COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2023

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Voluntary Chapter 11 Proceedings, Liabilities Subject to Compromise and Other Potential Claims

On June 27, 2023, the Company and its subsidiaries commenced the Chapter 11 Cases in the Bankruptcy Court. See Part I – Item 1 – “Business – Voluntary Chapter 11 Proceedings.”

Since filing the Chapter 11 Cases, the Company has operated as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

The Company received the Bankruptcy Court’s approval of its customary motions filed on June 27, 2023, which authorized the Debtors to conduct their business activities in the ordinary course, including among other things and subject to the terms and conditions of such orders: (i) pay employees’ wages and related obligations; (ii) pay certain taxes; (iii) pay critical vendors; (iv) continue to honor certain customer obligations; (v) maintain their insurance program; (vi) continue their cash management system; and (vii) establish certain procedures to protect any potential value of the Company’s NOLs.

On August 8, 2023, the Bankruptcy Court approved procedures for the Debtors to conduct a comprehensive marketing and sale process for some, all, or substantially all of their operating assets in order to maximize the value of those assets. The marketing process culminated in the Debtors entering into the LandX Asset Purchase Agreement on September 29, 2023, providing for the sale of specified assets of the Company related to the design, production and sale of electric light duty vehicles focused on the commercial fleet market free and clear of liens, claims, encumbrances, and other interests, and assume certain specified liabilities of the Company for a total purchase price of $10.2 million in cash. This transaction closed on

October 27, 2023. See Note 1 – Description of Organization and Business Operations - Description of Business.

The Company has been subject to extensive pending and threatened legal proceedings and has already incurred, and may to continue to incur, significant legal expenses in defending against these claims. The Company has also been seeking to use the tools of Chapter 11 to fully, finally, and efficiently resolve its contingent and other liabilities before the Bankruptcy Court and to pursue the Foxconn Litigation and has entered and may in the future enter into further discussions regarding settlement of these matters, and may enter into settlement agreements if it believes it is in the best interest of the Company’s stakeholders. The Company records a liability for loss contingencies in the Consolidated Financial Statements when a loss is known or considered probable and the amount can be reasonably estimated. Legal fees and costs of litigation, settlement by the Company or adverse decisions with respect to the matters disclosed may result in liability that is not insured or that is in excess of insurance coverage and could significantly exceed our current accrual and ability to pay and be, individually or in the aggregate, material to the Company’s consolidated results of operations, financial condition or cash flows, and diminish or eliminate any assets available for any distribution to creditors and Interest holders in the Chapter 11 Cases.

The filing of the Chapter 11 Cases resulted in an initial automatic stay of legal proceedings against the Company, as further described below. On July 27, 2023, the Bankruptcy Court modified the automatic stay that was in effect at the time of filing the Chapter 11 Cases to allow the Karma Action (defined below) to proceed against the Company in the District Court (defined below) and that matter was settled, as further described below.

With respect to the stockholder derivative suits filed on behalf of the Company against certain of its officers and directors and certain former DiamondPeak directors prior to the Chapter 11 Cases, the derivative claims asserted in those suits became the property of the Debtors’ estate. Accordingly, the Company appointed an independent committee of directors to evaluate certain of these claims with the assistance and advice of special litigation counsel. The special litigation counsel recommended and the Board approved the release of certain officers and directors from the derivative claims as part of the Chapter 11 Cases, and the retention of the derivative claims against all other defendants in the Derivative Actions (defined below), as further discussed below.

The Proposed Plan incorporates the Ohio Securities Litigation Settlement with respect to the resolution of the Ohio Securities Litigation and the Offer and OIP with respect to the SEC Claim, which take effect if and when the SEC approves the Offer and OIP and the Proposed Plan is confirmed by the Bankruptcy Court and becomes effective on the Effective Date, as discussed further below.

The Bankruptcy Court established October 10, 2023, as the general bar date for all creditors (except governmental entities) to file their proof of claim or interest, and December 26, 2023, as the bar date for all governmental entities, which was extended until January 5, 2024, in the case of the SEC. On January 4, 2024, the SEC filed the SEC Claim with respect to the matter described under “SEC Matter” below. In addition, the deadline for parties to file proofs of claim arising from the Debtors’ rejection of an executory contract or unexpired lease is the later of (a) the general bar date or the governmental bar date, as applicable, and (b) 5:00 p.m. (ET) on the date that is 30 days after the service of an order of the Bankruptcy Court authorizing the Debtors’ rejection of the applicable executory contract or unexpired lease. Finally, pursuant to the Proposed Plan, the deadline for parties to file administrative claims against the Debtors (i.e., claims for costs and expenses of administration of the Debtors’ estates, including (i) the actual and necessary costs and expenses incurred after the Petition Date and through the Effective Date of preserving the estates and operating the businesses of the Debtors; (ii) professional fee claims; and (iii) fees and charges payable to the United States Trustee) is 30 days following the Effective Date. Claimants may have the ability to amend their proofs of claim that could significantly increase the total claims, beyond our estimates or reserve. Furthermore, proofs of claim have been filed asserting unliquidated damages or claims in respect of certain indemnification obligations or otherwise, that may be materially more than we estimate. There is also risk of additional litigation and claims that may be asserted after the Chapter 11 Cases against the Company or its

indemnified directors and officers that may be known or unknown and the Company does not have the resources to adequately defend or dispute such claims due to the Chapter 11 Cases. The Company cannot provide any assurances as to what the Company’s total actual liabilities will be based on any such claims.

Pursuant to the terms of the Proposed Plan, and subject to its confirmation and effectiveness, a significant amount of the cash on hand as of the Effective Date will be used to settle outstanding claims against the Company, including litigation claims. Pursuant to the Bankruptcy Code, the Company is first required to pay all administrative claims in full. The Proposed Plan also requires that the Company establish the Claims Reserve for allowed and disputed claims of general unsecured creditors, inclusive of $3 million the Company would be required to pay into escrow on the Effective Date for the cash portion of the Ohio Securities Litigation Settlement. The aim of the Claims Reserve is to facilitate payment in full, with interest, of such creditors’ allowed claims as contemplated by the Proposed Plan (although there can be no assurance the Company will be able to pay such claims in full with interest). The initial amount of the Claims Reserve is currently anticipated to be approximately $45 million, as agreed upon by the Committees and approved by the Bankruptcy Court. The amount of the Claims Reserve is subject to change and could increase materially. The Claims Reserve could also be adjusted downward as claims are resolved or otherwise as a result of the claims resolution process, or as the Claims Ombudsman and the Post-Effective Date Debtors deem appropriate. Furthermore, the amount of the Claims Reserve will be limited to the amounts payable for allowed claims of general unsecured creditors but to the extent that the Claims Reserve is insufficient to pay general unsecured creditors in full with interest, such deficiency will be payable from all assets of the Post-Effective Date Debtors, as set forth in the Proposed Plan. There are additional liabilities, including but not limited to administrative claims and claims by holders of our Class A common stock and Preferred Stock among other potential classes of claimants whose claims, if allowed, will not be included in the Claims Reserve.

The Bankruptcy Code generally provides that the confirmation of a Chapter 11 plan discharges a debtor from substantially all debts arising prior to consummation of such plan.  Here, the United States Trustee has objected to the Debtors’ entitlement to a discharge.  The objection is expected to be heard at the hearing to consider the Confirmation Order.  If the United States Trustee’s objection is overruled, then, with few exceptions, all claims against the Debtors that arose prior to the consummation of the Proposed Plan (i) would be subject to compromise and/or treatment under the Proposed Plan and/or (ii) would be discharged in accordance with the Bankruptcy Code and the terms of the Proposed Plan. However, the outcome and timing of any claims not ultimately discharged is uncertain, and it is possible material costs, penalties, fines, sanctions, or injunctive relief could result from such a matter.

Pursuant to the Proposed Plan, (which includes certain exceptions) effective as of the Effective Date (i) the Claims Ombudsman will be appointed to oversee the administration of claims asserted against the Debtors by general unsecured creditors and (ii) the Litigation Trustee will be appointed to oversee the Litigation Trust, which will be funded with certain retained causes of action of the Debtors, as will be determined by the Equity Committee.

All distributions under the Proposed Plan would come from the Debtors’ cash on hand and other assets, which would generally be distributed, subject to the terms of the Proposed Plan, to classes of claims and Interests in order of their respective priorities under the Bankruptcy Code. Specifically, the Proposed Plan provides for the distributions for the claims and Interests in order of priority as follows:

● Holders of Allowed Administrative Claims, Allowed Priority Tax Claims, and Allowed Other Priority Claims are to be paid in full in cash before other payments can be made.

● Holders of Allowed Secured Claims would either retain their lien on the collateral, be paid in full in cash, or receive the collateral securing such Allowed Secured Claim.

● Holders of Allowed General Unsecured Claims would receive a pro rata share of the Debtors’ cash after all Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims, and Allowed Secured Claims are satisfied and the Professional Fee Escrow Account is funded. If the

Debtors have sufficient cash on hand to pay all Allowed General Unsecured Claims plus interest in full, then the holders of the Allowed General Unsecured Claims would also receive post-petition interest on their claim amount at the Federal Judgment Rate. If the Debtors do not have sufficient cash on hand to pay in full such post-petition interest, then the holders of the Allowed General Unsecured Claims would receive their pro rata share of any post-petition interest that can be paid.

● Allowed Intercompany Claims would be reinstated under the Proposed Plan.

● Allowed Foxconn Preferred Stock Interests would be reinstated, which includes that all outstanding shares of Preferred Stock will remain outstanding, subject to the terms of the New Organizational Documents. In the event any distribution is to be made to holders of Allowed Foxconn Preferred Stock Interests, such distribution would be from the Post-Effective Date Debtor Cash. In addition, any such distribution to Holders of the Allowed Foxconn Preferred Stock Interests would be subject to the backstop obligation under the Ohio Securities Litigation Settlement.

● Allowed Common Stock Interests would be reinstated, which includes that all outstanding shares of Class A common stock remain outstanding, subject to the terms of the New Organizational Documents.

● Allowed claims relating to securities actions against the Debtors that are subordinated to General Unsecured Claims by Section 510(b) of the Bankruptcy Code (other than Section 510(b) Claims that are (i) subject to the Ohio Securities Litigation Settlement or (ii) the RIDE Section 510(b) Claims would receive Class A common stock in an amount calculated pursuant to the formula set forth in the Proposed Plan, after accounting for any recoveries from applicable insurers or other third parties and subject to the Post-Effective Date Debtors’ election to cash out such Class A common stock Interests.

● Allowed claims, if any, against the Debtors on the same or similar basis as those set forth in the Post-Petition Securities Action may recover solely from available insurance coverage from applicable insurance policies until such insurance policies have been completely exhausted. The Debtors dispute the merits of any such claims.

● Allowed claims of the Ohio Securities Litigation Lead Plaintiff would receive treatment pursuant to the Ohio Securities Litigation Settlement incorporated in the Proposed Plan.

As of December 31, 2023, we had recorded $30.5 million as “Liabilities subject to compromise,” in the accompanying December 31, 2023 Consolidated Balance Sheet, which reflects, in accordance with ASC 852, our current estimate of the potential allowed asserted pre-petition claims that are not fully secured and that have at least a possibility of not being repaid at the full claim amount. Under the Proposed Plan, the Company and the Committees have agreed to establish an initial $45 million Claims Reserve for the settlement of General Unsecured Claims. The Claims Reserve may be increased or decreased during the claims resolution process. The ultimate settlement of these liabilities remains subject to further analysis and is subject to the claims resolution process included in the Proposed Plan. The actual amount of allowed General Unsecured Claims may be materially different than the amount recorded by the Company as of December 31, 2023, or the initial Claim Reserve. The amount recorded is also subject to adjustments if we make changes to our assumptions or estimates related to claims as additional information becomes available to us. Such adjustments may be material, and the Company will continue to evaluate the amount and classification of its pre-petition liabilities. Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of “Liabilities subject to compromise” may change materially.

With respect to the Ohio Securities Litigation, the Post-Petition Securities Action and any other similar claims for damages arising from the purchase or sale of the Class A common stock, Section 510(b) of the Bankruptcy Code treats such claims as subordinated to all claims or Interests that are senior to the Class A common stock and having the same priority as the Class A common stock. Estimated amounts accrued as of December 31, 2023, by the Company with respect to these securities actions do not reflect this impact of the Bankruptcy Code. The plaintiffs in the Ohio Securities Litigation have reached a settlement with the Debtors, which is documented through the treatment of Ohio Securities Litigation Claims under the Proposed Plan, which settlement remains subject to Bankruptcy Court approval and effectiveness of the Proposed Plan.

“Liabilities subject to compromise” at December 31, 2023, consisted of the following:

	(in thousands)
	December 31, 2023
Accrued vendor claims		23,967
Accrued legal liabilities		6,500
Liabilities subject to compromise	$	30,467

Within Liabilities subject to compromise, as of December 31, 2023, the Company had accruals of $6.5 million for certain of its outstanding legal proceedings and potential related obligations, including the stockholder and securities actions, government claims and indemnification obligations described in more detail in Note 9 – Commitments and Contingencies and may or may not be offset by insurance. As of December 31, 2022, these amounts totaled $35.9 million and were recorded within accrued and other liabilities. The accruals do not include potential legal fees and other costs or obligations that may be incurred by the Company in connection with such matters. The amount accrued as of December 31, 2023, reflects the settlement terms contained in the Proposed Plan for the Ohio Securities Litigation and the Offer and OIP with the SEC, as well as the indemnification claims that are subject to proofs of claim filed by the defendants in the Delaware Class Action Litigation. The accrual does not include potential legal fees and other costs that may be incurred by the Company in connection with such matters. Upon effectiveness of the Proposed Plan, and the releases provided to the Company as part of the Proposed Plan and the SEC’s obligation to withdraw its proof of claim (for which the Company has been advised that the conditions thereto would be satisfied), the Company currently expects its obligations for these matters to be limited to the $3 million it will have contributed into escrow for the Ohio Securities Litigation and a potential indemnification obligation claim of $3.5 million (excluding potential legal fees); provided, however, (a) the Company has not determined whether it will object to some or all of the indemnification claims and these claims are subject to dispute as part of the Chapter 11 claims administration process (b) the Company potentially could have indemnification obligations to individual defendants not released under the settlement (as the treatment of such claims and their amounts are not known, the Company has not recorded any reserve with respect to such obligations), and (c) the failure to obtain the SEC and Bankruptcy Court approvals in a timely manner would have a material adverse effect on the Company and its ability to reorganize under Chapter 11 of the Bankruptcy Code. Additional potential recovery by the plaintiffs in the Ohio Securities Litigation would occur if proceeds are received from litigation and other causes of action being retained by the Debtors following the Effective Date (net of actual reasonable costs incurred in prosecuting such retained causes of action) in an amount of up to $7 million; however, the potential outcome of such matters, and whether any proceeds will be received, cannot be predicted at this time.

With respect to other current and potential legal claims and obligations, the Company continues to evaluate the potential resolution and impact of these matters in light of the applicable provisions of the Bankruptcy Code, indemnification rights and the terms of the Proposed Plan (which in some cases may limit any recovery to available insurance coverage), ongoing discussions with the parties to such matters and other stakeholders, or the actual amounts that may be asserted in claims submitted in the Chapter 11 Cases for indemnification, as these factors cannot yet be determined and are subject to substantial uncertainty. Accordingly, the accrued amount may be adjusted in the future based on new developments and it does not reflect a full range of possible outcomes for these proceedings, or the full amount of any damages alleged, which are significantly higher.

Upon the Effective Date, the Proposed Plan would provide certain releases to directors and officers of the Debtors that served in the capacity as a director or officer of any of the Debtors at any time from the Petition Date through the Effective Date. If approved by the Bankruptcy Court and the Proposed Plan becomes effective, the releases would be binding on holders of claims and Interests (a) that affirmatively vote to accept

the Proposed Plan or (b) are entitled to vote on the Proposed Plan, vote to reject the Proposed Plan, and check a box on their ballot opting into the releases. The releases would also be binding on related parties to those described in (a) and (b) (e.g., affiliates, predecessors, successors, and related parties as set forth in the Proposed Plan), but only to the extent the parties in (a) and (b) have authority to bind such persons or entities to the releases. In addition, pursuant to the Proposed Plan, the members of the settlement class in the Ohio Securities Litigation would also be releasing parties pursuant to the Proposed Plan and be bound by the release, discharge, and injunction provisions set forth in the Proposed Plan.

Although we have established the reserves described above to pay allowed claims under the Proposed Plan, and although we intend to pay all allowed claims in full with interest as provided by the Proposed Plan, there can be no assurance that the Claims Reserve, the Post-Effective Date Debtors’ other assets or the Post-Effective Date Debtor Amount will be sufficient to do so given the uncertainties and risks of the claims dispute and settlement process. There can be no assurance regarding the amount of claims allowed for distributions under the Proposed Plan or that such claims will not be significantly greater than may be anticipated which could, in turn, result in the value of distributions to stakeholders being delayed, reduced, or eliminated entirely. The Claims Reserve could also be adjusted downward as claims are resolved or otherwise as a result of the claims resolution process. Inevitably, some assumptions will not materialize, and unanticipated events and circumstances may affect the ultimate results and total amount of claims against us. Moreover, additional claims will be filed in the Chapter 11 Cases, including on account of rejection damages for executory contracts and unexpired leases rejected pursuant to the Proposed Plan and administrative claims for each of which the deadlines to file proofs of claim have not yet passed as of the date of this report. Such Clams may be substantial and may result in a greater amount of allowed claims than estimated; however, the Company cannot presently estimate a possible loss contingency or range of reasonably possible loss contingencies beyond current accruals. Estimating probable losses requires the analysis of multiple forecasted factors that often depend on judgments and potential actions by third parties.

Insurance Matters

The Company was notified by its primary insurer under the 2020 D&O Program that the insurer is taking the position that no coverage is available for the Ohio Securities Litigation, various shareholder derivative actions, various demands for inspection of books and records, the SEC investigation, and the investigation by the United States Attorney’s Office for the Southern District of New York described below, and certain indemnification obligations, under an exclusion to the policy called the “retroactive date exclusion.” The primary insurer under the 2020 D&O Program has identified other potential coverage issues as well. Excess coverage attaches only after the underlying insurance has been exhausted, and generally applies in conformance with the terms of the underlying insurance. The Company is analyzing the insurer’s position and intends to pursue any available coverage under this policy and other insurance. As a result of the denial of coverage, no or limited insurance may be available to us to reimburse our expenses or cover any potential losses for matters claimed during the coverage period of the 2020 D&O Program, which have been significant. The insurers in the Side A D&O portion of the 2020 D&O Program, providing coverage for individual directors and officers in derivative actions and certain other situations that are claimed during the coverage period of the 2020 D&O Program, have denied coverage, which has cast doubt on the availability of coverage for at least some individuals and/or claims.

Changes in our operations in connection with the Chapter 11 Cases has reduced our need to maintain insurance coverage at previous levels or to carry certain insurance policies. The limited insurance that we carry has expired, in the case of product liability coverage, and other coverage may expire and we may not be able to obtain replacement policies or such policies may only be available at a substantially higher cost or have materially lower coverage amounts, or both. If we reduce or no longer maintain insurance coverage, we may be subject to increased or additional potential losses and liabilities.

Karma Litigation

On October 30, 2020, the Company, together with certain of its current and former executive officers, including Mr. Burns, Mr. LaFleur, Mr. Post and Mr. Schmidt, and certain of our other current and former employees, were named as defendants in a lawsuit (the “Karma Action”) filed by Karma Automotive LLC (“Karma”) in the United States District Court for the Central District of California (“District Court”). On November 6, 2020, the District Court denied Karma’s request for a temporary restraining order. On April 16, 2021, Karma filed an amended complaint that added additional defendants (two Company employees and two Company contractors that were previously employed by Karma) and a number of additional claims alleging generally that the Company unlawfully poached key Karma employees and misappropriated Karma’s trade secrets and other confidential information. The amended complaint contained a total of 28 counts, including: (i) alleged violations under federal law of the Computer Fraud and Abuse Act and the Defend Trade Secrets Act; (ii) alleged violations of California law for misappropriation of trade secrets and unfair competition; (iii) common law claims for breach of contract and tortious interference with contract; (iv) common law claims for breach of contract, including confidentiality agreements, employment agreements and the non-binding letter of intent; and (v) alleged common law claims for breach of duties of loyalty and fiduciary duties. The amended complaint also asserted claims for conspiracy, fraud, interstate racketeering activity, and violations of certain provisions of the California Penal Code relating to unauthorized computer access. Karma sought permanent injunctive relief and monetary damages in excess of $900 million based on a variety of claims and theories asserting very substantial losses by Karma and/or improper benefit to the Company that significantly exceed the Company’s accrual with respect to the matter and ability to pay. The Company opposed Karma’s damages claims on factual and legal grounds, including lack of causality and vigorously challenged Karma’s asserted damages.

The District Court initially stayed the Karma Action in light of the automatic stay imposed by the commencement of the Chapter 11 Cases. However, the Bankruptcy Court granted Karma relief from the automatic stay on July 31, 2023, to allow the multi-week trial in the Karma Action to proceed, which trial was scheduled for trial in California beginning on September 12, 2023. On August 14, 2023, the Company and Karma entered into a Settlement Agreement and Release memorializing an agreement to consensually resolve the claims asserted in the Karma Action (the “Karma Settlement Agreement”).

The Settlement Agreement terms include: (i) a $40 million settlement payment by the Company to Karma (the “Karma Settlement Payment”), of which $5 million is allocated to a royalty with respect to the license described in (ii) of this paragraph, (ii) a worldwide, non-exclusive, transferable, royalty-free (except for the full Karma Settlement Payment including the License Payment or Royalty therein (as defined in the Settlement Agreement)), fully paid-up, sublicensable, perpetual and irrevocable license granted by Karma to the Company and any of the Company’s assignees, which license will permit the Company or its assigns to use the intellectual property and technology, including patents, copyrights, software rights, know-how, design rights, database rights, and trade secrets, which Karma alleged in the Karma Action that the Company has misappropriated, (iii) mutual releases, and (iv) dismissal of the Karma Action, with prejudice as to all defendants after the final approval order by the Bankruptcy Court is no longer subject to any appeal. On August 28, 2023, the Bankruptcy Court issued an order approving the Karma Settlement Agreement and the Debtors made the Karma Settlement Payment.

Ohio Securities Class Litigation

Six related putative securities class action lawsuits were filed against the Company and certain of its current and former officers and directors and former DiamondPeak directors between March 18, 2021 and May 14, 2021 in the U.S. District Court for the Northern District of Ohio (Rico v. Lordstown Motors Corp., et al. (Case No. 21-cv-616); Palumbo v. Lordstown Motors Corp., et al. (Case No. 21-cv-633); Zuod v. Lordstown Motors Corp., et al. (Case No. 21-cv-720); Brury v. Lordstown Motors Corp., et al. (Case No. 21-cv-760); Romano v. Lordstown Motors Corp., et al., (Case No. 21-cv-994); and FNY Managed Accounts LLC v. Lordstown Motors Corp., et al. (Case No. 21-cv-1021)). The matters have been consolidated and the Court appointed George Troicky as lead plaintiff (the “Ohio Securities Litigation Lead Plaintiff”) and Labaton Sucharow LLP as lead

plaintiff’s counsel. On September 10, 2021, the Ohio Securities Litigation Lead Plaintiff and several additional named plaintiffs filed their consolidated amended complaint, asserting violations of federal securities laws under Section 10(b), Section 14(a), Section 20(a), and Section 20A of the Exchange Act and Rule 10b-5 thereunder against the Company and certain of its current and former officers and directors. The complaint generally alleges that the Company and individual defendants made materially false and misleading statements relating to vehicle pre-orders and production timeline. Defendants filed a motion to dismiss, which was fully briefed as of March 3, 2022. The Company filed a suggestion of bankruptcy on June 28, 2023, and filed an amended suggestion of bankruptcy on July 11, 2023, which notified the court of the filing of the Chapter 11 Cases and resulting automatic stay. On August 28, 2023, the court denied the pending motion to dismiss, without prejudice, given the notice of the automatic stay, subject to potential re-filing by the Defendants following the lifting of the stay.

Pursuant to the Ohio Securities Litigation Settlement incorporated into the Proposed Plan, if the Proposed Plan becomes effective, the Debtors will pay $3 million into escrow on the Effective Date for the benefit of the putative class members in the Ohio Securities Litigation. In addition, such putative class members would be entitled to receive a portion of any proceeds from litigation and other causes of action being retained by the Debtors following the Effective Date (net of actual reasonable costs incurred in prosecuting such retained causes of action) in an amount equal to 25% of such net proceeds, up to $7 million. Pursuant to the Proposed Plan and upon receipt of the Confirmation Order, the Confirmation Order would constitute a preliminary approval of the Ohio Securities Litigation Settlement. The Ohio Securities Litigation Settlement would be effective on the Effective Date, and the Ohio Securities Litigation Lead Plaintiff, through counsel, would be responsible for pursuing final approval of the proposed settlement thereafter. Members of the putative settlement class would be provided with the option to op-out of the settlement class pursuant to the provisions of the Confirmation Order.

In addition, pursuant to the Proposed Plan, a portion of any recoveries from litigation or other causes of action retained by the Debtors that would be owed to putative class members in connection with the Ohio Securities Litigation Settlement would be backstopped by Foxconn through Foxconn’s agreement to permit 16% of any payments made on account of Foxconn’s Preferred Stock up to $5 million to be paid into a reserve for the benefit of such class members.

There is no guarantee that the Proposed Plan, which incorporates the Ohio Securities Litigation Settlement, will be confirmed by the Bankruptcy Court or become effective. To the extent that the Ohio Securities Litigation Settlement does not become effective, we intend to vigorously defend against the claims. The proceedings are subject to uncertainties inherent in the litigation process.

Derivative Litigation

Four related stockholder derivative lawsuits were filed against certain of the Company’s officers and directors, former DiamondPeak directors, and against the Company as a nominal defendant between April 28, 2021 and July 9, 2021 in the U.S. District Court for the District of Delaware (Cohen, et al. v. Burns, et al. (Case No. 21-cv-604); Kelley, et al. v. Burns, et al. (Case No. 21-cv-724); Patterson, et al. v. Burns, et al. (Case No. 21-cv-910); and Sarabia v. Burns, et al. (Case No. 21-cv-1010)). The derivative actions in the District Court of Delaware have been consolidated into the action captioned In re Lordstown Motors Corp. Shareholder Derivative Litigation, Case No. 21-00604-SB (the “District of Delaware Derivative Action”). On August 27, 2021, plaintiffs filed a consolidated amended complaint, asserting violations of Section 10(b), Section 14(a), Section 20(a) and Section 21D of the Exchange Act and Rule 10b-5 thereunder, breach of fiduciary duties, insider selling, and unjust enrichment, all relating to vehicle pre-orders, production timeline, and the merger with DiamondPeak. On October 11, 2021, defendants filed a motion to stay the District of Delaware Derivative Action pending resolution of the motion to dismiss in the Ohio Securities Class Action. On March 7, 2022, the court granted in part defendants’ motion to stay, staying the action until the resolution of the motion to dismiss in the Ohio Securities Litigation, but requiring the parties to submit a status report if the motion to dismiss was not resolved by September 3, 2022. The court further determined to dismiss without a motion, on the grounds

that the claim was premature, plaintiffs’ claim for contribution for violations of Sections 10(b) and 21D of the Exchange Act without prejudice.

The parties filed a joint status report as required because the motion to dismiss in the Ohio Securities Litigation was not resolved as of September 3, 2022. The parties filed additional court-ordered joint status reports on October 28, 2022, January 6, 2023 and April 3, 2023. On April 4, 2023, the Delaware District Court ordered the parties to submit a letter brief addressing whether the Court should lift the stay. On April 14, 2023, the parties submitted a joint letter requesting that the Court not lift the stay. On April 17, 2023, the court lifted the stay and ordered the parties to meet and confer by May 8, 2023, and submit a proposed case-management plan. On May 9, 2023, the court reinstated the stay and ordered the parties to advise the court of any developments in the Ohio Securities Litigation or material changes to Lordstown’s condition. The Company filed a suggestion of bankruptcy on June 27, 2023, which notified the court of the filing of the Chapter 11 Cases and resulting automatic stay; however the ultimate scope and effect of the stay remains subject to further proceedings before the Bankruptcy Court. The court entered an order acknowledging the effect of the automatic stay on June 28, 2023.

Another related stockholder derivative lawsuit was filed in U.S. District Court for the Northern District of Ohio on June 30, 2021 (Thai v. Burns, et al. (Case No. 21-cv-1267)) (the “Ohio Derivative Action”), asserting violations of Section 10(b), Section 14(a), Section 20(a) and Section 21D of the Exchange Act and Rule 10b-5 thereunder, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste, based on similar facts as the District of Delaware Derivative Action. On October 21, 2021, the court in the Ohio Derivative Action entered a stipulated stay of the action and scheduling order relating to defendants’ anticipated motion to dismiss and/or subsequent motion to stay that is similarly conditioned on the resolution of the motion to dismiss in the Ohio Securities Class Action. The Company filed a suggestion of bankruptcy on June 28, 2023, and filed an amended suggestion of bankruptcy on July 19, 2023, which notified the court of the filing of the Chapter 11 Cases and resulting automatic stay; however, the ultimate scope and effect of the stay remains subject to further proceedings before the Bankruptcy Court.

As described in more detailed below, an independent committee of directors evaluated certain derivative claims asserted in the Ohio Derivative Action, along with those asserted in the other Derivative Actions (defined below), with the assistance and advice of special litigation counsel.

Another related stockholder derivative lawsuit was filed in the Delaware Court of Chancery on December 2, 2021 (Cormier v. Burns, et al. (C.A. No. 2021-1049)), asserting breach of fiduciary duties, insider selling, and unjust enrichment, based on similar facts as the federal derivative actions. An additional related stockholder derivative lawsuit was filed in the Delaware Court of Chancery on February 18, 2022 (Jackson v. Burns, et al. (C.A. No. 2022-0164)), also asserting breach of fiduciary duties, unjust enrichment, and insider selling, based on similar facts as the federal derivative actions. On April 19, 2022, the parties in Cormier and Jackson filed a stipulation and proposed order consolidating the two actions, staying the litigation until the resolution of the motion to dismiss in the Ohio Securities Class Action and appointing Schubert Jonckheer & Kolbe LLP and Lifshitz Law PLLC as Co-Lead Counsel. On May 10, 2022, the court granted the parties’ proposed stipulation and order to consolidate the actions into the action captioned In re Lordstown Motors Corp. Stockholder Derivative Litigation, Case No. 2021-1049-LWW (the “Delaware Chancery Derivative Action,” and together with the District of Delaware Derivative Action and the Ohio Derivative Action, the “Derivative Actions”). In addition, the May 10, 2022, order stayed the consolidated action pending the resolution of the motion to dismiss in the Ohio Securities Class Action. While the Delaware Chancery Derivative Action remains stayed, on June 24, 2022, the plaintiffs filed a consolidated complaint asserting similar claims, and substituting a new plaintiff (Ed Lomont) for Cormier, who no longer appears to be a named plaintiff in the consolidated action. On June 27, 2023, the Company filed a suggestion of bankruptcy, which notified the court of the filing of the Chapter 11 Cases and resulting automatic stay; however the ultimate scope and effect of the stay remains subject to further proceedings before the Bankruptcy Court.

On August 29, 2023, the Board adopted a resolution forming a Derivative Claim Oversight Committee consisting of three directors who were not defendants in any of the Derivative Actions (the “Oversight

Committee”) to evaluate certain of the derivative claims asserted on behalf of the Company in the Derivative Actions (the “Derivative Claims”) and make recommendations to the Board with respect to any prosecution, waiver, release, settlement, disposition, or resolution of such Derivative Claims.

On October 4, 2023, the Bankruptcy Court approved the Company’s application to retain Winston & Strawn LLP (“Winston”) as special litigation counsel in the Chapter 11 Cases (“Special Counsel”) to investigate the facts and circumstances surrounding the Derivative Claims and make recommendations to the Oversight Committee regarding appropriate action with respect to the Derivative Claims. Winston was familiar with the Derivative Claims, having advised the Board in 2022 in evaluating two stockholder derivative demand letters making allegations substantially similar to those asserted in the Derivative Actions. Leveraging that prior work, Special Counsel thereafter conducted a thorough investigation regarding the Derivative Claims and presented its findings, conclusions, and recommendations to the Oversight Committee for review and consideration.

On December 5, 2023, upon completion of the investigation and evaluation of the relative merits of the Derivative Claims as asserted against the Company’s current officers and Board members and the Company’s founder and former CEO Stephen Burns, the Oversight Committee determined, among other things, that there was a low probability of a viable Derivative Claim against any of the directors and officers of the Company that served in such capacity at any time during the pendency of the Chapter 11 Cases (the “Chapter 11 Officers and Directors”), but that there was a potentially viable Derivative Claim against Mr. Burns. The Oversight Committee unanimously adopted the recommendations of Special Counsel and recommended that the Board approve the (a) release of the Chapter 11 Officers and Directors from the Derivative Claims as part of the Chapter 11 Cases, and (b) retention by the Debtors of Derivative Claims against all other defendants in the Derivative Actions (including Mr. Burns), as appropriate, prudent and in the best interests of the Debtors’ estates as determined pursuant to 11 U.S.C. §541.

On December 7, 2023, the full Board met to discuss, among other things, the recommendations of the Oversight Committee with the Oversight Committee, the Company’s management, Special Counsel and the Company’s other advisors (including its legal and financial advisors). Following that meeting, the Board adopted a resolution approving and adopting the recommendations of the Oversight Committee.

DiamondPeak Delaware Class Action Litigation

Two putative class action lawsuits were filed against former DiamondPeak directors and DiamondPeak Sponsor LLC on December 8 and 13, 2021 in the Delaware Court of Chancery (Hebert v. Hamamoto, et al. (C.A. No. 2021-1066); and Amin v Hamamoto, et al. (C.A. No. 2021-1085)) (collectively, the “Delaware Class Action Litigation”).  The plaintiffs purport to represent a class of investors in DiamondPeak and assert breach of fiduciary duty claims based on allegations that the defendants made or failed to prevent alleged misrepresentations regarding vehicle pre-orders and production timeline, and that but for those allegedly false and misleading disclosures, the plaintiffs would have exercised a right to redeem their shares prior to the de-SPAC transaction. On February 9, 2022, the parties filed a stipulation and proposed order consolidating the two putative class action lawsuits, appointing Hebert and Amin as co-lead plaintiffs, appointing Bernstein Litowitz Berger & Grossmann LLP and Pomerantz LLP as co-lead counsel and setting a briefing schedule for the motions to dismiss and motions to stay. The motions to stay were fully briefed as of February 23, 2022, and the court held oral argument on February 28, 2022. On March 7, 2022, the court denied the motion to stay. On March 10, 2022, defendants filed their brief in support of their motion to dismiss. The motion to dismiss was fully briefed on April 27, 2022, and was scheduled for oral argument on May 10, 2022. On May 6, 2022, defendants withdrew the motion to dismiss without prejudice. On July 22, 2022, co-lead plaintiffs filed an amended class action complaint asserting similar claims. Defendants filed a motion to dismiss the amended class action complaint on October 14, 2022. Plaintiffs’ answering brief and Defendants’ reply brief were due on November 18 and December 9, 2022, respectively. Oral argument on the motion to dismiss was scheduled for January 6, 2023. On January 5, 2023, the defendants withdrew their motion to dismiss. On February 2, 2023, the court issued a case scheduling order setting forth pre-trial deadlines and a date for trial in March 2024. On February 3, 2023, defendants filed their answer to plaintiffs’ amended class action

complaint. On February 7, 2023, plaintiffs served the Company, as a non-party, with a subpoena for certain information, which the Company responded to on February 21, 2023.

On June 9, 2023, the court granted in part and denied in part the plaintiffs’ motion to compel regarding the appropriate scope of the Company’s response to the subpoena. On July 5, 2023, in the Chapter 11 Cases, the Company filed (i) an adversary complaint seeking injunctive relief to extend the automatic stay to the plaintiffs in the Delaware Class Action Litigation, initiating the adversary proceeding captioned Lordstown Motors Corp. v. Amin, Adv. Proc. No. 23-50428 (Bankr. D. Del.) and (ii) a motion and brief in support thereof, seeking a preliminary injunction extending the automatic stay to the Delaware Class Action Litigation.  On August 3, 2023, the Bankruptcy Court denied the Company’s preliminary injunction motion.  On July 21, 2023, plaintiffs filed a motion for class certification in the Delaware Class Action Litigation, and that motion was fully briefed as of September 18, 2023. The parties have advised the Company that they have reached an agreement to resolve this matter, subject to negotiation of final documentation, and the former DiamondPeak directors have asserted indemnification claims against the Company with respect to a portion of the settlement amount. The amount and treatment of that claim has not yet been resolved. The proceedings remain subject to uncertainties inherent in the litigation process.

SEC Matter

The Company received two subpoenas from the SEC for the production of documents and information, including relating to the merger between DiamondPeak and Legacy Lordstown and pre-orders of vehicles. The Debtors have been engaged in settlement discussions with the SEC to resolve potential claims relating to these matters. While these discussions have been ongoing, the deadline for the SEC to file proofs of claim against the Debtors with the Bankruptcy Court was January 5, 2024, which was extended from the general bar date for governmental units to file proofs of claim of December 26, 2023. Prior to such deadline, on January 4, 2024, the SEC filed the SEC Claim with the Bankruptcy Court in the face amount of $45 million on the basis of “monetary remedies for violations of federal securities laws,” as stated in the proof of claim. The Proposed Plan contemplates, and includes as a condition to confirmation of the Proposed Plan, that the SEC approve the Offer and that the Offer be set forth in the OIP. The Offer and OIP remain subject to the SEC’s approval process and Bankruptcy Court approval.

Subject to receipt of necessary approvals and satisfaction of each of the terms of the Offer and the OIP, the Proposed Plan provides that following confirmation and the effectiveness of the Proposed Plan incorporating the Ohio Litigation Settlement, the SEC would withdraw the SEC Claim. Any potential settlement with the SEC or other parties for related securities claims or other matters is subject to significant uncertainty, there can be no assurance as to the timing or outcome of the resolution of these matters, and any settlement or claim amount remains subject to approval by the Bankruptcy Court and other regulatory approvals, as applicable. The Debtors cannot provide any assurances regarding what the Company’s total actual liabilities based on the SEC Claim, or other claims asserted in the Chapter 11 Cases, will be. The failure to obtain such approvals in a timely manner would have a material adverse effect on the Company and its ability to reorganize under Chapter 11 of the Bankruptcy Code.

Indemnification Obligations

The Company has potential indemnification obligations with respect to the current and former directors named in the above-referenced actions, which obligations may be significant and may not be covered by the Company’s applicable directors and officers insurance. Certain directors and officers have already, and may in the future, file claims against the Company for indemnification in existing or future matters. The Company has not conceded that it is liable for some of all of such indemnification claims, and may object to such claims.

Foxconn Litigation

On June 27, 2023, the Company commenced the Foxconn Litigation in the Bankruptcy Court seeking relief for fraudulent and tortious conduct, as well as breaches of the Investment Agreement and other agreements and that the Company believes were committed by Foxconn, which have caused substantial harm to our operations and prospects and significant damages. On September 29, 2023, Foxconn filed a motion to dismiss all counts of the Foxconn Litigation and brief in support of the same (the “Foxconn Adversary Motion to Dismiss”), asserting that all of the Company’s claims are subject to binding arbitration provisions and that the Company has failed to state a claim for relief. The Debtors believe that the Foxconn Adversary Motion to Dismiss is without merit and, on November 6, 2023, the Company filed an opposition to Foxconn’s Adversary Motion to Dismiss. Foxconn filed a reply in support of the Foxconn Adversary Motion to Dismiss on November 30, 2023. On December 7, 2023, the Debtors and the Equity Committee filed a notice of completion of briefing, which provided that the briefing of the Foxconn Adversary Motion to Dismiss has been completed and such motion is ready for disposition. No oral argument has been scheduled on the Foxconn Adversary Motion to Dismiss. The Company intends to continue to vigorously oppose that motion and pursue its claims against Foxconn.

On July 20, 2023, Hon Hai Precision Industry Co., Ltd. (a/k/a Hon Hai Technology Group), Foxconn EV Technology, Inc., and Foxconn EV System LLC filed a motion to dismiss the Chapter 11 Cases or to convert the cases under Chapter 7 of the Bankruptcy Code. The movants alleged that the Debtors filed the Chapter 11 Cases in bad faith, that the Debtors do not have a reasonable likelihood of rehabilitation, and that dismissal or conversion would benefit the Debtors’ creditors. The motion was denied by the Bankruptcy Court on August 29, 2023.

The Post-Petition Securities Action

On July 26, 2023, a putative class action lawsuit was filed against Edward Hightower and Adam Kroll, as the Company’s officers, in the U.S. District Court for the Northern District of Ohio by Bandol Lim, individually and on behalf of other stockholders (Case No. 4:23-cv-01454-BYP) asserting violations of Section 10(b), Section 20(a) of the Exchange Act and Rule 10b-5 thereunder relating to the Company’s disclosure regarding its relationship with Foxconn and the Foxconn Transactions (the “Post-Petition Securities Action”). Each of the two following sets of plaintiffs in the Post-Petition Securities Action filed motions for appointment as lead plaintiff in such action: (i) plaintiffs Bandol Lim, Nico Gatzaros, and Richard Dowell (the “RIDE Investor Group”) and (ii) plaintiffs Andrew Strickland and Joshua Strickland. On November 16, 2023, the Court appointed Andrew Strickland and Joshua Strickland as lead plaintiffs (“Lead Plaintiffs”). Lead Plaintiffs filed an amended putative class action complaint on December 29, 2023 (the “Amended Complaint”). Like the initial complaint, the Amended Complaint alleges violations of Section 10(b), Section 20(a) of the Exchange Act and Rule 10b-5 thereunder relating to the Company’s disclosure regarding its relationship with Foxconn and the Foxconn Transactions. It names Edward Hightower, Adam Kroll, and Daniel Ninivaggi as Defendants (“Defendants”) in their capacities as Company officers and/or directors. None of the Debtors is named as a Defendant in the Post-Petition Securities Action. Defendants intend to move to dismiss the Amended Complaint on or about February 27, 2024; Lead Plaintiffs would be required to file their opposition to the motion to dismiss on or before April 29, 2024; and Defendants would then have the opportunity to file a reply in support of their motion to dismiss by May 29, 2024. Defendants dispute the allegations in the Amended Complaint and intend to vigorously defend against the suit. Separately, each of the members of the RIDE Investor Group filed proofs of claim (the “RIDE Proofs of Claims”) against the Company in the Chapter 11 Cases, purportedly on behalf of themselves and the putative class in the Post-Petition Securities Action, in an unliquidated amount. The RIDE Investor Group has not sought authority from the Bankruptcy Court to file its purported class proofs of claim. The Debtors dispute, and intend to object to, each of the RIDE Proofs of Claim. The Debtors further dispute that the members of the Ride Investment Group have authority to file proofs of claim on behalf of the putative class in the Post-Petition Securities Action. Neither of the Lead Plaintiffs filed proofs of claim in the Chapter 11 Cases. Nor have the Lead Plaintiffs sought authority from the Bankruptcy Court to file class proofs of claim. The general deadline to file proofs of claim was October 10, 2023 at 5:00 p.m. (ET). Messrs. Hightower, Kroll, and Ninivaggi contend that they are insureds under the directors’ and officers’ insurance policies of the Debtors that are currently in effect and have been granted relief from the automatic stay with respect to the Company to seek advancement and payment of expenses

relating to the Post-Petition Securities Action under such policies. The Proposed Plan provides for the treatment of RIDE Section 510(b) Claims to limit recoveries (if any) from the Debtors on account of such claims to available insurance. The Debtors dispute the merits of any such claims.

NHTSA Matters

The Company’s obligations under the Safety Act administered by NHTSA for the vehicles it has manufactured and sold continue in force during the pendency of and following the Chapter 11 Cases. During the Chapter 11 Cases, the Company’s obligations are treated as a claim of the United States government against the Company. If and when the Company completes its Chapter 11 Cases, NHTSA may argue that all applicable Safety Act obligations continue to apply and the post-Effective Date Company would also be responsible for fulfilling any pre-existing Safety Act related responsibilities (e.g., remedying vehicles already under a safety recall). The Debtors received authorization from the Bankruptcy Court to repurchase all vehicles that were in the possession of our customers. We have repurchased and destroyed all but two of the vehicles that we sold (other than the vehicles sold to LAS Capital or its affiliates, for which LAS Capital assumed all warranty, product liability and recall liabilities). However, we cannot predict the extent of the liability that may arise from the Safety Act obligations for vehicles the Company has already manufactured and sold, or any claims that may be asserted by NHTSA.