Business Context and Reporting Period
Company: Workhorse Group Inc. (WKHS)
Filing Type: Form 8-K (Current Report)
Date of Report: December 16, 2024
Event: Entry into a Material Definitive Agreement regarding the issuance of senior secured convertible notes.
Key Financial Metrics and Transaction Details
- Transaction: Issuance of the "Eighth Additional Note" under a Securities Purchase Agreement dated March 15, 2024.
- Principal Amount: $3,500,000.
- Proceeds: $3,062,500 (issued with a 12.5% original issue discount).
- Interest Rate: 9.0% per annum (payable in cash or in-kind); increases to 18.0% per annum upon an event of default.
- Maturity: One-year anniversary of the issuance date (December 16, 2025), subject to extension.
- Conversion Price: Lower of $0.5983 (Reference Price) or 87.5% of the 10-day VWAP (subject to a $0.20 Floor Price).
- Warrants: Investor waived the right to receive warrants for this tranche.
- Outstanding Notes: As of December 15, 2024, $5,600,000 remained outstanding under prior notes. Total capacity under the agreement allows for up to $139,000,000 in aggregate principal.
- Liquidity Covenants: Company must maintain minimum liquidity of $1,500,000 (if Sale Leaseback not consummated) or $4,000,000 (if consummated) at the end of each fiscal quarter.
Material Changes and Agreements
The filing details the closing of an additional tranche of debt financing. Key changes and terms include:
- Waivers: The Investor waived the right to receive warrants for up to $16.0 million in additional notes (with $9.3 million remaining available after this closing).
- ATM Program: The Investor waived certain provisions to permit the Company to sell up to $5 million in common stock via an at-the-market offering program between December 16, 2024, and October 16, 2025, without a price floor or application of certain anti-dilution provisions.
- Lease Payments: The Company waived the obligation of an Investor affiliate to make ongoing lease payments related to the divested aero business.
- Redemption Rights: The note includes redemption triggers at a 25% premium (or 75% premium during default or specific conditions) upon change of control, asset sales, or default events.
Guidance, Risks, and Contingencies
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from expectations due to risks disclosed in other SEC reports.
- Dilution Risk: The notes are convertible into common stock, subject to a 9.99% beneficial ownership cap. The conversion price includes a full-ratchet adjustment for subsequent offerings at lower prices.
- Default Risks: Failure to meet liquidity covenants or other affirmative/negative covenants could trigger an event of default, increasing the interest rate to 18.0% and accelerating redemption obligations.
- Contingency: Future closings of up to $100,014,286 in additional notes are contingent on the filing of prospectus supplements and satisfaction of other conditions.
Investor Verification Checklist
- Verify the current cash balance and liquidity position to ensure compliance with the $1.5M or $4.0M quarterly minimum liquidity covenant.
- Review the status of the Union City, Indiana manufacturing facility Sale Leaseback transaction, as it dictates the required liquidity threshold.
- Monitor the Company's stock price relative to the $0.5983 Reference Price and $0.20 Floor Price to assess potential dilution upon conversion.
- Confirm the remaining capacity under the Securities Purchase Agreement ($9.3 million in notes without warrants) and the $5 million ATM waiver.
- Check for any subsequent filings regarding the filing of prospectus supplements required for future tranches.