Business Context and Reporting Period
This Form 8-K was filed by Workhorse Group Inc. on November 29, 2018, reporting events that occurred on November 28, 2018. The filing details a material definitive agreement involving the sale of battery cells and a concurrent restructuring of debt obligations with a lender.
Key Financial Metrics and Transactions
- Asset Sale: Sold 615,000 battery cells to Duke Energy One, Inc. for $1,340,700.
- Debt Restructuring: Issued 2,000,000 shares of common stock to Arosa Opportunistic Fund LP as consideration for consent to the asset sale.
- Warrant Adjustment: Restruck the exercise price of warrants previously issued to Arosa to $1.25 per share.
- Outstanding Debt: The transaction relates to a $7.8 million loan agreement with Arosa dated July 8, 2018.
Material Changes and Agreements
The filing reports two primary material changes:
- Sales Agreement with Duke Energy: Workhorse sold 615,000 battery cells to Duke Energy One, Inc. The agreement includes a buy-sell option valid until May 1, 2019, allowing either party to require the other to repurchase the cells at the original sale price.
- Consent and Waiver with Arosa: Arosa, the holder of a $7.8 million loan secured by the battery cells, consented to the sale. In exchange, Workhorse issued 2 million shares of common stock and adjusted warrant terms. The warrant exercise price is now $1.25 and includes a "ratchet" provision: if Workhorse issues equity below $1.25 while the loan is outstanding, the warrant price will be adjusted downward to match the new issuance price.
Outlook, Risks, and Unusual Items
Operational Continuity: Workhorse intends to continue using the sold battery cells in the near term to fulfill delivery truck orders for UPS and DHL.
Risk Factors: The warrant restructuring introduces dilution risk for existing shareholders if the company issues equity below $1.25 per share while the Arosa loan remains outstanding. The transaction was conducted under Section 4(a)(2) and Rule 506 exemptions, meaning the securities are restricted and not publicly traded.
Key Facts for Investor Verification
- Verify the impact of the 2,000,000 new share issuance on total outstanding shares and earnings per share.
- Confirm the status of the $7.8 million Arosa loan and the specific terms of the collateral release.
- Monitor the "ratchet" provision on Arosa warrants, which could trigger further dilution if future equity raises occur below $1.25.
- Assess the operational necessity of the buy-sell option with Duke Energy regarding the 615,000 cells.