Workhorse Group Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated December 9, 2019, details a material definitive agreement entered into by Workhorse Group Inc. (WKHS) on November 21, 2019, with a closing date of December 9, 2019. The Company executed a Registered Direct Offering to secure capital for debt repayment and general corporate purposes.
Key Financial Metrics and Transaction Details
- Debt Issuance: Issued a senior secured convertible note with a principal amount of $41,000,000.
- Interest Rate: 4.50% per annum, payable quarterly starting February 1, 2020 (cash or stock at Company's option).
- Conversion Price: $3.05 per share, subject to anti-dilution adjustments.
- Maturity Date: November 1, 2022.
- Warrants Issued: Warrants to purchase up to 15,459,016 shares of Common Stock, exercisable only for 90 days following full or partial redemption of the Note.
- Net Proceeds: $38,950,000 (after discounts, before expenses).
- Use of Proceeds: Repayment of outstanding obligations under the Marathon Asset Management credit agreement and general corporate purposes.
- Unregistered Securities: Issued additional warrants to Marathon Lenders for 1,493,624 shares at an exercise price of $3.355 per share pursuant to prior agreement terms.
Material Changes and Debt Structure
The primary material change is the refinancing of existing debt. The Company utilized the new proceeds to pay off obligations under the "Marathon Agreement" dated December 31, 2018. The new Note ranks as a senior secured obligation, senior to all unsecured debt. The transaction included no underwriting discounts or commissions.
Key debt covenants and redemption terms include:
- Early Redemption: The Investor may require redemption of up to $1.68 million principal monthly starting March 1, 2020, at 112% of the principal repaid.
- Company Redemption: The Company may redeem amounts in excess of $5,000,000 at the greater of 115% of conversion value or 100% of the Repayment Price.
- Forced Conversion: At least $5 million of the Note principal must be converted into common stock by April 1, 2020.
Outlook, Risks, and Contingencies
The filing contains forward-looking statements regarding the settlement of the securities sale and receipt of proceeds. Risks include the Company's ability to satisfy closing conditions and the potential for actual results to differ materially from expectations. The Additional Warrants issued to Marathon Lenders were sold under Section 4(a)(2) and Rule 506 exemptions and are not registered under the Securities Act of 1933.
Investor Verification Checklist
- Verify the exact amount of debt repaid to Marathon Asset Management versus the amount retained for general corporate purposes.
- Confirm the dilution impact of the 15,459,016 warrants and the mandatory $5 million conversion by April 1, 2020.
- Review the full text of the Purchase Agreement (Exhibit 10.1) for specific conditions regarding cashless exercise and anti-dilution adjustments.
- Assess the liquidity impact of the 4.50% quarterly interest payments and the potential for monthly redemption payments starting March 2020.
- Check the status of the Marathon Lenders' Additional Warrants (1,493,624 shares) and their exercise terms.