Business Context and Reporting Period
Company: Workhorse Group Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: November 21, 2019
Event: Entry into a Material Definitive Agreement (Securities Purchase Agreement) for a Registered Direct Offering.
Key Financial Metrics and Transaction Details
- Principal Amount: $41,000,000 senior secured convertible note.
- Net Proceeds: Approximately $38,950,000 (after discounts, before expenses).
- 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 adjustments).
- Warrants: Issued to purchase up to 15,459,016 shares of Common Stock (exercisable only upon redemption of the Note).
- Maturity Date: November 1, 2022.
- Use of Proceeds: Repayment of outstanding obligations under the Marathon Asset Management credit agreement and general corporate purposes.
Material Changes and Terms
This filing represents a significant capital raise and debt restructuring event. Key terms include:
- Debt Seniority: The Note is a senior secured obligation, ranking senior to all unsecured debt.
- Redemption Provisions:
- Early Redemption (Investor Option): Investor may require redemption of up to $1.5 million principal monthly starting March 1, 2020, at 112% of principal.
- Company Redemption: Company may redeem amounts over $5 million at the greater of 115% of conversion value or 100% of the Repayment Price (112%), plus accrued interest.
- Conversion Requirement: At least $5 million of the principal must be converted into common stock by April 1, 2020.
- Closing Date: Expected on or about December 9, 2019.
Guidance, Risks, and Contingencies
Management Commentary: The Company intends to use proceeds primarily to pay off the Marathon Agreement debt. No underwriting discounts or commissions are being paid.
Risks and Contingencies:
- Closing Conditions: The transaction is subject to customary conditions to closing; failure to satisfy these could prevent the offering from closing.
- Forward-Looking Statements: Actual results may differ materially from expectations regarding settlement and receipt of proceeds.
- Dilution: The issuance of shares upon conversion, interest payment, or redemption could result in significant dilution to existing shareholders.
Investor Verification Checklist
- Verify the final closing date and confirmation of net proceeds received.
- Confirm the specific amount of debt under the Marathon Agreement being retired.
- Monitor the Company's cash position to ensure ability to meet quarterly interest payments or stock issuance requirements.
- Track the $5 million mandatory conversion requirement deadline (April 1, 2020).
- Review the full text of the Purchase Agreement (Exhibit 10.1) for detailed anti-dilution adjustments and redemption mechanics.