Business Context and Reporting Period
Company: Workhorse Group Inc. (WKHS)
Filing Type: Form 8-K (Current Report)
Date of Report: March 15, 2024
Event: Entry into a Material Definitive Agreement (Securities Purchase Agreement) with an institutional investor to raise capital through senior secured convertible notes and warrants.
Key Financial Metrics and Transaction Details
- Total Facility Size: Up to $139,000,000 in aggregate principal amount of senior secured convertible notes.
- Initial Closing (March 15, 2024):
- Initial Note Principal: $9,000,000.
- Initial Proceeds: $7,875,000 (reflecting a 12.5% original issue discount).
- Initial Warrants: Right to purchase up to 31,992,890 shares of Common Stock.
- 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 issuance, subject to extension.
- Conversion Price: Lower of $0.26 (Reference Price) or the Alternate Conversion Price (87.5% of VWAP, subject to a $0.05 floor).
- Warrant Exercise Price: $0.35 per share for the Initial Warrant; 10-year term.
- Liquidity Covenants: Minimum liquidity of $1,500,000 (if Sale Leaseback not consummated) or $4,000,000 (if consummated).
- Debt Redemption: Company redeemed $2,500,000 of existing Green Senior Secured Convertible Note upon Initial Closing.
Material Changes and Transaction Structure
The filing details a new financing structure replacing prior debt obligations. Key structural elements include:
- Tranche Structure: Following the initial $9 million, the agreement allows for up to $130 million in Additional Notes.
- First $55 million: Company may require the Investor to purchase.
- Next $25 million: Company option to issue.
- Remaining $50 million: Investor option to purchase.
- Additional Warrants: Issued at additional closings equal to 80% of shares issuable upon conversion of Additional Notes. Exercise price is the lower of $0.50 or 140% of the closing bid price prior to the closing.
- Security Status: Notes are senior secured obligations, ranking senior to all other unsecured indebtedness, and are unconditionally guaranteed by subsidiaries.
- Redemption Premiums: Prepayment or redemption during default/change of control requires payment of face value plus a 25% premium (or 75% premium under specific default conditions).
Guidance, Risks, and Contingencies
- Stockholder Approval Requirement: The Company must obtain stockholder approval within 75 days of the Initial Closing for:
- Issuance of shares exceeding 19.99% of outstanding common stock at a price below the Nasdaq Minimum Price.
- A reverse stock split of the Common Stock.
- Conversion Restrictions: No Note may be converted and no Warrant exercised prior to stockholder approval if it would breach Nasdaq rules (Exchange Cap). Additionally, a Beneficial Ownership Cap limits conversion/exercise to prevent any holder from owning more than 4.99% (or 9.99% at holder's option) of outstanding stock.
- Anti-Dilution: The Reference Price is subject to full-ratchet adjustment if a subsequent offering occurs at a lower price. The Investor also has participation rights in future equity transactions for up to 3 years.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from expectations due to risks disclosed in other SEC reports.
Investor Verification Checklist
- Verify the status of the required stockholder approval for the reverse stock split and the Offering under Nasdaq Rule 5635(d).
- Confirm the current cash balance to ensure compliance with the $1.5M or $4.0M minimum liquidity covenant.
- Monitor the Company's stock price relative to the $0.26 Reference Price and $0.05 Floor Price to assess potential dilution from conversions.
- Review the terms of the "Sale Leaseback" transaction of the Union City, Indiana facility, as it impacts liquidity covenants and potential redemption triggers.
- Check for any subsequent equity offerings that could trigger the full-ratchet anti-dilution adjustment on the Notes.