8-K: Workhorse Group Secures $35 Million in Funding Through Convertible Note Offering

Workhorse Group Inc. has entered into an agreement to issue a $35 million senior secured convertible note and warrants to an institutional investor, marking the tenth such issuance under a previous securities purchase agreement.

Summary

• Workhorse Group Inc. issued a $35 million senior secured convertible note and warrants to an institutional investor on February 12, 2025.
• This is the tenth issuance under a securities purchase agreement originally entered into on March 15, 2024.
• The note is convertible into shares of Workhorse's common stock and includes warrants to purchase additional shares.
• The investor has waived its right to receive certain warrants in connection with this issuance.
• The company has previously issued $42,485,714 in notes and warrants to purchase 15,640,900 shares under the agreement.
• As of February 11, 2025, $8,350,000 remained outstanding under the prior notes, and no shares had been issued pursuant to the warrants.
• The agreement allows for additional closings of up to $61,514,286 in notes, subject to conditions.
• The note carries a 9.0% interest rate, potentially increasing to 18.0% upon default.
• The conversion price is the lower of $0.4244 or a variable price based on the stock's volume-weighted average, with a floor of $0.1000.
• The company received $30,625,000 in proceeds from the note before fees and expenses, due to an original issue discount of 12.5%.
• The proceeds are deposited in a lockbox account controlled by the collateral agent and can be released under specific conditions, including conversion, meeting market release events, or with investor consent.
• The note matures in one year, subject to extension at the holder's option.
• The company may prepay the note with a premium, which varies based on conditions.
• The note includes covenants, such as limitations on debt and a requirement to maintain minimum liquidity of $1,500,000 or $4,000,000 depending on the status of a sale-leaseback transaction.
• The exercise price per share of Common Stock under the New Warrant is $0.6999.
• The investor has a purchase right that allows the Investor to participate in transactions in which the Company issues or sells certain securities or other property to holders of Common Stock.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the funding is positive, the terms of the agreement, including potential dilution and restrictions on cash access, temper the overall outlook.

Positives

• The $35 million in funding provides Workhorse with additional capital.
• The lockbox mechanism provides some security for the investor, potentially reducing risk.
• The agreement allows for further potential funding of up to $61,514,286.
• The investor has a purchase right that allows the Investor to participate in transactions in which the Company issues or sells certain securities or other property to holders of Common Stock.

Negatives

• The convertible note structure can lead to dilution of existing shareholders if the notes are converted to equity.
• The 12.5% original issue discount reduces the net proceeds received by the company.
• The lockbox arrangement restricts the company's immediate access to the full $35 million.
• The company is subject to covenants, including maintaining minimum liquidity, which could restrict operational flexibility.
• The potential for an increased interest rate of 18.0% upon default adds financial risk.
• The Reference Price is also subject to full-ratchet adjustment in connection with a subsequent offering at a per share price less than the Reference Price then in effect.

Risks

• The company may not be able to access all the funds in the lockbox account if the release conditions are not met.
• Conversion of the notes could significantly dilute existing shareholders.
• Failure to meet the covenants could trigger an event of default and accelerate repayment obligations.
• The company's stock price may be negatively impacted by the issuance of new shares upon conversion of the notes.
• The company's ability to raise additional capital in the future may be affected by the terms of the securities purchase agreement.

Future Outlook

The Securities Purchase Agreement contemplates additional closings of up to $61,514,286 in aggregate principal amount of additional Notes and a corresponding Warrant pursuant to the Securities Purchase Agreement as further described in our Current Report on Form 8-K filed on March 15, 2024.

Industry Context

In the electric vehicle industry, securing funding is crucial for companies like Workhorse to continue operations, develop new technologies, and scale production. Convertible notes are a common financing tool, but they come with the risk of dilution if the company's stock performs well and the notes are converted.

Comparison to Industry Standards

• Other EV companies, such as Nikola and Lordstown Motors, have also utilized convertible notes and warrant offerings to raise capital.
• The terms of Workhorse's offering, including the interest rate, conversion price, and warrant coverage, are generally in line with industry standards for companies with similar risk profiles.
• However, the lockbox arrangement and the minimum liquidity covenant may be more restrictive than some other similar financings.

Stakeholder Impact

• Shareholders may experience dilution if the notes are converted into common stock.
• Employees benefit from the company's increased financial stability.
• Customers may see improved product development and service due to the additional funding.
• Suppliers can expect continued business relationships with Workhorse.
• Creditors are subject to the senior secured nature of the notes.

Next Steps

• The company needs to file one or more additional prospectus supplements.
• The company needs to satisfy certain other conditions to enable additional closings of up to $61,514,286 in aggregate principal amount of additional Notes and a corresponding Warrant pursuant to the Securities Purchase Agreement.

Key Dates

Keywords

convertible notes, warrants, securities purchase agreement, Workhorse Group, funding, lockbox, dilution, institutional investor, financing