UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 8-K

 CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
 Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 16, 2019

PIONEER POWER SOLUTIONS, INC. 

(Exact name of registrant as specified in its charter)

400 Kelby Street, 12th Floor 

Fort Lee, New Jersey 07024 

(Address of principal executive offices)

(212) 867-0700 

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

As previously reported, on June 28, 2019, Pioneer Power Solutions, Inc. (the “Company” or “Pioneer Power”) entered into a Stock Purchase Agreement, dated as of June 28, 2019 (the “Stock Purchase Agreement”), by and among the Company, Electrogroup Canada, Inc., a wholly owned subsidiary of the Company (“Electrogroup”), Jefferson Electric, Inc., a wholly owned subsidiary of the Company (“Jefferson”), JE Mexican Holdings, Inc., a wholly owned subsidiary of the Company (“JE Mexico,” and together with Electrogroup and Jefferson, the “Disposed Companies”), Nathan Mazurek, Pioneer Transformers L.P. (the “US Buyer”) and Pioneer Acquireco ULC (the “Canadian Buyer,” and together with the US Buyer, the “Buyer”), which was subsequently amended by Amendment No. 1 to the Stock Purchase Agreement, dated as of August 13, 2019 (the “Amendment”). Pursuant to the Stock Purchase Agreement, the Company agreed to sell (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer (collectively, the “Equity Transaction”).

On August 16, 2019, the Company completed the Equity Transaction pursuant to the terms and conditions of the Stock Purchase Agreement. As consideration for the Disposed Companies, Buyer paid the Company a base aggregate purchase price of $68.0 million, consisting of (i) $60.5 million of cash, (ii) the issuance by the Buyer of a subordinated promissory note to Pioneer Power in the aggregate principal amount of $5.0 million and (iii) the issuance by the Buyer of a subordinated promissory note to Pioneer Power in the aggregate principal amount of $2.5 million. The purchase price is subject to a customary working capital adjustment, as described more fully in the Stock Purchase Agreement.

The foregoing description of the Stock Purchase Agreement and the Amendment does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement and the Amendment, copies of which were filed as Exhibit 2.1 to the Company’s Current Reports on Form 8-K, filed with the Securities and Exchange Commission on July 1, 2019 and August 14, 2019, respectively, and are incorporated herein by reference.

(b)       Pro Forma Financial Information

The Company’s unaudited pro forma consolidated financial information giving effect to the Equity Transaction is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

(d)       Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Pioneer Power Solutions 8-K

Exhibit 99.1

Unaudited Pro Forma Condensed Consolidated Financial Statements

On June 28, 2019, Pioneer Power Solutions, Inc. (the “Company,” “Pioneer Power” or “PPSI”) entered into a Stock Purchase Agreement, dated as of June 28, 2019 (the “Stock Purchase Agreement”), by and among the Company, Electrogroup Canada, Inc., a wholly owned subsidiary of the Company (“Electrogroup”), Jefferson Electric, Inc., a wholly owned subsidiary of the Company (“Jefferson”), JE Mexican Holdings, Inc., a wholly owned subsidiary of the Company (“JE Mexico,” and together with Electrogroup and Jefferson, the “Disposed Companies”), Nathan Mazurek, Pioneer Transformers L.P. (the “US Buyer”) and Pioneer Acquireco ULC (the “Canadian Buyer,” and together with the US Buyer, the “Buyer”), which was amended on August 13, 2019. Pursuant to the terms of the Stock Purchase Agreement, as amended, the Company agreed to sell (i) all of the issued and outstanding equity interests of Electrogroup to the Canadian Buyer and (ii) all of the issued and outstanding equity interests of Jefferson and JE Mexico to the US Buyer (the “Equity Transaction”).

On August 16, 2019, the Company completed the Equity Transaction pursuant to the terms and conditions of the Stock Purchase Agreement. As consideration for the Disposed Companies, Buyer paid the Company a base aggregate purchase price of $68.0 million, consisting of (i) $60.5 million of cash, (ii) the issuance by the Buyer of a subordinated promissory note to Pioneer Power in the aggregate principal amount of $5.0 million and (iii) the issuance by the Buyer of a subordinated promissory note to Pioneer Power in the aggregate principal amount of $2.5 million. The purchase price is subject to customary working capital adjustment, as described more fully in the Stock Purchase Agreement. In addition, pursuant to the terms of the Stock Purchase Agreement, the Buyer will have the right to set-off amounts owed to Pioneer Power under the $5.0 million seller note on a dollar-for-dollar basis by the amount of any indemnifiable losses Buyer suffers as a result of certain actions or omissions by Pioneer Power or the Disposed Companies. The Equity Transaction transferred the ownership of the dry type and liquid type transformer businesses (“transformer business”) from PPSI to the Buyer. As a result, the transformer business’ historical results will be reported in PPSI’s consolidated financial statements as discontinued operations and in subsequent periods PPSI’s consolidated financial statements will no longer reflect the assets, liabilities, results of operations or cash flows attributable to the transformer business.

The following unaudited pro forma condensed consolidated financial statements (“unaudited pro forma statements”) and explanatory notes are based on PPSI’s historical consolidated financial statements adjusted to give effect to the Equity Transaction. The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six months ended June 30, 2019 and year ended December 31, 2018 have been prepared with the assumption that the Equity Transaction occurred as of the beginning of the statement period. The pro forma consolidated statement of operations as of December 31, 2017 has been included to present the impact of the sale of the transformer business on continuing operations. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2019 has been prepared with the assumption that the Equity Transaction was completed as of the balance sheet date.

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

The unaudited pro forma statements should be read in conjunction with the audited financial statements and the notes thereto included in PPSI’s Annual Report on Form 10-K for the year ended December 31, 2018 as well as the Company’s unaudited condensed consolidated financial statements and notes thereto included in the Company’s Quarterly report on Form 10-Q for the period ended June 30, 2019. 

See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.

See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.

See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.

See the accompanying notes which are an integral part of these unaudited pro forma condensed consolidated financial statements.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

1. Equity Transaction

The consideration payable by the Buyer in the Equity Transaction is (i) a base cash purchase price of $60.5 million, as well as the issuance by the Buyer of a subordinated promissory note to PPSI in the aggregate principal amount of $5.0 million (the “First Seller Note”) and a subordinated promissory note to PPSI in the aggregate principal amount of $2.5 million (the “Second Seller Note,” and together with the First Seller Note, the “Seller Notes”), in each case subject to adjustment pursuant to the terms of the Stock Purchase Agreement. Pursuant to the terms of the Stock Purchase Agreement, the Seller Notes will bear interest at an annualized rate of 4.0%, to be paid-in-kind annually, and will have a maturity date of December 31, 2022. In addition, pursuant to the terms of the Stock Purchase Agreement, the Buyer will have the right to set-off amounts owed to Pioneer Power under the First Seller Note on a dollar-for-dollar basis by the amount of any indemnifiable losses Buyer suffers as a result of certain actions or omissions by Pioneer Power or the Disposed Companies.

2. Unaudited Pro Forma Adjustments

The following notes describe the basis for and/or assumptions regarding the pro forma adjustments included in the Company’s unaudited pro forma statements.

All dollar amounts (except share and per share data) presented in the notes to our unaudited consolidated financial statements are stated in thousands of dollars, unless otherwise noted. Amounts may not foot due to rounding.

(a) Recording of the disposition of the transformer business. The amounts include the assets and liabilities attributable to the business being sold.

(b) Recording of the sale proceeds, net of estimated transaction related expenses.

(c) Recording of repayment of the revolving credit facilities, short term borrowings and debt.

(d) The table below represents the tax expense and related taxes payable associated with sale of PPSI’s transformer business.

We have applied an effective tax rate of 25.2% which represents the consolidated group tax for US tax purposes.

The Company estimates the taxable income of $21.7 million with respect to the gain on sale of common stocks of the Disposed Companies to be partially offset by federal net operating losses on hand of approximately $3.3 million as of the transaction date. The Company estimates that after utilizing federal, state and local net operating losses they will incur federal, state and local income taxes of approximately $4.6 million.

(e) The estimated gain on the sale of the business if we had completed the sale as of June 30, 2019 is as follows:

This estimated gain has not been reflected in the pro forma condensed consolidated statement of operations as it is considered to be nonrecurring in nature and is reflected within equity on the Balance Sheet for the period ended June 30, 2019. No adjustment has been made to the sale proceeds to give effect to any potential post-closing adjustments under the terms of the Equity Transaction.

3. Discontinued Operations

The Financial results of the transformer business, net of income taxes, have been removed to reflect the effects of the disposition and the retrospective presentation as discontinued operations in future filings. The following table presents the financial results for the transformer business for the years ended December 31, 2018 and 2017 and six months ended June 30, 2019: