UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR

 

THE TRANSITION PERIOD FROM                TO                

 

Commission File Number 001-38971

 

XL Fleet Corp.

(Exact name of Registrant as specified in its Charter)

 

Delaware   83-4109918
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)

 

145 Newton Street

Boston, Massachusetts

  02135
(Address of principal executive offices)   (Zip Code)

  

Registrant’s telephone number, including area code: (617) 718-0329

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class:   Trading Symbol(s)   Name of Each Exchange on Which Registered:
Shares of common stock, $0.0001 par value   XL   New York Stock Exchange

  

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
      Emerging growth company

 

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

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

 

As of May 5, 2022, 142,111,298 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    PAGE
PART I – FINANCIAL INFORMATION  
Item 1. Condensed Consolidated Financial Statements 1
  Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 1
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (unaudited) 2
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited) 3
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited) 4
  Notes to Unaudited Condensed Consolidated Financial Statements 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 28
     
PART II – OTHER INFORMATION  
Item 1. Legal Proceedings 30
Item 1A. Risk Factors 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
Item 3 Defaults Upon Senior Securities 31
Item 4 Mine Safety Disclosures 31
Item 5. Other Information 31
Item 6. Exhibits 32

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that relate to future events or our future financial performance regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of XL Fleet Corp.’s (the “Company”) management team. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions. The forward-looking statements are based on business plans prepared by, and are the responsibility of, XL Fleet Corp.’s management.

 

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

our financial and business performance, including financial projections and business metrics;

 

our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;

 

the implementation, market acceptance and success of our business model;

  

our ability to scale in a cost-effective manner;

 

developments and projections relating to our competition and industry;

 

the impact of health epidemics, including the novel coronavirus (“COVID-19”) pandemic, on our business and supply chain and the actions we may take in response thereto;

 

our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others;

  

our business, expansion plans and opportunities;

 

the outcome of any known and unknown litigation and regulatory proceedings;

 

ii

 

 

the impact of Russia’s invasion of Ukraine and resulting international political crisis could have significant negative consequences on our business and customers;

 

change in warranty obligations;

 

changes in availability and prices of raw material including inflationary pressures and supply chain challenges, which could be aggravated by political or global unrest;

 

our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 202 including with respect to acquired businesses;

 

environmental risks, including increasing environmental legislation and the impacts of climate change around the world; and

 

more regulations related to environmental, social and corporate governance (ESG) have become more stringent over time and resulted in additional costs or exposure to additional risks.

 

These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Quarterly Report on Form 10-Q are more fully described in Part II, Item 1A under the heading “Risk Factors.” and elsewhere in this Quarterly Report on Form 10-Q and the risk factors set forth in Part I, Item 1A Risk Factors, within our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 1, 2022. These factors are not exhaustive. Other sections of this Quarterly Report on Form 10-Q, such as our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 describe additional factors that could adversely affect the business, financial condition or results of operations of the Company and its consolidated subsidiaries. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward- looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

This report includes certain registered trademarks, including trademarks that are the property of the Company and its affiliates. This report also includes other trademarks, service marks and trade names owned by the Company or other persons. All trademarks, service marks and traded names included herein are the property of their respective owners. Use or display by us of other parties’ trademarks, trade dress, or products in this report is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owners.

 

iii

 

 

Part I - Financial Information

 

Item 1. Financial Statements

 

XL Fleet Corp.

 

Unaudited Condensed Consolidated Balance Sheets

March 31, 2022 and December 31, 2021

 

   March 31,   December 31, 
(In thousands, except share and per share amounts)  2022   2021 
       (audited) 
         
Assets        
Current assets:        
Cash and cash equivalents  $333,461   $351,676 
Restricted cash   150    150 
Accounts receivable, net   7,508    6,477 
Inventory, net   14,115    15,262 
Prepaid expenses and other current assets   1,992    1,040 
Total current assets   357,226    374,605 
Property and equipment, net   2,425    3,495 
Intangible assets, net   1,637    1,863 
Right-of-use asset   4,194    4,564 
Goodwill   
-
    8,606 
Other assets   115    88 
Total assets  $365,597   $393,221 
Liabilities and stockholders’ equity          
Current liabilities:          
Current portion of long-term debt  $67   $78 
Accounts payable   2,689    3,799 
Lease liability, current   1,092    900 
Accrued expenses and other current liabilities   8,143    11,856 
Total current liabilities   11,991    16,633 
Long-term debt, net of current portion   9    21 
Deferred revenue   864    691 
Lease liability, non-current   3,169    3,599 
Warrant liabilities   2,687    5,405 
Contingent consideration   319    541 
New market tax credit obligation(1)   
-
    4,521 
Total liabilities   19,039    31,411 
           
Commitments and contingencies (Note 14)   
 
    
 
 
           
Stockholders’ equity          
Common stock, $0.0001 par value; 350,000,000 shares authorized at          
March 31, 2022 and December 31, 2021; 141,955,196 and 140,540,671 issued          
and outstanding at March 31, 2022 and December 31, 2021, respectively.
   14    14 
Additional paid-in capital   462,032    461,207 
Accumulated deficit   (115,488)   (99,411)
Total stockholders’ equity   346,558    361,810 
Total liabilities and stockholders’ equity  $365,597   $393,221 

 

(1)Held by variable interest entity that was liquidated in February 2022

 

See notes to unaudited condensed consolidated financial statements.

 

1

 

 

XL Fleet Corp.

 

Unaudited Condensed Consolidated Statements of Operations

For the Three Months Ended March 31, 2022 and 2021

 

   Three Months
Ended March 31,
 
(In thousands, except per share and share amounts)  2022   2021 
Revenues  $4,763   $675 
Cost of revenues   5,196    1,391 
Gross loss   (433)   (716)
Operating expenses:          
Research and development   2,989    1,412 
Selling, general, and administrative expenses   11,658    7,958 
Impairment of goodwill   8,606    
-
 
Loss from operations   (23,686)   (10,086)
Other (income) expense:          
Interest expense, net   12    11 
Gain on extinguishment of debt   (4,527)   
-
 
Gain on asset disposal   (9)   
-
 
Change in fair value of obligation to issue shares of common stock   (361)   
-
 
Change in fair value of warrant liability   (2,717)   (72,005)
Other income   (7)   (6)
Net (loss) income  $(16,077)  $61,914 
Net (loss) income per share, basic  $(0.11)  $0.46 
Net (loss) income per share, diluted  $(0.11)  $0.42 
Weighted-average shares outstanding, basic   141,274,249    135,575,145 
Weighted-average shares outstanding, diluted   141,274,249    148,571,379 

 

See notes to unaudited condensed consolidated financial statements.

 

2

 

 

XL Fleet Corp.

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

 

   For the Three Months Ended March 31, 2022 
           Additional         
   Common Stock   Paid-In   Accumulated   Stockholders’ 
(In thousands, except share amounts)  Shares   Amount   Capital   Deficit   Equity 
                     
Balance at December 31, 2021   140,540,671   $14   $461,207   $(99,411)  $361,810 
Exercise of stock options   1,312,320    
-
    258    
-
    258 
Issuance of restricted stock   2,205    
-
    
-
    
-
    
-
 
Issuance of shares as contingent consideration relating to Quantum business acquisition   100,000    
-
    186    
-
    186 
Stock-based compensation expense   -    
-
    381    
-
    381 
Net Loss   -    
-
    
-
    (16,077)   (16,077)
                          
Balance at March 31, 2022   141,955,196   $14   $462,032   $(115,488)  $346,558 

 

   For the Three Months Ended March 31, 2021 
           Additional         
   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Equity 
                     
Balance at December 31, 2020   131,365,254   $13   $317,084   $(128,201)  $188,896 
Exercise of warrants   233,555    
-
    
-
    
-
    
-
 
Exercise of Public warrants   7,441,020    1    85,554    
-
    85,555 
Settlement of warrant liability upon exercise of warrants   -    
-
    47,162    
-
    47,162 
Settlement of warrant liability upon call of warrants   -    
-
    591    
-
    591 
Proceeds from PIC shares recapitalization   -    
-
    75    
-
    75 
Exercise of stock options   65,875    
-
    16    
-
    16 
Stock-based compensation expense   -    
-
    442    
-
    442 
Net Income   -    
-
    
-
    61,914    61,914 
                          
Balance at March 31, 2021   139,105,704   $14   $450,924   $(66,287)  $384,651 

 

See notes to unaudited condensed consolidated financial statements.

 

3

 

 

XL Fleet Corp.

 

Unaudited Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2022 and 2021

 

   Three Months Ended
March 31,
 
(In thousands)  2022   2021 
Operating activities:        
Net (loss) income  $(16,077)  $61,914 
Adjustments to reconcile net (loss) income to net cash used in operating activities:          
Changes in fair value of warrant liabilities   (2,717)   (72,005)
Stock-based compensation   381    442 
Gain on extinguishment of debt   (4,527)   
-
 
Bad debt expense   10    144 
Depreciation and amortization expense   556    219 
Impairment of goodwill   8,606    
-
 
Contingent consideration   
-
    14 
Change in fair value of obligation to issue shares of common stock    (361)   
-
 
Gain on asset disposal   (10)   
-
 
Change in operating right-of-use assets   129    9 
Interest on finance leases   10    3 
Debt discount   
-
    16 
Changes in operating assets and liabilities:          
Accounts receivable, net   (1,041)   2,843 
Inventory, net   1,147    (3,622)
Prepaid expenses and other current assets   (952)   21 
Other assets   (27)   (12)
Accounts payable   (1,110)   (1,309)
Accrued expenses and other current liabilities   (3,286)   1,361 
Deferred revenue   173    
-
 
Net cash used in operating activities   (19,096)   (9,962)
Investing activities:          
Return of deposit   780    
-
 
Purchases of property and equipment   (26)   (1,104)
Net cash provided by (used in) investing activities   754    (1,104)
Financing activities:          
Repayments of debt   (23)   (40)
Repayments under financing leases   (108)   (49)
Proceeds from recapitalization of PIC shares   
-
    75 
Proceeds from exercise of stock options   258    16 
Proceeds from exercise of Public Warrants   
-
    85,555 
Net cash provided by financing activities   127    85,557 
Net (decrease) increase in cash and cash equivalents and restricted cash:   (18,215)   74,491 
Cash and cash equivalents and restricted cash, beginning of period   351,826    329,791 
Cash and cash equivalents, and restricted cash at end of period  $333,611   $404,282 
Supplemental disclosure of cash flow information:          
Cash paid for interest  $18   $3 
Supplemental disclosures of noncash investing and financing information:          
Settlement of contingent consideration through issuance of shares  $186    
-
 
Settlement of warrant liability upon exercise of Public Warrants  $
-
   $47,162 
Settlement of warrant liability upon call of warrants  $
-
   $591 
Equipment financing  $
-
   $271 

 

See notes to unaudited condensed consolidated financial statements.

 

4

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 1. Organization and Description of Business

 

Description of Business: XL Fleet Corp. and its subsidiaries (“XL Fleet” or the “Company”) is a provider of fleet electrification solutions for commercial vehicles in North America, offering solutions for vehicle electrification (“Drivetrain”) and energy efficiency infrastructure solutions (“XL Grid”).

  

COVID-19 Worldwide Pandemic: On March 11, 2020, the World Health Organization characterized the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic and recommended containment and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world. These actions include travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

 

The Company has experienced, and may experience in the future, reduced operations and production line shutdowns at vehicle OEMs due to COVID-19, limitations on travel by the Company’s personnel and personnel of the Company’s customers, and future delays or shutdowns of vehicle OEMs or the Company’s suppliers.

 

The COVID-19 pandemic and the protocols and procedures the Company has implemented in response to the pandemic have caused some delays in operational activities. The full impact of the COVID-19 pandemic on its business and results of operations subsequent to March 31, 2022 will depend on future developments, such as the ultimate duration and scope of the outbreak and its impact on its operations and impact on its customers and industry partners.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of consolidated financial statement presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and Article 10 of Regulation S-X. The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries and variable interest entities, for which the Company was the primary beneficiary. The Company reports its consolidated financial information under two operating reportable segments: (i) Drivetrain and (ii) XL Grid. All significant intercompany transactions have been eliminated in consolidation.

 

Use of estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of expenses during the reporting period. The Company’s most significant estimates and judgments involve inventory reserves, deferred income taxes, warranty reserves, valuation of share-based compensation, the valuation of warrant liability, and the valuation of business combinations, including the fair values and useful lives of acquired assets and assumed liabilities and the fair value of purchase consideration. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to the Company’s financial statements.

 

Concentration of Credit Risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and trade receivables. At times, such cash may be in excess of the FDIC limit. At March 31, 2022 and December 31, 2021, the Company had cash deposited in a financial institution in excess of the $250 federally insured limit. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

With respect to trade receivables, the Company routinely assesses the financial strength of its customers and, as a consequence, believes that the receivable credit risk exposure is limited. As of March 31, 2022, two customers accounted for approximately 38% and 37% of accounts receivable, net. As of December 31, 2021, two customers accounted for approximately 74% and 11% of accounts receivable, net.

 

For the three months ended March 31, 2022 and March 31, 2021, two customers and three customers accounted for approximately 88% and 79% of revenues, respectively.

 

Cash, cash equivalents, and restricted cash: The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents include cash held in banks and money market accounts. Cash equivalents are carried at cost, which approximates fair value due to their short-term nature. The Company’s cash and cash equivalents are placed with high-credit quality financial institutions and issuers, and at times exceed federally insured limits. To date, the Company has not experienced any credit loss relating to its cash and cash equivalents.

 

Restricted cash: Restricted cash held at March 31, 2022 and December 31, 2021, consists of $150 for a bank deposit required for a letter of credit which is reserved for the Company’s California lease.

 

5

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 2. Summary of Significant Accounting Policies, continued

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets to the total amount shown in the condensed consolidated statements of cash flows:

 

   As of 
   March 31,
2022
   December 31,
2021
 
Cash and cash equivalents  $333,461   $351,676 
Restricted cash   150    150 
Total cash, cash equivalents, and restricted cash  $333,611   $351,826 

 

Accounts receivable, net: Accounts receivable are stated at the gross invoice amount, net of an allowance for doubtful accounts. The allowance for doubtful accounts is maintained at a level considered adequate to provide for potential account losses on the balance based on management’s evaluation of the anticipated impact of current economic conditions, changes in the character and size of the balance, past and expected future loss experience, among other pertinent factors. As of March 31, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was $158 and $148 respectively.

 

Inventory, net: Inventory is comprised of raw materials, work in process and finished goods. Inventory is stated at the lower of cost or net realizable value. Cost of raw material inventories include the purchase and related costs incurred in bringing the products to their present location and condition. The Company uses consistent methodologies to evaluate inventory for net realizable value and periodically reviews inventories for obsolescence and any inventories identified as slow moving or obsolete are initially reserved for and then written-off. As of March 31, 2022 and December 31, 2021, the Company’s inventory reserve for obsolescence was $4,349 and $2,863, respectively. The increase in the inventory reserve at March 31, 2022 reflects the restructuring undertaken and the related products that were eliminated.

 

Property and equipment, net: Property and equipment, net is stated at cost less accumulated depreciation, or if acquired in a business combination, at fair value as of the date of acquisition. Depreciation is calculated using the straight-line method, based upon the following estimated useful lives:

 

Equipment 5 years
Furniture and fixtures 3 years
Computer and related equipment 2 years
Software 2 years
Vehicles 5 years
Leasehold improvements Lesser of useful life of the asset or remaining life of the lease

 

Improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed as incurred. When property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is recorded in the statement of operations as a component of other (expense) income, net. 

 

Depreciation expense for the three months ended March 31, 2022 and 2021 was $218 and $103, respectively.

 

Intangible assets, net: Intangible assets are initially recorded at fair value and stated net of accumulated amortization and impairments. The Company amortizes its intangible assets that have finite lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized. Amortization is recorded over the estimated useful lives, which for developed technology is 4 years. The Company evaluates the recoverability of its definite lived intangible assets whenever events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, the Company estimates the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated by the assets using a risk-adjusted discount rate. To estimate the fair value of the assets, the Company uses market participant assumptions pursuant to ASC 820, Fair Value Measurement.

 

Amortization expense for the three months ended March 31, 2022 and 2021 was $226 and $116, respectively.

 

Fair value measurements: The Company follows the guidance in ASC Topic 820, Fair Value Measurement, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

 

6

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 2. Summary of Significant Accounting Policies, continued

 

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company can access at the measurement date.

 

Level 2: Significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect the Company’s judgment about the assumptions that market participants would use in pricing an asset or liability.

 

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

See Note 10 for additional information on assets and liabilities measured at fair value.

 

The Company believes its valuation methods are appropriate and consistent with other market participants, however the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

 

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, contingent consideration liability, long-term debt and warrant liability. The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximates fair value because of the short-term nature of those instruments.

 

Prepaid expenses and other current assets: Prepaid expenses and other current assets include prepaid insurance, prepaid rent, and supplies, which are expected to be recognized or realized within the next 12 months.

 

Impairment of long-lived assets: The Company reviews long-lived assets, including property and equipment and, intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that an asset group’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analysis in accordance with ASC 360-10, Impairment or Disposal of Long-Lived Assets, which requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset group is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value. As of March 31, 2022, the Company noted indicators that the carrying amount of its long-lived assets may not be recoverable. These indicators included significant operating losses and reduced market capitalization of the Company due to a decline in its stock price. The Company performed a test for impairment using estimated cash flows and determined that no impairment had occurred.

 

Impairment of goodwill: Goodwill represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is not amortized but instead is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. The Company has recorded goodwill in connection with its historical business acquisitions.

 

The Company performs its annual goodwill impairment assessment at October 1 each fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. An assessment can be performed by first completing a qualitative assessment on the Company’s single reporting unit. The Company can also bypass the qualitative assessment in any period and proceed directly to the quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of the reporting unit. Additionally, a significant change in business climate, a loss of a significant customer, increased competition, a sustained decrease in share price, or a decrease in estimated fair value below book value may trigger the need for interim impairment testing of goodwill.

 

 

7

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 2. Summary of Significant Accounting Policies, continued

 

If the Company believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to goodwill with a corresponding charge to earnings in the period the goodwill is determined to be impaired. The income tax effect associated with an impairment of tax-deductible goodwill is also considered in the measurement of the goodwill impairment. Any goodwill impairment is limited to the total amount of goodwill.

 

The Company determines the fair value of its reporting unit using the market approach. Under the market approach method, the Company compared its book value to the fair value of its public float, utilizing the fair value of its common stock on the measurement date.

 

In the first quarter of 2022, the Company believed there were indicators that the carrying amount of its goodwill may be impaired due to a decline in the Company’s stock price and market capitalization. As a result, the Company performed an assessment of its goodwill for impairment. The Company elected to forego the qualitative test and proceeded to perform a quantitative test. The Company compared the book value of its single reporting unit to the fair value of its public float. The market capitalization was below the fair value of the Company by an amount in excess of its reported value of goodwill. As a result, the Company recorded a charge of $8,606 to fully impair its goodwill.

 

Revenue: The Company’s revenue is derived from the sales of hybrid electric powertrain systems, the Drivetrain business, and turnkey energy efficiency, renewable technology, and other energy solutions (the Company’s “XL Grid” business). The Drivetrain products are marketed and sold to end-user fleet customers and channel partners in the United States and Canada. The Company’s XL Grid solutions are marketed and sold to municipalities, corporations and other businesses and principally funded through energy incentives provided through public and private utilities. The XL Grid business primarily consists of the operations acquired through the May 2021 World Energy acquisition. Sales of products and services are subject to economic conditions and may fluctuate based on changes in the industry, trade policies, financial markets, and funded energy incentives.

 

Revenue is recognized upon transfer of control to the customer, which occurs when the Company has a present right to payment, legal title has passed to the customer, the customer has the significant risks and rewards of ownership, and where acceptance is not a formality, the customer has accepted the product or service.

 

For the Drivetrain products, in general, transfer of control is upon shipment of the equipment as the terms are FOB shipping point or equivalent, as the Company has no other promised goods or services in its contracts with customers. In limited instances, the Company provides installation services to end-user fleet customers related to the purchased hybrid electric powertrain equipment. When provided, these installation services are not distinct within the context of the contract due to the fact that the end-use fleet customer is purchasing a completed modification to its vehicles and therefore, the installation services involve significant integration to integrate the hybrid electric powertrain equipment with the customer’s vehicle. As a result, the hybrid electric powertrain equipment and installation services represent a single performance obligation within these contracts with customers. The Company recognizes the revenue for the equipment sale and installation service for Drivetrain products at the same time, which is after the installation is complete. The Company has elected to treat shipping and handling activities related to contracts with channel partner customers for Drivetrain products as costs to fulfill the promise to transfer the associated equipment and not as a separate performance obligation.

 

For the XL Grid solutions, in general, transfer of control is upon the acceptance and certification of project completion by both the end customer and the utility who is funding the energy incentives, representing a single performance obligation of the Company. Due to the short-term nature of projects (typically two to three weeks), the Company recognizes revenues from all XL Grid solutions activities at a point in time, when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and the Company has the right to payment for the transferred asset. The Company also assesses multiple contracts entered into by the same customer in close proximity to determine if the contracts should be combined for revenue recognition purposes. During the duration of a project for XL Grid solutions, all direct material and labor costs and those indirect costs related to the project are capitalized, and customer deposits are treated as liabilities. Once a project has been completed and the energy efficiency upgrades have been deemed to meet client specifications, capitalized costs are charged to earnings.

 

For both Drivetrain and XL Grid solutions, when the Company’s contracts with customers contain multiple performance obligations, which is infrequent, the contract transaction price is allocated on a relative standalone selling price (SSP) basis to each performance obligation. The Company determines SSP based on observable selling prices for the sale of its systems. For extended warranties, the Company determines SSP based on expected cost plus margin. The Company establishes the margin based on review of market conditions and margins obtained by market participants for similar services. Any allocation of the transaction price required is determined at the contracts’ inception.

 

8

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 2. Summary of Significant Accounting Policies, continued

 

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods and services to the customer. Revenue is recorded based on the transaction price, which is solely made up of fixed consideration for its products and services. The Company does not adjust transaction price for the effects of a significant financing component when the period between the transfer of the promised good or service to the customer and payment for that good or service by the customer is expected to be one year or less. The Company has not identified any significant financing components to date. The Company’s sales can in certain instances include non-cash consideration in the form of the customer transferring to the Company, the customer’s rights to cash incentives from programs administered by municipalities related to hybrid vehicle programs that a customer is entitled to as a result of its purchase. The incentives are fixed amounts that are readily determinable. The Company values the non-cash consideration at its fair value, which generally is the amount of the incentive.

 

Payment terms on invoices generally range from 30 to 60 days. The Company excludes from revenue any sales tax and other government-assessed and imposed taxes on revenue generating activities that are invoiced to customers.

 

The Company has elected to apply the practical expedient to expense costs to obtain contracts, which principally relate to sales commissions, at the time the liability is incurred when the expected amortization period is one year or less.

 

Warranties: Customers who purchase Drivetrain products are provided limited-assurance-type warranties for equipment and work performed under the contracts. The warranty period typically extends for 3 years following transfer of control of the equipment. The warranties solely relate to correction of product defects during the warranty period, which is consistent with similar warranties offered by competitors. Therefore, the Company has determined that these warranties are outside the scope of ASC 606 and will continue to be accounted for under ASC 460, Guarantees. At the time of purchase of the equipment, customers may purchase from the Company an extended warranty for its equipment. The extended warranty commences upon the end of the assurance-based warranty period and is considered a separate performance obligation that represents a stand-ready obligation to perform warranty services after the assurance-type warranty expires. The transaction price allocated to the extended warranty is recognized ratably over the extended warranty period.

 

Customers of XL Grid solutions are provided limited-assurance-type warranties for a term of one year for installation work performed under its contracts. Warranties for equipment sold to customers are provided by the original equipment manufacturers.

 

For both Drivetrain and XL Grid solutions, the Company accrues the estimated cost of product warranties for unclaimed charges based on historical experiences and expected results. Should product failure rates and material usage costs differ from these estimated revisions to the estimated warranty liability are required. The Company periodically assesses the adequacy of its recorded product warranty liabilities and adjusts the balances as required. Warranty expense is recorded as a component of cost of product revenue in the statements of operations.

 

The following is a roll-forward of the Company’s accrued warranty liability:

 

   Three Months Ended
March 31,
 
   2022   2021 
Balance at the beginning of the period  $2,547   $1,735 
Accrual for warranties issued   28    44 
Warranty fulfillment charges   (172)   (82)
Balance at the end of the period  $2,403   $1,697 

 

The warranty liability is included in accrued expenses and other current liabilities on the Unaudited Condensed Consolidated Balance Sheets.

 

Share-based compensation: The Company accounts for its share-based compensation awards in accordance with ASC Topic 718, Compensation-Stock Compensation. The Company issues stock-based awards to acquire common stock to employees, directors and non-employee consultants. Awards issued under the Company’s stock-based compensation plans include stock options, restricted stock units and restricted stock awards. Stock options, restricted stock units and restricted stock awards typically contain service based vesting conditions.

 

Stock Options

 

The Company uses the Black-Scholes option pricing model to determine the fair value of stock-based awards and recognizes the compensation cost on a straight line basis over the requisite service period of the awards for employees, which is typically the four-year vesting period of the award, and effective contract period specified in the award agreement for non-employees.

 

The fair value of common stock is determined based on the closing price of the Company’s common stock on the New York Stock Exchange at each award grant date.

 

9

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 2. Summary of Significant Accounting Policies, continued

 

The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk- free interest rate and expected dividends. The Company does not have a history of trading in its common stock as it was not a public company until December 21, 2020, and as such volatility was estimated using historical volatilities of comparable public entities. The expected life of the awards is estimated based on a simplified method, which uses the average of the vesting term and the original contractual term. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected life of the awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are accounted for as they occur.

 

The fair value of stock options issued for the three months ended March 31, 2022 and 2021 was measured with the following assumptions:

 

    Three Months Ended
March 31
 
    2022     2021  
Expected volatility       86.0 – 86.4 %      78.1 – 79.9 %
Expected term (in years)       6.25       6.25  
Risk-free interest rate       1.4 – 1.7 %     0.4 – 0.5 %
Expected dividend yield       0.0 %     0.0 %

Restricted Stock Units

 

Restricted stock units generally vest over the requisite service periods (vesting on a straight–line basis). The fair value of a restricted stock unit award is equal to the fair market value of a share of the Company’s Common stock on the grant date. The Company accounts for the forfeiture of equity awards as they occur.

 

Warrant Liabilities: The Company evaluated the Private Warrants (“Private Warrants”) in accordance with ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity, and concluded that a provision in the Warrant Agreement related to such warrants (“Warrant Agreement”) related to certain tender or exchange offers precludes the Warrants from being accounted for as components of equity. As the Warrants met the definition of a derivative as contemplated in ASC 815, the Warrants were initially recorded at fair value as derivative liabilities on the Unaudited Condensed Consolidated Balance Sheets and measured at fair value at each reporting date in accordance with ASC 820, Fair Value Measurement, with changes in fair value recognized in the Unaudited Condensed Consolidated Statement of Operations in the period of change.

 

Segment Reporting: ASC Topic 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments, and major customers in its condensed consolidated financial statements. In the first quarter of 2022, the Company’s Chief Executive Officer, as the chief operating decision maker (“CODM”), reorganized the Company, for the management of resource allocations and measurement of performance, into two operating and reportable segments: (i) Drivetrain and (ii) XL Grid.

 

Research and development expense: Research and development costs did not meet the requirements to be recognized as an asset as the associated future benefits were at best uncertain and there was no alternative future use at the time the costs were incurred. Research and development costs include, but are not limited to, costs incurred in performing research and development activities, including salaries, benefits, facilities, research- related overhead, sponsored research costs, contracted services, license fees, and other external costs.

 

Net income (loss) per share: Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock and potentially dilutive securities outstanding during the period determined using the treasury-stock and if-converted methods. For purposes of the diluted income (loss) per share calculation, stock options, restricted stock units, restricted stock and warrants are considered to be potentially dilutive securities. Potentially dilutive securities were excluded from the calculation of diluted income (loss) per share when their effect would be anti-dilutive.

 

Related parties: A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

10

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 2. Summary of Significant Accounting Policies, continued

 

Recent accounting pronouncements issued and adopted:

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, (ASU 2016-13”)which, together with subsequent amendments, amends the requirement on the measurement and recognition of expected credit losses for financial assets held to replace the incurred loss model for financial assets measured at amortized cost and require entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 is effective for the Company beginning January 1, 2023. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) so that the transaction should be treated as an exchange of the original instrument for a new instrument. This standard is effective for the Company beginning January 1, 2022. The adoption of this update did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

 

Note 3. Business Combination

 

World Energy

 

On May 17, 2021, the Company acquired all of the issued and outstanding membership interests of World Energy, a privately-held, Massachusetts-based entity, and retained its principals and all of its employees. World Energy is a direct-install energy efficiency services company (“ESCO”), serving commercial, industrial and institutional customers as well as offering solar and electric vehicle charging solutions. World Energy enables utilities to meet their energy savings mandates by developing and executing energy efficiency projects. The acquisition of World Energy expanded the Company’s ability to deliver a comprehensive suite of energy savings services that enhances XL Grid’s solutions portfolio to include commercial and industrial EV charging, solar, and energy management services.

 

In March 2022, pursuant to the definitive acquisition agreement, the Company paid contingent consideration of $1,000 to the sellers pursuant to World Energy’s achievement, for the calendar year 2021, of minimum annual revenues of $19,500.

 

The following unaudited pro forma financial information presents the combined results of the operations of XL Fleet and World Energy as if the acquisition of World Energy had occurred as of January 1, 2021. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the acquisition been completed on January 1, 2021. This unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.

 

Since the acquisition occurred on May 17, 2021, the results of the acquisition are fully incorporated into the condensed consolidated financial information for the three months ended March 31, 2022. The following table presents the Company’s pro forma combined results of operations of XL Fleet and World Energy for the three months ended March 31, 2021 as if the acquisition of World Energy had occurred as of January 1, 2021:

 

   2021 
Revenues  $5,615 
Net income  $62,812 
Per share amounts: Net income per share – basic  $0.46 
Net income per share - diluted  $0.42 

 

The above pro forma information includes a pro forma adjustment to eliminate interest expense associated with debt that was repaid in the acquisition of World Energy of $21 for the three months ended March 31, 2021.

 

Note 4. Settlement of Contingent Consideration Quantum

 

On October 4, 2019, pursuant to the terms of an asset purchase agreement, the Company acquired certain assets of Quantum Fuel Systems, LLC (“Quantum”) The purchase consideration included deferred payments or share issuances upon certain milestones being met.

 

11

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 4. Settlement of Contingent Consideration Quantum, continued

 

During the three months ended March 31, 2022, the remaining final payments were made to the sellers of Quantum as follows pursuant to the asset purchase agreement:

 

Second milestone event which was met upon the achievement of certain product development criteria as outlined in the asset purchase agreement. In connection with having achieved the second milestone, in February 2022 the Company paid cash consideration of $475 and issued 50,000 shares of the Company’s common stock.

 

Third milestone event which was met upon the successful demonstration of a prototype as outlined in the asset purchase agreement. In connection with having achieved the third milestone, in February 2022 the Company paid cash consideration of $475 and issued 50,000 shares of the Company’s common stock.

 

Note 5. Revenue

 

The following table represents the Company’s revenues for the three months ended March 31, 2022 and 2021, respectively, disaggregated, by sales channel.

 

Disaggregation of revenue:

 

   Three Months Ended
March 31
 
   2022   2021 
         
Revenue from the sale of Drivetrain systems:        
Revenue direct to customers  $548   $111 
Revenue through channel partners   50    564 
           
Revenue from the sale of XL Grid solutions – which are sold direct to customers   4,165    
-
 
Total revenue  $4,763   $675 

 

Remaining performance obligations: At March 31, 2022 and December 31, 2021, there was approximately $233 and $237 in deferred revenue related to unsatisfied extended warranty performance obligations, respectively. During the three months ended March 31, 2022, the Company recognized revenue of $4 from the December 31, 2021 deferred revenue balance.

 

Contract Balances: The timing of revenue recognition, billings and cash collections results in billed trade accounts receivable, and deferred revenue (contract liabilities) on the unaudited Condensed Consolidated Balance Sheets. In addition, the Company defers certain costs incurred to obtain a contract (contract costs).

 

Costs to obtain a contract: Sales commissions paid to internal sales personnel, as well as associated payroll taxes and retirement plan contributions (together, sales commissions and associated costs) that are incremental to the acquisition of customer contracts, are capitalized as contract acquisition cost on the balance sheet when the period of benefit is determined to be greater than one year. In instances where an extended warranty is sold, the period of benefit would extend beyond 12 months and therefore, the practical expedient would not be met for those contracts and require capitalization of the related costs to obtain those contracts. The Company has elected to allocate the capitalized commissions to performance obligations on a relative basis (i.e., in proportion to the transaction price allocated to each performance obligation) to determine the period of amortization. As a result, substantially all of the commission is allocated to the combined equipment and installation performance obligation and is amortized upon transfer of control of this performance obligation, which typically occurs in the same period in which commission liability is incurred. Total commission expense recognized during the three months ended March 31, 2022 and 2021 was $278 and $256, respectively. There were no capitalized commissions as of March 31, 2022 and December 31, 2021.

 

12

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 6. Purchase of Convertible Note 

 

On July 15, 2021, XL Fleet made an investment of $3,000 into eNow, a developer of solar and battery power systems that is developing fully-electric transport refrigeration units (“eTRUs”) for commercial trailers. In exchange for the investment, eNow issued to the Company a convertible debenture (the “eNow Convertible Note”) dated July 15, 2021 (the “Issuance Date”) in the original principal amount of $3,000, at the rate of 8% per annum and due on December 31, 2022. The investment was classified as an available-for-sale security. After reviewing the status of eNow’s financial condition on December 31, 2021, the Company determined that the investment in the eNow Convertible Note was fully impaired and as such, on such date, recorded an impairment charge of $3,000. Under certain circumstances, the eNow Convertible Note could be converted into Series B preferred stock.

 

In addition to the terms described above, on July 15, 2021 (“Effective Date”), XL Fleet entered into a Development and Supply Agreement (the “Development and Supply Agreement”) with eNow, whereby XL Fleet was made the exclusive provider of high voltage batteries and associated power systems for use in eNow eTRUs. The Company considered the existence of adverse conditions regarding the global supply chain crisis (electronic hardware, lithium ion cells and batteries) that causes further impediments to eNow being able to execute on its business plan. XL Fleet evaluated the supply chain issues, specifically the lack of availability of batteries from third party suppliers. During the three months ended December 31, 2021, the supply chain issues worsened, and in particular the lack of availability of batteries from third party suppliers. These worsened conditions, in the Company’s opinion, negatively impacted eNow’s prospects and financial condition. In January 2022, due to the ongoing supply chain issues, the Company notified eNow of its intention to terminate the Development and Supply Agreement (See Note 10).

 

Note 7. Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consisted of the following at March 31, 2022 and December 31, 2021:

 

   As of 
   March 31,
2022
   December 31,
2021
 
Accrued warranty costs  $2,403   $2,547 
Accrued compensation and related benefits   2,160    2,254 
Contingent purchase price consideration – Quantum   
-
    1,950 
Deferred purchase price consideration – World Energy   234    278 
Accreted contingent compensation to sellers – World Energy   
-
    1,000 
Professional fees   1,066    949 
Accrued settlements   494    494 
Accrued expenses, other   1,786    2,384 
   $8,143   $11,856 

 

Note 8. New Markets Tax Credit Financing

 

On March 4, 2015, the Company entered into a financing transaction with U.S. Bancorp Community Development Corporation (U.S. Bank) under a qualified New Markets Tax Credit (“NMTC”) program related to the operation of the Company’s facility in Quincy, Illinois. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the Act) and is intended to encourage capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity of community development entities (CDEs). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments.

 

In connection with the financing, the Company made two loans totaling $10,454 to federal ($6,455 at 1.51%) and state ($3,999 at 1.53%) NMTC investment funds (the Investment Funds). Simultaneously, U.S. Bank made an equity investment of $4,995 to the Investment Funds and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC. For compliance with the NMTC rules, principal payments on the loan would not begin until June 10, 2025 (the NMTC rules prohibit principal payments during the 7-year term of the NMTC arrangement). The maturity date on the loans would have been December 31, 2044.

 

The Investment Funds then contributed the loan proceeds to a CDE, which, in turn, loaned combined funds of $15,000, net of debt issuance costs of $546, to XL Hybrid Quincy, LLC, a wholly-owned subsidiary of the Company, at an interest rate of 1.15% per year with a maturity date of March 4, 2045. These loans were secured by the leasehold improvements and equipment at the facility in Quincy, Illinois. Repayment of the loans would have commenced March 10, 2025. The proceeds from the loans from the CDE were used to partially fund the build-out of the facility in Quincy, Illinois.

 

13

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 8. New Markets Tax Credit Financing, continued

 

The transaction included a put/call feature whereby, at the end of the seven-year NMTC compliance period, the Company may have been obligated or entitled to repurchase U.S. Bank’s equity interest in the Investment Funds. U.S Bank exercised the put option in January 2022 the end of the recapture period. The value attributable to the put/call was nominal.

 

The Company had determined that the financing arrangement with the Investment Fund and CDEs contained a variable interest entity (“VIE”). As such, the Company concluded that it was the primary beneficiary of the VIE and consolidated the Investment Fund, as a VIE, in accordance with the accounting standards for consolidation. Because the Company consolidated an entity from which it has an approximately $10,500 loan receivable and consolidated an entity to which it owes an approximately $15,000 loan payable through December 31, 2021, these two balances partially eliminated against each other in consolidation. The VIE was terminated upon the exercise of the put option.

 

During the three months ended March 31, 2022 and 2021, the Company amortized debt issuance costs related to the NMTC of $0 and $78, respectively. The unamortized balance of debt issuance costs as of March 31, 2022 and December 31, 2021 was $0 and $20, respectively.

 

On January 14, 2022, the NMTC financing arrangement was terminated and settled, with the note receivable of $15,000 (owed by XL Hybrid Quincy) being transferred to XL Hybrids LL in payment of the $10,500 note receivable. Both notes were retired resulting in the recognition of a gain on forgiveness of debt, net of unamortized debt issuance costs, of $4,527 for the three months ended March 31, 2022.

 

Note 9. ROU Assets and Lease Liabilities

 

The Company’s ROU assets and lease liabilities are comprised of the following:

 

   As of 
   March 31,   December 31, 
   2022   2021 
Operating leases:      
Right-of-use assets  $3,185   $3,443 
Lease liability, current   427    451 
Lease liability, non-current   2,943    3,056 
Finance leases:          
Right-of-use assets   1,008    1,121 
Lease liability, current   666    449 
Lease liability, non-current   226    543 

 

Other information related to leases is presented below:

 

   For the Three Months Ending
March 31,
 
   2022   2021 
Other information:        
Operating lease cost  $227   $179 

 

   For the Three Months Ending
March 31,
 
   2022   2021 
Operating cash flows from operating leases  $240   $141 
Weighted-average remaining lease term – operating leases (in months)   81.1    92.2 
Weighted-average discount rate – operating leases   9.7%   9.6%

 

As of March 31, 2022, the annual minimum lease payments of our operating lease liabilities were as follows:

 

For The Years Ending December 31,    
2022 (excluding the three months ended March 31, 2022)   549 
2023   730 
2024   694 
2025   709 
2026   555 
Thereafter   1,416 
Total future minimum lease payments, undiscounted   4,653 
Less: imputed interest   (1,283)
Present value of future minimum lease payments  $3,370 

 

14

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 10. Fair Value Measurements

 

Mark-to-Market Measurement

 

The Private Warrants were valued using a Black-Scholes model, pursuant to the inputs provided in the table below:

 

   Mark-to-Market
Measurement 
   Mark-to-Market
Measurement
 
   at March 31,   at December 31, 
Input  2022   2021 
Risk-free rate   2.439%   1.111%
Remaining term in years   3.725    3.98 
Expected volatility   94.35%   88.77%
Exercise price  $11.50   $11.50 
Fair value of common stock  $1.99   $3.31 

 

The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy:

 

   Fair Value Measurements as of
March 31, 2022
   Level I  Level II  Level III  Total
             
Liability:            
Private Warrants  $
     -
   $
     -
   $2,687   $2,687 
Earnout – World Energy  $
-
   $
-
   $325   $325 
Total  $
-
   $
-
   $3,012   $3,012 

 

   Fair Value Measurements as of
December 31, 2021
   Level I  Level II     Level III      Total
             
Liability:            
Private warrants  $
      -
   $
    -
   $5,404   $5,404 
Contingent consideration – Quantum  $
-
   $
-
   $1,950   $1,950 
Earnout – World Energy  $
-
   $
-
   $1,000   $1,000 
Fair value of obligation to issue shares of common stock to sellers of World Energy  $
-
   $
-
   $541   $541 
Total  $
-
   $
-
   $

8,895

   $

8,895

 

 

15

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 10. Fair Value Measurements, continued

 

The following is a roll forward of the Company’s Level 3 instruments:

 

   For the
Three Months Ended
March 31,
2022
 
   Liability 
Balance, January 1, 2022  $8,895 
Fair value adjustment – Quantum contingent consideration   (145)
Cash settlement of Quantum liability   (950)
Share settlement of Quantum liability   (186)
Cash settlement of World Energy liability   (1,000)
Fair value adjustments – Warrant liability   (2,717)
Fair value adjustments – World Energy   (216)
Adjustment – Quantum liability   (669)
Balance, March 31, 2022  $3,012 

 

Note 11. Share-Based Compensation Expense

 

Share-based compensation expense for stock options, restricted stock awards and restricted stock units for the three months ended March 31, 2022 and 2021 was $381 and $442, respectively. As of March 31, 2022, there was $4,739 of unrecognized compensation cost related to stock options which is expected to be recognized over the remaining vesting periods, with a weighted-average period of 2.8 years.

 

Stock Options

 

During the three months ended March 31, 2022 the Company issued 12,421 options to certain employees that will vest over a period of one to four years.

 

A summary of stock option award activity for the three months ended March 31, 2022 was as follows:

 

Options  Shares   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
 
             
Outstanding at December 31, 2021   9,737,292   $1.40    7.2 
Granted   12,421    1.98      
Exercised   (1,307,020)   0.24      
Cancelled or forfeited   (613,823)   3.06      
Outstanding at March 31, 2022   7,828,870   $1.45    7.1 
Exercisable at March 31, 2022   6,307,222   $0.57    6.7 

 

The aggregate intrinsic value of stock options outstanding as of March 31, 2022 was $11,215. The aggregate intrinsic value of stock options exercisable as of March 31, 2022 was $10,622. Cash received from options exercised for the three months ended March 31, 2022 and 2021 was $258, and $16, respectively.

 

16

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 11. Share-Based Compensation Expense, continued

 

Restricted Stock Awards

 

The fair value of restricted stock awards is estimated by the fair value of the Company’s Common Stock at the date of grant. Restricted stock activity during the three months ended at March 31, 2022 was as follows:

 

   Number of
Shares
   Weighted
Average
Grant Date
Fair Value
Per Share
 
         
Non-vested, at December 31, 2021   446,332   $0.24 
Granted   
-
    
-
 
Vested   
-
    
-
 
Cancelled or forfeited   
-
    
-
 
Non-vested, at March 31, 2022   446,332   $0.24 

 

Restricted Stock Units

 

During the three months ended March 31, 2022, the Company issued 9,098 restricted stock units to certain employees that will vest over a period of four years.

 

The fair value of restricted stock unit awards is estimated by the fair value of the Company’s Common Stock at the date of grant. Restricted stock unit activity during the three months ended at March 31, 2022 was as follows:

 

   Number of
Shares
  

Weighted
Average 

Grant Date

Fair
Value Per
Share

 
         
Non-vested, at December 31, 2021   604,433   $6.06 
Granted   9,098    2.01 
Vested   
-
    
-
 
Cancelled or forfeited   (134,371)   6.49 
Non-vested, at March 31, 2022   

479,160

   $5.86 

 

17

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 12. Related Party Transactions

 

Operating lease: In March 2012, the Company entered into a noncancelable lease agreement for office, research and development, and vehicle development and installation facilities with an investor of the Company. On February 28, 2021, the lease term was extended through February 28, 2022. The lease includes a rent escalation clause, and rent expense is being recorded on a straight-line basis. On December 31, 2021, the lease term was extended through August 31, 2022.

 

Rent expense under the operating lease for the three months ended March 31, 2022 and 2021 was $58 and $55, respectively.

 

Future minimum lease payments for this lease are as follows:    
2022   97 
Total  $97 

 

Note 13. Restructuring

 

In the first quarter of 2022, the Company conducted a strategic review of its operations. The results of this review resulted in the following actions being taken: (1) the closure of the Company’s production center and warehouse in Quincy, IL; (2) the termination of engineering activities in the Company’s Boston office; (3) elimination of all of the Company’s plug-in hybrid products and a substantial majority of the Company’s hybrid drivetrain products; (4) a reduction of the Company’s workforce of 51 employees’ and (5) the termination of the Company’s partnership with eNow. The Company recognized a total charge of $2,358 related to these activities in the first quarter of 2022.

 

In connection with the Company’s reduction in its workforce, the Company incurred severance charges totaling $840 of which was $725 was paid in the first quarter of 2022 and the remainder will be paid in the second and third quarters of 2022. The severance charges were included in selling, general and administrative expenses in the consolidated statement of operations. The remaining unpaid amount of $115 is included in accrued expenses and other current liabilities in the consolidated balance sheet at March 31, 2022.

 

In connection with the Company’s decision to exit certain product lines, the Company incurred an inventory obsolescence charge, included in cost of revenues, of $1,518 in the first quarter of 2022.

 

Note 14. Commitments and Contingencies

 

Sponsorship commitment: On February 24, 2021, the Company agreed to a sponsorship agreement with several entities related to the UBS Arena, Belmont Park and the NY Islanders Hockey Club. Pursuant to that Agreement, the Company was designated an “Official Electric Transportation Partner of UBS Arena” with various associated marketing and branding rights, including the development of electric vehicle charging stations. Through March 31, 2022, the Company has incurred costs of approximately $700 related to a future opportunity to develop electric vehicle charging stations on the UBS Arena area. The sponsorship agreement has a term of three years with a sponsor fee of approximately $500 per year, of which $250 was paid on June 25, 2021 and the second payment of $250 was accrued on December 31, 2021 and paid on January 14, 2022. One of the directors of XL Fleet is a co-owner of the NY Islanders Hockey Club. In the first quarter of 2021, the Company notified the counterparties that it would be exercising its option to terminate the final two years of the agreement.

 

The Company terminated the Sponsorship Agreement effective June 1, 2022 and will incur no further sponsor fees.

 

Equipment purchase: On March 1, 2021, the Company entered into an agreement with Creative Bus Sales, Inc. (“Creative) to purchase six low floor electric transit buses to be delivered in 2022 for a total purchase price of $4,191. In connection with this agreement, on March 2, 2021, the Company made a down-payment of $780. During February 2022, the Company terminated its purchase agreement with Creative and received a refund of the down payment of $780.

 

Purchase commitments: The Company has entered into firm commitments to purchase batteries and motors from major suppliers. As of March 31, 2022, these purchase obligations consisted of an obligation of $2,533 to purchase motors by July 2022 and an open ended commitment of $2,500 to purchase batteries, and an obligation of $343 to purchase chip-sensitive items including telematics modules and inverters.

 

Legal proceedings: The Company is periodically involved in legal proceedings, legal actions and claims arising in the normal course of business, including proceedings relating to product liability, intellectual property, safety and health, employment and other matters. Management believes that the outcome of such legal proceedings, legal actions and claims will not have a significant adverse effect on the Company’s financial position, results of operations or cash flows.

 

Beginning on March 8, 2021, two putative securities class action complaints were filed in federal district court for the Southern District of New York against the Company and certain of its current and former officers and directors. Those cases were consolidated and a lead plaintiff appointed in June 2021, and an amended complaint filed on July 20, 2021 alleging that certain public statements made by the defendants between October 2, 2020 and March 2, 2021 violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Company believes that the allegations asserted in the amended complaint are without merit, and the Company intends to vigorously defend the lawsuit. There can be no assurance, however, that the Company will be successful. At this time, the Company is unable to estimate potential losses, if any, related to the lawsuit.

 

18

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 14. Commitments and Contingencies, continued

 

On September 20, 2021, and October 19, 2021 two class action complaints were filed in the Delaware Court of Chancery against certain of the Company’s current officers and directors, and the Company’s sponsor, Pivotal Investment Holdings II LLC. The actions were consolidated as Inre XL Fleet (Pivotal) Stockholder Litigation, C.A. No. 2121-0808, and amended complaint was filed on January 31, 2022. The amended complaint alleges various breaches of fiduciary duty, and aiding and abetting breaches of fiduciary duty, for purported actions relating to the negotiation and approval of the December 21, 2020 merger and organization of legacy XL to become XL Fleet Corp., and purportedly materially misleading statements made in connection with the merger. The Company believes that the allegations asserted in both the Laidlaw and Janmohamed Complaint are without merit, and the Company intends to vigorously defend the lawsuit.

 

On January 6, 2022, the Company received a subpoena from the Securities and Exchange Commission (the “SEC”) requesting the production of certain documents related to, among other things, the Company’s business combination with XL Hybrids, Inc. and the related PIPE financing, the Company’s sales pipeline and revenue projections, purchase orders, suppliers, CARB approvals, fuel economy from our Drivetrain products, customer complaints, and disclosures and other matters in connection with the foregoing. The SEC has informed the Company that its current investigation is a fact-finding inquiry. The SEC has also informed the Company that the investigation does not mean that it has concluded that anyone has violated the law and does not mean that it has a negative opinion of any person, entity or security. We intend to provide the requested information and cooperate fully with the SEC investigation. 

 

Note 15. Leadership Transition

 

On January 31, 2022, the Company’s Chief Financial Officer resigned. An interim replacement served until April 11, 2022, when Mr. Don Klein was appointed as Chief Financial Officer.

 

On March 21, 2022, Thomas (Tod) Hynes III resigned as the Company’s President and from its Board of Directors and he and the Company entered into a separation agreement pursuant to which, provided that Mr. Hynes does not timely revoke the agreement and thereafter complies with its material terms, he will receive (i) separation pay in the form of a lump sum payment of $479,375 and (ii) nine months of employer paid COBRA premiums. Mr. Hynes has also agreed to chair the Company’s advisory board. His separation agreement also includes customary provisions including those regarding cooperation, non-solicitation, and a mutual release.

 

Note 16. Net (Loss) Income Per Share

 

The following is a reconciliation of the numerator and denominator used to calculate basic earnings per share and diluted earnings per share for the three months ended March 31, 2022 and 2021:

 

   As of March 31, 
   2022   2021 
Numerator:        
Net (loss) income  $(16,077)  $61,914 
           
Denominator:          
Weighted average share outstanding, basic   

141,274,249

    135,575,145 
           
Dilutive effect of options, warrants and restricted stock units   
-
    12,996,234 
           
Weighted average shares outstanding, basic and diluted   

141,274,249

    148,571,379 
           
Net (loss) income per share, basic  $(0.11)  $0.46 
           
Net (loss) income per share, diluted  $(0.11)  $0.42 

 

Potential dilutive securities, which include stock options, warrants and restricted stock units have been excluded from the computation of diluted net loss per share for the three months ended March 31, 2022 as the effect would be to reduce the net loss per share. Therefore, for this period the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. For the three months ended March 31, 2021, certain dilutive securities were excluded from the computation of diluted earnings per share as the effect would have been to increase net earnings per share.

 

19

 

 

XL Fleet Corp.

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in thousands, except share and per share data)

 

Note 16. Net (Loss) Income Per Share, continued

 

The number of shares underlying outstanding dilutive securities which have been excluded from the computation of diluted net loss per share above, are presented below:

 

   As of March 31, 
   2022   2021 
Stock options   

7,828,870

    24,000 
Private Warrants   4,233,333    
-
 
XL Legacy Warrants   
-
    
-
 
Restricted stock units   

479,160

    
-
 
Total   12,541,363    24,000 

 

Note 17. Retirement Plan

 

The Company has adopted a 401(k) plan to provide all eligible employees a means to accumulate retirement savings on a tax-advantaged basis. The 401(k) plan requires participants to be at least 21 years old. In addition to the traditional 401(k), eligible employees are given the option of making an after- tax contribution to a Roth 401(k) or a combination of both. Plan participants may make before tax elective contributions up to the maximum percentage of compensation and dollar amount allowed under the Internal Revenue Code. Participants are allowed to contribute, subject to IRS limitations on total annual contributions from 1% to 90% of eligible earnings. The plan provides for automatic enrollment at a 3% deferral rate of an employee’s eligible wages. The Company provides for safe harbor matching contributions equal to 100% on the first 3% of an employee’s eligible earnings deferred and an additional 50% on the next 2% of an employee’s eligible earnings deferred. Employee elective deferrals and safe harbor matching contributions are 100% vested at all times.

 

In connection with the acquisition of World Energy, the Company adopted the World Energy 401(k) plan whose features are the same as those of the XL Fleet’s 401(k) plan except that (i) Participants are allowed to contribute, subject to IRS limitations on total annual contributions from 1% to 100% of eligible earnings and (ii) the safe harbor non-elective contribution is equal to 3% of employee’s compensation.

 

Note 18. Segment Reporting

 

Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the CODM in allocating resources and in assessing performance. The Company’s CODM is its Chief Executive Officer. Prior to the first quarter of 2022, the Company had one operating segment. In the first quarter of 2022, the Company’s Chief Executive Officer, upon completion of a strategic review that began upon his hiring in December 2021, restructured the Company into two distinct operating segments: (i) Drivetrain and (ii) XL Grid. The Company’s CODM does not evaluate operating segments using asset or liability information.

 

Prior to the first quarter of 2022, the Company had one operating segment. In the first quarter of 2022, the Company’s Chief Executive Officer, upon the completion of a strategic review that began upon his hiring in December 2021, restructured the Company into two distinct operating segments: (i) Drivetrain and (ii) XL Grid. Included in Corporate are certain corporate expenses including executive, finance, information technology, and human resource expenses.

 

The Drivetrain segment provides fleet electrification solutions for commercial vehicles in North America while the XL Grid segment provides energy efficiency and infrastructure solutions to commercial customers.

 

The following table presents revenues and gross profit by reportable segment:

  

   Three Months Ended
March 31,
 
   2022   2021 
Revenues        
Drivetrain  $598   $675 
XL Grid   4,165    
-
 
Total  $4,763   $675 
Operating Profit          
Drivetrain (1)  $(5,905)  $(3,562)
XL Grid   (1,441)   (51)
Corporate (1)   (16,340)   (6,473)
Total  $(23,686)  $(10,086)

 

(1)Drivetrain operating profit for the three months ended March 31, 2022 includes a restructuring charge of $1,518 related to an inventory obsolescence charge from exiting certain product lines while Corporate operating profit for the three months ended March 31, 2022 includes a goodwill impairment charge of $8,606 and restructuring charges of $840 for severance charges related to the reduction in force of the Company’s workforce in the first quarter of 2022.

 

Note 19. Subsequent Events

 

Management has reviewed material events subsequent of the period ended March 31, 2022 and prior to the filing of financial statements in accordance with FASB ASC 855, Subsequent Events.

20

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our financial condition and results of operations. This discussion and analysis should be read together with our results of operations and financial condition and the audited and unaudited consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2022. In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. 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. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q and under “Risk Factors” in Item 1A of the Annual Report.

 

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 our consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

 

As used in this discussion and analysis, references to “XL,” “the Company,” “we,” “us” or “our” refer only to XL Fleet Corp. and its consolidated subsidiaries.

 

Overview

 

We are a provider of fleet electrification solutions for commercial vehicles in North America, offering our systems for vehicle electrification (our “Drivetrain” segment) and through our energy efficiency and infrastructure solutions business, including offering and installing charging stations to enable customers to effectively plug in their electrified vehicles (our “XL Grid” segment).

 

We have two operating segments, Drivetrain and XL Grid, and separately calculate the costs of our corporate operations. Our CEO, who is our chief operating decision maker evaluates the performance of our operating segments at the operating profit level. The CODM does not evaluate the performance of the operating segments on a balance sheet basis.

 

In over 10 years of operations, we believe that we have built a large customer base deploying Class 2-5 vehicles across North America. Our fleet electrification solutions for commercial vehicles provide the market with cost-effective hybrid solutions with on-board telematics that are available for sale and deployment across a broad range of popular vehicle chassis from the world’s leading OEMs. We launched our XL Grid Business in December 2020, and with the acquisition of World Energy Efficiency Services, LLC (“World Energy”) in May 2021, we are able to offer comprehensive solutions to commercial fleets to sustainably transform their operations.

 

Through the capabilities we acquired with World Energy, we are able to provide turnkey energy efficiency, renewable technology, electric vehicle charging stations and other energy solutions throughout New England, which adds capability and capacity to our XL Grid division. We currently sell most of our Drivetrains through a network of commercial vehicle upfitters.

 

21

 

 

In the first quarter of 2022, the Company conducted a strategic review which included assessing its offerings, strategy, processes and growth opportunities. While the Company is continuing to look at its business strategy, the Company made the following decisions in the first quarter of 2022 relating to a restructuring of its Drivetrain business: (i) the elimination of a substantial majority of the Company’s hybrid drivetrain products; (ii) the elimination of its Plug-In Hybrid Electric Vehicles (“PHEV”) products; (iii) the reduction in the size of the Company’s workforce by 51 employees; (iv) the closure of the Company’s production center and warehouse in Quincy, IL; (v) the closure of the Company’s engineering activities in its Boston office; and (vi) the termination of the Company’s partnership with eNow.

 

With our acquisition of World Energy, we became a provider of energy efficiency, renewable technology, electric vehicle charging stations, and other energy solutions to customers across the New England region. By leveraging our comprehensive solutions in combination with utility incentive programs, project management and financing, we assist companies throughout all aspects of the fleet vehicle electrification process. We provide full- service electric vehicle charger installations, including the assessment of a location’s electrical infrastructure, site layout of the charging area plan and equipment installation. In addition, World Energy provides solar solutions to commercial and industrial customers. We believe that the availability of robust electric vehicle charging and infrastructure solutions is critical to meeting the long-term fleet electrification goals of our customers which in turn will translate into growth opportunities for the Company.

 

Recent Developments

 

Leadership Changes: On March 21, 2022, Tod Hynes resigned his XL Fleet roles of President and a member of its board of directors. On April 11, 2022, XL Fleet appointed Donald P. Klein as Chief Financial Officer.

 

Public Health Emergency of International Concern: On March 11, 2020, the World Health Organization categorized the COVID-19 outbreak a “Public Health Emergency of International Concern” as global pandemic and recommended containment and mitigation measures.

 

As the coronavirus pandemic continues to evolve, we believe the extent of the impact to our business, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the coronavirus pandemic and its impact on the U.S. and global economies. Those primary drivers are beyond our knowledge and control, and as a result, at this time we are unable to predict the cumulative impact, both in terms of severity and duration, that the coronavirus pandemic will have on our business, operating results, cash flows and financial condition. Accordingly, it is reasonably possible that the estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term by these conditions, and if so, we may be subject to future impairment losses related to long-lived assets as well as changes to recorded reserves and valuations. In addition, we believe that the impact of the global microchip shortage that the entire vehicle industry is currently experiencing will adversely impact our operating results in fiscal year 2022 and possibly thereafter.

 

22

 

 

Key Factors Affecting Operating Results

 

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed in this Quarterly Report on Form 10-Q, below, and as more fully described in Part II, Item 1A under the heading “Risk Factors,” and within our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 1, 2022.

  

We are a provider in fleet electrification and energy efficiency infrastructure solutions. We have a strategy to leverage our existing products and sales channels to market. Key factors affecting our operating results include our ability to execute on the results of the Company’s strategic review, which includes narrowing the focus of the Company on the most profitable products and strategically reducing some aspects of the Company’s hybrid offering. There are challenges and risks to our plan to capture these opportunities, such as:

 

system architecture design choices must provide adequate functionality and value for customers;

 

component sourcing agreements must deliver targets for cost reduction while maintaining high quality and reliability;

  

sales and marketing efforts must be effective in forging the relationships to deliver these products to market and generate demand from the end users and channel partners;

 

 

OEMs and principal equipment component suppliers must be able to provide ample supply throughout the year to meet our Drivetrain sales goals. We have experienced interruptions in OEM vehicle supply amid a worldwide microchip shortage. This resulted in very limited OEM deliveries of new chassis to our commercial customers during 2021 and the first quarter of 2022. We are expecting some increase in deliveries in 2022, but there will likely be an ongoing significant adverse impact on vehicle deliveries resulting from the microchip shortage. This had a material and adverse impact on our operating results in fiscal year 2021 and is expected to continue in 2022; We have seen positive signs in terms of increased budgets from municipal customers, but we believe the OEM chip shortage is hindering the rebound in that area of the market, despite budget availability;

 

energy-efficiency upgrades must translate into bottom-line savings for our clients; and

 

our success will depend on our ability to make it easier, cheaper and simpler for companies to electrify their fleets.

 

23

 

 

Key Components of Statements of Operations

 

Research and Development Expense

 

Research and development expenses consist primarily of costs incurred for the discovery and development of our electrified powertrain offerings, which include:

 

personnel-related expenses including salaries, benefits, travel and share-based compensation, for personnel performing research and development activities;

 

fees paid to third parties such as consultants and contractors for outsourced engineering services;

 

expenses related to prototype materials, supplies and third-party services; and

 

depreciation for equipment used in research and development activities.

 

Selling, General and Administrative Expense

 

Selling, general and administrative expenses consist of personnel-related expenses for our corporate, executive, finance, sales, marketing and other administrative functions, expenses for outside professional services, including legal, audit and accounting services, as well as expenses for facilities, depreciation, amortization, travel, sales and marketing costs. Personnel-related expenses consist of salaries, benefits and share-based compensation. We expect our selling, general and administrative expenses to decrease in 2022 as we narrow our focus and take actions to align our team and resources with our short- term needs

 

 Other (Income) Expense, Net

 

Other income and expense consists of interest expense net of interest income, change in fair value of obligations to issue shares of common stock to sellers of World Energy, change in fair value of warrant liability, and gain (loss) on asset disposal.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include estimates related to warrant valuation, the valuation of the assets and liabilities related to the business combination of World Energy, reserves and net realizable value adjustments for inventory and warranty obligations, impairment assessments for goodwill and long-lived assets and valuation allowance as it relates to the realization of deferred tax assets. The Company’s critical accounting policies include revenue recognition and the accounting for business combinations. We base our estimates on historical experience and other market- specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions. The Company’s critical accounting policies include revenue recognition and the accounting for business combinations.

 

24

 

 

Results of Operations

 

Comparison of the Three Months Ended March 31, 2022 and 2021

 

The consolidated statements of operations for the three months ended March 31, 2022 and 2021 are presented below by operating segment and our corporate activities:

 

   For the Three Months Ended March 31,         
(in thousands, except per share amounts)  2022   2021   Change   % Change 
Revenues  $4,763   $675   $4,088    606%
Cost of revenues   5,196    1,391    3,805    274%
Gross loss   (433)   (716)   283    (40)%
Operating expenses:                    
Research, development and engineering expenses   2,989    1,412    1,577    112%
Selling, general and administrative expenses   11,658    7,958    3,700    46%
Impairment of goodwill   8,606    -    8,606    N.M. 
Total operating expenses   23,253    9,370    13,833    148%
Loss from operations   (23,686)   (10,086)   (13,600)   135%
Other (income) expense   (7,609)   (72,000)   64,391    (89)%
Net (loss) income  $(16,077)  $61,914   $(77,991)   (126)%
                     
(Loss) income per common share:                    
Basic  $(0.11)  $0.46   $(0.57)   (124)%
Diluted  $(0.11)  $0.42   $(0.53)   (126)%

 

   For the Three Months Ended March 31,         
(in thousands)  2022   2021   Change   % Change 
Drivetrain segment revenues  $598   $675   $(77)   (11.4)%
Drivetrain segment loss   (5,906)   (3,562)   (2,344)   66%

 

   For the Three Months Ended March 31,         
(in thousands)  2022   2021   Change   % Change 
XL Grid segment revenues  $4,165   $-   $4,165    N.M. 
XL Grid segment loss   (1,441)   (51)   (1,390)   2,725%

 

Revenues

 

Total revenues increased by $4.1 million, or 606%, to $4.8 million in the three months ended March 31, 2022 from $0.7 million for the first quarter of 2021. Drivetrain revenues of $0.6 million for the current quarter were flat compared to the prior year quarter. XL Grid revenues were $4.2 million for the three months ended March 31, 2022. This increase was the result of the acquisition of World Energy’s energy infrastructure solutions in the second quarter of 2021.

 

Cost of Revenues

 

Cost of revenues increased by $3.8 million, or 274%, to $5.2 million in the three months ended March 31, 2022 from $1.4 million for the first quarter of 2021. Cost of revenues for the Drivetrain segment increased by approximately $0.8 million to $2.2 million, primarily due to a charge of approximately $1.5 to write inventory down to net realizable value for certain components that were deemed obsolete, as the result of the Company’s plans to discontinue plug-in hybrid and scale back other hybrid platforms. Cost of revenues for the XL Grid segment were $3.0 million for the three months ended March 31, 2022 which were related to the acquisition of World Energy’s energy infrastructure solutions in the second quarter of 2021.

 

25

 

 

Gross Loss

 

Gross loss decreased by $0.3 million, to $0.4 million in the three months ended March 31, 2022 from $0.7 million for the first quarter of 2021. The improvement was primarily due to gross profit in the XL Grid segment with the acquisition of World Energy’s energy infrastructure solutions in the second quarter of 2021 partially offset by the Drivetrain segment gross loss which was driven by the charge for the inventory reserve.

 

Research, Development and Engineering

 

Research, development and engineering expenses increased by $1.6 million, or 112%, to $3.0 million in the three months ended March 31, 2022 from $1.4 million for the first quarter of 2021. The increase was solely attributable to research and development activities within the Drivetrain segment. The increase was principally attributable to $1.2 million in increased employee compensation, due to higher headcount prior to the reduction in force and higher research and development expenses related to the Company’s Curbtender project.

 

Selling, General and Administrative

 

Selling, general, and administrative expenses increased by $3.7 million, or 46%, to $11.7 million in the three months ended March 31, 2022 from $8.0 million for the first quarter of 2021. The increase was primarily due to the acquisition of World Energy in the second quarter of 2021 as well as severance charges of $1.4 million related to restructuring actions and the separation of the Company’s President and Chief Financial Officer in the first quarter of 2022. Higher compensation costs due to higher headcount (prior to the reduction in force on February 25, 2022) was offset by lower professional fees.

 

Impairment of Goodwill

 

In the first quarter of 2022, due to reductions in the Company’s stock price and related market capitalization, the Company performed an assessment of its goodwill for impairment. Based on its assessment, the Company concluded that the goodwill was fully impaired and recognized a charge to $8.6 million in the three months ended March 31, 2022.

 

Other (Income) Expense

 

Other income decreased by $64.4 million, or 89%, to $7.6 million in the three months ended March 31, 2021 from $72.0 million for the first quarter of 2021. The decrease was primarily due to a decrease of $69.3 million of income from the change in the fair value of the warrant liability which was the result of the decrease in the fair value of the Company’s Common Stock in 2022 compared to the same quarter of 2021. This was partially offset by a gain of $4.5 million the Company recognized on the extinguishment of debt during the three months ended March 31, 2022 related to the wind-down of the New Market Tax Credit obligation in January 2022.

  

Liquidity and Capital Resources

 

The Company’s cash requirements depend on many factors, including the execution of its business strategy and plan. The Company remains focused on carefully managing costs, including capital expenditures, maintaining a strong balance sheet, and ensuring adequate liquidity. The Company’s primary cash needs are for operating expenses, working capital and capital expenditures to support the growth in its business. Working capital is impacted by the timing and extent of the Company’s business needs. As of March 31, 2022, we had working capital of $345.2 million, including cash and cash equivalents of $333.5 million.

 

As part of its strategic review, the Company decided to narrow its operational focus in order to more effectively and judiciously execute on its strategy moving forward as well as to preserve cash. As part of this process, the Company strategically reduced some aspects of the hybrid offerings and limiting its products to those platforms and applications that are most scalable and provide the most substantial return on investment. As part of this narrowing of focus, the Company took actions in the first quarter of 2022 to align our team and resources with its near-term needs. As part of this, the Company eliminated 51 positions across the organization and incurred severance charges of $840.

 

The Company expects to continue to incur net losses in the short term, as it continues its strategic review. Based on the Company’s current liquidity, management believes that no additional capital will be needed to execute its current business plan over the next 12 months.

 

Other than the factors discussed in this section, the Company is not aware of any other trends, demands or commitments that would materiality affect liquidity or those that relate to its resources as of March 31, 2022.

 

Cash Flows Summary

 

Presented below is a summary of our operating, investing and financing cash flows:

 

   Three Months Ended 
   March 31, 
(in thousands)  2022   2021 
Net cash provided by (used in)        
Operating activities  $(19,096)  $(9,962)
Investing activities  $754   $(1,104)
Financing activities  $127   $85,557 
Net change in cash and cash equivalents  $(18,215)  $74,491 

 

26

 

 

Cash Flows Used in Operating Activities 

 

The Company’s cash flows from operating activities have historically been significantly affected by its cash investments to support the growth and operations of its business in areas such as research, development and engineering and selling, general and administrative expense and working capital. During the three months ended March 31, 2022, the Company has scaled back our Drivetrain, XL Grid and corporate operations, which is expected to reduce near term operating cash burn.

 

The net cash used in operating activities for the three months ended March 31, 2022 was $19.1 million. Uses of cash consisted principally of a net loss of $16.1 million, and a decrease of $3.3 million in accrued expenses and other current liabilities due to the payment of 2021 bonuses in the first quarter of 2022 as well the as the payment of $1.9 million of contingent consideration payments in the first quarter of 2022.

 

Cash Flows Provided by Investing Activities

 

The changes in cash flows from investing activities are related to purchases of property and equipment. The net cash provided by investing activities for the three months March 31, 2022 was principally $0.8 million from the return of a deposit for the acquisition of equipment made in 2021 for a project which the Company discontinued in the first quarter of 2022.

 

Cash Flows Provided by Financing Activities

 

The net cash provided by financing activities for the three months ended March 31, 2022 was $0.1 million which primarily consisted of $0.3 million in proceeds from the exercise of stock options offset by financing lease payments and repayments of long-term debt. For the three months ended March 31, 2021, the cash provided by financing activities primarily consisted of proceeds from the exercise of public warrants.

 

Off-Balance Sheet Arrangements

 

Through the date of its liquidation in the first quarter of 2022, the Company maintained the New Markets Tax Credit variable interest entity, which was reported within our consolidated financial statements. Other than this entity, the Company 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

 

The consolidated financial statements have been prepared in accordance with the generally accepted accounting principles of the U.S. as set forth in the Financial Accounting Standards Board’s Accounting Standards Codification (ASC), and we evaluate the various staff accounting bulletins and other applicable guidance issued by the SEC. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the consolidated balance sheet date, as well as the reported expenses incurred during the reporting periods. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to our consolidated financial statements.

 

While our significant accounting policies are described in the notes to our historical financial statements included elsewhere in this Quarterly Report on Form 10-Q (see Note 2 in the accompanying unaudited condensed consolidated financial statements), we believe that the following accounting policies require a greater degree of judgment and complexity: business combinations accounting, revenue recognition, warrant liabilities, reserves and net realizable value adjustments for the Company’s warranty liability and inventory, respectively, impairment of goodwill and the valuation of deferred tax assets Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

 

Business combinations

 

Revenue recognition

 

27

 

 

Warrant liabilities

 

Reserves and net realizable value adjustments for the Company’s warranty liability and inventory, respectively

 

Impairment assessment of goodwill and long-lived assets

 

Valuation of deferred tax assets

 

New and Recently Adopted Accounting Pronouncements

 

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required.

 

Item 4. Controls and Procedures.

 

Management’s Evaluation of our Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including the Company’s Chief Executive Officer ( Principal Executive Officer) and its Chief Financial Officer (Principal Financial Officer), as appropriate to allow timely decisions regarding required disclosures. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, the Company’s Principal Executive Officer and its Principal Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022. Management excluded its wholly-owned subsidiary, World Energy Efficiency Services, LLC from its assessment of internal control over financial reporting as of March 31, 2022 because this entity was acquired by the Company in purchase business combination during 2021.

 

Based on this evaluation, including the presence of material weaknesses as discussed below, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2022.

 

Notwithstanding the identified material weaknesses, management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows as of and for the periods present in accordance with U.S. GAAP.

 

Material Weaknesses in Internal Control over Financial Reporting

 

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its financial statements would not be prevented or detected on a timely basis. These deficiencies could result in misstatements to our financial statements that would be material and would not be prevented or detected on a timely basis.

 

In the course of preparing the financial statements for the year ended December 31, 2021, we identified separate material weaknesses in internal control over financial reporting, which relates to the ineffective design and implementation of Information Technology General Controls (“ITGC”) combined with the lack of properly designed management review controls to compensate for these deficiencies. The Company’s ITGC deficiencies included improperly designed controls pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial reporting. The Company’s management review controls include the review and approval of journal entries, account reconciliations, accounting estimates, and other technical accounting matters. The Company did not maintain sufficient evidence of certain of these review control activities. The ITGC deficiencies, combined with a lack of properly designed and implemented management review controls to compensate for these deficiencies, represent material weaknesses in the Company’s internal control over financial reporting as there is a reasonable possibility that a material misstatement with respect to the Company’s significant accounts and disclosures will not be prevented or detected on a timely basis.

 

28

 

 

Remediation Plan

 

Our management is in the process of developing a remediation plan. As of December 31, 2021, we had identified two material weaknesses in internal control over financial reporting that related to ITGCs and lack of properly designed management review controls to compensate for these deficiencies. Management has begun reviewing and reengineering the documentation associated with management review controls including the frequency of operation, the ownership of control activities, and the evidence retained documenting the execution of the control activities. Additionally, to address the material weakness related to ITGCs, management has developed a project plan for the information technology management team to take over the logical access for onboarding, changing and offboarding employee access to our systems. The information technology team will also perform user access reviews for in-scope systems on a periodic basis to ensure security over data included in its systems.

 

The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. Our management will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate.

 

While we believe that these efforts will improve our internal controls over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.

 

We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.

 

Inherent Limitations on Effectiveness of Controls

 

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. The Principal Financial and Accounting Officer and Chief Financial Officer are the same individual. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgement and breakdowns resulting from human failures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These include, for example, the possibility of human errors or mistakes, or of controls being circumvented by collusion or inappropriate management override. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Due to their inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. It is possible to design safeguards to reduce, but not eliminate, this risk. However these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2022, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

29

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

For a description of our material pending legal proceedings, see Legal Proceedings in Note 14, Commitments and Contingencies, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and incorporated herein by reference.

 

Item 1A. Risk Factors

 

Risk Factors

 

An investment in our securities is speculative and involves a high degree of risk. Before deciding whether to invest in our securities, you should consider carefully the risks described below, together with other information in this Quarterly Report on Form 10-Q and the other information and documents we file with the SEC, including our Annual Report. The occurrence of any of the following risks could have a material and adverse effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability to accomplish our strategic objectives. As a result, the trading price of our Common Stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and stock price.

 

For a discussion of our risk factors, see Part I, item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 1, 2022. There have not been any material changes to the risk factors disclosed in our Annual Report for the year ended December 31, 2021 other than those as set forth below:

 

Increases in costs, disruption of supply or shortage of raw materials, including lithium-ion battery cells could affect our business

 

In the production of our electrified powertrain solutions, we have experienced, and in the future may again experience, increases in the cost or a sustained interruption in the supply or shortage of our components. Any such increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results. The prices for our components fluctuate depending on market conditions and global demand and could adversely affect our business, prospects, financial condition and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for battery cells. These risks include:

 

  the inability or unwillingness of current battery manufacturers to build or operate battery cell production facilities to supply the numbers of battery 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;

 

  an increase in the cost of raw materials; and

 

  fluctuations or shortages in petroleum, inflation, and other economic conditions could cause us to experience significant increases in freight charges.

 

Any disruption in the supply of battery cells could temporarily disrupt production of our electrified powertrain solutions 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. Substantial increases in the prices for raw materials have in the past and may again in the future increase the cost of our components and consequently, the costs of products. There can be no assurance that we will be able to recoup increasing costs of our components by increasing prices, which could reduce our margins.

 

Also, the invasion of Ukraine by Russia has raised the stakes, pushing nickel and aluminum prices higher. Russia’s largest miner Normickel produces around 20% of the world’s supplies of high purity class 1 nickel, which is used in EV batteries, according to Benchmark Mineral Intelligence. Russia is also a larger provider of aluminum, used in batteries. The war in Ukraine could affect the sales of electric cars. The price of nickel, an essential ingredient in most batteries, has soared because of fear that Russia supplies could be cut off.

 

30

 

 

Global economic conditions and any related ongoing impact of supply chain constraints and the market of our product and service could adversely affect our results of operations.

 

The uncertain condition of the global economy as well as the current conflict between Russia and Ukraine, including the retaliatory economic measures taken by Unites States, European, and others continue impacting businesses around the world. The deterioration of the economic conditions or financial uncertainty to provide our services could reduce customers’ confidence and affect negatively our sales and results of operations. Also, the recent inflationary pressures have increased the cost of energy, raw material, and other indirect cost used in our business could adversely influence customer purchasing decisions. We cannot predict whether or when such circumstances may change, improve or worsen in the near future.

 

The Company is a party to several legal proceedings including a Securities and Exchange Commission investigation and two class action complaints. The costs to the Company to defend the class action complaints and cooperate and comply with the Securities and Exchange Commission investigation will be material and have an adverse impact on the Company’s statement of operations and cash flows.

 

The Company is a defendant in two separate class action complaints and has received a subpoena from the Securities and Exchange Commission requesting the production of certain documents related to, among other things, the Company’s business combination with XL Hybrids, Inc. and the related PIPE financing, the Company’s sales pipeline and revenue projections, purchase orders, suppliers, CARB approvals, fuel economy from our Drivetrain products, customer complaints, and disclosures and other matters in connection with the foregoing. For a description of these pending legal proceedings, see Legal Proceedings in Note 14, Commitments and Contingencies, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and incorporated herein by reference. The costs to the Company to defend the class action complaints and cooperate and comply with the Securities and Exchange Commission investigation will be material. These costs will have an adverse impact on the Company’s statement of operations and cash flows.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

31

 

 

Item 6. Exhibits

 

Exhibit No.   Description   Included   Form    Filing Date
10.1+   Executive Employment Agreement, dated November 1, 2021 by and between the Company and Eric Tech.   By Reference   8-K   November 1, 2021
10.2*   Transition and Separation from Employment Agreement dated October 30, 2021 by and between the Company and Dimitri Kazarinoff  

Herewith

       
10.3*   Transition and Separation from Employment Agreement dated January 26, 2022 by and between the Company and Cielo Hernandez  

Herewith

       
10.4*   Transition and Separation from Employment Agreement dated March 21, 2022 by and between the Company and Thomas Hynes III  

Herewith

       
31.1*   Certification of Principal Executive Officer Pursuant to Rule 13a- 14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.   Herewith        
31.2*   Certification of Principal Financial Officer Pursuant to Rule 13a- 14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.   Herewith        
32.1^*   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Herewith        
32.2^*   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Herewith        
101.INS*   Inline XBRL Instance Document   Herewith        
101.SCH*   Inline XBRL Taxonomy Extension Schema Document   Herewith        
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document            
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document   Herewith        
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document   Herewith        
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document   Herewith        
104*    Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).   Herewith        

 

*Filed herewith

 

+Indicates a management contract or compensatory plan or arrangement.

 

^ In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the registrant specifically incorporates it by reference.

 

32

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  XL FLEET CORP.
     
Date: May 10, 2022 By: /s/ Eric Tech
  Name:  Eric Tech
  Title: Chief Executive Officer  
    (Principal Executive Officer)
     
Date: May 10, 2022 By: /s/ Donald P. Klein
  Name: Donald P. Klein, Chief Financial Officer
  Title: Chief Financial Officer  
    (Principal Financial Officer and
Principal Accounting Officer)

 

 

33

 

 

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Exhibit 10.2

 

 

 

PRIVATE & CONFIDENTIAL

 

October 30, 2021

(Revised)

 

Mr. Dimitri Kazarinoff

1175 Bowline Drive

Vero Beach, Florida 32963

 

Re:Transition and Separation from Employment

 

Dear Dimitri:

 

As we have discussed, your employment with XL Fleet Corp. (the “Company”) shall end effective December 1, 2021 (the “Separation Date”). The purpose of this letter agreement (the “Transition and Separation Agreement”) is to set forth the terms of your separation from the Company. Provision of the Separation Benefits described in Section 3 of this Agreement is contingent on your agreement to and compliance with the terms of this Agreement, as set forth below. You have twenty-one (21) calendar days to review this Agreement and sign it if you wish. This Agreement shall become effective on the eighth (8th) day following the date on which you sign it (the “Effective Date”).

 

1. Transition Period; Employment Status. Your employment with the Company shall end on December 1, 2021 (the “Separation Date”). The period between October 30, 2021 and your Separation Date shall be referred to as the “Transition Period.” You agree that at all times during your employment with the Company, you must remain professional and agree to faithfully, diligently and to the best of your abilities undertake and perform all duties and responsibilities in your position and to abide by the rules, regulations, instructions, personnel practices and policies of the Company. Nothing herein alters the Company’s right to manage the business as it sees fit and to otherwise supervise you. Upon the Separation Date, provided that you have not been terminated for Cause as set forth below, you shall submit to the Board of Directors (the “Board”) a letter of resignation from your role as Chief Executive Officer pursuant to Section 2 below. As of and following the Separation Date, your employment with the Company shall conclude and you shall have no authority and shall not represent yourself as an employee or agent of Company.

 

(a) Roles and Duties. During the Transition Period, your employment shall continue pursuant to the terms and conditions of the employment agreement dated September 30, 2019 between you and the Company (the “Employment Agreement”), as modified by this Agreement, and remain subject to the Company’s policies that currently apply to your employment with the Company. During the Transition Period, you agree to perform all duties and responsibilities as may be assigned to you by the Board including, but not limited to: (a) continuing to meet with Company personnel regarding matters in which you have been involved during your employment; (b) assisting the Company in transitioning your job duties to other personnel; and (c) performing reasonable job duties as may be assigned to you, including but not limited to approval and signing of the Company’s quarterly report and related certifications. Upon the Effective Date of this Agreement, you shall execute the resignation letter attached hereto as Exhibit A and will resign from your position on the Board, which shall have immediate effect.

 

 

 

 

(b) Compensation and Benefits during Transition Period. If you: (i) execute and deliver a copy of this Agreement to the Company; (ii) do not revoke your acceptance of this Agreement during the seven (7)calendar day revocation period as described in Paragraph 9 below; and (iii) fully comply with the terms and conditions set forth in this Agreement, during the Transition Period: (1) the Company will continue to pay your current annualized base salary of Four Hundred Forty Thousand Dollars ($440,000)(the “Base Salary”), paid monthly in accordance with the Company’s normal payroll practices and shall be subject to the usual required withholdings; and (2) you will continue to receive Company benefits and participate in Company benefit plans on the terms currently in effect.

 

(c) Termination of Employment during Transition Period. The Company agrees that it will not terminate your employment during the Transition Period except for Cause. For purposes of this Agreement, “Cause” shall mean: (i) any act by you of gross negligence, willful misconduct or material dishonesty in the course of your employment hereunder that materially and adversely affects the business or affairs of the Company or any of its affiliates; (ii) your misappropriation (or attempted misappropriation) of any assets of the Company or any of its affiliates; (iii) your commission or attempted commission of any act of fraud or embezzlement; (iv) violation of any law or regulation which adversely and materially affects your ability to discharge your duties or has a direct, substantial and adverse effect on the Company; (v) your breach of this Agreement, including any covenant or representation contained herein; (vi) any other misconduct by you that adversely affects the business or affairs of the Company or any of its affiliates. In the event that you are terminated for Cause, such date of termination shall be the effective Separation Date, and you will not be entitled to any Separation Benefits (as defined in Paragraph 3 below) and will receive no further compensation, other than the Accrued Obligations (as defined in Section 2 below). In addition, in the event of your death prior to the Separation Date, your heirs, executors, personal representatives or administrators, or any person shall not be entitled to receive any Separation Benefits provided hereunder, unless such Separation Benefits have already been earned and vested and for which all conditions precedent, including without limitation the execution and non-revocation of the Supplemental Release, have been satisfied at the time of death.

 

2. Separation Date; Board Resignation. Your employment with the Company will end on the Separation Date, as described above. On the Separation Date, the Company will provide you with your final paycheck, which will include all salary and/or wages owed to you for work performed through the Separation Date, and unreimbursed business expenses incurred through the Separation Date in accordance with Company policy (the “Accrued Obligations”). Other than as provided herein, any entitlement you may have under a Company-provided benefit plan or program shall terminate as of the Separation Date, except as required by law and/or in accordance with plan or program terms. As of the Separation Date: (a) your employment with the Company shall conclude; (b) you no longer shall be entitled to payment of base salary, bonus or other form of compensation by virtue of your employment, except as set forth in this Agreement and (c) you shall not represent yourself as an employee or agent of the Company. In addition, you acknowledge and agree that, on the Separation Date, you shall execute the resignation letter attached hereto as Exhibit B and will resign from your position as Chief Executive Officer, effective immediately. In the absence of any other written resignation proffered to the Board, this Agreement shall constitute such a written resignation.

 

3. Separation Benefits. If you: (a) execute and do not revoke this Agreement and provide services during the Transition Period consistent with Section 1 above; (b) execute and deliver the Supplemental Release attached hereto as Exhibit C to the Company following your Separation Date; (c) do not revoke your acceptance of the Supplemental Release during the seven (7) calendar day supplemental release revocation period as described in Paragraph 4 of the Supplemental Release (the “Supplemental Release Revocation Period”); and (d) fully comply with the terms and conditions set forth in this Agreement and Supplemental Release, the Company agrees to provide you with the following separation benefits (together, the “Separation Benefits”):

 

(a) Severance Payments. The Company shall continue payments in an amount equal to your current base salary for a twelve (12) month period, less all customary and required taxes and employment-related deductions, in accordance with the Company’s normal payroll practices (the “Severance Payments”). The Company will commence payment of the Severance Payments on the first payroll date following the Separation Date following the Supplemental Release Revocation Period and your return of Company property, provided that if the time period during which the Agreement is required to become enforceable and irrevocable crosses a tax year, then the payments will be delayed until such subsequent calendar year; provided further that if such payments are delayed until such subsequent year, the first such payment shall be a lump sum in an amount equal to the payments that would have come due since the Separation Date.

 

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(b) Equity Acceleration; Extension of Exercise Period. Subject to the conditions above, as of the Separation Date, you shall become vested in the equity award to you on December 5, 2019 (the “Option Agreement”) to the extent the award would have vested during the twelve (12) month period following the Separation Date, i.e., you will be vested in options to purchase a total of 2,936,078 shares pursuant to the terms of this Agreement and the Option Agreement. To the extent applicable, the terms and conditions of the Company’s 2010 Equity Incentive Plan (the “Plan”) and the Option Agreement are expressly incorporated by reference and shall survive the signing of this Agreement. The Company agrees to extend the post-termination exercise period for any vested options as of the Separation Date from three (3) months following the Separation Date to a period of two (2) years following the Separation Date. You acknowledge and agree that allowing for an option that is currently an incentive stock option under Section 422 of the Internal Revenue Code to be exercised more than three months after termination of employment, other than by reason of death or disability, will result in the option being taxed as a non-qualified option, and that therefore, your vested options will be taxed as non- qualified options. Following the Separation Date, other than as provided herein, you shall not have any right to vest in any additional stock or stock options under the Plan, Option Agreement, or any other Company equity, stock or stock option plan (of whatever name or kind) that you may have participated in or were eligible to participate in during your employment.

 

(c) Benefits Payments. Upon completion of appropriate forms and subject to applicable terms and conditions under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall pay the COBRA premium payments (the “COBRA Payment”), until the earlier to occur of: (A) twelve (12) months following your Separation Date, or (B) the date you become eligible for medical benefits with another employer. Notwithstanding the foregoing, if your COBRA Payment would cause the applicable group health plan to be discriminatory and, therefore, result in adverse tax consequences to you, the Company shall, in lieu of the COBRA Payment, provide you with an equivalent monthly cash payment, minus deduction of all amounts required to be deducted or withheld under applicable law, for any period of time you are eligible to receive the COBRA Payment. You shall bear full responsibility for applying for COBRA continuation coverage and the Company shall have no obligation to provide you such coverage if you fail to elect COBRA benefits in a timely fashion.

 

(d) Miscellaneous Payments. Upon presentation of appropriate documentation, the Company shall reimburse you for the following expenses: (i) buy-out of your current lease in an amount of up to Thirteen Thousand Eight Hundred Twenty Dollars ($13,820); (ii) moving expenses in an amount up to Ten Thousand Dollars ($10,000) and (iii) reasonable attorney’s fees incurred by you in connection with the preparation of this Agreement in an amount of up to a maximum of Five Thousand Dollars ($5,000), which shall be paid within thirty (30) days of the Company’s receipt of appropriate invoice or documentation.

 

4. Acknowledgements and Affirmations. You acknowledge and agree that the Separation Benefits are not intended to and does not constitute a severance plan or confer a benefit on anyone other than the parties. You further acknowledge that except for the Separation Benefits and the Accrued Obligations, you are not now and shall not in the future be entitled to any other compensation from the Company including, without limitation, other wages, commissions, bonuses, incentive compensation, vacation pay, holiday pay, paid time off, stock, stock options, equity, or any other form of compensation or benefit. You further understand and agree that you would not receive the Separation Benefits except for your execution of this Agreement and the Supplemental Release, and the fulfillment of the promises contained therein. You further affirm as follows: (a) you have not filed, caused to be filed, or presently are a party to any claim against Employer; (b) you have paid and/or have received all compensation, wages, bonuses, commissions and/or benefits to which you may be entitled, except any payments for services performed during the Transition Period; (c) you have been granted any leave to which you were entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws; (d) that all of the Company’s decisions regarding your pay and benefits through the Effective Date of this Agreement were not discriminatory based on age, disability, race, color, sex, religion, national origin or any other classification protected by law; (e) you have no known workplace injuries or occupational diseases; (f) you have not divulged any proprietary or confidential information of the Company and will continue to maintain the confidentiality of such information consistent with Company policies and your agreement(s) with the Company and/or common law; (g) you have not been retaliated against for reporting any allegations of wrongdoing by the Company or its officers, including any allegations of corporate fraud; (h) you are not a Medicare or Medicaid beneficiary as of the date of this Agreement and, therefore, no conditional payments have been made by Medicare or Medicaid.

 

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5. No Contest of Unemployment. By virtue of your separation of employment, you shall be entitled to apply for unemployment benefits. The determination of your eligibility for such benefits (and the amount of benefits to which you may be entitled) shall be made by the appropriate state agency pursuant to applicable state law. Notwithstanding the foregoing, the Company agrees that it shall not contest any claim for unemployment benefits by you (please note that the Company shall not be required to falsify any information).

 

6. Covenants. You expressly acknowledge and agree to the following:

 

(a) Employee Covenants Agreement. In light of the competitive and proprietary aspects of the business of the Company, you acknowledge that you executed an Employee Covenants Agreement with XL Hybrids, Inc. dated September 30, 2019, attached as Exhibit D hereto (the “Covenants Agreement”). You expressly reaffirm the terms and provisions of the Covenants Agreement, which shall survive the execution of this Agreement. By signing below, you agree and consent to the assignment herein of the Covenants Agreement from XL Hybrids, Inc. to the Company, pursuant to Section 5(g) of the Covenants Agreement.

 

(b) Return of Property and Records. Within seven (7) business days following the Separation Date, you shall: (i) return to the Company all tangible business information and copies thereof (regardless how such confidential information or copies are maintained), and (ii) deliver to the Company any property of the Company which may be in your possession, including, but not limited to, devices, smart phones, laptops, cell phones (the foregoing, “electronic devices”), products, materials, memoranda, notes, records, reports or other documents or photocopies of the same. You may retain copies of any exclusively personal data contained in or on the Company-owned electronic devices returned to the Company pursuant to the foregoing. The foregoing notwithstanding, you understand and agree that the Company property belongs exclusively to the Company, it should be used for Company business, and you have no reasonable expectation of privacy on any Company property or with respect to any information stored thereon.

 

(c) Cooperation. You shall cooperate fully with the Company in connection with any matter or event relating to your employment or events that occurred during your employment, including, without limitation, assisting with: (i) the transition of your responsibilities and duties to other personnel of the Company for a period of one (1) year following the Separation Date; (ii) the defense or prosecution of any claims or actions now in existence or which may be brought or threatened in the future against or on behalf of the Company and (iii) any investigation or review of any federal, state or local regulatory authority. Your cooperation in connection with such matters, actions and claims shall include, without limitation, being available to provide information to, and if requested to meet with, the Company or its counsel to prepare for, attend and participate in any proceeding (including, without limitation, depositions, consultation, discovery or trial); to provide affidavits; to assist with any audit, inspection, proceeding or other inquiry; and to act as a witness in connection with any litigation or other legal proceeding affecting the Company. You further agree that should you be contacted (directly or indirectly) by any person or entity (for example, by any party representing an individual or entity) adverse to the Company following the Separation Date, you shall notify the Company within three (3) business days. The Company agrees to reimburse you for any out-of-pocket expenses approved in advance by the Company and incurred in connection with providing such cooperation under this Section.

 

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(d) Non-Disparagement.

 

(1)Your Obligations. You shall not make any oral or written communication to any person or entity that has the effect of professionally or personally disparaging, damaging the reputation of, or otherwise working in any way to the detriment or adverse to the interests of, the Company or any of its respective directors, officers, shareholders, employees, or agents (in each case known to you), and that you shall not engage in any conduct that is intended to harm professionally or personally the reputation of the Company; provided that nothing in this Section shall restrict you from making any disclosures mandated by state or federal law or from participating in an investigation with a state or federal agency if requested by the agency to do so.

 

(2)The Company’s Obligations. The Company agrees to instruct members of its Board of Directors and Executive Team not to make any oral or written communication to any person or entity that has the effect of professionally or personally disparaging, damaging the reputation of, or otherwise working in any way to the detriment or adverse to your interests or engage in any conduct that is intended to harm you professionally or personally; provided that nothing in this Section shall restrict the Company from making any disclosures mandated by state or federal law or from participating in an investigation with a state or federal agency if requested by the agency to do so. During the Transition Period, the Company agrees to provide you with an advance copy of any internal or external statement that refers to you or your separation from the Company.

 

(e) Non-Competition. For a period of one (1) year following termination of consulting services provided pursuant to Section 10 below (the “Non-Competition Period”), you will not directly or indirectly, whether as owner, partner, shareholder, director, manager, consultant, agent, employee, co-venturer or otherwise, engage, participate or invest in any business activity, anywhere in the regional area or territory in which you had a material presence or influence or in which the Company conducts or initiates any program, that researches, develops, manufactures or markets products that involve electrification of commercial vehicles from Class 2 to Class 8, EVSE products or services associated with XL Grid, or Electrification as a Service (each a “Restricted Activity”); provided that this shall not prohibit an investment in publicly traded stock of a company representing less than one percent of the stock of such company. In the event that you are considering a post-employment professional opportunity (including, but not limited to, in the role of employee, consultant, contractor, owner, partner, or otherwise), you shall notify the Chair of the Board in writing of such opportunity.

 

(f) Non-Solicitation. For a period of one (1) year following termination of consulting services provided pursuant to Section 10 below (the “Non-Solicitation Period”), you will not directly or indirectly, in any manner, other than for the benefit of the Company, call upon, solicit, divert, take away, accept or conduct any business from or with any of the current or prospective customers, clients, vendors or suppliers of the Company, to the extent in competition with, or to the detriment of, the Company; or solicit, entice, or attempt to persuade any employee or consultant of the Company to leave the Company for any reason, or otherwise participate in or facilitate the hire, directly or through another entity, of any person who is employed or engaged by the Company or who was employed or engaged by the Company within six (6) months of any attempt to hire such person.

 

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(g) Reasonableness of Restrictions; Tolling. You acknowledge and agree that: (i) the provisions of Sections 6(e) and 6(f) above are necessary and reasonable to protect the Company’s legitimate business interests; (ii) the types of activities which are prohibited by Sections 6(e) and 6(f) are reasonable and fair in order to maintain a sufficient customer base; and (iii) any breach or threatened breach of any of the terms of Sections 6(e) and 6(f) shall result in substantial, continuing and irreparable injury to the Company. In light of the foregoing, in addition to any other remedy available to the Company, the Company shall be entitled to injunctive or other equitable relief by a court of appropriate jurisdiction in the event of any breach or threatened breach of the terms of Sections 6(e) and 6(f), without posting any bond or security, and without affecting the Company’s right to seek and obtain damages or other equitable relief. You acknowledge and agree that the Non-Competition Period and the Non-Solicitation Period shall be tolled and shall not run during any period in which you are in violation of the terms herein.

 

(i) No Further Actions. As of the Effective Date, you have not: (i) filed any action, complaint, charge, grievance or arbitration against the Company; (ii) contacted any local, state or federal governmental agency regarding the Company; (iii) encouraged any individual to file any action, complaint, charge, grievance or arbitration against the Company; (iv) received information from any individual that such individual intends to file or threaten to file an action, complaint, charge, grievance or arbitration against the Company; or (v) provided any information to any individual to aid such individual in filing or threatening to file an action, complaint, charge, grievance or arbitration against the Company. You understand that by signing this Agreement, you waive your right to any monetary recovery in connection with a local, state or federal governmental agency proceeding and you waive your right to file a claim seeking monetary damages in any court, except as provided herein.

 

(j) Material Breach. A breach of any of the above sub-Sections shall constitute a material breach of this Agreement and, in addition to any other legal or equitable remedy available to the Company, shall permit and entitle the Company to cease any additional payment or provision of the Separation Benefits and to recover the amount of any Separation Benefits already paid or provided by the Company to you. In addition to any other penalties or restrictions that may apply under any this or any other applicable agreement, applicable law or otherwise, in the event of a breach of any of the above sub-Sections, you acknowledge and agree that: (a) you shall forfeit any vested unexercised options under the Option Agreement effective as of the date of such breach; (b) you shall forfeit any shares held by you that were received in respect of the Option Agreement effective as of the date of such breach; and (c) this provision constitutes an amendment of your Option Agreement.

 

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7. Your Release of Claims.

 

(a) Release. You hereby agree and acknowledge that by signing this Agreement and accepting the consideration described herein, and for other good and valuable consideration provided for in this Agreement, you are waiving and releasing your right to assert any form of legal claim against the Company1/ whatsoever for any alleged action, inaction or circumstance existing or arising from the beginning of time through the Separation Date. Your waiver and release herein is intended to bar any form of legal claim, charge, complaint or any other form of action (jointly referred to as “Claims”) against the Company seeking any form of relief including, without limitation, equitable relief (whether declaratory, injunctive or otherwise), the recovery of any damages or any other form of monetary recovery whatsoever (including, without limitation, back pay, front pay, compensatory damages, emotional distress damages, punitive damages, attorneys’ fees and any other costs) against the Company, for any alleged action, inaction or circumstance existing or arising through the Separation Date. Without limiting the generality of the foregoing, you specifically waive and release the Company from any waivable claim arising from or related to your employment relationship with the Company and the separation therefrom through the Separation Date including, without limitation:

 

i.Claims under any Massachusetts, New York, Delaware, Florida or other state or federal statute, regulation or executive order (as amended) relating to employment, discrimination, harassment, retaliation, fair employment practices, wages, hours, or other terms and conditions of employment, including but not limited to the Title VII of the Civil Rights Act of 1964 and the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, Section 1981 of U.S.C. Title 42, the Worker Adjustment and Retraining Notification Act, the National Labor Relations Act, the Immigration Reform and Control Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, Age Discrimination in Employment Act and Older Workers Benefit Protection Act, the Civil Rights Acts of 1866 and 1871, the Genetic Information Non- Discrimination Act, the Lilly Ledbetter Fair Pay Act, COBRA, the Massachusetts Fair Employment Practices Statute, the Massachusetts Equal Rights Act, the Massachusetts Civil Rights Act, the Massachusetts Privacy Statute, the Massachusetts Sexual Harassment Statute, the Massachusetts Wage Act, the Massachusetts Minimum Fair Wages Act, the Massachusetts Equal Pay Act, the New York State Human Rights Law, New York City Human Rights Law, New York City Administrative Code, the New York Labor Law, or the discrimination or retaliation provisions of the New York State Workers’ Compensation Law (all as amended), Delaware Discrimination in Employment Act and any similar Massachusetts, New York, Delaware or other state, local, or federal statute, ordinance, regulation or executive order (as amended) relating to or other terms and conditions of employment; however, the identification of specific statutes is for purposes of example only, and the omission of any specific statute, ordinance, or law shall not limit the scope of this general release in any manner. Please note that this Section specifically includes a waiver and release of Claims regarding payments or amounts covered by the Massachusetts Wage Act or the Massachusetts Minimum Fair Wages Act, including hourly wages, salary, overtime, minimum wages, commissions, vacation pay, holiday pay, sick leave pay, dismissal pay, bonus pay or severance pay.

 

ii.Any and all claims for compensation, including but not limited to salary, wages, overtime, bonuses, commissions, incentive compensation, vacation, holiday pay, sick leave pay, and severance that may be legally waived and released.

 

iii.Claims under any Massachusetts, New York, Delaware, Florida or other state or federal common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence or any claim to attorneys’ fees under any applicable statute or common law theory of recovery.

 

iv.Claims under any Massachusetts, New York, Delaware, Florida or other state or federal statute, regulation or executive order (as amended) relating to violation of public policy or any other form of retaliation or wrongful termination under Massachusetts, New York or other state or federal statute.

 

 

1/For purposes of this Section, the “Company” means XL Fleet Corp. and its divisions, affiliates, parents, subsidiaries and related entities, and its and their owners, shareholders, partners, directors, officers, employees, trustees, agents, successors and assigns.

 

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v.Any other Claim arising under other Massachusetts, New York, Delaware, Florida or other state or federal law.

 

(b) Release Limitations; Participation in Agency Proceedings. Notwithstanding the foregoing, this Section does not:

 

i.Release the Company from any obligation expressly set forth in this Agreement.

 

ii.Waive or release any legal claims, which you may not waive or release by law, including claims under any workers compensation or unemployment insurance laws.

 

iii.Prohibit you from challenging the validity of this release under federal law.

 

iv.Prohibit you from filing a charge or complaint of employment-related discrimination with

the Equal Employment Opportunity Commission (“EEOC”) or similar state agency, or from participating in any investigation or proceeding conducted by the EEOC or similar state agency, or from responding to a request for information or documents (or providing information or documents) to the EEOC or similar state agency. 

 

Your waiver and release, however, are intended to be a complete bar to any recovery or personal benefit by or to you with respect to any claim (except those which cannot be released under law), including those raised through a charge with the EEOC. Accordingly, nothing in this Section shall be deemed to limit the Company’s right to seek immediate dismissal of such charge or complaint on the basis that your signing of this Agreement constitutes a full release of any individual rights under the federal discrimination laws, or to seek restitution to the extent permitted by law of the economic benefits provided to you under this Agreement in the event you successfully challenge the validity of this release and prevail in any claim under the federal discrimination laws.

 

(c) Consideration Acknowledgement. Youacknowledge and agree that, but for providing this waiver and release, you would not be receiving the consideration provided to you under the terms of this Agreement.

 

8. Covenant Not to Sue. Subject to Section 7 above, you covenant and agree that you will not now or at any time in the future commence, maintain, prosecute, or participate in as a party, or permit to be filed by any other person on your behalf or as a member of any alleged class of persons, any action, suit, proceeding, claim, or complaint of any kind against the Company with respect to any matter which arises from or relates to your employment with the Company or the termination thereof or which is encompassed in the release set forth above. Nothing in this Agreement prevents you from: (i) filing a claim to enforce the terms of this Agreement; (ii) asserting a claim arising after the Effective Date of this Agreement; or (iii) filing a charge with the EEOC or participating in any EEOC investigation or proceeding. You promise, however, never to seek or accept any damages, remedies or other relief for you personally with respect to any claim released by this Agreement. You acknowledge that this Agreement does not limit your ability to communicate with any governmental agencies or otherwise participate in any investigation or proceeding that may be conducted by any government agencies, including providing documents or other information, without notice to the Company.

 

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9. ADEA/OWBPA Review and Revocation Period. You and the Company acknowledge that you are over the age of 40 and that you, therefore, have specific rights under the Age Discrimination in Employment Act (“ADEA”) and the Older Workers Benefit Protection Act (the “OWBPA”), which prohibit discrimination on the basis of age. It is the Company’s desire and intent to make certain that you fully understand the provisions and effects of this Agreement, which includes a release of claims under the ADEA and OWBPA. To that end, you have been encouraged and given the opportunity to consult with legal counsel for the purpose of reviewing the terms of this Agreement. Consistent with the provisions of the ADEA and OWBPA, the Company is providing you with twenty one (21) days in which to consider and accept the terms of this Agreement by signing below and returning it to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You may rescind your assent to this Agreement if, within seven (7) days after you sign this Agreement, you deliver by hand, electronic mail or certified mail (certified, return receipt and postmarked within such 7-day period) a notice of rescission to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You agree that any modifications, material or otherwise, made to this Agreement do not restart or affect in any manner the original twenty-one (21) day consideration period.

 

10. Post-Separation Consulting Services. Following the Separation Date, you agree to provide consulting services on an as-needed basis pursuant to a consulting agreement in the form attached hereto as Exhibit D for transition-related services for a period of sixty (60) days following the Separation Date. The terms and conditions of the consulting services provided hereunder will be determined in the Company’s sole discretion. You and the Company anticipate and intend that the consulting services that you may provide hereunder will not exceed twenty (20%) percent of the average level of bona fide services you provided during the 36-month period immediately preceding the Separation Date. You and the Company acknowledge that the consulting arrangement contemplated in this Section 10 shall not constitute “services” for purposes of the Plan or for purposes of the Option Agreement. As such, the consulting arrangement contemplated in this Section 10 shall not entitle you to vest in any additional stock or stock options under the Plan, Option Agreement, or any other Company equity, stock or stock option plan (of whatever name or kind) that you may have participated in or were eligible to participate in during your employment.

 

11. Taxes. The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement including, but not limited to, consequences related to Section 409A of the Internal Revenue Code of 1986, as amended.

 

12. Entire Agreement; Modification; Waiver; Choice of Law; Enforceability. You acknowledge and agree that this Agreement, as well as the Plan, Option Agreements, and Employee Covenants Agreement, constitutes the entire agreement between you and the Company, and supersedes any and all prior oral contemporaneous oral and/or written agreements between you and the Company. No variations or modifications hereof shall be deemed valid unless reduced to writing and signed by the parties hereto. The failure of the Company to seek enforcement of any provision of this Agreement in any instance or for any period of time shall not be construed as a waiver of such provision or of the Company’s right to seek enforcement of such provision in the future. This Agreement shall be deemed to have been made in Massachusetts, shall take effect as an instrument under seal within Massachusetts, and shall be governed by and construed in accordance with the laws of Massachusetts, without giving effect to conflict of law principles. You agree that any action, demand, claim or counterclaim relating to the terms and provisions of this Agreement, or to its breach, shall be commenced in Massachusettsin a court of competent jurisdiction, and you further acknowledge that venue for such actions shall lie exclusively in Massachusetts and that material witnesses and documents would be located in Massachusetts. Both parties hereby waive and renounce in advance any right to a trial by jury in connection with such legal action. The provisions of this Agreement are severable, and if for any reason any part hereof shall be found to be unenforceable, the remaining provisions shall be enforced in full.

 

12. Competency; Knowing and Voluntary Agreement. By executing this Agreement, you are acknowledging that: (a) you are competent to execute this Agreement; (b) you have been afforded sufficient time to understand the terms and effects of this Agreement; (c) your agreements and obligations hereunder are made voluntarily, knowingly and without duress; (d) that neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of this Agreement; (e) that at the time of considering or executing this Agreement, you were not affected or impaired by illness, use of alcohol, drugs or other substances or otherwise impaired; and (f) you certify that you are not a party to any bankruptcy, lien, creditor- debtor or other proceedings which would impair your right or ability to waive all claims you may have against the Company.

 

[SIGNATURE PAGE FOLLOWS]

 

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This Agreement may be signed on one or more copies, each of which when signed shall be deemed to be an original, and all of which together shall constitute one and the same Agreement. If the foregoing correctly sets forth our understanding, please sign, date and return the enclosed copy of this Agreement to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. Please return this Agreement no later than twenty-one (21) calendar days following the date of this Agreement. If the Company does not receive your acceptance within the twenty-one (21) day timeframe, the Agreement shall terminate and be of no further force or effect.

 

  Sincerely,
     
  XL FLEET CORP.
     
  By: /s/ Jim Berklas
     
  Its: Chief Legal Officer
     
  Date: 11/20/2021

 

Acknowledged and Agreed:    
     
/s/ Dimitri Kazarinoff    
Dimitri Kazarinoff    
     
Date: 11/20/2021  

 

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EXHIBIT A

RESIGNATION LETTER

 

November 20, 2021

 

XL Fleet Corp.

145 Newton Street

Boston, MA 02135

 

To Whom It May Concern:

 

This is to inform you that effective November 20 , 2021, I hereby resign (i) my position as a director and XL Fleet Corp. (the “Company”); and (iii) my position as a director of XL Hybrids, Inc. and (iv) any other director positions I hold with any subsidiary of the Company.

 

  Very truly yours,
   
  /s/ Dimitri Kazarinoff
  Dimitri N. Kazarinoff

 

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EXHIBIT B

RESIGNATION LETTER

 

December 1, 2021

 

XL Fleet Corp.

145 Newton Street

Boston, MA 02135

 

To Whom It May Concern:

 

This is to inform you that effective December 1, 2021, I hereby resign (i) my position as Chief Executive Officer of XL Fleet Corp. (the “Company”) and (ii) any director, officer or other positions I hold with the Company, with XL Hybrids, Inc., or with any subsidiary or affiliate of the Company.

 

  Very truly yours,
   
   
  Dimitri N. Kazarinoff

 

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EXHIBIT C

SUPPLEMENTAL RELEASE

 

XL Fleet Corp., a Delaware corporation with its principal place of business located at 145 Newton Street, Boston, Massachusetts 02135 (the “Company”) and Dimitri Kazarinoff, residing at 1175 Bowline Drive, Vero Beach, Florida 32963 (“You”).

 

1.In consideration for executing and delivering this Supplemental Release to the Company following

 

the Separation Date (as defined in Paragraph 1 of the Transition and Separation Agreement dated November 20,

2021 (the “Agreement”)) and not revoking your acceptance of this Supplemental Release during the seven (7) calendar day supplemental revocation period as described below (the “Supplemental Release Revocation Period”), the Company agrees to provide you with the consideration as set forth in Paragraph 3 of the Agreement. You understand and agree that you would not be entitled to the consideration described above except for your execution of this Supplemental Release following the expiration of her Transition Period described in Section 1 of the Agreement and the fulfillment of the promises contained in the Agreement, as well as in this Supplemental Release.

 

2.Supplemental Release of Claims.

 

(a) Release. You hereby agree and acknowledge that by signing this Agreement and accepting the consideration described herein, and for other good and valuable consideration provided for in this Agreement, you are waiving and releasing your right to assert any form of legal claim against the Company2/ whatsoever for any alleged action, inaction or circumstance existing or arising from the beginning of time through the Separation Date. Your waiver and release herein is intended to bar any form of legal claim, charge, complaint or any other form of action (jointly referred to as “Claims”) against the Company seeking any form of relief including, without limitation, equitable relief (whether declaratory, injunctive or otherwise), the recovery of any damages or any other form of monetary recovery whatsoever (including, without limitation, back pay, front pay, compensatory damages, emotional distress damages, punitive damages, attorneys’ fees and any other costs) against the Company, for any alleged action, inaction or circumstance existing or arising through the Separation Date. Without limiting the generality of the foregoing, you specifically waive and release the Company from any waivable claim arising from or related to your employment relationship with the Company and the separation therefrom through the Separation Date including, without limitation:

 

i.Claims under any Massachusetts, New York, Delaware Florida or other state or federalstatute, regulation or executive order (as amended) relating to employment, discrimination, harassment, retaliation, fair employment practices, wages, hours, or other terms and conditions of employment, including but not limited to the Title VII of the Civil Rights Act of 1964 and the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, Section 1981 of U.S.C. Title 42, the Worker Adjustment and Retraining Notification Act, the National Labor Relations Act, the Immigration Reform and Control Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, Age Discrimination in Employment Act and Older Workers Benefit Protection Act, the Civil Rights Acts of 1866 and 1871, the Genetic Information Non-Discrimination Act, the Lilly Ledbetter Fair Pay Act, COBRA, the Massachusetts Fair Employment Practices Statute, the Massachusetts Equal Rights Act, the Massachusetts Civil Rights Act, the Massachusetts Privacy Statute, the Massachusetts Sexual Harassment Statute, the Massachusetts Wage Act, the Massachusetts Minimum Fair Wages Act, the Massachusetts Equal Pay Act, the New York State Human Rights Law, New York City Human Rights Law, New York City Administrative Code, the New York Labor Law, or the discrimination or retaliation provisions of the New York State Workers’ Compensation Law (all as amended), Delaware Discrimination in Employment Act and any similar Massachusetts, New York, Delaware or other state, local, or federal statute, ordinance, regulation or executive order (as amended) relating to or other terms and conditions of employment; however, the identification of specific statutes is for purposes of example only, and the omission of any specific statute, ordinance, or law shall not limit the scope of this general release in any manner. Please note that this Section specifically includes a waiver and release of Claims regarding payments or amounts covered by the Massachusetts Wage Act or the Massachusetts Minimum Fair Wages Act, including hourly wages, salary, overtime, minimum wages, commissions, vacation pay, holiday pay, sick leave pay, dismissal pay, bonus pay or severance pay.

 

 

2/For purposes of this Section, the “Company” means XL Fleet Corp. and its divisions, affiliates, parents, subsidiaries and related entities, and its and their owners, shareholders, partners, directors, officers, employees, trustees, agents, successors and assigns.

 

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ii.Any and all claims for compensation, including but not limited to salary, wages, overtime, bonuses, commissions, incentive compensation, vacation, holiday pay, sick leave pay, and severance that may be legally waived and released.

 

iii.Claims under any Massachusetts, New York, Delaware, Florida or other state or federal common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence or any claim to attorneys’ fees under any applicable statute or common law theory of recovery.

 

iv.Claims under any Massachusetts, New York, Delaware, Florida or other state or federal statute, regulation or executive order (as amended) relating to violation of public policy or any other form of retaliation or wrongful termination under Massachusetts, New York or other state or federal statute.

 

v.Any other Claim arising under other Massachusetts, New York, Delaware, Florida or other state or federal law.

 

(b) Release Limitations; Participation in Agency Proceedings. Notwithstanding the foregoing, this Section does not:

 

i.Release the Company from any obligation expressly set forth in this Agreement.

 

ii.Waive or release any legal claims, which you may not waive or release by law, including claims under any workers compensation or unemployment insurance laws.

 

iii.Prohibit you from challenging the validity of this release under federal law.

 

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iv.Prohibit you from filing a charge or complaint of employment-related discrimination with the Equal Employment Opportunity Commission (“EEOC”) or similar state agency, or from participating in any investigation or proceeding conducted by the EEOC or similar state agency, or from responding to a request for information or documents (or providing information or documents) to the EEOC or similar state agency.

 

Your waiver and release, however, are intended to be a complete bar to any recovery or personal benefit by or to you with respect to any claim (except those which cannot be released under law), including those raised through a charge with the EEOC. Accordingly, nothing in this Section shall be deemed to limit the Company’s right to seek immediate dismissal of such charge or complaint on the basis that your signing of this Agreement constitutes a full release of any individual rights under the federal discrimination laws, or to seek restitution to the extent permitted by law of the economic benefits provided to you under this Agreement in the event you successfully challenge the validity of this release and prevail in any claim under the federal discrimination laws.

 

(c) Consideration Acknowledgement. You acknowledge and agree that, but for providing this waiver and release, you would not be receiving the consideration provided to you under the terms of this Agreement.

 

3. Covenant Not to Sue. Subject to Section 8 above, you covenant and agree that you will not now or at any time in the future commence, maintain, prosecute, or participate in as a party, or permit to be filed by any other person on your behalf or as a member of any alleged class of persons, any action, suit, proceeding, claim, or complaint of any kind against the Company with respect to any matter which arises from or relates to your employment with the Company or the termination thereof or which is encompassed in the release set forth above. Nothing in this Agreement prevents you from: (i) filing a claim to enforce the terms of this Agreement; (ii) asserting a claim arising after the Effective Date of this Agreement; or (iii) filing a charge with the EEOC or participating in any EEOC investigation or proceeding. You promise, however, never to seek or accept any damages, remedies or other relief for you personally with respect to any claim released by this Agreement. You acknowledge that this Agreement does not limit your ability to communicate with any governmental agencies or otherwise participate in any investigation or proceeding that may be conducted by any government agencies, including providing documents or other information, without notice to the Company.

 

4. ADEA/OWBPA Review and Revocation Period. You and the Company acknowledge that you are over the age of 40 and that you, therefore, have specific rights under the Age Discrimination in Employment Act (“ADEA”) and the Older Workers Benefit Protection Act (the “OWBPA”), which prohibit discrimination on the basis of age. It is the Company’s desire and intent to make certain that you fully understand the provisions and effects of this Agreement, which includes a release of claims under the ADEA and OWBPA. To that end, you have been encouraged and given the opportunity to consult with legal counsel for the purpose of reviewing the terms of this Agreement. Consistent with the provisions of the ADEA and OWBPA, the Company is providing you with twenty one (21) days following your Separation Date in which to consider and accept the terms of this Agreement by signing below and returning it to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You may rescind your assent to this Agreement if, within seven (7) days after you sign this Agreement, you deliver by hand, electronic mail or certified mail (certified, return receipt and postmarked within such 7-day period) a notice of rescission to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You agree that any modifications, material or otherwise, made to this Agreement do not restart or affect in any manner the original twenty-one (21) day consideration period.

 

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5. Acknowledgements and Affirmations. You acknowledge and affirm as follows: (a) you have not filed, caused to be filed, or presently is a party to any claim against Employer; (b) you have paid and/or has received all compensation, wages, bonuses, commissions and/or benefits to which you may be entitled, except any payments for services performed during the Transition Period; (c) you have been granted any leave to which you were entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws; (d) that all of the Company’s decisions regarding your pay and benefits through the Effective Date of this Agreement were not discriminatory based on age, disability, race, color, sex, religion, national origin or any other classification protected by law; (e) you have no known workplace injuries or occupational diseases; (f) you have not divulged any proprietary or confidential information of the Company and will continue to maintain the confidentiality of such information consistent with Company policies and your agreement(s) with the Company and/or common law; (g) you have not been retaliated against for reporting any allegations of wrongdoing by the Company or its officers, including any allegations of corporate fraud; (h) you are not a Medicare or Medicaid beneficiary as of the date of this Agreement and, therefore, no conditional payments have been made by Medicare or Medicaid.

 

6. Competency; Knowing and Voluntary Agreement. By executing this Supplemental Release, you are acknowledging that: (a) you are competent to execute this Supplemental Release; (b) you have been afforded sufficient time to understand the terms and effects of this Supplemental Release; (c) your agreements and obligations hereunder are made voluntarily, knowingly and without duress; (d) that neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of the Agreement or this Supplemental Release; (e) that at the time of considering or executing this Supplemental Release, you were not affected or impaired by illness, use of alcohol, drugs or other substances or otherwise impaired; and (f) you certify that you are not a party to any bankruptcy, lien, creditor-debtor or other proceedings which would impair your right or ability to waive all claims you may have against the Company.

 

Acknowledged and Agreed:    
     
Dimitri Kazarinoff    
     
Date:      

 

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EXHIBIT D

 

COVENANTS AGREEMENT DATED SEPTEMBER 30, 2019

 

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EXHIBIT E

 

CONSULTING AGREEMENT

 

This Consulting Agreement (this “Agreement”) is by and between XL Fleet Corp. (the “Company”) and Dimitri Kazarinoff (the “Consultant”), and individual residing at 1175 Bowline Drive, Vero Beach, Florida 32963. In consideration of the mutual promises and covenants set forth herein, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

 

1. General. The Company hereby retains the Consultant for the purpose of receiving, and the Consultant hereby agrees to provide, certain as-needed consulting services, including services related to the transition of duties and responsibilities of the Consultant in his former role as Chief Executive Officer of the Company to other employees of the Company, as directed by the Company or by the Board of Directors.

 

2. Performance of Services. As of the Effective Date, the Consultant agrees to render the Services from time to time at the request of the Company, at such time or times and location or locations as may be mutually agreed. The Consultant agrees to personally provide the Services on an as-need basis up to a maximum of eight (8) hours per week during the Term (as defined below) as directed by the Company. The Consultant agrees to devote the Consultant’s best efforts to the performance of the Services. In connection therewith, the Company shall have the right to publicize the Consultant’s affiliation with the Company with the permission of the Consultant. Unless covered by an appropriate agreement between any third party and the Company, the Consultant shall not engage in any activities or use any facilities in the course of providing the Services that could result in claims by such third party of ownership in any Company property or inventions. The Company and Consultant acknowledge that Services under this Agreement shall not constitute “services” for purposes of the Company’s 2010 Equity Incentive Plan (the “Plan”) or for purposes of Consultant’s Option Agreement thereunder.

 

3. Fee. In consideration for the services provided by Consultant, the Company shall pay Consultant a fee of Seven Thousand Three Hundred Dollars ($7300.00). The fees shall be paid to Consultant within thirty (30) days of receipt by the Company of an invoice from Consultant. Consultant shall be solely responsible for complying with all federal, state, local and other tax laws and regulations applicable to payments received from the Company under this Agreement.

 

4. Term; Termination.

 

(a) The Consultant’s performance of Services shall commence on the Effective Date of this Agreement and shall terminate on January 31, 2021. The period of time during which Services are performed hereunder shall be referred to herein as the “Term.” Any extension of this Term shall require a new written a consulting agreement, which may include changes with regard to scope and fees, among other terms.

 

(b) This Agreement may be terminated by either party at any time upon five (5) days’ prior written notice. Notwithstanding the foregoing, if either party breaches any of its material obligations under this Agreement, then the non-breaching party may terminate this Agreement (in addition to any other available remedy) immediately, upon written notice to the other party.

 

(c) Upon termination of this Agreement for any reason, the Consultant shall promptly deliver to the Company any and all property of the Company or its customers, licensees, licensors, or affiliates which may be in the Consultant’s possession or control. No termination, regardless of time or reason, shall relieve the Consultant from any obligations hereunder, including but not limited to any obligations which by their terms are intended to survive the termination of the Consultant’s association with the Company. The Company shall have no obligation to make any payment pursuant to this Agreement unless the Consultant is in compliance with all its covenants and agreements.

 

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5. Independent Contractor Status. The parties expressly acknowledge and agree that the Consultant is an independent contractor, that the relationship of the Consultant to the Company is at all times that of an independent contractor, and that neither this Agreement nor the rendering of the Services shall for any purpose whatsoever or in any way or manner create any employer-employee relationship between the parties. The Company shall not provide the Consultant with an office or any other space from which to conduct the Services, and the Consultant shall have the sole control and discretion as to where to perform the Services. The Consultant shall perform the Services free of the direction and control of the Company, but consistent with the objectives it sets, and shall bear the benefit/risk of any profit or loss from rendering the Services. This Agreement does not constitute, and shall not be construed as constituting, an employment relationship between the Company and the Consultant or as an undertaking by the Company to hire the Consultant as an employee. The Consultant shall not be considered an employee of the Company for any purpose and shall not be entitled to any fringe benefits generally provided to employees of the Company, and the Company shall not be required to maintain workers’ compensation coverage for the Consultant. The Consultant understands and recognizes that while performing the Services, the Consultant shall not act as an agent of the Company, and shall not have authority to and shall not bind, represent or speak for the Company for any purpose. The Company shall record payments to the Consultant on an Internal Revenue Service Form 1099, and shall not withhold any federal, state or local employment taxes on the Consultant’s behalf. The Consultant shall be solely responsible for the payment of all federal, state and local taxes and contributions imposed or required on income, and for all unemployment insurance, social security contributions and any other payment.

 

6. Covenants Agreement. The Company considers the protection of its confidential information, proprietary materials and goodwill to be extremely important. Moreover, as part of the Consultant’s performance of the Services hereunder, the Consultant shall be exposed to and provided with valuable confidential and trade secret information concerning the Company and its present and prospective clients. As a result, as a condition of the Consultant’s engagement with the Company, the Consultant agrees to enter into the enclosed Confidentiality and Inventions Agreement (the “Covenants Agreement”), attached as Exhibit A. By signing below, the Consultant is certifying to the Company that since the Effective Date the Consultant has not engaged in any conduct that would constitute a violation of the Covenants Agreement. Prior to entering into an employment or consulting relationship with any third party, the Consultant shall inform any such third party of any restrictions set forth herein which apply in any way to the Consultant’s activities for such third party.

 

7. Conflicts. The Consultant represents and warrants that: (i) the Consultant has no agreement with a third party in conflict with the Consultant’s obligations to the Company hereunder, and the Consultant’s engagement hereunder does not require the Consultant to breach any agreement entered into by the Consultant; (ii) the Consultant’s engagement hereunder does not violate any order, judgment or injunction applicable to the Consultant; and (iii) all facts the Consultant has presented to the Company are accurate and true, including, but not limited to, all oral and written statements made to the Company pertaining to education, training, qualifications, licensing and prior work experience. The Consultant hereby agrees to indemnify and hold the Company harmless against any claim based upon circumstances alleged to be inconsistent with the above representations and warranties.

 

8. Notices. All notices and other communications hereunder shall be delivered or sent by facsimile transmission, recognized courier service, registered or certified mail, return receipt requested, addressed to the party at the address set forth on the first page hereof, or to such other address as such party may designate in writing to the other. Such notice or communication shall be deemed to have been given as of the date sent by the facsimile or delivered to a recognized courier service, or three days following the date deposited with the United States Postal Service.

 

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9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. The Consultant agrees that the Company may assign this Agreement, in whole or in part, to any person or entity controlled by, in control of, or under common control with, the Company, and to any purchaser of all or substantially all of its assets or such portion of its assets to which this Agreement relates, or to any successor corporation resulting from any merger or consolidation of the Company with or into such corporation. The Consultant may not assign or transfer this Agreement or any of the Consultant’s rights or obligations hereunder. In no event shall the Consultant assign or delegate responsibility for actual performance of the Services to any other person or entity without the prior written consent of the Company.

 

10. Entire Agreement. This Agreement constitutes the entire agreement between the parties as to the subject matter hereof. No provision of this Agreement shall be waived, altered or cancelled except in writing signed by the party against whom such waiver, alteration or cancellation is asserted. Any such waiver shall be limited to the particular instance and the particular time when and for which it is given.

 

11. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without giving effect to conflict of law principles thereof, and specifically excluding any conflict or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. Any legal action or proceeding with respect to this Agreement shall be brought in the courts of Massachusetts or of the United States of America for the District of Massachusetts. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts.

 

12. Enforceability. The invalidity or unenforceability of any provision hereof as to an obligation of a party shall in no way affect the validity or enforceability of any other provision of this Agreement, provided that if such invalidity or unenforceability materially adversely affects the benefits the other party reasonably expected to receive hereunder, that party shall have the right to terminate this Agreement.

 

13. Modification; Amendment; Waiver. This Agreement shall not be modified, amended or extended except by an instrument in writing signed by or on behalf of the parties hereto. Waiver by either party of a breach of any provision of this Agreement or failure to enforce any such provision shall not operate or be construed as a waiver of any subsequent breach of any such provision or of such party’s right to enforce any such provision. No act or omission of a party shall constitute a waiver of any of its rights hereunder except for a written waiver signed by or on behalf of such party.

 

14. Construction. This Agreement has been prepared jointly and shall not be strictly construed against either Party.

 

15. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have duly executed Agreement as a sealed instrument as of this 20 day of November 2021.

 

XL FLEET CORP.

 

By: /s/ Jim Berklas  
Name: Jim Berklas  
Title:   General Counsel  
     
CONSULTANT  

 

By: /s/ Dimitri Kazarinoff  
  Signed Name  
     
  Dimitri Kazarinoff  
  Printed Name  
  056-64-5452  
     
  Tax Identification (or SS#)  

 

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ATTACHMENT A

 

XL FLEET CORP.

COVENANTS AGREEMENT

 

In consideration of my consulting services provided to XL Fleet Corp., its subsidiaries, affiliates, successors, or assigns (collectively, the “Company”), and my receipt of any compensation now and/or hereafter paid to me by the Company as reflected in the Consulting Agreement between me and the Company, I have executed this Covenants Agreement (this “Agreement”).

 

I recognize and acknowledge that the Company is engaged in activities that involve, and continue to involve, the use of proprietary business plans, methods, and technologies developed through the expenditure of substantial amounts of skill, time, and money. As a result of such investments, the Company has developed certain Trade Secrets and Confidential Information (defined herein) which give the Company significant advantages over its competitors. Due to the nature of my services provided to the Company, I may have frequent direct and indirect contact with various customers of the Company and may be presented with, have access to, and/or participate in the development of Trade Secrets and Confidential Information. These constitute valuable, special, and unique assets of the Company, the misuse, misapplication, or disclosure of which contrary to the terms of this Agreement may cause substantial loss of competitive advantage and substantial and possibly irreparable damage to the business and asset value of the Company.

  

1. DEFINITIONS. The following capitalized terms are select definitions used in this Agreement:

 

(a) Trade Secrets” shall have the definition provided in M.G.L. ch. 266, s. 30(4) as modified from time to time. The current definition includes, but is not limited to, anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences, or records a secret, whether scientific, technical, merchandising, production, or management information, design, process, procedure, formula, invention, or improvement. Trade Secrets may also consist of: (i) any formula, pattern, device, or compilation of information that is used in the Company’s business, and which gives it an opportunity to obtain an advantage over competitors who do not know or use it; (ii) a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers; or (iii) a process or device for continuous use in the operation of the business, and generally relates to the production of goods or services. To the extent otherwise protectable as a Trade Secret, the Company’s Trade Secrets include, but are not limited to, all of the Company’s knowledge regarding the research, development, manufacture, processing, marketing, distribution, operation, and sale of the Company’s vehicle modification technologies, systems, and kits to improve fuel efficiency and emissions, and any other product or service offered by the Company during my employment with the Company. Trade Secrets also include anything described in this Section that the Company obtains from a third party and which it treats as proprietary or designates as trade secret, whether or not owned or developed by the Company.

 

(b) Confidential Information” shall mean any data or information, other than Trade Secrets, which is of value to the Company, and is not generally known to competitors of the Company, whether written, fixed in other tangible form, or committed to memory. To the extent consistent with the foregoing, Confidential Information includes, but is not limited to, all information about the Company’s business and affairs, such as its executives, employees, and contractors, product specifications, designs, processes, data, concepts, ideas, product descriptions, price lists, pricing policies, business methods, contracts and contractual relationships with customers and suppliers, customer and supplier lists, current and anticipated customer requirements, current and planned distribution methods and processes, business plans, marketing plans and techniques, finances and financial projections, market studies, computer software and programs (including without limitation object and source code), systems, structures and architectures, proprietary intellectual property (including without limitation, know-how, inventions, discoveries, patents, patent applications, and patentable subject matter, and copyrighted materials). Confidential Information shall include, but not be limited to, all of the Company’s knowledge regarding the research, development, manufacture, processing, marketing, distribution, operation, and sale of the Company’s vehicle modification technologies, systems, and kits to improve fuel efficiency and emissions, and any other product or service offered by the Company during my employment with the Company. Confidential Information also includes anything described in this Section that the Company obtains from a third party and which it treats as proprietary or designates as confidential information, whether or not owned or developed by the Company.

 

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(c) The terms “Confidential Information” and “Trade Secrets” shall not include any materials or information to the extent that it: (i) is or becomes publicly known or generally utilized by others engaged in the same business or activities in which the Company utilized, developed, or otherwise acquired such information, other than as the result of a breach of this Agreement; or (ii) is known to me prior to my employment with the Company, having been lawfully received from parties other than the Company.

 

(d) Inventions” shall mean all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks or trade secrets, including, but not limited to, software, code, websites, algorithms, methods, content, packaging, surveys, reports, contributions to Company’s proprietary business methods, marketing plans, and work product, whether or not patentable or registrable under copyright or similar laws, that I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during my employment with the Company.

 

2. NON-DISCLOSURE.

 

(a) Trade Secrets. During the term of my employment with the Company and after the termination thereof, whether such termination is at the instance of the Company or me, I will not, except as expressly authorized or directed by the Company, use, copy, duplicate, transfer, transmit, disclose, or permit any unauthorized person access to any Trade Secrets of the Company or of the Company’s customers, business partners or subcontractors, or any related third- party, so long as they remain Trade Secrets as described in this Agreement.

 

(b) Confidential Information. During the term of employment with the Company and after my termination therefrom, whether such termination is at the instance of the Company or me, I will not, except as expressly authorized or directed by the Company, use, copy, duplicate, transfer, transmit, disclose, or permit any unauthorized person access to any Confidential Information of the Company, any of Company’s customers, any of Company’s business partners or subcontractors, or any related third-party

 

(c) Return. Upon request of the Company and in any event upon the termination of employment with Company, I will deliver to the Company all memoranda, notes, records, tapes, documentation, disks, manuals, files or other documents, and all copies thereof in any form, concerning or containing Trade Secrets, Confidential Information, or Inventions that are in my possession, whether made or compiled by me, furnished to me, or otherwise obtained by me.

 

3. ASSIGNMENT AND RELATED COVENANTS.

 

(a) Prior Inventions.

 

(i)   On Schedule A, I have provided a list describing all inventions, original works of authorship, developments, improvements, and trade secrets that were made by me prior to my employment with the Company (collectively, the “Prior Inventions”), that belong to me, and which relate to the Company’s proposed business, products or research and development; or, if no such list is attached, I represent that there are no such Prior Inventions. Under the heading “Assigned” on Schedule A, I have listed those Prior Inventions that are being assigned to the Company hereunder, if any (collectively, the “Assigned Prior Inventions”). If applicable, under the heading “Not Assigned” on Schedule A, I have listed those Prior Inventions that are not being assigned to the Company hereunder, if any (collectively, the “Not Assigned Prior Inventions”). I hereby assign to the Company, or its designee, all my right, title, and interest in and to any and all Assigned Prior Inventions, if any, without any further consideration therefor. I agree that I will not incorporate, or permit to be incorporated, any Not Assigned Prior Inventions owned by me or in which I have an interest into a Company product, process, or machine without the Company’s prior written consent. Notwithstanding the foregoing sentence, if, in the course of my employment with the Company, I incorporate into a Company product, process, or machine a Not Assigned Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use, and sell such Prior Invention as part of or in connection with such product, process, or machine.

 

(b) Inventions. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title, and interest in and to any and all Inventions, without any further consideration therefor. I further acknowledge that all original works of authorship that are made by me (solely or jointly with others) within the scope of and during the period of my employment with the Company and that are protectable by copyright are “works made for hire”, as that term is defined in the United States Copyright Act. I understand and agree that the decision whether or not to commercialize or market any Invention developed by me solely or jointly with others is within the Company’s sole discretion and for the Company’s sole benefit and that no royalty will be due to me as a result of the Company’s efforts to commercialize or market any such Invention.

 

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(c) Government Contracting. I agree to assign to the United States government all my right, title, and interest in and to any and all Assigned Prior Inventions and Inventions whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.

 

(d) Exceptions. I further understand that the foregoing assignment obligations do not apply to any Invention that I have developed entirely on my own time without using the Company’s equipment, supplies, facilities, resources, trade Secrets, or Confidential Information except for those Inventions that either: (A) relate at the time of conception or reduction to practice of the invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company; or (B) result from any work that I performed for the Company. I will advise the Company promptly in writing of any inventions that I believe meet the foregoing criteria and not otherwise disclosed on Schedule A.

 

(e) Maintenance of Records. I agree to keep and maintain adequate and current written records of the Assigned Prior Inventions and all Inventions made by me (solely or jointly with others) during the term of my employment with the Company. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times.

 

(f)   Patent and Copyright Registrations. I agree to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in the Assigned Prior Inventions and Inventions, and any copyrights, patents, mask work rights, or other intellectual property rights relating thereto in any and all countries, including, but not limited to, the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, and all other instruments that the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive rights, title, and interest in and to such Inventions, and any copyrights, patents, mask work rights, or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Assigned Prior Inventions or any Inventions, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney-in-fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me.

 

4. DEFEND TRADE SECRETS ACT IMMUNITY NOTICE. Notwithstanding any provisions in this Agreement, pursuant to the federal Defend Trade Secrets Act, I cannot be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (a) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (b) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, if I file a lawsuit against the Company alleging retaliation for reporting a suspected violation of law, I may disclose the trade secret to my attorney and use the trade secret information in the court proceeding, provided I file any document containing the trade secret under seal and do not disclose the trade secret except pursuant to court order.

 

5. REPRESENTATIONS AND WARRANTIES.

 

(a) No Violation. I am not subject to any employment, non-disclosure, confidentiality, employee covenants, or other agreement with any third party (including, but not limited to, any former employer) that would prevent or prohibit me from fulfilling my duties for the Company. If am the subject of any such agreement, and have any doubt as to its applicability, I will provide a copy of such agreement to the Company so that the Company can make a determination as to its effect on my ability to work for the Company.

 

(b) Third-Party IP. I agree not to use or include in any of my Inventions any copyrighted, restricted, or protected code, specifications, concepts, trade secrets, or confidential information of any third party, or any other information which I would be prohibited from using by any employment, non- disclosure, confidentiality, non-compete, employee covenants, or other agreement with any third party. If I am unsure whether I may use or incorporate any third-party product or code or other work of any third party in any of my Inventions, I will check with the Company’s management and experts prior to such use or incorporation.

 

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6. GENERAL.

 

(a) Further Assurances. I agree to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. I have not entered into and agree not to enter into any oral or written agreement in conflict with this Agreement.

 

(b) Equitable Relief. I agree that it would be impossible or inadequate to measure and calculate the Company’s damages from any breach or threatened breach of the covenants set forth in this Agreement. Accordingly, I agree that if I breach or threaten to breach this Agreement, the Company will have available, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Agreement. I further agree that no bond or other security shall be required in obtaining such equitable relief and I hereby consent to the issuance of such injunction and to the ordering of specific performance.

 

(c) Governing Law; Consent to Personal Jurisdiction. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD FOR CONFLICTS OF LAWS PRINCIPLES. I HEREBY EXPRESSLY CONSENT TO THE PERSONAL JURISDICTION OF THE BUSINESS LITIGATION SESSION, IN SUFFOLK COUNTY LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS FOR ANY LAWSUIT FILED THERE AGAINST ME BY THE COMPANY ARISING FROM OR RELATING TO THIS AGREEMENT.

 

(d) Effect. This Agreement shall be deemed effective at the earlier to occur of the commencement of my employment relationship with the Company or upon my initial possession, knowledge, or acquisition of the Company’s Trade Secrets or Confidential Information.

 

(e) Entire Agreement. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and supersedes all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged.

 

(f)   Severability. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

 

(g) Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators, and other legal representatives, and will be for the benefit of the Company, its successors, and its assigns.

 

(h) Construction. The language used in this Agreement will be deemed the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against either party.

 

(i) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable, and all of which together shall constitute one agreement.

 

7. EXPRESS ACKNOWLEDGEMENTS. I acknowledge and agree to each of the following items:

 

(a) I understand that this Agreement is not intended to change my status as an independent contractor, and I understand that either the Company or I may terminate my services at any time.

 

(b) I am executing this Agreement voluntarily and without any duress or undue influence by the Company or anyone else.

 

(c) I have carefully read this Agreement. I have asked any questions needed for me to understand the terms, consequences and binding effect of this Agreement and fully understand them.

 

(d) I sought the advice of an attorney of my choice if I wanted to before signing this Agreement.

 

(e) I understand that any acquirer, purchaser of all or substantially all of the assets of the Company, or other successor or assign to the Company or its business will be relying on my covenants and representations warranties in this Agreement in agreeing to acquire or purchase the Company or its assets, and agree that this Agreement shall be enforceable by such successor or assign.

 

(f)   I understand, acknowledge and agree that: (a) my obligations under this Agreement will continue in accordance with its express terms regardless of any material changes in my title, position, duties, salary, compensation or benefits or other terms and conditions of employment, and I agree to comply with such obligations; and (b) if I should transfer between or among any affiliates of the Company, wherever situated, or be promoted or reassigned to functions other than my present functions, all terms of this Agreement shall continue to apply with full force, and I agree to comply with such terms.

 

(g) I acknowledge that I have been afforded the sufficient opportunity to review the terms of this Agreement before executing same.

 

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I have executed this Agreement on the date set forth below, to be deemed effective at the earlier to occur of the commencement of my employment relationship with the Company or upon my initial possession, knowledge, or acquisition of any of the Company’s Trade Secrets or Confidential Information; provided, however, that if the latter date is vague or indeterminable, this Agreement shall be deemed effective as of the commencement of my employment relationship with the Company.

 

AGREED AND ACCEPTED:    
         
Print Name:   XL Fleet Corp.
     
Signature: /s/ Dimirti Kazarinoff   By: /s/ Jim Berklas
  Dimitri Kazarinoff      
         
Date: 11/20/2021   Date: 11/20/2021

 

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SCHEDULE A

 

PRIOR INVENTIONS

 

Assigned

 

None

 

Not Assigned

 

None

 

 

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Exhibit 10.3

 

 

 

PRIVATE & CONFIDENTIAL

 

January 26, 2022

 

Ms. Cielo Maria Hernandez

9 Gladwynne Terrace

Moorestown, NJ 09057

 

Re:Transition and Separation from Employment

 

Dear Cielo:

 

As we have discussed, you are resigning your employment with XL Fleet Corp. (the “Company”) effective January 31, 2022 (the “Separation Date”). The purpose of this letter agreement (the “Transition and Separation Agreement”) is to set forth the terms of your separation from the Company. Provision of the Separation Benefits described in Section 3 of this Agreement is contingent on your agreement to and compliance with the terms of this Agreement, as set forth below. You have twenty-one (21) calendar days to review this Agreement and sign it if you wish. This Agreement shall become effective on the eighth (8th) day following the date on which you sign it (the “Effective Date”).

 

1. Transition Period; Employment Status. Your employment with the Company shall end on the “Separation Date. The period between the execution of this Transition and Separation Agreement and your Separation Date shall be referred to as the “Transition Period.” You agree that at all times during your employment with the Company, you must remain professional and agree to faithfully, diligently and to the best of your abilities undertake and perform all duties and responsibilities in your position and to abide by the rules, regulations, instructions, personnel practices and policies of the Company. Nothing herein alters the Company’s right to manage the business as it sees fit and to otherwise supervise you. Upon the Separation Date, provided that you have not been terminated for Cause as set forth below, you shall submit to the Company a letter of resignation from your role as Chief Financial Officer pursuant to Section 2 below. As of and following the Separation Date, your employment with the Company shall conclude and you shall have no authority and shall not represent yourself as an employee or agent of Company.

 

(a) Roles and Duties. During the Transition Period, your employment shall continue pursuant to the terms and conditions of the employment agreement dated April 9, 2021, between you and the Company (the “Employment Agreement”), as modified by this Agreement, and remain subject to the Company’s policies that currently apply to your employment with the Company. During the Transition Period, you agree to perform all duties and responsibilities as may be assigned to you by the Chief Executive Officer including, but not limited to: (a) continuing to meet with Company personnel regarding matters in which you have been involved during your employment; (b) assisting the Company in transitioning your job duties to other personnel; and (c) performing reasonable job duties as may be assigned to you.

 

(b) Compensation and Benefits during Transition Period. If you: (i) execute and deliver a copy of this Agreement to the Company; (ii) do not revoke your acceptance of this Agreement during the seven (7) calendar day revocation period as described in Paragraph 9 below; and (iii) fully comply with the terms and conditions set forth in this Agreement, during the Transition Period: (1) the Company will continue to pay your current annualized base salary of Four Hundred Forty Thousand Dollars ($400,000)(the “Base Salary”), paid monthly in accordance with the Company’s normal payroll practices and shall be subject to the usual required withholdings; and (2) you will continue to receive Company benefits and participate in Company benefit plans on the terms currently in effect.

 

 

 

(c) Termination of Employment during Transition Period. The Company agrees that it will not terminate your employment during the Transition Period except for Cause. For purposes of this Agreement, “Cause” shall mean: (i) any act by you of gross negligence, willful misconduct or material dishonesty in the course of your employment hereunder that materially and adversely affects the business or affairs of the Company or any of its affiliates; (ii) your misappropriation (or attempted misappropriation) of any assets of the Company or any of its affiliates; (iii) your commission or attempted commission of any act of fraud or embezzlement; (iv) violation of any law or regulation which adversely and materially affects your ability to discharge your duties or has a direct, substantial and adverse effect on the Company; (v) your breach of this Agreement, including any covenant or representation contained herein; (vi) any other misconduct by you that adversely affects the business or affairs of the Company or any of its affiliates. In the event that you are terminated for Cause, such date of termination shall be the effective Separation Date, and you will not be entitled to any Separation Benefits (as defined in Paragraph 3 below) and will receive no further compensation, other than the Accrued Obligations (as defined in Section 2 below). In the event that your employment is terminated for “Cause” pursuant to this paragraph during the Transition period, then this Agreement shall become null and void and neither party shall have any continuing obligations toward the other pursuant to this Agreement. In addition, in the event of your death prior to the Separation Date, your heirs, executors, personal representatives or administrators, or any person shall not be entitled to receive any Separation Benefits provided hereunder, unless such Separation Benefits have already been earned and vested and for which all conditions precedent, including without limitation the execution and non-revocation of the Supplemental Release, have been satisfied at the time of death.

 

2. Separation Date. Your employment with the Company will end on the Separation Date, as described above. On the Separation Date, the Company will provide you with your (i) final paycheck, which will include all salary and/or wages owed to you for work performed through the Separation Date, and (ii) any unreimbursed business expenses incurred through the Separation Date in accordance with Company policy, less all customary and required taxes and employment-related deductions (collectively, the “Accrued Obligations”). Other than as provided herein, any entitlement you may have under a Company-provided benefit plan or program shall terminate as of the Separation Date, except as required by law and/or in accordance with plan or program terms. As of the Separation Date: (a) your employment with the Company shall conclude; (b) you no longer shall be entitled to payment of base salary, bonus or other form of compensation by virtue of your employment, except as set forth in this Agreement and (c) you shall not represent yourself as an employee or agent of the Company. In addition, you acknowledge and agree that, on the Separation Date, you shall execute the resignation letter attached hereto as Exhibit A and will resign from your position as Chief Financial Officer, effective immediately. In the absence of any other written resignation proffered to the Board, this Agreement shall constitute such a written resignation.

 

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3. Separation Benefits. If you: (a) execute and do not revoke this Agreement and provide services during the Transition Period consistent with Section 1 above; (b) execute and deliver the Supplemental Release attached hereto as Exhibit B to the Company following your Separation Date; (c) do not revoke your acceptance of the Supplemental Release during the seven (7) calendar day supplemental release revocation period as described in Paragraph 4 of the Supplemental Release (the “Supplemental Release Revocation Period”); and (d) fully comply with the terms and conditions set forth in this Agreement and Supplemental Release, the Company agrees to provide you with the following separation benefits (together, the “Separation Benefits”):

 

(a) Severance Payments. The Company shall continue payments in an amount equal to your current base salary for a six (6) month period, less all customary and required taxes and employment-related deductions, in accordance with the Company’s normal payroll practices (the “Severance Payments”). The Company will commence payment of the Severance Payments on the first payroll date following the Separation Date following the Supplemental Release Revocation Period and your return of Company property, provided that if the time period during which the Agreement is required to become enforceable and irrevocable crosses a tax year, then the payments will be delayed until such subsequent calendar year; provided further that if such payments are delayed until such subsequent year, the first such payment shall be a lump sum in an amount equal to the payments that would have come due since the Separation Date. The Company agrees that it shall continue the severance payments for a six (6) month period regardless of whether you begin employment with a different employer.

 

(b) Benefits Payments. Upon completion of appropriate forms and subject to applicable terms and conditions under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall pay the COBRA premium payments (the “COBRA Payment”), until the earlier to occur of: (A) six (6) months following your Separation Date, or (B) the date you become eligible for medical benefits with another employer. Notwithstanding the foregoing, if your COBRA Payment would cause the applicable group health plan to be discriminatory and, therefore, result in adverse tax consequences to you, the Company shall, in lieu of the COBRA Payment, provide you with an equivalent monthly cash payment, minus deduction of all amounts required to be deducted or withheld under applicable law, for any period of time you are eligible to receive the COBRA Payment. You shall bear full responsibility for applying for COBRA continuation coverage and the Company shall have no obligation to provide you such coverage if you fail to elect COBRA benefits in a timely fashion.

 

4. Acknowledgements and Affirmations by Both Parties. You acknowledge and agree that the Separation Benefits are not intended to and does not constitute a severance plan or confer a benefit on anyone other than the parties. You further acknowledge that except for the Separation Benefits and the Accrued Obligations, you are not now and shall not in the future be entitled to any other compensation from the Company including, without limitation, other wages, commissions, bonuses, incentive compensation, vacation pay, holiday pay, paid time off, stock, stock options, equity, or any other form of compensation or benefit. You further understand and agree that you would not receive the Separation Benefits except for your execution of this Agreement and the Supplemental Release, and the fulfillment of the promises contained therein. You further affirm as follows: (a) you have not filed, caused to be filed, or presently are a party to any claim against the Company; (b) you have paid and/or have received all compensation, wages, bonuses, commissions and/or benefits to which you may be entitled, except any payments for services performed during the Transition Period; (c) you have been granted any leave to which you were entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws; (d) that all of the Company’s decisions regarding your pay and benefits through the Effective Date of this Agreement were not discriminatory based on age, disability, race, color, sex, religion, national origin or any other classification protected by law; (e) you have no known workplace injuries or occupational diseases; (f) you have not divulged any proprietary or confidential information of the Company and will continue to maintain the confidentiality of such information consistent with Company policies and your agreement(s) with the Company and/or common law; (g) you have not been retaliated against for reporting any allegations of wrongdoing by the Company or its officers, including any allegations of corporate fraud; (h) you are not a Medicare or Medicaid beneficiary as of the date of this Agreement and, therefore, no conditional payments have been made by Medicare or Medicaid.

 

The Company agrees to provide defense and indemnification to you for actions taken by you in the course and scope of your employment as an officer of the Company as provided by and in accordance with the terms of each of the Company’s’ by-laws, certificate of incorporation, directors and officers liability insurance coverage, indemnification agreement and applicable law.

 

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5. No Contest of Unemployment. By virtue of your separation of employment, you shall be entitled to apply for unemployment benefits. The determination of your eligibility for such benefits (and the amount of benefits to which you may be entitled) shall be made by the appropriate state agency pursuant to applicable state law. Notwithstanding the foregoing, the Company agrees that it shall not contest any claim for unemployment benefits by you (please note that the Company shall not be required to falsify any information).

 

6. Covenants & Warranties. You expressly acknowledge and agree to the following:

 

(a) Return of Property and Records. Within seven (7) business days following the Separation Date, you shall: (i) return to the Company all tangible business information and copies thereof (regardless how such confidential information or copies are maintained), and (ii) deliver to the Company any property of the Company which may be in your possession, including, but not limited to, devices, smart phones, laptops, cell phones (the foregoing, “electronic devices”), products, materials, memoranda, notes, records, reports or other documents or photocopies of the same. You may retain copies of any exclusively personal data contained in or on the Company-owned electronic devices returned to the Company pursuant to the foregoing. The foregoing notwithstanding, you understand and agree that the Company property belongs exclusively to the Company, it should be used for Company business, and you have no reasonable expectation of privacy on any Company property or with respect to any information stored thereon.

 

(b) Cooperation. You shall use all reasonable efforts to cooperate fully with the Company to the extent reasonable in connection with any matter or event relating to your employment or events that occurred during your employment, including assisting with: (i) the transition of your responsibilities and duties to other personnel of the Company through March 1, 2022; (ii) the defense or prosecution of any claims or actions now in existence or which may be brought or threatened in the future against or on behalf of the Company which relate to events or occurrences that transpired while you were employed by the Company; (iii) the completion of the audit of the Company’s financial statements for 2021; and (iv) any investigation or review of any federal, state or local regulatory authority. Your cooperation in connection with such matters, actions and claims shall include being reasonably available to provide information to, and if requested to meet with, the Company or its counsel at a mutually convenient time during normal working hours to prepare for, attend and participate in any proceeding (including, without limitation, depositions, consultation, discovery or trial); to provide affidavits; to assist with any audit, inspection, proceeding or other inquiry; and to act as a witness in connection with any litigation or other legal proceeding affecting the Company which relates to events or occurrences that transpired while you were employed by the Company. You further agree that should you be contacted (directly or indirectly) by any person or entity (for example, by any party representing an individual or entity) adverse to the Company following the Separation Date, you shall notify the Company within three (3) business days. The Company agrees to provide you reasonable compensation for your time provided pursuant to this paragraph if the Company requests your cooperation after March 1, 2022. The Company also agrees to reimburse you for any out-of-pocket expenses approved in advance by the Company and incurred in connection with providing such cooperation under this Section. All requests for cooperation by the Company pursuant to this paragraph must be reasonable and must not unreasonably disrupt any employment position that you hold in the future. The Company also agrees to provide reasonable advance notice when requesting your cooperation pursuant to this paragraph. Notwithstanding the foregoing, you shall have no obligation to sign any filings made with the Securities and Exchange Commission following the Separation Date, nor shall you have any obligation to sign any documents on behalf of the Company.

 

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(c) Non-Disparagement.

 

(1)Your Obligations. You shall not make any oral or written communication to any person or entity that has the effect of professionally or personally disparaging, damaging the reputation of, or otherwise working in any way to the detriment or adverse to the interests of, the Company or any of its respective directors, officers, shareholders, employees, or agents (in each case known to you), and that you shall not engage in any conduct that is intended to harm professionally or personally the reputation of the Company; provided that nothing in this Section shall restrict you from making any disclosures mandated by state or federal law or from participating in an investigation with a state or federal agency if requested by the agency to do so.

 

(2)The Company’s Obligations. The Company agrees that you are resigning your employment. The Company agrees to instruct members of its Board of Directors and Executive Team that you are resigning your employment, and that they shall not make any oral or written communication to any person or entity that has the effect of professionally or personally disparaging, damaging the reputation of, or otherwise working in any way to the detriment or adverse to your interests or engage in any conduct that is intended to harm you professionally or personally; provided that nothing in this Section shall restrict the Company from making any disclosures mandated by state or federal law or from participating in an investigation with a state or federal agency if requested by the agency to do so. During the Transition Period, the Company agrees to provide you with an advance copy of any internal or external statement that refers to you or your separation from the Company.

 

(d) No Further Actions. As of the Effective Date, you have not: (i) filed any action, complaint, charge, grievance or arbitration against the Company; (ii) contacted any local, state or federal governmental agency regarding the Company; (iii) encouraged any individual to file any action, complaint, charge, grievance or arbitration against the Company; (iv) received information from any individual that such individual intends to file or threaten to file an action, complaint, charge, grievance or arbitration against the Company; or (v) provided any information to any individual to aid such individual in filing or threatening to file an action, complaint, charge, grievance or arbitration against the Company. You understand that by signing this Agreement, you waive your right to any monetary recovery in connection with a local, state or federal governmental agency proceeding and you waive your right to file a claim seeking monetary damages in any court, except as provided herein.

 

(e) Material Breach. A breach of any of the above sub-Sections shall constitute a material breach of this Agreement and, in addition to any other legal or equitable remedy available to the Company, shall permit and entitle the Company to cease any additional payment or provision of the Separation Benefits. In addition to any other penalties or restrictions that may apply under any this or any other applicable agreement, applicable law or otherwise, in the event of a breach of any of the above sub-Sections, you acknowledge and agree that: (a) you shall forfeit any vested unexercised options and/or any shares held by you that were received in respect of your stock options or restricted stock unit awards effective as of the date of such breach; and (b) this provision constitutes an amendment of each of those award agreements.

 

(f) No Wrongdoing. You represent and understand that neither the benefits set forth in this Agreement nor the Company’s entering into this Agreement shall constitute an admission by the Company of wrongdoing, and further, that as of the Separation Date, you have not reported any practice of the Company that you believe to be in violation of any law, and further that if you were aware of a legitimate claim against the Company you informed the Company of same or the Company was aware of same. Additionally, as of the Separation Date, to the best of your knowledge and based on the information that was provided to you, you reaffirm the accuracy of the certifications that you signed during the course of your employment pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

 

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7. Your Release of Claims.

 

(a) Release. You hereby agree and acknowledge that by signing this Agreement and accepting the consideration described herein, and for other good and valuable consideration provided for in this Agreement, you are waiving and releasing your right to assert any form of legal claim against the Company1/ whatsoever for any alleged action, inaction or circumstance existing or arising from the beginning of time through the Separation Date. Your waiver and release herein is intended to bar any form of legal claim, charge, complaint or any other form of action (jointly referred to as “Claims”) against the Company seeking any form of relief including, without limitation, equitable relief (whether declaratory, injunctive or otherwise), the recovery of any damages or any other form of monetary recovery whatsoever (including, without limitation, back pay, front pay, compensatory damages, emotional distress damages, punitive damages, attorneys’ fees and any other costs) against the Company, for any alleged action, inaction or circumstance existing or arising through the Separation Date. Without limiting the generality of the foregoing, you specifically waive and release the Company from any waivable claim arising from or related to your employment relationship with the Company and the separation therefrom through the Separation Date including, without limitation:

 

i.Claims under any Massachusetts, Delaware, New Jersey or other state or federal statute, regulation or executive order (as amended) relating to employment, discrimination, harassment, retaliation, fair employment practices, wages, hours, or other terms and conditions of employment, including but not limited to the Title VII of the Civil Rights Act of 1964 and the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, Section 1981 of U.S.C. Title 42, the Worker Adjustment and Retraining Notification Act, the National Labor Relations Act, the Immigration Reform and Control Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, Age Discrimination in Employment Act and Older Workers Benefit Protection Act, the Civil Rights Acts of 1866 and 1871, the Genetic Information Non-Discrimination Act, the Lilly Ledbetter Fair Pay Act, COBRA, the Massachusetts Fair Employment Practices Statute, the Massachusetts Equal Rights Act, the Massachusetts Civil Rights Act, the Massachusetts Privacy Statute, the Massachusetts Sexual Harassment Statute, the Massachusetts Wage Act, the Massachusetts Minimum Fair Wages Act, the Massachusetts Equal Pay Act, New Jersey Law Against Discrimination; New Jersey Equal Pay Act, New Jersey Civil Rights Act, New Jersey Genetic Privacy Act, New Jersey Fair Credit Reporting Act, New Jersey Opportunity to Compete Act, New Jersey Security and Financial Empowerment Act, New Jersey Conscientious Employee Protection Act, New Jersey Family Leave Act, New Jersey Wage Payment and Work Hour Laws, New Jersey Earned Sick Leave Law, Millville Dallas Automotive Plant Job Loss Notification Act, New Jersey Wage Discrimination Law, Delaware Discrimination in Employment Act and any similar Massachusetts, Delaware, New Jersey or other state, local, or federal statute, ordinance, regulation or executive order (as amended) relating to or other terms and conditions of employment; however, the identification of specific statutes is for purposes of example only, and the omission of any specific statute, ordinance, or law shall not limit the scope of this general release in any manner. Please

 

 

1/For purposes of this Section, the “Company” means XL Fleet Corp. and its divisions, affiliates, parents, subsidiaries and related entities, and its and their owners, shareholders, partners, directors, officers, employees, trustees, agents, successors and assigns.

 

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note that this Section specifically includes a waiver and release of Claims regarding payments or amounts covered by the Massachusetts Wage Act or the Massachusetts Minimum Fair Wages Act, including hourly wages, salary, overtime, minimum wages, commissions, vacation pay, holiday pay, sick leave pay, dismissal pay, bonus pay, or severance pay.

 

ii.Any and all claims for compensation, including but not limited to salary, wages, overtime, bonuses, commissions, incentive compensation, vacation, holiday pay, sick leave pay, and severance that may be legally waived and released.

 

iii.Claims under any Massachusetts, Delaware, New Jersey or other state or federal common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence or any claim to attorneys’ fees under any applicable statute or common law theory of recovery.

 

iv.Claims under any Massachusetts, Delaware, New Jersey or other state or federal statute, regulation or executive order (as amended) relating to violation of whistleblower protections, public policy or any other form of retaliation or wrongful termination under Massachusetts, Delaware, New Jersey or other state or federal statute, including the Sarbanes-Oxley Act of 2002.

 

v.Any other Claim arising under other Massachusetts, Delaware, New Jersey or other state or federal law.

 

(b) Release Limitations; Participation in Agency Proceedings. Notwithstanding the foregoing, this Section does not:

 

i.Release the Company from any obligation expressly set forth in this Agreement.

 

ii.Waive or release any legal claims, which you may not waive or release by law, including claims under any workers compensation or unemployment insurance laws.

 

iii.Prohibit you from challenging the validity of this release under federal law.

 

iv.Prohibit you from filing a charge or complaint of employment-related discrimination with the Equal Employment Opportunity Commission (“EEOC”) or similar state agency, or from participating in any investigation or proceeding conducted by the EEOC or similar state agency, or from responding to a request for information or documents (or providing information or documents) to the EEOC or similar state agency.

 

Your waiver and release, however, are intended to be a complete bar to any recovery or personal benefit by or to you with respect to any claim (except those which cannot be released under law), including those raised through a charge with the EEOC. Accordingly, nothing in this Section shall be deemed to limit the Company’s right to seek immediate dismissal of such charge or complaint on the basis that your signing of this Agreement constitutes a full release of any individual rights under the federal discrimination laws, or to seek restitution to the extent permitted by law of the economic benefits provided to you under this Agreement in the event you successfully challenge the validity of this release and prevail in any claim under the federal discrimination laws.

 

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(c) Consideration Acknowledgement. You acknowledge and agree that, but for providing this waiver and release, you would not be receiving the consideration provided to you under the terms of this Agreement.

 

8. Covenant Not to Sue. Subject to Section 7 above, you covenant and agree that you will not now or at any time in the future commence, maintain, prosecute, or participate in as a party, or permit to be filed by any other person on your behalf or as a member of any alleged class of persons, any action, suit, proceeding, claim, or complaint of any kind against the Company with respect to any matter which arises from or relates to your employment with the Company or the termination thereof or which is encompassed in the release set forth above. Nothing in this Agreement prevents you from: (i) filing a claim to enforce the terms of this Agreement; (ii) asserting a claim arising after the Effective Date of this Agreement; or (iii) filing a charge with the EEOC or participating in any EEOC investigation or proceeding. You promise, however, never to seek or accept any damages, remedies or other relief for you personally with respect to any claim released by this Agreement. You acknowledge that this Agreement does not limit your ability to communicate with any governmental agencies or otherwise participate in any investigation or proceeding that may be conducted by any government agencies, including providing documents or other information, without notice to the Company.

 

9. ADEA/OWBPA Review and Revocation Period. You and the Company acknowledge that you are over the age of 40 and that you, therefore, have specific rights under the Age Discrimination in Employment Act (“ADEA”) and the Older Workers Benefit Protection Act (the “OWBPA”), which prohibit discrimination on the basis of age. It is the Company’s desire and intent to make certain that you fully understand the provisions and effects of this Agreement, which includes a release of claims under the ADEA and OWBPA. To that end, you have been encouraged and given the opportunity to consult with legal counsel for the purpose of reviewing the terms of this Agreement. Consistent with the provisions of the ADEA and OWBPA, the Company is providing you with twenty- one (21) days in which to consider and accept the terms of this Agreement by signing below and returning it to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You may rescind your assent to this Agreement if, within seven (7) days after you sign this Agreement, you deliver by hand, electronic mail or certified mail (certified, return receipt and postmarked within such 7-day period) a notice of rescission to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You agree that any modifications, material or otherwise, made to this Agreement do not restart or affect in any manner the original twenty-one (21) day consideration period.

 

10. Taxes. The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement including, but not limited to, consequences related to Section 409A of the Internal Revenue Code of 1986, as amended.

 

11. Entire Agreement; Modification; Waiver; Choice of Law; Enforceability. You acknowledge and agree that this Agreement, as well as the Plan, Option Agreements, and Employee Covenants Agreement, constitutes the entire agreement between you and the Company, and supersedes any and all prior oral contemporaneous oral and/or written agreements between you and the Company. No variations or modifications hereof shall be deemed valid unless reduced to writing and signed by the parties hereto. The failure of the Company to seek enforcement of any provision of this Agreement in any instance or for any period of time shall not be construed as a waiver of such provision or of the Company’s right to seek enforcement of such provision in the future. This Agreement shall be deemed to have been made in Massachusetts, shall take effect as an instrument under seal within Massachusetts, and shall be governed by and construed in accordance with the laws of Massachusetts, without giving effect to conflict of law principles. You agree that any action, demand, claim or counterclaim relating to the terms and provisions of this Agreement, or to its breach, shall be commenced in Massachusetts in a court of competent jurisdiction, and you further acknowledge that venue for such actions shall lie exclusively in Massachusetts and that material witnesses and documents would be located in Massachusetts. Both parties hereby waive and renounce in advance any right to a trial by jury in connection with such legal action. The provisions of this Agreement are severable, and if for any reason any part hereof shall be found to be unenforceable, the remaining provisions shall be enforced in full.

 

12. Competency; Knowing and Voluntary Agreement. By executing this Agreement, you are acknowledging that: (a) you are competent to execute this Agreement; (b) you have been afforded sufficient time to understand the terms and effects of this Agreement; (c) your agreements and obligations hereunder are made voluntarily, knowingly and without duress; (d) that neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of this Agreement; (e) that at the time of considering or executing this Agreement, you were not affected or impaired by illness, use of alcohol, drugs or other substances or otherwise impaired; and (f) you certify that you are not a party to any bankruptcy, lien, creditor- debtor or other proceedings which would impair your right or ability to waive all claims you may have against the Company.

 

[SIGNATURE PAGE FOLLOWS]

 

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This Agreement may be signed on one or more copies, each of which when signed shall be deemed to be an original, and all of which together shall constitute one and the same Agreement. If the foregoing correctly sets forth our understanding, please sign, date and return the enclosed copy of this Agreement to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. Please return this Agreement no later than twenty-one (21) calendar days following the date of this Agreement. If the Company does not receive your acceptance within the twenty-one (21) day timeframe, the Agreement shall terminate and be of no further force or effect.

 

  Sincerely,
   
  XL FLEET CORP.
   
  By: /s/ Jim Berklas
   
  Its: Chief Legal Officer
     
  Date: Jim Berklas

 

Acknowledged and Agreed:  
   
/s/ Cielo Hernandez  
Cielo Hernandez  
   
Date: 11/28/2022  

 

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EXHIBIT A

RESIGNATION LETTER

 

January 31, 2022

 

XL Fleet Corp.

145 Newton Street

Boston, MA 02135

 

To Whom It May Concern:

 

This is to inform you that effective January 31, 2022, I hereby resign (i) my position as Chief Financial Officer of XL Fleet Corp. (the “Company”) and (ii) any director, officer or other positions I hold with the Company, with XL Hybrids, Inc., or with any subsidiary or affiliate of the Company.

 

  Very truly yours,
   
  /s/ Cielo Hernandez
  Cielo Hernandez

 

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EXHIBIT B

 

SUPPLEMENTAL RELEASE

 

XL Fleet Corp., a Delaware corporation with its principal place of business located at 145 Newton Street, Boston, Massachusetts 02135 (the “Company”) and Cielo Hernandez, residing at 9 Gladwynne Terrace, Moorestown, NJ 09057 (“You”).

 

1. In consideration for executing and delivering this Supplemental Release to the Company following the Separation Date (as defined in Paragraph 1 of the Transition and Separation Agreement dated January 26, 2022 (the “Agreement”)) and not revoking your acceptance of this Supplemental Release during the seven (7) calendar day supplemental revocation period as described below (the “Supplemental Release Revocation Period”), the Company agrees to provide you with the consideration as set forth in Paragraph 3 of the Agreement. You understand and agree that you would not be entitled to the consideration described above except for your execution of this Supplemental Release following the expiration of her Transition Period described in Section 1 of the Agreement and the fulfillment of the promises contained in the Agreement, as well as in this Supplemental Release.

 

2. Supplemental Release of Claims.

 

(a) Release. You hereby agree and acknowledge that by signing this Agreement and accepting the consideration described herein, and for other good and valuable consideration provided for in this Agreement, you are waiving and releasing your right to assert any form of legal claim against the Company2/ whatsoever for any alleged action, inaction or circumstance existing or arising from the beginning of time through the Separation Date. Your waiver and release herein is intended to bar any form of legal claim, charge, complaint or any other form of action (jointly referred to as “Claims”) against the Company seeking any form of relief including, without limitation, equitable relief (whether declaratory, injunctive or otherwise), the recovery of any damages or any other form of monetary recovery whatsoever (including, without limitation, back pay, front pay, compensatory damages, emotional distress damages, punitive damages, attorneys’ fees and any other costs) against the Company, for any alleged action, inaction or circumstance existing or arising through the Separation Date. Without limiting the generality of the foregoing, you specifically waive and release the Company from any waivable claim arising from or related to your employment relationship with the Company and the separation therefrom through the Separation Date including, without limitation:

 

i.Claims under any Massachusetts, Delaware, New Jersey or other state or federal statute, regulation or executive order (as amended) relating to employment, discrimination, harassment, retaliation, fair employment practices, wages, hours, or other terms and conditions of employment, including but not limited to the Title VII of the Civil Rights Act of 1964 and the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, Section 1981 of U.S.C. Title 42, the Worker Adjustment and Retraining Notification Act, the National Labor Relations Act, the Immigration Reform and Control Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, Age Discrimination in Employment Act and Older Workers Benefit Protection Act, the Civil Rights Acts of 1866 and 1871, the

 

 

2/For purposes of this Section, the “Company” means XL Fleet Corp. and its divisions, affiliates, parents, subsidiaries and related entities, and its and their owners, shareholders, partners, directors, officers, employees, trustees, agents, successors and assigns.

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Genetic Information Non-Discrimination Act, the Lilly Ledbetter Fair Pay Act, COBRA, the Massachusetts Fair Employment Practices Statute, the Massachusetts Equal Rights Act, the Massachusetts Civil Rights Act, the Massachusetts Privacy Statute, the Massachusetts Sexual Harassment Statute, the Massachusetts Wage Act, the Massachusetts Minimum Fair Wages Act, the Massachusetts Equal Pay Act, New Jersey Law Against Discrimination; New Jersey Equal Pay Act, New Jersey Civil Rights Act, New Jersey Genetic Privacy Act, New Jersey Fair Credit Reporting Act, New Jersey Opportunity to Compete Act, New Jersey Security and Financial Empowerment Act, New Jersey Conscientious Employee Protection Act, New Jersey Family Leave Act, New Jersey Wage Payment and Work Hour Laws, New Jersey Earned Sick Leave Law, Millville Dallas Automotive Plant Job Loss Notification Act, New Jersey Wage Discrimination Law, Delaware Discrimination in Employment Act and any similar Massachusetts, Delaware, New Jersey or other state, local, or federal statute, ordinance, regulation or executive order (as amended) relating to or other terms and conditions of employment; however, the identification of specific statutes is for purposes of example only, and the omission of any specific statute, ordinance, or law shall not limit the scope of this general release in any manner. Please note that this Section specifically includes a waiver and release of Claims regarding payments or amounts covered by the Massachusetts Wage Act or the Massachusetts Minimum Fair Wages Act, including hourly wages, salary, overtime, minimum wages, commissions, vacation pay, holiday pay, sick leave pay, dismissal pay, bonus pay, or severance pay.

 

ii.Any and all claims for compensation, including but not limited to salary, wages, overtime, bonuses, commissions, incentive compensation, vacation, holiday pay, sick leave pay, and severance that may be legally waived and released.

 

iii.Claims under any Massachusetts, Delaware, New Jersey or other state or federal common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence or any claim to attorneys’ fees under any applicable statute or common law theory of recovery.

 

iv.Claims under any Massachusetts, Delaware, New Jersey or other state or federal statute, regulation or executive order (as amended) relating to violation of public policy or any other form of retaliation or wrongful termination under Massachusetts, Delaware, New Jersey or other state or federal statute.

 

v.Any other Claim arising under other Massachusetts, Delaware, New Jersey or other state or federal law.

 

(b)   Release Limitations; Participation in Agency Proceedings. Notwithstanding the foregoing, this Section does not:

 

i.Release the Company from any obligation expressly set forth in this Agreement.

 

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ii.Waive or release any legal claims, which you may not waive or release by law, including claims under any workers compensation or unemployment insurance laws.

 

iii.Prohibit you from challenging the validity of this release under federal law.

 

iv.Prohibit you from filing a charge or complaint of employment-related discrimination with the Equal Employment Opportunity Commission (“EEOC”) or similar state agency, or from participating in any investigation or proceeding conducted by the EEOC or similar state agency, or from responding to a request for information or documents (or providing information or documents) to the EEOC or similar state agency.

 

Your waiver and release, however, are intended to be a complete bar to any recovery or personal benefit by or to you with respect to any claim (except those which cannot be released under law), including those raised through a charge with the EEOC. Accordingly, nothing in this Section shall be deemed to limit the Company’s right to seek immediate dismissal of such charge or complaint on the basis that your signing of this Agreement constitutes a full release of any individual rights under the federal discrimination laws, or to seek restitution to the extent permitted by law of the economic benefits provided to you under this Agreement in the event you successfully challenge the validity of this release and prevail in any claim under the federal discrimination laws.

 

(c) Consideration Acknowledgement. You acknowledge and agree that, but for providing this waiver and release, you would not be receiving the consideration provided to you under the terms of this Agreement.

 

3. Covenant Not to Sue. Subject to Section 8 above, you covenant and agree that you will not now or at any time in the future commence, maintain, prosecute, or participate in as a party, or permit to be filed by any other person on your behalf or as a member of any alleged class of persons, any action, suit, proceeding, claim, or complaint of any kind against the Company with respect to any matter which arises from or relates to your employment with the Company or the termination thereof or which is encompassed in the release set forth above. Nothing in this Agreement prevents you from: (i) filing a claim to enforce the terms of this Agreement; (ii) asserting a claim arising after the Effective Date of this Agreement; or (iii) filing a charge with the EEOC or participating in any EEOC investigation or proceeding. You promise, however, never to seek or accept any damages, remedies or other relief for you personally with respect to any claim released by this Agreement. You acknowledge that this Agreement does not limit your ability to communicate with any governmental agencies or otherwise participate in any investigation or proceeding that may be conducted by any government agencies, including providing documents or other information, without notice to the Company.

 

4. ADEA/OWBPA Review and Revocation Period. You and the Company acknowledge that you are over the age of 40 and that you, therefore, have specific rights under the Age Discrimination in Employment Act (“ADEA”) and the Older Workers Benefit Protection Act (the “OWBPA”), which prohibit discrimination on the basis of age. It is the Company’s desire and intent to make certain that you fully understand the provisions and effects of this Agreement, which includes a release of claims under the ADEA and OWBPA. To that end, you have been encouraged and given the opportunity to consult with legal counsel for the purpose of reviewing the terms of this Agreement. Consistent with the provisions of the ADEA and OWBPA, the Company is providing you with twenty- one (21) days following your Separation Date in which to consider and accept the terms of this Agreement by signing below and returning it to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You may rescind your assent to this Agreement if, within seven (7) days after you sign this Agreement, you deliver by hand, electronic mail or certified mail (certified, return receipt and postmarked within such 7-day period) a notice of rescission to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You agree that any modifications, material or otherwise, made to this Agreement do not restart or affect in any manner the original twenty-one (21) day consideration period.

 

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5. Acknowledgements and Affirmations. You acknowledge and affirm as follows: (a) you have not filed, caused to be filed, or presently is a party to any claim against Employer; (b) you have paid and/or has received all compensation, wages, bonuses, commissions and/or benefits to which you may be entitled, except any payments for services performed during the Transition Period; (c) you have been granted any leave to which you were entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws; (d) that all of the Company’s decisions regarding your pay and benefits through the Effective Date of this Agreement were not discriminatory based on age, disability, race, color, sex, religion, national origin or any other classification protected by law; (e) you have no known workplace injuries or occupational diseases; (f) you have not divulged any proprietary or confidential information of the Company and will continue to maintain the confidentiality of such information consistent with Company policies and your agreement(s) with the Company and/or common law; (g) you have not been retaliated against for reporting any allegations of wrongdoing by the Company or its officers, including any allegations of corporate fraud; (h) you are not a Medicare or Medicaid beneficiary as of the date of this Agreement and, therefore, no conditional payments have been made by Medicare or Medicaid.

 

6. Competency; Knowing and Voluntary Agreement. By executing this Supplemental Release, you are acknowledging that: (a) you are competent to execute this Supplemental Release; (b) you have been afforded sufficient time to understand the terms and effects of this Supplemental Release; (c) your agreements and obligations hereunder are made voluntarily, knowingly and without duress; (d) that neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of the Agreement or this Supplemental Release; (e) that at the time of considering or executing this Supplemental Release, you were not affected or impaired by illness, use of alcohol, drugs or other substances or otherwise impaired; and (f) you certify that you are not a party to any bankruptcy, lien, creditor-debtor or other proceedings which would impair your right or ability to waive all claims you may have against the Company.

 

Acknowledged and Agreed:  
   
/s/ Cielo Hernandez  
Cielo Hernandez  

 

  January 28,2022  
Date: 02.01.22  

 

 

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Exhibit 10.4

 

 

 

PRIVATE & CONFIDENTIAL

 

March 21, 2022

 

Mr. Thomas Hynes III

62 WALNUT PARK, UNIT A NEWTON, MA, 02458

 

Re:Transition and Separation from Employment

 

Dear Tod:

 

As we have discussed, upon mutual agreement, your employment with XL Fleet Corp. (the “Company”) will terminate effective March 21, 2022 (the “Separation Date”). The purpose of this letter agreement (the “Agreement”) is to set forth the terms of your separation from the Company. This Agreement will become effective upon the eighth day following your execution of this Agreement (the “Effective Date”), provided that you have not revoked it within the seven day period following its execution.

 

1. Separation from Employment. You acknowledge and agree that as of the Separation Date, except as set forth herein, you are deemed to resign from any and all (a) officer positions you held with the Company; (b) memberships you hold on the board of directors of the Company; and (c) memberships that you hold on any of the committees of the Board. Notwithstanding the foregoing, following your separation date you shall be named and serve as a member and Chairman of the Company’s Advisory Board, the compensation for which shall be based on terms and conditions generally applicable to members of such Advisory Board.

 

2. Final Salary. On the Separation Date, the Company will provide you with your final paycheck, which will include all salary and/or wages owed to you for work performed through the Separation Date, less all customary and required taxes and employment-related deductions, (collectively, the “Accrued Obligations”). You will have sixty (60) days following the date hereof to submit any unreimbursed business expenses incurred through the Separation Date, which will be reimbursed promptly in accordance with Company policy.

 

3. Status of Employee Benefits and Paid Time Off; Full Payment.

 

(a) Status of Employee Benefits and Paid Time Off. Except for any right you may have to continue your participation and that of your eligible dependents in the Company’s medical plans under the federal law known as “COBRA” and Section 4, your active participation in all employee benefits plans of the Company will end on the Separation Date in accordance with the terms of those plans. You will not continue to earn paid time off or other similar benefits after the Separation Date. You will receive information about your COBRA continuation rights under separate cover.

 

(b) Acknowledgement of Full Payment. You acknowledge and agree that the payments provided under Section 4 of this Agreement are in complete satisfaction of any and all compensation due to you from the Company, whether for services provided to the Company or otherwise, through the Separation Date and that, except as expressly provided under this Agreement, no further compensation will be owed or paid to you.

 

 

 

 

4. Separation Benefits. In consideration of your acceptance (and non-revocation) of this Agreement and subject to your meeting in full your obligations hereunder, you will be entitled to receive the following separation benefits (together, the “Separation Benefits”):

 

(a) Severance Payments. The Company shall pay you a lump sum equal to two hundred seventy-nine thousand three hundred seventy five dollars ($279,375) on the first payroll date following the Effective Date of this Agreement, less all customary and required taxes and employment- related deductions, in accordance with the Company’s normal payroll practices (the “Severance Payment”). The Company will also pay you $200,000 in lieu of annual director compensation that you would have received had you remained on the Board through 2022, and the Company will pay your legal expenses associated with this agreement (not to exceed $25,000).

 

(b) COBRA. Provided that you elect COBRA health care continuation coverage, the Company shall pay the employer portion of COBRA premium payments (the “COBRA Payment”), until the earlier to occur of: (A) nine (9) months following your Separation Date, or (B) the date you become eligible for medical benefits with another employer. You will continue to be responsible for the employee portion of the medical premiums. Notwithstanding the foregoing, if your COBRA Payment would cause the applicable group health plan to be discriminatory and, therefore, result in adverse tax consequences to you, the Company shall, in lieu of the COBRA Payment, provide you with an equivalent after-tax monthly cash payment during such nine month period equal to the employer portion of the COBRA Payment. If health insurance coverage changes for active employees of the Company, such changes shall also apply to you.

 

5. Continuing Obligations. You acknowledge that you continue to be bound by the terms of your Employee Covenants Agreement, dated July 13, 2009. For avoidance of doubt, in circumstances in which the Company has determined not to continue funding business activities, such as with UBS and its pipeline of other similar Arena deals, you may pursue these opportunities on behalf of the new party/venture, and your activities will not be deemed to violate your Employee Covenants Agreement.

 

6. Return of Property and Records. Within seven (7) business days following the Separation Date, you shall: (i) return to the Company all tangible business information and copies thereof (regardless how such confidential information or copies are maintained) in your possession and (ii) deliver to the Company any property of the Company which may be in your possession, including, but not limited to, devices, smart phones, laptops, cell phones (the foregoing, “electronic devices”), products, materials, memoranda, notes, records, reports or other documents or photocopies of the same. You may retain copies of any exclusively personal data contained in or on the Company-owned electronic devices returned to the Company pursuant to the foregoing. The Company acknowledges and agrees that the Company will not alter, amend or otherwise delete any of such information, property or records, and that such information, property and records will be maintained in their original forms and formats pending completion of any investigation, litigation or other controversy relating the Company until the later of (1) ten years following the Effective Date, or (2) the final adjudication of any such investigation, litigation or other controversy.

 

7. Cooperation. You shall cooperate with the Company, with advance notice and at reasonable times that take into account, among other things, your other business and personal obligations, in connection with any matter or event relating to your employment or events that occurred during your employment with respect to which you have knowledge, including, without limitation, assisting with: (i) the transition of your responsibilities and duties to other personnel of the Company for a period of nine (9) months following the Separation Date; (ii) the defense or prosecution of any claims or actions now in existence or which may be brought or threatened in the future against or on behalf of the Company, which assistance is not limited to the nine month period referenced in Sec. 7(i) above; and (iii) any investigation or review of any federal, state or local regulatory authority. Your cooperation in connection with such matters, actions and claims shall include, without limitation, being available to provide information to, and if requested to meet with, the Company or its counsel to prepare for, attend and participate in any proceeding (including, without limitation, depositions, consultation, discovery or trial); to provide affidavits; to assist with any audit, inspection, proceeding or other inquiry; and to act as a witness in connection with any litigation or other legal proceeding affecting the Company. The Company agrees to reimburse you for any out-of-pocket expenses approved in advance by the Company and incurred in connection with providing such cooperation under this Section, and to the extent that any services (other than in connection with subsection (ii) or (iii) herein) extend beyond nine (9) months following your Separation Date the Company will pay you an hourly rate of $250 per hour.

 

8. Indemnification. The Company agrees that it will fully indemnify you to the fullest extent permitted by law for all of your actions taken in good faith as an officer and director of the Company and any of its subsidiaries and affiliates (including any predecessors) as provided in the Company’s governing documents, your indemnification agreement and any other agreement, including the advancement of expenses in defense of any investigation or claim, and that it will maintain directors and officers insurance as currently or in the future provided for the period ending six years following your Separation Date on the same basis as other officers and directors of the Company; for the avoidance of doubt, you shall be entitled to retain separate counsel at the Company’s expense to represent you in the actions pending in the United States District Court for the Southern District of New York and the Delaware Court of Chancery, captioned In re XL Fleet Corp. Securities Litigation, 21- CV-2002-LGS, and In re XL Fleet (Pivotal) Stockholder Litigation, 2021-0808-KJSM, respectively, and any related or similar litigation and/or government investigations, subject to any applicable undertaking requirement(s).

 

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9. Non-Disparagement.

 

(a) Your Obligations. You shall not make any oral or written communication to any person or entity that disparages or damages the reputation of the Company or the professional reputation of any of its directors, officers, shareholders, or employees (in each case known to you); provided that nothing in this Section shall restrict you from making any disclosures mandated by state or federal law or from participating in an investigation with a state or federal agency if requested by the agency to do so.

 

(b) The Company’s Obligations. The Company agrees to instruct members of its Board of Directors and Executive Team not to make any oral or written communication to any person or entity that disparages or damages your professional reputation; provided that nothing in this Section shall restrict the Company from making any disclosures mandated by state or federal law or from participating in an investigation with a state or federal agency if requested by the agency to do so.

 

(c) Public Disclosure. The Company and you agree to cooperate in advance on any internal or external statement that refers to you or your separation from the Company.

 

10. Your Release of Claims.

 

(a) Release. You hereby agree and acknowledge that by signing this Agreement and accepting the consideration described herein, and for other good and valuable consideration provided for in this Agreement, you are waiving and releasing your right to assert any form of legal claim against the Company1/ whatsoever for any alleged action, inaction or circumstance existing or arising from the beginning of time through the Separation Date which arise from your acts or omissions made within the scope of your employment with the Company or are by reason of the fact that you were a director, officer, shareholder, founder, investor or employee of the Company. Your waiver and release herein is intended to bar any form of legal claim, charge, complaint or any other form of action (jointly referred to as “Claims”) against the Company seeking any form of relief including, without limitation, equitable relief (whether declaratory, injunctive or otherwise), the recovery of any damages or any other form of monetary recovery whatsoever (including, without limitation, back pay, front pay, compensatory damages, emotional distress damages, punitive damages, attorneys’ fees and any other costs) against the Company, for any alleged action, inaction or circumstance existing or arising through the Separation Date. Without limiting the generality of the foregoing, you specifically waive and release the Company from any waivable claim arising from or related to your employment relationship with the Company and the separation therefrom through the Separation Date including, without limitation:

 

i.Claims under any Massachusetts, New York, Delaware, Florida or other state or federal statute, regulation or executive order (as amended) relating to employment, discrimination, harassment, retaliation, fair employment practices, wages, hours, or other terms and conditions of employment, including but not limited to the Title VII of the Civil Rights Act of 1964 and the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act of 1974, Section 1981 of U.S.C. Title 42, the Worker Adjustment and Retraining Notification Act, the National Labor Relations Act, the Immigration Reform and Control Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, Age Discrimination in Employment Act and Older Workers Benefit Protection Act, the Civil Rights Acts of 1866 and 1871, the Genetic Information Non- Discrimination Act, the Lilly Ledbetter Fair Pay Act, COBRA, the Massachusetts Fair Employment Practices Statute, the Massachusetts Equal Rights Act, the Massachusetts Civil Rights Act, the Massachusetts Privacy Statute, the Massachusetts Sexual Harassment Statute, the Massachusetts Wage Act, the Massachusetts Minimum Fair Wages Act, the Massachusetts Equal Pay Act, the New York State Human Rights Law, New York City Human Rights Law, New York City Administrative Code, the New York Labor Law, or the discrimination or retaliation provisions of the New York State Workers' Compensation Law (all as amended), Delaware Discrimination in Employment Act and any similar Massachusetts, New York, Delaware or other state, local, or federal statute, ordinance, regulation or executive order (as amended) relating to or other terms and conditions of employment; however, the identification of specific statutes is for purposes of example only, and the omission of any specific statute, ordinance, or law shall not limit the scope of this general release in any manner. Please note that this Section specifically includes a waiver and release of Claims regarding payments or amounts covered by the Massachusetts Wage Act or the Massachusetts Minimum Fair Wages Act, including hourly wages, salary, overtime, minimum wages, commissions, vacation pay, holiday pay, sick leave pay, dismissal pay, bonus pay, or severance pay.

 

ii.Any and all claims for compensation, including but not limited to salary, wages, overtime, bonuses, commissions, incentive compensation, vacation, holiday pay, sick leave pay, and severance that may be legally waived and released, except with respect to payments made pursuant to the terms of this Agreement.

 

 

1/For purposes of this Section, the “Company” means XL Fleet Corp. and its divisions, affiliates, parents, subsidiaries and related entities, and its and their owners, shareholders, partners, directors, officers, employees, trustees, agents, successors and assigns.

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iii.Claims under any Massachusetts, New York, Delaware, Florida or other state or federal common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence or any claim to attorneys’ fees under any applicable statute or common law theory of recovery.

 

iv.Claims under any Massachusetts, New York, Delaware, Florida or other state or federal statute, regulation or executive order (as amended) relating to violation of public policy or any other form of retaliation or wrongful termination under Massachusetts, New York or other state or federal statute.

 

v.Any other Claim arising under other Massachusetts, New York, Delaware, Florida or other state or federal law.

 

(b) Release Limitations; Participation in Agency Proceedings. Notwithstanding the foregoing, this Section does not:

 

i.Release the Company from any obligation expressly set forth in this Agreement nor preclude you from filing a claim to enforce the terms of this Agreement;

 

ii.Prohibit you from asserting a claim arising after the Effective Date of this Agreement;

 

iii.Waive or release any legal claims, which you may not waive or release by law, including claims under any workers compensation or unemployment insurance laws.

 

iv.Prohibit you from challenging the validity of this release under federal law.

 

v.Prohibit you from filing a charge or complaint of employment-related discrimination with the Equal Employment Opportunity Commission (“EEOC”) or similar state agency, or from participating in any investigation or proceeding conducted by the EEOC or similar state agency, or from responding to a request for information or documents (or providing information or documents) to the EEOC or similar state agency, provided that you agree that you are not entitled to receive any payments from or on behalf of the Company in respect to the filing of such charge or complaint.

 

vi.Waive or release any rights to advancement, indemnification or insurance under the Company’s governing documents, any indemnification agreement or other agreement or under any directors and officers, employment practices or other insurance; and any right of contribution against any directors and officers in respect of any claims made against Executive.

 

vi.Waive or release any rights to vested and accrued benefits under any employee benefit plans of the Company.

 

Your waiver and release, however, are intended to be a complete bar to any recovery or personal benefit by or to you with respect to any claim (except those which cannot be released under law), including those raised through a charge with the EEOC. Accordingly, nothing in this Section shall be deemed to limit the Company’s right to seek immediate dismissal of such charge or complaint on the basis that your signing of this Agreement constitutes a full release of any individual rights under the federal discrimination laws, or to seek restitution to the extent permitted by law of the economic benefits provided to you under this Agreement in the event you successfully challenge the validity of this release and prevail in any claim under the federal discrimination laws. Claims that are released pursuant subsection (a) and not excluded under subsection (b) are referred to as “Released Claims”)

 

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(c) No Further Action. As of the Effective Date, you have not filed any action, complaint, charge, grievance or arbitration against the Company in respect to any Released Claims, and that you have made no assignment or transfer or any such action, complaint, charge, grievance or arbitration.

 

(d) Consideration Acknowledgement. You acknowledge and agree that, but for providing this waiver and release, you would not be receiving the consideration provided to you under the terms of this Agreement.

 

(e) Communication with Governmental Agencies. The Company and you acknowledge and agree that this Agreement does not limit your ability to communicate with any governmental agencies or otherwise participate in any investigation or proceeding that may be conducted by any government agencies, including providing documents or other information, without notice to the Company.

 

(f) ADEA/OWBPA Review and Revocation Period. You and the Company acknowledge that you are over the age of 40 and that you, therefore, have specific rights under the Age Discrimination in Employment Act (“ADEA”) and the Older Workers Benefit Protection Act (the “OWBPA”), which prohibit discrimination on the basis of age. It is the Company’s desire and intent to make certain that you fully understand the provisions and effects of this Agreement, which includes a release of claims under the ADEA and OWBPA. To that end, you have been encouraged and given the opportunity to consult with legal counsel for the purpose of reviewing the terms of this Agreement. Consistent with the provisions of the ADEA and OWBPA, the Company is providing you with twenty-one (21) days in which to consider and accept the terms of this Agreement by signing below and returning it to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You may rescind your assent to this Agreement if, within seven (7) days after you sign this Agreement, you deliver by hand, electronic mail or certified mail (certified, return receipt and postmarked within such 7-day period) a notice of rescission to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. You agree that any modifications, material or otherwise, made to this Agreement do not restart or affect in any manner the original twenty-one (21) day consideration period. You may voluntarily waive all or any portion of the twenty -one (21) day period, which shall not affect the enforceability of this Agreement.

 

11. Company’s Release. In consideration of your obligations set forth in this Agreement, including but not limited to the promises described herein, the Company2 on behalf of all Company Releasors voluntarily, knowingly and willingly release and forever discharge you and your heirs, executors, administrators, successors, and assigns, from any and all known Claims which (i) exist on, or have been asserted prior to, the Separation Date; and (ii) of which the Company is actually aware or, has reason to be aware, on or prior to the Separation Date; and (iii) which arise from your acts or omissions made in the scope of your employment with the Company or by reason of the fact that you are or were a director, officer, shareholder, founder, investor or employee of the Company , by reason of any matter, cause or thing whatsoever arising from the beginning of time to the Effective Date of this Agreement. Notwithstanding anything to the contrary herein, for purposes of subsection (ii) of this Section, the actual knowledge of the Company shall be limited to the knowledge for the following: Eric Tech; James Berklas, Christopher Goldner; Stacey Constas; Michael Kenhard, Colleen Calhoun, and Debora Frodl.

 

 

2/For purposes of this Section, the “Company” means XL Fleet Corp. and its divisions, affiliates, parents, subsidiaries and related entities, and its and their owners, shareholders, partners, directors, officers, employees, trustees, agents, successors and assigns (collectively the “Company Releasors”).

 

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12. Company’s Rights In The Event of Breach. The Company shall have the right to rescind this Agreement, in whole but not in part, including the right to recover all monies paid to you under Section 4 of this Agreement, in the event of your material breach of Sections 7, 9(a) and/or 9 (c), and any such rescission shall be without prejudice of any other rights or remedies of the parties.

 

13. Taxes. The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement including, but not limited to, consequences related to Section 409A of the Internal Revenue Code of 1986, as amended.

 

14. Entire Agreement; Modification; Waiver; Choice of Law; Enforceability. You acknowledge and agree that this Agreement, as well as the Plan, Option Agreements, any indemnification agreement(s) and Employee Covenants Agreement, constitutes the entire agreement between you and the Company, and supersedes any and all prior oral contemporaneous oral and/or written agreements between you and the Company. No variations or modifications hereof shall be deemed valid unless reduced to writing and signed by the parties hereto. The failure of the Company or you to seek enforcement of any provision of this Agreement in any instance or for any period of time shall not be construed as a waiver of such provision or of the Company’s or your right to seek enforcement of such provision in the future. This Agreement shall be deemed to have been made in Massachusetts, shall take effect as an instrument under seal within Massachusetts, and shall be governed by and construed in accordance with the laws of Massachusetts, without giving effect to conflict of law principles. You agree that any action, demand, claim or counterclaim relating to the terms and provisions of this Agreement, or to its breach, shall be commenced in Massachusetts in a court of competent jurisdiction, and you further acknowledge that venue for such actions shall lie exclusively in Massachusetts and that material witnesses and documents would be located in Massachusetts. Both parties hereby waive and renounce in advance any right to a trial by jury in connection with such legal action. The provisions of this Agreement are severable, and if for any reason any part hereof shall be found to be unenforceable, the remaining provisions shall be enforced in full.

 

15. Competency; Knowing and Voluntary Agreement. By executing this Agreement, you are acknowledging that: (a) you are competent to execute this Agreement; (b) you have been afforded sufficient time to understand the terms and effects of this Agreement; (c) your agreements and obligations hereunder are made voluntarily, knowingly and without duress; (d) that neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of this Agreement; (e) that at the time of considering or executing this Agreement, you were not affected or impaired by illness, use of alcohol, drugs or other substances or otherwise impaired; and (f) you certify that you are not a party to any bankruptcy, lien, creditor- debtor or other proceedings which would impair your right or ability to waive all claims you may have against the Company.

 

If the terms of this Agreement are acceptable to you, please sign and date where indicated on the following page and return it within twenty-one (21) days of the date you receive it, but no sooner than the Separation Date. You may revoked this Agreement at any time during the seven day period immediately following the date of your signing by notifying Jim Berklas, Chief Legal Officer, in writing of your revocation within that period. If you do not revoke this Agreement, then, on the eighth (8th) day following the date that you signed it, this Agreement shall take effect as a legal binding agreement between you and the Company on the basis set forth above. The enclosed copy of this letter, which you should also sign and date is for your records.

 

[SIGNATURE PAGE FOLLOWS]

 

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This Agreement may be signed on one or more copies, each of which when signed shall be deemed to be an original, and all of which together shall constitute one and the same Agreement. If the foregoing correctly sets forth our understanding, please sign, date and return the enclosed copy of this Agreement to James Berklas, Chief Legal Officer, XL Fleet Corp., jberklas@XLFleet.com. Please return this Agreement no later than twenty-one (21) calendar days following the date of this Agreement. If the Company does not receive your acceptance within the twenty-one (21) day timeframe, the Agreement shall terminate and be of no further force or effect.

 

  Sincerely,
     
  XL FLEET CORP.
     
  By: Jim Berklas
     
  Its: Chief Legal Officer
     
  Date:  /s/ Jim Berklas

 

Acknowledged and Agreed:

 

/s/ Thomas Hynes  
Thomas Hynes III  
   
Date: 3/21/2022  

 

 

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Exhibit 31.1

 

CERTIFICATION PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Eric Tech, certify that:

 

1. I have reviewed this Form 10-Q of XL Fleet Corp.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 10, 2022 By: /s/ Eric Tech
   

Eric Tech

Chief Executive Officer

(Principal Executive Officer)

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Donald P. Klein, certify that:

 

1. I have reviewed this Form 10-Q of XL Fleet Corp.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 10, 2022 By: /s/ Donald P. Klein
   

Donald P. Klein

Chief Financial Officer

(Principal Financial Officer and
Principal Accounting Officer)

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of XL Fleet Corp. (the “Corporation”) on Form 10-Q for the fiscal quarter ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric Tech, as Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 
     
(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. 

 

Date: May 10, 2022 By: /s/ Eric Tech
   

Eric Tech, Chief Executive Officer

(Principal Executive Officer)

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.  This certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18 of the Exchange Act. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of XL Fleet Corp. (the “Corporation”) on Form 10-Q for the fiscal quarter ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald P. Klein, as Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 
     
(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. 

 

Date: May 10, 2022 By: /s/ Donald P. Klein
   

Donald P. Klein, Chief Financial Officer

(Principal Financial Officer and
Principal Accounting Officer )

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.  This certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18 of the Exchange Act. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.