Business Context and Reporting Period
Company: Workhorse Group Inc. (WKHS)
Filing Type: Form 8-K (Current Report)
Date of Report: July 18, 2024
Event: Entry into a Material Definitive Agreement involving the issuance of senior secured convertible notes and warrants under a previously disclosed Securities Purchase Agreement dated March 15, 2024.
Key Financial Metrics and Transaction Details
- Transaction Amount: Issued a "Third Additional Note" with an original principal amount of $4,000,000.
- Proceeds: $3,500,000 (reflecting a 12.5% original issue discount).
- Warrants Issued: Warrant to purchase up to 2,715,777 shares of Common Stock.
- Warrant Exercise Price: $2.9260 per share.
- 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 (July 18, 2025), subject to extension.
- Outstanding Notes: As of July 17, 2024, $5,600,000 aggregate principal remained outstanding under prior notes. The new issuance increases total potential principal under the agreement.
- Remaining Capacity: Up to $112,714,286 in additional Notes may be issued under the agreement upon satisfaction of conditions.
Material Changes and Covenant Requirements
The filing details the issuance of the Third Additional Note and Warrant, increasing the company's debt obligations and potential equity dilution. Key covenant requirements include:
- Liquidity Covenants: The Company must maintain minimum liquidity of $1,500,000 if the Union City, Indiana manufacturing facility sale-leaseback is not consummated, or $4,000,000 if it is consummated.
- Conversion Terms: Notes are convertible at the holder's option at a price equal to the lower of $1.1783 (Reference Price) or 87.5% of the 10-day VWAP (subject to a $0.3708 Floor Price).
- Beneficial Ownership Cap: Conversion or exercise is limited to prevent the holder from owning more than 4.99% (or 9.99% at option) of outstanding Common Stock.
Guidance, Risks, and Unusual Items
- Redemption Risks: The Company may be required to redeem notes at a premium (25% or 75%) upon events of default, change of control, or asset sales (including the Sale Leaseback) if certain conditions are not met.
- Default Consequences: Interest rates double to 18.0% during an event of default. In a bankruptcy event, the Company must immediately redeem all amounts due at a 75% premium.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from expectations due to risks disclosed in other SEC reports.
- Unusual Items: The transaction involves significant original issue discounting and complex conversion pricing mechanisms (full-ratchet adjustments and floor prices).
Investor Verification Checklist
- Verify the current status of the Union City, Indiana manufacturing facility sale-leaseback transaction to determine the applicable liquidity covenant threshold ($1.5M vs. $4.0M).
- Confirm the total aggregate principal amount of notes outstanding after this issuance and the remaining capacity under the March 2024 agreement.
- Review the Company's current cash position to ensure compliance with the minimum liquidity covenants.
- Assess the potential dilution impact of the 2,715,777 new warrants and the conversion of the $4,000,000 note at the current Reference Price of $1.1783.
- Monitor for any events of default that could trigger the 18.0% interest rate or mandatory redemption at a 75% premium.