SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-40649
REE Automotive Ltd.
(Exact name of registrant as specified in its charter)
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
Kibbutz Glil-Yam 4690500, Israel
(Address of principal executive offices)
Daniel Barel, Chief Executive Officer
REE Automotive Ltd.
Kibbutz Glil-Yam 4690500, Israel
Tel: +972 (77) 899-5200
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
|Class A ordinary shares, without par value||REE||The NASDAQ Stock Market LLC|
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2022, the registrant had 244,060,434 Class A ordinary shares, without par value, outstanding and 83,417,110 Class B ordinary shares, without par value, outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer|
|Emerging growth company|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on an attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15U.S.C. 7762(b)) by the registered public accounting firm that prepared or issued its audit report. o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|International Financial Reporting Standards|
|issued by the International Accounting Standards Board|
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
o Item 17 o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
TABLE OF CONTENTS
In this annual report on Form 20-F for the year ended December 31, 2022, or this Annual Report, the terms “REE,” “we,” “us,” “our” and “the company” refer to REE Automotive Ltd. and its subsidiaries.
We define certain terms used in this Annual Report as follows:
“10X Capital” means 10X Capital Venture Acquisition Corp.
“Class A Ordinary Shares” means the Class A ordinary shares, without par value, of REE, having one vote per share.
“Class B Ordinary Shares” means the Class B ordinary shares, without par value, of REE, having 10 votes per share.
“Code” means the Internal Revenue Code of 1986, as amended.
"Companies Law” means Israeli Companies Law, 5759-1999, as amended.
“Effective Time” means the effective time of the Merger pursuant to the Merger Agreement.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
“Founders” means Daniel Barel and Ahishay Sardes, the founders of REE.
“Israeli Securities Law” means the Israeli Securities Law, 5728-1968, as amended.
“MaaS” means Mobility-as-a-Service.
“Merger” means the merger of Merger Sub with and into 10X Capital, with 10X Capital surviving the merger and becoming a wholly-owned subsidiary of REE, along with the other transactions contemplated by the Merger Agreement.
“Merger Agreement” means the Agreement and Plan of Merger, dated as of February 3, 2021, by and among 10X Capital, REE and Merger Sub, as such agreement may be amended or otherwise modified from time to time in accordance with its terms.
“Merger Sub” means Spark Merger Sub Inc.
“Nasdaq” means the Nasdaq Stock Market.
“NIS” means New Israeli Shekels.
“Ordinary Shares” means the Class A Ordinary Shares together with the Class B Ordinary Shares.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“UK” means the United Kingdom.
“U.S.” means the United States of America.
“U.S. dollar,” “USD,” “US$” and “$” mean the legal currency of the United States.
“U.S. GAAP” means generally accepted accounting principles in the United States.
“Warrant” means a warrant of REE that entitles the holder thereof to purchase one Class A Ordinary Share for $11.50 per share.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report and the documents incorporated by reference herein include certain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements include, but are not limited to, statements regarding REE or its management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “appear,” “approximate,” “believe,” “continue,” “could,” “estimate,” “expect,” “foresee,” “intends,” “may,” “will”, “might,” “plan,” “possible,” “potential,” “predict,” “project,” “estimate”, “seek,” “should,” “would”, “target” and similar expressions (or the negative version of such words or expressions) may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. All statements, other than statements of historical facts, may be forward-looking statements. Forward-looking statements in this Annual Report may include , among other things, statements about REE’s strategic and business plans, technology, relationships, objectives and expectations for our business, the impact of trends on and interest in our business, intellectual property or product and its future results, operations and financial performance and condition
These forward-looking statements are based on information available as of the date of this Annual Report and current expectations, forecasts and assumptions. Although REE believes that the expectations reflected in forward-looking statements are reasonable, such statements involve unknown number of risks, uncertainties, judgments and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. These factors are difficult to predict accurately and may be beyond REE’s control. Forward-looking statements in this Annual Report speak only as of the date made and REE undertakes no obligation to update its forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. In light of these risks and uncertainties, investors should keep in mind that results, events or developments discussed in any forward-looking statement made in this communication may not occur.
Some factors that could cause actual results to differ include:
•REE’s ability to commercialize its strategic plan;
•REE’s ability to maintain and advance relationships with current Tier 1 suppliers and strategic partners;
•development of REE’s advanced prototypes into marketable products;
•REE’s ability to grow and scale manufacturing capacity through relationships with Tier 1 suppliers;
•REE’s estimates of unit sales, expenses and profitability and underlying assumptions;
•REE’s reliance on its UK Engineering Center of Excellence, or the UK Engineering Center, for the design, validation, verification, testing and homologation of its products;
•REE’s limited operating history;
•risks associated with building out of REE’s supply chain;
•risks associated with plans for REE’s initial commercial production;
•REE’s dependence on suppliers, some of which are or will be single or limited source;
•development of the market for commercial EVs;
•risks associated with data security breach, failure of information security systems and privacy concerns;
•risks related to lack of compliance with Nasdaq’s minimum bid price requirement;
•future sales of our securities by existing material shareholders or by us could cause the market price for the Class A Ordinary Shares to decline;
•potential disruption of shipping routes due to accidents, political events, international hostilities and instability, piracy or acts by terrorists;
•intense competition in the e-mobility space, including with competitors who have significantly more resources;
•risks related to the fact that REE is incorporated in Israel and governed by Israeli law;
• REE’s ability to make continued investments in its platform;
•the impact of the COVID-19 pandemic, inflation, interest rate changes, the ongoing conflict between Ukraine and Russia and any other worldwide health epidemics or outbreaks that may arise and adverse global conditions, including macroeconomic and geopolitical uncertainty;
•the global economic environment;
•general market, political and economic conditions in the countries in which we operate;
•fluctuations in interest rates and foreign exchange rates;
•the need to attract, train and retain highly-skilled technical workforce;
•changes in laws and regulations that impact REE;
•REE’s ability to enforce, protect and maintain intellectual property rights and to defend itself from claims that it infringed on third party intellectual property rights;
•REE’s ability to retain engineers and other highly qualified employees to further its goals; and
•other risks and uncertainties set forth in the section “Item 3.D. Risk Factors” in this Annual Report.
MARKET AND INDUSTRY DATA
This Annual Report includes market and industry data and forecasts that we have derived from publicly available information, various industry publications, other published industry sources and internal data and estimates. Industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable. Internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Any estimates underlying such market-derived information and other factors could cause actual results to differ materially from those expressed in the independent parties’ estimates and in our estimates.
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
This Annual Report contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this Annual Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Oﬀer Statistics and Expected Timetable
Item 3. Key Information
B. Capitalization and indebtedness
C. Reasons for the oﬀer and use of proceeds
D. Risk Factors
You should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 20-F. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, that we believe are relevant to an investment in our securities. Additional risks and uncertainties not currently known to us or that we now deem immaterial may also harm us. If any of these risks materialize, our business, results of operations or financial condition could suffer, and the price of our Ordinary Shares could decline substantially.
Summary Risk Factors
Investing in our Class A Ordinary Shares involves a high degree of risk, as fully described below. The principal factors and uncertainties that make investing in our ordinary shares risky, include, among others:
•REE’s limited operating history may make evaluation of its business and future prospects difficult, increasing the risk of investment in REE.
•Projecting REE’s operational or financial performance relies in large part upon assumptions and analyses that are inherently uncertain and subject to risk, and that if proven incorrect could result in significantly lower actual results.
•REE may not succeed in controlling the costs associated with its operations.
•If the market for commercial EVs does not develop as REE expects or develops slower than REE expects, its business prospects, financial condition, and operating results may be adversely affected.
•Adverse conditions in the automotive industry could have adverse effects on REE’s results of operations.
•REE’s business model has not been proven and any failure to obtain significant orders for its products would have an adverse effect on its operating results, business, or reputation, resulting in substantial liabilities that may exceed its resources.
•REE’s marketing and sales model may fail to achieve market success or acceptance, which may cause REE not to achieve profitability.
•REE’s agreements with potential customers, suppliers, dealers and strategic partners are preliminary in nature.
•Our ability to make additional sales following sales of test vehicles to customers depends in part on our ability to prove that REE’s products are to the full satisfaction of such customers and to establish and maintain confidence in REE’s business prospects among such customers and others within its industry.
•REE may not succeed in establishing, maintaining and strengthening the “Powered by REETM” brand.
•REE is subject to risks associated with strategic alliances.
•REE operates in a highly competitive market and may not be able to compete successfully in the market as a result of rapid changes in EV technology and the entrance of new and existing, larger manufacturers into the EV space.
•REE is subject to risks associated with the anticipated timing of REE’s initial commercial production and subsequent increased commercial production.
•REE’s development of an outsourced manufacturing business model may not be successful.
•REE is reliant on its UK Engineering Center and REE’s Integration Center at Coventry, UK for the design, validation, verification, testing and homologation of its products.
•REE will depend on its suppliers and the inability of such suppliers to deliver the components of REE’s products in a timely manner or at all and at prices and volumes acceptable to it could have a material adverse effect on its business, prospects and operating results.
•REE’s business could be harmed by increases in costs, disruption of supply or shortage of materials, in particular for lithium-ion battery cells.
•REE targets customers, some which are large corporations with substantial negotiating power, exacting product, quality and warranty standards and potentially competitive internal solutions.
•Discontinuation, lack of commercial success, or loss of business with respect to a particular product model for which REE is a significant supplier could reduce REE’s sales and adversely affect its profitability.
•Pricing pressures, automotive OEM cost reduction initiatives and the ability of automotive OEMs to re-source or cancel vehicle or technology programs may result in lower than anticipated margins, or losses, which may adversely affect REE’s business.
•REE may become subject to product liability claims.
•REE does not currently have extensive experience servicing its products.
•REE may be subject to risks associated with autonomous driving and EV technology.
•REE is dependent on its founders Daniel Barel and Ahishay Sardes.
•REE’s success depends, in part, on its ability to attract and recruit key employees and hire qualified employees and management.
•Financial results may vary significantly from period to period due to fluctuations in REE’s operating costs and other factors, which may or may not be foreseeable.
•REE will need to improve its operational and financial systems to support its expected growth.
•REE expects that it will need to raise additional funds.
•REE’s financial and operational projections rely in part on existing and future regulations and incentive programs supporting EV adoption.
•REE may encounter obstacles outside of its control that slow the adoption of EVs in the market, including but not limited to regulatory requirements or infrastructure limitations.
•REE is subject to various environmental laws and regulations that could impose substantial costs on its business and cause delays in building its manufacturing facilities.
•REE may become involved in legal and regulatory proceedings and commercial or contractual disputes.
•REE’s management has limited experience operating a public company, and thus its success in such endeavors cannot be guaranteed.
•If REE is unable for any reason to meet the continued listing requirements of Nasdaq, such action or inaction could result in a delisting of the Class A Ordinary Shares.
•REE is subject to cybersecurity risks to its various systems and software and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent REE from effectively operating its business, or may cause harm to its business that may or may not be reparable
•REE may incur significant costs and expenses in connection with the protection and enforcement of its intellectual property rights, including but not limited to litigation costs.
•Lawsuits alleging infringement or misappropriation of intellectual property rights of third parties could be both costly and time consuming and could prevent REE from developing or commercializing its future products.
•The dual class structure of our ordinary shares has the effect of concentrating voting power.
•Political, economic and military conditions in Israel could adversely affect REE’s business.
Risks Related to REE’s Business
REE’s limited operating history may make evaluation of its business and future prospects difficult, increasing the risk of investment in REE.
REE faces risks and challenges as an early stage company with a limited operating history. REE has a limited operating history in the automotive industry on which investors can base an evaluation of its business, operating results and prospects. Since REE is in the early stages of commercializing its automotive products, it is difficult to predict REE’s future revenues and expenses, and REE has limited insight into trends that may emerge and affect its business. There can be no assurance that customers and potential customers will purchase REE’s automotive products at any level or at a level that is profitable for REE. Market conditions, many of which are outside of REE’s control and subject to change, including general economic conditions, the availability and terms of financing, the impacts and ongoing uncertainties created by the COVID-19 pandemic, civil discourse throughout the globe, effects and impact of climate change and global warming,
regulatory requirements and incentives, competition and the pace and extent of vehicle electrification generally, could impact demand for REE’s products and ultimately REE’s success.
Projecting REE’s operational or financial performance relies in large part upon assumptions and analyses that are inherently uncertain and subject to risk, and, that if proven incorrect could result in significantly lower actual results.
Any forecasts provided by us reflect management’s estimate of future performance when such forecasts are provided and involve risks, assumptions and uncertainties, projected operating expense, including the level of demand for REE’s products, the performance of REE’s products, the projected bill of materials for REE’s products, the projected gross margin achievable upon sale of REE’s products, the development and commercialization of REE’s products, potential market and sector opportunities, the roll out of REE’s future facilities to assemble REE products, or Integration Centers, the production capacity of REE’s UK Integration Center and any future Integration Centers, the selection of REE’s products by customers and by segment, and growth in the various markets REE is targeting. These assumptions represent REE’s best estimates and there can be no assurance that the actual results will be in line with REE’s expectations. In addition, whether actual operating and financial results and business development will be consistent with REE’s expectations and assumptions as reflected in forecasts depends on a number of factors, many of which are outside REE’s control, including, but not limited to:
•the extent to which projections of operating expense and unit sales will reflect the actual operating expense and sale of REE products in the future;
•the extent to which REE can actualize the value proposition of REE products including, but not limited to, cost efficiencies related to its business model with limited capital expenditure requirements and projected total cost of ownership, and the availability of mission-specific vehicles that maximize cabin and storage space on a smaller overall footprint;
•there is no guarantee that REE will be able to successfully outsource manufacturing and utilize future Integration Centers for the assembly of REE products beyond our first Integration Center in Coventry, United Kingdom, or the UK Integration Center;
•the extent to which growth of e-mobility markets and continued shift in consumer preference will conform with projections;
•although REE is focusing on Class 3 through 5 platform models for the P7 EV platform, REE’s ability to validate, verify and test other REE products compatible with the Class 1 through Class 6 platform, which the failure to do so with respect to any class would reduce REE’s projected total addressable market;
•the extent to which REE’s projected bill of materials conform with the actual bill of materials upon start of production, deviation from which could negatively impact the projected total cost of ownership or projected gross margin;
•supply chain disruptions and shortages of raw materials, parts, components and systems used in our production process;
•the projected total cost of ownership is based upon a number of projected factors based on management expectations, the deviation from which could negatively impact the actual total cost of ownership offered to potential customers;
•homologation of full vehicles;
•certification of X-by-Wire technology;
•top-hat partnerships to build full EVs;
•whether REE can obtain sufficient capital to sustain and grow its business; and
•the timing and costs of new and existing marketing and promotional efforts, including with respect to the “Powered by REETM” brand.
Other unknown or unpredictable factors could also adversely impact REE’s financial or operating performance, and REE undertakes no obligation to update or revise any projections, whether as a result of new information, future events, or otherwise. In the event that actual results differ from REE’s projected financial information or if REE adjusts its projections in future periods, REE’s share price could be materially adversely affected.
REE may not succeed in controlling the costs associated with its operations.
REE will require significant capital to develop and grow its business, including developing and assembling REE products, building future Integration Centers, maintaining the current UK Integration Center and developing REE’s intellectual property portfolio and brand. REE has incurred, and expects to continue to incur, significant expenses that have and will impact its profitability, including research and development expenses, sales and distribution expenses as REE builds its brand and markets its products, and general and administrative expenses as it scales its operations. REE’s ability to become profitable in the future will not only depend on its ability to successfully market its products, but also to control its costs. If REE is unable to efficiently design, assemble, market, sell and distribute its products, then we may not be able to achieve profitable operations.
During February 2023, we took steps to lower our expenses through a targeted reduction in headcount of approximately 11% of the Company’s workforce. To date, the adjustments that we have made to our headcount have had a limited impact on our overall business plan and we are able to continue our focus on producing mission-specific Class 1 through Class 6 EVs, focusing primarily on Class 3 through 5 platform models on the P7 EV platform. If we are unsuccessful in generating orders for our products or are unable to raise additional capital, we may need to further reduce our expenses.
If the market for commercial EVs does not develop as REE expects or develops slower than REE expects, its business prospects, financial condition, and operating results may be adversely affected.
REE’s growth depends upon the adoption of EVs by original equipment manufacturers, or OEMs, delivery and logistic fleets, dealers, e-commerce retailers, new mobility players, Mobility-as-a-Service, or MaaS, providers and autonomous drive companies and on REE’s ability to produce, assemble and sell products that meet their needs. The entry of EV products into the commercial EV market is a relatively new development and is characterized by rapidly changing technologies and evolving government regulation, industry standards and customer views of the merits of using EVs in their businesses. This process has been slow to date. As part of REE’s sales efforts, REE must demonstrate to OEMs, delivery and logistic fleets, dealers, e-commerce retailers, new mobility players, MaaS providers and autonomous drive companies the savings during the life of the vehicle and the lower total cost of ownership, or TCO, of vehicles built on the REE products. REE believes that OEMs, delivery and logistic fleets, dealers, e-commerce retailers, new mobility players, MaaS providers and autonomous drive companies consider many factors when deciding whether to purchase REE’s products (or EVs generally) over vehicles powered by internal combustion engines, particularly diesel-fueled or natural gas-fueled vehicles. REE believes these factors include:
•the difference in the initial purchase prices of EVs with comparable vehicles powered by internal combustion engines, both including and excluding the effect of government and other subsidies and incentives designed to promote the purchase of EVs;
•the TCO of the vehicle over its expected life, which includes the initial purchase price and ongoing operating and maintenance costs
•the availability and terms of financing options for purchases of vehicles and, for EVs, financing options for battery or fuel cell systems;
•the availability of tax and other governmental incentives to purchase and operate EVs and future regulations requiring increased use of nonpolluting vehicles;
•government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
•fuel prices, including volatility in the cost of diesel or a prolonged period of low gasoline and natural gas costs that could decrease incentives to transition to EVs;
•the cost and availability of other alternatives to diesel fueled vehicles, such as vehicles powered by natural gas;
•corporate sustainability initiatives;
•EV quality, performance and safety (particularly with respect to lithium-ion battery packs or fuel cells);
•the quality and availability of service for the vehicle, including the availability of replacement parts;
•the limited range over which EVs may be driven on a single charge;
•increased competition with other companies also developing zero-emission electric and autonomous vehicles;
•access to charging stations and related infrastructure costs, and standardization of EV charging systems;
•electric grid capacity and reliability; and
If, in weighing these factors, OEMs, ldelivery and logistic fleets, dealers, e-commerce retailers, new mobility players, MaaS providers and autonomous drive companies determine that there is not a compelling business justification for purchasing EVs, particularly those built on products by REE, then the market for EVs may not develop as REE expects or may develop more slowly than REE expects, which would adversely affect REE’s business, prospects, financial condition and operating results.
In addition, the reduction, elimination or selective application of tax and other governmental incentives and subsidies resulting from policy changes, or the reduced need for such subsidies and incentives due to the perceived success of the EV, fiscal tightening or other reasons may result in the diminished competitiveness of the EV industry generally or EVs built on the REE products in particular, which could in turn adversely affect REE’s business, prospects, financial condition and operating results. Further, REE cannot assure that the current governmental incentives and subsidies available for purchasers of EVs will remain available.
Adverse conditions in the automotive industry could have adverse effects on REE’s results of operations.
REE’s business is directly affected by and significantly dependent on business cycles and other factors affecting the global automobile industry. Automotive production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and preferences, changes in interest rates and credit availability, consumer confidence, fuel costs, fuel availability, environmental impact, governmental incentives and regulatory requirements and political volatility, especially in energy-producing countries and growth markets. In addition, automotive production and sales may be affected by REE’s current and potential customers’, suppliers’, dealers’ and strategic partners’ ability to continue operating in response to challenging economic conditions and in response to regulatory requirements and other factors. The volume of global automotive production has fluctuated, sometimes significantly, from year to year, and REE expects any such fluctuations to give rise to fluctuations in the demand for its products. Specific to the electric vehicle segment in the automotive industry, challenges have arisen due to a variety of factors, including an increase in the costs of certain components or parts of electric vehicles, such as batteries, caused by supply chain disruptions and shortages of raw materials, market participants over-promising and under-delivering on their production capabilities and the slow deployment and resulting availability of charging networks for electric vehicles. Any significant adverse change in any of these factors may result in a reduction in automotive sales and production by REE’s current and potential customers, suppliers, dealers and strategic partners and could have a material adverse effect on REE’s business, results of operations and financial condition.
REE’s future sales and operations in international markets may expose it to operational, financial and regulatory risks, including but not limited to unfavorable regulatory, political, tax and labor conditions which could negatively impact the business.
REE faces risks associated with its international operations, including possible unfavorable regulatory, political, tax and labor conditions, which could harm its business. REE has operations or subsidiaries in Israel, the U.S., the UK, Germany, and Japan that are subject to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. Additionally, as part of its growth strategy, REE intends to expand its manufacturing partnerships, assembly facilities and sales activity internationally. However, such expansion would require REE to make significant expenditures, including the hiring of local employees and establishing facilities, in advance of generating any revenue. REE is subject to a number of risks associated with international business activities that may increase its costs, impact its ability to sell its products and require significant management attention. These risks include:
•conforming REE’s products to various international regulatory requirements where its products are sold, or homologation;
•development and construction of its future Integration Center network;
•maintenance and ability to produce REE’s products in REE’s UK Integration Center;
•difficulty in staffing and managing foreign operations;
•difficulties securing customers in new jurisdictions;
•foreign government taxes, regulations and permit requirements, including foreign taxes that REE may not be able to offset against taxes imposed upon it in Israel, and foreign tax and other laws limiting REE’s ability to repatriate funds to Israel;
•fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging activities REE undertakes;
•interruptions in shipments;
•Israel and foreign government trade restrictions, tariffs and price or exchange controls;
•foreign labor laws, regulations and restrictions; changes in diplomatic and trade relationships;
•political instability, natural disasters, war or events of terrorism; and
•the strength of international economies.
If REE fails to successfully address these risks, its business, prospects, operating results and financial condition could be materially harmed.
Adverse global conditions, including macroeconomic and geopolitical uncertainty, may negatively impact our financial results.
Global conditions, dislocations in the financial markets, or inflation could adversely impact our business. In addition, the global macroeconomic environment has been and may continue to be negatively affected by, among other things, instability in global economic markets, increased trade tariffs and trade disputes, rising inflation, instability in the global credit markets, banks and financial institutions entering receivership or becoming insolvent, supply chain weaknesses, instability in the geopolitical environment and increasing tensions between China and Taiwan, uncertainty surrounding future elections and the outcome of proposed judicial reform in Israel, and other political tensions, and foreign governmental debt concerns. Such challenges have caused, and may continue to cause, uncertainty and instability in local economies and in global financial markets, which may adversely affect our business. For additional information, see “Item 3. Key Information – D. Risk Factors – Risks Related to REE’s Incorporation and Location in Israel – Political, economic and military conditions in Israel could adversely affect REE’s business.”
In addition, we may not be able to access a portion of our existing cash, cash equivalents and investments due to market conditions. For example, on March 10, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition.
The conflict between Russia and Ukraine has, and is likely to continue to, generate uncertain geopolitical conditions, including sanctions that could adversely affect REE’s business prospects and results of operations.
Russia and Ukraine are not REE markets, and there are no plans to launch in either market in the near future. Nevertheless, the uncertain geopolitical conditions, sanctions, and other potential impacts on the global economic environment resulting from Russia’s invasion of Ukraine may impact customer behavior and disrupt the manufacturing, delivery and overall supply chain or our ability to commercialize REE’s products, which could make it difficult for REE to forecast its financial results. The uncertainty surrounding these conditions and the current, and potentially expanded, scope of international sanctions against Russia may cause unanticipated changes in customers behavior and may impact operations of our suppliers. Sanctions have also created supply constraints and driven inflation that has impacted, and may continue to impact, REE’s operations and could create or exacerbate risks facing REE’s business.
While we understand that REE products does not have any “Tier 1” suppliers from Russia, vehicle production is a complex process, with thousands of components sourced from all over the world. There can be no assurance, therefore, that there will not be some components sourced from suppliers subject to sanctions against Russia nor that the resulting disruption to the supply chain will not have an adverse impact on our business and results of operations.
In the event geopolitical tensions deteriorate further or fail to abate, additional governmental sanctions may be enacted that could adversely impact the global economy, banking and monetary systems, markets, and the operations of REE and its suppliers.
REE is subject to risks related to health epidemics and pandemics, including the ongoing COVID-19 pandemic, which could adversely affect REE’s business and operating results.
REE faces various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the COVID-19 pandemic. The effects and potential effects of COVID-19, including, but not limited to, its impact on general economic conditions, trade and financing markets, changes in customer behavior and continuity in business operations creates significant uncertainty. The COVID-19 pandemic may cause a decrease in demand for REE’s products if OEMs, delivery and logistic fleets, dealers, e-commerce retailers, new mobility players, MaaS providers and autonomous drive companiesdelay purchases of vehicles or if fuel prices for internal combustion engine vehicles remain low, an increase in costs resulting from REE’s efforts to mitigate the effects of COVID-19, delays in REE’s schedule to full commercial production of the REEcornerTM and disruptions to REE’s supply chain, among other negative effects. During 2020, we implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees and business. In addition, we implemented remote working and workplace protocols for employees in accordance with government requirements and other measures to minimize such impact.
Moreover, there has recently been and may continue to be an increase in COVID-19 cases in China. While we will continue to navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, the potential uncertainty related to (and proliferation of) new strains, and related actions taken by federal, state, local and international government officials, to prevent and manage the spread of COVID-19. All of these efforts are uncertain, out of our control, and cannot be predicted at this time. Any future disruption in the operations of our employees, contractors, suppliers, customers, manufacturers or access to customers would likely impact our operating results. We are continuing to monitor and assess the effects of the COVID-19 pandemic on our operations; however, we cannot at this time accurately predict what effects these conditions will ultimately have on our operations due to uncertainties relating to the evolution of new variants, the duration of the outbreak, effectiveness of vaccinations, and the length of any travel restrictions and business closures that may be imposed by the governments of impacted countries.
Risks Related to REE’s Strategy
REE’s business model has not been proven and any failure to obtain significant orders for its products would have an adverse effect on its operating results, business, or reputation, resulting in substantial liabilities that may exceed its resources.
Our business model is unique because we can market and sell our products individually or as “Powered by REE™” in a full vehicle solution. This approach depends in large part on REE’s ability to maintain existing agreements or enter into definitive agreements that formalize its relationship with customers, suppliers, dealers and strategic partners, as well as retaining and growing customer orders following trials of initial test fleets. Investors should be aware of the difficulties normally encountered by a new player in the EV industry, many of which are beyond REE’s control, including substantial risks and expenses in the course of establishing or entering new markets, organizing operations and undertaking marketing activities. The likelihood of REE’s success must be considered in light of these risks, expenses, complications, delays and the competitive environment in which REE operates. In addition, REE’s plan to outsource manufacturing to suppliers and strategic partners and to utilize its current and future Integration Centers for the assembly of REE products is a novel business strategy and REE cannot guarantee that the strategy will be successful or profitable. REE may be unable to generate sufficient revenues, raise additional capital or operate profitably or to meet projected gross margins, EBITDA and cash flows. REE will continue to encounter risks and difficulties frequently experienced by companies in the early stages of commercialization, including scaling up REE’s infrastructure, commercialization and headcount, and may encounter unforeseen expenses, difficulties or delays in connection with its growth. In addition, REE expects to continue to sustain substantial operating expenses without generating sufficient revenues to cover expenditures. Any investment in REE is therefore highly speculative and could result in the loss of an investor’s entire investment.
REE’s marketing and sales model is different from predominant and current models in the automobile industry, making evaluation of its business, operating results and future prospects difficult. Should such a model fail to achieve market acceptance, REE may not be able to achieve profitability.
REE plans to conduct product marketing and sales directly to OEMs, delivery and logistic fleets, dealers, e-commerce retailers, new mobility players, MaaS providers and autonomous drive companies by its internal business development and marketing teams. REE’s business development and marketing teams continue to focus on expanding relationships with OEMs, delivery and logistic fleets, dealers, e-commerce retailers, new mobility players, MaaS providers and autonomous drive companies and to expand its market to other industries. If REE is unable to achieve this, it could have a material adverse effect on its business, prospects, financial results and results of operations.
Certain of REE’s agreements with potential customers, suppliers, dealers and strategic partners are preliminary in nature.
REE’s existing agreements with customers, potential customers, suppliers and strategic partners are pursuant to MOUs or strategic alliance and development agreements, pursuant to which the parties are entering into discussions to evaluate or agree upon a development and strategic plan or to purchase a limited number of test vehicles. Such strategic collaborations are generally non-binding and subject to cancellation by either party or require the achievement of development milestones as a precursor to entering into a further definitive agreement. There can be no guarantee that any of REE’s strategic collaborations, suppliers or strategic partners will become customers and failure to do so would have a material adverse effect on REE’s business, prospects, financial results and results of operations.
Our ability to make additional sales following sales of test vehicles to customers depends in part on our ability to prove that REE’s products are to the full satisfaction of such customers and to establish and maintain confidence in REE’s business prospects among such customers and others within its industry.
We recently started receiving initial orders for both Proxima Powered by REE as well as the P7-B. Such orders present an opportunity for potentially receiving additional orders in the future that could be more meaningful and impactful from a financial perspective. Customers, suppliers, dealers and strategic partners may be less likely to purchase REE’s products if we do not timely deliver products in accordance with the technical specifications or they do not believe that its business will succeed or that its operations, including providing such partners with maintenance and service through qualified supplier support operations, which has yet to be established, for many years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with REE if they are not convinced that its business will succeed. Accordingly, to build, maintain and grow its business, REE must establish and maintain confidence among customers, dealers, suppliers, analysts and other parties with respect to its ability to execute, its liquidity and business prospects. Maintaining such confidence may be particularly difficult as a result of many factors, including REE’s limited operating history, others’ unfamiliarity with its products, uncertainty regarding the future of electric vehicles, any delays in scaling production, delivery and service operations to meet demand, competition and REE’s production and sales performance compared with market expectations. Many of these factors are largely outside of REE’s control, and negative perceptions about REE’s business prospects, would likely harm its ability to receive additional orders. In addition, a significant number of new electric vehicle companies have recently entered the automotive industry, which is an industry that has historically had significant barriers to entry and a high rate of failure. If these new entrants or other manufacturers of electric vehicles go out of business, produce vehicles that do not perform as expected or otherwise fail to meet expectations, such failures may have the effect of increasing scrutiny of others in the industry, including REE, and further challenging customer, dealer, supplier and analyst confidence in REE’s business prospects.
REE may not succeed in establishing, maintaining and strengthening the “Powered by REETM” brand, which could materially and adversely affect customer acceptance of its vehicles and components, thus negatively impacting its business, prospects and projected revenue.
REE intends to market its products as both an individual product and as a full vehicle solution under the “Powered by REETM” brand. The “Powered by REETM” approach reflects REE’s mission to become the cornerstone upon which mobility players can build their mission-specific vehicle needs with the goal of completing rather than competing with other market participants. REE’s business and prospects are heavily dependent on its ability to develop, maintain and strengthen the “Powered by REETM” brand and the REE brand generally. If REE does not continue to establish, maintain and strengthen its brand, it may lose the opportunity to build a critical mass of customers. Promoting and positioning its brand will likely depend significantly on REE’s ability to provide high quality products and engage with its potential customers as intended, and REE has limited experience in these areas. In addition, REE’s ability to develop, maintain and strengthen the “Powered by REETM” brand and the REE brand generally will depend heavily on the success of its customer development and branding efforts. REE’s novel technology and design may not align with existing or potential consumer preferences and consumers may be reluctant to acquire a vehicle built upon a new and unproven EV platform. In addition, REE could be subject to adverse publicity related to REE’s potential customers who build vehicles on REEplatformsTM whether or not such publicity related to such potential customers’ “Powered by REETM” vehicles, any negative publicity, whether true or not, could quickly proliferate and harm consumer perceptions and confidence in the “Powered by REETM” brand and the REE brand generally. If REE does not develop and maintain a strong brand, its business, prospects, financial condition and operating results will be materially and adversely impacted.
REE is subject to risks associated with strategic alliances.
REE’s existing agreements and REE’s ability to engage with definitive agreements with current and potential suppliers, dealer or strategic partners are and will be subject to a number of risks with respect to operations that are outside REE’s control, any of which may materially and adversely affect REE’s business and prospects. REE could experience delays to the extent its current and potential suppliers, dealers or strategic partners do not continue doing business with REE, meet agreed upon timelines, experience capacity constraints or otherwise are unable to deliver components or manufacture products as expected. There is risk of disputes with current and potential suppliers, dealers and strategic partners, and REE could be affected by adverse publicity related to its current and potential suppliers, dealers or strategic partners whether or not such publicity is related to their collaboration with REE. REE’s ability to successfully build a premium brand could also be adversely affected by perceptions about the quality of REE’s suppliers, dealers or strategic partner’s products or other products manufactured by the same suppliers or strategic partners. In addition, although REE intends to be involved in material decisions in the supply chain and manufacturing process, given that REE also will rely on its current and potential suppliers, dealers and strategic partners to meet its quality standards, there can be no assurance that REE will be able to maintain high quality standards for its products. Furthermore, REE will also be exposed to risk associated with sharing its proprietary information with any such third party.
REE operates in a highly competitive market against a large number of both established competitors and new market entrants, and many market participants have substantially greater resources than REE.
Both the automobile industry generally, and the EV segment in particular, are highly competitive, and REE will be competing for sales with both internal combustion engine, or ICE, vehicles and EVs. Many of REE’s current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than REE does and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. REE expects competition for EVs to intensify due to increased demand and a regulatory push for alternative fuel vehicles, continuing globalization, and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, fuel economy, customer service, and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in downward price pressure and adversely affect REE’s business, financial condition, operating results, and prospects.
REE may not be able to compete successfully in the market as a result of rapid changes in EV technology and the entrance of new and existing, larger manufacturers into the EV space.
REE’s products are being designed for use with, and depend upon, existing vehicle technology. As new companies and larger, existing vehicle manufacturers enter the EV space, REE may lose any technological advantage it may have had in the marketplace and suffer a decline in its position in the market. As technologies change, REE plans to upgrade or adapt its products to continue to provide products with the latest technology. However, REE’s products may become obsolete or REE’s research and development efforts may not be sufficient to adapt to changes in or to create the necessary technology to effectively compete. As a result, REE’s potential inability to adapt and develop the necessary technology may harm REE’s competitive position.
Risks Related to Development and Production of REE’s Products
REE’s products are in various stages of development and there are risks associated with developing existing advanced prototypes into marketable products.
REE’s products are in various stages development. In order to reach the delivery stage REE’s products remain subject to further design, validation, verification and testing, as well as product homologation. There is no guarantee that REE will be successful in reaching the delivery stage on the projected timeline, or at all. The establishment of the UK Engineering Center alongside REE’s first UK Integration Center at our Coventry, UK campus coupled with the continued partnership at the MIRA Technology Park has provided REE with a proving ground for physical testing and validation of REE products. However, there can be no guarantee that the testing of REE’s products will proceed according to schedule or that the REE products will withstand rigorous testing. The development of REE’s products is and will be subject to risks including, but not limited to, with respect to:
•REE’s ability to validate final marketable products;
•REE’s ability to complete the final marketable product design process on time, if at all;
•the ability for REE’s products to meet the stringent level of functional safety required for X-by-Wire;
•the ability for REE’s products to withstand rigorous testing and validation;
•the ability for REE’s products to satisfy testing and validation standards set by external assessors;
•the ability of REE’s products to meet existing or future automotive industry standards;
•REE’s ability to successfully develop and validate true X-by-Wire Control capabilities; and
•the ability of X-by-Wire Control technology to obtain regulatory approval and achieve widespread market acceptance.
REE is subject to risks associated with the anticipated timing of REE’s initial commercial production and subsequent increased commercial production.
REE does not know whether its suppliers or strategic partners will be able to develop efficient, automated, low-cost production capabilities and processes and reliable sources of component supply, that will enable REE to meet the quality, price, engineering, design and production standards, as well as the production volumes, required to successfully mass market REE’s products on its anticipated timeframe. Even if REE and its suppliers and strategic partners are successful in developing the initial production processes, developing future high volume production capability, and reliably sourcing the component supply, REE does not know whether it will be able to do so in a manner that avoids significant delays and cost overruns, including those that result from factors beyond its control such as problems with suppliers and strategic partners or dealing with force majeure events, or that meets its products commercialization schedules or that satisfies the requirements of its potential customer base. Any failure to develop such production processes and capabilities within REE’s projected costs and timelines could have a material adverse effect on its business, prospects, financial condition and operating results.
REE’s development of an outsourced manufacturing business model may not be successful, which could harm its ability to deliver products and recognize revenue.
REE’s business depends in large part on its ability to develop, manufacture and assemble its products. Initially, REE plans to outsource the manufacturing of its products in collaboration with at least one supplier or strategic partner. REE plans to assemble its products at REE’s current and future Integration Centers. REE has not yet executed supply or manufacturing agreements with suppliers and strategic partners for volume production of REE’s products or any of its other future product offerings. See “Item 4.B. Business Overview — REE’s Manufacturing Approach” for more information. If REE is unable to negotiate and finalize all of such definitive agreements it will not be able to produce any products and will not be able to generate any revenue, or the products may become more expensive to deliver with a higher bill of materials, which would have a material adverse effect on its business, prospects, operating results and financial condition. In addition, the utilization of future Integration Centers for the assembly of REE products is an untested business strategy and there is no guarantee that the strategy will be successful or profitable.
If REE’s suppliers and strategic partners were to experience delays, disruptions, capacity constraints or quality control problems in their manufacturing operations, product shipments could be delayed or rejected or REE’s potential customers and dealers could consequently elect to change product demand. These disruptions would negatively impact REE’s revenues, competitive position and reputation. In addition, REE’s suppliers and strategic partners may rely on certain state tax incentives that may be subject to change or eliminated in the future, which could result in additional costs and delays in production. Further, if REE is unable to successfully manage its relationship with its suppliers and strategic partners, the quality and availability of its products may be harmed. REE’s suppliers, dealers and strategic partners could, under some circumstances, decline to accept new purchase orders from or otherwise reduce their business with REE. If REE’s suppliers and strategic partners stopped manufacturing REE’s products for any reason or reduced manufacturing capacity, REE may be unable to replace the lost manufacturing capacity on a timely and comparatively cost-effective basis, which would adversely impact its operations.
REE’s reliance on its suppliers and strategic partners, as well as the establishment and operation of REE’s current and future Integration Centers, exposes it to a number of risks that are outside its control, including:
•the manufacture of certain components that will require significant costs related to non-recurring engineering and tooling costs incurred by REE’s suppliers and strategic partners the extent of which is currently unknown;
•its inability to control manufacturing yield and unexpected increases in manufacturing costs;
•interruptions in shipments if a suppliers or strategic partners are unable to complete production in a timely manner;
•its inability to control quality of finished products;
•its inability to control delivery schedules;
•its inability to control production levels and to meet minimum volume commitments to REE’s potential customer base;
•its inability to maintain adequate manufacturing capacity;
•its inability to secure adequate volumes of acceptable components at suitable prices or in a timely manner;
•its inability to establish new Integration Centers at the projected cost of $15 million to $30 million (based on whether such Integration Center is only producing REEcorners™ or is also producing the REEplatformTM) per Integration Center or due to lack of market demands;
•inability to accurately assemble products within specified design tolerances;
•delays by REE in delivering final component designs to its suppliers and strategic partners;
•its inability to implement a sufficient number of future Integration Centers in order to meet demand for REE products in time;
•inability to implement a network of future integration;
•inability to effectively manage a global network of Integration Centers; and
•other delays, backlog in manufacturing and research and development of new models, and cost overruns.
REE’s ability to develop, manufacture and obtain required regulatory approvals for products of sufficient quality and appeal to its current and potential customer base on schedule and on a large scale is unproven, and the business plan is still evolving. REE may be required to introduce new products models and enhanced versions of existing models. To date, REE has limited experience, as a company, designing, testing, manufacturing, marketing and selling or leasing its electric products and therefore cannot assure you that it will be able to meet customer expectations. Any failure to develop such manufacturing processes and capabilities within REE’s projected costs and timelines would have a material adverse effect on its business, prospects, operating results and financial condition.
REE does not currently have any plans to establish manufacturing facilities of its own, so failure to establish sufficient agreements with suppliers and strategic partners would significantly hinder REE’s ability to manufacture its products. In addition, the manufacturing facilities of REE’s potential and strategic partners may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages, or by health epidemics, such as the recent COVID-19 pandemic, which may render it difficult or impossible for REE to manufacture its products for some period of time. The inability to manufacture REE’s products or the backlog that could develop if the manufacturing facilities of its suppliers and strategic partners are inoperable for even a short period of time may result in the loss of potential customers or harm REE’s reputation.
REE is reliant on its UK Engineering Center and REE’s UK Integration Center in Coventry, UK for the design, validation, verification, testing and homologation of its products.
In 2022, REE built its first UK Integration Center and highly automated launch factory in Coventry, United Kingdom. The new UK Integration Center and the existing UK Engineering Center, which are strategically located next to each other, are intended to expedite REE’s strategic plans to meet anticipated global demand. The UK Engineering Center is spearheading REE product design, validation, verification and testing, as well as product homologation. REE also has access to world-class test facilities and a proving ground for physical testing and validation of the REE products at the UK Integration Center and the UK Engineering Center. The UK Integration Center, alongside the UK Engineering Center, and the facilities available therein, are integral to REE’s ability to develop its products. Any loss of access or disputes related to the UK Integration Center or the UK Engineering Center have the potential to adversely impact REE’s ability to develop its products on time to meet commercialization timeline, or at all.
REE’s utilization of its UK Integration Center and the UK Engineering Center are and will be subject to risks, including with respect to:
•REE’s ability to maintain arrangements on reasonable terms with third parties for the provision of testing facilities and testing services with respect to REE products;
•REE’s ability to attract, recruit, hire, retain and train a sufficient number of skilled employees to effectively staff the UK Integration Center and the UK Engineering Center; and
•REE’s reliance on outside contractors for the provision of certain services and associated risks related to monitoring and protecting IP, contractual disputes and certain inherent cybersecurity risks.
The testing facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages, or by health epidemics, such as the recent COVID-19 pandemic, which may render it difficult or impossible for REE to validate, verify and test REE products for some period of time. The inability to validate, verify and test REE products or the resulting delay to REE’s commercialization schedule if the testing facilities are inoperable for even a short period of time may result in the loss of potential customers or harm REE’s reputation.
REE’s products will make use of lithium-ion battery cells, which can be dangerous in certain circumstances, including but not limited to the possibility that such cells may catch fire or vent smoke and flame.
The fuel source for REE products will make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While REE has taken measures to enhance the safety of its designs, a field or testing failure of its products could occur in the future, which could subject REE to lawsuits, product recalls, or redesign efforts, all of which would be time-consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications or any future incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve REE’s products, could seriously harm its business.
In addition, REE’s suppliers and strategic partners are expected to store a significant number of lithium-ion cells at their facilities. Any mishandling of battery cells may cause disruption to the operation of such facilities. A safety issue or fire related to the cells could disrupt operations or cause manufacturing delays. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any failure of a competitor’s EV or energy storage product may cause indirect adverse publicity for REE and its products. Such adverse publicity could negatively affect REE’s brand and harm its business, prospects, financial condition and operating results.
The efficiency of battery usage in EVs declines over time, which may negatively impact potential customers’ decisions with regards to purchasing REE’s products.
REE anticipates that the range of its products will decline over time as the batteries deteriorate. Other factors such as usage, time and stress patterns may also impact the battery’s ability to hold a charge, which would decrease REE’s products’ range before needing to refuel. Such battery deterioration and the related decrease in range may negatively influence potential customer decisions, which would negatively affect REE’s operating results and financial condition.
Risks Related to REE’s Suppliers
REE depends on its suppliers, including but not limited to body manufacturers and battery providers, some of which will be single or limited source suppliers, and the inability of such suppliers to deliver the components of REE’s products in a timely manner or at all and at prices and volumes acceptable to it could have a material adverse effect on its business, prospects and operating results.
REE relies on suppliers and strategic partners for the provision and development of many of the components and materials used in its products. While REE plans to obtain components from multiple suppliers and strategic partners whenever possible, some of the components used in its products may be purchased by REE from a single source. REE’s suppliers and strategic partners may not be able to meet their product specifications and performance characteristics, which would impact REE’s ability to achieve its product specifications and performance characteristics as well. Additionally, REE’s suppliers and strategic partners may be unable to obtain required certifications for their products for which REE plans to use or provide warranties that are necessary for REE’s solutions. If REE is unable to obtain components and materials used in its products from its suppliers or if its suppliers decide to create or supply a competing product, REE’s business could be adversely affected. REE has less negotiating leverage with suppliers than larger and more established automobile manufacturers and may not be able to obtain favorable pricing and other terms. While REE believes that it may be able to establish alternate supply relationships and can obtain or engineer replacement components for its single source components, REE may be unable to do so in the short term, or at all, at prices or quality levels that are favorable to REE, which could have a material adverse effect on its business, prospects, financial condition and operating results.
REE expects to purchase various types of equipment, raw materials and manufactured component parts from its suppliers or strategic partners. If these suppliers or strategic partners experience substantial financial difficulties, cease operations, or otherwise face business disruptions, REE may be required to provide substantial financial support to ensure supply continuity or would have to take other measures to ensure components and materials remain available. Any disruption could affect’s REE’s ability to deliver products and could increase REE’s costs and negatively affect its liquidity and financial performance.
REE’s business could be harmed by increases in costs, disruption of supply or shortage of materials, in particular for lithium-ion battery cells.
REE and its suppliers may experience increases in the cost of or a sustained interruption in the supply or shortage of commodities, raw materials and other inputs used by REE and its suppliers in their businesses and products, such as steel, lithium-ion battery cells and semiconductors, which could adversely affect REE’s future profitability or REE’s ability to timely execute its business plan. The prices for these materials fluctuate and the available supply of these materials may be unstable, depending on market conditions, fluctuations in global demand, including as a result of increased production of EVs by REE’s competitors, geopolitical risk and other economic and political factors. In particular, a global semiconductor supply shortage has had, and is continuing to have, wide-ranging effects across multiple industries, particularly the automotive industry. Any such increase, supply interruption or shortage could materially and negatively impact REE’s business, prospects, financial condition and operating results.
Risks Related to REE’s Future Sales
REE targets customers, some of which are large corporations with substantial negotiating power, exacting product, quality and warranty standards and potentially competitive internal solutions.
Many of REE’s existing and potential customers are large, multinational corporations with substantial negotiating power relative to it and, in some instances, may have internal solutions that are competitive to REE’s products. These large, multinational corporations also have significant development resources that may allow them to acquire or develop independently, or in partnership with others, competitive technologies. Meeting the technical requirements and securing design wins with any of these companies will require a substantial investment of REE’s time and resources. REE cannot assure you that its products will secure design wins from these or other companies or that it will generate meaningful revenue from the sales of its products to these key customers. If REE’s products are not selected by these large corporations or if these corporations develop or acquire competitive technology, it will have an adverse effect on REE’s business. In addition, if REE is unable to sell its products to such customers on certain terms, its prospects and results of operations may be adversely affected.
Discontinuation, lack of commercial success, or loss of business with respect to a particular product model for which REE is a significant supplier could reduce REE’s sales and adversely affect its profitability.
If REE is able to secure design wins and its products are included in EV products, it expects to enter into supply agreements with the relevant customers. Market practice dictates that these supply agreements typically require REE to supply a customer’s requirements for a particular vehicle model or product. These contracts can have short terms and/or can be subject to renegotiation, sometimes as frequently as annually, all of which may affect product pricing, and may be terminated by REE’s potential customers at any time. Therefore, even if REE is successful in obtaining design wins and the systems into which its products are integrated are commercialized, the discontinuation of, the loss of business with respect to, or a lack of commercial success of a particular vehicle model for which REE is a significant supplier could mean that the expected sales of REE’s products will not materialize, which may materially and adversely affecting its business.
Pricing pressures, automotive OEM cost reduction initiatives and the ability of automotive OEMs to re-source or cancel vehicle or technology programs may result in lower than anticipated margins, or losses, which may adversely affect REE’s business.
Cost-cutting initiatives adopted by REE’s customer base often result in increased downward pressure on pricing. REE expects that its future agreements with automotive OEMs may require step-downs in pricing over the term of the agreement or, if commercialized, over the period of production. In addition, REE’s automotive OEM customers are expected to reserve the right to terminate their supply contracts for convenience, which enhances their ability to obtain price reductions. Automotive OEMs also possess significant leverage over their suppliers, including REE, because the automotive
component supply industry is highly competitive, serves a limited number of customers and has a high fixed cost base. Accordingly, REE expects to be subject to substantial continuing pressure from automotive OEMs and Tier 1 suppliers to reduce the price of its products. It is possible that pricing pressures beyond REE’s expectations could intensify as automotive OEMs pursue restructuring, consolidation and cost-cutting initiatives. If REE is unable to generate sufficient production cost savings in the future to offset price reductions, its gross margin and profitability would be adversely affected.
The average selling prices of REE’s products could decrease rapidly over the life of the products, which may negatively affect REE’s revenue and gross margin.
REE expects the average selling prices of its products generally to decline as its customer base seeks to commercialize EVs built on the REE products at prices low enough to achieve market acceptance. In order to sell products that have a falling average unit selling price and maintain margins at the same time, REE will need to continually reduce products and manufacturing costs. To manage manufacturing costs, REE must engineer the most cost-effective design for its products. In addition, REE will continuously promote initiatives to reduce labor cost, improve worker efficiency, reduce the cost of materials, use fewer materials and further lower overall product costs by carefully managing component prices, inventory and shipping cost. REE also needs to continually introduce new products with higher sales prices and gross margin in order to maintain its overall gross margin. If REE is unable to manage the cost of older products or successfully introduce new products with higher gross margin, its revenue and overall gross margin would likely decline.
Risks Related to REE’s Quality
REE’s products rely on software and hardware that is highly technical, and if these systems contain errors, bugs or vulnerabilities, or if REE is unsuccessful in addressing or mitigating technical limitations in its systems, REE’s business could be adversely affected.
REE’s products rely on software and hardware that is highly technical and complex that will require modification and updates over the life of the products. In addition, REE’s products depend on the ability of such software and hardware to store, retrieve, process and manage large amounts of data. REE’s software and hardware may contain, errors, bugs or vulnerabilities, and REE’s systems are subject to certain technical limitations that may compromise REE’s ability to meet its objectives. Some errors, bugs or vulnerabilities inherently may be difficult to detect and may only be discovered after the code has been released for external or internal use. Errors, bugs, vulnerabilities, design defects or technical limitations may be found within REE’s software and hardware. Although REE attempts to remedy any issues it observes in its products as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not be to the satisfaction of REE’s potential customer base. Additionally, if REE is able to deploy updates to the software addressing certain issues and REE’s over-the-air update procedures fail to properly update the software, REE’s customer base would then be responsible for installing such updates to the software and their software will be subject to these vulnerabilities until they do so. If REE is unable to prevent or effectively remedy errors, bugs, vulnerabilities or defects in its software and hardware, REE may suffer damage to its reputation, loss of customers, loss of revenue or liability for damages, any of which could adversely affect REE’s business and financial results.
REE may become subject to product liability claims, which could harm its financial condition and liquidity if it is not able to successfully defend or insure against such claims.
REE may become subject to product liability claims, even those without merit, which could harm its business reputation, prospects, operating results, and financial condition. The automobile industry experiences significant product liability claims and REE faces inherent risk of exposure to claims in the event its products do not perform as expected or malfunction in a manner that causes personal injury or death. REE’s risks in this area are particularly pronounced given it has limited field experience with its products. A successful product liability claim against REE could require REE to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about REE’s products and business and inhibit or prevent commercialization of other future product, which would have a material adverse effect on REE’s brand, business, prospects and operating results. To the extent that REE has insurance coverage, it might not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of REE’s coverage, or outside of REE’s coverage, may have a material adverse effect on REE’s reputation, business and financial condition. REE may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if it does face liability for its products and is forced to make a claim under its policy.
REE does not currently have extensive experience servicing its products. If REE is unable to address the service requirement of its potential customer and dealer base, its business may be materially adversely affected.
REE plans to work with strategic partners to provide predictive maintenance scheduling through smart service and maintenance artificial intelligence, or AI, in combination with over-the-air updates that seek to ensure maintenance is not performed on a standard schedule, but rather before a part will fail, which is expected to offer significant savings for unnecessary part replacements and drastically reduce downtime. There is no guarantee that REE will be successful in developing the necessary technology to actualize predictive maintenance scheduling. In addition, REE servicing may primarily be carried out through third parties certified by REE. Although such potential servicing partners may have experience in servicing other products, they will initially have limited experience in servicing REE products. There can be no assurance that REE service arrangements will adequately address the service requirements of its potential customer and dealer base to their satisfaction, or that REE and its potential servicing partners will have sufficient resources to meet these service requirements in a timely manner as the volume of products REE deliver increases. In addition, if REE is unable to roll out and establish a widespread service network that complies with applicable laws, user satisfaction could be adversely affected, which in turn could materially and adversely affect REE’s reputation, sales, results of operations, and prospects.
REE may be subject to risks associated with autonomous driving and EV technology, including but not limited to technical malfunctions, regulatory obstacles, and/or product liability.
REE’s products are being designed to be compatible with autonomous control. Autonomous driving technologies are subject to risks and there have been accidents and fatalities associated with such technologies. The safety of such technologies depends in part on users, as well as other drivers on the roadways, who may not be accustomed to using or adapting to such technologies. To the extent accidents associated with REE’s products that are used with autonomous controls occur, REE could be subject to liability, negative publicity, government scrutiny and further regulation. Any of the foregoing could materially and adversely affect REE’s results of operations, financial condition and growth prospects.
Autonomous driving technology is also subject to considerable regulatory uncertainty as the law evolves to catch up with the rapidly evolving nature of the technology itself, all of which are beyond REE’s control. REE’s products also may not achieve the requisite level of autonomous compatibility required for certification and rollout to consumers or satisfy changing regulatory requirements which could require REE to redesign, modify or update its products.
Risks Related to REE’s Employees
REE is dependent on its founders Daniel Barel and Ahishay Sardes.
REE is dependent on the services of Daniel Barel, co-founder, director and Chief Executive Officer, and Ahishay Sardes, its co-founder, director and Chief Technology Officer. Mr. Barel and Mr. Sardes are significant influences and drivers of REE’s business plan. If either Mr. Barel or Mr. Sardes were to discontinue his service to REE, REE would be significantly disadvantaged.
REE’s success depends, in part, on its ability to attract and recruit key employees and hire qualified employees and management.
REE’s success depends, in part, on its ability to retain its key personnel. The unexpected loss of or failure to retain one or more of its key employees could affect its business. REE’s success also depends, in part, on its continuing ability to identify, hire, attract, train and develop other highly qualified personnel. Because REE’s products are based on different technology than traditional internal combustion engines, individuals with sufficient training in alternative fuel, technology or EVs may not be available, and as a result, REE will need to expend significant time and expense training the employees it hires. Competition for individuals with experience designing, manufacturing and servicing EVs or their related technology, parts and products is intense, and REE may not be able to attract, integrate, train, motivate or retain additional highly qualified personnel in the future. In addition, sustained declines in our share price or lower share performance relative to competitors could negatively impact REE’s appeal as an employer, harm employee morale, increase employee turnover and/or reduce the retention value of REE’s share-based compensation. The failure to attract, integrate, train, motivate and retain these additional employees could materially adversely harm its business and prospects.
REE’s business may be adversely impacted by the labor and union activities of its own employees, as well of those of any of its potential affiliates, business partners, suppliers, or otherwise related entities.
Although none of REE’s employees are currently represented by a labor union, it is common throughout the automobile industry for many employees to belong to a union, which can result in higher employee costs and increased risk of work stoppages. REE may also directly and indirectly depend upon other companies with unionized work forces, such as parts suppliers, trucking and freight companies, shipping yards, and docks, and work stoppages or strikes organized by such unions could have a material adverse impact on REE’s business, financial condition or operating results.
Risks Related to REE’s Finances
REE is an early stage company with a history of losses, and expects to incur significant expenses and continuing losses for the foreseeable future.
Since inception, REE has incurred, and REE expects it will continue to incur, losses and negative cash flow, either or both of which may be significant. The working capital funding necessary to start a new EV product manufacturing company is significant, and other companies have tried and failed over the last several years with billions of investment capital. While REE expects to benefit from its management’s experience, the technology it has developed to date, and the advantages offered by its UK Integration Center, REE does not expect to be profitable in the near term as REE invests in its business, builds capacity and ramps up operations, and REE cannot assure you that REE will ever achieve or be able to maintain profitability in the future. Failure to become profitable may materially and adversely affect the value of your investment. If REE achieves profitability, it will be dependent upon the successful development and commercial introduction and acceptance of EV products like Class 3 through 5 platform models for the P7 EV platform, which may not occur.
Financial results may vary significantly from period to period due to fluctuations in REE’s operating costs and other factors, which may or may not be foreseeable.
REE expects its period-to-period financial results to vary based on its operating costs, which REE anticipates will fluctuate as the pace at which it continues to design, develop and produce new products and increase production capacity. Additionally, REE’s revenues from period to period may fluctuate as it develops and introduces new products or introduces existing products to new markets for the first time. As a result of these factors, REE believes that quarter-to-quarter comparisons of its financial results, especially in the short term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, REE’s financial results may not meet expectations of equity research analysts, ratings agencies or investors, who may be focused only on quarterly financial results. If any of this occurs, the trading price of our Class A Ordinary Shares could fall substantially, either suddenly or over time.
REE may not be able to accurately estimate demand for its products, which could result in a variety of inefficiencies in its business and hinder its ability to generate revenue. If REE fails to accurately predict its manufacturing requirements, it could incur additional costs or experience delays.
It is difficult to predict REE’s future revenues and appropriately budget for its expenses, and REE may have limited insight into trends that may emerge and affect its business. REE will be required to provide forecasts of its demand to its suppliers several months or years prior to the scheduled delivery of products to its customers. Currently, there is no historical basis for making judgments on the demand for REE’s products or its ability to develop, produce, and deliver products, or REE’s profitability in the future. If REE overestimates its requirements, its suppliers may have excess inventory, which indirectly would increase REE’s costs. If REE underestimates its requirements, its suppliers may have inadequate inventory, which could interrupt manufacturing of its products and result in delays in shipments and revenues. In addition, lead times for materials and components that REE’s suppliers order may vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. If REE fails to order sufficient quantities of product components in a timely manner, the delivery of products to its potential customer base could be delayed, which would harm REE’s business, financial condition and operating results.
REE will need to improve its operational and financial systems to support its expected growth, increasingly complex business arrangements and rules governing revenue and expense recognition and any inability to do so will adversely affect REE’s billing and reporting.
To manage the expected growth of its operations and increasing complexity, REE will need to improve its operational and financial systems, procedures, and controls and continue to increase systems automation to reduce reliance on manual operations. Any inability to do so may affect REE’s billing and reporting. REE’s current and planned systems, procedures and controls may not be adequate to support its complex arrangements and the rules governing revenue and expense recognition for its future operations and expected growth. Delays or problems associated with any improvement or expansion of REE’s operational and financial systems and controls could adversely affect REE’s relationships with its
potential customer base, cause harm to its reputation and brand and could also result in errors in its financial and other reporting.
REE expects that it will need to raise additional funds and these funds may not be available to it when it needs them, or may only be available on unfavorable terms. As a result, REE may be unable to meet its future capital requirements, which could limit its ability to grow and jeopardize its ability to continue its business operations.
In the future, REE expects that it will need to raise additional capital to respond to customer demands, business opportunities, challenges, technological advancements, competitive dynamics or technologies, acquisitions or unforeseen circumstances and it may determine to engage in equity or debt financings or enter into credit facilities. In order to further business relationships with its potential customer base or partners, REE may issue equity or equity-linked securities to potential customers or partners. REE may not be able to timely secure additional debt or equity financing on favorable terms, or at all. If REE raises additional funds through the issuance of equity or convertible debt or other equity-linked securities or if it issues equity or equity-linked securities to potential customers to further business relationships, its existing stockholders could experience significant dilution. Any debt financing obtained by REE in the future could involve restrictive covenants relating to its capital raising activities and other financial and operational matters, which may make it more difficult for REE to obtain additional capital and to pursue business opportunities, including potential acquisitions. If REE is unable to obtain adequate financing or financing on terms satisfactory to REE, when REE requires them, REE’s ability to continue to grow or support its business and to respond to business challenges could be significantly limited.
REE’s insurance strategy may not be adequate to protect it from all liabilities business risks.
In the ordinary course of business, REE may be subject to losses resulting from products liability, accidents, acts of God and other claims against REE, for which REE may have no insurance coverage. While REE currently carries commercial general liability, workers’ compensation and directors’ and officers’ insurance policies, REE may not maintain as much insurance coverage as other EV market participants do, and in some cases, REE may not maintain any at all. Additionally, the policies that REE does have may include significant deductibles, and REE cannot be certain that its insurance coverage will be sufficient to cover all future claims against REE. A loss that is uninsured or exceeds policy limits may require REE to pay substantial amounts, which could adversely affect REE’s financial condition and operating results.
The successful assertion of one or more large claims against REE that exceeds its available insurance coverage, or results in changes to its insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on its business. In addition, REE cannot be sure that its existing insurance coverage will continue to be available on acceptable terms or that REE’s insurers will not deny coverage for future claims.
Risks Related to Regulation
REE’s financial and operational projections rely in part on existing and future regulations and incentive programs supporting EV adoption.
There has been a significant growth in the adoption of environmentally driven regulations and incentive programs with low and zero emission targets with the automotive industry being among the most impacted industries. Such measures encourage local and national governments to implement various forms of rebates and credits for the purchase of an EV. In addition, regulations in many cities, states and countries are also encouraging a shift away from — or in some cases banning entirely — fossil fuel-powered vehicles, with many of the earliest of these regulations targeted at buses, trucks and delivery vehicles. REE’s financial and operational projections include the continued growth in existing and similar regulations and incentive programs to accelerate the adoption of EV technology into the wider market. There is no guarantee that such regulations and incentive programs will be successful in encouraging adoption of EV technology and there is no guarantee that new regulations and incentive programs will be adopted or that existing regulations and incentive programs will remain in place. For example, the development of an alternative fuel besides electricity that results in low or no emissions may shift the focus of such regulations and incentive programs away from EV technology. If new regulations and incentive programs fail to be adopted as expected or if existing regulations and incentive programs are terminated, the growth of the EV market generally and REE’s business, prospects, financial condition and operating results could be materially and adversely affected.
REE may encounter obstacles outside of its control that slow the adoption of EVs in the market, including but not limited to regulatory requirements or infrastructure limitations.
While REE’s products are subject to substantial regulation under federal, state and local laws, REE believes that its products will be in compliance with all applicable laws when they are offered to potential customers. Compliance with these regulations could be burdensome, time consuming, and expensive. However, to the extent the laws change, new laws are introduced, or if REE introduces new products in the future, some or all of its products may not continue to comply with applicable international, federal, state or local laws, and require change.
REE’s products are subject to environmental and safety federal and state regulations, including regulations promulgated by the Environmental Protection Agency, the National Highway Traffic and Safety Administration and various state agencies, and certification required for each new model year in some cases. The risks, delays, and expenses incurred in connection with these compliance activities and with obtaining approval can be substantial.
In addition, REE’s products involve a novel design and new technology, including locating critical vehicle components (steering, braking, suspension, powertrain and control) into the area between the chassis and the wheel and X-by-Wire control technology, which may not meet existing safety standards or require modification in order to comply with various regulatory requirements. In particular, X-by-Wire technology in general has not received significant regulatory attention globally (including in the U.S.). There is no guarantee that REE’s X-by-Wire technology will receive regulatory approval generally, and there is no guarantee that REE’s X-by-Wire control technology will comply with any relevant regulation that is put in place in the future. Compliance with regulatory requirements is expensive, at times requiring the replacement, enhancement or modification of equipment, facilities or operations. There can be no assurance that REE will be able to maintain its profitability by offsetting any increased costs of complying with future regulatory requirements.
REE is subject to various environmental laws and regulations that could impose substantial costs on its business and cause delays in building its manufacturing facilities.
REE’s operations are and will be subject to international, federal, state and local environmental laws and regulations, including laws relating to the use, handling, storage, disposal of and human exposure to hazardous materials. Environmental and health and safety laws and regulations can be complex, and REE has limited experience complying with them. Moreover, REE expects that it will be affected by future amendments to such laws or other new environmental and health and safety laws and regulations which may require REE to change its operations, potentially resulting in a material adverse effect on its business, prospects, financial condition and operating results. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties, third-party damages, suspension of production or a cessation of REE’s operations.
Contamination at properties REE will own or operate, REE formerly owned or operated or to which hazardous substances were sent by REE, may result in liability for REE under environmental laws and regulations, including, but not limited to, the United States Comprehensive Environmental Response, Compensation, and Liability Act, which can impose liability for the full amount of remediation-related costs without regard to fault, for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future, could have a material adverse effect on REE’s financial condition or operating results.
REE and its suppliers and strategic partners are or may be subject to substantial regulation and unfavorable changes to, or failure by REE or its suppliers and strategic partners to comply with any such regulations could substantially harm REE’s business and operating results.
REE’s products, and the sale of motor vehicles including EVs in general, are subject to substantial regulation under international, federal, state, and local laws. REE expects to incur significant costs in complying with these regulations. Regulations related to the EV industry and alternative energy are currently evolving and REE faces risks associated with changes to these regulations.
To the extent the laws change, REE’s products may not comply with applicable international, federal, state or local laws, which would have an adverse effect on its business. Compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with new regulations is cost prohibitive, REE’s business, prospects, financial condition and operating results would be adversely affected.
Internationally, there may be laws in jurisdictions REE has not yet entered or laws it is unaware of in jurisdictions it has entered that may restrict its sales or other business practices. Even for those jurisdictions REE has analyzed, the laws in this area can be complex, difficult to interpret and may change over time. Continued regulatory limitations and other obstacles interfering with REE’s ability to sell products could have a negative and material impact on its business, prospects, financial condition and results of operations.
The UK’s withdrawal from the European Union (commonly referred to as Brexit), could result in increased regulatory, economic and political uncertainty, and impose additional challenges to REE in securing regulatory approval of its products or EVs using REE’s product in the European Union and the rest of Europe.
In June 2016, voters in the UK approved a referendum to withdraw the UK’s membership from the European Union, or EU, which is commonly referred to as “Brexit.” The UK’s withdrawal from the EU occurred on January 31, 2020, but the UK remained in the EU’s customs union and single market for a transition period that expired on December 31, 2020. On December 24, 2020, the UK and the EU entered into a trade and cooperation agreement, or theTrade and Cooperation Agreement, which was applied on a provisional basis from January 1, 2021. While the economic integration does not reach the level that existed during the time the UK was a member state of the EU, the Trade and Cooperation Agreement sets out preferential arrangements in areas such as trade in goods and in services, digital trade and intellectual property. Negotiations between the UK and the EU are expected to continue in relation to the relationship between the UK and the EU in certain other areas which are not covered by the Trade and Cooperation Agreement. The long term effects of Brexit will depend on the effects of the implementation and application of the Trade and Cooperation Agreement and any other relevant agreements between the UK and the EU. REE has facilities and employees in both the UK and other European countries, including the UK Engineering Center. REE cannot predict whether or not the UK will significantly alter its current laws and regulations in respect of the EV industry and, if so, what impact any such alteration would have on REE or its business. Moreover, REE cannot predict the impact that Brexit will have on the marketing of its products. As a result of Brexit, REE may experience adverse impacts on customer demand and profitability in the UK and other markets. Depending on the terms of Brexit and any subsequent trade agreement, the UK could also lose access to the single EU market, or specific countries in the EU, resulting in a negative impact on the general and economic conditions in the UK and the EU. Changes may occur in regulations that REE is required to comply with as well as amendments to treaties governing tax, duties, tariffs, etc. which could adversely impact its operations and require it to modify its financial and supply arrangements. For example, the imposition of any import restrictions and duties levied on REE’s products may make its products more expensive and less competitive from a pricing perspective. To avoid such impacts, REE may have to restructure or relocate some of its operations which would be costly and negatively impact its profitability and cash flow.
Additionally, political instability in the EU as a result of Brexit may result in a material negative effect on credit markets, currency exchange rates and foreign direct investments and any subsequent trade agreement in the EU and UK. This deterioration in economic conditions could result in increased unemployment rates, increased short- and long-term interest rates, adverse movements in exchange rates, consumer and commercial bankruptcy filings, a decline in the strength of national and local economies, and other results that negatively impact household incomes.
Furthermore, as a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership with the European Union. Given these possibilities and others REE may not anticipate, as well as the absence of comparable precedent, it is unclear what financial, regulatory and legal implications the withdrawal of the UK from the European Union would have and how such withdrawal would affect REE, and the full extent to which its business could be adversely affected.
REE may become involved in legal and regulatory proceedings and commercial or contractual disputes, which could have an adverse effect on its profitability and consolidated financial position.
REE may be, from time to time, involved in litigation, regulatory proceedings and commercial or contractual disputes that may be significant. These matters may include, without limitation, disputes with REE’s suppliers and strategic partners and its customer and dealer base, intellectual property claims, stockholder litigation, government investigations, class action lawsuits, personal injury claims, environmental issues, customs and VAT disputes and employment and tax issues. In addition, REE could face in the future a variety of labor and employment claims against it, which could include but is not limited to general discrimination, wage and hour, privacy, ERISA or disability claims. In such matters, government agencies or private parties may seek to recover from REE very large, indeterminate amounts in penalties or monetary damages (including, in some cases, treble or punitive damages) or seek to limit REE’s operations in some way. These types of lawsuits could require significant management time and attention or could involve substantial legal liability, adverse regulatory outcomes, and/or substantial expenses to defend. Often these cases raise complex factual and legal issues and create risks and uncertainties. For example, in December 2022, a lawsuit was filed alleging that REE and its U.S. based
subsidiaries stole certain trade secrets and requested, inter alia, monetary damages in an amount of no less than US$2.6 billion and exemplary damages in the amount of no less than US$5.2 billion. For more information, see “Item 8: Financial Information—Legal Proceedings”. This lawsuit, if successful, would have a material adverse impact on REE’s operating results and consolidated financial position.
REE is subject to U.S. and foreign anti-corruption and anti-money laundering laws and regulations. As a result, REE may face criminal liability and other serious consequences for violations of such laws, which could harm its business.
REE is or will be subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which it conducts or in the future may conduct activities, including the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act 2010, and other anti-corruption laws and regulations. The FCPA and the U.K. Bribery Act 2010 prohibit REE and its officers, directors, employees and business partners acting on its behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. The U.K. Bribery Act also prohibits non-governmental “commercial” bribery and soliciting or accepting bribes. A violation of these laws or regulations could adversely affect REE’s business, results of operations, financial condition and reputation. REE’s policies and procedures designed to ensure compliance with these regulations may not be sufficient and its directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which it may be held responsible.
Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject REE to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect REE’s business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact REE’s business and investments in its shares.
The intended tax effects of REE’s corporate structure and intercompany arrangements depend on the application of the tax laws of various jurisdictions and on how REE operates its business.
REE is incorporated in and a tax resident in Israel. REE currently has subsidiaries in the UK, Germany, the US and Japan. If REE succeeds in growing its business, REE expects to conduct increased operations through its subsidiaries in various countries and tax jurisdictions, in part through intercompany service agreements between REE and its subsidiaries. In that case, REE’s corporate structure and intercompany transactions, including the manner in which REE develops and uses its intellectual property, will be organized so that REE can achieve its business objectives in a tax-efficient manner and in compliance with applicable transfer pricing rules and regulations. If two or more affiliated companies are located in different countries or tax jurisdictions, the tax laws and regulations of each country generally will require that transfer prices be the same as those between unrelated companies dealing at arm’s length and that appropriate documentation be maintained to support the transfer prices. While REE believes that it operates in compliance with applicable transfer pricing laws and intends to continue to do so, its transfer pricing procedures are not binding on applicable taxing authorities.
Significant judgment is required in evaluating REE’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, REE’s effective tax rates could be adversely affected by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. In addition, its effective tax rate and the availability of any tax holidays could be adversely affected if REE does not obtain favorable tax rulings from certain taxing authorities. As REE intends to operate in various countries and taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by taxing authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property.
In addition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. REE continues to assess the impact of such changes in tax laws and interpretations on its business and may determine that changes to its structure, practice, tax positions or the manner in which it conducts its business are necessary in light of such changes and developments in the tax laws of the jurisdictions in which REE operates. Such changes may nevertheless be ineffective in avoiding an increase in its consolidated tax liability, which could adversely affect its financial condition, results of operations and cash flow.
If taxing authorities in any of these countries were to successfully challenge REE’s transfer prices as not reflecting arm’s length transactions, they could require REE to adjust its transfer prices and thereby reallocate its income to reflect these revised transfer prices, which could result in a higher tax liability to REE. In addition, if the country from which the income is reallocated does not agree with the reallocation, both countries could tax the same income, potentially resulting in double taxation. If taxing authorities were to allocate income to a higher tax jurisdiction, subject REE’s income to double taxation or assess interest and penalties, it would increase REE’s consolidated tax liability, which could adversely affect its financial condition, results of operations and cash flow.
Risks Related to Being a Public Company
REE’s management has limited experience operating a public company, and thus its success in such endeavors cannot be guaranteed.
REE’s executive officers have limited experience managing a publicly traded company, interacting with public company investors and complying with the complex laws pertaining to public companies in the United States. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could require the devotion of a significant amount of their time to these activities, which will result in less time being devoted to the management and growth of the company, and could also result in increased costs due to hiring consultants to assist with compliance of public company laws, rules and regulations. REE has hired additional employees since becoming a public company has upgraded its finance and accounting systems to an enterprise system suitable for a public company, and a delay could impact its ability or prevent it from timely reporting its operating results, timely filing required reports with the SEC and complying with Section 404 of the Sarbanes-Oxley Act. The development and implementation of the standards and controls necessary for REE to achieve the level of accounting standards required of a public company in the U.S. may require costs greater than expected. REE may not yet have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the U.S., and it is possible that REE will be required to further expand its employee base and hire additional employees to support its operations as a public company which will increase its operating costs in future periods.
If REE is unable for any reason to meet the continued listing requirements of Nasdaq, such action or inaction could result in a delisting of the Class A Ordinary Shares.
On November 10, 2022, the Company announced that it received an initial notification letter from Nasdaq’s Listing Qualifications Department notifying the Company that it had 180 days to regain compliance with the minimum bid price requirement set forth in Nasdaq’s continued listing rules. Nasdaq’s continued listing rules require that listed securities maintain a minimum bid price of $1.00 per share, and that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days or more. REE has until May 8, 2023, to regain compliance with the minimum bid price requirement in order to maintain the listing. To regain compliance with the minimum bid price requirement, the Class A Ordinary Shares must have a closing bid price of at least U.S.$1.00 for a minimum of 10 consecutive business days. In the event that REE does not regain compliance by May 8, 2023, REE may then be eligible for additional 180 days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period. If REE does not qualify for the second compliance period or fails to regain compliance during the second compliance period, then Nasdaq will notify REE of its determination to delist its Ordinary Shares, at which point REE will have an opportunity to appeal the delisting determination to a hearings panel.
In addition, on January 5, 2023, following the resignation, due to personal reasons, of Lilach Geva-Harel from her position as a member of the board of directors, chairperson of the audit committee and member of the compensation committee, REE does not comply with Nasdaq’s Listing Qualifications Department, requiring a public company to have at least three independent members in its audit and compensation committees. The Nasdaq’s Listing Qualifications Department notified REE on February 6, 2023, that REE has one year to regain compliance with the three independent members requirement. REE is in the process of identifying nominees who will serve on the audit and compensation committees. In addition, on March 15, 2023, REE announced that Hans Thomas was resigning from his position as a member of the board of directors and a member of the compensation committee due to personal reasons.
If REE fails to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist the Class A Ordinary Shares. Such a delisting would likely have a negative effect on the price of the Class A Ordinary Shares and would impair your ability to sell or purchase the Class A Ordinary Shares when you wish to do so. In the event of a delisting, REE can provide no assurance
that any action taken by it to restore compliance with listing requirements would allow its Class A Ordinary Shares to become listed again, stabilize the market price or improve the liquidity of its Class A Ordinary Shares, prevent its Class A Ordinary Shares from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
If securities and industry analysts do not publish research or reports about REE’s business or publish negative reports about its business, REE’s share price and trading volume may suffer.
The trading market for the Class A Ordinary Shares is and will be influenced by the research and reports that securities or industry analysts publish about REE or its business. REE does not have any control over such analysts and cannot provide any assurance that analysts will continue to cover REE or provide favorable coverage. If one or more of the analysts who cover REE downgrade REE’s shares or change their opinion of REE’s shares, REE’s share price would likely decline. If one or more of these analysts cease coverage of REE or fail to regularly publish reports on REE, REE could lose visibility in the financial markets, which could cause its share price or trading volume to decline.
As REE grows rapidly and expands into multiple global markets, there is a risk that it will fail to maintain an effective system of internal controls and its ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected. REE may identify material weaknesses in its internal controls over financing reporting which it may not be able to remedy in a timely manner.
As a public company, REE operates in an increasingly demanding regulatory environment, which requires it to comply with the Sarbanes-Oxley Act of 2002, or the(the “Sarbanes-Oxley Act, the regulations of Nasdaq, the rules and regulations of the SEC, expanded disclosure requirements, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for REE to produce reliable financial reports and are important to help prevent financial fraud. Commencing with its fiscal year ended December 31, 2022, REE performed system and process evaluation and testing of its internal controls over financial reporting to allow management to report on the effectiveness of its internal controls over financial reporting in its Form 20-F filing for that year, as required by Section 404 of the Sarbanes-Oxley Act.
The process of building and maintaining its accounting and financial functions and infrastructure requires significant additional professional fees, internal costs and management efforts. REE has implemented a new internal system to combine the management of its financial, accounting, human resources and other functions. However, such a system requires REE to complete many processes and procedures for the effective use of the system or to run its business using the system, which may result in substantial costs. Any disruptions or difficulties using the system could adversely affect REE’s controls and harm its business. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management’s attention. In addition, REE may discover additional weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. REE’s internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If REE is unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if it is unable to maintain proper and effective internal controls, REE may not be able to produce timely and accurate financial statements. If REE cannot provide reliable financial reports or prevent fraud, its business and results of operations could be harmed, investors could lose confidence in its reported financial information and REE could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
REE has incurred and expects to continue to incur increased costs as a result of its operation as a public company, and its management will be required to devote substantial time and resources to employing new compliance initiatives in order to confirm with the regulatory requirements applicable to public companies.
REE has incurred and expects to continue to incur significant legal, accounting and other expenses as a public company that it did not incur as a private company, and these expenses may increase even more after REE is no longer an emerging growth company, as defined in Section 2(a) of the Securities Act. As a public company, REE is subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted, and to be adopted, by the SEC and Nasdaq. REE’s management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, REE expects these rules and
regulations to substantially increase its legal and financial compliance costs and to make some activities more time-consuming and costly. The increased costs will increase REE’s net loss. For example, REE expects these rules and regulations to make it more difficult and more expensive for it to obtain director and officer liability insurance and it may be forced to accept reduced policy limits or incur substantially higher costs to maintain the same or similar coverage. REE cannot predict or estimate the amount or timing of additional costs it may incur to respond to these requirements. The impact of these requirements could also make it more difficult for REE to attract and retain qualified persons to serve on its board of directors, its board committees or as executive officers.
Risks Related to REE’s Information Security
In order to enter into production of its products, REE must develop complex software and technology systems in coordination with its suppliers and strategic partners. REE can provide no guarantee that such systems will be successfully developed.
REE’s products will use a substantial amount of third-party and in-house software codes and complex hardware to operate. The development of such advanced technologies are inherently complex, and REE will need to coordinate with its suppliers and strategic partners in order to reach production for its products. Defects and errors may be revealed over time and REE’s control over the performance of third-party services and systems may be limited. Thus, REE’s potential inability to develop the necessary software and technology systems may harm its competitive position.
REE is relying on suppliers and strategic partners to develop a number of emerging technologies for use in its products, including lithium-ion battery technology. These technologies are not today, and may not ever be, commercially viable. There can be no assurances that REE’s suppliers and strategic partners will be able to meet the technological requirements, production timing, and volume requirements to support its business plan. In addition, the technology may not comply with the cost, performance useful life and warranty characteristics REE anticipates in its business plan. As a result, REE’s business plan could be significantly impacted and REE may incur significant liabilities under warranty claims which could adversely affect its business, prospects, and results of operations.
REE is subject to stringent and changing privacy laws, regulations and standards, information security policies and contractual obligations related to data privacy and security. REE’s actual or perceived failure to comply with such obligations could harm its business. Such legal requirements are evolving, uncertain and may require improvements in, or changes to, REE’s policies and operations.
REE expects to face significant challenges with respect to information security and privacy, including the storage, transmission and sharing of confidential information. REE will transmit and store confidential and private information of its customers, such as personal information, including names, accounts, user IDs and passwords, and payment or transaction related information.
REE has adopted strict information security policies and deployed advanced measures to implement the policies, including, among others, advanced encryption technologies, and plans to continue to deploy additional measurers as REE grows. However, advances in technology, an increased level of sophistication and diversity of REE’s products and services, an increased level of expertise of hackers, new discoveries in the field of cryptography or others can still result in a compromise or breach of the measures that REE uses. If REE is unable to protect its systems, and hence the information stored in its systems, from unauthorized access, use, disclosure, disruption, modification or destruction, such problems or security breaches could cause a loss, give rise to REE’s liabilities to the owners of confidential information or even subject it to fines and penalties. In addition, complying with various laws and regulations could cause REE to incur substantial costs or require it to change its business practices, including its data practices, in a manner adverse to REE’s business.
In addition, REE will need to comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S., Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation, or GDPR, which became effective on May 25, 2018 and the State of California adopted the California Consumer Privacy Act of 2018, or CCPA, which became effective in January 2020. Both the GDPR and the CCPA impose additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under the GDPR) and regulations can be costly and may place restrictions REE’s business and the manner in which it interacts with its customers. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against REE, and misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against REE by
governmental entities or others, and damage to its reputation and credibility, and could have a negative impact on revenues and profits.
Significant capital and other resources may be required to protect against information security breaches or to alleviate problems caused by such breaches or to comply with REE’s privacy policies or privacy-related legal obligations. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by REE to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, could cause REE’s potential customer base to lose trust in REE and could expose REE to legal claims. Any perception by the public that online transactions or the privacy of user information are becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of online retail and other online services generally and decrease demand in the last-mile and mid-market delivery markets, which may reduce the number of orders REE receives.
The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. REE may not be able to monitor and react to all developments in a timely manner. For example, California adopted the CCPA, which became effective in January 2020. The CCPA establishes a privacy framework for covered businesses, including an expansive definition of personal information and data privacy rights for California residents. The CCPA includes a framework with potentially severe statutory damages and private rights of action. The CCPA requires covered businesses to provide new disclosures to California residents, provide them new ways to opt-out of certain disclosures of personal information, and allow for a new cause of action for data breaches. As REE expands its operations, the CCPA may increase REE’s compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States. Other states have begun to propose similar laws. Compliance with any applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and REE may be required to put in place additional mechanisms to comply with such laws and regulations.
REE publishes privacy policies and other documentation regarding its collection, processing, use and disclosure of personal information and/or other confidential information. Although REE endeavors to comply with its published policies and other documentation, REE may at times fail to do so or may be perceived to have failed to do so. Moreover, despite its efforts, REE may not be successful in achieving compliance if REE’s employees, contractors, service providers or vendors fail to comply with its published policies and documentation. Such failures can subject REE to potential local, state and federal action if they are found to be deceptive, unfair, or misrepresentative of its actual practices. Claims that REE has violated individuals’ privacy rights or failed to comply with data protection laws or applicable privacy notices even if REE is not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm its business.
REE is subject to cybersecurity risks to its various systems and software and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent REE from effectively operating its business, or may cause harm to its business that may or may not be reparable.
REE is at risk for interruptions, outages and breaches of its: (a) operational systems, including business, financial, accounting, product development, data processing or production processes, owned by REE or its suppliers and strategic partners; (b) facility security systems, owned by REE or its suppliers and strategic partners; (c) transmission control modules or other in-product technology, owned by REE or its suppliers and strategic partners; (d) the integrated software in REE’s products; or (e) customer data that REE processes or its suppliers and strategic partners process on its behalf. Such incidents could: materially disrupt REE’s operational systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise certain information of employees, potential customers, suppliers and strategic partners, or others; jeopardize the security of REE’s facilities; or affect the performance of in-product technology and the integrated software in REE’s products.
REE plans to include in-vehicle services and functionality that utilize data connectivity to monitor performance and timely capture opportunities to enhance on-the-road performance and for safety and cost-saving preventative maintenance. The availability and effectiveness of REE’s services depend on the continued operation of information technology and communications systems. REE’s systems will be vulnerable to damage or interruption from, among others, physical theft, fire, terrorist attacks, natural disasters, power loss, war, telecommunications failures, viruses, denial or degradation of service attacks, ransomware, social engineering schemes, insider theft or misuse or other attempts to harm REE’s systems. REE intends to use its in-vehicle services and functionality to log information about each vehicle’s use in order to aid REE
in vehicle diagnostics and servicing. REE’s potential customer base may object to the use of this data, which may increase REE’s vehicle maintenance costs and harm its business prospects.
Moreover, there are inherent risks associated with developing, improving, expanding and updating REE’s current systems, such as the disruption of REE’s data management, procurement, production execution, finance, supply chain and sales and service processes. These risks may affect REE’s ability to manage its data and inventory, procure parts or supplies or assemble, deploy, deliver and service its products, adequately protect its intellectual property or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations and contracts. REE cannot be sure that these systems upon which it relies, including those of its suppliers and strategic partners, will be effectively implemented, maintained or expanded as planned. If REE does not successfully implement, maintain or expand these systems as planned, its operations may be disrupted, its ability to accurately and timely report its financial results could be impaired, and deficiencies may arise in its internal control over financial reporting, which may impact REE’s ability to certify its financial results. Moreover, REE’s proprietary information or intellectual property could be compromised or misappropriated and its reputation may be adversely affected. If these systems do not operate as REE expects them to, REE may be required to expend significant resources to make corrections or find alternative sources for performing these functions.
Any unauthorized control or manipulation of the information technology systems in REE’s products could result in loss of confidence in REE and its products and harm REE’s business.
REE’s products contain complex information technology systems. For example, REE’s products are outfitted with built-in data connectivity to accept and install periodic remote updates from REE to improve or update the functionality of its products. REE has designed, implemented and tested security measures intended to prevent cybersecurity breaches or unauthorized access to its information technology networks, its products and their systems, and intends to implement additional security measures as necessary. However, hackers may attempt in the future, to gain unauthorized access to modify, alter and use such networks, products and systems to gain control of, or to change, REE’s products’ functionality, user interface and performance characteristics, or to gain access to data stored in or generated by the products. Vulnerabilities could be identified in the future and REE’s remediation efforts may not be successful. Any unauthorized access to or control of REE’s products or their systems or any loss of data could result in legal claims or proceedings. In addition, regardless of their veracity, reports of unauthorized access to REE’s products, their systems or data, as well as other factors that may result in the perception that REE’s products, their systems or data are capable of being “hacked,” could negatively affect REE’s brand and harm its business, prospects, financial condition and operating results.
REE intends to retain certain personal information about its products, customers, employees and others that, if compromised, could have a material, adverse impact on REE’s financial performance and results of operations or prospects.
REE plans to collect, store, transmit and otherwise process data from products, customers, employees and others as part of its business and operations, which may include personal data or confidential or proprietary information. REE also works with suppliers and strategic partners that collect, store and process such data on its behalf and in connection with its products. There can be no assurance that any security measures that REE or its suppliers and strategic partners have implemented will be effective against current or future security threats. If a compromise of data were to occur, REE may become liable under its contracts with other parties and under applicable law for damages and incur penalties and other costs to respond to, investigate and remedy such an incident. REE’s systems, networks and physical facilities could be breached or personal information could otherwise be compromised due to employee error or malfeasance, if, for example, third parties attempt to fraudulently induce REE’s employees or REE’s customers to disclose information or user names and/or passwords. Third parties may also exploit vulnerabilities in, or obtain unauthorized access to, products, systems, networks and/or physical facilities utilized by REE’s service providers and vendors.
Risks Related to REE’s Intellectual Property
REE may incur significant costs and expenses in connection with the protection and enforcement of its intellectual property rights, including but not limited to litigation costs.
REE relies on a combination of patents, trade secrets (including know-how), employee and third-party nondisclosure agreements, copyrights, trademarks, intellectual property licenses, and other contractual rights to establish and protect its rights in its technology. Despite REE’s efforts to protect its proprietary rights, third parties may attempt to copy or otherwise obtain and use REE’s intellectual property or seek court declarations that they do not infringe upon its
intellectual property rights. Monitoring unauthorized use of REE’s intellectual property is difficult and costly, and the steps REE has taken or will take will prevent misappropriation. From time to time, REE may have to resort to litigation to enforce its intellectual property rights, which could result in substantial costs and diversion of its resources.
The protection of REE’s intellectual property rights is important to its future business opportunities. However, the measures REE takes to protect its intellectual property from unauthorized use by others may not be effective for various reasons, including the following:
•as noted below, some of the patent applications REE files may not result in the issuance of patents at least in some of the applicable jurisdictions;
•the scope of REE’s patents that may subsequently be granted may not be broad enough to protect its proprietary rights;
•patents are territorial and provide rights only in jurisdictions in which patents are granted;
•REE’s issued patents may be challenged or invalidated by third parties;
•REE’s employees or business partners may breach their confidentiality, non-disclosure and non-use obligations to REE;
•third parties may independently develop technologies that are the same or similar to REE’s;
•the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make enforcement impracticable; and
•current and future competitors may circumvent or otherwise design around REE’s patents.
Patent, trademark, and trade secret laws vary significantly throughout the world. For example, a number of countries do not protect intellectual property rights to the same extent as the laws of the United States. Failure to adequately protect REE’s intellectual property rights could result in its competitors offering similar products, potentially resulting in the loss of some of REE’s competitive advantage and a decrease in its revenue which, would adversely affect its business, prospects, financial condition and operating results.
Also, while REE has registered and applied for trademarks in an effort to protect its investment in its brand and goodwill with customers, competitors may challenge the validity of those trademarks and other brand names in which REE has invested. Such challenges can be expensive and may adversely affect REE’s ability to maintain the goodwill gained in connection with a particular trademark.
Lawsuits alleging infringement or misappropriation of intellectual property rights of third parties could be both costly and time consuming and could prevent REE from developing or commercializing its future products.
Companies, organizations, or individuals, including REE’s competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with REE’s ability to make, use, develop, sell, lease or market its products which could make it more difficult for REE to operate its business. From time to time, REE may receive communications from holders of patents or trademarks regarding their proprietary rights. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights and urge REE to take licenses. For example, in December 2022, a lawsuit was filed alleging that the REE and its U.S. based subsidiaries have stolen certain trade secrets and requested, inter alia, monetary damages in an amount of no less than US$2.6 billion and exemplary damages in the amount of no less than US$5.2 billion. For more information, see “Item 8: Financial Information—Legal Proceedings”. REE’s applications and uses of trademarks relating to its design, software or artificial intelligence technologies could be found to infringe upon existing trademark ownership and rights. In addition, if REE is determined to have infringed upon a third party’s intellectual property rights, it may be required to do one or more of the following:
•cease selling, licensing, or incorporating certain components into, or using products or offering goods or services that incorporate or use the challenged intellectual property;
•pay substantial damages;
•seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, or at all;
•redesign its products or other goods or services; or
•establish and maintain alternative branding for its products and services.
In the event of a successful claim of infringement against REE and REE’s failure or inability to obtain a license to the infringed technology or other intellectual property right, REE’s business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.
Patent applications submitted by REE to the relevant authorities may not result in granted patents or may require modification in order to obtain approval.
REE cannot be certain that it is the first inventor of the subject matter to which it has filed a particular patent application, or if it is the first party to file such a patent application. If another party has disclosed the same subject matter, REE may not be entitled to the protection sought by the patent application. Further, the scope of protection of issued patent claims is often difficult to determine. As a result, REE cannot be certain that the patent applications that it files will issue, or that its issued patents will afford protection against competitors with similar technology. In addition, REE’s competitors may design around REE’s issued patents, which may adversely affect its business, prospects, financial condition or operating results.
REE cannot assure that it will be granted patents pursuant to its pending applications. Even if REE’s patent applications succeed and it is issued patents, it is still uncertain whether these patents will be contested, circumvented or invalidated in the future. In addition, the rights granted under any issued patents may not provide REE with meaningful protection or competitive advantages. The claims under any patents that issue from REE’s patent applications may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to REE’s. The intellectual property rights of others could also bar REE from licensing and exploiting any patents that issue from its pending applications. Numerous patents and pending patent applications owned by others exist in the fields in which REE has developed and are developing its technology. These patents and patent applications might have priority over REE’s patent applications and could subject its patent applications to invalidation. Finally, in addition to those who may claim priority, any of REE’s existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.
REE may be subject to damages resulting from claims that either it or any of its employees wrongfully used or disclosed alleged trade secrets of their employees’ former employers or that they allegedly violated certain covenants, such as non-compete agreements, to which REE or its employees may have been previously or currently bound.
Many of REE’s employees were previously employed by other technology or automotive companies or their suppliers. REE may be subject to damages resulting from claims that it or these employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. For example, in December 2022, a lawsuit was filed alleging that the REE and its U.S. based subsidiaries have stolen certain trade secrets and requested, inter alia, monetary damages in an amount of no less than US$2.6 billion and exemplary damages in the amount of no less than US$5.2 billon. For more information, see “Item 8: Financial Information—Legal Proceedings”. Litigation may be necessary to defend against these claims. If REE fails in defending such claims, in addition to paying monetary damages, it may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent REE’s ability to commercialize its products, which could severely harm its business. Even if REE is successful in defending against these claims, litigation could result in substantial costs and demand on management resources.
In addition to patented technology, REE relies on its unpatented proprietary technology, trade secrets, processes and knowledge.
REE relies on proprietary information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable or subject to copyright, trademark, trade dress or service mark protection, or that REE believes is best protected by means that do not require public disclosure. REE generally seeks to protect this proprietary information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and non-use provisions with its employees, consultants, contractors and third parties. However, REE may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement or misappropriation of its proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. REE has limited control over the protection of trade secrets used by its suppliers and strategic partners and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, REE’s proprietary information may otherwise become known or be independently developed by its competitors or other third
parties. To the extent that its employees, consultants, contractors, advisors and other third parties use intellectual property owned by others in their work for REE, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of REE’s proprietary rights, and failure to obtain or maintain protection for its proprietary information could adversely affect its competitive business position. Furthermore, laws regarding trade secret rights in certain markets where REE operates may afford little or no protection to its trade secrets.
REE also relies on physical and electronic security measures to protect its proprietary information, but it cannot provide assurance that these security measures will not be breached or provide adequate protection for its property. There is a risk that third parties may obtain and improperly utilize REE’s proprietary information to its competitive disadvantage. REE may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to enforce its intellectual property rights.
The terms of grants received from the Israeli government require us to satisfy specified conditions in order to transfer outside of Israel the manufacture of products based on know-how funded by the Israel Innovation Authority or to transfer outside of Israel the know-how itself.
Under the Israeli Encouragement of Research, Development and Technological Innovation in Industry Law, 5744-1984, or the Innovation Law, research and development programs that meet specified criteria and are approved by a committee of the Israel Innovation Authority of the Israeli Ministry of Economy and Industry, or IIA (formerly known as Office of Chief Scientist), are eligible for grants from the IIA. The grant amounts are determined by the research committee and are typically a percentage of the project’s expenditures. Under most programs, the grantee is required to pay royalties to the State of Israel from the sale of products developed under the program.
REE’s research and development efforts in relation to its Softwheel products have been partially financed through royalty-bearing and non-royalty bearing grants from the IIA in the total amount of $1,214,748 As of December 31, 2022, REE’s remaining contingent obligation with respect to royalty-bearing participation received or accrued, net of royalties paid or accrued, totaled approximately $727,000.
Under the research and development agreements with the IIA and pursuant to applicable laws, REE is required to pay royalties at the rate of 3-5% sales of products that incorporate know-how developed with the IIA-funded, royalty-bearing grants. Such royalties are due up to an amount equal to 100% of the IIA grants received, linked to the U.S. dollar plus interest on the unpaid amount received based on the 12-month LIBOR rate (from the year the grant was approved) applicable to U.S. dollar deposits. If REE returns to production of these products outside of Israel and generates sales, the ceiling will increase based on the percentage of production that is outside of Israel, up to a maximum of 300% of the IIA grants, linked to the dollar and bearing interest as noted above.
•Local Manufacturing Obligation. The terms of the grants under the Innovation Law require that REE manufacture the products developed with these grants in Israel (but do not restrict the sale of products that incorporate the know-how). Under the regulations promulgated under the Innovation Law, the products may be manufactured outside Israel by REE or by another entity only if prior approval is received from the IIA (such approval is not required for the transfer of up to 10% of the manufacturing capacity in the aggregate, in which case a notice must be provided to the IIA and not objected to by the IIA within 30 days of such notice).
•Know-How transfer limitation
◦The Innovation Law restricts the ability to transfer know-how funded by the IIA outside of Israel. Transfer of IIA funded know-how outside of Israel requires prior approval of the IIA and may be subject to payments to the IIA, calculated according to formulae provided under the Innovation Law. If REE wishes to transfer IIA funded know-how, the terms for approval will be determined according to the nature of the transaction and the consideration paid to REE in connection with such transfer.
◦Approval of transfer of IIA funded know-how to another Israeli company may be granted only if the recipient abides by the provisions of the Innovation Law and related regulations, including the restrictions on the transfer of know-how and manufacturing rights outside of Israel.
•Change of Control. Any non-Israeli citizen, resident or entity that, among other things, (i) becomes a holder of 5% or more of REE’s share capital or voting rights, (ii) is entitled to appoint one or more of REE’s directors or our chief executive officer or (iii) serves as one of REE’s directors or as its chief executive officer (including holders of 25% or more of the voting power, equity or the right to nominate directors in such direct holder, if
applicable) is required to notify the IIA and undertake to comply with the rules and regulations applicable to the grant programs of the IIA, including the restrictions on transfer described above.
Approval to manufacture products outside of Israel or consent to the transfer of IIA funded know-how, if requested, is within the discretion of the IIA. Furthermore, the IIA may impose certain conditions on any arrangement under which it permits us to transfer IIA funded know-how or manufacturing out of Israel. The consideration available to REE’s shareholders in a future transaction involving the transfer outside of Israel of know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that REE is required to pay to the IIA.
Risks Related to REE’s Dual Class Structure
The dual class structure of our ordinary shares has the effect of concentrating voting power with REE’s Founders, who serve as its Chief Executive Officer and Chief Technology Officer, which limits an investor’s ability to influence the outcome of important transactions, including a change in control.
The Class B Ordinary Shares have 10 votes per share, while shares of Class A Ordinary Shares have one vote per share. REE’s Founders, Daniel Barel and Ahishay Sardes, hold all Class B Ordinary Shares granting each of them, when combined with each of their holdings of Class A Ordinary Shares, approximately 42.5% of voting power and together approximately 85.0% of the voting power of REE as of February 28, 2023. See “Item 7A. Major shareholders”. As a result, if they act together, they will be able to control matters submitted to REE’s shareholders for approval, including the election of directors, amendments of its organizational documents and any merger, consolidation, sale of all or substantially all of its assets or other major corporate transactions (although neither Founder individually has a majority of the voting power). REE’s Founders may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. While the Class B Ordinary Shares do not have any economic rights, this concentrated control may have the effect of delaying, preventing or deterring a change in control of REE, could deprive its shareholders of an opportunity to receive a premium for their shares as part of a sale of REE, and might ultimately affect the market price of shares of Class A Ordinary Shares.
REE cannot predict the impact REE’s dual class structure may have on the stock price of Class A Ordinary Shares.
REE cannot predict whether REE’s dual class structure will result in a lower or more volatile market price of Class A Ordinary Shares or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes. In July 2017, FTSE Russell and S&P Dow Jones announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. Under the announced policies, REE’s dual class capital structure makes REE ineligible for inclusion in certain indices, and as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track those indices will not be investing in its shares. These policies are still fairly new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Because of REE’s dual class structure, REE will likely be excluded from certain of these indexes and REE cannot assure you that other stock indexes will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make Class A Ordinary Shares less attractive to other investors. As a result, the market price of Class A Ordinary Shares could be adversely affected.
Risks Related to REE’s Incorporation and Location in Israel
Political, economic and military conditions in Israel could adversely affect REE’s business.
REE is incorporated under the laws of the State of Israel, and its principal research and development facilities, including REE’s major data centers, are located in Israel. Accordingly, political, economic and military conditions in Israel directly affect its business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries, as well as terrorist acts committed within Israel by hostile elements. In recent years,
Israel has been engaged in sporadic armed conflicts with Hamas, an Islamist terrorist group that controls the Gaza Strip, with Hezbollah, an Islamist terrorist group that controls large portions of southern Lebanon, and with Iranian-backed military forces in Syria. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons. Some of these hostilities were accompanied by missiles being fired against civilian targets in various parts of Israel, including areas in which our employees, and some of our consultants are located, and negatively affected business conditions in Israel.. In the event that REE’s facilities are damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of its facilities, its ability to deliver products to its customer could be materially adversely affected. Any hostilities, armed conflicts, terrorist activities involving Israel or the interruption or curtailment of trade between Israel and its trading partners, or any political instability in the region could adversely affect business conditions and our results of operations and could make it more difficult for us to raise capital. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Continued hostilities between Israel and its neighbors and any future armed conflict, terrorist activity or political instability in the region could adversely affect our operations in Israel and adversely affect the market price of our Class A Ordinary Shares. An escalation of tensions or violence might result in a significant downturn in the economic or financial condition of Israel, which could have a material adverse effect on our operations in Israel and our business.
REE’s commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement under the Property Tax and Compensation Fund Law, 1961, the reinstatement is limited and partial compensation value of direct damages that are caused by terrorist attacks or acts of war, REE cannot assure you that this government coverage will be maintained or that it will sufficiently cover REE’s potential damages. Any losses or damages incurred by REE could have a material adverse effect on its business.
Several countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could adversely affect REE’s operations and product development, and could cause its sales to decrease.
In addition, many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. REE’s operations could be disrupted by such call-ups, particularly if such call-ups include the call-up of members of REE’s management. Such disruption could materially adversely affect its business, financial condition and results of operations.
Israel’s most recent general elections were held on April 9, 2019, September 17, 2019, March 2, 2020, March 23, 2021 and November 1, 2022. In addition, proposed judicial reform has sparked widespread protests across Israel. Uncertainty surrounding future elections and the outcome of the judicial reform in Israel may continue and the political situation in Israel may further deteriorate. Actual or perceived political instability in Israel or any negative changes in the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations and growth prospects.
Investors’ rights and responsibilities of REE’s shareholders are governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of non-Israeli companies.
Because REE was incorporated under Israeli law, the rights and responsibilities of its shareholders are governed by its Amended and Restated Articles and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S. and other non-Israeli corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of an office holder in the company has a duty to act in fairness towards the company. These provisions may be interpreted to impose additional obligations and liabilities on REE’s shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law and REE’s Amended and Restated Articles may delay, prevent or make undesirable an acquisition of all or a significant portion of its shares or assets.
Provisions of Israeli law and REE’s Amended and Restated Articles could have the effect of delaying or preventing a change in control and may make it more difficult for a third-party to acquire REE or its shareholders to elect different individuals to REE’s board of directors, even if doing so would be considered to be beneficial by some of REE’s shareholders, and may limit the price that investors may be willing to pay in the future for the Class A Ordinary Shares. Among other things:
•Israeli corporate law regulates mergers and requires that a tender offer be effected when more than a specified percentage of shares in a company are purchased;
•Israeli corporate law requires special approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions;
•Israeli corporate law does not provide for shareholder action by written consent for public companies, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;
•the Amended and Restated Articles generally require a vote of a simple majority of the voting power represented at a general meeting of shareholders in person or by proxy and voting thereon, as one class;
•the Amended and Restated Articles generally do not permit a director to be removed except by a vote of the holders of (i) so long as any Class B Ordinary Shares remain outstanding, a simple majority of the voting power represented at a general meeting of shareholders in person or by proxy and voting thereon, as one class, and (ii) if no Class B Ordinary Shares remain outstanding, a supermajority of at least sixty-five percent (65%) of the voting power represented at a general meeting of shareholders in person or by proxy and voting thereon; and
•the Amended and Restated Articles generally provide that director vacancies may be filled by REE’s board of directors.
Further, Israeli tax considerations may make potential transactions undesirable to REE or some of its shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including, a holding period of two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.
The tax benefits that are available to REE require it to continue to meet various conditions and may be terminated or reduced in the future, which could increase REE’s costs and taxes. REE may be eligible for certain tax benefits provided to “Preferred Technological Enterprises” under the Israeli Law for the Encouragement of Capital Investments, 1959, referred to as the Investment Law. In order to remain eligible for the tax benefits for “Preferred Technological Enterprises” it must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended. If these tax benefits are reduced, cancelled or discontinued, REE’s Israeli taxable income from the approved enterprise would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies in 2016 was 25% of their taxable income and was reduced to 24% in 2017 and 23% in 2018 and thereafter. Additionally, if REE increases its activities outside of Israel through acquisitions, for example, its expanded activities might not be eligible for inclusion in future Israeli tax benefit programs. See “Item 10.E. Taxation – Certain Material Israeli Tax Considerations.”
REE’s Amended and Restated Articles provide that unless REE consents otherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between REE and its shareholders’ under the Companies Law and the Israeli Securities Law, which could limit its shareholders ability to bring claims and proceedings against, as well as obtain favorable judicial forum for disputes with, REE, its directors, officers and other employees.
The competent courts of Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on behalf of REE, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of REE to REE or REE’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law. This exclusive forum provision is intended to apply to claims arising under
Israeli Law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act or any other claim for which federal courts would have exclusive jurisdiction. Such exclusive forum provision in the Amended and Restated Articles will not relieve REE of its duties to comply with federal securities laws and the rules and regulations thereunder, and shareholders of REE will not be deemed to have waived REE’s compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with REE or its directors or other employees which may discourage lawsuits against REE, its directors, officers and employees.
REE is a foreign private issuer and, as a result, it is not subject to U.S. proxy rules and is subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
REE reports under the Exchange Act as a non-U.S. company with foreign private issuer status. Because REE qualifies as a foreign private issuer under the Exchange Act, it is exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, although it is subject to Israeli laws and regulations with regard to certain of these matters and intends to furnish comparable quarterly information on Form 6-K. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making selective disclosures of material information. As a result of all of the above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.
As REE is a “foreign private issuer” and follows certain home country corporate governance practices, its shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.
As a foreign private issuer, REE is permitted to follow certain home country corporate governance practices rather than those otherwise required by Nasdaq rules, provided that it discloses the requirements it is not following and describes the equivalent home country practices it follows instead. REE relies on this “foreign private issuer exemption” with respect to the Nasdaq rules for director nomination procedures and shareholder meeting quorums. REE may in the future elect to follow home country practices with regard to other matters. As a result, its shareholders will not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.
REE may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, REE is a foreign private issuer, and therefore is not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to REE on June 30, 2023. In the future, REE would lose its foreign private issuer status if (1) more than 50% of its outstanding voting securities are owned by U.S. residents and (2) a majority of its directors or executive officers are U.S. citizens or residents, or it fails to meet additional requirements necessary to avoid loss of foreign private issuer status. If REE loses its foreign private issuer status, it will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. REE would also have to comply with U.S. federal proxy requirements, and its officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, it would lose its ability to rely upon exemptions from certain corporate governance requirements under the listing rules of Nasdaq. As a U.S. listed public company that is not a foreign private issuer, REE would incur significant additional legal, accounting and other expenses that it will not incur as a foreign private issuer.
Risks Related to Ownership of the Class A Ordinary Shares
REE may issue additional Class A Ordinary Shares or other securities without shareholder approval, which would dilute existing ownership interests and may depress the market price of Class A Ordinary Shares.
REE may issue additional Class A Ordinary Shares or other equity securities of equal or senior rank in the future in connection with, among other things, REE’s equity incentive plan, without shareholder approval, in a number of circumstances. REE’s issuance of additional Class A Ordinary Shares or other equity securities of equal or senior rank would have the following effects:
•REE’s legacy shareholders’ proportionate ownership interest in REE may decrease;
•the amount of cash available per share, including for payment of dividends in the future, may decrease;
•the relative voting strength of each previously outstanding Class A Ordinary Share may be diminished; and
•the market price of Class A Ordinary Shares may decline.
As of December 31, 2022, REE had 20,593,770 Class A Ordinary Shares available for future grant under the 2021 Plan and 4,628,524 shares available under the Employee Stock Purchase Plan. There were 105,487,688 Class A Ordinary Shares underlying outstanding options under its equity incentive plans, at a weighted average exercise price of $0.19 per share, 101,146,134 of which were vested and exercisable. Additionally, there were 3,843,240 Class A Ordinary Shares underlying outstanding RSUs under its equity incentive plan
Future sales of large amounts of shares into the public markets may adversely affect the market price of Class A Ordinary Shares.
Pursuant to the Investors’ Rights Agreement between REE, 10X Capital and certain of REE’s shareholder, the Sponsor can demand that REE register its registrable securities under certain circumstances and also has piggyback registration rights for these securities in connection with certain registrations of securities that REE undertakes. REE is also required to use its commercially reasonable effort to maintain the effectiveness of a registration statement under the Securities Act covering such securities and certain other securities of REE, including those held by PIPE Investors. The registration of these securities permits the public sale of such securities. In addition, 177,132,079 shares held by REE’s legacy shareholders became eligible for sale under Rule 144 of the Securities Act upon the expiration of a 180-day lock-up agreement on January 18, 2022. The availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of REE’s Class A Ordinary Shares.
On August 16, 2022, we entered into an offering agreement, or the ATM Sales Agreement, with BofA Securities, Inc., or BofA, pursuant to which we may offer and sell, at our option, up to $75.0 million of our Class A Ordinary Shares through an “at-the-market” equity program under which BofA agreed to act as sales agent. As of the date of this Annual Report, we have not sold any of our Class A Ordinary Shares under the ATM Sales Agreement.
The IRS may not agree that REE should be treated as a non-U.S. corporation for U.S. federal income tax purposes.
Although REE is incorporated and tax resident in Israel, the IRS may assert that it should be treated as a U.S. corporation for U.S. federal income tax purposes pursuant to Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code”). For U.S. federal income tax purposes, a corporation is generally considered a U.S. “domestic” corporation if it is created or organized in or under the laws of the U.S., any state thereof, or the District of Columbia. Because REE is not so created or organized (but is instead incorporated only in Israel), it would generally be classified as a foreign corporation (that is, a corporation other than a U.S. “domestic” corporation) under these rules. Section 7874 of the Code provides an exception under which a corporation created or organized only under foreign law may, in certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes.
Based on the terms of the Merger Agreement and the rules for determining share ownership under Code Section 7874 and the Treasury regulations promulgated under Code Section 7874 (the “Section 7874 Regulations”), REE is not expected to be treated as a U.S. corporation for U.S. federal income tax purposes under Code Section 7874 after the Merger. However, the application of Section 7874 of the Code is complex, is subject to detailed regulations (the application of which is uncertain in various respects and would be impacted by changes in such U.S. tax laws and regulations with possible retroactive effect) and is subject to certain factual uncertainties. Accordingly, there can be no assurance that the IRS will not challenge the status of REE as a foreign corporation under Code Section 7874 or that such challenge would not be sustained by a court.
If the IRS were to successfully challenge under Code Section 7874 REE’s status as a foreign corporation for U.S. federal income tax purposes, REE and certain REE shareholders could be subject to significant adverse tax consequences, including a higher effective corporate income tax rate on REE and future withholding taxes on certain REE shareholders, depending on the application of any income tax treaty that might apply to reduce such withholding taxes. In particular, holders of Class A Ordinary Shares and/or Warrants would be treated as holders of stock and warrants of a U.S. corporation. See “Item 10.E. Taxation – Certain Material U.S. Tax Considerations – U.S. Federal Income Tax Treatment of REE” for a more detailed discussion.
Code Section 7874 may limit the ability of 10X Capital to use certain tax attributes following the Merger, increase REE’s U.S. affiliates’ U.S. taxable income or have other adverse consequences to REE and REE’s shareholders.
Following the acquisition of a U.S. corporation by a foreign corporation, Code Section 7874 can limit the ability of the acquired U.S. corporation and its U.S. affiliates to use U.S. tax attributes (including net operating losses and certain tax credits) to offset U.S. taxable income resulting from certain transactions, as well as result in certain other adverse tax consequences, even if the acquiring foreign corporation is respected as a foreign corporation for purposes of Code Section 7874. In general, if a foreign corporation acquires, directly or indirectly, substantially all of the properties held directly or indirectly by a U.S. corporation, and after the acquisition the former shareholders of the acquired U.S. corporation hold at least 60% (by either vote or value) but less than 80% (by vote and value) of the shares of the foreign acquiring corporation by reason of holding shares in the acquired U.S. corporation, subject to other requirements, certain adverse tax consequences under Section 7874 of the Code may apply.
If these rules apply to the Merger, REE and certain of REE’s shareholders may be subject to adverse tax consequences including, but not limited to, restrictions on the use of tax attributes with respect to “inversion gain” recognized over a 10-year period following the transaction, disqualification of dividends paid from preferential “qualified dividend income” rates and the requirement that any U.S. corporation owned by REE include as “base erosion payments” that may be subject to a minimum U.S. federal income tax any amounts treated as reductions in gross income paid to certain related foreign persons. Furthermore, certain “disqualified individuals” (including officers and directors of a U.S. corporation) may be subject to an excise tax on certain stock-based compensation held thereby at a rate of 20%.
Based on the terms of the Merger Agreement and the rules for determining share ownership under Section 7874 of the Code and the Section 7874 Regulations, REE is not expected to be subject to these rules under Code Section 7874 after the Merger. The above determination, however, is subject to detailed regulations (the application of which is uncertain in various respects and would be impacted by future changes in such U.S. Treasury regulations, with possible retroactive effect) and is subject to certain factual uncertainties. Accordingly, there can be no assurance that the IRS will not challenge whether REE is subject to the above rules or that such a challenge would not be sustained by a court.
However, even if REE is not subject to the above adverse consequences under Section 7874, REE may be limited in using its equity to engage in future acquisitions of U.S. corporations over a 36-month period following the Merger. If REE were to be treated as acquiring substantially all of the assets of a U.S. corporation within a 36-month period after the Merger, the Section 7874 Regulations would exclude certain shares of REE attributable to the Merger for purposes of determining the Section 7874 Percentage (as defined below in “Item 10.E. Taxation – U.S. Federal Income Tax Treatment of REE”) of that subsequent acquisition, making it more likely that Code Section 7874 will apply to such subsequent acquisition. See “Item 10.E. Taxation – Certain Material U.S. Tax Considerations – U.S. Federal Income Tax Treatment of REE” for a more detailed discussion.
U.S. Holders of Class A Ordinary Shares may suffer adverse tax consequences if REE is treated as a passive foreign investment company.
A non-U.S. corporation generally will be treated as a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes, in any taxable year if either (1) at least 75% of its gross income for such year is passive income (such as interest, dividends, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of assets giving rise to passive income) or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. Based on the current and anticipated composition of the income, assets and operations of REE and its subsidiaries, there is a significant risk that REE was a PFIC for U.S. federal income tax purposes for 2022, and REE may be a PFIC for U.S. federal income tax purposes for the current or future taxable years. This is a factual determination that depends on, among other things, the composition of REE’s income and assets, and the market
value of its shares and assets, including the composition of income and assets and the market value of shares and assets of its subsidiaries, from time to time, and thus a complete determination can only be made annually after the close of each taxable year. Furthermore, the value of our gross assets is likely to be determined in part by reference to our market capitalization, which may fluctuate significantly. Thus, no assurance can be given as to whether REE will be a PFIC in the current or any future taxable year. In addition, REE’s U.S. counsel expresses no opinion with respect to REE’s PFIC status for 2022, current, or future taxable years.
If REE is a PFIC for any taxable year, a U.S. Holder of Class A Ordinary Shares and/or Warrants may be subject to adverse tax consequences and may incur certain information reporting obligations. Under the PFIC rules, unless such U.S. Holder makes an election available under the Code (which election could itself have adverse consequences for such U.S. Holder), such U.S. Holder may be subject to U.S. federal income tax at the then prevailing maximum rates on ordinary income and possibly an “interest” charge, in respect of “excess distributions” and upon any gain from the disposition of Class A Ordinary Shares and/or Warrants, as if the excess distribution or gain had been recognized ratably over such U.S. Holder’s holding period of the Class A Ordinary Shares and/or Warrants. Certain elections (including a qualified electing fund election (or a QEF election) or a mark-to-market election) that may be available to U.S. Holders of Class A Ordinary Shares to mitigate some of the adverse tax consequences resulting from PFIC treatment, however, are not available with respect to the Warrants. Additionally, there can be no assurance that REE will have timely knowledge of its status as a PFIC in the future or that REE will timely provide information that would be required in order for a U.S. Holder to make a QEF election. See “Item 10.E. Taxation – Certain Material U.S. Tax Considerations – U.S Federal Income Tax Consequences of the Ownership and Disposition of Class A Ordinary Shares and Warrants to U.S. Holders – Passive Foreign Investment Company Rules” for further discussion. U.S. Holders of Class A Ordinary Shares and/or Warrants are strongly encouraged to consult their own advisors regarding the potential application of these rules to REE and the ownership of Class A Ordinary Shares and/or Warrants.
Item 4. Information on the Company
A. History and development of the company
REE Automotive Ltd. was incorporated on January 16, 2011, as a company limited by shares under the laws of the State of Israel. We are registered under the Israeli Companies Law and registered with the Israeli Registrar of Companies under registration number 51-455733-9. REE’s principal executive offices are located at Kibbutz Glil-Yam 4690500, Israel, and our telephone number is +972 (77) 899-5200. Our registered agent for service of process is Puglisi & Associates located at 850 Library Avenue, Newark, Delaware 19711, and its telephone number is +1 (302) 738-6680.
Our website is www.ree.auto which we use as a channel of distribution of company information. The information we post through this channel may be deemed material. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.
Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report and is not incorporated by reference herein. We have included our website in this Annual Report solely for informational purposes. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC using its EDGAR system.
For a description of our capital expenditures, see “Item 5.B. Operating and Financial Review and Prospects-Liquidity and Capital Resources.”
Item 4B. Business Overview
REE is an automotive technology company whose mission is to be the cornerstone for zero-emission electric and autonomous vehicles. REE aims to empower global companies, such as original equipment manufacturers, or OEMs, delivery and logistics fleets, dealers, e-commerce retailers, new mobility players, Mobility-as-a-Service providers and autonomous drive companies, in the build-out of any size or shape of electric or autonomous vehicle – from Class 1 through Class 6, focusing primarily on Class 3 through 5 platform models on the P7 EV platform. REE envisions a future where electric vehicles, or EV, and autonomous vehicles, or AV, will be “Powered by REE™”.
REE is in the early stages of commercialization and is actively executing its business plan and establishing strategic collaborations with industry leaders to expand its industry footprint across segments. REE is currently developing its core REEcornerTM technology and EV platforms, as well as full vehicle prototypes leveraging REEcornerTM technology.
REE is targeting OEMs, delivery and logistic fleets, dealers, e-commerce retailers, new mobility players, MaaS providers and autonomous drive companies. REE’s proposed offering is geared to allow these companies to build entire fleets tailored to their exact needs based on REEcornerTM technology and Powered by REE platforms without the need to be constrained to traditional off-the-shelf EV offerings. REE offers many customer benefits including vehicle design freedom based on exact business requirements, enabling reductions in time-to-market, more space and volume on a given footprint, potentially lowering total cost of ownership, faster development times, advanced driver-assistance systems, or ADAS, compatibility, and reduced maintenance costs and times and compliance with global safety standards.
Recently, REE started establishing a dealership network across the U.S. REE has initially entered into agreements with five authorized dealers: Pritchard EV, Tom's Truck Center, Industrial Power & Truck Equipment, New England Truck Solutions and FMI Truck Sales & Services. Each of these dealers has placed initial orders, which are included in REE’s current order book. REE will offer training to authorized dealers to certify technicians to provide service on REE vehicles, facilitating adoption by fleets. As REE seeks to further expand its dealer network in the United States, it offers financing solutions for its dealers through an agreement with Mitsubishi HC Capital America to provide financing solutions to dealers in the REE network. This agreement is designed to streamline the process of obtaining the financing required for the purchase of REE vehicles.
Additionally, REE is pursing multiple go-to-market paths to significantly accelerate the adoption of EVs by commercial fleet owners and operators. This includes collaborations with partners not only to develop full vehicle offerings but also to provide a comprehensive ecosystem of enabling capabilities and services, such as vehicle financing, batteries, charging infrastructure, after-sales, service and Data-as-a-Service, or DaaS, for a full turn-key solution intended to enable and expedite a smooth transition for our potential customers from internal combustion engine, or ICE, vehicles to EV fleets.
As of March 16, 2023, REE had eight customers in different industries such as vehicle rental and leasing, shipping and logistics, and dealers and 35 firm orders. In addition to their initial orders, REE believes that these customers have the potential to order significant volumes of vehicles. REE is working closely with those customers who require a testing phase in order to optimize this important process and advance to fleet orders. Existing orders include both the Class 3-4 P7-B and Class 5 Proxima Powered by REE. Orders for the P7-B are for cab chassis configurations, while orders for Proxima Powered by REE are for stripped chassis and a full vehicle via partnerships with body upfitter EAVX and Morgan Olson, JB Pointdexter & Co. business units. REE is targeting its first vehicle deliveries in the fourth quarter of 2023 subject to certification and is taking a measured approach to allow time for customer feedback, stabilizing production processes and, most importantly, optimizing our bill of material and production costs.
There has been a significant transformation in the automotive landscape. EVs, which were once only a small subclass in a market dominated by major global automakers, are becoming mainstream. The shift towards electrification and autonomy has been driven by the growth in e-commerce, government regulations on carbon emissions and public policy, and consumer preference, as well as newly developed mobility concepts that require freedom of design for the build-out of any size or shape of EV. For vehicle manufactures, incorporating REEcornerTM technology into their EV product portfolios will enable fast and efficient entry into EV markets. The global EV industry is growing rapidly and undergoing massive transformation, and REE believes this growth will continue, driven by the following factors:
•Environmental and Zero-Emission Regulations Drive Market Opportunity. Rising environmental consciousness and increased awareness of the impact of global climate change have gained prominence in local and global politics. This has resulted in significant growth in the adoption of environmentally driven regulations and incentive programs with low and zero-emission targets, with the automotive industry being among the most impacted industries. These measures encourage local and national governments to implement various forms of rebates and credits for the purchase of an EV. In addition, regulations in many cities, states and countries are encouraging a shift away from — or in some cases banning entirely — fossil fuel-powered vehicles, with many of the earliest of these regulations targeted at buses, trucks and delivery vehicles. These legislative tailwinds have already moved some legacy OEMs towards electrification and are expected to accelerate the rise of e-mobility and the push for zero emission vehicles.
•Consumer Preferences Driving EV Adoption. The shift in consumer preference is attributable to consumers’ rising environmental consciousness and increased awareness of the impact of global climate change, improvement in battery technology, the continuing build-out of electric charging infrastructure, increased offerings from automotive manufacturers that are better aligned with consumer demand and the growing comfort with EV range capabilities that is easing “range anxiety” and facilitating adoption. Furthermore, EVs present ongoing energy cost reductions as compared to ICE vehicles, which is of utmost concern with at a time of gas price volatility.
•Significant Growth Anticipated in Last-Mile and Mid-Mile Delivery Market. The rise of e-commerce has led to growth in the transportation services and logistics providers that provide e-commerce services. There is also an increase in demand for delivery vehicles with increased productivity and efficiencies. According to research by eMarketer, global retail ecommerce sales are projected to reach $6.151 trillion in 2023, accounting for 21.5% of total retail sales. According to Statista, this number is forecast to grow by 56% reaching about $8.1 trillion by 2026, proving that ecommerce is becoming an increasingly lucrative option for businesses.
•Mobility-As-A-Service Is Growing Rapidly. According to a January 2023 report by Research Nester, the global mobility as a service market is projected to generate US$800 billion by the end of 2033 representing a CAGR of ~20% from 2023 to 2033. Furthermore, according to Research Nester the market generated revenue of approximately US$200 billion in 2022. This growth is primarily attributable to the growing penetration of mobility as a service worldwide. Growth in MaaS is driving demand for new mobility solutions, such as e-shuttles and e-buses, ride sharing, ride hailing and robo-taxis. REE believes that an EV that can offer maximum space on a small footprint would be well positioned to meet the demand for more passenger space in combination with maneuverability in urban driving.
REE’s products are intended to provide customers with full design freedom to create the broadest range of EVs for current and future applications, based on customers’ specifications and requirements. REE’s technology is being designed to serve mission specific EVs in all shapes and sizes.
REE aims to provide potential and existing customers with a differentiated value proposition:
•OEMs. We believe that integrating REE products into OEM offerings will enable OEMs to achieve significantly faster time-to-market based on their current supply chains, which is key to enabling agile reactions to evolving business models, market opportunities, regulations and competitive actions. The safety pre-certification of the powertrain components and control system integrated into REE products and the expected compatibility with ADAS technology that assist drivers in driving and parking functions from level 1 to level 5 is intended to further reduce time to market, allowing OEMs to be more agile and to take advantage of prevailing market conditions. In addition, we believe the scalable and modular design of REE products will allow for maximum market coverage and enable OEMs to enter new segments and services while reducing in-house development and design costs. We believe this will enable OEMs to concentrate more on the top-hat design and functionality, as well as connectivity and autonomy, and that this is in line with current and future market trends of platform collaboration between global OEMs.
•MaaS and logistics service providers. We are designing REE products to enable MaaS and logistics service providers to develop mission-specific vehicles, customized to their needs, eliminating reliance on limited off-the-shelf vehicle offerings. REE products allow for various levels of customized body, functionality, ADAS capability and service layers, and are designed to allow MaaS and logistics service providers to maximize uptime, usage, and revenue generation for their mission-specific vehicles developed with REE products. In addition, because REE’s EV platforms are fully flat from front to rear, the resulting vehicles offer more interior space for a given footprint. REEcornersTM are easily replaceable, which should allow vehicles developed with REE products to be upgraded in response to evolving technology or needs without a complete redesign. We believe that the ability to upgrade as necessary, paired with REE’s plan for preventative maintenance, quick REEcornerTM swap and over-the-air software upgrades will reduce fleet maintenance costs, as well as simplify spare-parts inventory management.
REE’s Technological Differentiation
REE believes that the automotive industry is at an inflection point.
Industry approaches and their limitations
The design of the average ICE vehicle has remained relatively unchanged over the last century. The typical format of the ICE vehicle has become ubiquitous and consists of an engine positioned between the front or back wheels, with most other critical vehicle systems such as steering, braking, suspension, powertrain and control likewise located centrally between the vehicle wheels. Most EVs in the market locate these components similarly. While this vehicle format is familiar, it is subject to an inherent limitation with respect to compartment space, vehicle function, maintenance and modularity.
REE sees that ICE vehicle and EV manufacturers employ a correspondingly similar strategy to development of new vehicle platforms: vehicle functionality is determined by the OEM mindset trying to forecast and influence future market trends. This means that, during development, most ICE vehicle and EV manufacturers will design and produce individual new vehicle platforms with vehicle models being restricted as to size, shape or functionality. This creates a less nimble development process than is required to respond quickly and effectively to changing market demand and customer preferences unless such demand corresponds with existing “off-the-shelf” offerings. As a result, in trying to address these changes in market preference, ICE vehicle and EV manufacturers are burdened by extremely high capital costs and long development cycles inherent in designing and engineering vehicles.
Consumer preference has continued to shift toward environmentally conscious and low emissions vehicle offerings. However, history shows that many OEMs have traditionally viewed reduced and zero-emissions vehicles as “compliance cars,” adding minimal volumes and models to their portfolios for the lowest possible overall costs (including investment and variable per-unit costs) necessary to achieve fleet compliance. This has resulted in scarce alternative powertrain resources to be dedicated to plug-in hybrid vehicles, or PHEVs, and other hybrid powertrain or low-demand battery electric vehicles variants. Lacking internal know-how and experience in electrification, many OEMs are now being forced to look beyond their internal EV technology to meet increasing consumer demand for EVs and to satisfy expanding regulatory requirements.
REE’s technology approach
REE aims to provide a modular, power-and driver-agnostic, EV platform able to power the broadest range of EVs through the facilitation of modular and customizable “top hats,” the vehicle body and cabin, based on customer specifications without requiring significant modification to REE’s products. We believe that this approach differentiates REE from other EV players, who often must substantially redesign and reengineer their vehicles in order to meet market demand, which typically results in a significant expenditure of time and capital on architecture integration, unique performance requirements, different market requirements and full crash structure development and testing, resulting in expensive and lengthy vehicle projects.
Innovation is at the core of REE's DNA. This is what drives us, throughout the development process all the way down to the architecture of every detail of our design. We have designed REEcorners’ by-wire steering, braking and drive to deliver better stability and greater maneuverability, leading to better performance overall.
Each REEcorner is also engineered with redundancy to maintain top performance and safety. However, in the unlikely event of one corner suffering a critical malfunction, the other three corners are designed to serve as a backup. REEcornersTM are also designed to be future-proof, geared to accommodate sensors for robust data gathering, allowing for storage, analytics, and decision-making processes for multi-dimensional Data-as-a-Service capabilities and being capable of being controlled by an AD stack instead of manual driver input. Having REEcornersTM at core of our technology is a market differentiator.
We believe that this approach differentiates REE from other EV players, who often must substantially redesign and reengineer their vehicles in order to meet market demand, which typically results in a significant expenditure of time and capital on architecture integration, unique performance requirements, different market requirements and full crash structure development and testing, resulting in expensive and lengthy vehicle projects.
REE’s plans to use its proprietary x-by-wire technology with full drive-by-wire, brake-by-wire and steer-by-wire technology, or X-By-Wire control technology, resulting in no mechanical linkages between the handwheel and the pedal
box to the actuators on the REEcornersTM, or between the REEcornersTM themselves. Each REEcornerTM is a standalone system that offers several technological advantages:
•Redundancy of critical drive elements that does not exist in conventional ICE vehicles and EVs resulting in a safer vehicle.
•Independent REEcornerTM steering, braking and torque vectoring projected to deliver higher vehicle stability and a smoother ride.
•Independence of each REEcornerTM to enable fast corner replacement in the event of REEcornerTM malfunction to reduce total cost of ownership and overall spare part inventory management.
•Utilization of a fully sprung, chassis – embedded propulsion system, which is expected to be more reliable, safe, longer-lasting and easier to maintain than hub-motors.
Our Competitive Strengths
We believe that REE’s disruptive technology and business model are unique to the EV industry and will offer a number of competitive strengths.
Scalable and modular architecture for broad range of EVs
REE believes that the exceptionally compact design of the REEcornerTM and the approach to component layout will facilitate platforms that are highly modular and scalable for the creation of mission-specific vehicles that are the ideal fit for different sizes and shapes of vehicles, for a variety of applications. By basing the platform on one interchangeable part, the REEcornerTM, REE expects to reduce expense in research and development, testing and manufacturing, enabling it to develop and scale future products at a significantly lower overall cost. In addition to significant anticipated cost-savings advantages, REE believes that its modular architecture will allow it to bring EV platforms and vehicles to market more rapidly and thus respond more effectively to increasing mass market demand for commercial EV solutions in numerous industry sectors. Further, by designing the REE platform to be uniquely flat, we seek to enable a wide range of body configurations with high design freedom and efficiency of space at a fraction of the cost.
Unique approach to target massive and growing market
REE believes that its focus on the REEcornerTM architecture allows it to complete, and not compete with, other EV players, such as OEMs, mobility and logistic players. We aim to allow other EV players to concentrate on their core service offerings and get to market faster at a significantly lower cost, improving their competitive edge as well as creating new e-mobility services. REE embraces traditional Tier 1 suppliers and their global manufacturing capacity, instead of directly competing with them.
Groundbreaking and proprietary technology
REE has designed a fully flat EV platform, purposefully engineered with a goal of maximum space efficiency and modularity to support a wide range of vehicle applications in the business-to-business, or B2B, market. We believe that platforms using REEcornersTM will present significant functional and operational advantages over conventional EV “skateboards” currently available in the market and will enable superior vehicle specifications for cargo volume/length, payload, maneuverability and battery capacity. REE technology is also designed to enable enhanced operational efficiencies due to low center of gravity, high durability, long lifecycle and superior product ergonomics (low step-in height affords easy and fast embarking and disembarking from vehicle, high driver visibility thanks to enhanced field of vision and optimal driver ergonomics).
REE’s development of proprietary X-By-Wire control technology challenges century-old automotive concepts. REE expects that its X-By-Wire control technology is expected to enable lower total cost of ownership through expedient REEcornerTM replacement, over-the-air updates and hardware upgrades. REE’s data analytics capabilities may be used to further reduce total cost of ownership via intelligent preventative maintenance features.
Our track record of invention and early development of products has afforded REE many years to innovate across hardware and software, which we believe has created substantial advantages in the targeted markets as a result of our industry know-how and proprietary trade secrets. Our research and development efforts have resulted in a strong intellectual property
portfolio, and REE has filed for patent protection for several of its key inventions across key markets of the world, resulting in as of March 16, 2023 approximately 145 active or pending patent applications for EV products, component systems, testing and enhanced product manufacturability, of which approximately 34 are granted patents and 111 pending applications. Granted patents are related to corner modules encompassing entire vehicle sub-systems for controlling the operation of the vehicle, such as unique suspension, steering, powertrain, and in-corner brake systems, installation and swapping of corner modules and communication and control systems for operating individual corner modules and vehicle platform.
CapEx light and flexible manufacturing approach
REE is currently and plans to continue manufacturing its products via a global network of Tier 1 suppliers with point-of-sale assembly and assemble components at our first Integration Center in the UK which opened in 2022. REE plans to operate additional Integration Centers in the United States and Asia based on market demand as part of our global manufacturing footprint strategy. With each Integration Center designed to produce up to 10,000 vehicle sets (the equivalent of 40,000 REEcorners) a year, REE is expected to maintain a comparatively asset-light enterprise that can further help to increase global growth and market penetration.
Attractive customer value proposition and superior total cost of ownership
EVs aim to have lower TCO than ICE vehicles. REE believes EVs built on its products will have a lower TCO than those of its EV competitors. REE’s total cost of ownership advantages are expected to derive from its expected competitive purchase price due to its asset-light manufacturing model, low costs of operations due to anticipated greater cargo volume and lower maintenance costs due to the REEcorner’sTM durable design. REE plans to work with strategic partners to provide preventative maintenance services through smart service and artificial intelligence in combination with over-the-air updates that seek to ensure maintenance is performed before a part will fail. This is expected to offer significant savings by eliminating unnecessary part replacements and drastically reduce downtime.
REE’s Go-To-Market Strategy
REE aims to provide potential customers with EV solutions to fulfill their needs. REE can provide either REEcorner technology and Powered by REE EV platforms on top of which companies can then build their ideal vehicles customized to their specific requirements based on REE’s disruptive tech.
Additionally, REE aims to provide complete commercial EVs through partnerships with industry-leading companies, OEMs and top-hat upfitters. For example, through its partnership with EAVX and Morgan Olson and JB Pointdexter & Co. business units, REE is bringing to market the ‘Proxima Powered by REE’ walk-in class 5 commercial van, which marries REE’s P7 EV platform leveraging REEcorners™ with EAVX’s Proxima body design to provide a turnkey solution with advantages including low load floor, greater driver maneuverability and comfort and high driver visibility.
Furthermore, REE is providing complete EVs such as the P7-B box truck, a class 3 box truck built on a P7 cab chassis P7-B designed and built by REE and selected box manufacturers to target strong and growing delivery vehicle market. The P7-B Box Truck configuration offers a low flat floor, all-wheel steer and quick REEcorner swap technology for minimal downtime. In all cases where REE delivers full EVs, REE will not serve as the manufacturer of the complete vehicle, but will rather support a step-by-step homologation of the complete vehicle, taking responsibility on either the REEcorner or the platform levels.
REE is prioritizing customers who have significant market share in the U.S. and that are pioneering the transition to electric vehicles. As of March 16, 2023, REE had eight customers in different industries such as vehicle rental and leasing, shipping and logistics, and dealers and 35 firm orders received. In addition to their initial orders, REE believes that these customers have the potential to order significant volumes of vehicles. REE is working closely with those customers who require a testing phase in order to optimize this important process and advance to fleet orders.
REE continues to conduct additional customer evaluations with prospective fleets, delivery, logistics and ecommerce companies as well as dealers in North America and other major markets around the world. In addition, REE delivered two different prototypes to a leading OEM for testing and validation. One of the vehicles is our P7-B which is undergoing testing and customer evaluations and the other is related to a long-term project.
Recently, REE started establishing a dealership network across the U.S. REE has initially entered into agreements with five authorized dealers: Pritchard EV, Tom's Truck Center, Industrial Power & Truck Equipment, New England Truck
Solutions and FMI Truck Sales & Services. Each of these dealers has placed initial orders, which are included in REE’s current order book. REE will offer training to authorized dealers to certify technicians to provide service on REE vehicles, facilitating adoption by fleets. As REE seeks to further expand our dealer network in the United States, REE offers financing solutions for its dealers through an agreement with Mitsubishi HC Capital America to provide financing solutions to dealers in the REE network. This agreement is designed to streamline the process of obtaining the financing required for the purchase of REE vehicles.
REE intends to initially target commercial and MaaS markets served by our P7 EV platforms, followed by additional market segments. By focusing product designs on the needs of these markets, we seek to build strong customer relationships with fleet operators and capture a significant market opportunity as the broad trend of vehicle electrification continues. Within this trend, REE believes that fleet operators will be drawn to the reliability of operations, the lower TCO and high uptime of EVs, particularly as EVs achieve cost parity with ICEs. Furthermore, REE believes that fleet operators will be drawn to the customizable design of REE products, which seeks to facilitate mission-specific vehicles to optimize fleet utilization. Fleet usage, which most times may involve multiple shorter trips within range of a central base rather than long-distance travel, can reduce the “range anxiety” that has also been a limiting factor in EV adoption.
REE believes that it is well-positioned to capitalize on additional significant opportunities available in addressing the ever-growing demand for electric mobility. We also believe that the rapid growth in the logistics and transportation markets, when combined with the global shifts in regulation and consumer preference toward sustainability, offers an opportunity to build a reliable business model via a new integrated e-mobility strategy. REE aims to collaborate with prominent automotive market participants to bring mission specific EVs to the market in either of the following two approaches:
•Lead Mode — REE is working directly with existing and potential B2B customers and dealers to provide the relevant REE product line ranging from only REEcornersTM to the entire REEplatformTM and through to full vehicles such as the P7-B class 3 box truck.
•Consortium Mode — Where a full vehicle is required, REE is building collaborations with traditional and new OEMs. REE will provide REE products, ranging from REEcornersTM only to the entire REEplatformTM, and the OEM partner will provide the remaining vehicle components, top-hat and homologation. With this approach, REE seeks to split the revenue from each program with its OEM partner based on pre-agreed terms, such as case of Proxima Powered by REE where REE partnered with JB Pointdexer to provide a full vehicle.
To effectively go-to-market, over the next few years, REE believe that it must continue to develop and grow its customer and dealer base by signing additional collaboration, sales and distribution agreements with leading customers and dealers in multiple addressable market segments, convert its existing purchase orders into scale orders, advance its collaboration and distribution agreements into test fleet purchase orders followed by scale orders when it becomes commercially advantageous to do so, increase its execution capabilities by expanding its relationships with suppliers and building out its Integration Centers, subject to market conditions, and develop a support network capable of servicing REE-powered vehicles in the field.
REE must successfully complete certain development activities in order to meet its expected production timeline. REE is targeting to P7 product certification in the second half of 2023 with initial deliveries slated for the fourth quarter of 2023. During 2022, REE completed all P7 concept validation of both corner and platform design. To support this REE has built and tested a range of engineering vehicles and continued to mature the production intent designs with feedback from this testing. Design for manufacturing activities has been run in parallel to ensure the Integration Center assembly line is ready to support volume production timelines. REE is targeting to complete P7 product certification in the second half of 2023 with initial deliveries slated for the fourth quarter of 2023.
As of December 31, 2022, REE’s team of 291 employees, including engineers, scientists, technicians and staff is committed to achieving the necessary milestones to meet its current production and commercialization timelines. In February 9, 2023, we took steps to lower our expenses through a targeted reduction in headcount of approximately 11% of the Company’s workforce.
REE has developed core innovations which make up the foundation of its products. REE’s products contain a number of key technological advancements and critical design functions, which we believe provide distinct advantages over competitor offerings:
1.REEcorner™ - Our revolutionary, award-winning REEcorner™ is a compact module that integrates critical vehicle drive components (steering, braking, suspension, powertrain and control) into the area between the chassis and the wheel. Each REEcorner™ is an independent assembly controlled by its own ECU, which controls corner level functions. REEcorner™ can be integrated into full vehicles or chassis and our approach can meet the electrification needs across a diverse set of potential customers. REEcorner technology leverages X-By-Wire control technology to control each REEcorner™ of the vehicle, eliminating all mechanical connections between the REEcorners and the steering wheel and pedals in the passenger compartment and the wheels and braking systems. Steering, braking and acceleration is performed entirely through electrical control and is fully redundant facilitating fail-operational function of each REEcorner™ (hardware and software). By controlling each REEcorner™ independently we aim to provide a more reliable and safer ride as well as facilitate vehicle maneuverability in the most suitable manner depending on road conditions and drive requirements. REE’s X-By-Wire control technology design also offers weight savings and safety advantages. Eliminating the steering column removes a common source of serious injury in frontal collisions. This technology should also offer customers a more responsive and smoother driving experience, Lastly, X-By-Wire control technology will be essential for our longer-term vehicle strategy, paving the way for advanced autonomous driving (autonomous level 4/5), wherein a mechanical steering column will no longer serve a central function.
2.REEplatformTM – REEplatformsTM are built on top of the REEcorners. Fully-flat from end-to-end, REE’s EV platforms can carry more passengers, cargo and batteries as compared to traditional platform builds of both ICE vehicles and conventional EVs. The unique design of the REEplatformTM allows for the addition of a modular and customizable top hat/cabin design based on customer specifications, without requiring significant modification to the platform. The smaller footprint and lower center of gravity is expected to also allow for taller body designs yielding more volumetric efficiency and lower step-in height.
3.P7 EV Modular Platform. Fully flat from end-to-end, the P7 modular platform (“P7 Platform”) is designed for commercial delivery vehicles and walk-in vans. The P7 Platform enables efficiencies for fleets, offering a low, fully flat chassis for vehicles in Classes 3-5, and approximately 35% more cargo space for a given footprint than comparable commercial vehicles, all with optimized TCO. EVs and AVs built on top of P7 Platforms are designed to achieve driving ranges of up to 370 miles with max speeds of 80 mph and supporting payload of 8,000 lbs. Upfitters and other manufacturers looking for full design freedom can also take REE’s stripped chassis or chassis cabs for maximum dimensional flexibility for specialty equipment.
4.Proxima Powered by REE – a class 5 fully drive-by-wire walk-in step van that is comprised of an EAVX and Morgan Olson body paired with REE’s fully-flat, modular P7 chassis and x-by-wire technology. Proxima Powered by REE is designed to provide operational efficiencies and flexibility that can be scaled across further applications and classes 2b-6 for both the body and the chassis, with modularity and design freedom in mind. Benefits of the Proxima body on REE’s P7 include its significantly improved aerodynamics, enhanced driver ergonomics, increased driver visibility and overall safety and enhanced maneuverability to reduce TCO, thereby easing the transition to electric for fleets. It also helps fleets meet ever-increasing demands facing the industry, including increased consumer deliveries and continued driver shortages.
5.P7-B Box Truck - a class 3 box truck built on a P7 cab chassis with REE’s all-wheel drive and all-wheel steer for exceptional vehicle control, leading to better handling and safety in adverse conditions. The driver-focused cabin is designed for optimal commercial usage, durability and productivity. The P7-B aims to reduce TCO to help facilitate fleets’ transition to EVs. The all-by-wire electric truck targets the important and growing commercial EV mid- and last-mile delivery market, with applications such as 16-foot vans and delivery trucks. It was built in response to market needs and represents a potential opportunity for REE to present fleets with complete vehicles.
Each of the component systems that form our REEcorners™ and platforms are being engineered for optimal performance. REE places a strong emphasis on functional integration, allowing for increased modularity. This is aimed to reduce the total number of parts, platform size and weight, ultimately providing more useable interior space in the vehicle cabin and a more overall cost-effective EV offering. By leveraging our modular REE products, along with our efficient design and streamlined production process, we anticipate that new vehicle models can be developed and produced in as little as 18 to 24 months. REE is developing the technology for the core hardware and software for its REEcorner™ in house and pursuant to development agreements with certain strategic partners, with the goal of achieving superior vehicle dynamics while setting the highest bar for safety.
REE believes that our business model differentiates us from competitors because we can market and sell our products individually or as “Powered by REE™” in a full vehicle solution. As the EV industry is becoming increasingly more competitive, REE expects competition from established automobile manufacturers with ICE vehicles and established and new automobile manufacturers with alternative fuel and EV vehicles including hybrids, battery electric vehicles and full cell electric vehicles. As many traditional and new players enter the EV market, REE believes the primary competitive factors in the EV market will revolve around, but not be limited to, the following key differentiation factors:
•product quality and reliability;
•design and styling;
•product price; and
REE believes its products will strongly compete based on these factors.
Environmental, Social and Governance (ESG) Practices
As an automotive technology company with a vision to become the cornerstone of tomorrow’s zero-emission EVs, REE is committed to operating in an ethical and sustainable manner while maximizing our ability to positively impact our environment and society. We are building the foundation of a leading environmental, social, and governance (ESG) program that benefits all our stakeholders including, customers, partners, employees, and the communities where we work. We are committed to aligning with leading industry best practices and are establishing company-wide policies that outline the Company’s standards for all business operations. As we grow our ESG program, we are also developing our internal data collection and disclosure capabilities to ensure we can meet investor expectations and comply with regulatory bodies’ proposed ESG tracking and reporting obligations.
REE’s Manufacturing Approach
REE is manufacturing and plans to continue manufacturing its products via a global network of Tier 1 partners and suppliers. In doing so, we seek to reduce our up-front capital investment and eliminate recurring fixed costs and overhead that would be required for REE to own and operate its own product assembly facilities. REE believes this will enable us to remain a comparatively asset-light enterprise, which will further help to increase its operating margin and overall return on investment.
Supply Chain Developments
In November 2021, REE entered into an agreement with American Axle & Manufacturing Holdings Inc., or AAM, a leading global automotive supplier of driveline technologies, to supply a jointly developed compact, high-performance 3-in-1 electric drive unit, or EDU, which includes motor, inverter, and gear box for the REEcorner™ module, with initial application in the P7 delivery van program. In January 2022, REE and AAM displayed an EDU system and jointly hosted an event at CES to discuss how our collaboration is well-positioned to take advantage of the fast-growing electrification market. In addition, REE entered into an agreement with Brembo S.p.A, or Brembo, a global leader in brake technology, to jointly develop and supply a braking system for REEcorner™ and EV platforms with initial focus on the P7 delivery van program. Brembo delivered systems for the prototype sample stage in the fourth quarter of 2022.
In addition, in January 2023, REE named Microvast Holdings, Inc., or Microvast, a technology innovator that designs, develops, and manufactures lithium-ion battery solutions, as the battery pack supplier for REE’s commercial EV platforms.
Pursuant to the agreement, Microvast will offer high-energy lithium-ion battery packs which will contribute as the energy storage system for “Powered by REE” EV platforms.
REE has built its first UK Integration Center and highly automated launch factory in Coventry, UK in 2022 for product assembly and validation. All major equipment is in place, and we have production capacity for 10,000 vehicles sets annually. REE plans to build Integration Centers in the United States and Asia, which are planned to be completed in the future based on market demand as part of our global manufacturing strategy. REE’s CapEx-light manufacturing approach and Integration Centers are designed to enable the company to remain a comparatively asset-light enterprise, helping to increase operating margins and return on investment and reduce the carbon footprint of its operations by leveraging its global network of Tier 1 partners’ manufacturing capacity, with full point-of-sale component assembly and testing set to take place in REE’s Integration Centers. REE’s UK Integration Center and UK Engineering Center, as well as its headquarters and research and development center in Israel, are ISO-9001 certified.
REE is now in the production and certification execution phase and is focused on passing required testing of its x-by-wire technology. Additionally, REE is accumulating durability and validation miles according to plan to support certification, which is expected to be completed in the second half of 2023. Reaching production intent phase is an important step in REE’s product maturity. As REE continues its validation and verification protocols, as of March 16, 2023, REE had ordered components for 25 P7 vehicles and submitted production forecasts with our suppliers for its main components through 2024. During the fourth quarter of 2022, REE commenced the build of the first batch of P7 production intent vehicles, which was completed subsequent to the quarter, and REE validated the assembly process and dry cycled its modular production line comprised of 13 highly automated manufacturing cells.
Subject to market demand and economic viability, we plan to add additional Integration Centers with capacity for REEcorners™ that would support future growth and market demand. The size of each future Integration Center is expected to be approximately 130,000 square feet. Each future Integration Center will be designed, if so designated, to be highly scalable and be deployed locally in major metropolitan cities worldwide. REE plans to locate its future Integration Centers close to its potential customers and dealers. The presence of REE’s future Integration Centers in numerous communities worldwide is expected to support local job creation and create taxable income for local governments and municipalities. The initial capital investment required for each future Integration Center is estimated to be approximately $15 million to $30 million based on whether such Integration is only producing REEcorners™ or is also producing the REEplatformTM.
REE’s ability to protect its intellectual property is paramount to our business. We rely upon a combination of protections afforded to owners of patents, designs, copyrights, trade secrets, and trademarks, along with employee and third-party non-disclosure agreements and other contractual restrictions to establish and protect REE’s intellectual property rights. In addition, industry know-how and unpatented trade secrets in the fields of research, development and engineering are an important aspect of REE’s business by ensuring that its technology and strategic business assets remain confidential. REE pursues patent protection when we develop a patentable invention and the benefits of obtaining a patent outweigh the risks of making the invention public through patent filings.
As of March 16, 2023, REE has approximately 145 pending and registered patents in the U.S. and globally, of which approximately 34 are granted utility patents. In addition, REE has families of design patents registered globally. REE’s patent applications are directed to, among other things, EV products, component systems and enhanced product manufacturability, for example, corner modules, flat chassis, electrical and control systems, brake systems, wheel assemblies, and testing. We regularly review our development efforts to assess the existence and patentability of new inventions, and REE is prepared to file additional patent applications when we determine it would benefit REE’s business to do so.
Trademarks and Service Marks
REE pursues global registration of its domain names and products and services trademarks. We use registrations to protect many of the trademarks used in our business. We also claim common law protections for other marks we use in our business. Competitors and other companies could adopt similar marks or try to prevent us from using our marks,
consequently impeding our ability to build brand identity and possibly leading to customer confusion. As of March 16, 2023, REE has successfully registered Trademarks for “REE” and “R3E” in 8 jurisdictions and also have trademarks for “REEcorner” and “Powered by REE” pending or registered globally.
REE’s EV platform is subject to, and REE is required to comply with, the U.S. National Traffic and Motor Vehicle Safety Act, as amended, and numerous regulatory requirements established by the National Highway Traffic Safety Administration, or NHTSA, an operating administration of the U.S. Department of Transportation, or DOT, including applicable Federal Motor Vehicle Safety Standards, or FMVSS. REE intends for the REEplatformTM to fully comply with all applicable FMVSSs without the need for any exemptions and expects future REE products to either fully comply or comply with limited exemptions related to new technologies. Additionally, there are regulatory changes being considered for several FMVSSs, and while REE anticipates being in compliance with the proposed changes, there is no assurance until final regulation changes are enacted.
Numerous FMVSSs will apply to REE’s products, such as brakes requirements and EV-specific requirements. REE will also be required to comply with other federal and state laws and regulations, including, among other things, ensuring its products do not contain defects related to motor vehicle safety, recall requirements, GHG and electric vehicle reporting, reporting required notices, bulletins, and other communications, Early Warning Information reporting, foreign recall reporting and owner’s manual requirements.
The battery modules on the REEboardTM, conform to mandatory regulations that govern transport of “dangerous goods,” defined to include lithium-ion batteries, which may present a risk in transportation. The governing regulations, which are issued by the Pipeline and Hazardous Materials Safety Administration, are based on the UN Recommendations on the Safe Transport of Dangerous Goods Model Regulations and related UN Manual Tests and Criteria. The regulations vary by mode of shipping transportation, such as by ocean vessel, rail, truck or air. Prior to launch, REE plans to complete all applicable transportation tests for its battery modules, demonstrating its compliance with applicable regulations. REE will use lithium-ion cells in the high voltage battery packs in the REEboardTM. The use, storage, and disposal of the battery modules is regulated under federal law.
Additionally, the REEplatformTM is subject to non-U.S. safety, environmental and other regulations. Many of those regulations are different from those applicable in the U.S. and may require redesign and/or retesting. For example, the EU has established new approval and oversight rules requiring that a national authority certify compliance with heightened safety rules, emissions limits and production requirements before vehicles can be sold in each E.U. member state. These changes could impact the rollout of new features in Europe.
Similarly, as a global company deploying cutting-edge technology, we are also subject to trade, export controls, customs product classification and sourcing regulations. Our operations also are subject to various federal, state and local laws and regulations governing the occupational health and safety of our employees and wage regulations. We are subject to the requirements of the federal Occupational Safety and Health Act, as amended, and comparable state laws that protect and regulate employee health and safety.
Like all companies operating in similar industries, we are subject to environmental regulation, including water use; air emissions; use of recycled materials; energy sources; the storage, handling, treatment, transportation and disposal of hazardous materials; and the remediation of environmental contamination. Compliance with these rules may include the need to obtain permits and licenses and to allow inspections of our facilities and products.
C. Organizational Structure
|Name of Subsidiary||Country of Incorporation and Place of Business||Proportion of|
Held by REE
|REE Automotive UK Limited||United Kingdom||100%|
|REE Automotive USA Inc.||United States||100%|
|REE Automotive Holdings Inc.||United States||100%|
|REE Automotive GmbH||Germany||100%|
|REE Automotive Japan K.K.||Japan||100%|
D. Property, plants, and equipment
Our principal executive offices are located at Kibbutz Glil-Yam 4690500, Israel, where we occupy an office space totaling approximately 35,520 square feet (3,300 square meters), under a lease agreement that expires in 2026, with an option to extend the lease until 2031.
In addition, we have the following facilities that we consider to be material as well as certain immaterial facilities:
1.In February 2022, REE entered into a lease agreement for its UK Engineering Centre and Launch Factory, which is located in Coventry, UK. The facility is approximately 130,000 square feet (approximately 12,077 square meters), under a lease agreement that expires in 2032. REE utilizes this facility for engineering, process validation activities, along with product assembly operations.
2.REE’s operates a testing facility in MIRA Technology Park in the UK for an approximately 4,693 square foot (436 square meter) facility. REE utilizes this facility for product engineering design, validation, verification and testing, as well as product homologation. REE’s lease for this facility expires in April 2025 and REE has no plans to extend the term of such lease.
3.In March 2022, REE entered into a lease agreement for its Austin, Texas headquarters. The facility is approximately 118,132 square feet (10,975 square meter), under a lease agreement that expires in 2032. REE intends to utilize this facility for assembly operations.
Item 4A. Unresolved Staﬀ Comments
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis should be read in conjunction with the section titled “Key Components of Statements of Operations” of this Annual Report and our consolidated financial statements and the related notes contained elsewhere in this Annual Report. This discussion and analysis may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in “Item 3.D. Risk Factors” of this Annual Report.
A. Operating results.
The information contained in this section should be read in conjunction with our audited financial statements for the years ended December 31, 2022 and 2021 and related notes and the information contained elsewhere in this Annual Report. Our financial statements have been prepared in accordance with US GAAP.
For a discussion of our consolidated statements of operations for the years ended December 31, 2021 and 2020 and our cash flows for the years then ended, see the section “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F (File No. 001-40649), as filed with the SEC on March 28, 2022.
Key Factors Affecting Operating Results
REE is an early-stage growth company in the early commercialization stage and believes that its performance and future success depend on several factors that present significant opportunities for it, but also pose risks and challenges, including those discussed in the section of this Annual Report titled “Item 3.D. Risk Factors”.
On September 23, 2022, REE announced the results of the Company’s previously announced offer to each holder of the Company’s outstanding (i) public warrants to purchase Class A ordinary shares (the “public warrants”), and (ii) related private placement warrants to purchase Class A ordinary shares (the “private placement warrants” and, together with the public warrants, the “warrants”) to receive 0.20 Class A ordinary shares, in exchange for each outstanding warrant tendered by the holder and exchanged pursuant to the Offer and the Company’s accompanying solicitation of consents from holders of the warrants to amend the warrant agreement governing the warrants (the “Warrant Amendment”), which Warrant Amendment permitted the Company to require that each warrant that is outstanding upon the closing of the Offer be exchanged for 0.18 Class ordinary shares, which is a ratio 10% less than the exchange ratio applicable to the Offer. The
Company issued 3,062,450 Class A ordinary shares in exchange for all outstanding warrants. On October 7, 2022, Nasdaq issued a notification of removal of the warrants from registration.
REE’s strategic plan is based on what it believes is a market shift to electric vehicles. REE has observed increase support for EVs in recent years as Tesla has become a dominant player in a once insular automotive industry. Additionally, in 2021 traditional OEMs have announced that they will transition their resources to producing EVs. Whereas EVs were traditionally marketed to niche areas, we now see traditional OEM’s establishing waiting list for customers who want to purchase the electric version of their mainstream vehicles.
In REE’s view, this trend is driven by several factors. A rising environmental consciousness is encouraging customers to weigh their emission footprint. As a zero-emission alternative to traditional ICE options, an EV that can match or exceed an ICE in performance is a natural choice. Assisting with that choice, local and national governments are implementing both various forms of rebates and credits for the purchase of an EV and prohibitive ICE regulations to expedite the rise of e-mobility by accelerating the push for zero emission vehicles and increased awareness of the impacts of global warming. As EV sales grow, EV components become more prevalent, allowing automakers to purchase parts at greater availability and lower costs, further accelerating the switch to electric. Additionally, the continuing improvement in battery technology and continuing build-out of electric charging infrastructure are decreasing range anxiety, increasing comfort with EV range capabilities and facilitating EV adoption. Lastly, particularly in the United States market, customers must deal with increased gas cost resulting from civil unrest and wars in countries on which they depend for gas.
REE operates in an industry that is subject to extensive environmental regulation, which has become more stringent over time. The laws and regulations to which REE is subject govern, among others, vehicle emissions and the storage, handling, treatment, transportation and disposal of hazardous materials and the remediation of environmental contamination. Compliance with such laws and regulations at an international, regional, national, provincial and local level is an important aspect of REE’s ability to continue its operations. These requirements create additional costs and possibly production delay in connection with design, testing and assembling of REE’s platforms. See “Item 4.B. Business Overview – Government Regulations” for a more detailed discussion.
During the last two years and going into the third year, COVID-19 has plagued the globe. Both COVID-19 and the action taken to mitigate its spread have and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in which REE operates. At the onset and during peaks in new variants of COVID-19, government authorities, and in some instances employers, have implemented measures to contain its spread including travel bans and restrictions, quarantines, shelter-in-place and stay-at-home orders, and business shutdowns. These measures may continue periodically until COVID-19 is eradicated or society adopts acceptable protocol to coexist with the virus, which could adversely affect REE’s business and manufacturing plans. Measures that have been relaxed may be reimplemented if COVID-19 continues to spread. If, as a result of these measures, REE has to implement alternative work arrangements or modify employee on-site work schedules, it could cause a delay in REE completing the requirements to meet its production schedule as it may cause a delay in retooling efforts or in the production schedule of the REEcornerTM. Further, REE ability to demonstrate its product to potential customers may be impacted based on restricted travel regulations and requirements. Additionally REE’s sales and marketing strategic plans and goals may be adversely impacted due to the cancellation or reduction of in-person sales activities, meetings, events and conferences. Lastly, if REE’s workforce is unable to work effectively, including due to illness, quarantines, government actions or other restrictions in connection with COVID-19, REE’s operations will be adversely affected.
The extent to which the COVID-19 pandemic may continue to affect REE’s business will depend on continued developments, which are uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided its global economic effect may continue to adversely effect our business. COVID-19 and many of the resulting implications are beyond REE’s control and, as a result, REE is unable to fully predict the ultimate impact, both in terms of severity and duration, that the COVID-19 pandemic will have on our business, operating results, cash flows and financial condition.
Key Components of Statements of Operations
REE has not begun significant commercial operations and currently has no significant revenues. Once REE reaches commercialization and commences production and sales of our products, we expect that the significant majority of our revenue will be derived from direct sales to OEMs, dealers, logistics and technology companies and, thereafter, other related products and services within the REE ecosystem.
Cost of Revenue
Cost of revenue relates primarily to share-based compensation expense and expenses related to non-recurring engineering. Once REE reaches commercialization and commences production of our products, we expect cost of revenue to include vehicle components and parts, including batteries, raw materials, direct labor costs, warranty costs and costs related to the operation of manufacturing facilities.
Research and Development Expenses, Net
Research and development expenses consist of costs associated with the employment of REE’s engineering staff, including share based compensation, third-party engineering consultants, development projects such as corners programs and component programs and program consumables, costs associated with REE’s properties, and depreciation of REE’s fixed assets. REE expects research and development expenses to increase as we continue to develop our products, components, technology and software.
Selling, General and Administrative expenses
Selling, general and administrative expenses consist of costs associated with employment of REE’s non-engineering staff, including share based compensation, legal, insurance, accounting and consulting expenses, travel and marketing expenses such as public relations activities and trade shows, costs associated with REE’s properties, and depreciation of REE’s fixed assets. REE expects selling, general and administrative expenses to increase as our overall activity levels increase due to the construction and operation of facilities and costs associated with being a public company.
Finance Income (Expense), Net
Finance income (expense), net consists primarily of interest income and foreign exchange gains or losses offset by bank fees. Foreign currency exchange gains or losses related to changes in the value of our non-U.S. denominated financial assets, primarily cash and cash equivalents. As of December 31, 2022, we did not have any indebtedness for borrowed amounts. Interest income consists of interest earned on our cash, cash equivalents, and short-term investments. We expect interest income to vary depending on our average investment balances and market interest rates during each reporting period.
Results of Operations
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
The following table sets forth REE’s historical operating results for the periods indicated:
|December 31, 2022||December 31, 2021||$'000 Changes||% Changes|
|USD in thousands|
|Revenue||$||— ||$||6 ||$||(6)||(100)||%|
|Cost of sales||547 ||995 ||(448)||(45)||%|
|Gross loss||(547)||(989)||442 ||(45)||%|
|Research and development expenses, net||78,225 ||252,424 ||(174,199)||(69)||%|
|Selling, general and administrative expenses||49,200 ||262,083 ||(212,883)||(81)||%|
|Total operating expenses||127,425 ||514,507 ||(387,082)||(75)||%|
|Operating loss||(127,972)||(515,496)||387,524 ||(75)||%|
|Income from warrants remeasurement||17,929 ||11,024 ||6,905 ||63 ||%|
|Finance income, net||4,371 ||423 ||3,948 ||933 ||%|
|Net loss before income tax||$||(105,672)||$||(504,049)||$||398,377 ||(79)||%|
|Income tax expense||1,748 ||1,281 ||467 ||36 ||%|
|Net loss||(107,420)||(505,330)||397,910 ||(79)||%|
There was no revenue for the twelve months ended December 31, 2022 and insignificant revenue for the twelve months ended December 31, 2021. REE has not begun significant commercial operations and currently has no significant revenues.
Cost of Revenue
Cost of revenue decreased by $0.4 million, or 45%, from $1.0 million for the year ended December 31, 2021 to $0.5 million for the year ended December 31, 2022. This decrease was primarily due to the write off of inventory of $0.3 million during December 31, 2021 and lower amounts incurred for the work with a strategic partner during for the year ended December 31, 2022.
Research and Development Expenses, Net
R&D expenses decreased by $174.2 million, or 69%, from $252.4 million for the year ended December 31, 2021 to $78.2 million for the year ended December 31, 2022. This decrease was primarily due to decreased share-based compensation expense of $13.2 million incurred during the year ended December 31, 2022 compared to $208.9 million during the year ended December 31, 2021. The decrease in share based compensation expense results mainly from options granted to the Founders prior to the Merger and vested at the time of closing. Excluding this share-based compensation, R&D expenses increased by $21.5 million, or 50%, from $43.5 million for the year ended December 31, 2021 to $65.0 million for the year ended December 31, 2022. This increase was primarily due to costs incurred to open our UK Engineering Center and higher spend related to R&D for the P7 Platform. Additionally, the Company saw increased wages and salaries year-over-year as we expanded our R&D employee headcount.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $212.9 million, or 81%, from $262.1 million for the year ended December 31, 2021 to $49.2 million for the year ended December 31, 2022. This decrease was primarily due to decreased share-based compensation expense of $13.6 million and warrant transaction costs of zero incurred during the year ended December 31, 2022 compared to $238.7 million and $2.9 million during the year ended December 31, 2021. The decrease in share based compensation expense results mainly from options granted to the Founders prior to the Merger and vested at the time of closing. Excluding share-based compensation and warrant transaction costs, selling, general and administrative expenses increased by $15.1 million, or 74%, from $20.5 million for the year ended December 31, 2021 to $35.6 million for the year ended December 31, 2022. For the year ended December 31, 2022, the increase was primarily due to increased wages and salaries as we expanded our non-R&D employee headcount, in addition to increased marketing costs, rent expenses on new facilities, and transaction costs related to the Warrant Exchange.
Income from Warrants Remeasurement
Income from warrants remeasurement, increased by $6.9 million, or 63%, from net financial income of $11.0 million for the year ended December 31, 2021 to income of $17.9 million for the year ended December 31, 2022. The income from warrants remeasurement is from the change in fair value prior to the settlement of the warrant liability recognized in our statement of comprehensive loss.
Financial Income, Net
Financial income, net increased by $3.9 million, or 933%, from net financial income of $0.4 million for the year ended December 31, 2021 to $4.4 million for the year ended December 31, 2022. The increase in financial income, net was primarily comprised of bank deposit and short term investment income and foreign currency gains.
Income tax expense
Income tax expense, increased by $0.5 million, or 36%, from $1.3 million for the year ended December 31, 2021 to $1.7 million for the year ended December 31, 2022. This increase was primarily due to the recognition of an uncertain tax position.
B. Liquidity and Capital Resources.
As of the date of this Annual Report, REE has yet to generate significant revenues from its principal business operations and has generated minimal revenues and we do not expect to generate significant revenues from the sale of our products in the near future. Since inception, REE has incurred losses and generated negative cash flows from operations and has funded its operations, capital expenditure and working capital requirements through capital contributions, private placements of equity securities, investments from certain strategic partners, and from the consummation of the Merger.
REE expects its capital expenditures and working capital requirements to continue in the near future, as it seeks to produce the REE products, develop its customer support and marketing infrastructure and continue its R&D efforts. As of December 31, 2022, REE’s cash and cash equivalents were $56.8 million and its short term investments were $96.9 million. We expect that our existing cash and cash equivalents and short term investments will be sufficient to achieve initial production of our P7 platform and continue to advance other commercial activities. However, additional funding will be required for a variety of reasons, including, but not limited to, delays in anticipated schedule to complete the design, certification or delivery of the REE products. In addition, REE’s budget projections may be subject to cost overruns for reasons outside of its control and it may experience slower sales growth than anticipated, which would pose a risk to REE achieving cash flow positivity.
If REE were to require additional funding or otherwise determined it was beneficial to seek additional sources of financing, REE believes that its debt-free balance sheet would enable REE to access financing on reasonable terms. However, there can be no assurance that such financing would be available to REE on favorable terms or at all. If the financing is not available, or if the terms of financing are less desirable than REE expects, REE may be forced to decrease its level of investment in product development, renegotiated development agreements with collaboration partners or scale back its operations, which could have an adverse impact on its business and financial prospects. Additionally, any funding raised through the issuance of equity or equity-linked securities may result in the issuance of securities with have rights, preferences or privileges senior to those of our Class A Ordinary Shares or the dilution of our existing shareholders.
On August 16, 2022, we entered into the ATM Sales Agreement with BofA pursuant to which we may offer and sell, at our option, up to $75.0 million of our Class A Ordinary Shares through an “at-the-market” equity program under which BofA agreed to act as sales agent. As of December 31, 2022, we had not sold any of our Class A Ordinary Shares under the ATM Sales Agreement.
As an early-stage growth company in the early commercialization stage, the net losses REE has incurred since inception are consistent with REE’s strategy and budget. REE will continue to incur net losses in accordance with its operating plan as REE continues to expand its operations to meet anticipated demand.
Cash Flows Summary
Presented below is a summary of REE’s operating, investing and financing cash flows:
|December 31, 2022||December 31, 2021|
|USD in thousands|
|Net cash provided by (used in)|
|Financing activities||2,430 ||291,295 |
|Net change in cash and cash equivalents and restricted cash||$||(216,990)||$||231,408 |
Cash Flows from Operating Activities
REE’s cash flows used in operating activities to date have primarily resulted from costs related to development of its products, payroll, fluctuations in accounts payable and other current assets and liabilities. REE expects to continue incurring expenses on operating activities until it begins to generate sufficient cash flows from its business.
During the year ended December 31, 2022, operating activities used $112.6 million in cash. The primary factors affecting operating cash flows during this period were a net loss of $107.4 million before deducting non-cash charges of $13.2 million, consisting primarily of share-based compensation of $26.9 million and depreciation, amortization, and accretion expense of $4.3 million, offset by the change in warrant valuation of $17.9 million and a change in operating right of use asset and liability, net, of $7.9 million.
During the year ended December 31, 2021, operating activities used $59.1 million in cash. The primary factors affecting operating cash flows during this period were a net loss of $505.3 million before deducting non-cash charges of $440.4 million, consisting primarily of share-based compensation of $448.1 million and warrant transaction costs of $2.9 million, offset by the change in warrant valuation of $11.0 million and an increase in working capital of $5.6 million.
Cash Flows from Investing Activities
REE’s cash flows used in investing activities to date have been primarily comprised of short term investments and cash outflows for tangible fixed assets (plant and equipment). REE expects investing activities to include cash inflows from maturities of short term investments offset by costs related to our Integration Centers.
Net cash used in investing activities was $106.8 million for the year ended December 31, 2022, which was primarily due to $11.1 million cash outflows for fixed assets (plant and equipment) and $139.9 million purchase of short-term investments, offset by the maturity of short-term investments of $44.1 million.
Net cash used in investing activities was $0.7 million for the year ended December 31, 2021, which was primarily due to $2.4 million cash outflows for fixed assets (plant and equipment) in support of R&D programs offset by the maturity of bank deposits of $1.7 million.
Cash Flows from Financing Activities
Net cash provided by financing activities was $2.4 million for the year ended December 31, 2022, which was primarily due to proceeds from the exercise of options and warrants in the amount of $2.4 million.
Net cash provided by financing activities was $291.3 million for the year ended December 31, 2021, which was primarily due to $287.6 million cash inflow from the consummation of the Merger, proceeds from the exercise of warrants of $2.9 million, and proceeds from the exercise of options in the amount of $0.8 million
Currently, REE has no third-party debt although it may determine, based on changes in its expected cash flow needs or because it deems it beneficial, to incur debt in the future.
Contractual Obligations and Commitments
REE currently leases approximately 3,300 square meters (approximately 35,520 square feet) of office space in Glil-Yam, Israel as our headquarters. This facility accommodates its principal executive, research and development, marketing, design, business development, human resources, finance, information technology, and administrative activities. The lease is for a five-year term with the option to extend the lease period for an additional period of five years.
In Israel, REE leases a warehouse of approximately 1,000 square meters (10,703 square feet) located in Yavne, Israel. The lease is for a two year period commencing on November 27, 2021 with the option to extend the lease for a period of two additional years.
In the United Kingdom, REE entered into a lease agreement for its UK Engineering Centre and Launch Factory, which is located in Coventry, UK. The facility is approximately 130,000 square feet (approximately 12,077 square meters), under a lease agreement that expires in 2032. REE utilizes this facility for engineering, process validation activities, along with product assembly operations. In addition, REE has a lease in Warwickshire with MIRA Technology Park which REE utilizes as a testing facility. The agreement is for a two-year term commencing in April 2021 and has been resigned for another two year period which expires in April 2025.
In the United States, REE entered into a lease agreement for its Austin, Texas headquarters. The facility is approximately 118,132 square feet (10,975 square meter), under a lease agreement that expires in 2032. REE intends to utilize this facility for assembly operations.
The following table summarizes REE’s contractual obligations and other commitments for cash expenditures as of December 31, 2022, and the years in which these obligations are due. Certain obligations are reflected in our balance sheet, while other are disclosed as future obligations. This table is not meant to represent a forecast of our total cash expenditures for any of the periods presented.
|Payments due by period|
|Total||Less than 1 year||1-5 years||More than 5 years|
|USD in thousands|
|Operating lease obligations||$||21,371 ||4,112 ||10,719 ||6,540 |
|Purchase obligations||2,569 ||2,569 ||— ||— |
|Total||$||23,940 ||$||6,681 ||$||10,719 ||$||6,540 |
Open purchase orders that are cancellable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above. Such purchase orders often represent authorizations to purchase rather than binding agreements.
In addition, REE enters into agreements in the normal course of business with vendors to perform various services, which are generally cancellable upon written notice. These payments are not included in this table of contractual obligations.
C. Research and development, patents and licenses, etc.
REE has invested significant time and expense into research and development with respect to its products. Our research and development activities are primarily located in Israel, and at our UK Engineering Center. REE’s ability to obtain a leadership position in the automotive industry depends in part on its ongoing research and development activities. REE’s research and development team includes engineers and researchers with a diverse range of expertise, levels of experience, and academic backgrounds. REE has a strong combination of engineers with automotive and technology industry experience from Israel, the UK, Germany and the United States who together combine innovative thinking with a common goal of developing a superior EV product for the automotive market. Our research and development department is comprised of approximately 216 employees and external consultants as of March 16, 2023. In 2022, research and development costs accounted for approximately 61% of our total operating expenses.
Israeli tax law allows, under certain conditions, a tax deduction for expenditures related to scientific research and development projects, including capital expenditures, for the year in which they are incurred. Expenditures are deemed related to scientific research and development projects, if:
• the expenditures are approved by the relevant Israeli government ministry, determined by the field of research;
• the research and development must be for the promotion of the company; and
• the research and development is carried out by or on behalf of the company seeking such tax deduction.
The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Ordinance. Expenditures that are unqualified under the conditions above are deductible in equal amounts over three years.
The Israel Innovation Authority
From time to time we may apply to the Israel Innovation Authority (the “IIA”) for approval to allow a tax deduction for all or most of research and development expenses during the year incurred. There can be no assurance that such application will be accepted. If we are not able to deduct research and development expenses during the year of the payment, we may be able to deduct research and development expenses in equal amounts over a period of three years commencing in the year of the payment of such expenses.
D. Trend information.
Other than as disclosed in “Item 5.A. Operating Results — Key Factors Affecting Operating Results” and elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2022 to December 31, 2022 that are reasonably likely to have a material effect on our total revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E. Critical Accounting Estimates
REE’s financial statements have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires REE’s management to make estimates, judgments and assumptions. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period and accompanying notes. Actual results could differ from those estimates. REE’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made.
While REE’s significant accounting policies are described in the notes to its financial statements, REE believes the following accounting policies are the most critical in fully understanding and evaluating our financial condition and results of our operations under U.S. GAAP.
Pre-production costs related to long-term supply agreements (Non recurring engineering)
The Company has entered into arrangements with suppliers in which the Company will incur pre-production engineering, development and tooling costs related to products produced for its customers under future potential long-term supply agreements. These arrangements are structured to include various milestones, for which the Company estimates the percentage of completion at each reporting date. The Company is contractually obligated to reimburse the supplier for costs incurred. The Company prepares an internal assessment to determine the percentage complete and validates these amounts with the supplier. The estimate involved in calculating the percentage of completion involve inherent uncertainties and the application of significant judgment. We assess these assumptions and estimates on a quarterly basis as additional information impacting the assumptions was obtained.
Impairment of long-lived assets
Long-lived assets, such as property, plant, and equipment are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. The evaluation of anticipated future cash flows is subjective and is based in part on assumptions regarding expected future operating income, growth rate, cost levels, capital requirements, and market and other applicable trends. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group.
Recently Issued Accounting Pronouncements
See Note 2 to REE’s consolidated financial statements included elsewhere in this annual report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this annual report.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management
The following table sets forth the name, age and position of each of our executive officers and directors as of March 28, 2023:
|44||Co-Founder, Chief Executive Officer and Director|
|Ahishay Sardes||41||Co-Founder, Chief Technology Officer and Director |
|David Goldberg*||41||Chief Financial Officer|
|Yaron Zaltsman*||49||Chief Financial Officer (Incoming)|
|Joshua Tech||44||Chief Operating Officer|
|Keren Shemesh||47||Chief Marketing Officer|
|Avital Futterman||39||General Counsel & Corporate Secretary|
|Tali Miller||47||Chief Business Officer|
|Limor Raz||43||Chief People Officer|
Arik Shteinberg (3)
Hari Nair (1) (3)
Michal Marom-Brikman (1) (2) (3)
* Yaron Zaltsman has been appointed CFO effective March 29, 2023 replacing David Goldberg, who will remain as CFO until that date.
** Appointment to the board of directors is effective March 29, 2023
(1) Member of our audit committee
(2) Member of our compensation committee
(3) Independent director under the rules of Nasdaq
Daniel Barel has been the Chief Executive Officer of REE since 2013 and has served as a member of the board of directors since 2013. Mr. Barel is an entrepreneur and businessperson who founded several startups in the fields of medical devices, cyber security and software applications. He serves as chairman of SpecterX, an Israeli data management company he co-founded in 20191. Mr. Barel holds a Bachelor of Arts in Economics and Business Administration from the Hebrew University.
Ahishay Sardes has been the Chief Technology Officer of REE since 2013 and has served as a member of the board of directors since 2021. Mr. Sardes has over 15 years of experience in engineering including mechanics, electronics, software and research. From 2008 to 2013, he served as Head of Engineering at ZIV-AV Technologies, an Israeli engineering company. Mr. Sardes holds a Bachelor of Science in Mechanical Engineering from the Afeka Tel Aviv Academic College of Engineering.
David Goldberg joined REE as the Chief Financial Officer in 2022. Prior to REE, Mr. Goldberg held executive roles at Magna International, one of the world’s largest automotive suppliers, where he served as Senior Vice President of Corporate Development and VP Finance & Corporate Development. Mr. Goldberg brings 20 years of experience in corporate finance, mergers & acquisitions and management consulting with progressively senior roles at Morgan Stanley, Bain & Company, Greenhill & Co. and Magna. As REE’s Chief Financial Officer, Mr. Goldberg leads all aspects of the company’s financial functions, strategic industry partnerships and investor relations. Mr. Goldberg holds a Bachelor of Business Administration from the University of Western Ontario.
Yaron Zaltsman has been appointed as REE’s Chief Financial Officer effective March 29, 2023. Mr. Zaltsman brings over 20 years of experience in management roles as a chief financial officer and board member of various public listed companies, overseeing all capital market aspects, financial reports and credit rating matters. Mr. Zaltsman has been involved in leading initial public offerings and fund-raisings and establishing headquarters and subsidiaries with active teams in different countries. Mr. Zaltsman also serves as the managing partner of OTRE Fund from 2022 and as a board
1 REE is also a customer of SpecterX. See “Item 7.B. Related Party Transactions” of this Annual Report for additional information.
member at Megureit Israel Ltd since2020 . From 2017 to 2021 he served as the chief financial officer of Frankfurt Stock Exchange-listed company Fyber N.V., leading its acquisition by Nasdaq-listed company, Digital Turbine, Inc., and as the chief financial officer of A.D.O. Group Ltd, which was listed on the Tel Aviv Stock Exchange, and its subsidiary A.D.O. Properties S.A., which was listed on the Frankfurt Stock Exchange, from 2006 to 2016. Prior to these roles, from 2000 to 2005, Mr. Zaltzman was the Deputy Head of Financial Advisory Services Israel for Deloitte. Mr. Zaltsman is a certified public accountant in Israel and holds a BA in accounting and economics from the Hebrew University and a MBA from Tel Aviv University.
Joshua Tech joined REE in April 2022 as the Chief Operating Officer. Mr. Tech joins REE after serving on Tesla’s Operations Leadership Team as Head of the New Product/Manufacturing Introduction group. Previously, oversaw manufacturing development and launch at a worldwide leader in automotive exterior design, development, and manufacturing, and most recently served as Vice President of Manufacturing and Engineering for one of America’s most advanced construction technology firms, Plant Prefab. Based in the U.S.. Mr. Tech brings over 23 years of experience to REE in complex product development & launch, industrialization, infrastructure development, engineering, supply chain, quality, and operations management. Mr. Tech holds a Cert of Supervisory Management from University of Pittsburgh, a Quality Engineering from Tri County Technical College, a BS of Mechanical Engineering from Penn State University, a BA of Business Administration from Madison University and an MBA of Business Administration from Madison University.
Keren Shemesh has been Chief Marketing Officer of REE since September 2019. Prior to joining REE, she served as Vice President of Marketing at Elmo Motion Control. From 2010 until 2016, she held numerous senior marketing positions, including Global Marketing Manager at Starhome Mach from 2015 to 2016. Ms. Shemesh holds a B.Eng in Electronic Communications Engineering from Bezeq College and a Bachelor of Science in Electronic Engineering from Ariel University.
Avital Futterman Avital Futterman joined REE in July 2022. Prior to REE, Ms. Futterman served as the VP of Legal Affairs and General Counsel from 2015 through 2022 at Cellebrite, a leading digital intelligence high-tech company. Before that, Ms. Futterman worked at Zellermayer, Pelossof & Co. and SGS as an attorney. Ms. Futterman holds an LLB in Law and a BA in Economics from the Tel-Aviv University, and a Global MBA from Reichman University.
Tali Miller joined REE Automotive in 2018 and is the company’s Chief Business Officer since November 2021, having previously served as the company’s Vice President of Corporate Development. Ms. Miller brings over 20 years of experience in business development, partnerships and M&A activities in the tech, telecom and environmental sectors. Prior to REE, from 2008 to 2015, Ms. Miller led the M&A and regional business development at Miya, an Arison Group company, and from 2005 to 2008, Ms. Miller led partnerships and M&A at the Nasdaq listed companies M-Systems Ltd. and SanDisk. Ms. Miller holds a BA in Economics from Tel Aviv University and an MBA from INSEAD.
Limor Raz has been Chief People Officer of REE since November 2018. Prior to joining REE, she served as Head of HR at Xsight Systems. Ms. Raz holds a Bachelor's degree in Psychology from The Open University of Israel and a Master's degree in Art Therapy/Therapist from Beit Berl.
Arik Shteinberg has served on REE’s board of directors since 2018. Mr. Shteinberg serves as the chairman of the board of directors of the Tel Aviv Stock Exchange, and as a director of Leumi Partners Ltd. He also serves on the board of trustees of the Academic College of Tel Aviv-Yaffo. Mr. Shteinberg served on the board of directors of Paz Oil Company Ltd. until December 2021 and on the board of Partner Communication until January 2021. Mr. Shteinberg served from 2006 to 2010 as chairman of the board of directors of Psagot Investment House, Ltd., as well as other companies in the Psagot Group, overseeing their business strategies on behalf of York Capital. Between 1999 and 2003, Mr. Shteinberg was Chief Executive Officer of Ilanot Batucha Investment House from the IDB Group, as well as a director of Maalot (the Israeli affiliate of Standard & Poor’s). Prior to that, Mr. Shteinberg served as Chief Executive Officer of Etgar-Portfolio Management Trust Co., owned by Bank Mizrahi-Tefahot. He also served on the advisory boards of Mobileye Technologies and Novotrans Group SA. Mr. Shteinberg studied Economics at Tel Aviv University.
Hari Nair has served on REE’s board of directors since 2019. Mr. Nair is a global technology investor and corporate advisor with over thirty five years of experience in the automotive and commercial vehicle industries. He has been Chief Executive Officer of Anitar Investments LLC since 2015. Since 1987, Mr. Nair has held numerous executive positions at Tenneco Inc., including serving as the company’s Chief Operating Officer from 2010 to 2015. Prior to that he served as a senior financial analyst at General Motors Corporation. Mr. Nair currently serves on the board of directors at Musashi Seimitsu Industry, O-I Glass Inc. and as chairman of Sintercom India Ltd. He previously served as a board member for
Delphi Technologies PLC from 2017 to 2020 and Tenneco’s board of directors from 2009 until 2015. Mr. Nair holds a Bachelor of Science in Engineering from Bradley University and a Master’s in Business Administration from the University of Notre Dame.
Michal Marom-Brikman has served on REE’s board of directors since 2021. She specializes in financial and business structures, business deals and corporate governance. Ms. Marom-Brikman has significant experience on public company boards; she is on the board of Partner Communications Co. (Nasdaq: PTNR) and is a board member of the Ichilov Medical Center & Hospital and a member of its investment committee. Ms. Marom-Brikman also served as Co-Founder and CFO of Linkury Technology International Group and as a professional assistant to the president of the CPA Institute in Israel and was chairman of the audit committee of the Halman Aldubi investment house. Ms. Marom-Brikman serves as a director in the following firms: Union Bank, Spectronix, Naaman Vardinon, Biomedix incubator, ADO group, Arko holdings, Algomizer and Dan Transportation. Ms. Marom-Brikman holds an MA in Finance from the Baruch College of Management, NYU and a BA from the College of Management Academic Studies in Israel.
Ittamar Givton has been appointed to REE’s board of directors effective March 29, 2023. Mr. Givton served on the boards of several government entities and public companies in Israel, across the energy, banking, chemical, and communication sectors as well as on the board of the Israeli Stock Exchange. In addition, Mr. Givton served for many years as Managing Director of Automotive Equipment Group in Israel (importer of Suzuki, Man and Bridgestone, among others) and is now serving as Chairman of the Group’s Advisory Committee. Prior to his work in AEG, Mr. Givton held a senior position in the Budget Department of the Israeli Ministry of Finance and later served as VP for Business Development in the Dankner Group. Mr. Givton holds a BA in Economics from Tel Aviv University and an LL.B from the Hebrew University in Jerusalem.
Hicham Abdessamad has been appointed to REE’s board of directors effective March 29, 2023. Mr. Abdessamad is the Chairman & CEO of Hitachi America, Ltd, overseeing the growth objectives of Hitachi’s North America business across key sectors such as Digital, Green & Mobility, and Innovation. Hitachi in North America has a portfolio of 72 companies and 19 R&D facilities operating in 37 states, with over 24,700 employees. Mr. Abdessamad also serves as an advisor on the investment advisory committee (IAC) appointed by the United States Secretary of Commerce, Gina Raimondo. Mr. Abdessamad has held multiple executive roles within Hitachi, including CEO of Hitachi Global Digital Holdings, President and CEO of Hitachi Consulting. Mr. Abdessamad holds a Bachelor of Science degree in Computer Engineering from Suffolk University, Massachusetts, and has completed the Executive Development Program at the Tuck School of Business at Dartmouth College in New Hampshire, and the Executive Leadership Program at the International Institute of Management Development (IMD) in Lausanne, Switzerland.
There are no family relationships between any of our executive officers and our directors.
Arrangements for Election of Directors and Members of Management
There are no arrangements or understandings with major shareholders or others pursuant to which any of our executive officers or directors are selected.
Compensation of Executive Officers and Directors
The compensation paid by REE and our subsidiaries to our office holders as a group for the year ended December 31, 2022 was $5.5 million. This amount includes $0.4 million set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, but does not include business travel, car expenses, relocation, professional and business association dues and expenses reimbursed to office holders, and other benefits commonly reimbursed or paid by companies in Israel. In addition, we incurred $6.4 million of share-based compensation expense related to equity awards made by us to our office holders.
As of December 31, 2022, options to purchase 106,684,790 ordinary shares granted to our office holders as a group were outstanding under our equity incentive plans at a weighted average exercise price of $0.15 per ordinary share. The expiration date of such options is 10 years after their date of grant.
The table below sets forth the compensation earned by our five most highly compensated office holders (as defined under the Companies Law) during or with respect to the year ended December 31, 2022. An office holder is defined in the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions regardless of such person’s title, a director, and any other manager directly subordinate to the general manager. We refer to the five individuals for whom the disclosure is provided herein as “Covered Executives”. For purposes of the table and the summary below, “compensation” includes salary, bonuses, equity-based compensation, retirement or termination payments, and any benefits or prerequisites such as car, phone and social benefits, as well as undertaking to provide such compensation in the future.
Summary Compensation Table
|Information Regarding the Covered Executive (1)|
|Name and Principal Position||Base Salary||Benefits & Perquisites (3)||Variable Compensation (4)||Equity-Based Compensation (5) ||Total |
|Keren Shemesh, Chief Marketing Officer||$||283,000 ||$||109,628 ||$||20,000 ||$||2,325,308 ||$||2,737,936 |
|Limor Raz, Chief People Officer||$||283,000 ||$||106,934 ||$||30,000 ||$||778,743 ||$||1,198,677 |
|Hari Nair, Director||$||60,000 ||$||— ||$||— ||$||1,122,472 ||$||1,182,472 |
|Tali Miller, Chief Business Officer||$||400,000 ||$||175,380 ||$||25,000 ||$||334,212 ||$||934,592 |
|David Goldberg, Chief Financial Officer||$||366,667 ||$||51,594 ||$||100,000 ||$||379,753 ||$||898,014 |
(1) In accordance with Israeli law, all amounts reported in the table are based on the cost to REE as recorded in our financial statements for the year ended December 31, 2022.
(2) All current officers listed in the table are full-time employees. Cash compensation amounts denominated in currencies other than the U.S. dollar were converted into U.S. dollars at the average conversion rate for the year ended December 31, 2022.
(3) Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to each executive, payments, contributions and/or allocations for savings funds, pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurances (such as life, disability and accident insurances), convalescence pay, payments for Medicare and social security, tax gross-up payments and other benefits and perquisites consistent with our guidelines, regardless of whether such amounts have actually been paid to the executive.
(4) Amounts reported in this column refer to Variable Compensation such as earned commissions, incentives and earned or paid bonuses as recorded in our financial statements for the year ended December 31, 2022.
(5) Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2022 with respect to equity-based compensation, reflecting also equity awards made in previous years which may have vested during the current year. Assumptions and key variables used in the calculation of such amounts are described in Note 11 to our audited consolidated financial statements, which are included in this Annual Report.
Compensation Policy for Non-Executive Directors
In July 2021, our shareholders amended and re-adopted the compensation policy for our non-executive directors. Pursuant to the amended compensation policy, the non-executive directors are paid an annual cash retainer and receive a fixed annual equity grant. The policy does not provide for the payment of any benefits upon termination of any non-executive director’s service.
Cash retainer. The annual retainer for board membership is $50,000, payable quarterly, with the Chairman of the board of directors paid a supplemental annual fee of $50,000, paid quarterly. The annual retainer for committee membership is $10,000 for audit committee membership, $7,500 for membership of the compensation committee, and $5,000 for membership of each nominating and corporate governance committee. The annual retainer for serving as chair of the audit
committee, the compensation committee and the nominating and corporate governance committee is $20,000, $15,000 and $10,000, respectively. To this date, REE has no nomination committee.
Initial equity awards. Each non-employee director is granted an initial grant of $100,000 worth of RSUs to purchase ordinary shares, plus a prorated portion of $150,000, which will be granted on the date of the director’s election or appointment to the Board, based on the closing share price on the date of grant. The prorated portion will be determined by multiplying $150,000 by the quotient of (i) the number of days remaining from the date of appointment or election until the next annual meeting of shareholders, divided by (ii) 360. Each such grant will vest in three equal installments on the first, second and third anniversaries of the date of grant or on the date of the annual meeting of shareholders in the first, second and third years following the date of grant, whichever is earlier in any year. For eligible Israeli directors, such grants will be made in accordance with the capital gains track under Section 102 of the Israeli Income Tax Ordinance and the REE Automotive Ltd. 2021 Share Incentive Plan.
Annual equity awards. Each current and future non-employee director will receive an annual grant of RSUs in the amount of $150,000 (in the case of the Chairman of the Board, $200,000, which the Chairman may elect to receive in whole or in part in quarterly installments of cash instead of RSUs, or some combination thereof), which will be granted at each annual meeting of shareholders at which such non-employee director is reelected, based on the closing share price on the date of grant. A non-employee director who is first elected at an annual meeting of shareholders will receive the full $150,000 Initial RSU Grant but will not receive an Annual RSU Grant for the year in which he or she is elected. Each such grant will vest in one installment on the first anniversary of the date of grant or the annual meeting of shareholders immediately following the date of grant, whichever is earlier. For eligible Israeli directors, such grants will be made in accordance with the capital gains track under Section 102 of the Israeli Income Tax Ordinance and the 2021 REE Automotive Ltd. Share Incentive Plan.
All RSU grants will be fully accelerated upon a change of control of the Company.
Key Employee Share Incentive Plan (2011)
Authorized Shares. REE no longer grants awards under the REE Automotive Ltd. Key Employee Share Incentive Plan (2011) (the “Existing Plan”), although previously granted awards under the Existing Plan remain outstanding and governed by such plan. Ordinary shares subject to awards granted under the Existing Plan that expire or become unexercisable without having been exercised in full will become available again for future grant under the 2021 REE Automotive Ltd. Share Incentive Plan (the “2021 Plan”). As of February 28, 2023, there were a total of 107,175,015 Class A Ordinary Shares subject to outstanding awards granted under the 2011 Plan, which if expired, cancelled, terminated, forfeited or settled in cash in lieu of issuance of shares or otherwise unexercisable without having been exercised, will become available for issuance under the 2021 Plan.
Administration. REE’s board of directors administers the Existing Plan. Under the Existing Plan, the administrator has the authority, subject to applicable law, to designate recipients of option grants, determine the terms of awards, including the exercise price of an option award, the time and vesting schedule applicable to an option grant and the other conditions applicable to an award, and take all other actions and make all other determinations necessary or desirable for, or incidental to, the administration of the Existing Plan. The board of directors may resolve to appoint a Share Incentive Committee in the future and in such case such committee will administer the plan, as shall be determined by the board of directors.
Eligibility. The Existing Plan provides for granting awards under various tax regimes, including in compliance with Section 102 (“Section 102”) of the Israeli Income Tax Ordinance (New Version), 5721-1961 (the “Ordinance”), and Section 3(i) of the Ordinance.
Section 102 allows employees, directors and officers who are not controlling shareholders and who are considered Israeli residents to receive favorable tax treatment for compensation in the form of shares or options under certain terms and conditions. Our non-employee service providers and controlling shareholders who are considered Israeli residents may be granted options only under Section 3(i) of the Ordinance, which does not provide for similar tax benefits. Section 102 includes two alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly to the grantee. Section 102(b)(2) of the Ordinance, the most favorable tax treatment for the grantee, permits the issuance to a trustee under the “capital gain track.”
Grants. All awards granted pursuant to the Existing Plan are evidenced by an award agreement that sets forth the terms and conditions of the award, including the type of award, number of shares subject to such award, vesting schedule and conditions (including performance goals or measures) and the exercise price, if applicable.
Each award will expire ten years from the date of the grant thereof, unless such shorter term of expiration is otherwise designated by the administrator.
Exercise. An award under the Existing Plan may be exercised by providing REE with notice of exercise and full payment of the exercise price for such shares underlying the award, if applicable, in such form and method as may be determined by the administrator and permitted by applicable law. An award may not be exercised for a fraction of a share. The exercise price of awards under the Existing Plan may be paid in cash or on a net issuance basis.
Termination of Employment. In the event of termination of a grantee’s employment or service with REE or any of its affiliates, all vested and exercisable awards held by such grantee as of the date of termination may be exercised within 90 days after such date of termination, unless otherwise determined by the administrator. After such 90 day period, all such unexercised awards will terminate and the shares covered by such awards shall again be available for issuance under the 2021 Plan.
In the event of termination of a grantee’s employment or service with REE or any of its affiliates due to such grantee’s death, all vested and exercisable awards held by such grantee as of the date of termination may be exercised by the grantee or the grantee’s legal guardian, estate, or by a person who acquired the right to exercise the award by bequest or inheritance, as applicable, within four months after such date of termination, unless otherwise provided by the administrator. In the event of termination of a grantee’s employment or service with REE or any of its affiliates due to such grantee’s disability (as defined in the Existing Plan), REE’s board of directors shall determine the terms under which the grantee may continue to exercise such awards. Any awards which are unvested as of the date of such termination or which are vested but not then exercised within the four month period (in the event of death) or within the period determined by REE’s board of directors (in the event of disability), will terminate and the shares covered by such awards shall again be available for issuance under the 2021 Plan.
Notwithstanding any of the foregoing, if a grantee’s employment or services with REE or any of its affiliates is terminated for “cause” (as defined in the Existing Plan), all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of such termination and the shares covered by such awards shall again be available for issuance under t the 2021 Plan, and all shares issued upon previous exercise of options of such grantee shall be subject to repurchase by REE or its designee at a price to be determined by REE’s board of directors, but not less than their nominal value.
Transactions. In the event of a share split, reverse share split, share dividend, recapitalization, combination or reclassification of REE’s shares, any other increase or decrease in the number of issued shares effected without receipt of consideration by REE, or in the event of a merger, consolidation, reorganization or the like involving REE, the options under the Existing Plan shall become exercisable for such number of securities of REE or the other corporation involved as would have been the case but for such action. In such case, REE’s board of directors in its sole discretion shall make an appropriate adjustment.
Employee Stock Purchase Plan
The REE Employee Stock Purchase Plan (the “ESPP”) was approved by REE’s board of directors and shareholders on July 21, 2021. The ESPP provides our employees and employees of participating subsidiaries with an opportunity to acquire a proprietary interest in our company through the purchase of shares of Class A Ordinary Shares. With respect to its employees in the United States, the ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code and the ESPP will be interpreted in a manner that is consistent with that intent. However, in order to ensure our employees located in jurisdictions other than the United States may receive similar benefits under the ESPP, the Committee may, in its sole discretion, establish subplans to the ESPP that may not qualify under Section 423 of the Code.
Administration. Our ESPP is administered by the Compensation Committee. The Compensation Committee has the authority to take any actions necessary or desirable for the administration of the ESPP, including adopting sub-plans applicable to particular participating subsidiaries or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code, or special rules applicable to participants in particular participating subsidiaries or particular locations. The Compensation Committee may change the minimum amounts of compensation (as defined in the ESPP) for payroll deductions, the frequency with which a participant may elect to change his or her rate of payroll deductions, the
dates by which a participant is required to submit an enrollment form and the effective date of a participant’s withdrawal from the ESPP due to a termination or transfer of employment or change in employment status. The Compensation Committee may delegate some or all of its authority to the extent permitted by law to one or more officers of the Company or one or more committees of the Board.
Shares Reserved. The maximum number of shares of our common shares available for issuance under the ESPP initially shall not exceed in the aggregate 4,628,524 Class A Ordinary Shares. The share pool will be increased on the first day of each fiscal year in an amount equal to the lesser of (i) 4,628,524 Class A Ordinary Shares (ii) 1.0% of the total number of shares of the Class A Ordinary Shares outstanding on the last day of the immediately preceding fiscal year and (iii) such number of shares as determined by the Board in its discretion.
Eligibility. With respect to employees who qualify to participate in an “employee stock purchase plan” pursuant to Section 423 of the Code, unless otherwise determined by the Compensation Committee in a manner that is consistent with Section 423 of the Code, any employee of ours or a participating subsidiary who has been employed by us or a participating subsidiary for at least 6 months and is customarily employed for at least 20 hours per week and more than 5 months in any calendar year is eligible to participate in an offering period, subject to the requirements of Section 423 of the Code. An eligible employee will not be granted an option if such grant would result in the employee owning 5% or more of the total combined voting power or value of all classes of our and our subsidiaries’ Ordinary Shares or if such grant would permit the employee to purchase our and our subsidiaries’ Ordinary Shares at a rate that exceeds $25,000 of the fair market value of the Ordinary Shares for each calendar year in which such option is outstanding at any time. The Committee may also determine additional employees to participate in sub-plans that are not subject to Section 423 of the Code.
Offering Periods. Unless otherwise determined by the Compensation Committee, each offering period under the ESPP will have a duration of six months commencing on or about January 1 or July 1 of each year (or such other time determined by the Compensation Committee). The initial offering period under the ESPP will commence on a date to be specified by the Compensation Committee. The Compensation Committee may, prior to the commencement of a particular offering period, change the duration, frequency, start and end dates of such offering period, subject to a maximum duration of 27 months.
Participation. Participation in the ESPP is voluntary. Eligible employees may elect to participate in the ESPP by completing an enrollment form and submitting it in accordance with the enrollment procedures established by the Compensation Committee, upon which the employee authorizes payroll deductions from his or her paycheck on each payroll date during the offering period in an amount equal to at least 1% of his or her compensation.
Participants may decrease or increase their rate of payroll deductions only once during an offering period by submitting a new enrollment form which must be submitted at least fifteen (15) days before the Purchase Date (as defined in the ESPP). The deduction rate selected for an offering period will remain in effect for subsequent offering periods unless the participant (i) submits a new enrollment form authorizing a new rate of payroll deductions, (ii) withdraws from the ESPP or (iii) terminates employment or otherwise becomes ineligible to participate in the ESPP.
Grant and Exercise of Options. Each participant will be granted, on the first trading day of each offering period, an option to purchase, on the last trading day of the offering period, a number of shares of our common stock determined by dividing the participant’s accumulated payroll deductions by the applicable purchase price. The purchase price for the option will equal to 85% of the fair market value of a share on the purchase date. A participant’s option will be exercised automatically on the purchase date to purchase the maximum number of whole Class A Ordinary Shares that can be purchased with the amounts in the participant’s notional account.
Withdrawal. Participants may withdraw from an offering at any time prior to the last day of the offering period by submitting a revised enrollment form indicating his or her election to withdraw at least 15 days before the purchase date. The accumulated payroll deductions held on behalf of the participant in his or her notional account will be paid to the participant promptly following receipt of the participant’s revised enrollment form indicating their election to withdraw, and the participant’s option will be automatically terminated.
Termination of Employment; Change in Employment Status; Transfer of Employment. On termination of a participant’s employment for any reason, or a change in the participant’s employment status following which the participant is no longer an eligible employee, the participant will be deemed to have withdrawn from the ESPP effective as of the date of such termination of employment or change in status, the accumulated payroll deductions remaining in the participant’s notional account will be returned to the participant, and the participant’s option will be automatically terminated.
Over-subscribed Offerings. If the Compensation Committee determines that, on a particular purchase date, the number of shares with respect to which options are to be exercised either exceeds the number of shares available under the ESPP or the Offering Period Limit (as defined i the ESPP), the shares will be allocated pro rata in a uniform manner as practicable and as the Compensation Committee deems equitable.
Adjustments Upon Changes in Capitalization; Corporate Transactions. In the event of any dividend or other distribution, recapitalization, share split, reorganization, merger, consolidation, spin-off, combination, repurchase, or exchange of shares or other securities of REE or other change in REE’s structure affecting our Class A Ordinary Shares, then in order to prevent dilution or enlargement of the benefits intended to be made available under the ESPP, the Compensation Committee will make equitable adjustments to the number and class of shares that may be issued under the ESPP, the purchase price per share, and the number of shares covered by each outstanding option.
In the event of a Corporate Transaction (as defined in the ESPP), each outstanding option will be assumed (or an equivalent option substituted) by the successor corporation or a parent or subsidiary of such successor corporation. If the successor corporation refuses to assume or substitute such option, the offering period will be shortened by setting a new purchase date on which the offering period will end. The new purchase date for the offering period will occur before the date of the corporate transaction.
Dissolution or Liquidation. Unless otherwise determined by the Compensation Committee, in the event of a proposed dissolution or liquidation of REE, any offering period in progress will be shortened by setting a new purchase date and the offering period will end immediately prior to the proposed dissolution or liquidation. Participants will be provided with written notice of the new purchase date and that the participant’s option will be exercised automatically on such date, unless before such time, the participant has withdrawn from the offering.
Amendment and Termination. The Compensation Committee may, in its sole discretion, amend, suspend or terminate the ESPP at any time and for any reason. The Compensation Committee may elect, upon termination of the ESPP, to terminate any outstanding offering period either immediately or once shares have been purchased on the next purchase date or permit the offering period to expire in accordance with its terms.
2021 Share Incentive Plan
The 2021 Plan, was approved by REE’s board of directors and shareholders on July 21, 2021, and provides for the grant equity linked awards to attract, motivate and retain talented employees for which REE competes.
Authorized Shares. The maximum number of Class A Ordinary Shares available for issuance under the 2021 Plan is equal to the sum of (i) 23,142,623 Class A Ordinary Shares, (ii) any shares subject to awards under the Existing Plan which have expired, or were cancelled, terminated, forfeited or settled in cash in lieu of issuance of shares or became unexercisable without having been exercised, and (iii) an annual increase on the first day of each year beginning in 2022 and on January 1st of each calendar year thereafter during the term of the Plan, equal to the lesser of (A) 5 % of the outstanding Class A Ordinary Shares on the last day of the immediately preceding calendar year and (B) such amount as determined by REE’s board of directors if so determined prior to January 1 of a calendar year. If permitted by REE, Class A Ordinary Shares tendered to pay the exercise price or withholding tax obligations with respect to an award granted under the 2021 Plan or any additional plan may again be available for issuance under the 2021 Plan. REE’s board of directors may also reduce the number of Class A Ordinary Shares reserved and available for issuance under the 2021 Plan in its discretion.
Administration. The Compensation Committee administers the 2021 Plan. Under the 2021 Plan, the administrator has the authority, subject to applicable law, to interpret the terms of the 2021 Plan and any award agreements or awards granted thereunder, designate recipients of awards, determine and amend the terms of awards, including the exercise price of an option award, the fair market value of an ordinary share, the time and vesting schedule applicable to an award or the method of payment for an award, accelerate or amend the vesting schedule applicable to an award, prescribe the forms of agreement for use under the 2021 Plan and take all other actions and make all other determinations necessary for the administration of the 2021 Plan.
The administrator also has the authority to amend and rescind rules and regulations relating to the 2021 Plan or terminate the 2021 Plan at any time before the date of expiration of its ten-year term.
Eligibility. The 2021 Plan provides for granting awards under various tax regimes, including, without limitation, in compliance with Section 102 of the Ordinance, and Section 3(i) of the Ordinance and for awards granted to REE’s United States employees or service providers, including those who are deemed to be residents of the United States for tax purposes, Section 422 of the Code and Section 409A of the Code. Generally, any employee, director, officer, consultant, advisor or any other person or entity providing services to REE (including any prospective employee, director, officer, consultant, advisor) may be eligible to receive awards under the 2021 Plan subject to the administrator’s ’s discretion and taking into account the qualification under each tax regime pursuant to which awards are granted.
Grants. All awards granted pursuant to the 2021 Plan will be evidenced by an award agreement, in a form approved, from time to time, by the administrator in its sole discretion. The award agreement will set forth the terms and conditions of the award, including the type of award, number of shares subject to such award, vesting schedule and conditions (including performance goals or measures) and the exercise price, if applicable. Certain awards under the 2021 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards.
Each award will expire 10 years from the date of the grant thereof, unless such shorter term of expiration is otherwise designated by the administrator.
Awards. The 2021 Plan provides for the grant of stock options (including incentive stock options and nonqualified stock options), ordinary shares, restricted shares, restricted share units, stock appreciation rights, other cash-based awards and other share-based awards. Options granted under the 2021 Plan to REE’s employees who are U.S. residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code or may be non-qualified stock options. The exercise price of a stock option may not be less than 100% of the fair market value of the underlying share on the date of grant (or 110% in the case of ISOs granted to certain significant shareholders).
Exercise. An award under the 2021 Plan may be exercised by providing REE with a written or electronic notice of exercise and full payment of the exercise price for such shares underlying the award, if applicable, in such form and method as may be determined by the administrator and permitted by applicable law. An award may not be exercised for a fraction of a share. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the 2021 Plan, the administrator may, in its discretion, accept cash, or provide for net withholding of shares in a cashless exercise mechanism.
Transferability. Other than by will, the laws of descent and distribution or as otherwise provided under the 2021 Plan, neither the options nor any right in connection with such options are assignable or transferable.
Termination of Employment. In the event of termination of a grantee’s employment or service with REE or any of its affiliates, all vested and exercisable awards held by such grantee as of the date of termination may be exercised within three months after such date of termination, unless otherwise determined by the administrator. After such three-month period, all such unexercised awards will terminate and the shares covered by such awards shall again be available for issuance under the 2021 Plan.
In the event of termination of a grantee’s employment or service with REE or any of its affiliates due to such grantee’s death or permanent disability, or in the event of the grantee’s death within the three month period (or such longer period as determined by the administrator) following his or her termination of service, all vested and exercisable awards held by such grantee as of the date of termination may be exercised by the grantee or the grantee’s legal guardian, estate, or by a person who acquired the right to exercise the award by bequest or inheritance, as applicable, within twelve months after such date of termination, unless otherwise provided by the administrator. Any awards which are unvested as of the date of such termination or which are vested but not then exercised within the twelve months period following such date, will terminate and the shares covered by such awards shall again be available for issuance under the 2021 Plan.
Notwithstanding any of the foregoing, if a grantee’s employment or services with REE or any of its affiliates is terminated for “cause” (as defined in the 2021 Plan), all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of such termination and the shares covered by such awards shall again be available for issuance under the 2021 Plan.
Voting Rights. Except with respect to restricted share awards, grantees will not have the rights as a shareholder of REE with respect to any shares covered by an award until the award has vested and/or the grantee has exercised such award, paid any exercise price for such award and becomes the record holder of the shares. With respect to restricted share awards,
grantees will possess all incidents of ownership of the restricted shares, including the right to vote and receive dividends on such shares.
Dividends. Grantees holding restricted share awards will be entitled to receive dividends and other distributions with respect to the shares underlying the restricted share award. Any stock split, stock dividend, combination of shares or similar transaction will be subject to the restrictions of the original restricted share award. Grantees holding restricted share units will not be eligible to receive dividend but may be eligible to receive dividend equivalents.
Transactions. In the event of a share split, reverse share split, share dividend, recapitalization, combination or reclassification of REE’s shares, or any other increase or decrease in the number of issued shares effected without receipt of consideration by REE (but not including the conversion of any convertible securities of REE), the administrator in its sole discretion may, and where required by applicable law shall, without the need for a consent of any holder, make an appropriate adjustment in order to adjust (i) the number and class of shares reserved and available for the outstanding awards, (ii) the number and class of shares covered by outstanding awards, (iii) the exercise price per share covered by any award, (iv) the terms and conditions concerning vesting and exercisability and the term and duration of the outstanding awards, and (v) the type or class of security, asset or right underlying the award (which need not be only that of REE, and may be that of the surviving corporation or any affiliate thereof or such other entity party to any of the above transactions), and (vi) any other terms of the award that in the opinion of the administrator should be adjusted; provided that any fractional shares resulting from such adjustment shall be rounded down to the nearest whole share unless otherwise determined by the administrator. In the event of a distribution of a cash dividend to all shareholders, the administrator may determine, without the consent of any holder of an award, that the exercise price of an outstanding and unexercised award shall be reduced by an amount equal to the per share gross dividend amount distributed by REE, subject to applicable law.
In the event of a merger or consolidation of REE, or a sale of all, or substantially all, of REE’s shares or assets or other transaction having a similar effect on REE, or change in the composition of the board of directors, or liquidation or dissolution, or such other transaction or circumstances that the board of directors determines to be a relevant transaction, then without the consent of the grantee, (i) unless otherwise determined by the administrator, any outstanding award will be assumed or substituted by such successor corporation, or (ii) regardless of whether or not the successor corporation assumes or substitutes the award (a) provide the grantee with the option to exercise the award as to all or part of the shares, and may provide for an acceleration of vesting of unvested awards, (b) cancel the award and pay in cash, shares of REE, the acquirer or other corporation which is a party to such transaction or other property as determined by the administrator as fair in the circumstances, or (c) provide that the terms of any award shall be otherwise amended, modified or terminated, as determined by the administrator to be fair in the circumstances. Unless otherwise determined by the administrator, to the extent any awards are not assumed or substituted by the successor corporation, such awards shall vest in full and be entitled to receive the consideration payable to shareholders generally (subject to any applicable exercise price and taxes in respect of any award) in such event. Notwithstanding the foregoing, the administrator may upon such event amend, modify or terminate the terms of any award as it shall deem, in good faith, appropriate.
C. Board practices
Board of Directors
Under the Companies Law and REE’s Amended and Restated Articles of Association (the “Amended and Restated Articles”), our business and affairs will be managed under the direction of our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to executive management. Our Chief Executive Officer (referred to as a “general manager” under the Companies Law) is responsible for day-to-day management of REE. Our Chief Executive Officer is appointed by and serves at the discretion of our board of directors, subject to the employment agreement that we have entered into with him. All other executive officers are appointed by the Chief Executive Officer, subject to applicable corporate approvals, and shall be subject to the terms of any applicable employment or consulting agreements.
Under the Amended and Restated Articles the number of directors on our board of directors will be no less than three and no more than eleven. Our directors will generally be elected by a simple majority vote of holders of Ordinary Shares, participating and voting (in person or by proxy) at an annual general meeting of our shareholders. Each director will hold office until the next annual general meeting of our shareholders, unless the tenure of such director expires earlier pursuant to the Companies Law or unless such director is removed from office as described below.
Under the Amended and Restated Articles, the approval of the holders of at least 65% of the total voting power of our shareholders will generally be required to remove any of our directors from office or amend the provision requiring the approval of at least 65% of the total voting power of our shareholders to remove any of our directors from office, provided that if any Class B Ordinary Shares remain outstanding, then the required majority shall be a majority of the total voting power of REE’s shareholders. In addition, vacancies on our board of directors may be filled by a vote of a simple majority of the directors then in office. A director so appointed will hold office until the next annual general meeting of our shareholders for the election of the class of directors in respect of which the vacancy was created. In the case of a vacancy due to the number of directors being less than the maximum number of directors stated in the Amended and Restated Articles, the new director filling the vacancy will serve until the next annual general meeting of our shareholders for the election of the class of directors to which such director was assigned by our board of directors.
Chairperson of the Board
Under the Amended and Restated Articles, the board of directors shall appoint a member of the board to serve as the chairperson. Under the Companies Law, the chief executive officer of a public company, or a relative of the chief executive officer, may not serve as the chairperson of the board of directors, and the chairperson of the board of directors, or a relative of the chairperson, may not be vested with authorities of the chief executive officer, unless approved by a special majority of the company’s shareholders. The shareholders’ approval may be effective for a period of up to three years.
In addition, a person who is subordinated, directly or indirectly, to the chief executive officer may not serve as the chairperson of the board of directors, the chairperson of the board of directors may not be vested with authorities that are granted to persons who are subordinated to the chief executive officer, and the chairperson of the board of directors may not serve in any other position in the Company or in a controlled subsidiary, but may serve as a director or chairperson of a controlled subsidiary.
Under the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,” including companies with shares listed on Nasdaq, are required to appoint at least two external directors. Pursuant to regulations promulgated under the Companies Law, companies which do not have a “controlling shareholder,” with shares traded on certain U.S. stock exchanges including Nasdaq, may, subject to certain conditions, “opt out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors. In accordance with these regulations, REE has elected to “opt out” from the Companies Law requirement to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of our board of directors.
Nasdaq corporate governance rules require that a majority of our board of directors be independent. An “independent director” is defined generally as a person who has no material relationship with the listed company (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the listed company). Our board of directors has determined that Arik Shteinberg, Hari Nair, Ittamar Givton (effective March 29, 2023), and Michal Marom-Brikman are independent directors as defined in Nasdaq corporate governance rules.
Under Nasdaq corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, each of whom is financially literate and one of whom has accounting or related financial management expertise.
Our audit committee consists of Michal Marom-Brikman, Ittamar Givton (effective March 29, 2023) and Hari Nair. Each member of our audit committee meets the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq corporate governance rules. Our board of directors has determined that Ms. Marom-Brikman is an audit committee financial expert as defined by the SEC rules.
Following the resignation in January 2023 of one of our board members who previously served on the audit committee, we received a notice from Nasdaq that our audit committee is not compliant with the requirement of having three members. We have one year to regain compliance with this requirement.
Our board of directors has determined that each member of our audit committee is independent, as such term is defined in Rule 10A3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members.
Companies Law Requirements
Under the Companies Law, the board of directors of a public company must appoint an audit committee. We have elected to “opt out” from additional Companies Law requirements relating to the size and composition of the audit committee.
Audit Committee Role
Our board of directors adopted an audit committee charter setting forth the responsibilities of the audit committee, which are consistent with the Companies Law, SEC rules, and Nasdaq corporate governance rules. These responsibilities include:
•appointing, retaining, and overseeing our independent auditors, subject to ratification by the board of directors, and in the case of retention, subject to ratification by the shareholders;
•pre-approving audit and non-audit services to be provided by the independent auditors and related fees and terms;
•overseeing the accounting and financial reporting processes of our company;
• managing audits of our financial statements;
•preparing all reports as may be required of an audit committee under the rules and regulations promulgated under the Exchange Act;
•reviewing with management and our independent auditor our annual and quarterly financial statements prior to publication, filing, or submission to the SEC;
•recommending to the board of directors the retention and termination of the internal auditor, and the internal auditor’s engagement fees and terms, in accordance with the Companies Law, as well as approving the yearly or periodic work plan proposed by the internal auditor;
•reviewing with our general counsel and/or external counsel, as deemed necessary, legal and regulatory matters that may have a material impact on the financial statements;
•identifying irregularities in our business administration, inter alia, by consulting with the internal auditor or with the independent auditor, and suggesting corrective measures to the board of directors;
•reviewing policies and procedures with respect to transactions (other than transactions related to compensation or terms of services) between REE and its officers and directors, affiliates of officers or directors, or transactions that are not in the ordinary course of REE’s business and deciding whether to approve such acts and transactions if so required under the Companies Law; and
•establishing procedures for handling employee complaints relating to the management of our business and the protection to be provided to such employees.
Under the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal auditor, among other things, is to review the company’s compliance with applicable law and orderly business procedure. Under the Companies Law, the internal auditor cannot be an interested party, an office holder, or a relative of an interested party or an office holder, nor may the internal auditor be the company’s independent auditor or its representative. An “interested party” is defined in the Companies Law as (i) a holder of 5% or more of the issued share capital or voting power in a company, (ii) any person or entity who has the right to designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who serves as a director or as chief executive officer of the company.
The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. Sharon Cohen, a partner with Deloitte Brightman Almagor, serves as our internal auditor.
Under Nasdaq corporate governance rules, we are required to maintain a compensation committee consisting of at least two independent directors.
Our compensation committee consists of Michal Marom-Brikman. Ms. Marom-Brikman serves as chairperson of the compensation committee. Our board of directors has determined that each member of our compensation committee is independent under Nasdaq corporate governance rules, including the additional independence requirements applicable to the members of a compensation committee.
Companies Law Requirements
Under the Companies Law, the board of directors of a public company must appoint a compensation committee. We have elected to “opt out” from additional Companies Law requirements relating to the size and composition of the compensation committee.
Compensation Committee Role
In accordance with the Companies Law, the responsibilities of the compensation committee are, among others, as follows:
•making recommendations to the board of directors with respect to the approval of the compensation policy for office holders and, once every three years, with respect to any extensions to a compensation policy that was adopted for a period of more than three years;
•the implementation of the compensation policy and periodically making recommendations to the board of directors with respect to any amendments or updates to the compensation policy;
•resolving whether to approve arrangements with respect to the terms of office and employment of office holders; and
•exempting, under certain circumstances, a transaction with our Chief Executive Officer from the approval of our shareholders.
Our board of directors adopted a compensation committee charter setting forth the responsibilities of the committee, which are consistent with Nasdaq corporate governance rules and include:
•recommending to our board of directors for its approval a compensation policy, in accordance with the requirements of the Companies Law, as well as other compensation policies, incentive-based compensation plans, and equity-based compensation plans, overseeing the development and implementation of such policies, and recommending to our board of directors any amendments or modifications the committee deems appropriate, including as required under the Companies Law;
•reviewing and approving the granting of options and other incentive awards to our Chief Executive Officer and other executive officers, including reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers, including evaluating their performance in light of such goals and objectives;
•approving and exempting certain transactions regarding office holders’ compensation pursuant to the Companies Law; and
•administering our equity-based compensation plans, including without limitation, approving the adoption of such plans, amending and interpreting such plans, and the awards and agreements issued pursuant thereto, and making and determining the terms of awards to eligible persons under the plans.
Compensation Policy under the Companies Law
In general, under the Companies Law, the board of directors of a public company must approve a compensation policy after receiving and considering the recommendations of the compensation committee. In addition, our compensation policy must be approved at least once every three years, first, by our board of directors, upon recommendation of our compensation committee, and second, by a simple majority of REE Ordinary Shares present, in person or by proxy, and voting (excluding abstentions) at a general meeting of shareholders, provided that either:
• the majority of such REE Ordinary Shares is comprised of shares held by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in such compensation policy; or
• the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation policy voting against the policy does not exceed two percent (2%) of the aggregate voting rights in the company.
Under special circumstances, the board of directors may approve the compensation policy despite the objection of the shareholders on the condition that the compensation committee and then the board of directors decide, on the basis of detailed grounds, and after discussing again with the compensation committee, that approval of the compensation policy, despite the objection of shareholders, is for the benefit of the Company.
Pursuant to relief available under the Companies Law, REE’s compensation policy, which was approved by our board of directors and shareholders prior to the closing of the Merger and described in our Registration Statement on Form F-4 filed with the SEC in connection with the Merger, was deemed a validly adopted policy in accordance with the Companies Law requirements and will remain in effect for a term of five years from the closing of the Merger.
Our compensation policy is designed to retain and motivate our directors and executive officers, incentivize superior individual excellence, align the interests of our directors and executive officers with our long-term performance, and provide a risk management tool. To that end, a portion of our executive officer compensation package is targeted to reflect our short and long-term goals, as well as the executive officer’s individual performance. Our compensation policy includes measures designed to reduce the executive officer’s incentives to take excessive risks that may harm the Company in the long-term, such as limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variable and the total compensation of an executive officer, and minimum vesting periods for equity-based compensation.
Our compensation policy addresses our executive officers’ individual characteristics (such as their respective positions, education, scope of responsibilities, and contributions to the attainment of our goals) as the basis for compensation variation among our executive officers and considers the internal ratios between compensation of our executive officers and directors and other employees. Pursuant to our compensation policy, the compensation that may be granted to an executive officer may include: base salary, annual bonuses, and other cash bonuses (such as a signing bonus and special bonuses with respect to any special achievements, such as outstanding personal achievement, outstanding personal effort, or outstanding company performance), equity-based compensation, benefits and retirement and termination of service arrangements. All cash bonuses will be limited to a maximum amount linked to the executive officer’s base salary.
An annual cash bonus may be awarded to executive officers upon the attainment of pre-set periodic objectives and individual targets. The annual cash bonus that may be granted to our executive officers, other than our Chief Executive Officer, will be based on performance objectives and a discretionary evaluation of the executive officer’s overall performance by our Chief Executive Officer and subject to minimum thresholds. The annual cash bonus that may be granted to executive officers, other than our Chief Executive Officer, may alternatively be based entirely on a discretionary evaluation. Furthermore, our Chief Executive Officer will be entitled to approve performance objectives for executive officers who report to him.
The measurable performance objectives of our Chief Executive Officer will be determined annually by our compensation committee and board of directors. A non-material portion of the Chief Executive Officer’s annual cash bonus, as provided in our compensation policy, may be based on a discretionary evaluation of the Chief Executive Officer’s overall performance by the compensation committee and the board of directors.
Under our compensation policy, the equity-based compensation of our executive officers and members of our board of directors will be designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus, with its main objectives being to enhance the alignment between the executive officers’ and directors’ interests with our long-term interests and those of our shareholders, and to strengthen the retention and the motivation of executive officers and directors over the long term. Our compensation policy provides for executive officer and director
compensation in the form of share options or other equity-based awards, such as restricted shares and restricted share units, in accordance with our then-current equity incentive plan. All equity-based incentives granted to executive officers and directors shall be subject to vesting periods in order to promote long-term retention. Equity-based compensation shall be granted from time to time and be individually determined and awarded according to the individual’s performance, educational background, prior business experience, qualifications, role, and personal responsibilities.
In addition, our compensation policy contains provisions that allow us, under certain conditions, to recover bonuses paid in excess, enable our Chief Executive Officer to approve an immaterial change in the terms of employment of an executive officer who reports directly to him (provided that such changes are in accordance with our compensation policy), and will allow us to exculpate, indemnify, and insure our executive officers and directors to the maximum extent permitted by Israeli law subject to certain limitations set forth therein.
Our compensation policy also provides for compensation to the members of our board of directors either (i) in accordance with the amounts provided in the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director), 5760-2000, as modified by the Companies Regulations (Relief for Public Companies Traded on Stock Exchanges Outside of Israel), 5760-2000, as such regulations may be amended from time to time, or (ii) in accordance with the amounts determined in our compensation policy.
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Directors and Executive Officers
The Companies Law codifies the fiduciary duties that office holders owe to a company. An office holder is defined in the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions regardless of such person’s title, a director, and any other manager directly subordinate to the general manager.
An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would act under the same circumstances. The duty of care includes, among other things, a duty to use reasonable means, in light of the circumstances, to obtain:
•information on the business advisability of a given action brought for the office holder’s approval or performed by virtue of the office holder’s position; and
•all other important information pertaining to such action.
The duty of loyalty requires an office holder to act in good faith and in the best interests of the Company, and includes, among other things, the duty to:
•refrain from any act involving a conflict of interest between the performance of the office holder’s duties in the company and the office holder’s other duties or personal affairs;
•refrain from any activity that is competitive with the business of the company;
•refrain from exploiting any business opportunity of the company for the purpose of gaining a personal advantage for the office holder or others; and
•disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of the office holder’s position.
Under the Companies Law, a company may approve an act, specified above, which would otherwise constitute a breach of the office holder’s fiduciary duty, provided that the office holder acted in good faith, neither the act nor its approval harms the company, and the personal interest of the office holder is disclosed a sufficient time before the approval of such act. Any such approval is subject to the terms of the Companies Law setting forth, among other things, the required corporate approvals and the methods of obtaining such approvals.
Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions
The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest and all related material information known to such office holder concerning any existing or proposed transaction with the company. A personal interest includes an interest of any person in an act or transaction of a company, including a personal interest of one’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director, or general manager or in which such person has the right to appoint at least one director or the general manager, but excluding a personal interest stemming solely from one’s ownership of shares in the company. A personal interest includes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to the officer holder’s vote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter.
If it is determined that an office holder has a personal interest in a non extraordinary transaction (meaning any transaction that is in the ordinary course of business, on market terms or that is not likely to have a material impact on the company’s profitability, assets or liabilities), approval by the board of directors is required for the transaction unless the company’s articles of association provide for a different method of approval. Any such transaction that is adverse to the company’s interests may not be approved by the board of directors.
Approval first by the company’s audit committee and subsequently by the board of directors will be required for an extraordinary transaction (meaning any transaction that is not in the ordinary course of business, not on market terms or that is likely to have a material impact on the company’s profitability, assets or liabilities) in which an office holder has a personal interest.
A director and any other office holder who has a personal interest in a transaction which is considered at a meeting of the board of directors or the audit committee may generally (unless it is with respect to a transaction which is not an extraordinary transaction) not be present at such a meeting or vote on that matter unless a majority of the directors or members of the audit committee, as applicable, have a personal interest in the matter. If a majority of the members of the audit committee or the board of directors have a personal interest in the matter, then all of the directors may participate in deliberations of the audit committee or board of directors, as applicable, with respect to such transaction and vote on the approval thereof and, in such case, shareholder approval will also be required.
Certain disclosure and approval requirements apply under Israeli law to certain transactions with controlling shareholders, certain transactions in which a controlling shareholder has a personal interest, and certain arrangements regarding the terms of service or employment of a controlling shareholder. For these purposes, a controlling shareholder is any shareholder that has the ability to direct the company’s actions, including any shareholder holding 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder.
Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power with respect to the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect to the following matters:
• an amendment to the company’s articles of association;
•an increase of the company’s authorized share capital;
• a merger; or
•interested party transactions that require shareholder approval.
In addition, a shareholder has a general duty to refrain from discriminating against other shareholders.
Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that it has the power to determine the outcome of a shareholder vote, and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or exercise any other rights available to it under the company’s articles of association with respect to the company. The Companies Law
does not define the substance of this duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty of fairness.
Exculpation, Insurance and Indemnification of Office Holders
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care, but only if a provision authorizing such exculpation is included in its articles of association. Our Amended and Restated Articles will include such a provision. An Israeli company may not exculpate a director from liability arising out of a prohibited dividend or distribution to shareholders.
An Israeli company may indemnify an office holder from the following liabilities and expenses incurred for acts performed as an office holder, either in advance of an event or following an event, provided a provision authorizing such indemnification is contained in its articles of association:
•a financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the above mentioned events and amount or criteria;
• reasonable litigation expenses, including legal fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (2) in connection with a monetary sanction;
•expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted against such office holder, or certain compensation payments made to an injured party imposed on an office holder by an administrative proceeding, pursuant to certain provisions of the Israeli Securities Law; and
•expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted against such office holder pursuant to certain provisions of the Israeli Economic Competition Law, 5758-1988.
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided in the company’s articles of association:
•a breach of the duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the Company;
•a breach of the duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder;
•a financial liability imposed on the office holder in favor of a third party;
•a financial liability imposed on the office holder in favor of a third party harmed by a breach in an administrative proceeding; and
•expenses, including reasonable litigation expenses and legal fees, incurred by the office holder as a result of an administrative proceeding instituted against him or her, pursuant to certain provisions of the Israeli Securities Law.
An Israeli company may not indemnify or insure an office holder against any of the following:
•a breach of the duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
•a breach of the duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
•an act or omission committed with intent to derive illegal personal benefit; or
•a fine, monetary sanction, or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification, and insurance of office holders must be approved by the compensation committee and the board of directors (and, with respect to directors and the chief executive officer, by the shareholders). However, under regulations promulgated under the Companies Law, the insurance of office holders shall not require shareholder approval and may be approved by only the compensation committee if the engagement terms are determined in accordance with the company’s compensation policy, which was approved by the shareholders by the same special majority required to approve a compensation policy, provided that the insurance policy is on market terms and the insurance policy is not likely to materially impact the company’s profitability, assets, or obligations.
Our Amended and Restated Articles will allow us to exculpate, indemnify, and insure our office holders for any liability imposed on them as a consequence of an act (including any omission) which was performed by virtue of being an office holder. Our office holders are currently covered by a directors and officers’ liability insurance policy.
We have entered into agreements with each of our directors and executive officers exculpating them in advance, to the fullest extent permitted by law, from liability to us for damages caused to us as a result of a breach of duty of care and undertaking to indemnify them to the fullest extent permitted by law. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances.
The maximum indemnification amount set forth in such agreements is limited to an amount equal to the higher of $50 million, 25% of our total shareholders’ equity as reflected in our most recent consolidated financial statements as of the date on which the indemnity payment is made and 10% of our total market capitalization calculated based on the average closing price of Class A Ordinary Shares over the 30 trading days prior to the actual payment, multiplied by the total number of our issued and outstanding shares as of the date of the payment and the aggregate amount of proceeds from the sale of, or value exchanged in relation to, in connection with or arising out of a public offering of our securities. The maximum amount set forth in such agreements is in addition to any amount paid (if paid) under insurance and/or by a third party pursuant to an indemnification arrangement.
In the opinion of the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy and therefore unenforceable.
Compensation of Directors and Executive Officers
Under the Companies Law, the compensation of a public company’s directors requires the approval of (i) its compensation committee, (ii) its board of directors and, unless exempted under regulations promulgated under the Companies Law, (iii) the approval of its shareholders at a general meeting. In addition, if the compensation of a public company’s directors is inconsistent with the company’s compensation policy, then those inconsistent provisions must be separately considered by the compensation committee and board of directors, and approved by the shareholders by a special vote in one of the following two ways:
•at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such matter, present and voting at such meeting, vote in favor of the inconsistent provisions of the compensation package, excluding abstentions; or
•the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such matter voting against the inconsistent provisions of the compensation package does not exceed two percent (2%) of the aggregate voting rights in the Company.
Executive Officers other than the Chief Executive Officer
The Companies Law requires the compensation of a public company’s office holders (other than the chief executive officer) be approved in the following order: (i) the compensation committee, (ii) the company’s board of directors, and (iii) if such compensation arrangement is inconsistent with the company’s stated compensation policy, the company’s shareholders (by a special vote as discussed above with respect to the approval of director compensation that is inconsistent with the compensation policy).
However, there are exceptions to the foregoing approval requirements with respect to non-director office holders. If the shareholders of the company do not approve the compensation of a non-director office holder, the compensation committee and board of directors may override the shareholders’ disapproval for such non-director office holder provided that the compensation committee and the board of directors each document the basis for their decision to override the disapproval of the shareholders and approve the compensation.
An amendment to an existing compensation arrangement with a non-director office holder requires only the approval of the compensation committee, if the compensation committee determines that the amendment is immaterial. However, if the non-director office holder is subordinate to the chief executive officer, an amendment to an existing compensation arrangement shall not require the approval of the compensation committee if (i) the amendment is approved by the chief executive officer, (ii) the company’s compensation policy allows for such immaterial amendments to be approved by the chief executive officer and (iii) the engagement terms are consistent with the company’s compensation policy.
Chief Executive Officer
Under the Companies Law, the compensation of a public company’s chief executive officer is required to be approved by: (i) the company’s compensation committee, (ii) the company’s board of directors and (iii) the company’s shareholders (by a special vote as discussed above with respect to the approval of director compensation that is inconsistent with the compensation policy). However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision provided that they each document the basis for their decision and the compensation is in accordance with the company’s compensation policy.
In the case of a new chief executive officer, the compensation committee may waive the shareholder approval requirement with regard to the compensation of a candidate for the chief executive officer position if the compensation committee determines that: (i) the compensation arrangement is consistent with the company’s compensation policy, (ii) the chief executive officer candidate did not have a prior business relationship with the company or a controlling shareholder of the company and (iii) subjecting the approval of the engagement to a shareholder vote would impede the company’s ability to employ the chief executive officer candidate. However, if the chief executive officer candidate will serve as a member of the board of directors, such candidate’s compensation terms as chief executive officer must be approved in accordance with the rules applicable to approval of compensation of directors.
As of December 31, 2022, we had 291 employees and external consultants deployed to REE on a full-time equivalent (“FTE”)2 basis located in the following geographic locations:
2 Number of external consultants deployed to REE is calculated on a full-time equivalent basis. External consultants are converted to full-time equivalents by dividing their actual working hours per month by a full-time standard. As of December 31, 2022 and 2021 we had 14 and 37 external consultants on an FTE basis deployed to REE, respectively, most of which were located in the United Kingdom.
|December 31, 2022||December 31, 2021||December 31, 2020|
|Israel||133 ||127 ||69 |
|United Kingdom||134 ||119 ||6 |
|United States||18 ||14 ||5 |
|Germany||3 ||5 ||3 |
|Other||3 ||5 ||1 |
|291 ||270 ||84 |
The following table shows the breakdown of our global workforce of employees and external consultants deployed to REE on an FTE basis by category of activity as of the dates indicated:
|December 31, 2022||December 31, 2021||December 31, 2020|
|General and administrative||59 ||39 ||13 |
|Marketing||16 ||16 ||15 |
|Research and development||216 ||215 ||56 |
|291 ||270 ||84 |
In regard to our Israeli employees, Israeli labor laws govern the length of the work day, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Our employees have pension plans that comply with the applicable Israeli legal requirements and we make monthly contributions to severance pay funds for all employees, which cover potential severance pay obligations.
None of our employees work under any collective bargaining agreements. Extension orders issued by the Israeli Ministry of Economy apply to us and affect matters, such as cost of living adjustments to salaries, length of working hours and week, recuperation pay, travel expenses, and pension rights.
We have never experienced labor-related work stoppages or strikes, and believe that our relations with our employees are satisfactory.
E. Share ownership
For information regarding the share ownership of our directors and executive officers, please refer to “Item 6.B. Compensation—Option Plans” and “Item 7.A. Major Shareholders.”
F. Disclosure of a registrant’s action to recover erroneously awarded compensation.
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
The following table and accompanying footnotes set forth information with respect to the beneficial ownership of our Ordinary Shares, as of February 28, 2023:
•each person or entity who is known by us to be the beneficial owner of more than 5% of the outstanding Ordinary Shares;
•each of our current executive officers and directors, individually; and
•all of our executive officers and directors, as a group.
The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or investment power over such security. A shareholder is also deemed to be, as of any date, the beneficial owner of all securities that such shareholder has the right to acquire within 60 days after that date through (i) the exercise of any option, warrant or right, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar
arrangement, or (iv) the automatic termination of a trust, discretionary account or similar arrangement. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, ordinary shares subject to options or other rights (as set forth above) held by that person that are currently exercisable, or will become exercisable within 60 days thereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Each person named in the table has sole voting and investment power with respect to all of the Ordinary Shares shown as beneficially owned by such person, except as otherwise indicated in the table or footnotes below.
The percentage of ordinary shares beneficially owned is computed on the basis of 244,858,193 Class A Ordinary Shares and 83,417,110 Class B Ordinary Shares outstanding as of February 28, 2023.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all Ordinary Shares beneficially owned by them. To our knowledge, no Ordinary Shares beneficially owned by any executive officer, director or director nominee have been pledged as security.
Number of Class A Ordinary Shares Beneficially Owned
Percentage of Outstanding Class A Ordinary Shares
Number of Class B Ordinary Shares Beneficially Owned
Percentage of Outstanding Class B Ordinary Shares
Percentage of Total Voting Power
The Phoenix Holdings Ltd.(1)
|19,195,371 ||7.3 ||%||— ||— ||%||1.8 ||%|
|17,170,420 ||6.6 ||%||— ||— ||%||1.6 ||%|
|16,574,420 ||6.3 ||%||— ||— ||%||1.5 ||%|
M&G Investment Management Limited (MAGAIM)(4)
|15,487,262 ||5.9 ||%||— ||— ||%||1.4 ||%|
|13,758,023 ||5.3 ||%||— ||— ||%||1.3 ||%|
|Ari Raved||11,623,729 ||4.5 ||%||— ||— ||%||1.1 ||%|
Executive Officers and Directors
|41,733,616 ||14.6 ||%||41,708,555 ||50.0 ||%||42.5 ||%|
|41,708,615 ||14.6 ||%||41,708,555 ||50.0 ||%||42.5 ||%|
|1,422,214 ||*||— ||— ||*|
|1,133,378 ||*||— ||— ||*|
|738,828 ||*||— ||— ||*|
|46,710 ||*||— ||— ||*|
|— ||*||— ||— ||*|
|— ||*||— ||— ||*|
|8,889,254 ||3.5 ||%||— ||— ||*|
|2,487,186 ||1.0 |