Driving into bankruptcy

Taking legal action against investor Foxconn

LORDSTOWN -- Lordstown Motors on Tuesday announced a strategic restructuring, bankruptcy and breach of contract legal action. It's also going to be for sale.

The company filed Chapter 11 to implement restructuring. But it stated in a news release that the company is debt-free and continues to operate with significant cash-on-hand.

It filed a complaint against Foxconn that alleges fraud and bad faith, leading to value destruction.

The EV truck maker also started a comprehensive sale process for its Endurance truck and related EV assets.

The electric light-duty vehicle company is focused on the commercial fleet market.

It has sued global technology company Hon Hai Technology Group and affiliates, including Foxconn Ventures Pte. Ltd., in the United States Bankruptcy Court for the District of Delaware.

The litigation details Foxconn's alleged fraud and willful and consistent failure to live up to its commercial and financial commitments to the company. Foxconn's alleged actions led to material damage to Lordstown Motors as well as its future prospects.

Lordstown Motors shares plummeted after filing for bankruptcy.

Multiple online business resources state the company has 632 employees.

NOT A SURPRISE

Lordstown Motors and Foxconn had announced the equity investment agreement Nov. 7, 2022. A large portion of the $170 million was earmarked to develop and design a new EV program in collaboration with the Taiwanese tech and electronics giant.

In June, Lordstown Motors threatened to sue Foxconn if the Taiwanese electronics company did not make good on the $170 million investment agreement, funding the EV maker has said is critical to its survival.

The company said then that it intended "to enforce its rights through litigation" if a "prompt resolution" with Foxconn isn't achieved over closing on about $47.3 million in Lordstown Motors Class A common stock.

The dispute between the companies goes back to April when Lordstown Motors received a delisting notice from Nasdaq, stating the company's stock had fallen below the minimum bid price requirement of $1 per share for 30 consecutive trading days.

That triggered a letter from Foxconn stating it believed Lordstown Motors, because of the notification from Nasdaq, had breached the investment agreement. Later, Foxconn indicated to Lordstown Motors it did not intend to close on the $47.3 million stock purchase, according to another regulatory filing.

To pump up the value of its stock to come back into compliance with Nasdaq rules and perhaps persuade Foxconn to follow through on the stock acquisition, Lordstown Motors, with shareholder approval, performed a reverse 1:15 stock split May 25.

Afterward, Nasdaq informed Lordstown Motors it was back in compliance.

FOXCONN RESPONSE

Foxconn responded to Lordstown Motors' action Tuesday, stating that Lordstown Motors has continuously attempted to mislead the public and has been reluctant to perform the investment agreement between the two parties in accordance with its terms.

"Hon Hai Technology Group (Foxconn) has been holding a positive attitude in conducting constructive negotiations with Lordstown Motors Corp. and in assisting LMC in finding a solution to its financial difficulties," it stated.

"Foxconn originally hoped to continue discussions and reach a solution that could satisfy all stakeholders, without resorting to baseless legal actions, but so far the two parties have yet to reach a consensus," it continued.

Regarding Lordstown Motors' litigation announcement "and the false comments and malicious attacks made by LMC" against Foxconn, Foxconn "reserves the right to pursue legal actions and also suspends subsequent good faith negotiations."

MARKETING AND SALE

Lordstown Motors said, in addition, and as a consequence of Foxconn's material and irreparable harm, it is commencing a comprehensive marketing and sale process for the Endurance vehicle and related assets.

To accomplish this expeditiously and provide a prospective buyer with a going concern asset that is free and clear of any legacy issues, Lordstown is restructuring under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court. Lordstown further anticipates that the restructuring will enable an expedited timeline for hearing Lordstown's litigation against Foxconn.

Edward Hightower, CEO and president of Lordstown Motors, said, "As one of the early entrants to the EV industry, we have delivered the Endurance, an innovative and highlycapable EV with significant commercial and retail potential -- and had subsequently engaged with Foxconn in a purposeful, strategic partnership to leverage this expertise into a broader EV development platform.

"Despite our best efforts and earnest commitment to the partnership, Foxconn willfully and repeatedly failed to execute on the agreed-upon strategy, leaving us with Chapter 11 as the only viable option to maximize the value of Lordstown's assets for the benefit of our stakeholders. We will vigorously pursue our litigation claims against Foxconn accordingly."

THE PARTNERSHIP

The complaint filed against Foxconn centers on a strategic partnership Lordstown's management team entered into with Foxconn to combine Lordstown's innovation, technology, accomplished vehicle engineering team and manufacturing facility in Lordstown with Foxconn's resources, supply chain capabilities and position as one of the world's largest electronics manufacturers with stated significant automotive capabilities to form a new, scalable joint vehicle development platform.

Under the partnership, according to the complaint, Lordstown agreed to divest its most valuable assets to Foxconn, namely its Lordstown manufacturing facility. The up-front purchase price for the Lordstown manufacturing facility reflected the expected benefits of the contractual assurances from Foxconn that Foxconn would support the Endurance pickup truck in a variety of ways and follow through on a joint vehicle development program, leveraging what was purported to be Foxconn's established and extensive EV ecosystem and meeting its commitments to the Lordstown community.

The lawsuit alleges Foxconn had no intention of living up to its commitments, particularly with respect to the new vehicle development platform. The lawsuit states Foxconn simply used its variety of contractual arrangements with Lordwtown Motors as a tool "to maliciously and in bad faith destroy Lordstown's business -- while leveraging resources gained through the partnership to advance its own business interests."

A BUYER

In addition, Lordstown Motors seeks to maximize the value of its assets and efficiently resolve its contingent liabilities through a Chapter 11 restructuring process. Lordstown has filed motions with the court seeking authority to commence a comprehensive marketing and sale process under the U.S. Bankruptcy Code to realize the full value of its innovative.

The company said it's confident that a buyer could utilize the Endurance platform to create multiple EV variants and take the product to the next level.

"We remain confident that an orderly, expedited sale process will maximize value for our stakeholders and enable the talent and technology behind the Endurance to find new and supportive ownership. While in Chapter 11, Lordstown will continue to support our customers," Hightower said in the news release.