As previously announced,
Lordstown Motors Corp. (the “Company”) and Foxconn Ventures Pte. Ltd. (“Foxconn”), an affiliate of Hon Hai
Technology Group, entered into an investment agreement on November 7, 2022 (the “Investment Agreement”) under which
Foxconn agreed to make additional equity investments in the Company through the purchase of $70 million of Class A common stock
and up to $100 million in Series A Convertible Preferred Stock, $0.0001 par value per share (the “Preferred
Stock”), subject to certain conditions, including, without limitation, regulatory approvals and satisfaction of certain EV
program budget and EV program milestones established by the parties. On November 22, 2022, the parties completed the initial
closing under the Investment Agreement, pursuant to which Foxconn purchased approximately $22.7 million of Class A common stock
and $30 million of Preferred Stock (the “Initial Closing”).
The Investment Agreement provides
for the second closing of Class A common stock (the “Subsequent Common Closing”), at which time Foxconn is required to
purchase approximately 26.9 million shares of Class A common stock for approximately $47.3 million. The Subsequent Common Closing
is to occur within 10 business days following the parties’ receipt of a written communication from the U.S. government’s Committee
on Foreign Investment in the United States (“CFIUS”) that CFIUS has concluded that there are no unresolved national security
concerns with respect to the transactions (“CFIUS Clearance”) and subject to satisfaction of the other conditions set forth
in the Investment Agreement (which the Company believes have been or will be satisfied). CFIUS Clearance was received on April 25,
2023, which means the Subsequent Common Closing is to occur on or before May 8, 2023. The Company is ready, willing and able to complete
the Subsequent Common Closing on a timely basis.
In addition, following the parties’
agreement to the EV program budget and the EV program milestones and satisfaction of those EV program milestones and other conditions
set forth in the Investment Agreement, Foxconn is to purchase in two tranches up to 0.7 million additional shares of Preferred Stock at
a purchase price of $100 per share for aggregate proceeds of $70 million (the “Subsequent Preferred Funding”). The parties
agreed to use commercially reasonable efforts to agree upon the EV program budget and EV program milestones no later than May 7,
2023.
On April 21, 2023,
the Company received a letter from Foxconn (the “Foxconn Notice”) (1) asserting that the Company was in breach of
the 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 $1.00 minimum bid price requirement for continued listing on The Nasdaq Global Select
Market (the “Nasdaq Notice”) and (2) purporting to terminate the Investment Agreement if the breach is not cured
within 30 days. The Company has notified Foxconn that (1) it believes the breach allegations in the Foxconn Notice are without
merit, (2) the Investment Agreement, by its terms, does not permit Foxconn to terminate it following the Initial Closing, and
(3) in any event, Foxconn cannot exercise termination rights because Foxconn has breached the Investment Agreement by failing
to use necessary efforts to agree upon the EV program budget and EV program milestones to facilitate the funding of the additional
Preferred Stock investment. Therefore, the Company believes that the Investment Agreement remains in effect, intends to enforce its
rights thereunder, including with respect to Foxconn’s breach regarding the EV program budget and EV program milestones and
Preferred Stock funding and its knowing and intentional efforts to invalidly terminate the Investment Agreement and withhold key
funding to the material detriment of the Company.
The Company is in discussions
with Foxconn to seek a resolution regarding these matters; however, to date, Foxconn has declined to revoke its invalid termination notice
and has failed to confirm that it will proceed with the Subsequent Common Closing or any Preferred Stock closing. No assurances can be
given that the parties will reach a resolution of these matters or that any such resolution will allow the Subsequent Common Closing or
the Subsequent Preferred Funding to occur. If the Subsequent Common Closing and the Subsequent Preferred Funding do not occur, the Company
will be deprived of critical funding necessary for its operations. The Company is evaluating its legal and financial alternatives in the
event a resolution is not reached.
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, those factors include, but are not limited to: our ability to
continue as a going concern, which requires us to manage costs and obtain significant additional funding; our ability to resolve our
dispute with Foxconn regarding the matters asserted in the Foxconn Notice and to obtain the proceeds we expected under the
Investment Agreement; our ability to timely obtain necessary funding to continue our operations; our ability to continue production of the Endurance; the impact of the
uncertainty with respect to our relationship with Foxconn and our prospects for additional funding on our supplier arrangements and
on our employees; and risks related to the substantial costs and diversion of personnel’s attention and resources due to these
matters.
Other factors that may impact our results and
prospects include, but are not limited to:
| ● | the cost and other impacts of contingent liabilities, such as current and future litigation, claims, regulatory
proceedings, investigations, complaints, product liability claims and stockholder demand letters, and availability of insurance coverage
and/or adverse publicity with respect to these matters, which may have a material adverse effect, whether or not successful or valid,
on our liquidity position, market price of our stock, cash projections, business prospects and ability and timeframe to obtain financing; |
| ● | our ability to effectively implement and realize the benefits from transactions and
agreements with Foxconn, if pending disputes are resolved, which depend on many variables that include establishment of the EV
program budget and EV program milestones and satisfaction or waiver of such milestones and other conditions required to be met
at the time of funding, and our ability to utilize the designs, engineering data and other foundational work of Foxconn, its
affiliates, and other members of the Mobility-in-Harmony MIH consortium as well as other parties, and that all such parties adhere
to timelines to develop, commercialize, industrialize, homologate and certify a vehicle in North America, along with variables that
are out of the parties’ control, such as technology, innovation, adequate funding, supply chain and other economic conditions,
competitors, customer demand and other factors; |
| ● | our ability to successfully address known and unknown performance, quality, supply chain and other launch-related
issues, some of which are or may be material or may require additional recalls or retrofits of the Endurance, and continue commercial
production and sales of the Endurance; |
| ● | the risk that additional elements of our technology, including our hub motors, do not perform as expected
in the near or longer-term; |
| ● | our ability to maintain appropriate supplier relationships, including for our critical components, and the risks with respect to the terms of such arrangements due to our limited production volumes and any minimum quantity requirements, and our ability to establish our supply chain to support new vehicle programs; |
| ● | our ability to facilitate cost-effective production of the Endurance, which requires a strategic partner
and significant additional capital, including to invest in the tooling to lower the bill of materials cost, continue design enhancements
and enable scaled production; |
| ● | our ability to execute our business plan, strategic alliances and other opportunities, including development
and market acceptance of our planned products; |
| ● | risks related to our limited operating history, the execution of our business plan and the timing of expected
business milestones, including the ability to effectively utilize existing tooling, a substantial portion of which is soft tooling not
intended for long term production; |
| ● | our ongoing ability to secure and receive vehicle components from our supply chain in sufficient quantities
to meet production volume plans and of acceptable quality to meet vehicle requirements; |
| ● | the availability and cost of raw materials and components, particularly in light of current supply chain
disruptions and labor concerns, inflation, and the consequences of any shortages on our ability to produce saleable vehicles; |
| ● | our ability to successfully identify and implement actions to significantly lower the Endurance bill of
materials cost, including identifying a strategic partner to scale the Endurance, and realizing the sourcing benefits intended from our
relationship with Foxconn; |
| ● | our ability to obtain binding purchase orders and build customer relationships; |
| ● | the effects of competition on our ability to market and sell vehicles; |
| ● | our ability to deliver on the expectations of customers with respect to the pricing, performance, quality,
reliability, safety and efficiency of the Endurance and to provide the levels of after sale service, support and warranty coverage that
they will require and the impact of performance issues, production pauses and delays and recalls on consumer confidence and interest in
our vehicles; |
| ● | the impact of our non-compliance with Nasdaq's bid price requirement and our ability to regain compliance as a result of the proposed
reverse stock split which we have proposed for approval by our stockholders at our annual meeting; |
| ● | our ability to attract and retain key personnel and hire additional personnel; |
| ● | the pace and depth of electric vehicle adoption generally; |
| ● | our expectations regarding our ability to obtain and maintain intellectual property protection and not
infringe on the rights of others; |
| ● | our ability to obtain required regulatory approvals and comply with changes in laws, regulatory requirements,
interpretations of existing laws and governmental incentives; and |
| ● | the possibility that we may be adversely affected by other economic, geopolitical, business and/or competitive
factors, including rising interest rates, fuel and energy prices and the direct and indirect effects of the war in Ukraine. |
As a result of these uncertainties, there is
substantial doubt regarding our ability to continue as a going concern. Our ability to obtain additional financing is extremely
limited under current market conditions, in particular for our industry, and also influenced by other factors including the
significant amount of capital required, the Foxconn dispute, the fact that the BOM cost of the Endurance is currently, and expected
to continue to be, substantially higher than our selling price, uncertainty surrounding the performance of any vehicle produced by
us, meaningful exposure to material losses and costs related to ongoing litigation and the SEC investigation, the Nasdaq Notice, the
market price of our stock and potential dilution from the issuance of the additional securities. If we are unable to resolve our dispute with Foxconn in a timely manner on terms that allow us to continue operating as planned, identify
other sources of funding, identify a strategic partner and resolve our significant contingent liabilities, we may need to curtail or cease
operations and seek protection by filing a voluntary petition for relief under the Bankruptcy Code. If this were to occur, the value available
to our various stakeholders, including our creditors and stockholders, is uncertain.
Additional information on potential factors that
could affect the financial results of the Company and its forward-looking statements is included in its most recent Form 10-K and
subsequent filings with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this
cautionary statement. 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.
