Foxconn alleges Lordstown Motors breach, LMC raises bankruptcy possibility
The company that agreed to purchase the Lordstown Motors plant and partner to make electric vehicles now says that LMC has breached its investment agreement.
According to a filing with the Security and Exchange Commission, on April 21, Lordstown Motors received a letter from Foxconn claiming that LMC was in breach due to a notice from Nasdaq indicating that Lordstown Motors was no longer in compliance with the $1.00 minimum bid price requirement for continued listing on the stock exchange.
Foxconn also proposed terminating the investment agreement if the breach is not fixed within 30 days.
The news sent shares already low-priced Lordstown Motors stock tumbling Monday. The stock was threatened to be delisted in from the NASDAQ market after falling below a dollar per share a few weeks ago. Shares opened at 45 cents but dropped more than 40 percent by early afternoon, but did rebound slightly by Monday prior to the close of the market. Shares closed at 40 cents Monday afternoon or an overall decline of 13 percent, but had fallen to 38 cents in after-hours trading.
The stock first went on sale in April 2019 and sold for $9.74 per share. It soared as high as $29.01 by September 18, 2020; after many delays and recent recalls on the Endurance truck, the stock has not been higher than $1.47 in 2023.
Lordstown Motors and Foxconn reached an agreement in November under which Foxconn purchased approximately $22.7 million of Class A common stock and $30 million of Preferred Stock.
In the SEC filing, Lordstown Motors calls the breach allegations “without merit”, further claiming that terms don’t permit Foxconn to terminate the agreement and that instead, accuses Foxconn of breaching the agreement by failing to agree upon the EV program budget and milestones to facilitate funding of additional preferred stock agreement.
LMC says it intends to enforce the agreement to obtain key funding for operations.
Foxconn has declined to withdraw the termination notice, according to the SEC filing.
“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,” LMC stated in the filing.
Lordstown Motors says that due to the uncertainties, there is substantial doubt regarding its ability to continue as a going concern.
The inability to resolve the dispute with Foxconn in a timely manner, identify other sources of funding, identify a strategic partner and resolve its liabilities, may force LMC to cease operations and file for bankruptcy.
”If this were to occur, the value available to our various stakeholders, including our creditors and stockholders, is uncertain,” LMC said in the filing.
Lordstown Motors says it is evaluating its legal and financial alternatives in the event a resolution is not reached.
After closing at .52 cents per share on Friday, LMC's "RIDE" stocks dipped to just .26 cents Monday, the lowest in the company's history, closing the day at .40 cents.