approval of budgets, raising
additional equity, incurring third party indebtedness, mergers,
related party transactions, dissolution and increases in the size
of the management board, require the consent of at least one member
of the management board appointed by Lordstown EV for so long as we
own at least 30% of the Foxconn Joint Venture. Other than with
respect to certain customary permitted transfers, neither Lordstown
EV nor Foxconn is permitted to transfer its interest in the Foxconn
Joint Venture for a period of three years following the formation
of the Foxconn Joint Venture. Thereafter, each party has a right of
first refusal and a tag-along right with respect to any proposed
transfer by the other party.
Under the Foxconn Joint Venture Agreement, we are Foxconn’s primary
development partner in North America. We plan to develop a
portfolio of electric vehicles targeting commercial fleet
customers, built at the Lordstown, Ohio plant using the advanced
designs from Foxconn and its affiliates. We plan for Foxconn to
supply the FX IP for the vehicles to be customized for and
homologated in North America by the Foxconn Joint Venture, along
with certain vehicle components and subsystems, enabling us to
leverage Foxconn’s manufacturing expertise, supply-chain network
and extensive experience in software development and integration
(key capabilities in the production of EVs) to complement our EV
design, development, engineering and homologation contributions. No
assurance can be given that we will be able to realize the
potential benefits of the Foxconn Transactions (as defined
below).
Note, Guaranty and Security
Agreements
The Foxconn Joint Venture Agreement provides that Lordstown EV, as
the issuer, and guaranteed by our wholly-owned subsidiary Lordstown
EV Sales LLC, and the Company (collectively, the “Note Parties”),
will enter into note, guaranty and security agreements (the
“Notes”) with Foxconn, as the payee, pursuant to which Foxconn
makes term loans to Lordstown EV in an aggregate original principal
amount not to exceed $45 million as advances are requested by
Lordstown EV. On June 27, 2022, Foxconn funded $13.5 million in
exchange for Lordstown EV delivering a Note in such amount. The
proceeds were used for our initial investment in the Foxconn Joint
Venture.
To secure its obligations under Notes, Lordstown EV has granted
Foxconn a security interest in (i) all of Lordstown EV’s equity
interests in the Foxconn Joint Venture, and (ii) personal property
constituting the hub motor, battery module and battery pack
assembly lines. We may use the proceeds only to fund our capital
commitment of $45 million to the Foxconn Joint Venture, pursuant to
the Foxconn Joint Venture Agreement.
The Notes will accrue interest at a rate of 7.0% per annum, to be paid-in-kind, and due on
the earlier of (i) the first anniversary of issuance and (ii)
December 31, 2025, unless earlier terminated in the event of a
default. Pursuant to the Foxconn Joint Venture Agreement, each Note
maturing before December 31, 2025 will be refinanced by Foxconn
with a new Note in the principal amount equal to the outstanding
principal amount of the refinanced Note, plus accrued and unpaid
interest thereon, and will have terms substantively identical to
the terms of the refinanced Note. Events of default include, among
other things, the breach of certain covenants or representations,
defaults under other loans or obligations, judgments, orders or
claims not vacated or otherwise paid, involvement in bankruptcy
proceedings, an occurrence of a change of control or the loss of
any material collateral (as such terms are defined in the Notes).
Each Note will contain negative covenants which, while in effect,
restrict the Note Parties from, among other things, incurring
certain types of other debt (subject to various baskets), making
certain expenditures or investments, any mergers or other
fundamental changes, or changing the character of the Note Parties’
businesses. While it is not intended that any amounts will become
due under the Notes prior to December 31, 2025, each Note has a
term of one year and the refinancing of each Note is subject to
certain conditions, including the absence of an event of default.
Given the risk of the incurrence of an event of default, we have
classified the Notes as a current liability.
Each Note and all accrued but unpaid interest thereon may be
prepaid, in whole or in part, at any time or from time to time,
without any penalty or premium. Lordstown EV will be required to
prepay each Note and all accrued but unpaid interest thereon with
proceeds received upon distributions from the Foxconn Joint Venture
or cash proceeds of certain asset dispositions.