As previously disclosed, on March 24, 2022, the Company received a
letter addressed to its Board of Directors (“Board”) from the law
firm of Purcell & Lefkowitz LLP on behalf of three purported
stockholders. Among other matters, the stockholder letter addressed
the approval of the Company’s Second Amended and Restated
Certificate of Incorporation at the special meeting of stockholders
held on October 22, 2020, which included a 200,000,000 share
increase in the number of authorized shares of Class A common stock
(the “2020 Class A Increase Amendment”), and was approved by a
majority of the then-outstanding shares of both the Company’s Class
A and Class B common stock, voting as a single class. The
stockholder letter alleged that the 2020 Class A Increase Amendment
required a separate vote in favor by at least a majority of the
then outstanding shares of Class A common stock under Section
242(b)(2) of the Delaware General Corporation Law (“DGCL”), and
that the 200,000,000 shares in question are thus unauthorized.
Following receipt of the stockholder letter, the Board undertook a
review of the matters raised with the assistance of outside counsel
not involved in the underlying transactions at issue and had
determined, in reliance upon, among other things, advice of several
law firms including a legal opinion of Delaware counsel, that the
assertions regarding DGCL Section 242(b)(2) were wrong and that a
separate class vote of the Class A common stock was not required to
approve the 2020 Class A Increase Amendment.
The Company continues to believe that a separate vote of Class A
common stock was not required to approve the 2020 Class A Increase
Amendment. However, in light of a recent decision of the Delaware
Court of Chancery (“Court of Chancery”) that created uncertainty
regarding this issue, the Company has filed a petition in the Court
of Chancery pursuant to Section 205 of the Delaware General
Corporation Law seeking validation of the 2020 Class A Increase
Amendment and the shares issued pursuant thereto to resolve any
uncertainty with respect to those matters. Section 205 permits the
Court of Chancery, in its discretion, to validate potentially
defective corporate acts and stock after considering a variety of
factors.
While we believe that a separate vote of Class A common stock was
not required to approve the 2020 Class A Increase Amendment, and
therefore that all of our currently outstanding shares of Class A
common stock were validly issued, if we are not successful in the
Section 205 proceeding, the uncertainty with respect to the
Company’s capitalization resulting from the Court of Chancery’s
decision referenced above could have a material adverse effect on
the Company, including on its ability to complete financing
transactions, until the underlying issues are definitively
resolved.
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.
With respect to the matters addressed in this report, no assurances
can be made regarding the outcome of our proceeding pursuant to
Section 205 of the Delaware General Corporation Law or any claims,
proceedings or litigation regarding the authorization of our common
stock. Our Section 205 proceeding is, and any other litigation
regarding the authorization of our stock would be, subject to
uncertainties inherent in the litigation process, and may not
result in timely resolution of the uncertainty regarding our
capitalization, if at all. If we are unsuccessful in the Section
205 proceeding, claims alleging that a portion of our Class A
common stock was not authorized could have a material adverse
effect on the Company.
In addition, the transactions we entered into with Foxconn and
future vehicle development plans are subject to risks and
uncertainties. The additional funding transactions under the
Investment Agreement, dated November 7, 2022, with Foxconn Ventures
Pte. Ltd are subject to closing conditions including CFIUS
clearance, further negotiation of EV program development plans and
milestones and the accuracy of the Company’s representations on
capitalization among other matters. Pending a decision by the Court
of Chancery in the Section 205 proceeding, or if the relief
requested is denied, the uncertainty with respect to our
capitalization would likely prevent us from completing such funding
transactions until the underlying issues are resolved. No
assurances can be given that we will successfully implement or that
we will realize the anticipated benefits from the funding
arrangements, development plans and contract manufacturing
agreement with