Agreement in Principle
On September 30, 2021, the Company and an affiliate of Foxconn
entered into an Agreement in Principle (the “Agreement”) to work jointly on electric vehicle programs in the Company’s
facility in Lordstown, Ohio.
Other than with respect to exclusivity and certain customary provisions,
the Agreement is non-binding and subject to the negotiation and execution of definitive agreements.
The Agreement provides, among other things, as follows:
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The Company and Foxconn will use commercially reasonable best efforts to negotiate a definitive agreement pursuant to which Foxconn
would purchase the Lordstown facility, excluding the Company’s hub motor assembly line, battery module and packing line assets,
certain intellectual property rights and other excluded assets, for $230 million.
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The parties would also negotiate a contract manufacturing agreement, which would be a condition to closing of the facility purchase,
whereby Foxconn would manufacture the Company’s Endurance full-size pickup truck at the Lordstown facility. The Company would also
agree to provide Foxconn with certain rights with respect to future vehicle programs.
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Concurrently with the closing under the definitive agreements, the Company would issue warrants to Foxconn that are exercisable until
the third anniversary of the closing for 1.7 million shares of Class A common stock at an exercise price of $10.50 per share.
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Following the closing under the definitive agreements, the Company would enter into a long-term lease for a portion of the existing
facility for its Ohio-based employees, and Foxconn would offer employment to agreed upon Lordstown operational and manufacturing employees.
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The parties agreed to a binding 60-day mutual exclusivity period with
respect to the transactions contemplated by the Agreement and a fee of $50 million to be paid by any party who materially breaches this
provision.
In connection with the Agreement, the Company and an affiliate of Foxconn
entered into the subscription agreement described above under Item 3.02. The closing of the subscription is not conditioned on entering
into definitive agreements with respect to any of the transactions contemplated by the Agreement and is expected to occur as promptly
as possible but no later than 10 business days after the date of the subscription agreement.
The foregoing description of
the Agreement is qualified in its entirety by reference to the full text of such agreement, a copy of which is attached hereto as Exhibit 99.1,
and which is incorporated herein in its entirety by reference.
Production and Financial Update
The Company continues to move forward with its plan
to build a limited number of vehicles for testing, validation, verification and regulatory approvals during the balance of 2021 and the
first part of 2022. In light of the Agreement with Foxconn described above, the Company will evaluate the potential impact of the parties’
contract manufacturing relationship on commercial production, supply chain opportunities and the appropriate integration and timing of
the parties’ operations teams.
Selling, general and administrative expenses and research
and development expenses for 2021 continue to trend higher than previous expectations. Pre-production expenses may be affected by numerous
factors, including the results of validation and regulatory testing, supply chain constraints and delays, and the timing of tooling and
equipment purchases.
Financing Alternatives
The Company continues to require additional capital
and has engaged Jefferies LLC to advise the Company on additional financing alternatives, which may include private or public equity transactions,
debt financings, or some combination of these.
Forward-Looking Statements
This report includes forward-looking statements. These statements are
made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements may
be identified by words such as “feel,” “believes,” “expects,” “estimates,” “projects,”
“intends,” “should,” “is to be,” or the negative of such terms, or other comparable terminology. Forward-looking
statements are statements that are not historical facts. Such forward-looking statements are not guarantees of future performance and
are subject to risks and uncertainties, which could cause actual results to differ materially from the forward-looking statements contained
herein due to many factors, including, but not limited to: our limited operating history and our significant projected funding needs;
our liquidity position; the need to raise substantial additional capital to continue ongoing operations; risks associated with the conversion
and retooling of our facility and ramp up of production; our inability to obtain binding purchase orders from customers and potential
customers’ inability to integrate our electric vehicles into their existing fleets; our inability to retain key personnel and to
hire additional personnel; competition in the electric pickup truck market; supply chain disruptions; the potential inability to source
essential components; our inability to develop a sales distribution network; the ability to protect our intellectual property rights;
and the failure to obtain required regulatory approvals.
In addition, other than with respect to exclusivity and certain customary
provisions, our Agreement with Foxconn is non-binding and subject to the negotiation and execution of definitive agreements. No assurances
can be given that definitive agreements will be entered into on the terms contemplated, or at all. Nor can any assurances be given as
to the timing of any such agreements.
Furthermore, potential supply chain disruptions, and their consequences
on testing and other activities, could present challenges that impact the timing of our commercial production.
Any forward-looking statements speak only as of the date on which they
are made, and Lordstown Motors undertakes no obligation to update any forward-looking statement to reflect events or circumstances after
the date of this report.