Lordstown Motors, an original equipment manufacturer of electric light-duty vehicles focused on the commercial fleet market, entered a strategic restructuring process to maximize the value of its assets, including its on-the-road Endurance all-electric pickup truck, intellectual property and platform.
As part of the process, Lordstown filed litigation against global technology company Hon Hai Technology Group and certain of its affiliates, including Foxconn Ventures, in the U.S. Bankruptcy Court for the District of Delaware. The litigation details Foxconn’s fraud and willful and consistent failure to live up to its commercial and financial commitments to the company. Foxconn’s actions led to material damage to the company as well as its future prospects.
In addition, and as a consequence of Foxconn’s material and irreparable harm, Lordstown is commencing a comprehensive marketing and sale process for the Endurance vehicle and related assets. To accomplish this expeditiously and provide a prospective buyer with a going concern asset that is free and clear of any legacy issues, Lordstown is restructuring under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court. Lordstown further anticipates that the restructuring will enable an expedited timeline for hearing Lordstown’s litigation against Foxconn.
“As one of the early entrants to the EV industry, we have delivered the Endurance, an innovative and highly-capable EV with significant commercial and retail potential – and had subsequently engaged with Foxconn in a purposeful, strategic partnership to leverage this expertise into a broader EV development platform,” Edward Hightower, CEO and president of Lordstown, said. “Despite our best efforts and earnest commitment to the partnership, Foxconn willfully and repeatedly failed to execute on the agreed-upon strategy, leaving us with Chapter 11 as the only viable option to maximize the value of Lordstown’s assets for the benefit of our stakeholders. We will vigorously pursue our litigation claims against Foxconn accordingly.”
The complaint filed against Foxconn centers on a transformative, strategic partnership Lordstown’s management team entered into with Foxconn to combine Lordstown’s innovation, technology, accomplished vehicle engineering team and manufacturing facility in Lordstown, Ohio with Foxconn’s resources, supply chain capabilities and position as one of the world’s largest electronics manufacturers with stated significant automotive capabilities to form a new, scalable joint vehicle development platform.
Under the partnership, Lordstown agreed to divest its most valuable assets to Foxconn, namely its Lordstown, Ohio manufacturing facility, which is one of the largest in North America, along with its highly talented and experienced manufacturing and operational employees. The up-front purchase price for the Lordstown manufacturing facility reflected the expected benefits of the contractual assurances from Foxconn that Foxconn would support the Endurance pickup truck in a variety of ways and follow through on a joint vehicle development program, leveraging what was purported to be Foxconn’s established and extensive EV ecosystem and meeting its commitments to the Lordstown community.
The lawsuit details the fact that Foxconn had no intention of living up to its commitments, particularly with respect to the new vehicle development platform. As the lawsuit describes, Foxconn simply used its variety of contractual arrangements with the company as a tool to maliciously and in bad faith destroy Lordstown’s business — while leveraging resources gained through the partnership to advance its own business interests.
Chapter 11 to Maximize Value of Lordstown’s Assets
In addition to the decisive action Lordstown is taking to redress Foxconn’s conduct, it seeks to maximize the value of the company’s assets and efficiently resolve its contingent liabilities through a Chapter 11 restructuring process. Lordstown has filed motions with the court seeking authority to commence a comprehensive marketing and sale process under section 363 of the U.S. Bankruptcy Code to realize the full value of its Endurance vehicle and related assets.
To ensure a smooth transition into Chapter 11, the company filed with the court a series of customary “first day” motions to continue operating the business and uphold its commitments to stakeholders during the process. The company expects to receive approval of these routine “first day” requests in short order. The company enters Chapter 11 with significant cash on hand and is debt-free.
“We remain confident that an orderly, expedited sale process will maximize value for our stakeholders and enable the talent and technology behind the Endurance to find new and supportive ownership. While in Chapter 11, Lordstown will continue to support our customers,” Hightower said. “We are grateful for the Lordstown team for their commitment and dedication to our vision and to our customers, suppliers and business partners for believing in the Endurance and in the EV evolution.”
Jefferies is acting as financial advisor to the company, and White & Case is acting as legal counsel.