Business Context and Reporting Period
Company: Workhorse Group Inc. (WKHS)
Filing Type: Form 8-K (Current Report)
Date of Report: November 27, 2024
Event: Entry into a Material Definitive Agreement regarding the issuance of a senior secured convertible note.
Key Financial Metrics and Transaction Details
- Transaction: Issuance of the "Seventh Additional Note" with an original principal amount of $2,000,000.
- Proceeds: $1,750,000 (reflecting a 12.5% original issue discount).
- 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 the issuance date (November 27, 2025), subject to extension.
- Conversion Terms: Convertible at the holder's option into common stock. Conversion price is the lower of $0.5983 (Reference Price) or 87.5% of the 10-day VWAP (subject to a $0.2132 Floor Price).
- Warrants: The investor waived the right to receive warrants for this specific tranche.
- Outstanding Debt Context: As of November 26, 2024, $5,850,000 in aggregate principal remained outstanding under prior notes. Total potential issuance under the original agreement is up to $139,000,000.
- Liquidity Covenants: Company must maintain minimum quarterly liquidity of $1,500,000 (if Sale Leaseback not consummated) or $4,000,000 (if consummated).
Material Changes and Agreements
This filing reports the closing of a specific tranche under a Securities Purchase Agreement originally dated March 15, 2024. Key material changes include:
- Waiver of Warrants: The investor waived warrants for this $2,000,000 note and up to $12.8 million of future notes under the agreement.
- ATM Program Flexibility: A waiver permits the company to sell up to $5 million in common stock via an at-the-market offering program through October 16, 2025, without a price floor or certain anti-dilution provisions.
- Lease Payment Waiver: The company waived an affiliate's obligation to make ongoing lease payments related to the divested aero business.
Guidance, Risks, and Contingencies
- Redemption Risks: The note includes mandatory redemption triggers upon change of control, bankruptcy, or sale of certain assets (e.g., the Sale Leaseback transaction). Redemption premiums range from 25% to 75% of face value depending on the trigger event.
- Dilution Risk: The conversion price includes a full-ratchet adjustment if the company issues stock at a price lower than the Reference Price ($0.5983).
- Default Consequences: An event of default triggers an interest rate hike to 18.0% and allows the holder to demand immediate redemption at a 75% premium.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from expectations due to various risks.
Investor Verification Checklist
- Verify the current status of the "Sale Leaseback" transaction for the Union City, Indiana facility to determine the applicable liquidity covenant ($1.5M vs. $4.0M).
- Monitor the company's cash balance to ensure compliance with the minimum liquidity covenants.
- Review the remaining capacity under the Securities Purchase Agreement ($103.5 million potential) and the $12.8 million tranche where warrants were waived.
- Assess the impact of the 12.5% original issue discount on the effective cost of capital.
- Check for any subsequent equity offerings that might trigger the full-ratchet adjustment on the conversion price.