8-K: Phoenix Motor Secures $6 Million Loan to Fuel Expansion and Production

Phoenix Motor Inc. has entered into a $6 million loan agreement with J.J. Astor & Co. to support its expansion and production growth.

Summary

• Phoenix Motor Inc. has secured a $6 million loan financing agreement with J.J. Astor & Co.
• The loan will be provided in two tranches: an initial $4 million and an additional $2 million upon approval.
• The funds will be used to support Phoenix Motor's expansion efforts, including increased operations and production to fulfill pending orders for electric transit buses.
• The senior secured convertible promissory notes will enhance the company's ability to scale production and meet growing market demand for zero-emission transportation solutions.
• The Initial Note is payable in 26 bi-weekly installments of $203,846.16 through the maturity date of March 4, 2026 in cash or shares of the Company's common stock (Common Stock), at the Company's election.
• The Notes will not accrue interest (unless there is an event of default) and are subject to an exit fee of $150,000 upon maturity.
• Upon an event of default, the outstanding principal amount will increase to 120% of the outstanding principal amount, plus interest thereon at the rate of 19% per annum.
• The Notes will be convertible into shares of Common Stock by the Lender following an event of default.
• The conversion price of the Notes is the lower of (i) 85% of the closing price of the Common Stock on the trading day immediately prior to the applicable funding date and issuance of the Initial Note or Additional Note, or (ii) 85% of the average of the four lowest VWAP prices for the 20 trading days prior to the applicable funding date.
• If the Lender or any other holder of the Notes elects to voluntarily convert the Notes, the conversion price will be the lower of (a) 100% of the closing price of the Common Stock on the trading day immediately prior to the applicable funding date and issuance of the Initial Note or Additional Note, or (b) 100% of the average of the four lowest VWAP prices of the Common Stock for the 20 trading days prior to the applicable funding date.
• Upon an event of default, the conversion price of the Notes will be 80% of the closing price of the Common Stock on the initial funding date.
• The Notes are subject to a limitation that prohibits ownership of more than 19.9% our outstanding share capital at any time, without stockholder approval.
• The Loan Agreement requires the Lender's consent to take certain actions, such as incurring additional indebtedness other than permitted indebtedness, a sale of securities except for exempt issuances, repaying indebtedness to affiliates, or incurring liens other than permitted liens.
• The Notes will accelerate and become immediately due upon the occurrence of certain events of default set forth in the Notes, including failure to pay amounts owing when due, certain types of proceedings involving insolvency, bankruptcy, receivership and the like, delinquency in filing SEC reports, delisting from Nasdaq or a change of control.
• Any proceeds received by the Company from (i) any subsequent tax refunds, judgments, litigation settlements, indemnity payments or other extraordinary receipts or (ii) any subsequent equity financing will be required to be used to prepay the Notes.
• Each of the Company's subsidiaries agreed to guarantee the payment of the Notes and the performance of the Company of its covenants and agreements set forth in the Loan Agreement pursuant to a subsidiaries guarantee (the Subsidiaries Guarantee), and the Company and each of its subsidiaries agreed to pledge and grant to the Lender a lien over substantially all of their assets to secure the Notes and the Subsidiary Guarantee pursuant to a pledge and security agreement (the Pledge Agreement), each to become effective following an event of default under the Notes.
• The Company entered into a Registration Rights Agreement with the Lender that will require the Company to file a resale shelf registration statement registering the resale of the conversion shares within 90 calendar days following the closing date.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The company secures funding, which is generally good news. However, the high default interest rate and conversion features suggest some risk.

Positives

• The $6 million loan will enable Phoenix Motor to ramp up production and fulfill key transit bus orders.
• The financing strengthens Phoenix Motor's position in the growing electric commercial vehicle market.
• The loan will be used to repay existing senior debt in the aggregate principal amount of approximately $1,220,000 and for general working capital purposes.

Negatives

• The Notes will not accrue interest (unless there is an event of default) and are subject to an exit fee of $150,000 upon maturity.
• Upon an event of default, the outstanding principal amount will increase to 120% of the outstanding principal amount, plus interest thereon at the rate of 19% per annum.
• The Notes are subject to a limitation that prohibits ownership of more than 19.9% our outstanding share capital at any time, without stockholder approval.
• The Loan Agreement requires the Lender's consent to take certain actions, such as incurring additional indebtedness other than permitted indebtedness, a sale of securities except for exempt issuances, repaying indebtedness to affiliates, or incurring liens other than permitted liens.
• The Notes will accelerate and become immediately due upon the occurrence of certain events of default set forth in the Notes, including failure to pay amounts owing when due, certain types of proceedings involving insolvency, bankruptcy, receivership and the like, delinquency in filing SEC reports, delisting from Nasdaq or a change of control.
• Any proceeds received by the Company from (i) any subsequent tax refunds, judgments, litigation settlements, indemnity payments or other extraordinary receipts or (ii) any subsequent equity financing will be required to be used to prepay the Notes.

Risks

• The Notes will accelerate and become immediately due upon the occurrence of certain events of default set forth in the Notes, including failure to pay amounts owing when due, certain types of proceedings involving insolvency, bankruptcy, receivership and the like, delinquency in filing SEC reports, delisting from Nasdaq or a change of control.
• The Company's ability to scale production and meet growing market demand for zero-emission transportation solutions is dependent on the loan.
• The commercial electric vehicle market is projected to grow at a 26.4% compound annual growth rate (CAGR), reaching $55.9 billion by 2029, but this is only a projection and may not materialize.

Future Outlook

The funding will support Phoenix Motor's expansion efforts, including increased operations and production to fulfill pending orders for electric transit buses. The company aims to accelerate the transition to sustainable transportation.

Management Comments

• Denton Peng, CEO of Phoenix Motor, stated that the financing will enable the company to ramp up production and fulfill key transit bus orders.
• He also mentioned that the investment strengthens their position in the market and supports their mission to accelerate the transition to sustainable transportation.

Industry Context

The commercial electric vehicle market is projected to grow at a 26.4% compound annual growth rate (CAGR), reaching $55.9 billion by 2029. Phoenix Motor aims to capitalize on this growth as an early leader in electric commercial vehicle manufacturing.

Comparison to Industry Standards

• It's difficult to directly compare this financing to industry standards without knowing the specific terms and conditions relative to Phoenix Motor's financial situation.
• However, similar companies in the EV space, such as Proterra, have secured larger funding rounds through a mix of debt and equity.
• Smaller players often rely on venture capital or strategic partnerships for funding.
• The 19% default interest rate is high, suggesting the lender perceives a higher risk compared to standard corporate loans.

Stakeholder Impact

• Shareholders: Potential dilution from conversion of notes into shares.
• Employees: Increased job security due to expansion.
• Customers: Improved ability to fulfill orders.
• Suppliers: Increased business due to higher production volume.

Next Steps

• Phoenix Motor will use the funds to increase operations and production to fulfill pending orders for electric transit buses.
• The company will need to file a resale shelf registration statement within 90 calendar days.
• The company needs to deliver the Lock Box Agreement to the Lender within 30 days from the Initial Funding Date.
• The final amount of the Existing Senior Debt owed to the Existing Senior Lenders (not to exceed approximately $1,220,000 plus accrued interest thereon) shall not have been paid in full within fourteen (14) days from the Initial Funding Date.

Key Dates

Keywords

loan financing, Phoenix Motor, J.J. Astor & Co., electric vehicles, transit buses, zero-emission, convertible note, production, expansion, financing