J.P. Morgan as its financial advisor in connection with the proposed merger. The Fuel Systems board selected J.P. Morgan based on J.P. Morgan’s qualifications, expertise and reputation.

At the meeting of the Fuel Systems board of directors on September 1, 2015, J.P. Morgan rendered its oral opinion to the Fuel Systems board of directors that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to the holders of Fuel Systems’ common stock. J.P. Morgan has confirmed its September 1, 2015 oral opinion by delivering its written opinion to the Fuel Systems board of directors, dated September 1, 2015, that, as of such date, the exchange ratio in the proposed merger was fair, from a financial point of view, to the holders of Fuel Systems’ common stock. No limitations were imposed by the Fuel Systems board of directors upon J.P. Morgan with respect to the investigations made or procedures followed by it in rendering its opinion.

The full text of the written opinion of J.P. Morgan dated September 1, 2015, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference. Fuel Systems’ stockholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion is addressed to the Fuel Systems board of directors, is directed only to the exchange ratio in the merger and does not constitute a recommendation to any stockholder of Fuel Systems as to how such stockholder should vote at the Fuel Systems’ special meeting. The summary of the opinion of J.P. Morgan set forth in this proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion.

In arriving at its opinion, J.P. Morgan, among other things:

 

•

reviewed a draft dated August 30, 2015 of the merger agreement;

 

•

reviewed certain publicly available business and financial information concerning Fuel Systems and Westport and the industries in which they operate;

 

•

compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;

 

•

compared the financial and operating performance of Fuel Systems and Westport with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of Fuel Systems’ common stock and Westport’s common shares and certain publicly traded securities of such other companies;

 

•

reviewed certain internal financial analyses and forecasts prepared by each of the managements of (a) Fuel Systems relating to its business and (b) Westport relating to its business, as adjusted by the management of Fuel Systems, as well as the estimated amount and timing of cost savings and related expenses and synergies expected to result from the merger (see “— Certain Unaudited Financial and Operating Forecasts”); and

 

•

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

 

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J.P. Morgan also held discussions with certain members of the management of Fuel Systems and Westport with respect to certain aspects of the merger, and held discussions with the management of Fuel Systems with respect to the past and current business operations of Fuel Systems and Westport, the financial condition and future prospects and operations of Fuel Systems and Westport, the effects of the merger on the financial condition and future prospects of Fuel Systems and Westport, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

J.P. Morgan relied upon and assumed, without assuming responsibility or liability for independent verification, the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by Fuel Systems and Westport or otherwise reviewed by or for J.P. Morgan. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of Fuel Systems or Westport under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to it, including the synergies referred to above, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of Fuel Systems and Westport to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the merger will qualify as a tax-free reorganization for United States federal income tax purposes, and will be consummated as described in the merger agreement and this proxy statement/prospectus, and that the definitive merger agreement would not differ in any material respect from the draft thereof provided to J.P. Morgan. J.P. Morgan relied as to all legal matters relevant to the rendering of its opinion upon the advice of counsel. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Fuel Systems or Westport or on the contemplated benefits of the merger.

The projections furnished to J.P. Morgan for Fuel Systems were prepared by the management of Fuel Systems and the projections furnished to J.P. Morgan for Westport were prepared by the management of Westport and subsequently adjusted by the management of Fuel Systems, each as described under “—Certain Unaudited Financial and Operating Forecasts.” Neither Fuel Systems nor Westport publicly disclose internal management financial projections of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the merger, and such projections were not prepared with a view toward public disclosure. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections. Solely for illustrative purposes in the event that Westport were to issue convertible debt and in reliance on assumptions provided by the managements of Fuel Systems and Westport with respect to the terms of a potential convertible debt issuance by Westport, and the maximum allowable number of Westport’s common shares issuable pursuant to such convertible debt under the merger agreement, J.P. Morgan also analyzed the merger by taking into account the resulting dilution from a potential convertible debt offering. Analysis in this section entitled “Westport (C)” takes into account Westport’s potential convertible debt issuance.

J.P. Morgan’s opinion is based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. Subsequent developments may affect J.P. Morgan’s opinion, and J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, of the exchange ratio in the proposed merger, and J.P. Morgan has expressed no opinion as to the fairness of the merger to, or any consideration of, the holders of any other class of securities, creditors or other constituencies of Fuel Systems or the underlying decision by Fuel Systems to engage in the merger. J.P. Morgan expressed no opinion as to the price at which Fuel Systems’ common stock or Westport’s common shares will trade at any future time, whether before or after the closing of the merger.

 

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The terms of the merger agreement, including the exchange ratio, were determined through arm’s length negotiations between Fuel Systems and Westport, and the decision to enter into the merger agreement was solely that of the Fuel Systems board of directors and Westport board of directors. J.P. Morgan’s opinion and financial analyses were only one of the many factors considered by the Fuel Systems board of directors in its evaluation of the proposed merger and should not be viewed as determinative of the views of the Fuel Systems board of directors or management with respect to the proposed merger or the exchange ratio.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion. The financial analyses summarized below include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of this summary of J.P. Morgan’s financial analyses. Considering the data set forth herein without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses.

For each of the analyses performed by J.P. Morgan, J.P. Morgan used the fully diluted number of shares for both Fuel Systems and Westport based on the total outstanding number of shares for each company as of June 30, 2015 and all shares issuable pursuant to outstanding restricted stock units and performance stock units to calculate fully diluted shares outstanding. Additionally, when evaluating the effect of a potential convertible debt offering by Westport, J.P. Morgan considered the potential dilutive impact of such convertible debt based on the maximum allowable numbers of shares of Westport’s common shares issuable pursuant to such instrument under the merger agreement.

Public Trading Multiples

Using publicly available information, J.P. Morgan compared selected financial data of Fuel Systems and Westport, respectively, with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be similar to Fuel Systems and Westport, respectively, and for which similar valuation metrics are used. The companies selected by J.P. Morgan were:

Fuel Systems FV/EBITDA Multiples Comparable Companies

 

•

Fuel Systems

 

•

Power Solutions

 

•

Hexagon Composites

 

•

Landi Renzo

Westport FV/revenue Multiples Comparable Companies

 

•

Westport

 

•

Clean Energy Fuels

 

•

Quantum Company10

 

 

10

J.P. Morgan ultimately excluded Quantum Fuels from Westport FV/revenue multiples comparable companies set due to both its relatively small size and lack of scale and recent issues faced by Quantum Fuels that are particular to its business rendering the company a poor comparable in the current context.

 

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These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of Fuel Systems and Westport based on business operations, end markets, profitability profile and similar valuation metrics for trading multiples. For each comparable company, publicly available estimates of financial performance through the twelve months ended December 31, 2015 was measured. J.P. Morgan calculated for (1) Fuel Systems and its comparable companies the firm value as of August 28, 2015 as a multiple of estimated EBITDA for calendar year 2015, and (2) Westport and its comparable companies the firm value as of August 28, 2015 as a multiple of estimated revenue for calendar year 2015. The calculations for Westport in this subsection included the value of its long-term investments in certain joint ventures as of June 30, 2015 that are currently unconsolidated in the revenue of Westport. The analysis indicated the following:

 

Fuel Systems Comparable Companies		FV / 2015 EBITDA
Fuel Systems Solutions			13.1x
Power Solutions			14.9x
Hexagon Composites			15.9x
Landi Renzo			13.9x
Westport Comparable Companies		FV / 2015 Revenue
Westport Innovations			2.09x
Clean Energy Fuels			2.51x
Quantum Fuel Systems			1.16x

J.P. Morgan selected the following values for each company’s multiple, specifically: (1) Fuel Systems’ common stock: 13x to 16x estimated 2015 EBITDA and (2) Westport’s common shares: 2.00x to 2.50x estimated 2015 revenue. J.P. Morgan did not rely solely on the quantitative results of the selected multiples analysis in developing reference ranges or otherwise applying its analysis. Based on various judgments concerning relative comparability of each of the selected companies to Fuel Systems, as well its experience with the industry in which Fuel Systems participates, J.P. Morgan selected a range of EBITDA multiples that it believed reflected an appropriate range of multiples applicable to Fuel Systems. J.P. Morgan employed the same aforementioned methods in selecting a range of revenue multiples that it believed reflected an appropriate range of multiples applicable to Westport.

The EBITDA multiples were then applied to Fuel Systems’ EBITDA projections for fiscal year 2015, yielding implied equity values per share for Fuel Systems’ common stock of approximately $7.40 to $8.45 per share. The revenue multiples were then applied to Westport’s revenue projections for fiscal year 2015, yielding implied equity values per share for Westport’s common shares of approximately $3.40 to $4.20 per share. J.P. Morgan also calculated the implied equity value per share for Westport’s common shares by applying the same revenue multiple ranges but also taking into account a potential convertible debt issuance by Westport, yielding implied equity values per share of approximately $3.40 to $4.21 per share.

J.P. Morgan compared the results of the implied equity values per share for Fuel Systems and Westport. For each comparison, J.P. Morgan compared (1) the ratio of the highest implied equity value per share for Fuel Systems shown above to the lowest implied equity value per share for Westport shown above and (2) the ratio of the lowest implied equity value per share for Fuel Systems shown above to the highest implied equity value per share for Westport shown above, in order to derive a range of implied exchange ratios. The implied exchange ratios were:

 

		Implied Exchange Ratio
Assuming no convertible debt is issued			1.757x – 2.485x
Assuming convertible debt is issued			1.763x – 2.485x

 

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Discounted Cash Flow Analysis

J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining the fully diluted equity values per share for both Fuel Systems’ common stock and Westport’s common shares. J.P. Morgan calculated the unlevered free cash flows that Fuel Systems and Westport, respectively, are expected to generate during fiscal years 2015 through 2025 based upon the financial projections prepared on behalf of Fuel Systems’ management through the years ended December 31, 2025 and upon financial projections prepared on behalf of Westport’s management, which were based on financial projections prepared by Westport’s management, as adjusted by the management of Fuel Systems, through the years ended December 31, 2025. The unlevered free cash flows of Fuel Systems included the $3 million to $4 million attributable to incremental cash flows resulting from tax savings reflected from Fuel Systems’ net operating losses which were then discounted using the applicable discount range for Fuel Systems as provided below. The unlevered free cash flows of Westport included the $24 million to $26 million attributable to incremental cash flows resulting from tax savings reflected from Westport’s net operating losses which were then discounted using the applicable discount rate range for “Westport—Operations” as provided below. The net operating losses were provided by the respective managements of Fuel Systems and Westport and were based on projected financial performance. For purposes of the discounted cash flow analysis, J.P. Morgan treated stock-based compensation as a non-cash expense and thus added such expense back to both Fuel Systems’ and Westport’s EBITDA (earnings before interest, taxes, depreciation and amortization) as included in their respective unlevered free cash flows. J.P. Morgan also calculated a range of terminal values of Fuel Systems and Westport, respectively, at the end of the 11-year period ending December 31, 2025 by applying a perpetual growth rate ranging from 2.5% to 3.5% of the unlevered free cash flow of Fuel Systems and Westport, respectively, during the final year of the 11-year period. The unlevered free cash flows and the range of terminal values were then discounted to present values using the following ranges of discount rates:

 

		Discount Rate Range
Fuel Systems			9.0% – 11.0%
Westport—Operations			9.0% – 11.0%
Westport—HPDI			12.0% – 14.0%

These values were then added together in order to derive the implied firm value for each of Fuel Systems and Westport, both in the event Westport does not issue convertible debt and in the event it does for illustrative purposes. The range of discount rates were chosen based upon an analysis of the weighted average cost of capital of Fuel Systems and Westport, respectively, conducted by J.P. Morgan and were applied using the mid-year convention for discounting. In particular, Westport’s HPDI business was attributed a higher discount rate based upon a higher weighted average cost of capital due to a higher beta which is reflective of the riskier nature of the HPDI business, previously encountered delays and uncertainties concerning timing of market penetration. In calculating the estimated equity values per share for Fuel Systems and Westport on a standalone basis (i.e., without synergies), J.P. Morgan adjusted the firm value for Fuel Systems’ and Westport’s net cash, debt, and minority interest value as of June 30, 2015, and divided by the fully diluted common shares outstanding, calculated using the method described above.

The analysis indicated a range of implied equity values per share:

 

		Fuel Systems				Westport				Westport (C)
Low		$	14.60			$	6.80			$	6.35
High		$	20.60			$	11.30			$	10.05

 

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J.P. Morgan compared the results for Fuel Systems to Westport. For each comparison, J.P. Morgan compared (1) the highest implied equity value per share for Fuel Systems to the lowest implied equity value per share for Westport and (2) the lowest implied equity value per share for Fuel Systems to the highest implied equity value per share for Westport, in order to derive a range of the implied exchange ratios for each set of estimates. The implied exchange ratios were:

 

		Implied Exchange Ratio
Fuel Systems to Westport			1.292x – 3.029x
Fuel Systems to Westport (C)			1.454x – 3.252x

Selected Transaction Analysis

Using publicly available information and certain non-public information, J.P. Morgan examined selected transactions with respect to companies that engaged in businesses that J.P. Morgan judged to be similar to Fuel Systems’ businesses. The precedent transactions were selected, among other reasons, because the businesses involved in these transactions share similar business characteristics to Fuel Systems based on business sector participation, operational characteristics and financial metrics. It should be emphasized that none of the companies involved in the selected transactions (other than Fuel Systems) is identical to Fuel Systems and none of the selected transactions is identical to the merger.

J.P. Morgan calculated, for each selected transaction, the target company’s implied firm value as a multiple of EBITDA for the twelve-month period prior to the announcement date of the applicable transaction. The transactions considered the date each transaction was announced and the EBITDA multiple are as follows:

 

Month and Year Announced		Target		Acquiror		FV/EBITDA
May 2015		Wells Vehicle Electronics		NGK Spark Plug Co		9.5x
January 2015		TI Group Automotive Systems		Bain Capital		*
December 2014		Halla Visteon Climate Control		Hankook Tire Co		10.1x
June 2011		Emer SpA		Westport Innovations		N/A
June 2010		Inergy Automotive Systems SA		Plastic Omnium SA		N/A
November 2009		EMCON Technologies LLC		Faurecia SA		7.4x
February 2007		ArvinMeritor—Emissions Technology		One Equity Partners		3.9x
October 2006		Eaton (Transmission and Engine Control)		BorgWarner		5.9x
January 2005		JCEEG		Valeo SA		N/A
June 2004		Stanadyne (owned by American Industrial Partners)		Kolhlberg & Co., LLC		7.0x
November 1999		TRW’s Lucas Diesel Systems		Delphi Automotive Systems Corp.		5.9x
April 1999		Walbro Corp.		TI Group Plc.		7.2x

 

*	Not publicly available

J.P. Morgan’s analysis resulted in a range of EBITDA multiples of 3.9x to 10.1x for the selected transactions. J.P. Morgan applied a range of EBITDA multiples of 6.0x to 10.0x to Fuel Systems’ EBITDA for the last twelve months, and arrived at an estimated range of equity values for Fuel Systems’ common stock of between $7.05 and $9.75 per share.

 

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J.P. Morgan did not rely solely on the quantitative results of the selected transaction analysis in developing reference ranges or otherwise applying its analysis. Based on various judgments concerning relative comparability of each of the companies in the selected transactions to Fuel Systems and each of the selected transactions to the merger, as well its experience with mergers and acquisitions and the industry in which Fuel Systems and Westport participate, J.P. Morgan selected a range of EBITDA multiples that it believed reflected an appropriate range of multiples applicable to Fuel Systems.

Value Creation Analysis—Intrinsic Value Approach

J.P. Morgan prepared a value creation analysis that compared the implied equity value derived from J.P. Morgan’s discounted cash flow analysis of Fuel Systems on a standalone basis to Fuel Systems’ stockholders’ pro forma ownership of the implied equity value of the combined company. Unlike the other valuation analyses performed by J.P. Morgan, which are intended to estimate the standalone basis, the value creation analysis is intended to estimate the potential change in equity value per share as a result of the business combination. The pro forma combined company equity value was equal to: (1) Fuel Systems’ standalone discounted cash flow value of $309 million, plus (2) Westport standalone discounted cash flow value of $637 million, plus (3) Fuel Systems’ present value of Westport’s management expected after-tax synergies, less Fuel Systems’ management estimate of transaction expenses of $15.0 million. For purposes of the discounted cash flow values used in this analysis, J.P. Morgan used a perpetual growth rate of 3.0% for the unlevered free cash flow of Fuel Systems and Westport. A discount rate of 10.0% was used for Fuel Systems, while a 10.0% discount rate was used for cash flows from Westport’s operations and a 13.0% discount rate was used for Westport’s HPDI cash flows. J.P. Morgan then determined the implied pro forma equity value of the combined company attributable to Fuel Systems’ stockholders based on the economic equity ownership percentage of the combined company of approximately 34.7% to be owned by Fuel Systems’ stockholders implied by the exchange ratio provided for in the merger agreement. J.P. Morgan then compared the result to the implied equity value of Fuel Systems on a standalone basis derived from the discounted cash flow analysis described above. The value creation analysis indicated implied pro forma economic equity value of $1.05 billion and implied pro forma accretion in economic equity value to the holders of Fuel Systems’ common stock of 17.6%.

Other Information

Implied Premiums and Multiples

Based on the exchange ratio of 2.129x and the closing market price of Westport’s common shares of $3.54 on August 31, 2015, J.P. Morgan calculated that the implied value of the merger consideration to be paid to Fuel Systems’ stockholders was $7.54 per share. This implied value represents an approximately 10% premium to $6.85, the closing market price of Fuel Systems’ common stock on August 31. 2015. The implied firm value (which is the value of common equity, plus face value of debt and the minority interest value, minus cash and cash equivalents) as a multiple of estimated EBITDA for calendar year 2015 was 13.3x. J.P. Morgan also reviewed the premium represented by the implied value of the merger consideration to be paid to Fuel Systems’ stockholders to the following volume weighted average prices (VWAP) leading to August 31, 2015:

 

VWAP		Premium
10-day VWAP			10.5	%
20-day VWAP			13.7	%
30-day VWAP			23.9	%

 

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Historical Exchange Ratio Analysis

J.P. Morgan reviewed the per share daily closing market price of Fuel Systems’ common stock and Westport’s common shares and calculated the implied historical exchange ratios by dividing the daily closing prices per share of Fuel Systems’ common stock by those of Westport’s common shares for the dates and over the periods described in the table below. The analysis resulted in the following implied exchange ratios for the periods indicated:

 

Basis of Exchange Ratio		Exchange Ratio
As of August 31, 2015			1.935x
Average of trailing 3-month ratios			1.593x
Average of trailing 6-month ratios			1.898x
Average of trailing 1-year ratios			1.944x
Average of trailing 3-year ratios			1.069x
Average of trailing 5-year ratios			1.057x

J.P. Morgan noted that a historical exchange ratio analysis is not a valuation methodology and that such analysis was presented merely for illustrative purposes.

Historical Trading Range

J.P. Morgan reviewed the 52-week trading range, ending on August 31, 2015, of Fuel Systems’ common stock, which was $5.70 to $11.88 per share, and the 52-week trading range, ending August 31, 2015, of Westport’s common shares, which was $3.00 to $14.88 per share.

J.P. Morgan noted that any historical stock trading analysis is not a valuation methodology and that such analysis was presented merely for illustrative purposes.

Equity Research Analyst Price Targets

J.P. Morgan reviewed and discussed the most recent publicly available research analyst price targets for Fuel Systems’ common stock and Westport’s common shares that were prepared and published by selected equity research analysts. J.P. Morgan noted that the range of price targets for Fuel Systems’ common stock was $3.80 to $9.00 per share, and that the range of price targets for Westport’s common shares was $8.00 to $11.00 per share.

J.P. Morgan noted that implied premiums and multiples, historical exchange ratio, historical stock trading and analyst price targets analyses are not valuation methodologies but were presented merely for informational purposes.

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as

 

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described in the above summary is identical to Fuel Systems or Westport, and none of the selected transactions reviewed was identical to the merger. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of Fuel Systems and Westport. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of J.P. Morgan’s analysis, may be considered similar to the merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to Fuel Systems and Westport and the transactions compared to the merger.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise Fuel Systems with respect to the merger on the basis of such experience and its familiarity with Fuel Systems.

For services rendered in connection with the merger, Fuel Systems has agreed to pay J.P. Morgan a transaction fee of 2.00% of the fair market value of the consideration to be paid to Fuel Systems’ stockholders in the merger, which is to be no less than $3.5 million, $1.0 million of which was payable upon the delivery by J.P. Morgan of its opinion and the remainder of which is payable upon and is contingent upon the consummation of the merger. In addition, Fuel Systems has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws.

During the two years preceding the date of delivery of its opinion, J.P. Morgan and its affiliates maintained commercial or investment banking and other business relationships with Fuel Systems, for which J.P. Morgan and its affiliates have received customary compensation. Such services have included acting as financial advisor in connection with Fuel Systems’ strategic planning and evaluation of defensive strategies. During the two years preceding the date of delivery of its opinion, neither J.P. Morgan nor its affiliates have had any material financial advisory or other material commercial or investment banking relationships with Westport. In addition, J.P. Morgan or its affiliates are the beneficial owners of approximately 0.13% of Westport’s outstanding capital stock. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of Fuel Systems or Westport for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities. During the two-year period preceding delivery of its opinion ending on September 1, 2015, the aggregate fees received by J.P. Morgan from Fuel Systems were $300,000.

Certain Unaudited Financial and Operating Forecasts

Fuel Systems Unaudited Prospective Financial Information

Fuel Systems, as a matter of course, does not generally publicly disclose long-term forecasts or internal projections as to its future performance, revenues, production, earnings or other results due to, among other reasons, the uncertainty of the underlying assumption and estimates. However, Fuel Systems is including the following summaries of certain unaudited financial and operating forecasts of Fuel Systems and Westport in this proxy statement/prospectus solely to give Fuel Systems stockholders access to the information that was made available to Fuel Systems, Westport and their respective financial advisors. The unaudited prospective financial data presented below includes (i) projections for Fuel Systems prepared by Fuel Systems’ management and certain advisors in connection with the Restructuring Plan, without giving effect to the merger, which we refer to as the Fuel Systems Projections, and (ii) projections for Westport, which were prepared by Westport’s management, without giving effect to the merger, which we refer to as the Westport Projections. Except to extent required by law, neither Fuel Systems nor Westport has any obligation to update prospective financial data included in this proxy statement/prospectus and has not done so and does not intend to do so.

 

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The inclusion of this information should not be regarded as an indication that any of Fuel Systems, Westport, J.P. Morgan, Rothschild, or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. There can be no assurance that the prospective results 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. Fuel Systems stockholders are urged to review the SEC filings of Fuel Systems and Westport for a description of risk factors with respect to the business of Fuel Systems and Westport. See the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Where You Can Find More Information” beginning on pages [●] and [●], respectively, of this proxy statement/prospectus. The accompanying unaudited prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of Westport’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Westport. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the prospective financial information.

Neither Westport’s or Fuel Systems’ independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the 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, and disclaim any association with, the prospective financial information.

The reports of the independent registered public accounting firms of Fuel Systems and Westport contained in the Annual Report of each of Fuel Systems and Westport on Form 10-K and second amended Annual Report on Form 40-F/A, respectively, for the year ended December 31, 2014, which is incorporated by reference into this document, relates to the historical financial information of Fuel Systems and Westport, respectively. Such reports do not extend to the unaudited prospective financial information and should not be read to do so. Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared. The unaudited prospective financial information does not give effect to the proposed merger.

The following table presents selected unaudited projected financial data for Fuel Systems provided to Westport, J.P. Morgan and Rothschild in connection with the consideration of the proposed transaction.

 

($mm)		2015E				2016E				2017E
Revenue		$	274			$	328			$	345
Cost of goods sold		$	215			$	247			$	259
Gross profit		$	60			$	80			$	87
Adjusted EBITDA(1)		$	6			$	25			$	30

 

(1)

Non-GAAP measure. “EBITDA” mean earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is determined by adding the following items to Net Income/(Loss), the closest GAAP financial measure: Depreciation & Amortization; Interest income/expense, net; and Benefit (Provision) for Income Taxes, Impairments, Restructuring charges, Stock based compensation consulting fees related to restructuring and strategy and other non-operating expenses.

In addition, in connection with J.P. Morgan’s preparation of its fairness opinion described above in “Opinion of Fuel Systems’ Financial Advisor”, management of Fuel Systems provided extrapolated adjusted EBITDA for Fuel Systems’ fiscal years 2018 and 2025, calculated based on extrapolations from the Fuel

 

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Systems’ Projections, which were as follows (in millions): 2018E: $32; 2019E $36. 2020E $39; 2021E $44; 2022E $52; 2023E $58; 2024E $63; 2025E $66.

In connection with the proposed transaction, Fuel Systems also provided the 2018 through 2020 Fuel Systems’ management extrapolations discussed above to Westport and Rothschild.

Westport Unaudited Prospective Financial Information

Westport, as a matter of course, does not generally publicly disclose long-term forecasts or internal projections as to its future performance, revenues, production, earnings or other results due to, among other reasons, the uncertainty of the underlying assumption and estimates. However, Westport is including the following summaries of certain unaudited financial and operating forecasts of Westport in this proxy statement/prospectus solely to give Fuel Systems stockholders access to the information that was made available to Fuel Systems, Westport and their respective financial advisors. The unaudited prospective financial data presented below includes projections for Westport prepared by Westport management as part of its regular strategic planning process. Except to extent required by law, neither Fuel Systems nor Westport has any obligation to update prospective financial data included in this proxy statement/prospectus and has not done so and does not intend to do so.

The inclusion of this information should not be regarded as an indication that any of Fuel Systems, Westport, J.P. Morgan, Rothschild, or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. There can be no assurance that the prospective results 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. Fuel Systems stockholders are urged to review the SEC filings of Fuel Systems and Westport for a description of risk factors with respect to the business of Fuel Systems and Westport. See the sections entitled “Cautionary Statement Regarding Forward–Looking Statements” and “Where You Can Find More Information” beginning on pages [●] and [●], respectively, of this proxy statement/prospectus.

The accompanying unaudited prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of Westport’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Westport. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the prospective financial information.

Neither Westport’s or Fuel Systems’ independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the 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, and disclaim any association with, the prospective financial information.

The reports of the independent registered public accounting firms of Fuel Systems and Westport contained in the Annual Report of each of Fuel Systems and Westport on Form 10-K and second amended Annual Report on Form 40-F/A, respectively, for the year ended December 31, 2014, which is incorporated by reference into this document, relates to the historical financial information of Fuel Systems and Westport, respectively. Such reports do not extend to the unaudited prospective financial information and should not be read to do so. Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared. The unaudited prospective financial information does not give effect to the proposed merger.

 

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The following table presents the Westport Projections provided to Fuel Systems and Rothschild in connection with the consideration of the proposed transaction.

 

($ mm)		2015E				2016E				2017E				2018E				2019E				2020E
Revenues		$	116.9			$	204.3			$	395.5			$	605.6			$	909.8			$	1,179.8
Cost of Goods Sold		$	87.5			$	134.3			$	274.9			$	459.9			$	740.5			$	984.5
Gross Margins		$	29.3			$	69.9			$	120.6			$	145.7			$	169.3			$	215.4
Operating Expenses		$	93.6			$	128.1			$	144.9			$	121.4			$	97.3			$	95.6
Adjusted EBITDA(1)		$	(42.9	)		$	(27.0	)		$	13.8			$	69.5			$	125.4			$	182.8

 

(1)

Non-GAAP measure. “EBITDA” mean earnings before interest, taxes, depreciation and amortization. Westport defines Adjusted EBITDA as net loss attributed to the business unit or the consolidated company excluding expenses for (a) income taxes, (b) depreciation and amortization, (c) interest expense, net, (d) non-cash and other unusual adjustments, (e) amortization of stock-based compensation, and (f) unrealized foreign exchange gain or loss. Adjusted EBITDA includes Westport’s share of income from the joint ventures.

In addition, in connection with J.P. Morgan’s preparation of its fairness opinion described above in “Opinion of Fuel Systems’ Financial Advisor”, Fuel Systems’ management, in consultations with its strategic advisors, applied certain downward adjustments and discounts and performed certain sensitivity analyses to the Westport Projections, which adjustments and discounts ranged between approximately 0% to 60%, depending on product line and certain profit and loss line items, and also took into account certain timing delays in anticipated market penetration.

Additional Information Regarding Prospective Financial Information

Although presented with numerical specificity, the above unaudited prospective financial information reflects numerous assumptions and estimates as to future events made by the management of Fuel Systems and Westport, as applicable.

At the time the unaudited prospective financial information was prepared, Fuel Systems’s management and Westport’s management believed such assumptions and estimates were reasonable. In preparing the foregoing unaudited projected financial information, Fuel Systems and Westport, as applicable, made assumptions regarding, among other things, sales volumes and pricing, interest rates, corporate financing activities, including with respect to the effective tax rate and the amount of Fuel System’s and Westport’s income taxes, the amount of selling, general and administrative costs and the amount of research and development spending.

No assurances can be given that the assumptions made in preparing the above unaudited prospective financial information will accurately reflect future conditions. The estimates and assumptions underlying the unaudited prospective financial information involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among others, risks and uncertainties described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” beginning on pages [●] and [●], respectively, of this proxy statement/prospectus all of which are difficult to predict and many of which are beyond the control of Fuel Systems and/or Westport and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions will prove to be accurate or that the projected results will be realized, and actual results likely will differ, and may differ materially, from those reflected in the unaudited prospective financial information, whether or not the combination is completed.

 

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Fuel Systems stockholders are urged to review Westport’s and Fuel System’s most recent SEC filings for a description of Fuel System’s and Westport’s reported and anticipated results of operations and financial condition and capital resources during 2015, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Fuel System’s Quarterly Report on Form 10-Q for the second quarter ended June 30, 2015, which is incorporated by reference into this document, and Westport’s Quarterly Report on Form 6-K for the second quarter ended June 30, 2015, which is incorporated by reference into this document.

Readers of this document are cautioned not to place undue reliance on the unaudited prospective financial information set forth above. No representation is made by Fuel Systems, Westport or any other person to any Fuel Systems stockholder regarding the ultimate performance of Fuels Systems or Westport compared to the information included in the above unaudited prospective financial information. The inclusion of unaudited prospective financial information in this document should not be regarded as an indication that such prospective financial information will be an accurate prediction of future events, and such information should not be relied on as such.

FUEL SYSTEMS AND WESTPORT DO NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY LAW.

Board of Directors and Executive Officers of the Combined Company After Completion of the Merger; Headquarters and Name

Board of Directors. Upon completion of the merger, the board of directors of the combined company will consist of ten directors, including current Westport directors Warren J. Baker, Joseph P. Caron, David R. Demers, Brenda J. Eprile, Philip B. Hodge, Dezsö J. Horváth, Gottfried (Guff) Muench, current Fuel Systems director Mariano Costamagna, and [●] and [●] from the Fuel Systems board of directors to be designated by Fuel Systems prior to the closing.

Executive Officers. Upon completion of the merger, the current executive officers of Westport are expected to continue serving as executive officers of the combined company.

Headquarters. Upon completion of the merger, the headquarters of the combined company will remain in Vancouver, Canada.

Name. Upon completion of the merger, and if approved by the requisite number of votes cast by Westport shareholders, the name of the combined company will be “Westport Fuel Systems Inc.”

Accounting Treatment of the Merger

Westport will account for the merger under the acquisition method of accounting for business combinations pursuant to Accounting Standards Codification (“ASC”) No. 805—Business Combinations. ASC No. 805 requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the date of the merger. ASC No. 820—Fair Value Measurements, which establishes a framework for measuring fair values, defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

Regulatory Approvals Required for the Merger

Westport and Fuel Systems have each agreed to (and to cause each of their subsidiaries to) take any and all actions necessary to obtain all necessary antitrust consents, clearances or approvals required to complete the

 

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merger, provided such actions would not materially reduce the anticipated benefits of the transactions contemplated by the merger agreement. The following is a summary of the regulatory approvals required for completion of the merger.

United States Antitrust Approval

Under the HSR Act, Westport and Fuel Systems cannot complete the merger until Westport and Fuel Systems have notified the Antitrust Division of the U.S. Department of Justice, which we refer to herein as the “DOJ,” and the U.S. Federal Trade Commission, which we refer to herein as the “FTC,” of the merger and furnished them with certain information and materials relating to the merger and the applicable waiting period has terminated or expired. The termination or expiration of the waiting period means the parties have satisfied the regulatory requirements under the HSR Act. Westport and Fuel Systems filed the required notifications with the DOJ and the FTC on September 16, 2015; accordingly, the termination or expiration of the waiting period occurred on October 16, 2015.

Other Jurisdictions

Westport and Fuel Systems derive revenues in other jurisdictions where merger or acquisition control filings or clearances are or may be required. The merger cannot be completed until after the relevant approvals have been obtained under the antitrust and competition laws of Turkey. Westport filed the required notification with the antitrust authority in Turkey on September 17, 2015, and clearance was granted on October 7, 2015. The transaction is also subject to review by the competition authority of Argentina. However, such review does not suspend closing of the transaction and a filing can be made post-closing. The parties intend to notify the competition authority of Argentina about the transaction following the closing of the transaction.

Appraisal Rights

Under Section 262 of the DGCL, holders of shares of Westport common shares and Fuel Systems common stock do not have appraisal rights in connection with the merger.

Restrictions on Sales of Shares of Westport Common Shares Received in the Merger

All Westport common shares received by Fuel Systems stockholders in the merger will be freely tradable for purposes of the Securities Act and the Exchange Act, except for Westport common shares received by any Fuel Systems stockholder who becomes an “affiliate” of Westport after completion of the merger (such as Fuel Systems directors or executive officers who become directors or executive officers of Westport after the Merger). This proxy statement/prospectus does not cover resales of Westport common shares received by any person upon completion of the merger, and no person is authorized to make any use of this proxy statement/prospectus in connection with any resale.

NASDAQ and TSX Listing of Westport Common Shares; Delisting and Deregistration of Fuel Systems Common Stock

It is a condition to the completion of the merger that the Westport common shares issuable in the merger be approved for listing on NASDAQ and the TSX. The application for approval of the listing of the Westport common shares issuable in the merger will be submitted to the TSX, and will be subject to fulfilling all of the listing requirements of the TSX. A supplemental listing application will be provided to NASDAQ in accordance with the requirements of the NASDAQ Stock Market Rules.

If the merger is completed, Fuel Systems common stock will cease to be listed on NASDAQ and its common stock will be deregistered under the Exchange Act.

 

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Interests of Directors and Executive Officers in the Merger

Interests of Directors and Executive Officers of Fuel Systems in the Merger

In considering the recommendation of the Fuel Systems board of directors that Fuel Systems stockholders vote “FOR” the Merger proposal, Fuel Systems stockholders should be aware that some of Fuel Systems’ executive officers and directors have financial interests in the merger that may be different from, or in addition to, those of Fuel Systems stockholders generally. The Fuel Systems board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and making its recommendations that the Fuel Systems stockholders approve the merger agreement. For purposes of all of the Fuel Systems agreements and plans described below, the completion of the merger will constitute a change in control.

As described under “Fuel Systems Proposals—Item 2. Amendments to Non-Employee Directors’ Restricted Stock Awards Proposal,” the Fuel Systems board of directors formally approved amendments to certain restricted stock awards (the “Awards”) held by non-employee directors. The amendments provide that the vesting date of any unvested restricted stock issued pursuant to each Award will be the earlier of (i) the vesting date set forth in the Award, or (ii) a change in control (as defined in the 2009 Restricted Stock Plan); provided, that the amendments will not be effective unless holders of a majority of the shares of Fuel Systems common stock present in person or by proxy and entitled to vote at the next shareholders’ meeting vote in favor of such amendment. The consummation of the proposed merger would constitute a “change in control” under the 2009 Restricted Stock Plan and the Awards. The table below sets forth the value to each of the non-employee directors of the acceleration of the awards, assuming shareholders approve the amendments as set forth in “Fuel Systems Proposals—Item 2. Amendments to Non-Employee Directors’ Restricted Stock Awards Proposal” and further assuming a merger completion date of October 9, 2015, upon which merger completion date the non-employee directors would be entitled to receive 2.129 Westport common shares for each share of Fuel Systems restricted stock.

 

Director		Restricted Stock Award (#)				Acceleration Value ($)
Joseph E. Pompeo			6,054				50,525
Marco Di Toro			6,054				50,525
James W. Nall			6,054				50,525
Troy A. Clarke			6,054				50,525
Colin Johnston			6,054				50,525
Steven R. Becker			6,054				50,525
Anthony Harris (1)			6,054				50,525
Anthony Harris (1)			1,442				12,034

Retirement Agreement

Fuel Systems entered into a retirement agreement with Mariano Costamagna on April 24, 2015 (the “Retirement Agreement”), under which Mr. Costamagna and Fuel Systems agreed that Mr. Costamagna will retire by December 31, 2015 as the Chief Executive Officer of Fuel Systems, relinquish all executive authority with regard to Fuel Systems’ wholly-owned subsidiary, MTM S.r.L. (“MTM”), and resign from all positions as director, officer, executive or employee of all other Fuel Systems subsidiaries. Following such retirement date, Mr. Costamagna will remain as a director of Fuel Systems and MTM and be entitled to compensation as a non-management director of such companies. Under the Retirement Agreement, Mr. Costamagna will be paid €450,000 by MTM on December 31, 2015, provided that Mr. Costamagna’s employment is not terminated for “cause” (as defined under the Retirement Agreement) prior to such date. In addition, Mr. Costamagna was granted 100,000 Fuel Systems restricted stock units, which vest on December 31, 2016, 60% of which will be settled in stock and 40% of which will be settled in cash, subject to Mr. Costamagna complying with the restrictive covenants contained in the agreement. Under the Retirement Agreement, Mr. Costamagna agreed to

 

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certain restrictive covenants, including non-solicitation and non-competition for the longer of (i) 12 months following the date he ceases to serve as chief executive officer of Fuel Systems and (ii) six months following the date he ceases to be a director of both MTM and Fuel Systems. Mr. Costamagna agreed that 100,000 Fuel Systems restricted stock units had a value on the date of the Retirement Agreement of €1,020,000 and that would be the liquidated damages for any violation of the restrictive covenants. Upon consummation of the merger, consistent with the treatment of all outstanding Fuel Systems RSUs, any outstanding RSUs awarded under the Retirement Agreement will be assumed by Westport, will be convertible into shares of Westport common shares and will continue to have the same terms and conditions, including vesting and payment terms, as were in effect prior to the merger.

The Retirement Agreement was not entered into in contemplation of the merger or any sale of Fuel Systems or any of its assets, but was part of succession planning for Fuel Systems. Under the Retirement Agreement, Mr. Costamagna agreed that the Fuel Systems board of directors would commence a search for his successor as CEO, and he would cooperate with that search and, in the interim period, the Fuel Systems board of directors would appoint a Chief Operating Officer for Fuel Systems and MTM with whom Mr. Costamagna would cooperate. Mr. Costamagna may elect to retire before December 31, 2015 without forfeiting any payment or benefit provided for under the Retirement Agreement.

Supplemental Employment Agreements

Fuel Systems entered into a Supplemental Employment Agreement with two named executive officers of Fuel Systems, Pietro Bersani and Michael Helfand on August 6, 2015. Under the terms of these agreements, each of Mr. Bersani and Mr. Helfand will receive a bonus payment on the closing date of the merger or upon any earlier termination by Fuel Systems without “cause” (as defined under the Supplemental Employment Agreements) or due to death or disability that occurs prior to the closing date of the merger. In addition, the Supplemental Employment Agreements provide that if the employment of Mr. Bersani or Mr. Helfand is terminated by Fuel Systems without cause or by the executive for “good reason” (as defined under the Supplemental Employment Agreements) or due to death or disability within 12 months following a change in control (which would include the closing of the merger), then the executive will receive (i) a lump sum severance payment equal to 100% of the executive’s annual base salary in effect immediately prior to either (a) the change in control or (b) the executive’s termination, whichever is greater; (ii) 100% vesting of the restricted stock units granted to the executive on April 24, 2015, the value of which will be paid in cash and (iii) continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) (or coverage under an individual policy to the extent continuation COBRA coverage is not available) for the executive and his dependents for 18 months following the termination date at Fuel Systems’ expense, which coverage will terminate earlier if the executive becomes covered by a medical plan offered by a new employer. Entitlement to such payments and benefits are conditioned upon the execution and non-revocation of a release of claims.

The chart below sets forth the amounts payable to Messrs. Bersani and Helfand under the respective agreements, assuming a merger completion date of October 9, 2015, and that employment of each executive is terminated without cause immediately following the completion of the merger. The first column sets forth the amounts payable to Messrs. Bersani and Helfand on the closing date of the merger, whereas the amounts in columns two through four comprise the value of benefits receivable by Messrs. Bersani and Helfand upon a qualifying termination following the completion of the merger, in each case pursuant to the terms of their respective Supplementary Employment Agreement.

 

		Merger Closing Bonus				Cash Severance Payment				RSU Acceleration Value(1)				Value of COBRA Coverage				Total
Pietro Bersani		$	365,000			$	367,750			$	175,259			$	35,390			$	943,399
Michael Helfand		$	300,000			$	305,000			$	150,222			$	35,390			$	790,612

 

(1)	Amount reflects the value derived by multiplying the number of restricted stock units subject to accelerated vesting by the value of 2.129 Westport common shares, based on the closing trading price of such shares on the presumed employment termination date of October 9, 2015.

 

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Equity Compensation Awards

Stock Options

Under the terms of the merger agreement, all Fuel Systems stock options with an exercise price that is less than the per share dollar value of the merger consideration immediately prior to completion of the merger (referred to herein as an “in-the-money option”) will vest in full and become exercisable and will be assumed by Westport and be exercisable for shares of Westport common shares from and following the completion of the merger and are more fully described below under “—Treatment of Fuel Systems Stock Options and Other Equity Based Awards”. All stock options with a per share exercise price that is greater than or equal to the per share dollar value of the merger consideration immediately prior to the completion of the merger will automatically be cancelled and forfeited for no consideration paid to the option holder. Assuming a merger closing date of October 9, 2015, the per share dollar value of the merger consideration would be $8.35. Based on such price, none of the stock options held by Fuel Systems’ executive officers would be in-the-money options and, thus, all unexercised stock options held by such individuals would be cancelled upon the completion of the merger for no consideration.

Restricted Stock Units and Restricted Stock

The merger agreement provides that all outstanding Fuel Systems restricted stock units (“RSUs”), including those held by executive officers, will be assumed by Westport and will be convertible into shares of Westport common shares from and following the completion of the merger. The assumed RSUs will continue to have the same terms and conditions, including vesting terms, as such RSUs had immediately prior to the completion of the merger, except that the number of shares subject to each RSU award will be adjusted in accordance with the exchange ratio.

Each share of Fuel Systems restricted stock, including those held by executive officers, also will be assumed by Westport and will become shares of Westport restricted stock from and following the completion of the merger, subject to the same terms and conditions, including applicable restrictions and vesting terms, as were applicable to the shares of Fuel Systems restricted stock immediately prior to the completion of the merger, except that the number of shares of restricted stock subject to each restricted stock award will be adjusted in accordance with the exchange ratio.

Phantom Shares

Each outstanding Fuel Systems phantom share, including those held by executive officers, will vest in full and all restrictions applicable thereto will lapse immediately prior to the completion of the merger, and each award of Fuel Systems phantom shares will be converted into an amount in cash equal to the product of (i) the number of shares of Fuel Systems common stock subject to the award of Fuel Systems phantom shares and (ii) the difference between (x) the per share dollar value of the merger consideration and (y) the exercise price applicable to the Fuel Systems phantom shares and thereafter will be cancelled. All Fuel Systems phantom shares with a per share exercise price that is greater than or equal to the per share dollar value of the merger consideration will automatically be cancelled and forfeited for no consideration paid to the holder of such Fuel Systems phantom share. Assuming a merger closing date of October 9, 2015, the per share dollar value of the merger consideration would be $8.35. Based on such price, none of the Fuel Systems phantom shares held by Fuel Systems executive officers would be in-the-money and, thus, all Fuel Systems phantom shares held by such persons would be cancelled at the effective time for no consideration.

Compensation Related to the Merger

The tabular disclosure below sets forth the information required by Item 402(t) of Regulation S-K and assumes that each of the listed named executive officers is terminated without “cause” in connection with the proposed merger under circumstances that entitle such individual to severance payments and benefits as of October 9, 2015 (the latest

 

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practicable date, determined pursuant to Item 402(t) of Regulation S-K). The tabular disclosure further assumes that each listed named executive officer becomes entitled to the accelerated vesting and cash payment for their restricted stock units as provided under certain executives’ Supplemental Employment Agreements described above under “—Supplemental Employment Agreements,” based on a price of $6.34 per share with respect to Fuel Systems common stock (the average per share closing price of Fuel Systems common stock over the first five business days following the date the parties announced the execution of the merger agreement, determined pursuant to Item 402(t) of Regulation S-K).

 

		Cash ($)(1)				Equity ($)(2)				Perquisites/ Benefits ($)(3)				Total
Pietro Bersani		$	732,750			$	133,140			$	35,390				901,280
Michael Helfand		$	605,000			$	114,120			$	35,390				754,510

 

(1)

Amount represents (a) the cash severance payable to each of Mr. Bersani and Mr. Helfand ($367,750 and $305,000, respectively) under their respective Supplemental Employment Agreements in the event their employment is terminated for qualifying reasons under such agreements and (b) the transaction bonus payment payable to each of Mr. Bersani and Mr. Helfand ($365,000 and $300,000, respectively) upon the closing of the merger. The cash severance amount in each case is a “double-trigger” payment (meaning the amount is payable only upon a qualifying termination that follows a change in control), and the transaction bonus payments are “single-trigger” (meaning they become payable by virtue of a change in control alone).

(2)

Amount reflects the value of the accelerated vesting of restricted stock units granted to each of Mr. Bersani and Mr. Helfand, as provided for under their respective Supplemental Employment Agreements, assuming their employment is terminated for qualifying reasons under such agreements and further assuming the purchase price of Fuel Systems Common Stock discussed above. Such payments are double-trigger payments.

(3)	Amount reflects the value of the COBRA continuation coverage provided to each of Mr. Bersani and Mr. Helfand in the event their employment terminates for qualifying reasons under their respective Supplemental Employment Agreements. Such payments are double-trigger.

Messrs. Bersani and Helfand are the only named executive officers included in the table above because no other named executive officer is a party to any agreement or understanding concerning any type of compensation that is based on or otherwise relates to the merger. Mr. Costamagna’s Retirement Agreement was entered into in April 2015 as part of Fuel Systems’ succession planning and not in contemplation of the merger or any sale of Fuel Systems or any of its assets. The compensation to which Mr. Costamagna is entitled under such agreement in connection with his retirement is fully described above under “—Retirement Agreement.”

Treatment of Fuel Systems Stock Options and Other Equity-based Awards

Stock Options. Upon completion of the merger, each outstanding in-the-money option (whether or not then vested or exercisable) to purchase shares of Fuel Systems common stock will automatically vest and become exercisable, and will be assumed by Westport and will otherwise continue to have, and be subject to, the same terms and conditions as were applicable to such options prior to the completion of the merger, except that (i) each such in-the-money option will be exercisable for that number of shares of Westport equal to the product (rounded down to the nearest whole) of the number of shares of Fuel Systems common stock subject to such in-the-money option immediately prior to the completion of the merger and 2.129, and (ii) the per share exercise price for shares of Westport issuable upon exercise of such assumed in-the-money option will be equal to the quotient (rounded up to the nearest whole cent) determined by dividing the per share exercise price of each Fuel Systems common stock at which such assumed in-the-money option was exercisable immediately prior to the completion of the merger by 2.129. Any outstanding option that has an exercise price per share of Fuel Systems common stock greater than or equal to the per share dollar value of the merger consideration will automatically be cancelled and forfeited for no consideration and all rights with respect to such option will terminate. Based on a price assuming a merger closing date as of October 9, 2015, none of the outstanding stock options would be in-the-money options and, thus, all unexercised stock options would be cancelled upon the completion of the merger for no consideration.

 

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Restricted Stock Units. Upon completion of the merger, each outstanding Fuel Systems RSU will be assumed by Westport and will continue to have, and be subject to, the same terms and conditions (including vesting terms), as were applicable prior to the completion of the merger, except that each such Fuel Systems RSU will be converted into a number of RSUs convertible into that number of whole shares of Westport equal to the product (rounded down to the nearest whole number) of the number of shares of Fuel Systems common stock subject to such RSU immediately prior to the completion of the merger multiplied by 2.129.

Restricted Stock. Upon completion of the merger, each outstanding share of Fuel Systems restricted stock will be assumed by Westport and will continue to have, and be subject to, the same terms and conditions (including applicable restrictions and vesting terms) as were applicable immediately prior to the completion of the merger, except that each such share of Fuel Systems restricted stock will be converted into a number of restricted shares of Westport equal to the product (rounded down to the nearest whole number) of the number of shares of Fuel Systems restricted stock immediately prior to the closing of the merger multiplied by 2.129.

Phantom Shares. Upon completion of the merger, each outstanding Fuel Systems phantom share will become fully vested and all restrictions will lapse and each such phantom share will be converted into an amount, payable in cash, equal to the product of (i) the number of shares of Fuel Systems common stock subject to the Fuel Systems phantom share multiplied by (ii) the difference between (x) the per share dollar value of the merger consideration and (y) the applicable “exercise price” for the Fuel Systems phantom share. Any outstanding phantom share that has an exercise price per share of Fuel Systems common stock greater than or equal to the per share dollar value of the merger consideration will automatically be cancelled and forfeited for no consideration and all rights with respect to such phantom share will terminate. Assuming a merger closing date of October 9, 2015, the per share dollar value of the merger consideration would be $8.35. Based on such price, none of the outstanding Fuel Systems phantom shares would be in-the-money and, thus, all Fuel Systems phantom shares would be cancelled at the effective time for no consideration.

 

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U.S. FEDERAL INCOME TAX CONSIDERATIONS

In General

The following discussion is a summary of (i) U.S. federal income tax consequences of the merger generally applicable to U.S. Holders and non-U.S. Holders (each as defined below) of Fuel Systems common stock and (ii) U.S. federal income tax considerations generally applicable to U.S. Holders of owning and disposing of Westport common shares received in the merger. The discussion is based on and subject to the Code, the U.S. Treasury Regulations promulgated thereunder, administrative guidance and court decisions, in each case, as of the date hereof, all of which are subject to change, possibly with retroactive effect, and to differing interpretations. The discussion assumes that Fuel Systems stockholders hold their Fuel Systems common stock, and will hold their Westport common shares received in the merger, as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). The discussion also assumes that Westport will not be treated as a U.S. corporation under Section 7874 of the Code. The discussion does not constitute tax advice and does not address all aspects of U.S. federal income taxation that may be relevant to particular holders of Fuel Systems common stock or Westport common shares in light of their personal circumstances, or to any holders subject to special treatment under the Code, such as:

 

•

banks, thrifts, mutual funds and other financial institutions;

 

•

real estate investment trusts and regulated investment companies;

 

•

traders in securities who elect to apply a mark-to-market method of accounting;

 

•

brokers or dealers in securities;

 

•

tax-exempt organizations or governmental organizations;

 

•

insurance companies;

 

•

dealers or brokers in securities or foreign currency;

 

•

individual retirement and other deferred accounts;

 

•

U.S. Holders whose functional currency is not the U.S. dollar;

 

•

U.S. expatriates and former citizens or long-term residents of the United States;

 

•

“passive foreign investment companies” or “controlled foreign corporations”, and corporations that accumulate earnings to avoid U.S. federal income tax;

 

•

persons subject to the alternative minimum tax;

 

•

U.S. Holders who own or are deemed to own 10% or more of Westport’s voting stock;

 

•

persons who hold their shares as part of a straddle, hedging, conversion, constructive sale or other risk reduction transaction;

 

•

persons who purchase or sell their shares as part of a wash sale for tax purposes;

 

•

“S corporations”, partnerships or other entities or arrangements classified as partnerships for U.S. federal income tax purposes, or other pass-through entities (and investors therein); and

 

•

persons who received their shares through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan.

In addition, there can be no assurance that the IRS or a court will not take a contrary position regarding the tax consequences described herein. The discussion does not address any non-income tax considerations or any foreign, state or local tax consequences. For purposes of this discussion, a “U.S. Holder” means a beneficial owner of Fuel Systems common stock or, after the completion of the merger, Westport common shares, that for U.S. federal income tax purposes is:

 

•

an individual who is a citizen or resident of the United States;

 

•

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States, any state thereof or the District of Columbia;

 

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•

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

 

•

a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person for U.S. federal income tax purposes.

A “Non-U.S. Holder” means a beneficial owner of Fuel Systems common stock or, after the completion of the merger, Westport common shares who is an individual, corporation, estate or trust, in each case, that is not a U.S. Holder.

If a partnership, including for this purpose any arrangement or entity that is treated as a partnership for U.S. federal income tax purposes, holds Fuel Systems common stock or, after the completion of the merger, Westport common shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A holder that is a partnership for U.S. federal income tax purposes and the partners in such partnership are urged to consult their tax advisors about the U.S. federal income tax consequences of the merger and the ownership and disposition of the Westport common shares.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS OF FUEL SYSTEMS COMMON STOCK OR, AFTER THE COMPLETION OF THE MERGER, WESTPORT COMMON SHARES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND THE OWNERSHIP AND DISPOSITION OF WESTPORT COMMON SHARES TO THEM IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS ANY TAX CONSEQUENCES OF SUCH MATTERS ARISING UNDER THE U.S. FEDERAL TAX LAWS OTHER THAN THOSE PERTAINING TO INCOME TAX, INCLUDING ESTATE OR GIFT TAX LAWS, OR UNDER ANY STATE, LOCAL OR NON-U.S. TAX LAWS OR UNDER ANY APPLICABLE INCOME TAX TREATY.

U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Fuel Systems Common Stock

The following discussion regarding the U.S. federal income tax consequences of the merger assumes that the merger will be consummated as described in the merger agreement and this proxy statement/prospectus. For U.S. federal income tax purposes, subject to the discussion below in “—Application of Section 367(a)(1),” the receipt of Westport common shares for Fuel Systems common stock pursuant to the merger should qualify as a reorganization within the meaning of Section 368(a) of the Code. However, neither the obligation of Fuel Systems nor the obligation of Westport to complete the merger is conditioned upon the receipt of an opinion from counsel confirming that the merger will so qualify. In addition, this discussion is not binding on the IRS or any court and does not preclude the IRS or a court from reaching a contrary conclusion. Therefore, while Fuel Systems believes that the merger will be treated as a tax-free reorganization under Section 368(a) of the Code, no assurance can be provided that the IRS will agree with this conclusion.

Receipt of Westport Common Shares in a Section 368(a) Reorganization

Subject to the discussion below in “—Application of Section 367(a)(1),” if the receipt of Westport common shares for Fuel Systems common stock qualifies as a reorganization within the meaning of Section 368(a) of the Code, then, except as described below with respect to a U.S. Holder of Fuel Systems common shares that owns, directly or by attribution, 5% or more of the Westport common shares immediately after the merger (a “5% U.S. Holder”), the merger should have the following U.S. federal income tax consequences to you:

 

•

You will not recognize any gain or loss with respect to your Fuel Systems common stock (except with respect to cash received in lieu of a fractional Westport common share, as discussed below).

 

•

The aggregate tax basis of any Westport common shares you receive in exchange for your Fuel Systems common stock in the merger (including fractional shares for which cash is received, as discussed below) will be the same as the aggregate adjusted tax basis of your Fuel Systems common stock.

 

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•

The holding period of any shares of Westport common shares you receive in the merger (including fractional shares for which cash is received, as discussed below) generally will include the holding period of the shares of Fuel Systems common stock you exchanged for such Westport common shares.

 

•

If you receive cash in lieu of a fractional Westport common share in the merger, you will be treated as having received such fractional share in the merger and then having received cash in redemption of such fractional share. You generally will recognize capital gain or loss equal to the difference between the amount of cash received with respect to such fractional share and the ratable portion of the adjusted tax basis of the Fuel Systems common stock surrendered that is allocated to the fractional share. Capital gain or loss generally will be long-term capital gain or loss if your holding period in the Fuel Systems common stock surrendered that is allocated to the fractional share is more than one year on the date of completion of the merger. The deductibility of capital losses is subject to limitations.

U.S. Holders should consult their own tax advisors about reporting requirements and information statements that could be applicable to the merger and any potential penalties associated with a failure to satisfy such requirements.

A 5% U.S. Holder that receives Westport common shares pursuant to the merger will generally qualify for the treatment described above only if the 5% U.S. Holder timely files a “gain recognition agreement,” as defined in applicable U.S. Treasury Regulations promulgated under Section 367(a) of the Code, with the IRS. A 5% U.S. Holder who fails to file a gain recognition agreement with the IRS will not qualify for the treatment described above, and instead will recognize gain (but not loss) in the merger in the amount, if any, by which the value of the Westport common shares (including fractional shares) received by the 5% U.S. Holder exceeds such holder’s adjusted tax basis in its Fuel Systems common stock exchanged therefor. Any gain so recognized would generally be treated as capital gain. Capital gains of non-corporate 5% U.S. Holders (including individuals) may be eligible for the preferential U.S. federal income tax rates applicable to long-term capital gains if the U.S. Holder has held its Fuel Systems common stock for more than one year as of the closing date of the merger. Each such 5% U.S. Holder should consult its own tax advisor concerning the decision to file a gain recognition agreement, the procedures to be followed in connection with that filing, and other applicable considerations.

Receipt of Westport Common Shares in a Taxable Exchange

If the IRS were to successfully challenge the qualification of the merger as a reorganization, a U.S. Holder of Fuel Systems common stock would recognize gain or loss in an amount equal to the difference, if any, between (i) the sum of the fair market value as of the closing date of the merger of Westport common shares (including fractional shares) received in the merger, and (ii) such holder’s adjusted tax basis in the shares of Fuel Systems common stock surrendered in the merger. A U.S. Holder’s adjusted tax basis in its Fuel Systems common stock generally will equal such holder’s purchase price for such Fuel Systems common stock, as adjusted to take into account stock dividends, stock splits or similar transactions.

A U.S. Holder’s gain or loss on receipt of the Westport common shares generally will be a capital gain or loss. Capital gains of non-corporate U.S. Holders (including individuals) may be eligible for the preferential U.S. federal income tax rates applicable to long-term capital gains if the U.S. Holder has held its Fuel Systems common stock for more than one year as of the closing date of the merger. The deductibility of capital losses is subject to limitations. If a U.S. Holder acquired different blocks of Fuel Systems common stock at different times and at different prices, such holder must determine its adjusted tax basis and holding period separately with respect to each block of Fuel Systems common stock.

A U.S. Holder’s tax basis in Westport common shares received in the merger would equal its fair market value as of the date of the merger, and the U.S. Holder’s holding period for such Westport common shares would begin on the date after the merger.

Application of Section 367(a)(1)

Section 367(a)(1) of the Code and the applicable Treasury Regulations thereunder provide that where a U.S. shareholder exchanges stock in a U.S. corporation for stock in a non-U.S. corporation in a transaction that would

 

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otherwise qualify as a reorganization under Section 368(a) of the Code, the U.S. shareholder is required to recognize gain, but not loss, realized on such exchange unless certain requirements are met. While Fuel Systems and Westport generally expect such requirements to be met, one such requirement is that the value of Westport equal or exceed the value of Fuel Systems, as specifically determined for purposes of Section 367 of the Code, as of the closing date of the merger. Whether this requirement is met cannot be known until the closing date of the merger. In determining the value of Westport for these purposes, acquisitions of assets by Westport made outside of the ordinary course of business during the 36 months preceding the merger will be disregarded unless such acquisitions either (i) consist of interests in certain foreign corporations or partnerships or (ii) do not consist of passive assets (including cash) and are not undertaken with a principal purpose of satisfying such requirement. In addition, the IRS has announced its intention to issue regulations effective prior to the date of the merger whereby, for purposes of determining the value of Fuel Systems, certain distributions made by Fuel Systems during the 36 months preceding the merger will be added back to the value of Fuel Systems for purposes of this requirement. Under such regulations, distributions (including share repurchases) made by Fuel Systems over the 36 months preceding the merger would be added back to the value of Fuel Systems to the extent that amounts distributed during a given year exceed 110 percent of the average amounts distributed over the 3 preceding years. Regulations addressing the specific method for determining the amount that would be added back for this purpose have not been issued.

If the application of Section 367(a)(1) results in recognition of gain to a holder of Fuel Systems common stock in the merger, such holder would recognize gain (but not loss) in an amount equal to the excess, if any, of the fair market value as of the closing date of the merger of any shares of Westport common shares (including fractional shares) received in the merger, over such holder’s tax basis in the shares of Fuel Systems common stock surrendered in the merger. Any gain so recognized would generally be long-term capital gain if such holder has held the shares of Fuel Systems common stock for more than one year at the time the merger is completed. If you do not expect that the value of Westport will equal or exceed the value of Fuel Systems, as specifically determined for purposes of Section 367 of the Code (as discussed above), as of the closing date of the merger, you should assume, for purposes of deciding how to vote, that the merger will be treated in such manner.

IRS Ruling Request

Fuel Systems is seeking a ruling from the IRS providing that the transfer of shares of Fuel Systems common stock to Westport by Fuel Systems stockholders pursuant to the merger agreement will not be subject to Section 367(a)(1) of the Code. Such ruling request will be based on certain facts, representations, covenants and assumptions, including representations of Fuel Systems and Westport, and will assume that the parties will comply with certain reporting obligations under the Code. If any of these representations and assumptions are inconsistent with the actual facts, the U.S. federal income tax treatment of the merger could be adversely affected. The obligation of Fuel Systems and Westport to consummate the merger is not conditioned upon the receipt of a ruling from the IRS, and there can be no assurance that Fuel Systems will obtain such a ruling from the IRS. In addition, such ruling, if any, will not be issued prior to the date of the Fuel Systems special meeting, and might not be issued prior to the closing date of the merger. Failure to receive the ruling does not necessarily mean that the merger will be subject to Section 367(a) of the Code.

U.S. Federal Income Tax Considerations to U.S. Holders of Owning and Disposing of Westport Common Shares Received in the Merger

Taxation of Dividends and Other Distributions on Westport Common Shares

Subject to the passive foreign investment company rules discussed below, the U.S. dollar amount of the gross amount of any distribution Westport makes to you with respect to Westport common shares (including the amount of any taxes withheld therefrom) will generally be includible in your gross income, in the year actually or constructively received, as dividend income, but only to the extent that such distribution is paid out of Westport’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent that the amount of the distribution exceeds Westport’s current and accumulated earnings and profits (as

 

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determined under U.S. federal income tax principles), such excess will be treated first as a tax-free return of your tax basis in the Westport common shares you hold, and then, to the extent such excess amount exceeds your tax basis in such Westport common shares, as capital gain. Westport, however, may not calculate its earnings and profits under U.S. federal income tax principles. In that case, you should expect that any distribution Westport makes to you will be reported as a dividend even if such distribution would otherwise be treated as a tax-free return of capital or as capital gain under the rules described above. Any dividends Westport pays will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.

With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to “qualified dividend income,” provided that (i) the Westport common shares are readily tradable on an established securities market in the United States, (ii) Westport is neither a passive foreign investment company nor treated as such with respect to you (as discussed below under “—Passive Foreign Investment Company Status”) for its taxable year in which the dividend is paid and the preceding taxable year, and (iii) certain holding period requirements are met. Under IRS authority, stock is considered for the purpose of clause (i) above to be readily tradable on an established securities market in the United States if the stock is listed on NASDAQ, as Westport common shares are. You should consult your tax advisors regarding the availability of the lower capital gains rate applicable to qualified dividend income for any dividends Westport pays with respect to the Westport common shares.

The amount of any dividend paid in Canadian dollars will be the U.S. dollar value of the Canadian dollars distributed by Westport, calculated by reference to the exchange rate on the date the dividend is includible in the U.S. Holder’s income, regardless of whether the payment is in fact converted to U.S. dollars on the date of receipt. Generally, a U.S. Holder should not recognize any foreign currency gain or loss if the Canadian dollars are converted to U.S. dollars on the date the payment is received. However, any gain or loss resulting from currency exchange fluctuations during the period from the date the U.S. Holder includes the dividend payment in income to the date such U.S. Holder actually converts the payment into U.S. dollars will be treated as ordinary income or loss. That currency exchange gain or loss (if any) generally will be income or loss from U.S. sources for foreign tax credit limitation purposes.

For foreign tax credit purposes, the limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, any dividends Westport pays with respect to the Westport common shares will generally constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” Any dividends Westport pays to you will generally constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisors regarding the availability of a foreign tax credit in your particular circumstances.

Taxation of Dispositions of Westport Common Shares

Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a Westport common share equal to the difference between the amount realized (in U.S. dollars) for such Westport common share and your tax basis (in U.S. dollars) in such share. The gain or loss will generally be capital gain or loss. Capital gains of non-corporate U.S. Holders (including individuals) may be eligible for the preferential U.S. federal income tax rates applicable to long-term capital gains if the U.S. Holder’s holding period for the Westport common share exceeds one year. The deductibility of capital losses is subject to limitations. Any gain or loss that you recognize on a disposition of Westport common shares will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes. You should consult your tax advisors regarding the proper treatment of gain or loss in your particular circumstances.

 

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Passive Foreign Investment Company Status

Based on the current and anticipated valuation of its assets, including goodwill and other unbooked intangibles, and composition of its income and assets, Westport does not expect to be a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for its 2015 taxable year or any future taxable year. However, the application of the PFIC rules is subject to ambiguity in several respects. In addition, Westport’s actual PFIC status for the current taxable year or any future taxable year will not be determinable until after the close of each such year. Accordingly, Westport cannot assure you that Westport will not be a PFIC for its current taxable year or any future taxable year. Because PFIC status is a factual determination for each taxable year that cannot be made until after the close of each such year, Willkie Farr & Gallagher, LLP, Westport’s special U.S. counsel, expresses no opinion with respect to Westport’s PFIC status and also expresses no opinion with respect to Westport’s expectations set forth in this paragraph.

A non-U.S. corporation will be a PFIC for any taxable year if, applying certain look-through rules, either:

 

•

at least 75% of its gross income for such year is passive income; or

 

•

at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”).

Westport must make a separate determination each taxable year as to whether it is a PFIC. As a result, Westport’s PFIC status may change. In particular, because the value of Westport’s assets for purposes of the asset test will generally be determined by reference to the market price of Westport common shares, fluctuations in the market price of Westport common shares may cause Westport to become a PFIC. In addition, changes in the composition of Westport’s income and assets may cause it to become a PFIC. If Westport is a PFIC for any taxable year during which you hold Westport common shares, Westport will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold Westport common shares, unless Westport ceases to be a PFIC and you make a “deemed sale” election with respect to your Westport common shares. If such election is timely made, you will be deemed to have sold the Westport common shares you hold at their fair market value on the last day of the last taxable year for which Westport was a PFIC and any gain from such deemed sale would be subject to the rules described in the following paragraph. In addition, a new holding period would be deemed to begin for the Westport common shares for purposes of the PFIC rules. After the deemed sale election, so long as Westport does not become a PFIC in a subsequent taxable year, your Westport common shares with respect to which such election was made will not be treated as shares in a PFIC.

For each taxable year that Westport is treated as a PFIC with respect to you, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you recognize from a sale or other disposition (including a pledge) of the Westport common shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the Westport common shares will be treated as an excess distribution. Under these special tax rules:

 

•

the excess distribution or recognized gain will be allocated ratably over your holding period for the Westport common shares;

 

•

the amount allocated to the current taxable year, and any taxable years in your holding period prior to the first taxable year in which Westport was a PFIC, will be treated as ordinary income; and

 

•

the amount allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year, and the interest charge generally applicable to under-payments of tax will be imposed on the resulting tax attributable to each such year.

A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the PFIC rules described above regarding excess distributions and recognized gains. If

 

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you make a mark-to-market election for Westport common shares, you will include in gross income for each year that Westport is a PFIC an amount equal to the excess, if any, of the fair market value of the Westport common shares you hold as of the close of your taxable year over your adjusted basis in such Westport common shares. You will be allowed a deduction for the excess, if any, of the adjusted basis of Westport common shares over their fair market value as of the close of the taxable year. However, deductions will be allowable only to the extent of any net mark-to-market gains on the Westport common shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as any gain on the actual sale or other disposition of the Westport common shares, will be treated as ordinary income. If you make a valid mark-to-market election, any distributions that Westport makes would generally be subject to the tax rules discussed above under “—Taxation of Dividends and Other Distributions on Westport Common Shares,” except that the lower tax rate applicable to qualified dividend income generally would not apply.

The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable U.S. Treasury Regulations. Westport common shares are listed on NASDAQ, which is a qualified exchange or other market for these purposes. Consequently, Westport expects that, provided the Westport common shares are regularly traded and you are a holder of the Westport common shares, the mark-to-market election would be available to you if Westport becomes a PFIC. You should consult your tax advisors as to the availability and desirability of a mark-to-market election.

Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the PFIC rules described above regarding excess distributions and recognized gains. A U.S. Holder that makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of PFIC’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if the PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury Regulations. Westport currently does not intend to prepare or provide the information that would enable you to make a qualified electing fund election.

Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. If Westport becomes a PFIC, you should consult your tax advisors regarding any reporting requirements that may apply to you.

You should consult your tax advisors regarding the application of the PFIC rules to your investment in Westport common shares and the elections discussed above or any other elections that may be available to you.

Medicare Tax

A U.S. person that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (i) the U.S. person’s “net investment income” (or “undistributed net investment income” in the case of an estate or trust) for the relevant taxable year and (ii) the excess of the U.S. person’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances). A holder’s net investment income will generally include its dividend income and its net gains from the disposition of Westport common shares, unless such dividend income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. Holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in Westport common shares.

 

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U.S. Information Reporting and Backup Withholding

Dividend payments with respect to Westport common shares and proceeds received on the disposition of Westport common shares (including cash received in lieu of a fractional share) will generally be subject to information reporting to the IRS and possible U.S. backup withholding (currently at a rate of 28%). Backup withholding will not apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number and makes any other required certification on IRS Form W-9 or that is otherwise exempt from backup withholding. U.S. Holders that are exempt from backup withholding should still complete IRS Form W-9 to avoid possible erroneous backup withholding. Certain individuals holding Westport common shares other than in an account at certain financial institutions may be subject to additional information reporting requirements. You should consult your tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing an appropriate claim for refund with the IRS and furnishing any required information in a timely manner.

U.S. Federal Income Tax Consequences of the Merger for Non-U.S. Holders of Fuel Systems Common Stock

A Non-U.S. Holder of Fuel Systems common stock generally will not be subject to U.S. federal income tax on any gain realized in the merger unless (i) the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable); (ii) the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or (iii) Fuel Systems common stock constitutes a U.S. real property interest (“USRPI”) by reason of Fuel Systems’ status as a U.S. real property holding corporation (“USRPHC”) for U.S. federal income tax purposes.

Gain described in (i) above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates, unless an applicable income tax treaty provides otherwise, in the same manner as if the Non-U.S. Holder were a U.S. Holder. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits that are attributable to such gain, as adjusted for certain items.

Gain described in (ii) above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.

With respect to (iii) above, Fuel Systems is not currently, has not been during the preceding five years, and prior to or at the time of the merger does not expect to become, a USRPHC. Because the determination of whether Fuel Systems is a USRPHC depends on the fair market value of Fuel Systems’ USRPIs relative to the fair market value of Fuel Systems’ non-USPRIs and other business assets, there can be no assurance that Fuel Systems is not or will not become a USRPHC. Even if Fuel Systems is or were to become a USRPHC, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of Fuel Systems common stock will not be subject to U.S. federal income tax if Fuel Systems common stock is considered “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market at the time of the merger, and such Non-U.S. Holder owned, actually and constructively, 5% or less of Fuel Systems common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition and the Non-U.S. Holder’s holding period. You should consult your own tax advisor about the consequences that could result if Fuel Systems is or were to become a USRPHC.

 

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MATERIAL CANADIAN FEDERAL TAX CONSEQUENCES

Certain Canadian Federal Income Tax Consequences

The following is a general summary of the material Canadian federal income tax considerations under the Tax Act of the merger and of holding and disposing of Westport common shares generally applicable to a holder who, at all relevant times, for purposes of the Tax Act: (i) is not, and is not deemed to be, resident in Canada; (ii) does not use or hold the Fuel Systems common stock and will not use or hold the Westport common shares in connection with carrying on a business in Canada; (iii) holds the Fuel Systems common stock and will hold the Westport common shares as beneficial owner; (iv) holds the Fuel Systems common stock and will hold the Westport common shares as capital property; (v) deals at arm’s length with Westport and Merger Sub; and (vi) is not affiliated with Westport or Merger Sub (a “Non-Resident Holder”). This summary does not apply to a Non-Resident Holder that carries on, or is deemed to carry on, an insurance business in Canada and elsewhere, and such holders should consult their own tax advisors.

The Fuel Systems common stock and the Westport common shares will generally be considered to be capital property to a Non-Resident Holder unless either (i) the Non-Resident Holder holds such shares in the course of carrying on a business of buying and selling securities or (ii) the Non-Resident Holder has acquired such shares in one or more transactions considered to be an adventure in the nature of trade.

This summary is based on the current provisions of the Tax Act and the regulations thereunder (the “Regulations”) in force as of the date hereof, an understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) publicly available prior to the date hereof, and all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”). No assurances can be given that the Proposed Amendments will be enacted in the form proposed or at all. Other than the Proposed Amendments, this summary does not take into account or anticipate any changes in law or the administrative policies or assessing practice of CRA, whether by judicial, legislative, governmental or administrative decision or action, nor does it take into account provincial, territorial or foreign tax legislation or considerations, which may differ significantly from those discussed herein.

For purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Westport common shares, including interest, dividends, adjusted cost base and proceeds of disposition, must be converted into Canadian dollars based on the relevant exchange rate (as determined in accordance with the Tax Act) applicable on the date the particular amount arose.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Non-Resident Holder and no representations with respect to the income tax consequences to any particular Non-Resident Holder are made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, prospective investors in Westport common shares should consult their own tax advisors with respect to their own particular circumstances.

Disposition of Fuel Systems Common Stock

A Non-Resident Holder will not be subject to tax under the Tax Act on any capital gains realized on the disposition of Fuel Systems common stock pursuant to the merger.

Dividends

Under the Tax Act, dividends on Westport common shares paid or credited to a Non-Resident Holder will be subject to Canadian withholding tax at the rate of 25% of the gross amount of the dividends, subject to any reduction in the rate of withholding to which the Non-Resident Holder is entitled under any applicable income tax treaty or convention between Canada and the country in which the Non-Resident Holder is resident. For example, where a Non-Resident Holder is a resident of the United States, is fully entitled to the benefits under

 

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the Canada—United States Income Tax Convention (1980) (the “Treaty”) and is the beneficial owner of the dividend, the applicable rate of Canadian withholding tax is generally reduced to 15% of the amount of such dividend.

Disposition of Westport Common Shares

A Non-Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain realized by such Non-Resident Holder on a disposition of Westport common shares, unless such shares constitute “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident Holder at the time of disposition and the Non-Resident Holder is not entitled to relief under an applicable income tax treaty or convention.

As long as the Westport common shares are then listed on a designated stock exchange (which currently includes the TSX and NASDAQ), a Westport common share generally will not constitute taxable Canadian property of a Non-Resident Holder, unless (a) at any time during the 60 month period immediately preceding the disposition or deemed disposition of such Westport common share: (i) 25% or more of the issued Westport common shares was owned by one or any combination of the Non-Resident Holder and persons with whom the Non-Resident Holder did not deal at arm’s length (within the meaning of the Tax Act); and (ii) more than 50% of the fair market value of a Westport common share was derived directly or indirectly from one or any combination of: (A) real or immovable property situated in Canada; (B) Canadian resource property (as defined in the Tax Act); (C) timber resource property (as defined in the Tax Act); or (D) options in respect of, or interest in, or for civil law rights in, property described in any of (A) through (C) above, whether or not such property exists; or (b) the Westport common shares are otherwise deemed under the Tax Act to be taxable Canadian property.

Even if the Westport common shares are taxable Canadian property to a Non-Resident Holder, any capital gain realized on the disposition or deemed disposition of such Westport common shares may not be subject to Canadian federal income tax pursuant to the terms of an applicable income tax treaty or convention between Canada and the country of residence of a Non-Resident Holder. For example, the Treaty will generally exempt a Non-Resident Holder who is a U.S. resident for the purposes of, and who is entitled to full benefits of, the Treaty from tax under the Tax Act on any capital gain arising on the disposition of Westport common shares, unless the value of the Westport common shares at the time of disposition is derived principally (i.e., more than 50%) from real property situated in Canada.

NON-RESIDENT HOLDERS WHOSE WESTPORT COMMON SHARES MAY BE TAXABLE CANADIAN PROPERTY SHOULD CONSULT THEIR OWN ADVISORS.

 

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THE MERGER AGREEMENT

This section of this proxy statement/prospectus describes the material provisions of the merger agreement, but does not describe all of the terms of the merger agreement and may not contain all of the information about the merger agreement that is important to you. The following summary is qualified by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement/prospectus and incorporated by reference herein. You are urged to read the full text of the merger agreement because it is the legal document that governs the merger.

The merger agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement. Factual disclosures about Westport, Fuel Systems or any of their respective subsidiaries or affiliates contained in this proxy statement/prospectus or their respective public reports filed with the SEC may supplement, update or modify the factual disclosures contained in the merger agreement and described in this summary. The representations, warranties, and covenants contained in the merger agreement were made only for purposes of the merger agreement, as of a specific date. These representations were made solely for the benefit of the parties to the merger agreement and may be subject to important qualifications and limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purpose of allocating risk between parties to the merger agreement rather than the purpose of establishing these matters as facts, and may apply standards of materiality in ways that are different from those generally applicable to reports filed with the SEC or from what may be viewed as material by investors. These representations do not survive completion of the merger. For the foregoing reasons, one should not read these representations or any description thereof as characterizations of the actual state of facts or condition of Westport or Fuel Systems, which are disclosed in the other information provided elsewhere in this proxy statement/prospectus or incorporated by reference herein.

Terms of the Merger Agreement

The merger agreement provides that, upon the terms and subject to the conditions of the merger agreement, and in accordance with the DGCL, at the effective time, Merger Sub will merge with and into Fuel Systems, with Fuel Systems continuing as the surviving corporation and a direct, wholly owned subsidiary of Westport. At the completion of the merger, each share of Fuel Systems common stock issued and outstanding immediately prior to the completion of the merger, other than treasury shares and shares held by Fuel Systems, Westport or their respective wholly owned subsidiaries, will be converted into the right to receive 2.129 Westport common shares, which we refer to as new common shares. The exchange ratio will be adjusted appropriately to fully reflect the effect of any subdivisions, reclassifications, splits, share distributions, combinations or exchanges of shares of Fuel Systems common stock or Westport common shares. Any shares of Fuel Systems common stock owned directly or indirectly by Fuel Systems or any of its wholly owned subsidiaries or by Westport or any of its wholly-owned subsidiaries as of immediately prior to the completion of the merger (other than those held in a fiduciary capacity) will be cancelled and will receive no consideration.

Westport will not issue fractional shares of new common shares in the merger. Instead, each holder of Fuel Systems common stock who would otherwise be entitled to receive fractional shares of Westport common shares in the merger will receive, in lieu thereof, a cash payment, without interest, an amount equal to such fractional part of a share of new common shares multiplied by the volume weighted average price of Westport common shares on NASDAQ for thirty trading days ending on and including, the date of the merger agreement, as reported by Bloomberg. The aggregate amount to be paid with respect to fractional shares will be deposited with the exchange agent to be held for the benefit of the Fuel Systems stockholders. For holders of certificates of Fuel Systems’ common stock, upon surrender of a certificate of Fuel Systems’ common stock and an executed letter of transmittal according to the steps described below under “—Exchange of Fuel Systems Stock Certificates,” the holder of a certificate shall be entitled to receive the merger consideration and any cash in lieu of fractional shares. Holders of book-entry shares will automatically receive merger consideration and cash in lieu of fractional shares by check or wire transfer as soon as practicable following the close of business on the closing date (and in no event later than two days following).

 

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Westport and the exchange agent are entitled to deduct and withhold from any amount payable pursuant to the merger agreement to any holder of Fuel Systems’ common shares, options, restricted stock units, shares of restricted stock, or phantom shares such amounts or securities as Westport or the exchange agent reasonably deems to be required to deduct and withhold under the Code or any provision of state, local, or foreign tax law, with respect to the making of such payment or issuance.

Westport has agreed to cause the exchange agent to invest the cash held by the exchange agent as directed by Westport. Further, any portion of such cash held by the exchange agent that remains undistributed to the Fuel Systems stockholders on the first anniversary of the closing of the merger will be delivered to Westport, and after such delivery, any former Fuel Systems stockholders who have not complied with the steps described below under “—Exchange of Fuel Systems Stock Certificates” will thereafter look only to the surviving company for the merger consideration, any cash in lieu of fractional new common shares, or any distributions with respect to new common shares, in each case, without any interest thereon.

Exchange of Fuel Systems Stock Certificates

Promptly after the completion of the merger, if you are a Fuel Systems stockholder, Westport’s exchange agent will mail you a letter of transmittal and instructions for use in effecting the surrender of your Fuel Systems common stock (including any stock certificates if you hold shares in certificated form) in exchange for Westport common shares and cash in lieu of any fractional new common shares and distributions. When you surrender the certificates for cancellation together with letters of transmittal and any other required documents (including in respect of book-entry shares), you will be entitled to receive (a) new common shares and (b) a check in an amount equal to the aggregate amount of cash that you have the right to receive, if any, including cash payable in lieu of any fractional new common shares and cash distributions in respect of new common shares.

Holders of Fuel Systems common stock will not receive physical stock certificates for the new Westport common shares they are entitled to receive in the merger. Rather, they will receive statements indicating book-entry ownership of Westport common shares.

PLEASE DO NOT SUBMIT YOUR FUEL SYSTEMS STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE THE TRANSMITTAL INSTRUCTIONS AND LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.

If you hold Fuel Systems stock certificates, you will not be entitled to receive any dividends or other distributions on Westport common shares until the merger is completed and you have surrendered your Fuel Systems stock certificates, together with validly completed letters of transmittal and other required documents, in exchange for Westport common shares. If Westport effects any dividend or other distribution on the Westport common shares with a record date occurring after the time the merger is completed and a payment date before the date you surrender your Fuel Systems stock certificates, you will receive the dividend or distribution, without interest, with respect to the whole shares of Westport common shares issued to you after you surrender your Fuel Systems stock certificates, together with validly completed letters of transmittal and other required documents, and the shares of Westport common shares are issued in exchange. If Westport effects any dividend or other distribution on the Westport common shares with a record date after the time the merger is completed and a payment date after the date you surrender your Fuel Systems stock certificates, you will receive the dividend or distribution, without interest, on that payment date with respect to the whole shares of Westport common shares issued to you. The exchange agent may deduct and withhold amounts required under federal, state or local tax law.

Treatment of Fuel Systems Stock Options and Other Equity-based Awards

Stock Options

At the effective time of the merger, each in-the-money Fuel Systems option that is outstanding immediately prior to the effective time of the merger (whether or not then vested or exercisable) will become vested and

 

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exercisable and will thereafter be assumed by Westport and otherwise continue to have, and be subject to, the same terms and conditions as were applicable to the Fuel Systems option immediately prior to the effective time of the merger, except that, from and after the effective time of the merger, (i) each such in-the-money option will be exercisable for that number of whole shares of Westport common shares equal to the product (rounded down to the nearest whole number) of (x) the number of shares of Fuel Systems common stock subject to such in-the-money option as of immediately prior to the effective time of the merger and (y) 2.129 and (ii) the per share exercise price for the shares of Westport common shares issuable upon exercise of such assumed in-the-money options will be equal to the quotient (rounded up to the nearest whole cent) determined by dividing (x) the exercise price of each share of Fuel Systems common stock at which such assumed in-the-money option was exercisable immediately prior to the effective time of the merger by (y) the exchange ratio. Any Fuel Systems options outstanding as of the effective time that have an exercise price per share of Fuel Systems common stock that is greater than or equal to the per share dollar value of the merger consideration immediately prior to the effective time of the merger shall automatically be cancelled and forfeited for no consideration without any further action on the part of the holder of such Fuel Systems option, and all rights with respect to such Fuel Systems option will terminate as of the effective time of the merger.

Restricted Stock Units

At the effective time of the merger, each Fuel Systems RSU that is outstanding immediately prior to the effective time will be assumed by Westport and will otherwise continue to have, and be subject to, the same terms and conditions, including vesting terms, as were applicable immediately prior to the effective time, except that, from and after the effective time of the merger, each such Fuel Systems RSU award will be converted into a number of restricted stock units of Westport (convertible into shares of Westport common shares on vesting) equal to the product (rounded down to the nearest whole number) of (i) the number of Fuel Systems shares subject to the Fuel Systems RSU award as of immediately prior to the effective time of the merger and (ii) the exchange ratio.

Restricted Stock

At the effective time of the merger, each share of Fuel Systems restricted stock that is outstanding immediately prior to the effective time will be assumed by Westport and will otherwise continue to have, and be subject to, the same terms and conditions, including applicable restrictions and vesting terms, as were applicable immediately prior to the effective time of the merger, except that, from and after the effective time of the merger, each share of Fuel Systems restricted stock will be converted into a number of restricted shares of Westport common shares equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Fuel Systems restricted stock as of immediately prior to the effective time of the merger and (ii) the exchange ratio.

Phantom Shares

Each Fuel Systems phantom share outstanding immediately prior to the effective time of the merger will become fully vested and all restrictions with respect thereto will lapse immediately prior to the effective time of the merger, and each such Fuel Systems phantom share will be converted into a cash payment equal to the product of (i) the number of shares of Fuel Systems common stock subject to such Fuel Systems phantom shares and (ii) the difference between (x) the per share dollar value of the merger consideration and (y) the applicable “exercise price” for such Fuel Systems phantom shares, and the holders of Fuel Systems phantom shares will cease to have any rights with respect thereto, except the right to receive the such cash payment. Any Fuel Systems phantom shares outstanding as of the effective time of the merger that have an exercise price per share of Fuel Systems common stock that is greater than or equal to the per share dollar value of the merger consideration will automatically be cancelled and forfeited for no consideration without any further action by the holder of such Fuel Systems phantom share, and all rights with respect to such Fuel Systems phantom share will terminate as of the effective time of the merger.

 

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Completion of the Merger

Unless Westport and Fuel Systems agree otherwise to another date, the parties are required to complete the merger no later than the third business day after satisfaction or waiver of all the conditions described under “—Conditions to Completion of the Merger” below. The merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware or at such later time as may be specified therein.

Conditions to Completion of the Merger

Each party’s obligation to consummate the merger is conditioned upon the satisfaction (or waiver by such party) at or prior to the closing of the merger of each of the following:

 

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approval of the Merger proposal by vote of the holders of a majority of outstanding shares of Fuel Systems;

 

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approval of the issuance of the merger consideration and the assumption by Westport of Fuel Systems’ restricted stock units and restricted stock by a majority of total votes cast of Westport common shares;

 

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absence of any law, order, judgment or injunction which has the effect of making the merger illegal or otherwise restricting, preventing, or prohibiting consummation of the merger or otherwise restraining, enjoining, preventing, prohibiting or making illegal the acquisition of some or all of the shares of Fuel Systems’ common stock by Westport;

 

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termination or expiration of any waiting period (and any extension thereof) applicable to the merger under the HSR Act;

 

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the required consent of the Competition Board of the Turkish Competition Authority;

 

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effectiveness of the registration statement of which this proxy statement/prospectus is a part under the Securities Act and no stop order suspending the effectiveness of the registration statement having been issued and no proceedings for that purpose having been initiated or threatened by the SEC;

 

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authorization of the new shares of Westport common shares deliverable to the holders of shares of Fuel Systems common stock for listing on NASDAQ, subject to official notice of issuance;

 

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the receipt of conditional acceptance of the TSX in respect of the merger transactions;

 

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the truth and correctness of certain representations and warranties of the other party as of the date of the merger agreement and as of the closing date of the merger, other than those failures that would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the other party;

 

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performance of and compliance with, in all material respects, each and all of the agreements and covenants of the other party required to be performed and complied with by such other party pursuant to the merger agreement;

 

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receipt of a certificate signed by the chief executive officer or other senior officer of the other party, dated as of the closing date, certifying that the two preceding conditions have been satisfied; and

 

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absence of any event, change or occurrence that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect (as defined below in “—Representations and Warranties”) on the other party.

Representations and Warranties

Each of Westport and Merger Sub, on the one hand, and Fuel Systems, on the other hand, has made representations and warranties with respect to itself and its subsidiaries regarding, among other things:

 

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organizational power and good standing, necessary to operate its business as presently being conducted;

 

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•

its organizational documents and the organizational documents of its subsidiaries;

 

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capital structure;

 

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corporate authority to enter into and perform the merger agreement, enforceability of the merger agreement, and approval of the merger agreement by each party’s board of directors;

 

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absence of conflicts with or defaults under organizational documents, other contracts, and applicable laws;

 

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required regulatory filings and consents and approvals of governmental entities;

 

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no consents or approvals necessary;

 

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permits and compliance with laws;

 

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SEC filings since January 1, 2013, including financial information contained in the filings, internal controls, and compliance with the Sarbanes-Oxley Act of 2002;

 

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absence of undisclosed liabilities;

 

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accuracy of the information supplied for inclusion in, and compliance with applicable securities laws by, this proxy statement/prospectus;

 

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the absence of material changes;

 

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employee benefit plans;

 

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labor and other employment matters;

 

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matters with respect to material contracts;

 

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litigation matters;

 

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environmental matters;

 

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intellectual property matters;

 

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title to real and personal properties;

 

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tax matters;

 

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maintenance of insurance policies;

 

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receipt of opinion of financial advisor;

 

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vote of shareholders required;

 

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broker, finder or investment banker fees and expenses;

 

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no requirement to be registered as an investment company under the Investment Company Act of 1940, as amended;

 

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no affiliate transactions; and

 

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absence of other representations and warranties.

The merger agreement also contains representations and warranties made only by Fuel Systems regarding, among other things:

 

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absence of takeover or anti-takeover statutes applicable to the transaction, including restrictions on business combinations contained in Section 203 of the DGCL; and

 

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absence of products liability claims or lawsuits, including claims regarding material express and implied warranties and injury to individuals or property.

 

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Additionally, the merger agreement contains representations and warranties made only by Westport and Merger Sub regarding, among other things:

 

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TSX and the Canadian provincial securities commissions filings since January 1, 2013;

 

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sole purpose of and lack of business engagement by Merger Sub; and

 

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neither Westport nor Merger Sub, nor any of their respective “affiliates” and “associates,” being or in the past three years having been an “interested stockholder” of Fuel Systems, as defined in Section 203 of the DGCL.

Many of the representations and warranties in the merger agreement are qualified by a “materiality” or “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, would be material or reasonably be expected to have a material adverse effect). For purposes of the merger agreement, a “material adverse effect” means, when used with respect to a party to the merger agreement any event, circumstance, change or effect (1) that is material and adverse to the business, assets, properties, liabilities, condition (financial or otherwise) or results of operations of such party and its subsidiaries, taken as a whole or (2) that would, or would reasonably be expected to, prevent or materially impair the ability of the relevant party to consummate the merger before April 30, 2016 (or August 31, 2016 in the event of a delay caused by an antitrust waiting period or required consent); provided, however, that a material adverse effect will not include any event, circumstance, change or effect to the extent occurring from and after the date of the merger agreement and arising out of or resulting from:

 

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failure to meet projections or forecasts or any decrease in market price of common stock or common shares;

 

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changes in the United States or global economy or capital, financial or securities markets generally, including changes in interest or exchange rates;

 

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changes in the legal or regulatory conditions of the geographic regions in which each party and its subsidiaries operate;

 

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the commencement, escalation or worsening of a war or armed hostilities or the occurrence of acts of terrorism or sabotage;

 

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the public announcement of the merger agreement, or any transactions contemplated thereby, including the impact on relationships, contractual or otherwise, with tenants, suppliers, lenders, investors, future partners or employees;

 

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for each party, the taking of any action expressly required by, or the failure to take any action expressly prohibited by, the merger agreement, or the taking of any action at the written request of the other party;

 

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earthquakes, hurricanes or other natural disasters; or

 

•

changes in any laws or GAAP or the interpretations or enforcement thereof;

except that, with respect of bullets two, three, four and eight above, any such change, event, development, circumstance, condition, occurrence or effect will be taken into account if and to the extent it disproportionately affects such party, taken as a whole, relative to other participants in the industry in which such party operates or the markets for any such party’s products or services in general.

Covenants and Agreements

Each of Westport and Fuel Systems has undertaken customary covenants in the merger agreement restricting the conduct of its respective business between the date of the merger agreement and the completion of the merger.

 

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In general, Fuel Systems has agreed to (i) conduct its and its subsidiaries’ business in the ordinary course and in a manner consistent with past practice in all material respects and (ii) use commercially reasonable efforts to preserve intact in all material respects its current business organization, goodwill, ongoing businesses and relationships with third parties that have material business dealings with Fuel Systems and its subsidiaries, and keep available the services of its present officers and key employees.

In addition, between the date of the merger agreement and the completion of the merger, Fuel Systems has agreed, with respect to itself and its subsidiaries, not to, among other things, undertake any of the following (except as required by law and subject in each case to certain other exceptions specified in the merger agreement or set forth in the disclosure letter to the merger agreement delivered by Fuel Systems to Westport), without Westport’s written agreement:

 

•

Amend or propose to amend the Fuel Systems’ charter or bylaws (or such equivalent organizational or governing documents of any Fuel Systems subsidiary);

 

•

Declare or pay any dividend on or make any other distribution (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any of its capital stock, or any repurchase or otherwise acquire, directly or indirectly, any of its capital stock;

 

•

Issue, sell, deliver, redeem or purchase any of its equity securities, or grant or enter into any options, warrants, rights, agreements or commitments with respect to the issuance of its securities, or amend any terms of any such equity securities or agreements;

 

•

Grant, issue, confer, award, or modify the terms of any options, convertible securities, restricted stock, phantom shares, equity-based compensation or other rights to acquire, or denominated in, capital stock of Fuel Systems or any of its subsidiaries;

 

•

Acquire or agree to acquire (including by merger, consolidation or acquisition of stock or assets) any real property, corporation, partnership, limited liability company, other business organization or any division or material amount of assets thereof, for a purchase price in excess of $1,000,000;

 

•

Sell, pledge, lease, dispose of, abandon, permit to lapse or encumber any material property or assets;

 

•

Incur, create or assume any indebtedness for borrowed money or issue or amend the terms of any debt securities or assume, guarantee or endorse, or otherwise become responsible for the indebtedness of any other person or entity;

 

•

Make any loans, advances or capital contributions to, or investments in, any other person, or make any change in its existing borrowing or lending arrangements for or on behalf of any of such persons, whether pursuant to a Fuel Systems benefit plan or otherwise;

 

•

Materially amend, modify or consent to the termination of any material Fuel Systems contract, or amend, waive, modify or consent to the termination of Fuel Systems’ or any Fuel Systems subsidiary’s material rights thereunder;

 

•

Hire or terminate (other than for cause) any employee, officer, director or consultant (that is an individual) of Fuel Systems or any Fuel Systems subsidiary with an annual salary or wage rate or consulting fee in excess of $150,000 or who is not terminable “at will” without the payment of any severance or other payment or promote or appoint any person to a position of officer or director of Fuel Systems or any Fuel Systems subsidiary;

 

•

Increase or promise to increase the compensation, bonus, perquisites or pension, welfare, severance or other benefits payable or to become payable to any current or former employees, officers, directors or consultants (that are individuals) of Fuel Systems or any Fuel Systems subsidiary;

 

•

Grant or promise to grant any severance, retention, termination or similar payments to, or enter into any severance or similar agreement with, any employee, officer, director or consultant (that is an individual) of Fuel Systems or any Fuel Systems subsidiary;

 

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•

Enter into any employment, change of control, severance or retention agreement with any current or former employee, officer, director or consultant (that is an individual) of Fuel Systems or any Fuel Systems subsidiary;

 

•

Accelerate the vesting or payment, or fund or in any way secure the payment, of the compensation payable or the benefits provided to or to become payable or provided to any current or former employees, officers, directors or consultants (that are individuals) of Fuel Systems or any Fuel Systems subsidiary;

 

•

Establish, adopt, enter into or amend any Fuel Systems benefit plan, collective bargaining agreement, plan, trust, fund, policy or arrangement with, or for the benefit of, any current or former directors, officers, employees or consultants (that are individuals) of Fuel Systems or any Fuel Systems subsidiary or any of their beneficiaries, or any agreement, plan, policy or arrangement that would constitute a Fuel Systems benefit plan if it were in existence on the date of the merger agreement;

 

•

Forgive or promise to forgive any loans to any current or former directors, officers, employees or consultants (that are individuals) of Fuel Systems or any Fuel Systems subsidiary;

 

•

Change any actuarial or other assumptions used to calculate funding obligations with respect to any Fuel Systems benefit plan, or change the manner in which contributions to such plans are made or the basis on which such contributions are determined;

 

•

Make any material change to its methods of accounting in effect at December 31, 2014;

 

•

Fail to duly and timely file all material reports and other material documents required to be filed with all governmental authorities and other authorities (including NASDAQ), subject to extensions permitted by law;

 

•

In connection with tax matters: make, change or rescind any election relating to taxes; change a material method of tax accounting, amend any material tax return; settle or compromise any material federal, state, local or foreign income tax liability, audit, claim or assessment, enter into any material closing agreement related to taxes, or knowingly surrender any right to claim any material tax refund; and take any action that could, or fail to take any action, the failure of which could, reasonably be expected to prevent the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;

 

•

Take any action that could, or fail to take any action, the failure of which could, reasonably be expected to prevent the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;

 

•

Adopt a plan of merger, arrangement or amalgamation, complete or partial liquidation or resolutions providing for or authorizing such merger, liquidation or a dissolution, consolidation, recapitalization or bankruptcy reorganization;

 

•

Enter into any contract or transaction with (including the making of any payment to) a director or officer of Fuel Systems or members of their “immediate family” (as such terms are defined in Rule 16a-1 of the Exchange Act) (each of the foregoing, a “Related Person”) or an affiliate of a related person, in each case of a type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act;

 

•

Waive, release, assign, settle or compromise any action, including any state or federal regulatory proceeding seeking damages or injunction or other equitable relief, that would: (x) require the payment of monetary damages by Fuel Systems or any Fuel Systems subsidiary after the date of the merger agreement of $500,000 per action or $1,000,000 in the aggregate, or (y) involve any injunctive or other non-monetary relief which, in either case, imposes material restrictions on the business operations of Fuel Systems and Fuel Systems’ subsidiaries, taken as a whole;

 

•

Fail to use commercially reasonable efforts to maintain, with financially responsible insurance companies, insurance in such amounts and against such risks and losses as is maintained by it at present;

 

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•

Take, or agree in writing or otherwise to take any other action that would prevent Fuel Systems from performing, or cause Fuel Systems not to perform, any of its covenants and agreements under the merger agreement;

 

•

Take, or agree to commit to take, any action that would reasonably be expected to result in any of the conditions to closing the merger not being satisfied; or

 

•

Authorize, or enter into any contract, commitment or arrangement to do any of the foregoing.

In general, Westport has agreed to (i) conduct its and its subsidiaries’ business in the ordinary course and in a manner consistent with past practice in all material respects and (ii) use commercially reasonable efforts to preserve intact in all material respects its current business organization, goodwill, ongoing businesses and relationships with third parties that have material business dealings with Fuel Systems and its subsidiaries, and keep available the services of its present officers and key employees.

In addition, between the date of the merger agreement and completion of the merger, Westport has agreed, with respect to itself and its subsidiaries, not to, among other things, undertake any of the following (except as required by law and subject in each case to certain additional exceptions specified in the merger agreement or set forth in the disclosure letter to the merger agreement delivered by Westport to Fuel Systems) without Fuel Systems’ written agreement:

 

•

Amend or propose to amend Westport’s charter or bylaws (or such equivalent organizational or governing documents of any Westport subsidiary);

 

•

Adopt a plan of merger, arrangement or amalgamation, complete or partial liquidation or resolutions providing for or authorizing such merger, liquidation or a dissolution, consolidation, recapitalization or bankruptcy reorganization;

 

•

Declare or pay any dividend on or make any other distribution (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any of its capital stock, or any repurchase or otherwise acquire, directly or indirectly, any of its capital stock;

 

•

Issue, sell, deliver, redeem or purchase any of its equity securities, or grant or enter into any options, warrants, rights, agreements or commitments with respect to the issuance of its securities, or amend any terms of any such equity securities or agreements;

 

•

Grant, issue, confer, award, or modify the terms of any options, convertible securities, restricted stock, phantom shares, equity-based compensation or other rights to acquire, or denominated in, capital stock of Westport or any Westport subsidiary;

 

•

Fail to duly and timely file all material reports and other material documents required to be filed with all governmental authorities and other authorities (including NASDAQ and TSX), subject to extensions permitted by law;

 

•

Take, or agree in writing or otherwise to take any other action that would prevent Westport from performing, or cause Westport not to perform, any of its covenants and agreements under the merger agreement;

 

•

Take, or agree to commit to take, any action that would reasonably be expected to result in any of the conditions to closing the merger not being satisfied;

 

•

Take any action that could, or fail to take any action, the failure of which could, reasonably be expected to prevent the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;

 

•

Make, or agree to, an acquisition that would reasonably be expected to prevent, delay or materially impair the ability of Westport or Merger Sub to consummate the merger;

 

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•

Incur, create or assume any indebtedness for borrowed money or issue or amend the terms of any debt securities or assume, guarantee or endorse, or otherwise become responsible for the indebtedness of any other person or entity (other than a wholly owned subsidiary of Westport); or

 

•

Authorize, or enter into any contract, commitment or arrangement to do any of the foregoing.

No Solicitations of Other Offers

Fuel Systems has agreed that neither it nor its subsidiaries nor any of its or its subsidiaries’ respective officers, directors, employees or other representatives, and Fuel Systems has agreed that it will use its reasonable best efforts to ensure that any other representatives of Fuel Systems or its subsidiaries will not, directly or indirectly:

 

•

solicit, initiate, knowingly encourage or knowingly facilitate any inquiry, discussion, offer or request that constitutes, or would reasonably be expected to lead to, a Fuel Systems alternative proposal (as defined below);

 

•

engage in any discussions or negotiations regarding, or furnish to any third party any non-public information in connection with, or otherwise cooperate in any way with, or knowingly facilitate in any way any effort by, any third party in connection with a Fuel Systems alternative proposal;

 

•

approve or recommend any Fuel Systems alternative proposal or enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, share purchase agreement, asset purchase agreement, share exchange agreement, option agreement or similar definitive agreement, except an acceptable confidentiality agreement, providing for or relating to a Fuel Systems alternative proposal; or

 

•

propose or agree to do any of the foregoing.

A “Fuel Systems alternative proposal” means (i) any unsolicited bona fide indication of interest, inquiry, proposal or offer from any third party for (or expression by a third party that it is considering or may engage in), whether in one transaction or a series of related transactions, (ii) any sale, lease, exchange, mortgage, pledge, license, transfer or other disposition, directly or indirectly, by merger, consolidation, sale of equity interests, share exchange, joint venture, business combination or otherwise, of any assets of Fuel Systems or any of its subsidiaries representing twenty percent (20%) or more of the consolidated assets of Fuel Systems and its subsidiaries, taken as a whole as determined on a book-value basis, or to which twenty percent (20%) or more of the consolidated revenues or earnings are attributable, (iii) any issue, sale or other disposition of (including by way of merger, consolidation, joint venture, business combination, share exchange or any similar transaction) securities (or options, rights or warrants to purchase, or securities convertible into, such securities) representing twenty percent (20%) or more of the voting power of Fuel Systems or any of its subsidiaries whose business constitutes 20% or more of the net revenue, net income or assets of Fuel Systems and its subsidiaries, taken as a whole, (iv) any tender offer or exchange offer in which any person or “group” (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) shall seek to acquire beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), or the right to acquire beneficial ownership, of twenty percent (20%) or more of the outstanding shares of any class of voting securities of Fuel Systems, (v) any recapitalization, restructuring, liquidation, dissolution or other similar type of transaction with respect to Fuel Systems in which a third party shall acquire beneficial ownership of twenty percent (20%) or more of the outstanding shares of any class of voting securities of Fuel Systems or any its subsidiaries whose business constitutes 20% or more of the net revenue, net income or assets of Fuel Systems and its subsidiaries, taken as a whole, or (vi) any transaction which is similar in form, substance or purpose to any of the foregoing transactions.

Notwithstanding the restrictions described above, if, at any time prior to approval of the Merger proposal by Fuel Systems’ stockholders, Fuel Systems receives a bona fide written Fuel Systems alternative proposal from a third party made after the date of the merger agreement, Fuel Systems may (i) furnish non-public information to such third party (provided that prior to furnishing such information, Fuel Systems receives an executed

 

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acceptable confidentiality agreement from the third party and that any non-public information provided to the third party also be provided to Westport and Merger Sub) and (ii) engage in discussions or negotiations with such third party and such third party’s representatives with respect to the Fuel Systems alternate proposal if the Fuel Systems board determines in good faith, after consultation with its financial advisors and outside legal counsel, that such alternative proposal constitutes or could reasonably be expected to lead to or result in a superior proposal (as defined below), and the Fuel Systems board determines in good faith, after consultation with legal counsel, that the failure to participate in such negotiations or discussions or to furnish such information or data to such third party would be inconsistent with the Fuel Systems board’s fiduciary duties under applicable law.

The merger agreement requires Fuel Systems to promptly, and in any event no later than 24 hours after receipt, provide notice to Westport of the receipt of a Fuel Systems alternative proposal, any request for nonpublic information relating to Fuel Systems or its subsidiaries by a third party, or any inquiry seeking to have discussions or negotiations regarding any Fuel Systems alternative proposal. The required notice must indicate the identity of the third party making the Fuel Systems alternative proposal or inquiry and all of the material terms and conditions of any Fuel Systems alternative proposal or inquiry. Fuel Systems is also obligated to promptly notify Westport if it enters into discussions or negotiations concerning any Fuel Systems alternative proposal or provides nonpublic information or data to any third party in accordance with the above terms. Fuel Systems must also keep Westport informed of the status and terms of any such proposals, offers, discussions or negotiations on a current basis, including by providing a copy of all material documentation or correspondence relating to any Fuel Systems alternative proposal.

The merger agreement also requires Westport to notify Fuel Systems promptly, and in any event no later than 24 hours after receipt of any Westport acquisition proposal (defined below) or any request for nonpublic information relating to Westport or its subsidiaries by any third party, or any inquiry from any person seeking to have discussions or negotiations with Westport relating to a possible Westport acquisition proposal. Such notice must indicate the identity of the third party making the Westport acquisition proposal or inquiry and the material terms and conditions of any Westport acquisition proposal or inquiries. Westport shall also promptly notify Fuel Systems if it enters into discussions or negotiations concerning any Westport acquisition proposal or provides nonpublic information or data to any person in accordance with the merger agreement and keep Fuel Systems informed of the status and terms of any such proposals, offers, discussions or negotiations on a current basis, including by providing a copy of all material documentation or correspondence relating thereto.

A “Westport alternative proposal” means any proposal or offer from any third party for (or expression by a third party that it is considering or may engage in), whether in one transaction or a series of related transactions, (i) any sale, lease, exchange, mortgage, pledge, license, transfer or other disposition, directly or indirectly, by merger, consolidation, sale of equity interests, share exchange, joint venture, business combination or otherwise, of any assets of Westport or any Westport subsidiary (other than Cummins Westport Inc.) representing fifty percent (50%) or more of the consolidated assets of Westport and its subsidiaries (other than Cummins Westport Inc.), taken as a whole as determined on a book-value basis, (ii) any issue, sale or other disposition of (including by way of merger, consolidation, joint venture, business combination, share exchange or any similar transaction) securities (or options, rights or warrants to purchase, or securities convertible into, such securities) representing fifty percent (50%) or more of the voting power of Westport or its subsidiaries (other than Cummins Westport Inc.) whose business constitutes fifty percent (50)% or more of the net revenue, net income or assets of Westport and its subsidiaries, taken as a whole, (iii) any tender offer or exchange offer in which any person or “group” (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) seeks to acquire beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), or the right to acquire beneficial ownership, of fifty percent (50%) or more of the outstanding shares of any class of voting securities of Westport, (iv) any recapitalization, restructuring, liquidation, dissolution or other similar type of transaction with respect to Westport in which a third party acquires beneficial ownership of fifty percent (50%) or more of the outstanding shares of any class of voting securities of Westport or (v) any transaction which is similar in form, substance or purpose to any of the foregoing transactions. The term “Westport alternative proposal” does not, however, include (x) the merger or the other transactions contemplated by the merger agreement, or (y) any proposal or

 

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offer relating to any existing purchase option, right of first offer, right of first refusal or buy/sell provision contained in any agreement to which Westport or any of its subsidiaries is a party.

Board Recommendation

The Fuel Systems board has resolved to recommend that Fuel Systems stockholders vote in favor of the Merger proposal, which is referred to as the Fuel Systems board recommendation. Subject to the provisions described below, the merger agreement provides that the Fuel Systems board of directors, directly or indirectly, will not:

 

•

withhold, withdraw, qualify or modify, or publicly propose to withhold, withdraw, qualify or modify, in any manner adverse to Westport or Merger Sub, the Fuel Systems board recommendation;

 

•

approve, adopt or recommend, or publicly propose to approve, adopt or recommend, any Fuel Systems alternative proposal;

 

•

fail to include the Fuel Systems board recommendation in the proxy statement or any Schedule 14D-9, as applicable;

 

•

fail to publicly recommend against any Fuel Systems alternative proposal within 5 business days of the request of Westport and reaffirm the Fuel Systems board recommendation within 5 business days; or

 

•

approve, adopt, declare advisable or recommend (or agree to, resolve or propose to approve, adopt, declare advisable or recommend), or cause or permit Fuel Systems to enter into, any agreement related to a Fuel Systems alternative proposal (other than an acceptable confidentiality agreement entered into in accordance with the terms of the merger agreement).

Each of the foregoing actions is referred to as a “change in recommendation.” Notwithstanding these restrictions, before Fuel Systems obtains its stockholder approval, the Fuel Systems board of directors may make a change in recommendation and terminate the merger agreement to enter into an alternative definitive agreement if:

 

•

the Fuel Systems board has received a Fuel Systems alternative proposal and, after consultation with its financial advisors and outside legal counsel, concludes that such alternative proposal constitutes a superior proposal;

 

•

following consultation with outside legal counsel, the Fuel Systems board determines that the failure of the Fuel Systems board to make a change in recommendation would be inconsistent with its fiduciary duties under applicable law; and

 

•

within two business days of such termination, Fuel Systems has paid Westport the termination fee, as further described below.

The merger agreement further provides that the Fuel Systems board may not make a change of recommendation and terminate the merger agreement to enter into an alternative definitive agreement unless: (i) Fuel Systems has provided prior written notice to Westport that Fuel Systems intends to take such action and describing the material terms and conditions of, and attaching a complete copy of, the superior proposal that is the basis of such action (it being understood that such material terms need not include the identity of the third party making the superior proposal); (ii) during the five business day period following Westport and Merger Sub’s receipt of such notice, Fuel Systems negotiates with Westport and Merger Sub in good faith (to the extent Westport and Merger Sub desire to negotiate) to make such adjustments in the terms and conditions of the merger agreement such that the superior proposal ceases to be a superior proposal; and (iii) the Fuel Systems board concludes in good faith, after consultation with its financial advisors and outside legal counsel, and taking into account any changes to the merger agreement proposed by Westport or Merger Sub after notice of the superior proposal, that the superior proposal giving rise to the notice delivered to Westport and Merger Sub in accordance with (i) of this paragraph continues to constitute a superior proposal.

 

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A “superior proposal” means a bona fide written Fuel Systems alternative proposal (except “twenty percent (20%)” is replaced by “fifty percent (50%)”) on its most recently amended or modified terms, if amended or modified, made by a third party on terms that the Fuel Systems board determines in good faith, after consultation with financial and legal advisors, taking into account all financial, legal, regulatory and any other aspects of the transaction described in such proposal (including the identity of the person making such proposal, any termination or break-up fees, expense reimbursement provisions, and conditions to, and timing and likelihood of consummation as well as post-closing synergies and pro forma economics, to the extent applicable), as well as any changes to the financial terms of the merger agreement proposed by Westport and Merger Sub in response to such proposal or otherwise, to be more favorable to Fuel Systems and Fuel Systems’ stockholders (solely in their capacity as such) from a financial point of view than the transactions contemplated by the merger agreement.

Notwithstanding these restrictions, before Fuel Systems obtains its stockholder approval, the Fuel Systems board may make a change in recommendation in response to an intervening event (defined below) to the extent that the Fuel Systems board determines in good faith, after consultation with the outside legal counsel, that the failure of the Fuel Systems board to effect a change in recommendation would be inconsistent with its fiduciary duties under applicable law, and:

 

•

Fuel Systems provides Westport 5 business days written notice of its intention to take such action and the reasons for such action;

 

•

Fuel Systems negotiates in good faith with Westport during such 5 day period to make such revisions to the terms of the merger agreement as would permit the Fuel Systems board not to make a change in recommendation; and

 

•

the Fuel Systems board has considered in good faith any changes to the merger agreement offered in writing by Westport, and following such 5 day period, has determined in good faith, after consultation with its outside legal counsel and financial advisors, that the Fuel Systems board’s fiduciary duties under applicable law would continue to require a change in recommendation with respect to such intervening event.

An “intervening event” means a material event, fact, circumstance, development or occurrence that (i) affects the business, assets or operations of Fuel Systems that was not known by the Fuel Systems board as of the date of the merger agreement (or, if known, the consequences of which were not reasonably foreseeable to the Fuel Systems board as of the date of the merger agreement), which event, fact, circumstance, development or occurrence becomes known to or by the Fuel Systems board prior to obtaining the stockholder approval and (ii) does not relate to a Fuel Systems alternative proposal. In no event will changes in the market price or trading volume of the Fuel Systems common stock or the Westport common shares, or the fact that a party meets or exceeds internal or published projections, forecasts or revenue or earnings predictions for any period be an intervening event; but the underlying causes of such change or fact is not excluded from the definition of an intervening event.

Notwithstanding the restrictions described above, the merger agreement does not prohibit Fuel Systems from (i) taking and disclosing to its respective stockholders a position required by Rule 14e-2 under the Exchange Act or (ii)  complying with Rule 14d-9 under the Exchange Act.

Reasonable Best Efforts to Obtain Required Stockholder Approval

Fuel Systems has agreed to, as soon as reasonably practicable after the date of the merger agreement, establish a record date for and, as soon as reasonably practicable after the effectiveness of the registration statement of which this proxy statement/prospectus is a part, duly call, give notice of, convene and hold a meeting of its stockholders to consider the Merger proposal. Without the prior written consent of Westport, the adoption of the merger agreement by Fuel Systems stockholders, approval of any adjournment of the Fuel Systems special meeting, if necessary to solicit additional proxies if there are not sufficient votes to adopt the

 

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merger agreement at the time of the Fuel Systems special meeting and an advisory vote on compensation payable to executive officers of Fuel Systems are the only proposals permitted to be submitted to, or voted on by, the Fuel Systems stockholders.

Westport has agreed to, as soon as reasonably practicable after the date of the merger agreement, establish a record date for and, as soon as reasonably practicable after the effectiveness of the registration statement of which this proxy statement/prospectus is a part, duly call, give notice of, convene and hold a meeting of its stockholders to consider the Merger proposal and the proposed name change of Westport to “Westport Fuel Systems Inc.” Unless a change in recommendation occurs in compliance with the terms of the merger agreement, Westport’s board will recommend approval of the transaction to its shareholders and use its reasonable best efforts to solicit and obtain adoption.

Agreement to Take Further Action and to Use Reasonable Best Efforts

Each of Westport, Merger Sub, and Fuel Systems agree to make an appropriate filing of a notification and report form pursuant to the HSR Act and to make all other filings required to be made prior to close of business on the closing date by applicable foreign antitrust laws with respect to the transactions contemplated by the merger agreement and in any event prior to the expiration of any applicable legal deadline and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and any other filings required in connection with the Foreign Antitrust Approvals or any other Antitrust Law.

In addition, each of Westport, Merger Sub, and Fuel Systems, respectively, agree to take any and all actions necessary to obtain any consents, clearances or approvals required under or in connection with any antitrust laws, and to enable all waiting periods under applicable antitrust laws to expire, and to avoid or eliminate each and every impediment under applicable antitrust laws asserted by a governmental authority, in each case, to cause the merger and the other transactions contemplated by the merger to occur as promptly as practicable prior to April 30, 2016, or August 31, 2016 in the event of a delay caused by an antitrust waiting period or required consent. This includes: (i) promptly complying with or modifying any request for additional information (including any second request) by a government authority, (ii) if necessary, obtaining clearance by any governmental authority before April 30, 2016, or August 31, 2016 in the event of a delay caused by an antitrust waiting period or required consent, offering, negotiating, committing to, taking and effecting, by consent decree, hold separate order or otherwise, the sale, divestiture, license or other disposition of any and all of the share capital, assets, rights, products or business of Fuel Systems and Westport and their respective subsidiaries, and any other actions that limit the freedom of action with respect to, or the ability to retain, any of the businesses of Fuel Systems and Westport and their respective subsidiaries, (iii) contesting, defending, and appealing any lawsuit or other legal proceedings, whether judicial or administrative, threatened or pending preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order that would adversely affect the ability of each party to consummate the transactions contemplated by the merger agreement and (iv) taking any and all other actions to prevent the entry, enactment or promulgation of such order or decree. In no event, however, will Fuel Systems or Westport or any of their respective subsidiaries be obligated to commit to any actions that would, individually or in combination, materially reduce the reasonably anticipated benefits of the transactions contemplated by the merger agreement.

Furthermore, each party must use its reasonable best efforts to take all actions and assist and cooperate with the other party to do all things necessary, proper or advisable under applicable law or pursuant to any contract to consummate and make effective, as promptly as practicable, the merger and the other transactions contemplated by the merger agreement, including to (i) take all actions necessary to cause the conditions to close the merger to be satisfied, (ii) obtain of all necessary actions or nonactions, waivers, consents and approvals from governmental authorities or other persons necessary in connection with the consummation of the merger and the other transactions contemplated by the merger agreement and the making of all necessary registrations and filings (including filings with governmental authorities, if any) and the taking of all reasonable steps as may be

 

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necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental authority or other persons necessary in connection with the consummation of the merger and the other transactions contemplated by the merger agreement, (iii) defend any lawsuits or other legal proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the merger or the other transactions contemplated by merger agreement, including seeking to have any stay or temporary restraining order entered by any court or other governmental authority vacated or reversed, and (iv) execute and deliver any additional instruments necessary to consummate the merger and the other transactions contemplated by the merger agreement and to fully carry out the purposes of the merger agreement.

Westport, Merger Sub and Fuel Systems agreed to give any notices to third parties and Westport agreed to use its reasonable best efforts, and Fuel Systems will use its reasonable best efforts to cooperate with Westport in its efforts, to obtain any additional third party consents that are necessary, proper or advisable to consummate the merger.

Westport, Merger Sub, and Fuel Systems also agreed to furnish to each other such necessary information and reasonable assistance as the other may request in connection with the preparation of any required governmental filings or submissions and will cooperate in responding to any inquiry from a governmental authority, including promptly (and in any event within twenty-four (24) hours) informing the other party of such inquiry, consulting in advance before making any presentations or submissions to a governmental authority, and supplying each other with copies of all material correspondence, filings or communications between either party and any governmental authority with respect to the merger agreement. To the extent practicable, and permitted by a governmental authority, each party hereto is required to permit representatives of the other party to participate in meetings (whether by telephone or in person) with such governmental authority.

Employee Benefits Matters

Westport has agreed that it will provide to each Fuel Systems employee who remains employed during the one-year period following the closing of the merger (i) a base salary (or wage rate) and target cash incentive compensation opportunity at least equal to such employee’s base salary (or wage rate) and target cash incentive compensation opportunity in effect as of immediately prior to the closing of the merger and (ii) employee benefits (excluding equity arrangements, deferred compensation arrangements, retiree health and welfare benefits and defined benefit pension plans) that are, in the aggregate, no less favorable than the employee benefits provided to employees as of immediately prior to the closing of the merger. Westport also agreed to provide Fuel Systems employees who experience an involuntary severance-qualifying termination during the one-year period following the closing of the merger with severance benefits that are no less favorable, in the aggregate, than the severance benefits, if any, that the employee would have received pursuant to the terms of the severance pay arrangements maintained by Fuel Systems upon such an involuntary severance-qualifying termination of employment immediately prior to the closing of the merger.

Westport has also agreed generally to give Fuel Systems employees credit for their years of service with Fuel Systems and its subsidiaries for purposes of determining eligibility and vesting, benefit accrual and determination of level of benefits (but excluding for purposes of benefit accruals under any defined benefit plan or for purposes of vesting in any new equity-based compensation plan, program, agreement or arrangement) under Westport’s compensation and benefit plans and arrangements that such employees participate in after the closing of the merger. In addition, Westport will use commercially reasonable efforts to cause: (i) each employee to be immediately eligible to participate, without any waiting time, in Westport benefit plans to the extent coverage under such plans replaces coverage under a comparable Fuel Systems benefit plan the employee participated in immediately before such replacement by Westport; and (ii) for purposes of each Westport plan that provides medical, dental, pharmaceutical and/or vision benefits to any Fuel Systems employee, all pre-existing condition exclusions and actively-at-work requirements under any Westport plan to be waived for Fuel Systems employees and their dependents (except to the extent such restrictions were applicable and not satisfied by the Fuel Systems employee under the comparable Fuel Systems benefit plan as of immediately prior to the

 

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closing of the merger) and any eligible expenses incurred by such Fuel Systems employee (and any dependents) under an Fuel Systems benefit plan during the portion of the plan year prior to the closing of the merger to be taken into account under such Westport Plan for purposes of satisfying all deductible, co-insurance, co-payment and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such Westport benefit plan.

Other Covenants and Agreements

The merger agreement contains additional agreements relating to, among other matters:

Access to Information; Confidentiality

Until completion of the merger, each of Westport and Fuel Systems have agreed to afford the other party and its representatives reasonable access, during normal business hours and on certain conditions, to all of its and its subsidiaries’ respective properties, books, contracts, commitments, personnel and records. Also, each of Westport and Fuel Systems have agreed to keep confidential any nonpublic information in accordance with the terms of the confidentiality agreement.

Notification of Certain Matters

Each of Westport and Fuel Systems has agreed to give prompt notice to the other party of (i) any notice or other communication from any governmental authority in connection with the merger or from any party alleging that its consent is or may be required in connection with the merger, (ii) any actions, suits, claims, investigations or proceedings commenced or threatened against, relating to or involving or otherwise affecting such party and that relate to the merger, (iii) any inaccuracy of any representation or warranty of Fuel Systems or Westport, as applicable, contained in the merger agreement, (iv) the discovery of any fact or circumstance that, or the occurrence or non-occurrence of any event the occurrence or non-occurrence of which, would result in the failure to be satisfied of any of the conditions to the closing of merger, and (v) any material failure of such party to comply with or satisfy any covenant or agreement to be complied with or satisfied by it hereby which would result in the failure to be satisfied of any of the conditions to the closing of the merger.

Transaction Litigation

Each of Fuel Systems and Westport have agreed to give the other party the opportunity to participate in the defense or settlement of any security holder litigation against Fuel Systems or Westport, respectively, and/or its directors relating to the merger, and no settlement can be agreed to without the prior written consent of the other party, which consent must not be unreasonably withheld, conditioned or delayed, except that no such consent is required for Westport to enter into a settlement if such settlement involves only the payment of money and the amount of such settlement shall be fully covered by insurance proceeds.

Public Announcements

Westport, Merger Sub and Fuel Systems will not issue any public announcements or make other public disclosures regarding the merger or the merger agreement, unless mutually approved by Fuel Systems and Westport; provided, however, that each of Westport and Fuel Systems may make a public announcement or other public disclosure required by law or any applicable stock exchange, provided that the disclosing party has used reasonable best efforts to afford the other party with the opportunity to review and provide reasonable comment.

Indemnification and Insurance

Westport and Merger Sub agree that all indemnification rights for acts or omissions occurring at or prior to close of business on the closing date, regardless of when asserted or claimed that exist in the Fuel Systems charter or the Fuel Systems bylaws (or its subsidiaries), will survive the merger and will continue in full force

 

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and effect in accordance with their terms. The surviving company of the merger will (i) indemnify, defend and hold harmless, and advance expenses to, any officer or director of Fuel Systems or person served on behalf of Fuel Systems as an officer or director (or the equivalent) of any Fuel Systems’ subsidiaries prior to the effective time, which we refer to as an indemnitee, with respect to all acts or omissions by them in their capacities as such at any time prior to close of business on the closing date, to the fullest extent required by the Fuel Systems’ or any of Fuel Systems’ subsidiaries organizational or governing documents, in each case, as in effect on the date of the merger agreement, or applicable law, and (ii) not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any indemnitees.

Until the sixth anniversary of the closing date, Westport and the surviving company will also indemnify indemnitees against and from any costs or expenses (including attorney’s fees) judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (hereinafter referred to as a “claim”) to the extent such claim arises out of or pertains to action or omission or alleged action or omission in such indemnitee’s capacity as a director, officer, partner, member, trustee or employee of Fuel Systems or its subsidiaries, or the merger agreement and related transactions. Westport and the surviving company will pay in advance of the final disposition of a claim, upon receipt of the undertaking that the indemnitee will repay such amount if it is ultimately determined that the indemnitee not entitled to be indemnified. Westport and the surviving company will not settle, compromise, or consent to the entry of any judgment or seek termination with respect to any claim unless the settlement, compromise, consent or termination includes an unconditional release of all indemnities of all liability arising out of such claim with certain exceptions stated in the merger agreement and will not be obligated to indemnify any indemnitee if a court determines that such indemnification is prohibited by applicable law.

In addition, Fuel Systems will, or if Fuel Systems is unable to, Westport will cause the surviving company as of close of business on the closing date to obtain and fully pay the premium for the non-cancellable extension of the directors’ and officers’ liability coverage of Fuel Systems’ existing directors’ and officers’ insurance policies and Fuel Systems’ existing fiduciary liability insurance policies, in each case, for a claims reporting or discovery period of at least six years from and after the close of business on the closing date with respect to any claim related to any period or time at or prior to the close of business on the closing date, provided that Westport and the surviving company are not required to pay an annual premium for the directors’ and officers’ insurance in excess of 300% of the annual premium currently paid by Fuel Systems.

Certain Tax Matters

Fuel Systems, Westport and Merger Sub intend that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code, and each has agreed to use reasonable best efforts to cause the merger to so qualify.

Fuel Systems, Westport and Merger Sub have agreed to use reasonable best efforts to provide information, including officer’s certificates, reasonably requested by Fuel Systems in connection with Fuel Systems’ request for an IRS private letter ruling and/or an opinion of Skadden, as applicable, regarding the application of Sections 368 and/or 367(a) of the Code to the merger. If Fuel Systems obtains a favorable IRS private letter ruling or believes based on advice from counsel that it is more likely than not that the merger is not subject to Section 367(a)(1) of the Code, Westport has agreed to make commercially reasonable arrangements with each 5% U.S. Holder, if any, to ensure that such shareholder will be informed of any “triggering event” within the meaning of Treasury Regulations Section 1.367(a)-8(j)(1) or (2). In addition, Westport has agreed (and has agreed to cause Fuel Systems following the merger) to file all required information with its tax returns and maintain all records required for tax purposes, including, if applicable, the reporting requirements contained in Treasury Regulations Section 1.367(a)-3(c)(6).

Westport and Fuel Systems have agreed to cooperate in the preparation, execution and filing of all tax returns, questionnaires, applications or other documents regarding any real property transfer or gains, sales, use,

 

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transfer, value added, stock transfer and stamp taxes, and transfer, recording, registration and other fees and similar taxes which become payable in connection with the merger and which are required or permitted to be filed on or before the effective time. Westport has agreed to pay (without reimbursement and without deduction from any amount payable to Fuel Systems’ stockholders) any such taxes or fees imposed on it by any governmental authority (or for which Westport’s shareholders are primarily liable) which become payable in connection with the merger.

Section 16 Matters

Prior to the completion of the merger, Westport, Merger Sub and Fuel Systems have agreed to take all steps as may be required to cause (i) any dispositions of shares of Fuel Systems common stock resulting from the merger by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Fuel Systems to be exempt under Rule 16b-3 promulgated under the Exchange Act and (ii) any acquisitions of Westport common shares resulting from the merger by each individual who may become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Westport to be exempt under Rule 16b-3 promulgated under the Exchange Act.

Listing

Westport has agreed to cause the new common shares to be approved for listing on NASDAQ, subject to official notice of issuance and the TSX, prior to the completion of the merger, subject to fulfilling all of the listing requirements of the TSX.

Voting of Westport Common Shares

Westport has agreed to vote all shares of Fuel Systems common stock beneficially owned by it or any of the Westport subsidiaries as of the record date for the Fuel Systems special meeting in favor of adoption of the merger agreement and approval of the merger.

Fuel Systems has agreed to vote all shares of Westport common shares beneficially owned by it or any Fuel Systems subsidiaries as of the record date for the Westport special meeting in favor of adoption of the merger agreement, approval of the merger, and issuance of Westport common shares in connection with the merger.

Governance Matters

Westport has agreed to take all necessary corporate actions to cause, concurrent with the closing of the merger (i) the name of Westport to be changed to “Westport Fuel Systems Inc.,” (ii) three members of the Westport board to resign, (iii) the appointment to Westport’s board of directors of Mariano Costamagna, and [●] and [●], who will fill the vacancies resulting from such resignations and (iv) to have each committee of the Westport board to include such number of continuing Fuel Systems directors as determined by Westport after taking into account each such director’s relevant experience and expertise.

From and after the closing of the merger, the Westport board of directors will take all necessary actions to nominate, and to cause the Nominating and Corporate Governance Committee of Westport to recommend that the Westport board of directors nominate, the continuing Fuel Systems directors for election to the Westport board of directors at the 2016 annual meeting of shareholders of Westport, the 2017 annual meeting of shareholders of Westport and the 2018 annual meeting of shareholders of Westport. Notwithstanding the above, no continuing Fuel Systems director will be subject to re-nomination in accordance with the merger agreement in the event such continuing Fuel Systems director fails (i) to comply in all material respects with the governance guidelines and policies of Westport applicable to Westport directors during the fiscal year immediately preceding such continuing Fuel Systems director’s re-nomination or (ii) to attend in-person at least seventy-five percent (75%) of the duly called meetings of the Westport board of directors for the Westport fiscal year immediately

 

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preceding such re-nomination. Notwithstanding anything in the merger agreement to the contrary, in the event of the death, resignation or removal for cause of a continuing Fuel Systems director, Westport and the Westport board of directors will have no obligation to nominate or appoint a replacement Fuel Systems director to fill the vacancy created by such death, resignation or removal. The continuing Fuel Systems directors are third party beneficiaries of the section of the merger agreement providing for continued nomination, and Westport agrees to pay all reasonable expenses, including attorney’s fees, that may be incurred by any continuing Fuel Systems director in seeking the enforcement of the rights and obligations provided for by such section of the merger agreement.

No Solicitation of Employees

Prior to the closing of the merger, each of Fuel Systems and Westport have agreed not to solicit the other party’s employees, subject to certain exceptions set forth in the merger agreement.

Amendment to Rights Agreement

Fuel Systems has agreed to take all necessary action so that none of the performance by the respective parties to the merger agreement of their obligations under the merger agreement will cause (i) rights to become exercisable under the Stockholder Protection Rights Agreement, dated as of June 27, 2006, as amended, between Fuel Systems and Mellon Investor Services LLC, as Rights Agent, referred to as the rights agreement, (ii) Westport, Merger Sub or any of their affiliates to be deemed to be an “acquiring person” (as defined in the rights agreement), (iii) the “stock acquisition date” (as defined in the rights agreement) to occur upon any such event or (iv) the “separation time” (as defined in the rights agreement) to occur upon any such event.

State Takeover Laws

If any takeover statute may become applicable to the transactions contemplated by the merger agreement, Westport and Fuel Systems and the members of its respective board of directors, to the extent permissible under applicable law, are required to grant such approvals and take such actions, in accordance with the terms of the merger agreement, as are necessary so that the transactions contemplated by the merger agreement may be consummated as promptly as practicable, and in any event prior to April 30, 2016, or August 31, 2016 in the event of a delay caused by an antitrust waiting period or required consent, on the terms and conditions contemplated by the merger agreement and otherwise, to the extent permissible under applicable law, act to eliminate the effect of any takeover statute on any of the transactions contemplated by the merger agreement.

Automotive and Industrial Operations

Representatives of Westport and Fuel Systems jointly have developed an agreed upon business plan for the Automotive, Industrial and Operations combined company project to be named the “Fuel Systems Automotive and Industrial Group”, which they intend to implement within 36 months following the closing of the merger. The headquarters of the Automotive and Industrial Group, and its associated operations, will be in Cherasco, Italy. An exhibit to the merger agreement sets forth the management team for the group. Westport has agreed to use commercially reasonable efforts to assist the implementation of the project by maintaining sufficient capital in the group, consistent with the group’s needs to achieve the project.

Termination of the Merger Agreement

The merger agreement may be terminated prior to the closing of the merger, whether before or after approval of the Merger proposal by Fuel Systems’ stockholders and Westport’s shareholders approval is received (except as otherwise provided below), as follows:

 

•

by the mutual written agreement of Westport and Fuel Systems; or

 

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•

by either Fuel Systems or Westport:

 

•

if the closing does not occur on or before April 30, 2016, or August 31, 2016 in the event of a delay caused by an antitrust waiting period or required consent; provided that this termination right will not be available to any party if the failure of such party to perform any of its obligations under the merger agreement has been a principal cause of, or resulted in, the failure of the merger to be consummated on or before such date;

 

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if there is in effect a final nonappealable order of a governmental authority of competent jurisdiction restraining, enjoining or otherwise prohibiting the merger; provided that this termination right is not available to a party whose failure to perform its obligations under the merger agreement is the primary cause of such order;

 

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if the other party breached or failed to perform any of its representations, warranties, covenants or agreements in the merger agreement in a way that the related condition to closing would not be satisfied, and this breach is either incurable or not cured within 20 days, provided that neither party has the right to terminate in the event such party is then in breach of any of its representations, warranties, covenants or agreements in the merger agreement in a way that a condition to closing would not be satisfied;

 

•

if the Fuel Systems and Westport stockholder meetings have occurred and the required Fuel Systems stockholder and Westport shareholder approvals are not obtained; provided that the right to terminate the merger agreement will not be available if the failure to obtain its stockholder/shareholder approval is primarily due to such party’s failure to perform any of its obligations under the merger agreement.

 

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by Fuel Systems:

 

•

if Fuel Systems is terminating the merger agreement to enter into a definitive agreement relating to a superior proposal in accordance with the terms of the merger agreement;

 

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If the Westport board authorizes, approves or recommends, enters into a written agreement, or consummates a transaction relating to a Westport alternative proposal.

 

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by Westport:

 

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if Fuel Systems’ board makes a change in recommendation;

 

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if Fuel Systems materially and willfully breaches its obligations contained in the “no-shop” provision contained in the merger agreement; or

 

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if Fuel Systems or any of its subsidiaries or the Fuel Systems board approves, recommends, adopts or enters into an agreement relating to a Fuel Systems alternative proposal.

Effect of Termination; Termination Fees

If the merger agreement is validly terminated, then, except as described below, each of the parties will be relieved of its duties and obligations and such termination will be without liability to either party. However, termination will not relieve either party of any liability for willful or intentional breach of any covenant or agreement contained in the merger agreement prior to termination, or as provided in the confidentiality agreement entered into between Westport and Fuel Systems, in which case the aggrieved party is entitled to all rights and remedies available at law or in equity.

The merger agreement contains a termination fee of $5.5 million, which is referred to as the termination fee, payable by Fuel Systems to Westport under the circumstances described below:

 

•

if (i) the merger agreement is terminated by Westport because of a change in recommendation by the Fuel Systems board, (ii) Fuel Systems’ materially or willfully breaches its obligations with respect to Fuel Systems alternative proposals under the merger agreement, or (iii) Fuel Systems approves,

 

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recommends, adopts, enters into or publicly announces the intention to approve, recommend, adopt or enter into, a definitive agreement with respect to a Fuel Systems alternative proposal, then Fuel Systems will pay Westport the termination fee within 2 business days after the date of termination;

 

•

if the merger agreement is terminated by Fuel Systems in order to enter into a definitive agreement relating to a superior proposal, then Fuel Systems will pay Westport the termination fee within 2 business days after the date of termination; or

 

•

if (i) a Fuel Systems alternative proposal is publicly proposed or publicly disclosed prior to the date of the Fuel Systems special meeting and the merger agreement is terminated (a) by Westport due to (x) Fuel Systems’ willful breach or failure to perform any of its representations, warranties, covenants or agreements where such breach, failure to perform or untruth is incapable of being cured or is not cured within 20 days following receipt by Fuel Systems of notice of such breach or (y) a change in recommendation by the Fuel Systems board, or (b) by either party, due to failure to obtain the approval of the Merger proposal by Fuel Systems stockholders at the special meeting, then Fuel Systems shall pay the expenses of Westport within 2 days after the receipt following such termination of documentation supporting such expenses of Westport. If Fuel Systems enters into a definitive agreement with respect to, or consummates, a Fuel Systems alternative proposal (substituting 50% for the 20% threshold set forth in the definition of Fuel Systems alternative proposal) concurrently or within 12 months after the date the merger agreement is terminated, then Fuel Systems will pay to Westport the termination fee within 2 days following the consummation of such Fuel Systems alternative proposal.

The termination fee will be payable by Westport to Fuel Systems under the circumstances described below:

 

•

if the merger agreement is terminated by Fuel Systems because the Westport board authorizes, enters into an agreement, or consummates a transaction relating to a Westport alternative proposal, then Westport will pay Fuel Systems the termination fee within 2 business days after the date of termination; or

 

•

if (i) a Westport alternative proposal is publicly proposed or publicly disclosed prior to the date of the Westport special meeting, (ii) the third party making the Westport alternative proposal has publicly indicated to the Westport shareholders to the effect that they should not vote in favor of the matters required to obtain Westport shareholder approval and (iii) the merger agreement is terminated (a) by Fuel Systems due to Westport’s willful breach of any of its representations, warranties, covenants or agreements where such breach is incapable of being cured or is not cured within 20 days following receipt by Westport of notice of such breach or (b) by either party, due to failure to obtain the approval of the Merger proposal by Westport stockholders at the special meeting, then Westport shall pay the expenses of Fuel Systems within 2 business days after the receipt following such termination of documentation supporting such expenses of Fuel Systems. If Westport enters into a definitive agreement with respect to, or consummates, a Westport alternative proposal within 12 months after the date the merger agreement is terminated then Westport will pay to Fuel Systems the termination fee within 2 business days following the consummation of such Westport alternative proposal.

The one-time payment of a termination fee will be each party’s sole and exclusive remedy available under the circumstances described above.

Amendment and Waiver

Amendment. At any time prior to the closing of the merger, the merger agreement may be amended, whether before or after the approval of the Merger proposal by Fuel Systems stockholders, by written agreement of the parties to the merger agreement, by action taken or authorized by their respective boards of directors; provided, however, that following receipt of the Fuel Systems’ stockholder approval, there will not be (a) any amendment of the merger agreement that changes the amount or the form of the consideration to be delivered under the

 

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merger agreement to the holders of Fuel Systems common stock, or which by applicable law or in accordance with the rules of any stock exchange requires the further approval of the stockholders of Fuel Systems or Westport without such further approval of such stockholders, or (b) any amendment or change not permitted under applicable law.

Waiver. At any time prior to the close of business on the closing date, the parties may (i) extend the time for the performance of any of the obligations or other acts of the other parties, (ii) waive any inaccuracies in the representations and warranties of the other parties, or (iii) waive compliance with any of the agreements or covenants of the other parties. Any agreement on the part of any party to any such extension or waiver is valid only if set forth in an instrument in writing signed on behalf of such party.

Fees and Expenses

All expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement shall be paid by the party incurring such expenses, whether or not the transactions contemplated by the merger agreement are consummated; provided, however, that Fuel Systems and Westport will share equally all expenses related to the printing and filing of this proxy statement/prospectus and the printing, filing and distribution of the proxy statement and the information circular in connection with the Westport shareholder meeting, other than attorneys’ and accountants’ fees.

Assignment

The merger agreement and any interests, rights or obligations under the merger agreement are not assignable, by operation of law or otherwise, by any of the parties without the prior written consent of the other party.

Specific Performance

The parties to the merger agreement have agreed that each party will be entitled to an injunction, specific performance, or other equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement. Each of the parties has agreed that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) either party has an adequate remedy at law, or (ii) an award of specific performance is not an appropriate remedy for any reason at law or equity. Each party has further agreed that no party is required to provide any bond or other security in connection with any such order or injunction.

Governing Law

The merger agreement is governed by and will be construed and enforced in accordance with the laws of the State of Delaware.

 

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THE VOTING AGREEMENTS

The following is a summary of only the voting agreements entered into in connection with the merger agreement and may not contain all of the information that is important to you. The following description is subject to, and is qualified in its entirety by reference to, the voting agreements, copies of which are attached as Annex C, Annex D and Annex E to this proxy statement/prospectus and are incorporated herein by reference. We urge you to read the voting agreements in their entirety. In the event of any discrepancy between the terms of the voting agreement and the following summary, the voting agreements will control.

Douglas Voting Agreement

Concurrently with the execution of the merger agreement on September 1, 2015, and as a condition to Fuel Systems’ and Westport’s willingness to enter into the merger agreement, Fuel Systems and Westport entered into a voting agreement with K&M Douglas Trust, James Douglas and Jean Douglas Irrevocable Descendants’ Trust, Douglas Family Trust and James E. Douglas, III. We collectively refer to those non-Fuel Systems, non-Westport parties to the voting agreement as the “Douglas Parties”. As of the date the voting agreement was executed, the Douglas Parties beneficially owned, collectively, 2,671,684 shares of Fuel Systems common stock, or approximately 14.8% of Fuel Systems common stock issued and outstanding at that time, and 10,045,657 common shares of Westport common shares, or approximately 15.7% of Westport common shares issued and outstanding at the time.

Each of the Douglas Parties has agreed to vote, and has granted Westport an irrevocable proxy to vote its beneficially owned shares of Fuel Systems common stock, including any shares acquired after the date of the voting agreement, in favor of the adoption and approval of the merger agreement and the transactions contemplated thereby, at every meeting of the stockholders of Fuel Systems at which such matters are considered and to vote against (i) any action or agreement that has or would reasonably be likely to result in any conditions to Fuel Systems’ obligations to close the merger not being satisfied, (ii) any Fuel Systems alternative proposal and (iii) any amendments to the Fuel Systems charter and/or the Fuel Systems bylaws if such amendment would reasonably be expected to prevent or materially delay the closing of the merger.

In addition, each of the Douglas Parties has agreed to vote, and has granted Fuel Systems an irrevocable proxy to vote its beneficially owned Westport common shares, including any shares acquired after the date of the voting agreement, in favor of the approval of the merger consideration, at every meeting of the stockholders of Westport at which such matters are considered and to vote its shares against any action or agreement that would reasonably be likely to result in any conditions to Westport’s obligations to close the merger not being satisfied (other than in the case of the Westport acquisition proposal).

Subject to certain exceptions described in the voting agreement, each of the Douglas Parties that is a party to the voting agreement has agreed not to sell, pledge, encumber, grant options with respect to, transfer or dispose of the shares of Westport or Fuel Systems common stock beneficially owned by such party or to enter into any agreement related to any of the foregoing transfers or dispositions, in each case to anyone other than Fuel Systems or Westport, respectively.

Subject to certain exceptions described in the voting agreements, each of the Douglas Parties has made representations and warranties to Fuel Systems and Westport, respectively, regarding, among other things, such party’s power and authority to enter into the voting agreement and deliver the proxy, such party’s unencumbered beneficial ownership of the shares of Westport and Fuel Systems common stock, respectively, subject to the voting agreements.

The voting agreement will terminate at the earlier to occur of (i) the mutual written consent of Westport and Fuel Systems, (ii) the effective time of the merger, (iii) the termination of the merger agreement, or (iv) the

 

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delivery of written notice of termination by each of the Douglas Parties to Westport and Fuel Systems following any fundamental amendment effected without the prior written consent of each of the Douglas Parties. “Fundamental amendment” means the execution by Westport, Merger Sub and Fuel Systems of a written amendment to, or written waiver by Westport, Merger Sub, and Fuel Systems, of any provision of the merger agreement that reduces the amount of the merger consideration or changes the form of, or decreases the exchange ratio of the merger consideration of 2.129 Westport common shares per share of Fuel Systems common stock, amends the conditions to close the merger or would result in additional monetary liability to such Douglas Party.

Costamagna Voting Agreement

Concurrently with the execution of the merger agreement on September 1, 2015, and as a condition to Westport’s willingness to enter into the merger agreement, Westport entered into a voting agreement with Mariano Costamagna. As of the date the voting agreement was executed, Mr. Costamagna beneficially owned 1,634,185 shares of Fuel Systems common stock, or approximately 9.0% of Fuel Systems common stock issued and outstanding at that time.

Mr. Costamagna has agreed to vote, and has granted Westport an irrevocable proxy to vote, his beneficially owned shares of Fuel Systems common stock, including any shares acquired after the date of the voting agreement, in favor of the adoption and approval of the merger agreement and the transactions contemplated thereby, at every meeting of the stockholders of Fuel Systems at which such matters are considered, and to not vote his shares in favor of, or approve or otherwise support (i) any action or agreement that would reasonably be likely to result in any conditions to Fuel Systems’ obligations to close the merger not being satisfied, (ii) any Fuel Systems alternative proposal and (iii) any amendments to the Fuel Systems charter and/or the Fuel Systems bylaws if such amendment would reasonably be expected to prevent or materially delay the consummation of the closing of the merger.

Subject to certain exceptions described in the voting agreement, Mr. Costamagna has agreed not to sell, pledge, encumber, grant options with respect to, transfer or dispose of the shares of Fuel Systems common stock beneficially owned by him or to enter into any agreement related to any of the foregoing transfers or dispositions, in each case to anyone other than Westport.

Subject to certain exceptions described in the voting agreements, Mr. Costamagna has made representations and warranties to Westport regarding, among other things, his power and authority to enter into the voting agreement and deliver the proxy and his unencumbered beneficial ownership of the shares of Fuel Systems common stock subject to the voting agreements.

The voting agreement and the proxy granted thereunder will terminate at the earlier to occur of (i) the valid termination of the merger agreement pursuant to its terms, (ii) the effective time of the merger or (iii) any change to the terms of the merger without the prior written consent of Mr. Costamagna that (a) reduces the exchange ratio (subject to adjustments in compliance with Section 3.2 of the merger agreement) or (b) changes the form of consideration payable in the merger.

Becker Voting Agreement

Concurrently with the execution of the merger agreement on September 1, 2015, and as a condition to Westport’s willingness to enter into the merger agreement, Westport entered into a voting agreement with Becker Drapkin Management, L.P., Becker Drapkin Partners (QP), L.P., Becker Drapkin Partners, L.P. and Steven R. Becker. We collectively refer to those non-Westport parties to the voting agreement as the “Becker Parties”. As of the date the voting agreement was executed, the Becker Parties beneficially owned, collectively, 1,900,619 shares of Fuel Systems common stock, or approximately 10.5% of Fuel Systems common stock issued and outstanding at that time.

 

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Each of the Becker Parties has agreed to vote, and has granted Westport an irrevocable proxy to vote, its beneficially owned shares of Fuel Systems common stock, including any shares acquired after the date of the voting agreement, in favor of the adoption and approval of the merger agreement and the transactions contemplated thereby, at every meeting of the stockholders of Fuel Systems at which such matters are considered, and to not vote its shares in favor of, or approve or otherwise support (i) any action or agreement that would reasonably be likely to result in any conditions to Fuel Systems’ obligations to close the merger not being satisfied, (ii) any Fuel Systems alternative proposal and (iii) any amendments to the Fuel Systems charter and/or the Fuel Systems bylaws if such amendment would reasonably be expected to prevent or materially delay the consummation of the closing of the merger.

Subject to certain exceptions described in the voting agreement, each of the Becker Parties that is a party to the voting agreement has agreed not to sell, pledge, encumber, grant options with respect to, transfer or dispose of the shares of Fuel Systems common stock beneficially owned by such party or to enter into any agreement related to any of the foregoing transfers or dispositions, in each case to anyone other than Westport.

Subject to certain exceptions described in the voting agreements, each of the Becker Parties has made representations and warranties to Westport regarding, among other things, such party’s power and authority to enter into the voting agreement and deliver the proxy, such party’s unencumbered beneficial ownership of the shares of Fuel Systems common stock subject to the voting agreements.

The voting agreement and the proxy granted thereunder will terminate at the earlier to occur of (i) the valid termination of the merger agreement pursuant to its terms, (ii) the effective time of the merger or (iii) any change to the terms of the merger without the prior written consent of the Becker Parties that (a) reduces the exchange ratio (subject to adjustments in compliance with Section 3.2 of the merger agreement) or (b) changes the form of consideration payable in the merger.

 

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INFORMATION ABOUT WESTPORT

Westport is a leading provider of high-performance, low-emission engine and fuel system technologies utilizing gaseous fuels. Westport’s technology and products enable light- (less than 5.9 litre), medium- (5.9 to 10 litre), heavy-duty (10 to 16 litre) and high-horsepower (greater than 16 litre) petroleum-based fuel engines and vehicles to use primarily gaseous fuels such as natural gas, giving users a cleaner and generally less expensive alternative fuel based on a more abundant natural resource. Through Westport’s partnerships and direct sales efforts, it sells natural gas and propane engines, fuel systems, and components to customers globally. Westport’s strategic relationships with original equipment manufacturers, or OEMs, provide it with access to their manufacturing capacity, supply chain and global distribution networks without incurring the considerable investment associated with these assets. Westport commercializes its technology throughout the world where demand for clean, low emission engines exists.

For the year ended December 31, 2014, Westport had total revenues of approximately $131 million and net loss of approximately $150 million.

Westport’s common shares are traded on the TSX under the symbol “WPT” and on NASDAQ under the symbol “WPRT”.

Westport’s principal offices are located at 101—1750 West 75^th Avenue, Vancouver, British Columbia V6P 6G2 and its telephone number is (604) 718-2000.

Security Ownership of Certain Beneficial Owners

Except as otherwise indicated, all of the shares indicated in the table are common shares of Westport and each beneficial owner has sole voting and investment power with respect to the shares set forth opposite his or its name. For the purposes of calculating percentage ownership as of September 1, 2015, 64,183,191 shares were outstanding. In preparing the following table, Westport relied upon filings made with the System for Electronic Disclosure of Insiders, unless it knew or had reason to believe that the information contained in such filings was not complete or accurate, in which case Westport relied upon information that it considered to be accurate and complete. Unless otherwise indicated, the address of each of the individuals and entities named below is: c/o Westport Innovations Inc., 101—1750 West 75^th Avenue, Vancouver, British Columbia V6P 6G2.

 

Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership				Percent of Class
Kevin Douglas, K&M Douglas Trust, James Douglas And Jean Douglas Irrevocable Descendants’ Trust, Douglas Family Trust and James E. Douglas, III			10,045,657				15.7	%

 

(1)

Amendment No. 1 to a Schedule 13D Beneficial Ownership Report filed on September 1, 2015 by Kevin Douglas, Michelle Douglas, K&M Douglas Trust, James Douglas and Jean Douglas Irrevocable Descendants’ Trust and Douglas Family Trust discloses that (i) Kevin Douglas and his wife, Michelle Douglas, hold 3,614,020 shares jointly as the beneficiaries and co-trustees of the K&M Douglas Trust; (ii) Kevin Douglas and Michelle Douglas are co-trustees of the James Douglas and Jean Douglas Irrevocable Descendants’ Trust which holds 3,527,906 shares; (iii) Kevin Douglas, as the settlor of the KGD 2012 Trust, has the right to substitute property of equivalent value in return for the shares held by the KGD 2012 Trust and may be deemed to have shared voting and dispositive power over 52,902 shares held by the KGD 2012 Trust; and (iv) Kevin Douglas has dispositive power with respect to 1,061,846 shares held by James E Douglas, III and 1,841,885 shares held by the Douglas Family Trust.

 

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INFORMATION ABOUT FUEL SYSTEMS

Business Overview

Fuel Systems designs, manufactures and supplies alternative fuel components and systems for use in the transportation and industrial markets on a global basis. Fuel Systems components and systems control the pressure and flow of gaseous alternative fuels, such as propane and natural gas used in internal combustion engines. Fuel Systems’ products improve efficiency, enhance power output and reduce emissions by electronically sensing and regulating the proper proportion of fuel and air required by the internal combustion engine. Fuel Systems also provides engineering and systems integration services to address its individual customer requirements for product performance, durability and physical configuration. For over 50 years, Fuel Systems has developed alternative fuel products. Fuel Systems supplies its products and systems to the market place through a global distribution network of distributors and dealers in more than 60 countries and numerous original equipment manufacturers, or OEMs.

For the year ended December 31, 2014, Fuel Systems had total revenues of approximately $339.1 million and net loss of approximately $53.4 million.

Fuel Systems common stock is traded on NASDAQ under the symbol “FSYS.”

Fuel Systems’ principal offices are located at 780 Third Avenue, 25th Floor, New York, New York 10017 and its telephone number is (646) 502-7170.

Security Ownership of Certain Beneficial Owners

Except as otherwise indicated, all of the shares indicated in the table are shares of Fuel Systems’ common stock and each beneficial owner has sole voting and investment power with respect to the shares set forth opposite his or its name. For the purposes of calculating percentage ownership as of October 9, 2015, 18,093,562 shares were outstanding. In preparing the following table, we relied upon statements filed with the SEC by beneficial owners of more than 5% of the outstanding shares of Fuel Systems common stock pursuant to Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended, unless we knew or had reason to believe that the information contained in such statements was not complete or accurate, in which case we relied upon information that we considered to be accurate and complete. Unless otherwise indicated, the address of each of the individuals and entities named below is: c/o Fuel Systems Solutions, Inc., 780 Third Avenue, 25th Floor, New York, NY 10017.

 

Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership				Percent of Class
Mariano Costamagna, Pier Antonio Costamagna, Bruna Giachino, Carla Borgogno (1)			3,218,774				17.8	%
Kevin Douglas, Michelle Douglas, James E. Douglas, III, K&M Douglas Trust, Douglas Family Trust, James Douglas and Jean Douglas Irrevocable Descendants’ Trust (2)			2,671,684				14.8	%
Becker Drapkin Management, L.P. (3)			1,894,565				10.5	%
Royce & Associates, LLC (4)			1,167,700				6.5	%
Dimensional Fund Advisors, LP (5)			929,519				5.1	%

 

(1)

Based on Amendment No. 3 to a Schedule 13D Beneficial Ownership Report filed on September 4, 2015 by Mariano Costamagna, Pier Antonio Costamagna, Bruna Giachino, and Carla Borgogno. The report discloses that the total shares beneficially owned by Mr. Mariano Costamagna include 1,584,589 shares held by Mariano Costamagna’s brother, Pier Antonio Costamagna, and his wife, to which he disclaims beneficial ownership. Total shares beneficially owned by Mr. Pier Antonio Costamagna include 1,634,185 shares held by Mr. Mariano Costamagna, and his wife, to which he disclaims beneficial ownership. Mr. Pier Antonio Costamagna retired as an executive officer of Fuel Systems and as General Manager of MTM S.r.L. effective February 5, 2014.

 

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(2)

Based on a Schedule 13D Beneficial Ownership Report filed on September 2, 2015 by Kevin Douglas, Michelle Douglas, James E. Douglas, III, K&M Douglas Trust, Douglas Family Trust, and James Douglas and Jean Douglas Irrevocable Descendants’ Trust. The Schedule 13D discloses that Kevin Douglas and his wife, Michelle Douglas, hold 1,056,671 shares jointly and as co-trustees of the K&M Douglas Trust. In addition, Kevin Douglas and Michelle Douglas are co-trustees of the James Douglas and Jean Douglas Irrevocable Descendants’ Trust, which holds 901,758 shares. The Schedule 13D also discloses that Kevin Douglas shares dispositive power with respect to 264,167 shares held by James E. Douglas, III and 449,088 shares held by the Douglas Family Trust, in addition to the shares previously listed. The principal business office of the Filers is located at 125 E. Sir Francis Drake Blvd., Suite 400, Larkspur, CA 94939.

(3)

Based on Amendment No. 4 to a Schedule 13D Beneficial Ownership Report filed on September 2, 2015 by Becker Drapkin Management, L.P., Becker Drapkin Partners (QP), L.P., Becker Drapkin Partners, L.P., BC Advisors, LLC, Steven R. Becker, and Matthew A. Drapkin. The report discloses that BC advisors, LLC, Steven R. Becker, and Matthew A. Drapkin have shared voting power and shared dispositive power on 1,894,565 shares. The report also discloses that: (i) Becker Drapkin Partners (QP), L.P. has sole voting power and sole dispositive power on 1,369,436 shares; (ii) Becker Drapkin Partners L.P. has sole voting power and sole dispositive power on 156,483 shares; and (iii) Becker Drapkin Management, L.P. has sole voting power and sole dispositive power on 368,646 shares, and shared voting power and shared dispositive power on 1,525,919 shares. The principal business office of the Filers is located at 500 Crescent Court, Suite 230, Dallas, TX 75201.

(4)	Based on a Schedule 13G Information Statement filed on January 9, 2015 by Royce & Associates, LLC. The schedule discloses that Royce & Associates, LLC holds 1,167,700 shares. The principal business office of the Filer is located at 745 Fifth Avenue, New York, NY 10151.

(5)	Based on a Form 13F Information Statement filed on August 14, 2015 by Dimensional Fund Advisors, LP. The schedule discloses that Dimensional Fund Advisors, LP holds 929,519 shares. The principal business office of the Filer is located at 6300 Bee Cave Road, Building One, Austin, TX 78746.

INFORMATION ABOUT MERGER SUB

Merger Sub, a direct, wholly owned subsidiary of Westport, is a Delaware corporation formed on August 28, 2015 for the purpose of effecting the merger. Upon completion of the merger, Merger Sub will merge with and into Fuel Systems, with Fuel Systems continuing as the surviving entity and a direct, wholly owned subsidiary of Westport. Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable regulatory filings in connection with the merger.

FUEL SYSTEMS SPECIAL MEETING

Date, Time and Place

The special meeting of Fuel Systems stockholders will be held on [●], 2015, at [●] a.m., Eastern time, at the offices of Day Pitney LLP, 7 Times Square, 20th Floor, New York, New York 10036. On or about [●], 2015, Fuel Systems commenced mailing this proxy statement/prospectus and the enclosed form of proxy to its stockholders entitled to vote at the Fuel Systems special meeting.

Purpose of the Fuel Systems Special Meeting

At the Fuel Systems special meeting, Fuel Systems stockholders will be asked to consider and vote solely on the following proposals:

 

•

Merger proposal: To approve the merger and adopt the merger agreement;

 

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•

Amendments to Non-Employee Directors’ Restricted Stock Awards proposal: To approve amendments to awards of restricted stock issued to Fuel Systems’ non-employee directors providing that the vesting date shall be the earlier of the vesting date set forth in the award or a change in control of the Fuel Systems;

 

•

Advisory Compensation proposal: To consider and vote on a proposal to approve, on an advisory (non-binding) basis, the payments that will or may be paid by Fuel Systems to its named executive officers in connection with the merger; and

 

•

Adjournment proposal: To consider and vote on a proposal to approve the adjournment of the Fuel Systems special meeting, if necessary to solicit additional proxies if there are not sufficient votes to approve the Merger proposal at the time of the Fuel Systems special meeting.

Recommendation of the Fuel Systems Board

The Fuel Systems board has unanimously determined that the merger is advisable and in the best interests of Fuel Systems and its stockholders and unanimously recommends that Fuel Systems stockholders vote:

 

•

“FOR” the Merger proposal;

 

•

“FOR” the Amendments to Non-Employee Directors’ Restricted Stock Awards proposal;

 

•

“FOR” the Advisory Compensation proposal; and

 

•

“FOR” the Adjournment proposal, if necessary.

See “The Merger—Fuel Systems Board of Directors’ Recommendation and its Reasons for the Merger.”

Fuel Systems Record Date; Stock Entitled to Vote

Only Fuel Systems stockholders of record at the close of business on [●], 2015, which is referred to as the Fuel Systems record date, will be entitled to notice of, and to vote at, the Fuel Systems special meeting or any adjournments thereof.

As of                     , 2015, the last practicable day before the filing of this proxy statement/prospectus, there were             shares of Fuel Systems common stock outstanding. Each share of Fuel Systems common stock outstanding on the Fuel Systems record date is entitled to one vote on each proposal to be considered at the Fuel Systems special meeting, in person or by proxy through the Internet or by telephone or by a properly executed and delivered proxy with respect to the Fuel Systems special meeting.

A complete list of stockholders entitled to vote at the Fuel Systems special meeting will be available for examination by any Fuel Systems stockholder at Fuel Systems’ headquarters, located at 780 Third Avenue, 25th Floor, New York, New York, 10017, for any purpose germane to the Fuel Systems special meeting, during ordinary business hours for a period of 10 days before the Fuel Systems special meeting and at the Fuel Systems special meeting.

Please also note that if you hold your shares in “street name” (that is, through a broker, bank or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting.

Quorum

The presence at the meeting, in person or by proxy, of the holders of one-third of the aggregate voting power of the common stock outstanding on the record date will constitute a quorum, permitting the conduct of business at the special meeting. Abstentions and broker non-votes, if any, which are described below, will be treated as present for the purposes of determining the presence or absence of a quorum for each special meeting.

 

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Required Vote

 

1.

Merger proposal: The affirmative vote of holders of a majority of the outstanding shares of common stock entitled to vote. Abstentions and broker non-votes would have the same effect as a vote “AGAINST” the proposal.

 

2.

Amendments to Non-Employee Directors’ Restricted Stock Awards proposal: The affirmative vote of holders of a majority of the shares of common stock present in person or by proxy and entitled to vote at the special meeting. Abstentions would have the same effect as a vote “AGAINST” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

 

3.

Advisory Compensation proposal: The affirmative vote of holders of a majority of the shares of common stock present in person or by proxy and entitled to vote at the special meeting. This vote is advisory and therefore not binding on the Fuel Systems board of directors. In reviewing the results of this advisory vote, the Board expects to consider votes cast “FOR” or “AGAINST” the proposal. Due to the unique nature of this advisory vote, the Board does not expect to consider abstentions as votes cast either in favor of or against the proposal in determining the outcome of this advisory vote. Broker non-votes will have no effect on the outcome of this proposal.

 

4.

The Adjournment proposal: The affirmative vote of holders of a majority of the shares of common stock present in person or by proxy and entitled to vote at the special meeting. Abstentions would have the same effect as a vote “AGAINST” the proposal. Broker non-votes will have no effect on the outcome of this proposal.

Voting of Proxies; Incomplete Proxies

Stockholders may vote by attending the special meeting and voting in person. We urge you to vote by proxy even if you plan to attend the special meeting so that we will know as soon as possible that enough votes will be present for us to hold the meeting. If you attend the meeting in person, you may vote at the special meeting and your proxy will not be counted.

You may also vote your shares without attending the special meeting. Stockholders may vote by using one of these alternative methods:

(1) Via the Internet at www.proxyvote.com;

(2) By telephone at 1-800-690-6903 and follow the instructions for telephone voting; or

(3) By completing and mailing a proxy card to Voting Processing c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

You may submit your vote by completing, signing, dating and returning the proxy card or voting instruction card in the postage-paid envelope enclosed with the paper copies of the materials. Sign your name exactly as it appears on the proxy card. If you provide specific voting instructions, your shares will be voted as you have instructed. Proxy cards submitted by mail must be received by Broadridge no later than [●], 2015 to be voted at the special meeting.

If you hold your shares in “street name” and you plan to vote in person at the special meeting, you must obtain a proxy from the bank, broker or other record holder to vote at the meeting. Please refer to the voter instruction cards used by your bank, broker or other record holder for specific instructions on methods of voting, including by telephone or using the Internet.

Your shares will be voted as you indicate. If you submit your proxy but you do not indicate your voting preferences, then the individuals named on the proxy will vote your shares in accordance with the recommendations of the Fuel Systems board of directors. The Fuel Systems board of directors and management

 

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do not currently intend to present any matters at the special meeting other than those outlined in the notice of the special meeting. Should any other matter requiring a vote of stockholders arise, stockholders submitting their proxy confer upon the individuals named in the proxy discretionary authority to vote the shares represented by such proxy on any such other matter in accordance with their best judgment.

Revocability of Proxies and Changes to a Fuel Systems’ Stockholder’s Vote

You may change your vote at any time before your proxy is voted at the Fuel Systems special meeting.

You may do this by:

 

•

sending a written notice, which is received prior to your vote being cast at the Fuel Systems special meeting, to the Secretary of Fuel Systems;

 

•

submitting a valid, later-dated proxy by mail, telephone or via the Internet that is received prior to your vote being cast at the Fuel Systems special meeting; or

 

•

attending the Fuel Systems special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself, revoke any proxy that you have previously given).

If you hold your shares of Fuel Systems common stock through a broker or other nominee, you must follow the directions you receive from your broker or other nominee in order to revoke your proxy or change your voting instructions.

Solicitation of Proxies

Fuel Systems is soliciting this proxy on behalf of its board of directors by mail and will pay all expenses associated with this solicitation. Fuel Systems has engaged Laurel Hill Advisory Group to assist in the solicitation of proxies for the meeting and Fuel Systems estimates it will pay Laurel Hill Advisory Group a fee of approximately $7,500 (plus reimbursement of expenses) for these services. In addition to mailing or providing access to these proxy materials, certain of Fuel Systems’ officers, directors and other employees may, without compensation other than their regular compensation, solicit proxies by further mailing or personal conversations, or by e-mail, telephone, facsimile or other electronic means. Fuel Systems will also, upon request, reimburse brokers and other persons holding stock in their names, or in the names of nominees, for their reasonable out-of-pocket expenses for forwarding proxy materials to the beneficial owners of Fuel Systems common stock and obtaining proxies.

Voting by Fuel Systems’ Directors and Executive Officers

On [●], 2015, the Fuel Systems’ record date, directors and executive officers of Fuel Systems and their affiliates owned and were entitled to vote [●] shares of Fuel Systems common stock, or approximately     % of the total voting power of the shares of Fuel Systems common stock outstanding on that date. It is currently expected that Fuel Systems’ directors and executive officers will vote their shares of Fuel Systems’ common stock in favor of each of the proposals to be considered at the Fuel Systems special meeting, although none of them (other than Mr.  Costamagna) have entered into any agreements obligating them to do so.

Stockholders Should Not Send Certificates with Their Proxies

A letter of transmittal and instructions for the surrender of Fuel Systems common stock certificates or book-entry shares in exchange for the merger consideration will be mailed to Fuel Systems stockholders shortly after the completion of the merger.

 

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Attending the Fuel Systems Special Meeting

Subject to space availability, all Fuel Systems stockholders as of the Fuel Systems record date, or their duly appointed proxies, may attend the Fuel Systems special meeting. Since seating is limited, admission to the Fuel Systems special meeting will be on a first-come, first-served basis. Registration and seating will begin at [●], Eastern Time.

If you hold your shares of Fuel Systems common stock in your name as a stockholder of record and you wish to attend the Fuel Systems special meeting, please bring your proxy and evidence of your stock ownership, such as your most recent account statement, to the Fuel Systems special meeting. You should also bring valid picture identification.

If your shares of Fuel Systems common stock are held in “street name” in a stock brokerage account or by a bank or nominee and you wish to attend the Fuel Systems special meeting, you need to bring a copy of a bank or brokerage statement to the Fuel Systems special meeting reflecting your stock ownership as of the Fuel Systems record date. You should also bring valid picture identification.

No Other Business

Under Fuel Systems’ bylaws, the business to be conducted at the Fuel Systems special meeting will be limited to the purposes stated in the notice to Fuel Systems’ stockholders provided with this proxy statement/prospectus and any matters reasonably related thereto.

 

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FUEL SYSTEMS PROPOSALS

Item 1. The Merger Proposal

(Item 1 on Proxy Card)

As discussed throughout this proxy statement/prospectus, Fuel Systems is asking Fuel Systems’ stockholders to approve the Merger proposal. Fuel Systems stockholders should carefully read this proxy statement/prospectus in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. In particular, Fuel Systems’ stockholders are directed to the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus.

The Fuel Systems Board of Directors recommends a vote “FOR” the Merger proposal.

Item 2. Amendments to Non-Employee Directors’ Restricted Stock Awards Proposal

(Item 2 on Proxy Card)

On an annual basis after the Fuel Systems’ annual meeting of stockholders, the board of directors grants to each non-employee director a restricted stock award under the stockholder approved 2009 Restricted Stock Plan (the “Plan”). The award serves as a lump sum payment for a director’s services for the following year and represents approximately 40% of a director’s annual director compensation.

Under the terms of the award, a director that ceases to serve as a director of Fuel Systems for any reason before the vesting date (which is typically on or around the next annual meeting date) forfeits the award.

In light of the proposed merger, a Fuel Systems’ director who will not become a director of Westport would forfeit his award. During the period after the 2015 annual meeting of stockholders, the evaluation of strategic alternatives and the activities of the board in connection with the contemplated merger required a significant time commitment for directors.

In light of the consequence of the award being forfeited upon a change in control, the compensation committee asked its independent compensation consultant to review the situation and make a recommendation. The compensation consultant advised that the more common practice is for director equity grants to vest upon grant to encourage immediate alignment of interests with stockholders as well as the fostering of independence and objectivity for the director. The compensation consultant also advised that, based on its findings, in circumstances where director equity grants have deferred vesting terms, it is generally common practice for such grants to provide for accelerated vesting upon a change in control. Consequently, the compensation consultant recommended to the compensation committee that Fuel Systems’ existing unvested non-employee director restricted stock grants be amended to automatically vest upon a change in control and that, for future grants, the compensation committee consider granting restricted stock awards with immediate vesting to align with common practice. Based upon the report of the compensation consultant, the compensation committee recommended to the board of directors that the awards be amended to vest upon a change in control.

The Fuel Systems board of directors approved the amendment but made its effectiveness subject to stockholder approval. The approval of the amendment is not required by the terms of the Plan, stock exchange rules or otherwise. While the board agreed with the recommendation and reasoning of the compensation committee, it determined it was appropriate under the circumstances of a pending merger to seek stockholder approval for the vesting of the annual restricted stock award upon a change in control and determined to submit the amendment to stockholders for their consideration at the Fuel Systems special meeting.

The Fuel Systems board of directors formally approved the amendments, dated August 21, 2015 (the “Amendments”), to each applicable award set forth below (the “Awards”), which provide that the vesting date of

 

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any unvested restricted stock issued pursuant to each Award will be the earlier of (i) the vesting date set forth in the Award, or (ii) a change in control (as defined in the Plan); provided, that the Amendments will not be effective unless holders of a majority of the shares of Fuel Systems common stock present in person or by proxy and entitled to vote at the next shareholders’ meeting vote in favor of such amendment. The consummation of the proposed merger would constitute a “change in control” under the Plan and the Awards.

The unvested Awards to which the Amendments relate are described below:

 

Director

Restricted Stock Award

Issue Date

Vesting Schedule

Joseph E. Pompeo

6,054

May 28, 2015

May 18, 2016

Marco Di Toro

6,054

May 28, 2015

May 18, 2016

James W. Nall

6,054

May 28, 2015

May 18, 2016

Troy A. Clarke

6,054

May 28, 2015

May 18, 2016

Colin Johnston

6,054

May 28, 2015

May 18, 2016

Steven R. Becker

6,054

May 28, 2015

May 18, 2016

Anthony Harris (1)

6,054

May 28, 2015

May 18, 2016

Anthony Harris (1)

1,442

Dec. 31, 2013

1/3 vested on Dec. 31, 2014; 1/3 vests on Dec. 31, 2015; 1/3 vests on Dec. 31, 2016

 

(1)

In addition to the annual award issued to Mr. Harris on May 28, 2015 at the Fuel Systems 2015 Annual Meeting of Stockholders, Mr. Harris also holds 961 unvested shares as a result of the issuance of restricted stock on December 31, 2013 granted to Mr. Harris in connection with his appointment to the Fuel Systems board of directors.

If the Fuel Systems stockholders do not approve this proposal, the Awards will not vest as a result of the merger and (i) with respect to Fuel Systems’ non-employee directors that do not continue as directors of Westport following the closing of the merger, the Awards would be forfeited upon closing of the merger, and (ii) with respect to the Fuel Systems’ non-employee directors that continue as directors of Westport, the Awards would be converted to Westport common shares, as adjusted by the exchange ratio, and will vest on May 18, 2016 so long as that director continues as a director of Westport until that date.

If the Fuel Systems stockholders approve the Amendments, no Awards will be forfeited and all awards will vest for the non-employee directors upon the closing of the merger with Westport.

The Fuel Systems board of directors recommends a vote “FOR” the Amendments to Non-Employee Directors’ Restricted Stock Awards proposal.

Item 3. The Advisory Compensation Proposal

(Item 3 on Proxy Card)

In this proposal, Fuel Systems is asking its stockholders to approve, on an advisory (non-binding) basis, specified compensation that may be payable to Fuel Systems’ named executive officers in connection with the merger and therefore is asking stockholders to adopt the following resolution:

“RESOLVED, that the compensation that may be paid or become payable to Fuel Systems’ named executive officers in connection with the merger, as disclosed in the table in the section of the proxy statement/prospectus entitled “The Merger—Interests of Directors and Executive Officers in the Merger—Compensation Related to the Merger,” including the preceding narrative discussion, and the agreements pursuant to which such compensation may be paid or become payable, are hereby APPROVED.”

 

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The advisory vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote to approve the merger and adopt the merger agreement, and approval of such executive compensation is not a condition to completion of the merger. Accordingly, you may vote to approve the merger and adopt the merger agreement and vote not to approve the advisory executive compensation and vice versa. Because the vote is advisory in nature only, it will not be binding on either Fuel Systems or Westport. Accordingly, to the extent Fuel Systems or Westport is contractually obligated to pay the compensation, the compensation will be payable to the named executive officers, subject only to the conditions applicable thereto, if the merger agreement is adopted and the merger completed, regardless of the outcome of the advisory vote.

The Fuel Systems board of directors recommends a vote “FOR” the Advisory Compensation proposal.

Item 4. The Adjournment Proposal

(Item 4 on Proxy Card)

The Fuel Systems’ special meeting may be adjourned to another time or place, if necessary to solicit additional proxies if there are insufficient votes at the time of the Fuel Systems’ special meeting to approve the Merger proposal.

If, at the Fuel Systems’ special meeting, the number of shares of Fuel Systems common stock present or represented by proxy and voting in favor of the merger and merger agreement is insufficient to approve the Merger proposal, Fuel Systems intends to move to adjourn the Fuel Systems special meeting in order to enable the Fuel Systems board of directors to solicit additional proxies for approval of the Merger proposal. In that event, Fuel Systems will ask its stockholders to vote only upon the Adjournment proposal, and not upon any other proposal.

In this proposal, Fuel Systems is asking Fuel Systems’ stockholders to authorize the holder of any proxy solicited by the Fuel Systems board of directors to vote in favor of granting discretionary authority to the proxy holders, and each of them individually, to adjourn the Fuel Systems’ special meeting to another time and place for the purpose of soliciting additional proxies. If the Fuel Systems’ stockholders approve the Adjournment proposal, Fuel Systems could adjourn the Fuel Systems’ special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from Fuel Systems’ stockholders who have previously voted.

The Fuel Systems’ board of directors recommends a vote “FOR” the Adjournment proposal, if necessary.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION

The unaudited pro forma condensed combined financial information (the “Pro Forma Financial Information”) of Westport and Fuel Systems reflect various adjustments to give effect to the following transaction, and the resulting tax effects:

 

•

Westport plans to acquire Fuel Systems, pursuant to the terms of the merger agreement, for approximately $151.6 million. The $151.6 million is the market value of the Westport common shares at October 9, 2015 to be issued in exchange for shares of Fuel Systems common stock as at the closing date of the merger. Each Fuel Systems share will convert into 2.129 Westport shares. The final purchase price will be based on the value of Westport’s common shares at the closing date of the merger.

The merger will be accounted for under the acquisition method of accounting for business combinations under U.S. GAAP, with Westport being the accounting and legal acquirer.

The unaudited pro forma condensed combined balance sheet as at June 30, 2015 (the “Pro Forma Balance Sheet”) is based on the historical consolidated balance sheets of Westport and Fuel Systems after giving effect to the merger as if it had occurred on June 30, 2015. Similarly, the unaudited pro forma condensed combined statements of operations and comprehensive (loss) income (the “Pro Forma Statements of Operations”) for the year ended December 31, 2014 and six months ended June 30, 2015 are based on the historical consolidated statements of operations and comprehensive loss of Westport and Fuel Systems after giving effect to the merger as if it had occurred on January 1, 2014.

The historical consolidated financial information has been adjusted in the Pro Forma Financial Information to give effect to pro forma events that are (i) directly attributable to the merger, (ii) factually supportable and (iii) with respect to the Pro Forma Statements of Operations, are expected to have a continuing impact on the results of operations.

The Pro Forma Financial Information and adjustments have been prepared based upon currently available information and certain assumptions, which are described in the accompanying notes thereto. Given that the acquisition method of accounting is dependent upon certain valuations and other analyses that have yet to be completed; the assumptions, estimates and adjustments reflected in the Pro Forma Financial Information are preliminary and subject to change. The determination of the final acquisition accounting and actual results may differ materially from the assumptions, estimates and adjustments reflected in the Pro Forma Financial Information. Furthermore, the accompanying Pro Forma Statements of Operations do not reflect the financial impact of any expected costs savings, synergies, integration costs or non-recurring activities and one-time transaction costs that may be realized or incurred in subsequent reporting periods.

The Pro Forma Financial Information are provided for information purposes only and are not intended to represent, or be indicative of, future anticipated financial results or the results that would have occurred had the merger been consummated on the dates indicated. The Pro Forma Financial Information and notes thereto should be read in conjunction with: (i) the historical audited and unaudited consolidated financial information and related notes of Westport, which are incorporated by reference into this proxy statement/prospectus, and (ii) the historical audited and unaudited consolidated financial information and related notes of Fuel Systems that are included in this proxy statement/prospectus.

 

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Table of Contents

Westport Innovations Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

As At June 30, 2015

(In thousands, except per share data)

 

		Westport				Fuel Systems (as amended, Note 7)				Pro Forma Adjustments				Note Reference				Pro Forma Combined Westport/Fuel Systems
Assets
Current assets:
Cash and cash equivalents		$	59,937			$	48,583			$	—							$	108,520
Short-term investments			709				7,615				—								8,324
Accounts receivable			43,546				46,875				—								90,421
Inventories			37,517				72,782				—				4	(b)			110,299
Current portion of deferred income tax assets			2,924				1,861				—								4,785
Related party receivables			303				4,062				—								4,365
Other Assets			5,983				19,468				—				4	(a)			25,451
			150,919				201,246				—								352,165
Long-term investments			29,815				—				—								29,815
Other assets			2,980				1,393				—								4,373
Property, plant and equipment			47,771				43,588				—				4	(c)			91,359
Intangible assets			24,348				5,691				—				4	(d)			30,039
Deferred income tax assets			251				3,626				—				4	(a)			3,877
Goodwill			21,671				7,116				(7,116	)			4	(e)			21,671
			277,755				262,660				(7,116	)							533,299
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities			49,191				47,413				—								96,604
Assumed Liabilities			—				—				17,031				4	(f)			17,031
Current portion of deferred revenue			1,951				10,921				—								12,872
Current portion of deferred income tax liabilities			185				44				—								229
Current portion of long-term debt			19,272				97				—								19,369
Current portion of warranty liability			8,266				3,392				—								11,658
Related party payables			—				1,509				—								1,509
			78,865				63,376				17,031								159,272
Warranty liability			10,172				1,746				—								11,918
Long-term debt			52,389				—				—								52,389
Deferred revenue			2,594				2,080				—								4,674
Deferred income tax liabilities			4,276				783				—								5,059
Other long-term liabilities			1,398				5,906				—								7,304
			149,694				73,891				17,031								240,616
Shareholders’ equity:
Share capital:
Authorized:
Unlimited common shares, no par value
Unlimited preferred shares in series, no par value
Issued:
(102,867,947 post merger) Common shares			935,966				20				151,624				4	(g)			1,087,610
Shares held in treasury			—				(20,801	)			20,801				4	(h)			—
Other equity instruments			11,225				—				—								11,225
Additional paid in capital			9,837				321,286				(321,286	)			4	(i)			9,837
Accumulated deficit			(802,653	)			(72,020	)			84,871				4	(j)			(789,802	)
Accumulated other comprehensive (loss) income			(26,314	)			(39,843	)			39,843				4	(k)			(26,314	)
			128,061				188,642				(24,147	)							292,556