8-K: Workhorse Group Secures $3.5 Million in Additional Funding Through Convertible Note Issuance

Workhorse Group has secured $3.5 million in additional funding through the issuance of a senior secured convertible note to an institutional investor.

Summary

• Workhorse Group issued a senior secured convertible note for $3.5 million to an institutional investor on December 16, 2024.
• This note, the Eighth Additional Note, is part of a larger agreement for up to $139 million in convertible notes and warrants.
• The investor waived their right to receive warrants in connection with this specific issuance.
• The note has a 12.5% original issue discount, resulting in net proceeds of $3,062,500 before fees and expenses.
• It bears interest at 9% per annum, payable quarterly, and can be paid in cash or by compounding the principal.
• The interest rate increases to 18% upon an event of default.
• The note matures in one year, with a possible extension at the holder's option.
• The note is convertible into common stock at a price equal to the lower of $0.5983 or a variable price based on the volume weighted average price of the stock, with a floor of $0.20.
• The company may prepay the note with a premium of 25% or 75% depending on certain conditions.
• The note is secured and guaranteed by Workhorse's subsidiaries, and includes covenants limiting debt, liens, and asset transfers.

Sentiment

Score: 5

Explanation: The document indicates a necessary but potentially dilutive financing event. While securing funding is positive, the terms of the convertible note, including the high interest rate upon default and potential dilution, temper the overall sentiment.

Positives

• Workhorse has secured additional funding of $3.5 million, which can be used for operations and growth.
• The convertible note structure provides flexibility for both the company and the investor.
• The investor's waiver of warrants for this issuance reduces potential dilution for existing shareholders.
• The note is secured, which may provide some comfort to the investor.

Negatives

• The note has a 12.5% original issue discount, reducing the net proceeds to the company.
• The 9% interest rate, which increases to 18% upon default, is relatively high.
• The conversion of the note into common stock could dilute existing shareholders.
• The note includes restrictive covenants that could limit the company's operational flexibility.
• The company is required to maintain minimum liquidity of $1,500,000 or $4,000,000 depending on the status of the sale leaseback transaction.

Risks

• The company's ability to repay the note is dependent on its future financial performance.
• The conversion of the note could significantly dilute existing shareholders.
• The company is subject to restrictive covenants that could limit its operational flexibility.
• The company's failure to maintain minimum liquidity could trigger an event of default.
• The company is reliant on the sale leaseback transaction to increase its minimum liquidity requirements.

Future Outlook

The Securities Purchase Agreement contemplates additional closings of up to $100,014,286 in aggregate principal amount of additional Notes and a corresponding Warrant, subject to certain conditions.

Industry Context

The electric vehicle industry is capital intensive, and Workhorse's need for additional funding is not uncommon. The use of convertible notes is a common method for companies to raise capital, especially when they are not yet profitable.

Comparison to Industry Standards

• Other EV companies, such as Rivian and Lucid, have also raised significant capital through debt and equity offerings.
• The terms of Workhorse's convertible note, including the interest rate and conversion price, are within the range of similar financings in the industry, but the 18% default interest rate is high.
• The use of a secured note is also common in the industry, as it provides additional protection for investors.
• The company's liquidity requirements are similar to other companies in the sector that are still in the growth phase.

Stakeholder Impact

• Shareholders may experience dilution if the notes are converted into common stock.
• Creditors are impacted by the new debt and the security interest granted to the note holder.
• Employees may be impacted by the company's financial stability and ability to continue operations.
• Customers may be impacted by the company's ability to continue to develop and deliver products.

Next Steps

• Workhorse will continue to pursue additional closings under the Securities Purchase Agreement.
• The company will need to manage its liquidity and comply with the covenants of the note.
• The company will need to monitor the conversion price of the note and its potential impact on shareholders.

Key Dates

Keywords

convertible notes, securities purchase agreement, financing, debt, warrants, common stock, institutional investor, Workhorse Group, funding