Item 2.02 Results of Operations and Financial Condition.
Electric Last Mile Solutions, Inc. (the "Company") expects to report that it had
approximately $132.0 to $142.0 million in cash and cash equivalents, which
includes $25.0 to 30.0 million of restricted cash, as of December 31, 2021.
These estimates are unaudited and preliminary and do not present all information
necessary for an understanding of the Company's financial condition as of
December 31, 2021 and its results of operations for the three months and year
ended December 31, 2021. The completion of the Company's year-end accounting
procedures, including execution of the Company's internal control over financial
reporting, and audit of the Company's financial statements for the year ended
December 31, 2021 is ongoing and could result in changes to the information set
forth above.
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing.
Audit Committee Independence
On February 1, 2022, the Company notified The Nasdaq Stock Market LLC ("Nasdaq")
of the Company's non-compliance with Nasdaq's audit committee composition
requirements set forth in Nasdaq Listing Rule 5605(c)(2)(A), which require,
among other things, an audit committee to consist of at least three members,
each of whom is independent. The non-compliance was a result of David Boris, a
member of the Audit Committee, not qualifying as independent pursuant to Nasdaq
Listing Rule 5605(c)(2)(A)(ii).
In order to address this matter, the Board removed Mr. Boris as a member of the
Audit Committee, and appointed Brian Krzanich, a member of the Board who meets
all audit committee independence and other eligibility requirements identified
in Nasdaq Listing Rule 5605(c)(2)(A), to serve as a member of the Audit
Committee, such that the Audit Committee consists of Richard Peretz, as chair,
Neil Goldberg and Brian Krzanich. Following such actions, the Company believes
it has regained compliance with the audit committee composition requirements set
forth in Nasdaq Listing Rule 5605(c)(2)(A).
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
On January 26, 2022, on the basis of the Special Committee investigation
discussed in Item 8.01 below which is incorporated by reference into this Item
4.02, the Board concluded that the previously issued consolidated financial
statements of Electric Last Mile, Inc. as of December 31, 2020 and the period
from August 20, 2020 (inception) through December 31, 2020 included in the
Company's Registration Statement on Form S-1 (File No. 333-258146) (the "Audited
Financial Statements") should be restated and, therefore, should no longer be
relied upon. In addition, the Board concluded that the Company's financial
statements as of and for the six months ended June 30, 2021 included in its
Quarterly Report on Form 10-Q (File No. 001-39357) filed on August 13, 2021 and
the Company's financial results as of and for the nine months ended September
30, 2021 included in its Quarterly Report on Form 10-Q (File No. 001-39357)
filed on November 12, 2021 should no longer be relied upon (together with the
Audited Financial Statements, the "Non-Reliance Periods").
In connection with this conclusion, the Company, together with its advisors, is
evaluating the accounting and treatment of certain equity issuances to executive
officers discussed in Item 8.01 of this Current Report on Form 8-K. The Company
has engaged legal counsel and an accounting adviser with respect to this matter.
Although the Company cannot, at this time, estimate when it will file its
restated financial statements for the Non-Reliance Periods, it is diligently
pursuing completion of the restatement, including with respect to an evaluation
of the Company's financial statement reserves for tax payments and
contingencies.
The Company has undertaken an assessment of the accuracy of the Company's
historical financial statements and related disclosures that were contained in
the aforementioned Registration Statement on Form S-1 and Quarterly Reports on
Form 10-Q. In light of the foregoing, the Company also expects to determine that
material weaknesses exist in the Company's internal control over financial
reporting and that disclosure controls and procedures were ineffective during
the Non-Reliance Period. The Company will amend any disclosures pertaining to
its evaluation of such controls and procedures as appropriate in connection with
our anticipated restated filings.
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Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangement of Certain
Officers.
In connection with the findings of the Special Committee investigation and
related discussions between Jason Luo and James Taylor and members of the
Company's Board of Directors (the "Board") described under Item 8.01 herein, on
February 1, 2022, Mr. Luo resigned from his positions as Executive Chairman and
Chairman of the Board, and Mr. Taylor resigned from his positions as President
and Chief Executive Officer and as a member of the Board, both effective
immediately. Each of Mr. Luo and Mr. Taylor have agreed to enter into consulting
arrangements with the Company, as further described below.
In connection with Mr. Taylor's resignation, he and the Company agreed to
settlement terms, pursuant to which the Company and Mr. Taylor agreed to a
mutual release of claims (including payment by the Company of certain specified
taxes that may result from Mr. Taylor's equity purchase referred to above), as
well as non-competition and non-solicitation covenants for up to 18 months. As
part of this arrangement, Mr. Taylor will serve as a consultant to the Company
for a period of two years, on terms to be commercially agreed upon, for an
annual wage of $300,000. Mr. Taylor will retain his 2021 cash bonus, 2021
performance RSUs and health benefits. The consulting agreement will be
terminable at the option of either the Company or Mr. Taylor with 60 days'
notice. Pursuant to the settlement, Mr. Taylor will surrender 1.8 million shares
of the Company's common stock to the Company and, no later than April 11, an
additional number of shares of Company common stock with a value of
approximately $3.3 million based on a VWAP calculation. Mr. Taylor will be
subject to a standstill for 18 months, during which he is precluded from taking
any action in connection with Company's board or shareholders. Mr. Taylor will
retain his existing indemnification and advancement rights. Mr. Taylor has
agreed to a six month lockup from the date hereof and has surrendered his
existing registration rights. The final settlement agreement, which the Company
and Mr. Taylor expect to enter into as soon as practicable, will contain
customary restrictive covenants, social media restrictions, mutual
non-disparagement clauses, and standard representations and warranties.
In connection with Mr. Luo's resignation, he and the Company agreed to
settlement terms, pursuant to which the Company and Mr. Luo agreed to a mutual
release of claims, as well as non-competition and non-solicitation covenants for
at least 18 months. As part of this arrangement, Mr. Luo will serve as a
consultant to the Company for a period of two years for which he will receive no
additional compensation. The consulting agreement will be terminable at the
option of either the Company or Mr. Luo with 60 days' notice. Mr. Luo will also
become a limited observer to the Company's Board of Directors for a period of
two years. Pursuant to the settlement, Mr. Luo will promptly surrender 6.0
million shares of the Company's common stock to the Company. In addition, no
later than 120 days after the date hereof, Mr. Luo will pay an additional amount
of cash and stock, at his option, totaling $10 million in value, with any stock
value based on a VWAP calculation. Mr. Luo will retain his health benefits. Mr.
Luo will be subject to a standstill for eighteen months, during which he is
precluded from taking any action in connection with Company's board or
shareholders. Mr. Luo will retain his existing indemnification and advancement
rights. Mr. Luo has agreed to a six month lockup (with limited carveouts) from
the date hereof and has surrendered his existing registration rights. The final
settlement agreement, which the Company and Mr. Luo expect to enter into as soon
as practicable, will contain customary restrictive covenants, social media
restrictions, mutual non-disparagement clauses, and standard representations and
warranties.
On February 1, 2022, the Board appointed Shauna McIntyre as Interim Chief
Executive Officer and principal executive officer, effective immediately. On the
same date, the Company entered into an employment agreement with Ms. McIntyre
(the "Employment Agreement"), the material terms and conditions of which are
summarized below. The Company has commenced a search for a permanent President
and Chief Executive Officer.
Shauna McIntyre, age 50, was the President, Automotive of Ouster, Inc. from
October 2021 to January 2022. Prior to that, she served as the Chief Executive
Officer of Sense Photonics, an automated LiDAR, from April 2020 until October
2021. Ms. McIntyre served as Program Lead and in other roles at Google
Automotive Services from October 2016 to April 2020. Prior to that, she held
integral roles at Google Automotive Services, Egon Zehnder International,
Achates Power, Inc., Honeywell International, Inc., and Ford Motor Company. Ms.
McIntyre serves on the Board of Directors for Lithia Motors, Inc. (NYSE: LAD),
the Los Altos Educational Foundation and was also a co-founding board member for
the North American Council for Freight Efficiency. Ms. McIntyre holds a B.S.
from the University of California, Los Angeles, an M.S. from the University of
California, Berkeley, and an M.B.A. from Harvard.
In connection with her appointment, the Company entered into a binding
employment term sheet setting forth the principal terms of an employment
agreement (the "Employment Agreement") with Ms. McIntyre. The initial term of
Ms. McIntyre's employment is 90 days. Ms. McIntyre's employment will be
terminable at will by the Company or her at any time (for any reason or no
reason). Except with respect to a termination by the Company for "cause", as
that term will be defined in the Employment Agreement, the Company or Ms.
McIntyre shall give the other party at least 30 days' written notice to
terminate her employment. Ms. McIntyre will receive an annual base salary of
$550,000, pro-rated for any partial year of employment. She will be entitled to
participate in any annual incentive program maintained by the Company from time
to time in which its similarly-situated executives participate, with a target
bonus opportunity equal to 100% of her salary paid with respect to the
applicable performance year. The payment of any bonus pursuant to such program
will be subject to Ms. McIntyre's continued employment through the bonus payment
date. Ms. McIntyre will be entitled to receive an amount equal to $300,000,
payable in cash and/or common stock of the Company (determined by the Board in
its sole discretion) upon expiration of the initial term (including in
connection with Ms. McIntrye's appointment as the Company's President and Chief
Executive Officer, but excluding in connection with a termination of employment
by the Company for "cause" or by Ms. McIntyre without "good reason", as those
terms will be defined in the Employment Agreement). In addition, if she is
appointed as the Company's President and Chief Executive Officer, she will
receive a restricted stock unit award with an aggregate value of $12,000,000.
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If the Company terminates Ms. McIntyre's employment without "cause" or
terminates her employment for "good reason", then Ms. McIntyre shall receive:
(i) an amount equal to her annual base salary, payable in substantially equal
installments over the 12-month period following the termination date; (ii) 12
months' Company-subsidized COBRA; (iii) pro-rated target annual bonus (based on
time employed for the year of termination), payable in a lump sum within 60 days
following the termination date; and (iv) any earned, but not yet paid, annual
bonus with respect to a prior performance year, payable when bonuses are paid to
the Company's executives (but no later than March 15 of the year following the
year in which the termination date occurs). If either such termination occurs
within three months prior to, on or within 12 months following a "change in
control" (as defined in the Company's 2020 Incentive Plan), then Ms. McIntyre
. . .
Item 8.01 Other Events.
Special Committee Investigation
On November 25, 2021, the Company's Board formed an independent committee of the
Board (the "Special Committee") to conduct and direct an investigation, review
and analysis of certain sales of equity securities made by and to individuals
associated with the Company, the corporate law, disclosure and tax consequences
of those transactions, and other issues that arise in connection therewith (such
sales of equity securities, the "Transactions"). The Special Committee was also
authorized at that time to report the resulting advice, findings and
conclusions, and proposed actions to the Board. The Special Committee was
assisted in its investigation by Brown Rudnick LLP ("Brown Rudnick"), and an
outside consultant working at Brown Rudnick's direction, FTI Consulting, Inc.
("FTI").
Based on the information obtained during the investigation, as reported to our
Board, the Company has concluded that in November and December 2020, shortly
before the December 10, 2020 entry into definitive documentation for a business
combination (the "Business Combination") between our accounting predecessor,
Electric Last Mile, Inc. ("ELMI"), and Forum Merger III Corporation ("Forum"),
certain ELMI executives directly or indirectly purchased equity in ELMI at
substantial discounts to market value. The Company is further evaluating whether
it properly disclosed the equity purchases entered into by certain ELMI
executives, whether it properly assessed the accounting treatment and
compensation expense associated with such purchases, and whether it properly
paid and withheld the taxes associated with such purchases. James Taylor
purchased equity in these transactions. Jason Luo participated in these and
other transactions and directly or indirectly purchased and sold equity in such
transactions.
The Company is basing its evaluation on the basis of the following background:
In August and September 2020, Mr. Luo founded and funded ELMI by causing ELMI to
issue 1,000 shares of common stock to Mr. Luo's entity, AJ Capital, Inc., at $10
per share. Subsequently, on September 18, 2020, Forum, on the one hand, and ELMI
and Messrs. Luo and Taylor, on the other hand, executed a letter of intent for a
proposed business combination transaction between Forum and ELMI, estimating the
total enterprise value ascribed to the combined company at $1.3 billion. At that
time, Mr. Luo owned, through AJ Capital, Inc., 100% of the issued shares of
ELMI. Thereafter, on November 19, 2020, ELMI issued and sold 99,000 shares of
common stock for $990,000 to seven investors (the "November 2020 Equity
Transaction"). As described in the Company's S-1 and Proxy Statement, those
seven investors included an entity affiliated with Mr. Taylor, called The JET
Group, LLC, which purchased 6,461 shares of ELMI common stock at $10 per share,
for a total of $64,610 and two entities affiliated with Mr. Luo, which purchased
78,016 shares of ELMI common stock at $10 per share, for a total of $780,160.
Specifically, Luo Pan Investment II, LLC purchased 20,000 shares of ELMI common
stock for $200,000, and AJ Capital Investment, LLC purchased 58,016 shares of
ELMI common stock for $580,160. In addition, on December 8, 2020, Mr. Luo
through AJ Capital, Inc. sold 1,000 shares of ELMI common stock for $10 per
share for a total of $10,000 directly or indirectly to other members of senior
management (the "December 2020 Equity Transaction").
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Prior to the November 2020 Equity Transaction and the December 2020 Equity
Transaction, ELMI does not appear to have obtained an independent valuation to
determine the fair market value per share of its common stock as of or
contemporaneous with the date of those transactions. Because Mr. Taylor may have
been seen as providing services to ELMI at the time he participated in the
November 2020 Equity Transaction, the Company is evaluating whether ELMI should
have treated as compensation to Mr. Taylor any difference between (a) the fair
market value of the shares sold by ELMI to The JET Group, LLC and (b) the $10
per share Mr. Taylor paid or caused to be paid. The Company is further
evaluating whether a compensation expense should have been recorded and taxes
paid in connection with the December 2020 Equity Transaction.
In announcing the Business Combination on December 11, 2020, the Company
disclosed an implied equity value for the combined company of approximately $1.4
billion. When the business combination was consummated on June 25, 2021, each
ELMI share, for which such executives had paid $10 per share, was exchanged for
approximately 800 shares of Electric Last Mile Solutions, Inc.
The Company did not, however, recognize any compensation associated with Mr.
Taylor's participation in the November 2020 Equity Transaction, or in connection
with the December 2020 Equity Transaction; disclose any compensation associated
with those transactions; or withhold or pay taxes in connection with that
compensation. Other senior members of management also participated in such
transactions in November and December 2020. Furthermore, in connection with the
Special Committee investigation, Messrs. Luo and Taylor provided responses to
the Special Committee that are believed to be inconsistent with documents
reviewed by the Special Committee and its counsel.
In light of the foregoing, the Company expects to determine that material
weakness exists in the Company's internal control over financial reporting and
that disclosure controls and procedures were ineffective during the Non-Reliance
Period. The Company will amend any disclosures pertaining to its evaluation of
such controls and procedures as appropriate in connection with our anticipated
restated filings.
Forward-Looking Statements
This report contains forward-looking statements, and any statements other than
statements of historical fact could be deemed to be forward-looking statements.
These forward-looking statements include, among other things, statements
regarding the Company's cash and cash equivalents and restricted cash of
December 31, 2021, and its understanding of its financial condition as of
December 31, 2021 and its results of operations for the three months and year
ended December 31, 2021; execution of the Company's internal control over
financial reporting; compliance with the audit committee composition
requirements set forth in the Nasdaq rules; the Company's intention to restate
its prior consolidated financial statements; the evaluation of the accounting
and treatment of certain equity issuances to executive officers; an evaluation
of the Company's financial statement reserves for tax payments and
contingencies; the determination that material weaknesses exist in the Company's
internal controls over financial reporting; certain terms contained in the
settlement agreements with each of Mr. Taylor and Mr. Luo; certain terms
contained in the employment agreement with Ms. McIntyre; the Special Committee's
investigation and other surrounding the Company's expectations with respect to
its evaluation of the transactions related thereto. These statements are subject
to risks and uncertainties, including the risk that the preparation of the
restated consolidated financial statements or other subsequent events may
require the Company to make additional adjustments to its financial statements
or may delay future filings, and actual results may differ materially from these
statements. You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to revise or update any forward-looking statements to
reflect events or circumstances after the date hereof.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are filed herewith:
Exhibit
Number Description
10.1 Binding Employment Agreement Term Sheet, by and between the Company
and Shauna McIntyre, dated February 1, 2022
99.1 Press Release, dated February 1, 2022
104 Cover Page Interactive Data File (the cover page XBRL tags are embedded
within the Inline XBRL document)
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