Lordstown Motors has never had a smooth road, battling money issues, production bottlenecks and other issues, until it was saved by Foxconn in 2021. However, the EV startup is now planning to move forward with litigation against its lifeline in relation to Foxconn’s allegations of a potential breach of contract.
In May, Lordstown filed an 8-K with the SEC stating it received a letter from Foxconn in late April, accusing the automaker of breaching its investment agreement “due to its previously disclosed receipt of a notice from the Nasdaq Stock Market LLC indicating that the company was no longer in compliance with the $1 minimum bid price requirement for continued listing on The Nasdaq Global Select Market.”
Lordstown responded by stating the allegations were “without merit,” and the terms of the investment agreement would not permit Foxconn to terminate the agreement at the time.
The two companies were in discussions to seek a resolution, but Lordstown said “no assurances can be given that the parties will reach a resolution of these matters.”
Lordstown shares fell more than 30% on the news that day.
However, it appears an agreement or negotiations moving toward one have broken down, as Lordstown said in a new 8-K filed in early June it “intends to enforce its rights through litigation” because Foxconn has breached the two companies’ investment agreement through “a pattern of bad faith.”
These moves have “caused material and irreparable harm” to Lordstown, the company said.
“In light of Foxconn’s conduct, the company believes that it is unlikely that Foxconn will complete the Subsequent Common Closing," Lordstown said in the filing.
There also appears to be a disagreement on terms of the investment agreement.
“On June 5, [Lordstown] received the letter...in which Foxconn did not acknowledge its obligation to complete the Subsequent Common Closing and instead asserted that Foxconn’s reading of the investment agreement would not allow for the adjustment of the number of shares to be purchased on account of [Lordstown's] recent reverse stock split," the filing said. "Foxconn’s interpretation would give Foxconn the right to purchase a windfall of over 60% of [Lordstown's] Class A common stock for $47.3 million. [Lordstown] rejects Foxconn’s interpretation of the investment agreement and has so advised Foxconn in a letter dated June 7.”
Lordstown has since stated it is seeking a financial and strategic partner for the production of the Endurance pickup.
“We anticipate that production of the Endurance will cease in the near future,” it said in a 10-Q.
Abby Andrews