Annual report pursuant to Section 13 and 15(d)

Investments in LMC

v3.20.4
Investments in LMC
12 Months Ended
Dec. 31, 2020
Investments, All Other Investments [Abstract]  
Investments in LMC INVESTMENT IN LMC
The Company has an approximate ten percent ownership interest in Lordstown Motors Corp. with a fair value of $330.6 million and $12.2 million as of December 31, 2020 and December 31, 2019, respectively.
The following table sets forth a reconciliation of the Investment in LMC:
December 31,
2020
2019
Balance, beginning of year $ 12,194,800  $ — 
Initial fair value of ownership interest (1)
—  12,194,800 
Change in fair value of investment (2)
317,497,044  — 
Fair value of anti-dilution shares (3)
864,900  — 
Balance, end of year $ 330,556,744  $ 12,194,800 
(1) Represents the Company's ownership interest in the common stock of LMC obtained pursuant to the LMC Transaction (as described below). The initial fair value of the LMC ownership interest received is recorded in Other Income on the Consolidated Statements of Operations for the year ended December 31, 2019.
(2) The Company obtained approximately 16.5 million shares of Class A Common Stock in connection with the LMC Merger (as described below), which were valued at $20.06 per share as of December 31, 2020. The change in fair value of the investment is recorded in Other Income on the Consolidated Statements of Operations for the year ended December 31, 2020.
(3) During the three months ended March 31, 2020, the Company received additional shares as part of its anti-dilution feature with LMC, which were valued at approximately $0.9 million. The change in fair value of the investment related to the anti-dilution shares is recorded in Other Income on the Consolidated Statements of Operations for the year ended December 31, 2020.
LMC Merger
On August 1, 2020, LMC entered into an Agreement and Plan of Merger (the “Merger Agreement”) with DiamondPeak Holdings Corp., in which LMC agreed to merge with and into a subsidiary of DiamondPeak (the “LMC Merger”). The stockholders of LMC in the aggregate received 58% of the issued and outstanding shares of Class A Common Stock of DiamondPeak as of the closing of the LMC Merger. Further, on August 1, 2020, DiamondPeak entered into subscription agreements with certain investors in which DiamondPeak agreed to issue and sell an aggregate of 50.0 million shares of Class A Common Stock for $10.00 per share.
In connection with the LMC Merger, the Company and LMC entered into an Agreement on August 1, 2020, which confirmed that the Company will own 9.99% of DiamondPeak and no longer have anti-dilution rights or similar protections following the
closing of the merger. The Agreement also defined the Royalty Advance as approximately $4.8 million, which is recorded in Other Income in the Consolidated Statements of Operations for the year ended December 31, 2020. Further, DiamondPeak has agreed to register the Company’s shares of Class A Common Stock held in DiamondPeak. The Company has agreed, subject to certain exceptions, to not sell any of its shares of Class A Common Stock for a period of six months ending April 23, 2021, following the closing of the LMC Merger.
On October 23, 2020, DiamondPeak announced the completion of its merger with LMC and on October 26, 2020, the LMC shares of Class A Common Stock began trading on the Nasdaq Global Select market under the ticker symbol “RIDE.” Following the merger, the entity now operates under the name Lordstown Motors Corp.

LMC Transaction

On November 7, 2019, the Company entered into a transaction with LMC (the “LMC Transaction”). LMC will endeavor to, among other things, raise sufficient third-party capital for the acquisition, retrofitting, and restart of the Lordstown Assembly Complex, and the ongoing operating costs, which amounts are expected to be significant (the “Capital Raise”). In connection with the LMC Transaction, the Company granted LMC a perpetual and worldwide license to certain intellectual property relating to the Company’s W-15 electric pickup truck platform and its related technology (the “Licensed Intellectual Property”) for consideration as described below:

A ten percent ownership interest in the common stock of LMC in exchange for the Company’s obligations under the License Agreement. The LMC common stock received provided the Company with anti-dilution rights for two years.
One percent of the aggregate debt and equity commitments funded to LMC upon completion of the Capital Raise (the “Royalty Advance”). Any amount paid to the Company from the Capital Raise is non-refundable.
A one percent royalty on the gross sales price of the first 200,000 vehicles sold, to the extent that the aggregate amount of such royalty fees exceeds the amount paid as the Royalty Advance.
Upon completion of the Capital Raise, the Company intends to transfer approximately 6,000 existing vehicle orders to LMC. LMC will pay a four percent commission on the gross sales price of any transferred orders fulfilled by LMC.

The consideration includes a fixed and variable component. The fixed component consists of the ten percent ownership interest in LMC and any amounts received under the Royalty Advance. The variable component consists of the four percent commission and the one percent royalty. Variable consideration will be recognized when each vehicle for which a royalty or commission is owned is sold.