© Reuters. FILE PHOTO: Lordstown Motors and Foxconn logos are seen in this illustration taken, May 2, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
By Dietrich Knauth
NEW YORK (Reuters) – Bankrupt electric vehicle manufacturer Lordstown Motors has proposed to pay nothing for Taiwan’s Foxconn’s preferred equity shares, saying it will prioritize other shareholders if an ongoing sales effort generates enough cash to repay other debts.
Lordstown Motors, named for the Ohio town where it is based, filed a Chapter 11 plan Friday in Delaware bankruptcy court, outlining how it intends to distribute proceeds from an ongoing effort to sell its assets. Lordstown’s Chapter 11 plan warned that the value of its assets is “necessarily speculative” at this stage in the bankruptcy and “could potentially be zero.”
Lordstown has set a Sept. 8 deadline for bids, with a Sept. 19 auction to follow.
The company’s shareholders would only be paid after its creditors and Lordstown’s Chapter 11 plan did not include an estimate of how much creditors are owed. Lordstown reported in earlier court filings that it owed about $20 million to 30 trade vendors, and recently agreed to pay $40 million to settle a trade secrets lawsuit filed by rival automaker Karma.
Even if the sale generates enough money for a shareholder payout, Lordstown proposed to pay nothing to the 300,000 preferred equity shares held by its estranged former business partner Foxconn.
A lawyer for Foxconn did not immediately respond to a request for comment.
Foxconn, formally called Hon Hai Precision Industry and best known for assembling Apple (NASDAQ:)’s iPhones, purchased Lordstown’s manufacturing facility as part of its push into the electric vehicle market.
Lordstown sued Foxconn for failing to honor an agreement to invest $170 million in its electric truck business, and for engaging in a pattern of delays that undermined Lordstown’s operations, as part of its bankruptcy filing in June.
Lordstown alleged that Foxconn purchased only $30 million of the $100 million in preferred equity shares contemplated by the disputed investment agreement. Foxconn also purchased $22.7 million of Lordstown’s common shares, owning about 8.4% of the company’s equity, according to court documents.
Foxconn has disputed Lordstown’s “flawed” interpretation of the investment agreement in its bankruptcy court filings, saying that it had “rightfully refused to fund additional capital into Lordstown’s failing business.” Foxconn had asked a U.S. bankruptcy judge to dismiss Lordstown’s bankruptcy, a request that the judge denied on Aug. 28.
Lordstown, once valued at $5.3 billion, manufactured just 80 electric trucks before shutting down its operations.
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