Workhorse Group Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed on November 7, 2019, by Workhorse Group Inc. (WKHS). The filing discloses the entry into a Material Definitive Agreement with Lordstown Motors Corp. (LMC), a company founded by Workhorse's former CEO and current stockholder, Stephen S. Burns.
Key Financial Metrics and Transaction Terms
The filing details a strategic transaction rather than standard periodic financial results. Key financial terms include:
- Equity Stake: Workhorse will receive 10% of LMC's common stock in exchange for granting a license to its W-15 electric pickup truck platform.
- Royalty Advance: LMC must pay Workhorse 1% of aggregate debt and equity commitments funded upon completion of LMC's capital raise.
- Sales Royalties: LMC must pay a 1% royalty on the gross sales price of the first 200,000 vehicles sold, net of the Royalty Advance.
- Order Transfer Commission: Workhorse intends to transfer approximately 6,000 existing vehicle orders to LMC (subject to customer consent) and will receive a 4% commission on the gross sales price of fulfilled orders.
- Debt and Liquidity: The filing references an existing Credit Agreement with Wilmington Trust. Lenders consented to the transaction and waived potential events of default. The filing does not provide specific current debt balances, cash flow, or liquidity figures.
Material Changes and Agreements
On November 7, 2019, the parties executed four primary agreements:
- Intellectual Property License Agreement: Grants LMC exclusive rights to the W-15 platform technology until specific milestones are met or June 30, 2020, if LMC fails to raise capital.
- Subscription Agreement: Establishes the 10% equity exchange and grants Workhorse anti-dilution rights for two years.
- Voting and Registration Rights Agreement: Grants Workhorse the right to designate one director to LMC's board and provides limited registration rights.
- Consent and Waiver: Secured from lenders under Workhorse's Credit Agreement to permit the transaction.
Additionally, a Services Agreement between Workhorse and Stephen S. Burns was terminated effective August 1, 2019.
Outlook, Risks, and Contingencies
Management commentary highlights significant contingencies regarding the transaction's financial realization:
- Capital Raise Dependency: The success of LMC's capital raise is not within Workhorse's control. Workhorse cannot assure receipt of the Royalty Advance or projected royalties if the raise fails.
- Exclusivity Conditions: LMC's exclusive license rights may terminate early if the capital raise is not completed by June 30, 2020, if production does not start within two years, or if a third party acquires more than 10% of LMC.
- Order Transfer Risk: The transfer of ~6,000 existing orders is subject to customer consent.
Investor Verification Checklist
- Verify the status of LMC's capital raise and whether the June 30, 2020 deadline for exclusivity was met.
- Confirm the number of the ~6,000 existing orders successfully transferred to LMC and the associated 4% commission revenue recognized.
- Review subsequent filings for details on the 10% equity stake valuation and any anti-dilution adjustments.
- Monitor LMC's production milestones to determine if the exclusive license remains in effect.
- Check for any updates on Workhorse's Credit Agreement and lender covenants following this transaction.