Workhorse Group Inc. (WKHS) - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated May 29, 2024, discloses the entry into a material definitive agreement by Workhorse Group Inc. The filing details the issuance of additional debt and equity-linked instruments under a Securities Purchase Agreement originally entered into on March 15, 2024, with an institutional investor.
Key Financial Metrics and Transaction Details
- Debt Issuance: The Company issued a "Second Additional Note" with an original principal amount of $7,000,000.
- Proceeds: Due to a 12.5% original issue discount, the Company received $6,125,000 in proceeds before fees and expenses.
- Warrants Issued: The Company issued a "Second Additional Warrant" to purchase up to 40,965,618 shares of Common Stock.
- Warrant Terms: The exercise price is $0.2944 per share, exercisable immediately for a period of 10 years.
- Interest Rate: The Note bears interest at 9.0% per annum, payable quarterly in cash or in-kind. This rate increases to 18.0% per annum upon an event of default.
- Maturity: The Note matures on the one-year anniversary of issuance (May 29, 2025), subject to extension.
- Outstanding Debt: As of May 28, 2024, $3,548,137.20 in aggregate principal remained outstanding under prior notes issued under the same agreement.
- Liquidity Covenants: The Company must maintain minimum quarterly liquidity of $1,500,000 if a specific sale-leaseback transaction is not consummated, or $4,000,000 if it is consummated.
Material Changes and Conversion Terms
The filing represents a material increase in the Company's secured debt obligations and potential equity dilution. Key terms include:
- Conversion Price: The Note is convertible at the holder's option into Common Stock at a price equal to the lower of $0.1367 (Reference Price) or 87.5% of the volume-weighted average price (subject to a floor of $0.0421).
- Beneficial Ownership Cap: Conversion or exercise is limited to prevent the holder from beneficially owning more than 4.99% (or up to 9.99% at the holder's option) of outstanding Common Stock.
- Redemption Rights: The Company may prepay the Note with a 25% premium (or 75% during default) upon 15 business days' notice. Holders may force redemption at a premium in events of default, change of control, or asset sales.
- Remaining Capacity: The Securities Purchase Agreement allows for up to $116,714,286 in additional Note issuances and corresponding warrants upon satisfaction of conditions.
Guidance, Risks, and Contingencies
The filing contains forward-looking statements subject to risks and uncertainties. Material risks and contingencies identified include:
- Default Risk: Failure to meet liquidity covenants or other affirmative/negative covenants could trigger an event of default, increasing the interest rate to 18.0% and allowing for forced redemption at a 75% premium.
- Dilution Risk: The issuance of warrants and the potential conversion of notes at prices significantly below current market levels (if applicable) could result in substantial dilution to existing shareholders.
- Secured Status: The Notes are senior secured obligations, ranking senior to all other unsecured indebtedness and guaranteed by subsidiaries.
- Future Closings: The ability to raise the remaining $116.7 million depends on the filing of additional prospectus supplements and satisfaction of conditions.
Investor Verification Checklist
- Verify the current cash balance and liquidity position to ensure compliance with the $1.5M or $4.0M minimum liquidity covenant.
- Review the status of the Sale Leaseback transaction for the Union City, Indiana manufacturing facility, as this dictates the liquidity threshold.
- Assess the potential dilution impact of the 40.9 million warrants and the conversion of the $7 million note at the $0.1367 reference price.
- Confirm the total outstanding principal under the Securities Purchase Agreement, including the $3.55 million previously outstanding.
- Monitor for any upcoming events of default that could trigger the 18.0% interest rate or forced redemption provisions.