LORDSTOWN, Ohio – Lordstown Motors Corp. said in a regulatory filing June 9 it is considering litigation against Foxconn should that company fail to follow through with a critical investment agreement that the parties signed in November.
The impasse has left the future of the startup automaker in doubt and considering bankruptcy as an option.
In April, Foxconn informed Lordstown Motors that it was not obligated to close on a purchase of approximately 10% of Class A stock for $47.3 million because Lordstown Motors had received a delisting notification from Nasdaq, citing that its stock had failed to meet the minimum $1 bid price for 30 consecutive business days.
To remedy this, Lordstown Motors initiated a 1 to 15 reverse stock split that boosted its shares above the $1 minimum.
Nasdaq informed Lordstown Motors June 7 that the company was now compliant.
The reverse stock split combines 15 shares into a single unit, thereby adjusting the stock value of a single share, but reduces the number of shares.
However, Foxconn informed Lordstown Motors in a letter June 5 that the investment agreement does not allow for an adjustment of the number of shares its obligated to purchase. Under Foxconn’s interpretation, the Taiwanese tech giant would have the rights to purchase more than 60% of the company’s stock after adjustments because of the reverse stock split.
“Please promptly identify whether LMC intends to take the position that Foxconn’s purchase right under the Subsequent Common Closing should be adjusted in light of LMC’s reverse stock split and, if LMC intends to take the position that it should be adjusted, further identify the basis for such position,” the Foxconn letter stated.
Lordstown Motors attorneys responded in a letter June 7, suggesting that Foxconn was either sabotaging the deal or initiating an attempted takeover of the company.
“It cannot be a coincidence that only now, after Foxconn’s pretext for failing to close has been removed, that you raise this new, and equally baseless, argument that Foxconn can now acquire 62.8% of the outstanding common stock, effective control of the company, for the same price it agreed to pay for 10%,” the letter states.
Lordstown Motors says that Foxconn is limited to owning no more than 19.9% of company shares.
“Whether Foxconn’s most recent maneuver is another effort to sabotage the subsequent common closing or an attempt to capture a windfall and seize control of the company, it will not succeed,” the letter stated.
Lordstown Motors stock, which trades under the ticker RIDE, closed June 8 up 2.4% at $3.20.
In May 2022, Foxconn purchased Lordstown Motors’ plant for $230 million and signed a contract manufacturing agreement to produce the all-electric Endurance pickup.
“In light of Foxconn’s conduct, the company believes that it is unlikely that Foxconn will complete the subsequent common closing,” Lordstown Motors said. “The company believes that Foxconn’s various breaches of the investment agreement and pattern of bad faith have caused material and irreparable harm to the company. Absent a prompt resolution, the company intends to enforce its rights through litigation.”