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As filed with the Securities and Exchange Commission on May 28, 2021

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

THE LION ELECTRIC COMPANY

(Exact Name of Registrant as specified in its charter)

 

 

 

Québec, Canada   3711   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

921 chemin de la Rivière-du-Nord

Saint-Jérôme (Québec) J7Y 5G2

Tel: (450) 432-5466

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

 

 

Puglisi & Associates

850 Library Avenue, Suite 204

Newark, Delaware 19711

(302) 738-6680

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

 

 

Copies to:

 

Aniko Pelland
David Tardif
Stikeman Elliott LLP
1155 Réne-Lévesque Blvd.
West, 41st Floor
Montreal, QC H3B 3V2
Telephone: (514) 397-3000
  E. Ramey Layne
John A. Kupiec
Scott D. Rubinsky
Vinson & Elkins L.L.P.
1114 Avenue of the
Americas, 32nd Floor
New York, NY 10036
(212) 237-0000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☒

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(c) 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 number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 7(a)(2)(B) of the Securities Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Amount to be

registered(1)

 

Proposed

maximum

offering price

Per Unit(2)

 

Proposed

maximum

aggregate

offering price(2)

 

Amount of

registration fee

Common Shares, no par value

  152,276,690   $18.94   $2,884,120,509   $314,658

 

 

(1)

Represents common shares offered by the selling securityholders identified in this prospectus. Includes an indeterminable number of additional common shares that, pursuant to Rule 416 under the Securities Act of 1933, as amended, may be issued to prevent dilution from stock splits, stock dividends or similar transactions that could affect the common shares to be offered by the selling securityholders.

(2)

Pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and solely for the purpose of calculating the registration fee, the proposed maximum offering price is $18.94, which is the average of the high and low prices of the registrant’s common shares on May 21, 2021 on the New York Stock Exchange.

 

 

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, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. Neither The Lion Electric Company nor the selling securityholders may sell or otherwise distribute the securities offered by this prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or sale is not permitted.

Subject to completion, dated May 28, 2021

PRELIMINARY PROSPECTUS

LOGO

152,276,690 Common Shares

 

 

This prospectus relates to the offer and sale from time to time by the selling securityholders or their permitted transferees (collectively, the “selling securityholders”) of up to 152,276,690 common shares in the capital of The Lion Electric Company. This prospectus also covers any additional securities that may become issuable by reason of share splits, share dividends or other similar transactions.

The shares covered by this prospectus include (i) 132,867,990 common shares held, or issuable upon exercise of the Specified Customer Warrant (as defined herein), by certain selling securityholders that were securityholders of The Lion Electric Company, a corporation existing under the Business Corporations Act (Québec) (“Lion”), prior to the closing of the business combination (the “Business Combination”) between Lion, Lion Electric Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Lion, and Northern Genesis Acquisition Corp., a Delaware corporation and (ii) 19,408,700 common shares issued to certain securityholders in connection with the closing of a private placement offering at a price per share of $10.00, for gross proceeds of approximately $200,402,000, which closed concurrently with the Business Combination on May 6, 2021.

Lion is registering the offer and sale of the securities described above to satisfy certain registration rights they have granted. Lion is registering these securities for resale by the selling securityholders named in this prospectus, or their transferees, pledgees, donees or assignees or other successors-in-interest that receive any of the shares as a gift, distribution, or other non-sale related transfer. The selling securityholders may offer all or part of the securities for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. These securities are being registered to permit the selling securityholders to sell securities from time to time, in amounts, at prices and on terms determined at the time of offering. The selling securityholders may sell these securities through ordinary brokerage transactions, directly to market makers of Lion’s shares or through any other means described in the section titled “Plan of Distribution”. In connection with any sales of common shares offered hereunder, the selling securityholders, any underwriters, agents, brokers or dealers participating in such sales may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

All of the common shares offered by the selling securityholders pursuant to this prospectus will be sold by the selling securityholders for their respective accounts. Lion will not receive any of the proceeds from such sales.

Lion will pay certain expenses associated with the registration of the securities covered by this prospectus, as described in the section titled “Plan of Distribution”.

Lion’s common shares are listed on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”) under the symbol “LEV”. On May 27, 2021, the last reported sale price of Lion’s common shares as reported on the NYSE was $19.16 per share.

Lion may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.

Lion is a “foreign private issuer” under applicable Securities and Exchange Commission rules and an “emerging growth company” as that term is defined in the Jumpstart Our Business Startups Act of 2012 and, as such, is subject to reduced public company reporting requirements.

 

 

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of material risks of investing in our securities in “Risk Factors“ beginning on page 7 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities or Canadian securities regulator has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Prospectus dated                 , 2021


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TABLE OF CONTENTS

 

IMPORTANT INFORMATION ABOUT IFRS AND NON-IFRS FINANCIAL MEASURES

     ii  

CONVENTIONS THAT APPLY TO THIS PROSPECTUS

     ii  

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

     ii  

INDUSTRY AND MARKET DATA

     ii  

PROSPECTUS SUMMARY

     1  

THE OFFERING

     6  

RISK FACTORS

     7  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     36  

USE OF PROCEEDS

     37  

DIVIDEND POLICY

     38  

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

     39  

BUSINESS

     50  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     69  

MANAGEMENT

     95  

EXECUTIVE COMPENSATION

     105  

DESCRIPTION OF SHARE CAPITAL OF LION

     114  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     119  

BENEFICIAL OWNERSHIP OF SECURITIES

     121  

SELLING SECURITYHOLDERS

     124  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     132  

PLAN OF DISTRIBUTION

     141  

EXPENSES RELATED TO THE OFFERING

     145  

LEGAL MATTERS

     146  

EXPERTS

     146  

SERVICE OF PROCESS AND  ENFORCEABILITY OF CIVIL LIABILITIES UNDER U.S. SECURITIES LAWS

     147  

WHERE YOU CAN FIND MORE INFORMATION

     147  

INDEX TO FINANCIAL STATEMENTS

     F-1  

You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. Neither Lion, nor the selling securityholders, has authorized any other person to provide you with different or additional information. Neither Lion, nor the selling securityholders, takes responsibility for, nor can Lion provide assurance as to the reliability of, any other information that others may provide. The selling securityholders are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus or such other date stated in this prospectus, and Lion’s business, financial condition, results of operations and/or prospects may have changed since those dates.

Except as otherwise set forth in this prospectus, neither Lion nor the selling securityholders has taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.

 

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IMPORTANT INFORMATION ABOUT IFRS AND NON-IFRS FINANCIAL MEASURES

Lion’s financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).

This prospectus makes reference to certain non-IFRS measures, including Adjusted EBITDA, and other performance metrics, including the Company’s order book. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS.

For more information on non-IFRS measures, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures and Other Performance Metrics.”

CONVENTIONS THAT APPLY TO THIS PROSPECTUS

In this prospectus, unless otherwise specified, all monetary amounts are in U.S. dollars, all references to “US$,” “$,” “USD” and “dollars” mean U.S. dollars and all references to “C$” mean Canadian dollars.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

This prospectus includes certain trademarks, such as “Lion,” “LionBeat” and “LionEnergy,” which are registered under applicable intellectual property laws and are Lion’s property or for which Lion has pending applications or common law rights. Solely for convenience, the trademarks, and trade names referred to in this prospectus are listed without the ®, and (TM) symbols, but Lion intends to assert, to the fullest extent under applicable law, its rights or the rights of the applicable licensors to these trademarks, and trade names.

INDUSTRY AND MARKET DATA

Industry and market data presented throughout this prospectus was obtained from third-party sources and industry reports, and from publications, websites and other publicly available information, as well as industry and other data prepared by Lion or on its behalf on the basis of Lion’s knowledge of the markets in which it operates, including information provided by suppliers, partners, customers and other industry participants.

Lion believes that the market and economic data presented throughout this prospectus is accurate and, with respect to data prepared by Lion or on its behalf, that Lion’s estimates and assumptions, as applicable, are currently appropriate and reasonable, but there can be no assurance as to the accuracy or completeness thereof. The accuracy and completeness of the market and economic data presented throughout this prospectus are not guaranteed and Lion does not make any representation or warranty, express or implied, as to the accuracy of such data. Actual outcomes may vary materially from those forecast in such reports or publications, and the prospect for material variation can be expected to increase as the length of the forecast period increases. Although Lion believes it to be reliable, it has not independently verified any of the data from third-party sources referred to in this prospectus, analyzed or verified the underlying studies or surveys relied upon or referred to by such sources, or ascertained the underlying market, economic and other assumptions relied upon by such sources. Market and economic data, including estimates and projections relating to addressable markets, competitive position and market share, is subject to variations and cannot be verified due to limits on the availability and reliability of data inputs, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. Lion’s management estimates are based on internal research, their knowledge of the relevant market and industry and extrapolations from third-party sources. While Lion is not aware of any misstatements regarding the industry and market data presented in this prospectus, such data involve risks and uncertainties and are subject to change based on various factors, including those factors discussed under the section entitled “Cautionary Note Regarding Forward-Looking Statements.” Lion has no intention and undertakes no obligation to update or revise any such information or data, whether as a result of new information, future events or otherwise, except as required by law.

 

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PROSPECTUS SUMMARY

This summary highlights certain information about The Lion Electric Company, this offering and selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in the securities covered by this prospectus. For a more complete understanding of The Lion Electric Company and this offering, we encourage you to read and consider carefully the more detailed information in this prospectus, any related prospectus supplement and any related free writing prospectus, including the information set forth in the section titled “Risk Factors” in this prospectus, any related prospectus supplement and any related free writing prospectus in their entirety before making an investment decision.

Unless otherwise stated or the context otherwise indicates, references to “Lion,” “we”, “our,” “us” or “Company” refers to The Lion Electric Company, a corporation existing under the Business Corporations Act (Québec).

Our Company

Lion is a corporation incorporated in 2008 and existing under the Business Corporations Act (Québec). Lion believes it is a North American leader in the design, development, manufacturing, and distribution of purpose-built all-electric medium and heavy-duty urban electric vehicles (“EV”). Lion gained distinct industry expertise and a first-mover advantage in the medium and heavy-duty urban EV segment through more than 10 years of focused all-electric vehicle R&D, manufacturing and commercialization experience. Lion’s vehicles and technology benefit from over seven million miles driven by over 390 of its purpose-built all-electric vehicles that are on the road today, in real-life operating conditions.

Lion’s growing line-up of purpose-built all-electric vehicles consists of seven mid-range truck and bus models available for purchase today. Lion further has an active product development pipeline and expects to launch eight new mid-range truck and bus models over the next two years. By the end of 2022, management believes Lion will have among the broadest mid-range EV offerings in the medium and heavy-duty urban segment, with an expected total of 15 vehicles comprising Class 5, 6, 7 and 8 electric trucks designed for specific applications, Type A, C and D electric school buses, as well as an electric medium-duty shuttle bus and an electric ambulance.

Lion’s EVs are tailored to satisfy the needs of its customers and are entirely designed, manufactured and assembled in-house in North America, without relying on traditional combustion-engine vehicle retrofitting or third-party integrators. To achieve this, Lion has developed its own purpose-built for electric chassis, truck cabins, and bus bodies, incorporating its proprietary battery technology with modular energy capacity and its proprietary Lion software.

Like others in the EV space, Lion has adopted a direct-to-customer sales model tailored for EVs, avoiding reliance on third-party dealerships in most instances. As part of its go-to-market strategy, Lion assists its customers through the EV transition journey in all critical aspects of vehicle selection, purchase and adoption, including EV education and training, identification and seeking of any applicable governmental grants, energy requirements, charging infrastructure, maintenance and advanced telematics solutions. To enhance customer experience and help drive repeat purchases, Lion leverages its growing network of Experience Centers, which are dedicated spaces where prospective customers, policymakers and other transportation industry stakeholders can interact with EVs, learn about their specifications and advantages, meet a sales representative, discuss grant and subsidy assistance, receive vehicle training, and have existing vehicles serviced. Services available on-site at Lion’s Experience Centers include product demonstrations and sales support, full-service training, charging infrastructure assistance and maintenance support. There are currently nine Experience Centers strategically located in key markets in the United States and Canada, with additional centers expected to be opened within the next two years.

By capitalizing on its significant first-mover advantage, broad EV line-up available today, turnkey customer experience and rapidly growing customer base, Lion’s management believes Lion is strongly positioned to gain significant market share in the medium and heavy-duty mid-range vehicle segment.

 

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Recent Developments

Closing of Business Combination Agreement with Northern Genesis Acquisition Corp. and Concurrent Equity Private Placement

On May 6, 2021, Lion completed its previously-announced business combination transaction pursuant to a business combination agreement and plan of reorganization dated as of November 30, 2020 (the “Business Combination Agreement”), among Lion, Northern Genesis Acquisition Corp. (“NGA”) and Lion Electric Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Lion (“Merger Sub”), pursuant to which (i) Merger Sub merged with and into NGA through a statutory merger under the laws of the State of Delaware, with NGA surviving the merger as a wholly-owned subsidiary of Lion (the “Business Combination”), and (ii) as consideration for the merger, each outstanding share of NGA’s common stock held by an NGA stockholder was converted into the right to receive one newly issued common share of Lion (each, a “Lion Common Share”), and each outstanding warrant to purchase shares of NGA’s common stock, with each such whole warrant exercisable for one share of NGA’s common stock at an exercise price of $11.50, was converted into a warrant to acquire a number of Lion Common Shares (each, a “Lion Warrant”) equal to the number of shares of NGA’s common stock underlying each such warrant of NGA. At the time of closing (“Closing”) of the Business Combination, NGA held (net of the redemptions exercised by NGA’s stockholders holding 20,449 shares) approximately $320 million in its trust account.

Immediately prior to the completion of the Business Combination, Lion completed a reorganization (the “Pre-Closing Reorganization”) which included a share split pursuant to which each Lion Common Share outstanding immediately prior to such share split was converted into 4.1289 Lion Common Shares. Immediately prior to the completion of the Business Combination, Lion also completed a private placement (the “PIPE Financing”) pursuant to which a number of investors agreed to purchase, and Lion agreed to sell to such investors, an aggregate of 20,040,200 Lion Common Shares, for a purchase price of $10.00 per share and an aggregate purchase price of $200,402,000.

The Business Combination and the PIPE Financing resulted in proceeds of approximately $490 million, net of transaction fees. Approximately $90 million of the net proceeds were used to repay outstanding credit facilities and debt instruments. See section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Update with Respect to Certain Debt Instruments.”

Following the closing of the Business Combination and the PIPE Financing, the Lion Common Shares began trading on the TSX and on the NYSE under the new symbol “LEV”, and the Lion Warrants began trading on the TSX under the new symbol “LEV.WT” and on the NYSE under the new symbol “LEV WS”.

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

As defined in Section 102(b)(1) of the JOBS Act (as defined below), Lion is as an emerging growth company (“EGC”). As such, Lion is eligible for and relies on certain exemptions and reduced reporting requirements provided by the JOBS Act, including (a) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements.

Lion will remain an EGC under the JOBS Act until the earliest of (i) the last day of the fiscal year in which the market value of Lion’s Common Shares that are held by non-affiliates exceeds $700 million as of the last business day of the second quarter of that fiscal year, (ii) the last day of the fiscal year in which it has total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which it has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the Closing.

Lion qualifies as a “foreign private issuer” as defined under SEC rules. Even after Lion no longer qualifies as an EGC, as long as Lion continues to qualify as a foreign private issuer under SEC rules, Lion is exempt from certain SEC rules that are applicable to U.S. domestic public companies, including:

 

   

the rules requiring domestic filers to issue financial statements prepared under U.S. GAAP;

 

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the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time;

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial statements and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events; and

 

   

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

Notwithstanding these exemptions, Lion will file with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC or Canadian securities legislation, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm.

Lion may take advantage of these exemptions until such time as Lion is no longer a foreign private issuer. Lion would cease to be a foreign private issuer at such time as more than 50% of its outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of its executive officers or directors are U.S. citizens or residents, (ii) more than 50% of its assets are located in the United States or (iii) its business is administered principally in the United States.

Both foreign private issuers and EGCs also are exempt from certain more stringent executive compensation disclosure rules. Thus, even if Lion no longer qualifies as an EGC, but remains a foreign private issuer, Lion will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an EGC nor a foreign private issuer.

In addition, because Lion qualifies as a foreign private issuer under SEC rules, Lion is permitted to follow the corporate governance practices of Canada (the jurisdiction in which Lion is organized) in lieu of certain NYSE corporate governance requirements that would otherwise be applicable to Lion. For example, under Canadian securities laws, Lion is not required to have a board of directors comprised of a majority of directors meeting the independence standards described in the listing rules of the NYSE (“the NYSE Listing Rules”). In addition, under Canadian securities laws, Lion is not required to have a compensation committee or a nominations committee that is comprised solely of independent directors.

If at any time Lion ceases to be a foreign private issuer, Lion will take all action necessary to comply with the SEC and NYSE Listing Rules, including by having compensation and nominating committees that are comprised solely of independent directors, subject to a permitted “phase-in” period.

Risk Factors

An investment in the Lion Common Shares involves a high degree of risk. Below is a summary of certain key risk factors that you should consider before deciding to invest in the Lion Common Shares. However, this list is not exhaustive. For more information about the risks related to an investment in the Lion Common Shares, see the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Some of the significant risks include:

 

   

Lion’s ability to economically develop, manufacture and distribute its vehicles at scale and meet its customers’ business needs.

 

   

Lion’s ability to successfully implement its growth strategy and manage future growth effectively.

 

   

Lion’s current and future dependence on its manufacturing facilities.

 

   

Lion’s ability to raise additional funds to meet its capital requirements.

 

   

Increases in costs, disruption of supply or shortage of raw materials, particularly lithium-ion battery cells.

 

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Unfavorable economic conditions, such as the effects of the global COVID-19 pandemic.

 

   

Lion’s ability to successfully attract new customers and secure firm orders from them and to retain existing customers and engage them for additional deployments in the future.

 

   

The inability of suppliers to deliver necessary parts or components according to Lion’s schedule and at prices, volumes and quality levels acceptable to it.

 

   

The trucking and busing industries and Lion’s other customers’ willingness to adopt battery electric vehicles and specifically Lion’s vehicles.

 

   

Developments in alternative or analogous technologies affecting the demand for Lion’s vehicles.

 

   

Competition within the battery electric vehicle industry.

 

   

Unfavorable changes in U.S. or Canadian laws or regulations and trade policy.

 

   

Information technology and cybersecurity risks to operational systems, security systems, infrastructure, integrated software in its vehicles and solutions and customer data processed by it, third-party vendors or suppliers.

 

   

Volatility in the share price of Lion Common Shares.

 

   

The significant influence of certain of Lion existing shareholders will continue following completion of the Business Combination.

 

   

Provisions in Lion’s constating documents may have the effect of delaying or preventing certain change in control transactions or shareholder proposals.

Corporate Information

Lion was incorporated by Marc Bedard, Lion’s CEO—Founder, and Camile Chartrand under the Business Corporations Act (Québec) on July 28, 2008 as “Lion Buses Inc.” Over the years, Lion’s articles were amended in order to, among other things, amend the terms and conditions of Lion’s share capital in connection with strategic investments made by investors, including the strategic investment made by Power Energy Corporation (“PEC” or “Power Energy”), a wholly-owned subsidiary of Power Sustainable Capital Inc., in October 2017, which resulted in Lion’s authorized share capital being amended to provide for only one class of common shares. On November 24, 2020, Lion filed articles of amendment to change its name to The Lion Electric Company. On May 6, 2021, Lion filed articles of amendments, which resulted in Lion’s authorized share capital being amended to provide for (i) an unlimited number of Lion Common Shares and (ii) an unlimited number of “blank-cheque” preferred shares issuable in series, and immediately thereafter filed articles of consolidation to consolidate its articles.

Lion’s principal and registered office is located at 921 chemin de la Rivière-du-Nord, Saint-Jérôme, Québec, Canada J7Y 5G2, and its telephone number is (450) 432-5466.

 

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The following chart reflects Lion’s organization structure (including the jurisdiction of formation or incorporation of Lion and its subsidiaries):

 

LOGO

 

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THE OFFERING

 

Common shares that may be offered and   
sold from time to time by the selling   
securityholders    152,276,690 common shares
Common shares outstanding    188,497,602 common shares
Offering price    The common shares offered by this prospectus may be offered and sold at prevailing market prices, privately negotiated prices or such other prices as the selling securityholders may determine. See the section titled “Plan of Distribution”.
Use of proceeds    All of the common shares offered by the selling securityholders pursuant to this prospectus will be sold by the selling securityholders for their respective accounts. Lion will not receive any of the proceeds from such sales.
Transfer restrictions    In connection with the Business Combination Agreement, Lion and the existing shareholders of Lion entered into lock-up agreements (the “Lion Lock-Up Agreements”) pursuant to which such shareholders agreed not to transfer Lion Common Shares for 180 days following the Effective Date, subject to customary exceptions and the terms therein. In addition, in connection with the Business Combination Agreement, Northern Genesis Sponsor LLC (the “Sponsor”) entered into a stockholder support agreement with Lion pursuant to which the Lion Common Shares issued in exchange for the NGA common stock (the “NGA Common Stock”) issued to the Sponsor prior to NGA’s initial public offering became subject to a 365-day lock-up following the Effective Date, subject to customary exceptions.
Dividend policy    Lion anticipates reinvesting earnings to finance the growth of its business, and does not anticipate declaring any cash dividends to holders of Lion Common Shares in the foreseeable future. Subject to the prior rights of the holders of Lion Preferred Shares (as defined below) as to dividends, the holders of Lion Common Shares will be entitled to receive dividends as and when declared by Lion’s Board out of the funds that are available for the payment of dividends. See the section titled “Dividend Policy”.
Market for our common shares    Our common shares are listed on the NYSE and the TSX under the symbol “LEV”.
Risk factors    Investing in our securities involves substantial risks. See “Risk Factors” beginning on page 7 of this prospectus for a description of certain of the risks you should consider before investing in our common shares or warrants.

 

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RISK FACTORS

Investing in Lion Common Shares involves a high degree of risk. In addition to the other information set forth in this prospectus, you should carefully consider the risk factors discussed below when considering an investment in Lion Common Shares and any risk factors that may be set forth in the applicable prospectus supplement, any related free writing prospectus, as well as the other information contained in this prospectus, any applicable prospectus supplement and any related free writing prospectus. If any of the following risks occur, Lion’s business, financial condition, results of operations and prospects could be materially and adversely affected. In that case, the market price of Lion’s common shares could decline and you could lose some or all of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Lion’s Business

Lion’s success will depend on its ability to economically develop, manufacture and sell its vehicles at scale and meet its customers’ business needs. Lion’s ability to develop, manufacture and distribute vehicles of sufficient quality and appeal to customers on schedule and at scale is unproven.

Lion’s future business depends in large part on its ability to economically manufacture, market and sell its vehicles at sufficient capacity to meet the transportation demands of its customers. Although it currently develops and manufactures vehicles from its manufacturing facility in Saint-Jérôme, Québec, Lion will need to scale its manufacturing capacity in order to successfully implement its growth strategy, and plans to do so in the future by, among other things, building a large-scale manufacturing facility in the United States and building a battery assembly facility. Although Lion has experience in developing and manufacturing buses and trucks from its existing facility, such operations are currently conducted on a limited scale, and Lion has no experience to date in high volume manufacturing of its vehicles. Lion does not know whether it will be able to develop efficient, automated, low-cost manufacturing capabilities and processes, or whether it will be able to secure reliable sources of component supply, in each case that will enable it to meet the quality, price, engineering, design and production standards, as well as the production volumes, required to successfully mass market its vehicles and meet its business objectives and customer needs. Even if Lion is successful in developing high-volume manufacturing capability and processes and can reliably source component supplies in sufficient volume, it does not know whether it will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond its control such as problems with suppliers, or in time to meet the commercialization schedules of future vehicles or to satisfy the requirements of its customers. Lion’s ability to effectively reduce its cost structure over time is limited by the fixed nature of many of its planned expenses in the near-term, and its ability to reduce long-term expenses is constrained by its need to continue investment in its growth strategy. Any failure to develop and scale such manufacturing processes and capabilities within Lion’s projected costs and timelines could have a material adverse effect on its business, results of operations or financial condition.

Lion may not be able to successfully implement its growth strategy, on a timely basis or at all, and it may be unable to manage future growth effectively.

Lion’s future growth, results of operations and financial condition depend upon its ability to successfully implement its growth strategy, which, in turn, is dependent upon a number of factors, some of which are beyond Lion’s control, including its ability to:

 

   

economically manufacture and sell its vehicles at scale and meet customers’ business needs;

 

   

effectively introduce new products and implement new technology-driven services and solutions;

 

   

complete the construction of its planned battery assembly facility and planned large-scale U.S. manufacturing facility, in each case at a reasonable price and on a timely basis;

 

   

secure and maintain required strategic supply arrangements;

 

   

keep pace with technological change affecting the battery electric vehicle industry;

 

   

effectively compete in the markets in which it operates; and

 

   

attract and retain management or other employees who possess specialized market knowledge and technical skills.

 

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There can be no assurance that Lion can successfully achieve any or all of the above initiatives in the manner or time period that it expects. Further, achieving these objectives will require investments which may result in both short-term and long-term costs without generating any current revenue and therefore may be dilutive to earnings. Lion cannot provide any assurance that it will realize, in full or in part, the anticipated benefits it expects to generate from its growth strategy. Failure to realize those benefits could have a material adverse effect on Lion’s business, results of operations or financial condition.

Even if it can achieve the above benefits and successfully implement its growth strategy, any failure to manage its growth effectively could materially and adversely affect Lion’s business, results of operations or financial condition. Lion intends to expand its operations significantly, which will require it to hire and train new employees across all divisions; accurately forecast supply and demand, production and revenue; control expenses and investments in anticipation of expanded operations; establish new or expand current design, production, and sales and service facilities; and implement and enhance administrative infrastructure, systems and processes. Failure to efficiently manage any of the above could have a material adverse effect on Lion’s business, results of operations or financial condition.

Failure to drastically increase manufacturing capacity and efficiency could have a material adverse effect on Lion’s business, results of operations or financial condition.

Although Lion’s existing Saint-Jérôme, Québec, manufacturing facility, which has a current capacity of approximately 2,500 vehicles per year and which was used in 2020 to manufacture 84 vehicles comprised primarily of LionC (Type C school bus) and a few Lion 360° (cowled-chassis bus) buses and Lion6 and Lion8 urban class truck prototypes, is able to satisfy Lion’s current manufacturing requirements, the future success of Lion’s business depends in part on its ability to drastically increase manufacturing capacity and efficiency. Lion may be unable to expand its business, satisfy demand from its current and new customers, maintain its competitive position and improve profitability if it is unable to build and operate its planned large-scale manufacturing facility in the U.S. and otherwise allow for increases in manufacturing output and speed. The construction of such a facility will require significant cash investments and management resources and may not meet Lion’s expectations with respect to increasing capacity, efficiency and satisfying additional demand. For example, if there are delays in Lion’s planned large-scale U.S. manufacturing facility becoming fully operational or achieving target yields and output, Lion may not meet its target for adding capacity, which would limit its ability to increase sales and result in lower than expected sales and higher than expected costs and expenses. Failure to drastically increase manufacturing capacity or otherwise satisfy customers’ demands may result in a loss of market share to competitors, damage Lion’s relationships with its key customers, a loss of business opportunities or otherwise materially adversely affect its business, results of operations or financial condition.

Lion is and will be dependent on its manufacturing facilities. If one or more of its current or future manufacturing facilities becomes inoperable, capacity constrained or if operations are disrupted, Lion’s business, results of operations or financial condition could be materially adversely affected.

Lion’s revenue is and will be dependent on the continued operations of its Saint-Jérôme, Québec, manufacturing facility as well as its other planned facilities, including its planned large-scale U.S. manufacturing facility and battery assembly facility. To the extent that Lion experiences any operational risk including, among other things, fire and explosions, severe weather and natural disasters (such as floods and hurricanes), failures in water supply, major power failures, equipment failures (including any failure of its information technology, air conditioning, and cooling and compressor systems), failures to comply with applicable regulations and standards, labor force and work stoppages, or if its current or future manufacturing facilities become capacity constrained, Lion will be required to make capital expenditures even though it may not have available resources at such time. Additionally, there is no guarantee that the proceeds available from Lion’s insurance policies will be sufficient to cover such capital expenditures. As a result, Lion’s insurance coverage and available resources may prove to be inadequate for events that may cause significant disruption to its operations. Any disruption in Lion’s manufacturing processes could result in delivery delays, scheduling problems, increased costs, or production interruption, which, in

 

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turn, may result in its customers deciding to purchase products from its competitors. Lion is and will be dependent on its current and future manufacturing facilities which will in the future require a high degree of capital expenditures. If one or more of Lion’s current or future manufacturing facilities becomes inoperative, capacity constrained or if operations are disrupted, its business, results of operations or financial condition could be materially adversely affected.

Lion may in the future need to raise additional funds to meet its capital requirements and such funds may not be available to Lion on commercially reasonable terms or at all when it needs them, which could materially adversely affect Lion’s business, results of operations or financial condition.

The development, design, manufacturing, sale and servicing of Lion’s battery electric vehicles is capital-intensive. Although Lion believes that it will have sufficient funds to meet its short to medium term capital requirements, it may in the future need to raise additional funds, including through the issuance of equity, equity related or debt securities or through obtaining credit from government or financial institutions, to meet its capital requirements, and the availability of additional funds to Lion will depend on a variety of factors, some of which are outside of its control. Additional funds may not be available to Lion on commercially reasonable terms or at all when it needs them, which could materially adversely affect its business, results of operations or financial condition. If additional funds are raised by issuing equity securities, shareholders of Lion may incur dilution.

Lion has a history of losses, and negative cash flows from operating activities and expects to incur significant expenses for the foreseeable future, and there is no guarantee it will achieve or sustain profitability.

Lion incurred net losses of approximately $16.1 million for the quarter ended March 31, 2021, approximately $97.4 million for the year ended December 31, 2020, approximately $3.1 million for the year ended December 31, 2019, and approximately $5.4 million for the year ended December 31, 2018. Further, Lion had negative cash flows from operating activities of approximately $10.1 million for the quarter ended March 31, 2021, approximately $27.1 million for the year ended December 31, 2020, approximately $7.4 million for the year ended December 31, 2019, and approximately $2.2 million for the year ended December 31, 2018. These losses and negative cash flows are the result of the substantial investments Lion made to grow its business, and Lion expects to make significant expenditures to expand its business in the future. Lion expects to incur significant expenditures in connection with its growth strategy, both in the United States and Canada, including as a result of the expected increase in costs related to: the construction of its planned battery assembly facility and planned large-scale U.S. manufacturing facility; the design, development and production of its new products; the hire of additional employees across all divisions; the production of an inventory of its vehicles; the buildup of inventories of parts and components for its vehicles; the expansion of its design, development, installation and servicing capabilities, including the planned construction of additional research and development centers and Lion experience centers; and an increase in its administrative functions to support its growth. Lion also expects to continue spending on technical and other operational enhancements to its business and to increase investment in research and development as it continues to introduce new products and solutions with a view to offer full turnkey transition services towards fleet electrification to its customers. While Lion expects to generate positive cash flows over time, the aforementioned anticipated increased expenditures will make it harder for Lion to achieve profitability and positive cash flow and Lion cannot guarantee it will achieve either in the near term or at all. If Lion is unable to generate adequate revenue growth and manage its expenses, it may continue to incur losses and have negative cash flows from operating activities and there is no guarantee it will achieve or sustain profitability or positive cash flows. To the extent Lion has negative cash flows from operating activities in any future periods, all or a portion of the funds raised in connection with the Business Combination and the PIPE financing may be used to fund such negative cash flows. See the section entitled “Risk Factors—Lion may in the future need to raise additional funds to meet its capital requirements and such funds may not be available to Lion on commercially reasonable terms or at all when it needs them, which could materially adversely affect Lion’s business, results of operations or financial condition.” Even if Lion is able to successfully and economically develop, manufacture and distribute its vehicles on schedule and at scale, there can be no assurance that it will be commercially successful.

Lion may make decisions that would reduce its short-term operating results if it believes those decisions will improve the quality of its products or services and if it believes such decisions will improve its operating results over the long-term. These decisions may not be consistent with the expectations of investors and may not produce the long-term benefits that Lion expects, in which case Lion’s business, results of operations or financial condition may be materially and adversely affected.

 

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Lion may not succeed in establishing, maintaining and strengthening its brand, which would materially and adversely affect customer acceptance of its vehicles, which could materially adversely affect its business, results of operations or financial condition.

Lion’s business and prospects heavily depend on its ability to develop, maintain and strengthen the Lion brand. If it is unable to establish, maintain and strengthen its brand, Lion may lose the opportunity to build and maintain a critical mass of customers. Lion’s ability to develop, maintain and strengthen the Lion brand will depend heavily on the success of its marketing efforts. The battery electric vehicle industry, and the alternative fuel vehicle industry in general, are highly competitive, and Lion may not be successful in building, maintaining and strengthening its brand. Many of Lion’s current and potential competitors, particularly automobile manufacturers headquartered in the United States, Japan and the European Union, have greater name recognition, broader customer relationships and substantially greater marketing resources than Lion. Failure to develop and maintain a strong brand would materially and adversely affect customer acceptance of Lion’s vehicles, could result in suppliers and other third parties being less likely to invest time and resources in developing business relationships with Lion, and could materially adversely affect Lion’s business, results of operations or financial condition.

Increases in costs, disruption of supply or shortage of raw materials, particularly lithium-ion battery cells, could materially adversely affect Lion’s business, results of operations or financial condition.

Lion may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials. Any such increase in cost or supply interruption or shortage could materially adversely affect Lion’s business, results of operations or financial condition. Components in Lion’s vehicles are made of various raw materials, including aluminum, steel, carbon fiber, non-ferrous metals (such as copper) and other materials and minerals used to manufacture lithium-ion batteries. The prices for these raw materials fluctuate depending on market conditions and global demand and could materially affect Lion’s business, results of operations or financial condition. While Lion manages some of these risks through long-term contractual arrangements with suppliers with respect to the supply of certain key components of its vehicles, including lithium-ion batteries, it does not currently hedge its long-term exposure to price fluctuations of raw materials and supplies. Therefore, Lion is nevertheless exposed to multiple risks relating to price fluctuations for lithium-ion cells. These risks include:

 

   

the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric vehicle industry as demand for such cells increases;

 

   

disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers;

 

   

increased regulation of supply chains to account for, among other things, environmental and/or human rights risks; and

 

   

an increase in the cost of raw materials used in lithium-ion cells, such as cobalt.

Any disruption in the supply of battery cells or other key vehicle components could temporarily disrupt production of Lion’s vehicles until a different supplier is fully qualified. Moreover, battery cell manufacturers may refuse to supply electric vehicle manufacturers if they determine that the vehicles are not sufficiently safe. Furthermore, various fluctuations in market and economic conditions may cause Lion to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for raw materials would increase Lion’s operating costs and could reduce Lion’s margins if the increased costs cannot be recouped through increased vehicle prices. There can be no assurance that Lion will be able to recoup increasing costs of raw materials by increasing vehicle prices.

Lion’s vehicles use lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame.

The battery packs within Lion’s vehicles use lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While the battery pack is designed to contain any single cell’s release of energy without spreading to neighboring cells, a field or testing failure of Lion’s vehicles could occur, which could result in bodily injury or death and could subject Lion to lawsuits, product recalls, or redesign efforts, all of which would be time

 

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consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications, the social and environmental impacts of cobalt mining or any future incident involving lithium-ion cells, such as a vehicle or other fire, even if such incident does not involve Lion’s vehicles, could materially adversely affect Lion’s business, results of operations or financial condition.

In addition, manufacturing of Lion’s vehicles requires it to store a significant number of lithium-ion cells at its facility. Any mishandling of battery cells may cause disruption to the operation of Lion’s current or future facilities. While Lion has implemented safety procedures related to the handling of the cells, a safety issue or fire related to the cells could disrupt Lion’s operations. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any failure of a competitor’s electric vehicle or energy storage product may cause indirect adverse publicity for Lion and its products. Such adverse publicity could negatively affect Lion’s brand or could materially adversely affect Lion’s business, results of operations or financial condition.

Lion may not be able to adequately forecast the supply and demand for its vehicles, its manufacturing capacity or its profitability under long term supply arrangements, including the MPA with the Specified Customer, which could result in a variety of inefficiencies in its business and hinder its ability to generate revenue.

It is difficult to predict Lion’s future sales and appropriately budget for Lion’s expenses, and Lion may have limited insight into trends that may emerge and affect its business. Lion will be required to provide forecasts of its demand to its suppliers several months prior to the scheduled delivery of products to customers. Currently, there is limited historical basis for making judgments on the future demand for Lion’s vehicles or its ability to mass develop, manufacture and deliver vehicles at scale, or Lion’s profitability in the future. If Lion fails to accurately predict its manufacturing requirements, it could incur additional costs or experience delays. If Lion overestimates manufacturing requirements, its suppliers may have excess inventory, which indirectly would increase Lion’s costs. If Lion underestimates manufacturing requirements, its suppliers may have inadequate inventory, which could interrupt manufacturing of Lion’s vehicles and result in delays in shipments and revenues. In addition, lead times for materials and components that Lion’s suppliers order may vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. If Lion fails to order sufficient quantities of product components in a timely manner, the delivery of vehicles to its customers could be delayed, which could materially adversely affect its business, results of operations or financial condition.

In addition, the MPA (as defined below) with the Specified Customer (as defined below) requires Lion to reserve necessary manufacturing capacity to deliver up to 500 trucks per year from 2021 to 2025 and the greater of 500 trucks per year or 10% of Lion’s manufacturing capacity from 2026 to 2030, which could hinder Lion’s ability to capitalize on future business opportunities. Moreover, some of Lion’s customers, including the Specified Customer under the MPA, operate on a purchase order basis, which means such customers are not required to purchase any specified minimum quantity of vehicles beyond the quantities in an existing purchase order and may in certain circumstances cancel or reschedule purchase orders on relatively short notice. Cancellations or rescheduling of customer orders could result in the delay or loss of anticipated sales without allowing sufficient time to reduce, or delay the incurrence of, corresponding inventory and operating expenses, which could materially adversely affect Lion’s business, results of operations or financial condition.

Lion’s operating and financial results may vary significantly from period to period due to fluctuations in its operating costs and other factors.

Lion expects its period-to-period operating and financial results to vary based on a multitude of factors, some of which are outside of Lion’s control. Lion expects its period-to-period financial results to vary based on operating costs, which it anticipates will fluctuate with the pace at which it increases its manufacturing capacity and continues to design, develop and produce new products. In addition, Lion’s revenues from period to period may fluctuate as it develops and introduces new vehicles. As a result of these factors, Lion believes that quarter-to-quarter comparisons of its operating or financial results, especially in the short term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, Lion’s financial results may not meet expectations of equity research analysts, ratings agencies or investors, who may be focused only on quarterly financial results. If any of this occurs, the trading price of Lion’s Common Shares could fall substantially, either suddenly or over time, which could have a material adverse effect on Lion’s business, results of operations or financial condition.

 

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Lion may experience significant delays in the design, production and launch of its new products.

Lion is still in the development and testing phase with respect to certain of its vehicles, including, among others, the Lion8 Tractor, Lion8 Bucket, Lion8 Boom, Lion7, Lion6 Utility and Lion5 all-electric trucks, the LionD all-electric school bus and an all-electric ambulance. The commercial deliveries of such vehicles are not expected to begin until later this year or 2022 (depending on the product) and may occur later or not at all. Any delay in the financing, design, production and launch of any such new vehicles, including future production of the aforementioned all-electric trucks, school buses and ambulance, could harm Lion’s reputation or materially adversely affect its business, results of operations or financial condition.

Failure to carry adequate insurance coverage may have a material adverse effect on Lion’s business, results of operations or financial condition.

Lion maintains liability insurance, property and business interruption insurance, cargo insurance, cybersecurity insurance, automotive liability insurance and directors and officers insurance, and such insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions. However, there is no guarantee that Lion’s insurance coverage will be sufficient, or that insurance proceeds will be paid to Lion in a timely manner. In addition, there are types of losses Lion may incur but against which it cannot be insured or which it believes are not economically reasonable to insure, such as losses due to acts of war and certain natural disasters. If Lion incurs these losses and they are material, its business, results of operations or financial condition could be materially adversely affected.

Increased freight and shipping costs or disruptions in transportation and shipping infrastructure could materially adversely impact Lion’s business, results of operations or financial condition.

Lion uses external freight shipping and transportation services to transport and deliver its vehicles as well as subcomponents and raw materials incorporated therein. Adverse fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important shipping and delivery points for Lion’s products, as well as for subcomponents incorporated in Lion’s vehicles could materially adversely affect Lion’s business, financial condition and results of operations. For example, delivery delays or increases in transportation costs (including through increased fuel costs, increased carrier rates or driver wages as a result of driver shortages, a decrease in transportation capacity, or work stoppages or slowdowns) could significantly decrease Lion’s ability to make sales and earn profits. Labor shortages or work stoppages in the transportation industry or long-term disruptions to the national and international transportation infrastructure that lead to delays or interruptions of deliveries or which would necessitate Lion securing alternative shipping suppliers could also increase Lion’s costs or otherwise materially adversely affect its business, results of operations or financial condition.

Lion is highly dependent on the services of Marc Bedard, its CEO—Founder, and the rest of its senior management team. Lion’s inability to retain Mr. Bedard or attract and retain management or other employees who possess specialized market knowledge and technical skills could affect its ability to compete, manage operations effectively or develop new products or otherwise materially adversely affect its business, results of operations or financial condition.

Lion’s success depends, in part, on its ability to retain its key personnel, in particular management and other employees who possess specialized market knowledge and technical skills. Lion is highly dependent on the services of Marc Bedard, its CEO—Founder and second largest shareholder. Mr. Bedard is the source of many of the innovative ideas driving Lion and their execution. If Mr. Bedard were to discontinue his service for Lion due to death, disability or any other reason, Lion would be significantly disadvantaged. The unexpected loss of or failure to retain one or more of Lion’s key employees could adversely affect Lion’s business, results of operations or financial condition. Lion does not currently maintain key man life insurance policies with respect to Mr. Bedard or any other officer, and Lion will continue to evaluate whether to obtain such key man life insurance policies.

Lion’s success also depends, in part, on its continuing ability to identify, hire, attract, train, develop and retain other highly qualified personnel with specialized market knowledge and technical skills. Experienced and highly skilled employees are in high demand and competition for these employees can be intense, and Lion’s ability to hire, attract and retain them depends on Lion’s ability to provide competitive compensation. Lion may not be able to

 

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attract, assimilate, develop or retain qualified personnel in the future, and Lion’s failure to do so could materially adversely affect its business, results of operations or financial condition. Any failure by Lion’s management team and employees to perform as expected may have a material adverse effect on its business, financial condition and operating results.

Any deterioration in relationships with Lion’s employees as well as any work stoppage or similar difficulties could have a material adverse effect on Lion’s business, results of operations or financial condition.

None of Lion’s employees are currently unionized. The maintenance of a productive and efficient labor environment and, in the event of unionization of employees, the successful negotiation of a collective bargaining agreement, cannot be assured. A deterioration in relationships with employees or in the labor environment could result in work interruptions or other disruptions, or cause management to divert time and resources from other aspects of Lion’s business, any of which could have a material adverse effect on Lion’s business, results of operations or financial condition.

Lion’s employees and independent contractors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could have a material adverse effect on its business, results of operations or financial condition.

Lion is exposed to the risk that its employees, independent contractors or other parties it collaborates with may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or other activities that violate laws and regulations, including production standards, federal, state and provincial fraud, abuse, data privacy and security laws, other similar laws or laws that require the true, complete and accurate reporting of financial information or data. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions Lion takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, Lion is subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against Lion and it is not successful in defending itself or asserting its rights, those actions could have a material adverse effect on its business, results of operations or financial condition, including, without limitation, by way of imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of its operations.

Lion has and may in the future make strategic alliances, partnerships or investments or acquisitions, all of which could divert management’s attention, result in Lion incurring significant costs or operating difficulties and dilution to its shareholders and otherwise disrupt its operations and materially adversely affect its business, results of operations or financial condition.

Pursuing potential strategic alliances, partnerships or investments or acquisitions and/or inorganic growth opportunities is part of Lion’s growth strategy. There are risks associated with any strategic partnership or arrangement, the termination or operation of joint ventures or other strategic alliances and pursuing strategic acquisitions or investment opportunities, including:

 

   

the sharing of confidential information;

 

   

the diversion of management’s time and focus from operating its business;

 

   

the use of resources that are needed in other areas of its business;

 

   

unforeseen costs or liabilities;

 

   

adverse effects to Lion’s existing business relationships with partners and suppliers;

 

   

litigation or other claims arising in connection with the acquired company, investment, partnership or joint venture;

 

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the possibility of adverse tax consequences;

 

   

in the case of an acquisition, implementation or remediation of controls, procedures and policies of the acquired company;

 

   

in the case of an acquisition, difficulty integrating the accounting systems and operations of the acquired company; and

 

   

in the case of an acquisition, retention and integration of employees from the acquired company, and preservation of its corporate culture.

Lion may have limited ability to monitor or control the actions of any third party involved in any such transaction and, to the extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their business, Lion may also suffer negative publicity or harm to its reputation by virtue of its association with any such third party. Participation in strategic alliances, partnerships or investments or acquisitions may also result in dilutive issuances of equity securities, which could adversely affect the price of the Lion Common Shares, or result in issuances of securities with superior rights and preferences to the Lion Common Shares or the incurrence of debt with restrictive covenants that limit Lion’s future uses of capital in pursuit of business opportunities. Lion may also not be able to identify opportunities for strategic partnerships or arrangements, acquisition or investments that meet its strategic objectives, or to the extent such opportunities are identified, may not be able to negotiate terms with respect to such opportunity that are acceptable to it. At this time Lion has made no commitments or agreements with respect to any such material transactions.

The terms of Lion’s indebtedness contain, and the terms of its future indebtedness may contain, certain covenants that restrict its ability to engage in certain transactions and may impair its ability to execute its growth strategy and respond to changing business and economic conditions.

The loan agreement with Finalta (as defined below) contains restrictive covenants that may limit Lion’s discretion with respect to certain business matters as well as covenants that require it to meet certain financial condition tests. Lion may also incur future indebtedness that might subject it to additional covenants and restrictions that could affect its financial and operational flexibility. Such restrictions may prevent it from taking actions that it believes would be in the best interest of its business and may make it difficult for it to execute its business strategy successfully or effectively compete with companies that are not similarly restricted.

Lion’s ability to comply with the covenants and restrictions contained in the instruments governing its indebtedness may be affected by economic, financial and industry conditions beyond its control. A breach of any of these covenants or restrictions could result in a default under the applicable debt instrument that would permit applicable lender(s) to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest, or cause cross-defaults under Lion’s other debt. If Lion is unable to repay its indebtedness, lenders could proceed against the collateral securing the debt. In any such case, Lion may be unable to borrow under the agreements under which such other indebtedness is issued, which could have a material adverse effect on its business, results of operations or financial condition.

Fluctuations in foreign currency exchange rates could result in declines in reported sales and net earnings.

Lion reports its financial results in U.S. dollars and a material portion of its sales and operating costs are realized in currencies other than the U.S. dollar. For the year ended December 31, 2020, approximately 49.5% of Lion’s revenues were realized in Canada. Lion is also exposed to other currencies such as the Euro, and may in the future be exposed to other currencies. If the value of any currencies in which sales are realized, particularly the Canadian dollar, depreciates relative to the U.S. dollar, Lion’s foreign currency revenue will decrease when translated to U.S. dollars for reporting purposes. In addition, any depreciation in foreign currencies could result in higher local prices, which may negatively impact local demand and have a material adverse effect on Lion’s business, results of operations or financial condition. Alternatively, if the value of any of the currencies in which operating costs are realized appreciates relative to the U.S. dollar, Lion’s operating costs will increase when translated to U.S. dollars for reporting purposes. Although these risks may sometimes be naturally hedged by a match in sales and operating costs denominated in the same currency, fluctuations in foreign currency exchange rates, particularly the U.S.-Canadian dollar exchange rate, could create discrepancies between Lion’s sales and

 

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operating costs in a given currency that could have a material adverse effect on its business, results of operations or financial condition. Fluctuations in foreign currency exchange rates could also have a material adverse effect on the relative competitive position of Lion’s products in markets where it faces competition from manufacturers who are less affected by such fluctuations in exchange rates, especially in the U.S. market.

While Lion actively manages its exposure to foreign-exchange rate fluctuations and may enter into hedging contracts from time to time, such contracts hedge foreign-currency denominated transactions and any change in the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged. Furthermore, Lion does not have foreign-exchange hedging contracts in place with respect to all currencies in which it does business. As a result, there can be no assurance that Lion’s approach to managing its exposure to foreign-exchange rate fluctuations will be effective in the future or that Lion will be able to enter into foreign-exchange hedging contracts as deemed necessary on satisfactory terms.

Unfavorable economic conditions, such as consequences of the global COVID-19 pandemic, may have a material adverse effect on Lion’s business, results of operations and financial condition.

Lion has been impacted by the COVID-19 pandemic, and Lion cannot predict the future impacts the COVID-19 pandemic may have on its business, results of operations and financial condition. Beginning in March 2020, numerous government regulations and public advisories, as well as shifting social behaviors, temporarily and from time to time limited or closed non-essential transportation, government functions, business activities and person-to-person interactions, and the duration of such trends is difficult to predict. Mandated governmental measures have forced Lion to reduce operations at its Saint-Jérôme, Québec, facility and establish work-from-home policies for certain of its employees, and some of its suppliers have been subject to similar limitations and may also have been required to shut down production. Limitations on travel by Lion’s personnel and personnel of its customers and increased demand for commercial trucks within its customers’ fleets caused some customers to delay electrification of their fleet, and future delays or shutdowns of Lion’s facilities or those of its suppliers’ could impact Lion’s ability to meet customer orders. Lion cannot predict if current restrictions and limitations to its or its customers’ and suppliers’ operations will be maintained, or if new measures will be implemented.

Lion’s operations and timelines may also be affected by global economic markets and levels of consumer comfort and spend, including recessions, slow economic growth, economic and pricing instability, increase of interest rates and credit market volatility, all of which could impact demand in the worldwide transportation industries or otherwise have a material adverse effect on Lion’s business, operating results and financial condition. Because the impact of current conditions on an ongoing basis is yet largely unknown, is rapidly evolving and has been varied across geographic regions, this ongoing assessment will be particularly critical to allow Lion to accurately project supply and demand and infrastructure requirements globally and allocate resources accordingly. If current global market conditions continue or worsen, Lion’s business, results of operations and financial condition could be materially adversely affected.

Natural disasters, unusually adverse weather, epidemic or pandemic outbreaks, boycotts and geo-political events could materially adversely affect Lion’s business, results of operations or financial condition.

The occurrence of one or more natural disasters, such as hurricanes and earthquakes, unusually adverse weather, epidemic or pandemic outbreaks, such as the ongoing COVID-19 pandemic, boycotts and geo-political events, such as civil unrest and acts of terrorism, or similar disruptions could materially adversely affect Lion’s business, results of operations or financial condition. These events could result in physical damage to property, an increase in energy prices, temporary or permanent closure of one or more of Lion’s current or planned facilities, temporary lack of an adequate workforce in a market, temporary or long-term disruption in the supply of raw materials, product parts and components, temporary disruption in transport from overseas, or disruption to Lion’s information systems. Lion may incur expenses or delays relating to such events outside of its control, which could have a material adverse impact on its business, operating results and financial condition.

 

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As a result of the Business Combination, Lion could be treated as a U.S. corporation for U.S. federal income tax purposes.

Under current U.S. federal income tax law, a corporation organized under Canadian law is not treated as a U.S. corporation and, therefore, is treated as a non-U.S. corporation. Section 7874 of the Code and the Treasury Regulations promulgated thereunder, however, contain rules that may cause a non-U.S. corporation that acquires the stock of a U.S. corporation to be treated as a U.S. corporation for U.S. federal income tax purposes under certain circumstances. If, as a result of the Business Combination, Lion were treated as a U.S. corporation for U.S. federal income tax purposes, among other consequences, it would generally be subject to U.S. federal income tax on its worldwide income, and its dividends would be treated as dividends from a U.S. corporation. Regardless of the application of Section 7874 of the Code, Lion is expected to be treated as a Canadian tax resident for Canadian tax purposes. Consequently, if Lion were to be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code, it could be liable for both U.S. and Canadian taxes and dividends paid by Lion to its shareholders could be subject to both U.S. and Canadian withholding taxes.

Lion does not expect to be treated as a U.S. corporation for U.S. federal income tax purposes, and Lion intends to take this position on its tax returns. Lion has not sought and will not seek any rulings from the IRS as to such tax treatment, and the closing of the Business Combination was not conditioned upon achieving, or receiving a ruling from any tax authority or opinion from any tax advisor in regards to, any particular tax treatment. Further, there can be no assurance that your tax advisor, the IRS, or a court will agree with the position that Lion is not treated as a U.S. corporation pursuant to Section 7874 of the Code. Lion is not representing to you that Lion will not be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code. The rules for determining whether a non-U.S. corporation is treated as a U.S. corporation for U.S. federal income tax purposes are complex, unclear, and the subject of ongoing regulatory change. Lion’s intended position is not free from doubt. For more information about the application of Section 7874 of the Code to Lion, see the section entitled “Material U.S. Federal Income Tax Considerations —Tax Residence of Lion for U.S. Federal Income Tax Purposes”.

If, as a result of the Business Combination, Lion were to be treated as an inverted domestic corporation under the Homeland Security Act or other relevant state and local rules, the U.S. federal government and certain state and local governments may cease doing business with Lion, which could substantially decrease the value of Lion’s business and, accordingly, the value of the Lion Common Shares.

The Federal Acquisition Regulation (“FAR”) prohibits U.S. federal government agencies from using appropriated (or otherwise made available) funds for contracts with a foreign incorporated entity, or a subsidiary of such an entity, that is an “inverted domestic corporation,” as defined in the Homeland Security Act at 6 U.S.C. § 395(b). Further, at the state and local level, certain jurisdictions have adopted similar restrictions or may adopt similar restrictions in the future. Accordingly, U.S. federal government agencies and certain state and local government agencies may be prohibited from entering into new contracts with an inverted domestic corporation and may be prohibited from paying for contractor activities on existing contracts after the date of the “inversion.” If the future expansion of Lion’s business in the United States becomes dependent upon its ability to enter into contracts with U.S. federal government agencies or state and local governments agencies in the United States, the treatment of Lion as an inverted domestic corporation could substantially decrease the value of its business following the Business Combination.

Lion intends to take the position that it is not an “inverted domestic corporation.” The application of the “inverted domestic corporation” definition is somewhat unclear due to the lack of detailed regulations or other guidance promulgated with respect to the relevant provisions of the Homeland Security Act (and similar state and local rules). Section 7874 of the Code, discussed above, includes substantially similar provisions regarding the determination of whether a foreign incorporated corporation is treated as a U.S. domestic corporation for U.S. federal income tax purposes. While the regulatory provisions and other guidance issued by the IRS and the U.S. Treasury Department with respect to such provisions provide more detailed guidance providing for expansive application, these regulations do not explicitly apply for the purposes of determining whether a corporation is an inverted domestic corporation under the Homeland Security Act (and similar state and local rules), and it is unclear to what extent they should be viewed as interpretive guidance for such purposes. There can be no assurance that the relevant government agencies, or a court or administrative tribunal, will agree with Lion’s position that it should not be treated as an inverted domestic corporation under the Homeland Security Act (or similar state or local rules), and, in addition, changes in facts or law might cause Lion to be treated as an inverted domestic corporation for such purposes. New statutory or regulatory provisions, or other guidance under the Homeland Security Act or other relevant rules, could be enacted or promulgated that would adversely affect Lion’s status with regard to the FAR prohibition or other relevant prohibitions, all of which could have retroactive application.

 

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Risks Related to Customers and Suppliers

Lion’s growth will depend on its ability to successfully attract new customers and secure firm orders from them and to retain existing customers and engage them into additional deployments in the future. Failure to increase sales to both new and existing customers could have a material adverse effect on Lion’s business, results of operations or financial condition.

Lion’s success, and its ability to increase revenue and operate profitably, depends in part on its ability to identify new customers and secure firm orders from them, its ability to retain existing customers and engage them into additional deployments in the future, and its ability to meet current and new customers business needs. Failure to achieve any of the foregoing could materially and adversely affect Lion’s business, results of operations or financial condition. Lion may fail to attract new customers or retain existing customers, retain revenue from existing customers or increase sales to both new and existing customers as a result of a number of other factors, including:

 

   

reductions in Lion’s existing or potential customers’ spending levels;

 

   

competitive factors affecting the battery electric vehicles industry, including the introduction of other alternative fuel vehicles or other technologies;

 

   

discount, pricing and other strategies that may be implemented by its competitors;

 

   

its ability to execute on its growth strategy;

 

   

a decline in its customers’ level of satisfaction with its vehicles and services;

 

   

changes in its relationships with third parties, including its suppliers and other partners;

 

   

the timeliness and success of new products it may offer in the future;

 

   

its focus on long-term value over short-term results,

meaning that Lion may make strategic decisions that may not maximize its short-term revenue or profitability if it believes that the decisions are consistent with its vision and will improve its financial performance over the long-term.

Lion is dependent on third-party suppliers, some of which are single-source suppliers, and Lion expects to continue to rely on third-party suppliers. The inability of any such supplier to deliver necessary parts or components according to Lion’s schedule and at prices, volumes and quality levels acceptable to it, Lion’s inability to efficiently manage these parts or components, or the termination or interruption of any supply arrangement could materially adversely affect Lion’s business, results of operations or financial condition.

Lion is dependent on third-party suppliers to supply and manufacture parts and components included in its vehicles, and it expects to continue to rely on third parties to supply and manufacture such parts and components in the future. While Lion obtains components from multiple sources whenever possible, some of the components used in its vehicles, including certain key battery system components, are purchased from a single source. While Lion believes that it may be able to establish alternate supply relationships and can obtain or potentially engineer replacement components for some of its single source components, it may be unable to do so in the short term or at all, or at prices, volumes or quality levels that are acceptable to it. In addition, the inability of any of Lion’s suppliers to deliver necessary parts or components according to Lion’s schedule and at prices, volumes or quality levels acceptable to Lion, Lion’s inability to efficiently manage these parts or components, or the termination or interruption of any material supply arrangement could materially adversely affect Lion’s business, results of operations or financial condition. Any disruption in the supply of parts or components, whether or not from a single source supplier, could temporarily disrupt manufacturing of Lion’s vehicles until an alternative supplier is able to supply the required material. Changes in business conditions, unforeseen circumstances, governmental changes, and other factors beyond Lion’s control or which it does not presently anticipate, could also affect Lion’s suppliers’ ability to deliver components to Lion on a timely basis and ultimately, Lion’s ability to economically manufacture and distribute its vehicles. Any of the foregoing could materially adversely affect Lion’s business, results of operations or financial condition.

 

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Also, if any of Lion’s suppliers become economically distressed or go bankrupt, Lion may be required to provide substantial financial support or take other measures to ensure supplies of components or materials, which could increase its costs, affect its liquidity or cause production disruptions, all of which could materially adversely affect Lion’s business, results of operations or financial condition.

Lion has limited experience servicing the urban trucks it distributes. Failure to address the servicing requirements of its customers could harm Lion’s reputation or materially adversely affect its business, results of operations or financial condition.

Lion has limited experience in servicing the urban trucks it distributes, including its class 6 and 8 trucks available for purchase today, and it expects to be required to increase its servicing capabilities as it scales its operations and continues to grow, including by building new Lion experience centers in the U.S. and Canada. Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques. Although Lion believes the experience it has gained servicing its electric buses and developing and operating prototypes of its urban trucks positions it well to service its urban trucks and future products, Lion has no after-sale experience of maintaining and servicing urban trucks for its customers, and there is no guarantee Lion will be able to do so. Failure to address the servicing requirements of its customers could harm Lion’s reputation or materially adversely affect its business, results of operations or financial condition.

Lion’s customers will also depend on Lion’s customer support team to resolve technical and operational issues relating to the software integrated in its vehicles. Lion’s ability to provide effective customer support is largely dependent on its ability to attract, train and retain qualified personnel with experience in supporting customers on platforms such as Lion’s platform. As it continues to grow, additional pressure may be placed on Lion’s customer support team, and Lion may be unable to respond quickly enough to accommodate short-term increases in customer demand for technical support. Lion may also be unable to modify the future scope and delivery of its technical support to compete with changes in the technical support provided by its competitors. Increased customer demand for support, without corresponding revenue, could increase costs and negatively affect Lion’s results of operation. If Lion is unable to successfully address the servicing requirements of its customers or establish a market perception that it maintains high-quality support, it may be subject to claims from its customers, including for loss of revenue or damages, and its business, results of operations or financial condition may be materially and adversely affected.

Lion’s future growth is dependent upon the trucking and busing industries’ and Lion’s other customers’ willingness to adopt battery electric vehicles and specifically Lion’s vehicles.

Lion’s future growth is highly dependent upon the adoption by the commercial trucking and busing industries and Lion’s other target consumers of, and Lion is subject to an elevated risk of any reduced demand for, alternative fuel vehicles in general and electric vehicles in particular. If the market for electric vehicles does not develop at the rate or in the manner or to the extent that Lion expects, or if critical assumptions Lion has made regarding the efficiency of its vehicles are incorrect or incomplete, Lion’s business, results of operations or financial condition may be adversely materially affected. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles, include:

 

   

perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost;

 

   

perceptions about vehicle safety in general, including the use of advanced technology, such as vehicle electronics, alternative fuel and regenerative braking systems;

 

   

the limited range over which electric vehicles may be driven on a single battery charge;

 

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the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge or short term declines resulting from adverse weather conditions;

 

   

the availability of service and charging stations for electric vehicles;

 

   

concerns about electric grid capacity and reliability, which could derail past, present and future efforts to promote electric vehicles as a practical solution to vehicles which require gasoline;

 

   

the availability of alternative fuel vehicles;

 

   

improvements in the fuel economy of the internal combustion engine;

 

   

the environmental consciousness of the trucking and busing industries and Lion’s other target customers;

 

   

volatility in the cost of oil and gasoline;

 

   

government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;

 

   

the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation;

 

   

perceptions about and the actual cost of alternative fuel, as well as hybrid and electric vehicles; and

 

   

macroeconomic factors.

For example, if the market price of oil drops, it is unknown to what extent any corresponding decreases in the cost of diesel fuel may impact the market for electric vehicles. Moreover, travel restrictions and social distancing efforts in response to the COVID-19 pandemic may negatively impact the commercial trucking industry, leading to reduced consumer demand for products carried by the commercial trucking industry, for an unknown, but potentially lengthy, period of time. In addition, temporary school closures in the United States and Canada resulted in reduced school bus usage and reduced demand for ancillary products and services. Even if the trucking and busing industries and Lion’s other target customers adopt battery electric vehicles, Lion may be unable to establish and maintain confidence in its long-term business prospects among consumers, analysts and within the industry, and may be subject to negative publicity. The influence of any of the factors described above may cause current or potential customers not to purchase Lion’s vehicles and may otherwise materially adversely affect Lion’s business, results of operations or financial condition.

Lion’s inability to leverage vehicle and customer data could impact the servicing of its products, its software algorithms and impact research and development operations.

Lion relies on data collected from the use of its fleet of vehicles, including vehicle data and data related to battery usage statistics. Lion uses this data in connection with the servicing and normal course software updates of its products, its software algorithms and the research, development and analysis of its vehicles. Lion’s inability to obtain this data or the necessary rights to use this data or Lion’s inability to properly analyze or use this data could result in Lion’s inability to adequately service its vehicles or delay or otherwise negatively impact its research and development efforts. Any of the foregoing could materially adversely affect Lion’s business, results of operations or financial condition.

Risks Related to Electric Vehicle Industry and Related Regulatory, Legal and Tax Matters

The battery electric vehicle industry and its associated technologies are rapidly evolving and may be subject to unforeseen changes. Developments in alternative or analogous technologies may adversely affect the demand for Lion’s vehicles or otherwise materially adversely affect Lion’s business, results of operations or financial condition.

The battery electric vehicle industry and its technology are rapidly evolving and may be subject to unforeseen changes. Lion may be unable to keep up with changes in electric vehicle technology or alternatives to electricity as a

 

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fuel source and, as a result, its competitiveness may suffer. Developments in alternative or analogous technologies, such as advanced diesel, ethanol, fuel cells, or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may harm Lion’s competitive position and growth prospects or materially and adversely affect Lion’s business, results of operations or financial condition, including in ways which it currently does not anticipate.

The electric vehicle industry is highly competitive and Lion is likely to face competition from a number of sources. Lion may not be successful in competing in this industry, which may materially adversely affect its business, results of operations or financial condition.

The North American medium and heavy-duty urban truck market is highly competitive today and Lion expects it will become even more so in the future. Lion’s principal competition for their trucks comes from manufacturers of trucks with internal combustion engines powered by diesel fuel. This includes Navistar (Volkswagen), Daimler, Volvo, PACCAR, Hino (Toyota), and other automotive manufacturers. Lion cannot assure that customers will choose its vehicles over those of its competitors’ diesel-powered trucks. As of the date hereof, few class 5 to 8 electric trucks or battery electric buses are being sold in the United States or Canada. However, Lion expects that an increasing number of competitors will enter the electric truck market within the next several years and as they do so Lion expects that it will experience significant competition. A number of private and public companies have announced plans to offer battery electric trucks, including companies such as Navistar, Daimler, Volvo, PACCAR, Tesla, Nikola, and others. Based on publicly available information, a number of these competitors have displayed prototype trucks and have announced target availability and production timelines, while others have launched pilot programs in some markets. In addition, Lion is aware that potential competitors, including BYD and Workhorse, are currently manufacturing and selling battery electric trucks.

The North American school bus market is mainly concentrated in the hands of three incumbent automotive original equipment manufacturers (“OEMs”) selling primarily diesel school buses: Blue Bird Corporation, Thomas Built Buses (Daimler), and IC Bus (Navistar/Volkswagen). These manufacturers mainly compete with Lion’s school buses through their traditional diesel offering but are beginning to rollout electric models. In addition to the incumbent diesel school bus OEMs, a few early-stage EV OEMs have entered in competition with Lion such as Green Power Motor, which offers purpose-built electric Type D school buses, and Trans Tech, which offers retrofit electric Type A school buses.

Some of Lion’s current and potential competitors may also have greater financial resources, more extensive development, manufacturing, technical, marketing and service capabilities, greater brand, customer and industry recognition, a larger number of managerial and technical personnel or a lower cost of funds than Lion does or other competitive advantages relative to Lion. Many of Lion’s current and potential competitors may also be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products.

Lion expects competition in its industry to intensify in the future in light of increased demand for electric and other alternative fuel vehicles and continuing globalization. Factors affecting competition include the total cost of ownership (“TCO”), product quality and features, innovation and development time, pricing, availability, reliability, safety, fuel economy, customer service (including breadth of service network) and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in a further downward price pressure and adversely affect Lion’s business, financial condition and results of operation. There can be no assurances that Lion will be able to compete successfully in the markets in which it operates. If Lion’s competitors introduce new vehicles or services that compete with or surpass the quality, price, performance or availability of Lion’s vehicles or services, Lion may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow it to generate attractive rates of return on its investment. Increased competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share, which could materially adversely affect Lion’s business, results of operations or financial condition.

 

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Lion’s vehicles are subject to numerous mandated safety standards. Lion may be unable to comply with such safety standards, or could incur significant costs in order to do so, which could in each case materially adversely affect its business, results of operations or financial condition.

Lion’s vehicles, and the sale of motor vehicles in general, are subject to numerous international, federal, state and provincial motor vehicle safety and other standards, including the National Traffic and Motor Vehicle Safety Act, the Federal Motor Vehicle Safety Standards, the Motor Vehicle Safety Act (Canada) and similar laws and regulations. Although Lion continuously evaluates requirements for licenses, approvals, certificates and governmental authorizations necessary to manufacture, sell or service its vehicles in the United States and Canada, it may experience difficulties in obtaining or complying with various licenses, approvals, certifications and other governmental authorizations necessary to manufacture, sell or service its vehicles, especially for future vehicles. For example, in the United States, vehicles that meet or exceed all federally mandated safety standards are certified under the federal regulations. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Similar regulations exist in other jurisdictions. Failure by Lion to maintain or obtain any necessary approval for, or otherwise satisfy motor vehicle standards with respect to, its existing or future electric vehicles, or the incurrence of material unexpected costs in connection therewith, could have a material adverse effect on Lion’s business, financial condition and operating results.

Lion is subject to substantial laws, regulations and standards, including related to product safety, health and safety and environmental matters, each of which could impose substantial costs, legal prohibitions or unfavorable changes upon its operations or products, and any failure to comply with these laws, regulations or standards, including as they evolve, could harm Lion’s reputation, subject it to significant fines and liability, negatively impact its ability to sell its vehicles or operate its manufacturing facilities and materially adversely affect its business, results of operations and financial condition.

As a manufacturing company, including with respect to its current Saint-Jérôme, Québec, facility and its planned battery assembly facility and planned large-scale U.S. manufacturing facility, Lion is or will be subject to complex environmental, manufacturing, health and safety laws and regulations at numerous jurisdictional levels in the U.S. and Canada, including laws relating to the use, handling, storage, recycling, disposal and human exposure to hazardous materials and with respect to constructing, operating and maintaining its facilities. The costs of compliance, including remediating contamination if any is found on Lion’s current or future properties, or at sites where Lion has sent wastes for disposal, and any changes to Lion’s operations mandated by new or amended laws, may be significant. Lion may also face unexpected delays in obtaining permits and approvals required by such laws in connection with its future facilities, which would hinder operation of these facilities and Lion’s growth. Such costs and delays may materially adversely impact Lion’s business, results of operations or financial condition. Furthermore, any violations of these laws may result in substantial fines and penalties, remediation costs, third party damages, or a suspension or cessation of Lion’s operations. In addition, battery electric vehicles are subject to substantial regulation under international, federal, state, provincial and local laws and implementing regulations. These requirements are subject to change, including as a result of shifting sociopolitical trends. For example, several jurisdictions have adopted, or are considering adopting, laws related to supply chain sustainability, particularly with regards to environmental and/or human rights characteristics. Lion incurs significant costs in complying with applicable laws and regulations and may be required to incur additional costs to comply with any changes to such laws or regulations, and any failures to comply could result in significant expenses, delays or fines, or otherwise materially adversely affect Lion’s business, results of operations or financial condition.

The unavailability, reduction or elimination of government and economic incentives due to policy changes, government regulation or otherwise, could have a material adverse effect on Lion’s business, results of operations or financial condition.

Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle industry or other reasons may result in the diminished competitiveness of the alternative fuel and electric vehicle industry generally or Lion’s vehicles. While certain tax credits and other incentives for alternative energy production, alternative fuel and electric vehicles have been available in the past, there is no guarantee these programs will be available in the future. If current tax incentives are not available in the future, Lion’s business, results of operations or financial condition could be materially adversely affected.

 

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In particular, demand for Lion’s vehicles is influenced by federal, state, provincial and local tax credits, rebates, grants and other government programs and incentives that promote the use of battery electric vehicles. These include various government programs that make grant funds available for the purchase of battery electric vehicles. Additionally, demand for Lion’s vehicles may be influenced by laws, rules, regulations and programs that require reductions in carbon emissions, such as the various measures implemented by lawmakers and regulators in California and Québec, among others, designed to increase the use of electric and other zero-emission vehicles, including the establishment of firm goals in certain instances for the number of these vehicles operating on state roads by specified dates and the enactment of various laws and other programs in support of these goals. These programs and regulations, which have the effect of encouraging the use of battery electric vehicles, could expire or be repealed or amended for a variety of reasons. For example, parties with an interest in gasoline and diesel, hydrogen or other alternative vehicles or vehicle fuels, including lawmakers, regulators, policymakers, environmental or advocacy organizations, OEMs, trade groups, suppliers or other groups, may invest significant time and money in efforts to delay, repeal or otherwise negatively influence regulations and programs that promote the use of battery electric vehicles. Many of these parties have substantially greater resources and influence than Lion has. Further, changes in federal, state, provincial or local political, social or economic conditions, including a lack of legislative focus on these programs and regulations, could result in their modification, delayed adoption or repeal. Any failure to adopt, delay in implementation, expiration, repeal or modification of these programs and regulations, or the adoption of any programs or regulations that encourage the use of other alternative fuels or alternative vehicles over battery electric vehicles, would reduce the market for battery electric vehicles and could materially adversely affect Lion’s business, results of operations or financial condition.

Lion’s inability to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and other incentives for which it may apply could have a material adverse effect on its business, results of operations or financial condition.

Lion has applied, and expects in the future to apply, for federal, state and provincial grants, loans and tax incentives under government programs designed to stimulate the economy and support the production of battery electric vehicles and related technologies. Lion anticipates that in the future there will be new opportunities to apply for grants, loans and other incentives from federal, state, provincial and foreign governments. Lion’s ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of Lion’s applications to participate in such programs. The application process for these funds and other incentives will likely be highly competitive and will cause management to divert time and resources from other aspects of its business. Lion cannot assure that it will be successful in obtaining any of these additional grants, loans and other incentives, and Lion’s inability to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and other incentives for which it may apply could have a material adverse effect on its business, results of operations or financial condition.

Unfavorable changes in U.S. or Canadian laws or regulations and trade policy, including the imposition of tariffs or quotas, or changes in any free-trade arrangements such as the CUSMA could adversely affect Lion’s business, results of operations or financial condition.

While Lion plans on manufacturing some of its vehicles in the United States in the future, all of its vehicles are currently manufactured in, and distributed from, its Saint-Jérôme, Québec, facility. For the year ended December 31, 2020 and the year ended December 31, 2019, Lion’s total sales outside Canada represented approximately 50.5% and 62.0%, respectively, of its total sales, and Lion intends to continue to expand its operations in the United States by investing in the construction of a large-scale U.S. manufacturing facility and promoting its brand and vehicles in the United States. The U.S. market has been and is expected to continue generating sales growth. Several factors, including weakened international economic conditions, the introduction of new trade restrictions, increased protectionism or changes in free-trade arrangements such as the Canada-United States-Mexico Agreement (CUSMA), tariffs, negative geo-political events or an outbreak of infectious disease, a pandemic or a similar public health threat, such as the COVID-19 pandemic, could adversely affect such growth. In particular, the U.S. government has adopted a new approach to trade policy and in some cases has attempted to renegotiate or terminate certain existing bilateral or multi-lateral trade agreements. It has also imposed tariffs on certain foreign goods, including steel and certain commercial vehicle parts, which have resulted in increased costs for goods imported into the United States. There is no guarantee that further tariffs or additional trade restrictions will not be implemented on a broader range of products or raw materials. The resulting environment could have a material adverse effect on Lion’s business, results of operations or financial condition.

 

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Tax matters and changes in tax laws could materially adversely affect Lion’s business, results of operations or financial condition.

Lion conducts operations, directly and through its U.S. subsidiaries, in Canada and the United States and is therefore subject to income taxes in Canada and the United States. Lion may also in the future become subject to income taxes in other foreign jurisdictions. Lion’s effective income tax rate could be adversely affected by a number of factors, including changes in the valuation of deferred tax assets and liabilities, changes in tax laws, changes in accounting and tax standards or practices, changes in the composition of operating income by tax jurisdiction, changes in Lion’s operating results before taxes, and the outcome of income tax audits in Canada, the United States, or other jurisdictions. Lion regularly assesses all of these matters to determine the adequacy of its tax liabilities. If any of Lion’s assessments turn out to be incorrect, Lion’s business, results of operations, or financial condition could be materially adversely affected.

Lion conducts business in the United States through its existing U.S. subsidiary and may in the future conduct business via new subsidiaries in the United States or other jurisdictions. Due to the complexity of multinational tax obligations and filings, Lion may have a heightened risk related to audits or examinations by federal, state, provincial, and local taxing authorities in the jurisdictions in which it operates. Outcomes from these audits or examinations could have a material adverse effect on Lion’s business, results of operations, or financial condition.

The tax laws of Canada and the U.S., as well as potentially any other jurisdiction in which Lion may operate in the future, have detailed transfer pricing rules that require that all transactions with non-resident related parties satisfy arm’s length pricing principles. Although Lion believes that its transfer pricing policies have been reasonably determined in accordance with arm’s length principles, the taxation authorities in the jurisdictions where Lion carries on business could challenge its transfer pricing policies. International transfer pricing is a subjective area of taxation and generally involves a significant degree of judgment. If any of these taxation authorities were to successfully challenge Lion’s transfer pricing policies, Lion could be subject to additional income tax expenses, including interest and penalties. Any such increase in Lion’s income tax expense and related interest and penalties could have a material adverse effect on its business, results of operations, or financial condition.

In addition, Lion is also entitled to claim certain expenses and tax credits, including research and development expenses and Scientific Research and Experimental Development tax credits. Although Lion believes that the claims or deductions have been reasonably determined, there can be no assurance that Canadian or other relevant taxation authorities will agree. If a taxation authority were to successfully challenge the correctness of such expenses or tax credits claimed, or if a taxation authority were to reduce any tax credit either by reducing the rate of the grant or the eligibility of some research and development expenses in the future, Lion’s business, results of operations, or financial condition could be materially adversely affected.

Lion may also be adversely affected by changes in the relevant tax laws and tax rates, treaties, regulations, administrative practices and principles, judicial decisions, and interpretations thereof, in each case, possibly with retroactive effect. For example, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS recently entered into force among the jurisdictions that have ratified it. While Canada has ratified this convention, the United States has not yet done so. These recent changes could adversely affect Lion’s taxation, especially as Lion expands its relationships and operations internationally and could have a material adverse effect on Lion’s business, results of operations, or financial condition.

An adverse determination in any significant product liability claim against Lion could materially adversely affect its business, results of operations or financial condition.

The development, manufacturing, sale and usage of Lion’s vehicles expose Lion to significant risks associated with product liability claims. The automotive industry in particular experiences significant product liability claims, and Lion may face inherent risk of exposure to claims in the event its vehicles do not perform or are claimed to not have performed as expected. If Lion’s products are defective, malfunction or are used incorrectly by its customers, it may result in bodily injury, property damage or other injury, including death, which could give rise to product liability claims against Lion. Changes to Lion’s manufacturing processes, including as a result of its expected

 

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increase in manufacturing capacity and planned large-scale U.S. manufacturing facility, and the production of new products could result in product quality issues, thereby increasing the risk of litigation and potential liability. Any losses that Lion may suffer from any liability claims and the effect that any product liability litigation may have upon the brand image, reputation and marketability of Lion’s products could have a material adverse impact on Lion’s business, results of operations or financial condition.

Although Lion maintains insurance with respect to future claims in amounts it believes to be appropriate, no assurance can be given that material product liability claims will not be made in the future against Lion, or that claims will not arise in the future in excess or outside the coverage of Lion’s indemnities and insurance. Lion records provisions for known potential liabilities, but there is the possibility that actual losses may exceed these provisions and therefore negatively impact earnings. Also, Lion may not be able in the future to obtain adequate product liability insurance or the cost of doing so may be prohibitive. Adverse determinations of material product liability claims made against Lion could also harm its reputation and cause it to lose customers and could have a material adverse effect on its business, results of operations or financial condition.

Significant product repair and/or replacement due to product warranty claims or product recalls could have a material adverse impact on Lion’s business, results of operations or financial condition.

Lion generally provides a limited warranty against defects for all of its products. In addition, Lion may in the future be required to make product recalls or could be held liable in the event that some of its products do not meet safety standards or statutory requirements on product safety, even if the defects related to any such recall or liability are not covered by Lion’s limited warranty. Although Lion employs quality control procedures, products manufactured by it will need repair or replacement or may be recalled. Lion’s standard warranties generally require it to repair or replace defective products during such warranty periods at no cost to the consumer. Lion records provisions based on an estimate of product warranty claims, but there is the possibility that actual claims may exceed these provisions and therefore negatively impact Lion’s results of operations of financial condition. Although Lion has not to this date made any major product recall, it could in the future be required to make major product recalls or could be held liable in the event that some of its products do not meet safety standards or statutory requirements on product safety. In addition, the risks associated with product recalls may be aggravated if production volumes increase significantly, supplied goods do not meet Lion’s standards, Lion fails to perform its risk analysis systematically or product-related decisions are not fully documented. The repair and replacement costs that Lion could incur in connection with a recall could have a material adverse effect on its business, results of operations or financial condition. Product recalls could also harm Lion’s reputation and cause it to lose customers, particularly if recalls cause consumers to question the safety or reliability of its products, which could have a material adverse effect on its business, results of operations or financial condition.

In addition, purchase agreements with Lion’s customers may from time to time contain, in addition to Lion’s limited warranty, undertakings related to certain specific levels of performance and availability for the vehicles sold thereunder. Failure by Lion to provide the required levels of performance and availability, even if such failure is the result of factors outside of Lion’s control, could result in Lion being liable under such contractual arrangements or allow customers to terminate their arrangements with Lion. In particular, the MPA with the Specified Customer contains significant obligations from Lion in favor of the Specified Customer with respect to availability of vehicles in the ordinary course, and failure by Lion to satisfy those obligations, including if vehicle downtime and unavailability result from defects in the vehicles or preventative maintenance or maintenance issues, could result in Lion being liable for significant amounts, and any material breach by Lion under the MPA could entitle the Specified Customer to terminate the MPA and fully accelerate the vesting of the Specified Customer Warrant. See “Risk Factors—Lion’s constating documents permit it to issue an unlimited number of Common Shares without additional shareholder approval.” Failure by Lion to meet such obligations under the MPA with the Specified Customer, especially if the volume of purchases made by the Specified Customer thereunder increases significantly, could affect Lion’s profitability or otherwise materially and adversely affect its business, results of operations or financial condition.

 

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Risks Related to Cyber Security, Intellectual Property and Technology

Lion is subject to information technology and cybersecurity risks to operational systems, security systems, infrastructure, integrated software in its vehicles and solutions and customer data processed by it, third-party vendors or suppliers, and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent Lion from effectively operating its business, harm its reputation or materially adversely affect its business, results of operations or financial condition.

Lion is at risk for interruptions, outages and breaches of: (i) operational systems, including business, financial, accounting, product development, data processing or production processes, owned by it or its third-party vendors or suppliers; (ii) facility security systems, owned by it or its third-party vendors or suppliers; (iii) transmission control modules or other in-product technology, owned by it or its third-party vendors or suppliers; (iv) the integrated software in Lion’s vehicles; or (v) customer or driver data that Lion processes or Lion’s third-party vendors or suppliers process on its behalf. Such cyber incidents could materially disrupt operational systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers, drivers or others; jeopardize the security of Lion’s facilities; or affect the performance of transmission control modules or other in-product technology and the integrated software in Lion’s vehicles. A cyber incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception. The techniques used by cyber attackers change frequently and may be difficult to detect for long periods of time.

Although Lion maintains information technology measures designed to protect it against intellectual property theft, data breaches and other cyber incidents, such measures will require updates and improvements, and there is no guarantee that such measures will be adequate to detect, prevent or mitigate cyber incidents. Any implementation, maintenance, segregation and improvement of Lion’s systems may require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving, expanding and updating current systems, including the disruption of Lion’s data management, procurement, production execution, finance, supply chain and sales and service processes. These risks may affect Lion’s ability to manage its data and inventory, procure parts or supplies or produce, sell, deliver and service its vehicles, adequately protect its intellectual property or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations and contracts. Lion cannot be sure that these systems upon which it relies, including those of its third-party vendors or suppliers, will be effectively implemented, maintained or expanded as planned. If Lion does not successfully implement, maintain or expand these systems as planned, its operations may be disrupted, Lion’s ability to accurately and timely report its financial results could be impaired, and deficiencies may arise in Lion’s internal control over financial reporting, which may impact Lion’s ability to certify its financial results. Moreover, Lion’s proprietary information or intellectual property could be compromised or misappropriated, and its reputation may be adversely affected. If these systems do not operate as expected, Lion may be required to expend significant resources to make corrections or find alternative sources for performing these functions.

A significant cyber incident could impact Lion’s manufacturing capacity or production capability, harm its reputation, cause Lion to breach its contractual arrangements with other parties or subject Lion to regulatory actions or litigation, any of which could materially affect its business, prospects, results of operations or financial condition. In addition, Lion’s insurance coverage for cyberattacks may not be sufficient to cover all the losses it may experience as a result of a cyber incident.

Lion also collects, uses, discloses, stores, transmits and otherwise processes customer, driver and employee and others’ data as part of its business and operations, which may include personal data or confidential or proprietary information. Lion also works with partners and third-party service providers or vendors that may in the course of their business relationship with Lion collect, store and process such data on Lion’s behalf and in connection with Lion’s products and services. There can be no assurance that any security measures that Lion or its third-party service providers, vendors, or suppliers have implemented will be effective against current or future security threats. While Lion has developed systems and processes designed to protect the availability, integrity, confidentiality and security of Lion’s, Lion’s customers’, drivers’ and employees’ and others’ data, such security measures or those of its third-party service providers, vendors or suppliers could fail and result in unauthorized access to or disclosure, acquisition, encryption, modification, misuse, loss, destruction or other compromise of such data. If a compromise of such data were to occur, Lion may become liable under its contracts with other parties and under applicable law for damages and incur penalties and other costs to respond to, investigate and remedy such an incident. Laws in all 50 states of the United States and Canada require Lion to provide notice to individuals, customers, regulators, credit reporting agencies and others when certain sensitive information has been compromised as a result of a security

 

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breach or where a security breach creates a real risk of significant harm to an individual. Such laws are inconsistent and compliance in the event of a widespread data breach could be costly. Depending on the facts and circumstances of such an incident, these damages, penalties, fines and costs could be significant. Any such event could harm Lion’s reputation and result in litigation against it, or otherwise materially adversely affect its business, prospects, results of operations or financial condition.

Any unauthorized control or manipulation of the information technology systems in Lion’s vehicles could result in loss of confidence in Lion and its vehicles and harm its reputation, which could materially adversely affect its business, results of operations or financial condition.

Lion’s vehicles contain complex information technology systems and built-in data connectivity to accept and install periodic remote updates to improve or update functionality. Lion has designed, implemented and tested security measures intended to prevent unauthorized access to its information technology networks and its vehicles and related systems. However, hackers may attempt to gain unauthorized access to modify, alter and use such networks, vehicles and systems to gain control of or to change Lion’s solutions’ functionality, user interface and performance characteristics, or to gain access to data stored in or generated by the vehicles. Future vulnerabilities could be identified and Lion’s efforts to remediate such vulnerabilities may not be successful. Any unauthorized access to or control of Lion’s vehicles, or any loss of customer data, could result in legal claims or proceedings and remediation of such problems could result in significant, unplanned capital expenditures. In addition, regardless of their veracity, reports of unauthorized access to its technology systems or data, as well as other factors that may result in the perception that Lion’s vehicles, technology systems or data are capable of being “hacked,” could materially negatively affect Lion’s brand and harm Lion’s business, prospects, results of operations or financial condition.

Lion’s vehicles, as well as the maintenance and repair services it offers to its customers, rely on software and hardware that is highly technical, and if these systems contain errors, bugs or vulnerabilities, or if Lion is unsuccessful in addressing or mitigating technical limitations in its systems, Lion’s business, results of operations or financial condition could be materially adversely affected.

Lion’s vehicles rely on software and hardware, including software and hardware developed or maintained by third parties, that is highly technical and complex and will require modification and updates over the life of the vehicle. In addition, the performance of the software solutions included in Lion’s vehicles depends on the ability of such software and hardware to store, retrieve, process and manage immense amounts of data. Lion’s software and hardware may contain errors, bugs or vulnerabilities, and its systems are subject to certain technical limitations that may compromise Lion’s ability to meet its objectives. Some errors, bugs or vulnerabilities inherently may be difficult to detect and may only be discovered after the code has been released for external or internal use. Errors, bugs, vulnerabilities, design defects or technical limitations may be found within Lion’s software and hardware. Although Lion attempts to remedy any issues it observes in its vehicles and software as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not be to the satisfaction of Lion’s customers. Additionally, if Lion is able to deploy updates to the software addressing any issues, but such updates cannot or are not installed by its customers, such customers’ software will be subject to these vulnerabilities until they install such updates. If Lion is unable to prevent or effectively remedy errors, bugs, vulnerabilities or defects in its software and hardware, Lion may suffer damage to its reputation, loss of customers, loss of revenue or liability for damages, any of which could materially adversely affect Lion’s business, results of operations or financial condition.

Interruption or failure of Lion information technology and communications systems could impact Lion’s ability to effectively provide Lion’s services.

The availability and effectiveness of Lion’s goods and services depend on the continued operation of information technology and communications systems. Lion’s systems will be vulnerable to damage or interruption from, among others, physical theft, fire, terrorist attacks, natural disasters, power loss, war, telecommunications failures, viruses, denial or degradation of service attacks, ransomware, social engineering schemes, insider theft or misuse or other attempts to harm Lion’s systems. Lion utilizes reputable third-party service providers or vendors for Lion’s data, and these providers could also be vulnerable to harms similar to those that could damage Lion systems, including sabotage and intentional acts of vandalism causing potential disruptions. Some of Lion’s systems may not be redundant, and Lion’s disaster recovery planning cannot account for all eventualities. Any problems with Lion’s third-party cloud hosting providers could result in lengthy interruptions in Lion’s business. In addition, Lion’s products utilize technical and complex technology which may contain errors or vulnerabilities that could result in interruptions in Lion’s business or the failure of Lion’s systems.

 

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Lion is subject to evolving laws, regulations, standards and contractual obligations related to data privacy and security, and Lion’s actual or perceived failure to comply with such obligations could harm its reputation, subject it to significant fines and liability or adversely affect its business.

Collection, use, disclosure, storage, transmission or other processing of Lion’s customers’, employees’ and others’ information in conducting Lion’s business may subject it to various legislative and regulatory burdens related to data privacy and security that could require notification of data breaches, restrict or impose burdensome conditions on Lion’s use of such information and hinder Lion’s ability to acquire new customers or market to existing customers. The regulatory framework for data privacy and security is rapidly evolving, and Lion may not be able to monitor and react to all developments in a timely manner. For example, California requires connected devices to maintain minimum information security requirements. As legislation continues to develop, Lion will likely be required to expend significant additional resources to continue to modify or enhance Lion’s protective measures and internal processes to comply with such legislation. In addition, non-compliance with these laws or a significant breach of Lion’s third-party service providers’ or vendors’ or Lion’s own network security and systems could have serious negative consequences for its business and future prospects, including possible fines, penalties and damages, reduced customer demand for its vehicles and harm to its reputation and brand. Customers may also object to Lion’s or its third party service providers’ or vendors’ collection or processing of certain information, including personal data, which could materially adversely affect Lion’s business, results of operations or financial condition.

The performance characteristics of Lion’s vehicles, including battery life and range, may vary or decline over time, including due to factors outside of Lion’s control. Any such variation or decline may negatively influence potential or existing customers’ decisions whether to purchase Lion’s vehicles or affect Lion’s reputation, or could materially adversely affect its business, results of operations or financial condition.

The performance characteristics of Lion’s vehicles, including battery life and range, may vary or decline over time, including due to factors outside of Lion’s control. Factors such as driver behavior, usage, speed, terrain, time and stress patterns may also impact the battery’s ability to hold a charge, which would decrease Lion’s vehicles’ range before needing to recharge. Such battery deterioration and the related decrease in range may negatively influence potential customer decisions. In addition, Lion cannot guarantee that battery life and range deterioration will not be greater than what is currently anticipated. Any deterioration above the expected level could affect Lion’s reputation or could materially adversely affect its business, results of operations or financial condition.

Lion relies on unpatented proprietary know-how, trade secrets and contractual restrictions, and not patents, to protect its intellectual and other proprietary rights. Failure to adequately protect, enforce or otherwise manage Lion’s intellectual and other proprietary rights may undermine its competitive position and could materially adversely affect its business, prospects, results of operations or financial condition.

Protection of proprietary technology, processes, methods and other intellectual property related to Lion is critical to its business. Lion relies on unpatented proprietary know-how, trade secrets, trademarks, copyrights and contractual restrictions to protect its intellectual property and other proprietary rights and Lion does not hold any patents related to its business. As a matter of course, Lion employs numerous measures to protect its intellectual property and other confidential information, including technical data. For instance, Lion has implemented procedures designed to make the proprietary technology incorporated in its vehicle systems very difficult to access and/or retrieve and imposes consequences for users that seek to obtain unauthorized access to such technology. In addition, Lion enters into confidentiality agreements with suppliers, vendors, service providers, customers and other third parties with whom it may share information about its business and operations, and Lion also requires all of its employees, consultants and other persons who work for it to enter into confidentiality and assignment of intellectual property agreements. However, failure to adequately protect Lion’s intellectual property rights could result in Lion’s competitors offering similar products, potentially resulting in the loss of some of Lion’s competitive advantage and a decrease in revenue which would adversely affect Lion’s business, prospects, financial condition and operating results.

 

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As well, there can be no assurance that competitors and other third parties will not independently develop the know-how and trade secrets related to Lion’s proprietary technology, in which case Lion would not be able to prevent such third parties from using such know-how and trade secrets, or develop better products or manufacturing methods or processes than it.

Further, Lion may not be able to deter current and former employees, consultants, suppliers and customers as well as other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use Lion’s information and proprietary technology without authorization or otherwise infringe on Lion’s intellectual property and other proprietary rights. Lion may in the future need to rely on litigation to enforce its intellectual property rights and contractual rights, and, if not successful, may not be able to protect the value of its intellectual property. Any litigation could be protracted and costly and have a material adverse effect on Lion’s business, prospects, results of operations or financial condition regardless of the outcome. As well, in some cases the costs associated with such litigation could make enforcement impracticable. Further, intellectual property and contract laws vary throughout the world. Some foreign countries do not protect intellectual property rights to the same extent as do the laws of Canada. Policing the unauthorized use of our intellectual property in foreign jurisdictions may be difficult. Therefore, Lion’s intellectual property rights may not be as strong or as easily enforced outside of Canada. Failure to adequately enforce Lion’s intellectual property rights could result in its competitors offering similar products, potentially resulting in the loss of some of Lion’s competitive advantage and a decrease in its revenue, which would adversely affect its business, prospects, financial condition and operating results.

Lion may need to defend itself against intellectual property infringement or trade secret misappropriation claims, which may be time-consuming, could cause it to incur substantial costs and could prevent Lion from developing or commercializing future products.

Companies, organizations or individuals, including Lion’s competitors, may own or obtain patents, trademarks or other intellectual property or proprietary rights that would prevent or limit Lion’s ability to make, use, develop or sell its vehicles or components, which could make it more difficult for Lion to operate its business. Lion may receive inquiries from owners of intellectual property rights inquiring whether it infringes their proprietary rights. Lion may also be the subject of allegations that it has misappropriated a third party’s trade secrets or other proprietary rights. Companies owning patents or other intellectual property rights relating to the operation of Lion’s business, including in respect of battery packs, electric motors, fuel cells or electronic power management systems may allege infringement or misappropriation of such rights. In response to a determination that Lion has infringed or misappropriated upon a third party’s intellectual property rights, Lion may be required to do one or more of the following:

 

   

cease development, sales, or use of vehicles that incorporate the asserted intellectual property;

 

   

establish and maintain alternative branding for its products and services;

 

   

pay substantial damages;

 

   

obtain a license from the owner of the asserted intellectual property right, which license may not be available on commercially reasonable terms or at all; or

 

   

redesign one or more aspects or systems of its vehicles.

Any litigation or claims against Lion, whether valid or invalid, could result in substantial costs and diversion of resources or otherwise materially adversely affect its business, prospects, results of operations and financial condition.

Lion also licenses patents and other intellectual property from third parties, including its third-party vendors and suppliers, and Lion may face claims that the use by it of this in-licensed technology infringes the intellectual property rights of others. In such cases, Lion would seek indemnification from its licensors. However, Lion’s rights to indemnification may be unavailable or insufficient to cover Lion’s costs and losses, which could materially adversely affect Lion’s business, prospects, results of operations and financial condition. As well, Lion cannot be certain that such licensed intellectual property will afford protection against competitors with similar technology as the scope of protection of issued patent claims is often difficult to determine. The claims under any licensed patents may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to the patented technology.

 

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Risks Related to the Ownership of Lion Common Shares

The share price of Lion Common Shares may be volatile, and you may not be able to sell Lion Common Shares at or above the initial listing price.

The market price of Lion Common Shares could be subject to significant fluctuations. Some of the factors that may cause the market price of Lion Common Shares to fluctuate include:

 

   

volatility in the market price and trading volume of comparable companies;

 

   

actual or anticipated changes or fluctuations in Lion’s operating results or in the expectations of market analysts;

 

   

short sales, hedging and other derivative transactions in Lion Common Shares;

 

   

publication of research reports or news stories about Lion, its competitors or its industry;

 

   

litigation or regulatory action against Lion;

 

   

positive or negative recommendations or withdrawal of research coverage by securities analysts;

 

   

adverse market reaction to any indebtedness it may incur or securities it may issue in the future;

 

   

investors’ general perception of Lion and the public’s reaction to its press releases, other public announcements and filings with U.S. and Canadian securities regulators, including its financial statements;

 

   

changes in general political, economic, industry and market conditions and trends;

 

   

sales of Lion Common Shares by existing shareholders;

 

   

recruitment or departure of key personnel;

 

   

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving Lion or its competitors; and

 

   

the other risk factors described in this section of this prospectus.

Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. Certain institutional investors may base their investment decisions on consideration of Lion’s environmental, governance and social practices and performance against such institutions’ respective investment guidelines and criteria, and failure to satisfy such criteria may result in limited or no investment in Lion Common Shares by those institutions, which could materially adversely affect the trading price of Lion Common Shares. There can be no assurance that fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue for a protracted period of time, Lion’s business, results of operations or financial condition and the trading price of Lion Common Shares may be materially adversely affected.

In addition, broad market and industry factors may harm the market price of Lion Common Shares. Hence, the price of Lion Common Shares could fluctuate based upon factors that have little or nothing to do with it, and these fluctuations could materially reduce the price of Lion Common Shares regardless of Lion’s operating performance. In the past, following a significant decline in the market price of a company’s securities, there have been instances of securities class action litigation having been instituted against that company. If Lion is involved in any similar litigation, it could incur substantial costs, its management’s attention and resources could be diverted and Lion’s business, results of operations and financial condition could be materially adversely affected.

 

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Lion will incur significant expenses and devote other significant resources and management time as a result of being a public company, which may negatively impact its financial performance and could cause its results of operations and financial condition to suffer.

Lion will incur significant legal, accounting, insurance and other expenses as a result of being a public company. The Sarbanes-Oxley Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Act and the rules and regulations promulgated thereunder and the NYSE, impose additional reporting and other obligations on public companies. Lion expects that compliance with these laws, rules and regulations will substantially increase its expenses, including its legal and accounting costs, and make some activities more time-consuming and costly, and these new obligations will require attention from its management team and could divert their attention away from the day-to-day management of Lion’s business.

Lion also expects these laws, rules and regulations to make it more expensive for it to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for Lion to attract and retain qualified persons to serve on its board of directors or as officers. As a result of the foregoing, Lion expects a substantial increase in legal, accounting, insurance and certain other expenses in the future, which will negatively impact its financial performance and could cause Lion’s results of operations and financial condition to suffer. Furthermore, if Lion is unable to satisfy its obligations as a public company, it could be subject to delisting of the Lion Common Shares, fines, sanctions and other regulatory action and potentially civil litigation.

Lion’s senior management team has limited experience managing a public company, and regulatory compliance may divert its attention from the day-to-day management of the business.

The individuals who now constitute Lion’s senior management team have limited experience managing a publicly traded company and limited experience complying with the increasingly complex regulatory environment pertaining to public companies. Lion’s senior management team may not successfully or efficiently manage Lion’s transition to being a public company subject to significant regulatory oversight and reporting obligations under U.S. and Canadian securities laws.

Lion’s failure to timely and effectively implement controls and procedures required by the Sarbanes-Oxley Act and Canadian securities laws could have a material adverse effect on its business, results of operations or financial condition.

As a foreign private issuer listed on the NYSE, Lion will incur legal, accounting and other expenses that it did not previously incur. Lion will be subject to the requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the NYSE Listing Rules, NYSE listing requirements, and other applicable securities rules and regulations, as well as the Foreign Corrupt Practices Act. Compliance with these rules and regulations will increase Lion’s legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on its systems and resources. The Exchange Act requires that, as a public company, Lion file or furnish annual and certain other reports with respect to its business, financial condition and results of operations.

Effective internal control over financial reporting is necessary for Lion to provide reliable financial reports. Effective internal controls, together with adequate disclosure controls and procedures, are designed to prevent or detect material misstatements due to fraud or error and to provide reasonable assurance as to the reliability of financial reporting. Deficiencies in Lion’s internal controls may adversely affect its management’s ability to record, process, summarize, and report financial data on a timely basis. As a public company, Lion is required to comply with applicable Canadian securities laws, including National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings. Beginning with its second annual report, Lion will be obligated to include a report of management’s assessment on its internal control over financial reporting and, after Lion ceases to qualify as an emerging growth company, an independent auditor’s attestation report on its internal control over financial reporting in its annual reports on Form 20-F, subject to certain exceptions. Prior to completion of the Business Combination, Lion was never required to test its internal controls within a specified period and, as a result, it may experience difficulty in meeting these reporting requirements in a timely manner.

 

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Lion anticipates that the process of building its accounting and financial functions and infrastructure will require significant additional professional fees, internal costs and management efforts. Lion expects that it will need to adapt its current internal system to combine and streamline the management of its financial, accounting, human resources and other functions. However, such a system would likely require Lion to complete many processes and procedures for the effective use of the system or to run its business using the system, which may result in substantial costs. Any disruptions or difficulties in implementing or using such a system could adversely affect Lion’s controls and materially adversely affect its business, results of operations or financial condition. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management’s attention. In addition, Lion may discover weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. Lion’s internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

Certain of Lion’s shareholders have significant influence over Lion.

PEC, directly or indirectly, owns or controls approximately 38.0% of Lion’s issued and outstanding Lion Common Shares, and 9368-2672, directly or indirectly, owns or controls approximately 16.1% of Lion’s issued and outstanding Lion Common Shares (in each case, on a non-diluted basis). Each of PEC and 9368-2672 therefore has significant influence over Lion’s management and affairs, which could limit a shareholder’s ability to influence the outcome of matters submitted to shareholders for a vote, including election of directors and significant corporate transactions. In addition, as per the terms of the Business Combination Agreement, effective as of Closing, Lion entered into the Nomination Rights Agreement, pursuant to which, subject to the terms and conditions contained therein, each of PEC and 9368-2672 was granted certain rights to nominate members of Lion’s Board (including, in certain cases, members of committees of Lion’s Board) for so long as it holds a requisite percentage of the total voting power of Lion. For more information about the Nomination Rights Agreement, see the section entitled “Description of Share Capital of Lion—Nomination Rights.”

Each of PEC and 9368-2672 is able to influence Lion’s decisions. The market price of Lion Common Shares could be adversely affected due to the significant influence and voting power of PEC and 9368-2672. Moreover, the significant influence and voting interest of PEC and 9368-2672 may discourage transactions involving a change of control, including transactions in which an investor, as a holder of Lion Common Shares, might otherwise receive a premium for Lion Common Shares over the then-current market price, or discourage competing proposals if a going private transaction is proposed.

Additionally, PEC’s interests may not align with the interests of Lion’s other shareholders. PEC (or its affiliates or related entities) is in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with Lion. PEC (or its affiliates or related entities) may also pursue acquisition opportunities that may be complementary to Lion’s business, and, as a result, those acquisition opportunities may not be available to Lion.

Lion does not expect to declare any dividends in the foreseeable future.

Lion anticipates reinvesting earnings to finance the growth of its business, and does not anticipate declaring any cash dividends to holders of Lion Common Shares in the foreseeable future. Consequently, investors may need to rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

 

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Lion is an “emerging growth company” within the meaning of the Securities Act, and if it takes advantage of certain exemptions from disclosure requirements available to emerging growth companies, it could make Lion’s securities less attractive to investors and may make it more difficult to compare Lion’s performance to the performance of other public companies.

Lion is as an “emerging growth company” as defined in the Securities Act, as amended by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, Lion is eligible for and intends to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as it continues to be an emerging growth company, including (a) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements. Lion will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of Lion Common Shares that are held by non-affiliates exceeds $700 million as of the last business day of the second quarter of that fiscal year, (ii) the last day of the fiscal year in which it has total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which it has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the Closing. Investors may find Lion Common Shares less attractive because Lion will rely on these exemptions, which may result in a less active trading market for Lion Common Shares and its price may be more volatile.

Lion is a foreign private issuer within the meaning of the SEC rules, and as such is exempt from certain provisions applicable to U.S. domestic public companies.

Because Lion qualifies as a foreign private issuer under the Exchange Act, Lion is exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

   

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

Lion is required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, Lion intends to publish its results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information Lion is required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

As a foreign private issuer, Lion is permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE Listing Rules; these practices may afford less protection to shareholders than they would enjoy if Lion complied fully with the NYSE Listing Rules.

As a corporation incorporated under the Business Corporations Act (Québec) listed on the NYSE, Lion is subject to the NYSE Listing Rules. However, the NYSE Listing Rules permit a foreign private issuer like Lion to follow the corporate governance practices of its home country. Certain corporate governance practices in Canada, which is Lion’s home country, may differ significantly from the NYSE Listing Rules. Lion may rely on home country practice with respect to its corporate governance, and Lion is currently doing so with respect to certain corporate governance requirements. As a result, Lion’s shareholders may be afforded less protection than they otherwise would enjoy under the NYSE Listing Rules applicable to U.S. domestic issuers.

 

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If securities or industry analysts do not publish or cease publishing research or reports about Lion, its business or market, or if they change their recommendations regarding Lion Common Shares adversely, the price and trading volume of Lion Common Shares could decline.

The trading market for Lion Common Shares is influenced by the research and reports that industry or securities analysts publish about Lion, its business, its market or its competitors. If any of the analysts who cover Lion or may cover Lion in the future change their recommendation regarding Lion Common Shares adversely, or provide more favorable relative recommendations about its competitors, the price of Lion Common Shares would likely decline. If any analyst who covers Lion or may cover it in the future were to cease coverage of Lion or fail to regularly publish reports on it, Lion could lose visibility in the financial markets, which in turn could cause the price or trading volume of Lion Common Shares to decline.

A significant portion of Lion’s total outstanding Lion Common Shares are restricted from immediate resale but may be sold into the market in the near future. Future sales of Lion’s securities by existing shareholders or by Lion could cause the market price of Lion Common Shares to drop significantly, even if its business is doing well.

Sales of a substantial number of Lion Common Shares in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of Lion Common Shares or securities convertible into Lion Common Shares intend to sell Lion Common Shares, could reduce the market price of Lion Common Shares. The Lion Common Shares issued in exchange for the NGA Common Stock issued to the Sponsor prior to NGA’s initial public offering are subject to a 365-day lock-up with Lion, and the Lion Common Shares held by shareholders of Lion prior to the Business Combination are subject to a 180-day lock-up with Lion, in each case subject to certain exceptions thereto.

All of these Lion Common Shares will, however, be able to be resold after the expiration of the applicable lock-up period, as well as pursuant to customary exceptions thereto or upon the waiver of the lock-up agreement by Lion. As restrictions on resale end, the market price of Lion Common Shares could decline if the holders of currently restricted Lion Common Shares sell them or are perceived by the market as intending to sell them.

Lion entered into the Registration Rights Agreement pursuant to which, subject to the terms and conditions contained therein, each of PEC, 9368-2672 and the Warrantholder (as defined below) were granted certain rights with respect to the registration or qualification by prospectus in the United States and/or Canada of the sale of the Lion Common Shares held by them. For more information about the Registration Rights Agreement, see the section entitled “Description of Share Capital of Lion—Registration Rights.” Further, Lion cannot predict the size of future issuances of Lion Common Shares or the effect, if any, that future issuances and sales of Lion Common Shares will have on the market price of Lion Common Shares. Sales of a substantial number of Lion Common Shares, or the perception that such sales could occur, may adversely affect prevailing market prices for Lion Common Shares.

Any issuance of preferred shares could make it difficult for another company to acquire Lion or could otherwise adversely affect holders of Lion Common Shares, which could depress the price of Lion Common Shares.

Lion’s Board has the authority to issue Lion Preferred Shares and to determine the preferences, limitations and relative rights of Lion Preferred Shares and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by its shareholders. Any such Lion Preferred Shares could be issued with liquidation, dividend and other rights superior to the rights of Lion Common Shares. The potential issuance of Lion Preferred Shares may delay or prevent a change in control of Lion, discourage bids for Lion Common Shares at a premium over the market price and adversely affect the market price and other rights of the holders of Lion Common Shares.

Lion’s constating documents permit it to issue an unlimited number of Lion Common Shares without additional shareholder approval.

Lion’s articles permit it to issue an unlimited number of Lion Common Shares. Lion may, from time to time, issue additional Lion Common Shares in the future. Subject to the requirements of the NYSE and the TSX, Lion will not be required to obtain the approval of shareholders for the issuance of additional Lion Common Shares. Any further issuances of Lion Common Shares will result in immediate dilution to existing shareholders and may have an adverse effect on the value of their shareholdings.

 

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As of March 31, 2021, (i) the vested portion of the Specified Customer Warrant is exercisable for a number of Lion Common Shares that represents approximately 2.7% of all Lion Common Shares issued and outstanding on a partially-diluted basis, and (ii) the Specified Customer Warrant would, if fully vested, represent approximately 15.8% of all Lion Common Shares issued and outstanding on a partially-diluted basis. Any exercise by the Warrantholder of its right to acquire Lion Common Shares will dilute the ownership interests of Lion’s then-existing shareholders and reduce Lion’s earnings per share. In addition, any sales by the Warrantholder in the public market of any Lion Common Shares issuable upon the exercise of the Specified Customer Warrant could adversely affect prevailing market prices of the Lion Common Shares. For more information about the Specified Customer Warrant, see the section entitled “Business—Contractual Arrangements with Affiliates of Amazon.com, Inc.”

Lion’s constating documents and certain Canadian legislation contain provisions that may have the effect of delaying or preventing certain change in control transactions or shareholder proposals.

Certain provisions of Lion’s bylaws and certain Canadian legislation, together or separately, could discourage or delay certain change in control transactions or shareholder proposals. Lion’s bylaws contain provisions that establish certain advance notice procedures for nomination of candidates for election as directors at shareholders’ meetings. The Business Corporations Act (Québec) requires that any shareholder proposal that includes nominations for the election of directors must be signed by one or more holders of shares representing in the aggregate not less than 5% of the shares or 5% of the shares of a class or series of shares of the corporation entitled to vote at the meeting to which the proposal is to be presented.

The Investment Canada Act requires that a non-Canadian must file an application for review with the Minister responsible for the Investment Canada Act and obtain approval of the Minister prior to acquiring control of a “Canadian business” within the meaning of the Investment Canada Act, where prescribed financial thresholds are exceeded. Furthermore, limitations on the ability to acquire and hold Lion Common Shares may be imposed by the Competition Act (Canada). This legislation permits the Commissioner of Competition, or Commissioner, to review any acquisition or establishment, directly or indirectly, including through the acquisition of shares, of control over or of a significant interest in Lion. Otherwise, there will be no limitations either under the laws of Canada or Québec, or in Lion’s articles on the rights of non-Canadians to hold or vote its Lion Common Shares.

Any of these provisions may discourage a potential acquirer from proposing or completing a transaction that may have otherwise presented a premium to Lion’s shareholders.

Lion’s constating documents provide that any derivative actions, actions relating to breach of fiduciary duties and other matters relating to its internal affairs will be required to be litigated in Canada, other than complaints asserting a cause of action arising under the Securities Act or the Exchange Act, and that the U.S. federal district courts will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act or the Exchange Act, which could limit shareholders’ ability to obtain a favorable judicial forum for disputes with Lion.

Lion’s by-laws include a forum selection provision that provides that, unless Lion consents in writing to the selection of an alternative forum, the Superior Court of Justice of the Province of Québec, Canada and the appellate courts therefrom, will be the sole and exclusive forum for (i) any derivative action or proceeding brought on Lion’s behalf; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of Lion’s directors, officers, or other employees to Lion; (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Business Corporations Act (Québec) or Lion’s by-laws; or (iv) any action or proceeding asserting a claim otherwise related to the relationships among Lion, its affiliates and their respective shareholders, directors and/or officers, but excluding claims related to Lion’s business or such affiliates. The forum selection provision also provides that Lion’s securityholders are deemed to have consented to personal jurisdiction in the Province of Québec and to service of process on their counsel in any foreign action initiated in violation of the foregoing provisions. For more information about the choice of forum, see the section entitled “Description of Share Capital of Lion—Important Provisions and Constating Documents—Choice of Forum.”

 

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In addition, Lion’s by-laws provide that the U.S. federal district courts will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act and the Exchange Act. The enforceability of similar exclusive forum provisions (including exclusive federal forum provisions for actions, suits or proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings, and there is uncertainty as to whether courts would enforce the exclusive forum provisions in Lion’s by-laws. Additionally, Lion’s securityholders cannot waive compliance with the U.S. federal securities laws and the rules and regulations thereunder.

The forum selection provision may impose additional litigation costs on shareholders in pursuing any such claims. Additionally, the forum selection provision may limit shareholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with Lion or its directors, officers or employees, which may discourage the filing of lawsuits against Lion and its directors, officers and employees, even though an action, if successful, might benefit its shareholders. The courts of the Province of Québec may also reach different judgments or results than would other courts, including courts where a shareholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to Lion than to its shareholders. If a court were to find either choice of forum provision contained in Lion’s by-laws to be inapplicable or unenforceable in an action, Lion may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect Lion’s business, results of operations and financial condition.

Lion may be treated as a passive foreign investment company (“PFIC”), which could result in adverse U.S. federal income tax consequences to U.S. investors.

If Lion is treated as a PFIC for any taxable year in which a U.S. Holder (as defined in the section entitled “Material U.S. Federal Income Tax Considerations —Considerations for U.S. Holders —Passive Foreign Investment Company Rules”) holds Lion Common Shares (regardless of whether Lion remains a PFIC for subsequent taxable years), such U.S. Holder may be subject to certain adverse U.S. federal income tax consequences and may be subject to additional reporting requirements.

Lion expects to take the position that it is not a PFIC for the current taxable year, but such position will not be free from doubt. Lion’s PFIC status for the current taxable year or any subsequent taxable year will not be determinable until after the end of such taxable year, and Lion cannot assure that it will not be a PFIC in the current taxable year or in any future taxable year. If Lion were later determined to be a PFIC, you may be unable to make certain advantageous elections with respect to your ownership of Lion Common Shares that would mitigate the adverse consequences of Lion’s PFIC status, or making such elections retroactively could have adverse tax consequences to you. Lion is not representing to you that Lion will not be treated as a PFIC for the current taxable year or in any future taxable years. The PFIC rules are complex and unclear. Holders should consult with, and rely solely upon, their tax advisors to determine the application of the PFIC rules to them and any resultant tax consequences. For more information about the tax considerations with respect to PFIC classification to Holders, see the section entitled “Material U.S. Federal Income Tax Considerations —Considerations for U.S. Holders —Passive Foreign Investment Company Rules.”

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, and the documents to which this prospectus refers, contain “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities laws. Any statements contained in this prospectus, or any such documents, that are not statements of historical fact, including statements about Lion’s beliefs and expectations, are forward-looking statements and should be evaluated as such. Any references to forward-looking statements in this prospectus include forward-looking information within the meaning of applicable Canadian securities laws.

Forward-looking statements may be identified by the use of words such as “believe,” “may,” “will,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “could,” “plan,” “project,” “potential,” “seem,” “seek,” “future,” “target” or other similar expressions and any other statements that predict or indicate future events or trends or that are not statements of historical matters, although not all forward-looking statements contain such identifying words. Such forward-looking statements are based on a number of estimates and assumptions that Lion believes are reasonable when made including, but not limited to, that Lion will be able to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners, that Lion will continue to operate the businesses of Lion in the normal course, that Lion will be able to implement its growth strategy, that Lion will be able to successfully and timely complete the construction of its U.S. manufacturing facility and its Québec battery plant, that Lion will be able to maintain its competitive position, that Lion will continue to improve its operational, financial and other internal controls and systems to manage its growth and size and that its results of operations and financial condition will not be adversely affected, that Lion will be able to maintain the benefits received by Lion from government subsidies and economic incentives and that Lion will be able to secure additional funding through equity or debt financing on terms acceptable to Lion. Such estimates and assumptions are made by Lion in light of the experience of management and their perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Lion believes that these risks and uncertainties include, but are not limited to, the following: any adverse changes in the U.S. and Canadian general economic, business, market, financial, political and legal conditions, including as consequences of the global COVID-19 pandemic; Lion’s inability to successfully and economically manufacture and distribute its vehicles at scale and meet its customers’ business needs; Lion’s inability to execute its growth strategy; Lion’s inability to maintain its competitive position; Lion’s inability to reduce its costs of supply over time; any inability to maintain and enhance Lion’s reputation and brand; any significant product repair and/or replacement due to product warranty claims or product recalls; any failure of information technology systems or any cybersecurity and data privacy breaches or incidents; the reduction, elimination or discriminatory application of government subsidies and economic incentives or the reduced need for such subsidies; natural disasters, epidemic or pandemic outbreaks, boycotts and geo-political events; the outcome of any legal proceedings that may be instituted against Lion from time to time. These and other risks and uncertainties related to the businesses of Lion are described in greater detail in the section entitled “Risk Factors.” Many of these risks are beyond Lion’s management’s ability to control or predict. All forward-looking statements attributable to Lion or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained, and risk factors identified, in this prospectus and other documents filed with the Autorité des marchés financiers and the SEC.

Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under applicable securities laws, Lion undertakes no obligation, and expressly disclaims any duty, to update, revise or review any forward-looking information, whether as a result of new information, future events or otherwise.

 

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USE OF PROCEEDS

All of the common shares offered by the selling securityholders pursuant to this prospectus will be sold by the selling securityholders for their respective accounts. Lion will not receive any of the proceeds from such sales. Lion will pay certain expenses associated with the registration of the securities covered by this prospectus, as described in the section titled “Plan of Distribution”.

 

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DIVIDEND POLICY

Lion does not expect to declare any dividends in the foreseeable future. Lion anticipates reinvesting earnings to finance the growth of its business, and does not anticipate declaring any cash dividends to holders of Lion Common Shares in the foreseeable future.

Subject to the prior rights of the holders of Lion Preferred Shares as to dividends, the holders of Lion Common Shares will be entitled to receive dividends as and when declared by Lion’s Board out of the funds that are available for the payment of dividends.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial statements of Lion give effect to the PIPE Financing, the Business Combination and related transactions summarized below. The Business Combination does not constitute a business combination pursuant to IFRS 3 – Business Combinations as NGA is a non-operating entity and does not meet the definition of a business under IFRS 3 – Business Combinations. As a result, the Business Combination is being accounted for as a capital transaction of Lion equivalent to the issuance of shares by Lion in exchange for the net monetary assets of NGA.

The unaudited pro forma consolidated statement of financial position has been prepared to give effect to the PIPE Financing, the Business Combination and related transactions summarized below as if they had been consummated on March 31, 2021. The unaudited pro forma consolidated statement of net loss for the year ended December 31, 2020 and the unaudited pro forma consolidated statement of net loss for the three-month period ended March 31, 2021 give effect to the PIPE Financing, the Business Combination and related transactions summarized below as if they had been consummated on January 1, 2020:

 

   

the issuance and sale of 20,040,200 Lion Common Shares, for a purchase price of $10.00 per share and an aggregate purchase price of $200,402,000, in the PIPE Financing;

 

   

the merger of NGA with and into Merger Sub, a wholly-owned subsidiary of Lion, with NGA surviving the merger as a wholly-owned subsidiary of Lion;

 

   

the completion of the Pre-Closing Reorganization, which included a split of the Lion Common Shares, whereby each Lion Common Share immediately prior to such share split was converted into 4.1289 Lion Common Shares immediately following such share split;

 

   

the repayment, effective as of Closing, of the Convertible Loan (as defined herein) and the Convertible Debenture (as defined herein) with Investissement Québec; and

 

   

the repayment, effective as of Closing, of bank indebtedness and long term debt under the Credit Agreement (as defined below).

The unaudited pro forma consolidated statement of financial position and consolidated statements of net loss have been prepared to give effect to the PIPE Financing, the Business Combination and related transactions summarized above and the assumptions and adjustments discussed further below. The historical financial statements of Lion have been adjusted to give pro forma effect to events that are (i) directly attributable to the PIPE Financing and the Business Combination and (ii) factually supportable.

The following unaudited pro forma consolidated financial statements have been prepared from the information derived from, and should be read in conjunction with:

 

   

the audited consolidated financial statements of Lion as of and for the year ended December 31, 2020; and

 

   

the unaudited condensed interim consolidated financial statements of Lion as of March 31, 2021 and for the three-month period ended March 31, 2021.

together with, in each case, the notes accompanying such financial statements and the notes accompanying the unaudited pro forma consolidated financial statements, and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as the other information relating to Lion contained herein, and the description of certain terms thereof set forth herein.

 

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Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma consolidated financial statements are described in the accompanying notes. The unaudited pro forma consolidated financial statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the PIPE Financing, the Business Combination and related transactions occurred on the dates indicated. Further, the unaudited pro forma consolidated financial statements do not purport to project the future operating results or financial position of Lion following the completion of the PIPE Financing and the Business Combination. These unaudited pro forma consolidated financial statements do not take into account any synergies or cost savings which may, or are expected to, occur as a result of the Business Combination. The unaudited pro forma adjustments represent Lion’s management’s estimates based on information available as of the date of these unaudited pro forma consolidated financial statements and are subject to change as additional information becomes available and analyses are performed.

 

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The Lion Electric Company

Unaudited Pro Forma Consolidated Statement of Financial Position

As of March 31, 2021

(In US Dollars)

 

     Lion
March 31, 2021
     Notes     Pro forma
adjustments
     Pro forma
consolidated
March 31, 2021
 
     $            $      $  

Assets

          

Current

          

Cash

     —          (a     405,296,961        405,296,961  

Inventories

     47,852,275          —          47,852,275  

Accounts receivable

     14,676,492          —          14,676,492  

Prepaid expenses

     1,553,322        (d     163,693        1,717,015  
  

 

 

      

 

 

    

 

 

 

Current assets

     64,082,089          405,460,654        469,542,743  
  

 

 

      

 

 

    

 

 

 

Non-current

          

Property, plant and equipment

     6,340,776          —          6,340,776  

Right-of-use assets

     7,905,453          —          7,905,453  

Intangible assets

     48,128,869          —          48,128,869  

Contract asset

     14,506,486          —          14,506,486  
  

 

 

      

 

 

    

 

 

 

Non-current assets

     76,881,584          —          76,881,584  
  

 

 

      

 

 

    

 

 

 

Total assets

     140,963,673          405,460,654        546,424,327  
  

 

 

      

 

 

    

 

 

 

 

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     Lion
March 31, 2021
    Notes     Pro forma
adjustments
    Pro forma
consolidated
March 31, 2021
 
     $           $     $  

Liabilities

        

Current

        

Bank indebtedness and other indebtedness

     31,303,033       (f     (23,369,300     7,933,733  

Trade and other payables

     15,336,249       (d     520,930       15,399,344  
       (f     (457,835  

Current portion of share-based compensation liability

     39,200,456         —         39,200,456  

Current portion of long-term debt

     42,717,680       (f     (39,760,000     2,957,680  

Current portion of lease liabilities

     1,702,996         —         1,702,996  
  

 

 

     

 

 

   

 

 

 

Current liabilities

     130,260,414         (63,066,205     67,194,209  
  

 

 

     

 

 

   

 

 

 

Non-current

        

Share-based compensation liability

     37,621,575         —         37,621,575  

Long-term debt

     87,326         —         87,326  

Convertible debt instruments

     19,912,273       (g     (19,912,273     —    

Lease liabilities

     6,436,263         —         6,436,263  

Share warrant obligation / warrant liability

     31,868,091       (d     170,226,114       202,094,205  

Common shares, retractable

     27,819,990       (i     (27,819,990     —    
  

 

 

     

 

 

   

 

 

 

Non-current liabilities

     123,745,518         122,493,851       246,239,369  
  

 

 

     

 

 

   

 

 

 

Total liabilities

     254,005,932         59,427,646       313,433,578  
  

 

 

     

 

 

   

 

 

 

Shareholders’ equity (deficiency)

        

Share capital

     32,562,541       (h     357,010,735       389,573,276  

Conversion options on convertible debt instruments, net of tax

     1,472,520       (g     (1,472,520     —    

Deficit

     (142,544,269     (j     (9,505,207     (152,049,476

Cumulative translation adjustment

     (4,533,051       —         (4,533,051
  

 

 

     

 

 

   

 

 

 

Total equity (deficiency)

     (113,042,259       346,033,008       232,990,749  
  

 

 

     

 

 

   

 

 

 

Total equity (deficiency) and liabilities

     140,963,673         405,460,654       546,424,327  
  

 

 

     

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

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The Lion Electric Company

Unaudited Pro Forma Consolidated Statement of Net Loss

For the three-month period ended March 31, 2021

(In US Dollars, Except Per Share Data and Number of Shares)

 

     Lion
March 31, 2021
    Notes     Pro forma
adjustments
    Pro forma
consolidated
March 31, 2021
 
     $           $     $  

Revenue

     6,225,478         —         6,225,478  

Cost of sales

     8,032,301         —         8,032,301  
  

 

 

     

 

 

   

 

 

 

Gross profit

     (1,806,823       —         (1,806,823

Administrative expenses

     6,269,969         —         6,269,969  

Selling expenses

     4,383,579         —         4,383,579  

Finance costs (income)

     3,907,390       (bb     (1,616,013     415,163  
       (cc     (797,214  
       (dd     (1,079,000  

Foreign exchange gain

     (178,653       —         (178,653

Change in fair value of share warrant obligation

     (75,245       —         (75,245
  

 

 

     

 

 

   

 

 

 

Net loss for the period

     (16,113,863       3,492,227       (12,621,636
  

 

 

     

 

 

   

 

 

 

Net loss per share:

        

Basic loss per share

     (0.15         (0.07
  

 

 

       

 

 

 

Diluted loss per share

     (0.15         (0.07
  

 

 

       

 

 

 

Weighted average number of shares outstanding, basic and diluted (Note 3)

     110,551,314           188,497,602  
  

 

 

       

 

 

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

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The Lion Electric Company

Unaudited Pro Forma Consolidated Statement of Net Loss

For the year ended December 31, 2020

(In US Dollars, Except Per Share Data and Number of Shares)

 

     Lion
December 31,
2020
    Notes     Pro forma
adjustments
    Pro forma
consolidated
December 31,
2020
 
     $           $     $  

Revenue

     23,422,623         —         23,422,623  

Cost of sales

     20,277,309         —         20,277,309  
  

 

 

     

 

 

   

 

 

 

Gross profit

     3,145,314         —         3,145,314  

Administrative expenses

     59,941,972       (aa     7,700,000       67,641,972  

Selling expenses

     15,721,328         —         15,721,328  

Finance costs (income)

     8,667,405       (bb     (4,791,806     4,676,351  
       (cc     (1,164,975  
       (dd     (1,312,000  
       (ee     3,277,727    

Foreign exchange gain

     (681,194       —         (681,194

Change in fair value of share warrant obligation

     16,846,470         —         16,846,470  
  

 

 

     

 

 

   

 

 

 

Net loss for the year

     (97,350,667       (3,708,946     (101,059,613
  

 

 

     

 

 

   

 

 

 

Net loss per share:

        

Basic loss per share

     (0.88         (0.54
  

 

 

       

 

 

 

Diluted loss per share

     (0.88         (0.54
  

 

 

       

 

 

 

Weighted average number of shares outstanding, basic and diluted (Note 3)

     110,551,314           188,497,602  
  

 

 

       

 

 

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

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The Lion Electric Company

Notes to Unaudited Pro Forma Consolidated Financial Statements

As of March 31, 2021

(In US Dollars, Except for Number of Shares)

1 – Basis of Presentation

The unaudited pro forma consolidated statement of financial position has been prepared to give effect to the PIPE Financing and the Business Combination together with the related transactions summarized above as if they had been consummated on March 31, 2021. The unaudited pro forma consolidated statement of net loss for the year ended December 31, 2020 and for the three-month period ended March 31, 2021 give effect to the PIPE Financing and the Business Combination together with the related transactions summarized above as if they had been consummated on January 1, 2020.

The unaudited pro forma consolidated financial statements have been prepared from information derived from the audited consolidated financial statements of Lion as of and for the year ended December 31, 2020 and from the unaudited condensed interim consolidated financial statements of Lion as of March 31, 2021 and for the three-month period ended March 31, 2021.

The pro forma adjustments are based on certain currently available information, estimates and certain assumptions. Management believes that the assumptions used provide a reasonable basis for presenting all of the significant effects of the PIPE Financing, the Business Combination and the related transactions summarized above and that the pro forma adjustments give appropriate effect to those assumptions and are appropriately applied in the unaudited pro forma consolidated financial statements. These financial statements do not take into account any synergies or cost savings which may, or are expected to, occur as a result of the Business Combination.

The unaudited pro forma consolidated financial statements are not intended to be indicative of the results that would actually have occurred, or the results expected in future periods, had the events reflected herein occurred on the dates indicated. Actual amounts recorded upon consummation of the PIPE Financing, the Business Combination and the related transactions summarized above will differ from those recorded in the unaudited pro forma consolidated financial statements.

2 – Adjustments to Unaudited Pro Forma Consolidated Financial Statements

The unaudited pro forma consolidated statement of financial position and consolidated statements of net loss have been prepared to reflect the PIPE Financing, the Business Combination together with the related transactions summarized above and the following assumptions and adjustments. The historical financial statements of Lion have been adjusted to give pro forma effect to events that are (i) directly attributable to the PIPE Financing and the Business Combination and (ii) factually supportable.

The adjustments included in the unaudited pro forma consolidated statement of financial position as of March 31, 2021 are as follows:

(a) Represents pro forma adjustments to the cash balance to reflect the following:

 

            $  

Proceeds from PIPE Financing

     (b      200,402,000  

Placement agent fees and expenses related to PIPE Financing

     (c      (4,000,000

Net cash upon consummation of Business Combination

     (d      303,372,096  

Payment of estimated transaction costs

     (e      (7,700,000

Repayment of certain bank indebtedness and long-term debt

     (f      (63,587,135

Repayment of convertible debt instruments

     (g      (23,190,000
     

 

 

 
        405,296,961  
     

 

 

 

 

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  (b)

Reflects the net proceeds of $200,402,000 from the issuance and sale of 20,040,200 Lion Common Shares at $10.00 per share pursuant to the PIPE Financing.

 

  (c)

Represents placement agent fees and expenses of approximately $4,000,000 incurred in connection with the PIPE Financing and not included in (e) below. The unaudited pro forma consolidated statement of financial position reflects these costs as a reduction of cash of $4,000,000 and a corresponding decrease in share capital.

 

  (d)

Upon consummation of the Business Combination, each outstanding share of NGA’s common stock held by an NGA stockholder was exchanged into one newly issued Lion Common Share and each outstanding warrant to purchase shares of NGA’s common stock was converted into a warrant to acquire one Lion Common Share, at a price of $11.50 per share. A total of 39,911,231 Lion Common Shares were issued in exchange for the NGA common stock outstanding and 27,111,741 NGA Warrants were converted into 27,111,741 Lion Warrants.

The Business Combination does not constitute a business combination pursuant to IFRS 3 – Business Combinations, as NGA is a non-operating entity and does not meet the definition of a business under IFRS 3 – Business Combinations. In addition NGA is not considered a “business” for purposes of Rule 3-05 of Regulation S-X. As a result, the Business Combination is being accounted for as a capital transaction of Lion equivalent to the issuance of shares of Lion in exchange for the non-monetary assets of Lion with the following impacts on the unaudited pro forma consolidated statement of financial position:

 

                $              

Cash

    303,372,096  

Prepaid expenses

    163,693  

Trade and other payables

    520,930  

Warrant liability(1)

    170,226,114  

Share capital

    132,788,745  

 

  (1) 

The Warrant liability represents the fair value determined as of March 31, 2021 of the 27,111,741 NGA warrants that converted into Lion Warrants. Such warrants are classified as a liability and are measured at fair value.

 

  (e)

Represents estimated transaction costs incurred by Lion of approximately $7,700,000 for advisory, banking, printing, legal, and accounting fees. The unaudited pro forma consolidated statement of financial position reflects these costs as reduction of cash of $7,700,000 with a corresponding increase of $7,700,000 to the Lion deficit. Lion is currently assessing which costs would be accounted for as a reduction of the equity and those costs that will be recognized as an expense.

 

  (f)

In connection with the Closing of the Business Combination, Lion repaid the bank indebtedness, long-term debt and the related accrued interest outstanding under the Credit Agreement. Such amounts represented $23,369,300, $39,760,000 and $457,835, respectively as of March 31, 2021. The final amounts to be repaid were determined at Closing.

 

  (g)

In connection with the Business Combination, Lion agreed that the Convertible Debenture and the Convertible Loan would be repaid upon Closing. The amount of $23,190,000 represents the amount Lion repaid upon Closing. Accordingly, an amount of $3,277,727 representing the difference between the carrying amount of such convertible debt instruments of $19,912,273 and the amount paid increased the deficit and the conversion options on convertible debt instruments amounting to $1,472,520 has been reclassified as a reduction of the deficit.

 

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  (h)

Represents the pro forma adjustments to Lion share capital balance to reflect the following:

 

            $  

Issuance of Lion Common Shares pursuant to PIPE Financing

     (b      200,402,000  

Placement agent fees and expenses related to PIPE Financing

     (c      (4,000,000

Issuance of Lion Common Shares upon consummation of Business Combination

     (d      132,788,745  

Lion Common Shares presented as liability reclassified to equity

     (i      27,819,990  
     

 

 

 
        357,010,735  
     

 

 

 

 

  (i)

Reflects the reclassification of 17,994,857 Lion Common Shares with a carrying value of $27,819,990 presented as a liability to equity. See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Lion—Components of Results of Operations—Finance Costs” and Notes 13 and 14 of the Financial Statements of Lion as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018.

 

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  (j)

Represents the pro forma adjustments to the deficit balance to reflect the following:

 

            $  

Payment of estimated transaction costs

     (e      (7,700,000

Repayment of convertible debt instruments

     (g      (3,277,727

Reclassification of the conversion option on convertible debt instruments

     (g      1,472,520  
     

 

 

 
        (9,505,207
     

 

 

 

The pro forma adjustments included in the unaudited pro forma consolidated statements of net loss for the year ended December 31, 2020 and for the three-month period ended March 31, 2021 are as follows:

 

  (aa)

Represents the pro forma adjustment to account for the estimated transaction costs. Lion is currently assessing if any of these costs could be accounted for as a reduction of equity. An amount of $7,700,000 has been reflected in the unaudited pro forma consolidated statement of net loss for the year ended December 31, 2020.

 

  (bb)

Represents pro forma adjustment to eliminate accretion interest related to Lion Common Shares that were presented as a liability. With the consummation of the Business Combination, such shares are reclassified to equity and such accretion will cease. Amounts of $4,791,806 and $1,616,013 have been eliminated in the unaudited pro forma consolidated statements of net loss for the year ended December 31, 2020 and for the three-month period ended March 31, 2021, respectively.

 

  (cc)

Represents the pro forma adjustment to eliminate accretion interest related to the Convertible Debenture and the Convertible Loan. Amounts of $1,164,975 and $797,214 have been eliminated in the unaudited pro forma consolidated statements of net loss for the year ended December 31, 2020 and for the three-month period ended March 31, 2021, respectively.

 

  (dd)

Represents the pro forma adjustment to eliminate interest related to the bank indebtedness and long-term debt under the Credit Agreement repaid upon consummation of the Business Combination. Amounts of $1,312,000 and $1,079,000 have been eliminated in the unaudited pro forma consolidated statements of net loss for the year ended December 31, 2020 and for the three-month period ended March 31, 2021, respectively.

 

  (ee)

Represents the pro forma adjustment to account for the difference between the carrying amount of the convertible debt instruments and the amount repaid. An amount of $3,277,727 has been reflected in the unaudited pro forma consolidated statement of net loss for the year ended December 31, 2020.

 

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3 – Share Capital and Loss Per Share

A continuity of the weighted average number of shares outstanding after giving effect to the pro forma adjustments described in Note 2 is set out as follows:

 

     Note     March 31, 2021
and December 31,
2020
 

Weighted average number of Lion Common Shares outstanding

       110,551,314  

Reclass of Lion Common Shares classified as liability to equity after stock split

     2 (i)      17,994,857  
    

 

 

 

Lion Common Shares after stock split

       128,546,171  

PIPE Financing

     2 (b)      20,040,200  

Issuance of Lion Common Shares upon consummation of Business Combination

     2 (d)      39,911,231  
    

 

 

 

Pro forma weighted average number of Lion Common Shares outstanding

       188,497,602  
    

 

 

 

The pro forma net loss per share is calculated using the historical weighted average Lion Common Shares outstanding, and the issuance of additional Lion Common Shares in connection with the Business Combination and the related transactions summarized above, assuming the shares were outstanding since January 1, 2020. As the Business Combination together with the related transactions summarized above are being reflected as if they had occurred at the beginning of the periods presented, the calculation of the weighted average Lion Common Shares outstanding for basic and diluted net loss per share assumes that the Lion Common Shares issuable relating to the Business Combination and the related transactions summarized above have been outstanding for the entire periods presented.

 

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BUSINESS

Lion is a corporation incorporated in 2008 and existing under the Business Corporations Act (Québec). Lion believes it is a North American leader in the design, development, manufacturing, and distribution of purpose-built all-electric medium and heavy-duty urban vehicles. Lion gained distinct industry expertise and a first-mover advantage in the medium and heavy-duty urban EV segment through more than 10 years of focused all-electric vehicle R&D, manufacturing and commercialization experience. Lion’s vehicles and technology benefit from over seven million miles driven by over 390 of its purpose-built all-electric vehicles that are on the road today, in real-life operating conditions.

Lion’s growing line-up of purpose-built all-electric vehicles consists of seven mid-range truck and bus models available for purchase today. Lion further has an active product development pipeline and expects to launch eight new mid-range truck and bus models over the next two years. By the end of 2022, management believes Lion will have among the broadest mid-range EV offerings in the medium and heavy-duty urban segment, with an expected total of 15 vehicles comprising Class 5, 6, 7 and 8 electric trucks designed for specific applications, Type A, C and D electric school buses, as well as an electric medium-duty shuttle bus and an electric ambulance.

Lion’s EVs are tailored to satisfy the needs of its customers and are entirely designed, manufactured and assembled in-house in North America, without relying on traditional combustion-engine vehicle retrofitting or third-party integrators. To achieve this, Lion has developed its own purpose-built for electric chassis, truck cabins, and bus bodies, incorporating its proprietary battery technology with modular energy capacity and its proprietary Lion software.

Like others in the EV space, Lion has adopted a direct-to-customer sales model tailored for EVs, avoiding reliance on third-party dealerships in most instances. As part of its go-to-market strategy, Lion assists its customers through the EV transition journey in all critical aspects of vehicle selection, purchase and adoption, including EV education and training, identification and seeking of any applicable governmental grants, energy requirements, charging infrastructure, maintenance and advanced telematics solutions. To enhance customer experience and help drive repeat purchases, Lion leverages its growing network of Experience Centers, which are dedicated spaces where prospective customers, policymakers and other transportation industry stakeholders can interact with EVs, learn about their specifications and advantages, meet a sales representative, discuss grant and subsidy assistance, receive vehicle training, and have existing vehicles serviced. Services available on-site at Lion’s Experience Centers include product demonstrations and sales support, full-service training, charging infrastructure assistance and maintenance support. There are currently nine Experience Centers strategically located in key markets in the United States and Canada, with additional centers expected to be opened within the next two years.

By capitalizing on its significant first mover advantage, broad EV line-up available today, turnkey customer experience and rapidly growing customer base, Lion’s management believes Lion is strongly positioned to gain significant market share in the medium and heavy-duty mid-range vehicle segment.

Market and Industry Trends

Lion’s medium and heavy-duty EV line-up was specifically designed to address the needs of the sub 250-mile (or 400-km) mid-range urban market. This market segment exhibits favorable characteristics for electrification given vehicles are typically driven over a relatively modest distance and return to base at the end of every workday. Mid-range EV applications thus require less battery capacity, resulting in a lower vehicle cost, allowing for a favorable payload, and avoiding the need for an extensive charging station network alongside vehicle routes, all of which contributes to favorable economics when compared to incumbent diesel solutions.

Lion is currently not targeting the long-haul market and, as such, does not compete with incumbent diesel solutions in that segment, nor with announced future long-haul battery- or fuel cells-powered prototypes destined to that market. However, as battery density improves over time, Lion’s products may also be well-suited for such applications.

 

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Total Addressable Market

Lion believes its total addressable market in the U.S. and Canada is significant. Lion’s Class 5, 6, 7 and 8 trucks target a wide array of customers including carriers, consumer goods companies, waste management operators, manufacturers, utilities as well as governmental agencies. Lion is focusing its sales efforts towards medium to large fleet owners via its direct-to-customer sales model.

The customer breakdown for school buses varies across jurisdictions in the United States and Canada but consists mainly of school bus operators and school boards. On an aggregated basis, it is estimated the U.S. and Canadian fleet of school buses is approximately 60% owned by public school districts, and approximately 40% owned by private bus-fleet operators.

Lion’s shuttle bus, the LionM, targets customers with transit, adapted and shuttle transportation needs such as various commercial fleet owners and municipal transit agencies, among others.

Industry Focused on Total Cost of Ownership Competitiveness

In the trucking industry, the TCO, along with quality and reliability, are the primary decision factors on which customers base their purchasing decision. TCO represents the aggregate cost of vehicle ownership, including vehicle purchase price, energy costs and maintenance and repair costs over the useful life of the truck, which Lion’s management estimates is generally between 10 to 12 years. While EVs are typically sold at a premium when compared to incumbent diesel solutions, their higher upfront cost can be offset by lower energy costs and significantly lower maintenance costs, with EVs requiring far fewer moving parts and far less fluids. Management estimates that, over the useful life of the vehicle, owners of EVs will benefit from savings representing on average approximately 80% with respect to energy costs and approximately 60% with respect to repair and maintenance costs when compared to their diesel vehicles. While subsidies vary by jurisdiction, a number of them are available and help drive the transition to EV by reducing the upfront purchase price further contributes to improving the overall TCO competitiveness of electric trucks.

In the school bus market, TCO is also a key factor in the purchasing decision, along with quality and reliability. However, the lower annual mileage of individual school bus units typically renders the lower energy and maintenance costs insufficient to account for the currently steeper upfront costs of EVs over incumbent diesel units. As such, subsidies are often required for electric school buses to be competitive over diesel units from a pure TCO point of view. Electric school buses nevertheless carry a number of other advantages including reduced air and noise pollution. As governments and school districts are looking to set an example and act as social leaders in terms of sustainability, school buses in particular are often prioritized for subsidized conversion to all-electric solutions.

In addition to energy and repair and maintenance cost savings, TCO competitiveness of EVs can further be enhanced through Vehicle-to-Grid (“V2G”) technology. V2G technology allows the battery of EVs to generate revenue through energy arbitrage, by returning electricity to the grid during periods of peak energy prices while recharging in periods of lower energy prices, or through other revenue-generating ancillary services for the grid operator, such as frequency regulation and spinning reserves. To further improve all-electric vehicle TCO, some customers in specific jurisdictions are eligible to participate in carbon reduction programs. Customers in California, for example, can participate in a market-based incentive program whereby users of lower carbon-intensity fuels or energy sources (e.g., electricity) can earn and sell credits to importers or refiners of carbon-intensive fuels, such as gasoline and diesel, to offset their fuel standards compliance deficits.

Regulatory and Organizational Shifts to Zero-Emission Vehicles

With increasing environmental awareness globally, commercial vehicles have come under significant scrutiny by consumers, enterprises and governmental and regulatory bodies as they represent a significant portion of the global greenhouse gas (“GHG”) emissions. According to the Inventory of U.S. Greenhouse Gas Emissions and Sinks 1990-2018 (the national GHG inventory that the U.S. Environmental Protection Agency (EPA) prepares annually), transportation was the number one contributor to GHG emissions in the United States, representing 28% of GHG emissions in 2018. According to the same study, medium- and heavy-duty trucks represented 23% of the U.S. transportation sector GHG emissions for the same period.

 

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U.S. Regulatory Tailwinds

There is an increased prevalence of financial incentives to offset carbon emissions such as Zero-Emission Vehicle (ZEV) credit trading mechanisms in the United States which have proved to generate a substantial revenue and profit stream for EV companies. Such mechanisms have been adopted in several states.

Additionally, in July 2020, 15 states and Washington D.C. signed the Multi-State Medium and Heavy-Duty Zero Emission Vehicle Memorandum of Understanding, which sets goals for the electrification of medium and heavy-duty vehicles, whether by battery, plug-in hybrid, or hydrogen fuel cell. The goal is to ensure that 100% of all new medium and heavy-duty vehicle sales be zero-emission by 2050 with an interim target of 30% zero-emission vehicle sales by 2030.

More recently, the Biden administration announced a goal of 50-52% reduction in economy-wide GHG emissions below 2005 levels by 2030. The Biden administration has proposed several plans including provisions aimed at achieving this goal, as well as economy-wide net-zero emissions by 2050. The Biden administration’s plan aims to reduce GHG emissions from transportation by restoring attributes of the Clean Air Act loosened by the previous administration. Additionally, the plan introduces new fuel economy standards that accelerate electrification of new vehicle sales and ultimately target 100% electric sales for new light and medium-duty vehicles. To further incentivize electrification, the plan calls for significant annual pollution reduction requirements for heavy duty vehicles. The plan also specifically aims to accelerate transition of the entire 500,000 U.S. school bus fleet to zero-emission and all new school bus sales to be zero-emission by 2030. To facilitate this plan, the U.S. Congress is currently considering the CLEAN Future Act, which, among other things, would provide financial incentives for the nationwide deployment of ZEV school buses in the United States. On January 27, 2021, President Biden also signed an executive order calling for significant action on climate change, calling for, among other things, the increased use of zero-emissions vehicles by the federal government. Finally, the Biden administration has stated that it aims to expand grant programs, loan guarantees and incentives for manufacturers to construct or retool existing U.S. facilities to manufacture zero-emission vehicles and charging infrastructure.

Canadian Regulatory Tailwinds

The Canadian federal government has set targets for zero-emission vehicles reaching 10% of new light-duty vehicle sales per year by 2025, 30% by 2030 and 100% by 2040. This program is expected to support zero-emission infrastructure for on-road medium and heavy-duty vehicle fleets.

In Québec, the provincial government recently announced the C$6.7 billion Green Economy Plan with the objective of cutting GHG emissions and banning sales of gasoline-powered consumer and light-duty vehicles by 2035. The plan includes C$217 million to electrify 55% of city buses and C$350 million to electrify 65% of school buses by 2030. Other provincial governments have also committed to green energy initiatives, in some cases assisted by the federal government’s Investing in Canada Plan which is designed to “provide predictable and sustainable funding for projects that will build modern, resilient, and green communities for Canadians.”

Lion’s management believes electric vehicles, such as the ones it produces, are the most promising alternative to rapidly reduce emissions in the transportation sector and meet the various GHG emissions reduction targets in the markets in which Lion operates.

Industry and Competition

Lion competes in the medium and heavy-duty urban vehicle market, ranging from commercial trucks to buses. In this market, Lion competes against traditional incumbent diesel engine OEMs as well as nascent EV manufacturers looking to disrupt the industry.

Primary Competitive Factors

Lion’s management believes the primary competitive factors in both the truck and bus industries include (i) TCO; (ii) vehicle range and payload capacity; (iii) quality, reliability and safety; (iv) technological innovation; (v) compliance with environmental regulation; and (vi) availability of fueling infrastructure.

 

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Competitors

Medium and Heavy-duty Urban Trucks

Lion’s main competitors for mid-range Class 5, 6, 7 and 8 urban trucks include incumbent diesel truck OEM manufacturers such as Navistar, Daimler, Volvo, PACCAR, Hino (Toyota), and other automotive manufacturers which mainly compete with Lion’s vehicles through their traditional diesel vehicle offering. Lion’s management believes that incumbent OEMs are distracted from EV development and commercialization with their extensive legacy diesel infrastructure, such as factories tailored for production of combustion engine vehicles, and remain focused on their diesel-based product lines. Additionally, incumbent diesel OEMs’ third-party dealership networks are ill-suited to sell EVs given a significant portion of their revenues comes from maintenance and repair services, a less profitable proposition with EVs due to lower maintenance requirements. While a number of these OEMs have announced their intention to rollout EV solutions, Lion’s management believes that most remain at the development stage in the near term or intend to rely on third-party retrofit solutions to electrify their existing made-for-diesel platforms. Lion’s management believes that such retrofit solutions come with significant design and production cost compromises, often resulting in a higher TCO for the end customers when compared to a purpose-built EV solution.

In addition to the incumbent diesel OEMs, Lion also faces competition from a handful of other disruptive EV manufacturers. Lion management believes that many of these EV competitors remain at the early stages of product development, and in certain cases are focused on creating retrofit solutions on built-for-diesel chassis. Such EV companies include Nikola, Hyliion, XL Fleet and other smaller manufacturers.

School Buses

School bus manufacturing in the United States and Canada is mainly concentrated in the hands of three incumbent OEMs selling primarily diesel school buses: Blue Bird Corporation, Thomas Built Buses (Daimler), and IC Bus (Navistar). These manufacturers mainly compete with Lion’s school buses through their traditional diesel offering but are beginning to rollout electric models. Lion’s management estimates that incumbent school bus OEMs are also distracted from EV development and commercialization with their extensive legacy diesel infrastructure, such as factories tailored for production of combustion engine vehicles and remain focused on their diesel-based product lines.

In addition to the incumbent diesel school bus OEMs, a few early-stage EV OEMs have entered in competition with Lion such as Green Power Motor and Trans Tech.

Shuttle Buses

The shuttle bus market in which the LionM bus competes can be broken down into three main sub-markets: 1) the transit market, 2) the shuttle market, and 3) the adapted transport market. The transit market is mostly serviced by traditional transit bus diesel OEMs such a Nova Bus, New Flyer and Gillig. In addition to the diesel alternatives, the traditional transit bus OEMs are developing and offering hybrid, all-electric and alternative fuel transit bus models to challenge emerging all-electric transit bus competitors such as BYD, Proterra, Arrival and other smaller competitors. The shuttle and adapted transport markets generally consist of smaller companies who uplift medium and heavy-duty vehicles to offer a diesel shuttle or adapted transport bus. Additionally, there are other companies, such as Motiv Power Systems and Lightning eMotors, which offer retrofit electric solutions for the shuttle and adapted transport bus markets.

Benefits of Electrification

Lion’s management believes electric trucks and buses provide several advantages over traditional diesel vehicles:

 

   

100% clean energy and emission free, provided batteries are charged using renewable or other decarbonized sources of energy;

 

   

superior driving experience;

 

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reduced noise pollution;

 

   

lower energy and maintenance costs, potentially resulting in favorable TCO economics relative to the diesel alternative;

 

   

opportunity for ancillary revenue through V2G technology and sale of carbon credits under carbon reduction incentive programs; and

 

   

purchase price subsidies in place to accelerate electrification.

For most applications, Lion believes its vehicles compare favorably to diesel vehicle alternatives on the basis of TCO. In addition, TCO is expected to improve further over the coming years as Lion reduces its production costs and vehicles prices.

Products and Services

Lion has been developing medium- and heavy-duty all-electric vehicle systems for over 10 years and began manufacturing its proprietary chassis in 2015. Each Lion vehicle is purpose-built for electric and entirely designed and assembled in-house, with its own chassis, truck cabin or bus body, proprietary battery technology with modular energy capacity and Lion software integration. All Lion vehicles are V2G enabled, equipped with Lion’s LionBeat telematics platform which provides for full remote monitoring of vehicle data, and are charging infrastructure agnostic.

Electric Truck Line-up

With the truck market trending towards electrification and many incumbent OEMs maintaining focus on diesel sales, Lion’s management believes Lion has the opportunity to become a leader in all-electric medium- and heavy-duty urban trucks, as it did in the electric school bus market.

Lion Trucks Currently Available

Lion’s current purpose-built all-electric truck offering consists of four trucks in the Class 6 and Class 8 category, including specialty vehicles. Lion’s trucks are the product of over ten years of EV R&D and extensive experience integrating battery systems and electric propulsion systems into purpose-built vehicles.

 

LOGO

 

(1)

In the three-month period ended March 31, 2021, Lion sold 6 units of its electric truck models.

(2)

Level II charging delivers up to 240 volts to the vehicle via alternative current, whereas Level III charging provides significantly faster charging, via direct current.

 

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Expected Near-Term Truck Launches

Lion’s truck development pipeline consists of seven new trucks that Lion plans to launch over 2021 and 2022. This includes Class 5 and Class 7 trucks as well as additional specialty Class 6 and Class 8 trucks (Lion8 Tractor, Lion8 Bucket, Lion8 Boom, Lion6 Utility and an Ambulance), all of which are expected to be available by the end of 2022.

 

LOGO

Estimated TCO of Lion’s Electric Trucks

Today, Lion estimates that its electric trucks have a favorable TCO when compared to traditional diesel trucks for most applications. Despite a higher initial purchase price, management believes that Lion’s vehicles are cost competitive based on their potential to achieve energy cost savings of approximately 80% and estimated maintenance and repair cost savings of approximately 60% relative to diesel-fueled incumbent vehicle solutions. Lion’s management expects the competitiveness of its truck offering to increase significantly over time as production costs decrease. Production costs are expected to decrease as a result of a reduction in battery costs from increased vertical integration in manufacturing of battery systems, a reduction in the cost of other vehicle components from increased purchasing power, and other productivity gains.

 

LOGO

Note: TCO has been calculated based on the vehicle purchase price and the estimated energy costs and maintenance and repair costs over the projected useful life of the vehicle, which has been estimated to 10 years for the LION6 and LION8 Refuse, and 12 years for the LION8. Energy costs are estimated at $0.09/kWh for electric vehicles across all platforms. Diesel exhaust fluid (“DEF”) cost and consumption for diesel are estimated at $3.00/gallon and 3.0% of fuel, respectively, for all diesel platforms. All truck platforms assume a residual value of 10% and all TCOs exclude the impact of any subsidies. The TCOs have also been calculated using the following additional assumptions:

 

     Assumed
Mileage
    

Consumption

  

Maintenance & Repair Costs

LION6

     52,000     

1.18 kWh/mile (vs 7.00 miles/gallon for diesel)

  

$0.16/mile (vs $0.40/mile for diesel)

LION8

     41,600     

2.00 kWh/mile (vs 6.00 miles/gallon for diesel)

  

$0.18/mile (vs $0.44/mile for diesel)

LION8 REFUSE

     23,400     

1.80 kWh/mile (vs 3.00 miles/gallon for diesel)

  

$0.60/mile (vs $1.50/mile for diesel)

 

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Electric Bus Line-up

The school bus market is rapidly transitioning towards EVs, in part due to an effort to set an example in the eyes of pupils in terms of sustainability. This transition is being supported by governments and school districts via subsidies. Over the past decade, Lion established itself as a clear leader in the U.S. and Canadian electric school bus markets through its extensive portfolio of proprietary and market-leading technologies. The first Lion all-electric school bus was delivered in 2016.

In addition to its school bus offering, Lion also offers the LionM, an all-electric shuttle bus designed to meet the requirements of operators in the transit, shuttle and adapted transport markets.

Buses Currently Available

Lion’s current bus offering includes the LionA and the LionC school buses, which are currently being sold to customers such as school districts and independent bus operators. Additionally, Lion offers the LionM, a shuttle bus with low floors catering to the transit, shuttle and adapted transport markets.

 

LOGO

 

(1)

In the three-month period ended March 31, 2021, Lion sold 22 units of its LionC, with no sales of any other electric bus model.

(2)

Level II charging delivers up to 240 volts to the vehicle via alternative current, whereas Level III charging provides significantly faster charging, via direct current.

 

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Expected Near-Term Bus Launches

The LionD (Type D) school bus is currently under development and is expected to be launched in 2021.

 

LOGO

 

(1)

Level II charging delivers up to 240 volts to the vehicle via alternative current, whereas Level III charging provides significantly faster charging, via direct current.

Estimated TCO of Lion’s Electric Buses

Given school buses travel fewer miles than trucks, the savings in maintenance and energy costs in all-electric school buses currently do not outweigh the higher upfront purchase price relative to incumbent diesel solutions. However, school buses often benefit from subsidies that significantly decrease the upfront cost and allow Lion buses to be competitive relative to diesel. Similar to its electric trucks, Lion’s management expects the cost of its electric buses to decrease, eventually allowing for competitive TCO relative to diesel-fueled incumbent vehicle solutions, even in the absence of subsidies.

 

LOGO

Note: TCO has been calculated based on the vehicle purchase price and the estimated energy costs and maintenance and repair costs over the projected useful life of the vehicle, which has been estimated to 15 years. Energy costs are estimated at $0.09/kWh for electric vehicles across all platforms. DEF cost and consumption for diesel are estimated at $3.00/gallon and 3.0% of fuel, respectively, for all diesel platforms. Current bus TCO includes the estimated impact of subsidies. All bus platforms assume no residual value. The TCOs have also been calculated using the following additional assumptions:

 

     Assumed
Mileage
    

Consumption

  

Maintenance & Repair Costs

LION6

     13,500      1.18 kWh/mile (vs 5.50 miles/gallon for diesel)    $0.22/mile (vs $0.54/mile for diesel)

LION8

     13,500     

1.18 kWh/mile (vs 5.50 miles/gallon for diesel)

  

$0.22/mile (vs $0.54/mile for diesel)

LION8 REFUSE

     15,400     

0.90 kWh/mile (vs 7.00 miles/gallon for diesel)

  

$0.21/mile (vs $0.51/mile for diesel)

Spare Parts

In addition to the sale of spare parts for the maintenance of Lion vehicles, Lion sells and distributes replacement parts for third-party vehicles out of certain of its Experience Centers. This enables Lion to build connectivity with prospective customers and begin the EV education process with the intention of ultimately converting the spare parts customer to a Lion EV customer.

 

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Sales and Marketing

Lion’s sales and marketing efforts are conducted through a highly specialized in-house sales team solely focused on selling all-electric medium and heavy-duty urban vehicles and facilitating the EV transition journey for its customers. To do so, Lion provides a full suite of services to support its customers including EV education & training, identification and execution of grants, evaluation of energy requirements, charging infrastructure, maintenance and advanced telematics solutions.

Direct Sales Approach

Lion has chosen to sell directly to customers where possible for three key reasons: (i) traditional dealerships are generally not trained to sell and demonstrate EVs and do not have the required resources to do so; (ii) traditional dealerships typically generate a sizeable portion of their overall revenues through service and maintenance and, considering that EVs require significantly less service and maintenance than incumbent diesel solutions, traditional dealerships are disincentivized to sell EVs; and (iii) paying third-party dealership margins would make EVs less cost competitive for prospective customers.

Through this direct approach, Lion’s sales team handles all critical aspects of vehicle selection, purchase and adoption, including EV education and training, identification and execution of any applicable governmental grants, energy requirements, charging infrastructure, maintenance and advanced telematics solutions to ensure a smooth EV transition.

Lion has nevertheless entered into a number of distribution agreements with a select group of third-party dealers to abide by local laws and regulations in certain states requiring medium and heavy-duty vehicles to be sold through dealerships.

EV Education and Vehicle Selection

From the onset, Lion aims to understand customers’ requirements and help them identify the suitable EV for their needs. During the vehicle selection process, Lion performs analysis of typical customer routes, payload requirements, and ancillary energy consumption to determine the customer’s specific energy requirements. When the customer’s specific requirements have been matched with a Lion vehicle with the required onboard energy, Lion performs a tailored TCO analysis to demonstrate the economic benefits of its EV solution. Finally, customers can visit the Lion factory or one of Lion’s Experience Centers to test drive the product identified in the vehicle selection process.

Lion Grant Team

Given the importance of grants and subsidies in improving the TCO economics for certain EV applications, school buses in particular, Lion has put in place a dedicated grants assistance team responsible for assisting customers in identifying and applying for grant and subsidy funding opportunities. Lion’s grants assistance team has established lines of communication with key governmental bodies providing grants and subsidies, including the California Energy Commission, CARB and the Ministry of Transport of Québec, to support its customers in making sure that they benefit from all programs available in their respective jurisdictions. Given Lion’s position as a first mover in the all-electric medium and heavy-duty vehicle market, governmental bodies have occasionally consulted Lion prior to establishing new grant and subsidy programs to ensure programs are best designed to meet the desired purpose of encouraging the conversion to electric. In many cases, Lion works directly with customers to combine the grants and subsidies available in order to maximize public funding.

LionEnergy Infrastructure Support

New customers that are unfamiliar with EV technology are often intimidated by the charging infrastructure requirements. LionEnergy helps mitigate this fear by educating customers and by providing complete turnkey charging infrastructure solutions, tailored to each customer’s needs. LionEnergy supports the customers at all steps,

 

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from equipment selection to installation, and equipment management, including V2G. Through resale agreements with Global Tier 1 charging infrastructure manufacturers such as ABB and ChargePoint, LionEnergy generates revenues by selling charging stations to customers prior to the delivery of its EVs.

LionBeat Aftermarket Support

LionBeat is a dedicated EV telematics software solution embedded in every Lion vehicle, which can boost customers’ productivity and generate operational cost savings. LionBeat can gather data such as GHG emissions savings, real-time GPS tracking, speed, odometer readings, charging status, average energy usage, energy usage history, and other relevant maintenance and tracking statistics. It is offered on a subscription basis at three different levels (Gold, Silver and Bronze) with different data access, diagnostic and reporting privileges at each level.

Experience Centers

Overview

Lion operates a growing network of physical Experience Centers across the United States and Canada. The Experience Centers are dedicated spaces where prospective customers, policymakers and other transportation industry stakeholders can interact with EVs, learn about their specifications and advantages, meet a sales representative, discuss grant and subsidy assistance, receive vehicle training, and have existing vehicles serviced. Lion currently has Experience Centers in the United States in the cities of Albany (NY), Sacramento (CA), Seattle (WA), Los Angeles (CA), Jacksonville (FL), Phoenix (AZ) and Minneapolis (MN) and in Canada in the cities of Saint-Jérôme (Québec) and Terrebonne (Québec), with planned openings in the U.S. states of Colorado, Indiana, Pennsylvania, Tennessee, Texas, Vermont and Virginia and the Canadian province of British Columbia within the next two years. Lion intends to continue deploying additional Experience Centers in proximity to large potential markets, or where there is a significant volume of Lion vehicles on the road to improve the brand visibility and customer experience.

BrightSquad

BrightSquad consists of a team of professional technicians with deep EV knowledge that offer best-in-class, on-site, customer service with the objective of ensuring a smooth transition to electric and maximizing vehicle operation and performance. In addition to providing first line preventive maintenance, diagnostic and troubleshooting services, BrightSquad’s team of professionals offer training programs for end users’ drivers and operational teams.

The Lion Academy

Based on its experience delivering and servicing EVs, Lion has developed a training program, the Lion Academy, which provides selected classes to customers. This program, housed in Lion’s Experience Centers, is offered to a wide range of stakeholders such as drivers, mechanics, technicians, business officials, and transportation professionals. The main goal is to provide an overview of how EVs work at different levels based on the customer’s knowledge. In most cases, EVs are new for customers and training is necessary to help bridge the knowledge gap from diesel to electric. Customers who attend the Lion Academy are typically more receptive to the new technology.

The Lion Academy is not limited to Experience Centers; Lion provides training at customer sites or virtually through videoconferencing. Lion’s curriculum includes interactive classes that cover topics such as safety, troubleshooting, electric chargers, EV components, maintenance, repairs, warranty work, driver tips, accessories, and more. Lion also provides easy hands-on access to electric truck components, charging stations, and other tools to facilitate the transition to EVs.

Order Book

As of May 14, 2021, Lion’s vehicle order book stood at 817 all-electric medium- and heavy-duty vehicles, consisting of 209 trucks and 608 buses, representing a combined total order value of over $225 million. Most vehicles are expected to be delivered within the next twelve months, with some deliveries expected to take place in as much as five years. Additionally, LionEnergy, Lion’s division which assists customers with selecting, purchasing,

 

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project managing and deploying charging infrastructure ahead of vehicle delivery and which generates revenues through project management and consulting services as well as the resale of charging stations from global charging infrastructure manufacturers, has a current order book of 76 charging stations, representing a combined total order value of over $800,000, as of May 14, 2021. Most charging stations are expected to be delivered within the next twelve months.

Electric Truck Customers

Electric Truck Customers

Lion’s Class 5, 6, 7 and 8 trucks are expected to compete favorably with incumbent diesel solutions for urban applications requiring a sub 250-mile (or 400-km) mid-range, catering to vehicle owners and fleet operators of all sizes. As part of its go-to-market strategy, Lion’s direct sales force places a particular focus on medium to large fleet owners given their higher potential for repeat purchases as they adopt a particular EV product to electrify their fleet. Furthermore, medium to large fleet owners often have in-house maintenance capabilities which are complementary to Lion’s service offering.

The Lion150

The Lion150 is a priority customer target list of over 150 large fleet owners who have been carefully identified by Lion’s sales force for their EV orders potential. The fleet owners have been selected on the basis of fleet size, electrification goals, and applicability of Lion products. In aggregate, the combined fleet size of the Lion150 totals approximately 700,000 trucks, which Lion’s management estimates to represent approximately 70,000 truck purchases per year. While not all Lion150 targets are buying EVs today, Lion believes that there is a meaningful opportunity for significant future sales given the size of the vehicle fleet and the increasing focus towards environmentally friendly methods of transportation among large fleet owners.

Electric Bus Customers

School Bus Customers

Lion mainly targets school districts and school bus operators for its Type A, Type C and Type D electric school buses. Demand for school buses in the U.S. and Canada has demonstrated steady growth over the years, with supply being met by a very small number of manufacturers with a limited focus on electric. Lion aims to leverage an aging school bus fleet in the U.S. and Canada with an increasing number of buses reaching the end of their useful life to significantly increase the number of school buses sold. Additionally, with subsidies available to the school bus market to promote conversion to all-electric, Lion believes the market is poised for meaningful growth. Historically, California and Québec school boards and districts have been significant customers for Lion’s vehicles given their leadership in transportation electrification; however, Lion is rapidly expanding its presence throughout the U.S. and Canada.

In 2018, the California Energy Commission (CEC) began soliciting low- to zero-emissions school bus manufacturers for its $94 million school Bus Replacement Program aimed to help public school districts transition from diesel buses to lower emission vehicles. In July 2019, the agency awarded a total of approximately $90 million to schools in 26 California counties (approximately $75 million for electric school bus purchases and approximately $13 million for EV charging infrastructure). Of the six school bus categories eligible in the program, Lion was awarded buses in five categories, more specifically for Lion’s Type A (without wheelchair lift), Type C (with and without wheelchair lift), and Type D (with and without wheelchair lift) all-electric school buses. Gradual deliveries under the program began in December 2019 and will extend into 2022. This is a major milestone for Lion and establishes its leadership position in the electric school bus market due to the highly competitive nature of the request for proposal (RFP) process and stringent technical and pricing criteria.

Electric Shuttle Bus Customers

The LionM shuttle bus was designed to address the needs of the adapted transports, shuttle and transit markets. The LionM is well-suited for such markets given its useful life of over 10 years, high energy-efficiency, low floor and highly customizable seat configuration. Lion is in active dialogue with various regional public and private operators such as public transit authorities.

 

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Contractual Arrangements with Affiliates of Amazon.com, Inc.

Lion entered into a master purchase agreement effective June 29, 2020 and a work order effective July 6, 2020 (collectively, the “MPA”) with Amazon Logistics, Inc. (the “Specified Customer”) that provides for the purchase of up to 2,500 Lion6 and Lion8 all-electric trucks, at the discretion of the Specified Customer. Under the MPA, Lion is required to, subject to the terms and conditions set out therein, among other things, reserve the necessary manufacturing capacity to meet forecasted volumes and delivery schedules agreed upon with the Specified Customer in accordance with the terms of the MPA. Pursuant to the MPA, Lion will be required to reserve manufacturing capacity in respect of forecasted volumes representing up to 500 trucks per year from 2021 to 2025 and the greater of 500 trucks per year or 10% of Lion’s manufacturing capacity from 2026 to 2030. In addition, Lion is required to provide ongoing maintenance and training assistance to the Specified Customer under the terms of the MPA. As of May 14, 2021, the Specified Customer had placed orders for the purchase of 10 Lion6 trucks, and all deliveries of such trucks have been completed during the first half of 2021. Other than vehicles that are subject to an existing purchase order, the Specified Customer is not required to purchase any specified minimum quantity of vehicles from Lion under the MPA. The MPA will remain in force until December 31, 2025, unless terminated earlier in accordance with its terms. Thereafter, the MPA will be automatically renewed on a month-to-month basis until either party terminates the MPA in accordance with its terms. The Specified Customer may terminate the MPA at any time without cause by providing at least six months’ prior written notice to Lion or upon the occurrence of certain events, including a material breach by Lion of the MPA, certain insolvency events and upon a change of control of Lion (as defined in the Specified Customer Warrant). Under the MPA, except in specific circumstances, the Specified Customer may not cancel any previously submitted and accepted purchase order within three (3) months of a scheduled delivery date, and any cancellation occurring during the period from the date that is six (6) months and the date that is three (3) months prior to a scheduled delivery date triggers the payment of a cancellation fee. Any submitted and accepted purchase order may be cancelled by the Specified Customer without penalty prior to the date that is six (6) months prior to a scheduled delivery date.

This description of the MPA is a summary of the material features of the MPA. This summary is qualified in its entirety by reference to the MPA, which is filed as Exhibit 10.12 to the registration statement of which this prospectus is a part.

In connection with entering into the MPA, Lion issued on July 1, 2020 the Specified Customer Warrant to Warrantholder which vests, subject to the terms and conditions contained therein, based on the aggregate amount of spending by the Specified Customer and its affiliates on Lion products or services. For more information about the Specified Customer Warrant, see the section entitled “Description of Share Capital of Lion—Common Equity Warrant Issued to Warrantholder.”

Manufacturing and Production

Existing Production Facility

Lion’s primary manufacturing facility is located in Saint-Jérôme, Québec, which is approximately 25 miles (or 40-km) north of Montréal, Québec. The facility is approximately 200,000 sq. ft and currently has an annual production capacity of up to 2,500 vehicles. In addition to manufacturing, the facility includes an in-house R&D and testing center. The facility currently has over 600 employees across all functions, including manufacturing, R&D, sales & marketing, and corporate and administrative. The facility is located in one of the most important manufacturing hubs in Canada, and Lion believes local qualified labor availability is ample to satisfy the production ramp-up requirements.

Supply Chain

Over the past decade, Lion has developed a global supply chain spanning over 400 suppliers for all of the components required to manufacture its vehicles. Lion proactively manages its suppliers as part of its production plan to maintain an adequate supply of components at attractive prices, and it engages with alternatives suppliers where appropriate to support its ramp-up or drive cost reductions. Additionally, Lion is engaging with some of the world’s largest truck parts OEMs to accelerate the development of more advanced electric motors, Advanced Driver Assistance Systems and other components in order to remain at the leading edge of EV technology.

 

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Battery systems are core to Lion’s EV offering. Lion has focused on developing and applying the right battery technology to the right application using its own proprietary battery management system (“BMS”), battery thermal management system (“BTMS”) and battery packs, when applicable. Today, Lion offers two battery systems based on LG battery modules and BMW battery packs, which can be arranged in various configurations depending on the EV application.

On November 17, 2020, Lion entered into a multi-year supply contract with Romeo Systems, Inc. (“Romeo”), a designer and manufacturer of lithium-ion battery modules and packs for commercial EVs. This five-year agreement, which began in 2021, allows Lion to offer Romeo’s battery modules and packs as an alternative energy storage solution across Lion’s fleet of class 6 to 8 commercial urban trucks and buses. Romeo’s already established battery solutions provide an opportunity for Lion to reduce time to market and benefit from favorable pricing. This description of the supply agreement with Romeo is qualified in its entirety by reference to the full text of the supply agreement, which is filed as Exhibit 10.10 to the registration statement of which this prospectus is a part.

Lion is also advancing the development of an integrated proprietary battery system which is expected to include its proprietary battery modules and packs based on 21700 cylindrical battery cells. Lion intends to assemble these new battery systems in-house in its planned battery manufacturing plant and innovation center in Québec, which Lion aims to have built and become operational by 2023.

Growth Strategy

Capitalize on First Mover Advantage through Innovation and Continuous Improvement

Lion has over 390 EVs on the road today. Lion’s EVs have been driven over seven million miles across various geographies, terrains and climates in the U.S. and Canada. By leveraging the continuous dialogue with customers, along with the significant amount of telematic data accumulated over the years, Lion’s management believes it has a competitive advantage over competing medium and heavy-duty vehicle OEMs.

Lion believes that the current product line-up available for purchase today is broader than the all-electric alternatives offered by incumbent manufacturers and new entrants in the medium and heavy-duty truck and bus industries. Lion will continue to capitalize on the depth of its EV knowledge, and the quality and breadth of Lion’s product offering, to further capture new customers and gain significant market share in the medium and heavy-duty mid-range vehicle segment.

Lion’s management expects the competitiveness of Lion’s vehicle offering to increase significantly over time as the production cost of its electric vehicles is expected to decrease significantly. Such decrease is expected to result from reduction in battery costs through increased vertical integration of battery modules manufacturing, increased purchasing power with suppliers through larger volume commitments, increased manufacturing capacity utilization and other productivity gains.

Continued Development of New Products and Services

To accelerate its product development and control costs, Lion is leveraging existing EV platforms and is securing partnerships with select specialized equipment providers to leverage their respective expertise. Lion is also collaborating actively with governmental bodies to secure government funding to support the development of these next generation all-electric urban vehicles to ensure vehicle compliance with local laws and regulations.

Leveraging Lion’s transport platform, the current product line-up of seven purpose-built all-electric models will be bolstered by Lion’s development pipeline. Lion is in the process of developing eight additional electric trucks and buses as part of its focus on the urban market, including class 5, 6, 7 and 8 trucks for various urban applications. Lion’s current product development pipeline consists of Class 5 and Class 7 trucks, LionD bus, as well as specialty vehicles (Lion8 Tractor, Lion8 Boom, Lion8 Bucket, Lion6 Utility and Ambulance). Lion’s robust development pipeline of complementary all-electric medium and heavy-duty vehicles is expected to lead to a total of 15 purpose-built EV models by the end of 2022.

 

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Site Selection of U.S. Manufacturing Facility

On May 7, 2021, Lion announced the selection of Joliet, Illinois, for the construction of its U.S. manufacturing facility. The new 900,000 sq-ft production facility will be Lion’s largest footprint in the U.S. Lion expects to take possession of the facility in the second half of 2021, and is expected to begin production in the second half of 2022. The facility represents an expected total investment of approximately $130 million by Lion.

Battery System Development and Battery Assembly Facility Project

Lion has been developing its own battery systems since 2011, including proprietary battery packs, BMS and BTMS. In 2014, Lion began developing its proprietary BMS and, in 2017, commenced manufacturing its own battery packs, incorporating its proprietary BMS with LG battery modules. Today, Lion has two battery systems (based either on LG battery modules or BMW battery packs) offered in various configurations depending on the application. In November 2020, Lion entered into a five-year supply contract with Romeo. Beginning in 2021, Romeo’s battery systems are expected to be offered across Lion’s class 6 to 8 commercial urban trucks and buses.

In parallel Lion continues to make progress on its journey to build a battery system development and assembly facility. In March 2021, Lion announced the planned construction of a battery manufacturing plant and innovation center in Québec, which is expected to serve to develop, manufacture and assemble in a highly-automated facility fully proprietary battery systems based on Lion’s proprietary battery. Through this project, Lion aims to further integrate battery manufacturing operations by leveraging years of experience in developing battery systems. The facility is expected to begin operations in the second half of 2022, with the construction projected to begin over the next several months at a location to be confirmed in the near future. The project is expected to represent a total investment of approximately $150 million (C$185 million). As publicly announced on March 15, 2021, Lion expects to benefit from support by the Canadian federal and Quebec governments of up to approximately C$100 million (amounting to approximately up to C$50 million each) in connection with the planned construction of its battery manufacturing plant and innovation center in Québec, of which up to 30% is expected to be forgiven subject to certain criteria tied to Lion and to the operations of the facility Lion proprietary battery modules would be initially based on the 21700 cylindrical battery cells, with the intended flexibility to rapidly adapt to emerging technology, such as solid-state. The project would allow Lion to substantially reduce supplier dependency, realize significant battery systems vertical integration cost savings, become agnostic to battery cell suppliers, and optimize battery specifications while maintaining full control on battery form and design.

Lion’s innovation center will focus on research and development, with the goal of exploring and achieving new advancements in performance, range, energy capacity and the development of innovative products, and will allow the company the flexibility needed to rapidly adapt to emerging technologies.

Sustainable-Trucking-as-a-Service

Lion is well positioned to deliver incremental value from the combination of its best-in-class all-electric vehicles, evolving data management innovations and creative financing solutions under Lion’s ecosystem proposed concept known as Sustainable-Trucking-as-a-Service (“STaaS”). Under this concept, Lion would deliver a turnkey trucking solution to customers, providing a compelling investment proposition for fleet owners to convert their fleets to electric.

Lion would gain the possibility of generating additional revenue under its STaaS ecosystem by:

 

   

Offering energy infrastructure services and solutions through LionEnergy by leveraging its knowledge of V2G and the value that it brings to EV fleets;

 

   

Leveraging its telematics solutions (LionBeat) by offering value added EV fleet data management and optimization services to its customers; and

 

   

Monetizing commercial vehicle credits that Lion expects to start accumulating in 2021. For more information about the monetization of zero-emission credit, see the section entitled “Zero-Emission Credits Monetization.”

 

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Zero-Emission Credits Monetization

On June 25, 2020, CARB adopted the Advanced Clean Trucks (“ACT”) rule, the first statewide zero-emission commercial truck requirement. The primary purpose of ACT is to accelerate the transition to zero-emission medium and heavy-duty on-road vehicles. The ACT rule sets clear requirements on manufacturers to sell zero-emission trucks and requires large entities to report information that would be used for developing future strategies that would require the use of zero-emission trucks.

The credit trading mechanism under the ACT represents a potentially significant source of revenue for Lion as manufacturers exceeding minimum requirements earn surplus credits they can bank for future use or sell to other manufacturers. Manufacturers are required to offset all deficits with credits by sale of zero-emission medium and heavy-duty trucks or by purchasing and trading credits with other manufacturers. Lion expects to start accumulating such credits in 2021. Over time, it may also be able to benefit from other similar programs adopted in other regions of the U.S. For example, in April 2021, the New Jersey Department of Environmental Protection proposed implementing a similar rule.

Research and Development

Lion’s team of over 200 engineers and other R&D professionals conducts research and development from its two R&D centers in Saint-Jérôme, Québec, and Montréal, Québec. Lion is currently planning to launch an additional R&D center in Los Angeles, California by the end of 2021. Site selection for R&D centers is based on the availability of talent in the region, along with the proximity to significant customer pools in order to facilitate collaboration in the development of customized product applications.

Lion’s research and development is currently focused on developing additional purpose-built electric vehicle platforms and continue developing proprietary battery systems.

Lion expects research and development expense to increase in the foreseeable future as Lion generates more revenues in order to continue expanding on and improving its product offering.

Intellectual Property

Lion relies on trade secret protection, trademarks, copyrights and contractual restrictions to protect its intellectual property and other proprietary rights. As a matter of course, Lion does not employ a strategy that is focused on the active registration (including through patent application) of intellectual property rights. Lion relies on a number of other measures to protect its intellectual property and other confidential information, including technical data. For instance, Lion takes steps designated to ensure that proprietary technology incorporated in its vehicle systems is difficult to access and/or retrieve, and takes additional steps to mitigate the effect of any such unauthorized access. In addition, Lion enters into confidentiality agreements with suppliers, customers and other third parties with whom it may share information about its business and operations, and Lion also requires all of its employees, consultants and other persons who work for it to enter into confidentiality and assignment of intellectual property agreements.

Lion pursues from time to time the registration of domain names, trademarks and service marks in the United States, Canada and in some other locations abroad as it considers necessary. In addition, Lion may in the future file patent applications as it considers appropriate under the circumstances relating to any new technologies that it develops.

Lion cannot be sure that third parties will not independently develop the know-how and trade secrets related to Lion’s proprietary technology, in which case Lion would not be able to prevent such third parties from using such know-how and trade secrets, which may allow competitors to develop similar or better products or manufacturing methods or processes than those offered by Lion. As well, Lion cannot be sure that its own proprietary know-how, trade secrets, copyrights and trademarks do not infringe third party intellectual property rights. For more information about the risks associated with Lion intellectual property strategy and portfolio, see the section entitled “Risk Factors.”

 

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Headquarters and Facilities

Lion’s existing head office and manufacturing facility is based in Saint-Jérôme, Québec, which is approximately 25 miles north of Montréal, Québec. Lion does not own any real property. Lion currently leases the following facilities and offices.

 

Facility

  

Principal Activity

   Approximate
Square Footage
 

Saint-Jérôme, Qc

   Head Office Manufacturing Facility Experience Center      196,000  

Joliet, IL

   Planned U.S. Manufacturing Facility      900,000  

Mirabel, Qc

   Manufacturing Facility      50,000  

Montréal, Qc

   Engineering Center      5,000  

Terrebonne, Qc

   Experience Center      50,000  

Phoenix, AZ

   Experience Center      7,000  

Sacramento, CA

   Experience Center      18,000  

Los Angeles, CA

   Experience Center      14,000  

Jacksonville, FL

   Experience Center      10,000  

Minneapolis, MN

   Experience Center      10,000  

Albany, NY

   Experience Center      8,000  

Seattle, WA

   Experience Center      12,000  

Employees

As of May 14, 2021, Lion had over 658 employees, of which over 200 were in its R&D department. To date, Lion has not experienced any employee-related work stoppages and considers relationships with employees to be in good standing. None of Lion’s employees are either represented by a labor union or subject to a collective bargaining agreement.

Corporate Information and Structure

Lion was incorporated by Marc Bedard, Lion’s CEO—Founder, and Camile Chartrand under the Business Corporations Act (Québec) on July 28, 2008 as “Lion Buses Inc.” Over the years, Lion’s articles were amended in order to, among other things, amend the terms and conditions of Lion’s share capital in connection with strategic investments made by investors, including the strategic investment made by Power Energy, a wholly-owned subsidiary of Power Sustainable Capital Inc., in October 2017, which resulted in Lion’s authorized share capital being amended to provide for only one class of common shares. On November 24, 2020, Lion filed articles of amendment to change its name to The Lion Electric Company. On May 6, 2021, Lion filed articles of amendments, which resulted in Lion’s authorized share capital being amended to provide for (i) an unlimited number of Lion Common Shares and (ii) an unlimited number of “blank-cheque” preferred shares issuable in series, and immediately thereafter filed articles of consolidation to consolidate its articles.

Lion’s principal and registered office is located at 921 chemin de la Rivière-du-Nord, Saint-Jérôme, Québec, Canada J7Y 5G2, and its telephone number is (450) 432-5466.

 

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The following chart reflects Lion’s organization structure (including the jurisdiction of formation or incorporation of Lion and its subsidiaries):

 

LOGO

Government Regulation and Credits

Vehicle Safety

The vehicles that Lion manufacture and sell are subject to various and complex safety standards across jurisdictions where Lion operates. In the United States, the National Traffic and Motor Vehicle Safety Act of 1966 (the “Safety Act”) regulates vehicles and vehicle equipment by prohibiting the sale of any new vehicle or equipment that does not conform to applicable vehicle safety standards established by the National Highway Transportation Safety Administration (“NHTSA”). In Canada, the Motor Vehicle Safety Act (the “MVSA”) regulates vehicles, and Transport Canada develops and enforces Motor Vehicle Safety Standards which are largely harmonized with the standards in the United States. Meeting or exceeding such safety standards is costly and has continued to evolve alongside developments in technology and safety expectations. Although Lion continuously evaluates requirements for licenses, approvals, certificates and governmental authorizations necessary to manufacture, sell or service its vehicles in the United States and Canada, it may experience difficulties in obtaining or complying with various licenses, approvals, certifications and other governmental authorizations necessary to manufacture, sell or service its vehicles, especially for future vehicles. For example, in the United States, vehicles that meet or exceed all federally mandated safety standards are certified under the federal regulations. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Failure by Lion to maintain or obtain any necessary approval for, or otherwise satisfy motor vehicle standards with respect to, its existing or future electric vehicles, or the incurrence of material unexpected costs in connection therewith, could have a material adverse effect on Lion’s business, financial condition and operating results.

The Safety Act also requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer is obligated to recall vehicles if it determines that vehicles do not comply with a safety standard. Should Lion or NHTSA determine that either a safety defect or noncompliance issue exists with respect to any of Lion’s vehicles, the cost of such recall campaigns could be substantial. In Canada, regulations are currently similar to those in the United States; however, under the MVSA, the Transport Canada has broad powers to order manufacturers to submit a notice of defect or non-compliance when it considers it to be in the interest of safety. Remedying such defects may be costly, and any new or more stringent regulations may cause us to incur further costs for compliance or face substantial penalties for non-compliance.

Environment and Other Regulatory Matters

EPA

Although Lion’s vehicles qualify as ZEVs, they are subject to regulations regarding vehicle emissions. For example, in the United States, every class of heavy-duty engines or vehicles must receive Certificate of Conformity (“COCs”) from the EPA prior to being sold. These COCs must be obtained for each model year of production, and failure to obtain them prior to entering Lion’s vehicles into commerce may result in substantial fines or penalties. For more information about vehicles emissions in Canada, see the section entitled “Environment and Climate Change Canada.”

 

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Environment and Climate Change Canada

In Canada, the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations adopted under the Canadian Environmental Protection Act, 1999, establish Canadian emission standards and test procedures for Canadian manufacturers, distributors and importers of heavy-duty vehicles. These standards and procedures are aligned with the requirements of the United States Code of Federal Regulations for on-road heavy-duty vehicles and engines published by the EPA, parts of which are incorporated by reference in the Regulations however, testing and other requirements to demonstrate compliance may vary, adding to the regulatory complexity of Lion’s operations. Electric vehicles generally comply with such standards, with emission values of CO2, N2O and CH4 deemed to be 0 grams per mile pursuant to Canadian regulations, and all certifications required by Lion have been obtained or are in the course of being obtained.

Battery Safety

The use, storage, transport, and disposal of Lion’s battery packs is subject to extensive regulation. Lithium-ion cells may be regulated as “hazardous” or “dangerous” goods under several regulatory regimes in both the United States and Canada. For example, Lion’s battery packs are subject to testing requirements before they can be transported, and they must be transported in keeping with various conditions which vary by mode of transportation. Complying with these requirements involves substantial costs, and any failure to do so may result in heavy fines or other restrictions on Lion’s operations. Additionally, in certain jurisdictions, Lion may be responsible for the recycling and proper disposal of expended batteries from Lion’s vehicles. Lion has agreements with third-party companies to manage such recycling and disposal; however, Lion may be found liable for any failures in compliance by these third-parties and subject to fines or remediation liabilities, which costs may be substantial.

Supply Chain

Increasingly, jurisdictions require companies to monitor for and address certain practices from their supply chains. For example, under the Dodd-Frank Act, companies listed in the United States that use conflict minerals are required to report certain information regarding such minerals in their supply chain. Similar requirements have been adopted, or are being considered for adoption, in other jurisdictions. Currently, conflict minerals are defined by the Dodd-Frank Act as tin, tungsten, tantalum and gold. While Lion’s operations do not involve the use of such materials, the minerals covered by such requirements may be expanded in future. In addition, supply chain diligence laws are being considered in a variety of jurisdictions. Compliance with such laws entails substantial costs, and may require modifying Lion’s supply chains if any issues are discovered. Additionally, should Lion fail to sufficiently monitor Lion’s supply chains, Lion may be subject to fines or penalties for non-compliance, which may have an adverse effect on Lion’s operations.

Industrial Environmental Controls

In addition to the proper handling, recycling, and disposal of expended batteries, Lion’s operations are subject to a wide range of laws and regulations related to the protection of the environment, including those regulating air emissions, discharges to water, waste management, worker health and safety, and environmental cleanup. Certain environmental statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Under certain circumstances these laws impose joint and several liability as well as liability for related damages to natural resources.

The costs of compliance, including remediating contamination if any is found on Lion’s current or future properties, or at sites where Lion has sent wastes for disposal, and any changes to Lion’s operations mandated by new or amended laws, may be significant. Similarly, Lion may also face unexpected delays in obtaining permits and approvals required by environmental laws, or be unable to obtain such permits on terms acceptable to the company, which would hinder operation of Lion’s facilities and Lion’s growth.

Greenhouse Gas (GHG) Emissions and Related Credits

In connection with the production, delivery and placement into service of Lion products, which are expected to qualify as ZEVs, Lion expects to start accumulating tradable regulatory credits in 2021. Such credits can be sold to automotive companies and other regulated entities who can use the credits to comply with emission standards and other regulatory requirements. For example, under California’s ZEV regulations and those of states that have adopted California’s standard, vehicle manufacturers are required to earn or purchase credits, referred to as ZEV credits, for compliance with their annual regulatory requirements. In addition to these ZEV credits, Lion may also be able to earn credits in the United States, Canada or abroad related to greenhouse gas emissions, fuel economy, clean

 

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fuels, or other such topics. However, Lion’s claiming and sale of these credits is dependent on significant recordkeeping, accounting, and related requirements. Failure to comply with such requirements may reduce the value of Lion’s credits or subject us to penalties or other restrictions, which may significantly affect Lion’s operations.

Legal Proceedings

From time to time, Lion may become involved in legal proceedings arising in the ordinary course of business. Although no assurances can be given about the final outcome of pending legal proceedings, at the present time Lion’s management does not believe that Lion is currently a party to any legal proceedings the outcome of which, if determined adversely to Lion, would individually or in the aggregate have a material adverse effect on the business, financial condition, and results of operations of Lion.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which Lion’s management believes is relevant to an assessment and understanding of Lion’s results of operations and financial condition. This discussion and analysis should be read together with the audited and unaudited historical consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion and analysis should also be read together with Lion’s pro forma consolidated financial information in the section entitled “Unaudited Pro Forma Consolidated Financial Information.” In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. For more information about forward-looking statements, see the section entitled “Cautionary Note Regarding Forward-Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or elsewhere in this prospectus.

Lion’s consolidated financial statements have been prepared in accordance with IFRS. All amounts are in U.S. dollars except as otherwise indicated. For more information about the basis of presentation of Lion’s consolidated financial statements, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Basis of Presentation” below.

Certain figures, such as interest rates and other percentages included in this section, have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in Lion’s consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

Company Overview

Lion is a corporation existing under the Business Corporations Act (Québec). Lion is a leader in the design, development, manufacturing, and distribution of purpose-built all-electric medium and heavy-duty urban vehicles. Lion gained distinct industry expertise and a first-mover advantage in the medium and heavy-duty urban electric vehicles (“EV”) segment through more than 10 years of focused all-electric vehicle R&D, manufacturing and commercialization experience. Lion’s vehicles and technology benefit from over seven million miles driven by over 390 of its purpose-built all-electric vehicles that are on the road today, in real-life operating conditions.

Lion’s growing line-up of purpose-built all-electric vehicles consists of seven urban truck and bus models available for purchase today.

Lion’s EVs are tailored to satisfy the needs of its customers and are entirely designed, manufactured, and assembled in-house in North America, without relying on traditional combustion-engine vehicle retrofitting or third-party integrators. To achieve this, Lion has developed its own purpose-built for electric chassis, truck cabins, and bus bodies, incorporating its proprietary battery technology with modular energy capacity and its proprietary Lion software.

Like others in the EV space, Lion has adopted a direct-to-customer sales model tailored for EVs, avoiding reliance on third-party dealerships in most instances. As part of its go-to-market strategy, Lion assists its customers through the EV transition journey in all critical aspects of vehicle selection, purchase and adoption, including EV education and training, identification and seeking of any applicable governmental grants, energy requirements, charging infrastructure, maintenance and advanced telematics solutions. To enhance customer experience and help drive repeat purchases, Lion leverages its growing network of Experience Centers, which are dedicated spaces where prospective customers, policymakers and other transportation industry stakeholders can interact with EVs, learn about their specifications and advantages, meet a sales representative, discuss grant and subsidy assistance, receive vehicle training, and have existing vehicles serviced. Services available on-site at Lion’s Experience Centers include product demonstrations and sales support, full-service training, charging infrastructure assistance and maintenance support. There are currently nine Experience Centers strategically located in key markets in the United States and Canada.

 

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As of May 14, 2021, Lion had over 658 employees, of which over 200 were in its R&D department.

Financial Highlights of the Three-Month Period Ended March 31, 2021

For the three-month period ended March 31, 2021, the Company’s financial performance was the following when compared to the three-month period ended March 31, 2020:

 

   

Revenues of $6.2 million, an increase of $5.0 million;

 

   

Gross profit of ($1.8) million, a decrease of $0.7 million;

 

   

Net loss of ($16.1) million, a decrease of $10.4 million, which resulted in basic and diluted earnings per share of ($0.15), a decrease of $0.10 per share;

 

   

Adjusted EBITDA of ($5.9) million, a decrease of $2.8 million.

Operational Highlights of the Three-Month Period Ended March 31, 2021

Construction of Battery Manufacturing Plant and Innovation Center

On March 15, 2021, Lion announced the planned construction of a battery manufacturing plant and innovation center. The factory is expected to begin operations in the second half of 2022 and produce battery packs and modules made from Lithium-ion cells. Construction is projected to break ground over the next few months at a location to be confirmed in the near future. The project is expected to represent a total investment of approximately $150 million (C$185 million). As publicly announced on March 15, 2021, Lion expects to benefit from support by the Canadian federal and Quebec governments of up to approximately C$100 million (amounting to approximately up to C$50 million each) in connection with the planned construction of its battery manufacturing plant and innovation center in Québec, of which up to 30% is expected to be forgiven subject to certain criteria tied to Lion and to the operations of the facility.

Truck Order from Pride Group Enterprises

On March 25, 2021, Lion received a purchase order from Pride Group Enterprises (“Pride”) for 100 all-electric Lion6 and Lion8 trucks. The order represented Lion’s largest single order of zero-emission trucks to date. The majority of the trucks are expected to be delivered to Pride during 2021, with the remainder of deliveries expected to take place in 2022.

Truck Order from Heritage

On May 14, 2021, Lion announced that it has been selected to participate in the Heritage-Romeo Power Fleet Electrification Program to execute on Heritage’s fleet electrification strategy. Heritage will initially purchase five Lion battery-electric trucks for the 2021 fleet electrification validation program consisting of Class 6 and/or Class 8 vehicles. Subject to the validation program’s success to target specifications with operational excellence experienced, Heritage’s initial purchase could result in significantly more orders over a four-year period.

School Bus Order from Autobus Séguin

On January 19, 2021, Lion received a purchase order for up to 60 all-electric LionC school buses over a five-year period from Autobus Groupe Séguin (Autobus Séguin), a transportation operator headquartered in Laval, Quebec. The first 10 buses are expected to be delivered throughout the 2021 calendar year. Subject to continued satisfaction of certain conditions, up to 50 additional buses are expected to be delivered through 2026.

Senior Personnel Hires

Lion announced the appointment of Isabelle Adjahi as Vice President, Investor Relations and Sustainable Development. Ms. Adjahi is responsible for developing and implementing an investor relations strategy aimed at maintaining relationships with investors and analysts through an ongoing dialogue about Lion’s corporate, business, financial objectives and growth. Lion also announced the appointment of Rocco Mezzatesta as Senior Vice-president, Product development and Vehicle engineering. Mr. Mezzatesta is responsible for product development as well as management of engineering projects.

 

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Recent Developments

Closing of Business Combination Agreement with Northern Genesis Acquisition Corp. and Concurrent Equity Private Placement

On May 6, 2021, Lion completed its previously-announced Business Combination with NGA pursuant to which Merger Sub merged with and into NGA through a statutory merger under the laws of the State of Delaware, with NGA surviving the merger as a wholly-owned subsidiary of Lion, and (ii) as consideration for the merger, each outstanding share of NGA’s common stock held by an NGA stockholder was converted into the right to receive one Lion Common Share, and each outstanding warrant to purchase shares of NGA’s common stock, with each such whole warrant exercisable for one share of NGA’s common stock at an exercise price of $11.50, was converted into a Lion Warrant to acquire a number of Lion Common Shares equal to the number of shares of NGA’s common stock underlying each such warrant of NGA. At the time of closing of the Business Combination, NGA held (net of the redemptions exercised by NGA’s stockholders holding 20,449 shares) approximately $320 million in its trust account.

Immediately prior to the completion of the Business Combination, Lion completed the Pre-Closing Reorganization which included a share split pursuant to which each Lion Common Share outstanding immediately prior to such share split was converted into 4.1289 Lion Common Shares. Immediately prior to the completion of the Business Combination, Lion also completed the PIPE Financing pursuant to which a number of investors agreed to purchase, and Lion agreed to sell to such investors, an aggregate of 20,040,200 Lion Common Shares, for a purchase price of $10.00 per share and an aggregate purchase price of $200,402,000.

The Business Combination and the PIPE Financing resulted in proceeds of approximately $490 million, net of transaction fees. Approximately $90 million of the net proceeds were used to repay outstanding credit facilities and debt instruments. See section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Update with Respect to Certain Debt Instruments” below.

Following the closing of the Business Combination and the PIPE Financing, the Lion Common Shares began trading on the TSX and on the NYSE under the new symbol “LEV”, and the warrants of Lion began trading on the TSX under the new symbol “LEV.WT” and on the NYSE under the new symbol “LEV WS”.

Update with Respect to Certain Debt Instruments

In connection with the closing of the Business Combination, Lion entered into a new loan agreement (the “Finalta Loan Agreement”) with Finalta Capital Fund, L.P. (“Finalta”) amending and restating in their entirety the two (2) loan agreements that had previously been entered into with Finalta, as lender, to finance certain refundable tax credits and grants under government programs (collectively, the “Former Finalta Loan Agreements”). The Finalta Loan Agreement provides for a combined loan facility of up to a principal amount of approximately C$13,500,000 and bears interest at the rate of 7.50% per annum. The Finalta Loan Agreement has terms and conditions which improved on, or are substantially similar to, the terms and conditions of the Former Finalta Loan Agreements. See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Finalta Loan Agreement” of this prospectus.

In connection with the closing of the Business Combination, Lion repaid in full all amounts owed under the Credit Agreement (as defined below) entered into with National Bank of Canada (“NBC”), as lender, and the Credit Agreement and all security related thereto were terminated. The Credit Agreement provided for the following credit facilities (i) a $27,489,000 (C$35 million) operating revolving facility, (ii) a $35,343,000 (C$45 million) term loan facility, and (iii) a $7,854,000 (C$10 million) additional term loan facility. See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Agreement with National Bank of Canada” of this prospectus.

 

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Prior to the completion of the Business Combination, Lion had completed financings through (i) the issuance of an unsecured convertible loan (the “Convertible Loan”) to Investissement Québec in the principal amount of $3,927,000 (C$5,000,000), and (ii) the issuance of an unsecured convertible debenture (the “Convertible Debenture”) to Investissement Québec in the principal amount of $15,708,000 (C$20,000,000). See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Convertible Instruments with Investissement Québec” of this prospectus. In connection with the closing of the Business Combination, the Convertible Debenture and the Convertible Loan were repaid in full.

Site Selection of U.S. Manufacturing Facility

On May 7, 2021, the Company announced the selection of Joliet, Illinois, for the construction of its U.S. manufacturing facility. The new 900,000 sq-ft production facility will be Lion’s largest footprint in the U.S. The Company expects to take possession of the facility in the second half of 2021, and is expected to begin production in the second half of 2022. The facility represents an expected total investment of approximately $130 million by Lion.

Appointment of Vice President, Chief Legal Officer and Corporate Secretary

On April 6, 2021, Lion announced the appointment of François Duquette as Vice President, Chief Legal Officer and Corporate Secretary. Mr. Duquette oversees all aspects of legal and regulatory affairs, as well as provides strategic counsel to the senior management team and board of directors.

Appointment of Chief Commercial Officer

On May 11, 2021, Lion announced the appointment of Brian Piern as Chief Commercial Officer, with a start date of June 7th, 2021. Mr. Piern will oversee all aspects of Lion’s commercial and sales strategy and lead the related execution.

Appointment of Vice-President, Financial Reporting

Lion appointed Vince Spadafora as Vice President, Financial Reporting, effective May 17, 2021. In this newly created role, Mr. Spadafora will oversee all aspects of financial reporting and related compliance.

Order of 260 School Buses from First Student

On May 14, 2021, Lion secured an order for 260 buses from First Student, a leading school bus operator, with deliveries expected to take place from the second half of 2021 to the first half of 2023. The buses will be used by Transco, First Student’s subsidiary that operates in Quebec.

Order Book

As of May 14, 2021, Lion’s vehicle order book stood at 817 all-electric medium- and heavy-duty vehicles, consisting of 209 trucks and 608 buses, representing a combined total order value of over $225 million. Most vehicles are expected to be delivered within the next twelve months, with some deliveries expected to take place in as much as five years. Additionally, LionEnergy, Lion’s division which assists customers with selecting, purchasing, project managing and deploying charging infrastructure ahead of vehicle delivery and which generates revenues through project management and consulting services as well as the resale of charging stations from global charging infrastructure manufacturers, has a current order book of 76 charging stations, representing a combined total order value of over $800,000, as of May 14, 2021. Most charging stations are expected to be delivered within the next twelve months. See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Measures, Other Performance Metrics and Reconciliation of Adjusted EBITDA.”

Current Situation with Regards to COVID-19

The decree of a COVID-19 state of pandemic in March 2020 has since then resulted in the enactment of numerous measures by the federal, provincial, state and municipal governments to protect the public had impacts on Lion’s operations. From time to time, these measures have resulted in either in a full shutdown or in a significant reduction in the operations of Lion’s manufacturing facility and have also impacted the Company’s research and development, marketing, sales and after-market activities. Similarly, these measures have significantly impacted customers, suppliers and other business partners, and their respective businesses.

 

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There continues to be significant uncertainty surrounding the COVID-19 pandemic. The COVID-19 pandemic had a material negative impact on the global economy in 2020 and is expected to continue having a negative impact in 2021 and perhaps beyond. Given the dynamic nature of the pandemic, the extent to which it impacts the Lion’s business and future results will depend on unknown future developments and any further impact on the global economy and the markets in which Lion operates and sells its products, including Canada and the United States. Accordingly, as of the date of this prospectus, management was not able to assess how quickly Lion’s activities will get back to normal or the financial impact of these events at this time but continues to monitor closely the evolving situation.

Key Factors Affecting Lion’s Performance

Lion believes that its performance and future success is dependent on multiple factors that present significant opportunities for Lion, but also pose risks and challenges, including those discussed below and in the section of this prospectus entitled “Risk Factors.”

Customer Demand for Electrification

The electrification of medium and heavy-duty commercial vehicles has recently gained strong momentum as users and governmental authorities are looking for novel solutions to reduce GHG emissions and atmospheric pollution generally while the cost competitiveness of electric vehicles continues to improve. Lion anticipates that an increasing number of fleet owners and operators will seek all-electric alternatives to reduce the carbon footprint of their diesel fleets. Lion intends to leverage its broad offering of electric vehicles available for purchase today, and its strong engagement with large fleet owners and other potential customers, in order to benefit from the growing customer demand for electric vehicles.

In order to meet customer demand and drive adoption of its vehicles and solutions, Lion plans to make comprehensive additions to its production capacity and expand its network of Experience Centers, which is expected to require significant capital and operating expenses.

Reduction in Total Cost of Ownership

The total cost of ownership (“TCO”), along with quality and reliability, are the primary drivers of truck and bus purchasing decisions for fleet owners and operators. Lion’s management believes that Lion’s truck TCO is favorable to comparable diesel vehicles today in most use cases. Going forward, the TCO advantage of electric trucks is expected to further increase as electric vehicle prices reduce, which will in turn further improve the economic benefit and rationale for fleet owners and operators to purchase Lion’s all-electric vehicles. In the school bus market, the lower annual mileage of individual units typically renders the lower energy and maintenance costs insufficient to account for the currently steeper upfront costs of electric vehicles over incumbent diesel units. As such, at the current time, subsidies are often required for electric buses to be competitive over diesel units from a pure TCO point of view in this category. Over time, as the cost of the vehicles decreases as a result, among other things, of reduction in battery costs from increased vertical integration in manufacturing of battery systems, increased purchasing power with suppliers through larger volume commitments, increased manufacturing capacity utilization, and other productivity gains, the TCO for electric buses is expected to become favorable even in the absence of subsidies.

Product Development

Lion’s growth strategy depends in part upon its ability to effectively introduce new products and implement new technology-driven services and solutions, which is expected to require significant capital and operating expenses.

Lion had seven all-electric urban vehicles available for purchase as of March 31, 2021. The product offering consisted of (i) trucks, being Lion6 (Class 6 truck), Lion8 (Class 8 truck), Lion8 Reefer, and Lion8 Refuse trucks, (ii) school buses, being LionC (Type C school bus) and LionA (Type A school bus) and (iii) a shuttle bus, the

 

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LionM. Lion’s development pipeline consists of eight additional all-electric urban vehicles, including the Lion8 Tractor truck, Lion8 Bucket truck, Lion6 Utility truck, LionD (Type D school bus), Lion5 (Class 5 truck), Lion7 (Class 7 truck), Lion8 Boom truck and the Lion Ambulance. In parallel, Lion intends to continue the development and improvement of its existing vehicle products, services and solutions.

Regulatory Landscape and Government and Economic Incentives

Lion operates within an industry that is subject to environmental regulations across the various jurisdictions in which it sells its products. With heightened focus on the global environment, commercial vehicles have come under significant scrutiny by customers, enterprises, and governmental and regulatory bodies as they represent a significant portion of the global GHG emissions. While regulations have become increasingly stringent over time, various subsidy and financial incentives programs have been introduced by governmental authorities in Canada and the United States to promote the adoption of emissions-free vehicles. Demand for Lion’s vehicles is and is expected to remain influenced by federal, state, provincial and local tax credits, rebates, grants and other government programs and incentives that promote the use of battery electric vehicles. These include various government programs that make grant funds available for the purchase of battery electric vehicles. Additionally, demand for Lion’s vehicles may be influenced by laws, rules, regulations and programs that require reductions in carbon emissions, such as the various measures implemented by lawmakers and regulators in California and Québec, among others, designed to increase the use of electric and other zero-emission vehicles, including the establishment of firm goals in certain instances for the number of these vehicles operating on state roads by specified dates and the enactment of various laws and other programs in support of these goals.

Costs of Raw Materials and Supplies

Components in Lion’s vehicles are made of various raw materials, including aluminum, steel, carbon fiber, non-ferrous metals (such as copper) and other materials and minerals used to manufacture lithium-ion batteries. The prices for these raw materials fluctuate depending on market conditions and global demand. While Lion manages some of these risks through long-term contractual arrangements with suppliers with respect to the supply of certain key components of its vehicles, including lithium-ion batteries, it does not currently hedge its long-term exposure to price fluctuations of raw materials and supplies. Therefore, an increase in prices of raw materials and supplies could negatively impact the Company’s operating results if it is not able to find other manufacturing or supply alternatives or transfer these cost increases to customers.

Foreign Exchange

The Company’s revenues are reported in U.S. dollars but its functional currency is the Canadian dollar and the majority of its transactions are in Canadian dollars. The Company’s current manufacturing facility is also located in Canada. Suppliers of the Company are located in Canada, in the United States and other foreign jurisdictions. The Company’s indebtedness is denominated in Canadian dollars. Going forward, the Company’s growth strategy will require substantial investments in Canada and in the United States. Therefore, the Company’s revenues, gross profit and net income (loss) reported in U.S. dollars is and is expected to continue to be exposed to foreign exchange fluctuations.

Seasonality

The Company’s sales have historically experienced substantial fluctuations from quarter to quarter, particularly considering that they have been mainly comprised of sales of school buses which are mainly driven by the school calendar. Historically, the Company’s peak season has been during its third and fourth fiscal quarters. While the Company expects to continue to experience seasonal variations in its sales in the foreseeable future, management believes that the mix of product sales may vary considerably in the future, especially in connection with the Company’s execution of its growth strategy and as sales of trucks become more prevalent and new products are introduced. As a result, it is difficult to predict if any historical trends will be reproduced in the future.

 

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Research and Development

Lion’s team of over 200 engineers and other R&D professionals conducts research and development from its two R&D centers in Saint-Jérôme, Québec, and Montréal, Québec.

Lion’s research and development is currently focused on developing additional purpose-built electric vehicle platforms and continuing to develop proprietary battery systems.

Lion expects research and development expense to increase in the foreseeable future in order to continue expanding on and improving its product offering.

Basis of Presentation

Lion’s consolidated financial statements have been prepared in accordance with IFRS. All amounts are in U.S. dollars unless otherwise indicated. The Company’s fiscal year is the twelve-month period ending December 31 of each year.

Lion has one reportable operating segment, the manufacturing and sales of electric vehicles in Canada and in the United States.

Components of Results of Operations

Revenues

To date, Lion has primarily generated revenues from the sale of its all-electric school bus vehicles.

Following the ongoing ramp-up of Lion’s truck manufacturing, Lion anticipates a significant proportion of its revenues to be generated from the sale of all-electric trucks over time.

Cost of Sales

Lion’s cost of sales includes material costs, labor, manufacturing overhead, and other direct costs related to electric vehicle production.

Administrative Expenses

Administrative expenses consist of facility leasing, share-based compensation, management, information technology, human resources, accounting and general administrative functions.

Lion expects its administrative expenses to increase for the foreseeable future as Lion increases headcount to support the growth of its business, and as a result of costs associated with operating as a public company, including compliance with the rules and regulations of the SEC and applicable Canadian securities laws and stock exchanges, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.

Selling Expenses

Selling expenses consist of personnel-related expenses for Lion’s bus and truck sales, share-based compensation, business development, aftermarket sales and marketing and communications, in addition to expenses incurred for publicity and marketing events. Lion expects its selling expenses to increase for the foreseeable future as Lion expands its sales force and increases headcount to support the growth of its business.

Finance Costs

Finance costs primarily consists of interest paid on Lion’s outstanding debt, interest on lease liabilities, as well as non-cash accretion expenses on retractable common shares and on balance of purchase price payable related to the acquisition of dealership rights.

 

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Lion’s Unanimous Shareholders’ Agreement which provided for retraction rights in respect of certain common shares was terminated in accordance with its terms effective as of closing of the Business Combination and such retraction rights did not become exercisable at or before the closing of the Business Combination. As a result, such retraction rights will not impact results of operations for future periods.

Foreign Exchange Loss (Gain)

Foreign exchange loss and gain represents the losses and gains on instruments such as cash balances, accounts receivable, accounts payable, debt balances and other accounts that are not denominated in Canadian dollars, as a result of changes in foreign currency rates.

Change in Fair Value of Share Warrant Obligation

On July 1, 2020, in connection with the entering into of the MPA (as defined below) with Amazon Logistics, Inc., the Company issued the Specified Customer Warrant to the Warrantholder which vests, subject to the terms and conditions contained therein, based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on Lion’s products or services. Lion has determined that the Specified Customer Warrant is a derivative instrument and should be classified as a liability in accordance with IAS 32 - Financial Instruments: Presentation and IFRS 9 - Financial Instruments. The vested portion of the Specified Customer Warrant is initially recorded at fair value as a share warrant obligation and then revalued at each reporting date, with a corresponding contract asset recognized at inception. The corresponding contract asset recognized at inception will be amortized as a reduction of revenues on a percentage per dollar of revenue generated with Amazon.com, Inc. and its affiliates. See section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Common Equity Warrant Issued to the Warrantholder”.

Results of Operations

Comparison of the three-month period ended March 31, 2021 and the three-month period ended March 31, 2020

Lion’s results of operations for the three-month period ended March 31, 2021 and 2020 are presented below:

 

     (Unaudited)               
     three-month period Ended March 31,     $
Change
     %
Change
 
     2021     2020  
     (dollar amounts in thousands, except share and per share data)  

Revenues

   $ 6,225     $ 1,228     $ 4,997        407

Cost of sales

   $ 8,032     $ 2,285       5,748        252
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     (1,807     (1,056     (751      n.a.  
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit margin

     (29.0 %)      (86.0 %)         57.0

Operating expenses:

         

Administrative expenses

     6,270       761       5,509        724

Selling Expenses

     4,384       1,607       2,777        173

Finance costs

     3,907       1,880       2,028        108

Foreign exchange loss (gain)

     (179     366       (545      (149 %) 

Change in fair value of share warrant obligation

     (75     —         (75      n.a.  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net loss

   ($ 16,114   ($ 5,669   ($ 10,445      184
  

 

 

   

 

 

   

 

 

    

 

 

 

Foreign currency translation adjustment

   ($ 1,302   ($ 112   ($ 1,190      1,060
  

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive loss

   ($ 17,416   ($ 5,782   ($ 11,635      201
  

 

 

   

 

 

   

 

 

    

 

 

 

Basic and diluted loss per share

   ($ 0.15   ($ 0.05   ($ 0.10      184
  

 

 

   

 

 

   

 

 

    

 

 

 

Pro forma basic and diluted loss per share

         
  

 

 

   

 

 

   

 

 

    

 

 

 

Weighted average number of common shares outstanding

     110,551,314       110,551,314       —          n.a.  
  

 

 

   

 

 

   

 

 

    

 

 

 

Pro forma weighted average number of common shares outstanding

         
  

 

 

   

 

 

   

 

 

    

 

 

 

 

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Revenues

Revenues increased by $5.0 million, from $1.2 million for the three-month period ended March 31, 2020 to $6.2 million for the three-month period ended March 31, 2021. The increase in revenue was primarily due to an increase in vehicle sales volume of 22 units, from 2 units (2 school buses in the U.S.) for the three-month period ended March 31, 2020 to 24 units (18 school buses and 6 trucks; 22 vehicles in Canada and 2 vehicles in the U.S.) for the three-month period ended March 31, 2021.

Cost of Sales

Cost of sales increased by $5.7 million, from $2.3 million for the three-month period ended March 31, 2020 to $8.0 million for the three-month period ended March 31, 2021. The increase was primarily due to the addition of personnel and other resources to accommodate higher anticipated production volumes. Lion completed the manufacturing of 43 vehicles in the three-month period ending March 31, 2021.

Gross Profit

Gross profit decreased by $0.8 million, from ($1.1) million (-86.0% of revenues) for the three-month period ended March 31, 2020 to ($1.8) million (-29.0% of revenues) for the three-month period ended March 31, 2021. The decrease is primarily due to the addition of personnel and other resources to accommodate higher anticipated production volumes.

Administrative Expenses

Administrative expenses increased by $5.5 million, from $0.8 million for the three-month period ended March 31, 2020 to $6.3 million for the three-month period ended March 31, 2021. The increase was primarily due a significant increase in non-cash share-based compensation of $3.1 million for the three-month period ended March 31, 2021 ($0.2 million for the three-month period ended March 31, 2020), to Lion expanding its head office capabilities in preparation of an expected increase in business, and an increase in non-recurring professional fees.

Selling Expenses

Selling expenses increased by $2.8 million, from $1.6 million for the three-month period ended March 31, 2020 to $4.4 million for the three-month period ended March 31, 2021. The increase was primarily due a significant increase in non-cash share-based compensation of $2.1 million for the three-month period ended March 31, 2021 ($0.1 million for the three-month period ended March 31, 2020), to Lion expanding its sales force effective, and an increase in expenses associated with Experience Centers.

Finance Costs

Finance costs increased by $2.0 million, from $1.9 million for the three-month period ended March 31, 2020 to $3.9 million for the three-month period ended March 31, 2021. The increase was driven primarily by higher accretion expense on retractable shares, an increase in borrowing costs due to an increase in the amount of debt outstanding, an increase in interest expense on convertible debt instruments, and an increase in lease liabilities from new Experience Center openings.

Foreign Exchange Loss (Gain)

Foreign exchange loss (gain) increased by $0.5 million, from a loss of $0.4 million for the three-month period ended March 31, 2020 to a gain of $0.2 million for the three-month period ended March 31, 2020, largely as a result of a weakening of the Canadian dollar relative to the U.S. dollar during the three-month period ended March 31, 2020 and a strengthening of the Canadian dollar relative to the U.S. dollar during the three-month period ended March 31, 2021.

 

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Change in Fair Value of Share Warrant Obligation

Change in fair value of share warrant obligation increased from nil for the three-month period ended March 31, 2020 (as the Lion Warrant had not yet been issued), to a gain of $0.1 million for the three-month period ended March 31, 2021. The gain for the three-month period ended March 31, 2021 was largely related to a reduction in warrant life from the December 31, 2020 valuation, offset by an increase in the interest rate used to perform the valuation.

Net Loss

Net loss increased by $10.4 million, from ($5.7) million for the three-month period ended March 31, 2020 to ($16.1) million for the three-month period ended March 31, 2020, largely due to the factors discussed above.

Comparison of Year Ended December 31, 2020 to Year Ended December 31, 2019

Lion’s results of operations for the years ended December 31, 2020 and 2019 are presented below:

 

     Years Ended December 31,     $ Change     % Change  
     2020     2019  
     (dollar amounts in thousands, except share and per share data)  

Revenues

   $ 23,423     $ 30,862     $ (7,440     (24 %) 

Cost of sales

     20,277       20,778       (500     (2 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,145       10,085       (6,939     (69 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit margin

     13     33     (19 %)   

Operating expenses:

        

Administrative expenses

     59,942       2,936       57,006       1,942

Selling expenses

     15,721       5,892       9,829       167

Finance costs

     8,667       4,112       4,555       111

Foreign exchange loss (gain)

     (681     79       (760     (966 %) 

Change in fair value of share warrant obligation

     16,847       —         16,847       n.a.  

Other expenses

     —         133       (133     (100 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (97,352     (3,067     (94,284     nmf  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     —         4       (4     nmf  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (97,352     (3,071     (94,280     nmf  
  

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustment

     (4,631     234       (4,865     nmf  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   ($ 101,983   ($ 2,837   $ (99,146     nmf  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

   ($ 3.64   ($ 0.12   $ (3.52     nmf  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma basic and diluted loss per share(1)

   ($ 0.88   ($ 0.03   $ (0.85     nmf  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares outstanding

     26,775       25,766       1,009       4
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma weighted average number of common shares outstanding(1)

     110,551       106,386       4,165       4
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Reflects the completion of the Pre-Closing Reorganization, which included a share split, whereby each Lion Common Share outstanding immediately prior to such share split was converted into 4.1289 Lion Common Shares (subject to adjustments as contemplated in the Business Combination Agreement). For more information about the share capital of Lion, see the section entitled “Description of Share Capital of Lion.”

Revenues

Revenues decreased by $7.4 million, or 24%, from $30.9 million for the year ended December 31, 2019 to $23.4 million for the year ended December 31, 2020. The decrease in revenue was primarily due to a decrease in school bus sales volume of 27 units, or 25%, from 107 units (55 in the U.S. and 52 in Canada) for the year ended December 31, 2019 to 80 units (33 in the U.S. and 47 in Canada) for the year ended December 31, 2020, as measures implemented regarding COVID-19 prevented Lion from delivering school buses to certain operators and school districts, in addition to causing production delays from supply chain disruptions.

 

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Cost of Sales

Cost of sales decreased by $0.5 million, or 2%, from $20.8 million (67.3% of revenues) for the year ended December 31, 2019 to $20.3 million (86.6% of revenues) for the year ended December 31, 2020. As a percentage of revenues, cost of sales increased by 19.2% from 2019 to 2020. The increase was primarily due to the addition of personnel and other resources to accommodate higher expected production volumes, which ultimately did not materialize, largely due to challenges related to the COVID-19 pandemic. However, cost of sales was partly offset by $0.5 million in assistance from the CEWS. Lion manufactured 84 vehicles at its current manufacturing facility in 2020, comprised primarily of LionC school buses, a limited number of Lion360 buses and its first Lion6 and Lion8 trucks.

Selling and Administrative Expenses

Selling expenses increased by $9.8 million, or 167%, from $5.9 million for the year ended December 31, 2019 to $15.7 million for the year ended December 31, 2020. Administrative expenses increased by $57.0 million, or 1,942%, to $59.9 million during the same period. In total, selling and administrative expenses increased by $66.8 million, or 757%, from $8.8 million for the year ended December 31, 2019 to $75.7 million for the year ended December 31, 2020. The increase was primarily due to a non-cash revaluation to fair value of vested options amounting to $65.2 million (of which $10.1 million is accounted for within selling expenses and $55.1 million is accounted for within administrative expenses), Lion expanding its head office capabilities in preparation of an expected increase in business, increasing expenses associated with the opening of new Experience Centers, and an increase in professional fees, partially offset by lower marketing and selling related expenses and $0.7 million in assistance from the CEWS. Excluding the non-cash revaluation to fair value of vested options, selling and administrative expenses increased, in total, by $3.0 million, or 41%, from $7.4 million for the year ended December 31, 2019 to $10.4 million for the year ended December 31, 2020.

Finance Costs

Finance costs increased by $4.6 million, or 111%, from $4.1 million for the year ended December 31, 2019 to $8.7 million for the year ended December 31, 2019. The increase was driven primarily by higher accretion expense on retractable shares, an increase in borrowing costs and an increase in lease liabilities from new Experience Center openings.

Foreign Exchange Loss (Gain)

Foreign exchange gain amounted to $0.7 million for the year ended December 31, 2020 compared to a foreign exchange loss of $ 0.08 million for the year ended December 31, 2019. The increase in the gain is primarily due to the weakening of the Canadian dollar versus the U.S. dollar on the remeasurement or monetary items denominated in U.S. dollars.

Change in Fair Value of Share Warrant Obligation

The change in fair value of share warrant obligation represents the change recognized in the consolidated statement of comprehensive income resulting from revaluing the share warrant obligation as of December 31, 2020. The change in fair value amounted to $ 16.8 million.

Comparison of Year Ended December 31, 2019 to Year Ended December 31, 2018

Lion’s results of operations for the years ended December 31, 2019 and 2018 are presented below:

 

     Years Ended December 31,     $ Change      % Change  
     2019     2018  
     (dollar amounts in thousands, except share and per
share data)
 

Revenues

   $ 30,862     $ 16,621     $ 14,241        86

Cost of sales

     20,778       12,904       7,874        61
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     10,085       3,717       6,367        171
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit margin

     33     22        10

 

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     Years Ended December 31,      $ Change      % Change  
     2019      2018  
     (dollar amounts in thousands, except share and per
share data)
 

Operating expenses:

           

Administrative expenses

     2,936        2,010        926        46

Selling expenses

     5,892        3,928        1,964        50

Finance costs

     4,112        3,274        838        26

Foreign exchange loss (gain)

     79        (137      216        158

Other expenses

     133        —          133        n.a.  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (3,067      (5,358      2,291        (43 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax expense

     4        —          4        n.a.  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     (3,071      (5,358      2,287        (43 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Foreign currency translation adjustment

     234        (306      540        176
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive loss

   $ (2,837    $ (5,664    $ 2,827        (50 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted loss per share

   $ (0.12    $ (0.22    $ 0.10        (46 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma basic and diluted loss per share(1)

   $ (0.03    $ (0.05    $ 0.02        (46 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding

     25,766        24,544        1,222        5
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma weighted average number of common shares outstanding(1)

     106,386        101,338        5,048        5
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Reflects the completion of the Pre-Closing Reorganization, which included a share split, whereby each Lion Common Share outstanding immediately prior to such share split was converted into 4.1289 Lion Common Shares (subject to adjustments as contemplated in the Business Combination Agreement). See “Description of Share Capital of Lion.”

Revenues

Revenues increased by $14.2 million, or 86%, from $16.6 million in the year ended December 31, 2018 to $30.9 million in the year ended December 31, 2019. The increase in revenue was primarily due to an increase in school bus sales volume of 28 units, or 35%, from 79 units (26 in the U.S. and 53 in Canada) in the year ended December 31, 2018 to 107 units (55 in the U.S. and 52 in Canada) in the year ended December 31, 2019.

Cost of Sales

Cost of sales increased by $7.9 million, or 61%, from $12.9 million (77.6% of revenues) in the year ended December 31, 2018 to $20.8 million (67.3% of revenues) in the year ended December 31, 2019. The increase was primarily due to higher school bus unit volume (35% year-over-year growth). As a percentage of revenues, cost of sales decreased by 10.3% primarily reflecting higher sales volumes and favorable sales mix.

Selling and Administrative Expenses

Selling expenses increased by $2.0 million, or 50%, from $3.9 million in the year ended December 31, 2018 to $5.9 million in the year ended December 31, 2019. Administrative expenses increased by $0.9 million, or 46%, from $2.0 million to $2.9 million during the same period. In total, selling and administrative expenses increased by $2.9 million, or 49%, from $5.9 million in the year ended December 31, 2018 to $8.8 million in the year ended December 31, 2019. The increase was primarily due to an increase in expenses associated to the expansion of the business, including the opening of new Experience Centers and enlargement of the sales team, as well as an increase in non-cash share-based compensation.

Finance Costs

Finance costs increased by $0.8 million, or 26%, from $3.3 million in the year ended December 31, 2018 to $4.1 million in the year ended December 31, 2019. The increase was primarily driven by an increase in borrowing costs, an increase in lease liabilities from new Experience Centers and the expansion of the Saint-Jérôme facility, as well as an increase in accretion expense on the balance of purchase price payable related to the acquisition of dealership rights, partially offset by lower accretion expense on retractable shares.

 

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Other Expenses (Income), Net

Other expenses increased by $0.1 million from zero in the year ended December 31, 2018 to $0.1 million in the year ended December 31, 2019. The increase in expenses was due to non-recurring professional fees associated with the acquisition of distribution rights.

Income Tax Expense

Income tax expense increased by $4,000 from zero in the year ended December 31, 2018 to $4,000 in the year ended December 31, 2019. The increase was due to the minimum income tax requirement.

Non-IFRS Financial Measures, Other Performance Metrics and Reconciliation of Adjusted EBITDA

This prospectus makes reference to certain non-IFRS measures, including Adjusted EBITDA, and other performance metrics, including the Company’s order book. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS.

The Company uses non-IFRS measures including Adjusted EBITDA. “Adjusted EBITDA” is defined as net earnings (loss) before finance costs “Adjusted EBITDA” is defined as net loss before finance costs, income tax expense or benefit, and depreciation and amortization, adjusted for share-based compensation, changes in fair value of share warrant obligation, foreign exchange loss (gain) and certain non-recurring expenses. Adjusted EBITDA is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, IFRS. Lion believes that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing Lion’s financial measures with those of comparable companies, which may present similar non-IFRS financial measures to investors. However, you should be aware that when evaluating Adjusted EBITDA, Lion may incur future expenses similar to those excluded when calculating Adjusted EBITDA. In addition, Lion’s presentation of these measures should not be construed as an inference that Lion’s future results will be unaffected by unusual or non-recurring items. Lion’s computation of Adjusted EBITDA may not be comparable to other similarly entitled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.

This prospectus also makes reference to the Company’s order book with respect to vehicles and charging stations. The Company’s order book, expressed as a number of units or the amount of sales expected to be recognized in the future in respect of such number of units, is determined based on purchase orders that have been signed, orders that have been formally confirmed by clients or products in respect of which formal joint applications for governmental subsidies or economic incentives have been made by the applicable clients and the Company. The Company’s order book refers to products that have not yet been delivered but which are reasonably expected by management to be delivered within a time period that can be reasonably established and includes, in the case of charging stations, services that have not been completed but which are reasonably expected by management to be completed in connection with the delivery of the product. When the Company’s order book is expressed as an amount of sales, such amount has been determined by management based on the current specifications or requirements of the applicable order, assumes no changes to such specifications or requirements and, in cases where the pricing of a product or service may vary in the future, represents management’s reasonable estimate of the prospective pricing as of the time such estimate is reported. The order book is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, IFRS or any other applicable securities legislation. Lion believes that the disclosure of its order book provides an additional tool for investors to use in evaluating the Company’s performance and trends. Lion’s computation of its order book may not be comparable to other similarly entitled measures computed by other companies, because all companies may not calculate their order book, order backlog or order intake in the same fashion. In addition, Lion’s presentation of such measure should not be construed as a representation by Lion that all of the vehicles and charging stations included in its order book will translate into actual sales. A portion of the vehicles or charging stations included in the Company’s order book may be cancellable in certain circumstances within a certain period. The conversion of the Company’s order book in actual deliveries and sales is subject to a number of risks. For instance, a customer may default on a purchase order

 

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that has become binding, and the Company may not be able to convert orders included in its order books into sales. As a result, the Company’s realization of its order book could be affected by variables beyond its control and may not be entirely realized. See sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Order Book”.

Because of these limitations, Adjusted EBITDA and order book should not be considered in isolation or as a substitute for performance measures calculated in accordance with IFRS. Lion compensates for these limitations by relying primarily on Lion’s IFRS results and using Adjusted EBITDA, and order book on a supplemental basis. You should review the reconciliation of net earnings (loss) to Adjusted EBITDA presented by the Company under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Adjusted EBITDA” and not rely on any single financial measure to evaluate Lion’s business.

The following table reconciles net loss to Adjusted EBITDA for the three-month periods ended March 31, 2021 and 2020:

 

     (Unaudited)  
     three-month period ended March 31,  
     2021      2020  
     (in thousands)  

Revenue

   $ 6,225      $ 1,228  

Net loss

     (16,114    ($ 5,669

Finance costs

     3,907        1,880  

Depreciation and amortization

     984        483  

Share-based compensation(1)

     5,205        251  

Change in fair value of warrant(2)

     (75      —    

FX loss (gain)(3)

     (179      —    

Non-recurring fees(4)

     410        21  
  

 

 

    

 

 

 

Adjusted EBITDA

   ($ 5,861    ($ 3,034
  

 

 

    

 

 

 

 

(1)

Represents non-cash expenses recognized in connection with the issuance and revaluation to fair value of options to participants under Lion’s legacy option plan.

(2)

Represents change in the fair value of the share warrant obligation under the Specified Customer Warrant valued at $31,868,091 as of March 31, 2021.

(3)

Represents non-cash losses (gains) relating to foreign exchange translation.

(4)

Represents non-recurring professional fees related to the acquisition of dealership rights and other professional fees, including as it relates to financing transactions, recruiting of senior management and other non-recurring items.

The following table reconciles net loss to Adjusted EBITDA for the fiscal years ended December 31, 2020, 2019, and 2018:

 

     Years Ended December 31,  
     2020      2019      2018  
     (in thousands)  

Revenue

   $ 23,423      $ 30,862      $ 16,621  

Net loss

   ($ 97,352    ($ 3,071    ($ 5,358

Finance costs

     8,667        4,112        3,274  

Income tax expense

     —          4        —    

Depreciation and amortization

     2,696        1,216        845  

Share-based compensation(1)

     65,249        1,422        523  

Changes in fair value of share warrant obligation(2)

     16,847        —          —    

Foreign exchange loss (gain)(3)

     (681      79        (137

Non-recurring fees(4)

     233        155        66  
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   ($ 4,339    $ 3,917      ($ 788
  

 

 

    

 

 

    

 

 

 

 

 

(1)

Represents non-cash expenses recognized in connection with the issuance and revaluation to fair value of options to participants under the Legacy Plan (as defined below).

(2)

Represents change in the fair value of the share warrant obligation under the Specified Customer Warrant valued at $31,549,033 as of December 31, 2020.

(3)

Represents non-cash losses (gains) relating to foreign exchange translation.

(4)

Represents non-recurring management, professional fees related to the acquisition of dealership rights and other professional fees.

 

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Financial Position

The following table sets out selected information related to the financial position of Lion as of March 31, 2021 and December 31, 2020:

 

     (Unaudited)  
     March 31, 2021      December 31, 2020  

Inventories

     47,852,275        38,073,303  

Total current assets

     64,082,089        57,656,523  

Property, plant and equipment

     6,340,776        5,446,807  

Total assets

     140,963,673        127,020,606  

Total current liabilities

     130,260,414        105,226,066  

Total non-current financial liabilities(1)

     79,687,680        76,389,971  

Total non-current liabilities

     123,745,518        117,420,469  

Total liabilities

     254,005,932        222,646,535  

Total shareholders’ deficiency

     (113,042,259      (95,625,929

 

(1)

Represents financial liabilities related to long-term debt, convertible debt instruments, share warrant obligation and common shares (retractable), as reflected in the Company’s unaudited condensed consolidated interim financial statements for the three-month period ended March 31, 2021.

Liquidity and Capital Resources

Liquidity and Capital Management

As of March 31, 2021, Lion had current assets of $64.1 million and trade and other payables of $15.3 million and an accumulated deficit of $142.5 million. Lion incurred a net loss of $16.1 million for the three-month period ended March 31, 2021 and a net loss of $5.7 million for the three-month period ended March 31, 2020. Lion expects to continue to incur net losses in the short term, as it continues to execute on its growth strategy.

Lion’s growth strategy and the development, design, manufacturing, sale and servicing of Lion’s vehicles are capital-intensive. Net cash used in investing activities is expected to continue to increase substantially as Lion purchases additional property and equipment, continues the development of its product offering, and scales its manufacturing operations to meet anticipated demand.

Lion’s primary sources of liquidity used in the funding of its operations are its sales volumes, its credit facilities, other borrowings and debt capital, and contributions from shareholders. Lion used a portion of the funds raised in connection with the Business Combination and the PIPE Financing to repay indebtedness and pay transaction expenses, and it expects to use a significant portion of the remaining funds to fund its growth strategy in the future. Lion’s ability to access capital when needed is not assured and, if capital is not available to Lion when and in the amounts needed, Lion could be required to delay, scale back or abandon all or part of its growth strategy, including planned additions to its current manufacturing facility as well as the construction of its planned large-scale U.S. manufacturing facility and of its battery assembly facility.

 

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Cash Flows Summary

Presented below is a summary of Lion’s operating, investing, and financing cash flows for the periods indicated:

 

     For the three-month periods ended
March 31,
    Years Ended December 31,  
     2021     2020     2020     2019     2018  
     (in thousands)  

Cash flows used in operating activities

   $ (10,064   $ (5,491   $ (27,058   $ (7,404   $ (2,210

Cash flows used in investing activities

     (7,106     (2,426     (16,794     (12,706     (6,963

Cash flows from financing activities

     17,189       8,241       44,461       20,104       3,023  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash held in foreign currency

     (62     (22     (532     60       (182
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash

   $ (43   $ 302     $ 77     $ 54     ($ 6,332
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows Used in Operating Activities

For the three-month period ended March 31, 2021, cash flows used in operating activities was $10.1 million. The cash used was related to Lion’s net loss of $16.1 million driven by the factors discussed above, and net changes in working capital of ($2.6) million, partially offset primarily by non-cash items of $2.6 million related to accretion expenses, $1.0 million related to depreciation and amortization, $5.2 million related to share-based compensation.

For the three-month period ended March 31, 2020, cash flows used in operating activities was $5.5 million. The cash used was related to Lion’s net loss of $5.7 million and changes in working capital of ($2.3) million, partially offset primarily by non-cash items of $1.4 million related to accretion expenses, $0.5 million related to depreciation and amortization, $0.3 million related to unrealized foreign exchange loss, and $0.3 million related to share-based compensation.

For the year ended December 31, 2020, cash flows used in operating activities was $27.1 million, representing an increase of $19.7 million over cash flows used in operating activities for the year ended December 31, 2019. The increased cash used was related to Lion’s net loss of $97.4 million driven primarily by an unfavorable decrease in revenue as compared to the year ended December 31, 2019 and net changes in working capital of $20.9 million driven primarily by an increase in inventories as compared to the year ended December 31, 2019, partially offset primarily by non-cash items of $6.4 million related to accretion expenses, $2.7 million related to depreciation and amortization, $65.2 million related to share-based compensation, and $16.8 million related to change in fair value of share warrant obligation.

For the year ended December 31, 2019, cash flows used in operating activities was $7.4 million, representing an increase of $5.2 million over cash flows used in operating activities for the year ended December 31, 2018. The increased cash used was related to Lion’s net loss of $3.1 million driven primarily by an unfavorable increase in selling expenses and financing costs as compared to the year ended December 31, 2018 and net changes in working capital of $10.1 million driven primarily by an increase in inventories, trade and other receivables and certain receivables related to government incentive programs as compared to the year ended December 31, 2018, partially offset primarily by non-cash items of $3.2 million related to accretion expenses, $1.2 million related to depreciation and amortization, and $1.4 million related to share-based compensation.

For the year ended December 31, 2018, cash flows used in operating activities was $2.2 million. The cash used was related to Lion’s net loss of $5.4 million and net changes in working capital of $1.3 million, partially offset primarily by non-cash items of $3.1 million related to accretion expenses, $0.8 million related to depreciation and amortization, and $0.5 million related to share-based compensation.

 

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Cash Flows Used in Investing Activities

Cash used in investing activities primarily relate to capitalized R&D for vehicle and battery system development and capital expenditures for equipment and machinery, leasehold improvements, office furniture and equipment as Lion continues to invest in its business infrastructure and scales its manufacturing operations.

Cash used in investing activities was $7.1 million for the three-month period ended March 31, 2021. The cash used was related to acquisition of intangible assets of $6.5 million and capital expenditures of $1.1 million, partially offset by government assistance related to intangible assets of $0.5 million. The majority of acquisition of intangible assets is related to capitalized R&D for vehicle and battery system development. Property, plant and equipment and intangible assets totaled $54.5 million as of March 31, 2021.

Cash used in investing activities was $2.4 million for the three-month period ended March 31, 2020. The cash used was related to acquisition of intangible assets of $2.8 million and capital expenditures of $0.9 million, partially offset by government assistance related to intangible assets of $1.2 million.

Cash used in investing activities was $16.8 million for the year ended December 31, 2020. The cash used was related to acquisition of intangible assets of $16.5 million and capital expenditures of $2.9 million, partially offset by government assistance related to intangible assets of $2.8 million. Acquisition of intangible assets for the year ended December 31, 2020 includes $2.3 million benefit from the CEWS, which resulted in lower capitalized salaries. The majority of acquisition of intangible assets is related to capitalized R&D for vehicle and battery system development. Property, plant and equipment and intangible assets totaled $47.5 million as of December 31, 2020.

Cash used in investing activities was $12.7 million for the year ended December 31, 2019. The cash used was related to acquisition of intangible assets of $12.3 million and capital expenditures of $1.8 million, partially offset by government assistance related to intangible assets of $1.4 million. Property, plant and equipment and intangible assets totaled $30.2 million as of December 31, 2019.

Cash used in investing activities was $7.0 million for the year ended December 31, 2018. The cash used was related to acquisition of intangible assets of $7.9 million and capital expenditures of $0.4 million, partially offset by government assistance related to intangible assets of $1.3 million.

Cash Flows from Financing Activities

Cash provided by financing activities was $17.2 million for the three-month period ended March 31, 2021, which was primarily due to a net increase of $17.6 million in long-term debt and other debt, partially offset by the repayment of lease liabilities of $0.4 million.

Cash provided by financing activities was $8.2 million for the three-month period ended March 31, 2020, which was primarily due to a net increase of $4.8 million in long-term debt and other debt, and $3.7 million of proceeds from convertible debt instruments issuance, partially offset by the repayment of lease liabilities of $0.2 million.

Cash provided by financing activities was $44.5 million for the year ended December 31, 2020, which was primarily due to a net increase of $27.1 million in long term debt and other debt, and $18.7 million of proceeds from the issuance of convertible debt instruments, partially offset by the repayment of lease liabilities of $1.3 million.

Cash provided by financing activities was $20.1 million for the year ended December 31, 2019, which was primarily due to a net increase of $13.4 million in long term debt and other debt, and $7.4 million of share issuance, partially offset by the repayment of lease liabilities of $0.6 million and share redemption of $0.2 million.

Cash provided by financing activities was $3.0 million for the year ended December 31, 2018, which was primarily due to a net increase of $3.5 million in long term debt and other debt, partially offset by repayment of lease liabilities of $0.5 million.

 

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Credit Agreement with National Bank of Canada

On February 25, 2019, Lion entered into a credit agreement with NBC which was amended on September 23, 2019, May 15, 2020, August 25, 2020, December 2, 2020 and December 18, 2020 (the “Credit Agreement”). The Credit Agreement provided for the following credit (i) a $27,489,000 (C$35 million) operating revolving facility, (ii) a $35,343,000 (C$45 million) term loan facility, and (iii) a $7,854,000 (C$10 million) additional term loan facility. The operating revolving credit facility included a sub-facility for standby letters of credit with an aggregate cap of $392,700 (C$500,000) (or the equivalent in other approved currencies). Such credit facilities bore interest at floating rates by reference to the Canadian prime rate or the U.S. prime rate, as applicable, plus a margin of 1.0% for the operating revolving facility, 9.0% for the term loan facility and 3.0% for the additional term loan facility. The obligations under the Credit Agreement were secured by a first priority security interest, hypothec and lien on substantially all of Lion’s property and assets, except for certain tax credits and government grants on which it holds a second priority security interest, hypothec and lien subject to the first priority security of Finalta under the loans made by it. The Credit Agreement also required Lion to maintain certain financial ratios. In connection with the third amendment to the Credit Agreement dated December 2, 2020, NBC waived any default or any event of default resulting from the failure by Lion to maintain such financial ratios until the maturity date. As of March 31, 2021, there was $23,369,339 (C$29,388,002) outstanding under the operating revolving credit facility, $31,808,000 (C$40,000,000) outstanding under the term loan facility and $7,952,000 (C$10,000,000) outstanding under the additional term loan facility. In connection with the closing of the Business Combination, Lion repaid in full all amounts owed under the Credit Agreement, and the Credit Agreement and all security related thereto were terminated. See section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments”.

Finalta Loan Agreement

On May 6, 2021, Lion entered into the Finalta Loan Agreement, which amended and restated in their entirety the two (2) loan agreements that had previously been entered into with Finalta, as lender, to finance certain refundable tax credits and grants under government programs. As of March 31, 2021, there was $7,799,624 (C$9,808,380) outstanding under the loans governed by the Former Finalta Loan Agreements.

The Finalta Loan Agreement provides for a combined loan facility of up to a principal amount of approximately C$13,500,000 and bears interest at the rate of 7.50% per annum. The Finalta Loan Agreement matures on May 31, 2022, and may be extended by one (1) year. The obligations thereunder are secured by a first priority security interest, hypothec and lien in tax credits and government grants and a subordinate security interest, hypothec and lien in substantially all other property and assets.

The Finalta Loan Agreement includes certain customary restrictions and negative covenants on Lion’s activities, subject to certain exceptions, baskets and thresholds. The Finalta Loan Agreement also provides for customary events of default, in each case, subject to customary grace periods, baskets and materiality thresholds. Upon the occurrence and during the continuance of an event of default, Finalta would be entitled to demand the immediate repayment of all amounts owing to it under the Finalta Loan Agreement and/or it may exercise its other rights, remedies and/or recourses.

Convertible Instruments with Investissement Québec

March 2020 Convertible Loan. In March 2020, Lion completed a financing through the issuance of the Convertible Loan to Investissement Québec in the principal amount of $3,741,675 (C$5,000,000). The Convertible Loan had an initial maturity date of March 3, 2025 and bore interest at an annual rate of 7.5% with the interest payable at the maturity date. In connection with the closing of the Business Combination, the Convertible Loan was repaid in full. See section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments”.

September 2020 Convertible Debenture. In September 2020, Lion completed a financing through the issuance of the Convertible Debenture to Investissement Québec in the principal amount of $15,340,000 (C$20,000,000). The Convertible Debenture had an initial maturity date of September 1, 2023 and bore interest at a rate of 15% per annum for the first year, and 18% thereafter, subject to the terms and conditions set out therein. In connection with the closing of the Business Combination, the Convertible Debenture was repaid in full. See section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments”.

 

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Contractual Obligations and Commitments

The following table summarizes Lion’s contractual obligations and other commitments for cash expenditures as of December 31, 2020, and the years in which these obligations are due.

 

     Payment due by period  

Contractual Obligations

   Total      Less than 1 year      1 - 3 years      3 - 5 years      More than 5
years
 

Long-term debt obligations (including current portion) (1)

   $ 26,817,815      $ 26,699,276      $ 100,674      $ 17,865        —    

Convertible debt instruments(2)

     18,866,890        —          15,190,638        3,676,252        —    

Lease liabilities

     7,719,108        1,814,635        2,992,325        2,813,818        98,330  

Credit facilities

     18,209,335        18,209,335        —          —          —    

Loans on R&D tax credits and subsidies receivable

     10,433,572        10,433,572        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     82,046,720        57,156,818        18,283,637        6,507,935        98,330  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

In connection with the closing of the Business Combination, Lion repaid in full all amounts owed under the Credit Agreement entered into with NBC, as lender, and the Credit Agreement and all security related thereto were terminated. See sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments – Update with Respect to Certain Debt Instruments” and “Credit Agreement with National Bank of Canada” of this prospectus.

(2) 

In connection with the closing of the Business Combination, the Convertible Debenture and the Convertible Loan were repaid in full. See the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments – Update with Respect to Certain Debt Instruments” and “Convertible Instruments with Investissement Québec” of this prospectus.

Related Parties

Management fees

Management fees were paid to Services XPND Inc., an entity related to XPND Croissance Fund L.P., for services rendered to Lion during the years ended December 31, 2019 and 2018. Such services ended during the second half of 2019. These transactions are measured at their exchange amount, which is the amount of consideration established and agreed to by the related parties. Management fees are recorded within administration expenses.

 

     2020      2019      2018  
     (in thousands)  

Management fees

   $ —        $ 22,609      $ 65,602  
  

 

 

    

 

 

    

 

 

 

Off-Balance Sheet Arrangements

During the periods presented, Lion did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Overall Considerations

Lion’s unaudited condensed consolidated interim financial statements for the three-month period ended March 31, 2021 and audited consolidated financial statements for the year ended December 31, 2020 that are included elsewhere in this prospectus have been prepared in conformity with IFRS using the significant accounting policies and measurement bases that are in effect at the time such financial statements are prepared, as summarized below with respect to areas requiring the most significant estimates and judgments. These were used throughout all periods presented in the consolidated financial statements.

 

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Revenue

Lion’s principal sources of revenue are the sale of all-electric medium and heavy-duty urban vehicles. To determine whether to recognize revenue, Lion follows a five-step process:

 

   

Identifying the contract with a customer;

 

   

Identifying the performance obligations;

 

   

Determining the transaction price;

 

   

Allocating the transaction price to the performance obligations; and

 

   

Recognizing revenue when/as performance obligation(s) are satisfied.

Revenue is recognized at a point in time, when Lion satisfies performance obligations by transferring control of the goods to its customers, which generally occurs when the goods are delivered to the customers and when the customer confirms acceptance.

Lion guarantees its products against defects. An allowance for warranty expense is recorded when the revenue for the related product is recognized. The allowance is based upon the terms of the warranty, Lion’s historical experience and management estimates of future expense for replacement or repairs. The corresponding expense is recorded in cost of goods sold.

Intangible Assets

Acquired Software. Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and install the specific software.

Dealership Rights with an Indefinite Useful Life. Dealership rights with an indefinite useful life are recorded initially at cost and are not amortized. Because the acquisition was based on future sales of a product, Lion has elected to measure the cost based on a financial liability model, whereby the fair value of all variable payments under the contract are recorded on initial recognition of the asset with a corresponding liability. Any re-measurements of the related liability are recognized in earnings. The cost also includes any directly attributable costs of preparing the asset for its intended use. Directly attributable cost includes professional fees arising directly from bringing the asset to its working conditions.

Dealership rights are subject to asset impairment testing as described below. The useful life is reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment.

Internally Developed Intangible Assets.

Expenditure on the research phase is recognized as an expense as incurred. Costs that are directly attributable to a project’s development phase are recognized as intangible assets, provided they meet the following recognition requirements:

 

   

Development costs can be measured reliably;

 

   

Project is technically and commercially feasible;

 

   

Lion and its subsidiaries intend to and have sufficient resources to complete the project;

 

   

Lion and its subsidiaries have the ability to use or sell the intangible assets; and

 

   

Intangible assets will generate probable future economic benefits.

Development costs not meeting these criteria for capitalization are expensed as incurred.

Directly attributable costs include employee costs incurred along with an appropriate portion of relevant overheads and subcontractors’ fees.

 

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Subsequent Measurement.

All finite-live intangible assets are accounted for using the cost model whereby capitalized costs are amortized on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing as described below. The following useful lives are applied:

 

   

Software: 5 years

 

   

Development costs: According to production of 7,000 units

Leased Assets

Identification of Leases.

For any new contracts, Lion considers whether a contract is, or contains a lease. A lease is defined as “a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.” To apply this definition Lion assesses whether the contract meets three key evaluations which are whether:

 

   

Contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to Lion;

 

   

Lion and its subsidiaries have the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and

 

   

Lion and its subsidiaries have the right to direct the use of the identified asset throughout the period of use. Lion assesses whether it has the right to direct “how and for what purpose” the asset is used throughout the period of use.

Measurement and Recognition of Leases as a Lessee.

At lease commencement date, Lion recognizes a right-of-use asset and a lease liability on the consolidated statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by Lion, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

Lion depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. Lion also assesses the right-of-use asset for impairment when such indicators exist.

At the commencement date, Lion measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or Lion’s incremental borrowing rate. The incremental borrowing rate is the estimated rate that Lion would have to pay to borrow the same amount over a similar term, and with similar security to obtain an asset of equivalent value. This rate is adjusted should the lessee entity have a different risk profile to that of Lion’s.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

 

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When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

Lion has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in profit or loss on a straight-line basis over the lease term.

Impairment Testing of Intangible Assets, Property, Plant and Equipment and Right-of-Use Assets

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level. Cash-generating units to which intangible assets with indefinite useful life have been allocated (determined by Lion’s management as equivalent to its operating segment) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to Lion’s latest approved budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors.

Impairment losses for cash-generating units are charged pro rata to the assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount.

Inventories

Finished goods, goods in process and raw materials are valued at the lower of cost and net realizable value. Cost is determined using the identified cost method for finished goods and goods in process while the cost of raw materials is determined using the weighted average cost method. Supplier rebates are deducted to determine the cost of purchase.

The cost of inventories includes all purchase, conversion and other costs incurred to bring the inventories to their present location and condition. The net realizable value represents the estimated selling price in the normal course of business less the estimated costs necessary to make the sale. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the year the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the year in which the reversal occurs.

Common Equity Warrant Issued to the Warrantholder

On July 1, 2020, in connection with the entering into of a master purchase agreement and a work order (collectively, the “MPA”) with Amazon Logistics, Inc., the Company issued a warrant to purchase common shares of the Company (the “Specified Customer Warrant”) to Amazon.com NV Investment Holdings LLC (the “Warrantholder”) which vests, subject to the terms and conditions contained therein, based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on Lion’s products or services.

At the election of the Warrantholder, any vested portion of the Specified Customer Warrant can be exercised either on a cash basis by the payment of the applicable exercise price or on a net issuance basis based on the in-the-money value of the Specified Customer Warrant. The exercise of the Specified Customer Warrant corresponds to $23.36 per share ($5.66 following the completion of the Business Combination and the Pre-Closing Reorganization). The Specified Customer Warrant grants the Warrantholder the right to acquire up to 8,561,603 (35,350,003

 

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following the completion of the Business Combination and the Pre-Closing Reorganization) Lion Common Shares representing 19.99% (approximately 15% on a partially diluted basis following the completion of the Business Combination and the Pre-Closing Reorganization) of the issued and outstanding Lion Common Shares.

There was an initial vesting of a portion of the Specified Customer Warrant which is exercisable for 1,284,243 (5,302,511 following the completion of the Business Combination and the Pre-Closing Reorganization) Lion Common Shares. The remaining portion of the Specified Customer Warrant vests in three tranches based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on Lion’s products or services. The Specified Customer Warrant has a term of 8 years ending on July 1, 2028. Full vesting of the Specified Customer Warrant requires spending of at least $1.1 billion on Lion’s products or services over the term of the Specified Customer Warrant, subject to accelerated vesting upon the occurrence of certain events, including a change of control of Lion or a termination of the MPA for cause.

Lion has determined that the Specified Customer Warrant is a derivative instrument and should be classified as a liability in accordance with IAS 32 - Financial Instruments: Presentation and IFRS 9 - Financial Instruments. The vested portion of the Specified Customer Warrant is initially recorded at fair value and then revalued at each reporting date. The initial fair value of the Specified Customer Warrant of $13,227,703 was recorded as a share warrant obligation with a corresponding contract asset recognized at inception. The corresponding contract asset recognized at inception will be amortized as a reduction of revenues on a percentage per dollar of revenue generated with Amazon.com, Inc. and its affiliates.

The fair value of the share warrant obligation was revalued as of March 31, 2021. The fair value of the Specified Customer Warrant was determined based on the Black-Scholes option pricing model taking into account the following assumptions (following the completion of the Business Combination and the Pre-Closing Reorganization):

 

     March 31,
2021
    December 31,
2020
 

Exercise price ($)

     5.66       5.66  

Share price ($)

     10.00       10.00  

Volatility (%)

     40     40

Risk-free interest rate (%)

     1.24     0.69

Expected warrant life (years)

     7.25       7.50  

Convertible Debt Instruments with Investissement Québec

 

                   March 31,
2021
 
     Convertible
Loan
     Convertible
Debentures
     Conversion
Option
 

Balance at January 1, 2021

   $ 3,676,252      $ 15,190,638      $ 1,472,520  

Accretion expense

     92,447        712,121        —    

Foreign currency translation adjustment

     46,492        194,323        —    
  

 

 

    

 

 

    

 

 

 

Balance at March 31, 2021

   $ 3,815,191      $ 16,097,082      $ 1,472,520  
  

 

 

    

 

 

    

 

 

 

March 2020 Convertible Loan.

An amount of $70,376 (C$94,043) in financing fees was incurred as a direct cost in the closing of the financing. This balance has been capitalized and netted against the proceeds received from the issuance of the Convertible Loan. The financial instrument meets the “Fixed for Fixed” criteria under IAS 32. As such, the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured. The conversion option classified as equity will remain in equity until the conversion is exercised, in which case, the balance recognized in equity will be transferred to another equity account.

 

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The debt portion of the Convertible Loan was recorded at the estimated fair value of $3,318,735 (C$4,400,000) using an effective interest rate of 10.76% per annum at the time of issuance with the residual value of $422,940 (C$600,000) recorded as contributed surplus.

As of March 31, 2021, the Convertible Loan balance was accreted to $3,815,191 (C$4,797,776) with an interest expense of $92,447 (C$117,036) and a foreign currency translation adjustment of $46,492 for the three-month period ending March 31, 2021.

September 2020 Convertible Debenture.

An amount of $313,131 (C$417,675) in financing fees was incurred as a direct cost in the closing of the financing. This balance has been capitalized and netted against the proceeds received from the issuance of the Convertible Debenture. The financial instrument meets the “Fixed for Fixed” criteria under IAS 32. As such, the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured. The conversion option classified as equity will remain in equity until the conversion is exercised, in which case, the balance recognized in equity will be transferred to another equity account.

The debt portion of the Convertible Debenture was recorded at the estimated fair value of $14,290,420 (C$18,600,000) using an effective interest rate of 20.52% per annum at the time of issuance with the residual value of $1,049,580 (C$1,400,000) recorded as a separate component in equity.

As of March 31, 2021, the Convertible Debenture balance was accreted to $16,097,082 (C$20,242,809) with an interest expense of $712,121 (C$901,533) and a foreign currency translation adjustment of $194,323 for the three-month period ending March 31, 2021.

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless Lion designated a financial liability at fair value through profit or loss.

Subsequently, financial liabilities are measured at amortized cost using the effective interest method except for derivatives and financial liabilities designated at fair value through profit or loss (FVTPL), which are carried subsequently at fair value with gains or losses recognized in profit or loss.

All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income.

Provisions, Contingent Assets and Contingent Liabilities

Provisions for product warranties, legal disputes, onerous contracts or other claims are recognized when Lion has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from Lion and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Restructuring provisions are recognized only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan’s main features to those affected by it. Provisions are not recognized for future operating losses.

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that Lion can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset. However, this asset may not exceed the amount of the related provision. In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognized.

 

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Emerging Growth Company Status

As defined in Section 102(b)(1) of the JOBS Act, Lion is as an emerging growth company (“EGC”). As such, Lion is eligible for and relies on certain exemptions and reduced reporting requirements provided by the JOBS Act, including (a) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements.

Lion will remain an EGC under the JOBS Act until the earliest of (i) the last day of the fiscal year in which the market value of Lion’s Common Shares that are held by non-affiliates exceeds $700 million as of the last business day of the second quarter of that fiscal year, (ii) the last day of the fiscal year in which it has total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which it has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the Closing.

Foreign Private Issuer Status

Lion qualifies as a “foreign private issuer” as defined under SEC rules. Even after Lion no longer qualifies as an emerging growth company, as long as Lion continues to qualify as a foreign private issuer under SEC rules, Lion is exempt from certain SEC rules that are applicable to U.S. domestic public companies, including:

 

   

the rules requiring domestic filers to issue financial statements prepared under U.S. GAAP;

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time;

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial statements and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events; and

 

   

the selective disclosure rules by issuers of material non-public information under Regulation FD.

Notwithstanding these exemptions, Lion will file with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC or Canadian securities legislation, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm.

Lion may take advantage of these exemptions until such time as Lion is no longer a foreign private issuer. Lion would cease to be a foreign private issuer at such time as more than 50% of its outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of its executive officers or directors are U.S. citizens or residents, (ii) more than 50% of its assets are located in the United States or (iii) its business is administered principally in the United States.

Both foreign private issuers and emerging growth companies also are exempt from certain more stringent executive compensation disclosure rules. Thus, even if Lion no longer qualifies as an emerging growth company, but remains a foreign private issuer, Lion will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.

In addition, because Lion qualifies as a foreign private issuer under SEC rules, Lion is permitted to follow the corporate governance practices of Canada (the jurisdiction in which Lion is organized) in lieu of certain NYSE corporate governance requirements that would otherwise be applicable to Lion. For example, under Canadian securities laws, Lion is not required to have a board of directors comprised of a majority of directors meeting the independence standards described in the NYSE Listing Rules. In addition, under Canadian securities laws, Lion is not required to have a compensation committee or a nominations committee that is comprised solely of independent directors.

 

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If at any time Lion ceases to be a foreign private issuer, Lion will take all action necessary to comply with the SEC and NYSE Listing Rules, including by having compensation and nominating committees that are comprised solely of independent directors, subject to a permitted “phase-in” period.

Qualitative Disclosures About Market Risk

Lion is exposed to various risks in relation to financial instruments. The main types of risks are currency risk and interest rate risk. While Lion may enter into hedging contracts from time to time, any change in the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged. Furthermore, Lion does not currently have foreign-exchange hedging contracts in place with respect to all currencies in which it does business.

Currency Risk

While Lion presents its financial statements in U.S. dollars, its functional currency is the Canadian dollar and the majority of Lion’s transactions are in Canadian dollars. Lion is exposed to currency risk due to cash, trade and other receivables, borrowings and trade and other payables denominated in foreign currency, being primarily the U.S. dollar.

Interest Rates

Lion is exposed to interest rate risk with respect to financial assets and liabilities bearing fixed and variable interest rates. In addition, credit facilities under the Finalta Loan Agreement bear interest at a fixed rate and Lion is, therefore, exposed to the risk of changes in fair value resulting from interest rate fluctuations.

Recently Issued Accounting Standards Not Yet Adopted

From time to time, new accounting standards, amendments to existing standards, and interpretations are issued by the International Accounting Standards Board (“IASB”). Unless otherwise discussed, Lion believes that the impact of recently issued standards or amendments to existing standards that are not yet effective will not have a material impact on Lion’s financial position or results of operations under adoption.

Disclosure of Outstanding Share Data

As of May 14, 2021, the Company had the following issued and outstanding shares, warrants and stock options:

 

   

188,497,602 Lion Common Shares, which are listed on the TSX and on the NYSE under the symbol “LEV”;

 

   

27,111,741 Lion Warrants, which are listed on the TSX under symbol “LEV.WT” and on the NYSE under the symbol “LEV WS”;

 

   

the Specified Customer Warrant which, if and when fully vested, will be exercisable for up to 35,350,003 Lion Common Shares upon an exercise on a cash basis (see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Common Equity Warrant Issued to the Warrantholder”). The portion of the Specified Customer Warrant that is vested as of the date of this report is exercisable for 5,302,499 Lion Common Shares; and

 

   

stock options to purchase 10,375,186 Lion Common Shares.

 

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MANAGEMENT

Executive Officers and Directors

The business and affairs of Lion are managed by or under the supervision of Lion’s Board. The following table sets forth the name, age and position of each of the directors and executive officers of Lion.

 

Name

   Age     

Position

Executive Officers

     

Marc Bedard

     57      CEO—Founder and Director

Nicolas Brunet

     39      Executive Vice-President and Chief Financial Officer

Yannick Poulin

     39      Chief Operating Officer

François Duquette

     48      Vice President, Chief Legal Officer and Corporate Secretary

Non-Employee Directors

     

Sheila Colleen Bair(1)(3)(7)

     66      Director

Christopher Jarratt(2)(5)(7)

     62      Director

Pierre Larochelle

     49      Director and Chairman of Lion’s Board

Pierre-Olivier Perras(2)(3)

     51      Director

Michel Ringuet(1)(4)(7)

     62      Lead Director

Ian Robertson(1)(3)(6)(7)

     61      Director

Pierre Wilkie(2)(7)

     60      Director

 

(1)

Member of the audit committee.

(2)

Member of the human resources and compensation committee.

(3)

Member of the nominating and corporate governance committee.

(4)

Chair of the audit committee.

(5)

Chair of the human resources and compensation committee.

(6)

Chair of the nominating and corporate governance committee.

(7)

Independent director for the purposes of National Instrument 58-101—Disclosure of Corporate Governance Practices of the Canadian Securities Administrators and NYSE Listing Rules. See “Management—Corporate Governance—Director Independence.”

Executive Officers

Marc Bedard. Marc Bedard has served as Lion’s CEO—Founder and as a member of Lion’s Board since Lion’s incorporation in 2008. Prior to founding Lion, Mr. Bedard served as vice-president and chief financial officer of Les Entreprises Barette Ltée, a leading manufacturer of wood and vinyl products for construction and exterior use in North America, from 2003 to 2007. Previously, Mr. Bedard was a partner at Pricewaterhouse LLP, a national partnership of professional accountants and consultants, from 1996 to 2003. Mr. Bedard is a certified chartered professional accountant and has been a member of the Ordre des comptables professionnels agréés du Québec since 1987. Mr. Bedard holds a Bachelor of Business Administration from the École des Hautes Études Commerciales (HEC), Université de Montréal. Mr. Bedard has served as member of Lion’s Board since 2008.

Lion’s Board believes that Mr. Bedard is well qualified to serve on Lion’s Board due to his experience as CEO—Founder and director of Lion since Lion’s incorporation, his significant experience in the electric vehicle industry, and his leadership and business expertise.

Nicolas Brunet. Nicolas Brunet has been the Executive Vice-President and Chief Financial Officer of Lion since 2019. Prior to joining Lion, he was a Managing Director in BMO Capital Markets’ Montréal Investment and Corporate Banking Group, specializing in capital markets advisory and financing solutions. Mr. Brunet held various positions in the field of investment banking from 2004 to 2019, both at BMO Capital Markets and at NM Rothschild & Sons. From 2012 to 2020, Nicolas sat on the Board of the Fondation Jeunes en Tête, a non-profit organization focused on the mental well-being of Québec’s youth, and acted as its treasurer from 2015 to 2020. Nicolas holds a Bachelor of Commerce from McGill University and graduated with Great Distinction.

 

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Yannick Poulin. Yannick Poulin has served as Lion’s Chief Operating Officer since April 2016. From October 2013 to April 2016, Mr. Poulin held positions of increasing responsibility at Paradox Security Systems, an international security and alarm systems manufacturer and solutions provider, including the position of chief operating officer and plant general manager. Previously, Mr. Poulin held various positions related to production and manufacturing at Electrolux, an international home appliance manufacturer. Mr. Poulin holds a bachelor of business administration from the John Molson School of Business, Concordia University.

François Duquette. François Duquette has served as Lion’s Vice President, Chief Legal Officer and Corporate Secretary since April 2021. Prior to joining Lion, Mr. Duquette served as Managing Director, Global Private Equity at Caisse de dépôt et placement du Québec (“CDPQ”), which he joined in 2015 as Vice-President, Legal Affairs, Investment. In such role, Mr. Duquette co-led CDPQ’s private equity direct investment strategy outside of Québec, primarily in Europe and Asia Pacific. Mr. Duquette also co-chaired CDPQ’s International Private Equity and Technology Investment Committees. Before joining CDPQ, Mr. Duquette was a Partner at Allen & Overy LLP, an international law firm, where he specialized in mergers and acquisitions. During his years with the firm, he worked in their Toronto, Abu Dhabi and Casablanca offices. Prior to joining Allen & Overy, Mr. Duquette practiced in Paris and Abu Dhabi with international law firm Simmons & Simmons LLP. Mr Duquette holds a Bachelor of Civil Law (BCL) and a Juris Doctor (JD) from McGill University and is a member of the Barreau du Québec and a Solicitor of the Senior Courts of England and Wales.

Non-Employee Directors

Sheila Colleen Bair. Sheila Colleen Bair has served as a member of Lion’s Board since September 2020. Sheila C. Bair is a corporate director. Ms. Bair was President of Washington College from August 2015 to June 2017. Prior to that, she was Senior Advisor to The Pew Charitable Trusts for four years. Ms. Bair was also Senior Advisor to DLA Piper, an international law firm. Ms. Bair was the Chair of the Federal Deposit Insurance Corporation from June 2006 to July 2011. From 2002 to 2006, she was the Dean’s Professor of Financial Regulatory Policy for the Isenberg School of Management at the University of Massachusetts-Amherst. She also served as Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury from 2001 to 2002, Senior Vice President for Government Relations of the New York Stock Exchange from 1995 to 2000, Commissioner of the Commodity Futures Trading Commission from 1991 to 1995, and as counsel to Kansas Republican Senate Majority Leader Bob Dole from 1981 to 1988. Ms. Bair also serves on the boards of directors of Bunge Limited, where she serves on the audit and risk committees, Host Hotels & Resorts, Inc., where she serves on the audit and nominating and corporate governance committees, and Fannie Mae, where she serves as board chairwomen and on the nomination, compensation and risk committees. Ms. Bair previously served on the board of director of Thomson Reuters Corporation, where she served as chair of the risk committee. Ms. Bair holds a bachelor’s degree and law degree from the University of Kansas.

Lion’s Board believes Ms. Bair is qualified to serve on Lion’s Board based on her extensive experience in global capital markets, financial risk management, regulation and public policy as well as her financial expertise, together her experience on the boards of directors of several public and private companies.

Christopher Jarratt. Christopher Jarratt became a member of Lion’s Board effective as of Closing. One of NGA’s founders, Mr. Jarratt is an active senior business professional and the chair of the board of Northern Genesis Acquisition Corp. II, a blank check company that closed its initial public offering on January 15, 2021 (“Northern Genesis II”) and Northern Genesis Acquisition Corp. III, a blank check company that has filed a registration statement on Form S-1 with the SEC in respect of its initial public offering (“Northern Genesis III”). Mr. Jarratt co-founded Algonquin Power Corporation Inc. in 1988, and previously served as a director and Executive Vice Chair for Algonquin Power & Utilities Corp. from October 2009 through November 2020. During his leadership tenure, Algonquin grew to become one of Canada’s largest power and utilities companies, serving regulated electricity, natural gas and water utility customers in the United States and Canada and owning and operating a large portfolio of global renewable wind and solar powered generation capacity. Mr. Jarratt brings more than 30 years of experience in the origination, development and operations of global infrastructure investment initiatives and is committed to the concept of best of class governance and sustainable investing. Mr. Jarratt previously served on the board of directors of Atlantica Sustainable Infrastructure plc. Mr. Jarratt is a professional engineer and holds an engineering degree from the University of Guelph. In addition, Mr. Jarratt holds the designation of Chartered Director from McMaster University.

 

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Lion’s Board believes that Mr. Jarrat is qualified to serve on Lion’s Board based on his substantial business, leadership and management expertise, together with his strong background in engineering and public company governance and his previous experience serving on the boards of directors of public companies.

Pierre Larochelle. Pierre Larochelle has served as a member of Lion’s Board since October 2017. Mr. Larochelle serves and will continue to serve upon Closing as Chairman of Lion’s Board. Mr. Larochelle has been President and Chief Executive Officer of Power Energy since 2012 and as Partner, Co-Head of Energy Infrastructure at Power Sustainable Capital Inc., the parent company of Power Energy and a wholly-owned subsidiary of Power Corporation of Canada. Prior to joining Power Corporation of Canada, Mr. Larochelle was President and Chief Executive Officer at Adaltis Inc., a position he held between November 2003 and February 2009. Previously, he also held the positions of Vice-President, Business Development at Picchio Pharma Inc. and Vice-President, Mergers and Acquisitions for Credit Suisse First Boston in London, England. Mr. Larochelle started his career as a lawyer, at the Montréal offices of Ogilvy Renault. Mr. Larochelle also serves on the board of directors of Bellus Health Inc. Mr. Larochelle holds a law degree from Université de Montréal, a masters degree in international business law from McGill University and an MBA degree from INSEAD in Fontainebleau, France.

Lion’s Board believes that Mr. Larochelle is qualified to serve on Lion’s Board based on his extensive corporate governance and executive leadership experience, together with his experience on the boards of directors of several public and private companies.

Pierre-Olivier Perras. Pierre-Olivier Perras has served as a member of Lion’s Board since January 2021. Since 2019, Mr. Perras serves as President of Power Energy and, since 2020, Mr. Perras serves as Partner, Co-Head of Energy Infrastructure at Power Sustainable Capital Inc. Prior to joining Power Energy, Mr. Perras worked at BMO Capital Markets, for over two decades, where he held various leadership positions in the Investment and Corporate Banking Group, in his last role he was Head of the Power, Utilities and Infrastructure Group, leading an international team across North America and Europe. Prior to joining BMO Capital Markets, Mr. Perras was a senior consultant analyst with an actuarial consultant. As part of his role at Power Energy, Mr. Perras also serves as Chairman of the board of directors of Nautilus Solar Energy and sits on the boards of Lumenpulse Inc. and Potentia Renewables Inc. Mr. Perras holds a Master of Business Administration degree from McGill University and a Bachelor of Science in Actuarial Sciences from Laval University. He is a Chartered Financial Analyst (CFA).

Lion’s Board believes that Mr. Perras is qualified to serve on Lion’s Board based on his mergers and acquisitions and corporate finance expertise, together with his experience on the boards of directors of several private companies and charitable organizations.

Michel Ringuet. Michel Ringuet has served as a member of Lion’s Board since October 2017. From 2006 to 2016, Mr. Ringuet served as Chief Executive Officer of Master Group Inc., a leader in the distribution of HVAC/R equipment in eastern Canada, where he also served from 1990 to 2006 as Vice-President Finance and Administration. Today, Mr Ringuet is still involved with the company as a shareholder, a corporate director (Mr. Ringuet will be appointed independent Lead Director effective as of Closing) and as Chairman of the Audit Committee. Prior to joining the Master Group, Mr. Ringuet worked in various finance and investment departments at the National Bank of Canada and Bank of Montréal. Mr. Ringuet serves as a director of Lumenpulse Inc., where he served on the audit committee while the company was listed on the TSX. Mr. Ringuet holds a bachelor’s degree in administration from Université Laval and an MBA from McGill University.

Lion’s board of directors believes that Mr. Ringuet is qualified to serve on Lion’s Board based on his extensive financial and investment expertise, together with his experience on the boards of directors of several public and private companies.

Ian Robertson. Ian Robertson became a member of Lion’s Board effective as of Closing. One of NGA’s founders, Mr. Robertson has served as NGA’s Vice Chair since June 2020 and as member of NGA’s board of directors since NGA’s formation in May 2020. Mr. Robertson is an active senior business professional and currently leads InfraStar Investments, an infrastructure investment fund management company, and is the Chief Executive Officer and a member of the board of Northern Genesis II and Northern Genesis III. Mr. Robertson co-founded Algonquin Power Corporation Inc. in 1988 and previously served as Chief Executive Officer and Director of Algonquin Power & Utilities Corp. from October 2009 through July 2020. During his leadership tenure, Algonquin grew to become one of Canada’s largest power and utilities companies, serving regulated electricity, natural gas and

 

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water utility customers in the United States and Canada and owning and operating a large portfolio of global renewable wind and solar powered generation capacity. He has more than 30 years of experience in the origination and execution of global infrastructure investment initiatives and is committed to the concept of sustainable investing. Mr. Robertson previously served on the board of directors of Atlantica Sustainable Infrastructure plc. Mr. Robertson holds an electrical engineering degree from the University of Waterloo, a Master of Business Administration from York University, and a Master of Law from the Law School of the University of Toronto. He is a professional engineer and holds a Chartered Financial Analyst designation.

Lion’s Board believes that Mr. Robertson is qualified to serve on Lion’s Board based on his substantial business, leadership and management expertise, together with his strong background in public company governance and his previous experience serving on the boards of directors of public companies.

Pierre Wilkie. Pierre Wilkie has served as a member of Lion’s Board since May 2019. Mr. Wilkie is a serial entrepreneur who has founded or participated in the creation of many enterprises, including in the manufacturing industry. He is currently the co-owner of M.A.C. Métal Architectural Inc. He also serves as the President of Déco Nat Inc. Prior to that, he acted as the co-president of Laboratoire Dr Renaud Inc. Mr. Wilkie sits on the board of directors of M.A.C. Métal Architectural Inc. and other private enterprises. Mr. Wilkie holds a bachelor’s degree in Economy and Finance from the École des Hautes Études Commerciales (HEC), Université de Montréal.

Lion’s Board believes that Mr. Wilkie is qualified to serve on Lion’s Board based on his substantial business, leadership and management expertise, together with his strong background in the manufacturing industry.

Penalties or Sanctions, Individual Bankruptcies and Corporate Cease Trade Orders and Bankruptcies

None of the directors or executive officers of Lion, and to the best of Lion’s knowledge, no shareholder holding a sufficient number of securities to affect materially the control of Lion, has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision.

None of the directors or executive officers of Lion, and to the best of Lion’s knowledge, no shareholder holding a sufficient number of securities to affect materially the control of Lion, has, within the 10 years prior to the date of this prospectus, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual.

None of the directors or executive officers of Lion, and to the best of Lion’s knowledge, no shareholder holding a sufficient number of securities to affect materially the control of Lion is, as at the date of this prospectus, or has been within the 10 years before the date of this prospectus: (a) a director, chief executive officer or chief financial officer of any company that was subject to an order that was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer; (b) was subject to an order that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer; or (c) a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets. For the purposes of this paragraph, “order” means a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, in each case, that was in effect for a period of more than 30 consecutive days.

Foreign Private Issuer Status

The NYSE Listing Rules include certain accommodations in the corporate governance requirements that allow foreign private issuers, such as Lion, to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of the NYSE. The application of such exceptions requires that Lion discloses any significant ways in which its corporate governance practices differ from the NYSE Listing Rules that it does not follow. When Lion Common Shares are listed on the NYSE, Lion intends to follow Canadian corporate governance practices in respect of the following:

 

   

the majority independent director requirement under the NYSE Listing Rules;

 

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the requirement under the NYSE Listing Rules that a compensation committee be comprised solely of independent directors; and

 

   

the requirement under the NYSE Listing Rules that director nominees be selected or recommended for selection by a nominations committee comprised solely of independent directors.

If at any time Lion ceases to be a foreign private issuer, Lion will take all action necessary to comply with the SEC and NYSE rules, including by appointing a majority of independent directors to its board of directors and having compensation and nominating committees that are comprised solely of independent directors, subject to a permitted “phase-in” period.

The NYSE Listing Rules generally require that a listed company’s by-laws provide for a quorum for any meeting of the holders of the company’s voting shares that is sufficiently high to ensure a representative vote. Pursuant to the NYSE Listing Rules, Lion, as a foreign private issuer, has elected to comply with practices that are permitted under Canadian securities laws in lieu of the provisions of NYSE. Lion’s by-laws, to be effective at closing of the Business Combination, will provide that a quorum of shareholders shall be at least two holders present in person or represented by proxy who, together, hold not less than 25% of the votes attaching to Lion’s outstanding shares entitled to be voted at the meeting. Lion may in the future decide to use other foreign private issuer exemptions with respect to some of the other NYSE Listing Rules. Following Lion’s home country governance practices, as opposed to the requirements that would otherwise apply to a company listed on the NYSE, may provide less protection than is accorded to investors under the NYSE Listing Rules applicable to U.S. domestic issuers.

Corporate Governance

The Canadian securities regulatory authorities have issued corporate governance guidelines pursuant to National Policy 58-201—Corporate Governance Guidelines (the “Corporate Governance Guidelines”), together with certain related disclosure requirements pursuant to National Instrument 58-101—Disclosure of Corporate Governance Practices (“NI 58-101”). The Corporate Governance Guidelines are recommended as “best practices” for issuers to follow. Lion recognizes that good corporate governance plays an important role in its overall success and in enhancing shareholder value and, accordingly, Lion has adopted, or will be adopting at Closing, certain corporate governance policies and practices which reflect its consideration of the recommended Corporate Governance Guidelines. The disclosure set out below includes disclosure required by NI 58-101 describing Lion’s expected approach to corporate governance in relation to the Corporate Governance Guidelines.

Board Composition

The business and affairs of Lion are managed by or under the supervision of Lion’s Board. Under Lion’s articles, Lion’s Board consists of a minimum of three and a maximum of 20 directors as determined from time to time by the directors. Lion’s Board currently consists of eight directors: Sheila Colleen Bair, Marc Bedard, Christopher Jarratt, Pierre Larochelle, Pierre-Olivier Perras, Ian Robertson, Michel Ringuet and Pierre Wilkie. Mr. Larochelle currently serves as Chairman of Lion’s Board. The primary responsibilities of Lion’s Board are to provide oversight, strategic guidance, counseling and direction to Lion’s management. Lion’s board of directors meets on a regular basis and additionally as required.

Under the Business Corporations Act (Québec), between annual general meetings of Lion’s shareholders, the directors may appoint one or more additional directors, but the number of additional directors may not at any time exceed one third of the number of directors elected at the previous annual meeting of shareholders. The directors are appointed at the annual general meeting of shareholders and the term of office for each of the directors will expire at the time of Lion’s next annual shareholders meeting.

 

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Certain aspects of the composition and functioning of Lion’s Board are be subject to the rights of PEC and 9368-2672 under the Nomination Rights Agreement among Lion and such shareholders. For more information about the Nomination Rights Agreement, see the section entitled “Description of Share Capital of Lion—Nomination Rights.”

In addition, Lion entered into on November 30, 2020 the Stockholder Support and Lock-Up Agreement pursuant to which Lion has agreed, in respect of any meeting of shareholders at which directors of the board of directors of Lion are to be elected, prior to and including the annual general meeting of Lion to be held during the calendar year 2022, to use at least the same efforts to cause the election of Ian Robertson and Chris Jarratt as it uses to cause the election of the other nominees of the board of directors of Lion. Subject to such agreements, nominees for election as directors will be recommended to Lion’s Board by Lion’s nominating and corporate governance committee in accordance with the provisions of applicable corporate law and the charter of the nominating and corporate governance committee. For more information about the nominating and corporate governance committee, see the section entitled “Management—Corporate Governance—Board Committees—Nominating and Corporate Governance Committee.”

Director Independence

Under the NYSE Listing Rules, an independent director means a person who, in the opinion of Lion’s Board, has no material relationship with Lion. Under NI 58-101, a director is considered to be independent if he or she is independent within the meaning of Section 1.4 of National Instrument 52-110—Audit Committees (“NI 52-110”). Pursuant to NI 52-110, an independent director is a director who is free from any direct or indirect material relationship with Lion which could, in the view of Lion’s Board, be reasonably expected to interfere with the exercise of such director’s independent judgement. Lion’s Board agrees with this approach to assessing director independence.

Based on information provided by each director concerning his or her background, employment and affiliations, Lion’s Board has determined that of the eight directors who serve on Lion’s Board, five directors are considered “independent” as that term is defined under the NYSE Listing Rules and NI 58-101, namely Ms. Sheila Colleen Bair and Messrs. Christopher Jarratt, Michel Ringuet, Ian Robertson and Pierre Wilkie. In making this determination, Lion’s Board considered the current and prior relationships that each such non-employee director has with Lion and all other facts and circumstances that Board deemed relevant in determining their independence.

Marc Bedard is considered non-independent due to the fact that he acts as the CEO–Founder of Lion. Pierre Larochelle and Pierre-Olivier Perras are considered non-independent under the NYSE Listing Rules and NI 58-101 due to their relationship with Power Energy.

Seven of the eight members of the Board are not members of Lion’s management. Lion’s Board believes that, except for Mr. Bedard, all of the individuals who serve on Lion’s Board are independent of management, and have no other relationships that could reasonably interfere with the exercise of their independent judgment in discharging their duties to Lion. The following table shows which Directors are independent of management, which Directors are independent of management but are not considered independent within the meaning of the NYSE Listing Rules and NI 58-101, and the reason for such non-independence of individual Directors.

 

Director

  

Independent of

Management

  

Independent

  

Non-independent

  

Reason for Non-independence

  

Within the NYSE Listing Rules and NI 58-101

Marc Bedard

            CEO–Founder of Lion

Sheila Colleen Bair

           

Christopher Jarratt

           

Pierre Larochelle

            Executive of Power Energy

Pierre-Olivier Perras

            Executive of Power Energy

Michel Ringuet

           

Ian Robertson

           

Pierre Wilkie

           

 

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Lion’s Board believes that given its size and structure, it is able to facilitate independent judgement in carrying out its responsibilities. To enhance such independent judgement, the independent members of Lion’s Board may meet in the absence of senior executive officers or any non-independent directors.

In addition, considering that the Chairman of the Board is considered non-independent, the Board has determined that Mr. Michel Ringuet will serve as independent Lead Director in order to ensure appropriate leadership for the independent directors. Lion’s Board adopted a written position description for the Lead Director. His primary functions are to provide leadership to the directors to enhance the effectiveness and independence of the Board, to facilitate the efficient functioning of the Board, to ensure that there is an effective relationship between management and the members of the Board and to advise the Chairman of the Board on the appropriate flow of information to the Board.

For purposes of managing any potential conflicts of interest, a director who has a material interest in a matter before Lion’s Board or any committee on which he or she serves is required to disclose such interest as soon as the director becomes aware of it. In situations where a director has a material interest in a matter to be considered by Lion’s Board or any committee on which he or she serves, such director may be required to absent himself or herself from the meeting while discussions and voting with respect to the matter are taking place. Directors are also required to comply with the relevant provisions of the Business Corporations Act (Québec) regarding conflicts of interest.

Certain members of Lion’s Board are also members of the board of directors of other public companies. See the section entitled “Management”. Lion’s Board has not adopted a director interlock policy but is keeping informed of other public directorships held by its members.

Insider Trading Policy

Lion has adopted an insider trading policy which prohibits its executives, other employees and directors from: (i) trading in its securities while in possession of material undisclosed information about Lion; and (ii) entering into certain derivative-based transactions that involve, directly or indirectly, securities of Lion, during a restricted period.

Diversity

Lion recognizes the importance and benefit of having a board of directors and senior management composed of highly talented and experienced individuals having regard to the need to foster and promote diversity among board members and senior management with respect to attributes such as gender, ethnicity and other factors. In support of this goal, the nominating and corporate governance committee will, when identifying candidates to nominate for election to Lion’s Board or appoint as senior management or in its review of senior management succession planning and talent management:

 

   

consider individuals who are highly qualified, based on their talents, experience, functional expertise and personal skills, character and qualities having regard to Lion’s current and future plans and objectives, as well as anticipated regulatory and market developments;

 

   

consider criteria that promote diversity, including with regard to gender, ethnicity, and other dimensions;

 

   

consider the level of representation of women on its board of directors and in senior management positions, along with other markers of diversity, when making recommendations for nominees to Lion’s Board or for appointment as senior management and in general with regard to succession planning for Lion’s Board and senior management; and

 

   

as required, engage qualified independent external advisors to assist Lion’s Board in conducting its search for candidates that meet the board of directors’ criteria regarding skills, experience and diversity.

Lion does not expect to adopt formal targets regarding the number of women on Lion’s Board or in executive officer positions because it believes the nominating and corporate governance committee and management will generally identify, evaluate and recommend candidates that, as a whole, consist of individuals with various and relevant career experience, industry knowledge and experience, and financial and other specialized experience, while taking diversity, including gender diversity, into account. Lion has one woman on its board of directors and 0 as executive officer, representing 12.5% of Lion’s directors and 0% of its senior management team.

 

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Director Term Limits and Other Mechanisms of Board Renewal

Lion’s Board has not adopted director term limits or other automatic mechanisms of board renewal. Rather than adopting formal term limits, mandatory age-related retirement policies and other mechanisms of board renewal, the nominating and corporate governance committee will seek to maintain the composition of Lion’s Board in a way that provides, in the judgement of Lion’s Board, the best mix of skills and experience to provide for Lion’s overall stewardship. Lion’s nominating and corporate governance committee also is expected to conduct a process for the assessment of Lion’s Board, each committee and each director regarding his, her or its effectiveness and performance, and to report evaluation results to Lion’s Board.

Mandate of Lion’s Board

Lion’s Board is responsible for supervising the management of Lion’s business and affairs, including providing guidance and strategic oversight to management. Lion’s Board has adopted a formal mandate that includes the following:

 

   

adopting a strategic planning process, approving the principal business objectives for the company and approving major business decisions and strategic initiatives;

 

   

appointing the Chief Executive Officer of the company and developing the corporate goals and objectives that the Chief Executive Officer is responsible for meeting, and reviewing the performance of the Chief Executive Officer against such goals and objectives;

 

   

overseeing communications with shareholders, other stakeholders, analysts and the public, including the adoption of measures for receiving feedback from stakeholders; and

 

   

monitoring the implementation of procedures, policies and initiatives relating to corporate governance, risk management, corporate social responsibility, health and safety, ethics and integrity appointing the Chief Executive Officer.

Lion’s Board developed written position descriptions for the Chairman of Lion’s Board and the chairperson of the board committees. Their primary roles are to manage the affairs of Lion’s Board or of such relevant committee, including ensuring Lion’s Board or such committee is organized properly, functions effectively and meets its obligations and responsibilities. Each committee has a chairperson that conducts the affairs of the applicable committee in accordance with the charter of such committee.

Lion’s Board and CEO—Founder have not developed at this time a written position description for the CEO—Founder or for other executive officers. The role of the CEO—Founder is delineated on the basis of customary practice. Lion’s Board considers that the role and responsibilities of the CEO—Founder are to develop the company’s strategic plans and policies and recommending such plans and policies to Lion’s Board, provide executive leadership, oversee a comprehensive operational planning and budgeting process, supervise day-to-day management, report relevant matters to Lion’s Board, facilitate communications between Lion’s Board and the senior management team, and identify business risks and opportunities and manage them accordingly, and has communicated the same to the CEO—Founder.

Orientation and Continuing Education

Lion intends to implement an orientation program for new directors under which a new director will meet with the Chairman and members of senior management. It is anticipated that new directors will be provided with comprehensive orientation and education as to the nature and operation of the company and its business, the role of Lion’s Board and its committees, and the contribution that an individual director is expected to make. The nominating and corporate governance committee is responsible for overseeing director continuing education designed to maintain or enhance the skills and abilities of the directors and to ensure that their knowledge and understanding of Lion’s business remains current. The chair of each committee is responsible for coordinating orientation and continuing director development programs relating to the committee’s mandate.

 

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Code of Business Conduct and Ethics

In connection with the Closing, Lion adopted a Code of Business Conduct and Ethics (“Code of Conduct”), applicable to all of its directors, officers and employees. The Code of Conduct sets out Lion’s fundamental values and standards of behavior that are expected from Lion’s directors, officers and employees with respect to all aspects of Lion’s business. The objective of the Code of Conduct is to provide guidelines for maintaining Lion’s integrity, reputation and honesty with a goal of honoring others’ trust in Lion at all times. The Code of Conduct sets out guidance with respect to conflicts of interest, protection and proper use of corporate assets and opportunities, confidentiality of corporate information, fair dealing with third parties, compliance with laws and reporting of any illegal or unethical behavior.

Lion’s audit committee is responsible for reviewing and evaluating the Code of Conduct periodically and recommends any necessary or appropriate changes thereto to Lion’s Board for consideration. The audit committee also assists Lion’s Board with the monitoring of compliance with the Code of Conduct, and is responsible for considering any waivers of the Code of Conduct (other than waivers applicable to Lion’s directors or executive officers, which shall be subject to review by Lion’s Board as a whole).

Board Committees

Lion’s Board has three standing committees: the audit committee, the human resources and compensation committee, and the nominating and corporate governance committee. Each of the committees operates under its own written charter adopted by Lion’s Board, each of which is available on Lion’s website.

Audit Committee. Lion’s audit committee is composed of Michel Ringuet, Sheila Bair and Ian Robertson, with Michel Ringuet serving as chairperson of the committee. Lion’s Board has determined that all such directors meet the independence requirements under the NYSE Listing Rules, NI 52-110 and under Rule 10A-3 of the Exchange Act. Lion’s Board has determined that Sheila Bair is an “audit committee financial expert” within the meaning of the SEC’s regulations and applicable NYSE Listing Rules. Lion will comply with NI 52-110 and intend to rely on the exemptions for U.S. listed issuers thereunder. The audit committee’s responsibilities include:

 

   

appointing, compensating, retaining and overseeing the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services and reviewing and appraising the audit efforts of Lion’s independent accountants;

 

   

pre-approving audit and permissible non-audit services, and the terms of such services, to be provided by Lion’s independent registered public accounting firm;

 

   

establishing procedures for (i) the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and (ii) confidential and anonymous submissions by Lion’s employees of concerns regarding questionable accounting or auditing matters;

 

   

engaging independent counsel and other advisers, as necessary and determining funding of various services provided by accountants or advisers retained by the committee;

 

   

reviewing Lion’s financial reporting processes and internal controls;

 

   

establishing, overseeing and dealing with issues related to the company’s code of ethics for managers and financial officers;

 

   

reviewing and approving related-party transactions or recommending related-party transactions for review by independent members of Lion’s Board; and

 

   

providing an open avenue of communication among the independent accountants, financial and senior management and Lion’s Board.

 

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Human Resources and Compensation Committee. Lion’s human resources and compensation committee is composed of Chris Jarratt, Pierre Wilkie and Pierre-Olivier Perras, with Chris Jarratt serving as chairperson of the committee. Its primary purpose, with respect to compensation, is to assist Lion’s Board in fulfilling its oversight responsibilities and to make recommendations to Lion’s Board with respect to the compensation of Lion’s directors and executive officers.

The principal responsibilities and duties of the human resources and compensation committee include:

 

   

establishing and reviewing Lion’s overall compensation philosophy;

 

   

evaluating Lion’s CEO—Founder’s and other executive officer’s performance in light of the goals and objectives established by Lion’s board of directors and, based on such evaluation, with appropriate input from other independent members of Lion’s board of directors, determining the CEO—Founder’s and other executive officer’s compensation;

 

   

reviewing management’s assessment of existing management resources and succession plans;

 

   

administering Lion’s equity-based and incentive compensation plans and making recommendations to Lion’s Board about amendments to such plans and the adoption of any new employee incentive compensation plans;

 

   

reviewing executive compensation disclosure before the company publicly discloses this information; and

 

   

engaging independent counsel and other advisers, as necessary and determining funding of various services provided by accountants or advisers retained by the committee.

Nominating and Corporate Governance Committee. Lion’s nominating and corporate governance committee is composed of Ian Robertson, Sheila Bair and Pierre-Olivier Perras, with Ian Robertson serving as chairperson of the committee. The nominating and corporate governance committee’s responsibilities include:

 

   

developing and recommending to Lion’s Board criteria for board and committee membership;

 

   

recommending to Lion’s Board the persons to be nominated for election as directors and to each of the committees of Lion’s Board;

 

   

assessing the independence of directors within the meaning of securities laws and stock exchange rules as applicable;

 

   

considering resignations by directors submitted pursuant to Lion’s majority voting policy, and making recommendations to Lion’s Board as to whether or not to accept such resignations;

 

   

reviewing and making recommendations to the board of directors in respect of Lion’s corporate governance principles;

 

   

providing for new director orientation and continuing education for existing directors on a periodic basis;

 

   

performing an evaluation of the performance of the committee; and

 

   

overseeing the evaluation of Lion’s Board and its committees.

 

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EXECUTIVE COMPENSATION

Overview

The following table shows the total compensation awarded to, earned by, or paid during the year ended December 31, 2020 to Lion’s CEO—Founder, Marc Bedard, and Lion’s two most highly compensated executive officers (other than Mr. Bedard) who were serving as executive officers on the last day of the year ended December 31, 2020. Those individuals are referred to collectively in this prospectus as Lion’s “Named Executive Officers.” Lion’s Named Executive Officers for the year ended December 31, 2020 who appear in the Summary Compensation Table below are:

 

   

Marc Bedard, CEO—Founder;

 

   

Nicolas Brunet, Executive Vice-President and Chief Financial Officer; and

 

   

Yannick Poulin, Chief Operating Officer

For the year ended December 31, 2020, the compensation of Lion’s Named Executive Officers has mainly consisted of salary and, in some cases, an annual performance bonus. Prior to the year ended December 31, 2020, Lion has granted stock options to its Named Executive Officers at the time of hire, and from time to time thereafter, pursuant to its legacy equity-based incentive plan adopted in November 2017, as amended and restated in December 2019 and May 2021 (the “Legacy Plan”), intended to better align Lion’s interests and those of its shareholders with those of its Named Executive Officers. As Lion transitions to a publicly-traded company, it may also award equity-based long-term incentives such as stock options, restricted stocks units (“RSUs”), performance stock units (“PSUs”) and deferred share units (“DSUs”) under a new omnibus equity-based incentive plan (the “Omnibus Plan”) which Lion adopted upon completion of the Business Combination.

Lion operates in a dynamic and rapidly evolving industry. To succeed in this environment and to achieve its business and financial objectives, Lion needs to attract, retain and motivate a highly talented team of executive officers. Lion’s compensation philosophy is designed to align the compensation provided to its executives, including the Named Executive Officers, with the achievement of business objectives, while also enabling Lion to attract, motivate and retain individuals who contribute to Lion’s long-term success. In addition, as Lion transitions from being a privately-held company to a publicly-traded company, it will continue to evaluate its philosophy and compensation program as circumstances require and plans to continue to review compensation on an annual basis. As part of this review process, Lion expects to be guided by the philosophy and objectives outlined above, as well as other factors which may become relevant, such as the cost to Lion if it were required to find a replacement for a key employee.

Summary Compensation Table

 

Name and Principal Position

   Fiscal
Year
ended
Dec. 31,
     Salary
($)(1)
     Bonus
($)(1)
     Stock
Awards
($)
     Option
Awards
($)
     Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)
     All
Other
Compensation
($)
    

 

    Total ($)  

Marc Bedard

     2020        215,991        —          —          —          —          3,557        (3     219,548  

CEO—Founder(2)

                         

Nicolas Brunet

     2020        196,356        —          —          —          —          —            196,356  

Executive Vice-President and Chief Financial Officer

                         

Yannick Poulin

     2020        157,085        —          —          —          —          8,746        (4     165,831  

Chief Operating Officer

                         

 

(1)

Represents actual amounts paid during 2020. Base salary values have been converted from C$to US$using the daily average exchange rate published by the Bank of Canada on December 31, 2020, being 0.7854. See “—Salaries and Annual Incentive Bonuses.”

(2)

Mr. Bedard also serves as a member of Lion’s Board but does not receive any additional compensation for his service as a director.

(3)

All Other Compensation for the year ended December 31, 2020 consisted of an auto allowance provided by Lion to Mr. Bedard.

(4)

All Other Compensation for the year ended December 31, 2020 consisted of an auto allowance provided by Lion to Mr. Poulin.

 

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Salaries and Annual Incentive Bonuses

Annual base salaries are intended to provide a fixed component of compensation to Lion’s Named Executive Officers, reflecting their skill sets, experience, roles and responsibilities. Base salaries for Lion’s Named Executive Officers have generally been set at levels deemed necessary to attract and retain individuals with superior talent. Lion intends for any adjustments to base salaries to be determined annually and may increase base salaries based on factors such as the Named Executive Officer’s success in meeting or exceeding individual objectives and an assessment of the competitiveness of the then-current compensation. Additionally, Lion may choose to adjust base salaries as warranted throughout the year to reflect promotions or other changes in the scope or breadth of a Named Executive Officer’s role or responsibilities, as well as to maintain market competitiveness.

In accordance with the terms of their respective employment agreements, certain of Lion’s Named Executive Officers and other executive officers are eligible to receive discretionary annual bonuses based on individual performance, company performance or otherwise as may be determined by Lion’s Board from time to time.

Equity Incentive Awards

Equity-based incentive awards granted to Named Executive Officers are designed to align Lion’s interests and those of its shareholders with those of its employees, including its Named Executive Officers. As of the date hereof, stock option awards were the only form of equity awards Lion has granted to any of its Named Executive Officers. Lion has historically used stock options as an incentive for long-term compensation to its Named Executive Officers because stock options allow its Named Executive Officers to profit from this form of equity compensation only if Lion’s share price increases relative to the stock option’s exercise price, which exercise price is set by Lion’s Board based on an amount no lower than the fair market value of Lion Common Shares on the date of grant. Vesting of the stock options is generally tied to each Named Executive Officer’s continuous service to serve as an additional retention measure. Lion may grant equity awards at such times as the board of directors determines appropriate. Lion’s Named Executive Officers executives generally are awarded an initial grant of stock options in connection with their commencement of employment with Lion. Additional grants have historically occurred and may in the future periodically occur in order to specifically incentivize executives with respect to achieving certain corporate goals or to reward Named Executive Officers for exceptional performance.

Prior to the Business Combination, Lion granted all stock options pursuant to its Legacy Plan. Following completion of the Business Combination, Lion will grant equity incentive awards under the Omnibus Plan and there will be no more grants under the Legacy Plan. The terms of Lion’s equity plans are described in the section entitled “—Equity Incentive Plans.”

All options have been granted with an exercise price per share that is no less than the fair market value of Lion Common Shares on the date of grant of such award. Lion’s stock option awards generally vest within four years and may be subject to acceleration of vesting and exercisability under certain termination and change in control events. For more information about the outstanding equity awards at December 31, 2020, see the section entitled “—Outstanding Equity Awards at December 31, 2020.”

 

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Other Benefits

The Named Executive Officers are eligible to participate in benefits available generally to salaried employees, including benefits under Lion’s health and welfare plans and arrangements, and vacation pay or other benefits under Lion’s medical insurance plan. Each of Marc Bedard and Yannick Poulin is also entitled to an annual car allowance.

Agreements with Lion’s Named Executive Officers and Potential Payments Upon Termination

Marc Bedard. In May 2015, Marc Bedard entered into an employment agreement with Lion. Mr. Bedard’s employment with Lion will continue until terminated in accordance with the terms of the employment agreement. Pursuant to the employment agreement, Mr. Bedard is entitled to receive an annual base salary which is adjusted on a yearly basis in accordance with the terms of the employment agreement and other relevant criteria determined by Lion’s Board. For the year ended December 31, 2020, Mr. Bedard’s base salary was approximately $215,991 (approximately C$275,000). Pursuant to the employment agreement, Mr. Bedard is eligible to receive an annual performance bonus based on Lion’s earnings before interest, taxes, depreciation and amortization (EBITDA), subject to a maximum which was set at approximately $314,169 (approximately C$400,000) for the year ended December 31, 2015, as adjusted on a yearly basis based on the consumer price index. For the year ended December 31, 2020, Mr. Bedard did not receive a performance bonus. The employment agreement provides Mr. Bedard with potential severance benefits if his employment with Lion is terminated for any reason other than (i) death, (ii) insolvency or bankruptcy, (iii) permanent or long-term incapacity or disability, (iv) for cause or (v) Mr. Bedard voluntary resignation or his retirement, in a maximum amount equivalent to 24 months of its then current annual base salary, paid in lump sum. Under his employment agreement, Mr. Bedard is subject to non-competition obligations during and for two years following his termination of employment, is subject to restrictions on soliciting Lion’s employees during and for three years following his termination of employment, and is subject to confidentiality and intellectual property assignment covenants. This description of the employment agreement between Marc Bedard and Lion is a summary of the material features of such agreement. This summary is qualified in its entirety by reference to the employment agreement, which is filed as Exhibit 10.6 to the registration statement of which this prospectus is a part.

Nicolas Brunet. On December 11, 2019, Nicolas Brunet entered into an employment agreement with Lion, to serve as Executive Vice-President and Chief Financial Officer of Lion. Mr. Brunet’s employment with Lion will continue until terminated in accordance with the terms of the employment agreement. Pursuant to the employment agreement, Mr. Brunet’s base salary is approximately $196,356 (approximately C$250,000). Pursuant to the employment agreement, Mr. Brunet is eligible to receive an annual performance bonus equivalent to up to 50% of his base salary, upon terms to be agreed with Lion. The employment agreement provides Mr. Brunet with potential severance benefits if his employment with Lion is terminated without cause, in a maximum amount equivalent to 12 months of its then current annual base salary, paid in lump sum. provisions. Under his employment agreement, Mr. Brunet is subject to restrictions on soliciting Lion’s employees during and following his termination of employment, and is subject to confidentiality and intellectual property assignment covenants. This description of the employment agreement between Nicolas and Lion is a summary of the material features of such agreement. This summary is qualified in its entirety by reference to the employment agreement, which is filed as Exhibit 10.7 to the registration statement of which this prospectus is a part.

Yannick Poulin. On March 14, 2016, Yannick Poulin entered into an employment agreement with Lion, to serve as Chief Operating Officer of Lion. Mr. Poulin’s employment with Lion will continue until terminated in accordance with the terms of the employment agreement. For the year ended December 31, 2020, Mr. Poulin’s base salary was $157,085 (approximately C$200,000), and Mr. Poulin was not eligible to receive an annual bonus. Upon a termination of Mr. Poulin’s employment without cause, any severance payments or benefits to be provided to Mr. Poulin will be determined in accordance with applicable law. On September 13, 2017, Mr. Poulin entered into a confidentiality, non-competition and non-solicitation agreement with Lion pursuant to which Mr. Poulin is subject to non-competition obligations during and for one year following his termination of employment, is subject to restrictions on soliciting Lion’s employees during and following his termination of employment, and is subject to confidentiality and intellectual property assignment covenants. This description of the employment agreement and the confidentiality, non-compete and non-solicitation agreement between Yannick Poulin and Lion is a summary of the material features of such agreements. This summary is qualified in its entirety by reference to the employment agreement and the confidentiality, non-compete and non-solicitation agreement, which are filed respectively as Exhibit 10.8 and Exhibit 10.11 to the registration statement of which this prospectus is a part.

 

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During the fiscal year ending December 31, 2021, Lion expects to conduct a review of the terms and conditions of the current employment agreements and in connection thereto may, to the extent necessary, enter into new employment agreements with the Named Executive Officers, which agreements will replace, effective as of the time they are entered into, the current employment agreements for the Named Executive Officers described herein. Such review will form part of a broader process pursuant to which Lion expects to retain an independent consulting firm to provide services to review compensation matters and, among other things, support Lion in establishing a peer comparator group of public companies with similar attributes to Lion for the purpose of benchmarking its compensation policies and plans, setting a compensation program for Named Executive Officers for the year ending December 31, 2021, and designing a compensation structure for non-employee directors.

Outstanding Equity Awards at December 31, 2020

The following table provides certain information regarding the outstanding equity awards granted to Lion’s Named Executive Officers that remain outstanding as of December 31, 2020. The figures included in the table below reflect the information available as of the date hereof and do not reflect the completion of the Pre-Closing Reorganization and Closing of the Business Combination. All awards were granted pursuant to the Legacy Plan. For more information about the Legacy Plan, see the section entitled “—Equity Incentive Plans—Legacy Plan.”

 

                   Option Awards(1)(2)  

Name and Principal Position

   Grant Date      Initial Vesting
Date(3)
     Number of
Lion Common
Shares
underlying
unexercised
options (#)
exercisable(4)
     Number of
Lion Common
Shares
underlying
unexercised
options (#)
unexercisable(4)
     Option
exercise price
($)(4)
    Option Expiration
Date
 

Marc Bedard

                

CEO—Founder

    
November 1,
2017
 
 
    
November 1,
2018
 
 
     643,290        214,430      $ 3.0273     (3)      November 1, 2027  
     June 14, 2019        June 14, 2020        19,069        57,207      $ 3.0273     (3)      June 14, 2029  

Nicolas Brunet

                

Executive Vice-President and Chief Financial Officer

    
December 26,
2019
 
 
    
December 26,
2020
 
 
     155,666        466,998      $ 3.0273     (3)      December 26, 2029  

Yannick Poulin

                

Chief Operating Officer

    
November 1,
2017
 
 
    
November 1,
2018
 
 
     107,215        35,738      $ 3.0273     (3)      November 1, 2027  
     June 14, 2019        June 14, 2020        3,178        9,535      $ 3.0273     (3)      June 14, 2029  

 

(1)

All of the awards in this table were granted under the Legacy Plan, the terms of which are described below under “—Equity Incentive Plans—Legacy Plan.”

(2)

All of the option awards listed in the table were granted with an exercise price per share that is no less than the fair market value of Lion Common Shares on the date of grant of such award, as determined in good faith by Lion’s Board.

(3)

Option exercise price converted from C$3.8544 to US$ using the daily average exchange rate published by the Bank of Canada on December 31, 2020, being 0.7854.

(4)

Following the completion of the Pre-Closing Reorganization, (i) Marc Bedard holds options entitling him to purchase, subject to any vesting conditions, 3,856,375 Lion Common Shares at an option exercise price per Lion Common Share of $0.7332, (ii) Nicolas Brunet holds options entitling him to purchase, subject to any vesting conditions, 2,570,917 Lion Common Shares at an option exercise price per Lion Common Share of $0.7332, and (iii) Yannick Poulin holds options entitling him to purchase, subject to any vesting conditions, 642,728 Lion Common Shares at an option exercise price per Lion Common Share of $0.7332.

Lion may, on an annual basis or otherwise, grant additional equity awards to its executive officers pursuant to its Omnibus Plan, the terms of which are described under the section entitled “—Equity Incentive Plans—Omnibus Plan.”

 

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Equity Incentive Plans

The principal features of Lion’s equity incentive plans are summarized below. These summaries are qualified in their entirety by reference to the actual text of the plans evidencing the applicable awards, which are filed as exhibits to the registration statement this prospectus is a part, as well as each grant agreement evidencing the applicable awards.

Legacy Plan

General. Lion originally adopted the Legacy Plan in November 2017. Lion has subsequently amended and restated its Legacy Plan in December 2019. Upon Closing, Lion made certain amendments to the Legacy Plan to take into account, among other things, the fact that the Lion Common Shares are traded on the NYSE and the TSX. Following Closing and upon the adoption of Lion’s Omnibus Plan, no further awards will be granted under the Legacy Plan; however, awards outstanding under the Legacy Plan will continue in full effect in accordance with their existing terms. The Legacy Plan provides for the grant of incentive stock options to directors, executive officers, employees or consultants of Lion. The following discussion is qualified in its entirety by the full text of the Legacy Plan. No additional options will be granted under the Legacy Plan and each grant agreement evidencing the applicable awards.

Share Reserve. No further grants will be made under the Legacy Plan following closing of the Business Combination and upon the adoption of Lion’s Omnibus Plan. The maximum number of Lion Common Shares reserved for issuance under the Legacy Plan is 12,854,615. As of December 31, 2020, options to purchase 10,375,446 Lion Common Shares (assuming completion of the Pre-Closing Reorganization), at exercise prices ranging from $0.7332 (C$0.9335) to $5.66 per share were outstanding under the Legacy Plan.

Administration. Lion’s Board administers the Legacy Plan. Lion’s Board has full authority and discretion to administer and interpret the Legacy Plan and to prescribe such rules and regulations and make such other determinations as it deems necessary or useful for the administration of Legacy Plan. Lion’s Board may generally amend, suspend or terminate the Legacy Plan, or amend the terms and conditions of outstanding options thereunder, provided that such amendment, suspension or termination (i) complies with applicable law and with the prior approval, if required, of the shareholders, the NYSE or any other regulatory body having authority over Lion, and (ii) does not adversely alter or impair any option previously granted thereunder.

Insider Participation Limit. The aggregate number of Lion Common Shares issuable to insiders and their associates at any time under the Omnibus Plan, the Legacy Plan or any other proposed or established share compensation arrangement, will not exceed 10% of the issued and outstanding Lion Common Shares, and the aggregate number of Lion Common Shares issued to insiders and their associates under the Omnibus Plan or any other proposed or established share compensation arrangement within any one-year period will not exceed 10% of the issued and outstanding Lion Common Shares.

Insider Participation Limit. The aggregate number of Lion Common Shares issuable to insiders and their associates at any time under the Legacy Plan, the Omnibus Plan or any other proposed or established share compensation arrangement, will not exceed 10% of the issued and outstanding Lion Common Shares, and the aggregate number of Lion Common Shares issued to insiders and their associates under the Legacy Plan or any other proposed or established share compensation arrangement within any one-year period will not exceed 10% of the issued and outstanding Lion Common Shares.

Options. The exercise price of options granted under the Legacy Plan is established by Lion’s Board at the time of grant, but must be equal to or exceed the fair market value of a common share on the date of grant date. Options expire at the time determined at the time of grant, but in no event more than ten years after they are granted, and generally expire earlier if the optionholder’s service terminates.

Capital Reorganization. In the event of any reorganization, change in the number of issued and outstanding Lion Common Shares by reason of any stock dividend, stock split, recapitalization, merger, or exchange of shares or other similar corporate change, an equitable adjustment will be made by Lion’s Board in the number and/or kind of shares subject to outstanding options under the Legacy Plan and in the exercise price of such outstanding options.

 

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Trigger Events; Change of Control. The Legacy Plan provides that certain events, including termination for cause, resignation, termination other than for cause, retirement, death or disability, may trigger forfeiture or reduce the vesting period, where applicable, of outstanding stock options. In the event of a change of control, Lion’s Board will have the right to accelerate the vesting of any unvested options in connection with such change of control. Except as otherwise set forth in any document evidencing a grant of any option, in the event of any change of control transaction in which there is an acquiring or surviving entity, Lion’s Board may provide for substitute or replacement options of similar value from, or the assumption of outstanding options by, the acquiring or surviving entity. Lion’s Board will be entitled to, in its sole discretion, terminate any or all stock option outstanding, provided that any such stock option that have vested will remain exercisable until consummation of such change of control.

Termination; Amendment. Lion’s Board has the power and authority to amend, suspend or terminate the Legacy Plan, in whole or in part, or amend the terms and conditions of outstanding options, provided that such amendment, suspension or termination (i) complies with applicable law and with the prior approval, if required, of the shareholders, the NYSE or any other regulatory body having authority over Lion, and (ii) does not adversely alter or impair any option previously granted thereunder (provided that Lion’s Board may at its discretion accelerate the vesting of any option granted thereunder regardless of any adverse or potentially adverse tax consequences resulting from such acceleration).

Lion’s Board will be required to obtain shareholder approval to make the following amendments:

 

   

any increase in the maximum number of Lion Common Shares issuable pursuant to the Legacy Plan;

 

   

except for adjustments permitted by the Legacy Plan, any reduction in the exercise price of an option or any cancellation of an option and replacement of such option with an option with a lower exercise price, to the extent such reduction or replacement benefits an insider;

 

   

any extension of the term of an option beyond its original expiry date, to the extent such amendment benefits an insider;

 

   

any increase in the maximum number of Lion Common Shares that may be issuable to insiders pursuant to the insider participation limit; and

 

   

any amendment to the Legacy Plan’s amendment provisions.

In the event that Lion’s Board terminates the Legacy Plan, all options granted thereunder will become fully exercisable by the optionees, unless Lion’s Board, in its sole discretion, determines otherwise.

Omnibus Plan

General. In connection with the Business Combination, Lion adopted the Omnibus Plan to provide different types of equity-based incentives to be granted to certain of its directors, executive officers, employees and consultant, including options, RSUs, PSUs and DSUs, collectively referred to as “awards.” Lion’s Board is responsible for administering the Omnibus Plan and may delegate its responsibilities thereunder to a committee thereof or to a plan administrator. The following discussion is qualified in its entirety by the full text of the Omnibus Plan and each grant agreement evidencing the applicable awards.

Lion’s Board is entitled to, in its sole discretion, from time to time, designate the directors, executive officers, employees and consultants to whom awards will be granted and determine, if applicable, the number of Lion Common Shares to be covered by such awards and the terms and conditions of such awards.

Shares Available Under the Plan. The number of Lion Common Shares reserved and available for issuance under the Omnibus Plan is 8,474,574 Lion Common Shares. On January 1 of each calendar year occurring prior to the expiration of the Omnibus Plan, the total number of Lion Common Shares reserved and available for issuance under the Omnibus Plan will increase by a sufficient number such that the number of Lion Common Shares available for issuance under the Omnibus Plan and the Legacy Plan (including Lion Common Shares that may be issued upon vesting, settlement, or exercise of awards then-outstanding under the Omnibus Plan and the Legacy Plan) will equal 10% of the aggregate number of Lion Common Shares issued and outstanding on such date (on a

 

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non-diluted basis). Based on the number of Lion Common Shares issued and outstanding as of May 14, 2021, 10% of the aggregate number of Lion Common Shares that were issued and outstanding after the completion of the Pre-Closing Reorganization and Closing represent 18,849,760 Lion Common Shares.

If an outstanding award under the Legacy Plan or the Omnibus Plan expires or is terminated, surrendered or cancelled for any reason without having been exercised or settled in full, or if Lion Common Shares acquired pursuant to an award subject to forfeiture are forfeited, the Lion Common Shares covered by such award, if any, will again be available for issuance under the Omnibus Plan. Lion Common Shares will not be deemed to have been issued pursuant to the Omnibus Plan with respect to any portion of an award that is settled in cash.

Subject to the insider participation limit set out below and the overall shares available under the Omnibus Plan described above, the Omnibus Plan does not limit the maximum number of Common Shares that any one person or company is entitled to receive under the Omnibus Plan.

Insider Participation Limit. The aggregate number of Lion Common Shares issuable to insiders and their associates at any time under the Omnibus Plan, the Legacy Plan or any other proposed or established share compensation arrangement, will not exceed 10% of the issued and outstanding Lion Common Shares, and the aggregate number of Lion Common Shares issued to insiders and their associates under the Omnibus Plan or any other proposed or established share compensation arrangement within any one-year period will not exceed 10% of the issued and outstanding Lion Common Shares.

Non-Employee Director Participation Limit. In each calendar year during any part of which the Omnibus Plan is in effect, the aggregate value of Lion Common Shares issuable to non-employee directors will not exceed $500,000, provided that in certain circumstances in respect of a given calendar year, such as when a non-employee director (i) first commences service on Lion’s Board, (ii) serves on a special committee of Lion’s Board or (iii) serves as lead independent director or chairman of Lion’s Board, such non-employee directors may receive additional awards subject to certain restrictions contained in the Omnibus Plan.

Options. All options granted under the Omnibus Plan will have an exercise price determined and approved by Lion’s Board at the time of grant, which will not be less than the market price of the Lion Common Shares on the date of the grant. For purposes of the Omnibus Plan, the market price of the Lion Common Shares as of a given date will generally be the volume weighted average trading price on the NYSE for the five trading days before such date.

Subject to any vesting conditions set forth in a participant’s grant agreement, an option will be exercisable during a period established by Lion’s Board which will not be more than ten years from the grant of the option. The Omnibus Plan will provide that the exercise period will automatically be extended if the date on which it is scheduled to terminate will fall during a blackout period. In such cases, the extended exercise period will terminate ten business days after the last day of the blackout period. Lion’s Board will be entitled, in its discretion, to provide for procedures to allow a participant to elect to undertake a “cashless exercise” or a “net exercise” in respect of options.

Share Units. Lion’s Board is authorized to grant RSUs, PSUs and DSUs evidencing the right to receive Lion Common Shares, cash based on the value of a Lion Common Share or a combination thereof at some future time to eligible persons under the Omnibus Plan. Although DSUs may be available for grant to directors, executive officers, employees and consultants, Lion currently expects to only grants DSUs as a form of non-executive director compensation.

RSUs generally become vested, if at all, following a period of continuous employment. PSUs are similar to RSUs, but their vesting is, in whole or in part, conditioned on the attainment of specified performance metrics as may be determined by Lion’s Board. The terms and conditions of grants of RSUs and PSUs, including the quantity, type of award, grant date, vesting conditions, vesting periods, settlement date and other terms and conditions with respect to these awards will be set out in the participant’s grant agreement.

Subject to the achievement of the applicable vesting conditions, the settlement of an RSU or PSU will generally occur on or as soon as reasonably practicable following the vesting date. The settlement of a DSU will generally occur following a pre-established deferral period, which may be upon or following the participant ceasing to be a director, executive officer, employee or consultant of Lion, subject to satisfaction of any applicable conditions.

 

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Dividend Share Units. If, as the case may be, dividends (other than share dividends) are paid on Lion Common Shares, additional share unit equivalents may be automatically granted to each participant who holds RSUs, PSUs or DSUs on the record date for such dividends. If the Board provides for an award of RSUs, PSUs or DSUs to receive dividend share units, such units will be subject to the same vesting or other conditions applicable to the underlying RSUs, PSUs or DSUs, as applicable.

Recapitalization. In the event of any change in the capital structure or any other change affecting the Lion Common Shares, or any change in the business of Lion or other corporate transaction or event that would be considered an “equity restructuring” within the meaning of IFRS 2 and, in each case, that would result in an additional compensation expense to Lion pursuant to the provisions of IFRS 2, Lion’s Board will equitably adjust the aggregate number or kind of shares that may be delivered under the Omnibus Plan, the number or kind of shares or other property (including cash) subject to an award, and the terms and conditions of awards.

In the event of any other change in the capital structure or business of Lion or other corporate transaction, Lion’s Board will be entitled, in its sole discretion, to make equitable adjustments to be made in such circumstances in order to maintain the economic rights of the participants in respect of awards under the Omnibus Plan.

Change of Control. In the event of a change of control, or other changes in Lion or the outstanding Lion Common Shares by reason of a recapitalization, reorganization, merger, consolidation, combination, exchange or other relevant change, Lion’s Board will have the power, in its sole discretion, to modify the terms of the Omnibus Plan and/or the awards granted thereunder, including to cause the power to accelerate vesting, waive any forfeiture conditions or otherwise modify or adjust any other condition or limitation regarding an award. Lion’s Board will be entitled, at its discretion, to accelerate the time of exercisability of an award, redeem in whole or in part outstanding awards, cancel awards that remain subject to a restricted period, and make such adjustments to awards then outstanding as Lion’s Board deems appropriate to reflect the change of control or other such event, including providing for the substitution, assumption, or continuation of awards by the successor company or a parent or subsidiary thereof.

Trigger Events. The Omnibus Plan provides that, except as otherwise determined by the Board, upon the termination for cause of a participant, any awards granted to such participant, whether vested or unvested, will automatically terminate. The Omnibus Plan further provides that upon a participant’s termination of employment without cause, or upon the resignation or retirement of a participant, Lion’s Board may determine, in its sole discretion, that (i) a portion of the PSUs, RSUs and/or DSUs granted to such participant will immediately vest, (ii) all unvested options will be forfeited, and (iii) vested options will remain exercisable until the earlier of 90 days (30 days for a resignation or retirement) after the termination date or the expiration date of the options. Finally, upon a participant’s termination of employment as a result of death or disability, except as otherwise determined by the Board, (i) all rights, title and interest in the options granted to such participant which are unvested will continue to vest in accordance with the terms of the Omnibus Plan and the participant’s grant agreement, for a period of up to two years, (ii) vested options (including such options that vest during the period following the termination date) will remain exercisable until the earlier of (A) two years after the termination date, and (B) the expiry date of the options, and (iii) a portion of PSUs, RSUs and/or DSUs granted to the participant will immediately vest, as determined by Lion’s Board.

Amendments and Termination. The Omnibus Plan terminates in accordance with its terms on the 10th anniversary of the date it was adopted by Lion’s Board. Lion’s Board is entitled to suspend or terminate the Omnibus Plan at any time, or from time to time amend or revise the terms of the Omnibus Plan or of any granted award, provided that no such suspension, termination, amendment or revision will be made, (i) except in compliance with applicable law and with the prior approval, if required, of the shareholders, the NYSE or any other regulatory body having authority over Lion, and (ii) if it would adversely alter or impair the rights of any participant, without the consent of the participant except as permitted by the terms of the Omnibus Plan.

Lion’s Board will be required to obtain shareholder approval to make the following amendments:

 

   

any increase in the maximum number of Lion Common Shares issuable pursuant to the Omnibus Plan, including any amendment to the maximum number of Lion Common Shares expressed as a fixed percentage;

 

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except for adjustments permitted by the Omnibus Plan, any reduction in the exercise price of an option or any cancellation of an option and replacement of such option with an option with a lower exercise price, to the extent such reduction or replacement benefits an insider;

 

   

any extension of the term of an award beyond its original expiry date, to the extent such amendment benefits an insider;

 

   

any increase in the maximum number of Lion Common Shares that may be issuable to insiders pursuant to the insider participation limit;

 

   

any amendment which increases the maximum number of Lion Common Shares that may be issuable upon exercises of options issued under the Omnibus Plan as incentive stock options intended to meet the requirements of Section 422 of the U.S. Internal Revenue Code of 1986 (the “Code”);

 

   

any amendment to the Omnibus Plan’s amendment provisions; and

 

   

any amendment which modifies the definition of eligible participant used for purposes of determining eligibility for the grant of any award under the Omnibus Plan.

Except as specifically provided in a grant agreement approved by Lion’s Board, awards granted under the Omnibus Plan will generally not be transferable other than by will or the laws of succession.

Director Compensation Table

 

Name and Principal Position

   Fiscal Year
ended Dec. 31,
     Fees Earned
or Paid in
Cash ($)
     Stock Awards
($)
     Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
     Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)
     All Other
Compensation
($)
     Total
($)
 

Sheila C. Bair
Director

     2020        25,000        —          115,203 (1)      —          —          —          140,203 (2) 

 

(1)

On September 9, 2020, Sheila C. Bair was granted options entitling her to purchase, subject to any vesting conditions, 10,000 Lion Common Share at an option exercise price per Lion Common Share of $23.36. Following completion of the Pre-Closing Reorganization, Sheila C. Bair holds options entitling her to purchase, subject to any vesting conditions, 41,289 Lion Common Shares at an option exercise price per Lion Common Shares of $5.66.

(2)

In addition to the compensation paid by Lion to Sheila C. Bair as compensation for her services as a director of Lion, Power Sustainable Capital Inc. (“Power Sustainable”), the parent company of Power Energy, agreed to grant Ms. Bair stock appreciation rights (“SARs”) of Power Sustainable relating to Power Energy’s Lion Common Shares. Pursuant to such SARs, Ms. Bair will be entitled, on December 15, 2025 and in proportion to the then applicable number of vested SARs, to receive from Power Sustainable a cash amount to be determined based on the increase in the fair market value attributable to the interests held by Power Energy in Lion between January 1, 2020 and December 15, 2025. The SARs will vest in five equal tranches over a five year period on January 1 of each year, starting on January 1, 2021, subject to Ms. Bair’s continued directorship with Lion. Ms. Bair is not an employee or a director of, or otherwise entitled to receive any consultant or similar compensation from, Power Sustainable or any of its affiliates, including Power Energy. Lion is not party to this arrangement between Ms. Bair and Power Sustainable nor is Lion responsible for any payment in connection with such SARs.

Historically, Lion has not had a formal compensation policy with respect to service on Lion’s Board. Lion’s board of directors intends to adopt a formal director compensation policy for non-employee directors following the completion of the Business Combination. During the year ended December 31, 2020, no non-employee director of Lion received any compensation or perquisite for his or her services as a member of the board of directors of Lion, except for Sheila C. Bair, who received 10,000 stock options pursuant to the Legacy Plan and additional compensation paid in cash in the amount of $25,000.

 

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DESCRIPTION OF SHARE CAPITAL OF LION

Lion was incorporated on July 28, 2008 under the Business Corporations Act (Québec) under the name “Lion Buses Inc.” On November 24, 2020, Lion changed its name to The Lion Electric Company. Immediately prior to the Effective Time (as defined below), Lion implemented the Pre-Closing Reorganization in order to, among other things, effective as of the Effective Time, (i) amend and restate the articles of Lion in order to, notably, amend Lion’s share capital on terms described below and (ii) adopt new bylaws.

The following description of Lion’s share capital and certain provisions of its bylaws is a summary and does not purport to be complete and is qualified in its entirety by reference to the complete texts of such documents. You should refer to and read such documents carefully.

General

Under the articles of Lion, the authorized share capital of Lion consists of: (i) an unlimited number of Lion Common Shares and (ii) an unlimited number of “blank-cheque” preferred shares (“Lion Preferred Shares”) issuable in series.

Lion Common Shares

Voting Rights

Holders of Lion Common Shares are entitled to one vote for each share held at any meeting of the shareholders of Lion, other than meetings at which only the holders of a particular class or series of shares are entitled to vote due to provisions of the Business Corporations Act (Québec) or the specific attributes of such class or series.

Dividends

Subject to the prior rights of the holders of Lion Preferred Shares as to dividends, the holders of Lion Common Shares are entitled to receive dividends as and when declared by Lion’s Board out of the funds that are available for the payment of dividends.

Liquidation

Subject to the prior payment to the holders of Lion Preferred Shares, in the event of Lion’s voluntary or involuntary liquidation, dissolution or winding-up or other distribution of Lion’s property and assets among its shareholders for the purposes of winding up Lion’s affairs, the holders of Lion Common Shares will be entitled to share pro rata in the distribution of the balance of Lion’s remaining property and assets.

Rights and Preferences

The holders of Lion Common Shares do not have preemptive, conversion rights or other subscription rights attaching to the Lion Common Shares. There are no redemption or sinking fund provisions applicable to Lion Common Shares. There is no provision in the articles of Lion requiring the holders of Lion Common Shares to contribute additional capital or permitting or restricting the issuance of additional securities or any other material restrictions. The rights, preferences and privileges of the holders of Lion Common Shares are subject to and may be adversely affected by, the rights of the holders of any series of Lion Preferred Shares that Lion’s Board may designate in the future.

Lion Preferred Shares

Pursuant to the articles of Lion, Lion’s Board is authorized to issue, without shareholder approval, an unlimited number of Lion Preferred Shares, issuable in one or more series, and, subject to the provisions of the Business Corporations Act (Québec), having such designations, rights, privileges, restrictions and conditions, including dividend and voting rights, as Lion’s Board may determine, and such rights and privileges, including dividend and voting rights, may be superior to those of the Lion Common Shares. Except as otherwise provided by law or in accordance with any voting rights which may from time to time be attached to any series of Lion Preferred Shares, the holder of Lion Preferred Shares as a class is not entitled as such to receive notice of, to attend or to vote at any meeting of the shareholders of Lion.

 

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The issuance of Lion Preferred Shares, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of Lion and might adversely affect the market price of the Lion Common Shares and the voting and other rights of the holders of Lion Common Shares.

Options

As of the date hereof, options to purchase 10,375,186 Lion Common Shares, at exercise prices ranging from C$0.94 to $5.66 per share were outstanding under the Legacy Plan. For more information about the terms of Lion’s equity incentive plans, see the section entitled “Executive Compensation—Equity Incentive Plans.”

Common Equity Warrant Issued to Warrantholder

In connection with entering into the MPA, Lion issued on July 1, 2020 a warrant to purchase Lion Common Shares (the “Specified Customer Warrant”) to Amazon.com NV Investment Holdings LLC (the “Warrantholder”) which vests, subject to the terms and conditions contained therein, based on the aggregate amount of spending by the Specified Customer and its affiliates on Lion products or services. At the election of the Warrantholder, any vested portion of the Specified Customer Warrant can be exercised either on a cash basis by the payment of the applicable exercise price or on a net issuance basis based on the in-the-money value of the Specified Customer Warrant. The exercise price of the Specified Customer Warrant corresponds to $5.66 per Lion Common Share and the Specified Customer Warrant will be, if and when fully vested, exercisable for 35,350,003 Lion Common Shares upon an exercise on a cash basis. Full vesting of the Specified Customer Warrant requires spending of at least $1.1 billion on Lion products or services over the term of the Specified Customer Warrant, subject to accelerated vesting upon the occurrence of certain events, including a change of control of Lion (as such term is defined in the Specified Customer Warrant) or a termination of the MPA by the Specified Customer for cause. Pursuant to the Specified Customer Warrant, if Lion or its shareholders propose to initiate a process to explore, or to accept any offer or enter into negotiations with respect to, a change of control of Lion (as defined in the Specified Customer Warrant), Lion must provide written notice thereof to the Warrantholder prior to entering into any definitive agreement or binding letter of intent with respect to any such proposed transaction, and the Warrantholder has the right to enter into non-exclusive, good faith negotiations with Lion and its shareholders in respect of any such proposed transaction.

As of March 31, 2021, (i) the vested portion of the Specified Customer Warrant is exercisable for a number of Lion Common Shares that represents approximately 2.7% of all Lion Common Shares issued and outstanding on a partially-diluted basis, and (ii) the Specified Customer Warrant would, if fully vested, represent approximately 15.8% of all Lion Common Shares issued and outstanding on a partially-diluted basis. The Specified Customer Warrant has a term of 8 years and the Warrantholder has customary registration and information rights. For more information about registration rights, see the section entitled “Description of Share Capital of Lion—Registration Rights.”

This description of the Specified Customer Warrant is a summary of the material features of the Specified Customer Warrant. This summary is qualified in its entirety by reference to the Specified Customer Warrant, which is filed as Exhibit 10.9 to the registration statement of which this prospectus is a part.

Lion Warrants

27,111,741 Lion Common Shares are issuable upon the exercise of outstanding Lion Warrants, at an exercise price of $11.50 per Lion Common Share. The Lion Warrants will become exercisable upon the later of (i) 30 days after the completion of the Business Combination and (ii) 12 months following the NGA IPO, and will expire five years after the completion of the Business Combination or earlier upon their redemption or liquidation. Once the Lion Warrants held by holders of Public Warrants become exercisable, Lion may redeem such Lion Warrants, in whole and not in part, for cash in accordance with, and subject to the terms of, the Warrant Agreement. Pursuant to the existing terms of the Private Placement Warrants and NGA Working Capital Warrants, the Lion Warrants resulting from the NGA Private Placement Warrants and the NGA Working Capital Warrants will be non-redeemable so long as they are held by the Sponsor or its permitted transferees. Further, in connection with the

 

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listing of the Lion Warrants on the TSX, in accordance with the TSX’s listing requirements in respect of warrants, Lion provided certain undertakings to the TSX to the effect that Lion will not exercise certain of its rights under the Warrant Agreement, including, notably, (i) lowering of the exercise price of the Lion Warrants and (ii) extending the duration of the Lion Warrants by delaying the expiration date thereof.

Important Provisions of Constating Documents

Advance Notice

The bylaws of Lion require that advance notice be given to Lion in circumstances where nominations of persons for election as a director are made by shareholders other than pursuant to a requisition of a meeting made pursuant to the provisions of the Business Corporations Act (Québec) or a shareholder proposal made pursuant to the provisions of the Business Corporations Act (Québec).

Among other things, the bylaws of Lion fix a deadline by which shareholders must submit a notice of director nominations to Lion prior to any annual or special meeting of shareholders where directors are to be elected and set forth the information that a shareholder must include in the notice for it to be valid.

The bylaws of Lion provide that in the case of an annual meeting of shareholders, notice must be given to Lion no less than 30 nor more than 60 days prior to the date of the annual meeting, provided, however, that in the event that the annual meeting is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of the annual meeting was made, notice may be given no later than the close of business on the 10th day following such public announcement. In the case of a special meeting of shareholders (which is not also an annual meeting), notice must be given to Lion no later than the close of business on the 15th day following the day on which the first public announcement of the date of the special meeting was made.

Choice of Forum

The bylaws of Lion provide that the courts of the Province of Québec and the appellate courts therefrom shall, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of Lion; (ii) any action or proceeding asserting a claim for breach of a fiduciary duty owed to Lion by any of its directors, officers or other employees; (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Business Corporations Act (Québec) or Lion’s articles or bylaws (as either may be amended from time to time); or (iv) any action or proceeding asserting a claim otherwise related to the affairs of Lion, provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act, the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. Lion’s bylaws further provide that unless Lion consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. It is possible that a court of law could rule that the choice of forum provision contained in Lion’s bylaws will be inapplicable or unenforceable if it is challenged in a proceeding or otherwise. For example, under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Registration Rights

Effective as of Closing, Lion entered into the Registration Rights Agreement pursuant to which, subject to the terms and conditions contained therein, each of PEC, 9368-2672 and the Warrantholder were granted certain rights with respect to the registration or qualification by prospectus in the United States and/or Canada of the sale of the Lion Common Shares held by them.

Pursuant to the Registration Rights Agreement, each of PEC, 9368-2672 and the Warrantholder will, for so long as it and its affiliates collectively hold at least 10% of the outstanding Lion Common Shares on a non-diluted basis and provided such Lion Common Shares are “Registrable Securities” as contemplated by the Registration Rights Agreement, be entitled to certain demand registration rights which will enable them to require Lion to file a registration statement and/or a Canadian prospectus and otherwise assist with underwritten public offerings of Lion Common Shares under the Securities Act and applicable Canadian securities laws, in accordance with the terms and

 

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conditions of the Registration Rights Agreement. Each of PEC, 9368-2672 and the Warrantholder are entitled to certain incidental registration rights in connection with demand registrations initiated by the other party to the Registration Rights Agreement, as well as to certain “piggy-back” registration rights in the event that Lion proposes to register securities as part of a public offering.

Lion is entitled to postpone or suspend a registration request for a period of up to 60 days in respect of a given registration request and up to 120 days in the aggregate in respect of multiple registration requests during any 12-month period where such registration request(s) would require it to make any adverse disclosure (as such term is defined in the Registration Rights Agreement). In addition, in connection with an underwritten offering, the number of securities to be registered thereunder may be limited, for marketing reasons, based on the opinion of the managing underwriter or underwriters for such offering.

All costs and expenses associated with any demand registration or “piggy-back” registration will be borne by Lion other than underwriting discounts, commissions and transfer taxes, if any, attributable to the sale of Lion Common Shares by the applicable selling shareholder. Lion will also be required to provide indemnification and contribution for the benefit of PEC, 9368-2672 and the Warrantholder and their respective affiliates and representatives in connection with any demand registration or “piggy-back” registration.

As a result of the lock-up restrictions contained in the Lion Lock-Up Agreements, in most circumstances, the demand and incidental registration rights granted pursuant to the Registration Rights Agreement will not be exercisable, unless a waiver of the applicable lock-up restrictions is obtained, during a period of 180 days after Closing.

The foregoing description of the Registration Rights Agreement is qualified in its entirety by reference to the full text of the form of Registration Rights Agreement, a copy of which is filed as Exhibit 4.3 to the registration statement of which this prospectus is a part.

Nomination Rights

Effective as of Closing, Lion entered into the Nomination Rights Agreement pursuant to which, subject to the terms and conditions contained therein, each of PEC and 9368-2672 were granted certain rights to nominate members of Lion’s Board (including, in certain cases, members of committees of Lion’s Board) of Lion for so long as it holds a requisite percentage of the total voting power of Lion.

Pursuant to the Nomination Rights Agreement, each of PEC and 9368-2672 will, for so long as it and its affiliates collectively hold at least 20% of the outstanding Lion Common Shares (on a non-diluted basis), be entitled to designate a number of director nominees equal to the product of (rounding to the nearest whole number) (i) the percentage of the outstanding Lion Common Shares held by it (on a non-diluted basis) multiplied by (ii) the size of Lion’s Board.

The foregoing rights of PEC and 9368-2672 to so designate director nominees will be submitted for approval of Lion’s shareholders at the first annual meeting of the shareholders of Lion to be held following the fifth anniversary of the date of the Nomination Rights Agreement, and at every fifth annual meeting of the shareholders of Lion shareholders thereafter. Failing approval by the shareholders of Lion, such nomination rights will become void and shall have no further force or effect.

Notwithstanding any shareholder approval of the nomination rights described above, 9368-2672 will, for so long as it and its affiliates collectively hold at least 5% of the outstanding Lion Common Shares (on a non-diluted basis), be entitled to designate (i) for so long as Marc Bedard serves as chief executive officer of Lion, one director nominee (in addition to Marc Bedard, who will be appointed to Lion’s Board for so long as he serves as chief executive officer thereof) and (ii) at any other time, Marc Bedard as a director nominee.

At least one of each of PEC and 9368-2672’s director nominees (other than Marc Bedard), must be an independent director as determined by the Nominating and Corporate Governance Committee, and all director nominees of PEC and 9368-2672 must also receive the favorable recommendation of the Nominating and Corporate Governance Committee, having regard to the characteristics, experience, skill set, independence and diversity desired by Lion’s Board. In the even that any of PEC or 9368-2672’s director nominees are disqualified for failing to satisfy the foregoing criteria, the affected shareholder shall be entitled to designate a replacement director nominee.

 

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The nomination rights contained in the Nomination Rights Agreement provide that PEC and 9368-2672, at the relevant time, will cast all votes to which they are entitled to elect directors designated in accordance with the terms and conditions of the Nomination Rights Agreement.

The Nomination Rights Agreement further provides that for so long as PEC has the right to designate a director nominee, it shall have the right to designate one of its director nominees as the Chairman of Lion’s Board. In the event that such designated director nominee is not an independent director, the remaining directors will select a lead independent director from amongst the independent directors of Lion’s Board.

Each of PEC and 9368-2672 under the Nomination Rights Agreement also have the right to appoint one member of each committee of Lion’s Board, except that neither Marc Bedard or 9368-2672 has the right to appoint any director to the Human Resources and Compensation Committee.

The foregoing description of the Nomination Rights Agreement is qualified in its entirety by reference to the full text of the form of Nomination Rights Agreement, a copy of which is filed as Exhibit 10.14 to the registration statement of which this prospectus is a part.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Investment by Power Energy Corporation

In connection with the initial investment made by Power Energy (a wholly-owned subsidiary of Power Sustainable Capital Inc.) in October 2017, Lion and Power Energy entered into a subscription agreement, and Lion, Power Energy and certain selling shareholders entered into a share purchase agreement (these agreements, together with other ancillary documentation entered into in connection thereto, the “PEC Transaction Agreements”). The PEC Transaction Agreements provided for, among other things, the terms and conditions of Power Energy’s subscription and acquisition of Lion Common Shares, certain pre-closing reorganization transactions as well as certain additional subscription and purchase rights in favour of Power Energy, which terminated effective as of closing of the Business Combination. Certain representations and warranties and indemnities provided by Lion in favour of Power Energy under the PEC Transaction Agreements remain in force following closing of the Business Combination.

PIPE Financing

In connection with the PIPE Financing, Lion and NGA entered into a Subscription Agreement with Power Energy pursuant to which Power Energy purchased, subject to the terms and conditions contained therein, a total of 1,662,500 Lion Common Shares at a purchase price of $10.00 per share for a total purchase price of $16,625,000. In addition, Lion and NGA entered into Subscription Agreements with certain of Lion’s and NGA’s respective shareholders, directors and/or officers pursuant to which such subscribers purchased, directly or indirectly, subject to the terms and conditions contained therein, Lion Common Shares at a purchase price of $10.00 per share. Such Lion Common Shares were acquired upon the same terms and conditions as the Lion Common Shares acquired by all other subscribers in the PIPE Financing. The PIPE Financing closed concurrently with the Business Combination.

Stockholder Support and Lock-Up Agreement

In connection with the Business Combination Agreement, NGA, Lion, and the Sponsor entered into the Stockholder Support and Lock-Up Agreement pursuant to which the Sponsor agreed to vote all of its shares of NGA Common Stock in favor of the approval and adoption of the Business Combination. Additionally, the Sponsor agreed, among other things, not to (a) transfer any of its shares of NGA Common Stock or NGA Warrants, or any Lion Common Shares or Assumed Warrants acquired in exchange therefor pursuant to the Business Combination, for certain periods of time as set forth in the Stockholder Support and Lock-Up Agreement, subject to certain customary exceptions or (b) enter into any voting arrangement that is inconsistent with the commitment under the Stockholder Support and Lock-Up Agreement to vote in favor of the approval and adoption of the Business Combination and Business Combination Agreement. In addition, pursuant to the Stockholder Support and Lock-Up Agreement, Lion has agreed, in respect of any meeting of shareholders at which directors of Lion’s Board are to be elected, prior to and including any annual general meeting of Lion to be held in the calendar year 2022, to use at least the same efforts to cause the election of Ian Robertson and Chris Jarratt as it uses to cause the election of the other nominees of Lion’s Board.

Lion Lock-Up Agreements

In connection with the Business Combination Agreement, Lion and the existing shareholders of Lion entered into the Lion Lock-Up Agreements pursuant to which such shareholders agreed not to transfer Lion Common Shares for 180 days following the Effective Date, subject to customary exceptions and the terms therein. Among other exceptions on the restriction to transfer Lion Common Shares for 180 days, the lock-up agreement entered into by each of Power Energy, XPND Croissance Fund L.P., 9368-2672 Québec Inc. and 9231-9979 Québec Inc. provides that any transfer of Lion Common Shares made pursuant to the PEC Option Agreement (as defined below) is a permitted transfer thereunder. For more information about the PEC Option Agreement, see the section entitled “Beneficial Ownership of Securities—PEC Option Agreement.” In addition, the lock-up agreement entered into by 9368-2672 provides that 9368-2672 will be entitled to, during the restricted period of 180 days after the Effective Date applicable under the lock-up, transfer up to 1,000,000 Lion Common Shares in the aggregate, representing less than four percent (4%) of the total number of Lion Common Shares held as of the date of execution of the lock-up agreement by 9368-2672, in open market transactions and/or pursuant to private agreements.

 

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Nomination Rights Agreement

Effective as of Closing, Lion entered into the Nomination Rights Agreement pursuant to which, subject to the terms and conditions contained therein, each of PEC and 9368-2672 were granted certain rights to nominate members of Lion’s Board (including, in certain cases, members of committees of Lion’s Board) of Lion for so long as it holds a requisite percentage of the total voting power of Lion.

For more information about the Nomination Rights Agreement, see the section entitled “Description of Share Capital of Lion—Nomination Rights.”

Registration Rights Agreement

Effective as of Closing, Lion entered into the Registration Rights Agreement pursuant to which, subject to the terms and conditions contained therein, each of PEC, 9368-2672 and the Warrantholder were granted certain rights with respect to the registration or qualification by prospectus in the United States and/or Canada of the sale of the Lion Common Shares held by them.

For more information about the Registration Rights Agreement, see the section entitled “Description of Share Capital of Lion—Registration Rights.”

Employment Arrangements

Lion has entered into employment agreements with certain of its Named Executive Officers and other executive officers. In addition, certain immediate family members of certain directors and executive officers of Lion are and have been, and may from time to time be, employed by Lion, with the compensation paid to such persons being substantially consistent with compensation provided to other employees performing similar functions.

For more information regarding employment agreements with Lion’s named executive officers, see the section entitled “Executive Compensation—Lion—Agreements with Lion’s Named Executive Officers and Potential Payments Upon Termination.”

Indemnity Agreements

Effective as of Closing, Lion entered into separate indemnity agreements with each of its directors and executive officers, in addition to the indemnification provided for in its bylaws. These indemnity agreements provide Lion’s directors and executive officers with contractual rights to indemnification and, in some cases, expense advancement in any action or proceeding arising out of their services as one of Lion’s directors or executive officers or as a director or executive officer of a subsidiary of Lion.

 

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BENEFICIAL OWNERSHIP OF SECURITIES

The following table sets forth information known to Lion regarding the beneficial ownership of Lion Common Shares as of May 14, 2021 by:

 

   

each person who is the beneficial owner of more than 5% of the total issued and outstanding Lion Common Shares;

 

   

each of Lion’s named executive officers and directors; and

 

   

all current executive officers and directors of Lion as a group.

The beneficial ownership of Lion Common Shares is based on 188,497,602 Lion Common Shares issued and outstanding in the aggregate as of May 14, 2021.

Beneficial ownership is determined in accordance with the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days. Securities that may be acquired by an individual or group within 60 days of the date hereof, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Lion Warrants will not become exercisable until the later of (i) 30 days after the Closing and (ii) 12 months following the NGA IPO, therefore, Lion Common Shares that may be acquired pursuant to the exercise of any such warrants are not deemed to be outstanding.

Except as disclosed in this prospectus, including the section entitled “Certain Relationships and Related Party Transactions,” Lion does not know of any arrangements, including any pledge by any person of securities of Lion, the operation of which may at a subsequent date result in a change of control of Lion.

Except as indicated in footnotes to this table, Lion believes that the shareholders named in this table have sole voting and investment power with respect to all shares of Lion Common Shares shown as beneficially owned by them, based on information provided to Lion by such stockholder.

 

Name and Address of Beneficial Owner(1)

   Number of Lion
Common Shares
     Lion Ownership %  

Five Percent Holders

     

Power Energy Corporation(2)

     71,621,834        38.0  

9368-2672 Québec Inc.(3)

     27,558,653        14.6  

XPNDCroissance Fund L.P.(4)

     12,474,889        6.6  

9368-2722 Québec Inc.(5)

     10,430,890        5.5  

9231-9979 Quebec Inc.(6)

     10,130,832        5.4  

Directors and Executive Officers

     

Sheila Colleen Bair

     —          —    

Marc Bedard(7)

     30,293,467        16.1  

Nicolas Brunet(8)

     642,729        *  

François Duquette

     —          —    

Chris Jarratt(9)(10)

     8,086,336        4.3  

Pierre Larochelle

     —          —    

Pierre-Olivier Perras

     —          —    

Yannick Poulin(11)

     455,802        *  

Michel Ringuet(12)

     1,168,557        *  

Ian Robertson(9)(13)

     8,086,336        4.3  

Pierre Wilkie(14)

     —          —    

All Directors and Executive Officers as a Group
(10 Individuals)

     40,746,891        21.6  

 

*

Less than one percent.

(1)

Unless otherwise noted, the business address of each of the directors and executive officers of Lion in this table is 921 chemin de la Rivière-du-Nord, Saint-Jérôme (Québec), Canada, J7Y 5G2.

 

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(2)

The Lion Common Shares reported herein represent (i) 58,409,354 Lion Common Shares currently held of record by Power Energy (including 1,662,500 Lion Common Shares acquired by Power Energy in the PIPE Financing), and (ii) 13,212,480 Lion Common Shares which may be acquired by Power Energy through the exercise of its options under the PEC Option Agreement (see “—PEC Option Agreement”). On a fully-diluted basis (assuming the full vesting and exercise or conversion of all securities exercisable or convertible into Lion Common Shares), Power Energy’s beneficial ownership represents approximately 29.5% of all Lion Common Shares issued and outstanding. Power Energy is a wholly-owned subsidiary of Power Sustainable Capital Inc., which in turn is a wholly-owned subsidiary of Power Corporation of Canada, in which a controlling voting interest is held by the Desmarais Family Residuary Trust. The business address of Power Energy Corporation and Power Sustainable Capital Inc. is 751 Victoria Square, Montréal (Québec), Canada, H2Y 2J3.

(3)

9368-2672 Québec Inc. is the record holder of the shares reported herein. Marc Bedard, CEO—Founder of Lion, has control over, directly and indirectly, a majority of the voting shares of 9368-2672 Québec Inc. On a fully-diluted basis (assuming the full vesting and exercise or conversion of all securities exercisable or convertible into Lion Common Shares), 9368-2672 Québec Inc.’s beneficial ownership represents approximately 11.4% of all Lion Common Shares issued and outstanding. The business address of 9368-2672 Québec Inc. is 921 chemin de la Rivière-du-Nord, Saint-Jérôme (Québec), Canada, J7Y 5G2.

(4)

XPNDCroissance Fund L.P. is the record holder of the shares reported herein. The general partner of XPNDCroissance Fund L.P. is XPND Fund Management L.P., and the general partner of XPND Fund Management L.P. is 7807368 Canada Inc. Alexandre Taillefer has control over, directly and indirectly, a majority of the voting shares of 7807368 Canada Inc. The business address of XPNDCroissance Fund L.P. is 12350-3 Place Ville Marie, Montréal (Québec), Canada, H3B 0E7. The Lion Common Shares reported herein include shares held by XPNDCroissance Fund L.P. which are subject to the PEC Option Agreement. See “—PEC Option Agreement.”

(5)

9368-2722 Québec Inc. is the record holder of the Lion Common Shares reported herein, which Lion Common Shares are being registered pursuant to the registration rights granted to 9368-2672 Québec Inc. under the Registration Rights Agreement (see “Description of Share Capital—Registration Rights Agreement”). Bernard Casavant has control over, directly and indirectly, a majority of the voting shares of 9368-2722 Québec Inc. The business address of 9368-2722 Québec Inc. is 1108-2540 boul. Daniel-Johnson, Laval (Québec), Canada, H7T 2S3. The Lion Common Shares reported herein include shares held by 9368-2722 Québec Inc. which are subject to the PEC Option Agreement. See “—PEC Option Agreement.”

(6)

Reflects (i) 10,030,832 Lion Common Shares held of record by 9231-9979 Quebec Inc. and (ii) 100,000 Lion Common Shares acquired in the PIPE Financing by 9231-9979 Quebec Inc. The shareholders of 9231-9979 Quebec Inc. exercise voting and dispositive power over the shares held by 9231-9979 Quebec Inc. Gestion Bertin Castonguay Inc., Cosmecorp Inc. and 9045-2582 Québec Inc. are the shareholders of 9231-9979 Quebec Inc., and voting and investment decisions require a majority vote of such shareholders. Each of the shareholders disclaims any beneficial ownership of such securities except to the extent of its pecuniary interest therein. 9231-9979 Quebec Inc.’s President, Pierre Wilkie, is a Director of Lion. Mr. Wilkie holds a non-controlling interest in 9231-9979 Quebec Inc. through his partial ownership of Cosmecorp Inc. Mr. Wilkie has no voting or dispositive power over the Lion Common Shares held by 9231-9979 Québec Inc. Mr. Wilkie may be deemed to beneficially own securities held by 9231-9979 Québec Inc. through his indirect economic ownership interest therein, but he disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein. The business address of 9231-9979 Quebec Inc. is 5 Place de la Falaise, Terrebonne, QC J6Y 1Z6, Canada.

(7)

Marc Bedard does not personally own any Lion Common Shares. The Lion Common Shares reported herein represent (i) 27,558,653 Lion Common Shares currently held by 9368-2672 Québec Inc., of which Marc Bedard has control over, directly and indirectly, a majority of the voting shares (see footnote 3 above), and (ii) 2,734,814 Lion Common Shares which may be acquired by Marc Bedard through the exercise of options which are currently exercisable or exercisable within 60 days of the date hereof.

(8)

Nicolas Brunet does not personally own any Lion Common Shares. The Lion Common Shares reported herein represent 642,729 Lion Common Shares which may be acquired by Nicolas Brunet through the exercise of options which are currently exercisable or exercisable within 60 days of the date hereof.

(9)

Northern Genesis Sponsor, LLC is the record holder of 7,986,336 Lion Common Shares. Each of Mr. Robertson and Mr. Jarratt is a managing member of Northern Genesis Sponsor, LLC and, as such, each may be deemed to have or to share beneficial ownership of the Lion Common Shares currently held of record by Northern Genesis Sponsor, LLC. In addition, each of Mr. Robertson and Mr. Jarratt, as a member of Northern Genesis Sponsor, LLC, may receive a distribution of a portion of such Lion Common Shares held by Northern Genesis Sponsor, LLC. The business address of each of these individuals is 4801 Main Street, Suite 1000, Kansas City, MO 64112.

(10)

Reflects (i) 7,986,336 Lion Common Shares held of record by Northern Genesis Sponsor, LLC and (ii) 100,000 Lion Common Shares acquired in the PIPE Financing by Mr. Jarratt.

(11)

Yannick Poulin does not personally own any Lion Common Shares. The Lion Common Shares reported herein represent 455,802 Lion Common Shares which may be acquired by Yannick Poulin through the exercise of options which are currently exercisable or exercisable within 60 days of the date hereof.

 

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(12)

Michel Ringuet does not personally own any Lion Common Shares or other securities convertible into Lion Common Shares. The Lion Common Shares reported herein are directly owned by Capital Mimar Inc. Mr. Ringuet has control over, directly and indirectly, a majority of the voting shares of Capital Mimar Inc., which currently holds 1,168,557 Lion Common Shares. The business address of Capital Mimar Inc. is 110 boul. de Montrose Saint-Lambert (Québec), Canada, J4R 1X3.

(13)

Reflects (i) 7,986,336 Lion Common Shares held of record by Northern Genesis Sponsor, LLC and (ii) 100,000 Lion Common Shares acquired in the PIPE Financing by Mr. Robertson.

(14)

Pierre Wilkie holds a non-controlling interest in 9231-9979 Québec Inc., who is the holder of record of 10,130,832 Lion Common Shares. Mr. Wilkie has no voting or dispositive power over the Lion Common Shares held by 9231-9979 Québec Inc. Mr. Wilkie may be deemed to beneficially own securities held by 9231-9979 Québec Inc. through his indirect economic ownership interest therein. Mr. Wilkie disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.

PEC Option Agreement

On November 27, 2020, Power Energy, on the one hand, and XPND Croissance Fund L.P., 9368-2722 Québec Inc. and 9231-9979 Québec Inc., on the other hand (collectively, the “PEC Option Securityholders”) entered into an option agreement (the “PEC Option Agreement”) pursuant to which each PEC Option Securityholder has granted an option to Power Energy to acquire Lion Common Shares held by such PEC Option Securityholder. Under the PEC Option Agreement, Power Energy has the right, subject to the terms and conditions set out therein, to purchase from the PEC Option Securityholders, on a pro rata basis (i) up to 8,670,690 Lion Common Shares at a price per share of $3.01 at any time on or before March 15, 2022, (ii) up to 2,270,895 Lion Common Shares at a price per share of $6.32 at any time on or before April 30, 2022, and (iii) up to 2,270,895 Lion Common Shares at a price per share of $15.80 at any time on or before October 31, 2023. Under the PEC Option Agreement, Power Energy may elect to exercise any of the foregoing options on a cashless basis, whereby the number of Lion Common Shares to be so acquired will be determined on the basis of the market price of the Lion Common Shares as of immediately prior to such exercise. The exercise of the foregoing options (and the related transfer of Lion Common Shares) pursuant to the PEC Option Agreement are permitted under the lock-up agreements entered into between Lion and each of Power Energy and the PEC Option Securityholders.

 

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SELLING SECURITYHOLDERS

This prospectus relates to the possible offer and sale from time to time of up to 152,276,690 Lion Common Shares by the selling securityholders.

The selling securityholders may from time to time offer and sell any or all of the Lion Common Shares set forth below pursuant to this prospectus. When we refer to the “selling securityholders” in this prospectus, we mean the persons listed in the tables below, and the pledgees, donees, transferees, assignees, successors and others who later come to hold any of the selling securityholders’ interest in our securities after the date of this prospectus.

The table below sets forth, as of May 14, 2021, the name of the selling securityholders for which we are registering Lion Common Shares for resale to the public and the aggregate principal amount that the selling securityholders may offer pursuant to this prospectus. The individuals and entities listed below have beneficial ownership over their respective securities. Beneficial ownership is determined in accordance with the rules of the SEC. The ownership percentages in the table below are based on 188,497,602 Lion Common Shares issued and outstanding in the aggregate as of May 14, 2021.

The common shares held by certain of the selling securityholders are subject to transfer restrictions. See “Certain Relationships and Related Party Transactions—Lion Lock-Up Agreements,” and “Certain Relationships and Related Party Transactions — Stockholder Support and Lock-Up Agreement.”

We cannot advise you as to whether the selling securityholders will in fact sell any or all of such securities. In addition, the selling securityholders may sell, transfer or otherwise dispose of, at any time and from time to time, the common shares in transactions exempt from the registration requirements of the Securities Act after the date of this prospectus, subject to applicable law.

Selling securityholder information for each additional selling securityholder, if any, will be set forth by prospectus supplement to the extent required prior to the time of any offer or sale of such selling securityholder’s securities pursuant to this prospectus. Any prospectus supplement may add, update, substitute, or change the information contained in this prospectus, including the identity of each selling securityholder and the number of common shares registered on its behalf. A selling securityholder may sell all, some or none of such securities in this offering. See the section titled “Plan of Distribution”.

The shares owned by the persons named below do not have voting rights different from the shares owned by other holders. Unless otherwise noted, the business address of each of the directors and executive officers of Lion in this table is 921 chemin de la Rivière-du-Nord, Saint-Jérôme (Québec), Canada, J7Y 5G2.

 

Name of selling securityholders

   Shares Owned Before
the Offering
     Shares
Being
Offered
(#)
     Shares Owned After the
Offering
 
   (#)      (%)      (#)(1)      (%)(1)  

9245-2218 Québec Inc.(2)

     75,000        *        75,000        —          —    

4425502 Canada Inc(3)

     12,500        *        12,500        —          —    

9008-5085 Quebec Inc.(4)

     75,000        *        75,000        —          —    

9231-9979 Quebec Inc.(5)

     10,130,832        5.4        100,000        10,030,832        5.3  

9368-2672 Quebec Inc. (6)

     27,558,653        *        27,558,653        —          —    

9853219 Canada Inc.(7)

     150,000        *        150,000        —          —    

ART Energy Services Inc.(8)

     100,000        *        100,000        —          —    

Avanindra Das(9)

     5,000        *        5,000        —          —    

Millais Limited(10)

     500,000        *        500,000        —          —    

BMO Private Equity (Canada) Inc.(11)

     500,000        *        500,000        —          —    

Bradley J. Sparkes(12)

     30,000        *        30,000        —          —    

Bruno Normandin(13)

     12,500        *        12,500        —          —    

C. J. Cawse Investments Inc.(14)

     15,000        *        15,000        —          —    

Algonquin Power Corporation (CKJ) Inc.(15)

     100,000        *        100,000        —          —    

Citadel Multi-Strategy Equities Master Fund Ltd.(16)

     737,119        *        600,000        137,119        *  

D.E. Shaw Oculus Portfolios, L.L.C.(17)

     500,000        *        500,000        —          —    

 

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Name of selling securityholders

   Shares Owned Before
the Offering
     Shares
Being
Offered
(#)
     Shares Owned After the
Offering
 
   (#)      (%)      (#)(1)      (%)(1)  

D.E. Shaw Valence Portfolios, L.L.C.(17)

     1,500,000        *        1,500,000        —          —    

Difesa Master Fund, LP(18)

     45,000        *        45,000        —          —    

Dirk Schlimm(19)

     10,000        *        10,000        —          —    

Eclo Capital Inc.(20)

     250,000        *        250,000        —          —    

Management Arista inc.(21)

     25,000        *        25,000        —          —    

Fondaction, Le Fonds de développement de la Confédération des Syndicats Nationaux pour la coopération et l’emploi(22)

     300,000        *        300,000        —          —    

Geotab Inc.(23)

     500,000        *        500,000        —          —    

Glenn Jamieson(24)

     15,000        *        15,000        —          —    

Green Fund Holdings, LLC(25)

     40,000        *        40,000        —          —    

CVI Investments Inc. (26)

     350,000        *        350,000        —          —    

Hewitt Group Inc. (27)

     50,000        *        50,000        —          —    

Investissement Québec(28)

     1,540,200        *        1,540,200        —          —    

Isabrem Limited(29)

     100,000        *        100,000        —          —    

James Gillis Family Trust 2015 (30)

     20,000        *        20,000        —          —    

Jane Street Global Trading, LLC(31)

     901,653        *        900,000        1,653        *  

Jose Dario Murkovic(32)

     20,000        *        20,000        —          —    

Joseph Mancina(33)

     50,000        *        50,000        —          —    

K J Harrison & Partners Inc.(34)

     930,000        *        930,000        —          —    

Kafka Stevens Holding Corporation(35)

     10,000        *        10,000        —          —    

Kenneth MacKinnon(36)

     10,000        *        10,000        —          —    

Klaveness Marine Finance AS(37)

     960,000        *        960,000        —          —    

Louis Chevrier(38)

     12,500        *        12,500        —          —    

Louis De Jong(39)

     15,000        *        15,000        —          —    

Maxime Gauvin(40)

     25,000        *        25,000        —          —    

Michael and Jane Hoffman 2018 Descendants Trust(41)

     300,000        *        300,000        —          —    

Michel A. Caron Revocable Trust(42)

     150,000        *        150,000        —          —    

MMF LT, LLC(43)

     500,000        *        500,000        —          —    

NewGen Alternative Income Fund (44)

     321,900        *        321,900        —          —    

NewGen Equity Long/Short Fund (44)

     966,500        *        966,500        —          —    

Tiff MultiAsset NewGen A/C I8DP (44)

     71,600        *        71,600        —          —    

Normand Gauvin(45)

     25,000        *        25,000        —          —    

Paul Dalglish(46)

     40,000        *        40,000        —          —    

Pembroke Management Ltd. For: Air Canada Pension Plan(47)

     111,656        *        111,656        —          —    

Pembroke Management Ltd. For: Catsima Inc.(47)

     6,080        *        6,080        —          —    

Pembroke Management Ltd. For: Fiducies C.M.S. Dupéré(47)

     4,362        *        4,362        —          —    

Pembroke Management Ltd. For: Imperial Windsor Group Inc.(47)

     1,878        *        1,878        —          —    

Pembroke Management Ltd. For: Pembroke Canadian Growth Fund(47)

     131,645        *        131,645        —          —    

Pembroke Management Ltd. For: Pembroke Canadian Growth Pooled Fund(47)

     66,650        *        66,650        —          —    

Pembroke Management Ltd. For: R. Howard Webster Foundation(47)

     8,690        *        8,690        —          —    

Pembroke Management Ltd. For: Régime de Retraite de l’Université de Montréal(47)

     55,253        *        55,253        —          —    

Pembroke Management Ltd. For: Rio Tinto Pension Plan(47)

     113,786        *        113,786        —          —    

Peter C. Durhager(48)

     70,000        *        70,000        —          —    

 

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Table of Contents

Name of selling securityholders

   Shares Owned Before
the Offering
     Shares
Being
Offered
(#)
     Shares Owned After the
Offering
 
   (#)      (%)      (#)(1)      (%)(1)  

Peter Kruyt(49)

     50,000        *        50,000        —          —    

Philip K. Ryan(50)

     10,000        *        10,000        —          —    

PEP Energy Equity Opportunities Fund LP(51)

     62,500        *        62,500        —          —    

Picton Mahoney Fortified Alpha Extension Alternative Fund (52)

     7,400        *        7,400        —          —    

Picton Mahoney Fortified Arbitrage Alternative Fund (52)

     35,000        *        35,000        —          —    

Picton Mahoney Fortified Arbitrage Plus Alternative Fund (52)

     175,700        *        175,700        —          —    

Picton Mahoney Fortified Long Short Alternative Fund (52)

     18,000        *        18,000        —          —    

Picton Mahoney Fortified Market Neutral Alternative Fund (52)

     44,900        *        44,900        —          —    

Picton Mahoney 130/30 Alpha Extension Canadian Equity Fund (52)

     1,600        *        1,600        —          —    

Picton Mahoney Canadian 130/30 Pension One Fund (52)

     65,600        *        65,600        —          —    

Picton Mahoney Arbitrage Fund (52)

     10,400        *        10,400        —          —    

Picton Mahoney Arbitrage Plus Fund (52)

     91,500        *        91,500        —          —    

Picton Mahoney World 130/30 Canadian Equity Fund (52)

     26,400        *        26,400        —          —    

Picton Mahoney Long Short Equity Fund (52)

     23,300        *        23,300        —          —    

Picton Mahoney Market Neutral Equity Fund (52)

     21,200        *        21,200        —          —    

Power Energy Corporation(53)

     71,621,834        38.0        71,621,834        —          —    

Quailco Investments Inc. (54)

     350,000        *        350,000        —          —    

Richard D. Cherney Professional Corporation Inc. (55)

     5,000        *        5,000        —          —    

Robert Schaefer(56)

     50,000        *        50,000        —          —    

Sean Durfy(57)

     50,000        *        50,000        —          —    

The K2 Principal Fund L.P. (58)

     300,000        *        300,000        —          —    

Transatlantic Mobility holdings LLC(59)

     100,000        *        100,000        —          —    

W Investments Group L.P. (60)

     750,000        *        750,000        —          —    

W Investments Inc. (61)

     150,000        *        150,000        —          —    

WAD Inc. (62)

     100,000        *        100,000        —          —    

Yaupon Master Fund LP(63)

     500,000        *        500,000        —          —    

Badger Power Consulting Inc.(64)

     100,000        *        100,000        —          —    

Amazon.com NV Investment Holdings LLC(65)

     35,350,003        18.8        35,350,003        —          —    

Alberta Investment Management Corporation(66)

     1,250,000        *        1,250,000        —          —    

 

*

Less than 1%

(1)

Assumes the sale of all shares offered in this prospectus.

(2)

The business address of 9245-2218 Québec Inc. is 112 Place Terroux, St-Lambert, QC J4R 2W2. 9245-2218 Québec Inc. is the record holder of the securities included herein. Michel Marcogliese, in his capacity as President of 9245-2218 Québec Inc., may be deemed to beneficially own the securities held by 9245-2218 Québec Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(3)

The business address of 4425502 Canada Inc is c/o Claude Dufresne, 287 Ch Champagne, Mt-Tremblant, J8E 1V4. 4425502 Canada Inc. is the record holder of the securities included herein. Claude Dufresne, in his capacity as President of 4425502 Canada Inc, may be deemed to beneficially own the securities held by 4425502 Canada Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(4)

The business address of 9008-5085 Quebec Inc. is 53 Avenue Morrison, Mont Royal, QC H3R 1K3. 9008-5085 Quebec Inc. is the record holder of the securities included herein. Artenio Checchin, in his capacity as President of 9008-5085 Quebec Inc., may be deemed to beneficially own the securities held by 9008-5085 Quebec Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

 

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(5)

Reflects (i) 10,030,832 Lion Common Shares held of record by 9231-9979 Quebec Inc. and (ii) 100,000 Lion Common Shares acquired in the PIPE Financing by 9231-9979 Quebec Inc. The shareholders of 9231-9979 Quebec Inc. exercise voting and dispositive power over the shares held by 9231-9979 Quebec Inc. Gestion Bertin Castonguay Inc., Cosmecorp Inc. and 9045-2582 Québec Inc. are the shareholders of 9231-9979 Quebec Inc., and voting and investment decisions require a majority vote of such shareholders. Each of the shareholders disclaims any beneficial ownership of such securities except to the extent of its pecuniary interest therein. 9231-9979 Quebec Inc.’s President, Pierre Wilkie, is a Director of Lion. Mr. Wilkie holds a non-controlling interest in 9231-9979 Quebec Inc. through his partial ownership of Cosmecorp Inc. Mr. Wilkie has no voting or dispositive power over the Lion Common Shares held by 9231-9979 Québec Inc. Mr. Wilkie may be deemed to beneficially own securities held by 9231-9979 Québec Inc. through his indirect economic ownership interest therein, but he disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein. The business address of 9231-9979 Quebec Inc. is 5 Place de la Falaise, Terrebonne, QC J6Y 1Z6, Canada.

(6)

9368-2672 Québec Inc. is the record holder of the shares reported herein. Marc Bedard, CEO—Founder of Lion, has control over, directly and indirectly, a majority of the voting shares of 9368-2672 Québec Inc. On a fully-diluted basis (assuming the full vesting and exercise or conversion of all securities exercisable or convertible into Lion Common Shares), 9368-2672 Québec Inc.’s beneficial ownership represents approximately 11.4% of all Lion Common Shares issued and outstanding. The business address of 9368-2672 Québec Inc. is 921 chemin de la Rivière-du-Nord, Saint-Jérôme (Québec), Canada, J7Y 5G2.

(7)

The business address of 9853219 Canada Inc. is 322 des Bernaches Street, Saint-Jean-sur-Richelieu, Quebec, J2W 0A4, Canada. 9853219 Canada Inc. is the record holder of the securities included herein. Eric Caron, in his capacity as President of 9853219 Canada Inc., may be deemed to beneficially own the securities held by 9853219 Canada Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(8)

The business address of ART Energy Services Inc. is Édifice Delta 3, 950-2875, Boulevard Laurier, Québec (Québec), Canada G1V 2M2. ART Energy Services (“ART”) is the record holder of the securities included herein. Andre Rochette, in his capacity as President of ART and owner of 99.99% of ART, may be deemed to beneficially own the securities held by ART but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(9)

The business address of Avanindra Das is 258 s 1st st, apt 3a, Brooklyn, NY, 11211 USA. Avanindra Das is a consultant for NGA, a wholly-owned subsidiary of Lion.

(10)

The business address of Millais Limited is c/o Millais USA LLC, 767 5th Ave., 9th Floor, New York, NY 10153.] Millais Limited is the record holder of the securities included herein. Michael Bell and Andrew Dodd, in their capacities as the directors of Millais Limited, may be deemed to beneficially own the securities held by Millais Limited, but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(11)

The business address of BMO Private Equity (Canada) Inc. is 100 King West Street, 6th Floor, Toronto, Ontario, M5X 1A9, Canada. BMO Private Equity (Canada) Inc. is the record holder of the securities included herein. Marc Khouzami, in his capacity as Managing Director of BMO Private Equity (Canada) Inc., may be deemed to beneficially own the securities held by BMO Private Equity (Canada) Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(12)

The business address of Bradley J. Sparkes is 33 McKenzie Lake Pt. SE., Calgary, AB T2Z 1L7, Canada.

(13)

The business address of Bruno Normandin is 400 de la Prunelle, Verdun, QC, H3E 1Z3, Canada.

(14)

The business address of C. J. Cawse Investments Inc. is 290 Donessle Dr., Oakville, Ontario L6J 3Y6, Canada. Clive Cawse, in his capacity as President and owner of C. J. Cawse Investments Inc., may be deemed to beneficially own the securities held by C. J. Cawse Investments Inc.

(15)

The business address of Algonquin Power Corporation (CKJ) Inc. is 269 Gloucester Ave, Oakville, Ontario, Canada L6J3W8. Algonquin Power corporation (CKJ) Inc. is the record holder of the securities included herein. Chris Jarratt, in his capacity as President and sole shareholder of Algonquin Power Corporation, may be deemed to beneficially own the securities held by Algonquin Power Corporation (CKJ) Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein. Mr. Jarrett is a director of Lion and a founder of NGA.

(16)

The business address of Citadel Multi-Strategy Equities Master Fund Ltd. is c/o Citadel Enterprise Advisors LLC, 131 South Dearborn Street, Chicago, Illinois 60603. Citadel Multi-Strategy Equities Master Fund Ltd. (“CMF”) is the record holder of the securities included herein. Citadel Advisors LLC, as investment advisor to CMF, holds the voting and dispositive power with respect to the securities held by CMF. Citadel Advisors Holdings LP (“CAH”) is the sole member of Citadel Advisors LLC. Citadel GP LLC is the general partner of CAH. Kenneth Griffin is the President, Chief Executive Officer and sole member of Citadel GP LLC. Through their affiliation with Citadel Advisors LLC and/or certain other affiliated entities, Citadel GP LLC and Mr. Griffin may be deemed to beneficially own the securities held by CMF but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(17)

Shares offered hereby consist of 500,000 Lion Common Shares held by D. E. Shaw Oculus Portfolios, L.L.C. (“Oculus”) and 1,500,000 Lion Common Shares held by D. E. Shaw Valence Portfolios, L.L.C. (“Valence,” and the Lion Common Shares held by Oculus and Valence, the “Subject Shares”). D. E. Shaw & Co., L.P. (“DESCO LP”), as the investment adviser of Oculus and Valence, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares. D. E. Shaw & Co., L.L.C. (“DESCO LLC”), as the manager of Oculus and Valence, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares. Julius Gaudio, Maximilian Stone, and Eric Wepsic, or their designees,

 

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  exercise voting and investment control over the Subject Shares on DESCO LP’s and DESCO LLC’s behalf. D. E. Shaw & Co., Inc. (“DESCO Inc.”), as general partner of DESCO LP, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares. D. E. Shaw & Co. II, Inc. (“DESCO II Inc.”), as managing member of DESCO LLC, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares. None of DESCO LP, DESCO LLC, DESCO Inc., or DESCO II Inc. owns any Lion Common Shares directly, and each such entity disclaims beneficial ownership of the Subject Shares. David E. Shaw does not own any Lion Common Shares directly. By virtue of David E. Shaw’s position as President and sole shareholder of DESCO Inc., which is the general partner of DESCO LP, and by virtue of David E. Shaw’s position as President and sole shareholder of DESCO II Inc., which is the managing member of DESCO LLC, David E. Shaw may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares and, therefore, David E. Shaw may be deemed to be the beneficial owner of the Subject Shares. David E. Shaw disclaims beneficial ownership of the Subject Shares. Oculus and Valence may be deemed to be affiliates of D. E. Shaw Securities, L.L.C., a registered broker-dealer, which will not be involved in the offering or distribution of the Subject Shares. The business address of the foregoing individuals and entities is c/o the D. E. Shaw group, 1166 Avenue of the Americas, Ninth Floor, New York, N.Y. 10036.
(18)

The business address of Difesa Master Fund, LP is 40 West 57th St, Suite 2020, NY, NY 10019. Difesa Master Fund, LP is the record holder of the securities included herein. Andrew Cohen, Chief Investment Officer of Difesa Master Fund, LP, may be deemed to beneficially own the securities held by Difesa Master Fund, LP, but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(19)

The business address of Dirk Schlimm is 46 Randolph Dr, Maple, ON L6A 0W1.

(20)

The business address of Eclo Capital Inc. is 540, Notre-Dame Avenue, Saint-Lambert, Quebec, J4P 2K7, Canada. Eclo Capital Inc. is the record holder of the securities included herein. Eric Lemieux, founder of Eclo Capital Inc., may be deemed to beneficially own the securities held by Eclo Capital Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein..

(21)

The business address of Management Arista inc. is 150, Chemin du Grand-Bouvier, Austin, Quebec, J0B 1B0. Management Arista inc. is the record holder of the securities included herein. Eric Morin, in his capacity as President of Management Arista inc., may be deemed to beneficially own such shares. Mr. Morin disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(22)

The business address of Fondaction, Le Fonds de développement de la Confédération des Syndicats Nationaux pour la coopération et l’emploi (“Fondaction”) is 2175, boul. De Maisonneuve Est, bureau 103, Montreal (Quebec), H2K 4S3, Canada. Fondaction is the record holder of the securities included herein. Fiera Capital Corporation (“FCC”) is the Investment Manager of Fondaction. Anik Lanthier is the President and Chief Investment Officer, Public Markets of FCC. Through their affiliation with Fondaction, FCC and Mr. Lanthier may be deemed to beneficially own the securities held by Fondaction but disclaim any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(23)

The business address of Geotab Inc. is 2440 Winston Park Drive, Oakville, Ontario L6H 7V2, Canada. Geotab Inc. is the record holder of the securities included herein. Neil Cawse is the President and Secretary of Geotab Inc. and through the Neil Cawse (2011) Family Trust, may be deemed to beneficially own the securities held by Geotab Inc., but disclaims any beneficial ownership of such securities except to the extent of its pecuniary interest therein.

(24)

The business address of Glenn Jamieson is 2178 Arbourview Drive, Oakville ON L6M 3N9.

(25)

The business address of Green Fund Holdings, LLC is P.O. Box 15304, Las Vegas, NV 89114 USA. Green Fund Holdings LLC is the record holder of the securities included herein. Joey Marlow and Sherry Marlow, in their capacities as Owners of Green Fund Holdings, LLC, may be deemed to beneficially own the securities held by Green Fund Holdings LLC but disclaim any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(26)

The business address of CVI Investments Inc. is c/o Heights Capital Management, 101 California St., Suite 3250, San Francisco, CA 94111. CVI Investments Inc. (“CVI”) is the record holder of the securities included herein. Heights Capital Management, Inc., the authorized agent of CVI, has discretionary authority to vote and dispose of the securities held by CVI and may be deemed to be the beneficial owner of these securities. Martin Kobinger, in his capacity as Investment Manager of Heights Capital Management, Inc., may also be deemed to have investment discretion and voting power over the securities held by CVI. Mr. Kobinger disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(27)

The business address of Hewitt Group Inc. is 204—455 Fénelon Blvd., Dorval, QC H9S 5T8. Hewitt Group Inc. is the record holder of the securities included herein. Stephen David Hewitt and James W. Hewitt, through their affiliation with Hewitt Group Inc., may be deemed to beneficially own the securities held by Hewitt Group Inc. but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(28)

The business address of Investissement Québec is Iberville Building 1, 1195, avenue Lavigerie, Suite 060, Québec (Québec) Canada G1V 4N3. Investissement Québec is the record holder of the securities included herein. The Minister of Finance of the Government of the province of Québec, Canada, is the sole shareholder of Investissement Québec pursuant to Section 60 of the An Act respecting Investissement Québec, RLRQ, chapter I-16.0.1, and may be deemed to beneficially own the securities held by Investissement Québec but disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein. Investissement Quebec’s Chief Executive Officer, Guy Leblanc, is a former director of Lion.

 

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(29)

The business address of Isabrem Limited is 1 Chartwell Road, Oakville, ON L6J 3Z3. Isabrem Limited is the record holder of the securities included herein. Brian P. Layfield, in his capacity as Director and 100% Owner of Isabrem Limited, may be deemed to beneficially own the securities held by Isabrem Limited but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(30)

The business address of James Gillis Family Trust 2015 is 2 Rose Park Cres, Toronto, ON M4T 1P9. James Gillis is the record holder of the securities included herein, and may be deemed to beneficially own the securities held by James Gillis Family Trust 2015, but disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(31)

The business address of Jane Street Global Trading, LLC is 250 Vesey Street, 3rd Floor, New York, NY 10281. Jane Street Global Trading, LLC is a wholly owned subsidiary of Jane Street Group, LLC. Michael A. Jenkins and Robert A. Granieri are the members of the Operating Committee of Jane Street Group, LLC. Jane Street Global Trading, LLC is the record holder of the securities included herein. Michael A. Jenkins and Robert A. Granieri, through their affiliation with Jane Street Global Trading, LLC, may be deemed to beneficially own the securities held by Jane Street Global Trading, LLC but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(32)

The business address of Jose Dario Murkovic is 2552 Harman Gate, Oakville, Ontario L6H 6L6.

(33)

The business address of Joseph Mancina is 2479 Deer Run Avenue, Oakville, Ontario, L6J 6L1, Canada.

(34)

The business address of K J Harrison & Partners Inc. is 60 Bedford Road, Toronto, Ontario M5R 2K2. K J Harrison & Partners Inc. is the record holder of the securities included herein. Joel Clark and Peter Barlas, in their capacities as Chief Executive Officer and Portfolio Manager and Chief Investment Officer and Portfolio Manager, respectively, of K J Harrison & Partners Inc., may be deemed to beneficially own the securities held by K J Harrison & Partners Inc. but disclaim any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(35)

The business address of Kafka Stevens Holding Corporation is 2295C Erbs Rd., Baden, ONT, N3A 3M3, Canada.] Kafka Stevens Holding Corporation is the record holder of the securities included herein. Amanda Stevens and Matthew Stevens, in their capacities as directors of Kafka Stevens Holding Corporation, may be deemed to beneficially own the securities held by Kafka Stevens Holding Corporation but disclaim any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(36)

The business address of Kenneth MacKinnon is 3995 Montrose Ave, Westmount, QC, H3Y 2A3, Canada.

(37)

The business address of Klaveness Marine Finance AS is Harbitzalléen 2A, 0275 Oslo, Norway. Klaveness Marine Holding AS is the record holder of the securities included herein. Each of Karianne Klaveness Holmen, Kristine Klaveness and Tom Erik Klaveness, through their affiliation with Klaveness Marine Holding AS, may be deemed to beneficially own the securities held by Klaveness Marine Finance AS but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(38)

The business address of Louis Chevrier is 213 Terroux, St-Lambert, QC J4R 2W2.

(39)

The business address of Louis De Jong is 718314 1st Line East, Mulmur, Ontario L9V 0G3.

(40)

The business address of Maxime Gauvin is 299 Rue de la Rotonde #2309, Verdun, Quebec, H3E 0C6, Canada. Maxime Gauvin is an employee of Lion.

(41)

The business address of Michael and Jane Hoffman 2018 Descendants Trust is 52 E 83rd St, New York, NY 10028. Michael and Jane Hoffman 2018 Descendants Trust is the record holder of the securities included herein. Jane Hoffman, in her capacity as Trustee of Michael and Jane Hoffman 2018 Descendants Trust, may be deemed to beneficially own the shares held by Michael and Jane Hoffman 2018 Descendants Trust but disclaims any beneficial ownership of such securities except to the extent of her pecuniary interest therein.

(42)

The business address of Michel A. Caron Revocable Trust is 527 Ponte Vedra BLVD, Ponte Vedra Beach, FL, USA, 32082. Michel A. Caron Revocable Trust is the record holder of the securities included herein. Hugues Caron, through his affiliation with Michel A. Caron Revocable Trust, may be deemed to beneficially own the securities held by Michel A. Caron Revocable Trust but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(43)

Moore Capital Management, LP, the investment manager of MMF LT, LLC, has voting and investment control of the shares held by MMF LT, LLC. Mr. Louis M. Bacon controls the general partner of Moore Capital Management, LP and may be deemed the beneficial owner of the common shares held by MMF LT, LLC. Mr. Bacon also is the indirect majority owner of MMF LT, LLC. The address of MMF LT, LLC, Moore Capital Management, LP and Mr. Bacon is 11 Times Square, New York, New York 10036.

(44)

NewGen Asset Management, in its capacity as the Investment Manager of NewGen Alternative Income Fund, NewGen Equity Long/Short Fund, and TIFF Multi-Asset NewGen A/C I8DP (the “NewGen Entities”) may be deemed to beneficially own the securities of the NewGen Entities. NewGen Asset Management disclaims any beneficial ownership of such securities except to the extent of its pecuniary interest therein. The business address of

 

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  NewGen Alternative Income Fund is Commerce Court N, 25 King St. West Suite 2900, POB 405, Toronto, Ontario M5L 1G3. The business address of NewGen Equity Long/Short Fund is Regatta Office Park, Windward Three, 4th Floor, West Ban Road, POB 10312, Grand Cayman KY-10003 The business address of TIFF Multi-Asset NewGen A/C I8DP is 170 N. Radnor Chester Road, Suite 300, Radnor PA 19087.
(45)

The business address of Normand Gauvin is 704 Chemin Tour du Lac, St-Aubert, QC G0R 2R0.

(46)

The business address of Paul Dalglish is 43 Lambeth Rd, Toronto, ON M9A 2Y8. Mr. Dalglish was a Board Co-Chair of Northern Genesis Acquisition Corp. until the Closing. Mr. Dalglish also served on various committees within the Northern Genesis Acquisition Corp. Board of Directors.

(47)

The business address of Pembroke Management Ltd. For: Air Canada Pension Plan, Pembroke Management Ltd. For: Catsima Inc., Pembroke Management Ltd. For: Fiducies C.M.S. Dupéré, Pembroke Management Ltd. For: Imperial Windsor Group Inc., Pembroke Management Ltd. For: Pembroke Canadian Growth Fund, Pembroke Management Ltd. For: Pembroke Canadian Growth Pooled Fund, Pembroke Management Ltd. For: R. Howard Webster Foundation, Pembroke Management Ltd. For: Régime de Retraite de l’Université de Montréal, and Pembroke Management Ltd. For: Rio Tinto Pension Plan (the “Pembroke Entities”) is 1002 Sherbrooke Street West, Suite 1700, Montreal, Quebec H3A 3S4, Canada. Pembroke Management Ltd., in its capacity as Investment Advisor with discretionary trading authority for the Pembroke Entities, may be deemed to beneficially own the securities held by each of the Pembroke Entities, but disclaims any beneficial ownership of such securities except to the extent of its pecuniary interest therein.

(48)

The business address of Peter C. Durhager is 20 Rosemont Avenue, Pembroke, HM 06, Bermuda.

(49)

The business address of Peter Kruyt is 751 Square Victoria, Montreal, QC, H2Y 2J3, Canada. Mr. Kruyt was a director of Lion from December 2017 to January 2021.

(50)

The business address of Philip K. Ryan is 97 Condoins Point Rd, Brooksville, ME 04617.

(51)

The business address of PEP Energy Equity Opportunities Fund LP is Pickering Energy Partners LP, 3200 Kirby Drive, Suite 800, Houston, Texas 77098. PEP Energy Equity Opportunities Fund Management LLC is the general partner of PEP Energy Equity Opportunities Fund LP. Daniel R. Pickering, as the Chief Investment Officer of PEP Energy Equity Opportunities Fund Management LLC, exercises voting and investment control over the securities held by PEP Energy Equity Opportunities Fund LP. Through their affiliation with PEP Energy Equity Opportunities Fund LP and/or certain other affiliated entities, PEP Energy Equity Opportunities Fund Management LLC and Mr. Pickering may be deemed to beneficially own the securities held by PEP Energy Equity Opportunities Fund LP but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(52)

The business address of Picton Mahoney Market Neutral Equity Fund, Picton Mahoney Long Short Equity Fund, Picton Mahoney 130/30 Alpha Extension Fund, Picton Mahoney World 130/30 Equity Fund, Picton Mahoney Canadian 130/30 Pension One Fund, Picton Mahoney Arbitrage Fund, Picton Mahoney Arbitrage Plus Fund, Picton Mahoney Fortified Market Neutral Alternative Fund, Picton Mahoney Fortified Long Short Alternative Fund, Picton Mahoney Fortified Active Extension Alternative Fund, Picton Mahoney Fortified Arbitrage Alternative Fund and Picton Mahoney Fortified Arbitrage Alternative Plus Fund (the “Picton Mahoney Funds”) is 33 Yonge Street, Suite 830, Toronto, ON M5E 1G4. Picton Mahoney Asset Management is the trustee on behalf of the Picton Mahoney Funds and may therefore be deemed to beneficially own the securities held by each of the Picton Mahoney Funds, but disclaims any beneficial ownership of such securities except to the extent of its pecuniary interest therein.

(53)

The Lion Common Shares reported herein represent (i) 56,746,854 Lion Common Shares currently held of record by Power Energy and 13,212,480 Lion Common Shares which may be acquired by Power Energy through the exercise of its options under the PEC Option Agreement (see “—PEC Option Agreement”), which Lion Common Shares are being registered pursuant to the registration rights granted to Power Energy under the Registration Rights Agreement (see “Description of Share Capital of Lion—Registration Rights Agreement”), and (iii) 1,662,500 Lion Common Shares acquired by Power Energy in the PIPE Financing. Power Energy is a wholly-owned subsidiary of Power Sustainable Capital Inc., which in turn is a wholly-owned subsidiary of Power Corporation of Canada, in which a controlling voting interest is held by the Desmarais Family Residuary Trust. The business address of Power Energy Corporation and Power Sustainable Capital Inc. is 751 Victoria Square, Montréal (Québec), Canada, H2Y 2J3.

(54)

The business address of Quailco Investments Inc. is 640, Monette Avenue, Dorval, Quebec, H9S 2H4 Canada. Quailco Investments Inc. is the record holder of the securities included herein. Louis St-Laurent, through his affiliation with Quailco Investments Inc., may be deemed to beneficially own the securities held by Quailco Investments Inc. but disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

 

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(55)

The business address of Richard D. Cherney Professional Corporation Inc. is 1455 Sherbrooke Street W., Suite 1402, Montreal, QC H3G 1L2. Richard D. Cherney, in his capacity as President of Richard D. Cherney Professional Corporation Inc., may be deemed to beneficially own the shares held by Richard D. Cherney Professional Corporation Inc., but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(56)

The business address of Robert Schaefer is 49 Posthill Drive SW, Calgary, Alberta T3H 0A8. Robert Schaefer was a Director of NGA until the Closing.

(57)

The business address of Sean Durfy is 90 Daum Quay, PO Box 30981, West Bay, Grand Cayman KY-1204 Cayman Islands.

(58)

The business address of The K2 Principal Fund L.P. is 2 Bloor Street West, Suite 801, Toronto, Ontario M4W 3E2. The K2 Principal Fund L.P. is the record holder of the securities included herein. K2 Genpar 2017 Inc. is the General Partner of the K2 Principal Fund L.P., and therefore may be deemed to beneficially own the securities held by K2 Principal Fund L.P., but disclaims any beneficial ownership of such securities except to the extent of its pecuniary interest therein.

(59)

The business address of Transatlantic Mobility Holdings LLC is 601 13th street NW, Washington DC 20005, USA. Transatlantic Mobility Holdings LLC is the record holder of the securities included herein. Each of Transatlantic Group Partners LLC, Lorenzo Roccia and Abel Navarro Homet, through their affiliation with Transatlantic Mobility Holdings LLC, may be deemed to beneficially own the securities held by Transatlantic Mobility Holdings LLC but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(60)

The business address of W Investments Group L.P. is 540, Notre-Dame Avenue, Saint-Lambert, Quebec, J4P 2K7 Canada. W Investments Group L.P. is the record holder of the securities included herein. W Investments Group Inc. is the General Partner of W Investments Group L.P. and therefore may be deemed to beneficially own the securities held by W Investments Group L.P., but disclaims any beneficial ownership of such securities except to the extent of its pecuniary interest therein. In addition, each of Michel Ringuet, Maxime St-Laurent, Eric Lemieux, David Waddell and Nicolas Belanger, through their affiliation with W Investments Group L.P., may be deemed to beneficially own the securities held by W Investments Group L.P. but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(61)

The business address of W Investments Inc. is 1220, Marie-Victorin Boulevard, Longueuil, Quebec, J4G 2H9, Canada. W Investments Inc. is the record holder of the securities included herein. Nicolas Belanger, in his capacity as Managing Partner and Director of W Investments Inc., may be deemed to have investment discretion and voting power over the shares held by W Investments Inc. Nicolas Belanger and Louis Belanger-Martin, through their affiliation with W Investments Inc., may each be deemed to beneficially own 50% of the securities held by W Investments Inc, but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(62)

The business address of WAD Inc. is 540, Notre-Dame Avenue, Saint-Lambert, Quebec, J4P 2K7, Canada. WAD Inc. is the record holder of the securities included herein. David Waddell, in his capacity as President of WAD Inc., may be deemed to have investment discretion and voting power over the securities held by WAD Inc. David Waddell, through his affiliation with WAD Inc., may be deemed to beneficially own the securities held by WAD Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(63)

The business address of Yaupon Master Fund LP is 104 W. 40th Street, 20th Floor, New York, New York 10018. Yaupon Master Fund LP (“YMF”) is the record holder of the securities included herein. Yaupon Capital GP LLC is the General Partner of YMF. Yaupon Capital GP LLC is the managing member of YMF and is directed by Steve Pattyn. Yaupon Capital Management LP is the investment advisor of YMF. Yaupon Capital GP LLC and Steve Pattyn, through their affiliation with YMF, may be deemed to beneficially own the securities held by YMF but each disclaims any beneficial ownership of such securities except to the extent of their pecuniary interest therein.

(64)

The business address of Badger Power Consulting Inc. is 2415 – 30 Avenue SW, Calgary, Alberta Canada T2T 1S1. Badger Power Consulting Inc. is the record holder of the securities included herein. Louis Dufresne, in his capacity as President of Badger Power Consulting Inc., may be deemed to beneficially own the securities held by Badger Power Consulting Inc. but disclaims any beneficial ownership of such securities except to the extent of his pecuniary interest therein.

(65)

The Lion Common Shares included herein consist solely of Lion Common Shares issuable upon exercise of the Specified Customer Warrant and are being registered pursuant to the registration rights granted to the Warrantholder under the Registration Rights Agreement. See “Description of Share Capital of Lion—Registration Rights Agreement” and “Description of Share Capital of Lion—Common Equity Warrant Issued to Warrantholder.” The Warrantholder is a wholly-owned subsidiary of Amazon.com, Inc. The business address of the Warrantholder is 410 Terry Avenue North, Seattle, WA 98109. The Warrantholder is an affiliate of the Specified Customer, with which the Company entered into the MPA. See “Business—Contractual Arrangements with Affiliates of Amazon.com, Inc.”

(66)

These shares are owned directly by Alberta Investment Management Corporation. Alberta Investment Management Corporation is established as an agent of the Crown in right of the Province of Alberta and manages funds on behalf of a diverse set of Alberta public sector clients for which it serves as investment manager. The address for Alberta Investment Management Corporation is 1600, 10250–101 Street, Edmonton, AB T5J 3P4.

Material Relationships with Selling Securityholders

See the section titled “Certain Relationships and Related Person Transactions”.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following describes material U.S. federal income tax considerations with respect to the ownership and disposition of Lion Common Shares. For purposes of this discussion, a “Holder” is a beneficial owner of Lion Common Shares. This discussion applies only to Lion Common Shares held as a “capital asset” for U.S. federal income tax purposes (generally property held for investment). This discussion does not address any tax treatment of any of the transactions occurring in connection with the Business Combination. This summary is based on the provisions of the Code, U.S. Treasury regulations, administrative rules, and judicial decisions, all as in effect on the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect Holders to which this section applies. Lion has not sought and will not seek any rulings from the IRS with respect to the positions or conclusions described in the following discussion. The statements and conclusions herein are not free from doubt, and there can be no assurance that your or Lion’s tax advisors, the IRS, or a court will agree with such statements and conclusions.

The following does not address all aspects of U.S. federal income taxation that may be relevant to particular Holders in light of their personal circumstances. In addition, this summary does not address the Medicare tax on certain investment income, U.S. federal estate or gift tax laws, any state, local, or non-U.S. tax laws, any tax treaties, or any other tax law. This summary also does not address tax considerations applicable to investors that may be subject to special treatment under the U.S. federal income tax laws, including, but not limited to:

 

   

banks, insurance companies, or other financial institutions;

 

   

tax-exempt or governmental organizations;

 

   

qualified foreign pension funds (or any entities all of the interests of which are held by a qualified foreign pension fund);

 

   

dealers in securities or foreign currencies;

 

   

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

 

   

persons that hold (including constructively) 10% or more of Lion’s stock (by vote or by value);

 

   

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

 

   

traders in securities that use the mark-to-market method of accounting for U.S. federal income tax purposes;

 

   

persons subject to the alternative minimum tax;

 

   

partnerships or other pass-through entities for U.S. federal income tax purposes or holders of interests therein;

 

   

persons deemed to sell Lion Common Shares under the constructive sale provisions of the Code;

 

   

persons that acquired Lion Common Shares through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;

 

   

real estate investment trusts;

 

   

regulated investment companies;

 

   

certain former citizens or long-term residents of the United States; and

 

   

persons that hold Lion Common Shares as part of a straddle, appreciated financial position, synthetic security, hedge, conversion transaction, or other integrated investment or risk reduction transaction.

 

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If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Lion Common Shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner, upon the activities of the partnership, and upon certain determinations made at the partner level. Accordingly, partners in partnerships (including entities or arrangements treated as partnerships for U.S. federal income tax purposes) holding Lion Common Shares are urged to consult with, and rely solely upon, their tax advisors regarding the U.S. federal income tax consequences to them relating to the matters discussed below.

For purposes of this discussion, a “U.S. Holder” is a Holder that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States, including an individual who is not a permanent resident of the United States (i.e., not a “green card” holder) but is treated as a resident of the United States for U.S. tax purposes;

 

   

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

 

   

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

 

   

a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more United States persons (within the meaning of the Code) who have the authority to control all substantial decisions of the trust or (ii) which has made a valid election under applicable U.S. Treasury regulations to be treated as a United States person.

Also, for purposes of this discussion, a “Non-U.S. Holder” is a Holder that is neither a U.S. Holder nor an entity treated as a partnership for U.S. federal income tax purposes.

THIS DISCUSSION IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT WITH, AND RELY SOLELY UPON, THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY OTHER TAX LAWS, INCLUDING, BUT NOT LIMITED TO, U.S. FEDERAL ESTATE OR GIFT TAX LAWS, THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION, OR ANY APPLICABLE INCOME TAX TREATY.

Tax Residence of Lion for U.S. Federal Income Tax Purposes

A corporation is generally considered for U.S. federal income tax purposes to be a tax resident in the jurisdiction of its organization or incorporation. Accordingly, under the generally applicable U.S. federal income tax rules, Lion, which is organized under the laws of the Province of Québec (Canada), would be treated as a non-U.S. corporation (and, therefore, not a U.S. tax resident) for U.S. federal income tax purposes. Section 7874 of the Code provides an exception to this general rule, under which a non-U.S. organized entity might, in certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes. These rules are complex and guidance regarding their application is unclear and incomplete.

Under Section 7874 of the Code, an entity that is treated as a corporation for U.S. federal income tax purposes and organized outside the United States (i.e., a non-U.S. corporation) will nevertheless be treated as a U.S. corporation for U.S. federal income tax purposes (and, therefore, as a U.S. tax resident subject to U.S. federal income tax on its worldwide income) if each of the following three conditions are met: (i) the non-U.S. corporation, directly or indirectly, acquires substantially all of the properties held directly or indirectly by a U.S. corporation (including through the acquisition of all of the outstanding shares of the U.S. corporation), (ii) the non-U.S. corporation’s “expanded affiliated group” does not have “substantial business activities” in the non-U.S. corporation’s country of organization or incorporation (and tax residence) relative to the expanded affiliated group’s worldwide activities (the “Substantial Business Activities Exception”), and (iii) after the acquisition, the former stockholders of the acquired

 

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U.S. corporation hold at least 80% (by either vote or value) of the shares of the non-U.S. acquiring corporation by reason of holding shares in the U.S. acquired corporation (taking into account the receipt of the non-U.S. corporation’s shares in exchange for the U.S. corporation’s shares) as determined for purposes of Section 7874 of the Code (the “Ownership Test”).

Pursuant to the Business Combination, Lion acquired all of the outstanding NGA Common Stock. As a result, the determination of whether Lion will be treated as a U.S. corporation for U.S. federal income tax purposes will depend on whether Lion satisfies the Ownership Test and, if it does, whether it satisfies the Substantial Business Activities Exception. If NGA stockholders in Lion hold less than 80% (by both vote and value) of the Lion Common Shares following the Business Combination (as determined under Section 7874 of the Code), the Ownership Test will not be satisfied and Lion will not be treated as U.S. corporation for U.S. federal income tax purposes, irrespective of whether the Substantial Business Activities Exception is satisfied. In order for Lion to satisfy the Substantial Business Activities Exception, at least 25% of the employees (by headcount and compensation), real and tangible assets, and gross income of Lion’s expanded affiliated group must be based, located, and derived, respectively, in the country in which Lion is a tax resident after the consummation of the Business Combination (i.e., Canada).

Based upon the terms of the Business Combination, the rules for determining share ownership under Section 7874 of the Code and the Treasury regulations promulgated thereunder, and certain factual assumptions, Lion currently expects that, following the Business Combination, former holders of NGA Common Stock held less than 80% (by both vote and value) of the Lion Common Shares by reason of holding NGA Common Stock as determined for purposes of Section 7874 of the Code. In addition, Lion believes it might satisfy the Substantial Business Activities Exception. Accordingly, Lion does not expect to be treated as a U.S. corporation for U.S. federal income tax purposes, and Lion intends to take this position on its tax returns. However, the application of the Ownership Test and Substantial Business Activities Exception has not yet been determined. In addition, the rules for determining ownership under Section 7874 of the Code are complex, unclear, and the subject of ongoing regulatory change. Thus, Lion’s intended reporting positions described herein are not free from doubt.

Lion has not sought and will not seek any rulings from the IRS as to such tax treatment, and the closing of the Business Combination was not conditioned upon achieving, or receiving a ruling from any tax authority or opinion from any tax advisor in regards to, any particular tax treatment. Moreover, there can be no assurance that your tax advisors or the IRS would not take a contrary position to those described above or that such a contrary position would not be sustained by a court.

If Lion were to be treated as a U.S. corporation for U.S. federal income tax purposes, this could result in a number of negative tax consequences for Lion and its Holders. For example, Lion would be subject to U.S. federal income tax on its worldwide income and, as a result, could be subject to substantial liabilities for additional U.S. income taxes. Moreover, the gross amount of any dividend payments to Lion’s Non-U.S. Holders could be subject to 30% U.S. withholding tax (depending on the application of any income tax treaty that might apply to reduce the withholding tax), and the ability of Lion’s U.S. Holders to credit any Canadian taxes imposed on them may be materially limited. Holders should consult with, and rely solely upon, their own tax advisors regarding the application of the rules described above and any resultant tax consequences.

Consistent with Lion’s intended reporting position, the remainder of this discussion assumes that Lion will not be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code. However, Lion is not representing to you that Lion will not be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code.

Considerations for U.S. Holders

This section applies to you if you are a U.S. Holder of Lion Common Shares.

 

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Passive Foreign Investment Company Rules. Adverse and burdensome U.S. federal income tax rules and consequences apply to U.S. Holders that hold shares in a non-U.S. corporation classified as a PFIC for U.S. federal income tax purposes. In general, Lion would be treated as a PFIC with respect to a particular U.S. Holder in any taxable year in which, after applying certain look-through rules, either:

 

  (i)

at least 75% of its gross income for such taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, consists of passive income (which generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets); or

 

  (ii)

at least 50% of its assets in a taxable year (ordinarily determined based on fair market value and averaged quarterly over the year), including its pro rata share of the assets of any corporation in which Lion is considered to own at least 25% of the shares by value, produce or are held for the production of passive income.

Lion expects to take the position that it is not a PFIC for the current taxable year but such position will not be free from doubt. Lion’s PFIC status for the current taxable year or any subsequent taxable year will not be determinable until after the end of such taxable year and will depend on, among other things, the amount of Lion’s passive and non-passive income and assets in such year. Lion cannot assure that it will not be a PFIC in the current taxable year or in any future taxable year. If Lion were later determined to be a PFIC, you may be unable to make certain advantageous elections with respect to your ownership of Lion Common Shares that would mitigate the adverse consequences of Lion’s PFIC status, or making such elections retroactively could have adverse tax consequences to you. Lion has not sought and will not seek any rulings from the IRS as to such tax treatment, and the closing of the Business Combination was not conditioned upon achieving, or receiving a ruling from any tax authority or opinion from any tax advisor in regards to, any particular tax treatment. Lion has not obtained an opinion regarding its treatment as a PFIC for the current taxable year, and there can be no assurance that such an opinion could be obtained or, if obtained, would be provided at the desired level of certainty in the future. Moreover, regardless of whether Lion could obtain an opinion with respect to its status as a PFIC, there can be no assurance that your tax advisors or the IRS would not take a contrary position or that such a contrary position would not be sustained by a court. Thus, the intended reporting position of Lion described herein is not free from doubt. Lion is not representing to you that Lion will not be treated as a PFIC for the current taxable year or any future taxable years.

THE PFIC RULES ARE COMPLEX AND UNCERTAIN. HOLDERS SHOULD CONSULT WITH, AND RELY SOLELY UPON, THEIR TAX ADVISORS TO DETERMINE THE APPLICATION OF THE PFIC RULES TO THEM AND ANY RESULTANT TAX CONSEQUENCES.

Consistent with Lion’s intended reporting position, the remainder of this discussion assumes that Lion will not be treated as a PFIC in the current taxable year or in any subsequent taxable year.

Tax Characterization of Distributions with Respect to Lion Common Shares. If Lion pays a distribution in cash or other property to U.S. Holders of Lion Common Shares, such distribution generally will constitute a dividend for U.S. federal income tax purposes to the extent paid from current or accumulated earnings and profits as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in its Lion Common Shares. Any remaining excess will be treated as gain realized on the sale of Lion Common Shares and will be treated as described below in the section entitled “—Gain or Loss on Sale or Other Taxable Exchange or Disposition of Lion Common Shares” below.

Distributions Treated as Dividends. Dividends paid by Lion will be taxable to a corporate U.S. Holder at regular rates and will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. Dividends Lion pays to a non-corporate U.S. Holder generally will constitute a “qualified dividend” that will be subject to U.S. federal income tax at the maximum tax rate accorded to long-term capital gains if Lion Common Shares are readily tradable on an established securities market in the United States and certain holding period and other requirements are met, including that Lion is not classified as a PFIC during the taxable year in which the dividend is paid or a preceding taxable year. If such requirements are not satisfied, a non-corporate U.S. Holder may be subject to tax on the dividend at regular ordinary income tax rates instead of the preferential rate that applies to qualified dividend income. Further, the Biden Administration has proposed limiting the application of the preferential rate that applies to qualified dividend income. U.S. Holders should consult with, and rely solely upon, their tax advisors regarding the availability of the lower preferential rate for qualified dividend income for any dividends paid with respect to Lion Common Shares.

 

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Gain or Loss on Sale or Other Taxable Exchange or Disposition of Lion Common Shares. Upon a sale or other taxable exchange or disposition of Lion Common Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such exchange or disposition and (ii) the U.S. Holder’s adjusted tax basis in its Lion Common Shares so disposed of. A U.S. Holder’s adjusted tax basis in its Lion Common Shares generally will equal the U.S. Holder’s acquisition cost of such Lion Common Shares, less, any prior distributions on such Lion Common Shares paid to such U.S. Holder that were treated as a return of capital for U.S. federal income tax purposes.

Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. Holder held the Lion Common Shares so disposed of for more than one year. Long-term capital gains recognized by non-corporate U.S. Holders may be eligible to be taxed at reduced rates. However, the Biden Administration has proposed limiting the application of the reduced rate applicable to long-term capital gains. In addition, the deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding. Dividends with respect to Lion Common Shares and proceeds from the sale or exchange of Lion Common Shares may be subject, under certain circumstances, to information reporting and backup withholding. Backup withholding will not apply, however, to a U.S. Holder that (i) is a corporation or entity that is otherwise exempt from backup withholding (which, when required, certifies as to its exempt status) or (ii) furnishes a correct taxpayer identification number and makes any other required certification on IRS Form W-9. Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund generally may be obtained, provided that the required information is timely furnished to the IRS.

Certain U.S. Holders may be required to file an IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) to report a transfer of property (including stock, securities, or cash) to Lion. Substantial penalties may be imposed on a U.S. Holder that fails to comply with this reporting requirement and the period of limitations on assessment and collection of U.S. federal income taxes will be extended in the event of a failure to comply. Furthermore, certain U.S. Holders who are individuals and certain entities will be required to report information with respect to such U.S. Holder’s investment in “specified foreign financial assets” on IRS Form 8938 (Statement of Specified Foreign Financial Assets), subject to certain exceptions. An interest in Lion constitutes a specified foreign financial asset for these purposes. Persons who are required to report specified foreign financial assets and fail to do so may be subject to substantial penalties and the period of limitations on assessment and collection of U.S. federal income taxes will be extended in the event of a failure to comply. Potential investors are urged to consult with, and rely solely upon, their tax advisors regarding the foreign financial asset and other reporting obligations and their application to an investment in Lion Common Shares.

Considerations for Non-U.S. Holders

Non-U.S. Holders generally will not be subject to U.S. federal income tax in respect of their ownership of Lion Common Shares. Under certain circumstances, a Non-U.S. Holder may be subject to U.S. federal income tax in respect of such ownership, which circumstances include, but are not limited to, Non-U.S. Holders recognizing income from their ownership of Lion Common Shares that is effectively connected with a trade or business conducted by the Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States) and the treatment of Lion as a U.S. corporation for U.S. federal income tax purposes. As indicated above, Lion does not expect to be treated as a U.S. corporation for U.S. federal income tax purposes, and Lion intends to take this position on its tax returns. Therefore, this disclosure does not address U.S. federal income tax considerations for Non-U.S. Holders in respect of their ownership of Lion Common Shares. Non-U.S. Holders should consult with, and rely solely upon, their tax advisors to determine whether their ownership of Lion Common Shares will be subject to U.S. federal income tax and any resultant tax consequences.

 

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THE FOREGOING DISCUSSION IS NOT TAX ADVICE OR A COMPREHENSIVE DISCUSSION OF ALL U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF LION COMMON SHARES. HOLDERS OF LION COMMON SHARES SHOULD CONSULT WITH, AND RELY SOLELY UPON, THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES TO THEM OWNING LION COMMON SHARES, INCLUDING THE EFFECT OF ANY U.S. FEDERAL, STATE, LOCAL, NON-U.S., OR OTHER TAX LAWS.

 

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CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of Stikeman Elliott LLP, Canadian counsel to the Company, the following is a general summary, as of the date hereof, of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) and the regulations thereunder (collectively, the “Tax Act”) generally applicable to a holder who acquires Lion Common Shares as beneficial owner pursuant to this offering and who, for the purposes of the Tax Act and at all relevant times, acquires and holds the Common Shares as capital property, deals at arm’s length with the Company or any of the selling securityholders, is not affiliated with the Company or any of the selling securityholders, has not entered into, with respect to their Common Shares, a “derivative forward agreement” or a “dividend rental arrangement” each as defined under the Tax Act (a “Holder”). A Common Share will generally be capital property to a Holder provided the Holder does not acquire or hold such Common Share in the course of carrying on a business or as part of an adventure or concern in the nature of trade.

This summary is based upon the current provisions of the Tax Act and counsel’s understanding of the current published administrative and assessing policies and practices of the Canada Revenue Agency (the “CRA”). The summary also takes into account all specific proposals to amend the Tax Act that have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”), and assumes that all such Tax Proposals will be enacted in the form proposed. No assurance can be given that the Tax Proposals will be enacted in the form proposed or at all. This summary does not otherwise take into account or anticipate any changes in law, CRA’s administrative policies or assessing practices, whether by way of legislative, regulatory, judicial or administrative action or interpretation, nor does it address any provincial, territorial or foreign tax considerations.

This summary is not exhaustive of all possible Canadian federal income tax considerations relating to purchasing, holding or disposing of the Common Shares. Moreover, 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 Holder. Accordingly, Holders are urged to consult their own tax advisors about the specific tax consequences to them of acquiring, holding and disposing of Common Shares.

Residents of Canada

This portion of the summary is generally applicable to a Holder who, for the purposes of the Tax Act, and at all relevant times, is, or is deemed to be, resident in Canada (“Resident Holder”). This portion of the summary is not applicable to a Resident Holder: (a) that is a “financial institution”, as defined in the Tax Act for purposes of the “mark-to-market rules” contained in the Tax Act; (b) an interest in which would be a “tax shelter investment” as defined in the Tax Act; (c) that is a “specified financial institution” as defined in the Tax Act; or (d) that has elected to report its “Canadian tax results”, as defined in the Tax Act, in a currency other than the Canadian currency. Any such Holder to which this summary does not apply should consult its own tax advisor.

Additional considerations, not discussed herein, may be applicable to a Resident Holder that is a corporation resident in Canada and is, or becomes, or does not deal at arm’s length for purposes of the Tax Act with a corporation resident in Canada that is or becomes, as part of a transaction or series of transactions or events that includes the acquisition of Common Shares, controlled by a non-resident person, or if no single non-resident person has or acquires control, by a group of non-resident persons that do not deal with each other at arm’s length for purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Such Resident Holders should consult their own tax advisors with respect to the consequences of acquiring Common Shares.

Certain Resident Holders whose Common Shares might not otherwise qualify as capital property may, in certain circumstances, make the irrevocable election pursuant to subsection 39(4) of the Tax Act to have its Common Shares, and every other “Canadian security”, as defined in the Tax Act, owned by such Resident Holder in the taxation year of the election and in all subsequent taxation years, deemed to be capital property. Resident Holders should consult their own tax advisors for advice as to whether an election under subsection 39(4) of the Tax Act is available and advisable in their own circumstances.

 

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Dividends on Common Shares

Dividends received (or deemed to be received) on a Common Share by a Resident Holder who is an individual (including certain trusts) will be included in computing such Resident Holder’s income and will be subject to the gross-up and dividend tax credit rules normally applicable under the Tax Act to taxable dividends received from taxable Canadian corporations, including the enhanced gross-up and dividend tax credit in respect of dividends designated by the Company as “eligible dividends”. There may be limitations on the ability of the Company to designate dividends as “eligible dividends”. Dividends received or deemed to be received by a Resident Holder who is an individual (including certain trusts) may result in such Resident Holder being liable for alternative minimum tax under the Tax Act. Resident Holders who are individuals should consult their own tax advisors in this regard.

Dividends received (or deemed to be received) on a Common Share by a Resident Holder that is a corporation will be included in computing such Resident Holder’s income for the taxation year and will generally also be deductible in computing its taxable income for that taxation year. In certain circumstances a dividend received (or deemed to be received) by a Resident Holder that is a corporation may be deemed to be proceeds of disposition giving rise to a capital gain pursuant to subsection 55(2) of the Tax Act. A Resident Holder that is a “private corporation” or a “subject corporation”, each as defined in the Tax Act, will generally be liable to pay an additional tax under Part IV of the Tax Act on dividends received (or deemed to be received) on Common Shares to the extent such dividends are deductible in computing the Resident Holder’s taxable income. Such additional tax may be refundable in certain circumstances. Resident Holders should consult their own tax advisors in this regard.

Dispositions of Common Shares

Generally, on a disposition, or a deemed disposition, of a Common Share (other than to the Company unless purchased by the Company in the open market in the manner in which shares are normally purchased by any member of the public in the open market), a Resident Holder will realize a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition of the Common Share, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Common Share to the Resident Holder immediately before the disposition or deemed disposition. Such capital gain (or capital loss) will be subject to the treatment described below under “Taxation of Capital Gains and Capital Losses”.

Taxation of Capital Gains and Capital Losses

Generally, one-half of any capital gain (a “taxable capital gain”) realized by a Resident Holder for a taxation year must be included in computing the Resident Holder’s income for the year. Subject to and in accordance with the provisions of the Tax Act, a Resident Holder will generally be required to deduct one-half of any capital loss (an “allowable capital loss”) realized in a taxation year from taxable capital gains realized in that taxation year and allowable capital losses in excess of taxable capital gains for the taxation year of disposition may generally be carried back and deducted in any of the three preceding taxation years, or carried forward and deducted in any subsequent year against net taxable capital gains realized in such years, to the extent and under the circumstances specified in the Tax Act. If the Resident Holder is a corporation, any such capital loss realized on the sale of a Common Share may in certain circumstances be reduced by the amount of any dividends which have been received (or deemed to be received) by the Resident Holder on such Common Share to the extent and in circumstances prescribed by the Tax Act. Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns Common Shares, directly or indirectly through a partnership or a trust. Such Resident Holder should consult its own tax advisor. Taxable capital gains realized by a Resident Holder who is an individual (including certain trusts) may give rise to alternative minimum tax depending on the Resident Holder’s circumstances.

A Resident Holder that is throughout the year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable to pay an additional tax on certain investment income, including taxable capital gains. Such additional tax may be refundable in certain circumstances. Resident Holders should consult their own tax advisors in this regard.

Non-Residents of Canada

This portion of the summary is generally applicable to a Holder who, for the purposes of the Tax Act and at all relevant times, is not (and is not deemed to be) resident in Canada and will not use or hold (and will not be deemed to use or hold) the Common Shares in, or in the course of, carrying on a business or part of a business in Canada (a “Non-Resident Holder”). This summary does not apply to a Non-Resident Holder that carries on an insurance business in Canada and elsewhere or an “authorized foreign bank” (as defined in the Tax Act) and such Non-Resident Holders should consult their own tax advisors.

 

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Dividends on Common Shares

A dividend paid or credited, or deemed to be paid or credited, on a Common Share to a Non-Resident Holder will generally be subject to Canadian withholding tax at the rate of 25% of the gross amount of the dividend, subject to any reduction in the rate of withholding to which that Non-Resident Holder may be entitled under an applicable income tax treaty or convention. For example, the rate of withholding tax applicable to a dividend paid on a Common Share to a Non-Resident Holder that is the beneficial owner of the dividend and who is a resident of the United States for purposes of the Canada-U.S. Income Tax Convention (the “Convention”), and is fully entitled to the benefits of the Convention will generally be reduced to 15%.

Dispositions of 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 or deemed disposition of a Common Share and any capital loss arising on a disposition or deemed disposition of a Common Share by a Non-resident Holder will not be recognized under the Tax Act, unless the Common Share constitutes “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 between Canada and the country in which the Non-Resident Holder is resident. Generally, a Common Share will not constitute taxable Canadian property of a Non-Resident Holder at any particular time provided that the Common Share is listed on a “designated stock exchange” for the purposes of the Tax Act (which currently includes the TSX and the NYSE), unless at any time during the 60-month period immediately preceding such time: (a) 25% or more of the issued shares of any class or series of the capital stock of the Company was owned by or belonged to any combination of (i) the Non-Resident Holder, (ii) persons with whom the Non-Resident Holder did not deal at arm’s length (for the purposes of the Tax Act), and (iii) partnerships in which the Non-Resident Holder or a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships; and (b) more than 50% of the fair market value of the Common Share was derived directly or indirectly from one, or any combination of, real or immovable property situated in Canada, Canadian resource property (as defined in the Tax Act), timber resource property (as defined in the Tax Act) or options in respect of, interests in or for civil law rights in any such property (whether or not such property exists). Notwithstanding the foregoing, a Common Share may also be deemed to be “taxable Canadian property” in certain circumstances. Non-Resident Holders for whom a Common Share is, or may be, taxable Canadian property should consult their own tax advisors.

 

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PLAN OF DISTRIBUTION

The selling securityholders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their Lion Common Shares being offered under this prospectus on any stock exchange, market or trading facility on which our Lion Common Shares are traded or in private transactions. These sales may be at fixed prices (which may be changed from time to time), at market prices prevailing at the time of the sale, at varying prices determined at the time of sale, at prices related to prevailing market prices or at negotiated prices. The selling securityholders may use any one or more of the following methods when disposing of the Lion Common Shares:

 

   

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

   

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

   

purchases by a broker-dealer as principal and resales by the broker-dealer for its account;

 

   

an over-the-counter distribution in accordance with the rules of the applicable exchange;

 

   

through trading plans entered into by a selling securityholder pursuant to Rule 10b5-1 under the Exchange Act that are in place at the time of an offering pursuant to this prospectus and any applicable prospectus supplement hereto that provide for periodic sales of their securities on the basis of parameters described in such trading plans;

 

   

through one or more underwritten offerings on a firm commitment or best efforts basis;

 

   

an exchange distribution in accordance with the rules of the applicable exchange;

 

   

privately negotiated transactions;

 

   

to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the SEC;

 

   

broker-dealers may agree with the selling securityholders to sell a specified number of such shares at a stipulated price per share;

 

   

directly to purchasers, including through a specific bidding, auction or other process or in privately negotiated transactions;

 

   

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

   

a combination of any of these methods of sale; and

 

   

any other method permitted pursuant to applicable law.

In addition, a selling securityholder that is an entity may elect to make an in-kind distribution of securities to its members, partners or stockholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus with a plan of distribution. Such members, partners or stockholders would thereby receive freely tradeable securities pursuant to the distribution through a registration statement. To the extent a distributee is an affiliate of ours (or to the extent otherwise required by law), we may file a prospectus supplement in order to permit the distributees to use the prospectus to resell the securities acquired in the distribution.

The selling securityholders also may transfer the securities in other circumstances, in which case the transferees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus. Upon being notified by the selling securityholders that a donee, pledgee, transferee, other successor-in-interest intends to sell our securities, we will, to the extent required, promptly file a supplement to this prospectus to name specifically such person as a selling securityholders.

 

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There can be no assurance that the selling securityholders will sell all or any of the securities offered by this prospectus. In addition, the shares may also be sold under Rule 144 under the Securities Act, or any other exemption from registration under the Securities Act, if available for a selling securityholders, rather than under this prospectus. The selling securityholders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if it deems the purchase price to be unsatisfactory at any particular time.

To the extent required, the Lion Common Shares to be sold, the name of the selling securityholders, the respective purchase prices and public offering prices, the proceeds to be received from the sale, if any, and other material terms of the offering, the settlement of short sales entered into after the date of this prospectus, the names of any agents, dealer or underwriter, any applicable commissions or discounts or any other items constituting compensation from the selling securityholders with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In connection with the sale of the Lion Common Shares, the selling securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the shares of Lion Common Shares in the course of hedging the positions they assume. The selling securityholders may also sell Lion Common Shares short and deliver these securities to close out their short positions, or loan or pledge the Lion Common Shares to broker-dealers that in turn may sell these shares. The selling securityholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

In order to facilitate the offering of the securities, any underwriters or agents, as the case may be, involved in the offering of such securities may engage in transactions that stabilize, maintain or otherwise affect the price of the securities. Specifically, the underwriters or agents, as the case may be, may overallot in connection with the offering, creating a short position in the securities for their own account. In addition, to cover overallotments or to stabilize the price of the securities, the underwriters or agents, as the case may be, may bid for, and purchase, such securities in the open market. Finally, in any offering of securities through a syndicate of underwriters, the underwriting syndicate may reclaim selling concessions allotted to an underwriter or a broker-dealer for distributing such securities in the offering if the syndicate repurchases previously distributed securities in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the securities above independent market levels. The underwriters or agents, as the case may be, are not required to engage in these activities, and may end any of these activities at any time.

The selling securityholders may pledge their shares to its brokers under the margin provisions of customer agreements. If the selling securityholders defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.

Broker-dealers engaged by the selling securityholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling securityholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.

If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.

The selling securityholders and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares

 

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purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell common shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.

The selling securityholders may solicit offers to purchase the securities directly from, and it may sell such securities directly to, institutional investors or others. In this case, no underwriters or agents would be involved. The terms of any of those sales, including the terms of any bidding or auction process, if utilized, will be described in the applicable prospectus supplement.

The selling securityholders may authorize underwriters, broker-dealers or agents to solicit offers by certain purchasers to purchase the securities at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. The contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth any commissions we or the selling securityholders pay for solicitation of these contracts.

A selling securityholder may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by any selling securityholder or borrowed from any selling securityholder or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from any selling securityholder in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement (or a post-effective amendment). In addition, any selling securityholder may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell the securities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.

In compliance with the guidelines of the Financial Industry Regulatory Authority (“FINRA”), the aggregate maximum discount, commission, fees or other items constituting underwriting compensation to be received by any FINRA member or independent broker-dealer will not exceed 8% of the gross proceeds of any offering pursuant to this prospectus and any applicable prospectus supplement.

If at the time of any offering made under this prospectus a member of FINRA participating in the offering has a “conflict of interest” as defined in FINRA Rule 5121 (“Rule 5121”), that offering will be conducted in accordance with the relevant provisions of Rule 5121.

Underwriters, broker-dealers or agents may facilitate the marketing of an offering online directly or through one of their affiliates. In those cases, prospective investors may view offering terms and a prospectus online and, depending upon the particular underwriter, broker-dealer or agent, place orders online or through their financial advisors.

The underwriters, broker-dealers and agents may engage in transactions with us or the selling securityholders, or perform services for us or the selling securityholders, in the ordinary course of business.

In order to comply with the securities laws of certain states, if applicable, the securities must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

The selling securityholders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the selling securityholders or any other person. Furthermore, under Regulation M,

 

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persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.

We will make copies of this prospectus available to the selling securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling securityholders may indemnify any agent, broker-dealer or underwriter that participates in transactions involving the sale of the securities against certain liabilities, including liabilities arising under the Securities Act.

We have agreed with certain selling securityholders pursuant to the Subscription Agreements to use commercially reasonable efforts to keep the registration statement of which this prospectus constitutes a part effective until such time as (i) such selling securityholders cease to hold any of the shares acquired under such Subscription Agreements or, (ii) the date all such shares may be sold without restriction under Rule 144, including without limitation, any volume and manner of sale restrictions which may be applicable to affiliates under Rule 144 and without the requirement for us to be in compliance with the current public information required under Rule 144(c)(1) or Rule 144(i)(2), as applicable and (iii) two years from the date of effectiveness of the registration statement of which this prospectus is a part.

The shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the common shares covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Certain of our securityholders have entered into lock-up agreements. See “Certain Relationships and Related Party Transactions — Lion Lock-Up Agreements,” and “Certain Relationships and Related Party Transactions — Stockholder Support and Lock-Up Agreement.”

 

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EXPENSES RELATED TO THE OFFERING

Set forth below is an itemization of the total expenses which are expected to be incurred by Lion in connection with the offer and sale of Lion Common Shares by Lion’s selling securityholders. With the exception of the SEC registration fee, all amounts are estimates.

 

SEC registration fee

   $ 301,700  

Legal fees and expenses

     150,000  

Accounting fees and expenses

     50,000  

Printing and miscellaneous expenses

     48,300  
  

 

 

 

Total

   $ 550,000  
  

 

 

 

 

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LEGAL MATTERS

The validity of the Lion Common Shares has been passed upon by Stikeman Elliott LLP, counsel to Lion as to Canadian law. We have been advised on U.S. securities matters by Vinson & Elkins L.L.P.

EXPERTS

The audited consolidated financial statements of Lion as of December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020 appearing in this prospectus and registration statement have been audited by Raymond Chabot Grant Thornton LLP, independent registered public accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as an expert in accounting and auditing. Raymond Chabot Grant Thornton LLP is independent of Lion within the meaning of the Code of Ethics of the Ordre des comptables professionnels agréés du Québec and within the meaning of the U.S. Securities Act of 1933, as amended, and the applicable rules and regulations thereunder adopted by the SEC and the Public Company Accounting Oversight Board (United States).

 

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SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES UNDER U.S. SECURITIES LAWS

Lion is a corporation incorporated under the laws of the Province of Québec. Other than Sheila C. Bair, all of Lion’s directors and executive officers reside outside the United States. A substantial portion of Lion’s assets and the assets of those non-resident persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon Lion or those persons or to enforce against Lion or them, either inside or outside the United States, judgments obtained in U.S. courts, or to enforce in U.S. courts, judgments obtained against them in courts in jurisdictions outside the United States, in any action predicated upon civil liability provisions of the federal securities laws of the United States or other laws of the United States.

We have appointed Puglisi & Associates as our agent upon whom process may be served in any action brought against us under the laws of the United States. In addition, investors should not assume that the courts of Canada (i) would enforce judgments of U.S. courts obtained in actions against Lion, its officers or directors, or other said persons, predicated upon the civil liability provisions of the federal securities laws of the United States or other laws of the United States or (ii) would enforce, in original actions, liabilities against Lion or such directors, officers or experts predicated upon the federal securities laws of the United States or other laws of the United States. In addition, there is doubt as to the applicability of the civil liability provisions of federal securities laws of the United States to original actions instituted in Canada. It may be difficult for an investor, or any other person or entity, to assert U.S. securities laws claims in original actions instituted in Canada.

WHERE YOU CAN FIND MORE INFORMATION

Lion has filed with the SEC a registration statement (including amendments and exhibits to the registration statement) on Form F-1 under the Securities Act. For purposes of this section, the term registration statement means the original registration statement and any and all amendments including the schedules and exhibits to the original registration statement or any amendment. This prospectus, which is part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information, please refer to the registration statement and the exhibits and schedules filed as part of the registration statement. If a document has been filed as an exhibit to the registration statement, please refer to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit.

Lion is subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers. Accordingly, Lion is required to file or furnish reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Lion’s filings with the SEC are available to the public through the SEC’s website at http://www.sec.gov.

As a foreign private issuer, Lion is exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and Lion’s executive officers, directors and principal and selling shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, Lion will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

Lion maintains a corporate website at https://thelionelectric.com/en. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus. Lion’s website address has been included in this prospectus solely for informational purposes.

 

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INDEX TO FINANCIAL STATEMENTS

 

     Page No.  

The Lion Electric Company Audited Consolidated Financial Statements – December 31, 2020

  

Report of Independent Registered Public Accounting Firm

     F-2  

Consolidated Financial Position

     F-3  

Consolidated Comprehensive Loss

     F-4  

Consolidated Changes in Equity

     F-5  

Consolidated Cash Flows

     F-6  

Notes to Consolidated Financial Statements

     F-8  

The Lion Electric Company Unaudited Condensed Interim Consolidated Financial Statements – March 31, 2021

  

Consolidated Financial Position

     F-40  

Consolidated Comprehensive Loss

     F-41  

Consolidated Changes in Equity

     F-42  

Consolidated Cash Flows

     F-43  

Notes to Condensed Interim Consolidated Financial Statements

     F-44  

 

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Directors of The Lion Electric Company

Opinion on the consolidated financial statements

We have audited the accompanying consolidated statements of financial position of The Lion Electric Company (formerly Lion Buses Inc.) (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive loss, changes in equity and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the results of its consolidated operations and its consolidated cash flows for each of the three years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2014.

/s/ Raymond Chabot Grant Thornton LLP

Montréal, Canada

February 23, 2021

 

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The Lion Electric Company

Consolidated Statements of Financial Position

As of December 31, 2020 and 2019

(In US dollars)

 

     Notes      December 31,
2020
    December 31,
2019
 
            $     $  

ASSETS

       

Current

       

Inventories

     5        38,073,303       12,007,744  

Accounts receivable

     6        18,505,072       16,903,488  

Prepaid expenses

        1,078,148       276,135  
     

 

 

   

 

 

 

Current assets

        57,656,523       29,187,367  
     

 

 

   

 

 

 

Non-current

       

Property, plant and equipment

     7        5,446,807       3,075,042  

Right-of-use assets

     8        7,498,724       6,573,964  

Intangible assets

     9        42,090,843       27,080,634  

Contract asset

     16        14,327,709       —    
     

 

 

   

 

 

 

Non-current assets

        69,364,083       36,729,640  
     

 

 

   

 

 

 

Total assets

        127,020,606       65,917,007  
     

 

 

   

 

 

 

LIABILITIES

       

Current

       

Bank indebtedness and other indebtedness

     10.2        28,733,983       14,078,669  

Trade and other payables

     11        12,404,614       6,475,697  

Current portion of share-based compensation liability

     15.2        35,573,558       535,592  

Current portion of long-term debt

     10.5        26,699,276       9,231,989  

Current portion of lease liabilities

     8        1,814,635       1,037,477  
     

 

 

   

 

 

 

Current liabilities

        105,226,066       31,359,424  
     

 

 

   

 

 

 

Non-current

       

Share-based compensation liability

     15.2        35,126,025       1,438,393  

Long-term debt

     10.5        118,539       2,551,893  

Convertible debt instruments

     12        18,866,890       —    

Lease liabilities

     8        5,904,473       5,632,310  

Share warrant obligation

     16        31,549,033       —    

Common shares, retractable

     13, 14        25,855,509       20,050,896  
     

 

 

   

 

 

 

Non-current liabilities

        117,420,469       29,673,492  
     

 

 

   

 

 

 

Total liabilities

        222,646,535       61,032,916  
     

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY (DEFICIENCY)

       

Share capital

     13, 14        32,562,541       32,562,541  

Conversion options on convertible debt instruments, net of tax

     12        1,472,520       —    

Deficit

        (126,430,406     (29,078,739

Cumulative translation adjustment

        (3,230,584     1,400,289  
     

 

 

   

 

 

 

Total equity (deficiency)

        (95,625,929     4,884,091  
     

 

 

   

 

 

 

Total equity (deficiency) and liabilities

        127,020,606       65,917,007  
     

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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The Lion Electric Company

Consolidated Statements of Comprehensive Loss

For the years ended December 31,

(In US dollars, except per share amounts)

 

     Notes      2020     2019     2018  
            $     $     $  

Revenue

        23,422,623       30,862,476       16,621,416  

Cost of sales

        20,277,309       20,777,779       12,903,936  
     

 

 

   

 

 

   

 

 

 

Gross profit

        3,145,314       10,084,697       3,717,480  
     

 

 

   

 

 

   

 

 

 

Administrative expenses

     15.2        59,941,972       2,936,013       2,009,740  

Selling expenses

     15.2        15,721,328       5,892,146       3,928,208  

Finance costs

     17        8,667,405       4,112,475       3,274,036  

Foreign exchange loss (gain)

        (681,194     78,663       (136,511

Change in fair value of share warrant obligation

     16        16,847,470       —         —    

Other

        —         132,732       —    
     

 

 

   

 

 

   

 

 

 

Loss before income taxes

        (97,351,667     (3,067,332     (5,357,993

Income taxes

     18        —         4,000       —    
     

 

 

   

 

 

   

 

 

 

Net loss for the year

        (97,351,667     (3,071,332     (5,357,993

Other comprehensive income (loss)

         

Item that will be subsequently reclassified to net loss

         

Foreign currency translation adjustment

        (4,630,873     234,375       (306,241
     

 

 

   

 

 

   

 

 

 

Comprehensive loss for the year

        (101,982,540     (2,836,957     (5,664,234
     

 

 

   

 

 

   

 

 

 

Loss per share

         

Basic loss per share

     19        (3.64     (0.12     (0.22
     

 

 

   

 

 

   

 

 

 

Diluted loss per share

     19        (3.64     (0.12     (0.22
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-4


Table of Contents

The Lion Electric Company

Consolidated Statements of Changes in Equity

For the years ended December 31, 2020, 2019 and 2018

(In US dollars, except for number of shares)

 

     Notes     Number of
shares
    Share capital     Conversion
options
    Deficit     Cumulative
translation
adjustment
    Total equity
(deficiency)
 
                 $     $     $     $     $  

Balance at January 1, 2020

       26,775,004       32,562,541       —         (29,078,739     1,400,289       4,884,091  

Issuance of convertible debt instruments

     12       —         —         1,472,520       —         —         1,472,520  

Net loss for the year

       —         —         —         (97,351,667     —         (97,351,667

Other comprehensive loss

              

Foreign currency translation adjustment

       —         —         —         —         (4,630,873     (4,630,873
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2020

       26,775,004       32,562,541       1,472,520       (126,430,406     (3,230,584     (95,625,929
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2019

       24,543,759       26,333,635       —         (26,007,407     1,165,914       1,492,142  

Issue of share capital and transaction with owners

     13       2,231,245       6,228,906       —         —         —         6,228,906  

Net loss for the year

       —         —         —         (3,071,332     —         (3,071,332

Other comprehensive income

              

Foreign currency translation adjustment

       —         —         —         —         234,375       234,375  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

       26,775,004       32,562,541       —         (29,078,739     1,400,289       4,884,091  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2018

       24,543,759       26,333,635       —         (20,649,414     1,472,155       7,156,376  

Net loss for the year

       —         —         —         (5,357,993     —         (5,357,993

Other comprehensive loss

              

Foreign currency translation adjustment

       —         —         —         —         (306,241     (306,241
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2018

       24,543,759       26,333,635       —         (26,007,407     1,165,914       1,492,142  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-5


Table of Contents

The Lion Electric Company

Consolidated Statements of Cash Flows

For the years ended December 31,

(In US dollars)

 

     Notes      2020     2019     2018  
            $     $     $  

OPERATING ACTIVITIES

         

Net loss for the year

        (97,351,667     (3,071,332     (5,357,993

Non-cash items:

         

Amortization—property, plant and equipment

     7        764,068       313,342       170,575  

Amortization—right-of-use assets

     8        1,444,204       653,210       537,218  

Amortization—intangible assets

     9        487,876       249,658       136,765  

Stock-based compensation

     15.2        65,248,941       1,421,973       522,600  

Accretion expense on common shares, retractable

     17        4,791,806       2,746,799       3,050,375  

Accretion expense on balance of purchase price payable related to the acquisition of the dealership rights

     17        582,018       494,581       —    

Accretion expense on convertible debt instruments

        1,034,927       —         —    

Accretion expense, other

        —         44,391       65,740  

Change in fair value of share warrant obligation

     16        16,847,470       —         —    

Unrealized foreign exchange loss (gain)

        7,893       (145,872     —    

Net change in working capital items

     20        (20,915,636     (10,110,689     (1,335,088
     

 

 

   

 

 

   

 

 

 

Cash flows used in operating activities

        (27,058,100     (7,403,939     (2,209,808
     

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES

         

Acquisition of property, plant and equipment

        (2,897,237     (1,759,828     (413,072

Acquisition of intangible assets

        (16,539,159     (12,349,283     (7,871,009

Government assistance related to intangible assets

        2,842,172       1,403,325       1,320,962  

Contract asset, other costs

     16        (199,790     —         —    
     

 

 

   

 

 

   

 

 

 

Cash flows used in investing activities

        (16,794,014     (12,705,786     (6,963,119
     

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES

         

Net change in credit facilities

        7,272,073       6,283,827       3,766,304  

Repayment of loans on research and development tax credits and subsidies receivable

        (3,242,248     (2,385,259     (2,363,588

Loans on research and development tax credits receivable and subsidies receivable

        9,699,300       3,489,336       2,442,695  

Net change in loans from shareholders exercising significant influence

        —         —         (27,895

Long-term debt

        15,021,339       7,572,316       —    

Repayment of long-term debt

        (1,659,855     (1,517,192     (256,935

Repayment of lease liabilities

        (1,327,707     (619,267     (513,375

Proceeds from issuance of convertible debt instruments, net of issuance costs

        18,698,168       —         —    

Share issue

        —         7,429,973       —    

Share redemption

        —         (150,020     —    

Share issue expenses

        —         —         (24,386
     

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

        44,461,070       20,103,714       3,022,820  
     

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash held in foreign currency

        (531,924     59,927       (182,325
     

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

        77,032       53,916       (6,332,432

Bank overdraft, beginning of year

        (168,108     (222,024     6,110,408  
     

 

 

   

 

 

   

 

 

 

Bank overdraft, end of year

        (91,076     (168,108     (222,024
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-6


Table of Contents
     Notes      2020      2019      2018  
            $      $      $  

Other information on cash flows related to operating activities:

           

Income taxes paid

        —          4,000        —    

Interest paid

        3,249,129        1,143,828        251,858  

Interest paid under lease liabilities

        277,375        52,296        38,991  

The accompanying notes are an integral part of the consolidated financial statements.

 

F-7


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019 and 2018

(In US dollars)

 

1.

NATURE OF OPERATIONS

The principal activities of The Lion Electric Company (formerly Lion Buses Inc.) (“Lion” or the “Company”) and its subsidiaries (together referred to as the “Group”) include design, development of technology and sales for all-electric heavy-duty urban vehicles including battery systems, chassis, bus bodies and truck cabins. The Group also distributes truck and bus parts and accessories.

On November 24, 2020, the Company amended its name from Lion Buses Inc. to The Lion Electric Company.

 

2.

GENERAL INFORMATION AND STATEMENT OF COMPLIANCE WITH IFRS

The Company is incorporated under the Business Corporations Act (Quebec) and is the Group’s ultimate parent company. Its registered office and principal place of business is 921, chemin de la Riviere-du-Nord, Saint-Jérôme, Quebec, Canada. The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements for the year ended December 31, 2020 were approved and authorized for issue by the Board of Directors on February 23, 2021.

 

3.

SUMMARY OF ACCOUNTING POLICIES

3.1 Overall considerations

The consolidated financial statements have been prepared using the significant accounting policies and measurement bases that are in effect at December 31, 2020, as summarized below. These were used throughout all periods presented in the consolidated financial statements.

3.2 Basis of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary The Lion Electric Co. USA Inc. as of December 31, 2020 and 2019 and Lion Electric Merger Sub Inc. as of December 31, 2020. The subsidiaries have a reporting date of December 31.

Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

All transactions and balances between Group companies are eliminated on consolidation, including unrealized gains and losses on transactions between Group companies. Where unrealized losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of the subsidiary have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

3.3 Foreign currency translation

Functional and presentation currency

The consolidated financial statements are presented in United States (“US”) dollars. The functional currency of the parent company and its subsidiaries is the Canadian dollar.

The functional currency of the entities in the Group has remained unchanged during the reporting periods.

 

F-8


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

Foreign currency translation

Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognized in profit or loss.

Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

The Group’s Canadian dollar financial statements are translated to US dollars as follows: assets and liabilities are translated at the closing rate in effect at the reporting date and income and expenses are translated at the average exchange rate for the period. The share capital account is translated at rates in effect at the time of issuance. Exchange gains or losses resulting from the translation of the Group’s accounts into the reporting currency are reported as foreign currency translation adjustment within other comprehensive income (loss) and presented as a separate component of shareholders’ equity.

3.4 Segment reporting

The Group has only one operating segment: the manufacturing and sale of electric vehicles in Canada and the United States.

3.5 Revenue

The Group’s principal sources of revenue are the sale of all-electric medium and heavy-duty urban vehicles. To determine whether to recognize revenue, the Group follows a 5-step process:

 

   

Identifying the contract with a customer;

 

   

Identifying the performance obligations;

 

   

Determining the transaction price;

 

   

Allocating the transaction price to the performance obligations; and

 

   

Recognizing revenue when/as performance obligation(s) are satisfied.

Revenue is recognized at a point in time, when the Group satisfies performance obligations by transferring control of the goods to its customers, which generally occur when the goods are delivered to the customers and when the customer confirms acceptance.

The Group guarantees its products against defects for periods varying from one year to eight years. An allowance for warranty expense is recorded when the revenue for the related product is recognized. The allowance is based upon the terms of the warranty, the Group’s historical experience and management estimates of future expense for replacement or repairs. The corresponding expense is recorded in cost of goods sold.

3.6 Operating expenses

Operating expenses are recognized in profit or loss upon utilization of the service or at the date of their origin. Expenditure for warranties is recognized and charged against the associated provision when the related revenue is recognized.

 

F-9


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

3.7 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized during the period of time that is necessary to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period in which they are incurred and reported in finance costs.

3.8 Intangible assets

Initial recognition

Acquired software

Acquired computer software licences are capitalized on the basis of the costs incurred to acquire and install the specific software.

Dealership rights with an indefinite useful life

Dealership rights with an indefinite useful life are recorded initially at cost and are not amortized. Because the acquisition was based on future sales of a product, the Group has elected to measure the cost based on a financial liability model, whereby the fair value of all variable payments under the contract are recorded on initial recognition of the asset with a corresponding liability. Any re-measurements of the related liability are recognized in earnings. The cost also includes any directly attributable costs of preparing the asset for its intended use. Directly attributable costs include professional fees arising directly from bringing the asset to its working conditions.

Dealership rights are subject to asset impairment testing as described below. The useful life is reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment.

Internally developed intangible assets

Expenditure on the research phase is recognized as an expense as incurred.

Costs that are directly attributable to a project’s development phase are recognized as intangible assets, provided they meet the following recognition requirements:

 

   

the development costs can be measured reliably;

 

   

the project is technically and commercially feasible;

 

   

the Group intends to and has sufficient resources to complete the project;

 

   

the Group has the ability to use or sell the intangible assets; and

 

   

the intangible assets will generate probable future economic benefits.

Development costs not meeting these criteria for capitalization are expensed as incurred.

Directly attributable costs include employee costs incurred along with an appropriate portion of relevant overheads and subcontractors fees.

Subsequent measurement

All finite-live intangible assets are accounted for using the cost model whereby capitalized costs are amortized on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing as described below. The following useful lives are applied:

 

   

Software: 5 years

 

   

Development costs: According to production of 7,000 units

 

F-10


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

3.9 Property, plant and equipment

Property, plant and equipment are initially recognized at acquisition cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Group’s management. Property, plant and equipment are subsequently measured using the cost model, at cost less accumulated amortization and impairment losses.

Amortization is recognized on a straight-line basis to write down the cost less estimated residual value of property, plant and equipment. The following useful lives are applied:

 

   

Leasehold improvements: remaining lease term

 

   

Machinery and equipment: according to production of 7,000 units and 5 years

 

   

Rolling stock: 5 years

 

   

Computer equipment : 5 years

 

   

Furniture and office equipment: 10 years

 

   

Production moulds: according to production of 1,250 units

 

   

Master patterns and templates: according to production of 7,000 units

 

   

Prototypes: 3 years

In the case of right-of-use assets, expected useful lives are determined by reference to comparable owned assets or the lease term, if shorter. Material residual value estimates and estimates of useful life are updated as required, but at least annually.

3.10 Leased assets

For any new contracts, the Group assesses whether a contract is, or contains a lease. A lease is defined as “a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration”. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:

 

   

the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group;

 

   

the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract;

 

   

the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right to direct “how and for what purpose” the asset is used throughout the period of use.

Measurement and recognition of leases as a lessee

At a lease commencement date, the Group recognizes a right-of-use asset and a lease liability on the consolidated statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

 

F-11


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. The Incremental borrowing rate is the estimated rate that the Group would have to pay to borrow the same amount over a similar term, and with similar security to obtain an asset of equivalent value. This rate is adjusted should the lessee entity have a different risk profile to that of the Group.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in fixed and in substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of low-value assets, if any, using the practical expedients. Instead of recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in profit or loss on a straight-line basis over the lease term.

3.11 Impairment testing of intangible assets, property, plant and equipment and right-of-use assets

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level. Cash-generating units to which intangible assets with indefinite useful lives have been allocated (determined by the Group’s management as equivalent to its operating segments) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors.

Impairment losses for cash-generating units are charged pro rata to the assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount.

3.12 Inventories

Finished goods, goods in process and raw materials are valued at the lower of cost and net realizable value. Cost is determined using the identified cost method for finished goods and goods in process while the cost of raw materials is determined using the weighted average cost method. Supplier rebates are deducted to determine the cost of purchase.

 

F-12


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The cost of inventories includes all purchase, conversion and other costs incurred to bring the inventories to their present location and condition. The net realizable value represents the estimated selling price in the normal course of business less the estimated costs necessary to make the sale. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the year the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the year in which the reversal occurs.

3.13 Financial instruments

Recognition and derecognition

Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the financial instrument.

Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires.

Classification and initial measurement of financial assets

Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:

 

   

amortized cost;

 

   

fair value through profit or loss (FVTPL);

 

   

fair value through other comprehensive income (FVOCI).

In the periods presented, the Group does not have any financial assets categorized as FVTPL or FVOCI.

The classification is determined by both:

 

   

the entity’s business model for managing the financial asset;

 

   

the contractual cash flow characteristics of the financial asset.

All income and expenses relating to financial assets that are recognized in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

Subsequent measurement of financial assets

Financial assets at amortized cost

Financial assets are measured at amortized cost if the assets meet the following conditions (and are not designated as FVTPL):

 

   

they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows;

 

   

the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

F-13


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

After initial recognition, these are measured at amortized cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. Trade receivables, incentives from “support program for the deployment of electric school buses” and from “zero-emission truck and bus program” receivable and other government assistance receivable are classified within this category.

Impairment of financial assets

The Group uses the expected credit losses impairment model with respect to its financial assets carried at amortized cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since the initial recognition of the respective financial instrument.

The Group accounts for the expected credit losses using the simplified approach over the life of financial assets measured at amortized cost. Expected credit losses over the life of the asset are expected credit losses for all of the default events that a financial instrument may experience over its expected life. The assessment of expected credit losses reflects reasonable and justifiable information about past events, current circumstances and forecasts of events and economic conditions and takes into account the factors specific to the account receivable, the general condition of the economy and a current as well as expected appreciation of the condition prevailing at the statement of financial position date, including the time value of the money, if any.

Classification and measurement of financial liabilities

The Group’s financial liabilities measured at amortized cost include bank overdraft, credit facilities, trade and other payables (excluding non-financial liabilities), loans on the research and development tax credits and subsidies receivable, long-term debt, convertible debt instruments, and common shares retractable. The share warrant obligation is a derivative financial liability measured at FVTPL.

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.

Subsequently, financial liabilities are measured at amortized cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognized in profit or loss.

All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income.

Compound financial instruments

The component parts of compound financial instruments (convertible debt instruments) issued by the Group are classified separately as financial liabilities and equity component in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. At the date of issue, the liability component is recognized at fair value, which is estimated using the borrowing rate available for similar non-convertible instruments.

Subsequently, the liability component is measured at amortized cost using the effective interest method until extinguished upon conversion or at maturity. The value of the conversion option classified as equity component is determined at the date of issue by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This amount is recognized in equity, net of income tax effects, and is not subsequently remeasured. When and if the conversion option is exercised, the equity component of convertible debt instruments will be transferred to share capital. If the conversion option remains unexercised at the maturity date of the convertible debt instruments, the equity component of the convertible debt instruments will be transferred to another equity account. No gain or loss is recognized upon conversion or expiration of the conversion option.

Transaction costs related to the issue of convertible debt instruments are allocated to the liability and equity component in proportion to the initial carrying amounts. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the term of the convertible debt instruments using the effective interest method.

 

F-14


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

3.14 Income taxes

Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity.

The calculation of current tax and deferred tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the balance sheet liability method.

Deferred tax assets are recognized to the extent that it is probable that the underlying tax loss or deductible temporary difference will be utilized against future taxable income. This is assessed based on the Group’s forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit.

Deferred tax liabilities are generally recognized in full, although IAS 12, Income Taxes, specifies limited exemptions. As a result of these exemptions the Group does not recognize deferred tax on temporary differences relating to goodwill, or to its investments in subsidiaries. The Group does not offset deferred tax assets and liabilities unless it has a legally enforceable right to do so and intends to settle on a net basis.

3.15 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short- term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

3.16 Equity

Share capital represents the amounts received on the issue of shares less share issue expenses.

Deficit includes all current and prior year losses. All transactions with owners of the parent company are recorded separately within equity.

Cumulative translation adjustment comprises foreign currency translation differences arising from the translation of the consolidated financial statements of the Group into the U.S. dollar, the presentation currency (see Note 3.3).

Conversion options on convertible debt instruments represents the equity component of compound financial instruments (see Note 3.13).

3.17 Share-based employee remuneration

The Group has a stock option plan for its key employees, which is described in Note 15.2. The related share-based payments to employees, officers and consultants are measured at fair value at grant date. The fair value of share-based payments is recognized as an expense over the vesting period with a corresponding increase to liability, because the Group could be required to settle the options in cash.

The fair value of stock options granted is measured using the Black-Scholes option pricing model and takes into account the terms and conditions upon which the options were granted.

The liability is re-measured to fair value at each reporting date up to, and including the settlement date, with changes in fair value recognized in net earnings. The liability is recorded on the Group’s consolidated statement of financial position under the caption share-based compensation liability, current for vested options and non-current for non-vested options.

 

F-15


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

3.18 Provisions, contingent assets and contingent liabilities

Provisions for product warranties, legal disputes, onerous contracts or other claims are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Restructuring provisions are recognized only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan’s main features to those affected by it. Provisions are not recognized for future operating losses.

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset. However, this asset may not exceed the amount of the related provision. In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognized.

3.19 Government assistance

Government assistance related to current expenses is accounted for as a reduction of related expenses while assistance related to the acquisition of non-current assets is accounted for as a reduction of the related non-current assets.

Government assistance is accrued in the year in which the current expenses or the capital expenditures are incurred, provided that the Group is reasonably certain that it will be received.

Since government assistance resulting from the Canada Emergency Wage Subsidy program may be examined by tax authorities, retroactive application clarifications were introduced after the program was announced and some rules may be interpreted differently by the tax authorities, it is possible that the amount granted will differ from the amounts recorded.

3.20 Research and development tax credits

Tax credits related to current expenses are accounted for as a reduction of related expenses while tax credits related to the acquisition or development of non-current assets are accounted for as a reduction of the related non-current assets.

Reimbursable tax credits are accrued in the year in which the expenditures are incurred, provided that the Group is reasonably certain that the credits will be received. The tax credits must be examined and approved by the tax authorities and it is possible that the amounts granted will differ from the amounts recorded.

3.21 Significant management judgements in applying accounting policies and estimation uncertainty

Significant management judgements

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the consolidated financial statements.

Capitalization of internally developed intangible assets

Distinguishing the research and development phases of a new customized project and determining whether the recognition requirements for the capitalization of development costs are met require judgment. After capitalization, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalized costs may be impaired.

 

F-16


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

Recognition of deferred tax assets

The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the Group’s future taxable income against which the deferred tax assets can be utilized. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.

Estimation uncertainty

Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.

Tax credits receivable

The calculation of the Group’s tax credits receivable involves a degree of estimation and judgment in respect of certain items whose tax treatment cannot be finally determined until a notice of assessment has been issued by the relevant taxation authority and payment has been received or applied against income taxes otherwise payable.

Impairment of non-financial assets

In assessing impairment, management estimates the recoverable amount of each asset or cash-generating units based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.

Leases

Recognizing leases requires judgement and use of estimates and assumptions. Judgement is used to determine whether there is reasonable certainty that a lease extension or cancellation option will be exercised. Furthermore, management estimates are used to determine the lease terms and the appropriate interest rate to establish the lease liability.

Useful lives of depreciable assets

Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utility of certain software and computer equipment. Technical obsolescence also can affect development costs as technology evolve.

Inventories

Management estimates the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices.

Fair value measurement

Management uses various valuation techniques to determine the fair value of financial instruments, where active market quotes are not available. This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on observable data as far as possible but this is not always available. In that case, management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date.

 

F-17


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

Share-based compensation and share warrant obligation

Management assesses the fair value of stock options and the share warrant obligation using the Black-Scholes valuation model. The Black-Scholes model require management to make estimates and assumptions with respect to inputs including the risk-free interest rate, volatility and expected option or warrant life.

3.22 Standards, amendments and Interpretations to existing Standards that are not yet effective and have not been adopted early by the Group

At the date of authorization of these consolidated financial statements, several new, but not yet effective, standards and amendments to existing standards, and interpretations have been published by the IASB. None of these standards or amendments to existing standards have been adopted early by the Group.

Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New standards, amendments and interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group’s consolidated financial statements.

 

4.

SEGMENT REPORTING

 

     Year ended December 31, 2020  
     Canada      United States      Total  
     $      $      $  

Revenue

     11,594,344        11,828,279        23,422,623  
  

 

 

    

 

 

    

 

 

 
     Year ended December 31, 2019  
     Canada      United States      Total  
     $      $      $  

Revenue

     11,732,218        19,130,258        30,862,476  
  

 

 

    

 

 

    

 

 

 
     Year ended December 31, 2018  
     Canada      United States      Total  
     $      $      $  

Revenue

     9,564,564        7,056,852        16,621,416  
  

 

 

    

 

 

    

 

 

 

During the year ended December 31, 2020, 40.5% (year ended December 31, 2019: 10.15%; year ended December 31, 2018: 49.2%) of the Group’s revenue depended on three customers, 16.4%, 13.4% and 10.7% respectively (2019: one customer 10.15%; 2018: two customers 38.8% and 10.4% respectively).

 

     December 31, 2020  
     Canada      United States      Total  
     $      $      $  

Property, plant and equipment

     5,050,367        396,440        5,446,807  

Right-of-use assets

     5,586,207        1,912,517        7,498,724  

Intangible assets

     36,615,165        5,475,678        42,090,843  

Contract asset

     14,327,709        —          14,327,709  
  

 

 

    

 

 

    

 

 

 

Total long-term assets

     61,579,448        7,784,635        69,364,083  
  

 

 

    

 

 

    

 

 

 
     December 31, 2019  
     Canada      United States      Total  
     $      $      $  

Property, plant and equipment

     2,950,444        124,598        3,075,042  

Right-of-use assets

     5,764,937        809,027        6,573,964  

Intangible assets

     21,707,537        5,373,097        27,080,634  
  

 

 

    

 

 

    

 

 

 

Total long-term assets

     30,422,918        6,306,722        36,729,640  
  

 

 

    

 

 

    

 

 

 

 

F-18


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

5.

INVENTORIES

Inventories consist of the following:

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Raw materials

     26,136,700        6,332,464  

Goods in process

     6,970,369        1,125,839  

Finished goods

     4,966,234        4,549,441  
  

 

 

    

 

 

 
     38,073,303        12,007,744  
  

 

 

    

 

 

 

The amount of inventories recognized as expense during the year totals $19,523,781 ($19,601,035 in 2019; $12,165,504 in 2018).

 

6.

ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Trade receivables, gross

     8,692,439        7,447,626  

Allowance for credit losses

     —          (84,991
  

 

 

    

 

 

 

Trade receivables, net

     8,692,439        7,362,635  

Incentives from “support program for the deployment of electric school buses” and from “zero-emission truck and bus program” receivable

     5,216,118        5,284,842  

Other government assistance receivable

     724,367        1,674,479  
  

 

 

    

 

 

 

Financial assets

     14,632,924        14,321,956  
  

 

 

    

 

 

 

Commodity taxes receivable

     943,523        649,718  

Other tax credits receivable

     38,486        37,725  

Research and development tax credits receivable

     2,890,139        1,894,089  
  

 

 

    

 

 

 

Non-financial assets

     3,872,148        2,581,532  
  

 

 

    

 

 

 
     18,505,072        16,903,488  
  

 

 

    

 

 

 

All amounts are short-term. The net carrying value of trade receivables is considered a reasonable approximation of fair value.

As of December 31, 2020, amounts owing from two customers represent 38.5% and 26.5%, respectively, of the total trade accounts receivable (one customer representing 24.6% as of December 31, 2019).

 

F-19


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

7.

PROPERTY, PLANT AND EQUIPMENT

Details of the Group’s property, plant and equipment and their carrying amounts are as follows:

 

     Leasehold
improvements
     Machinery
and
equipment
     Rolling
stock
     Computer
equipment
     Furniture
and office
equipment
     Production
moulds
     Master
patterns
and
templates
     Prototypes      Total  
     $      $      $      $      $      $      $      $      $  

GROSS CARRYING AMOUNT

                          

Balance at January 1, 2020

     935,981        1,123,911        249,217        534,977        250,312        330,075        470,725        76,823        3,972,021  

Additions

     960,722        799,539        145,672        711,348        221,472        76,128        43,462        —          2,958,343  

Foreign currency translation adjustment

     69,448        64,743        12,690        48,240        16,705        10,655        11,766        1,547        235,794  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     1,966,151        1,988,193        407,579        1,294,565        488,489        416,858        525,953        78,370        7,166,158  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

AMORTIZATION

                          

Balance at January 1, 2020

     324,332        64,534        57,037        182,205        67,343        87,259        40,305        73,964        896,979  

Amortization

     421,329        28,996        59,138        168,399        53,551        24,337        5,548        2,770        764,068  

Foreign currency translation adjustment

     28,723        2,826        4,264        12,538        4,177        3,039        1,101        1,636        58,304  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     774,384        96,356        120,439        363,142        125,071        114,635        46,954        78,370        1,719,351  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount December 31, 2020

     1,191,767        1,891,837        287,140        931,423        363,418        302,223        478,999        —          5,446,807  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

GROSS CARRYING AMOUNT

                          

Balance at January 1, 2019

     324,059        572,119        101,226        255,511        190,174        128,035        372,776        70,173        2,014,073  

Additions

     583,026        511,944        139,876        260,972        49,497        191,462        77,511        3,051        1,817,339  

Foreign currency translation adjustment

     28,896        39,848        8,115        18,494        10,641        10,578        20,438        3,599        140,609  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2019

     935,981        1,123,911        249,217        534,977        250,312        330,075        470,725        76,823        3,972,021  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

AMORTIZATION

                          

Balance at January 1, 2019

     196,705        44,646        25,944        93,652        28,396        56,931        32,780        70,173        549,227  

Amortization

     115,238        17,267        29,158        82,069        36,725        26,882        5,750        253        313,342  

Foreign currency translation adjustment

     12,389        2,621        1,935        6,484        2,222        3,446        1,775        3,538        34,410  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2019

     324,332        64,534        57,037        182,205        67,343        87,259        40,305        73,964        896,979  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount December 31, 2019

     611,649        1,059,377        192,180        352,772        182,969        242,816        430,420        2,859        3,075,042  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the year, rolling stock in the amount of $61,106 ($57,511 in 2019) was acquired under an instalment-type contract.

Amortization has been allocated as follows in the consolidated statements of comprehensive loss:

 

     2020      2019      2018  
     $      $      $  

Cost of sales

     88,615        154,682        99,260  

Administrative expenses

     675,453        158,660        71,315  
  

 

 

    

 

 

    

 

 

 
     764,068        313,342        170,575  
  

 

 

    

 

 

    

 

 

 

 

F-20


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

8.

LEASES

The Group has entered into leases agreements for the rental of premises and rolling stock. The leases have an initial term of 2 to 7 years and some have a renewal option after that date. The lease terms are negotiated individually and encompass a wide range of different terms and conditions.

Right-of-use assets

 

     Premises      Rolling stock      Total  
     $      $      $  

Balance at January 1, 2020

     6,371,563        202,401        6,573,964  

Additions

     2,177,758        19,204        2,196,962  

Amortization

     (1,366,378      (77,826      (1,444,204

Foreign currency translation adjustment

     171,014        988        172,002  
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     7,353,957        144,767        7,498,724  
  

 

 

    

 

 

    

 

 

 
     Premises      Rolling stock      Total  
     $      $      $  

Balance at January 1, 2019

     820,890        102,222        923,112  

Additions

     5,976,912        162,289        6,139,201  

Amortization

     (583,947      (69,263      (653,210

Foreign currency translation adjustment

     157,708        7,153        164,861  
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2019

     6,371,563        202,401        6,573,964  
  

 

 

    

 

 

    

 

 

 

Lease liabilities

 

Balance at January 1, 2020

     6,669,787  

Additions

     2,196,962  

Lease payments

     (1,327,707

Foreign currency translation adjustment

     180,066  
  

 

 

 

Balance at December 31, 2020

     7,719,108  

Current portion

     1,814,635  
  

 

 

 

Non-current portion

     5,904,473  
  

 

 

 

Balance at January 1, 2019

     981,330  

Additions

     6,139,201  

Lease payments

     (619,267

Foreign currency translation adjustment

     168,523  
  

 

 

 

Balance at December 31, 2019

     6,669,787  

Current portion

     1,037,477  
  

 

 

 

Non-current portion

     5,632,310  
  

 

 

 

See Notes 17 and 20 for information on interest expense on lease liabilities.

Contractual undiscounted payments under lease liabilities are as follows:

 

     December 31,
2020
 
     $  

Within one year

     1,814,635  

1 to 2 years

     3,611,369  

2 to 5 years

     2,911,846  

After 5 years

     99,619  
  

 

 

 

Total

     8,437,469  
  

 

 

 

 

F-21


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

Other amounts recognized in profit or loss

 

     2020      2019      2018  
     $      $      $  

Expense relating to variable lease payments not included in lease liabilities

     84,685        45,493        4,500  

Variable payments

Some leases for premises require repayment of a portion of the lessor’s payments for property taxes, insurance and operating expenses such as power, maintenance, administration and security; these amounts vary based on the use and wear and tear of the office space. The final lease payments are determined each year.

Renewal option

Some leases include renewal options that can be exercised at the Group’s option. These options are used to maximize the operational flexibility of the Group’s activities. These options are not reflected in measuring lease liabilities in many cases because the options are not reasonably certain to be exercised by the Group. The Group’s practice is to ensure that space or rolling stock meets its needs, which evolve over time.

 

9.

INTANGIBLE ASSETS

Details of the Group’s intangible assets and their carrying amounts are as follows:

 

     Software      Development
costs (a)
     Dealership
rights (b)
     Total  
     $      $      $      $  

GROSS CARRYING AMOUNT

           

Balance at January 1, 2020

     1,255,871        21,140,220        5,356,051        27,752,142  

Additions, separately acquired

     827,855        —          —          827,855  

Additions, internally developed

     —          12,788,264        —          12,788,264  

Additions, borrowing costs (c)

     —          612,962        —          612,962  

Foreign currency translation adjustment

     68,890        1,131,500        107,831        1,308,221  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     2,152,616        35,672,946        5,463,882        43,289,444  
  

 

 

    

 

 

    

 

 

    

 

 

 

AMORTIZATION

           

Balance at January 1, 2020

     196,388        475,120        —          671,508  

Amortization

     322,493        165,383        —          487,876  

Foreign currency translation adjustment

     20,940        18,277        —          39,217  

Balance at December 31, 2020

     539,821        658,780        —          1,198,601  
  

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount December 31, 2020

     1,612,795        35,014,166        5,463,882        42,090,843  
  

 

 

    

 

 

    

 

 

    

 

 

 

GROSS CARRYING AMOUNT

           

Balance at January 1, 2019

     323,943        10,720,920        —          11,044,863  

Addition, separately acquired

     896,278        —          5,242,907        6,139,185  

Addition, internally developed

     —          8,879,433        —          8,879,433  

Additions, borrowing costs (c)

     —          791,464        —          791,464  

Foreign currency translation adjustment

     35,650        748,403        113,144        897,197  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2019

     1,255,871        21,140,220        5,356,051        27,752,142  
  

 

 

    

 

 

    

 

 

    

 

 

 

AMORTIZATION

           

Balance at January 1, 2019

     57,276        339,226        —          396,502  

Amortization

     133,351        116,307        —          249,658  

Foreign currency translation adjustment

     5,761        19,587        —          25,348  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2019

     196,388        475,120        —          671,508  
  

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount December 31, 2019

     1,059,483        20,665,100        5,356,051        27,080,634  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)

Government assistance in the amount of $5,360,126 ($1,507,832 in 2019) was recognized during the year as a reduction of development costs. Government assistance for 2020 includes an amount of $2,455,588 of subsidies received under the Canada Emergency Wage Subsidy program.

 

F-22


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

(b)

During the year ended December 31, 2019, in order to acquire dealership rights in certain territories in the United States, the Group has entered into an agreement with a private company. Under the terms of this agreement, the Group must pay a buy-out of $1,000,000 and an earn-out limited to $6,000,000. This agreement matures on the earlier of the following dates: when the maximum amount of $7,000,000 is fully paid or on May 7, 2022, even if the maximum amount is not reached. The buy-out and the earn-out are payable by a schedule based on the sales of specific types of buses, in specific regions and for amounts that are stated in the agreement. As of December 31, 2020, the Group paid an amount of $2,818,203 ($1,271,158 as of December 31, 2019) under the agreement. The Group’s management estimates that the remaining balance of $4,181,797 will be paid before the term of the agreement.

Upon initial recognition, the dealership rights were accounted for based on the financial liability model, whereby the fair value of all variable payments under the contract were recorded as the cost, with a corresponding liability within long-term debt (Note 10). The cost also includes $778,697 of directly attributable fees to acquire the dealership rights.

(c)

The interest rates used to capitalize the borrowing costs vary between 2.35% and 27.5% (3.36% and 25% in 2019).

Amortization has been allocated as follows in the consolidated statements of comprehensive loss:

 

     2020      2019      2018  
     $      $      $  

Cost of sales

     165,384        116,307        110,442  

Administrative expenses

     322,492        133,351        26,323  
  

 

 

    

 

 

    

 

 

 
     487,876        249,658        136,765  
  

 

 

    

 

 

    

 

 

 

 

10.

FINANCIAL ASSETS AND LIABILITIES

10.1 Categories of financial assets and financial liabilities

The classification of financial instruments is summarized as follows:

 

     Classification      December 31,
2020
     December 31,
2019
 
            $      $  

FINANCIAL ASSETS

        

Trade and other receivables

     Amortized cost        8,692,439        7,362,635  

Incentives from “support program for the deployment of electric school buses” and from “zero-emission truck and bus program” receivable

     Amortized cost        5,216,118        5,284,842  

Other government assistance receivable

     Amortized cost        724,367        1,674,479  

FINANCIAL LIABILITIES

        

Bank overdraft

     Amortized cost        91,076        168,108  

Credit facilities

     Amortized cost        18,209,335        10,345,924  

Loans on research and development tax credits and subsidies receivable

     Amortized cost        10,433,572        3,564,637  

Trade and other payables

     Amortized cost        9,413,387        4,577,614  

Long-term debt

     Amortized cost        26,817,815        11,783,882  

Convertible debt instruments

     Amortized cost        18,866,890        —    

Share warrant obligation

     FVTPL        31,549,033        —    

Common shares, retractable

     Amortized cost        25,855,509        20,050,896  

Fair value of financial instruments Current financial instruments that are not measured at fair value on the consolidated statement of financial position are represented by trade and other receivables, incentives from “support program for the deployment of electric school buses” and from “zero-emission truck and bus program” receivable, other government assistance receivable, bank overdraft, credit facilities, loans on research and development tax credits and subsidies receivable and trade and other payables. Their carrying values are considered to be a reasonable approximation of their fair value because of their short-term maturity and / or contractual terms of these instruments.

 

F-23


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

As of December 31, 2020 and 2019, the fair value of long-term debt, the convertible debt instruments and the common shares, retractable was based on discounted cash flows and was not materially different from its carrying value because there was no material change in the assumptions used for fair value determination at inception. Therefore, their principal amount approximated their fair value. The long-term debt, convertible debt instruments and common shares, retractable are categorized in Level 2 of the fair value hierarchy.

The fair value of the share warrant obligation was determined as described in Note 16.

10.2 Bank indebtedness and other indebtedness

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Bank overdraft

     91,076        168,108  

Credit facilities (Note 10.3)

     18,209,335        10,345,924  

Loans on research and development tax credits and subsidies receivable (Note 10.4)

     10,433,572        3,564,637  
  

 

 

    

 

 

 
     28,733,983        14,078,669  
  

 

 

    

 

 

 

10.3 Credit facilities

The Group has an operating revolving credit facility (the “Operating Facility”) for an authorized amount of $27,489,000 (CA$35,000,000) ($19,247,500 (CA$25,000,000) as at December 31, 2019), renewable at any time by the bank and repayable on demand.

The Operating Facility may be used as follows:

 

   

Canadian dollar advances, bearing interest at the Canadian prime rate plus 1% (3.45%, 4.95% as at December 31, 2019);

 

   

U.S. dollar advances, bearing interest at the U.S. prime rate plus 1% (4.75%, 5.75% as at December 31, 2019);

 

   

Issuance of letters of credit or letters of guarantee up to a maximum sublimit of $392,700 (CA$500,000) ($384,950 (CA$500,000) as at December 31, 2019), at cost to be determined at each transaction.

As at December 31, 2020, the Operating facility was drawn as follows:

 

   

Canadian dollar advances in the amount of $12,367,015 (CA$15,603,789) ($8,756,073 (CA$11,373,000) as at December 31, 2019);

 

   

U.S. advances in the amount of $5,842,320 (CA$7,438,442) ($1,589,851 (CA$2,065,010) as at December 31, 2019)

The Group also has access to a discretionary credit card facility with a total authorized amount of $196,350 (CA$250,000) ($192,475 (CA$250,000) as at December 31, 2019), bearing interest at 19.15% (19.15% as at December 31,2019), payable on demand and renewable or cancellable at any time by the bank.

The Group also has access to a discretionary hedge facility (the “Hedge Facility”) to mitigate foreign currency exchange rate risk and interest rate risk under derivative instruments with a total authorized amount up to $785,400 (CA$1,000,000) ($384,950 (CA$500,000) as at December 31, 2019).

The bank has also made available to the Company a non-revolving term loan in the aggregate amount of $35,343,000 (CA$45,000,000) ($7,699,000 (CA$10,000,000) as at December 31, 2019) bearing interest at the Canadian prime rate plus 9% (prime rate plus 4% as at December 31, 2019) (if drawn in Canadian dollars) or the US prime rate plus 9% (prime rate plus 4% as at December 31, 2019) (if drawn in US dollars), maturing on April 30, 2021 (the “Initial Term Loan”) (Note 10.5).

 

F-24


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

In December 2020, the bank made available to the Company an additional non-revolving term loan in the aggregate amount of $7,854,000 (CA$10,000,000), bearing interest at the Canadian prime rate plus 3%, (if drawn in Canadian dollars) or the US prime rate plus 3% (if drawn in US dollars), maturing on April 30, 2021 (the “Additional Term Loan”) (Note 10.5).

The credit facilities are secured by $98,175,000 (CA$125,000,000) ($38,495,000 (CA$50,000,000) as at December 31, 2019) in hypothecs and security interests on the universality of tangible and intangible, present and future movable property of the Group. Under the terms of the agreement governing the credit facilities (the “Credit Agreement”), the Group is required to comply with certain financial covenants, namely to maintain a minimum positive cash balance or available credit of at least $314,169 (CA$400,000), to achieve a minimum total debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of no greater than 4:1, to maintain a fixed charge coverage ratio of at least 1.10:1 and not to incur capital expenditures in excess of 102% of its financial model. During the year, the Credit Agreement was amended and the bank waived compliance with the total debt to EBITDA ratio until March 30, 2021 as well as the fixed charge coverage ratio until September 29, 2021.

10.4 Loans on research and development tax credits and subsidies receivable

The Group has a loan for an authorized amount of $10,210,200 (CA$13,000,000) ($2,386,690 (CA$3,100,000) as at December 31, 2019) to finance applications or claims submitted to (i) the Ministère du Transport du Québec under the “support program for the deployment of electric school buses” subsidy program (Quebec), (ii) the California Air Resources Board under the subsidy program administered by the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project, (iii) the Ministère de l’Économie et de l’Innovation under the “mobilizing project program” subsidy program, or (iv) any other responsible authority under any other grant program (the “Subsidy Loan”). The loan finances claims for buses that have already been delivered and eligible buses ordered to be delivered. Advances under the loan are repayable within two business days following receipt by the Group of subsidy payments such that the loan never exceeds the amount available and has a maturity of May 31, 2022. The loan amount used as at December 31, 2020 is $9,591,623 (CA$12,212,405) ($2,386,690 (CA$3,100,000) as at December 31, 2019). The loan bears interest at an annual rate equal to the bank’s prime plus 6.55% (9%; 10.5% as at December 31, 2019).

The Group also has a loan for an authorized amount of $2,122,151 (CA$2,702,000) to finance research and development tax credits receivable. Advances under the loan are repayable upon receipt of tax credit payments. The loan amount used as at December 31, 2020 is $841,949 (CA$1,072,000) ($1,177,947 (CA$1,530,000) as at December 31, 2019). The loan bears interest at an annual rate equal to the bank’s prime rate plus 6.55% (9%; 10.5% as at December 31, 2019).

The loans are secured by a hypothec in the amount of $16,964,640 (CA$21,600,000) ($6,159,200 (CA$8,000,000) as at December 31, 2019) on the universality of tangible and intangible, present and future movable property of the Group.

10.5 Long-term debt

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Economic Development Canada (EDC) loan for the acquisition of manufacturing equipment with a nominal value of $190,723 ($230,128 as at December 31, 2019, without interest, discounted at the rate of 12%, unsecured, payable in 12 equal monthly instalments of $14,673 (CA$18,682) from January 2021 to December 2021 and a final instalment of $14,649 (CA$18,652) on maturity in January 2022

     178,670        212,614  

Economic Development Canada (EDC) loan for the marketing of products in the United States with a nominal value of $44,399 ($52,719 as at December 31, 2019), without interest, discounted at the rate of 12%, unsecured, payable in 13 equal monthly instalments of $3,165 (CA$4,030) from January 2020 to January 2022 and a final instalment of $3,252 (CA$4,141) on maturity in February 2022

     41,298        48,505  

 

F-25


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Economic Development Canada (EDC) loan for the acquisition of moulds, with a nominal value of $24,859 ($29,588 as at December 31, 2019), without interest, discounted at the rate of 15%, unsecured, payable in 13 equal monthly instalments of $1,775 (CA$2,260) from January 2020 to January 2022 and a final instalment of $1,784 (CA$2,271) on maturity in February 2022

     22,803        26,686  

Loan in the amount of $22,493 for the acquisition of rolling stock matured in April 2020

     —          2,174  

Loan in the amount of $64,521 for the acquisition of rolling stock, interest rate of 4.25%, secured by the asset financed having a net carrying amount of $38,395, payable in monthly instalments of $854 (CA$1,087), maturing in December 2023

     30,744        39,360  

Loan in the amount of $58,753 for the acquisition of rolling stock, interest rate of 3.4%, secured by the asset financed having a net carrying amount of $41,823, payable in monthly instalments of $1,021 (CA$1,300), maturing in August 2024

     44,934        55,139  

Loan in the amount of $61,106 for the acquisition of rolling stock, interest rate of 2.35%, secured by the asset financed having a net carrying amount of $56,085, payable in monthly instalments of $1,279 (CA$1,629), maturing in August 2024

     55,005        —    

Initial Term Loan, bearing interest at the bank’s prime rate plus 9% (11.45%; prime plus 4% (7.95%) as at December 31, 2019), maturing in April 2021 (a) (b)

     15,708,000        7,699,000  

Additional Term Loan, bearing interest at the bank’s prime rate plus 3% (5.45%), maturing in April 2021 (a) (b)

     7,854,000        —    

Balance of purchase price payable related to the acquisition of the dealership rights, without interest (Note 9)

     2,882,361        3,700,404  
  

 

 

    

 

 

 
     26,817,815        11,783,882  

Current portion

     26,699,276        9,231,989  
  

 

 

    

 

 

 
     118,539        2,551,893  
  

 

 

    

 

 

 

 

(a)

The Term Loan is subject to the same covenants and guarantees indicated in Note 10.3.

(b)

The Group voluntarily can make capital repayments of $785,400 (CA$1,000,000) without penalty. A repaid amount cannot be borrowed again.

 

11.

TRADE AND OTHER PAYABLES

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Trade and other payables consist of the following:

     

Trade accounts

     8,193,582        4,398,171  

Accrued liabilities payable

     1,219,805        179,443  
  

 

 

    

 

 

 

Financial liabilities

     9,413,387        4,577,614  
  

 

 

    

 

 

 

Allowance for guarantees

     381,752        218,319  

Salaries and vacations payable

     1,566,103        828,799  

Deductions at source

     399,370        145,048  

Sales taxes payable

     470,113        534,563  

Deferred revenue

     173,889        171,354  
  

 

 

    

 

 

 

Non-financial liabilities

     2,991,227        1,898,083  
  

 

 

    

 

 

 
     12,404,614        6,475,697  
  

 

 

    

 

 

 

 

F-26


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

12.

CONVERTIBLE DEBT INSTRUMENTS

 

     March 2020
Convertible
Loan
     September 2020
Convertible
Debenture
     Total
Convertible
Debt
Instruments
     Conversion
Option
 
     $      $      $      $  

Beginning balance

           

Issuance of March 2020 Convertible Loan

     3,741,675        —          3,741,675        —    

Conversion option—March 2020 Convertible Loan

     (422,940      —          (422,940      422,940  

Issuance of September 2020 Convertible Debenture

     —          15,340,000        15,340,000        —    

Conversion option—September 2020 Convertible Debenture

     —          (1,049,580      (1,049,580      1,049,580  

Accretion expense

     278,725        886,250        1,164,975        —    

Less: financing fees

     (70,376      (313,131      (383,507      —    

Foreign currency translation adjustment

     149,168        327,099        476,267        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

     3,676,252        15,190,638        18,866,890        1,472,520  
  

 

 

    

 

 

    

 

 

    

 

 

 

March 2020 Convertible Loan

In March 2020, the Company completed a financing through the issuance of an unsecured convertible loan (the “March 2020 Convertible Loan”) to Investissement Québec in the principal amount of $3,741,675 (CA$5,000,000). The March 2020 Convertible Loan matures on March 3, 2025 and bears an annual interest rate of 7.5% with the interest payable at the maturity date. The March 2020 Convertible Loan is convertible at the option of the holder upon a liquidity event including an initial public offering (“IPO”) or upon an event of default at a discounted price of 10% if realized before September 30, 2020 and 20% after. The March 2020 Convertible Loan is repayable at any time with a 15% premium to the holder.

An amount of $70,376 (CA$94,043) in financing fees was incurred as a direct cost in the closing of the financing. This balance has been capitalized and netted against the proceeds received from the issuance of the March 2020 Convertible Loan.

Since the financial instrument meets the “Fixed for Fixed” criteria under IAS 32 — Financial Instruments: Presentation (“IAS 32”), the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured. The conversion option classified as equity will remain in equity until the conversion is exercised, in which case, the balance recognized in equity will be transferred to another equity account.

The debt portion of the March 2020 Convertible Loan was recorded at the estimated fair value of $3,318,735 (CA$4,400,000) using an effective interest rate of 10.76% per annum at the time of issuance with the residual value of $422,940 (CA$600,000) recorded as separate component of equity.

At December 31, 2020, the March 2020 Convertible Loan balance was accreted to $3,676,252 (CA$4,680,739), with an interest expense of $278,725 (CA$374,782) and a foreign currency translation adjustment of $149,168.

September 2020 Convertible Loan

In September 2020, the Company completed a financing through the issuance of an unsecured convertible debenture (the “September 2020 Convertible Debenture”) to Investissement Québec in the principal amount of $15,340,000 (CA$20,000,000). The September 2020 Convertible Debenture matures on September 1, 2023 and bears an annual interest rate of 15% increasing to 18% after the first year with the interest payable at the maturity date. The September 2020 Convertible Debenture is convertible at the option of the holder upon a liquidity event including an IPO at a discounted price of 5% if realized within the first 6 months and a 5% discount plus a daily linear increase to reach 10% at the end of the first year. The September 2020 Convertible Debenture is repayable at any time with a 20% premium to the holder.

 

F-27


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

An amount of $313,131 (CA$417,675) in financing fees was incurred as a direct cost in the closing of the financing. This balance has been capitalized and netted against the proceeds received from the issuance of the September 2020 Convertible Debenture.

Since the financial instrument meets the “Fixed for Fixed” criteria under IAS 32, the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured. The conversion option classified as equity will remain in equity until the conversion is exercised, in which case, the balance recognized in equity will be transferred to another equity account.

The debt portion of the September 2020 Convertible Debenture was recorded at the estimated fair value of $14,290,420 (CA$18,600,000) using an effective interest rate of 20.52% per annum at the time of issuance with the residual value of $1,049,580 (CA$1,400,000) recorded as a separate component in equity.

At December 31, the September 2020 Convertible Debenture balance was accreted to $15,190,638 (CA$19,341,276) with an interest expense of $886,250 (CA$1,158,951) and a foreign currency translation adjustment of $327,099.

 

13.

EQUITY

13.1 Share capital

Authorized and issued

Unlimited number of common shares, voting and participating.

13.2 Share capital transactions

During the year ended December 31, 2019, the Group issued 2,594,434 common shares for $7,429,973 in cash. A portion of these issued shares, representing 363,189 common shares, is presented in liabilities because the shareholder may require redemption (Note 14).

 

14.

COMMON SHARES, RETRACTABLE

 

     December 31, 2020      December 31, 2019  
     Number      $      Number      $  

Common shares, retractable

           

Balance, beginning of the year

     4,358,269        20,050,896        4,046,969        14,936,455  

Shares issued and fully paid

     —          —          363,189        1,054,999  

Shares redeemed

     —          —          (51,889      12,538  

Accretion expense

     —          5,130,685        —          3,202,831  

Foreign currency translation adjustment

     —          673,928        —          844,073  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of year

     4,358,269        25,855,509        4,358,269        20,050,896  
  

 

 

    

 

 

    

 

 

    

 

 

 

Under the terms of the Company’s unanimous shareholders agreement, a shareholder holding 4,358,269 common shares (4,358,269 as at December 31, 2019) has the right, subject to the terms and conditions contained in the unanimous shareholders’ agreement (including that not all of the shares held by such shareholder have been sold to another shareholder holding a call right with respect to such shares), to require that the Company repurchase all of these shares on June 15, 2022 at a price per share based on EBITDA calculated using the audited December 31, 2021 consolidated financial statements, multiplied by 10, less net debt (based on the audited December 31, 2021 consolidated financial statements) then divided by the number of outstanding shares on the transaction date.

During the year ended December 31, 2019, a shareholder who held 51,889 common shares as at December 31, 2018 exercised his right, under the unanimous shareholders’ agreement, to require that the Company repurchase his shares, for a total purchase price of $150,020, in cash.

Common shares that are subject to a repurchase (put) right in favor of shareholders have been classified as a financial liability. The financial liability is initially measured at fair value.

 

F-28


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

At each closing date, the liability is measured at amortized cost. A $4,791,806 accretion expense has been recorded in consolidated earnings for the year ended December 31, 2020 ($2,746,799 in 2019; $3,050,375 in 2018) and $338,879 has been capitalized as intangible assets ($456,032 in 2019).

 

15.

EMPLOYEE REMUNERATION

15.1 Employee benefits expense

Expenses recognized for employee benefits are analyzed below:

 

     2020      2019      2018  
     $      $      $  

Wages, salaries

     6,651,138        4,726,926        4,010,522  

Stock-based compensation

     65,248,941        1,421,973        522,600  
  

 

 

    

 

 

    

 

 

 
     71,900,079        6,148,899        4,533,122  
  

 

 

    

 

 

    

 

 

 

 

15.2

Share-based employee remuneration

The Group has a stock option plan for its key employees, officers and consultants. Options may be granted for a maximum of 10% of outstanding common shares. Under the terms of the plan, the exercise price of each option cannot be below the fair value of the common shares on the grant date and the maximum option term is 10 years. The options granted vest based on the vesting period determined by the Board of Directors and all the options granted under the plan vest within four years. The employees can require that the Group redeem vested options between May 1 and May 31 of each year. The option redemption value is the excess of the fair market value of the shares over the option exercise price, with the fair value of the shares being determined on the basis of the last approved financial statements.

The plan was modified in December 2019 by adding a settlement option in cash when exercising the options. The change had no effect to the classification of options on the consolidated statement of financial position.

During the year, the Group granted 100,000 stock options with an exercise price of $23.36 and a contractual life of 10 years.

During the year ended December 31, 2019, the Group granted 1,138,957 stock options (1,429,533 in 2018) with an exercise CA$3.85 (CA$3.85 in 2018) and a contractual life of 10 years.

Stock options and weighted average exercise prices are as follows for the reporting periods presented:

 

     Number      Weighted
average exercise
price CA$
 

Outstanding at January 1, 2018

     —          —    

Granted

     1,429,533        3.85  
  

 

 

    

 

 

 

Outstanding at December 31, 2018

     1,429,533        3.85  

Granted

     1,138,957        3.85  
  

 

 

    

 

 

 

Outstanding at December 31, 2019

     2,568,490        3.85  

Cancelled

     (155,667      3.85  
  

 

 

    

 

 

 

Outstanding at December 31, 2020

     2,412,823        3.85  
  

 

 

    

 

 

 

Exercisable at December 31, 2018

     —          —    

Exercisable at December 31, 2019

     696,897        3.85  

Exercisable at December 31, 2020

     1,264,365        3.85  

 

F-29


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

     Number      Weighted
average exercise
price US$
 

Outstanding at January 1, 2020

     —          —    

Granted

     100,000        23.36  

Outstanding at December 31, 2020

     100,000        23.36  
  

 

 

    

 

 

 

Exercisable at December 31, 2020

     —          —    
  

 

 

    

 

 

 

The following principal weighted assumptions were used in the valuation to remeasure the share-based compensation liability as at:

 

     December 31,
2020
    December 31,
2019
    December 31,
2018
 

Exercise price (CA$)

     4.94       3.85       3.85  

Share price (CA$)

     52.57       3.85       3.85  

Volatility (%)

     40     50     50

Risk-free interest rate (%)

     0.59     1.67     1.95

Expected option life (years)

     7.8       8.7       9.2  

The expected underlying volatility was determined by reference to historical data of comparable companies share price over the expected life of the stock options.

During the year ended December 31, 2020, the Group recorded stock-based compensation costs related to stock options in the amount of $65,248,941 ($1,421,973 during the year ended December 31,2019; $522,600 during the year ended December 31, 2018) of which $55,072,814 (2019: $1,104,185; 2018:$418,080) is accounted for within administrative expenses and $10,176,127 (2019: $317,788; 2018: $104,520) is accounted for within selling expenses.

The following table summarizes share-based compensation liabilities recorded in the consolidated statements of financial position:

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Share-based compensation liability, current

     35,573,558        535,592  

Share-based compensation liability, non-current

     35,126,025        1,438,393  
  

 

 

    

 

 

 
     70,699,583        1,973,985  
  

 

 

    

 

 

 

The following table summarizes the information relating to stock options outstanding:

 

Exercise price    Number of stock
options
     Remaining
contractual life
(years)
     Number of stock
options
exercisable
 

CA$3.85 (issued in 2018)

     1,286,580        6.86        1,018,542  

CA$3.85 (issued in 2019)

     1,126,243        8.78        245,823  

23.36 (issued in 2020)

     100,000        9.71        —    
  

 

 

       

 

 

 
     2,512,823           1,264,365  
  

 

 

       

 

 

 

 

     As of December 31, 2019  

Exercise price (CA$)

   Number of stock
options
     Remaining
contractual life
(years)
     Number of stock
options
exercisable
 

3.85 (issued in 2018)

     1,429,533        7.88        696,897  

3.85 (issued in 2019)

     1,138,957        9.08        —    
  

 

 

       

 

 

 
     2,568,490             696,897  
  

 

 

       

 

 

 

 

F-30


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The total weighted average intrinsic value at the end of the period is CA$43.40 per option ((CA$1.64) as at December 31, 2019).

 

16.

SHARE WARRANT

On July 1, 2020, in connection with the entering into of a master purchase agreement and a work order (collectively, the “MPA”) with Amazon Logistics, Inc., the Company issued a warrant to purchase common shares of the Company (the “Warrant”) to Amazon.com NV Investment Holdings LLC (the “Warrantholder”) which vests, subject to the terms and conditions contained therein, based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on the Group’s products or services.

At the election of the Warrantholder, any vested portion of the Warrant can be exercised either on a cash basis by the payment of the applicable exercise price or on a net issuance basis based on the in-the-money value of the Warrant. The exercise of the Warrant corresponds to $23.36 per share. The Warrant grants the Warrantholder the right to acquire up to 8,561,603 common shares of the Company representing 19.99% of the issued and outstanding common shares of the Company.

There was an initial vesting of a portion of the Warrant which is exercisable for 1,284,243 common shares. The remaining portion of the Warrant vests in three tranches based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on Group products or services. The Warrant has a term of 8 years. Full vesting of the Warrant requires spending of at least $1.1 billion on Group products or services over the term of the Warrant, subject to accelerated vesting upon the occurrence of certain events, including a change of control of the Group or a termination of the MPA for cause.

The Group has determined that the Warrant is a derivative instrument and should be classified as a liability in accordance with IAS 32—Financial Instruments: Presentation and IFRS 9—Financial Instruments. The vested portion of the Warrant is initially recorded at fair value and then revalued at each reporting date. The initial fair value of the Warrant of $13,227,703 was recorded as a share warrant obligation with a corresponding contract asset recognized at inception. The corresponding contract asset recognized at inception will be amortized as a reduction of revenues on a percentage per dollar of revenue generated with Amazon.com, Inc. and its affiliates. The share warrant obligation is categorized in Level 3 of the fair value hierarchy.

The unvested portion of the Warrant represents a retrospective volume discount based on specified levels of spending by Amazon.com, Inc. and its affiliates. Revenues will be recognized based on the prices specified in the work orders, net of the estimated value of the volume discount based on the portion of the Warrant expected to vest using the fair value at inception. At each reporting date, the Group will review experience, current information on expected orders from Amazon.com, Inc. and its affiliates and the potential impact of other reasonably foreseen constraints will be used to estimate and provide for the discount, using the expected value method, and revenue will only be recognized to the extent that it is highly probable that a significant reversal will not occur.

The fair value of the Warrant was determined using the Black-Scholes option pricing model taking into account the following assumptions as at:

 

     December 31,
2020
    Inception  

Exercise price ($)

     23.36       23.36  

Share price ($)

     41.29       23.36  

Volatility (%)

     40     40

Risk-free interest rate (%)

     0.69     0.55

Expected warrant life (years)

     7.5       8.0  

 

F-31


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The Group has recognized the following contract asset and share warrant obligation:

 

     December 31,
2020
     Inception  
     $      $  

Contract asset

     

Beginning balance

     13,427,493        —    

Share warrant obligation initial valuation

     —          13,227,703  

Other contract asset costs

     —          199,790  

Less: amortization

     —          —    

Foreign currency translation adjustment

     900,216        —    
  

 

 

    

 

 

 

Total contract asset

     14,327,709        13,427,493  
  

 

 

    

 

 

 

 

     December 31,
2020
     Inception  
     $      $  

Share warrant obligation

     

Beginning balance

     13,227,703        —    

Share warrant obligation initial valuation

     —          13,227,703  

Fair value adjustment

     16,847,470        —    

Foreign currency translation adjustment

     1,473,860        —    
  

 

 

    

 

 

 

Total share warrant obligation

     31,549,033        13,227,703  
  

 

 

    

 

 

 

 

17.

FINANCE COSTS

Finance costs for the reporting periods consist of the following:

 

     2020      2019      2018  
     $      $      $  

Interest expense on long-term debt

     1,078,970        350,417        83,779  

Interest expense on current debt

     1,934,580        463,121        91,202  

Interest expense on lease liabilities

     259,055        44,850        35,044  

Accretion expense on balance of purchase price payable related to the acquisition of the dealership rights

     582,018        494,581        —    

Accretion expense on common shares, retractable

     4,791,806        2,746,799        3,050,375  

Other financing fees

     20,976        12,707        13,636  
  

 

 

    

 

 

    

 

 

 
     8,667,405        4,112,475        3,274,036  
  

 

 

    

 

 

    

 

 

 

 

18.

INCOME TAXES

The reconciliation of the effective tax rate is as follows:

 

     2020     2019     2018  
     $     $     $  

Loss before income taxes

     (97,351,667     (3,067,332     (5,357,993

Combined statutory income tax rate in Canada

     26.50     26.60     26.70
  

 

 

   

 

 

   

 

 

 

Expected income tax recovery

     (25,798,192     (815,910     (1,430,584
  

 

 

   

 

 

   

 

 

 

Non-deductible share-based employee remuneration

     17,290,969       378,232       139,537  

Change in fair value of share warrant obligation

     4,464,840       —         —    

Non-deductible accretion expense

     1,359,632       763,670       849,410  

Change in unrecognized deferred tax assets

     2,755,878       (492,129     304,199  

Impact of US tax rate applicable to the subsidiaries

     25,754       34,128       41,857  

Non-deductible expenses

     43,810       135,707       92,788  

Other

     (142,691     302       2,793  
  

 

 

   

 

 

   

 

 

 
     —         4,000       —    
  

 

 

   

 

 

   

 

 

 

 

F-32


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The components of deferred income tax assets and liabilities are as follows:

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Property, plant and equipment

     (1,007,000      (584,000

Right-of-use assets

     (1,973,000      (1,742,000

Intangible assets

     (10,190,000      (6,583,000

Balance of purchase price related to the acquisition of the dealership rights

     557,000        863,000  

Lease liabilities

     2,032,000        1,767,000  

Non-capital losses carry-forward

     5,641,000        3,004,000  

Research and development expenditures carry-forward

     4,682,000        3,174,000  

Financing fees and other

     258,000        101,000  
  

 

 

    

 

 

 
     —          —    
  

 

 

    

 

 

 

The Group has unused research and development expenditures carry-forward for which deferred tax assets have not been recognized amounting to approximately $12,286,000 ($4,881,000 as at December 31, 2019). Research and development expenditures can be carried forward indefinitely. In addition, the Group also has access to federal non-refundable investment tax credits approximating the amount of $4,827,000 expiring between 2037 and 2040.

For the years ended December 31, 2020 and 2019, deferred tax assets were recognized on all unused losses available in Canada.

The Group also has, through one of its subsidiaries in the United States of America, unused tax losses carried forward amounting to approximately $6,382,000 ($3,084,000 as at December 31, 2019) for which no deferred tax assets have been recognized. These losses can be carried forward indefinitely.

 

19.

EARNINGS PER SHARE

The calculation of basic and diluted loss per share for the year ended December 31, 2020 was based on the net loss of $97,351,667 (net loss of $3,071,332 for the year ended December 31, 2019; net loss of $5,357,993 for the year ended December 31, 2018) and the weighted average number of common shares outstanding of 26,775,004 (25,766,359 for the year ended December 31, 2019; 24,543,759 for the year ended December 31, 2018).

Excluded from the calculation of the diluted loss per share for the year ended December 31, 2020 are 2,512,823 stock options (2,568,490 for the year ended December 31, 2019: 1,429,533 for the year ended December 31, 2018) and 1,284,243 common shares exercisable pursuant to the Warrant (nil for the years ended December 31, 2019 and 2018) because to include them would be anti-dilutive as they would have the effect of decreasing the loss per share.

 

20.

ADDITIONAL INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENTS OF CASH FLOWS

The net changes in working capital items are detailed as follows:

 

     2020      2019      2018  
     $      $      $  

NET CHANGES IN WORKING CAPITAL

        

Inventories

     (24,531,634      (2,425,104      (1,957,388

Trade and other receivables

     (1,389,131      (3,995,546      (754,171

Incentives from the “support program for the deployment of electric school buses” and from “zero-emission trucks and bus programs” receivable

     166,358        (4,762,470      158,216  

Other government assistance receivable

     86,975        (140,549      —    

Prepaid expenses

     (756,600      (152,908      (34,135

Trade and other payables

     5,508,396        1,365,888        1,252,390  
  

 

 

    

 

 

    

 

 

 

Total net changes in working capital

     (20,915,636      (10,110,689      (1,335,088
  

 

 

    

 

 

    

 

 

 

 

F-33


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The changes in the Group’s liabilities arising from financing activities can be classified as follows (See Note 12 for convertible debt instruments and Note 14 for common shares, retractable) :

 

     Credit
facilities
     Loans on
research and
development tax
credits and
subsidies
receivable
    Long-term debt     Lease liabilities     Total  
     $      $     $     $     $  

January 1, 2020

     10,345,924        3,564,637       11,783,882       6,669,787       32,364,230  

Cash flows :

           

Repayment

     —          (3,242,248     (1,659,855     (1,605,082     (6,507,185

Proceeds

     7,272,073        9,699,300       15,021,339       —         31,992,712  

Non-cash :

           

Accretion expense

     —          —         582,018       259,055       841,073  

Borrowings costs, capitalized within intangible assets

     —          —         41,161       18,320       59,481  

Non-monetary additions

     —          —         61,106       2,196,962       2,258,068  

Unrealized foreign exchange gain

     —          —         7,893       —         7,893  

Foreign currency translation adjustment

     591,338        411,883       980,271       180,066       2,163,558  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2020

     18,209,335        10,433,572       26,817,815       7,719,108       63,179,830  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

January 1, 2019

     3,738,300        2,319,945       504,641       981,330       7,544,216  

Cash flows :

           

Repayment

     —          (2,385,259     (1,517,192     (671,548     (4,573,999

Proceeds

     6,283,827        3,489,336       7,572,316       —         17,345,479  

Non-cash :

           

Accretion expense

     —          —         538,973       44,850       583,823  

Borrowings costs, capitalized within intangible assets

     —          —         82,112       7,431       89,543  

Non-monetary additions

     —          —         4,521,723       6,139,201       10,660,924  

Unrealized foreign exchange gain

     —          —         (145,872     —         (145,872

Foreign currency translation adjustment

     323,797        140,615       227,181       168,523       860,116  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2019

     10,345,924        3,564,637       11,783,882       6,669,787       32,364,230  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

21.

TRANSACTIONS WITH RELATED PARTIES

21.1 Transactions with key management personnel

Key management of the Group are the members of the Board of Directors and members of the executive team, being the Chief Executive Officer, the Chief Operating Officer and the Executive Vice-President & Chief Financial Officer. Key management personnel remuneration includes the following expenses:

 

     2020      2019      2018  
     $      $      $  

Salaries including bonuses

     650,950        477,916        473,472  

Share-based payments

     62,190,367        999,616        418,080  
  

 

 

    

 

 

    

 

 

 

Total remuneration

     62,841,317        1,477,532        891,552  
  

 

 

    

 

 

    

 

 

 

 

F-34


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

21.2

Transactions with a shareholder’s company exercising significant influence

 

     2020      2019      2018  
     $      $      $  

Management fees

     —          22,609        65,602  
  

 

 

    

 

 

    

 

 

 

Management fees were paid to a shareholder’s company exercising significant influence for services rendered to the Group during the years ended December 31, 2019 and 2018. Such services ended during the second half of 2019.

These transactions are measured at their exchange amount, which is the amount of consideration established and agreed to by the related parties. Unless otherwise stated, none of these transactions included special terms or conditions. No guarantees were given. Management fees are recorded within administration expenses.

 

22.

FINANCIAL INSTRUMENT RISK

The Group is exposed to various risks in relation to financial instruments. The Group’s financial assets and liabilities by category are summarized in Note 10. The main types of risks are market risk, credit risk and liquidity risk.

The Group’s risk management is coordinated at its headquarters, in close cooperation with the board of directors, and focuses on actively securing the Group’s short to medium-term cash flows by minimising the exposure to financial markets.

The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Group is exposed are described below.

 

22.1

Market risk

The Group’s financial instruments expose it to market risks, in particular, currency risk and interest rate risk, resulting from its operating, investing and financing activities:

Foreign currency sensitivity

The majority of the Group’s transactions are in Canadian dollars. Currency risk results from the Group’s sales and purchases denominated in foreign currency which are primarily in U.S. dollars. The Group is exposed to currency risk due to cash, trade and other receivables, credit facilities and trade and other payables denominated in U.S. dollars.

Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management, in US dollars:

 

     December 31, 2020      December 31, 2019  
     Assets      Liabilities      Assets      Liabilities  
     $      $      $      $  

U.S dollars

           

Cash (bank overdraft)

     —          48,880        —          147,553  

Trade and other receivables

     4,497,469        —          6,229,315        —    

Incentives from “support program for the deployment of electric school buses” and from “zero-emission truck and bus program” receivable

     2,860,000        —          3,745,042        —    

Credit facilities

     —          5,842,320        —          1,589,851  

Trade and other payables

     —          1,079,926        —          827,239  

Long term debt—balance of purchase price payable related to the acquisition of dealership rights

     —          2,882,361        —          3,700,404  
  

 

 

    

 

 

    

 

 

    

 

 

 
     7,357,469        9,853,487        9,974,357        6,265,047  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

F-35


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The impact on comprehensive loss and equity of a 10% increase or decrease in foreign currencies on the Group’s financial instruments based on balances at December 31, 2020 would be approximately $250,000 ($371,000 in 2019).

Interest rate sensitivity

The Group is exposed to interest rate risk with respect to financial assets and liabilities bearing fixed and variable interest rates.

Some long-term debts bear interest at a fixed rate and the Group is, therefore, exposed to the risk of changes in fair value resulting from interest rate fluctuations.

The credit facilities, loans on research and development tax credits and subsidies receivable and the term loan bear interest at variable rates and the Group is, therefore, exposed to the cash flow risks resulting from interest rate fluctuations.

Based on balances as at December 31, 2020, sensitivity to a plus or minus 1% change in interest rates would affect profit or loss and equity by $552,000 (approximately $413,000 as at December 31, 2019).

22.2 Credit risk analysis

Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group is exposed to this risk for various financial instruments, for example by granting receivables to customers. The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognized on the consolidated statement of financial position.

The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group’s policy is to deal only with creditworthy counterparties.

The Group’s management considers that all the financial assets that are not impaired or past due for each of the reporting dates presented are of good credit quality. The Group had never experienced credit losses. Consequently, credit risk is not considered material.

22.3 Liquidity risk analysis

Liquidity risk is that the Group might be unable to meet its obligations. The Group’s liquidity and operating results may be adversely affected if the Group’s access to the equity market is hindered, whether as a result of a downturn in the economic conditions generally or related to matters specific to the Group. Over the years, the Group generated cash flows from its financing activities and from its sales. The Group mitigates liquidity risk through the implementation of its capital management policy by managing its capital expenditures, forecast, budget and operational cash flows, and by maintaining adequate lines of credit, if needed.

 

F-36


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The Group’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarized below:

 

     December 31, 2020  
     Current      Non-current  
     Within 6 months      6 to 12 months      1 to 5 years      Later than 5
years
 
     $      $      $      $  

Bank overdraft

     91,076        —          —          —    

Credit facilities

     —          18,209,335        —          —    

Trade and other payables

     9,413,387        —          —          —    

Loans on research and development tax credits and subsidies receivable

     841,949        9,591,623        —          —    

Long-term debt

     25,462,135        1,556,865        122,693        —    

Convertible debt instruments

     —          —          30,828,064        —    

Common shares, retractable

     —          —          25,855,509        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     35,808,547        29,357,823        56,806,266        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2019  
     Current      Non-current  
     Within 6 months      6 to 12 months      1 to 5 years      Later than 5
years
 
     $      $      $      $  

Bank overdraft

     168,108        —          —          —    

Credit facilities

     —          10,345,924        —          —    

Trade and other payables

     4,577,614        —          —          —    

Loans on research and development tax credits and subsidies receivable

     352,614        3,212,023        —          —    

Long-term debt

     1,674,867        8,842,138        2,940,043        —    

Common shares, retractable

     —          —          20,050,896        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     6,773,203        22,400,085        22,990,939        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

23. CAPITAL MANAGEMENT POLICIES AND PROCEDURES

The Group’s capital management objectives are:

 

   

to ensure the Group’s ability to continue as a going concern

 

   

to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Group monitors capital on the basis of the carrying amount of equity, bank overdraft, credit facilities, long-term debt, convertible debt instruments and common shares, retractable, as presented on the face of the consolidated statement of financial position.

The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Group’s management team to sustain the future development of the business.

The Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

 

F-37


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

The amounts managed as capital by the Group for the reporting periods under review are summarized as follows:

 

     December 31,
2020
     December 31,
2019
 
     $      $  

Bank overdraft

     91,076        168,108  

Credit facilities

     18,209,335        10,345,924  

Long-term debt

     26,817,815        11,783,882  

Convertible debt instruments

     18,866,890        —    

Common shares, retractable

     25,855,509        20,050,896  

Shareholders’ equity (deficiency)

     (95,625,929      4,884,091  
  

 

 

    

 

 

 
     (5,785,304      47,232,901  
  

 

 

    

 

 

 

Management reviews its capital management approach on an ongoing basis and believes that this approach is appropriate given the relative size of the Group. There were no changes in the Company’s approach to capital management during the years ended December 31, 2020 and 2019.

 

24.

COVID-19

In March 2020, the decree of a COVID-19 state of pandemic and the numerous measures put in place by the federal, provincial and municipal governments to protect the public had impacts on the Group’s operations. These measures resulted in the shutdown of the Group’s manufacturing facility as of March 25 due to directives issued by the Québec Government while the Group’s research and development operations where authorized to continue. This state of pandemic is likely to cause significant changes to the assets or liabilities in the coming year and / or have a significant impact on future operations.

The Group initiated its deconfinement process since May 11, 2020 which consisted in a first step by the re-opening of the manufacturing site and then the entire site by mid June, while continuing to encourage work at home for all employees.

There continues to be significant uncertainty surrounding the COVID-19 pandemic that had a material negative impact on the global economy in 2020, and will likely continue having a negative impact in 2021 and perhaps beyond. Given the dynamic nature of the pandemic, the extent to which it impacts the Group’s future results will depend on unknown future developments and any further impact on the global economy and the markets in which the Group operates and sells its products, including Canada and the United States of America. Accordingly, as of the date of completion of these financial statements, management was not able to assess how quickly the Group’s activities will get back to normal or the short term financial impact of these events at this time but continues to monitor closely the evolving situation.

Among the measures designed to alleviate the repercussions of this crisis, the Group was eligible for a grant under the Canada Emergency Wage Subsidy program for which the Group has applied for and received an amount of $3,680,007 (CA$4,932,324) in subsidies. From the total subsidies, an amount of $2,455,588 (CA$3,291,232) was accounted for as a reduction of the wages and salaries capitalized as part of the development costs and the remaining amount was accounted for as reduction of the related wages and salaries in the consolidated statement of comprehensive loss.

 

25.

BUSINESS COMBINATION, PLAN OF REORGANIZATION AND REGISTRATION STATEMENT

On November 30, 2020, the Company entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement”) with Northern Genesis Acquisition Corp. (“NGA”) pursuant to which a newly-incorporated wholly-owned subsidiary of the Company (“Merger Sub”) will be merged with NGA, with NGA surviving the business combination as a wholly-owned subsidiary of the Company (the “Transaction”).

 

F-38


Table of Contents

The Lion Electric Company

Notes to the Consolidated Financial Statements

(continued)

 

Under the terms of the Business Combination Agreement, immediately prior to the completion of the Transaction, the Company will complete a 1:4.1289 share split and upon closing of the Transaction, the shares and warrants held by the shareholders of NGA will be converted into the Company’s common shares and warrants on the basis of an exchange ratio of one share or warrant held for one share or warrant of the Company, as applicable, subject to customary adjustments.

The Transaction is expected to close on or about the end of the first quarter of 2021, accordingly, the Group is currently evaluating the effects of the business combination and plan of reorganization on its consolidated financial statements.

In conjunction with the potential business combination, on December, 31, 2020, the Company filed a preliminary F-4 registration statement and subsequent amendments with the Securities and Exchange Commission and upon consummation of the Transaction, the Company is expected to be listed on one or more stock exchanges, including the New York Stock Exchange.

In addition, in connection with the potential business combination, the Group and Investissement Québec, have agreed, subject to certain terms and conditions, that the convertible debt instruments will be repaid upon closing of the Transaction.

 

F-39


Table of Contents

The Lion Electric Company

Consolidated Statements of Financial Position

As of March 31, 2021 and December 31, 2020

(Unaudited, In US dollars)

 

     Notes      March 31,
2021
    December 31,
2020
 
            $     $  

ASSETS

       

Current

       

Inventories

        47,852,275       38,073,303  

Accounts receivable

        14,676,492       18,505,072  

Prepaid expenses

        1,553,322       1,078,148  
     

 

 

   

 

 

 

Current assets

        64,082,089       57,656,523  
     

 

 

   

 

 

 

Non-current

       

Property, plant and equipment

     6        6,340,776       5,446,807  

Right-of-use assets

     7        7,905,453       7,498,724  

Intangible assets

     8        48,128,869       42,090,843  

Contract asset

     10        14,506,486       14,327,709  
     

 

 

   

 

 

 

Non-current assets

        76,881,584       69,364,083  
     

 

 

   

 

 

 

Total assets

        140,963,673       127,020,606  
     

 

 

   

 

 

 

LIABILITIES

       

Current

       

Bank indebtedness and other indebtedness

        31,303,033       28,733,983  

Trade and other payables

        15,336,249       12,404,614  

Current portion of share-based compensation liability

     11        39,200,456       35,573,558  

Current portion of long-term debt

        42,717,680       26,699,276  

Current portion of lease liabilities

     7        1,702,996       1,814,635  
     

 

 

   

 

 

 

Current liabilities

        130,260,414       105,226,066  
     

 

 

   

 

 

 

Non-current

       

Share-based compensation liability

     11        37,621,575       35,126,025  

Long-term debt

        87,326       118,539  

Convertible debt instruments

     12        19,912,273       18,866,890  

Lease liabilities

     7        6,436,263       5,904,473  

Share warrant obligation

     10        31,868,091       31,549,033  

Common shares, retractable

        27,819,990       25,855,509  
     

 

 

   

 

 

 

Non-current liabilities

        123,745,518       117,420,469  
     

 

 

   

 

 

 

Total liabilities

        254,005,932       222,646,535  
     

 

 

   

 

 

 

SHAREHOLDERS’ DEFICIENCY

       

Share capital

        32,562,541       32,562,541  

Conversion options on convertible debt instruments, net of tax

     12        1,472,520       1,472,520  

Deficit

        (142,544,269     (126,430,406

Cumulative translation adjustment

        (4,533,051     (3,230,584
     

 

 

   

 

 

 

Total deficiency

        (113,042,259     (95,625,929
     

 

 

   

 

 

 

Total deficiency and liabilities

        140,963,673       127,020,606  
     

 

 

   

 

 

 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F-40


Table of Contents

The Lion Electric Company

Consolidated Statements of Comprehensive Loss

For the three-month periods ended March 31,

(Unaudited, In US dollars except per share amounts)

 

     Notes      2021     2020  
            $     $  

Revenue

        6,225,478       1,228,439  

Cost of sales

        8,032,301       2,284,676  
     

 

 

   

 

 

 

Gross profit

        (1,806,823     (1,056,237
     

 

 

   

 

 

 

Administrative expenses

     11        6,269,969       760,753  

Selling expenses

     11        4,383,579       1,606,863  

Finance costs

     13        3,907,390       1,879,500  

Foreign exchange loss (gain)

        (178,653     365,926  

Change in fair value of share warrant obligation

     10        (75,245     —    
     

 

 

   

 

 

 

Net loss for the period

        (16,113,863     (5,669,279

Other comprehensive loss Item that will be subsequently reclassified to net loss Foreign currency translation adjustment

        (1,302,467     (112,240
     

 

 

   

 

 

 

Comprehensive loss for the period

        (17,416,330     (5,781,519
     

 

 

   

 

 

 

Loss per share

       

Basic loss per share

        (0.15     (0.05
     

 

 

   

 

 

 

Diluted loss per share

        (0.15     (0.05
     

 

 

   

 

 

 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F-41


Table of Contents

The Lion Electric Company

Consolidated Statements of Changes in Equity

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars, except for number of shares)

 

     Notes      Number of
shares
     Share capital      Conversion
options
     Deficit     Cumulative
translation
adjustment
    Total
deficiency
 
                   $      $      $     $     $  

Balance at January 1, 2021

        110,551,314        32,562,541        1,472,520        (126,430,406     (3,230,584     (95,625,929

Net loss for the period

        —          —          —          (16,113,863     —         (16,113,863

Other comprehensive loss

                  

Foreign currency translation adjustment

        —          —          —          —         (1,302,467     (1,302,467
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2021

        110,551,314        32,562,541        1,472,520        (142,544,269     (4,533,051     (113,042,259
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at January 1, 2020

        110,551,314        32,562,541        —          (29,078,739     1,400,289       4,884,091  

Issuance of convertible debt instruments

     12              422,940        —         —         422,940  

Net loss for the period

        —          —          —          (5,669,279     —         (5,669,279

Other comprehensive loss

                  

Foreign currency translation adjustment

        —          —          —          —         (112,240     (112,240
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2020

        110,551,314        32,562,541        422,940        (34,748,018     1,288,049       (474,488
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F-42


Table of Contents

The Lion Electric Company

Consolidated Statements of Cash Flows

For the three-month periods ended March 31,

(Unaudited, In US dollars)

 

     Notes      2021     2020  
            $     $  

OPERATING ACTIVITIES

       

Net loss for the period

        (16,113,863     (5,669,279

Non-cash items:

       

Amortization—property, plant and equipment

        291,396       110,117  

Amortization—right-of-use assets

        457,570       340,471  

Amortization—intangible assets

        234,848       34,953  

Stock-based compensation

        5,205,352       251,043  

Accretion expense on common shares, retractable

        1,616,013       1,196,421  

Accretion expense on balance of purchase price payable related to the acquisition of the dealership rights

        153,120       208,718  

Accretion expense on convertible debt instruments

        797,214       24,888  

Change in fair value of share warrant obligation

        (75,245     —    

Unrealized foreign exchange loss (gain)

        (35,926     327,689  

Net change in working capital items

     14        (2,594,854     (2,315,638
     

 

 

   

 

 

 

Cash flows used in operating activities

        (10,064,375     (5,490,617
     

 

 

   

 

 

 

INVESTING ACTIVITIES

       

Acquisition of property, plant and equipment

        (1,111,899     (868,788

Acquisition of intangible assets

        (6,450,184     (2,780,614

Government assistance related to intangible assets

        456,190       1,222,987  
     

 

 

   

 

 

 

Cash flows used in investing activities

        (7,105,893     (2,426,415
     

 

 

   

 

 

 

FINANCING ACTIVITIES

       

Net change in credit facilities

        4,977,316       5,471,279  

Repayment of loans on research and development tax credits and subsidies receivable

        (2,745,712     —    

Long-term debt

        15,775,473       —    

Repayment of long-term debt

        (370,026     (685,988

Repayment of lease liabilities

        (447,724     (215,633

Proceeds from issuance of convertible debt instruments, net of issuance costs

        —         3,671,299  
     

 

 

   

 

 

 

Cash flows from financing activities

        17,189,327       8,240,957  
     

 

 

   

 

 

 

Effect of exchange rate changes on instruments held in foreign currency

        (62,053     (21,701
     

 

 

   

 

 

 

Net increase (decrease) in cash

        (42,994     302,224  

Bank overdraft, beginning of period

        (91,076     (168,108
     

 

 

   

 

 

 

Cash (bank overdraft), end of period

        (134,070     134,116  
     

 

 

   

 

 

 

Other information on cash flows related to operating activities :

       

Income taxes paid

        —         —    

Interest paid

        1,050,469       390,041  

Interest paid under lease liabilities

        79,471       53,975  

 

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F-43


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts)

 

1.

NATURE OF OPERATIONS

The principal activities of The Lion Electric Company (“Lion” or the “Company”) and its subsidiaries (together referred to as the “Group”) include design, development, manufacturing and distribution of purpose-built all-electric medium and heavy-duty urban vehicles including battery systems, chassis, bus bodies and truck cabins. The Group also distributes truck and bus parts and accessories.

 

2.

BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE WITH IFRS

These unaudited condensed interim consolidated financial statements (“financial statements”) present the Group’s consolidated financial position as of March 31, 2021 and December 31, 2020 as well as its consolidated comprehensive loss for the three-month periods ended March 31, 2021 and 2020 and the Group’s cash flows and changes in shareholders’ deficiency for the three-month periods ended March 31, 2021 and 2020.

These financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34—Interim Financial Reporting and are expressed in United States (“US”) dollars for reporting purposes. The functional currency of the Company and its subsidiaries is the Canadian dollar. Certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, have been omitted or condensed and therefore these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2020.

These financial statements reflect all adjustments which are, in the opinion of management, to present a fair statement of the results for these interim periods. These adjustments are of a normal recurring nature.

These financial statements have been approved for issue by the Board of Directors on May 14, 2021.

 

3.

SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with the accounting policies adopted in the Group’s most recent annual consolidated financial statements for the year ended December 31, 2020, and use the same methods of computation compared with the Group’s most recent annual consolidated financial statements.

At the date of authorization of these financial statements, several new, but not yet effective, standards and amendments to existing standards, and interpretations have been published by the IASB. None of these standards or amendments to existing standards have been adopted early by the Group.

Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New standards, amendments and interpretations not adopted in the current period have not been disclosed as they are not expected to have a material impact on the Group’s condensed interim consolidated financial statements.

 

4.

ESTIMATES

When preparing the financial statements, management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results.

The judgements, estimates and assumptions applied in the financial statements, including the key sources of estimation uncertainty, were the same as those applied in the Group’s last annual consolidated financial statements for the year ended December 31, 2020.

 

F-44


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

5.

SEGMENT REPORTING

The Group has one reportable operating segment, the manufacturing and sales of electric vehicles in Canada and in the United States. The Group’s revenue from external customers and its non-current assets are divided into the following geographical areas:

 

     Three-month period ended March 31, 2021  
     Canada      United States      Total  
     $      $      $  

Revenue

     5,577,757        647,721        6,225,478  
  

 

 

    

 

 

    

 

 

 
     Three-month period ended March 31, 2020  
     Canada      United States      Total  
     $      $      $  

Revenue

     541,455        686,984        1,228,439  
  

 

 

    

 

 

    

 

 

 

During the three-month period ended March 31, 2021, 71.0% (three-month period ended March 31, 2020: 53.3%) of the Group’s revenue depended on two customers, 46.6% and 24.4% respectively (three-month period ended March 31, 2020: two customers, 29.4% and 23.9% respectively).

 

     March 31, 2021  
     Canada      United States      Total  
     $      $      $  

Property, plant and equipment

     5,755,792        584,984        6,340,776  

Right-of-use assets

     5,380,342        2,525,111        7,905,453  

Intangible assets

     42,586,311        5,542,558        48,128,869  

Contract asset

     14,506,486        —          14,506,486  
  

 

 

    

 

 

    

 

 

 
     68,228,931        8,652,653        76,881,584  
  

 

 

    

 

 

    

 

 

 

 

     December 31, 2020  
     Canada      United States      Total  
     $      $      $  

Property, plant and equipment

     5,050,367        396,440        5,446,807  

Right-of-use assets

     5,586,207        1,912,517        7,498,724  

Intangible assets

     36,615,165        5,475,678        42,090,843  

Contract asset

     14,327,709        —          14,327,709  
  

 

 

    

 

 

    

 

 

 
     61,579,448        7,784,635        69,364,083  
  

 

 

    

 

 

    

 

 

 

 

F-45


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

6.

PROPERTY, PLANT AND EQUIPMENT

Details of the Group’s property, plant and equipment and their carrying amounts are as follows:

 

     Leasehold
improvements
     Machinery
and
equipment
     Rolling
stock
     Computer
equipment
     Furniture
and office
equipment
     Production
moulds
     Master
patterns and
templates
     Prototype      Total  
     $      $      $      $      $      $      $      $      $  

GROSS CARRYING AMOUNT

                          

Balance at January 1, 2021

     1,966,151        1,988,193        407,579        1,294,565        488,489        416,858        525,953        78,370        7,166,158  

Additions

     48,253        406,010        128,343        320,499        144,689        63,750        355        —          1,111,899  

Foreign currency translation adjustment

     24,857        27,532        5,947        18,304        7,066        5,630        6,566        977        96,879  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2021

     2,039,261        2,421,735        541,869        1,633,368        640,244        486,238        532,874        79,347        8,374,936  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

AMORTIZATION

                          

Balance at January 1, 2021

     774,384        96,356        120,439        363,142        125,071        114,635        46,954        78,370        1,719,351  

Amortization

     140,036        20,296        22,348        73,686        19,244        13,242        2,544        —          291,396  

Foreign currency translation adjustment

     10,602        1,338        1,652        5,026        1,690        1,519        609        977        23,413  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2021

     925,022        117,990        144,439        441,854        146,005        129,396        50,107        79,347        2,034,160  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount March 31, 2021

     1,114,239        2,303,745        397,430        1,191,514        494,239        356,842        482,767        —          6,340,776  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

GROSS CARRYING AMOUNT

                          

Balance at January 1, 2020

     935,981        1,123,911        249,217        534,977        250,312        330,075        470,725        76,823        3,972,021  

Additions

     960,722        799,539        145,672        711,348        221,472        76,128        43,462        —          2,958,343  

Foreign currency translation adjustment

     69,448        64,743        12,690        48,240        16,705        10,655        11,766        1,547        235,794  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     1,966,151        1,988,193        407,579        1,294,565        488,489        416,858        525,953        78,370        7,166,158  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

AMORTIZATION

                          

Balance at January 1, 2020

     324,332        64,534        57,037        182,205        67,343        87,259        40,305        73,964        896,979  

Amortization

     421,329        28,996        59,138        168,399        53,551        24,337        5,548        2,770        764,068  

Foreign currency translation adjustment

     28,723        2,826        4,264        12,538        4,177        3,039        1,101        1,636        58,304  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     774,384        96,356        120,439        363,142        125,071        114,635        46,954        78,370        1,719,351  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount December 31, 2020

     1,191,767        1,891,837        287,140        931,423        363,418        302,223        478,999        —          5,446,807  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

F-46


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

7.

LEASES

Right-of-use assets

 

     Premises      Rolling stock      Total  
     $      $      $  

Balance at January 1, 2021

     7,353,957        144,767        7,498,724  

Addition

     750,298        18,348        768,646  

Amortization

     (441,025      (16,545      (457,570

Foreign currency translation adjustment

     93,835        1,818        95,653  
  

 

 

    

 

 

    

 

 

 

Balance at March 31, 2021

     7,757,065        148,388        7,905,453  
  

 

 

    

 

 

    

 

 

 

Balance at January 1, 2020

     6,371,563        202,401        6,573,964  

Addition

     2,177,758        19,204        2,196,962  

Amortization

     (1,366,378      (77,826      (1,444,204

Foreign currency translation adjustment

     171,014        988        172,002  
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     7,353,957        144,767        7,498,724  
  

 

 

    

 

 

    

 

 

 

Lease liabilities

 

     $  

Balance at January 1, 2021

     7,719,108  

Addition

     768,646  

Lease payments

     (446,970

Foreign currency translation adjustment

     98,475  
  

 

 

 

Balance at March, 2021

     8,139,259  

Current portion

     1,702,996  
  

 

 

 

Non-current portion

     6,436,263  
  

 

 

 

Balance at January 1, 2020

     6,669,787  

Addition

     2,196,962  

Lease payments

     (1,327,707

Foreign currency translation adjustment

     180,066  
  

 

 

 

Balance at December 31, 2020

     7,719,108  

Current portion

     1,814,635  
  

 

 

 

Non-current portion

     5,904,473  
  

 

 

 

 

8.

INTANGIBLE ASSETS

Details of the Group’s intangible assets and their carrying amounts are as follows:

 

F-47


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

     Software      Development
costs
     Dealership rights      Total  
     $      $      $      $  

Gross carrying amount

           

Balance at January 1, 2021

     2,152,616        35,672,946        5,463,882        43,289,444  

Additions, separately acquired

     630,773        —          —          630,773  

Additions, internally developed

     —          5,048,311        —          5,048,311  

Additions, borrowing costs

     —          31,850        —          31,850  

Foreign currency translation adjustment

     31,092        479,204        68,176        578,472  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2021

     2,814,481        41,232,311        5,532,058        49,578,850  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amortization

           

Balance at January 1, 2021

     539,821        658,780        —          1,198,601  

Amortization

     122,474        112,374        —          234,848  

Foreign currency translation adjustment

     7,558        8,974        —          16,532  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2021

     669,853        780,128        —          1,449,981  
  

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount March 31, 2021

     2,144,628        40,452,183        5,532,058        48,128,869  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross carrying amount

           

Balance at January 1, 2020

     1,255,871        21,140,220        5,356,051        27,752,142  

Additions, separately acquired

     827,855        —          —          827,855  

Additions, internally developed

     —          12,788,264        —          12,788,264  

Additions, borrowing costs

     —          612,962        —          612,962  

Foreign currency translation adjustment

     68,890        1,131,500        107,831        1,308,221  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     2,152,616        35,672,946        5,463,882        43,289,444  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amortization

           

Balance at January 1, 2020

     196,388        475,120        —          671,508  

Amortization

     322,493        165,383        —          487,876  

Foreign currency translation adjustment

     20,940        18,277        —          39,217  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     539,821        658,780        —          1,198,601  
  

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amount December 31, 2020

     1,612,795        35,014,166        5,463,882        42,090,843  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

9.

FINANCIAL ASSETS AND LIABILITIES

9.1 Categories of financial assets and financial liabilities

The classification of financial instruments is summarized as follows:

 

     Classification      March 31,
2021
     December 31,
2020
 
            $      $  

FINANCIAL ASSETS

        

Trade and other receivables

     Amortized cost        5,581,273        8,692,439  

Incentives from “support program for the deployment of electric school buses” and from “zero-emission truck and bus program” receivable

     Amortized cost        4,627,905        5,216,118  

Other government assistance receivable

     Amortized cost        1,288,511        724,367  

FINANCIAL LIABILITIES

        

Bank overdraft

     Amortized cost        134,070        91,076  

Credit facilities

     Amortized cost        23,369,339        18,209,335  

Loans on research and development tax credits and subsidies receivable

     Amortized cost        7,799,624        10,433,572  

Trade and other payables

     Amortized cost        14,878,414        9,413,387  

Long-term debt

     Amortized cost        42,805,006        26,817,815  

Convertible debt instruments

     Amortized cost        19,912,273        18,866,890  

Share warrant obligation

     FVTPL        31,868,091        31,549,033  

Common shares, retractable

     Amortized cost        27,819,990        25,855,509  

 

F-48


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

Fair value of financial instruments

Current financial instruments that are not measured at fair value on the consolidated statement of financial position are represented by trade and other receivables, incentives from “support program for the deployment of electric school buses” and from “zero-emission truck and bus program” receivable, other government assistance receivable, bank overdraft, credit facilities, loans on research and development tax credits and subsidies receivable and trade and other payables. Their carrying values are considered to be a reasonable approximation of their fair value because of their short-term maturity and / or contractual terms of these instruments.

As of March 31, 2021 and December 31, 2020, the fair value of long-term debt, the convertible debt instruments and the common shares, retractable was based on discounted cash flows and was not materially different from its carrying value because there was no material change in the assumptions used for fair value determination at inception. Therefore, their principal amount approximated their fair Value. The long-term debt, convertible debt instruments and common shares, retractable are categorized in Level 2 of the fair value hierarchy.

The fair value of the share warrant obligation was determined as described in Note 10.

 

10.

SHARE WARRANT

On July 1, 2020, in connection with the entering into of a master purchase agreement and a work order (collectively, the “MPA”) with Amazon Logistics, Inc., the Company issued a warrant to purchase common shares of the Company (the “Warrant”) to Amazon.com NV Investment Holdings LLC (the “Warrantholder”) which vests, subject to the terms and conditions contained therein, based on the aggregate amount of spending by Amazon.com, Inc. and its affiliates on the Group’s products or services.

The Group determined that the Warrant is a derivative instrument and should be classified as a liability in accordance with IAS 32—Financial Instruments: Presentation and IFRS 9—Financial Instruments. The vested portion of the Warrant is initially recorded at fair value and then revalued at each reporting date with a corresponding contract asset recognized at inception.

The fair value of the Warrant was determined using the Black-Scholes option pricing model taking into account the following assumptions:

 

     March 31,
2021
    December 31,
2020
 

Exercise price ($)

     5.66       5.66  

Share price ($)

     10.00       10.00  

Volatility (%)

     40     40

Risk-free interest rate (%)

     1.24     0.69

Expected warrant life (years)

     7.25       7.50  

The Group has recognized the following contract asset and share warrant obligation:

 

     March 31,
2021
     December 31,
2020
 
     $      $  

Contract asset

     

Beginning balance

     14,327,709        13,427,493  

Foreign currency translation adjustment

     178,777        900,216  
  

 

 

    

 

 

 

Total contract asset

     14,506,486        14,327,709  
  

 

 

    

 

 

 

Share warrant obligation

     

Beginning balance

     31,549,033        13,227,703  

Fair value adjustment

     (75,245      16,847,470  

Foreign currency translation adjustment

     394,303        1,473,860  
  

 

 

    

 

 

 

Total share warrant obligation

     31,868,091        31,549,033  
  

 

 

    

 

 

 

 

F-49


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

11.

SHARE-BASED EMPLOYEE REMUNERATION

The following table summarizes share-based compensation costs recorded during the three-month periods ended:

 

     March 31,
2021
     March 31,
2020
 
     $      $  

Administrative expenses

     3,058,595        191,204  

Selling expenses

     2,146,757        59,839  
  

 

 

    

 

 

 
     5,205,352        251,043  
  

 

 

    

 

 

 

The following table summarizes share-based compensation liabilities recorded in the condensed interim statements of financial position:

 

     March 31,
2021
     December 31,
2020
 
     $      $  

Share-based compensation liability, current

     39,200,456        35,573,558  

Share-based compensation liability, non-current

     37,621,575        35,126,025  
  

 

 

    

 

 

 
     76,822,031        70,699,583  
  

 

 

    

 

 

 

The following table summarizes the information relating to stock options outstanding:

 

     As of March 31, 2021  

Exercise Price

   Number of stock
options
     Weighted
average
remaining
contractual life
(years)
     Number of stock
options
exercisable
 

CA$0.93 (issued in 2018)

     5,902,399        6.71        4,279,237  

CA$0.93 (issued in 2019)

     4,059,906        8.53        1,014,979  

$5.66 (issued in 2020)

     412,890        9.47        —    
  

 

 

       

 

 

 
     10,375,195           5,294,216  
  

 

 

       

 

 

 

 

     As of December 31, 2020  

Exercise Price

   Number of stock
options
     Weighted
average
remaining
contractual life
(years)
     Number of stock
options
exercisable
 

CA$0.93 (issued in 2018)

     5,902,399        6.86        4,205,458  

CA$0.93 (issued in 2019)

     4,059,906        8.78        1,014,979  

5.66 (issued in 2020)

     412,890        9.71        —    
  

 

 

       

 

 

 
     10,375,195           5,220,437  
  

 

 

       

 

 

 

 

F-50


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

The following principal weighted assumptions were used in the valuation to remeasure the share-based compensation liability as at:

 

     March 31,
2021
    December 31,
2020
 

Exercise price (CA$)

     1.18       1.20  

Share price (CA$)

     12.57       12.73  

Volatility (%)

     40     40

Risk-free interest rate (%)

     1.37     0.59

Expected option life (years)

     7.53       7.83  

 

12.

CONVERTIBLE DEBT INSTRUMENTS

 

     March 2020
Convertible
Loan
     September 2020
Convertible
Debenture
     Total
Convertible Debt
Instruments
     Conversion
Option
 
     $      $      $      $  

Balance at January 1, 2021

     3,676,252        15,190,638        18,866,890        1,472,520  

Accretion expense

     92,447        712,121        804,568     

Foreign currency translation adjustment

     46,492        194,323        240,815     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2021

     3,815,191        16,097,082        19,912,273        1,472,520  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     March 2020
Convertible
Loan
     September 2020
Convertible
Debenture
     Total
Convertible Debt
Instruments
     Conversion
Option
 
     $      $      $      $  

Balance at January 1, 2020

           

Issuance of March 2020

           

Convertible Loan

     3,741,675        —          3,741,675     

Conversion option—March 2020

           

Convertible Loan

     (422,940      —          (422,940      422,940  

Issuance of September 2020

           

Convertible

           

Debenture

     —          15,340,000        15,340,000     

Conversion option—September 2020

           

Convertible Debenture

     —          (1,049,580      (1,049,580      1,049,580  

Accretion expense

     278,725        886,250        1,164,975     

Less: financing fees

     (70,376      (313,131      (383,507   

Foreign currency translation adjustment

     149,168        327,099        476,267     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

     3,676,252        15,190,638        18,866,890        1,472,520  
  

 

 

    

 

 

    

 

 

    

 

 

 

March 2020 Convertible Loan

In March 2020, the Company completed a financing through the issuance of an unsecured convertible loan (the “March 2020 Convertible Loan”) to Investissement Québec in the principal amount of $3,741,675 (CA$5,000,000).

An amount of $70,376 (CA$94,043) in financing fees was incurred as a direct cost in the closing of the financing. This balance was capitalized and netted against the proceeds received from the issuance of the March 2020 Convertible Loan.

Since the financial instrument meets the “Fixed for Fixed” criteria under IAS 32 – Financial Instruments: Presentation (“IAS 32”), the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured.

 

F-51


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

The debt portion of the March 2020 Convertible Loan was recorded at the estimated fair value of $3,318,735 (CA$4,400,000) using an effective interest rate of 10.76% per annum at the time of issuance with the residual value of $422,940 (CA$600,000) recorded as separate component of equity.

As of March 31, 2021, the March 2020 Convertible Loan balance was accreted to $3,815,191 (CA$4,797,776)), with an interest expense of $92,447 (CA$117,036) (March 31, 2020: $25,575 (CA$34,361)) and a foreign currency translation adjustment of $46,492.

September 2020 Convertible Debenture

In September 2020, the Company completed a financing through the issuance of an unsecured convertible debenture (the “September 2020 Convertible Debenture”) to Investissement Québec in the principal amount of $15,340,000 (CA$20,000,000).

An amount of $313,131 (CA$417,675) in financing fees was incurred as a direct cost in the closing of the financing. This balance was capitalized and netted against the proceeds received from the issuance of the September 2020 Convertible Debenture.

Since the financial instrument meets the “Fixed for Fixed” criteria under IAS 32, the conversion option was classified as an equity instrument at the issuance date and is not subsequently remeasured.

The debt portion of the September 2020 Convertible Debenture was recorded at the estimated fair value of $14,290,420 (CA$18,600,000) using an effective interest rate of 20.52% per annum at the time of issuance with the residual value of $1,049,580 (CA$1,400,000) recorded as a separate component in equity.

As of March 31, 2021, the September 2020 Convertible Debenture balance was accreted to $16,097,082 (CA$20,242,809) with an interest expense of $712,121 (CA$901,533) and a foreign currency translation adjustment of $194,323.

 

13.

FINANCE COSTS

Finance costs for the reporting periods consist of the following:

 

     Three-month periods ended
March 31,
 
     2021      2020  
     $      $  

Interest on long-term debt

     176,520        82,943  

Interest on current debt

     1,079,028        296,621  

Interest on lease liabilities

     81,873        66,024  

Interest on convertible debt instruments

     797,214        24,888  

Accretion expense on balance of purchase price payable related to the acquisition of the dealership rights

     153,120        208,718  

Accretion expense on common shares, retractable

     1,616,013        1,196,421  

Other financing fees

     3,622        3,885  
  

 

 

    

 

 

 
     3,907,390        1,879,500  
  

 

 

    

 

 

 

 

14.

EARNINGS PER SHARE

The calculation of basic and diluted loss per share for the three-month period ended March 31, 2021 was based on the net loss of $16,113,863 (net loss of $5,669,279 for the three-month period ended March 31, 2020) and the weighted average number of common shares outstanding of 110,551,314.

Excluded from the calculation of the diluted loss per share for the three-month period ended March 31, 2021 are 5,294,216 stock options (2,803,639 for the three-month period ended March 31, 2020) and 5,302,511 common shares exercisable pursuant to the Warrant (nil for the three-month period ended March 31, 2020).

 

F-52


Table of Contents

The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

15.

ADDITIONAL INFORMATION INCLUDED IN THE INTERIM CONDENSED STATEMENTS OF CASH FLOWS

The net change in working capital items is detailed as follows:

 

     Three-month periods ended
March 31,
 
     2021      2020  
     $      $  

Inventories

     (9,241,896      (4,379,563

Accounts receivable

     4,347,339        4,861,961  

Prepaid expenses

     (458,644      (839,990

Trade and other payables

     2,758,347        (1,958,046
  

 

 

    

 

 

 
     (2,594,854      (2,315,638
  

 

 

    

 

 

 

 

16.

COVID-19

In March 2020, the decree of a COVID-19 state of pandemic and the numerous measures put in place by the federal, provincial and municipal governments to protect the public had impacts on the Group’s operations. This state of pandemic could cause significant changes to the assets or liabilities and / or have a significant impact on future operations.

There continues to be significant uncertainty surrounding the COVID-19 pandemic that had a material negative impact on the global economy in 2020, and will likely continue having a negative impact in 2021 and perhaps beyond. Given the dynamic nature of the pandemic, the extent to which it impacts the Group’s future results will depend on unknown future developments and any further impact on the global economy and the markets in which the Group operates and sells its products, including Canada and the United States of America. Accordingly, as of the date of completion of these financial statements, management was not able to assess the short term financial impact of these events at this time but continues to monitor closely the evolving situation.

 

17.

BUSINESS COMBINATION, PLAN OF REORGANIZATION, REGISTRATION STATEMENT, PROSPECTUS AND SUBSEQUENT EVENTS

On November 30, 2020, the Company entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement”) with Northern Genesis Acquisition Corp. (“NGA”) pursuant to which a newly-incorporated wholly-owned subsidiary of the Company (“Merger Sub”) will be merged with NGA, with NGA surviving the business combination as a wholly-owned subsidiary of the Company (the “Transaction”).

Under the terms of the Business Combination Agreement, immediately prior to the completion of the Transaction, the Company will complete a 1:4.1289 share split and upon closing of the Transaction, the shares and warrants held by the shareholders of NGA will be converted into the Company’s common shares and warrants on the basis of an exchange ratio of one share or warrant held for one share or warrant of the Company, as applicable, subject to customary adjustments.

On May 6, 2021, the Transaction successfully closed and was consummated. The Company is treating the Transaction as a capital transaction equivalent to the issue of shares of the Company in exchange for the net monetary assets of NGA. The Transaction does not constitute a business combination as defined under IFRS 3, Business Combinations, as NGA is a non-operating entity that does not meet the definition of a business under IFRS 3. Accordingly, as of the closing of the Transaction, the Company issued the Company’s shares to the shareholders of NGA in exchange for their shares of NGA as well as exchanged the NGA warrants for the warrants of the Company. As a result, the Company will be consolidating cash of approximately $290 million, and be accounting for the warrants as a liability at fair value. As part of the closing, the Company filed articles of amendment and consolidation whereby such articles provided, amongst other things, for the creation of an unlimited number of preferred shares and the stock split of 1:4.1289 was effective. Accordingly, all shares, stock options, warrants and per share information presented in the interim consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis for all periods presented.

 

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The Lion Electric Company

Notes to the Condensed Interim Consolidated Financial Statements

For the three-month periods ended March 31, 2021 and 2020

(Unaudited, In US dollars except per share amounts) (continued)

 

In addition to the closing of the Transaction, a concurrent private placement for the issuance of 20,040,200 common shares (post share split) for gross proceeds of $200,402,000 also closed.

In conjunction with the business combination, the Company filed a F-4 registration statement and subsequent amendments with the Securities and Exchange Commission as well as a non-offering prospectus with the Canadian securities regulators and upon consummation of the Transaction and effective May 7, 2021, the Company was listed on the New York Stock Exchange and the Toronto Stock Exchange.

Finally, in connection with the business combination, the Company and Investissement Québec, agreed, subject to certain terms and conditions, that the convertible debt instruments be repaid upon closing of the Transaction. In addition, the Company also agreed to repay certain bank indebtedness and long-term debt owed to the National Bank of Canada.

 

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The Lion Electric Company

 

LOGO

 

 

PROSPECTUS

 

 

            , 2021

 

 

 


Table of Contents

PART II

Information Not Required in Prospectus

 

Item 6.

Indemnification of Directors and Officers.

Under the Business Corporations Act (Québec) and Lion’s bylaws, Lion must indemnify its current or former directors or officers or another individual who acts or acted at its request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of his or her association with Lion or another entity. The Business Corporations Act (Québec) also provides that Lion must advance moneys to such individual for costs, charges and expenses incurred in connection with such a proceeding; provided that such individual shall repay such payment if he or she does not fulfill the conditions described below.

Indemnification is prohibited under the Business Corporations Act (Québec) unless the individual:

 

   

acted with honesty and loyalty in our interests, or in the interest of the other group for which the individual acted as director or officer or in a similar capacity at our request; and

 

   

in the case of a proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that his or her conduct was lawful.

The Business Corporations Act (Québec) and Lion’s bylaws authorize Lion to purchase and maintain insurance for the benefit of each of its current or former directors or officers and each person who acts or acted at Lion’s request as a director, officer or an individual acting in a similar capacity of Lion, or of any subsidiary of Lion.

In addition, Lion entered into separate indemnity agreements with each of its directors and officers. These indemnity agreements, among other things, require Lion to indemnify its directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of their services as a director or officer, or any subsidiary of Lion.

 

Item 7.

Recent Sales of Unregistered Securities.

Set forth below is information regarding all securities sold or granted by us within the past three years that were not registered under the Securities Act and the consideration, if any, received by us for such securities:

 

   

In connection with the closing of the PIPE Financing, on May 6, 2021, we issued 20,040,200 common shares to the PIPE investors for gross proceeds of $200,402,200.

The foregoing securities issuances were made in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Regulation D or Regulation S promulgated thereunder.

 

Item 8.

Exhibits and Financial Statement Schedules.

 

  (a)

The following exhibits are included or incorporated by reference in this registration statement on Form F-1:

Exhibit Index

 

Exhibits

  

 

2.1^    Business Combination Agreement and Plan of Reorganization, dated as of November 30, 2020 by and among Lion, Merger Sub, and NGA (incorporated by reference to Exhibit 2.1 to the Form F-4 filed on December 31, 2020 (file no. 333-251847)).
3.1*    Articles of Lion, dated May 6, 2021.
3.2*    Bylaws of Lion

 

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Exhibits

 

 

4.1   Warrant Agreement between NGA and Continental Stock Transfer  & Trust Company (incorporated by reference to Exhibit 4.1 to the NGA Current Report on Form 8-K filed on August 20, 2020).
4.2*   Warrant Assignment and Assumption Agreement, dated as of May 6, 2021, by and among NGA, Lion, Continental Stock Transfer & Trust Company and American Stock Transfer & Trust Company.
4.3*#   Registration Rights Agreement, dated as of May 6, 2021, by and among Lion, PEC, 9368-2672 and the Warrantholder.
5.1*   Opinion of Stikeman Elliott LLP regarding the validity of the Lion Common Shares
10.1   Stockholder Support Agreement, dated as of November  30, 2020, by and among Lion, NGA, the Sponsor and the stockholders of the Company named therein. (incorporated by reference to Exhibit 10.1 to the NGA Current Report on Form 8-K filed on November 30, 2020).
10.2   Form of Subscription Agreement (incorporated by reference to Exhibit 10.2 to the NGA Current Report on Form 8-K filed on November 30, 2020).
10.3†*   Lion Omnibus Incentive Plan, effective May 6, 2021.
10.4   Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Form F-4/A filed on March 11, 2021 (file no. 333-251847)).
10.5   Form of Lion Lock-Up Agreement (incorporated by reference to Exhibit 10.5 to the Form F-4 filed on December 31, 2020 (file no. 333-251847)).
10.6†   Employment Agreement between Lion and Marc Bedard (incorporated by reference to Exhibit 10.6 to the Form F-4/A filed on March 19, 2021 (file no. 333-251847)).
10.7†   Employment Agreement between Lion and Nicolas Brunet (incorporated by reference to Exhibit 10.7 to the Form F-4/A filed on March 11, 2021 (file no. 333-251847)).
10.8†   Employment Agreement between Lion and Yannick Poulin (incorporated by reference to Exhibit 10.8 to the Form F-4/A filed on March 11, 2021 (file no. 333-251847)).
10.9#   Common Equity Warrant of Lion issued to Amazon.com NV Investment Holdings LLC (incorporated by reference to Exhibit 4.2 to the Form F-4 filed on December 31, 2020 (file no. 333-251847)).
10.10#   Purchase Agreement between Lion and Romeo Systems, Inc. (incorporated by reference to Exhibit 4.2 to the Form F-4/A filed on February 10, 2021 (file no. 333-251847)).
10.11†   Confidentiality, Non-Compete and Non-Solicitation Agreement between Lion and Yannick Poulin (incorporated by reference to Exhibit 10.11 to the Form F-4/A filed on March 11, 2021 (file no. 333-251847)).
10.12#   Master Purchase Agreement, dated as of June  29, 2020, between Amazon Logistics, Inc. and Lion (incorporated by reference to Exhibit 10.12 to the Form F-4/A filed on March 11, 2021 (file no. 333-251847)).
10.13†*   Second Amended and Restated Stock Option Plan for Directors, Executive Officers, Employees and Consultants, effective as of May 6, 2021.
10.14*#   Nomination Rights Agreement, dated May 6, 2021, by and among Lion, PEC and 9368-2672.
21.1*   List of Subsidiaries of Lion.
23.1*   Consent of Raymond Chabot Grant Thornton LLP
23.2*   Consent of Stikeman Elliott LLP (included in Exhibit 5.1)

 

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Exhibits

  

 

24.1*    Power of Attorney

 

*

Filed herewith

^

All schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.

#

Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Commission.

Management contract or compensatory plan or arrangement

 

  (b)

Financial Statement Schedules.

All schedules have been omitted because they are not required, are not applicable or the information is otherwise set forth in the financial statements or notes thereto.

 

Item 9.

Undertakings.

 

  (a)

The undersigned registrant hereby undertakes:

 

  (1)

to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

  (i)

to include any prospectus required by Section 10(a)(3) of the Securities Act;

 

  (ii)

to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

  (iii)

to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement provided, however, that:

Paragraphs (i), (ii) and (iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

 

  (2)

That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

  (3)

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

  (4)

To file a post-effective amendment to the registration statement to include any financial statements required by “Item 8.A. of Form 20-F” at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Securities Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-

 

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  effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Securities Act or Item 8.A. of Form 20-F if such financial statements and information are contained in periodic reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this registration statement.

 

  (5)

That, for the purpose of determining liability under the Securities Act to any purchaser:

 

  (i)

If the registrant is relying on Rule 430B:

 

  (A)

Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

  (B)

Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

 

  (ii)

If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

  (b)

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

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  (c)

The undersigned registrant hereby undertakes:

 

  (1)

That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

  (2)

For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Montréal, Province of Quebec, Canada, on the 28th day of May, 2021.

 

THE LION ELECTRIC COMPANY
By:   /s/ Nicolas Brunet
Name:   Nicolas Brunet
Title:   Executive Vice-President and Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Marc Bedard and Nicolas Brunet, and each of them singly, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and any subsequent registration statement filed by the registrant pursuant to Rule 462(b) of the Securities Act, and to file or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitutes or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

  

Capacity

 

Date

/s/ Marc Bedard

Marc Bedard

  

CEO – Founder and Director

(Principal Executive Officer)

  May 28, 2021

/s/ Nicolas Brunet

Nicolas Brunet

  

Executive Vice-President and Chief Financial Officer

(Principal Financial and Accounting Officer)

  May 28, 2021

/s/ Sheila Colleen Bair

Sheila Colleen Bair

  

Director

  May 28, 2021

/s/ Pierre Larochelle

Pierre Larochelle

  

Director

  May 28, 2021

/s/ Pierre-Olivier Perras

Pierre-Olivier Perras

  

Director

  May 28, 2021

/s/ Michel Ringuet

Michel Ringuet

  

Director

  May 28, 2021

 

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Signature

  

Capacity

 

Date

/s/ Pierre Wilkie

Pierre Wilkie

  

Director

  May 28, 2021

 

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SIGNATURE OF AUTHORIZED REPRESENTATIVE OF THE REGISTRANT

Pursuant to the Securities Act of 1933, as amended, the undersigned, a duly authorized representative of The Lion Electric Company in the United States,, has signed this registration statement in the City of Newark, State of Delaware on the 28th day of May, 2021.

 

Puglisi & Associates
By:   /s/ Donald J. Puglisi
Name:   Donald J. Puglisi
Title:   Managing Director

 

II-8

Exhibit 3.1

LOGO

REZ-109 (2017-08) Certificat de refonte Loi sur les sociétés par actions (RLRQ, chapitre S-31.1) J’atteste que la société par actions LA COMPAGNIE ÉLECTRIQUE LION et sa version THE LION ELECTRIC COMPANY a refondu ses statuts en vertu de la Loi sur les sociétés par actions le 06 mai 2021 à 10 h 5 min. Déposé au registre le 6 mai 2021 sous le numéro d’entreprise du Québec 1165319055. Registraire des entreprises Registraire des entreprises Québec Services Québec


LOGO

Registraire des entreprises Québec RE-509 (2012-07) Page 1 Statuts de refonte Numéro d’entreprise du Québec NEQ 1165319055 Loi sur les sociétés par actions, L.R.Q., c. S-31.1 1 Nom de la société par actions LA COMPAGNIE ÉLECTRIQUE LION Versions(s) du nom de la societe dans une autre langue que le français, s’il y a lieu THE LION ELECTRIC COMPANY 2 Capital-actions Schedule A 3 Restrictions sur le transfert des titres ou des actions, s’il y a lieu None 4 Nombre d’administrateurs Nombre fixe ou Nombre minimal 3 Nombre maximal 20 Signez et retournez ce formulaire accompagné du paiement requis. Ne pas télécopier. Réservé à l’admi nistration 10UO ZZ 49488579 Révénu Québec


LOGO

RE-509 (2012-07) Page 2 5 Limites imposées aux activités, s’il y a lieu None 6 Autres dispositions, s’il y a lieu Schedule B 7 Date et heure á attribuer au certificat, s’il y a lieu Date 2 0 2 1 0 5 0 6 Heure 1 0 0 5 heures minutes 8 Signature Nicolas Brunet Nom de I’administrateur ou du dirigeant autorisé Signature de I’administrateur ou du dirigeant autorisé Si I’espace prévu est insuffisant, joignez une annexe, indiquez la section et numérotez les pages, s’il y a lieu. 10UP ZZ 49488580


SCHEDULE A

Description of share capital

Unlimited number of common shares; and

Unlimited number of preferred shares, issuable in one or more series.

 

1.

The common shares shall have attached thereto the following rights and restrictions:

 

  1.1.

Voting. Each common share shall entitle the holder thereof to one (1) vote at all meetings of the shareholders of the Corporation (except meetings at which only holders of another specified class of shares are entitled to vote pursuant to the provisions hereof or pursuant to the provisions of the Business Corporations Act (Québec) (hereinafter referred to as the “Act”)).

 

  1.2.

Dividends. The holders of the common shares shall be entitled to receive, as and when declared by the board of directors of the Corporation (the “Board”), subject to and subordinate to the rights, privileges, conditions and restrictions attaching to the preferred shares and the shares of any other class ranking senior to the common shares, dividends payable in money, property or by the issue of fully paid shares of the share capital of the Corporation or options or right to acquire fully paid shares of the Corporation.

 

  1.3.

Liquidation, etc. In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of property of the Corporation among shareholders for the purpose of winding up its affairs, subject to and subordinate to the rights, privileges, conditions and restrictions attaching to the preferred shares and the shares of any other class ranking senior to the common shares, the holders of the common shares shall be entitled to receive the remaining property and assets of the Corporation.

 

  1.4.

Uncertificated Shares. Unless otherwise determined by the Board, by resolution, at the time of issuance of common shares, common shares are issued as uncertificated shares.

 

2.

The preferred shares shall have attached thereto the following rights and restrictions:

 

  2.1.

Series. The Board may, at any time and from time to time, issue the preferred shares in one or more series, each series to consist of such number of shares as may, before issuance thereof, be determined by the Board.

 

  2.2.

Terms of Each Series. Before the first shares of a particular series are issued, the Board shall fix the number of shares in such series and shall determine, subject to any limitations set out in the articles, the designation, rights, privileges, restrictions and conditions attaching to the shares of such series including, without limitation, any right to receive dividends (which may be cumulative, non-cumulative or partially cumulative and variable or fixed), the rate or rates, amount or method or methods of calculation of preferential dividends and whether such rate or rates, amount or method or methods of calculation shall be subject to change or adjustment in the future, the currency or currencies of payment, the date or dates and place or places of payment thereof and the date or dates from which such preferential dividends shall accrue, the rights of redemption (if any) and the redemption price and other terms and conditions of redemption, the rights of retraction (if any) and the prices and other terms and conditions of any rights of retraction and whether any additional rights of retraction may be provided


 

to such holders in the future, the voting rights and the conversion or exchange rights (if any) and any sinking fund, purchase fund or other provisions attaching thereto.

 

  2.3.

First Shares of Each Series. Before the issue of the first shares of a series, the Board shall send to the enterprise registrar the articles containing a description of such series including the designations, rights, privileges, restrictions and conditions determined by the directors.

 

  2.4.

Ranking of Preferred Shares. No rights, privileges, restrictions or conditions attaching to a series of preferred shares shall confer upon a series a priority over any other series of preferred shares in respect of the payment of dividends or any distribution of assets or return of capital in the event of the liquidation, dissolution or winding up of the Corporation.

The preferred shares of each series shall rank on a parity with the preferred shares of every other series with respect to priority in the payment of dividends, the return of capital and in the distribution of assets in the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs.

 

  2.5.

Priority. The preferred shares shall be entitled to priority over the common shares of the Corporation and over any other shares of any other class of the Corporation ranking junior to the preferred shares with respect to priority in the payment of dividends, the return of capital and the distribution of assets in the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among the shareholders for the purpose of winding up its affairs.

 

  2.6.

Other Preferences. The preferred shares of any series may also be given such other preferences, not inconsistent with the provisions hereof, over the common shares and over any other shares of the Corporation ranking junior to preferred shares as may be determined in the case of such series of preferred shares in accordance with paragraph 2.2.

 

  2.7.

Participation. If any cumulative dividends or declared non-cumulative dividends or amounts payable on a return of capital in the event of the liquidation, dissolution or winding up of the Corporation in respect of a series of preferred shares are not paid in full, the preferred shares of all series shall participate rateably in respect of such dividends in accordance with the sums that would be payable on such shares if all such dividends were declared and paid in full, and in respect of any repayment of capital in accordance with the sums that would be payable on such repayment of capital if all sums so payable were paid in full, provided, however, that in the event of there being insufficient assets to satisfy in full all such claims as aforesaid, the claims of the holders of the preferred shares with respect to repayment of capital shall first be paid and satisfied and any assets remaining thereafter shall be applied towards the payment and satisfaction of claims in respect of dividends.

 

  2.8.

Voting Rights. Except as hereinafter referred to or as otherwise provided by law or in accordance with any voting rights which may from time to time be attached to any series of preferred shares, the holders of the preferred shares as a class shall not be entitled as such to receive notice of, to attend or to vote at any meeting of the shareholders of the Corporation.

 

  2.9.

Conversion Right. The preferred shares of any series may be made convertible into or exchangeable for any other class of shares of the Corporation.


  2.10.

Variation of Rights. The provisions attaching to the preferred shares as a class may be amended or repealed at any time with such approval as may then be required by law to be given by the holders of the preferred shares as a class.

 

  2.11.

Uncertificated Shares. Unless otherwise determined by the Board, by resolution, at the time of issuance of preferred shares of any series, preferred shares are issued as uncertificated shares.


SCHEDULE B

Other provisions

 

1.

Annual meetings and special meetings of the shareholders of the Corporation may be held outside the Province of Québec, as may be determined by the directors.

 

2.

In the event that the Corporation becomes a reporting issuer (as defined in the Act) in any province or territory of Canada or has more than 50 shareholders, the directors may appoint one or more additional directors who shall hold office for a term expiring no later than the close of the next annual meeting of shareholders, but the total number of directors so appointed may not exceed one third of the number of directors elected at the previous annual meeting of shareholders.

 

Exhibit 3.2

THE LION ELECTRIC COMPANY

BY-LAW NO. 2021-1

ARTICLE 1

INTERPRETATION

 

1.1

Definitions.

As used in this by-law, the following terms and expressions have the following meanings:

Act” means the Business Corporations Act (Québec) and the regulations under it, as amended, re-enacted or replaced from time to time.

applicable securities laws” means (i) the applicable securities legislation of each relevant province of Canada, as amended from time to time, the written rules, regulations and forms made or promulgated under any such statute and the published national instruments, multilateral instruments, policies, bulletins and notices of the securities commissions and similar regulatory authorities of each province of Canada and (ii) the applicable United States federal and state securities laws, including without limitation, the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder.

Authorized Signatory” has the meaning specified in Section 2.2.

Board” means the board of directors of the Corporation, and “director” means a member of the Board.

Corporation” means The Lion Electric Company.

meeting of shareholders” means an annual meeting of shareholders or a special meeting of shareholders.

person” is to be interpreted broadly and includes an individual, partnership, corporation, company, trust, unincorporated association, joint venture or other entity or governmental or regulatory entity, and pronouns are to have a similarly extended meaning.

public announcement” means disclosure in a press release reported by a national news service in the United States or Canada, or in a document publicly filed by the Corporation under its profile on EDGAR at www.sec.gov or on SEDAR at www.sedar.com, or any system that is a replacement or successor thereto.

Recorded Address” means (i) in the case of a shareholder, the shareholder’s latest address as shown in the records of the Corporation, (ii) in the case of shareholders holding shares jointly, the address appearing in the records of the Corporation in respect of the joint holding or, if there is more than one address in respect of the joint holding, the first address that appears, and, (iii) in the case of a director, officer or auditor, the person’s latest address as shown in the records of the Corporation or, if applicable, in the last notice filed in the enterprise register pursuant to the Act respecting the legal publicity of enterprises (Québec), whichever is the most recent.

show of hands” means, in connection with a meeting, a show of hands by persons present and entitled to vote at the meeting, the functional equivalent of a show of hands by


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telephonic, electronic or other means of communication and any combination of such methods.

Terms and expressions used in this by-law which are defined in the Act have the meanings respectively given to them in the Act unless defined otherwise herein.

 

1.2

Construction.

The division of this by-law into Articles and other subdivisions and the insertion of headings are for convenient reference only and do not affect its interpretation.

 

1.3

Gender and Number.

Any reference to, or use of, gender in this by-law includes all genders. Words importing only the singular number include the plural and vice versa.

 

1.4

Precedence.

This by-law is subject to, and should be read in conjunction with, the Act and the articles. If there is any conflict or inconsistency between any provision of the Act or the articles and any provision of this by-law, the provision of the Act or the articles will govern.

ARTICLE 2

BUSINESS OF THE CORPORATION

 

2.1

Fiscal Year.

The fiscal year of the Corporation ends on December 31st or such date of each year as the Board determines from time to time.

 

2.2

Signing of Documents and Voting Rights.

Contracts, documents and instruments may be signed on behalf of the Corporation manually, by facsimile, or by electronic means by (i) any by any director or officer of the Corporation (unless otherwise determined by the Board) or (ii) any other person authorized by the Board from time to time. Each person referred to in (i) and (ii) is an “Authorized Signatory”.

Voting rights for securities held by the Corporation may be exercised on behalf of the Corporation by any one Authorized Signatory.

As used in this Section, the phrase “contracts, documents and instruments” means any and all kinds of contracts, documents and instruments in written, facsimile or electronic form, including cheques, drafts, orders, guarantees, notes, acceptances and bills of exchange, deeds, mortgages, hypothecs, charges, conveyances, transfers, assignments, powers of attorney, agreements, proxies, releases, receipts, discharges and certificates, and all other paper, facsimile or electronic writings.

ARTICLE 3

DIRECTORS

 

3.1

Number.

Subject to the requirements of the Act applicable to reporting issuers, the number of directors of the Corporation when a minimum number and a maximum number are specified in the articles is, at any time, the number of directors holding office immediately following the most recent election or appointment of directors, whether by the shareholders at a meeting of the shareholders, or by the Board pursuant to the Act.


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No decrease in the number of directors will shorten the term of an incumbent director.

 

3.2

Election and Term of Office.

The directors are elected at the annual meeting of shareholders by a majority of the votes cast. The vote for the election of directors is by show of hands, unless a ballot is requested by a shareholder present and entitled to vote at the meeting.

The term of office of a director starts on the date of the meeting of shareholders at which he or she is elected or on such other date as the shareholders determine. Each director remains in office for a term not exceeding three years or until a successor is elected, unless his or her mandate otherwise ends before the completion of his or her term. A director not elected for an expressly stated term ceases to hold office at the close of the first annual meeting of shareholders following his or her election. A director whose mandate has expired is eligible for another term.

All steps taken by a meeting of the directors or by any person acting as a director, until their successors have been duly elected or appointed, shall, notwithstanding that it is subsequently discovered that there was some defect in the election of the directors or of such person acting as a director or that any one of them was disqualified, be as valid as if the directors or such other person, as the case may be, had been duly elected and were qualified to be directors of the Corporation.

 

3.3

Remuneration

The Board determines the remuneration of the directors from time to time, by resolution. The directors are also entitled to be reimbursed for travel costs and reasonable expenses incurred in the performance of their duties.

 

3.4

Calling and Place of Meetings.

The chair of the Board, the chief executive officer or the president (if the chair of the Board is unavailable), or the majority of directors then in office, may at any time call a meeting of directors, to be held at the time and place the person or persons calling the meeting determine. The secretary shall cause notice of a meeting of directors to be given when so directed by such person or persons.

Meetings of directors may be held at any place in or outside Canada.

 

3.5

Notice of Meeting.

Notice of the time and place for the holding of any meeting of directors will be given to each director not less than 48 hours before the time when the meeting is to be held, provided that meetings of directors may be held at any time without notice if all the directors have waived notice.

If a quorum of directors, as defined in Section 3.7 below, is present, a meeting of directors may be held, without notice, immediately following the annual meeting of shareholders.

A notice of a meeting of directors need not specify the purpose of, or the business to be transacted at, the meeting; it must, however, specify the time and place of the meeting, and where applicable, any matter to be dealt with at the meeting that relates to powers the Board may not delegate.

A notice of meeting must be sent to each director, at his or her last known civic or electronic address, by any means providing proof of its sending.

In all cases in which the chair of the Board, the vice-chair of the Board, if any, the president and chief executive officer or the majority of the directors in office consider, in their discretion, that it is urgent to call a meeting of the directors, they may cause a notice of such meeting to be given by any means which they deem sufficient at least two (2) hours before the meeting is to be held, and such notice shall be sufficient for such meeting.


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3.6

Waiver.

A director may waive notice of a meeting of directors, any irregularity in a notice of meeting of directors or any other irregularity in the calling or holding of a meeting of directors. Such waiver must be given in writing and may be given at any time either before or after the meeting to which it relates. Waiver of notice of a meeting of directors cures any irregularity in the notice or in its timeliness, and any failure to give the notice.

Attendance of a director at a meeting of directors constitutes waiver of notice of the meeting, except when such director attends a meeting for the sole purpose of objecting to the holding of the meeting and the transaction of any business on the grounds that it was not lawfully called.

 

3.7

Quorum.

Unless otherwise provided in a resolution of the Board as provided in the Act, a majority of the directors then in office constitutes a quorum at any meeting of directors. A quorum of directors may exercise all the powers of the directors despite any vacancy among the Board.

 

3.8

Chair and Secretary.

The chair of any meeting of directors is the first mentioned of the following who is a director and is present at the meeting: (i) the chair of the Board; (ii) the vice-chair of the Board, if any, and (iii) if no such person is present at the meeting, the participating director designated to act as chair by the other directors present at the meeting.

The secretary will act as secretary at meetings of directors. If a secretary has not been appointed or the secretary is absent, the chair of the meeting shall designate a person, who need not be a director, to act as secretary for the meeting.

 

3.9

Votes to Govern.

Any question at a meeting of directors will be decided by a majority of the votes cast on the question at the meeting. Each director is entitled to one vote. In case of an equality of votes, whether the vote is by show of hands or ballot, the chair of the meeting will not be entitled to a second or casting vote.

Voting shall be carried out by a show of hands, or at the request of a director, by secret ballot. A vote by secret ballot may be requested before or after a vote by show of hands. If voting is by secret ballot, the secretary will act as scrutineer and review and tally the ballots.

 

3.10

Dissent.

A director who is present at a meeting of the Board or a committee of the Board is deemed to have consented to any resolution passed at the meeting unless:

 

(1)

the director’s dissent has been entered in the minutes;

 

(2)

the director sends a written dissent to the secretary of the meeting before the meeting is adjourned; or

 

(3)

the director delivers a written dissent to the chair of the Board, sends it to the chair by any means providing proof of the date of receipt or delivers it to the head office of the Corporation immediately after the meeting is adjourned.

A director is not entitled to dissent after voting for or consenting to a resolution.


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3.11

Dissent of an Absent Director.

A director who was not present at a meeting at which a resolution was passed is deemed to have consented to the resolution unless the director records his or her dissent in accordance with the Act within seven (7) days after becoming aware of the resolution.

 

3.12

Adjournment.

The chair of any meeting of the directors may, with the consent of the majority of those directors who are present at the meeting, adjourn the meeting to a fixed time and place. No notice of the time and place for the continuance of the adjourned meeting need be given to any director in such a case.

An adjourned meeting is duly constituted if held in accordance with the terms of the adjournment and a quorum is present at the adjourned meeting. The directors who formed the quorum at the original meeting are not required to form the quorum at the adjourned meeting.

 

3.13

Electronic Meetings.

If all the directors consent thereto generally or in respect of a particular meeting, a director may participate in a meeting of directors by means of equipment enabling all participants to communicate directly with one another. A director participating in a meeting by such means is deemed to be present at the meeting. Any consent is effective whether given before or after the meeting to which it relates and may be given in respect of all meetings of the directors.

 

3.14

Resolution in lieu of Meeting.

A resolution in writing, signed by all the directors entitled to vote on that resolution, has the same force as if it had been passed at a meeting of the directors. A copy of the resolution must be kept with the minutes of the meetings of the directors.

A resolution in writing that is signed electronically by the directors is as legally valid as if it were signed by written signature.

 

3.15

Record Date.

The Board may fix, in conformity with the Act and applicable securities laws, a date as the record date for the purpose of determining the shareholders entitled to receive notice of a meeting of shareholders, receive payment of a dividend, participate in a liquidation or distribution and vote at a meeting of shareholders or for any other purpose. Only those registered shareholders on the record date thus fixed are entitled to receive notice of a meeting of shareholders, receive payment of a dividend, participate in a liquidation or distribution or vote at a meeting of shareholders or for any other purpose, as the case may be, notwithstanding any transfer of shares recorded in the securities register of the Corporation after the record date.

ARTICLE 4

COMMITTEES

 

4.1

Committees of Directors.

The Board may appoint one or more committees made up of directors. The number of directors of any committee of the Board shall be the number set out in the resolution appointing the committee. A committee of the Board exercises the powers delegated to it by the Board. The Board may delegate to such committees any of the powers of the directors, except those powers that under the Act the directors may not delegate.


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4.2

Proceedings.

Unless otherwise determined by the Board, each committee of directors may make, amend or repeal rules and procedures to regulate its meetings including: (i) fixing the quorum, provided it is not less than a majority of the members of the committee; (ii) procedures for calling meetings; (iii) requirements for providing notice of meetings; (iv) selecting a chair for a meeting; and (v) determining whether the chair will have a deciding vote in the event there is an equality of votes cast on a question.

Subject to any such rules or procedures established to regulate its meetings, Sections 3.1 to 3.14 hereof apply to any committee of directors, with such changes as are necessary.

 

4.3

Cessation of office.

A director may resign from a committee of the Board at any time. The resignation of a director becomes effective at the time the director’s written resignation is received by the Corporation, or at the time specified in the resignation, whichever is later. The reason for the resignation is not required to be given.

The Board may, by resolution, replace a member of a committee of the Board.

 

4.4

Vacancy.

The Board may fill any vacancy on a committee of the Board.

 

4.5

Remuneration.

The directors sitting on a committee of the Board may, as such, receive the remuneration set by resolution of the Board.

ARTICLE 5

OFFICERS

 

5.1

Appointment.

The Board may appoint officers of the Corporation, which may include any of the following: a chair of the Board, a president, one or more vice-presidents, a chief executive officer, a chief operating officer, a chief financial officer, a secretary, and one or more assistants to any of the appointed officers. The same person may hold more than one position as officer. None of them need be a director or shareholder of the Corporation, except for the chair of the Board who must be a director.

 

5.2

Cessation of Office.

An officer may resign at any time. The resignation of an officer takes effect on the date the Corporation receives the written notice he or she gives or on the later date indicated therein.

The Board or the chief executive officer may remove an officer from office at any time, with or without cause. Such removal is without prejudice to the officer’s rights, if any, under any contract or laws governing his or her employment. However, the removal of the president, the chair of the Board, the chief executive officer, the chief operating officer, or the chief financial officer regardless of their title, as their appointment, is the responsibility of the Board.

 

5.3

Vacancy

The Board may fill any vacancy in an office at any time.


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5.4

Powers of Officers.

An officer exercises the powers attached to his or her position. He or she also exercises all the powers which the Board can delegate to him or her. In the event an officer is unable to act, the powers of such officer are exercised by any other person designated by the Board.

ARTICLE 6

PROTECTION OF DIRECTORS, OFFICERS AND OTHERS

 

6.1

Indemnity.

In accordance with the Act, the Corporation shall indemnify (i) any director or officer of the Corporation and any former director or officer of the Corporation, (ii) any mandatary of the Corporation, and (iii) any other person who acts or acted at the Corporation’s request as a director or officer of another group against all costs, charges and expenses reasonably incurred in the exercise of their functions, including an amount paid to settle an action or satisfy a judgment, or arising from any investigative or other proceeding in which the person is involved because of that association with the Corporation or other entity. The Corporation shall also advance moneys to such a director, officer or other person for the costs, charges and expenses of such a proceeding in accordance with the Act.

The Corporation is authorized to sign agreements in favour of any of the foregoing persons evidencing the terms of this indemnity. Nothing in this by-law limits the right of any person entitled to indemnity to claim indemnity apart from the provisions of this by-law.

 

6.2

Limits on Indemnity.

The Corporation may not indemnify or advance moneys to a person described in Section 6.1 in the event that a court or any other competent authority judges that the conditions for indemnification set out in the Act are not fulfilled or determines that such person has committed an intentional or gross fault.

 

6.3

Liability Insurance.

The Corporation must purchase and maintain insurance for the benefit of its directors, officers and other mandataries against any liability they may incur as such or in their capacity as directors, officers or mandataries of another group, if they act or acted in that capacity at the Corporation’s request. Notwithstanding the foregoing, the Corporation may, as an alternative or in addition to purchasing and maintaining an insurance policy, implement and maintain a valid and irrevocable trust that provides substantially similar coverage as would a policy of insurance contemplated by this Section, as may be approved by the Board.

ARTICLE 7

SHAREHOLDERS

 

7.1

General.

The Corporation must hold an annual meeting of shareholders; it may hold one or more special meetings of shareholders as needed. An annual meeting must be held not later than fifteen (15) months after the last preceding annual meeting of shareholders.

 

7.2

Calling and Place of Meetings.

The Board has the power to call annual and special meetings of shareholders, to be held on the date and at the time and place it determines; however, such a meeting of shareholders may be held at a place outside the province of Québec if the articles so allow.


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7.3

Notice of Meeting.

Subject to the Securities Act (Québec) and applicable securities laws, the notice of a meeting of shareholders must be sent to each shareholder entitled to vote at the meeting and to each director. The time period to provide notice of a meeting of shareholders is not less than 21 days and not more than 60 days before the meeting.

The notice of meeting is sent to those shareholders entered in the securities register of the Corporation on the record date.

A certificate from the secretary or any other duly authorized officer of the Corporation in office at the time of the preparation of such certificate, or any officer, transfer agent, or share transfer registrar of the Corporation, constitutes proof of the sending of the notice of meeting and shall be binding upon each person entitled to receive the notice of meeting.

Irregularities in the notice of meeting or in the sending thereof do not affect the validity of the meeting. Similarly, the unintentional failure to send a notice of meeting to a person entitled to it, or the failure to receive it by a person entitled to the notice, does not invalidate the resolutions passed at the meeting. In addition, the unintentional failure to include a matter to be discussed at the meeting in the notice does not prevent the meeting from discussing such business, unless the interests of a shareholder or director are or could be affected thereby.

 

7.4

Waiver.

A shareholder or director may waive notice of a meeting of shareholders. Such waiver may be given in any manner and at any time either before or after the meeting to which it relates. Waiver of notice of a meeting of shareholders cures any irregularity in the notice or in its timeliness, and any failure to give the notice.

Attendance by a shareholder or director at a meeting of shareholders constitutes waiver of notice of the meeting, except when such person attends the meeting for the sole purpose of objecting to the holding of the meeting on the grounds that it was not lawfully called or held.

 

7.5

Persons Entitled to be Present.

The only persons entitled to be present at a meeting of shareholders are those persons entitled to vote at the meeting, the directors, the auditor, if any and if called upon to attend, and others who, although not entitled to vote, are entitled or required under any provision of the Act, the articles, or the by-laws to be present at the meeting. Any other person may be admitted with the consent of the chair of the meeting or, if any of the persons present who are entitled to vote at the meeting request a vote on such matter, with the consent of such persons.

If a director or a shareholder entitled to vote at a meeting of shareholders gives written notice not less than 10 days before the meeting to the auditor or a former auditor of the Corporation, the auditor or former auditor attends the meeting at the Corporation’s expense and answers any question relating to its duties as auditor.

 

7.6

Quorum.

A quorum of shareholders is present at a meeting of shareholders if, at the opening of the meeting, two persons representing at least twenty-five per cent (25%) of the shares that carry the right to vote at the meeting are present in person or represented by proxy.

The actions taken by holders of the majority of shares so represented, which entitle their holders to vote, are considered as actions taken by all shareholders, unless the vote or consent of holders of a greater number of shares is required or prescribed by the applicable legislation, the articles or the by-laws.


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7.7

Proxies.

A proxy must comply with the applicable requirements of the Act and other applicable law and must be in such form as the Board may approve from time to time or such other form as may be acceptable to the chair of the meeting at which it is to be used.

A proxy will be acted on only if it is deposited with the Corporation or its agent prior to the time specified in the notice calling the meeting at which the proxy is to be used, or, if it is deposited with the secretary, the scrutineer for the meeting or the chair of the meeting prior to the time of voting. Unless otherwise indicated, a proxy may be revoked at any time and lapses one year after the date it is given.

The Board may, by resolution, fix the latest date and time for delivery of proxies to the Corporation or to its agent and indicate such date and time in the notice of meeting, which date and time, as provided above, shall not be more than 48 hours before the date of the meeting or any adjournment thereof.

 

7.8

Chair, Secretary and Scrutineers.

The chair of any meeting of shareholders is the first mentioned of the following persons who is present at the meeting: (i) the chair of the Board; (ii) the vice-chair of the Board, if any; (iii) the president, (iv) the chief executive officer and (v) any other person that may be designated by the Board from time to time.

The secretary will act as secretary at meetings of shareholders. If a secretary has not been appointed or the secretary is absent, the chair of the meeting shall designate a person, who need not be a shareholder, to act as secretary of the meeting.

The chair of the meeting may appoint one or more persons, who need not be shareholders, to act as scrutineers at any meeting of shareholders and, in that capacity, to report to the chair such information as to attendance, representation, voting and other matters at such meeting as the chair of the meeting directs.

 

7.9

Procedure.

The chair of a meeting of shareholders will conduct the meeting and determine the procedure to be followed at the meeting. The chair’s decision on all matters or things, including the validity or invalidity of a form of proxy or other instrument appointing a proxy, will be conclusive and binding upon the meeting of shareholders.

 

7.10

Manner of Voting.

Subject to the Act, any question at a meeting of shareholders will be decided by a show of hands, unless a ballot on the question is required or demanded. Subject to the Act, the chair of the meeting may require, or any shareholder who is present and entitled to vote may demand, a ballot on any question at a meeting of shareholders. The requirement or demand for a ballot may be made either before or after any vote on the question by a show of hands. A ballot will be taken in the manner the chair of the meeting directs. A requirement or demand for a ballot may be withdrawn at any time prior to the taking of the ballot. The result of such ballot will determine the decision of the shareholders upon the question.

In the case of a vote by a show of hands, each person present who is entitled to vote has one vote. If a ballot is taken, each person present who is entitled to vote has the number of votes that are attached to the shares which such person is entitled to vote at the meeting.

A proxyholder has the same rights as the shareholder represented to vote at the meeting. A proxyholder who has conflicting instructions from more than one shareholder may not, however, vote by show of hands.


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7.11

Electronic Meetings.

Meetings of shareholders may be held solely by means of equipment enabling all participants to communicate directly with one another. Any person entitled to attend a meeting of shareholders who participates by such means is deemed for purposes of the Act to be present at the meeting. The Board may establish procedures regarding the holding of meetings of shareholders by such means.

Any shareholder participating in a meeting of shareholders by means of equipment enabling all participants to communicate directly with one another may vote by any means enabling votes to be cast in a way that allows them to be verified afterwards, whether the vote is by a functional equivalent of a show of hands or by ballot, and protects the secrecy of the vote when a ballot has been requested.

 

7.12

Votes to Govern.

Any question at a meeting of shareholders will be decided by a majority of the votes cast on the question unless the Act, the articles, the by-laws, applicable securities laws or stock exchange rules require otherwise. In case of an equality of votes, whether the vote is by a show of hands or by a ballot, the chair of the meeting is not entitled to a second or casting vote.

The Corporation shall keep at its head office the ballots cast and the proxies presented at a meeting of shareholders for at least three months after the meeting.

 

7.13

Adjournment.

The chair of a meeting of shareholders may, with the consent of the persons present who are entitled to vote at the meeting, adjourn the meeting to a fixed time and place, subject to such conditions as such persons may decide and to the relevant provisions of the Act for the giving of notice.

An adjourned meeting is duly constituted if held in accordance with the terms of the adjournment and a quorum is present at the adjourned meeting. Any business which might have been considered and transacted at the original meeting of shareholders may be considered and transacted at the adjourned meeting.

 

7.14

Resolution in lieu of Meeting.

A resolution in writing, signed by all the shareholders entitled to vote on that resolution, is as valid as if it had been passed at a meeting of shareholders. The resolution must be kept with the minutes of the meetings of shareholders.

ARTICLE 8

SHARES

 

8.1

Share Certificates and Written Notice of Uncertificated Shares.

Subject to the Act, share certificates, if required, will be in the form that the Board approves from time to time or that the Corporation adopts.

Subject to the Act, the written notice to be provided in the case of uncertificated shares, if any, will be in the form that the Board approves from time to time or that the Corporation adopts.

 

8.2

Transfer of Shares.

No transfer of shares issued by the Corporation will be registered except in accordance with the requirements of applicable law, including the Act respecting the transfer of securities and the establishment of security entitlements (Quebec).


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8.3

Direct Registration.

Subject to the Act, a registered securityholder may have his or her holdings of securities of the Corporation evidenced by an electronic, book-based, direct registration service or other non-certificated entry or position on the register of securityholders to be kept by the Corporation in place of a physical security certificate pursuant to a registration system that may be adopted by the Corporation, in conjunction with its transfer agent (if any). This by-law shall be read such that a registered holder of securities of the Corporation pursuant to any such electronic, book-based, direct registration service or other non-certificated entry or position shall be entitled to all of the same benefits, rights, entitlements and shall incur the same duties and obligations as a registered holder of securities evidenced by a physical security certificate. The Corporation and its transfer agent may adopt such policies and procedures and require such documents and evidence as they may determine necessary or desirable in order to facilitate the adoption and maintenance of a security registration system by electronic, book-based, direct registration system or other non-certificated means.

ARTICLE 9

DIVIDENDS AND OTHER DISTRIBUTIONS

 

9.1

Declaration of dividends

Unless otherwise provided in the articles, the Board may declare and the Corporation may pay a dividend either in money or property or by issuing fully paid shares or options or rights to acquire fully paid shares of the Corporation.

The Corporation may not declare and pay a dividend, except by issuing shares or options or rights to acquire shares, if there are reasonable grounds for believing that the Corporation is, or would after the payment be, unable to pay its liabilities as they become due.

The Corporation may deduct from the dividends payable to a shareholder any amount due to the Corporation by the shareholder, on account of calls for payment or otherwise.

 

9.2

Record Date

The Board may fix, in advance, in accordance with the articles and applicable securities laws, a record date for the determination of the shareholders entitled to receive dividends.

 

9.3

Payments of Dividends and Other Distributions.

Any dividend or other distribution payable in cash to shareholders may be paid by cheque, by electronic means, or by any other method the Board determines. The payment will be made to or to the order of each registered holder of shares in respect of which the payment is to be made. Cheques will be sent to the registered holder’s Recorded Address, unless the holder otherwise directs. In the case of joint holders, the payment will be made to the order of all such joint holders and, if applicable, sent to them at their Recorded Address, unless such joint holders otherwise direct.

The sending of the cheque, the sending of the payment by electronic means, or the sending of the payment by any other method determined by the Board, in an amount equal to the dividend or other distribution to be paid, less any tax that the Corporation is required to withhold, will satisfy and discharge the liability for the payment, unless payment is not made upon presentation.


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ARTICLE 10

ADVANCE NOTICE

 

10.1

Nomination Procedures.

Subject only to the Act, applicable securities laws and stock exchange rules and the articles, only persons who are nominated in accordance with the procedures set out in this Article 10 shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board may be made at any annual meeting of shareholders, or at a special meeting of shareholders if the election of directors is a matter specified in the notice of meeting:

 

(1)

by or at the direction of the Board, including pursuant to a notice of meeting;

 

(2)

by or at the direction or request of one or more shareholders pursuant to a proposal made in accordance with the provisions of the Act, or a requisition of a meeting of shareholders by one or more shareholders made in accordance with the provisions of the Act; or

 

(3)

by any person (a “Nominating Shareholder”) who:

 

  (a)

at the close of business on the date of the giving of the notice provided for below in this Article 10 and on the record date for notice of such meeting, is entered in the securities register of the Corporation as a holder of one or more shares carrying the right to vote at such meeting or who beneficially owns shares that are entitled to be voted at such meeting and provides evidence of such beneficial ownership to the Corporation; and

 

  (b)

complies with the notice procedures set forth below in this Article 10.

 

10.2

Nominations for Election.

For the avoidance of doubt, the procedures set forth in this Article 10 shall be the exclusive means for any person to bring nominations for election to the directors before any meeting of shareholders of the Corporation.

 

10.3

Timely Notice.

In addition to any other applicable requirements, for a nomination to be validly made by a Nominating Shareholder, the Nominating Shareholder must have given timely notice thereof in proper written form to the secretary in accordance with this Article 10.

 

10.4

Manner of Timely Notice.

To be timely, a Nominating Shareholder’s notice to the secretary must be made:

 

(1)

in the case of an annual meeting of shareholders (including an annual and special meeting), not less than thirty (30) nor more than sixty (60) days prior to the date of the meeting, provided, however, that in the event that the meeting is to be held on a date that is less than fifty (50) days after the date (the “Notice Date”) on which the first public announcement of the date of the meeting was made, notice by the Nominating Shareholder shall be made not later than the close of business on the tenth (10th) day following the Notice Date; and

 

(2)

in the case of a special meeting (which is not also an annual meeting) of shareholders called for the purpose of electing directors (whether or not also called for other purposes), not later than the close of business on the fifteenth (15th) day following the day on which the first public announcement of the date of the meeting was made.


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In no event shall any adjournment or postponement of an annual meeting or special meeting of shareholders or any announcement thereof commence a new time period for the giving of a timely notice under this Section 10.4.

 

10.5

Proper Form of Notice.

To be in proper written form, a Nominating Shareholder’s notice to the secretary must be in writing and must set forth or be accompanied by, as applicable:

 

(1)

as to each person whom the Nominating Shareholder proposes to nominate for election as a director (each a “Proposed Nominee”):

 

  (a)

the name, age, business address and residential address of the Proposed Nominee;

 

  (b)

the principal occupation, business or employment of the Proposed Nominee, both present and for the five years preceding the notice;

 

  (c)

the number of securities of each class of voting securities of the Corporation or any of its subsidiaries beneficially owned, or controlled or directed, directly or indirectly, by the Proposed Nominee, as of the record date for the meeting of shareholders (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice;

 

  (d)

a description of any relationship, agreement, arrangement or understanding (including financial, compensatory or indemnity related or otherwise) between the Nominating Shareholder and the Proposed Nominee, or any affiliates or associates of, or any person or entity acting jointly or in concert with the Nominating Shareholder or the Proposed Nominee, in connection with the Proposed Nominee’s nomination and election as director;

 

  (e)

whether the Proposed Nominee is party to any existing or proposed relationship, agreement, arrangement or understanding with any competitor of the Corporation or its affiliates or any other third party which may give rise to a real or perceived conflict of interest between the interests of the Corporation and the interests of the Proposed Nominee;

 

  (f)

whether the Proposed Nominee is eligible for consideration as an independent director under the relevant standards contemplated by applicable securities laws or any stock exchange rules that may be applicable to the Corporation; and

 

  (g)

any other information relating to the Proposed Nominee that would be required to be disclosed in a dissident’s proxy circular or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to the Act or any applicable securities laws;

 

(2)

as to each Nominating Shareholder:

 

  (a)

the name, business and, if applicable, residential address of such Nominating Shareholder;

 

  (b)

the number of securities of each class of voting securities of the Corporation or any of its subsidiaries beneficially owned, or controlled or directed, directly or indirectly, by such Nominating Shareholder or any other person with whom such Nominating Shareholder is acting jointly or in concert (and for each such person any options or other rights to acquire shares in the capital of the Corporation, any derivatives or other securities, instruments or arrangements for which the price or value or delivery,


- 14 -

 

 

payment or settlement obligations are derived from, referenced to, or based on any such shares, and any hedging transactions, short positions and borrowing or lending arrangements relating to such shares) with respect to the Corporation or any of its securities, as of the record date for the meeting (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice;

 

  (c)

the interests in, or rights or obligations associated with, any agreement, arrangement or understanding, the purpose or effect of which may be to alter, directly or indirectly, such Nominating Shareholder’s economic interest in a security of the Corporation or such Nominating Shareholder’s economic exposure to the Corporation;

 

  (d)

full particulars regarding any proxy, contract, arrangement, agreement, understanding or relationship pursuant to which such Nominating Shareholder, or any of its affiliates or associates, or any person acting jointly or in concert with such person, has any interests, rights or obligations relating to the voting of any securities of the Corporation or the nomination of directors to the Board; and

 

  (e)

any other information relating to such Nominating Shareholder that would be required to be disclosed in a dissident’s proxy circular or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to the Act or any applicable securities laws; and

 

(3)

a written consent duly signed by each Proposed Nominee to being named as a nominee for election to the Board and to serve as a director of the Corporation, if elected.

Reference to “Nominating Shareholder” in this Section 10.5 shall be deemed to refer to each shareholder that nominates or seeks to nominate a person for election as director in the case of a nomination proposal where more than one shareholder is involved in making the nomination proposal.

The Corporation may also require any Proposed Nominee to furnish such other information, including completion of the Corporation’s directors questionnaire, as it may reasonably require to determine whether the nominee would be considered “independent” as a director or as a member of the audit committee of the directors under the various rules and standards applicable to the Corporation in the same manner as such rules and standards are applicable to the Corporation’s other directors.

In addition to the provisions of this Article 10, a Nominating Shareholder and any Proposed Nominee shall also comply with all of the applicable requirements of the Act, applicable securities laws and applicable stock exchange rules regarding the matters set forth herein.

 

10.6

Currency of Notice.

All information to be provided in a Nominating Shareholder’s notice pursuant to this Article 10 shall be provided as of the date of such notice. To be considered timely and in proper form, a Nominating Shareholder’s notice shall be promptly updated and supplemented if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting.

 

10.7

Power of the Chair.

No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of the by-laws; provided, however, that nothing in the by-laws shall be deemed to preclude discussion by a shareholder (as distinct from the nomination of directors) at a meeting of shareholders of any matter in respect of which it would have been entitled to submit a proposal pursuant to the provisions of the Act. The chair of the meeting shall have the power and duty to determine whether a nomination was made in accordance with the procedures set forth in this


- 15 -

 

Article 10 and, if any proposed nomination is not in compliance with this Article 10, to declare that such defective nomination shall be disregarded.

 

10.8

Delivery of Notice.

Notwithstanding any other provision of this Article 10, notice given to the secretary pursuant to this Article 10 may only be given by personal delivery, facsimile transmission or by email (at such email address as stipulated from time to time by the secretary for purposes of this notice), and shall be deemed to have been given and made only at the time it is served by personal delivery, email (at the aforesaid address) or sent by facsimile transmission (provided that receipt of the confirmation of such transmission has been received) to the secretary, at the address of the principal executive offices of the Corporation, provided that if such delivery or electronic communication is made on a day which is not a business day or later than 5:00 p.m. (Eastern time) on a day which is a business day, then such delivery or electronic communication shall be deemed to have been made on the subsequent day that is a business day.

 

10.9

Board Discretion.

Notwithstanding the foregoing, the Board may, in its sole discretion, waive any requirement in this Article 10.

ARTICLE 11

FORUM SELECTION

Unless the Corporation approves or consents in writing to the selection of an alternative forum, the courts of the Province of Québec and the appellate courts therefrom shall, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of the Corporation; (ii) any action or proceeding asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation; (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Act or the articles or the by-laws of the Corporation (as either may be amended from time to time); or (iv) any action or proceeding asserting a claim otherwise related to the affairs of the Corporation. If any action or proceeding the subject matter of which is within the scope of the preceding sentences is filed in a court (a “Non-Designated Court”) other than a court located within the Province of Québec (a “Foreign Action”) in the name of any securityholder, such securityholder shall be deemed to have consented to (i) the personal jurisdiction of the courts located within the Province of Québec in connection with any action or proceeding brought in any such Non-Designated Court to enforce the preceding sentences and (ii) having service of process made upon such securityholder in any such action or proceeding by service upon such securityholder’s counsel in the Foreign Action as agent for such securityholder. This Article 11 shall not apply to suits brought to enforce a duty or liability created by the U.S. Securities Act or the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. Unless the Corporation consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the U.S. Securities Act. Any person or entity holding, owning or otherwise acquiring any interest in any security of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article 11.

ARTICLE 12

MISCELLANEOUS

 

12.1

Notices.

Any notice, document or other information required to be provided by the Corporation to any director, officer, shareholder or auditor is sufficiently provided if delivered to the person’s Recorded


- 16 -

 

Address, if mailed to the person’s Recorded Address by prepaid mail, or if otherwise provided by electronic means in accordance with the Act.

 

12.2

Notice to Joint Holders.

Subject to applicable securities laws, if two or more persons are registered as joint holders of any shares, any notice or other document relating to such shares may be addressed to all such joint holders but notice addressed to one of them constitutes sufficient notice and delivery to all of them.

 

12.3

Electronic Documents.

A requirement under this by-law that a notice, document or other information be provided in writing may be satisfied by providing an electronic document and a requirement under this by-law for a signature or that a document be executed, in relation to an electronic document, may be satisfied, in each case, if the requirements in the Act, applicable securities laws or any other applicable law in respect thereof are met.

 

12.4

Persons Entitled by Operation of Law.

Every person who becomes entitled to any share by operation of law, transfer, death of a shareholder or any other means, is bound by every notice in respect of such share that has been given to the shareholder from whom the person derives title to such share before such person’s name and address is entered on the securities register (whether the notice was given before or after the happening of the event on which such person became so entitled) and before such person furnished the Corporation with the proof of authority or evidence of such person’s entitlement. Computation of Time Periods.

Except if otherwise provided in the Act, in computing the date when notice of any event must be given if a specified number of days is required, (i) the date of giving the notice is excluded and the date of the event is included, (ii) non-juridical days within the meaning of the Code of Civil Procedure are counted; but when the last day is a non-juridical day, the time limit is extended to the next following juridical day and (iii) Saturday is considered a non-juridical day.

This by-law was made by resolution of the Board and ratified by ordinary resolution of the shareholders on November 30, 2020.

Exhibit 4.2

ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the “Agreement”) is entered into and effective as of May 6, 2021, by and among Northern Genesis Acquisition Corp., a Delaware corporation (“NGA”), The Lion Electric Company, a corporation existing under the Business Corporations Act (Québec) (“Lion”), Continental Stock Transfer & Trust Company, a New York corporation (“Continental”), and American Stock Transfer & Trust Company, a New York corporation (“AST”). Capitalized terms used but not defined herein have the meanings given to such terms in the Warrant Agreement (as defined below).

WHEREAS, NGA and Continental have previously entered into a warrant agreement, dated as of August 7, 2020 (the “Warrant Agreement”), governing the terms of NGA’s outstanding warrants to purchase shares of common stock of NGA (the “Warrants”);

WHEREAS, NGA has entered into a Business Combination Agreement and Plan of Reorganization, dated as of November 30, 2020 (the “Business Combination Agreement”), by and among NGA, Lion, Lion Electric Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Lion (“Merger Sub”), pursuant to which Merger Sub, a wholly-owned subsidiary of Lion, will merge through a statutory merger with and into NGA, with NGA surviving the merger as a wholly owned subsidiary of Lion (the transactions contemplated by the Business Combination Agreement are referred to herein as the “Business Combination”);

WHEREAS, at the closing of the Business Combination (the “Closing”), each outstanding share of NGA’s common stock, par value $0.0001 per share, will be converted into the right to receive one common share of Lion (the “Lion Common Shares”);

WHEREAS, pursuant to Section 3.01(b)(vii) of the Business Combination Agreement and Section 4.5 of the Warrant Agreement, upon the Closing, each Warrant issued and outstanding immediately prior thereto will be converted into a warrant to purchase Lion Common Shares (collectively, the “Lion Warrants”), and the rights and obligations of NGA under the Warrant Agreement shall be assigned to and assumed by Lion;

WHEREAS, as a result of the foregoing, the parties hereto wish for NGA to assign to Lion all of NGA’s rights, interests and obligations in and under the Warrant Agreement and for Lion to accept such assignment and assume all of NGA’s obligations thereunder, in each case, effective upon the Closing; and

WHEREAS, pursuant to Section 8.2.1 of the Warrant Agreement, Continental has agreed to resign its duties as the Warrant Agent effective upon the Closing, and AST has agreed to serve as successor Warrant Agent from and after the Closing.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereby agree as follows:

1. Assignment and Assumption of Warrant Agreement. NGA hereby assigns, and Lion hereby agrees to accept and assume, effective as of the Closing, all of NGA’s rights, interests


and obligations in, and under the Warrant Agreement, and Lion hereby confirms that it agrees to all rights, interests and obligations under the Lion Warrants. Unless the context otherwise requires, from and after the Closing, any references in the Warrant Agreement or the Warrants to: (i) the “Company” shall mean Lion; (ii) “Common Stock” or “shares” shall mean the Lion Common Shares; (iii) the “Board of Directors” or any committee thereof shall mean the board of directors of Lion or any committee thereof; and (iv) the “Warrant Agent” or “Continental Stock Transfer & Trust Company” shall mean AST rather than Continental.

2. Resignation of Current Warrant Agent and Appointment of Successor Warrant Agent. Continental hereby resigns as Warrant Agent under the Warrant Agreement, and Lion hereby appoints AST to act as the Warrant Agent for Lion under the Warrant Agreement, and AST hereby accepts such appointment and agrees to perform the same in accordance with the terms and conditions set forth in the Warrant Agreement as modified by this Agreement.

3. Replacement Instruments. As of the Closing, all outstanding instruments evidencing Warrants shall automatically be deemed to evidence Lion Warrants reflecting the conversion and adjustment to the terms and conditions described herein and in Section 4.5 of the Warrant Agreement. Following the Closing, upon request by any holder of a Lion Warrant, Lion shall issue a new instrument for such Lion Warrant to the holder thereof.

4. Amendment to Warrant Agreement. To the extent required by this Agreement, the Warrant Agreement is hereby deemed amended pursuant to Section 9.8 thereof to reflect the subject matter contained herein, effective as of the Closing.

5. Applicable Law. The validity, interpretation, and performance of this Agreement shall be governed in all respects by the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction.

6. Counterparts. This Agreement may be executed in any number of original or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Execution and delivery of this Agreement by electronic mail or exchange of facsimile of .pdf copies bearing the facsimile signature of a party hereto shall constitute a valid and binding execution and delivery of this Agreement by such party.

7. Successors. All the covenants and provisions of this Agreement shall bind and inure to the benefit of each party’s respective successors and assigns.

[Signature Page Follows]

 

2


IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written.

 

NORTHERN GENESIS ACQUISITION CORP.
By:  

/s/ Ian Robertson

  Name:   Ian Robertson
  Title:   Director and Vice Chair
THE LION ELECTRIC COMPANY
By:  

/s/ Nicolas Brunet

  Name:   Nicolas Brunet
  Title:   Executive Vice-President and
    Chief Financial Officer
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:  

/s/ Erika Young

  Name:   Erika Young
  Title:   Vice President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:  

/s/ Mike Nespoli

  Name:   Mike Nespoli
  Title:   Executive Director

[Signature Page to Assignment and Assumption Agreement]

Exhibit 4.3

 

 

 

     
  

 

  
  

 

  
                               

 

REGISTRATION RIGHTS AGREEMENT

 

BY AND AMONG

 

THE LION ELECTRIC COMPANY

 

AND

 

CERTAIN INVESTORS OF THE LION ELECTRIC COMPANY

 

DATED AS OF MAY 6 2021

 

                               
  

 

  
  

 

  


TABLE OF CONTENTS

 

ARTICLE I EFFECTIVENESS

     1  

ARTICLE II DEFINITIONS

     1  

ARTICLE III REGISTRATION RIGHTS

     6  

Section 3.1.

 

Demand Registration

     6  

Section 3.2.

 

Shelf Registration

     9  

Section 3.3.

 

Piggyback Registration

     12  

Section 3.4.

 

Lock-Up Agreements

     13  

Section 3.5.

 

Registration Procedures

     13  

Section 3.6.

 

Underwritten Offerings

     19  

Section 3.7.

 

No Inconsistent Agreements; Additional Rights

     19  

Section 3.8.

 

Registration Expenses

     20  

Section 3.9.

 

Indemnification

     20  

Section 3.10.

 

Rules 144 and 144A and Regulation S

     23  

ARTICLE IV MISCELLANEOUS

     23  

Section 4.1.

 

Authority; Effect

     23  

Section 4.2.

 

Notices

     23  

Section 4.3.

 

Termination and Effect of Termination

     25  

Section 4.4.

 

Permitted Transferees

     25  

Section 4.5.

 

Remedies

     25  

Section 4.6.

 

Amendments

     25  

Section 4.7.

 

Governing Law

     25  

Section 4.8.

 

Dispute Resolution

     25  

Section 4.9.

 

Merger; Binding Effect, Etc.

     26  

Section 4.10.

 

Counterparts

     26  

Section 4.11

 

Severability

     26  

Section 4.12.

 

Exercise of Rights and Remedies

     26  

Section 4.13.

 

No Recourse

     26  

Section 4.14.

 

Language

     26  

 

- i -


This REGISTRATION RIGHTS AGREEMENT (as it may be amended from time to time in accordance with the terms hereof, the “Agreement”), dated as of May 6, 2021 is made by and among:

 

  i.

The Lion Electric Company, a company organized under the laws of Québec (the “Company”);

 

  ii.

9368-2672 Québec Inc., a company organized under the laws of Québec (“9368-2672”);

 

  iii.

Power Energy Corporation, a company organized under the laws of Canada (“PEC”); and

 

  iv.

Amazon.com NV Investment Holdings LLC, a company organized under the laws of Nevada (“Warrantholder”, and together with 9368-2672 and PEC, the “Principal Shareholders”).

RECITALS

WHEREAS pursuant to a business combination agreement and plan of reorganization dated November 30, 2020 among the Company, Lion Electric Merger Sub Inc. (“Merger Sub”) and Northern Genesis Acquisition Corp. (“NGA”), on the date hereof, the Company completed a business combination transaction pursuant to which (i) Merger Sub merged (the “Merger”) with and into NGA, with NGA surviving the Merger as a wholly-owned direct subsidiary of the Company and (ii) the Company amended and restated its Articles (as defined below) (collectively, the “Business Combination”).

WHEREAS, in connection with the Business Combination, the Company became a registrant under applicable U.S. securities laws and will become, shortly after closing of the Business Combination, a reporting issuer in the Province of Québec, and its Common Shares (as defined below) will be listed on the New York Stock Exchange and the Toronto Stock Exchange.

WHEREAS, in connection with the closing of the Business Combination, the parties believe that it is in the best interests of the Company and the other parties hereto to set forth their agreements regarding certain registration rights as investors in the Company.

NOW, THEREFORE, in consideration of the foregoing and the mutual promises, covenants and agreements of the parties hereto, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

EFFECTIVENESS

Section 1.1.    Effectiveness. This Agreement shall become effective as of May 6, 2021, being the date of closing of the Business Combination.

ARTICLE II

DEFINITIONS

Section 2.1.    Definitions. As used in this Agreement, the following terms have the following meanings:

9368-2672 Permitted Holders” means (i) Marc Bedard, Camile Chartrand, Fiducie Bedard, Fiducie Chartrand, Gestion Placebo Inc., Les Placements L.-S. Piché Inc. and any Members of the Immediate Family of Marc Bedard or Camile Chartrand, and (ii) any Person controlled, directly or indirectly by one or


more of the Persons referred to in clause (i) above (which includes, for greater certainty, 9368-2672 as of the date hereof).

Adverse Disclosure” means public disclosure of material non-public information that, in the good faith judgment of the Board: (i) would be required to be made in any Registration Statement filed with the SEC or any Canadian Preliminary Prospectus or Canadian Prospectus filed with any Canadian Securities Authority so that, in the case of a Registration Statement, such Registration Statement, from and after its effective date, does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or, in the case of a Canadian Preliminary Prospectus or Canadian Prospectus, so that such Canadian Preliminary Prospectus or Canadian Prospectus contain full, true and plain disclosure of all material facts relating to the securities distributed thereunder and does not contain a misrepresentation; (ii) would not be required to be made at such time but for the filing, effectiveness or continued use of such Registration Statement or the filing of such Canadian Preliminary Prospectus or Canadian Prospectus; and (iii) the Company has a bona fide business purpose for not disclosing publicly.

Affiliate” means, with respect to any specified Person, (a) any Person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person or (b) in the event that the specified Person is a natural Person, a Member of the Immediate Family of such Person; provided that the Company and each of its subsidiaries shall be deemed not to be Affiliates of any Holder. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

Agreement” has the meaning set forth in the preamble.

Articles” means the articles of the Company, as they will be in effect upon completion of the Business Combination, as amended from time to time.

Board” means the board of directors of the Company.

Bought Deal” means an Underwritten Public Offering of the type which is commonly known as a “bought deal,” “block trade” or “overnight offering” or pursuant to which an underwriter has committed to purchase securities of the Company in a “bought deal” letter prior to the filing of a prospectus under applicable Canadian Securities Laws, as permitted by NI 44-101.

Business Day” means any day on which the principal offices of the SEC in Washington, D.C. and the Autorité des marches financiers in Québec (Canada) are open to accept filings or any day on which banks are not authorized or obligated to be closed in New York, New York or in Montreal, Québec.

Canadian Base Shelf Prospectus” has the meaning set forth in Section 3.2.8(a).

Canadian Preliminary Prospectus” means a preliminary prospectus in respect of Common Shares or other securities which (unless the context requires otherwise) has been filed with and a receipt or mutual reliance review decision document issued therefor by the applicable Canadian Securities Authorities, including, without limitation all amendments and all supplements thereto and all documents incorporated or deemed to be incorporated by reference therein.

Canadian Prospectus” means a (final) prospectus in respect of Common Shares or other securities which (unless the context requires otherwise) has been filed with and a receipt or mutual reliance review decision document issued therefor by the applicable Canadian Securities Authorities, including, without limitation all amendments and all supplements thereto and all documents incorporated or deemed to be incorporated by reference therein, and includes, as applicable, a Canadian Base Shelf Prospectus and a Canadian Shelf Supplement.

 

- 2 -


Canadian Securities Authorities” means any of the British Columbia Securities Commission, Alberta Securities Commission, Financial and Consumer Affairs Authority of Saskatchewan, Manitoba Securities Commission, Ontario Securities Commission, Autorité des marchés financiers (Québec), Financial and Consumer Services Commission (New Brunswick), Nova Scotia Securities Commission, Office of the Superintendent of Securities (Prince Edward Island), Office of the Superintendent of Securities Service (Newfoundland and Labrador), Office of the Superintendent of Securities (Northwest Territories), Office of the Yukon Superintendent of Securities, Nunavut Securities Office, and any of their successors.

Canadian Securities Laws” means the securities laws, regulations and rules of each of the provinces and territories of Canada, the forms and disclosure requirements made or promulgated under those laws, regulations or rules, the policy statements, rules, orders and companion policies of or administered by the Canadian Securities Authorities, and applicable discretionary rulings, blanket orders or orders issued by the Canadian Securities Authorities pursuant to such laws, regulations, rules and policy statements, all as amended and in effect from time to time.

Canadian Shelf Registration Request” has the meaning set forth in Section 3.2.8(a).

Canadian Shelf Supplement” has the meaning set forth in Section 3.2.8(c).

Common Shares” means the common shares of the Company, as contemplated by the Articles.

Demand Canadian Preliminary Prospectus” has the meaning set forth in Section 3.1.1(c).

Demand Canadian Prospectus” has the meaning set forth in Section 3.1.1(c).

Demand Notice” has the meaning set forth in Section 3.1.3.

Demand Registration” has the meaning set forth in Section 3.1.1(a).

Demand Registration Request” has the meaning set forth in Section 3.1.1(a).

Demand Registration Statement” has the meaning set forth in Section 3.1.1(c).

Demand Suspension” has the meaning set forth in Section 3.1.6.

Director” means a director on the Board.

Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

FINRA” means the Financial Industry Regulatory Authority.

Holder” means a Principal Shareholder that holds Registrable Securities.

Issuer Free Writing Prospectus” means an issuer free writing prospectus, as defined in Rule 433 under the Securities Act, relating to an offer of the Registrable Securities.

Loss” has the meaning set forth in Section 3.9.1.

marketing materials” has the meaning set forth in NI 41-101.

Member of the Immediate Family” means with respect to any individual, each parent (whether by birth or adoption), spouse or child (including any step-child) or other descendants (whether by birth or adoption) of such individual, each spouse of any of the aforementioned Persons, each trust created solely

 

- 3 -


for the benefit of such individual and/or one or more of the aforementioned Persons, and each legal representative of such individual or of any aforementioned Persons (including a tutor, curator, mandatary due to incapacity, custodian, guardian or testamentary executor), acting in such capacity under the authority of the law, an order from a competent tribunal, a will or a mandate in case of incapacity or similar instrument. For the purposes of this definition, a Person shall be considered the spouse of an individual if such Person is legally married to such individual, lives in a civil union with such individual or is the common law partner (as defined in the Income Tax Act (Canada) as amended from time to time) of such individual. A Person who was the spouse of an individual within the meaning of this paragraph immediately before the death of such individual shall continue to be considered a spouse of such individual after the death of such individual.

misrepresentation” has the meaning set forth under applicable Canadian Securities Laws.

NI 41-101” means National Instrument 41-101 General Prospectus Requirements.

NI 44-101” means National Instrument 44-101 Short Form Prospectus Distributions.

NI 44-102” means National Instrument 44-102 Shelf Distributions.

PEC Permitted Holders” means Power Energy Corporation and any of its Affiliates.

Permitted Transferee” means, in each case to the extent such Person agrees to be bound by the terms of this Agreement, (i) in the case of PEC, any PEC Permitted Holder, (ii) in the case of 9368-2672, any 9368-2672 Permitted Holder, and (iii) in the case of Warrantholder, any Warrantholder Permitted Holder.

Person” means any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.

Piggyback Notice” has the meaning set forth in Section 3.1.1.

Piggyback Registration” has the meaning set forth in Section 3.1.1.

Potential Takedown Participant has the meaning set forth in Section 3.2.5(b).

Principal Shareholder” has the meaning set forth in the preamble.

Pro Rata Portion” means, with respect to each Holder requesting that its shares be registered or sold in an Underwritten Public Offering, a number of such shares equal to the aggregate number of Registrable Securities to be registered or sold (excluding any shares to be registered or sold for the account of the Company) multiplied by a fraction, the numerator of which is the aggregate number of Registrable Securities held by such Holder, and the denominator of which is the aggregate number of Registrable Securities held by all Holders requesting that their Registrable Securities be registered or sold.

Public Offering” means the offer and sale of Registrable Securities for cash pursuant to (i) an effective Registration Statement under the Securities Act (other than a Registration Statement on Form S-4, Form F-4 or Form S-8 or any successor form), (ii) a Canadian Prospectus, (iii) a combination of (i) and (ii) above, or (iv) comparable mechanics under the securities laws of any other jurisdiction.

Registrable Securities” means (i) all Common Shares that are not then subject to forfeiture to the Company, (ii) all Common Shares issuable upon the exercise, conversion or exchange of any option, warrant or convertible security of the Company and (iii) all Common Shares directly or indirectly issued or then issuable with respect to the securities referred to in clauses (i) or (ii) above by way of a stock dividend or stock split, or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such securities shall cease to be Registrable

 

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Securities when (w) (A) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such Registration Statement or (B) such securities shall have been qualified for distribution under applicable Canadian Securities Laws in any province or territory of Canada pursuant to the filing with the applicable Canadian Securities Authorities of a Canadian Prospectus and the issuance of a receipt therefor, and such securities shall have been disposed of thereunder, (x) such securities shall have been Transferred pursuant to Rule 144, (y) both (A) such holder is able to immediately sell such securities under Rule 144 without any restrictions on transfer (including without application of paragraphs (c), (d), (e), (f) and (h) of Rule 144), as reasonably determined by the Holder, and (B) the trade of such securities by such holder in Canada would not constitute a “control distribution” as such term is defined in National Instrument 45-102 Resale of Securities, or (z) such securities shall have ceased to be outstanding.

Registration” means a (i) registration under the Securities Act of the offer and sale to the public of any Registrable Securities under a Registration Statement, (ii) the qualification of any Registrable Securities for distribution under applicable Canadian Securities Laws in any province or territory of Canada by way of a Canadian Prospectus, (iii) a combination of (i) and (ii) above, or (iv) comparable mechanics under the securities laws of any other jurisdiction. The terms “register”, “registered” and “registering” shall have correlative meanings.

Registration Expenses” has the meaning set forth in Section 3.8.

Registration Statement” means any registration statement of the Company filed with, or to be filed with, the SEC under the Securities Act, including the related U.S. Prospectus, amendments and supplements to such registration statement, including pre- and post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement other than a registration statement (and related U.S. Prospectus) filed on Form S-4, Form F-4 or Form S-8 or any successor form thereto.

Representatives” means, with respect to any Person, any of such Person’s officers, directors, employees, agents, attorneys, accountants, actuaries, consultants, equity financing partners or financial advisors or other Person associated with, or acting on behalf of, such Person.

Rule 144” means Rule 144 under the Securities Act (or any successor rule).

SEC” means the Securities and Exchange Commission or any successor agency having jurisdiction under the Securities Act.

Securities Act” means the Securities Act of 1933, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

Securities Authorities” means the SEC and the Canadian Securities Authorities or applicable securities authorities of any other jurisdiction.

Transfer” means, with respect to any Registrable Security, any interest therein, or any other securities or equity interests relating thereto, a direct or indirect transfer, sale, exchange, assignment, pledge, hypothecation or other encumbrance or other disposition thereof, including the grant of an option or other right, whether directly or indirectly, whether voluntarily, involuntarily, by operation of law, pursuant to judicial process or otherwise. “Transferred” shall have a correlative meaning.

Underwritten Public Offering” means an underwritten Public Offering, including any Bought Deal.

Underwritten U.S. Shelf Takedown” means an Underwritten Public Offering pursuant to an effective U.S. Shelf Registration Statement.

U.S. Prospectus” means (i) the prospectus included in any Registration Statement, all amendments and supplements to such prospectus, including post-effective amendments and supplements,

 

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and all other material incorporated by reference in such prospectus, and (ii) any Issuer Free Writing Prospectus.

U.S. Shelf Period” has the meaning set forth in Section 3.2.3.

U.S. Shelf Registration” has the meaning set forth in Section 3.2.1(a).

U.S. Shelf Registration Notice” has the meaning set forth in Section 3.2.2.

U.S. Shelf Registration Request” has the meaning set forth in Section 3.2.1(a).

U.S. Shelf Registration Statement” has the meaning set forth in Section 3.2.1(a).

U.S. Shelf Suspension” has the meaning set forth in Section 3.2.4.

U.S. Shelf Takedown Notice” has the meaning set forth in Section 3.2.5(b).

U.S. Shelf Takedown Request” has the meaning set forth in Section 3.2.5(a).

Warrantholder” has the meaning set forth in the preamble.

Warrantholder Permitted Holder” means Amazon.com NV Investment Holdings LLC and any of its Affiliates.

WKSI” means any Securities Act registrant that is a well-known seasoned issuer as defined in Rule 405 under the Securities Act at the most recent eligibility determination date specified in paragraph (2) of that definition.

Section 2.2.    Other Interpretive Provisions.

(1)        The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(2)        The words “hereof”, “herein”, “hereunder” and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and any subsection and section references are to this Agreement unless otherwise specified.

(3)        The term “including” is not limiting and means “including without limitation.”

(4)        The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

(5)        Whenever the context requires, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms.

ARTICLE III

REGISTRATION RIGHTS

The Company will perform and comply, and cause each of its subsidiaries to perform and comply, with such of the following provisions as are applicable to it. Each Holder will perform and comply with such of the following provisions as are applicable to such Holder.

Section 3.1.        Demand Registration.

 

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Section 3.1.1.    Request for Demand Registration.

 

  (a)

At any time following the date of this Agreement, each of PEC, 9368-2672 and Warrantholder, for as long as it is a Holder and holds, together with its Permitted Transferees, at least 10% of the outstanding Common Shares (on a non-diluted basis), shall have the right to make a written request from time to time (a “Demand Registration Request”) to the Company for Registration of all or part of the Registrable Securities held by such Principal Shareholders. Any such Registration pursuant to a Demand Registration Request shall hereinafter be referred to as a “Demand Registration.”

 

  (b)

Each Demand Registration Request shall specify (x) the aggregate amount of such Holders’ Registrable Securities to be registered, (y) the intended method or methods of disposition thereof and (z) the jurisdiction(s) in which the Registration is to take place.

 

  (c)

Upon receipt of a Demand Registration Request, the Company shall as promptly as practicable file a Registration Statement (a “Demand Registration Statement”) relating to such Demand Registration, and use its reasonable best efforts to cause such Demand Registration Statement to be promptly declared effective under the Securities Act, and/or, as may be requested, file with the applicable Canadian Securities Authorities and use its reasonable best efforts to secure the issuance of a receipt or mutual reliance review decision document for a Canadian Preliminary Prospectus (a “Demand Canadian Preliminary Prospectus”) and a Canadian Prospectus (a “Demand Canadian Prospectus”) relating to such Demand Registration, including, if necessary or useful, in reliance upon the post-receipt pricing procedures under National Instrument 44-103 Post-Receipt Pricing.

Section 3.1.2.    Limitation on Demand Registrations. The Company shall not be obligated to take any action to effect any Demand Registration if (a) within any twelve-month period there have been effected three (3) Demand Registrations (including, for greater certainty, any Demand Registration which is subsequently withdrawn pursuant to Section 3.1.4), or (b) the value of the Common Shares to be offered under any such Demand Registration is less than US$30 million. Additionally, the Company shall not be obligated under this Section 3.1 to take any action to effect any Demand Registration within 90 days following the completion of a Public Offering in which a Demand Registration, U.S. Shelf Registration, U.S. Shelf Takedown or a Piggyback Registration has been effected.

Section 3.1.3.    Demand Notice. Other than in connection with a Bought Deal, promptly upon receipt of a Demand Registration Request pursuant to Section 3.1.1 (but in no event more than two (2) Business Days thereafter), the Company shall deliver a written notice (a “Demand Notice”) of any such Demand Registration Request to all other Holders and the Demand Notice shall offer each such Holder the opportunity to include in the Demand Registration that number of Registrable Securities as each such Holder may request in writing. Subject to Section 3.1.7, the Company shall include in the Demand Registration all such Registrable Securities with respect to which the Company has received written requests for inclusion therein within three (3) Business Days after the date that the Demand Notice was delivered. In the event that a Demand Registration is made in connection with a Bought Deal, the notice periods set forth in this Section 3.1.3 shall not be applicable and the Company shall give the other Holders such notice as is practicable under the circumstances given the speed and urgency with which Bought Deals are currently carried out in common market practice of its rights to participate thereunder and such Holders shall have at least 24 hours to notify the Company and the requesting Holder that they will participate in the Bought Deal, failing which, the requesting Holder shall be free to pursue the Bought Deal without the participation of such other Holders.

 

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Section 3.1.4.    Demand Withdrawal. The Holders may withdraw all or any portion of their Registrable Securities included in a Demand Registration from such Demand Registration at any time prior to the effectiveness of the Demand Registration Statement or the filing of the Demand Canadian Prospectus, as applicable. Upon receipt of a notice to such effect with respect to all of the Registrable Securities included by the Holders in such Demand Registration, the Company shall cease all efforts to pursue or consummate such Demand Registration.

Section 3.1.5.    Effective Registration. The Company shall (a) use reasonable best efforts to cause any Demand Registration Statement to become effective and remain effective for not less than one hundred eighty (180) days (or such shorter period as will terminate when all Registrable Securities covered by such Demand Registration Statement have been sold or withdrawn), or, if such Demand Registration Statement relates to an Underwritten Public Offering, such longer period as in the opinion of counsel for the underwriter or underwriters a U.S. Prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer, and (b) from the period beginning on the filing of any Demand Canadian Preliminary Prospectus or Demand Canadian Prospectus until the completion of the distribution of the Registrable Securities covered by such Demand Canadian Preliminary Prospectus or Demand Canadian Prospectus (or the closing date of the offering of such Registrable Securities thereunder, if later), comply with section 57 of the Securities Act (Ontario) and the comparable provisions of other applicable Canadian Securities Laws, and prepare and file promptly any prospectus or marketing material amendment which, in the opinion of the Company, acting reasonably, may be necessary or advisable, and will otherwise comply with all legal requirements and take all actions necessary to continue to qualify such Registrable Securities for distribution in the applicable provinces and territories of Canada for as long as may be necessary to complete the distribution of such Registrable Securities.

Section 3.1.6.    Delay in Filing; Suspension of Registration. If the filing, initial effectiveness or continued use of a Demand Registration Statement or the filing or continued use of a Demand Canadian Preliminary Prospectus or Demand Canadian Prospectus (including pursuant to Section 3.2.8(a)) at any time would require the Company to make an Adverse Disclosure, the Company may, upon giving prompt written notice of such action to the Holders, delay the filing or initial effectiveness of, or suspend use of, as applicable, the Demand Registration Statement, Demand Canadian Preliminary Prospectus or Demand Canadian Prospectus (a “Demand Suspension”); provided, however, that a Demand Suspension in respect of a given Demand Registration may not exceed sixty (60) days and Demand Suspensions in respect of multiple Demand Registrations in any twelve (12) month period may not exceed one hundred twenty (120) days. In the case of a Demand Suspension, the Holders agree to suspend use of any applicable U.S. Prospectus, Demand Canadian Preliminary Prospectus or Canadian Prospectus in connection with any sale or purchase, or offer to sell or purchase, Registrable Securities, upon receipt of the notice referred to above. The Company shall immediately notify the Holders in writing upon the termination of any Demand Suspension, amend or supplement any U.S. Prospectus, if necessary, so it does not contain any untrue statement or omission, amend or supplement any Demand Canadian Preliminary Prospectus or Demand Canadian Prospectus, if necessary, so that it contains full, true and plain disclosure of all material facts relating to the securities distributed thereunder and does not contain a misrepresentation or if required by applicable Canadian Securities Laws or as may reasonably be requested by the Holders whose Registrable Securities are covered by such Demand Canadian Preliminary Prospectus or Demand Canadian Prospectus, and furnish to the Holders such numbers of copies of any U.S. Prospectus, Demand Canadian Preliminary Prospectus or Demand Canadian Prospectus as so amended or supplemented as the Holders may reasonably request. The Company shall, if necessary, supplement or amend any Demand Registration Statement, if required by the registration form used by the Company for the Demand Registration or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations promulgated thereunder or as may reasonably be requested by the Holders of a majority of Registrable Securities that are included in such Demand Registration Statement.

 

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Section 3.1.7.    Priority of Securities Registered Pursuant to Demand Registrations. If the managing underwriter or underwriters of a proposed Underwritten Public Offering of the Registrable Securities included in a Demand Registration advise the Company in writing that, in its or their opinion, the number of securities requested to be included in such Demand Registration exceeds the number that can be sold in such offering without being likely to have an adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, then the securities to be included in such Registration shall be, in the case of any Demand Registration, (x) first, allocated to each Holder that has requested to participate in such Demand Registration an amount equal to the lesser of (i) the number of such Registrable Securities requested to be registered or sold by such Holder, and (ii) a number of such shares equal to such Holder’s Pro Rata Portion, and (y) second, and only if all the securities referred to in clause (x) have been included, the number of other securities that, in the opinion of such managing underwriter or underwriters can be sold without having such adverse effect.

Section 3.1.8.    Resale Rights. In the event that a Holder requests to participate in a Registration pursuant to this Section 3.1 in connection with a distribution of Registrable Securities to its partners or members, the Registration shall provide for resale by such partners or members, if requested by such Holder.

Section 3.2.    Shelf Registration.

Section 3.2.1.    Request for U.S. Shelf Registration.

 

  (a)

Upon the written request of any Holders entitled to make Demand Registration Requests (a “U.S. Shelf Registration Request”), the Company shall promptly file a shelf Registration Statement with the SEC pursuant to Rule 415 under the Securities Act (each, a “U.S. Shelf Registration Statement”) relating to the offer and sale of Registrable Securities by such Holders from time to time in accordance with the methods of distribution elected by such Holders, and the Company shall use its reasonable best efforts to cause such U.S. Shelf Registration Statement to promptly become effective under the Securities Act. Any such Registration pursuant to a U.S. Shelf Registration Request shall hereinafter be referred to as a “U.S. Shelf Registration.”

 

  (b)

If on the date of the U.S. Shelf Registration Request contemplating the filing of a U.S. Shelf Registration Statement, the Company is a WKSI, then the U.S. Shelf Registration Request may request Registration with the SEC of an unspecified amount of Registrable Securities to be sold by unspecified Holders. If on the date of the U.S. Shelf Registration Request the Company is not a WKSI, then the U.S. Shelf Registration Request shall specify the aggregate amount of Registrable Securities to be registered. The Company shall provide to the Holders the information necessary to determine the Company’s status as a WKSI upon request.

 

  (c)

All Holders shall be deemed to have made a U.S. Shelf Registration Request on the date hereof for the Company to file a U.S. Shelf Registration Statement relating to the resale of all Registrable Securities owned by such Holders on the date hereof promptly following the closing of the Business Combination.

Section 3.2.2.    U.S. Shelf Registration Notice. Promptly upon receipt of a U.S. Shelf Registration Request (but in no event more than two (2) Business Days thereafter (or such shorter period as may be reasonably requested in connection with a Bought Deal)), the Company shall deliver a written notice (a “U.S. Shelf Registration Notice”) of any such request to all other Holders, which notice shall specify, if applicable, the amount of Registrable Securities to be registered, and the U.S. Shelf Registration Notice shall offer each such Holder the opportunity to include in the U.S. Shelf Registration that number of Registrable Securities as each such Holder may request in

 

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writing. The Company shall include in such U.S. Shelf Registration all such Registrable Securities with respect to which the Company has received written requests for inclusion therein within three (3) Business Days (or such shorter period as may be reasonably requested in connection with a Bought Deal provided such period is at least 24 hours) after the date that the U.S. Shelf Registration Notice has been delivered; provided, however, that if the Holder, is not, or is not controlled (directly or indirectly) by, a director or officer of the Company, such time for providing written requests for inclusion shall be extended to five (5) Business Days (or such shorter period as may be reasonably requested in connection with a Bought Deal provided such period is at least 24 hours).

Section 3.2.3.    Continued Effectiveness of U.S. Shelf Registration Statement. The Company shall use its reasonable best efforts to keep any U.S. Shelf Registration Statement continuously effective under the Securities Act in order to permit the U.S. Prospectus forming part of the U.S. Shelf Registration Statement to be usable by Holders until the earlier of: (i) the date as of which all Registrable Securities have been sold pursuant to the U.S. Shelf Registration Statement as part of another Registration (but in no event prior to the applicable period referred to in Section 4(a)(3) of the Securities Act and Rule 174 thereunder); and (ii) the date as of which no Holder holds Registrable Securities (such period of effectiveness, the “U.S. Shelf Period”). Subject to Section 3.2.4, the Company shall be deemed not to have used its reasonable best efforts to keep the U.S. Shelf Registration Statement effective during the U.S. Shelf Period if the Company voluntarily takes any action or omits to take any action that would result in Holders of the Registrable Securities covered thereby not being able to offer and sell any Registrable Securities pursuant to such U.S. Shelf Registration Statement during the U.S. Shelf Period, unless such action or omission is required by applicable law.

Section 3.2.4.    Suspension of U.S. Shelf Registration. If the continued use of such U.S. Shelf Registration Statement at any time would require the Company to make an Adverse Disclosure, the Company may, upon giving prompt written notice of such action to the Holders, suspend use of the U.S. Shelf Registration Statement (a “U.S. Shelf Suspension”); provided, however, that the Company shall not be permitted to exercise a U.S. Shelf Suspension more than sixty (60) consecutive days or more than one hundred twenty (120) days during any twelve (12) month period. In the case of a U.S. Shelf Suspension, the Holders agree to suspend use of the applicable U.S. Prospectus in connection with any sale or purchase of, or offer to sell or purchase, Registrable Securities, upon receipt of the notice referred to above. The Company shall immediately notify the Holders in writing upon the termination of any U.S. Shelf Suspension, amend or supplement the U.S. Prospectus, if necessary, so it does not contain any untrue statement or omission and furnish to the Holders such numbers of copies of the U.S. Prospectus as so amended or supplemented as the Holders may reasonably request. The Company shall, if necessary, supplement or amend the U.S. Shelf Registration Statement, if required by the registration form used by the Company for the U.S. Shelf Registration Statement or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations promulgated thereunder or as may reasonably be requested by the Holders of a majority of Registrable Securities that are included in such U.S. Shelf Registration Statement.

Section 3.2.5.    U.S. Shelf Takedown.

 

  (a)

At any time the Company has an effective U.S. Shelf Registration Statement, by notice to the Company specifying the intended method or methods of disposition thereof, a Holder entitled to make Demand Registration Requests and whose Registrable Securities are able to be offered on such U.S. Shelf Registration Statement may make a written request (a “U.S. Shelf Takedown Request”) to the Company to effect a Public Offering, including an Underwritten U.S. Shelf Takedown, of all or a portion of such Registrable Securities that may be registered under such U.S. Shelf Registration Statement, and as soon as practicable the Company shall amend or supplement the U.S. Shelf Registration Statement as necessary for such purpose.

 

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  (b)

Promptly upon receipt of a U.S. Shelf Takedown Request (but in no event more than two (2) Business Days thereafter (or such shorter period as may be reasonably requested in connection with a Bought Deal)) for any Underwritten U.S. Shelf Takedown, the Company shall deliver a notice (a “U.S. Shelf Takedown Notice”) to each other Holder with Registrable Securities covered by the applicable Registration Statement, or to all other Holders if such Registration Statement is undesignated (each a Potential Takedown Participant). The U.S. Shelf Takedown Notice shall offer each such Potential Takedown Participant the opportunity to include in any Underwritten U.S. Shelf Takedown such number of Registrable Securities as each such Potential Takedown Participant may request in writing. The Company shall include in the Underwritten U.S. Shelf Takedown all such Registrable Securities with respect to which the Company has received written requests for inclusion therein within three (3) Business Days (or such shorter period as may be reasonably requested by the requesting Holder in connection with a Bought Deal provided such period is at least 24 hours) after the date that the U.S. Shelf Takedown Notice has been delivered. Notwithstanding the delivery of any U.S. Shelf Takedown Notice, all determinations as to whether to complete any Underwritten U.S. Shelf Takedown and as to the timing, manner, price and other terms of any Underwritten U.S. Shelf Takedown contemplated by this Section 3.2.5 shall be determined by the requesting Holder.

Section 3.2.6.    Priority of Securities Sold Pursuant to U.S. Shelf Takedowns. If the managing underwriter or underwriters of a proposed Underwritten U.S. Shelf Takedown pursuant to Section 3.2.5 advise the Company in writing that, in its or their opinion, the number of securities requested to be included in the proposed Underwritten U.S. Shelf Takedown exceeds the number that can be sold in such Underwritten U.S. Shelf Takedown without being likely to have an adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, the number of Registrable Securities to be included in such offering shall be (x) first, allocated to each Holder that has requested to participate in such Underwritten U.S. Shelf Takedown an amount equal to the lesser of (i) the number of such Registrable Securities requested to be registered or sold by such Holder, and (ii) a number of such shares equal to such Holder’s Pro Rata Portion, and (y) second, and only if all the securities referred to in clause (x) have been included, the number of other securities that, in the opinion of such managing underwriter or underwriters can be sold without having such adverse effect.

Section 3.2.7.    Resale Rights. In the event that a Holder elects to request a Registration pursuant to this Section 3.2 in connection with a distribution of Registrable Securities to its partners or members, the Registration shall provide for resale by such partners or members, if requested by such Holder.

Section 3.2.8.    Request for Canadian Shelf Registration.

 

  (a)

Upon the written request of any Holders entitled to make Demand Registration Requests from time to time following the completion of the Business Combination (a “Canadian Shelf Registration Request”), the Company shall promptly file with the applicable Canadian Securities Authorities, and use its reasonable best efforts to secure the issuance of a receipt or mutual reliance review decision document for, a preliminary base shelf prospectus and base shelf (final) prospectus (the “Canadian Base Shelf Prospectus”) pursuant to the provisions of NI 44-102 to qualify the distribution of all of the Registrable Securities in each of the provinces and territories of Canada (or as otherwise determined by the Holders entitled to make Demand Registration Requests in the Canadian Shelf Registration Request).

 

  (b)

In advance of the expiration of any Canadian Base Shelf Prospectus, except as otherwise directed by the Holders entitled to make Demand Registration Requests

 

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in writing, the Company shall renew such Canadian Base Shelf Prospectus in accordance with Section 3.2.8(a), such that the Company shall at all times have an effective Canadian Base Shelf Prospectus with enough capacity to allow the sale thereunder of all remaining Registrable Securities.

 

  (c)

The Company shall satisfy any Demand Registration Request that is submitted pursuant to Section 2.2 at a time that a Canadian Base Shelf Prospectus is effective by filing a supplement to the Canadian Base Shelf Prospectus (a “Canadian Shelf Supplement”) with the applicable Canadian Securities Authorities in accordance with NI 44-102 as soon as practicable and in any event not later than three (3) Business Days after the Demand Registration Request is received. Section 3.1 shall apply mutatis mutandis to any Demand Registration Request effected pursuant to this Section 3.2.8.

Section 3.3.    Piggyback Registration.

Section 3.3.1.    Participation. If the Company at any time following the Business Combination proposes (a) to file a Registration Statement with respect to any offering of its equity securities for its own account or for the account of any securityholder under the Securities Act, (b) to qualify any of its equity securities for distribution for its own account or for the account of any securityholder under applicable Canadian Securities Laws in any province or territory of Canada by way of a Canadian Prospectus or (c) to otherwise conduct a Public Offering with respect to any offering of its equity securities for its own account or for the account of any other Person pursuant to a Registration Statement that registers Registrable Securities or that registers an unspecified amount of securities (other than (i) a Registration under Section 3.1 or Section 3.2, (ii) a Registration on Form S-4, Form F-4 or Form S-8 or any successor form to such forms or (iii) a Registration of securities solely relating to an offering and sale to employees or directors of the Company or its subsidiaries pursuant to any employee stock plan or other employee benefit plan arrangement), then, as soon as practicable (but in no event less than ten (10) Business Days prior to the proposed date of filing of the U.S. Registration Statement, Canadian Preliminary Prospectus or Canadian Shelf Supplement in respect of such offering or, in the case of a Public Offering under a U.S. Shelf Registration Statement, the anticipated pricing or trade date), the Company shall give written notice (a “Piggyback Notice”) of such proposed filing or Public Offering to all Holders (other than any Holders whose participation in such offering would require the filing of (x) a new registration statement or a post-effective amendment to an existing registration statement, or (y) the filing of a new Canadian Base Shelf Prospectus or an amendment to an existing Canadian Base Shelf Prospectus, as applicable), and such Piggyback Notice shall offer the Holders the opportunity to register under any such Registration Statement or under any applicable Canadian Prospectus, or to include in such Public Offering, such number of Registrable Securities as each such Holder may request in writing (a “Piggyback Registration”). Subject to Section 3.3.2, the Company shall include in such Registration Statement, Canadian Preliminary Prospectus or Canadian Prospectus or in such Public Offering, as applicable, all such Registrable Securities that are requested to be included therein within five (5) days after the receipt by such Holder of any such notice; provided, however, that if at any time after giving written notice of its intention to register or sell any securities and prior to the effective date of the Registration Statement filed in connection with such Registration, the filing of a Canadian Prospectus in connection with such Registration, or the pricing or trade date of a Public Offering under a U.S. Shelf Registration Statement, the Company determines for any reason not to register or sell or to delay the Registration or sale of such securities, the Company shall give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register or sell,

 

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shall be relieved of its obligation to register or sell any Registrable Securities in connection with such Registration or Public Offering (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any Holders entitled to request that such Registration or sale be effected as a Demand Registration under Section 3.1, (including pursuant to Section 3.2.8(c)) or an Underwritten U.S. Shelf Takedown under Section 3.2, as the case may be, and (ii) in the case of a determination to delay Registration or sale, in the absence of a request for a Demand Registration or an Underwritten U.S. Shelf Takedown, as the case may be, shall be permitted to delay registering or selling any Registrable Securities, for the same period as the delay in registering or selling such other securities. Any Holder shall have the right to withdraw all or part of its request for inclusion of its Registrable Securities in a Piggyback Registration by giving written notice to the Company of its request to withdraw.

Section 3.3.2.    Priority of Piggyback Registration. If the managing underwriter or underwriters of any proposed offering of Registrable Securities included in a Piggyback Registration informs the Company and the participating Holders in writing that, in its or their opinion, the number of securities that such Holders and any other Persons intend to include in such offering exceeds the number that can be sold in such offering without being likely to have a significant adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, then the securities to be included in such Registration shall be (i) first, one hundred percent (100%) of the securities that the Company proposes to sell, and (ii) second, and only if all the securities referred to in clause (i) have been included, the number of Registrable Securities that, in the opinion of such managing underwriter or underwriters, can be sold without having such adverse effect, with such number to be allocated among the Holders that have requested to participate in such Registration based on an amount equal to the lesser of (x) the number of such Registrable Securities requested to be sold by such Holder, and (y) a number of such shares equal to such Holder’s Pro Rata Portion, and (iii) third, and only if all of the Registrable Securities referred to in clause (ii) have been included in such Registration, any other securities eligible for inclusion in such Registration.

Section 3.3.3.    No Effect on Other Registrations. No Registration of Registrable Securities effected pursuant to a request under this Section 3.3 shall be deemed to have been effected pursuant to Section 3.1 and Section 3.2 or shall relieve the Company of its obligations under Section 3.1 and Section 3.2.

Section 3.4.    Lock-Up Agreements. In connection with each Registration or sale of Registrable Securities pursuant to Section 3.1, Section 3.2 or Section 3.3 conducted as an Underwritten Public Offering, each Holder agrees, if requested, to become bound by and to execute and deliver a lock-up agreement with the underwriter(s) of such Underwritten Public Offering restricting such Holder’s right to (a) Transfer, directly or indirectly, any equity securities of the Company held by such Holder or (b) enter into any swap or other arrangement that transfers to another any of the economic consequences of ownership of such securities during the period commencing on the date of the final U.S. Prospectus and/or of the Canadian Prospectus relating to the Underwritten Public Offering and ending on the date specified by the underwriters (such period not to exceed ninety (90) days following the date of closing of the Underwritten Public Offering plus, such additional period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on the publication or other distribution of research reports and analyst recommendations and opinions, if applicable).

Section 3.5.    Registration Procedures.

Section 3.5.1.    Requirements. In connection with the Company’s obligations under Section 3.1 to Section 3.6, the Company shall use its reasonable best efforts to effect such

 

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Registration and to permit the offering, sale and distribution of such Registrable Securities in accordance with the intended method or methods of distribution thereof as expeditiously as reasonably practicable, and in connection therewith the Company shall:

 

  (a)

As promptly as practicable prepare the required Registration Statement and U.S. Prospectus and/or Canadian Preliminary Prospectus and Canadian Prospectus including all exhibits, financial statements and ancillary materials required under the Securities Act or Canadian Securities Laws to be filed therewith, and, before filing a Registration Statement, U.S. Prospectus, Canadian Preliminary Prospectus, Canadian Prospectus or any amendments or supplements thereto, (x) furnish to the underwriters, if any, and to the Holders of the Registrable Securities covered by such Registration Statement, Canadian Preliminary Prospectus or Canadian Prospectus, copies of all documents prepared to be filed, which documents shall be subject to the review of such underwriters and such Holders and their respective counsel, (y) make such changes in such documents concerning the Holders prior to the filing thereof as such Holders, or their counsel, may reasonably request and (z) except in the case of a Registration under Section 3.3 not file any Registration Statement, U.S. Prospectus, Canadian Preliminary Prospectus, Canadian Prospectus or amendments or supplements thereto to which the participating Holders, in such capacity, or the underwriters, if any, shall reasonably object;

 

  (b)

prepare and file with the applicable Securities Authorities such amendments and post-effective amendments to the Registration Statement, such supplements to the U.S. Prospectus and such amendments and supplements to the Canadian Preliminary Prospectus and Canadian Prospectus as may be (x) reasonably requested by any Holder with Registrable Securities covered by such Registration (y) reasonably requested by any participating Holder (to the extent such request relates to information relating to such Holder), or (z) necessary to keep such Registration Statement effective for the period of time required by this Agreement or to continue to qualify such Registrable Securities for distribution as required by this Agreement, and comply with provisions of the applicable securities laws with respect to the sale or other disposition of all securities covered by such Registration during such period in accordance with the intended method or methods of disposition by the sellers thereof;

 

  (c)

notify the participating Holders and the managing underwriter or underwriters, if any, and (if requested) confirm such notice in writing and provide copies of the relevant documents, as soon as reasonably practicable after notice thereof is received by the Company (a) when the applicable Registration Statement or any amendment thereto has been filed or becomes effective, and when the applicable U.S. Prospectus, Canadian Preliminary Prospectus, Canadian Prospectus, or any amendment or supplement thereto, has been filed (and, in the case of a Canadian Preliminary Prospectus or Canadian Prospectus, when a receipt or mutual reliance review decision document has been issued therefor), (b) of any written comments by the Securities Authorities, or any request by the Securities Authorities or other governmental authority in any jurisdiction for amendments or supplements to any such Registration Statement, U.S. Prospectus, Canadian Preliminary Prospectus or Canadian Prospectus or to any marketing materials, or for additional information (whether before or after the effective date of the Registration Statement) or any other correspondence with the Securities Authorities relating to, or which may affect, the Registration, (c) of the issuance by the Securities Authorities of any stop order suspending the effectiveness of such Registration Statement or any order by the Securities Authorities or any other regulatory authority preventing or suspending the use of any preliminary or final U.S. Prospectus or of any Canadian Preliminary Prospectus, Canadian Prospectus or marketing materials, or the

 

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initiation or threatening of any proceedings for such purposes, (d) if, at any time, the representations and warranties of the Company in any applicable underwriting agreement cease to be true and correct in all material respects and (e) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for offering, sale or distribution in any jurisdiction or the initiation or threatening of any proceeding for such purpose;

 

  (d)

promptly notify each selling Holder and the managing underwriter or underwriters, if any, when the Company becomes aware of the happening of any event as a result of which any applicable Registration Statement or the U.S. Prospectus included in such Registration Statement (as then in effect) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein (in the case of such U.S. Prospectus or any preliminary U.S. Prospectus, in light of the circumstances under which they were made) not misleading or as a result of which any Canadian Preliminary Prospectus, Canadian Prospectus or marketing materials would contain a misrepresentation or a statement otherwise misleading or untrue, when any Issuer Free Writing Prospectus includes information that may conflict with the information contained in the Registration Statement, or, if for any other reason it shall be necessary during such time period to amend or supplement such Registration Statement, U.S. Prospectus, Canadian Preliminary Prospectus, Canadian Prospectus or marketing materials in order to comply with the Securities Act or Canadian Securities Laws and, as promptly as reasonably practicable thereafter, prepare and file with the SEC and/or the applicable Canadian Securities Authority, and furnish without charge to the selling Holders and the managing underwriter or underwriters, if any, an amendment or supplement to such Registration Statement, U.S. Prospectus, Canadian Preliminary Prospectus, Canadian Prospectus or marketing materials which shall correct such misstatement or omission or effect such compliance;

 

  (e)

to the extent the Company is eligible under the relevant provisions of Rule 430B under the Securities Act, if the Company files any U.S. Shelf Registration Statement, the Company shall include in such U.S. Shelf Registration Statement such disclosures as may be required by Rule 430B under the Securities Act (referring to the unnamed selling security holders in a generic manner by identifying the initial offering of the securities to the Holders) in order to ensure that the Holders may be added to such U.S. Shelf Registration Statement at a later time through the filing of a U.S. Prospectus supplement rather than a post-effective amendment;

 

  (f)

use its reasonable best efforts to prevent, or obtain the withdrawal of, any stop order or other order or notice preventing or suspending the use of any preliminary or final U.S. Prospectus or of any Canadian Preliminary Prospectus, Canadian Prospectus or marketing materials;

 

  (g)

promptly incorporate in a U.S. Prospectus supplement, Issuer Free Writing Prospectus or post-effective amendment such information as the managing underwriter or underwriters and the selling Holders agree should be included therein relating to the plan of distribution with respect to such Registrable Securities; and make all required filings of such U.S. Prospectus supplement, Issuer Free Writing Prospectus or post-effective amendment as soon as reasonably practicable after being notified of the matters to be incorporated in such U.S. Prospectus supplement, Issuer Free Writing Prospectus or post-effective amendment;

 

  (h)

furnish to each selling Holder and each underwriter, if any, without charge, as many conformed copies as such Holder or underwriter may reasonably request of

 

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any applicable Registration Statement, Canadian Preliminary Prospectus or Canadian Prospectus and any amendment or post-effective amendment or supplement thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference);

 

  (i)

deliver to each selling Holder and each underwriter, if any, without charge, as many copies of any applicable U.S. Prospectus (including each preliminary U.S. Prospectus), Canadian Preliminary Prospectus or Canadian Prospectus and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities by such Holder or underwriter (it being understood that the Company shall consent to the use of such U.S. Prospectus, Canadian Preliminary Prospectus or Canadian Prospectus or any amendment or supplement thereto by each of the selling Holders and the underwriters, if any, in connection with the offering, sale or distribution of the Registrable Securities covered by such U.S. Prospectus, Canadian Preliminary Prospectus or Canadian Prospectus or any amendment or supplement thereto);

 

  (j)

on or prior to the date on which any applicable Registration Statement becomes effective or any applicable Canadian Prospectus is filed, use its reasonable best efforts to register or qualify, and cooperate with the selling Holders, the managing underwriter or underwriters, if any, and their respective counsel, in connection with the Registration or qualification of such Registrable Securities for offer and sale under the securities or “Blue Sky” laws of each state and other jurisdiction as any such selling Holder or managing underwriter or underwriters, if any, or their respective counsel reasonably request in writing and do any and all other acts or things reasonably necessary or advisable to keep such Registration or qualification in effect for such period as required by Section 3.1 or Section 3.2, as applicable, provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to taxation or general service of process in any such jurisdiction where it is not then so subject;

 

  (k)

cooperate with the selling Holders and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request prior to any sale of Registrable Securities to the underwriters;

 

  (l)

use its reasonable best efforts to cause the Registrable Securities covered by the applicable Registration to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities;

 

  (m)

not later than the effective date of any applicable Registration Statement or the filing of any applicable Canadian Prospectus, provide a CUSIP number for all Registrable Securities and, as applicable, provide the applicable transfer agent with printed certificates for the Registrable Securities which are in a form eligible for deposit with The Depository Trust Company or CDS Clearing and Depository Services Inc., as applicable;

 

  (n)

make such representations and warranties to the Holders of which Registrable Securities are being registered, and the underwriters or agents, if any, in form, substance and scope as are customarily made by issuers in public offerings similar

 

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to the offering then being undertaken;

 

  (o)

enter into such customary agreements (including underwriting and indemnification agreements) and take all such other actions as the selling Holders or the managing underwriter or underwriters, if any, reasonably request in order to expedite or facilitate the Registration and disposition of such Registrable Securities;

 

  (p)

obtain for delivery to the Holders of the Registrable Securities being registered and to the underwriter or underwriters, if any, an opinion or opinions from counsel for the Company dated the most recent effective date of any Registration Statement or, in the event of an Underwritten Public Offering or if customary in public offerings similar to the offering then being undertaken, the date of the closing under the underwriting agreement or for such offering, in customary form, scope and substance, which opinions shall be reasonably satisfactory to such Holders or underwriters, as the case may be, and their respective counsel;

 

  (q)

in the case of an Underwritten Public Offering, obtain for delivery to the Company and the managing underwriter or underwriters, with copies to the Holders included in such Registration or sale, a comfort letter from the Company’s independent certified public accountants or independent auditors (and, if necessary, any other independent certified public accountants or independent auditors of any subsidiary of the Company or any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement or Canadian Prospectus) in customary form and covering such matters of the type customarily covered by comfort letters as the managing underwriter or underwriters reasonably request, dated the date of execution of the underwriting agreement and brought down to the closing under the underwriting agreement;

 

  (r)

cooperate with each seller of Registrable Securities and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA or IIROC;

 

  (s)

use its reasonable best efforts to comply with all applicable securities laws and, if a Registration Statement was filed, make available to its security holders, as soon as reasonably practicable, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder;

 

  (t)

provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such Registration;

 

  (u)

use its reasonable best efforts to cause all Registrable Securities covered by such Registration to be listed on each securities exchange on which any of the Company’s equity securities are then listed or quoted and on each inter-dealer quotation system on which any of the Company’s equity securities are then quoted;

 

  (v)

make available upon reasonable notice at reasonable times and for reasonable periods for inspection by a representative appointed by the selling Holders, by any underwriter participating in any Registration and by any attorney, accountant or other agent retained by such Holders or any such underwriter, all pertinent financial and other records and pertinent corporate documents and properties of the Company, and cause all of the Company’s officers, Directors and employees and the independent public accountants who have certified its financial statements to make themselves available to discuss the business of the Company and to supply all information reasonably requested by any such Person in connection with such

 

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Registration;

 

  (w)

in the case of an Underwritten Public Offering, cause the senior executive officers of the Company to participate in the customary “road show” presentations that may be reasonably requested by the managing underwriter or underwriters in any such offering and otherwise to facilitate, cooperate with, and participate in each proposed offering contemplated herein and customary selling efforts related thereto;

 

  (x)

take no direct or indirect action prohibited by Regulation M under the Exchange Act, OSC Rule 48-501Trading during Distributions, Formal Bids and Share Exchange Transactions and by Section 7.7 of the Universal Market Integrity Rules;

 

  (y)

take all reasonable action to (y) ensure that any Issuer Free Writing Prospectus utilized in connection with such Registration complies in all material respects with the Securities Act, is filed in accordance with the Securities Act to the extent required thereby, is retained in accordance with the Securities Act to the extent required thereby and, when taken together with the related U.S. Prospectus, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (z) ensure that any marketing materials to be provided in connection with such Registration comply with Canadian Securities Laws and approve in writing all such marketing materials (including as may be reasonably required by any managing underwriter or underwriters) and file such marketing materials to the extent required for the use of such marketing materials under applicable Canadian Securities Laws; and

 

  (z)

take all such other commercially reasonable actions as are necessary or advisable in order to expedite or facilitate the disposition of such Registrable Securities in accordance with the terms of this Agreement.

Section 3.5.2.    Company Information Requests. The Company may require each seller of Registrable Securities as to which any Registration or sale is being effected to furnish to the Company such information regarding the distribution of such securities and such other information relating to such Holder and its ownership of Registrable Securities as the Company may from time to time reasonably request in writing and the Company may exclude from such Registration or sale the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. Each Holder agrees to furnish such information to the Company and to cooperate with the Company as reasonably necessary to enable the Company to comply with the provisions of this Agreement.

Section 3.5.3.    Discontinuing Registration. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.5.1(d), such Holder will discontinue disposition of Registrable Securities pursuant to such Registration Statement or the distribution of Registrable Securities under such Canadian Preliminary Prospectus, Canadian Prospectus or marketing materials until such Holder’s receipt of the copies of the supplemented or amended U.S. Prospectus or Canadian Preliminary Prospectus, Canadian Prospectus or marketing materials contemplated by Section 3.5.1(d), or until such Holder is advised in writing by the Company that the use of the U.S. Prospectus, Canadian Preliminary Prospectus, Canadian Prospectus or marketing materials may be resumed, and, as applicable, has received copies of any additional or supplemental filings that are incorporated by reference in the U.S. Prospectus, Canadian Preliminary Prospectus or Canadian Prospectus, or any amendments or supplements thereto, and if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s

 

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possession, of such documents current at the time of receipt of such notice. In the event the Company shall give any such notice, the period during which any applicable Registration Statement is required to be maintained effective shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement either receives the copies of the supplemented or amended U.S. Prospectus contemplated by Section 3.5.1(d) or is advised in writing by the Company that the use of the U.S. Prospectus may be resumed.

Section 3.6.    Underwritten Offerings.

Section 3.6.1.    Demand Registrations. If requested by the underwriters for any Underwritten Public Offering, pursuant to a Registration or sale under Section 3.1 or Section 3.2, the Company shall enter into an underwriting agreement with such underwriters, such agreement to be reasonably satisfactory in substance and form to each of the Company, the Holders and the underwriters, and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type. The Holders of the Registrable Securities proposed to be distributed by such underwriters shall cooperate with the Company in the negotiation of the underwriting agreement and shall give consideration to the reasonable suggestions of the Company regarding the form thereof, and such Holders shall complete and execute all questionnaires, powers of attorney and other documents reasonably requested by the underwriters and required under the terms of such underwriting arrangements. Any such Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, such Holder’s title to the Registrable Securities, such Holder’s intended method of distribution and any other representations to be made by the Holder as are generally prevailing in agreements of that type, and the aggregate amount of the liability of such Holder under such agreement shall not exceed such Holder’s proceeds from the sale of its Registrable Securities in the offering, net of underwriting discounts and commissions but before expenses.

Section 3.6.2.    Piggyback Registrations. If the Company proposes to register or sell any of its securities as contemplated by Section 3.3 and such securities are to be distributed through one or more underwriters, the Company shall, if requested by any Holder pursuant to Section 3.3 and, subject to the provisions of Section 3.3.2, use its reasonable best efforts to arrange for such underwriters to include on the same terms and conditions that apply to the other sellers in such Registration or sale all the Registrable Securities to be offered and sold by such Holder among the securities of the Company to be distributed by such underwriters in such Registration or sale. The Holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters and shall complete and execute all questionnaires, powers of attorney and other documents reasonably requested by the underwriters and required under the terms of such underwriting arrangements. Any such Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, such Holder’s title to the Registrable Securities, such Holder’s intended method of distribution and any other representations to be made by the Holder as are generally prevailing in agreements of that type, and the aggregate amount of the liability of such Holder shall not exceed such Holder’s proceeds from the sale of its Registrable Securities in the offering, net of underwriting discounts and commissions but before expenses.

Section 3.6.3.    Selection of Underwriters. In the case of an Underwritten Public Offering under Section 3.1 or Section 3.2 the managing underwriter or underwriters to administer the offering shall be determined by the requesting Holder and shall be reasonably acceptable to the Company, and in the case of an Underwritten Public Offering under Section 3.3, the managing underwriter or underwriters to administer the offering shall be determined by the Company.

Section 3.7.    No Inconsistent Agreements; Additional Rights. Neither the Company nor any of its subsidiaries shall hereafter enter into, and neither the Company nor any of its subsidiaries is currently a

 

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party to, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders by this Agreement. Neither the Company nor any of its subsidiaries shall enter into any agreement granting registration or similar rights to any Person without the prior written consent of each Holders hereunder that beneficially owns at least 10% of the outstanding Common Shares (on a non-diluted basis), unless such rights are subordinated or pari passu to the registration rights granted to the Holders under this Agreement. The Company hereby represents and warrants that, as of the date hereof, no registration or similar rights have been granted to any other Person other than pursuant to this Agreement, except pursuant to those certain Subscription Agreements, dated as of November 30, 2020, by and among the Company, NGA and certain investors.

Section 3.8.    Registration Expenses. All expenses incident to the Company’s performance of or compliance with this Agreement shall be paid by the Company, including (i) all registration and filing fees, and any other fees and expenses associated with filings required to be made with the SEC, FINRA, the Canadian Securities Authorities or IIROC, (ii) all fees and expenses in connection with compliance with any securities or “Blue Sky” laws (including reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, translation, duplicating, word processing, messenger, telephone, facsimile and delivery expenses (including all expenses of any transfer agent and expenses relating to The Depository Trust Company or CDS Clearing and Depository Services Inc. and of printing prospectuses or other offering documents), (iv) all fees and disbursements of counsel for the Company and of all independent certified public accountants or independent auditors of the Company and any subsidiaries of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance), (v) Securities Act liability insurance or similar insurance if the Company so desires or the underwriters so require in accordance with then-customary underwriting practice, (vi) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange or quotation of the Registrable Securities on any inter-dealer quotation system, (viii) all reasonable fees and disbursements of one legal counsel for the selling Holders, (ix) all fees and expenses incurred in connection with the distribution or Transfer of Registrable Securities to or by a Holder or its Permitted Transferees in connection with a Public Offering, (x) all fees and expenses of any special experts or other Persons retained by the Company in connection with any Registration or sale, (xi) all of the Company’s internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties) and (xii) all expenses related to any “road show”, including the reasonable out-of-pocket expenses of the Holders and underwriters, if so requested. All such expenses are referred to herein as “Registration Expenses”. The Company shall not be required to pay any fees and disbursements to underwriters not customarily paid by the issuers of securities in an offering similar to the applicable offering, including underwriting discounts and commissions and transfer taxes, if any, attributable to the sale of Registrable Securities.

Section 3.9.    Indemnification.

Section 3.9.1.    Indemnification by the Company. The Company shall indemnify and hold harmless, to the full extent permitted by law, each selling Holder, each shareholder, member, limited or general partner of such Holder, each shareholder, member, limited or general partner of each such shareholder, member, limited or general partner, each of their respective Affiliates, officers, directors, managers, shareholders, employees, advisors, and agents and each Person who controls (within the meaning of the Securities Act or the Exchange Act or of analogous provisions under applicable Canadian Securities Laws) or is deemed to control such Persons and each of their respective Representatives from and against any and all losses, penalties, judgments, suits, costs, claims, damages, liabilities and expenses, joint or several (including reasonable costs of investigation and legal expenses and any indemnity and contribution payments made to underwriters ) (each, a “Loss” and collectively “Losses”) arising out of or based upon (i) (A) any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which Registrable Securities are registered or sold under the Securities Act (including any final, preliminary or summary U.S. Prospectus contained therein or any amendment thereof or supplement thereto or any documents incorporated by reference therein), or (B) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a U.S. Prospectus or preliminary U.S. Prospectus, in light of

 

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the circumstances under which they were made) not misleading, (ii) any information or statement in a Canadian Preliminary Prospectus or Canadian Prospectus that contains or is alleged to contain a misrepresentation or any omission of a Canadian Preliminary Prospectus or Canadian Prospectus to contain full, true and plain disclosure of all material facts relating to the securities distributed thereunder, (iii) any untrue or alleged untrue statement of a material fact contained in any other disclosure document produced by or on behalf of the Company or any of its subsidiaries including any report and other document filed under the Exchange Act or Canadian Securities Laws or (iv) any violation or alleged violation by the Company or any of its subsidiaries of any federal, state, provincial, foreign or common law rule or regulation applicable to the Company or any of its subsidiaries and relating to action or inaction in connection with any such registration, disclosure document or other document or report; provided, that no selling Holder shall be entitled to indemnification pursuant to this Section 3.9.1 in respect of any untrue statement or omission or any misrepresentation contained in any information relating to such selling Holder furnished in writing by such selling Holder to the Company specifically for inclusion in a Registration Statement, Canadian Preliminary Prospectus or Canadian Prospectus and used by the Company in conformity therewith (such information “Selling Holder Information”). This indemnity shall be in addition to any liability the Company may otherwise have. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any indemnified party and shall survive the Transfer of such securities by such Holder and regardless of any indemnity agreed to in the underwriting agreement that is less favorable to the Holders. The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above (with appropriate modification) with respect to the indemnification of the indemnified parties.

Section 3.9.2.    Indemnification by the Selling Holders. Each selling Holder agrees (severally and not jointly) to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its Directors and officers and each Person who controls (within the meaning of the Securities Act or the Exchange Act or of analogous provisions under applicable Canadian Securities Laws) or is deemed to control the Company from and against any Losses resulting from (i) (A) any untrue statement of a material fact in any Registration Statement under which such Registrable Securities were registered or sold under the Securities Act (including any final, preliminary or summary U.S. Prospectus contained therein or any amendment thereof or supplement thereto or any documents incorporated by reference therein) or (B) any omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a U.S. Prospectus or preliminary U.S. Prospectus, in light of the circumstances under which they were made) not misleading, or (ii) any information or statement in a Canadian Preliminary Prospectus or Canadian Prospectus that contains a misrepresentation, in each case to the extent, but only to the extent, that such untrue statement or omission or such misrepresentation is contained in such selling Holder’s Selling Holder Information. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the proceeds from the sale of its Registrable Securities in the offering giving rise to such indemnification obligation, net of underwriting discounts and commissions but before expenses, less any amounts paid by such Holder pursuant to Section 3.9.4 and any amounts paid by such Holder as a result of liabilities incurred under the underwriting agreement, if any, related to such sale.

Section 3.9.3.    Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder shall (a) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that any delay or failure to so notify the indemnifying party shall relieve the indemnifying party of its obligations hereunder only to the extent, if at all, that it forfeits substantive legal rights by reason of such delay or failure) and (b) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to select and employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such

 

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Person unless (i) the indemnifying party has agreed in writing to pay such fees or expenses, (ii) the indemnifying party shall have failed to assume the defense of such claim within a reasonable time after receipt of notice of such claim from the Person entitled to indemnification hereunder and employ counsel reasonably satisfactory to such Person, (iii) the indemnified party has reasonably concluded (based upon advice of its counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, or (iv) in the reasonable judgment of any such Person (based upon advice of its counsel) a conflict of interest may exist between such Person and the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If the indemnifying party assumes the defense, the indemnifying party shall not have the right to settle such action without the consent of the indemnified party. No indemnifying party shall consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of an unconditional release from all liability in respect to such claim or litigation without the prior written consent of such indemnified party. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its prior written consent, but such consent may not be unreasonably withheld. It is understood that the indemnifying party or parties shall not, except as specifically set forth in this Section 3.9.3, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements or other charges of more than one separate firm admitted to practice in such jurisdiction at any one time unless (x) the employment of more than one counsel has been authorized in writing by the indemnifying party or parties, (y) an indemnified party has reasonably concluded (based on the advice of counsel) that there may be legal defenses available to it that are different from or in addition to those available to the other indemnified parties or (z) a conflict or potential conflict exists or may exist (based upon advice of counsel to an indemnified party) between such indemnified party and the other indemnified parties, in each of which cases the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels.

Section 3.9.4.    Contribution. If for any reason the indemnification provided for in Section 3.9.1 and Section 3.9.2 is unavailable to an indemnified party or insufficient in respect of any Losses referred to therein (other than as a result of exceptions or limitations on indemnification contained in Section 3.9.1 and Section 3.9.2), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party or parties on the other hand in connection with the acts, statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the indemnifying party on the one hand and the indemnified party on the other hand shall be determined by reference to, among other things whether any untrue or alleged untrue statement of a material fact or misrepresentation or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement, misrepresentation or omission. The parties hereto agree that it would not be just or equitable if contribution pursuant to this Section 3.9.4 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 3.9.4. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The amount paid or payable by an indemnified party as a result of the Losses referred to in Section 3.9.1 and Section 3.9.2 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 3.9.4, in connection with any Registration effected pursuant to this Agreement, a selling Holder shall not be required to contribute any amount in excess of the dollar amount of the proceeds from the sale of its Registrable Securities in the offering giving rise to such indemnification obligation, net of underwriting discounts and commissions but before expenses,

 

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less any amounts paid by such Holder pursuant to Section 3.9.2 and any amounts paid by such Holder as a result of liabilities incurred under the underwriting agreement, if any, related to such Registration. If indemnification is available under this Section 3.9, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 3.9.1 and Section 3.9.2 hereof without regard to the provisions of this Section 3.9.4. The remedies provided for in this Section 3.9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

Section 3.10.    Rules 144 and 144A and Regulation S. The Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available such necessary information for so long as necessary to permit sales that would otherwise be permitted by this Agreement pursuant to Rule 144, Rule 144A or Regulation S under the Securities Act, as such rules may be amended from time to time or any similar rule or regulation hereafter adopted by the SEC), and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without Registration under the Securities Act in transactions that would otherwise be permitted by this Agreement and within the limitation of the exemptions provided by (i) Rule 144, Rule 144A or Regulation S under the Securities Act, as such rules may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements and, if not, the specifics thereof.

Section 3.11.    Compliance with Canadian Securities Laws. With a view to making available the benefits of Canadian Securities Laws that may at any time permit the resale of Registrable Securities without the filing of a Canadian Prospectus, at all times after the Company becoming a reporting issuer or the equivalent under Canadian Securities Laws in any province or territory of Canada, the Company agrees to use is reasonable best efforts to (a) file with the appropriate Canadian Securities Authority authorities in a timely manner all reports and other documents required under Canadian Securities Laws, and (b) so long as any Holder owns any Registrable Securities, furnish to any Holder forthwith upon request a written statement by the Company stating that the Company is a reporting issuer and is not in default of any requirement under Canadian Securities Laws.

Section 3.12.    Short Form Registrations. After the Company becoming a reporting issuer or the equivalent under Canadian Securities Laws in any province or territory of Canada, the Company agrees to use its reasonable best efforts to make available and maintain the availability of short form prospectus Registrations pursuant to NI 44-101. For greater certainty, references herein to a Canadian Preliminary Prospectus or a Canadian Prospectus shall as applicable include a short form Canadian Preliminary Prospectus or a short form Canadian Prospectus.

ARTICLE IV

MISCELLANEOUS

Section 4.1.    Authority; Effect. Each party hereto represents and warrants to and agrees with each other party that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on behalf of such party and do not violate any agreement or other instrument applicable to such party or by which its assets are bound. This Agreement does not, and shall not be construed to, give rise to the creation of a partnership among any of the parties hereto, or to constitute any of such parties’ members of a joint venture or other association. The Company and its subsidiaries shall be jointly and severally liable for all obligations of each such party pursuant to this Agreement.

Section 4.2.    Notices. Any notices, requests, demands and other communications required or permitted in this Agreement shall be effective if in writing and (i) delivered personally, (ii) sent by facsimile or e-mail, or (iii) sent by overnight courier, in each case, addressed as follows:

 

- 23 -


If to the Company to:

 

The Lion Electric Company
921 ch. de la Rivière-du-Nord
Saint-Jérôme (Québec) J7Y 5G2
Attention:    Marc Bedard, CEO - Founder
   Nicolas Brunet, Executive Vice-President and CFO
E-mail:                [***]
   [***]

with a copy to:

 

Stikeman Elliott LLP

1155 René-Lévesque Blvd. West, 41st Floor

Montreal (Québec) H3B 3V2

Attention:

  

Aniko Pelland; David Tardif

E-mail:            

  

[***]

  

[***]

If to PEC to:

 

Power Energy Corporation

751 rue du Square Victoria

Montreal (Quebec) H2Y 2J3

Attention:

  

Pierre Larochelle

E-mail:            

  

[***]

If to the 9368-2672 to:

 

Marc Bedard

921 ch. de la Rivière-du-Nord

Saint-Jérôme (Québec) J7Y 5G2

Attention:

  

Marc Bedard

E-mail:            

  

[***]

If to Warrantholder to:

 

Amazon.com NV Investment Holdings LLC

c/o Amazon.com, Inc.

P.O. Box 81226

Seattle, WA 98108-1226

Attention:        

  

General Counsel

 

- 24 -


Unless otherwise specified herein, such notices or other communications shall be deemed effective (i) on the date received, if personally delivered, (ii) on the date received if delivered by e-mail on a Business Day, or if not delivered on a Business Day, on the first Business Day thereafter and (iii) two (2) Business Days after being sent by overnight courier. Each of the parties hereto shall be entitled to specify a different address by giving notice as aforesaid to each of the other parties hereto.

Section 4.3.    Termination and Effect of Termination. This Agreement shall terminate upon the date on which no Holder holds any Registrable Securities; except for the provisions of Section 3.9 and Section 3.10, which shall survive any such termination. No termination under this Agreement shall relieve any Person of liability for breach or Registration Expenses incurred prior to termination. In the event this Agreement is terminated, each Person entitled to indemnification rights pursuant to Section 3.9 hereof shall retain such indemnification rights with respect to any matter that (i) may be an indemnified liability thereunder and (ii) occurred prior to such termination.

Section 4.4.    Permitted Transferees. The rights of a Holder hereunder may be assigned (but only with all related obligations as set forth below) in connection with a Transfer of Registrable Securities to a Permitted Transferee of that Holder. Without prejudice to any other or similar conditions imposed hereunder with respect to any such Transfer, no assignment permitted under the terms of this Section 4.4 will be effective unless the Permitted Transferee to which the assignment is being made, if not a Holder, has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that the Permitted Transferee will be bound by, and will be a party to, this Agreement. A Permitted Transferee to whom rights are transferred pursuant to this Section 4.4 may not again transfer those rights to any other Permitted Transferee, other than as provided in this Section 4.4.

Section 4.5.    Remedies. The parties to this Agreement shall have all remedies available at law, in equity or otherwise in the event of any breach or violation of this Agreement or any default hereunder. The parties acknowledge and agree that in the event of any breach of this Agreement, in addition to any other remedies that may be available, each of the parties hereto shall be entitled to specific performance of the obligations of the other parties hereto and, in addition, to such other equitable remedies (including preliminary or temporary relief) as may be appropriate in the circumstances. No delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any such delay, omission nor waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.

Section 4.6.    Amendments.This Agreement may not be orally amended, modified, extended or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be amended, modified, extended or terminated, and the provisions hereof may be waived, only by an agreement in writing signed by each of the Company (acting through independent Directors), PEC and 9368-2672 (and, as applicable, any PEC or 9368-2672 Permitted Holders holding shares at such time), provided that this Agreement may not be amended, modified, extended or terminated without Warrantholder’s prior consent if such amendment, modification, extension or termination would result in Warrantholder having registration rights less favorable to it than those provided to any other Principal Shareholder hereunder. Each such amendment, modification, extension or termination shall be binding upon each party hereto. In addition, each party hereto may waive any right hereunder by an instrument in writing signed by such party. The Company shall provide prompt notice to Warrantholder of any amendment or modification to this Agreement.

Section 4.7.    Governing Law.This Agreement and all claims arising out of or based upon this Agreement or relating to the subject matter hereof shall be governed and interpreted by and construed in accordance with the substantive laws of the Province of Québec and the federal laws of Canada applicable therein (without giving effect to conflict of law principles).

Section 4.8.    Dispute Resolution. Any claim, dispute or controversy arising out of or relating to

 

- 25 -


the interpretation, application or enforcement of this Agreement or any breach of this Agreement shall be settled by arbitration to be held the Province of Québec, district of Montréal. A party wishing to submit a dispute to arbitration shall give written notice to such effect to the other parties hereto. The parties shall have fifteen (15) days from a party’s notice of such a request for arbitration to designate the arbitrators for the dispute in accordance with this Section 4.8.

Section 4.9.    Merger; Binding Effect, Etc. This Agreement constitutes the entire agreement of the parties with respect to its subject matter, supersedes all prior or contemporaneous oral or written agreements or discussions with respect to such subject matter, and shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective heirs, representatives, successors and permitted assigns. Except as otherwise expressly provided herein, no Holder or other party hereto may assign any of its respective rights or delegate any of its respective obligations under this Agreement without the prior written consent of the other parties hereto, and any attempted assignment or delegation in violation of the foregoing shall be null and void.

Section 4.10.    Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one instrument.

Section 4.11.    Severability. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof.

Section 4.12.    Exercise of Rights and Remedies. No delay or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any such delay, omission nor waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.

Section 4.13.    No Recourse. Notwithstanding anything that may be expressed or implied in this Agreement, the Company and each Principal Shareholder covenant, agree and acknowledge that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement shall be made against any current or future director, officer, employee, shareholder, general or limited partner or member of any Principal Shareholder or of any Affiliate or assignee thereof, as such, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any current or future officer, agent or employee of any Principal Shareholder or any current or future member of any Principal Shareholder or any current or future director, officer, employee, shareholder, partner or member of any Principal Shareholder or of any Affiliate or assignee thereof, as such, for any obligation of any Principal Shareholder under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.

Section 4.14.    Language. The parties confirm that it is their wish that this Agreement as well as any other documents relating hereto including notices, have been and shall be drawn up in English only. Les parties aux présentes confirment leur volonté de rédiger exclusivement en langue anglaise la présente convention ainsi que tous les documents s’y rapportant, notamment les avis.

[Signature pages follow]

 

- 26 -


IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement as of the date first above written.

 

Company:     THE LION ELECTRIC COMPANY
    By:  

    (signed) Nicolas Brunet

     

Name: Nicolas Brunet

Title: Executive Vice President and Chief

        Financial Officer

Principal Shareholders:     9368-2672 QUÉBEC INC.
    By:  

    (signed) Marc Bedard

     

Name: Marc Bedard

Title: Authorized Signatory

    POWER ENERGY CORPORATION
    By:  

    (signed) Marc Bedard

     

Name: Pierre Larochelle

Title: Chief Executive Officer

    AMAZON.COM NV INVESTMENT HOLDINGS LLC
    By:  

    (signed) [***]

     

Name: [***]

Title: Authorized Signatory

[Signature Page to Registration Rights Agreement]

Exhibit 5.1

 

LOGO

May 28, 2021

The Lion Electric Company

921 chemin de la Rivière-du-Nord

Saint-Jérôme (Québec)

J7Y 5G2

 

Re:

Registration Statement on Form F-1

Dear Sirs/Mesdames:

We have acted as Canadian counsel to The Lion Electric Company (the “Corporation”), a corporation governed by the Business Corporations Act (Québec), in connection with the registration statement on Form F-1 (such registration statement being referred to herein as the “Registration Statement”), to which this opinion is an exhibit, filed by the Corporation with the U.S. Securities and Exchange Commission (the “Commission”) under the U.S. Securities Act of 1933, as amended (the “Securities Act”), relating to the registration of: (a) 97,517,987 common shares in the capital of the Corporation held by certain selling securityholders identified in the Registration Statement that were securityholders of the Corporation prior to closing of the business combination (the “Business Combination”) between the Corporation, Lion Electric Merger Sub Inc. and Northern Genesis Acquisition Corp., (b) 19,408,700 common shares in the capital of the Corporation issued to certain securityholders identified in the Registration Statement in connection with the closing of a private placement offering which closed concurrently with the Business Combination on May 6, 2021 (the common shares referred to in (a) and (b) being hereinafter collectively referred to as the “Selling Securityholders Shares”), and (c) 35,350,003 common shares in the capital of the Corporation issuable upon the exercise of that certain warrant to purchase common shares of the Corporation (the “Warrant”) issued on July 1, 2020 by the Corporation to Amazon.com NV Investment Holdings LLC (the “Warrant Shares”).

We have examined the Registration Statement and such other documents as we have deemed relevant and necessary and have considered such questions of law as we have considered relevant and necessary in order to give the opinion hereinafter set forth. As to various questions of fact material to such opinions which were not independently established, we have relied exclusively and without independent verification upon a certificate of an officer of the Corporation.

In reviewing the foregoing documents and in giving this opinion, we have assumed the legal capacity of all individuals, the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic or original documents of all documents submitted to us as certified, conformed, electronic, photostatic or facsimile copies. In giving this opinion, we have also assumed that the Registration Statement, and any amendments thereto (including post-effective amendments), will be effective and comply with all applicable laws.

Where our opinion expressed herein refers to the Selling Securityholders Shares or the Warrant Shares having been issued as being “fully-paid and non-assessable”, such opinion assumes that all required consideration (in whatever form) has been paid, or in the case of the Warrant Shares, will be paid. No opinion is expressed as to the adequacy of any consideration received.


We are qualified to practice law in the province of Québec and this opinion is rendered solely with respect to the laws of the province of Québec and the federal laws of Canada applicable therein. Our opinion is expressed as of the date hereof and we have no responsibility or obligation to update this opinion. Without limitation, no opinion is expressed herein with respect to the qualification of the Selling Securityholders Shares or the Warrant Shares under the securities or blue sky laws of any state or any foreign jurisdiction.

On the basis of the foregoing and subject to the qualifications set forth in this opinion, we are of the opinion that:

 

  (1)

the Selling Securityholders Shares have been validly issued as fully paid and non-assessable common shares of the Corporation; and

 

  (2)

the Warrant Shares, when issued upon exercise of the Warrant in accordance with its terms, will be validly issued as fully paid and non-assessable common shares of the Corporation.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and consent to being named in the Registration Statement under the heading “Legal Matters” and in connection with our opinion set out under the heading “Certain Canadian Federal Income Tax Considerations”. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 or Section 11 of the Securities Act or the rules and regulations of the Commission promulgated thereunder.

 

Yours truly,

 

(signed) Stikeman Elliott LLP

Exhibit 10.3

 

 

 

 

 

LOGO

 

 

THE LION ELECTRIC COMPANY / LA COMPAGNIE ÉLECTRIQUE LION

OMNIBUS INCENTIVE PLAN

 

 

Effective May 6, 2021


TABLE OF CONTENTS

 

Article 1 INTERPRETATION

     1  

Section 1.1

 

Definitions

     1  

Section 1.2

 

Interpretation

     7  

Article 2 PURPOSE AND ADMINISTRATION OF THE PLAN; GRANTING OF AWARDS

     8  

Section 2.1

 

Purpose of the Plan

     8  

Section 2.2

 

Implementation and Administration of the Plan

     8  

Section 2.3

 

Participation in this Plan

     10  

Section 2.4

 

Shares Available Under the Plan

     11  

Section 2.5

 

Limits with Respect to Insiders

     12  

Section 2.6

 

Granting of Awards

     12  

Article 3 OPTIONS

     13  

Section 3.1

 

Nature of Options

     13  

Section 3.2

 

Option Awards

     13  

Section 3.3

 

Option Price

     13  

Section 3.4

 

Option Term

     13  

Section 3.5

 

Exercise of Options

     13  

Section 3.6

 

Method of Exercise and Payment of Option Price

     14  

Section 3.7

 

Grant of Incentive Stock Options

     14  

Section 3.8

 

Grant of Options for Non-Qualifying Canadian Securities

     15  

Section 3.9

 

Option Agreements

     15  

Article 4 PERFORMANCE SHARE UNITS

     16  

Section 4.1

 

Nature of PSUs

     16  

Section 4.2

 

PSU Awards

     16  

Section 4.3

 

Vesting of PSUs

     16  

Section 4.4

 

Settlement of PSUs

     17  

Section 4.5

 

Determination of Amounts

     17  

Section 4.6

 

PSU Agreements

     17  

Section 4.7

 

Grant of Dividend Equivalents

     18  

Article 5 RESTRICTED SHARE UNITS

     18  

Section 5.1

 

Nature of RSUs

     18  

Section 5.2

 

RSU Awards

     18  

Section 5.3

 

Vesting of RSUs

     19  

Section 5.4

 

Settlement of RSUs

     19  

Section 5.5

 

Determination of Amounts

     20  

Section 5.6

 

RSU Agreements

     20  

Section 5.7

 

Grant of Dividend Equivalents

     20  

 

i


Article 6 DEFERRED SHARE UNITS

     20  

Section 6.1

 

Nature of DSUs

     20  

Section 6.2

 

DSU Awards

     21  

Section 6.3

 

Vesting of DSUs

     21  

Section 6.4

 

Settlement of DSUs

     22  

Section 6.5

 

Determination of Amounts

     22  

Section 6.6

 

DSU Agreements

     22  

Section 6.7

 

Grant of Dividend Equivalents

     23  

Article 7 GENERAL CONDITIONS

     23  

Section 7.1

 

General Conditions applicable to Awards

     23  

Section 7.2

 

General Conditions applicable on Termination

     24  

Article 8 COMPLIANCE WITH U.S. TAX LAWS

     26  

Section 8.1

 

Special Provisions Related to Section 409A of the U.S. Code

     26  

Article 9 ADJUSTMENTS AND AMENDMENTS

     28  

Section 9.1

 

Adjustment to Shares Subject to Outstanding Awards

     28  

Section 9.2

 

Change of Control

     28  

Section 9.3

 

Amendment or Discontinuance of the Plan

     29  

Article 10 MISCELLANEOUS

     31  

Section 10.1

 

Use of an Administrative Agent and Trustee

     31  

Section 10.2

 

Tax Withholding and Deduction

     31  

Section 10.3

 

Clawback

     32  

Section 10.4

 

Securities Law Compliance

     33  

Section 10.5

 

Reorganization of the Company

     33  

Section 10.6

 

Governing Laws

     33  

Section 10.7

 

Severability

     34  

Section 10.8

 

Currency

     34  

Section 10.9

 

Effective Date of the Plan

     34  

 

ii


THE LION ELECTRIC COMPANY

OMNIBUS INCENTIVE PLAN

The Lion Electric Company (the “Company”) hereby establishes this Omnibus Incentive Plan (the “Plan”) for certain qualified directors, executive officers, employees, and consultants of the Company or any of its Subsidiaries. The Plan shall become effective on the Effective Date (as set forth in Section 10.9 hereof) and shall remain in effect, subject to the right of the board of directors of the Company (the “Board”) to amend or terminate the Plan at any time pursuant to Section 9.3 hereof, until the tenth (10th) anniversary of the Effective Date (as defined below). Except as otherwise specifically permitted in the Plan or a Grant Agreement, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.

Article 1

INTERPRETATION

Section 1.1        Definitions.

Where used herein or in any amendments hereto or in any communication required or permitted to be given hereunder, the following terms shall have the following meanings, respectively:

(1)      “Account” means an account maintained for each Participant on the books of the Company which will be credited with PSUs, RSUs or DSUs, as applicable, in accordance with the terms of this Plan;

(2)      “Affiliates” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Securities Act. For purposes of the preceding sentence, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any entity or organization, shall mean the possession, directly or indirectly, of the power (a) to vote more than 50% of the securities having ordinary voting power for the election of directors of the controlled entity or organization or (b) to direct or cause the direction of the management and policies of the controlled entity or organization, whether through the ownership of voting securities, by contract, or otherwise. The Board will have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition;

(3)      “Associate”, where used to indicate a relationship with a Participant, means (a) any domestic partner of that Participant, and (b) the spouse of that Participant and that Participant’s children (whether by birth or adoption), as well as that Participant’s relatives and that Participant’s spouse’s relatives, in each case if they share that Participant’s residence;

(4)      “Award” means an Option, a PSU, an RSU and/or a DSU, as applicable, granted to a Participant pursuant to the terms of the Plan and the applicable Grant Agreement and/or a Cash Equivalent and a Dividend Equivalent granted under the Plan;

(5)      “Black-Out Period” means a period of time when pursuant to any policies of the Company (including the Company’s insider trading policy), any securities of the Company may not be traded by certain Persons designated by the Company;

 

1


(6)      “Business Day” means a day other than a Saturday, Sunday or statutory holiday, when banks are generally open for business in Montréal, Québec and New York, New York for the transaction of banking business;

(7)      “Cash Equivalent” means the amount of money equal to the Market Value multiplied by the number of vested PSUs, RSUs or DSUs, as applicable, in the Participant’s Account, net of any applicable taxes in accordance with Section 10.2, on the RSU Settlement Date, the PSU Settlement Date or the DSU Settlement Date, as applicable;

(8)      “Cause” has the meaning ascribed thereto in Section 7.2(1) hereof;

(9)      “Change of Control” has the meaning assigned to such term in the Employment Agreement, if any, between a Participant and the Company or a Subsidiary, provided, however that if there is no such Employment Agreement in which such term is defined, and unless otherwise defined in the applicable Grant Agreement or otherwise determined by the Board, then “Change of Control” shall mean the happening, in a single transaction or in a series of related transactions, of any of the following events:

 

  (a)

any acquisition by a Person (other than a non-arm’s length party), or a combination of Persons acting jointly or in concert of the direct or indirect beneficial ownership of securities of the Company representing 50% or more of the aggregate voting power of all of the Company’s then issued and outstanding securities entitled to vote in the election of directors of the Company, other than any such acquisition that occurs upon the exercise or settlement of options or other securities granted by the Company under any of the Company’s equity incentive plans;

 

  (b)

the sale or disposition of all or substantially all of the Company’s assets, or consummation of any transaction, or series of related transactions, having similar effect;

 

  (c)

other than as a result of a solicitation by management of the Company, a change in the composition of the Board, which occurs at a single meeting of the shareholders or upon the execution of a shareholders’ resolution, such that individuals who are members of the Board immediately prior to such meeting or resolution cease to constitute a majority of the Board;

 

  (d)

the dissolution, liquidation or winding up of the Company; or

 

  (e)

an arrangement, amalgamation, merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such arrangement, amalgamation, merger, consolidation or similar transaction, the shareholders of the Company immediately prior thereto do not beneficially own, directly or indirectly, either (A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving or resulting entity in such amalgamation, merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of the surviving or resulting entity in such arrangement, amalgamation merger, consolidation or similar transaction, in each case in substantially the same proportions as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such transaction.

 

2


Notwithstanding any provision in the definition of “Change of Control” to the contrary, for purposes of an Award that provides for a deferral of compensation under the Nonqualified Deferred Compensation Rules, to the extent the impact of a Change of Control on such Award would subject a Participant to additional taxes under the Nonqualified Deferred Compensation Rules, a Change of Control described above with respect to such Award will mean both a Change of Control and a “change in the ownership of a corporation,” “change in the effective control of a corporation,” or a “change in the ownership of a substantial portion of a corporation’s assets” within the meaning of the Nonqualified Deferred Compensation Rules as applied to the Company.

(10)      “Company” means The Lion Electric Company, a corporation incorporated under the Business Corporations Act (Québec), as amended from time to time;

(11)      “consultants”, where used in respect of a Canadian Participant, has the meaning ascribed to such term in Division 4 of National Instrument 45-106Prospectus Exemptions;

(12)      “Dividend Equivalent” means a bookkeeping entry equivalent in value to a dividend paid on a Share credited to a Participant’s Account;

(13)      “Dividend Payment Date” means the date on which the Company pays a dividend on the Shares;

(14)      “DSU” means a deferred share unit that is granted by the Company from time to time to a Participant pursuant to Article 6 hereof which shall upon vesting entitle the holder thereof to receive Shares issued from treasury or purchased on the open market, the Cash Equivalent or a combination thereof, subject to the terms and conditions of this Plan and the applicable DSU Agreement, provided that such DSU has not expired before vesting;

(15)      “DSU Agreement” means a written agreement between the Company and a Participant evidencing the grant of DSUs and the terms and conditions thereof;

(16)      “DSU Settlement Date” has the meaning ascribed thereto in Section 6.4 hereof;

(17)      “Effective Date” has the meaning ascribed thereto in Section 10.9 hereof;

(18)      “Eligible Participants” means any director, executive officer, employee or consultant of the Company or any of its Subsidiaries (for so long as such Person holds any such position, excluding any period of statutory, contractual or reasonable notice of termination of employment or deemed employment); provided, however, that any such individual must be an “employee” of the Company or any of its parents or subsidiaries within the meaning of General Instruction A.1(a) to Form S-8 if such individual is granted an Award that may be settled in Shares; provided further, however, that solely with respect to the grant of an Incentive Stock Option, an Eligible Participant shall be any employee (including any executive officer) of the Company or any Subsidiary Corporation;

(19)      “Employment Agreement” means, with respect to any Participant, any written employment agreement entered into between the Company or a Subsidiary, as applicable, and such Participant;

 

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(20)      “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including the guidance, rules and regulations promulgated thereunder and successor provisions, guidance, rules and regulations thereto;

(21)      “Exercise Notice” means a notice, in the form attached as Schedule “A” hereto or such other form as the Board may use from time to time, in writing signed by a Participant and stating the Participant’s intention to exercise Options and the manner in which such Options are to be exercised;

(22)      “Grant Agreement” means a written agreement entered into by the Company and a Participant evidencing the grant to such Participant of an Award, including an Option Agreement, a PSU Agreement, an RSU Agreement and a DSU Agreement;

(23)      “Incentive Stock Option” or “ISO” means an Option that is intended to meet the requirements of Section 422 of the U.S. Code;

(24)      “Insider” means a “reporting insider” as defined in National Instrument 55-104 – Insider Reporting Requirements and Exemptions and includes Associates and affiliates (as such term is defined in Part 1 of the TSX Company Manual) of such “reporting insider”;

(25)      “Legacy Option” means an option granted by the Company under the Legacy Option Plan which upon exercises entitle the holder thereof to acquire a designated number of Shares from treasury, subject to the terms and conditions of the Legacy Option Plan and option grant agreement, provided that such Legacy Option has not expired prior to being exercised;

(26)      “Legacy Option Plan” means the Company’s option plan adopted on November 1, 2017 (as amended on December 11, 2019), as amended and restated as of May 6, 2021;

(27)      “Market Value” means at any date when the market value of Shares is to be determined (a) if the Shares are listed on the NYSE and/or the TSX (i) the VWAP on the NYSE for the five (5) trading days immediately preceding such date where value is determined in U.S. dollars for the grant or payment of an Award and (ii) the VWAP on the TSX for the five (5) trading days immediately preceding such date where value is determined in Canadian dollars for the grant or payment of an Award, as applicable; (b) if the Shares are not listed on both the NYSE and the TSX, then as calculated in paragraph (a) by reference to the price on the stock exchange on which the Shares are listed (if more than one, then using the exchange on which a majority of Shares are traded on the five (5) trading days preceding the date of determination); or (c) if the Shares are not listed on any stock exchange, the value as is determined solely by the Board, acting reasonably and in good faith and such determination shall be conclusive and binding on all Persons;

(28)      “Non-Employee Director” means members of the Board who, at the time of execution of a Grant Agreement and at all times thereafter while they continue to serve as a member of the Board, are not employees of the Company or a Subsidiary;

(29)      “Non-Exempt Deferred Compensation” has the meaning ascribed thereto in Section 8.1(2) hereof;

(30)      “Non-Qualified Canadian Security” has the meaning ascribed thereto in Section 110 of the Tax Act, if the Proposed Section 110 Amendments have come into force;

 

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(31)      “Nonqualified Deferred Compensation Rules” means the limitations and requirements of Section 409A of the U.S. Code, as amended from time to time, including the guidance and regulations promulgated thereunder and successor provisions, guidance and regulations thereto;

(32)      “Nonstatutory Option” means an Option that is not an ISO.

(33)      “NYSE” means the New York Stock Exchange.

(34)      “Option” means an option that is granted by the Company from time to time to a Participant pursuant to Article 3 hereof which shall upon exercise entitle the holder thereof to acquire a designated number of Shares from treasury at the Option Price, subject to the terms and conditions of this Plan and the applicable Option Agreement, provided that such Option has not expired prior to being exercised;

(35)      “Option Agreement” means a written agreement between the Company and a Participant evidencing the grant of Options and the terms and conditions thereof;

(36)      “Option Price” has the meaning ascribed thereto in Section 3.2 hereof;

(37)      “Option Term” has the meaning ascribed thereto in Section 3.4 hereof;

(38)      “Participants” means Eligible Participants that are granted Awards under the Plan;

(39)      “Performance Criteria” means specified criteria established by the Board and set forth in the applicable Grant Agreement, other than the mere continuation of employment or the mere passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award.

(40)      “Performance Period” means the period determined by the Board at the time any Award is granted or at any time thereafter during which any Performance Criteria and any other conditions specified by the Board with respect to such Award are to be measured and by which the vesting of the Award is determined;

(41)      “Person” means an individual, corporation, company, cooperative, partnership, trust, unincorporated association, entity with juridical personality or governmental authority or body, and pronouns which refer to a Person shall have a similarly extended meaning;

(42)      “Plan” means this The Lion Electric Company Omnibus Incentive Plan, including any amendments or supplements hereto made after the Effective Date hereof and from time to time thereafter by amendment;

(43)      “Proposed Section 110 Amendments” means the amendments to Section 110 of the Tax Act set out in the “Legislative Proposals to Amend the Income Tax Act and Other Related Legislation, as well as Draft Amendments to Related Regulations”, which form part of the Government of Canada’s Fall Economic Statement 2020, “Supporting Canadians and Fighting COVID-19”, dated November 30, 2020;

(44)      “PSU” means a performance share unit that is granted by the Company from time to time to a Participant pursuant to Article 4 hereof which shall upon vesting entitle the holder thereof to receive Shares issued from treasury or purchased on the open market, the Cash

 

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Equivalent or a combination thereof, subject to the terms and conditions of this Plan and the applicable PSU Agreement, provided that such PSU has not expired before vesting;

(45)      “PSU Agreement” means a written agreement between the Company and a Participant evidencing the grant of PSUs and the terms and conditions thereof;

(46)      “PSU Settlement Date” has the meaning ascribed thereto in Section 4.4(1) hereof;

(47)      “Required Delay Period” has the meaning ascribed thereto in Section 8.1(3)(a) hereof;

(48)      “Restriction Period” means a period determined by the Board, in its sole discretion, ending in all cases no later than (i) in the case of PSUs and RSUs that are subject to the Tax Act, three (3) years after the last day of the calendar year in which the performance of services for which PSUs or RSUs are granted, occurred, (ii) in the case of DSUs that are subject to the Tax Act, the last day of the calendar year following the Participant’s Termination Date; and (iii) in every other case, the date determined by the Board at the time any Award is granted or at any time thereafter during which any RSU or DSU is subject to vesting, risk of forfeiture or deferral, as applicable.

(49)      “RSU” means a restricted share unit that is granted by the Company from time to time to a Participant pursuant to Article 5 hereof which shall upon vesting entitle the holder thereof to receive a payment in the form of Shares issued from treasury or purchased on the open market, the Cash Equivalent or a combination thereof, subject to the terms and conditions of this Plan and the applicable RSU Agreement, provided that such RSU has not expired before vesting;

(50)      “RSU Agreement” means a written agreement between the Company and a Participant evidencing the grant of RSUs and the terms and conditions thereof;

(51)      “RSU Settlement Date” has the meaning ascribed thereto in Section 5.4(1) hereof;

(52)      “Rule 16b-3” means Rule 16b-3, promulgated by the U.S. Securities Exchange Commission under Section 16 of the Exchange Act;

(53)      “Securities Act” means U.S. Securities Act of 1933, as amended from time to time, including the guidance, rules and regulations promulgated thereunder and successor provisions, guidance, rules and regulations thereto;

(54)      “Share Compensation Arrangement” means a stock option, stock option plan, employee stock purchase plan, long-term incentive plan or any other compensation or incentive mechanism involving the issuance or potential issuance of Shares to one or more full-time employees, directors, officers, Insiders, or consultants of the Company or a Subsidiary, including a Share purchase from treasury by a full-time employee, director, officer, Insider, or consultant which is financially assisted by the Company or a Subsidiary by way of a loan, guarantee or otherwise;

(55)      “Shares” means the common shares in the share capital of the Company, and such other securities as may be substituted (or re-substituted) for Shares pursuant to Article 9;

(56)      “Share Unit Vesting Determination Date” means the date on which the Board determines if the vesting conditions with respect to PSUs, RSUs or DSUs (including, in the case

 

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of PSUs and RSUs, any applicable Performance Criteria) have been met, and as a result, establishes the number of PSUs, RSUs or DSUs, as applicable, that become vested, if any.

(57)      “Specified Employee” has the meaning ascribed thereto in Section 8.1(3) hereof;

(58)      “Stock Exchange” means the NYSE or the TSX or, if the Shares are not listed or posted for trading on such stock exchange at a particular date, any other stock exchange on which the majority of the trading volume and value of the Shares are listed or posted for trading;

(59)      “Subsidiary” means a corporation, company or partnership that is controlled, directly or indirectly, by the Company;

(60)      “Subsidiary Corporation” means a corporation other than the Company in an unbroken chain of corporations beginning with the Company if, at the time of granting the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain;

(61)      “Tax Act” means the Income Tax Act (Canada) and the regulations thereunder, as amended from time to time;

(62)      “Termination Date” means the actual date that a Participant ceases to actively perform his or her employment duties or services, as the case may be, for the Company or one of its Subsidiaries, and expressly excludes, as the case may be, any statutory period of notice of termination, any period of notice of resignation or payment in lieu of notice, termination or severance payment or other continuing benefits or amounts, whether pursuant to applicable law, contract or further to a judgment rendered by a tribunal of competent jurisdiction, as the case may be, that follows or ought to have followed the last day on which a Participant actively performs his or her employment duties for the Company or one of its Subsidiaries, as applicable;

(63)      “TSX means the Toronto Stock Exchange;

(64)      “U.S. Code the United States Internal Revenue Code of 1986, as amended from time to time and any reference to a particular section of the U.S. Code shall include references to guidance, regulations and rulings thereunder and to successor provisions;

(65)      “Vesting Year has the meaning ascribed thereto in Section 110 of the Tax Act, if the Proposed Section 110 Amendments have come into force; and

(66)      “VWAP” means the volume weighted average trading price of the Shares, calculated by dividing the total value by the total volume of Shares traded for the relevant period.

Section 1.2      Interpretation.

(1)      Whenever the Board is to exercise discretion or authority in the administration of the terms and conditions of this Plan, the term “discretion” or “authority” means the sole and absolute discretion of the Board.

(2)      The provision of a table of contents, the division of this Plan into Articles, Sections and other subdivisions and the insertion of headings are for convenient reference only and do not affect the interpretation of this Plan.

 

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(3)      In this Plan, words importing the singular shall include the plural, and vice versa and words importing any gender include any other gender.

(4)      The words “including”, “includes” and “include” and any derivatives of such words mean “including (or includes or include) without limitation”. As used herein, the expressions “Article”, “Section” and other subdivision followed by a number, mean and refer to the specified Article, Section or other subdivision of this Plan, respectively.

(5)      If any action may be taken within, or any right or obligation is to expire at the end of, a period of days under this Plan, then the first day of the period is not counted, but the day of its expiry is counted.

Article 2

PURPOSE AND ADMINISTRATION OF THE PLAN; GRANTING OF AWARDS

Section 2.1         Purpose of the Plan.

The purpose of the Plan is to permit the Company to grant Awards to Eligible Participants, subject to certain conditions as hereinafter set forth, for the following purposes:

(1)      to provide a means through which the Company or a Subsidiary may attract, retain and motivate able Persons to advance its business strategy;

(2)      to increase the interest in the Company’s welfare of those Eligible Participants, who share responsibility for the management, growth and protection of the business of the Company or a Subsidiary;

(3)      to provide an incentive to such Eligible Participants to continue their services for the Company or a Subsidiary and to encourage such Eligible Participants whose skills, performance and loyalty to the objectives and interests of the Company or a Subsidiary are necessary or essential to its success, image, reputation or activities; and

(4)      to reward Participants for their performance of services while working for the Company or a Subsidiary.

Section 2.2         Implementation and Administration of the Plan.

(1)      The Plan shall be administered and interpreted by the Board or, if the Board by resolution so decides, by a committee or plan administrator appointed by the Board. If such committee or plan administrator is appointed for this purpose, all references to the “Board” herein will be deemed references to such committee or plan administrator. Nothing contained herein shall prevent the Board from adopting other or additional Share Compensation Arrangements or other compensation arrangements from time to time, subject to any required approval.

(2)      Subject to Article 9 hereof, Rule 16b-3 and any applicable rules of a Stock Exchange, the Board may, from time to time, as it may deem expedient, adopt, amend and rescind rules and regulations or vary the terms of this Plan and/or any Award hereunder for carrying out the provisions and purposes of the Plan and/or to address tax or other requirements of any applicable jurisdiction. Subject to the provisions herein, the Board is authorized, in its sole discretion, to make such determinations under, and such interpretations of, and take such steps and actions in connection with, the proper administration and operations of the Plan as it may

 

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deem necessary or advisable, which determinations and decisions need not be uniform among Participants or Awards granted hereunder, including each of the following:

(a)      designate Eligible Participants as Participants;

(b)      determine the type or types of Awards to be granted to an Eligible Participant;

(c)      determine the number of Shares or amount of cash to be covered by Awards;

(d)      determine the terms and conditions of any Award, including whether, to what extent and under what circumstances Awards may be vested, settled, exercised, cancelled or forfeited (including conditions based on continued employment or service requirements or the achievement of one or more Performance Criteria);

(e)      modify, waive or adjust any term or condition of an Award that has been granted, which may include the acceleration of vesting, waiver of forfeiture restrictions, modification of the form of settlement of the Award (for example, from cash to Shares or vice versa, provided that an Award to which Section 7 of the Tax Act is intended to apply shall not be settled in cash except at the election of the Participant), early termination of a performance period, or modification of any other condition or limitation regarding an Award;

(f)      determine the treatment of an Award upon a termination of employment or other service relationship;

(g)      impose a holding period with respect to an Award or the Shares received in connection with an Award;

(h)      interpret and administer the Plan and any Award Agreement;

(i)      correct any defect, supply any omission or reconcile any inconsistency in the Plan, in any Award, or in any Award Agreement; and

(j)      make any other determination and take any other action that the Board deems necessary or desirable for the administration of the Plan.

(3)      The Board or any committee thereof administering the Plan may delegate any or all of its powers and duties under the Plan to a subcommittee of directors or to any officer of the Company, including the power to perform administrative functions and grant Awards; provided, that such delegation does not (a) violate applicable law, or (b) result in the loss of an exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to Section 16 of the Exchange Act in respect of the Company. Upon any such delegation, all references in the Plan to the “Board,” other than in Article 9, shall be deemed to include any subcommittee or officer of the Company to whom such powers have been delegated by the Board. Any such delegation shall not limit the right of such subcommittee members or such an officer to receive Awards; provided, however, that such subcommittee members and any such officer may not grant Awards to himself or herself, a member of the Board, or any executive officer of the Company or an Affiliate, or take any action with respect to any Award previously granted to himself or herself, a member of the Board, or any executive officer of the Company or an Affiliate. The Board may also appoint agents

 

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who are not executive officers of the Company or members of the Board to assist in administering the Plan, provided, however, that such individuals may not be delegated the authority to grant or modify any Awards that will, or may, be settled in Stock. Any such delegation by the Board may be revoked at any time at the Board’s sole discretion. The interpretation, administration, construction and application of the Plan and any provisions hereof made by the Board, or by any officer, manager, committee or any other Person to which the Board delegated authority to perform such functions, shall be final and binding on the Company, its Subsidiaries and all Eligible Participants.

(4)      No member of the Board or any Person acting pursuant to authority delegated by the Board hereunder shall be liable for any action or determination taken or made in good faith in the administration, interpretation, construction or application of the Plan or any Award granted hereunder. Members of the Board, and any Person acting at the direction or on behalf of the Board, shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination.

(5)      The Plan shall not in any way fetter, limit, obligate, restrict or constrain the Board with regard to the allotment or issuance of any Shares or any other securities in the capital of the Company. For greater clarity, the Company shall not by virtue of this Plan be in any way restricted from declaring and paying stock dividends, repurchasing Shares or any other securities in its share capital, or varying or amending its share capital or corporate structure.

Section 2.3         Participation in this Plan.

(1)      The Company makes no representation or warranty as to the future market value of the Shares or with respect to any income tax matters affecting any Participant resulting from the grant, vesting or settlement of an Award, the exercise of an Option or resulting from any transactions in the Shares or any other event affecting the Awards. With respect to any fluctuations in the market price of the Shares, neither the Company, nor any of its directors, officers, employees, shareholders or agents shall be liable for anything done or omitted to be done by such Person or any other Person with respect to the price, time, quantity or other conditions and circumstances of the issuance of Shares hereunder, or in any other manner related to the Plan. For greater certainty, no amount will be paid to, or in respect of, a Participant under the Plan or pursuant to any other arrangement, and no additional Awards will be granted to such Participant to compensate for a downward fluctuation in the price of the Shares, nor will any other form of benefit be conferred upon, or in respect of, a Participant for such purpose. The Company and its Affiliates do not assume responsibility for the income or other tax consequences resulting to any Participant and each Participant is advised to consult with his or her own tax advisors.

(2)      Participants (and their legal representatives and the liquidator, executor or administrator, as the case may be, of their respective estate) shall have no legal or equitable right, claim, or interest in any specific property or asset of the Company or any of its Affiliates. No asset of the Company or any of its Affiliates shall be held in any way as collateral security for the fulfillment of the obligations of the Company or any of its Affiliates under this Plan. Unless otherwise determined by the Board, this Plan shall be an unfunded obligation of the Company and its Affiliates (as applicable). To the extent any Participant or his or her estate holds any rights by virtue of a grant of Awards under this Plan, such rights (unless otherwise determined by the Board) shall be general unsecured obligations and shall not be greater than the rights of an unsecured creditor of the Company.

 

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(3)      Unless otherwise determined by the Board, the Company shall not offer financial assistance to any Participant in regards to the exercise of any Award granted under this Plan.

Section 2.4         Shares Available Under the Plan.

(1)      The maximum number of Shares available for issuance, in the aggregate, under this Plan and the Legacy Option Plan shall not exceed ten percent (10%) of the aggregate number of Shares issued and outstanding from time to time (calculated on a non-diluted basis); of which not more than 8,474,574 Shares may be issued pursuant to the exercise of Incentive Stock Options granted under the Plan. Any Shares subject to an Award which has been exercised or settled in Shares will again be available for issuance under the Plan. The number of Shares available for issuance under the Plan will increase as the number of issued and outstanding Shares increases from time to time.

(2)      No Award that can be settled in Shares issued from treasury may be granted if such grant would have the effect of causing the total number of Shares underlying Awards made under this Plan and awards made under the Legacy Option Plan to exceed the above-noted number of Shares reserved for issuance under this Plan and the Legacy Option Plan. For greater certainty, Section 2.4(1) shall not limit the Company’s ability to issue Awards that are payable other than in Shares issued from treasury. Shares will not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash. The Board may also cause Shares used to satisfy the settlement of PSUs, RSUs or DSUs granted under the Plan to be purchased instead on the open market.

(3)      The Company shall, at all times during the term of this Plan, ensure that the number of Shares it is authorized to issue is sufficient to satisfy the requirement of this Plan and the Legacy Option Plan; provided that awards will no longer be granted under the Legacy Option Plan, as of the effective date of the original form of this Plan.

(4)      If an outstanding Award (or portion thereof) under this Plan or an outstanding Legacy Option under one of the Legacy Option Plan expires or is forfeited, surrendered, cancelled or otherwise terminated for any reason without having been exercised or settled in full, or if Shares acquired pursuant to an Award or Legacy Option subject to forfeiture are forfeited, the Shares covered by such Award or Legacy Option, if any, will again be available for issuance under the Plan. Shares will not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash, but Shares purchased on the open market will be deemed to have been issued pursuant to the Plan for the purpose of the Share reserve set forth in Section 2.4(1).

(5)      No fractional Shares shall be issued upon the exercise of any Award granted under the Plan and, accordingly, if a Participant would otherwise become entitled to a fractional Share upon the exercise of such Award, or from an adjustment permitted by the terms of this Plan, such Participant shall only have the right to receive the next lowest whole number of Shares, and no payment or other adjustment will be made with respect to the fractional interest so disregarded.

(6)      For the purposes of Section 2.4(1), in the event that the Company cancels or purchases to cancel any of its issued and outstanding Shares and as a result of such cancellation or purchase, the Shares issuable under the Plan exceed the maximum number of Shares set out in Section 2.4(1), no approval of the shareholders of the Company shall be required for the issuance of Shares on the exercise or settlement of any Awards which were granted prior to such cancellation or purchase.

 

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(7)      For the purposes of Section 2.4(1), Shares issuable in reliance upon an exemption from the rules of a Stock Exchange applicable to security-based compensation arrangements used as an inducement to persons or entities not previously employed by and not previously an Insider of the Company shall not be included in the determination of the maximum number of Shares issuable under the Plan set out in Section 2.4(1), it being understood that, notwithstanding the foregoing, such security-based compensation arrangements can be made otherwise subject to the terms and conditions prescribed under this Plan.

Section 2.5         Limits with Respect to Insiders.

(1)      The maximum number of Shares issuable from treasury to Eligible Participants who are Insiders, at any time, under this Plan, the Legacy Option Plan and any other proposed or established Share Compensation Arrangement, shall not exceed ten percent (10%) of the Shares issued and outstanding from time to time (calculated on a non-diluted basis).

(2)      The maximum number of Shares issued from treasury to Eligible Participants who are Insiders, within any one-year period, under this Plan, the Legacy Option Plan and any other proposed or established Share Compensation Arrangement, shall not exceed ten percent (10%) of the Shares issued and outstanding from time to time (calculated on a non-diluted basis).

(3)      Any Award granted pursuant to the Plan, or securities issued under the Legacy Option Plan and any other Share Compensation Arrangement, prior to a Participant becoming an Insider, shall be excluded from the purposes of the limits set out in Section 2.5(1) and Section 2.5(2).

Section 2.6         Granting of Awards.

(1)      Any Award granted under the Plan shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the Shares subject to such Award, if applicable, upon any securities exchange or under any law or regulation of any jurisdiction, or the consent or approval of any securities exchange or any governmental or regulatory body, is necessary as a condition of, or in connection with, the grant of such Awards or the exercise of any Option or the issuance or purchase of Shares thereunder, if applicable, such Award may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Board. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval.

(2)      The Company may require, as a condition to the exercise of an Award or the delivery of Shares under an Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of the Securities Act or any applicable state or non-U.S. securities law. Any Shares required to be issued to Participants under the Plan will be evidenced in such manner as the Board may deem appropriate, including book-entry registration or delivery of share certificates. In the event that the Board determines that share certificates will be issued to Participants under the Plan, the Board may require that certificates evidencing Shares issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Shares, and the Company may hold the share certificates pending lapse of the applicable restrictions.

 

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Article 3

OPTIONS

Section 3.1         Nature of Options.

An Option is a right granted by the Company from time to time to a Participant entitling such Participant to acquire a designated number of Shares from treasury at the Option Price, but subject to the provisions hereof and the provisions of the applicable Option Agreement. For the avoidance of doubt, no Dividend Equivalents shall be granted in connection with an Option.

Section 3.2         Option Awards.

Subject to the provisions set forth in this Plan and any shareholder or regulatory approval which may be required, the Board shall, from time to time, by resolution, in its sole discretion, determine the price per Share to be payable upon the exercise of each such Option (the “Option Price”), the relevant vesting provisions (including Performance Criteria and Vesting Year, if applicable), the Option Term, the date(s) and the manner in which Options may be exercised during the Option Term (including the initial year such Options will become exercisable during the Option Term so as to constitute the Vesting Year) and all other option conditions, the whole subject to the terms and conditions prescribed in this Plan or in the applicable Option Agreement, and any applicable rules of a Stock Exchange.

Section 3.3         Option Price.

The Option Price for Shares that are the subject of any Option shall be determined and approved by the Board when such Option is granted, but, subject to Section 3.7(b), shall not be less than the Market Value of such Shares at the time of the grant.

Section 3.4         Option Term.

(1)      The Board shall determine, at the time of granting the particular Option, the period during which the Option is exercisable, which, subject to Section 3.7(b), shall not be more than ten (10) years from the date the Option is granted (the “Option Term”). Unless otherwise determined by the Board, all unexercised Options shall be cancelled at the expiry of such Options.

(2)      Should the expiration date for an Option fall within a Black-Out Period, such expiration date shall be automatically extended without any further act or formality to that date which is the tenth (10th) Business Day after the end of the Black-Out Period, such tenth (10th) Business Day to be considered the expiration date for such Option for all purposes under the Plan. Notwithstanding Section 9.3 hereof, the ten (10) Business Day period referred to in Section 3.4(2) may not be extended by the Board.

Section 3.5         Exercise of Options.

Prior to expiration or earlier termination in accordance with the Plan, each Option shall be exercisable at such time or times and/or pursuant to the achievement of such Performance Criteria and/or other vesting conditions as the Board at the time of granting the particular Option may determine in its sole discretion. For the avoidance of doubt, any exercise of Options by a Participant shall be made in accordance with the Company’s insider trading policy.

 

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Section 3.6         Method of Exercise and Payment of Option Price.

(1)      Subject to the provisions of the Plan and the applicable Option Agreement, an Option granted under the Plan shall be exercisable (from time to time as provided in Section 3.5 hereof) by the Participant (or by the liquidator, executor or administrator, as the case may be, of the estate of such Participant) by delivering a fully completed Exercise Notice to the Company at its registered office to the attention of the Corporate Secretary of the Company (or the individual that the Corporate Secretary of the Company may from time to time designate) or by giving notice in such other manner as the Company may from time to time designate, which notice shall specify the number of Shares in respect of which the Option is being exercised and shall, if applicable, be accompanied by full payment, by cash, certified cheque, bank draft or any other form of payment deemed acceptable by the Company of the Option Price for the number of Shares specified therein and, if required by Section 10.2, the amount necessary to satisfy any taxes. Unless otherwise determined by the Board, payment of the Option Price must be provided no later than three (3) Business Days following delivery by the Participant of the Exercise Notice to the Company.

(2)      Upon the exercise of any Option, the Company shall, as soon as practicable after such exercise but no later than ten (10) Business Days following such exercise, forthwith cause the transfer agent and registrar of the Shares either to:

(a)      deliver to the Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of such Participant) a certificate in the name of the Participant representing in the aggregate such number of Shares as the Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of such Participant) shall have then paid for and as are specified in such Exercise Notice; or

(b)      in the case of Shares issued in uncertificated form, cause the issuance of the aggregate number of Shares as the Participant (or the liquidator, executor or administrator, as the case may be, of the estate of such Participant) shall have then paid for and as are specified in such Exercise Notice to be evidenced by a book position on the register of the shareholders of the Company to be maintained by the transfer agent and registrar of the Shares.

Section 3.7         Grant of Incentive Stock Options.

At the time of the grant of any Option, the Board may in its discretion designate that such Option shall be made subject to additional restrictions to permit it to qualify as an Incentive Stock Option under Section 422 of the U.S. Code. Any Option designated as an Incentive Stock Option:

(a)      shall be granted only to an employee of the Company or a Subsidiary Corporation;

(b)      shall have an Option Price of not less than 100% of the Market Value of a Share on the date the Incentive Stock Option is granted, and, if granted to a person who owns capital stock (including stock treated as owned under Section 424(d) of the U.S. Code) possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or any Subsidiary Corporation (a “More Than 10% Owner”), have an Option Price not less than 110% of the Market Value of a Share on its Grant Date;

 

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(c)      shall have an Option Term of not more than 10 years (5 years if the Eligible Participant is a More Than 10% Owner) from the date the Option is granted, and shall be subject to earlier termination as provided herein or in the applicable Grant Agreement;

(d)      shall not have an aggregate Market Value (as of the date of grant) of the Shares with respect to which Incentive Stock Options (within the meaning of Section 424(e) and (f) of the U.S. Code, and whether granted under the Plan or any other stock option plan of the Eligible Participant’s employer or any Subsidiary Corporation (“Other Plans”)) are exercisable for the first time by such Eligible Participant during any calendar year (“Current Grant”), determined in accordance with the provisions of Section 422 of the U.S. Code, which exceeds US$100,000 (the “US$100,000 Limit”); provided, that any Options in excess of the US$100,000 Limit shall be reclassified as Nonstatutory Options;

(e)      shall require the Eligible Participant to notify the Company of any disposition of any Shares delivered pursuant to the exercise of the Incentive Stock Option under the circumstances described in Section 421(b) of the U.S. Code (relating to holding periods and certain disqualifying dispositions) (“Disqualifying Disposition”) within 10 days of such a Disqualifying Disposition;

(f)      shall by its terms not be assignable or transferable other than by will or the laws of descent and distribution and may be exercised, during the Eligible Participant’s lifetime, only by the Eligible Participant; provided, however, that the Eligible Participant may, to the extent provided in the Plan in any manner specified by the Committee, designate in writing a beneficiary to exercise his or her Incentive Stock Option after the Eligible Participant’s death; and

(g)      shall, if such Option nevertheless fails to meet the foregoing requirements, or otherwise fails to meet the requirements of Section 422 of the U.S. Code for an Incentive Stock Option, be treated for all purposes of this Plan, except as otherwise provided in subsection (d) above, as an Option that is not an Incentive Stock Option.

Section 3.8         Grant of Options for Non-Qualifying Canadian Securities

If the Proposed Section 110 Amendments have come into force, at the time of the grant of any Option, the Board may designate, or shall, to the extent required by the Tax Act, designate, that such Option shall be in respect of Shares that are Non-Qualifying Canadian Securities, and the Board shall cause to be provided notice of such designation of Shares as Non-Qualifying Canadian Securities in the manner and by the date(s) required by subsection 110(1.9) of the Tax Act to each of:

(a)      the Participant (including, where permitted by the Tax Act, in a Grant Agreement); and

(b)      the Minister of National Revenue for Canada.

Section 3.9         Option Agreements.

Options shall be evidenced by an Option Agreement, in such form not inconsistent with the Plan as the Board may from time to time determine. The Option Agreement shall contain such terms and conditions that may be considered necessary in order for the Options to comply with any provisions respecting options contained in any income tax laws or any other laws in force in

 

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any country or jurisdiction of which the Participant may from time to time be a resident or citizen or the rules of any regulatory body having jurisdiction over the Company.

Article 4

PERFORMANCE SHARE UNITS

Section 4.1         Nature of PSUs.

A PSU is an Award that, upon vesting, entitles the Participant to receive (1) a Share (issued from treasury or purchased on the open market), (2) the Cash Equivalent or (3) a combination thereof, as the case may be, and whose grant or vesting is in whole or in part conditional on the attainment of specific Performance Criteria, all pursuant to and subject to such conditions as the Board may determine at the time of grant.

Section 4.2         PSU Awards.

(1)      Subject to the provisions herein set forth and any shareholder or regulatory approval which may be required, the Board shall, at any time and from time to time, in its sole discretion, determine the relevant conditions and vesting provisions (including the applicable Performance Period and Performance Criteria) and the Restriction Period of such PSUs, the whole subject to the terms and condition prescribed in this Plan and in the applicable PSU Agreement.

(2)      In making such determination, the Board shall consider the timing of crediting PSUs, including crediting PSUs in connection with Dividend Equivalents, to a Participant’s Account, the vesting requirements and settlement timing applicable to such PSUs to ensure that the crediting of the PSUs to the Participant’s Account, the vesting requirements and settlement timing are not considered a “salary deferral arrangement” for the purposes of the Tax Act and any applicable provincial legislation.

(3)      Subject to the vesting and other conditions and provisions herein set forth and in the applicable PSU Agreement (including the applicable Performance Period and Performance Criteria), each PSU awarded to a Participant shall entitle the Participant to receive (a) a Share (issued from treasury or purchased on the open market), (b) the Cash Equivalent or (c) a combination thereof, as the case may be, upon determination by the Board on the Share Unit Vesting Determination Date that the vesting conditions (including the Performance Criteria) have been met and no later than the last day of the applicable Restriction Period.

Section 4.3         Vesting of PSUs.

Subject to the terms of this Plan and the applicable PSU Agreement, after the applicable Performance Period has ended, the holder of PSUs shall be entitled to receive payout on the value and number of PSUs, determined by the Board on the applicable Share Unit Vesting Determination Date as a function of the extent to which the corresponding Performance Criteria have been achieved. After the Board has determined that the Performance Criteria relating to PSUs credited to a Participant’s Account with respect to a Performance Period have been achieved, such PSUs shall entirely vest and be paid in accordance with Section 4.4. Notwithstanding any provision to the contrary in this Plan or the applicable PSU Agreement, the Board may, in its sole discretion, make adjustments to the calculation of any PSUs granted to Participants based on its assessment of the risk level, events that may impact the value of the PSUs or when calculations do not properly reflect all of the relevant considerations. Unless

 

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otherwise determined by the Board, all PSUs credited to a Participant’s Account with respect to a Performance Period, in respect of which the Performance Criteria have not been achieved, shall automatically be forfeited and be cancelled on the Share Unit Vesting Determination Date and, in any event, no later than the last day of the Restriction Period.

Section 4.4         Settlement of PSUs.

(1)      The applicable settlement period in respect of a particular PSU shall be determined by the Board. Except as otherwise provided in a PSU Agreement or any other provision of this Plan, all vested PSUs shall be settled as soon as practicable following the applicable Share Unit Vesting Determination Date but in all cases no later than the earlier of (a) sixty (60) days following the applicable Share Unit Vesting Determination Date; and (b) for a PSU that is subject to the Tax Act, three (3) years after the last day of the calendar year in which the performance of services for which such PSU was granted, occurred (the “PSU Settlement Date”). Following the receipt of such settlement, the PSU so settled shall be of no value whatsoever and shall be removed from the Participant’s Account.

(2)      The Board, in its sole discretion, may settle at the end of the applicable Performance Period vested PSUs by providing a Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of the Participant) with:

(a)      in the case of settlement of PSUs for their Cash Equivalent, delivery of a cheque or any other form of payment deemed acceptable by the Board to the Participant representing the Cash Equivalent;

(b)      in the case of settlement of PSUs for Shares, delivery of Shares issued from treasury or purchased on the Participant’s behalf on the open market;

(c)      in the case of settlement of the PSUs for a combination of Shares and the Cash Equivalent, a combination of (a) and (b) above, together equivalent in value to the vested PSUs.

Section 4.5         Determination of Amounts.

(1)      For purposes of determining the Cash Equivalent of PSUs to be made pursuant to Section 4.4, such calculation will be made on the PSU Settlement Date based on the Market Value on the PSU Settlement Date multiplied by the number of vested PSUs in the Participant’s Account to settle in cash.

(2)      For the purposes of determining the number of Shares to be issued or delivered to a Participant upon settlement of PSUs pursuant to Section 4.4, such calculation will be made on the PSU Settlement Date based on the whole number of Shares equal to the whole number of vested PSUs then recorded in the Participant’s Account to settle in Shares.

Section 4.6         PSU Agreements

PSUs shall be evidenced by a PSU Agreement, in such form not inconsistent with the Plan as the Board may from time to time determine. The PSU Agreement shall contain such terms that may be considered necessary in order that the PSU will comply with any provisions respecting performance share units in the income tax or other laws in force in any country or jurisdiction of

 

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which the Participant may from time to time be a resident (for tax purposes) or a citizen or the rules of any regulatory body having jurisdiction over the Company.

Section 4.7            Grant of Dividend Equivalents

(1)          Unless otherwise set forth in a PSU Agreement, Dividend Equivalents shall be awarded in respect of all PSUs in a Participant’s Account every time dividends (other than share dividends) are paid on the Shares. On the Dividend Payment Date, the Company shall credit an additional number of PSUs to the Participant’s Account determined as per the following formula: (A x B)/C where:

“A” represents the amount of the dividend per Share declared and paid on the Shares by the Company;

“B” represents the number of PSUs listed in the Participant’s Account on the Dividend Payment Date; and

“C” represents the Market Value of one Share on the Dividend Payment Date.

(2)          Any additional PSUs credited to a Participant’s Account as a Dividend Equivalent pursuant to this Section 4.7 shall be subject to the same applicable Share Unit Vesting Determination Date, Performance Period, Performance Criteria, vesting conditions, and settlement dates as the related PSUs in respect of which such additional PSUs are credited.

Article 5

RESTRICTED SHARE UNITS

Section 5.1            Nature of RSUs.

An RSU is an Award that, upon vesting, entitles the Participant to receive (1) a Share (issued from treasury or purchased on the open market), (2) the Cash Equivalent or (3) a combination thereof, as the case may be, all pursuant and subject to such restrictions and conditions as the Board may determine at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of Performance Criteria or other pre-established vesting conditions and objectives.

Section 5.2            RSU Awards.

(1)          Subject to the provisions herein set forth and any shareholder or regulatory approval which may be required, the Board shall, from time to time, in its sole discretion, determine the relevant conditions and vesting provisions (including the applicable Performance Period and Performance Criteria, if any) and the Restriction Period of such RSUs, the whole subject to the terms and conditions prescribed in this Plan and in the applicable RSU Agreement.

(2)          In making such determination, the Board shall consider the timing of crediting RSUs, including crediting RSUs in connection with Dividend Equivalents, to a Participant’s Account, the vesting requirements and settlement timing applicable to such RSUs to ensure that the crediting of the RSUs to the Participant’s Account, the vesting requirements and settlement timing are not considered a “salary deferral arrangement” for the purposes of the Tax Act and any applicable provincial legislation.

 

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(3)          Subject to the vesting and other conditions and provisions herein set forth and in the applicable RSU Agreement, each RSU awarded to a Participant shall entitle the Participant to receive (a) a Share (issued from treasury or purchased on the open market), (b) the Cash Equivalent or (c) a combination thereof, as the case may be, upon determination by the Board on the Share Unit Vesting Determination Date that the vesting conditions (including the Performance Criteria, if any) have been met and no later than the last day of the applicable Restriction Period.

Section 5.3            Vesting of RSUs.

Subject to the terms of this Plan and the applicable RSU Agreement, after the applicable vesting period has ended, the holder of RSUs shall be entitled to receive payout on the value and number of RSUs, determined by the Board on the applicable Share Unit Vesting Determination Date as a function of the extent to which the corresponding vesting criteria, including Performance Criteria, if any, have been achieved. After the Board has determined that the vesting criteria relating to RSUs credited to a Participant’s Account have been achieved, such RSUs shall entirely vest and be paid in accordance with Section 5.4. Notwithstanding any provision to the contrary in this Plan or the applicable RSU Agreement, the Board may, in its sole discretion, make adjustments to the calculation of any RSUs granted to Participants based on its assessment of the risk level, events that may impact the value of the RSUs or when calculations do not properly reflect all of the relevant considerations. Unless otherwise determined by the Board, all RSUs credited to a Participant’s Account in respect of which the vesting criteria have not been achieved, shall automatically be forfeited and be cancelled on the Share Unit Vesting Determination Date and, in any event, no later than the last day of the Restriction Period.

Section 5.4            Settlement of RSUs.

(1)          The applicable settlement period in respect of a particular RSU shall be determined by the Board. Except as otherwise provided in an RSU Agreement or any other provision of this Plan, all vested RSUs shall be settled as soon as practicable following the applicable Share Unit Vesting Determination Date but in all cases no later than the earlier of (a) sixty (60) days following the applicable Share Unit Vesting Determination Date; and (b) for an RSU that is subject to the Tax Act, three (3) years after the last day of the calendar year in which the performance of services for which such RSU was granted, occurred (the ”RSU Settlement Date”). Following the receipt of such settlement, the RSU so settled shall be of no value whatsoever and shall be removed from the Participant’s Account.

(2)          The Board, in its sole discretion, may settle vested RSUs by providing a Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of the Participant) with:

(a)          in the case of settlement of RSUs for their Cash Equivalent, delivery of a cheque or any other form of payment deemed acceptable by the Board to the Participant representing the Cash Equivalent;

(b)          in the case of settlement of RSUs for Shares, delivery of Shares issued from treasury or purchased on the Participant’s behalf on the open market;

(c)          in the case of settlement of the RSUs for a combination of Shares and the Cash Equivalent, a combination of (a) and (b) above, together equivalent in value to the vested RSUs.

 

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Section 5.5            Determination of Amounts.

(1)          For purposes of determining the Cash Equivalent of RSUs to be made pursuant to Section 5.4, such calculation will be made on the RSU Settlement Date based on the Market Value on the RSU Settlement Date multiplied by the number of vested RSUs in the Participant’s Account to settle in cash.

(2)          For the purposes of determining the number of Shares to be issued or delivered to a Participant upon settlement of RSUs pursuant to Section 5.4, such calculation will be made on the RSU Settlement Date based on the whole number of Shares equal to the whole number of vested RSUs then recorded in the Participant’s Account to settle in Shares.

Section 5.6            RSU Agreements.

RSUs shall be evidenced by an RSU Agreement, in such form not inconsistent with the Plan as the Board may from time to time determine. The RSU Agreement shall contain such terms that may be considered necessary in order that the RSU will comply with any provisions respecting restricted share units in the income tax or other laws in force in any country or jurisdiction of which the Participant may from time to time be a resident or citizen or the rules of any regulatory body having jurisdiction over the Company.

Section 5.7            Grant of Dividend Equivalents.

(1)          Unless otherwise set forth in an RSU Agreement, Dividend Equivalents shall be awarded in respect of all RSUs in a Participant’s Account every time dividends (other than share dividends) are paid on the Shares. On the Dividend Payment Date, the Company shall credit an additional number of RSUs, if any, to the Participant’s Account determined as per the following formula: (A x B)/C where:

“A” represents the amount of the dividend per Share declared and paid on the Shares by the Company;

“B” represents the number of RSUs listed in the Participant’s Account on the Dividend Payment Date; and

“C” represents the Market Value of one Share on the Dividend Payment Date.

(2)          Any additional RSUs credited to a Participant’s Account as a Dividend Equivalent pursuant to this Section 5.7 shall be subject to the same applicable Share Unit Vesting Determination Date, vesting conditions, and settlement dates as the related RSUs in respect of which such additional RSUs are credited.

Article 6

DEFERRED SHARE UNITS

Section 6.1            Nature of DSUs.

A DSU is an Award that, upon vesting, entitles the Participant to receive (1) a Share (issued from treasury or purchased on the open market), (2) to receive the Cash Equivalent or (3) to receive a combination thereof, as the case may be, all pursuant and subject to such restrictions and conditions as the Board may determine at the time of grant. Conditions may be

 

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based on continuing employment (or other service relationship) and/or other pre-established vesting conditions and objectives.

Section 6.2            DSU Awards.

(1)          Subject to the provisions herein set forth and any shareholder or regulatory approval which may be required, the Board shall, from time to time, in its sole discretion, determine the relevant conditions and any vesting provisions and the Restriction Period of such DSUs, the whole subject to the terms and conditions prescribed in this Plan and in any applicable DSU Agreement.

(2)          In making such determination, the Board shall consider the timing of crediting DSUs, including crediting DSUs in connection with Dividend Equivalents, to a Participant’s Account, any vesting requirements and settlement timing applicable to such DSUs to ensure that the crediting of the DSUs to the Participant’s Account, any vesting requirements and settlement timing are compliant with Regulation 6801(d) under the Tax Act and any applicable provincial legislation.

(3)          Subject to any vesting and other conditions and provisions herein set forth and in the applicable DSU Agreement, if any, each DSU awarded to a Participant shall entitle the Participant to receive (a) a Share (issued from treasury or purchased on the open market), (b) the Cash Equivalent or (c) a combination thereof, as the case may be, upon determination by the Board on the Share Unit Vesting Determination Date that any applicable vesting conditions have been met and no later than the last day of the applicable Restriction Period.

Section 6.3            Vesting of DSUs.

Except as otherwise determined by the Board or as provided in the applicable DSU Agreement, if any, DSUs shall entirely vest on the date of grant. Subject to the terms of this Plan and the applicable DSU Agreement, if any, after the applicable vesting period, if any, has ended and after the Participant’s Termination Date, the holder of DSUs shall be entitled to receive payout on the value and number of DSUs, determined by the Board on the applicable Share Unit Vesting Determination Date as a function of the extent to which the corresponding vesting criteria, if any, have been achieved. After the Board has determined that the vesting criteria, if any, relating to DSUs credited to a Participant’s Account have been achieved, such DSUs shall entirely vest and be paid in accordance with Section 6.4. Notwithstanding any provision to the contrary in this Plan or any applicable DSU Agreement, the Board may, in its sole discretion, make adjustments to the calculation of any DSUs granted to Participants based on its assessment of the risk level, events that may impact the value of the DSUs or when calculations do not properly reflect all of the relevant considerations, provided further that, in respect of any DSUs subject to the Tax Act, no such adjustments shall entitle the Participant or a person with whom the employee does not deal at arm’s length, either immediately or in the future, either absolutely or contingently, to receive or obtain any amount or benefit granted or to be granted for the purpose of reducing the impact, in whole or in part, of any reduction in the Market Value of the Shares. Unless otherwise determined by the Board, all DSUs credited to a Participant’s Account in respect of which any vesting criteria have not been achieved shall automatically be forfeited and be cancelled on the Share Unit Vesting Determination Date and, in any event, no later than the last day of the Restriction Period.

 

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Section 6.4            Settlement of DSUs.

(1)          The applicable settlement period in respect of a particular DSU shall be determined by the Board and set forth in an Award Agreement. Except as otherwise provided in any DSU Agreement or any other provision of this Plan, all vested DSUs shall be settled as soon as practicable following the applicable Share Unit Vesting Determination Date but no later than the earlier of (a) sixty (60) days following the applicable Share Unit Vesting Determination Date; and (b) in the case of a DSU that is subject to the Tax Act, the last day of the calendar year following the Participant’s Termination Date (the ”DSU Settlement Date”). Following the receipt of such settlement, the DSU so settled shall be of no value whatsoever and shall be removed from the Participant’s Account.

(2)          The Board, in its sole discretion, may settle vested DSUs by providing a Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of the Participant) with:

(a)          in the case of settlement of DSUs for their Cash Equivalent, delivery of a cheque or any other form of payment deemed acceptable by the Board to the Participant representing the Cash Equivalent;

(b)          in the case of settlement of DSUs for Shares, delivery of Shares issued from treasury or purchased on the Participant’s behalf on the open market;

(c)          in the case of settlement of the DSUs for a combination of Shares and the Cash Equivalent, a combination of (a) and (b) above, together equivalent in value to the vested DSUs.

Section 6.5          Determination of Amounts.

(1)          For purposes of determining the Cash Equivalent of DSUs to be made pursuant to Section 6.4, such calculation will be made on the DSU Settlement Date based on the Market Value on the DSU Settlement Date multiplied by the number of vested DSUs in the Participant’s Account to settle in cash.

(2)          For the purposes of determining the number of Shares to be issued or delivered to a Participant upon settlement of DSUs pursuant to Section 6.4, such calculation will be made on the DSU Settlement Date based on the whole number of Shares equal to the whole number of vested DSUs then recorded in the Participant’s Account to settle in Shares.

Section 6.6            DSU Agreements.

DSUs shall be evidenced by a DSU Agreement, in such form not inconsistent with the Plan as the Board may from time to time determine. The DSU Agreement may contain such terms that may be considered necessary in order that the DSU will comply with any provisions respecting deferred share units in the income tax or other laws in force in any country or jurisdiction of which the Participant may from time to time be a resident or citizen or the rules of any regulatory body having jurisdiction over the Company.

 

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Section 6.7        Grant of Dividend Equivalents.

(1)      Except as otherwise set forth in a DSU Agreement, Dividend Equivalents shall be awarded in respect of all DSUs in a Participant’s Account every time dividends (other than share dividends) are paid on the Shares. On the Dividend Payment Date, the Company shall credit an additional number of DSUs, if any, to the Participant’s Account determined as per the following formula: (A x B)/C where:

“A” represents the amount of the dividend per Share declared and paid on the Shares by the Company;

“B” represents the number of DSUs listed in the Participant’s Account on the Dividend Payment Date; and

“C” represents the Market Value of one Share on the Dividend Payment Date.

(2)      Any additional DSUs credited to a Participant’s Account as a Dividend Equivalent pursuant to this Section 6.7 shall be subject to the same applicable Share Unit Vesting Determination Date, vesting conditions and settlement dates, if any, as the DSUs in respect of which such additional DSUs are credited.

Article 7

GENERAL CONDITIONS

Section 7.1        General Conditions applicable to Awards.

Each Award, as applicable, shall be subject to the following conditions:

(1)      Vesting Period. Each Award granted hereunder shall vest in accordance with the terms of the Grant Agreement entered into in respect of such Award.

(2)      Employment. Notwithstanding any express or implied term of this Plan to the contrary, the granting of an Award pursuant to the Plan shall in no way be construed as a guarantee by the Company or a Subsidiary to the Participant of employment or another service relationship with the Company or a Subsidiary. The granting of an Award to a Participant shall not impose upon the Company or a Subsidiary any obligation to retain the Participant in its employ or service in any capacity. Nothing contained in this Plan or in any Award granted under this Plan shall interfere in any way with the rights of the Company or any of its Affiliates in connection with the employment, retention or termination of any such Participant. The loss of existing or potential profit in Shares underlying Awards granted under this Plan shall not constitute an element of damages in the event of termination of a Participant’s employment or service in any office or otherwise. For clarity, in the event of such a termination, (i) there will be no further Awards granted to a Participant after the Termination Date; and (ii) the Participant will not be entitled to any damages or compensation in respect of any Awards which may have been granted or paid to the Participant after the Termination Date or if working notice of termination had been given, including but not limited to damages in lieu of notice at law.

(3)      Grant of Awards. Eligibility to participate in this Plan does not confer upon any Eligible Participant any right to be granted Awards pursuant to this Plan. Granting Awards to any Eligible Participant does not confer upon any Eligible Participant the right to receive nor preclude such Eligible Participant from receiving any additional Awards at any time. Participation in the

 

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Plan shall be entirely voluntary and any decision not to participate shall not affect an Eligible Participant’s relationship or employment with the Company or any Subsidiary.

(4)      Rights as a Shareholder. Neither the Participant nor such Participant’s personal representatives or legatees shall have any rights whatsoever as shareholder in respect of any Shares underlying such Participant’s Awards by reason of the grant of such Awards until such Awards have been duly exercised, as applicable, and settled and Shares have been issued or purchased on the open market, as applicable.

(5)      Conformity to Plan. In the event that an Award is granted or a Grant Agreement is executed which does not conform in all particulars with the provisions of the Plan, or purports to grant Awards on terms different from those set out in the Plan, the Award or the grant of such Award shall not be in any way void or invalidated, but the Award so granted will be adjusted to become, in all respects, in conformity with the Plan. In the event of conflicting provisions contained within any applicable Grant Agreement, the Board shall have sole discretion to determine the prevailing provision and interpretation thereof.

(6)      Transferrable Awards. Except as specifically provided in a Grant Agreement approved by the Board, each Award granted under the Plan is personal to the Participant and shall not be assignable or transferable by the Participant, whether voluntarily or by operation of law, except by will or by the laws of succession of the domicile of the deceased Participant. No Award granted hereunder shall be pledged, hypothecated, charged, transferred, monetized, securitized, assigned or otherwise encumbered or disposed of on pain of nullity.

(7)      Participants Entitlement. Except as otherwise provided in this Plan or unless the Board permits otherwise, upon any Subsidiary ceasing to be a subsidiary of the Company, Awards previously granted under this Plan that, at the time of such change, are held by a Person who is a director, executive officer, employee or consultant of such Subsidiary and not of the Company itself, whether or not then vested or exercisable, shall automatically terminate on the date of such change.

(8)      No Other Employee Benefits. The amount or value deemed to be or received by a Participant as a result of the exercise or settlement of an Award or as a result of the sale of a Share received or purchased upon the exercise or settlement of an Award will not constitute compensation with respect to which any other employee benefits of that Participant are determined including benefits under any bonus, pension, profit-sharing, insurance and salary continuation plan, except as otherwise specifically determined by the Board, nor will it be a basis to calculate any amount of termination or severance after the Participant’s Termination Date. In the event that the employment of the Participant is terminated by the Company either with or without Cause, and with or without reasonable notice, the Participant shall have no rights to any particular grants which have been made to him or her other than as set forth in the Plan, the applicable Grant Agreement or in any other separate written agreement entered into between the Company and the Participant, and the Participant will not be entitled to recover damages nor to be paid any benefits or to recover any compensation which the Participant would or may otherwise have been entitled to under the Plan if the Participant had remained actively employed by the Company.

Section 7.2        General Conditions applicable on Termination.

Unless otherwise determined by the Board or otherwise provided in the applicable Grant Agreement, each Award shall be subject to the following conditions, as applicable:

 

24


(1)      Termination for Cause. Upon a Participant ceasing to be an Eligible Participant for Cause, any Awards granted to such Participant, whether vested or unvested on the Termination Date, shall terminate automatically and become void immediately on the Termination Date. For the purposes of the Plan, the determination by the Company that the Participant was discharged for Cause shall be binding on the Participant. “Cause” shall have the meaning set forth in an employment or termination or severance agreement between a Participant and the Company or a Subsidiary, and if no such agreement exists (or if such agreement does not define “Cause” or similar term) shall include gross misconduct, theft, fraud, breach of confidentiality or breach of the Company’s code of business conduct and ethics and any other reason determined by the Company to be cause for termination without notice or payment in lieu of notice in accordance with applicable law.

(2)      Resignation or Retirement. Upon a Participant ceasing to be an Eligible Participant as a result of his or her resignation or retirement from the Company or a Subsidiary, as applicable, (a) the Board may, in its sole discretion, determine that a portion of the PSUs, RSUs and/or DSUs granted to such Participant under the Plan will immediately vest and be settled (based on the vesting terms, including, if applicable, achievement of Performance Criteria, up to the Termination Date, as determined in the final and sole discretion of the Board), (b) all unvested Options will be forfeited on the Termination Date, and (c) vested Options will remain exercisable until the earlier of thirty (30) days after the Termination Date or the expiry date of the Options, after which time all Options will expire. For greater certainty, if, following a Participant’s resignation or retirement from the Company or a Subsidiary, the end of the thirty (30) day period during which Options may be exercised should fall within a Black-Out Period, the provisions of Section 3.4(2) shall apply to extend the end of such period to the tenth (10th) Business Day following the end of such Black-Out Period.

(3)      Death or Disability. Upon a Participant’s termination of employment as a result of death or Disability, (a) all rights, title and interest in Options granted to such Participant under the Plan, which are unvested on the Termination Date, will continue to vest in accordance with the terms of this Plan and the Participant’s Grant Agreement for a period of up to two years, subject to the underlying Options’ expiry date, (b) vested Options (including such Options that vest during the period following the Termination Date) will remain exercisable until the earlier of (i) two years after the Termination Date and (ii) the expiry date of the Options, after which time all Options will automatically expire, and (iii) a portion of PSUs, RSUs and/or DSUs granted to the Participant under the Plan will immediately vest on the Termination Date and be settled (based on the vesting terms, including, if applicable, achievement of Performance Criteria, up to the Termination Date, as determined in the final and sole discretion of the Board). Upon the death or Disability of a Participant, the Participant’s rights if any shall only be exercisable by the administrator, executor or liquidator of the Participant’s estate, as the case may be. “Disability” shall have the meaning set forth in an employment or termination or severance agreement between a Participant and the Company or a Subsidiary, and if no such agreement exists (or if such agreement does not define “Disability” or similar term) shall mean any medical condition whatsoever (including physical or mental illness) which leads to the Participant’s absence from his or her job function for a continuous period of six (6) months without the Participant being able to resume functions on a full-time basis at the expiration of such period and which, in light of the position held by the Participant, the parties agree would cause undue hardship to the Company or any of its Subsidiaries which cannot be accommodated; it being understood that unsuccessful attempts to return to work for periods of less than fifteen (15) days shall not interrupt the calculation of such six (6) month period.

 

25


(4)      Termination without Cause. Upon termination of a Participant’s employment without Cause, (a) the Board may, in its sole discretion, determine that a portion of the PSUs, RSUs and/or DSUs granted to such Participant under the Plan will immediately vest and be settled (based on the vesting terms, including, if applicable, achievement of Performance Criteria, up to the Termination Date, as determined in the final and sole discretion of the Board), (b) all unvested Options will be forfeited on the Termination Date, and (c) vested Options will remain exercisable until the earlier of ninety (90) days after the Termination Date or the expiry date of the Options, after which time all Options will expire. For greater certainty, if, following termination of a Participant’s employment without Cause, the end of the ninety (90) day period during which Options may be exercised should fall within a Black-Out Period, the provisions of Section 3.4(2) shall apply to extend the end of such period to the tenth (10th) Business Day following the end of such Black-Out Period.

(5)      Rights of Participant. The rights of a Participant pursuant to the above paragraphs are the only rights to which the Participant (or his or her estate) is entitled on a termination of employment with respect to such Participant’s Options, PSUs, RSUs and DSUs. Regardless of whether, on the Termination Date, the Participant is entitled to a reasonable notice period of termination of employment or compensation in lieu thereof, or is entitled to a specific notice period of termination of employment or compensation in lieu thereof, the Participant is not entitled to claim any other rights to any vested or unvested Options, PSUs, RSUs, or DSUs during such notice period or compensation in lieu thereof, whether by way of general or specific damages and whether in contract, tort or otherwise.

(6)      Unvested Awards. Other than as provided herein, if any portion of an Award has not vested by the Termination Date, that portion of such Award may not, under any circumstances, be exercised by the Participant. This provision will apply regardless of whether the Participant was entitled to a period of notice of termination, termination or severance payment or other continuing benefits or amounts, whether pursuant to applicable law, contract or further to a judgment rendered by a tribunal of competent jurisdiction, as the case may be, that follows or ought to have followed the last day on which a Participant actively performs his or her employment duties for the Company or one of its Subsidiaries, as applicable.

Article 8

COMPLIANCE WITH U.S. TAX LAWS

The provisions of this Article 8 shall apply solely to Participants who are subject to taxation under the U.S. Code.

Section 8.1        Special Provisions Related to Section 409A of the U.S. Code.

(1)      General. It is the intention, but not the obligation, that the Board design payments and benefits provided under this Plan and design any Award so that it shall either be exempt from the application of, or comply with, the requirements of the Nonqualified Deferred Compensation Rules. The Plan and all Grant Agreements shall be construed in a manner that effects such intent. Nevertheless, the tax treatment of the benefits provided under the Plan or any Award is not warranted or guaranteed. Neither the Company, its Subsidiaries nor their respective directors, officers, employees or advisers (other than in his or her capacity as a Participant) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant or other taxpayer as a result of the Plan or any Award.

 

26


(2)      Allocation among Possible Exemptions. If any one or more Awards granted under the Plan to a Participant could qualify for any separation pay exemption described in Treas. Reg. Section 1.409A-1(b)(9), but such Awards in the aggregate exceed the dollar limit permitted for the separation pay exemptions, the Company shall determine which Awards or portions thereof will be subject to such exemptions.

(3)      Six-Month Delay in Certain Circumstances. Notwithstanding anything in the Plan or in any Grant Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Plan or any Grant Agreement by reason of a Participant’s separation from service during a period in which the Participant is a Specified Employee (as defined below), then, subject to any permissible acceleration of payment by the Board under the Nonqualified Deferred Compensation Rules, including Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):

(a)      the amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following the Participant’s separation from service will be accumulated through and paid or provided, without interest, on the first day of the seventh month following the Participant’s separation from service (or, if the Participant dies during such period, within 30 days after the Participant’s death) (in either case, the “Required Delay Period”); and

(b)      the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.

For purposes of this Plan, the term “Specified Employee” has the meaning given such term in the Nonqualified Deferred Compensation Rules; provided, however, that, as permitted in such final regulations, the Company’s Specified Employees and its application of the six-month delay rule of Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board or any committee of the Board, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Plan.

(4)      Installment Payments. If, pursuant to an Award, a Participant is entitled to a series of installment payments, such Participant’s right to the series of installment payments shall be treated as a right to a series of separate payments and not to a single payment. For purposes of the preceding sentence, the term “series of installment payments” has the meaning provided in the Nonqualified Deferred Compensation Rules.

(5)      Timing of Release of Claims. Whenever an Award conditions a payment or benefit on the Participant’s execution and non-revocation of a release of claims, such release must be executed and all revocation periods shall have expired within 60 days after the date of termination of the Participant’s employment; failing which such payment or benefit shall be forfeited. If such payment or benefit is exempt from the Nonqualified Deferred Compensation Rules, the Company may elect to make or commence payment at any time during such 60-day period. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to Section 8.1(3) above, (a) if such 60-day period begins and ends in a single calendar year, the Company may make or commence payment at any time during such period at its discretion, and (b) if such 60-day period begins in one calendar year and ends in the next calendar year, the payment shall be made or commence during the second such calendar year (or any later date

 

27


specified for such payment under the applicable Award), even if such signing and non-revocation of the release occur during the first such calendar year included within such 60-day period.

(6)      Permitted Acceleration. The Company shall have the sole authority to make any accelerated distribution permissible under the Nonqualified Deferred Compensation Rules to Participants of deferred amounts, provided that such distribution(s) meets the requirements of the Nonqualified Deferred Compensation Rules.

Article 9

ADJUSTMENTS AND AMENDMENTS

Section 9.1        Adjustment to Shares Subject to Outstanding Awards.

At any time after the grant of an Award to a Participant and prior to the expiration of the term of such Award or the forfeiture or cancellation of such Award, in the event of (i) any subdivision of the Shares into a greater number of Shares, (ii) any consolidation of Shares into a lesser number of Shares, (iii) any reclassification, reorganization or other change affecting the Shares, (iv) any merger, amalgamation or consolidation of the Company with or into another corporation, (v) any distribution to all holders of Shares or other securities in the capital of the Company, of cash, evidences of indebtedness or other assets of the Company (excluding an ordinary course dividend in cash or shares, but including for greater certainty shares or equity interests in a subsidiary or business unit of the Company or one of its subsidiaries or cash proceeds of the disposition of such a subsidiary or business unit) or (vi) any transaction or change having a similar effect, then the Board shall in its sole discretion, subject to the required approval of a Stock Exchange (if any), determine the appropriate adjustments or substitutions to be made in such circumstances in order to maintain the economic rights of the Participant in respect of such Award in connection with such occurrence or change, including:

(1)      adjustments to the Option Price without any change in the total price applicable to the unexercised portion of any Options granted under the Plan;

(2)        adjustments to the number of Shares to which the Participant is entitled upon exercise or settlement of such Award;

(3)      adjustments permitting the immediate exercise of any outstanding Awards that are not otherwise exercisable (subject, in the case of a DSU subject to the Tax Act, to any requirements of Regulation 6801(d) under the Tax Act); or

(4)      adjustments to the number or kind of Shares reserved for issuance pursuant to the Plan.

Notwithstanding the foregoing, no such adjustment shall be authorized with respect to any Options held by Participants who are United States taxpayers to the extent that such adjustment would cause the Option (determined as if all such Options were Incentive Stock Options whether or not so designated) to violate Section 424(a) of the U.S. Code or would otherwise subject any Participant to taxation under Section 409A of the U.S. Code.

Section 9.2        Change of Control.

Notwithstanding anything else to the contrary herein, in the event of a potential Change of Control, the Board shall have the power, in its sole discretion, to modify the terms of this Plan

 

28


and/or Awards (including, for greater certainty, to cause the vesting of all unvested Awards) to assist the Participants to tender into any take-over bid or similar transaction leading to a Change of Control. For greater certainty, in the event of a take-over bid or any other transaction leading to a Change of Control, the Board may (i) provide that any or all Awards shall thereupon terminate, provided that any such outstanding Awards that have vested shall remain exercisable until consummation of such Change of Control, or (ii) permit Participants to conditionally exercise their Awards, such conditional exercise to be conditional upon the take-up by such offeror of the Shares or other securities tendered to such take-over bid in accordance with the terms of such take-over bid (or the effectiveness of such other transaction leading to a Change of Control). If, however, the potential Change of Control referred to in this Section 9.2 is not completed within the time specified therein (as same may be extended), then notwithstanding this Section 9.2 or the definition of “Change of Control”: (i) any conditional exercise of vested Options shall be deemed to be null, void and of no effect, and such conditionally exercised Awards shall for all purposes be deemed not to have been exercised, (ii) Shares which were issued pursuant to exercise of Options which vested pursuant to this Section 9.2 shall be returned by the Participant to the Company and reinstated as authorized but unissued Shares, and (iii) the original terms applicable to Awards which vested pursuant to this Section 9.2 shall be reinstated.

Section 9.3        Amendment or Discontinuance of the Plan.

(1)      The Board may suspend or terminate the Plan at any time, or from time to time amend or revise the terms of the Plan or any granted Awards without the consent of the Participants, provided that such suspension, termination, amendment or revision shall:

(a)      not adversely alter or impair the rights or tax treatment of any Participant, without the consent of such Participant except as permitted by the provisions of the Plan;

(b)      be in compliance with applicable law and with the prior approval, if required, of the shareholders of the Company, a Stock Exchange or any other regulatory body having authority over the Company; and

(c)      be subject to shareholder approval, where required by law or the requirements of a Stock Exchange, provided that the Board may, from time to time, in its absolute discretion and without approval of the shareholders of the Company make the following amendments to this Plan:

 

  (i)

any amendment to the vesting provision, if applicable, or assignability provisions of the Awards;

 

  (ii)

any amendment to the expiration date of an Award that does not extend the terms of the Award past the original date of expiration of such Award;

 

  (iii)

any amendment regarding the effect of termination of a Participant’s employment or engagement;

 

  (iv)

any amendment to the terms and conditions of grants of PSUs, RSUs or DSUs, including the Performance Criteria, as applicable, quantity, type of Award, grant date, vesting periods, settlement date and other terms and conditions with respect to the Awards;

 

29


  (v)

any amendment which accelerates the date on which any Award may be exercised or payable, as applicable, under the Plan;

 

  (vi)

any amendment to the definition of an Eligible Participant under the Plan (other than with respect to Eligible Participants who are eligible to receive an Award of Incentive Stock Options), it being understood that, as applicable, any amendment aimed at expanding the scope of persons that may be eligible under the Plan will not be made without obtaining the approval of the shareholders of the Corporation as may be required under the rules of any stock exchange on which the Shares are listed at the applicable time;

 

  (vii)

any reduction in the Option Price of an Option or any cancellation and replacement of an Option with an Option with a lower Option Price, to the extent such reduction or replacement does not benefit an Insider;

 

  (viii)

any amendment necessary to comply with applicable law or the requirements of a Stock Exchange or any other regulatory body;

 

  (ix)

any amendment of a “housekeeping” nature, including to clarify the meaning of an existing provision of the Plan, correct or supplement any provision of the Plan that is inconsistent with any other provision of the Plan, correct any grammatical or typographical errors or amend the definitions in the Plan;

 

  (x)

any amendment regarding the administration of the Plan;

 

  (xi)

any amendment to add a provision permitting the grant of Awards settled otherwise than with Shares issued from treasury;

 

  (xii)

any amendment to add a cashless exercise feature or net exercise procedure;

 

  (xiii)

any amendment to add a form of financial assistance; and

 

  (xiv)

any other amendment that does not require the approval of the holders of Shares under Section 9.3(2).

(2)      Notwithstanding Section 9.3(1), the Board shall be required to obtain shareholder approval to make the following amendments:

(a)      any increase to the maximum number of Shares issuable pursuant to the Plan;

(b)      except in the case of an adjustment pursuant to Article 9, any reduction in the Option Price of an Option or any cancellation and replacement of an Option with an Option with a lower Option Price, to the extent such reduction or replacement benefits an Insider;

 

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(c)      any extension of the term of an Award beyond the original expiry date, to the extent such amendment benefits an Insider;

(d)      any amendment which increases the maximum number of Shares that may be issuable to Insiders at any time pursuant to the Insider participation limit;

(e)      any amendment to the maximum number of Shares issuable, either as a fixed number or fixed percentage of outstanding capital represented by such Shares;

(f)      any amendment which increases the maximum number of Shares that may be issuable upon exercise of Incentive Stock Options or modifies the definition of Eligible Participant used for purposes of determining eligibility for the grant of an Incentive Stock Option; and

(g)      any amendment to the amendment provisions of the Plan;

provided that Shares held directly or indirectly by Insiders benefiting from the amendments shall be excluded when obtaining such shareholder approval.

(3)      The Board may, by resolution, advance the date on which any Award may be exercised or payable (subject, in the case of a DSU subject to the Tax Act, to any requirements of Regulation 6801(d) under the Tax Act) or, subject to applicable regulatory provisions, including any rules of a Stock Exchange extend the expiration date of any Award, in the manner to be set forth in such resolution, provided that the period during which an Option is exercisable or a PSU, RSU or DSU remains outstanding does not exceed (a) in the case of Options, ten (10) years from the date such Option is granted and (b) in the case of PSUs, RSUs and DSUs, the last day of the Restriction Period in respect of such PSUs, RSUs and DSUs. The Board shall not, in the event of any such advancement or extension, be under any obligation to advance or extend the date on or by which any Option may be exercised or any PSU, RSU or DSU may remain outstanding by any other Participant.

Article 10

MISCELLANEOUS

Section 10.1      Use of an Administrative Agent and Trustee.

The Board may in its sole discretion appoint from time to time one or more entities to act as administrative agent or trustee to administer the Awards granted under the Plan and to act as trustee to hold and administer the assets that may be held in respect of Awards granted under the Plan, the whole in accordance with the terms and conditions determined by the Board in its sole discretion. The Company and the administrative agent will maintain records showing the number of Awards granted to each Participant under the Plan.

Section 10.2      Tax Withholding and Deduction.

(1)      Notwithstanding any other provision of this Plan, all distributions, delivery of Shares or payments (including, for greater certainty, payments of Cash Equivalent) to a Participant (or to the liquidator, executor or administrator, as the case may be, of the estate of such Participant) under the Plan shall be made net of applicable taxes and social security and other source deductions. The Board shall determine, in its sole discretion, the form of payment acceptable for such tax withholding obligations, including the delivery of cash or cash equivalents,

 

31


Shares (including through delivery of previously owned Shares, net settlement, a broker-assisted sale, or other cashless withholding or reduction of the amount of Shares otherwise issuable or delivered pursuant to the Award), other property, or any other legal consideration the Board deems appropriate.

(2)      Participants will be responsible for (and will indemnify the Company and any Affiliate in respect of) all taxes, social security contributions (including, if the terms of the Participant’s Option Agreement so provides, and if lawful, employer social security contributions) and other liabilities arising out of or in connection with any Award or the acquisition, holding or disposal of Shares. If the Company or any Affiliate or the trustee of any employee benefit trust has any liability to pay or account for any such tax or contribution, it may meet the liability by:

(a)      selling Shares to which the Participant becomes entitled on his behalf and using the proceeds to meet the liability;

(b)      deducting the amount of the liability from any cash payment due under this Plan;

(c)      reducing the number of Shares to which the Participant would otherwise be entitled; and/or

(d)      deducting the amount from any payment of salary, bonus or other payment due to the Participant.

(3)      A Canadian tax resident Participant shall not settle any tax or social security contributions, or other such liabilities, by the sale of Shares, acquired through a prior Award, to the Company.

Section 10.3      Clawback.

Notwithstanding any other provisions in this Plan, any Award which is subject to recovery under any law, government regulation or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement). Without limiting the generality of the foregoing, the Board may provide in any case that outstanding Awards (whether or not vested or exercisable) and the proceeds from the exercise or disposition of Awards or Shares acquired under Awards will be subject to forfeiture and disgorgement to the Company, with interest and other related earnings, if the Participant to whom the Award was granted violates (1) a non-competition, non-solicitation, confidentiality or other restrictive covenant by which he or she is bound, or (2) any policy adopted by the Company applicable to the Participant that provides for forfeiture or disgorgement with respect to incentive compensation that includes Awards under the Plan. In addition, the Board may require forfeiture and disgorgement to the Company of outstanding Awards and the proceeds from the exercise or disposition of Awards or Shares acquired under Awards, with interest and other related earnings, to the extent required by law or applicable stock exchange listing standards and any related policy adopted by the Company. Each Participant, by accepting or being deemed to have accepted an Award under the Plan, agrees to cooperate fully with the Board, and to cause any and all permitted transferees of the Participant to cooperate fully with the Board, to effectuate any forfeiture or disgorgement required hereunder. Neither the Board nor the Company nor any other Person, other than the Participant and his or her permitted transferees, if any, will be responsible for any

 

32


adverse tax or other consequences to a Participant or his or her permitted transferees, if any, that may arise in connection with this Section 10.3.

Section 10.4      Securities Law Compliance.

(1)      The Plan (including any amendments to it), the terms of the grant of any Award under the Plan, the grant of any Award and the exercise of any Options, and the Company’s obligation to sell and deliver Shares in respect of any Awards, shall be subject to all applicable federal, provincial, state and foreign laws, rules and regulations, the rules and regulations of a Stock Exchange, the Securities Act, the Exchange Act, and to such approvals by any regulatory or governmental agency as may, as determined by the Company, be required. The Company shall not be obliged by any provision of the Plan or the grant of any Award hereunder to issue, sell or deliver Shares in violation of such laws, rules and regulations, the Securities Act, the Exchange Act, or any condition of such approvals.

(2)      No Awards shall be granted, and no Shares shall be issued, sold or delivered hereunder, where such grant, issue, sale or delivery would require registration of the Plan or of the Shares under the securities laws of any foreign jurisdiction (other than Canada or the United States) or the filing of any prospectus for the qualification of same thereunder, and any purported grant of any Award or purported issue or sale of Shares hereunder in violation of this provision shall be void.

(3)      The Company shall have no obligation to issue any Shares pursuant to this Plan unless upon official notice of issuance, such Shares shall have been duly listed with a Stock Exchange. The Company cannot guarantee that the Shares will be listed or quoted on a Stock Exchange. Shares issued, sold or delivered to Participants under the Plan may be subject to limitations on sale or resale under applicable securities laws.

(4)      If Shares cannot be issued or delivered to a Participant upon the exercise or settlement of an Award due to legal or regulatory restrictions, the obligation of the Company to issue or deliver such Shares shall terminate. Any funds paid to the Company in connection with the exercise or settlement of such Award will be returned to the applicable Participant as soon as practicable.

Section 10.5      Reorganization of the Company.

The existence of any Awards shall not affect in any way the right or power of the Company or its shareholders to make or authorize any adjustment, reclassification, recapitalization, reorganization or other change in the Company’s capital structure or its business, or any amalgamation, combination, merger or consolidation involving the Company or to create or issue any bonds, debentures, shares or other securities of the Company or the rights and conditions attaching thereto or to affect the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar nature or otherwise.

Section 10.6      Governing Laws.

The Plan and all matters to which reference is made herein shall be governed by and interpreted in accordance with the laws of the Province of Québec and the laws of Canada applicable thereto and without recourse to conflict of laws rules.

 

33


Section 10.7      Severability.

The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision and any invalid or unenforceable provision shall be severed from the Plan. With respect to ISOs, to the extent any Option that is intended to qualify as an ISO cannot so qualify, that Option (to that extent) shall be deemed a Nonstatutory Option for all purposes of the Plan.

Section 10.8      Currency

Unless otherwise specifically determined by the Board, all Awards and payments pursuant to such grants shall be determined in U.S. currency. The Board shall determine, in its discretion, whether and to the extent any payments made pursuant to an Award shall be made in local currency, as opposed to U.S. dollars. In the event payments are made in local currency, the Board may determine, in its discretion and without liability to any Participant, the method and rate of converting the payment into local currency.

Section 10.9      Effective Date of the Plan

The Plan is effective as of May 6, 2021 (the “Effective Date”).

 

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SCHEDULE “A”

ELECTION TO EXERCISE OPTIONS

TO:          The Lion Electric Company (the “Company”)

The undersigned option holder hereby irrevocably elects to exercise options (“Options”) granted by the Company to the undersigned pursuant to the Company’s Omnibus Incentive Plan (the “Plan”) for the number of common shares in the capital of the Company (“Common Shares”) as set forth below.

Capitalized terms not defined here have the meanings specified in the Plan.

 

Number of Shares to be Acquired:

    

                                                                     

Option Price (per Common Share):

    

$                                                                    

Aggregate Option Price:

    

$                                                                    

Amount enclosed that is payable on account of withholding of tax or other required deductions relating to the exercise of the Options (contact the Company for details of such amount) (the “Applicable Withholdings and Deductions”):

    

$                                                                    

o   Or check here if alternative arrangements have been made with the Company with respect to the payment of Applicable Withholdings and Deductions;

    

and hereby tender cash, a certified cheque or bank draft for such aggregate Option Price, and, if applicable, Applicable Withholdings and Deductions, and directs such Common Shares to be registered in the name of                                                                                           .

[Signature page follows.]

 

Schedule A – Page 1


DATED this      day of         ,         .

 

 

  Signature

 

  Name

 

Schedule A – Page 2

Exhibit 10.13

SECOND AMENDED AND RESTATED STOCK OPTION PLAN FOR

DIRECTORS, EXECUTIVE OFFICERS, EMPLOYEES AND CONSULTANTS

OF THE LION ELECTRIC COMPANY

Effective as of May 6, 2021

 

1.

Definitions

For the purposes hereof and unless the context otherwise requires:

Black-Out Period” means a period of time when pursuant to any policies of the Corporation (including the Corporation’s insider trading policy), any securities of the Corporation may not be traded by certain persons designated by the Corporation;

Board” means the board of directors of the Corporation;

Business Day” means a day other than a Saturday, Sunday or statutory holiday, when banks are generally open for business in Montréal, Québec and New York, New York for the transaction of banking business;

Change of Control” means (i) the sale of all or substantially all of the assets of the Corporation on a consolidated basis, in one transaction or a series of related transactions, to a person that is not a Subsidiary, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Corporation’s outstanding voting rights immediately prior to such transaction do not own a majority of the outstanding voting rights of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) any person or a group of persons acting jointly or in concert becoming the beneficial owner, directly or indirectly, of shares carrying at least a majority of the outstanding voting rights of the Corporation (other than Power Energy Corporation or any direct or indirect subsidiary thereof) or (iv) any other transaction in which the owners of the Corporation’s outstanding voting rights prior to such transaction do not own at least a majority of the outstanding voting rights of the Corporation or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Corporation or an internal corporate reorganization;

Committee” has the meaning given thereto in Paragraph 3.1;

Consultant” means any individual (other than a Director, an Executive Officer or an Employee) or corporation or other entity that (i) is engaged by the Corporation or a Subsidiary to provide services for an initial, renewable or extended period of 12 months or more, other than in relation to a distribution of securities, (ii) provides the services under a written contract with the Corporation or a Subsidiary, and (iii) spends or will spend a significant amount of time and attention on the affairs and business of the Corporation or a Subsidiary;

Corporation” means The Lion Electric Company (formerly known as Lion Buses Inc.) or its successor;

Director” means any individual who is a director of the Corporation or a Subsidiary;


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Effective Date” means May 6, 2021;

Employee” any individual who is an employee of the Corporation or a Subsidiary;

Executive Officer” means any individual who is (i) a chair, vice-chair or president of the Corporation or a Subsidiary, (ii) a vice-president in charge of a principal business unit, division or function (including sales, finance or production) of the Corporation or a Subsidiary, or (iii) performing a policy-making function in respect of the Corporation or a Subsidiary;

Exercise Price” has the meaning given thereto in Paragraph 6;

Insider” means a “reporting insider” as defined in National Instrument 55-104Insider Reporting Requirements and Exemptions and includes associates (as such term is defined in National Instrument 45-106Prospectus Exemptions and affiliates (as such term is defined in Part 1 of the TSX Company Manual) of such “reporting insider”;

Last Working Day” means the Employee’s last day of work for the Corporation or a Subsidiary, excluding any period representing pay in lieu of notice, severance pay, gratuitous payment or any other indemnity, amount or notice whatsoever on account of termination of employment;

Option” means an option granted under the Plan;

Option Period” has the meaning given thereto in Paragraph 8.1;

Optionee” means a Director, Executive Officer, Employee or Consultant to whom an Option has been granted under the Plan;

Permanent Disability” means that the Optionee has ceased to be an Employee as a result of a permanent physical or mental disability or disease or illness preventing the Optionee from performing his or her usual duties and tasks for the Corporation or a Subsidiary;

Original Plan” has the meaning given thereto in Paragraph 2.1;

Plan” means this Second Amended and Restated Stock Option Plan for Directors, Executive Officers, Employees and Consultants of the Corporation and its Subsidiaries, as same may be further amended or amended and restated from time to time in accordance with its terms;

Retirement” means that the Optionee has ceased to be an Employee, provided that: (i) the Board reasonably determines that the Optionee’s cessation of employment qualifies as retirement, and (ii) following the cessation of employment, the Optionee is either no longer gainfully employed or pursues activities in a business that is not a direct competitor of the Corporation, as determined by the Board;

Share Compensation Arrangement” means a stock option, stock option plan, employee stock purchase plan, long-term incentive plan or any other compensation or incentive mechanism involving the issuance or potential issuance of Shares to one or more Employees, Directors, Executive Officers, Insiders or Consultants, including a


- 3 -

 

Share purchase from treasury by an Employee, Director, Executive Officer, Insider or Consultant which is financially assisted by the Corporation or a Subsidiary, by way of a loan, guarantee or otherwise;

Shares” means common shares in the share capital of the Corporation, and includes any shares of the Corporation into which such shares may be changed, classified, reclassified, subdivided, consolidated or converted from time to time;

Subsidiary” means any corporation or other entity in which the Corporation owns, directly or indirectly, securities carrying at least a majority of the outstanding voting rights of such corporation or other entity at the time of granting of the Option;

Termination Event” means each of the events described in Paragraphs 8.2.1 to 8.2.6;

Transaction” has the meaning given thereto in Paragraph 2.2;

TSX” means the Toronto Stock Exchange;

Withholding Amount” has the meaning given thereto in Paragraph 10.1.

 

2.

Amendment, Restatement and Purpose of the Plan

 

  2.1

On November 1, 2017, the Corporation created a stock option plan for Directors, Executive Officers, Employees and Consultants in order to secure for the Corporation and its shareholders the benefits of incentive interest in share ownership by Directors, Executive Officers, Employees and Consultants of the Corporation and its Subsidiaries, which stock option plan was amended and restated in accordance with its terms on December 11, 2019 (the “Original Plan”).

 

  2.2

In connection with closing of the transactions contemplated by the business combination agreement and plan of reorganization dated November 30, 2020 among the Corporation, Lion Electric Merger Sub Inc. and Northern Genesis Acquisition Corp. (the “Transaction”), the Board wishes to amend and restate the Original Plan in accordance with the terms and conditions hereof, all of such amended and restated terms and conditions shall apply to all grants of Options under the Original Plan, this second amended and restated stock option plan being the “Plan” for the purposes hereof.

 

3.

Administration

 

  3.1

The Plan is under the direction of the Board or any committee constituted from time to time with such powers and duties as may be delegated by the Board subject to applicable law (the “Committee”). The Board, in its sole discretion, shall have full and complete authority to administer and interpret the Plan and to prescribe such rules and regulations and make such other determinations as it deems necessary or useful for the administration of the Plan, including the power and authority:

 

  3.1.1

to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any


- 4 -

 

 

Option, which terms and conditions may differ among individual Option grants and Optionees;

 

  3.1.2

to accelerate the vesting or exercisability of all or any portion of any Option; and

 

  3.1.3

to make all determinations it deems advisable for the administration of the Plan, to decide all disputes arising in connection with the Plan and to otherwise supervise the administration of the Plan.

All decisions and interpretations of the Board or the Committee, as applicable, shall be binding on all persons, including the Corporation and the Optionees.

 

  3.2

Neither any member of the Board or the Committee nor any delegate thereof shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee and any delegate thereof shall be entitled in all cases to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Corporation’s articles or bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Corporation.

 

  3.3

Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other jurisdictions in which the Corporation and its Subsidiaries operate or have Directors, Executive Officers, Employees or Consultants, the Board, in its sole discretion, shall have the power and authority to:

 

  3.3.1

modify the terms and conditions of any Option granted to Optionees outside of Canada to comply with applicable foreign laws; and

 

  3.3.2

modify exercise procedures and other terms and procedures, to the extent the Board determines such actions to be necessary or advisable (and such modifications shall be attached to this Plan as addendums); provided, however, that no such modifications shall be deemed to increase the share limitations contained in Paragraph 4 hereof.

Notwithstanding the foregoing, the Board may not take any actions hereunder, and no Options shall be granted, that would violate any applicable Canadian securities law or any other applicable Canadian governing statute or law.

 

  3.4

No additional Options shall be granted under this Plan as of the Effective Date or following the Effective Date, but Options granted prior to the Effective Date and that are outstanding on the Effective Date shall continue in accordance with their terms.

 

4.

Shares Subject to the Plan and Limits with Respect to Insiders

 

  4.1

The maximum number of Shares covered by granted Options under the terms of the Plan is 2,512,823 Shares (or, following closing of the Transaction (including a


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split of the Shares whereby each Share immediately prior to such share split will be converted into 4.1289 Shares), 10,375,186 Shares), which represents the Shares issuable upon exercise of Options outstanding as of the Effective Date. At all times, the Corporation will reserve and keep available a sufficient number of Shares to satisfy the requirements of all outstanding Options granted prior to the Effective Date under the Plan.

 

  4.2

The maximum number of Shares issuable from treasury to Optionees who are Insiders, at any time, under this Plan and any other proposed or established Share Compensation Arrangement, shall not exceed ten percent (10%) of the Shares issued and outstanding from time to time (calculated on a non-diluted basis).

 

  4.3

The maximum number of Shares issued from treasury to Optionees who are Insiders, within any one-year period, under this Plan and any other proposed or established Share Compensation Arrangement, shall not exceed ten percent (10%) of the Shares issued and outstanding from time to time (calculated on a non-diluted basis).

 

  4.4

Any Option granted pursuant to the Plan, or securities issued under any other Share Compensation Arrangement, prior to an Optionee becoming an Insider, shall be excluded from the purposes of the limits set out in Paragraph 4.2 and Paragraph 4.3.

 

5.

Grant of Options

No additional Options shall be granted under this Plan as of the Effective Date and following the Effective Date.

 

6.

Exercise Price

The exercise price for each Option (the “Exercise Price”) shall be established by the Board at the time of grant, but shall not be less than the fair market value of the Shares on the date of grant as determined by the Board in its sole discretion.

 

7.

Vesting of Options

Unless otherwise determined by the Board or the Committee, at its sole discretion, all Options granted to an Optionee under this Plan will vest in four equal annual instalments beginning on the first anniversary of the date of granting of the applicable Options to such Optionee.

 

8.

Option Period

 

  8.1

Subject to Paragraph 8.2, notwithstanding any terms relating to the exercise of options contained in any notice of grant, option agreement or any similar agreement, once an Option has vested, it shall be exercisable during a period commencing on the applicable vesting date and terminating on the date that is ten (10) years after the date of the granting of the Option (the “Option Period”), provided that, notwithstanding any other provision of the Plan, should the expiration date for an Option fall within a Black-Out Period, such expiration date


- 6 -

 

 

shall be automatically extended without any further act or formality to that date which is the tenth (10th) Business Day after the end of the Black-Out Period, such tenth (10th) Business Day to be considered the expiration date for such Option for all purposes under the Plan. Notwithstanding Article 14 hereof, the ten (10) Business Day period referred to in this Paragraph 8.1 may not be extended by the Board.

 

  8.2

Notwithstanding Paragraph 8.1:

 

  8.2.1

except as provided in Paragraph 8.2.4, if an Optionee resigns or voluntarily leaves his employment or engagement with the Corporation or a Subsidiary, all unvested Options shall be forfeited on the date that is his or her Last Working Day or the date of termination of the consulting contract, as applicable, and the Option Period of all vested Options shall terminate on the next following May 31 (i.e. if the Optionee resigns on February 1, 2020, the Option Period ends on May 31, 2020);

 

  8.2.2

if an Optionee’s employment or consulting contract with the Corporation or a Subsidiary is terminated for cause, all vested and unvested Options shall be forfeited with immediate effect;

 

  8.2.3

except as provided in Paragraph 8.2.4, if an Optionee’s employment or consulting contract with the Corporation or a Subsidiary is terminated other than for cause or death, all unvested Options shall be forfeited on the date that is his or her Last Working Day or the date of termination of the consulting contract, as applicable (except as otherwise expressly provided in the Optionee’s employment or consulting contract), and the Option Period of all vested Options shall terminate on the next following May 31 (or such later date as shall be expressly provided for in the Optionee’s employment or consulting contract);

 

  8.2.4

if an Optionee ceases to be an Employee as a result of Retirement or Permanent Disability, all Options shall continue to vest in accordance with the vesting schedule specified for such Options and the Option Period shall remain unchanged, unless the cessation of employment ceases to qualify as a Retirement or Permanent Disability (in which case Paragraph 8.2.1, 8.2.3 or 8.2.6, as applicable, shall apply);

 

  8.2.5

if an Optionee who is a Director and is not employed by the Corporation or a Subsidiary ceases to be a member of the Board for any reason other than death, all unvested Options shall be forfeited on the date of termination of Board service and the Option Period of all vested Options shall terminate on the next following May 31; and

 

  8.2.6

if an Optionee ceases to be a Director, Executive Officer, Employee or Consultant by reason of death, all unvested Options shall vest immediately and the Option Period of all vested Options shall terminate on the next following May 31.

Notwithstanding the provisions above, the Board may, in its sole and absolute discretion, at any time prior to or following the events contemplated in those


- 7 -

 

provisions and in any document evidencing the grant of an Option, permit the exercise of any or all Options held by the Optionee thereof in the manner and on the terms authorized by the Board, provided that (subject to an extension resulting from a Black-Out Period as contemplated in Paragraph 8.1) the Board will not, in any case, authorize the exercise of an Option pursuant to this Paragraph 8.2 in such a manner as to extend the Option Period beyond 10 years after the date of the granting of the Option.

Unless the Board, in its sole and absolute discretion, otherwise determines, at any time and from time to time, an Optionee’s entitlement to Options will not be affected by a change of employment within or among the Corporation or a Subsidiary for so long as the Optionee continues to be a Director, Executive Officer, Employee or Consultant, as applicable, of the Corporation or a Subsidiary.

 

  8.3

In the context of a Termination Event, notwithstanding the provisions of Paragraph 9, Options that have vested are exercisable for Shares by notice in writing from the Optionee to the Corporation at any time until termination thereof in accordance with Paragraph 9, and the Optionee will be entitled to one exercise corresponding to up to 100% of the total number of vested Options held by such Optionee as at the time of the Termination Event. The Optionee shall pay the aggregate exercise price therefor and shall be issued the underlying Shares.

 

  8.4

All rights conferred by an Option not exercised pursuant to Paragraph 8.3 prior to the termination of the Exercise Period in accordance with the Plan shall be forfeited.

 

9.

Exercise of Options

 

  9.1

Each Optionee shall be required, when requested by the Corporation, to sign and deliver all such documents relating to the granting or exercise of Options which the Corporation deems necessary or desirable.

 

  9.2

Each Option that has vested in accordance with the provisions of Paragraph 7 may be exercised from time to time during the Option Period, in accordance with the provisions of this Paragraph 9 and such rules and regulations as the Board may prescribe from time to time.

 

  9.3

To exercise Options that have vested, an Optionee shall give the Corporation or its agent written notice indicating the number of vested Options the Optionee desires to exercise and payment of the aggregate Exercise Price therefor.

 

  9.4

Upon notice in writing by an Optionee to the Corporation specifying that the Optionee desires to exercise his/her Options, including the particular details in respect of the number of Options exercised, an Optionee will be entitled to receive such number of Shares from the Corporation as soon as practicable after payment by the Optionee to the Corporation of the aggregate exercise price therefor in accordance with the Plan.


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10.

Withholdings

 

  10.1

The Corporation or any Subsidiary may withhold, or cause to be withheld, and deduct, or cause to be deducted, from any amount to be paid to the Optionee, any amount the Corporation or any Subsidiary is entitled or required to withhold or deduct on account of income taxes, social security charges or other deductions that may be required by any applicable law or by any Canadian, foreign, federal, provincial, territorial, state or local governmental authority in respect of (i) the grant, surrender or exercise of an Option, (ii) the issuance of Shares, or (iii) any other payment or benefit under the Plan (the “Withholding Amount”). Any Withholding Amount retained or received from the Optionee will be remitted to the appropriate governmental authority by the Corporation or a Subsidiary.

 

  10.2

The Optionee accepts that the Corporation or any Subsidiary shall have the right to require payment by the Optionee of the Withholding Amount, and may take any means necessary to obtain payment from the Optionee thereof, including:

 

  10.2.1

permitting the Optionee to pay to the Corporation, in addition to and concurrently with the Exercise Price, the Withholding Amount upon exercise of the Option; and/or

 

  10.2.2

withholding the necessary amount from the Optionee’s cash remuneration payment or any other amounts owing by the Corporation to the Optionee following the exercise of the Option;

 

  10.3

If the Corporation or any Subsidiary does not withhold an amount or require payment of an amount by an Optionee sufficient to satisfy all obligations referred to in 10.1, the Optionee shall forthwith make reimbursement, on demand, in cash, of any amount paid by the Corporation or any Subsidiary to a governmental authority to satisfy any such obligation.

 

11.

Non-Assignable

No Option or any interest therein shall be assignable or transferable by the Optionee other than by will or under the law of succession.

 

12.

Change of Control

 

  12.1

In the event of a Change of Control, the Board shall have the right to terminate all outstanding vested Options upon giving the Optionees at least fifteen (15) days’ notice prior to the Change of Control and to terminate all outstanding unvested Options upon the Change of Control. Any vested Options that are subject to such notice shall be exercisable immediately prior to the Change of Control and any vested Options that are not so exercised shall terminate upon the Change of Control.

 

  12.2

Except as otherwise set forth in any document evidencing a grant of any Option, in the event of any Change of Control transaction in which there is an acquiring or surviving entity, the Board may provide for substitute or replacement options of similar value from, or the assumption of outstanding Options by, the acquiring or


- 9 -

 

 

surviving entity or one or more Affiliates of any such entity, any such substitution, replacement or assumption to be on such terms as the Board in good faith determines; provided, however, that in the event of a Change of Control transaction the Board may take, as to any outstanding Option, any one or more of the actions contemplated in Paragraphs 12.1 or 3.1.2, including the acceleration of the vesting of any such Options in the context of such transaction.

 

  12.3

In addition to the foregoing, in the event of a Change of Control where the Board does not exercise its right of termination pursuant to Paragraph 12.1, the Optionees shall have the right to exercise any vested Options effective upon the Change of Control. Such right must be exercised by notice in writing from the Optionee to the Corporation no later than ten (10) days following notice of the Change of Control being sent to the Optionee.

 

13.

Effects of Alteration of Share Capital

In the event of any reorganization, change in the number of issued and outstanding Shares of the Corporation by reason of any stock dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, an equitable adjustment shall be made by the Board in the number and/or kind of Shares subject to outstanding Options and in the Exercise Price of such outstanding Options. Such adjustment will be final, binding and conclusive on all parties.

 

14.

Amendment and Termination

 

  14.1

The Board bears full responsibility with regard to the Plan, which includes, but is not limited to, the power and authority to amend, suspend or terminate the Plan, in whole or in part, or amend the terms and conditions of outstanding Options, provided that such amendment, suspension or termination shall not adversely alter or impair any Option previously granted (provided that the Board may at its discretion accelerate the vesting of any Option regardless of any adverse or potentially adverse tax consequences resulting from such acceleration).

 

  14.2

The Plan will terminate on the date on which all Options issued under the Plan have either been exercised, cancelled or forfeited, or in such other circumstances as contemplated by the Plan or determined by the Board. In the event that the Board terminates the Plan, all Options granted to Optionees will become fully exercisable by the Optionees, unless the Board, in its sole discretion, determines otherwise.

 

  14.3

Subject to Paragraph 14.1 and any applicable rules of a stock exchange, including the TSX, the Board may, from time to time, in its absolute discretion and without the approval of the shareholders of the Corporation make the following amendments to this Plan:

 

  14.3.1

any amendment to the vesting provision, if applicable, or assignability provisions of the Options;

 

  14.3.2

any amendment to the expiration date of an Option that does not extend the term of the Option past the original date of expiration of such Option;


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  14.3.3

any amendment regarding the effect of termination of an Optionee’s employment or engagement;

 

  14.3.4

any amendment which accelerates the date on which any Option may be exercised or payable, as applicable, under the Plan;

 

  14.3.5

any amendment to the definition of Employee, Executive Officer, Director of Consultant under the Plan (it being understood that, as applicable, any amendment aimed at expanding the scope of persons that may be eligible under the Plan will not be made without obtaining the approval of the shareholders of the Corporation as may be required under the rules of any stock exchange on which the Shares are listed at the applicable time);

 

  14.3.6

any amendment necessary to comply with applicable law or the requirements of the TSX or any other regulatory body;

 

  14.3.7

any amendment of a “housekeeping” nature, including to clarify the meaning of an existing provision of the Plan, correct or supplement any provision of the Plan that is inconsistent with any other provision of the Plan, correct any grammatical or typographical errors or amend the definitions in the Plan;

 

  14.3.8

any amendment regarding the administration of the Plan;

 

  14.3.9

any amendment to add a cashless exercise feature or net exercise procedure;

 

  14.3.10

any amendment to add a form of financial assistance or clawback;

 

  14.3.11

any reduction in the Exercise Price of an Option or any cancellation and replacement of such Option with an Option with a lower Exercise Price, to the extent such reduction or replacement does not benefit an Insider; and

 

  14.3.12

any other amendment that does not require the approval of the holders of Shares under Paragraph 14.4.

 

  14.4

Notwithstanding Paragraph 14.3, the Board shall be required to obtain shareholder approval to make the following amendments:

 

  14.4.1

any increase to the maximum number of Shares issuable pursuant to the Plan;

 

  14.4.2

except in the case of an adjustment pursuant to Article 13, any reduction in the Exercise Price of an Option or any cancellation and replacement of such Option with an Option with a lower Exercise Price, to the extent such reduction or replacement benefits an Insider;

 

  14.4.3

any extension of the term of an Option beyond the original expiry date, to the extent such amendment benefits an Insider;


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  14.4.4

any amendment which increases the maximum number of Shares that may be issuable to Insiders at any time pursuant to the Insider participation limit; and

 

  14.4.5

any amendment to the amendment provisions of the Plan;

provided that Shares held directly or indirectly by Insiders benefiting from the amendments shall be excluded when obtaining such shareholder approval.

 

15.

Final Provisions

 

  15.1

The Corporation’s obligation to issue Shares upon the exercise of Options is subject to any applicable legal or contractual restrictions, including financial ratios and covenants in applicable instruments and agreements with the Corporation’s lenders, the laws and regulations in respect of the issuance or distribution of securities and with the rules of any applicable stock exchange. Each Optionee acknowledges the potential application of any such legal or contractual restrictions and agrees to comply with such laws, regulations and rules and to provide to the Corporation any information or undertaking required to comply with such laws, regulations and rules.

 

  15.2

The participation in the Plan of a Director, Executive Officer, Employee or Consultant shall be entirely optional and shall not be interpreted as conferring upon a Director, Executive Officer, Employee or Consultant any right or privilege whatsoever, except for the rights and privileges set out expressly in the Plan. Neither the Plan nor any act that is done under the terms of the Plan shall be interpreted as restricting the right of the Corporation to terminate the employment of an Executive Officer or Employee or to terminate the consulting contract with a Consultant at any time.

 

  15.3

The existence of any Options does not affect in any way the right or power of the Corporation or its shareholders to make, authorize or determine any adjustment, recapitalization, reorganization or any other change in the Corporation’s capital structure or its business, or any amalgamation, combination, merger or consolidation involving the Corporation, to create or issue any bonds, debentures, shares or other securities of the Corporation or to determine the rights and conditions attaching thereto, to effect the dissolution or liquidation of the Corporation or any sale or transfer of all or any part of its assets or business, or to effect any other corporate act or proceeding, whether of a similar character or otherwise, whether or not any such action referred to in this Paragraph 16.3 would have an adverse effect on this Plan or any Option granted hereunder.

 

  15.4

No Director, Executive Officer, Employee or Consultant to whom Options have been granted acquires an automatic right to be granted one or more Options under the terms of the Plan by reason of any previous grants of Options under the Plan.

 

  15.5

The Plan does not provide for any guarantee in respect of any loss or profit which may result from fluctuations in the market value of the Shares.


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  15.6

The Corporation shall assume no responsibility as regards the tax consequences that participation in the Plan will have for a Director, Executive Officer, Employee or Consultant, and such persons are urged to consult their own tax advisors in such regard.

 

  15.7

The Plan and any Option granted under the terms of the Plan shall be governed and interpreted according to the laws of the province of Québec and the federal laws of Canada applicable thereto.

 

  15.8

Each Optionee agrees with the Corporation that this Plan and all agreements, notices, declarations and documents accessory to the Plan be drafted in English only. Chaque bénéficiaire consent avec la société à ce que ce Plan ainsi que toutes conventions, avis, déclarations et documents afférents au Plan soient rédigés en anglais seulement.

Exhibit 10.14

 

 

    

 

NOMINATION RIGHTS AGREEMENT

 

BY AND AMONG

 

THE LION ELECTRIC COMPANY

 

AND

 

CERTAIN SHAREHOLDERS OF THE LION ELECTRIC COMPANY

 

DATED AS OF MAY 6, 2021

 

    


TABLE OF CONTENTS

 

ARTICLE I EFFECTIVENESS

     1  

Section 1.1.

 

Effectiveness

     1  

ARTICLE II DEFINITIONS

     1  

Section 2.1.

 

Definitions

     1  

Section 2.2.

 

Other Interpretive Provisions

     3  

ARTICLE III GOVERNANCE

     3  

Section 3.1

 

Board Nomination Rights

     3  

Section 3.2.

 

Expenses

     7  

ARTICLE IV MISCELLANEOUS

     7  

Section 4.1.

 

Authority; Effect

     7  

Section 4.2.

 

Further Assurances

     7  

Section 4.3.

 

Notices

     7  

Section 4.4.

 

Termination and Effect of Termination

     8  

Section 4.5.

 

Remedies

     8  

Section 4.6.

 

Amendments

     9  

Section 4.7.

 

Governing Law

     9  

Section 4.8.

 

Dispute Resolution

     9  

Section 4.9.

 

Merger; Binding Effect, Etc.

     9  

Section 4.10.

 

Counterparts

     9  

Section 4.11

 

Severability

     9  

Section 4.12.

 

Exercise of Rights and Remedies

     9  

Section 4.13.

 

No Recourse

     9  

Section 4.14.    

 

Language

     10  

 

- i -


This NOMINATION RIGHTS AGREEMENT (as it may be amended from time to time in accordance with the terms hereof, the “Agreement”), dated as of May 6, 2021 is made by and among:

 

  i.

The Lion Electric Company, a company organized under the laws of the Province of Québec (the “Company”);

 

  ii.

9368-2672 Québec Inc., a company organized under the laws of the Province of Québec (the “9368-2672”); and

 

  iii.

Power Energy Corporation, a company organized under the laws of the Province of Québec (“PEC”, and together with the 9368-2672, the “Principal Shareholders”).

RECITALS

WHEREAS pursuant to a business combination agreement and plan of reorganization dated November 30, 2020, among the Company, Lion Electric Merger Sub Inc. (“Merger Sub”) and Northern Genesis Acquisition Corp. (“NGA”), on the date hereof, the Company completed a business combination transaction pursuant to which (i) Merger Sub merged (the “Merger”) with and into NGA, with NGA surviving the Merger as a wholly-owned direct subsidiary of the Company and (ii) the Company amended and restated its Articles (as defined below) (collectively, the “Business Combination”).

WHEREAS, in connection with the Business Combination, the Company became a registrant under applicable U.S. securities laws and will become, shortly after closing of the Business Combination, a reporting issuer in the Province of Québec, and its Common Shares (as defined below) will be listed on the New York Stock Exchange and the Toronto Stock Exchange.

WHEREAS, in connection with the closing of the Business Combination, the parties believe that it is in the best interests of the Company and the other parties hereto to set forth their agreements regarding certain nomination rights as investors in the Company.

NOW, THEREFORE, in consideration of the foregoing and the mutual promises, covenants and agreements of the parties hereto, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

EFFECTIVENESS

Section 1.1.      Effectiveness. This Agreement shall become effective as of May 6, 2021, being the date of closing of the Business Combination and shall continue until terminated in accordance with Section 4.4.

ARTICLE II

DEFINITIONS

Section 2.1.      Definitions. As used in this Agreement, the following terms have the following meanings:

9368-2672 Director” means a Director that has been designated by 9368-2672 for election as Nominee or appointment pursuant to Section 3.1.

9368-2672 Permitted Holders” means (i) Marc Bedard, Camile Chartrand, Fiducie Bedard, Fiducie Chartrand, Gestion Placebo Inc., Les Placements L.-S. Piché Inc. and any Members of the Immediate


Family of Marc Bédard or Camile Chartrand, and (ii) any Person controlled, directly or indirectly by one or more of the Persons referred to in clause (i) above (which includes, for greater certainty, 9368-2672 as of the date hereof).

Affiliate” means, with respect to any specified Person, (a) any Person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person or (b) in the event that the specified Person is a natural Person, a Member of the Immediate Family of such Person; provided that (i) the Company and each of its subsidiaries shall be deemed not to be Affiliates of any Principal Shareholder, and further provider that (ii) Great-West Lifeco Inc. and its subsidiaries, IGM Financial Inc. and its subsidiaries, and any investment fund managed by entities within the Power Corporation of Canada group of companies shall be deemed to not be Affiliates of PEC for purposes of this Agreement. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

Agreement” has the meaning set forth in the preamble.

Articles” means the articles of the Company, as they are in effect upon completion of the Business Combination, as amended from time to time.

Board” means the board of directors of the Company.

Board Size” means the number of directors on the Board as determined pursuant to Section 3.1.5.

Business Day” means any day on which the principal offices of the SEC in Washington, D.C. and the Autorité des marches financiers in Québec (Canada) are open to accept filings or any day on which banks are not authorized or obligated to be closed in New York, New York or in Montreal, Québec.

Common Shares” means the common shares of the Company, as contemplated under the Articles.

Director” means a director on the Board.

Director Election Meeting” means any meeting of shareholders of the Company at which Directors are to be elected to the Board.

Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

Independent Director” means a Director who is determined by the Nominating and Corporate Governance Committee to be “independent” in accordance with applicable laws and regulations (including National Instrument 52-110Audit Committee), including any applicable rules of a stock exchange on which the Common Shares are listed (other than any provision pursuant to which a Director would be deemed not to be independent solely as a result of being a nominee of a shareholder of the Company).

Member of the Immediate Family” means with respect to any individual, each parent (whether by birth or adoption), spouse or child (including any step-child) or other descendants (whether by birth or adoption) of such individual, each spouse of any of the aforementioned Persons, each trust created solely for the benefit of such individual and/or one or more of the aforementioned Persons, and each legal representative of such individual or of any aforementioned Persons (including a tutor, curator, mandatary due to incapacity, custodian, guardian or testamentary executor), acting in such capacity under the authority of the law, an order from a competent tribunal, a will or a mandate in case of incapacity or similar instrument. For the purposes of this definition, a Person shall be considered the spouse of an individual if such Person is legally married to such individual, lives in a civil union with such individual or is the common law partner (as defined in the Income Tax Act (Canada) as amended from time to time) of such individual. A Person

 

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who was the spouse of an individual within the meaning of this paragraph immediately before the death of such individual shall continue to be considered a spouse of such individual after the death of such individual.

Nominating and Corporate Governance Committee means the Nominating and Corporate Governance Committee of the Board.

Nominee” means a nominee proposed for election as Director by the Company and included as a nominee in the management information circular of the Company relating to a Director Election Meeting.

PEC Director” means a Director that has been designated by PEC for election as Nominee or appointment pursuant to Section 3.1.

PEC Permitted Holders” means Power Energy Corporation and any of its Affiliates.

Person” means any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.

Principal Shareholder” has the meaning set forth in the preamble.

QBCA” means the Quebec Business Corporations Act.

Shareholder Group” means each of (a) the PEC Permitted Holders (collectively as one Shareholder Group) and (b) the 9368-2672 Permitted Holders (collectively as one Shareholder Group) and “Shareholder Groups” means all of them.

Section 2.2.      Other Interpretive Provisions.

(a)      The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b)      The words “hereof”, “herein”, “hereunder” and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and any subsection and section references are to this Agreement unless otherwise specified.

(c)      The term “including” is not limiting and means “including without limitation.”

(d)      The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

(e)      Whenever the context requires, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms.

ARTICLE III

GOVERNANCE

Section 3.1.      Board Nomination Rights.

Section 3.1.1.      Size and Composition of the Board. At the time this Agreement becomes effective, the Board shall consist of eight (8) Directors and thereafter shall be composed of a number of directors determined as set forth in Section 3.1.5. The initial Directors shall be Pierre Larochelle (Chairman), Marc Bédard, Michel Ringuet, Pierre Wilkie, Sheila Colleen Bair, Ian Robertson, Chris Jarrat and Pierre-Olivier Perras..

 

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Section 3.1.2.      Designation of Nominees. In respect of any Director Election Meeting:

 

  (a)

As long as any Shareholder Group holds, directly or indirectly, at least 20% of the Common Shares outstanding (on a non-diluted basis), its Principal Shareholder shall be entitled to designate a number of Nominees equal to the product of (rounding to the nearest whole number) (i) the percentage of the Common Shares held by such Shareholder Group (on a non-diluted basis) multiplied by (ii) the Board Size. For illustration purposes only, the following table illustrates the minimum percentage of the Common Shares which are required to be held by a Shareholder Group to designate the number of Nominees shown:

 

        Board Size
                7                    8                    9                    10                    11                    12        
 

LOGO

  

 

2    

 

   22%    20%    20%    20%    20%    20%
  

 

3    

 

   36%    31%    28%    25%    23%    21%
  

 

4    

 

   N.A.    44%    39%    35%    32%    29%

 

  (b)

In addition to any rights 9368-2672 may have under Section 3.1.2(a), as long as the 9368-2672 Permitted Holders hold, directly or indirectly, at least 5% of the Common Shares outstanding (on a non-diluted basis), 9368-2672 shall be entitled to designate:

 

  (i)

for so long as Marc Bedard is performing the role of chief executive officer, one (1) Nominee (in addition to Marc Bedard, who will be appointed to the Board for so long as he is performing the role of chief executive officer of the Company); or

 

  (ii)

at any other time, Marc Bedard as a Nominee.

Section 3.1.3.      Nomination and Election Procedures.

 

  (a)

Each Principal Shareholder having a right to designate one or more Nominees under Section 3.1.2 may notify the Company of its designated Nominee(s) at any time but no less than 45 calendar days prior to the date of any Director Election Meeting. If, prior to the Director Election Meeting, the Nominee of a Principal Shareholder is unable or unwilling to serve as a Director, then such Principal Shareholder will be entitled to designate a replacement Nominee.

 

  (b)

Other than Marc Bedard pursuant to any designation made pursuant to Section 3.1.2(b)(ii), at least one (1) Nominee designated by each Principal Shareholder must be an Independent Director as determined by the Nominating and Corporate Governance Committee and, if no Nominee of a Principal Shareholder is determined to be an Independent Director, such Principal Shareholder will be entitled to designate a replacement Nominee.

 

  (c)

Each designated Nominee of a Principal Shareholder shall be considered by the Nominating and Corporate Governance Committee to ensure that the Nominees, when considered collectively with the additional individuals selected by the Nominating and Corporate Governance Committee for nomination to the Board, represent the characteristics, experience, skill set, independence and diversity

 

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desired by the Board. The Nominating and Corporate Governance Committee may, at its discretion, advise a Principal Shareholder that inclusion of any designated Nominee does not satisfy the objectives of the Board and, in such circumstance, such Principal Shareholder shall be entitled to propose a replacement for such Nominee.

 

  (d)

For so long as a Principal Shareholder has the right to designate one or more Nominees under Section 3.1.2, and provided that each Nominee (or any replacement thereof which a Principal Shareholder has the right to designate hereunder) has received a favourable recommendation of the Nomination and Corporate Governance Committee, the Company shall nominate for election and include in any management information circular relating to any Director Election Meeting (or submit to shareholders by written consent if applicable) each person designated as Nominee of such Principal Shareholder and take all steps which may be necessary or appropriate to recognize, enforce and comply with the rights of any Principal Shareholder under this Section 3.1.

 

  (e)

Subject to Section 3.1.7, each Shareholder Group shall vote or cause to be voted all Common Shares that it holds, directly or indirectly, or over which it exercises control or direction, in favor of any Nominee designated by a Principal Shareholder and at any Director Election Meeting, pursuant to the terms and subject to the conditions of this Section 3.1.

Section 3.1.4.      Other Nominees. The selection of Nominees other than the Nominees designated by the Principal Shareholders pursuant to Section 3.1.2 (including when any designation right of a Principal Shareholder has not been exercised pursuant thereto), shall rest with the Board, or the Nominating and Corporate Governance Committee, if so determined by the Board.

Section 3.1.5.      Number of Board Members. The Board shall initially consist of eight (8) members and thereafter shall consist of such other number as may be determined by the Board, provided that, in each case, the number of Directors shall be sufficient to give effect to the rights of each Principal Shareholder hereunder and under any other then existing obligation of the Company in respect thereof, in each case subject to any minimum or maximum number of Directors as provided under the Company’s Articles. Each Shareholder Group will cast all votes attached to all Common Shares held by such Shareholder Group, whether at any annual or special meeting by written consent or otherwise, to give effect to the foregoing.

Section 3.1.6.      Replacement Appointment. If any Nominee of a Principal Shareholder resigns, is removed, or is unable to serve for any reason prior to the expiration of his or her term as a Director, then such Principal Shareholder shall be entitled to designate a replacement to be appointed by the Board as Director as soon as reasonably practicable, except where such Principal Shareholder would have otherwise ceased to be entitled to designate such Nominee pursuant to Section 3.1.2. The appointment of any such replacement shall be subject to the approval thereof by the Nominating and Corporate Governance Committee in accordance with Section 3.1.3(c).

Section 3.1.7.      Cessation; Resignation. Any Principal Shareholder shall cease to have any rights or obligations under this Section 3.1 immediately upon ceasing to have the right to designate any Nominee pursuant to the terms of Section 3.1.2. In the event that a Principal Shareholder ceases to have the right to designate a Nominee pursuant to the terms of Section 3.1.2, such Principal Shareholder shall concurrently therewith, if requested by the Board, use its reasonable efforts to promptly obtain and deliver to the Company the written resignation of any Director previously designated by it pursuant to the terms of Section 3.1.2 such that the number of Directors nominated by such Principal Shareholder and then serving on the Board does not exceed the number of Nominees that such Principal Shareholder would then have the right to designate pursuant to the terms of Section 3.1.2.

 

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Section 3.1.8.      Qualifications. Notwithstanding anything to the contrary in this Agreement, all Directors (including Directors designated by the Principal Shareholders) shall, at all times while serving on the Board, meet the qualification requirements to serve as a director under the QBCA, applicable securities laws and the rules of any stock exchange on which the Common Shares are listed.

Section 3.1.9.      Chairman. So long as PEC has the right to designate a Nominee pursuant to Section 3.1.2, PEC shall have the right to designate one (1) of the PEC Directors to serve as Chairman of the Board. The Initial Chairman of the Board will be Pierre Larochelle. In the event that PEC does not have the right to designate the Chairman of the Board, the Chairman of the Board shall be selected by the Board from among the Directors comprising the Board. In the event that the Chairman of the Board is not an Independent Director, the remaining Directors shall designate a lead independent director. The Chairman of the Board shall not be a past or present CEO of the Company.

Section 3.1.10.      Board Committees.

 

  (a)

The Board shall establish and maintain committees of the Board (each a “Committee” and collectively, the “Committees”) as required by regulations, the rules of any stock exchange or as determined appropriate by the Board.

 

  (b)

The size of each Committee shall be established by the Board provided that the number of Committee members for each such Committee shall be at least equal to the number of Principal Shareholders having the right to appoint Nominees pursuant to the terms of Section 3.1.2, plus one (1) (which, as of the date hereof, corresponds to three (3) Committee members).

 

  (c)

The Committees and their composition shall initially consist of the following:

 

  (i)

Audit Committee: Michel Ringuet (Chair), Sheila Colleen Bair, and Ian Robertson;

 

  (ii)

Human Resources and Compensation Committee: Chris Jarratt (Chair), Pierre Wilkie and Pierre-Olivier Perras; and

 

  (iii)

Nominating and Corporate Governance Committee: Ian Robertson (Chair), Sheila Colleen Bair and Pierre-Olivier Perras.

 

  (d)

For so long as a Principal Shareholder has a right to designate a Nominee pursuant to the terms of Section 3.1.2, each such Principal Shareholder shall have the right to appoint one member of each Committee. Notwithstanding the foregoing, neither the CEO nor 9368-2672 shall have the right to appoint any Director to the Human Resources and Compensation Committee.

 

  (e)

Each Committee shall be composed of at least a majority of Independent Directors. Except as restricted by applicable laws and regulations, Committees will be allowed to be composed of independent and non-independent directors.

 

  (f)

Each Committee shall be chaired by a Director who is not a Nominee of a Principal Shareholder.

Section 3.1.11.      Non-Assignability or Transfer of Rights. None of the rights or obligations of any Shareholder Group under this Agreement shall be assignable or transferable to any Person, provided however that each Principal Shareholder may assign its rights and obligations hereunder to another member of its Shareholder Group together with a transfer of Common Shares to such

 

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member, provided that such assignee (if not already a party hereto) executes a joinder to this Agreement. For the avoidance of doubt, the transfer by a Principal Shareholder to another member of its Shareholder Group shall not relieve any member of such Shareholder Group from its obligations hereunder.

Section 3.1.12.      Shareholder Approval. At the first annual meeting of the shareholders of the Company to be held following the fifth (5th) anniversary of the date of this Agreement, and at every fifth (5th) annual meeting of the shareholders of the Company thereafter, the rights of any Principal Shareholders under Section 3.1.2(a) shall be submitted to the shareholders of the Company for approval by a simple majority (>50%) of the votes cast by the shareholders of the Company represented in person or by proxy at such meeting (provided that, for greater certainty, all shareholders of the Company shall be entitled to vote with respect to such approval). If such rights are approved by shareholders of the Company in accordance with the foregoing, the rights of any Principal Shareholders under Section 3.1.2(a) shall continue in full force and effect until the next shareholder meeting at which such rights must be submitted for approval. If at any such meeting the requisite shareholder approval is not obtained, the rights of any Principal Shareholders under Section 3.1.2(a) shall become void and shall have no further force and effect.

Section 3.2.    Expenses.

Section 3.2.1.      The Company shall reimburse the members of the Board for all reasonable out-of-pocket expenses incurred in connection with the attendance at meetings of the Board and any committees thereof, including travel, lodging and meal expenses.

Section 3.2.2.      The Company shall obtain customary director and officer liability insurance on commercially reasonable terms.

ARTICLE IV

MISCELLANEOUS

Section 4.1.      Authority; Effect. Each party hereto represents and warrants to and agrees with each other party that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on behalf of such party and do not violate any agreement or other instrument applicable to such party or by which its assets are bound. This Agreement does not, and shall not be construed to, give rise to the creation of a partnership among any of the parties hereto, or to constitute any of such parties members of a joint venture or other association. The Company and its subsidiaries shall be jointly and severally liable for all obligations of each such party pursuant to this Agreement.

Section 4.2.      Further Assurances. Each holder of Common Shares in a Shareholder Group will cast all votes attached to all Common Shares held by such Shareholder Group, whether at any annual or special meeting by written resolutions or otherwise, and take such other actions as may reasonably be requested by any Principal Shareholder to give effect to the agreements set forth in this Agreement.

Section 4.3.      Notices. Any notices, requests, demands and other communications required or permitted in this Agreement shall be effective if in writing and (i) delivered personally, (ii) sent by e-mail, or (iii) sent by overnight courier, in each case, addressed as follows:

If to the Company to:

The Lion Electric Company

921 ch. de la Rivière-du-Nord

Saint-Jérôme (Québec) J7Y 5G2

 

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Attention:      

   Marc Bédard, CEO - Founder
   Nicolas Brunet, Executive Vice-President and Chief Financial Officer

E-mail:

   [***]
   [***]
with a copy to:

Stikeman Elliott LLP

1155 René-Lévesque Blvd. West, 41st Floor

Montreal (Québec) H3B 3V2

Attention:

   Aniko Pelland; David Tardif

E-mail:

   [***]
   [***]
If to PEC, to:

Power Energy Corporation

751 rue du Square Victoria

Montreal (Quebec) H2Y 2J3

Attention:

   Pierre Larochelle

Email:

   [***]
If to 9368-2672, to:

Marc Bedard

921 ch. de la Rivière-du-Nord

Saint-Jérôme (Québec) J7Y 5G2

Attention:

   Marc Bedard

E-mail:

   [***]

Unless otherwise specified herein, such notices or other communications shall be deemed effective (i) on the date received, if personally delivered, (ii) on the date received if delivered by e-mail on a Business Day, or if not delivered on a Business Day, on the first Business Day thereafter and (iii) two (2) Business Days after being sent by overnight courier. Each of the parties hereto shall be entitled to specify a different address by giving notice as aforesaid to each of the other parties hereto.

Section 4.4.      Termination and Effect of Termination. This Agreement shall terminate upon the date on which both Principal Shareholders cease to have any right to designate any Nominee under this Agreement pursuant to the terms of Section 3.1.2.

Section 4.5.      Remedies. The parties to this Agreement shall have all remedies available at law, in equity or otherwise in the event of any breach or violation of this Agreement or any default hereunder. The parties acknowledge and agree that in the event of any breach of this Agreement, in addition to any other remedies that may be available, each of the parties hereto shall be entitled to specific performance of the obligations of the other parties hereto and, in addition, to such other equitable remedies (including preliminary or temporary relief) as may be appropriate in the circumstances. No delay of or omission in the

 

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exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any such delay, omission nor waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.

Section 4.6.      Amendments. This Agreement may not be orally amended, modified, extended or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be amended, modified, extended or terminated, and the provisions hereof may be waived, only by an agreement in writing signed by each of the Company (acting through the Independent Directors), PEC and 9368-2672. Each such amendment, modification, extension or termination shall be binding upon each party hereto. In addition, each party hereto may waive any right hereunder by an instrument in writing signed by such party.

Section 4.7.      Governing Law. This Agreement and all claims arising out of or based upon this Agreement or relating to the subject matter hereof shall be governed and interpreted by and construed in accordance with the substantive laws of the Province of Québec and the federal laws of Canada applicable therein (without giving effect to conflict of law principles).

Section 4.8.      Dispute Resolution. Any claim, dispute or controversy arising out of or relating to the interpretation, application or enforcement of this Agreement or any breach of this Agreement shall be settled by arbitration to be held the Province of Québec, district of Montréal. A party wishing to submit a dispute to arbitration shall give written notice to such effect to the other parties hereto. The parties shall have fifteen (15) days from a party’s notice of such a request for arbitration to designate the arbitrators for the dispute in accordance with this Section 4.8.

Section 4.9.      Merger; Binding Effect, Etc. This Agreement constitutes the entire agreement of the parties with respect to its subject matter, supersedes all prior or contemporaneous oral or written agreements or discussions with respect to such subject matter, and shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective heirs, representatives, successors and permitted assigns. Except as otherwise expressly provided herein, no Principal Shareholder or other party hereto may assign any of its respective rights or delegate any of its respective obligations under this Agreement without the prior written consent of the other parties hereto, and any attempted assignment or delegation in violation of the foregoing shall be null and void.

Section 4.10.      Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one instrument.

Section 4.11.      Severability. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof.

Section 4.12.      Exercise of Rights and Remedies. No delay or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any such delay, omission nor waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.

Section 4.13.      No Recourse. Notwithstanding anything that may be expressed or implied in this Agreement, the Company and each Principal Shareholder covenant, agree and acknowledge that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement shall be made against any current or future director, officer, employee, shareholder, general or limited partner or member of any Principal Shareholder or of any Affiliate or assignee thereof, as such,

 

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whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any current or future officer, agent or employee of any Principal Shareholder or any current or future member of any Principal Shareholder or any current or future director, officer, employee, shareholder, partner or member of any Principal Shareholder or of any Affiliate or assignee thereof, as such, for any obligation of any Principal Shareholder under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.

Section 4.14.      Language. The parties confirm that it is their wish that this Agreement as well as any other documents relating hereto including notices, have been and shall be drawn up in English only. Les parties aux présentes confirment leur volonté de rédiger exclusivement en langue anglaise la présente convention ainsi que tous les documents s’y rapportant, notamment les avis.

[Signature pages follow]

 

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IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement as of the date first above written.

 

Company:     THE LION ELECTRIC COMPANY
    By:  

    /s/ Nicolas Brunet

      Name: Nicolas Brunet
     

Title:    Executive Vice President and Chief

            Financial Officer

Principal Shareholders:     9368-2672 QUÉBEC INC.
    By:  

    /s/ Marc Bédard

      Name: Marc Bédard
      Title: Authorized Signatory
    POWER ENERGY CORPORATION
    By:  

    /s/ Pierre Larochelle

      Name: Pierre Larochelle
      Title: Chief Executive Officer

[Signature Page to Nomination Rights Agreement]

Exhibit 21.1

List of Subsidiaries of Lion

The two subsidiaries are: (i) Northern Genesis Acquisition Corp. and (ii) The Lion Electric Co. USA Inc.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We have issued our report dated February 23, 2021, with respect to the consolidated financial statements of The Lion Electric Company contained in the Registration Statement on Form F-1 and Prospectus forming a part thereof. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears in the caption “Experts.”

/s/ Raymond Chabot Grant Thornton LLP

Montréal, Canada

May 28, 2021