Filed
pursuant to Rule 424(b)(5)
Registration
Statement No. 333-237920
PROSPECTUS
SUPPLEMENT
(To
prospectus dated December 23, 2016)
$70,000,000
Principal Amount 4.50% Senior Secured Convertible Note Due 2023
Workhorse
Group Inc.
We
are offering a $70,000,000 Principal Amount Senior Secured Convertible Note (the “Note”) directly to investors without
an underwriter or placement agent pursuant to this prospectus supplement and accompanying prospectus. We are not paying underwriting
discounts or commissions, so the proceeds to us before expenses will be approximately $69,000,000. We estimate the total expenses
of this offering will be approximately $150,000.
The
Note will bear interest at 4.50% per year, payable in cash or shares of our common stock at our option, and will mature on July
1, 2023. We are selling the Note at an issue price of 98.57% of its principal amount, and when we repay the principal of the Note
for any reason, we will be required to pay 110% of the principal amount repaid, plus any accrued interest and applicable premiums.
We may redeem the Note at any time for the amounts described in this prospectus supplement, plus accrued interest.
We
will not make application to list the Note on any securities exchange or to include it in any automated quotation system.
Our
common stock, par value $0.001 per share, is listed on the NASDAQ Capital Market under the symbol “WKHS.” The last
reported sale price of our common stock on the Nasdaq Capital Market on June 29, 2020 was $14.51 per share.
Investing
in our securities involves a high degree of risk. Before making an investment decision, you should carefully review and consider
all of the information set forth in this prospectus supplement, the accompanying prospectus and the documents incorporated by
reference herein and therein, including the risks and uncertainties described under “Risk Factors” beginning on page
S-7 of this prospectus supplement and the risk factors incorporated by reference into this prospectus supplement and the accompanying
prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined whether this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
We
expect the Note will be ready for delivery on or before July 15, 2020.
June
30, 2020
Work
Ahead
C1000
Medium Duty All Electric Truck.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS SUPPLEMENT
This
prospectus supplement and the accompanying base prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission (the “SEC”) utilizing a “shelf” registration process. Each time we conduct an
offering to sell securities under the accompanying base prospectus we will provide a prospectus supplement that will contain specific
information about the terms of that offering, including the price, the amount of securities being offered and the plan of distribution.
The shelf registration statement was initially filed with the SEC on April 30, 2020, and was declared effective by the SEC on
May 8, 2020. This prospectus supplement describes the specific details regarding this offering and may add, update or change information
contained in the accompanying base prospectus. The accompanying base prospectus provides general information about us and our
securities, some of which, such as the section entitled “Plan of Distribution,” may not apply to this offering. This
prospectus supplement and the accompanying base prospectus are an offer to sell only the securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. We are not making offers to sell or solicitations to buy our common
stock in any jurisdiction in which an offer or solicitation is not authorized or in which the person making that offer or solicitation
is not qualified to do so or to anyone to whom it is unlawful to make an offer or solicitation.
If
information in this prospectus supplement is inconsistent with the accompanying base prospectus or the information incorporated
by reference with an earlier date, you should rely on this prospectus supplement. This prospectus supplement, together with the
base prospectus, the documents incorporated by reference into this prospectus supplement and the accompanying base prospectus
and any free writing prospectus we have authorized for use in connection with this offering include all material information relating
to this offering. We have not authorized anyone to provide you with different or additional information and you must not rely
on any unauthorized information or representations. You should assume that the information appearing in this prospectus supplement,
the accompanying base prospectus, the documents incorporated by reference in this prospectus supplement and the accompanying base
prospectus and any free writing prospectus we have authorized for use in connection with this offering is accurate only as of
the respective dates of those documents. Our business, financial condition, results of operations and prospects may have changed
since those dates. You should carefully read this prospectus supplement, the accompanying base prospectus and the information
and documents incorporated herein by reference herein and therein, as well as any free writing prospectus we have authorized for
use in connection with this offering, before making an investment decision. See “Incorporation of Certain Documents by Reference”
and “Where You Can Find More Information” in this prospectus supplement and in the accompanying base prospectus.
This
prospectus supplement and the accompanying base prospectus contain summaries of certain provisions contained in some of the documents
described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in
their entirety by the full text of the actual documents, some of which have been filed or will be filed and incorporated by reference
herein. See “Where You Can Find More Information” in this prospectus supplement. We further note that the representations,
warranties and covenants made by us in any agreement that is filed as an exhibit to any document that is incorporated by reference
into this prospectus supplement or the accompanying base prospectus were made solely for the benefit of the parties to such agreement,
including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to
be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as
of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing
the current state of our affairs.
This
prospectus supplement and the accompanying base prospectus contain and incorporate by reference certain market data and industry
statistics and forecasts that are based on Company-sponsored studies, independent industry publications and other publicly available
information. Although we believe these sources are reliable, estimates as they relate to projections involve numerous assumptions,
are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under “Risk
Factors” in this prospectus supplement and the accompanying base prospectus and under similar headings in the documents
incorporated by reference herein and therein. Accordingly, investors should not place undue reliance on this information.
Unless
otherwise stated or the context requires otherwise, references to “we,” “us,” the “Issuer”
and “Workhorse Group” refer to Workhorse Group Inc. and unless otherwise differentiated, its wholly-owned subsidiaries,
Workhorse Technologies Inc., Workhorse Properties Inc, Workhorse Motor Works Inc. and Surefly, Inc..
PROSPECTUS
SUPPLEMENT SUMMARY
This
prospectus summary highlights information contained elsewhere in this prospectus supplement, the accompanying base prospectus
and the documents incorporated by reference herein and therein. This summary does not contain all of the information that you
should consider before deciding to invest in our securities. You should read this entire prospectus supplement and the accompanying
base prospectus carefully, including the section entitled “Risk Factors” beginning on page S-7 and our consolidated
financial statements and the related notes and the other information incorporated by reference into this prospectus supplement
and the accompanying base prospectus, before making an investment decision.
Our
Company
We
are a technology company focused on providing sustainable and cost-effective solutions to the commercial transportation sector.
As an American manufacturer, we design and build high performance electric vehicles and aircraft that make movement of people
and goods more efficient and less harmful to the environment. As part of our solution, we also develop cloud-based, real-time
telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency. We are currently
focused on our core competency of bringing the C-Series electric delivery truck to market and fulfilling our existing backlog
of orders.
Automotive
We
are an Original Equipment Manufacturer (“OEM”) of Class 3-6 commercial-grade, medium-duty trucks, to be marketed under
the Workhorse® brand. All Workhorse last mile delivery trucks are assembled in the Union City assembly facility. We will be
expanding our product portfolio with the C-Series electric delivery truck in 2020.
We
believe our battery-electric and range-extended electric commercial vehicles offer fleet operators significant benefits, which
include:
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Low
Total Cost-of-Ownership as compared to conventional gas/diesel vehicles;
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Competitive
advantage to increase brand loyalty and last mile delivery market share;
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Improved
profitability through lower maintenance costs and reduced fuel expenses;
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Increased
package deliveries per day through use of more efficient delivery methods;
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Decreased
vehicle emissions and reduction in carbon footprint; and
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Improved
vehicle safety and driver experience.
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The
Company sells its vehicles to fleet customers directly and through its primary distributor, Ryder System, Inc. (“Ryder”).
Ryder also is a maintenance provider for Workhorse, which provides fleet operators with access to Ryder’s network of 800
maintenance facilities and nearly 6,000 trained service technicians across North America.
Delivery
Trucks for Last Mile Delivery and Commercial Work Use
Workhorse
delivery trucks are produced at our Union City, Indiana plant and are in use by our customers on daily routes across the United
States. To date, we have built and delivered approximately 360 electric and range extended medium-duty delivery trucks to our
customers. To our knowledge, we are the only American commercial electric vehicle OEM to achieve such a milestone. Our delivery
customers include companies such as UPS, FedEx Express, Alpha Baking, W.B. Mason and Ryder.
In
addition to improved fuel economy, we anticipate that the performance of our vehicles on-route will reduce long-term vehicle maintenance
expense by approximately 60% as compared to fossil-fueled trucks. Over a 20-year vehicle life, we estimate that our C-Series delivery
trucks will save over $170,000 in fuel and maintenance savings. Due to this positive return-on-investment, we charge a premium
price for our vehicles. We expect that fleet operators will be able to achieve a three-year or better total cost of ownership
break even (without government incentives), which we believe justifies the higher acquisition cost of our vehicles.
Our
goal is to increase sales and continue development of our existing vehicle portfolio, while executing on a cost-down strategy
in order to achieve sustained gross margin profitability of the last mile delivery truck platform. It is our intention that this
strategy, which includes several delivery and utility truck platforms that target high-volume market segments, will further drive
costs down across our supply chain.
U.S.
Post Office Replenishment Program / Next Generation Delivery Vehicle Project
Workhorse
was one of the five participants that the United States Postal Service (“USPS”) selected to build prototype vehicles
for the USPS Next Generation Delivery Vehicle (“NGDV”) project. The USPS has publicly stated that approximately 165,000
vehicles are to be replaced. In September 2017, Workhorse delivered six vehicles for prototype testing under the NGDV Acquisition
Program in compliance with the terms set forth in their USPS prototype contract. In 2019, the vehicles completed the required
testing protocol as specified by the USPS. The USPS published a Request for Proposals in December 2019 for the Production Program.
C-Series
Electric Delivery Truck
In
2017, Workhorse announced the development of its C-Series electric delivery truck, which leverages the existing ultra-low floor,
long-life commercial delivery vehicle platform, as well as our extensive customer experience gained from working with our E-GEN
and E-100 customers. The C-Series incorporates lightweight materials, all-wheel drive, best in class turning radius, 360°
cameras, collision avoidance systems and an optional roof mounted HorseFly™ delivery drone. These trucks weigh 7,000 pounds,
compared to current 11,000 pound gasoline and diesel delivery trucks.
The
Workhorse C-Series electric delivery truck platform will be available in 450, 650 and 1,000 cubic feet configurations. We
intend to initially launch the 650 cubic foot and 1,000 cubic foot configurations with the goal of competing with conventional
market leaders, including the Mercedes Sprinter, Ford Transit and Dodge ProMaster gasoline/diesel vans for both last mile delivery
and other service-oriented applications such as telecommunications.
We
expect these vehicles to achieve a fuel economy of approximately 53 miles per gallon equivalent (“MPGe”) and offer
fleet operators the most favorable total cost-of-ownership of any comparable conventional truck utilizing an internal combustion
engine that is available today.
Package
Delivery Aircraft
HorseFly
Our
HorseFly Unmanned Aerial System (“UAS”) is a custom-designed, purpose-built system that safely and efficiently delivers
packages. Workhorse was granted a patent on our UAS with the description “Package Delivery by Means of an Automated Multi-Copter
UAS/UAV Dispatched From A Conventional Delivery Vehicle.” Though initially designed to deliver packages from our electric
trucks, the latest iteration of our system supports package delivery to and from almost anywhere.
In
tests and demonstrations over the past two years, Workhorse has flown over 100 missions in the National Airspace System, demonstrating
package delivery for large multi-national companies, including UPS.
In
a 2017 press release, UPS estimated that a reduction of just one mile per driver per day could save UPS up to $50 million on an
annualized basis. Rural delivery routes are the most expensive routes for companies like UPS to serve because of the time it takes
to cover long, thin routes, and because of the increased maintenance costs that come with driving extra miles. During our tests
and demonstrations, the HorseFly aircraft dispatches from the delivery vehicle to deliver a rural package while the driver continues
on his route to make another. The HorseFly then returns to the truck at its new location and is ready for another delivery. This
is an example of the significant cost savings available to delivery fleets, and we believe we are the first to offer a complete
system to the market.
We
have flown demonstrations in Ohio, Michigan, Florida and California, and are continuously improving our systems. The knowledge
we’ve gained in these real-world tests shows us we can safely and reliably save the last mile delivery market a significant
amount of money with our HorseFly system.
Certus
To
accelerate our development of the HorseFly system, in November 2019, Workhorse and Moog Inc (“Moog”) formed Certus Unmanned
Arial Systems LLC (“Certus”). Moog is a worldwide designer, manufacturer, and integrator of precision control components
and systems. Moog’s high-performance systems control military and commercial aircraft, satellites and space vehicles, launch
vehicles, missiles, automated industrial machinery, marine and medical equipment.
The
Company and Moog entered into a joint venture agreement for the development of the Company’s Horsefly
truck based electrically powered unmanned aerial systems (the “Horsefly Assets”) and the related business (the “Horsefly
Agreement”). Under the Horsefly Agreement, the Company contributed the Horsefly Assets and Moog contributed certain complementary
assets to Certus Unmanned Aerial Systems LLC, (“Certus”) that is 50% owned by both the Company and Moog. Certus will
license the Horsefly Assets to the Company and Moog so that each party may use the Horsefly Assets in their respective businesses. Through
Certus, teams from Workhorse and Moog are improving HorseFly’s components and sub-systems with the goal of bringing the
highest quality, most capable UAS to market. We believe combining the capabilities of the two companies brings significant value
to the UAS marketplace, particularly in the area of high-reliability, safety-sensitive, certificated systems that require the
highest levels of government approval for operations.
RECENT
EVENTS
Additions
to the Board of Directors
On
May 1, 2020, the size of our Board of Directors was increased from 6 to 8 and Jacqueline A. Dedo and Pamela S. Mader were appointed
as Directors of the Issuer. Ms. Dedo and Ms. Mader will receive cash compensation of $50,000 per year and a restrict stock grant
of $60,000 per year subject to standard vesting, under the Issuer’s 2019 Equity Incentive Plan. For the year ended December
31, 2020, Ms. Dedo and Ms. Mader were each granted 11,939 restricted shares of our common stock, which was prorated for partial
service, vesting November 1, 2020.
Ms.
Dedo has over 30 years of global automotive, off highway, industrial and aftermarket experience. She has held various leadership
positions at Piston Group, Dana Holding Corp., Motorola and Robert Bosch Corporation, among others, and has a proven background
in managing full P&L responsibilities for major business units and entire companies responsible for up to $2 billion in revenue.
In 2015, Ms. Dedo co-founded Aware Mobility LLC, which is focused on the development, investing, partnering and application of
both electrified propulsion and connectivity tools, platforms and applications. Ms. Dedo received a Bachelor of Science, Electrical
Engineering from Kettering University and holds a number of board positions including Cadillac Products, Kettering University
and Detroit Science Center.
Ms.
Mader brings over two decades of automotive industry experience, with a proven track record in leading Fortune 100 manufacturing
organizations as well as supporting the growth of emerging growth companies through various business advisory services. Since
June 2018, Ms. Mader has served as VP Belcan Consulting Services for Belcan Engineering, Consulting, and Technical Services, LLC.
From 2012 through 2018, Ms. Mader held various positions with Allegiant International, LLC. From 1994 through 2010, Ms. Mader
held various positions with General Motors including Plant Manager of various General Motors assembly operations. Ms. Mader received
a Bachelor of Science, Organizational Leadership from Purdue University and serves as a Board Member for Purdue University, College
of Polytechnic.
Paycheck
Protection Program Loan – PNC Bank, N.A.
On
April 14, 2020, we entered into a Paycheck Protection Program Term Note (the “PNC Note”) with PNC Bank, N.A. (“PNC”)
under the Paycheck Protection Program (the “Program”) of the Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”), administered by the U.S. Small Business Administration. We received total proceeds of $1.4 million from
the PNC Note. In accordance with the requirements of the CARES Act, we will use all proceeds from the PNC Note primarily for payroll
costs. Interest accrues on the PNC Note at the rate per annum of 1.00%. We may apply to PNC for forgiveness of the amount due
under the PNC Note, which shall be equal to the sum of payroll costs, mortgage interest, rent obligations and covered utility
payments incurred during the 8-weeks following disbursement under the PNC Note.
During
the period from April 14, 2020 through the 6-month anniversary date of the PNC Note (the “Deferral Expiration Date”),
neither principal nor interest shall be due and payable during this deferral period. On the Deferral Expiration Date, the outstanding
principal of the PNC Note that is not forgiven under the Program (the “Conversion Balance”) shall convert to an amortizing
term loan. On November 15, 2029, all accrued interest that is not forgiven under the Program shall be due and payable. Additionally,
on November 15, 2020 and continuing on the 15th day of each month thereafter until April 13, 2022 equal installments of principal
shall be due and payable, each in an amount determined by dividing the Conversion Balance by 18 (the “Monthly Principal
Amount”). Interest shall be payable at the same time as the Monthly Principal Amount. Any outstanding principal and accrued
interest shall be due and payable in full on April 13, 2022.
Corporate
Information
We
are a Nevada corporation. Our executive offices are located at 100 Commerce Drive, Loveland, Ohio 45140, and our telephone number
is 513-360-4704. Our website is www.workhorse.com. Information contained in, or accessible through, our website does not constitute
part of, and should not be construed as being incorporated by reference into, this prospectus and inclusions of our website address
in this prospectus are inactive textual references only.
The
Offering
The
following is a brief summary of some of the terms of the offering and is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this prospectus supplement and the accompanying base prospectus.
The Note
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Senior
Secured Convertible Note offered by us
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We
are offering a Senior Secured Convertible Note with a principal amount of $70,000,000 (the “Note”).
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Ranking
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The
Note shall be a senior secured obligation of Workhorse Group Inc. (the “Issuer”) and rank senior to all unsecured
debt of the Issuer.
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Interest
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4.50%
per annum, paid quarterly commencing October 1, 2020 in cash or, subject to certain conditions, shares of our common stock
at our option. Any shares issued for such interest payment will be valued at the Market Stock Payment Price.
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Conversion
Price
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$19.00,
subject to customary anti-dilution adjustments and adjustments for certain corporate events.
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Maturity
Date
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July
1, 2023.
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Security
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The
Note will be secured by first priority liens substantially all of the assets of the Issuer and its subsidiaries on a pari
passu basis with the liens securing the Issuer’s existing 4.50% Senior Secured Convertible Note Due 2022 (the “2022
Note”). However, if we consummate a working capital facility consisting of non-convertible debt for truck production
with a minimum size of $30 million, a maximum interest rate of LIBOR plus 8.00% and certain other required terms (a “Traditional
Working Capital Facility”), the liens on securing the Note and the 2022 Note over the cash and cash equivalents,
accounts receivable and inventory of the Issuer and its subsdiaries will be subordinated to the liens on such assets securing
the Traditional Working Capital Facility and will continue to rank senior to all other unsecured debt of the Issuer.
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Repayment
Price
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When
we repay principal on the Note for any reason, we will be required to pay 110% of the amount of principal repaid (the “Repayment
Price”).
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Optional
Redemption by the Holder
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The
first day of each month beginning on October 1, 2020 and ending on the Maturity Date (each, an “Early Redemption
Date”), the holder may require us to redeem up to $3.50 million principal amount of the Note at the Repayment Price
(each a “Redemption Payment”). Any unexercised Redemption Payment may be deferred by the holder on any future
Redemption Date. The Issuer and the holder may mutually agree to increase any single Redemption Payment. The Issuer can
elect to pay any Redemption Payment in cash or, subject to certain conditions, in freely saleable shares of our common
stock, or a combination thereof. Any shares issued for such Redemption Payment will be valued at the Market Price.
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Optional
Redemption by the Issuer
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Upon
10 trading days’ notice, we may redeem all (or any portion in excess of $8.00 million) of the Note at the greater of
(a) 115% of the conversion value, calculated based on the highest stock price during the window beginning 30 days prior to
such redemption date and ending the day prior to the redemption date or (b) 105% of the Repayment Price (an “Issuer
Redemption”) in each case plus accrued and unpaid interest. Any redemption amount above the Repayment Price can, subject
to equity conditions, be paid in shares valued at the Market Price. Prior to an Issuer Redemption, the Issuer must publicly
disclose all information that would be required to be disclosed prior to a registered equity offering in a Form 8-K or otherwise.
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Repurchase
or Redemption Upon a Fundamental Change or Event of Default
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The
holder may require us to repurchase the Note upon a Fundamental Change (as defined below) or an event of default at (a) 115%
of the conversion value or (b) 100% of the Prepayment Price. A Fundamental Change shall include (w) any person or group
(within the meaning of Section 13(d)(3) of the Exchange Act), other than us or our wholly-owned subsidiaries, files any report
with the SEC indicating that such person or group has become the direct or indirect beneficial owner of the majority of our
common stock; (x) the consummation of any sale, lease or other transfer of all or substantially all of our assets, or any
transfer or transaction which results in effectively the same; (y) the approval by our stockholders of a plan or proposal
to liquidate or dissolve us; or (z) our common stock ceases to be listed on an “Eligible Exchange” (as described
under “—Description of the Note—Certain Definitions—”).
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Events
of Default
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If
an Event of Default occurs, we will in certain circumstances increase the conversion rate for a specified period of time.
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Forced
Conversion
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We
can require conversion of the Note, subject to certain conditions and beneficial ownership limitations, if the VWAP exceeds
150% of the Conversion Price for 15 consecutive trading days.
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Market
Stock Payment Price
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For
the purposes of determining the number of shares of our common stock issued by the Issuer to the holder of the Note in lieu
of certain cash payments required by the Note, “Market Stock Payment Price” will be 92.5% of the lesser of: (i)
the volume-weighted average price of our common (the “VWAP”) on the trading day immediately preceding the applicable
payment date and (ii) the average of the lowest two daily VWAPs during the period of five trading days immediately preceding
the applicable payment date.
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Use
of Proceeds
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We
estimate that our net proceeds from this offering will be approximately $68.85 million after discounts and deducting estimated
offering expenses payable by us. We expect to use the net proceeds from this offering for working capital and general corporate
purposes. See “Use of Proceeds” on page S-20.
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Risk
Factors
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Investing
in our securities involves a high degree of risk. See “Risk Factors” beginning on page S-7 and the other information
included or incorporated by reference in this prospectus supplement and the accompanying base prospectus for a discussion
of factors you should carefully consider before deciding to invest in the Note or our common stock.
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NASDAQ
Capital Market Symbol
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WKHS
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RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Before purchasing our securities, you should read and consider carefully the
following risk factors as well as all other information contained and incorporated by reference in this prospectus supplement
and the accompanying base prospectus, including our consolidated financial statements and the related notes. Each of these risk
factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well
as adversely affect the value of an investment in our Senior Secured Convertible Note (the “Note”) or our common stock.
There may be additional risks that we do not presently know of or that we currently believe are immaterial, which could also impair
our business and financial position. If any of the events described below were to occur, our financial condition, our ability
to access capital resources, our results of operations and/or our future growth prospects could be materially and adversely affected
and the market price of our securities could decline. As a result, you could lose some or all of any investment you may make in
our securities.
Risks
Relating to Our Business
We
need access to additional financing in 2020 and beyond, which may not be available to us on acceptable terms or at all. If we
cannot access additional financing when we need it and on acceptable terms, our business may fail.
Our business plan
to design, produce, sell and service commercial electric vehicles through our Union City facility will require continued capital
investment in 2020. Although our research and development activities will also require continued investment, our primary capital
expenditure will be on production. For the year ended December 31, 2019, our independent registered public accounting firm issued
a report on our 2019 financial statements that contained an explanatory paragraph stating that the lack of sales, negative working
capital and stockholders’ deficit, raise substantial doubt about our ability to continue as a going concern. Assuming the
closing of this Offering, we will have adequate capital to continue operations through 2021. In addition, although we have adequate
capital which will allow us to finalize research and development on the CFamily and fulfill on our existing orders,
we will need additional capital beyond 2021 to fulfill additional orders. Unless and until we are able to generate a sufficient
amount of revenue, reduce our costs and/or enter a strategic relationship, we expect to finance future cash needs through public
and/or private offerings of equity securities and/or debt financings. Outside of this Offering, we do not currently have any committed
future funding for operating costs or for confirmed purchase orders. If we are not able to obtain additional financing when
needed in 2022 and/or substantially increase revenue from sales, we will be unable to continue as a going concern or satisfy the
delivery of our orders.
Our
results of operations have not resulted in profitability and we may not be able to achieve profitability going forward.
We
have an accumulated deficit of $174.1 million as of March 31, 2020. We have had net losses in each quarter since our inception.
We may continue to incur net losses in the remainder of 2020. We may incur significant losses in the future for a number of reasons,
including the other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications,
delays and other unknown events. Accordingly, we may not be able to achieve or maintain profitability. Our management is developing
plans to alleviate the negative trends and conditions described above and there is no guarantee that such plans will be successfully
implemented. Our business plan is focused on providing sustainable and cost-effective solutions to the commercial transportation
sector but is still unproven. There is no assurance that even if we successfully implement our business plan, that we will be
able to curtail our losses or ever achieve profitable operations. If we incur additional significant operating losses, our stock
price may significantly decline.
We
have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain.
We
have had negative cash flow from operating activities of $36.9 million and $21.8 million for the years ended December 31, 2019
and 2018, respectively and negative cash flows from operating activities of $7.8 million for the three (3) months ending March
31, 2020. We anticipate that we will continue to have negative cash flow from operating and investing activities through 2019
as we expect to incur research and development, sales and marketing, and general and administrative expenses and make capital
expenditures in our efforts to increase sales and ramp up operations at our Union City facility. Our business also will at times
require significant amounts of working capital to support our growth of additional platforms. An inability to generate positive
cash flow for the near term may adversely affect our ability to raise needed capital for our business on reasonable terms, diminish
supplier or customer willingness to enter into transactions with us, and have other adverse effects that may decrease our long-term
viability. There can be no assurance that the Issuer will achieve positive cash flow in the near future or at all.
The
development of our business in the near future is contingent upon the implementation of orders from UPS and other key customers
for the purchase of Workhorse vehicles and if we are unable to perform under these orders, our business may fail.
On
June 4, 2014, the Issuer entered into a Vehicle Purchase Agreement with United Parcel Service Inc. (“UPS”) which outlined
the relationship by which the Issuer would sell vehicles to UPS. To date, we have received six separate orders totaling up to
1,405 vehicles from UPS. The sixth and most recent order is from the first quarter 2018. We have entered into various purchase
orders with UPS relating to the delivery of certain vehicles ordered. We expect to deliver these vehicles in 2020, subject to
our ability to obtain additional financing to fund their production. There is no guarantee that the Issuer will be able to perform
under these orders and if it does perform, that UPS will purchase additional vehicles from the Issuer. Also, there is no assurance
that UPS will not terminate its agreement with the Issuer pursuant to the termination provisions therein. Further, if the Issuer
is not able to raise the required capital to purchase required parts and pay certain vendors, the Issuer may not be able to comply
with UPS’s deadlines. Accordingly, despite the receipt of the orders from UPS, there is no assurance, due to the Issuer’s
financial constraints, that the Issuer will be able to deliver such vehicles or that it will receive additional orders whether
from UPS or other potential customers.
If
we are unable to perform under our orders with UPS, the Issuer business will be significantly negatively impacted.
We
face various risks related to health epidemics, such as the global COVID-19 pandemic, which may have material adverse consequences
on our operations, financial position, cash flows and those of our customers and suppliers.
We
face adverse effects related to the global COVID-19 pandemic, including disruption and volatility in the global capital markets,
disruption in our global supply chains and delays in our overall manufacturing activities. We would expect the COVID-19 pandemic
to adversely affect our operations if significant portions of our workforce are unable to work effectively due to illness, quarantines,
government actions, facility closures, or other restrictions in connection with the COIVD-19 pandemic. Additionally, our financial
position, supply chain, liquidity, cash flow and customer orders would also face pressures for at least the balance of this year.
Local and national directives requiring work from and social distancing could adversely impact our operations and productions
activities.
Our
limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those
estimates of our future performance.
As
we begin to fully implement our manufacturing capabilities, it is difficult, if not impossible, to forecast our future results
based upon our historical data. Because of the uncertainties related to our lack of historical operations, we may be hindered
in our ability to anticipate and adapt to increases or decreases in revenues or expenses. If we make poor budgetary decisions
as a result of unreliable historical data, we could be less profitable or incur losses, which may result in a decline in our stock
price.
We
offer no financing on our vehicles. As such, our business is dependent on cash sales, which may adversely affect our growth prospects.
While
most of our current customers are well-established companies with significant purchasing power, many of our potential smaller
and medium-sized customers may need to rely on credit or leasing arrangements to gain access to our vehicles. Unlike some of our
competitors who provide credit or leasing services for the purchase of their vehicles, we do not provide, and currently do not
have commercial arrangements with a third party that provides, such financial services. We believe the current limited availability
of credit or leasing solutions for our vehicles could adversely affect our revenues and market share in the commercial electric
vehicle market.
We
do not receive progress payments on orders of our vehicles, and if a purchaser fails to pay upon delivery, we may not be able
to recoup the costs we incurred in producing such vehicles.
Our
arrangements with existing customers do not provide for progress payments as we begin to fulfill orders. Customers are only
required to pay us upon delivery of vehicles. If a customer fails to take delivery of an ordered vehicle or fails to pay
for such vehicle, we may not receive cash to offset the production expenses of such vehicle, which could adversely affect our
cash flows.
Our
business, prospects, financial condition and operating results will be adversely affected if we cannot reduce and adequately control
the costs and expenses associated with operating our business, including our material and production costs.
We
incur significant costs and expenses related to procuring the materials, components and services required to develop and produce
our electric vehicles. We have secured supply agreements for our critical components including our batteries. However, these are
dependent on volume to ensure that they are available at a competitive price. We continually work on cost-down initiatives to
reduce our cost structure so that we may effectively compete. If we do not reduce our costs and expenses, our net losses will
continue which will negatively impact our business and stock price.
Increases
in costs, disruption of supply or shortage of lithium-ion cells could harm our business.
We
may experience increases in the cost or a sustained interruption in the supply or shortage of lithium-ion cells. Any such increase,
supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating
results. The prices for these lithium-ion cells can fluctuate depending on market conditions and global demand for these materials
and could adversely affect our business and operating results. We are exposed to multiple risks relating to lithium-ion cells
including:
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the
inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply
the numbers of lithium-ion cells we may require going forward;
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disruption
in the supply of cells due to quality issues or recalls by battery cell manufacturers;
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an
increase in the cost of raw materials used in the cells; and
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fluctuations
in the value of the Japanese yen against the U.S. dollar in the event our purchasers of lithium-ion cells are denominated
in Japanese yen.
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Our
business is dependent on the continued supply of battery cells for the battery packs used in our vehicles. While we believe several
sources of the battery cells are available for such battery cells, we have fully qualified Panasonic and EnerDel for the supply
of the cells used in such battery packs and have very limited flexibility in changing cell suppliers. Any disruption in the supply
of battery cells could disrupt production of our vehicles until such time as a different supplier is fully qualified. Furthermore,
fluctuations or shortages in petroleum, tariff or trade issues and other economic or tax conditions may cause us to experience
significant increases in freight charges. Substantial increases in the prices for the battery cells or prices charged to us, would
increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices.
Any attempts to increase vehicle prices in response to increased costs in our battery cells could result in cancellations of vehicle
orders and therefore materially and adversely affect our brand, image, business, prospects and operating results.
The
demand for commercial electric vehicles depends, in part, on the continuation of current trends resulting from dependence on fossil
fuels. Extended periods of low diesel or other petroleum-based fuel prices could adversely affect demand for our vehicles, which
would adversely affect our business, prospects, financial condition and operating results.
We
believe that much of the present and projected demand for commercial electric vehicles results from concerns about volatility
in the cost of petroleum-based fuel, the dependency of the United States on oil from unstable or hostile countries, government
regulations and economic incentives promoting fuel efficiency and alternative forms of energy, as well as the belief that climate
change results in part from the burning of fossil fuels. If the cost of petroleum-based fuel decreased significantly, the outlook
for the long-term supply of oil to the United States improved, the government eliminated or modified its regulations or economic
incentives related to fuel efficiency and alternative forms of energy, or if there is a change in the perception that the burning
of fossil fuels negatively impacts the environment, the demand for commercial electric vehicles could be reduced, and our business
and revenue may be harmed.
Diesel
and other petroleum-based fuel prices have been extremely volatile, and we believe this continuing volatility will persist. Lower
diesel or other petroleum-based fuel prices over extended periods of time may lower the perception in government and the private
sector that cheaper, more readily available energy alternatives should be developed and produced. If diesel or other petroleum-based
fuel prices remain at deflated levels for extended periods of time, the demand for commercial electric vehicles may decrease,
which would have an adverse effect on our business, prospects, financial condition and operating results.
Our
future growth is dependent upon the willingness of operators of commercial vehicle fleets to adopt electric vehicles and on our
ability to produce, sell and service vehicles that meet their needs. This often depends upon the cost for an operator adopting
electric vehicle technology as compared to the cost of traditional internal combustion technology.
Our
growth is dependent upon the adoption of electric vehicles by operators of commercial vehicle fleets and on our ability to produce,
sell and service vehicles that meet their needs. The entry of commercial electric vehicles into the medium-duty commercial vehicle
market is a relatively new development, particularly in the United States, and is characterized by rapidly changing technologies
and evolving government regulation, industry standards and customer views of the merits of using electric vehicles in their businesses.
This process has been slow as without including the impact of government or other subsidies and incentives, the purchase prices
for our commercial electric vehicles currently is higher than the purchase prices for diesel-fueled vehicles. Our growth has also
been negatively impacted by the relatively low price of oil over the last few years.
If
the market for commercial electric vehicles does not develop as we expect or develops more slowly than we expect, our business,
prospects, financial condition and operating results will be adversely affected.
As
part of our sales efforts, we must educate fleet managers as to the economical savings we believe they will benefit from during
the life of the vehicle. As such, we believe that operators of commercial vehicle fleets should consider a number of factors when
deciding whether to purchase our commercial electric vehicles (or commercial electric vehicles generally) or vehicles powered
by internal combustion engines, particularly diesel-fueled or natural gas-fueled vehicles. We believe these factors include:
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the
difference in the initial purchase prices of commercial electric vehicles and vehicles with comparable gross vehicle weight
powered by internal combustion engines, both including and excluding the impact of government and other subsidies and incentives
designed to promote the purchase of electric vehicles;
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the
total cost of ownership of the vehicle over its expected life, which includes the initial purchase price and ongoing operating
and maintenance costs;
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the
availability and terms of financing options for purchases of vehicles and, for commercial electric vehicles, financing options
for battery systems;
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the
availability of tax and other governmental incentives to purchase and operate electric vehicles and future regulations requiring
increased use of nonpolluting vehicles;
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government
regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
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fuel
prices, including volatility in the cost of diesel;
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the
cost and availability of other alternatives to diesel fueled vehicles, such as vehicles powered by natural gas;
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corporate
sustainability initiatives;
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commercial
electric vehicle quality, performance and safety (particularly with respect to lithium-ion battery packs);
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the
quality and availability of service for the vehicle, including the availability of replacement parts;
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the
limited range over which commercial electric vehicles may be driven on a single battery charge;
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access
to charging stations and related infrastructure costs, and standardization of electric vehicle charging systems;
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electric
grid capacity and reliability; and
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If,
in weighing these factors, operators of commercial vehicle fleets determine that there is not a compelling business justification
for purchasing commercial electric vehicles, particularly those that we produce and sell, then the market for commercial electric
vehicles may not develop as we expect or may develop more slowly than we expect, which would adversely affect our business, prospects,
financial condition and operating results.
If
our customers are unable to efficiently and effectively integrate our electric vehicles into their existing commercial fleets
our sales may suffer and our business, prospects, financial condition and operating results may be adversely affected.
Our
sales strategy involves a comprehensive plan for the pilot and rollout of our electric vehicles, as well as the ongoing replacement
of existing commercial vehicles with our electric vehicles, that is tailored to the individual needs of our customers. If we are
unable to develop and execute fleet integration strategies or fleet management support services that meet our customers’
unique circumstances with minimal disruption to their businesses, our customers may not realize the economic benefits they expect
from our electric vehicles. If this were to occur, our customers may not order additional vehicles from us, which could adversely
affect our business, prospects, financial condition and operating results.
We
currently do not have long-term supply contracts with guaranteed pricing which exposes us to fluctuations in component, materials
and equipment prices. Substantial increases in these prices would increase our operating costs and could adversely affect our
business, prospects, financial condition and operating results.
Because
we currently do not have long-term supply contracts with guaranteed pricing, we are subject to fluctuations in the prices of the
raw materials, parts and components and equipment we use in the production of our vehicles. Substantial increases in the prices
for such raw materials, components and equipment would increase our operating costs and could reduce our margins if we cannot
recoup the increased costs through increased vehicle prices. Any attempts to increase the announced or expected prices of our
vehicles in response to increased costs could be viewed negatively by our customers and could adversely affect our business, prospects,
financial condition and operating results.
If
we are unable to scale our operations at our Union City facility in an expedited manner from our limited low volume production
to high volume production, our business, prospects, financial condition and operating results will be adversely affected.
We
intend to assemble our orders at our Union City facility, which has been acceptable for our historical orders. To satisfy increased
demand, we will need to quickly scale operations in our Union City facility as well as scale our supply chain including access
to batteries. Such a substantial and rapid increase in operations may strain our management capabilities. Our business, prospects,
financial condition and operating results could be adversely affected if we experience disruptions in our supply chain, if we
cannot obtain materials of sufficient quality at reasonable prices or if we are unable to scale our Union City facility.
We
depend upon key personnel and need additional personnel. The loss of key personnel or the inability to attract additional personnel
may adversely affect our business and results of operations.
Our
success depends on the continuing services of our CEO, Duane Hughes and top management. On November 6, 2019, Mr. Hughes and the
Issuer entered into an Amended and Restated Employment Agreement provided Mr. Hughes with an annual salary of $475,000. Further,
we entered into an amended and restated employment agreement with Mr. Robert Willison, Chief Operating Officer, providing an annual
base salary of $300,000 per year. The loss of any of these individuals could have a material and adverse effect on our business
operations. Additionally, the success of our operations will largely depend upon our ability to successfully attract and maintain
other competent and qualified key management personnel. As with any company with limited resources, there can be no guarantee
that we will be able to attract such individuals or that the presence of such individuals will necessarily translate into profitability
for our company. Our inability to attract and retain key personnel may materially and adversely affect our business operations.
Any failure by our management to effectively anticipate, implement, and manage the changes required to sustain our growth would
have a material adverse effect on our business, financial condition, and results of operations.
We
face intense competition. Some of our competitors have substantially greater financial or other resources, longer operating histories
and greater name recognition than we do and could use their greater resources and/or name recognition to gain market share at
our expense or could make it very difficult for us to establish market share.
Companies
currently competing in the fleet logistics market offering alternative fuel medium-duty trucks include Ford Motor Company and
Freightliner. Ford and Freightliner are currently selling alternative fuel fleet vehicles including hybrids. Ford and Freightliner
have substantially more financial resources, established market positions, long-standing relationships with customers and dealers,
and who have more significant name recognition, technical, marketing, sales, financial and other resources than we do. Although
we believe that HorseFly™, our unmanned aerial system (“UAS”), is unique in the marketplace in that it currently
does not have any competitors when it comes to a UAS that works in combination with a truck, there are better-financed competitors
in this emerging industry, including Google and Amazon. While we are seeking to partner with existing delivery companies to improve
their efficiencies in the last mile of delivery, our competitors are seeking to redefine the delivery model using drones from
a central location requiring extended flight patterns. Our competitors’ new aerial delivery model would essentially eliminate
traditional package delivery companies. Our model is focused on coupling our delivery drone with delivery trucks supplementing
the existing model and providing shorter-term flight patterns. Google and Amazon have more significant financial resources, established
market positions, long-standing relationships with customers, more significant name recognition and a larger scope of resources
including technical, marketing and sales than we do.
The
resources available to our competitors to develop new products and introduce them into the marketplace exceed the resources currently
available to us. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer
period than we can. This intense competitive environment may require us to make changes in our products, pricing, licensing, services,
distribution, or marketing to develop a market position. Each of these competitors has the potential to capture significant market
share in our target markets, which could have an adverse effect on our position in our industry and on our business and operating
results.
Our
electric vehicles compete for market share with vehicles powered by other vehicle technologies that may prove to be more attractive
than ours are.
Our
target market currently is serviced by manufacturers with existing customers and suppliers using proven and widely accepted fossil
fuel technologies. Additionally, our competitors are working on developing technologies that may be introduced in our target market.
If any of these alternative technology vehicles can provide lower fuel costs, greater efficiencies, greater reliability or otherwise
benefit from other factors resulting in an overall lower total cost of ownership, this may negatively affect the commercial success
of our vehicles or make our vehicles uncompetitive or obsolete.
We
currently have a limited number of customers, with whom we do not have long-term agreements, and expect that a significant portion
of our future sales will be from a limited number of customers. The loss of any of these customers could materially harm our business.
A
significant portion of our projected future revenue is expected to be generated from a limited number of fleet customers. Additionally,
much of our business model is focused on building relationships with a few large fleet customers. Currently, we have no contracts
with customers that include long-term commitments or minimum volumes that ensure future sales of vehicles. As such, a customer
may take actions that negatively affect us for reasons that we cannot anticipate or control, such as reasons related to the customer’s
financial condition, changes in the customer’s business strategy or operations or as the result of the perceived performance
or cost-effectiveness of our vehicles. The loss of or a reduction in sales or anticipated sales to our most significant customers
would have a material adverse effect on our business, prospects, financial condition and operating results.
Changes
in the market for electric vehicles could cause our products to become obsolete or lose popularity.
The
modern electric vehicle industry is in its infancy and has experienced substantial change in the last few years. To date, demand
for electric vehicles has been slower than forecasted by industry experts. As a result, growth in the electric vehicle industry
depends on many factors outside our control, including, but not limited to:
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continued
development of product technology, especially batteries;
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the
environmental consciousness of customers;
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the
ability of electric vehicles to successfully compete with vehicles powered by internal combustion; engines
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limitation
of widespread electricity shortages; and
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whether
future regulation and legislation requiring increased use of non-polluting vehicles is enacted.
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We
cannot assume that growth in the electric vehicle industry will continue. Our business will suffer if the electric vehicle industry
does not grow or grows more slowly than it has in recent years or if we are unable to maintain the pace of industry demands.
President
Trump’s administration may create regulatory uncertainty for the alternative energy sector and may materially harm our business,
financial condition and operating results.
President
Trump’s administration may create regulatory uncertainty in the alternative energy sector. President Trump has historically
made comments suggesting that he was not supportive of various clean energy programs and initiatives designed to curtail global
warming. Since taking office, President Trump has released his America First Energy Plan that relies on fossil fuels, cancelled
U.S. participation in the Paris Climate Agreement and signed several executive orders relating to oil pipelines. It remains unclear
what specifically President Trump would or would not do with respect to these programs and initiatives, and what support he would
have for any potential changes to such legislative programs and initiatives in the Unites States Congress. If President Trump
and/or the United States Congress take action or publicly speak out about the need to eliminate or further reduce legislation,
regulations and incentives supporting alternative energy or take action to further support the use of fossil fuels, such actions
may result in a decrease in demand for alternative energy in the United States and may materially harm our business, financial
condition and operating results.
The
unavailability, reduction, elimination or adverse application of government subsidies, incentives and regulations could have an
adverse effect on our business, prospects, financial condition and operating results.
We
believe that, currently, the availability of government subsidies and incentives including those available in California and other
areas is an important factor considered by our customers when purchasing our vehicles, and that our growth depends in part on
the availability and amounts of these subsidies and incentives. Any reduction, elimination or discriminatory application of government
subsidies and incentives because of budgetary challenges, policy changes, the reduced need for such subsidies and incentives due
to the perceived success of electric vehicles or other reasons may result in the diminished price competitiveness of the alternative
fuel vehicle industry.
We
may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive
position.
Our
current products are designed for use with, and are dependent upon, existing electric vehicle technology. As technologies change,
we plan to upgrade or adapt our products to continue to provide products with the latest technology. However, our products may
become obsolete or our research and development efforts may not be sufficient to adapt to changes in or to create the necessary
technology. Thus, our potential inability to adapt and develop the necessary technology may harm our competitive position.
The
failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business.
We
have secured supply agreements for our critical components, including our batteries. However, the agreements are dependent on
volume to ensure that they are available at a competitive price. Further, we rely on a small group of suppliers to provide us
with components for our products. If these suppliers become unwilling or unable to provide components or if we are unable to meet
certain volume requirements in our existing supply agreements, there are a limited number of alternative suppliers who could provide
them and the price for them could be substantially higher. Changes in business conditions, wars, governmental changes, and other
factors beyond our control or which we do not presently anticipate could negatively affect our ability to receive components from
our suppliers. Further, it could be difficult to find replacement components if our current suppliers fail to provide the parts
needed for these products. A failure by our major suppliers to provide these components could severely restrict our ability to
manufacture our products and prevent us from fulfilling customer orders in a timely fashion.
Product
liability or other claims could have a material adverse effect on our business.
The
risk of product liability claims, product recalls, and associated adverse publicity is inherent in the manufacturing, marketing,
and sale of electrical vehicles. Although we have product liability insurance for our consumer and commercial products, that insurance
may be inadequate to cover all potential product claims. We also carry liability insurance on our products. Any product recall
or lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material
adverse effect on our business and financial condition. We may not be able to secure additional product liability insurance coverage
on acceptable terms or at reasonable costs when needed. A successful product liability claim against us could require us to pay
a substantial monetary award. Moreover, a product recall could generate substantial negative publicity about our products and
business and inhibit or prevent commercialization of other future product candidates. We cannot provide assurance that such claims
and/or recalls will not be made in the future.
Regulatory
requirements may have a negative impact upon our business.
While
our vehicles are subject to substantial regulation under federal, state, and local laws, we believe that our vehicles are or will
be materially in compliance with all applicable laws. However, to the extent the laws change, or if we introduce new vehicles
in the future, some or all of our vehicles may not comply with applicable federal, state, or local laws. Further, certain federal,
state, and local laws and industrial standards currently regulate electrical and electronics equipment. Although standards for
electric vehicles are not yet generally available or accepted as industry standards, our products may become subject to federal,
state, and local regulation in the future. Compliance with these regulations could be burdensome, time consuming, and expensive.
Our
products are subject to environmental and safety compliance with various federal and state regulations, including regulations
promulgated by the EPA, NHTSA, FAA and various state boards, and compliance certification is required for each new model year.
The cost of these compliance activities and the delays and risks associated with obtaining approval can be substantial. The risks,
delays, and expenses incurred in connection with such compliance could be substantial.
Our
success may be dependent on protecting our intellectual property rights.
We
rely on trade secret protections to protect our proprietary technology as well as several registered patents and five patent applications.
Our patents relate to the vehicle chassis assembly, vehicle header and drive module and manifold for electric motor drive assembly.
Our existing patent applications relates to the onboard generator drive system for electric vehicles, the delivery drone, and
the manned multicopter. Our success will, in part, depend on our ability to obtain additional trademarks and patents. We are working
on registering additional patents and trademarks with the United States Patent and Trademark Office but have not finalized any
as of this date. Although we have entered into confidentiality agreements with our employees and consultants, we cannot be certain
that others will not gain access to these trade secrets. Others may independently develop substantially equivalent proprietary
information and technologies or otherwise gain access to our trade secrets. We do not maintain proprietary rights agreements with
our employees, which agreements would further protect our intellectual property rights against claims by our employees. Therefore
we may be subject to disputes with our employees over ownership of any new technologies or enhancements that such employees help
to develop.
Our
business may be adversely affected by union activities.
Although
none of our employees are currently represented by a labor union, it is common throughout the automotive industry for many employees
at automotive companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages.
Our employees may join or seek recognition to form a labor union, or we may be required to become a union signatory. Our production
facility in Union City, Indiana was purchased from Navistar. Prior employees of Navistar were union members and our future work
force at this facility may be inclined to vote in favor of forming a labor union. Furthermore, we are directly or indirectly dependent
upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes
organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a
work stoppage occurs, it could delay the manufacture and sale of our trucks and have a material adverse effect on our business,
prospects, operating results or financial condition. The mere fact that our labor force could be unionized may harm our reputation
in the eyes of some investors and thereby negatively affect our stock price. Consequently, the unionization of our labor force
could negatively impact our company’s health.
We
may be exposed to liability for infringing upon the intellectual property rights of other companies.
Our
success will, in part, depend on our ability to operate without infringing on the proprietary rights of others. Although we have
conducted searches and are not aware of any patents and trademarks that our products or their use might infringe, we cannot be
certain that infringement has not occurred or will not occur. We could incur substantial costs, in addition to the great amount
of time lost, in defending any patent or trademark infringement suits or in asserting any patent or trademark rights, in a suit
with another party.
Our
electric vehicles make use of lithium-ion battery cells, which, if not appropriately managed and controlled, have occasionally
been observed to catch fire or vent smoke and flames. If such events occur in our electric vehicles, we could face liability associated
with our warranty, for damage or injury, adverse publicity and a potential safety recall, any of which would adversely affect
our business, prospects, financial condition and operating results.
The
battery packs in our electric vehicles use lithium-ion cells, which have been used for years in laptop computers and cell phones.
Highly publicized incidents of laptop computers and cell phones bursting into flames have focused consumer attention on the safety
of these cells. These events also have raised questions about the suitability of these lithium-ion cells for automotive applications.
There can be no assurance that a field failure of our battery packs will not occur, which would damage the vehicle or lead to
personal injury or death and may subject us to lawsuits. Furthermore, there is some risk of electrocution if individuals who attempt
to repair battery packs on our vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would
likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity could adversely affect our business,
prospects, financial condition and operating results. Warranty expense for the years ended December 31, 2019 and 2018 was $.1
million and $8.0 million, respectively.
We
are subject to significant corporate and accounting regulation as a public company and failure to comply with all applicable regulations
could subject us to liability or negatively affect our stock price.
As
a publicly traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act of 2002. While
we have developed and instituted a corporate compliance program based on what we believe are the current best practices in corporate
governance and continue to update this program in response to newly implemented or changing regulatory requirements, we cannot
provide assurance that we are or will be in compliance with all potentially applicable corporate regulations. If we fail to comply
with any of these regulations, we could be subject to a range of regulatory actions, fines or other sanctions or litigation. If
we disclose any material weakness in our internal control over financial reporting, our stock price could decline.
Any
impairment of our investment in Lordstown Motor Corp. could negatively impact our financial results.
Our
investment in Lordstown Motor Corp. (“LMC”) is recorded at fair value. For the year ended December 31, 2019, the carrying
value of our investment was $12.2 million. In the event there are future events or circumstances that are likely to have a significant
adverse on LMC, we will estimate the air value of the investment and compare it to its carrying value. Our estimation of fair
value considers financial information related to LMC available to us, including valuations based on recent third-party equity
investments in LMC. If the fair value of the investment is less than its carrying value, we will recognize an impairment loss
which will negatively impact our financial positions and results of operations.
Cyber
attacks could adversely affect the Issuer
The
Issuer faces a heightened risk of cyber-attack. Cyber-attacks may include hacking, viruses, malware, denial of service attacks,
ransomware or other data security breaches. The Issuer’s business requires the continued operation of information systems
and network infrastructure. In the event of a cyber-attack that the Issuer was unable to defend against or mitigate, the Issuer
could have its operations and the operations of its customers and others disrupted. The Issuer could also have their financial
and other information systems and network infrastructure impaired, property damaged and customer and employee information stolen;
experience substantial loss of revenues, response costs and other financial loss; and be subject to increased regulation, litigation,
penalties and damage to their reputation. The Issuer has experienced cyber-attacks, although none of the attacks had a material
impact.
Risks
Related to Owning Our Common Stock
The
trading of our shares of common stock has historically been relatively thin and there is no assurance that a liquid market for
our shares of common stock will develop.
Our
common stock, par value $0.001 per share, has traded on the Nasdaq Capital Market, under the symbol “WKHS”, since
January 2016. Since that date, our common stock has been traded relatively thinly at most times. There can be no assurance that
we will be able to successfully develop a liquid market for our common shares. The stock market in general, and early stage public
companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of such companies. If we are unable to develop a market for our common shares, you may not be able
to sell your common shares at prices you consider to be fair or at times that are convenient for you, or at all.
Our
stock price and trading volume may be volatile, which could result in substantial losses for our stockholders.
The
equity trading markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of
equity securities. The market price of our common stock could change in ways that may or may not be related to our business, our
industry or our operating performance and financial condition. In addition, the trading volume in our common stock has been low
and may fluctuate and cause significant price variations to occur. We have experienced significant volatility in the price of
our stock. In addition, the stock markets in general can experience considerable price and volume fluctuations.
We
have not paid cash dividends in the past and have no immediate plans to pay cash dividends.
We
plan to reinvest all of our earnings, to the extent we have earnings, in order to develop our products, deliver on our orders
and cover operating costs and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect
to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash
that would be available for distribution to the holders of our common stock as a dividend. Therefore, you should not expect to
receive cash dividends on our common stock.
Stockholders
may experience future dilution as a result of future equity offerings.
In
order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible
into or exchangeable for our common stock at prices that may not be the same as the price per share in our prior offerings. We
may sell shares or other securities in any future offering at a price per share that is lower than the price per share paid by
historical investors, which would result in those newly issued shares being dilutive. In addition, investors purchasing shares
or other securities in this offering or the future offerings could have rights superior to existing stockholders, which could
impair the value of existing shareholders. The price per share at which we sell additional shares of our common stock, or securities
convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by
our historical investors.
Our
charter documents and Nevada law may inhibit a takeover that stockholders consider favorable.
Provisions
of our certificate of incorporation and bylaws and applicable provisions of Nevada law may delay or discourage transactions involving
an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise
receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests.
The provisions in our certificate of incorporation and bylaws:
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limit
who may call stockholder meetings;
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do
not provide for cumulative voting rights; and
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provide
that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.
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There
are limitations on director/officer liability.
As
permitted by Nevada law, our certificate of incorporation limits the liability of our directors for monetary damages for breach
of a director’s fiduciary duty except for liability in certain instances. As a result of our charter provision and Nevada
law, shareholders may have limited rights to recover against directors for breach of fiduciary duty. In addition, our certificate
of incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by law.
Risks
Related to Owning Our Note
In
the event we do not redeem our debt in shares of common stock, servicing our debt requires a significant amount of cash, and we
may not have sufficient cash flow from our business to pay our obligations under the Note.
Our
ability to make scheduled payments of principal or to pay interest on or to refinance the Note depends on our future performance,
which is subject to economic, financial, competitive and other factors, some of which are beyond our control. After giving effect
to this offering, our and our subsidiaries’ outstanding indebtedness will be approximately $88.5 million, and the terms
of the Note requires us to pay approximately $79.45 million to repay or redeem the full principal amount of the Note at maturity
or any other time. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our
obligations under the Note. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives,
such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital
on terms that may be onerous or highly dilutive. Our ability to refinance the Note will depend on the capital markets and our
financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable
terms, which could result in a default on the Note.
Some
significant restructuring transactions may not constitute a Fundamental Change, in which case we would not be obligated to offer
to purchase the Note.
Upon
the occurrence of a Fundamental Change, you have the right to require us to purchase your Note. Events constituting a “Fundamental
Change” include (a) any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 (as
amended, the “Exchange Act”)), other than us or our wholly-owned subsidiaries, files any report with the SEC indicating
that such person or group has become the direct or indirect beneficial owner of the majority of our common stock (b) the consummation
of any sale, lease or other transfer of all or substantially all of our assets, or any transfer or transaction which results in
effectively the same; (c) the approval by our stockholders of a plan or proposal to liquidate or dissolve us; or (d) our common
stock ceases to listed on an “Eligible Exchange” (as described under “—Description of the Note—Certain
Definitions—”). However, the Fundamental Change provisions will not afford protection to holder of the Note in the
event of other transactions that could adversely affect the Note. For example, transactions such as leveraged recapitalizations,
refinancings, restructurings, or acquisitions initiated by us may not constitute a Fundamental Change requiring us to purchase
the Note. In the event of any such transaction, the holders would not have the right to require us to purchase the Note, even
though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure
or any credit ratings, thereby adversely affecting the holder of Note.
Conversion
of the Note may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.
The
conversion of the Note will dilute the ownership interests of existing stockholders to the extent we deliver shares upon conversion
of the Note. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing
market prices of our common stock. In addition, the existence of the Note may encourage short selling by market participants because
the conversion of the Note could be used to satisfy short positions, or anticipated conversion of the Note into shares of our
common stock could depress the price of our common stock.
Upon
conversion of the Note, you may receive less valuable consideration than expected because the value of our common stock may decline
after you exercise your conversion right but before we settle our conversion obligation.
Under
the Note, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date
such holder surrenders the Note for conversion until the date we settle our conversion obligation. We will deliver the consideration
due in respect of conversion on the second business day immediately following the relevant conversion date. Accordingly, if the
price of our common stock decreases during this period, the amount and/or value of consideration you receive will be adversely
affected.
The
Fundamental Change repurchase feature of the Note may delay or prevent an otherwise beneficial attempt to take over our company.
The
terms of the Note require us to repurchase the Note in the event of a Fundamental Change. A takeover of our company would trigger
an option of the holder of the Note to require us to repurchase the Note. This may have the effect of delaying or preventing a
takeover of our company that would otherwise be beneficial to investors in the Note.
The
holder of the Note will not be entitled to certain rights with respect to our common stock, but will be subject to all changes
made with respect to them.
The
holder of the Note will not be entitled to certain rights with respect to our common stock (including, without limitation, voting
rights) but to the extent the conversion consideration includes shares of our common stock, the holder of the Note will be subject
to all changes affecting our common stock.
We
cannot assure you that an active trading market will develop for the Note.
Prior
to this offering, there has been no trading market for the Note, and we do not intend to apply to list the Note on any securities
exchange or to arrange for quotation on any automated dealer quotation system. As a result, we cannot assure you that an active
trading market will develop for the Note. If an active trading market does not develop or is not maintained, the market price
and liquidity of the Note may be adversely affected. In that case you may not be able to sell your Note at a particular time or
you may not be able to sell your Note at a favorable price.
We
are subject to certain covenants set forth in the Note. Upon an event of default, including a breach of a covenant or the failure
to obtain shareholder approval to increase our authorized shares of common stock, we may not be able to make such accelerated
payments under the Note.
The
Note contains customary events of default, including for non-payment, misrepresentation, breach of covenants, defaults under other
material indebtedness, material adverse change, bankruptcy, change of control and material judgments. Among other things, we will
be required to maintain a minimum liquidity of at least $8.0 million at all times. We do not expect that we will be able to maintain
compliance with this covenant unless we obtain further financing in addition to the proceeds of this offering.
Upon
an event of default, the outstanding principal amount of the loan plus any other amounts owed under the Note will become immediately
due and payable and the holder of the Note could foreclose on our assets. A default would also likely significantly diminish the
market price of our common stock.
You
may be subject to tax if we make or fail to make certain adjustments to the applicable conversion rate of the Note even though
you do not receive a corresponding cash distribution.
The
conversion rate is subject to adjustment in certain circumstances, including the payment of cash dividends. If the applicable
conversion rate is adjusted as a result of a distribution that is taxable to our common stockholders, such as a cash dividend,
you may be deemed to have received a dividend subject to U.S. federal income tax without the receipt of any cash. In addition,
a failure to adjust (or to adjust adequately) the applicable conversion rate after an event that increases your proportionate
interest in us could be treated as a deemed taxable dividend to you.
FORWARD-LOOKING
STATEMENTS
This
prospectus supplement, the accompanying base prospectus and the documents we have filed with the SEC that are incorporated by
reference herein and therein contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. In addition, from time to time we or our representatives have made or will make forward-looking statements
in various other filings that we make with the SEC or in other documents, including press releases or other similar announcements.
Forward-looking statements concern our current plans, intentions, beliefs, expectations and statements of future economic performance.
Statements containing terms such as “will,” “may,” “believe,” “do not believe,”
“plan,” “expect,” “intend,” “estimate,” “anticipate” and other phrases
of similar meaning are considered to be forward-looking statements.
Forward-looking
statements are based on our assumptions and are subject to known and unknown risks and uncertainties that could cause actual results
to differ materially from those reflected in or implied by these forward-looking statements. Factors that might cause actual results
to differ include, among others, those set forth under “Risk Factors” in this prospectus supplement and those discussed
in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in our most recent
Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and in our future periodic reports filed with the SEC,
all of which are incorporated by reference herein. The following are important factors, among others, that could cause actual
results, performance or achievements to differ materially from the results, performance or achievements reflected in our forward-looking
statements:
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market
acceptance of our products;
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our
ability to delivery on our existing orders including the UPS order and further develop new orders;
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our
ability to ultimately be awarded commercial or government contracts;
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our
ability to attract and retain customers for existing and new products;
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our
ability to effectively maintain and update our product and service portfolio;
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our
ability to continue as a going concern;
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our
ability to raise capital under acceptable terms;
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our
ability to effectively manage all warranty claims;
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our
ability to enter long-term supply contracts including, but not limited to the supply of lithium-ion battery cells;
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our
ability to maintain listing of our common stock on the Nasdaq Capital Market;
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our
ability to adequately protect our intellectual property, or the loss of some of our intellectual property rights through costly
litigation or administrative proceedings;
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legislation
and government regulation; and
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general
economic conditions, inflation and access to capital.
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Readers
are cautioned not to place undue reliance on any forward-looking statements contained in this prospectus supplement, the accompanying
base prospectus or the documents we have filed with the SEC that are incorporated by reference herein and therein, which reflect
management’s views and opinions only as of their respective dates. We assume no obligation to update forward-looking statements
to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements, except
to the extent required by applicable securities laws. You are advised, however, to consult any additional disclosures we have
made or will make in the filings we make with the SEC, including reports on Forms 10-K, 10-Q and 8-K. All subsequent forward-looking
statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements
contained in this prospectus supplement, the accompanying base prospectus or any related issuer free writing prospectus.
USE
OF PROCEEDS
We
estimate that our net proceeds from this offering will be approximately $68,850,000 million, after deducting discounts and the
estimated offering expenses payable by us.
We
expect to use the net proceeds from this offering for working capital and other general corporate purposes.
DIVIDEND
POLICY
We
have never declared or paid cash dividends on our common stock. We currently anticipate that we will retain all future earnings
to fund the operations of our business and do not anticipate paying dividends on the common stock in the foreseeable future. Our
Series B Preferred Stock requires us to pay quarterly dividends, solely in common stock, at an annual rate of 8.0%.
PLAN
OF DISTRIBUTION
We
are offering the Note directly to a certain institutional investor. The offering is not being made through an underwriter or placement
agent. We have entered into an agreement with this investor for the full amount of the offering. The form of the agreement is
included as an exhibit to our Current Report on Form 8-K that we will file with the SEC in connection with the consummation of
this offering. See “Where You Can Find More Information.”
Our
obligation to issue and sell the Note to the purchaser is subject to the conditions set forth in the agreement. The purchaser’s
obligation to purchase the Note is subject to conditions set forth in the agreement as well.
The
public offering price of the Note was negotiated between us and the purchaser based on the trading of our common stock prior to
the offering, among other things. Other factors considered in determining the public offering price of the shares include the
history and prospects of the Issuer, the stage of development of our business, our business plans for the future and the extent
to which they have been implemented, an assessment of our management, general conditions of the securities markets at the time
of the offering and such other factors as were deemed relevant.
We
expect that the sale of the Securities will be completed on or about July 15, 2020. We estimate the total expenses of this offering
which will be payable by us will be approximately $150,000.
DESCRIPTION
OF THE NOTE
Set
forth below is a description of the specific terms of the Note. This description supplements, and should be read together with,
the description of the general terms and provisions of the Senior Debt Securities set forth in the accompanying prospectus under
the captions “Description of Debt Securities” and “Additional Terms of the Senior Debt Securities” and,
to the extent it is inconsistent with the accompanying prospectus, replaces the description in the prospectus. The following description
is not complete in every detail and is subject to, and is qualified in its entirety by reference to, the form of Senior Secured
Convertible Note which has been filed as an exhibit to the registration statement which this prospectus supplement is a part.
General
The
Note will be the senior obligation of the Issuer. The Note will be limited in aggregate principal amount to $70,000,000.
The
entire principal amount of the Note will mature and become due and payable, together with any accrued and unpaid interest, on
July 1, 2023, unless earlier redeemed, repurchased or converted. The Note is not subject to any sinking fund provision.
Ranking
The
Note will be effectually senior to all unsecured indebtedness of the Issuer to the extent of the collateral securing the Note,
as well as senior to any subordinated indebtedness. Aside from the foregoing, the Note will rank pari passu with all other
senior indebtedness of the Issuer, including the 2022 Note. Under certain circumstances, the holder of the Note may be required
to release its lien on our collateral securing the obligations under the Note to permit the Issuer to consummate certain financings.
See “Security” below.
Selling
Price and Repayment Price
We
are selling the Note at an issue of 98.57% of its principal amount, and when we repay the principal of the Note for any reason,
we will be required to pay 110% of the principal amount repaid (the “Repayment Price”), plus any accrued interest
and applicable premiums.
Security
Our
obligations under the Note will be secured by a first priority lien on substantially all our assets, other than certain assets
the holder has agreed to exclude from the collateral (the “Collateral”). In the event we consummate a “Traditional
Working Capital Facility” (as defined below), the liens on cash and cash equivalents, accounts receivable, and inventory
securing our obligations under the Note will be subordinated to any liens securing our obligation under the Traditional Working
Capital Facility.
Interest
The
Note will bear interest at the rate of 4.50% per year from the date of original issuance. In the event an “Event of Default”
(as defined below) has occurred and remains uncured, the Note will bear default interest at the rate of 18.00% per year.
Interest
is payable quarterly in arrears, beginning October 1, 2020, calculated on the basis of a 360-day year of twelve 30-day months.
We
may, at our option, make payments of interest due in shares of our common stock, subject to the satisfaction of the “Equity
Conditions” (as defined below). If we make any interest payment in shares, we will be required to deliver a number of shares
equal to (i) the amount of such interest payment divided by (ii) the “Market Stock Payment Price” (as defined below).
Redemption
Redemption
at the Option of the Holder
Beginning
on October 1, 2020, the holder of the Note may require us to redeem up to $3.50 million principal amount of the Note (the “Maximum
Monthly Redemption Amount”) payable at the Repayment Price on the first calendar day of each month (each, an “Early
Redemption Date”).
To
the extent the holder of the Note does not require redemption of the full Maximum Monthly Redemption Amount on any Early Redemption
Date, the holder may require us to redeem such unredeemed principal amount on a subsequent Early Redemption Date. Upon our mutual
agreement with the holder of the Note, we may agree to increase any single Redemption Payment. At our option, we may elect to
pay any Redemption Payment in cash or, subject to the Equity Conditions, in shares of our common stock, or a combination thereof.
The number of shares issued for such Redemption Payment will be calculated using the Market Stock Payment Price.
Redemption
at the Option of the Issuer
We
may redeem all or any portion of the note in excess of $8.00 million of the Note at any time for the greater of (a) 115% of the
conversion price (as described under “—Conversion Rights—”) or (b) 105% of the Repayment Price, in each
case plus accrued and unpaid interest. Any redemption amount above the Repayment Price can, subject to the Equity Conditions,
be paid in shares calculated using the Market Stock Payment Price. Prior to our delivery of redemption notice to the holder, we
must disclose on Form 8-K all information that would be required to be disclosed prior to a registered equity offering.
Repurchase
of the Note upon a Fundamental Change or Event of Default
The
holder of the Note will have the right to require us to repurchase the Note at (a) 115% of the conversion value or (b) of the
Repayment Price, in each case plus accrued and unpaid interest, if any of the following occur:
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any
person or group (within the meaning of Section 13(d)(3) of the Exchange Act), other than us or our wholly-owned subsidiaries,
files any report with the SEC indicating that such person or group has become the direct or indirect beneficial owner of the majority
of our common stock;
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the
consummation of any sale, lease or other transfer of all or substantially all of our assets, or any transfer or transaction which
results in effectively the same;
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the
approval by our stockholders of a plan or proposal to liquidate or dissolve us; or
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our
common stock ceases to be listed on an “Eligible Exchange” (as defined below).
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At
the holder’s sole discretion, the holder may require us to redeem the Note in lieu of repurchase in exchange for shares
of our common stock valued at the Market Stock Payment Price.
Conversion
Rights
General
The
conversion rate will initially be 52.6316 shares of common stock per $1,000 principal amount of the Note (equivalent to an
initial conversion price of approximately $19.00 per share of common stock). The conversion rate with respect to the notes and
the conversion price for notes in effect at any given time are referred to as the “applicable conversion rate” and
the “applicable conversion price”, respectively, and will be subject to adjustment as described below. The applicable
conversion price at any given time will be computed by dividing $1,000 by the applicable conversion rate at such time.
Forced
Conversion
At
any time and from time to time if (1) the “Daily VWAP” (as defined below) per share of our common stock exceeds 150%
of the conversion price on each of 15 consecutive trading days beginning after the day on which we issue the Notes; and (2) the
Equity Conditions are satisfied on each of such 15 consecutive trading days (together the “Forced Conversion Conditions”),
then we may elect to convert the entire Principal Amount of the Note into shares of our common stock; provided that we
will not be permitted to complete such conversion if the Forced Conversion Conditions cease to be satisfied on any trading day
between the time we notify the holder of the forced conversion and the time we consummate the conversion.
Conversion
Rate Adjustments
The
applicable conversion rate, as provided in the Note, is subject to adjustment as a result of the following events:
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our
issuance of a common stock dividend;
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our
splitting or combining of shares of common stock;
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our
issuance of rights options or warrants, entitling the holder, for a period of not more than 60 days, to purchase shares of common
stock at a price less than the average of the closing shares price per share of common stock for the 10 trading days ending on
the trading day before such distribution is announced
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our
distribution of capital stock, evidence of indebtedness or other assets or property of ours, or other rights, options or warrants
to acquire capital stock or other securities of ours;
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our
distribution of capital stock as the result of the spinning off of a Subsidiary (as defined below) or affiliate;
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our
distribution of cash dividends; or
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our
payment in respect of a tender or exchange offer for shares of our common stock;
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The
conversion consideration, as provided in the Note, is also subject to adjustment as a result of the following events:
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certain
recapitalizations or reclassifications of our common stock;
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certain
consolidations, mergers, combinations or binding or statutory share exchanges involving us; or
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sale,
lease or other transfer of all or substantially all of our assets.
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Limitations
on Conversion
No
party may convert all or a portion of the Note if either (i) as a result of the conversion, the holder and its affiliates would
beneficially own in excess of 4.99% of the shares of our common stock; or (ii) prior to our stockholders approving of the issuance
of the shares issuable pursuant to the Note, the shares of our common stock issued as a result of the conversion would equal 20%
of the shares of our common stock then outstanding. However, upon proper notice to us, the holder may increase the limit of beneficially
owned shares of our common stock from 4.99% to any amount up 9.99% of the shares of our common stock.
Certain
Covenants
Limitation
on Indebtedness
The
Note requires that we do not and do not permit any of the subsidiaries identified in the Note (the “Subsidiaries”)
to:
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create,
incur, assume, guarantee or be or remain liable with respect to any indebtedness, other than “Permitted Indebtedness”
(as defined below);
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prepay
any indebtedness except by converting the indebtedness into equity or refinancing the entire amount of the indebtedness on terms
permitted by the Note; or
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amend
the terms of any debt owed in such a way as to shorten the maturity date or impose additional burdens on us.
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Permitted
Indebtedness includes:
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indebtedness
under the Note;
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certain
indebtedness existing on the date the Note is issued;
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indebtedness
of up to $5,000,000 outstanding at any time secured by a “Permitted Lien” (as defined below), provided such indebtedness
does not exceed the cost of the equipment and related expenses financed with such indebtedness;
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indebtedness
to trade creditors incurred in the ordinary course of business, including indebtedness incurred in the ordinary course of business
with corporate credit cards;
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indebtedness
that also constitutes a “Permitted Investment” (as defined below);
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our
subordinated indebtedness, but not subordinated indebtedness of our subsidiaries;
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reimbursement
obligations in connection with letters of credit or similar instruments that are secured by cash or cash equivalents and issued
on behalf of us or our subsidiaries in an aggregate amount not to exceed $500,000 at any time then outstanding;
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our
other unsecured indebtedness, so long as such indebtedness does not have a final maturity date, amortization payment, sinking
fund, mandatory redemption or other repurchase obligation or put right at the option of the lender or holder of such indebtedness
earlier than one hundred eighty-one days following the maturity date of the Note, or any other material terms more favorable to
the holder of such indebtedness than the Note, including applicable interest rates;
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indebtedness
in respect of a Traditional Working Capital Facility in aggregate amount not to exceed $100,000,000;
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contingent
obligations that are guarantees of Permitted Indebtedness; and
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extensions,
refinancings and renewals of any items of the items above (other than any indebtedness repaid with the proceeds of the Note),
provided that the principal amount is not increased or the terms modified to impose materially more burdensome terms upon
us or our subsidiaries, as the case may be, and provided further, that if the lender of any such proposed extension, refinancing
or renewal of Permitted Indebtedness incurred hereunder is different from the lender of the Permitted Indebtedness to be so extended,
refinanced or renewed then, in addition to the foregoing proviso, such Permitted Indebtedness shall also not have a final maturity
date, amortization payment, sinking fund, mandatory redemption or other repurchase obligation earlier than one hundred eighty-one
days following the maturity date of the Note.
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Limitation
on Liens
The
Note requires that we will not, and will not permit the Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any lien of any kind on any asset now owned or hereafter acquired, other than the following “Permitted Liens”:
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liens
in favor of holder of the Note;
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certain
liens existing on the date the Note is issued;
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liens
for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings; provided, that we maintain adequate reserves therefor in accordance with GAAP;
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liens
securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other similar persons arising
in the ordinary course of business; provided, that the payment thereof is not yet required;
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liens
arising from judgments, decrees or attachments in circumstances which do not constitute a default under the Purchase Agreement;
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the
following deposits, to the extent made in the ordinary course of business: (i) deposits under workers’ compensation, unemployment
insurance, social security and other similar laws, or (ii) to secure the performance of bids, tenders or contracts (other than
for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders
or contracts (other than for the repayment of borrowed money) or (iii) to secure statutory obligations (other than liens arising
under ERISA or environmental liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds;
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liens
on equipment or software or other intellectual property constituting purchase money liens and liens in connection with capital
leases securing indebtedness up to $5,000,000;
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leasehold
interests in leases or subleases and licenses granted in the ordinary course of our business and not interfering in any material
respect with the business of the licensor;
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liens
in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties that are promptly paid
on or before the date they become due; liens on insurance proceeds securing the payment of financed insurance premiums that are
promptly paid on or before the date they become due (provided that such liens extend only to such insurance proceeds and not to
any other property or assets);
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statutory
and common law rights of set-off and other similar rights as to deposits of cash and securities in favor of banks, other depository
institutions and brokerage firms;
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easements,
zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course
of business, so long as they do not materially impair the value or marketability of the related property;
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liens
on cash or cash equivalents securing obligations to trade creditors for reimbursement of obligations in connection with letters
of credit;
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liens
securing obligations under a Traditional Working Capital Facility; and
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liens
incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above;
provided, that any extension, renewal or replacement lien will be limited to the property encumbered by the existing lien and
the principal amount of the indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon)
does not increase.
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Limitation
on Investments
The
Note requires that we do not directly or indirectly acquire or own, or make any investment in or to any Person (as defined in
the Note), or permit any of our Subsidiaries to do so, other than the following
permitted investments (each a “Permitted Investment and collectively, the “Permitted Investments”):
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certain
investments existing on the date the Note is issued;
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investments
which take the form of: marketable direct obligations issued or unconditionally guaranteed by the United States of America or
any agency or any State thereof maturing within one year from the date of acquisition thereof, commercial paper maturing no more
than one year from the date of creation thereof and currently having a rating of at least A-2 or P-2 from either Standard &
Poor’s Corporation or Moody’s Investors Service, certificates of deposit issued by any bank with assets of at least
$500,000,000 maturing no more than one year from the date of investment therein, and money market accounts;
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investments
accepted in connection with “Permitted Transfers” (as defined below);
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investments
(including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement
of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of our business;
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investments
consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers in the ordinary
course of business and consistent with past practice, provided that this subparagraph shall not apply to investments by us in
any Subsidiary;
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investments
consisting of loans not involving the net transfer on a substantially contemporaneous basis of cash proceeds to employees, officers
or directors relating to the purchase of our capital stock pursuant to employee stock purchase plans or other similar agreements
approved by our board of directors; investments consisting of travel advances in the ordinary course of business; or investments
in wholly-owned Subsidiaries;
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Permitted
Intellectual Property Licenses (as defined below); and
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additional
investments that do not exceed $50,000 in the aggregate in any twelve-month period.
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Limitation
on Distributions
The
Note requires that we do not, and do not permit any Subsidiary to:
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repurchase
or redeem any class of stock other than pursuant to employee, director or consultant repurchase plan, provided, however, that
such repurchase or redemption price does not exceed the original consideration paid;
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declare
or pay any cash dividend or make a cash distribution on any class of stock or other equity interest, except that a subsidiary
may pay dividends or make distributions to us or to our direct or wholly owned subsidiaries, or
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lend
money to any employees, officers or directors, or guarantee the payment of any such loans granted by a third party in excess of
$50,000.
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Limitation
on Transfers
The
Note requires that we do not, and do not permit the Subsidiaries to, transfer, sell, lease, lend or in any other manner convey
any equitable, beneficial or legal interest in any material portion of its assets, other than Permitted Transfers and Permitted
Investments.
“Permitted
Transfers” include:
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dispositions
of inventory sold, and certain permitted intellectual property licenses, in each case, in the ordinary course of business,
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dispositions
of worn-out, obsolete or surplus property at fair market value in the ordinary course of business;
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dispositions
of accounts or payment intangibles (each as defined in the New York Uniform Commercial Code) resulting from the compromise or
settlement thereof in the ordinary course of business for less than the full amount thereof;
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transfers
consisting of certain Permitted Investments in our wholly-owned Subsidiaries; and
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other
transfers of assets to any Person other than to a joint venture and which have a fair market value of not more than fifty thousand
dollars ($50,000) in the aggregate in any fiscal year.
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Limitation
on Transaction with Affiliates
The
Note requires that we do not enter into, renew, extend, or be a party to, any transaction or series of related transactions with
any affiliate nor permit our subsidiaries to do the same, unless the transaction or transactions are for fair consideration and
on terms no less favorable than would be obtainable in a comparable arm’s length transaction.
Minimum
Liquidity
We
are required to maintain at all times liquidity calculated as unrestricted, unencumbered cash and cash equivalents in one or more
deposit accounts located in the United States and subject to control agreements in favor of the collateral agent in a minimum
amount of $4,000,000.
Other
Covenants
We
are required to:
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hire
and cooperate with an independent investigator to investigate potential breaches of the terms of the Note in connection with default
and Event of Default under the Note;
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maintain
our corporate existence and the rights and licenses required to do our business, as well as the rights and licenses of our subsidiaries
to do the same;
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not
engage in any material line of business substantially different from those lines of business conducted by or publically contemplated
to be conducted by the Issuer as of the issue date;
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maintain
and preserve all of our properties, which are necessary or useful in the proper conduct of our business, in good working order
and condition and cause our subsidiaries to do the same;
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take
all action necessary and advisable to maintain our intellectual property rights and cause our subsidiaries to do the same; and
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maintain
insurance with responsible and reputable insurance companies or associations with respect to our properties and business in such
amounts covering such risks as is required by any governmental agency having jurisdiction over us and cause our subsidiaries to
do the same.
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Default
The
holder of the Note may, after the occurrence of an Event of Default, after the passage of the periods of time described below
and after giving appropriate notice to us, accelerate the amounts then owing under the Note at the Event of Default Acceleration
Amount as set forth in the Note. We will also in certain circumstances in accordance with the Note, increase the conversion rate
for a specified period of time in connection with an Event of Default. An “Event of Default” means the occurrence
of any of the following:
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a
default in the payment when due of any principal, repurchase or redemption amount due under the Note;
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a
default for 2 business days in the payment when due of interest on the Note;
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a
default in our obligation to convert the Note upon the exercise of the conversion right with respect thereto or upon Forced Conversion;
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a
default in our obligation to deliver a notice of a Fundamental Change, and such default continues for 3 business days;
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a
materially false or inaccurate certification (including a false or inaccurate deemed certification) by us (A) that the Equity
Conditions are satisfied, (B) that there has been no failure of the Equity Conditions, or (C) as to whether any Event of Default
has occurred;
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certain
defaults in the performance of any of our obligations or agreements under the Note or other transaction documents, or a breach
of any representation or warranty in any material respect (other than representations or warranties subject to material adverse
effect or materiality, which may not be breached in any respect) of the Purchase Agreement; provided, however, that if such default
or breach can be cured, then such default or breach will not be an Event of Default unless we have failed to cure such default
within 10 days after its occurrence;
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any
provision of any Transaction Document (as defined in the Note) at any time for any reason (other than pursuant to the express
terms thereof) ceases to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability
thereof is contested, directly or indirectly, by us or any of our Subsidiaries, or a proceeding is commenced by us or any of our
Subsidiaries or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability
thereof;
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a
breach of any representation or warranty in any material respect (other than representations or warranties subject to material
adverse effect or materiality, which may not be breached in any respect) of any Transaction Document, except, in the case of a
breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of 5 consecutive
Trading Days (as defined in the Note);
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at
any time, the Note or any shares of our common stock issuable upon conversion of the Note are not freely tradable;
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we
fail to use best efforts to obtain the requisite stockholder approval, required under Nasdaq Listing Standard Rule 5635(d), prior
to November 25, 2020;
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we
fail to comply with the minimum liquidity covenant set forth above;
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the
suspension from trading or failure of our common stock to be trading or listed on an Eligible Exchange for a period of 10 consecutive
Trading Days;
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any
breach or default by us under any Transaction Document, except, in the case of a breach of a covenant or other term or condition
that is curable, only if such breach remains uncured for a period of 10 consecutive days;
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a
default by us or the Subsidiaries with respect to any one or more mortgages, agreements or other instruments under which there
is outstanding, or by which there is secured or evidenced, any indebtedness for money borrowed of at least $250,000 (or its foreign
currency equivalent) in the aggregate of us or any of our Subsidiaries, whether such indebtedness exists as of the Issue Date
or is thereafter created, and whether such default has been waived for any period of time or is subsequently cured, except for
capital leases;
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one
or more final judgments, orders or awards (or any settlement of any litigation or other proceeding that, if breached, could result
in a judgment, order or award) for the payment of at least $250,000 (or its foreign currency equivalent) in the aggregate (excluding
any amounts covered by insurance pursuant to which the insurer has been notified and has not denied coverage), is rendered against
us or the Subsidiaries and remains unsatisfied and (i) enforcement proceedings shall have been commenced by any creditor upon
any such judgment, order, award or settlement or (ii) there shall be a period of 10 consecutive Trading Days after entry thereof
during which (A) a stay of enforcement thereof is not in effect or (B) the same is not vacated, discharged, stayed or bonded pending
appeal;
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we
fail to timely file our quarterly reports on Form 10-Q or its annual reports on Form 10-K with the Commission in the manner and
within the time periods required by the Exchange Act, or we withdraw or restate any such quarterly report or annual report previously
filed with the Commission;
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any
Security Document (as defined in the Note) shall for any reason fail or cease to create a separate valid and perfected and, except
to the extent permitted by the terms hereof or thereof, first priority Lien (as defined in the Note) on the Collateral in favor
of the Collateral Agent (as defined in the Note) or any material provision of any Security Document shall at any time for any
reason cease to be valid and binding on or enforceable against us or the validity or enforceability thereof shall be contested
by any party thereto, or a proceeding shall be commenced by us or any governmental authority having jurisdiction over us, seeking
to establish the invalidity or unenforceability thereof;
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any
material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than 15 consecutive days, the cessation
or substantial curtailment of revenue producing activities at any facility of the Issuer or any Subsidiary, if any such event
or circumstance could have a Material Adverse Effect (as defined in the Purchase Agreement);
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we
fail to remove any restrictive legend on any certificate or any shares of our common stock issued to the holder upon conversion
or exercise (as the case may be) of any Securities (as defined in the Purchase Agreement) acquired by the holder under the Purchase
Agreement (including the Note) as and when required by such Securities or the Purchase Agreement, unless otherwise then prohibited
by applicable federal securities laws, and any such failure remains uncured for at least 5 trading days;
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we
or any of our significant Subsidiaries, pursuant to or within the meaning of any Bankruptcy Law, either:
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(1)
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commences a voluntary case or proceeding;
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(2)
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consents to the entry of an order for relief against
it in an involuntary case or proceeding;
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(3)
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consents to the appointment of a custodian of it or for
any substantial part of its property;
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(4)
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makes a general assignment for the benefit of its creditors;
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(5)
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takes any comparable action under any foreign Bankruptcy
Law; or
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(6)
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generally is not paying its debts as they become due;
or
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a
court of competent jurisdiction enters an order or decree under any Bankruptcy Law that either:
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(1)
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is
for relief against us or any of our Significant Subsidiaries in an involuntary case or
proceeding;
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(2)
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appoints
a custodian for us or any of the significant Subsidiaries, or for any substantial part
of the property of us or any of our Significant Subsidiaries;
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(3)
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orders
the winding up or liquidation of us or any of our Significant Subsidiaries; or
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(4)
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grants
any similar relief under any foreign Bankruptcy Law,
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and,
such order or decree remains unstated and in effect for at least 30 days.
Certain
Definitions
For
purposes of this Description of the Note, the following terms shall be defined as follows:
“Daily
VWAP” means for any trading day, the per share volume-weighted average price of our common stock as displayed under the
heading “Bloomberg VWAP” on Bloomberg page “WKHS <EQUITY> VAP” (or, if such page is not available,
its equivalent successor page) in respect of the period from the scheduled open of trading until the scheduled close of trading
of the primary trading session on such trading day (or, if such volume-weighted average price is unavailable, the market value
of one share of our common stock on such trading day, determined, using a volume-weighted average price method, by a nationally
recognized independent investment banking firm selected by the Issuer). Daily VWAP will be determined without regard to after-hours
trading or any other trading outside of the regular trading session.
“Eligible
Exchanges” means any of The New York Stock Exchange, The Nasdaq Capital Market, The Nasdaq Global Market or The Nasdaq Global
Select Market (or any of their respective successors).
“Equity
Conditions” will be deemed to be satisfied on any date when on such date and on the previous 20 trading days, (i) shares
issuable upon conversion of the Note are freely tradable; (ii) the holder is not in possession of any material non-public information
provided by or on behalf of us; (iii) there is no Limitation on Conversion; (iv) there are sufficient reserve shares; (v) no public
announcement of a fundamental change has occurred that has not been abandoned, terminated, or consummated; (vi) the Daily VWAP
per share of our common stock is not less than $4.00 (subject to adjustment); (vii) daily reported trading volume is not less
than $1,500,000; and (viii) no Event of Default has occurred nor is continuing.
“Market
Stock Payment Price” means an amount equal ninety percent (92%) of the lesser of (i) the Daily VWAP per share of our common
stock on the trading date immediately prior to such payment or redemption date, as applicable, and (ii) the average of the Daily
VWAPs per share of our common stock of the lowest 2 trading days during the five day trading period ending on, (x) with respect
to an interest payment, fundamental change, or company redemption, the trading day immediately prior to the relevant payment or
redemption date, as applicable, (y) with respect to an early redemption stock payment date, such redemption date;
“Permitted
Intellectual Property Licenses”; means intellectual property (i) licenses in existence at the issue date, including those
listed on the schedules to the Security Agreement and (ii) non-perpetual licenses granted in the ordinary course of business on
arm’s length terms consisting of the licensing, development or support of technology, so long as not entered into during
the continuance of an Event of Default; and
“Traditional
Working Capital Facility” means any working capital facility consisting of non-convertible debt (or similar
instruments) resulting in net proceeds to us of no less than $30,000,000 with (i) an annual interest no greater than LIBOR
plus 8.00%, (ii) no redemption provisions prior to the maturity date of the Note, (iii) no original issue discount, (iv) no
make-whole interest or payments and (v) the purpose of which is to fund working capital for truck production.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE NOTE
This
section is a discussion of the material U.S. federal income tax considerations relating to the purchase, ownership, disposition
and conversion of the Note and the ownership and disposition of the common stock into which the Note may be converted. This summary
does not provide a complete analysis of all potential U.S. federal income tax considerations. The information provided below is
based on existing U.S. federal income tax authorities, all of which are subject to change or differing interpretations, possibly
with retroactive effect. There can be no assurances that the Internal Revenue Service (the “IRS”) will not challenge
one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the
IRS with respect to the U.S. federal income tax consequences of purchasing, owning, disposing of or converting the Note or owning
or disposing of the common stock into which the Note may be converted. The summary generally applies only to beneficial owners
of the Note or common stock for an amount equal to the issue price of the Note, which is the first price at which a substantial
amount of the Note is sold for money to investors (not including sales to bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers), and that hold the Note or common stock as “capital
assets” within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”) (generally,
property held for investment). This discussion does not purport to deal with all aspects of U.S. federal income taxation that
may be relevant to a particular beneficial owner in light of the beneficial owner’s circumstances (for example, persons
subject to the alternative minimum tax provisions of the Code, or a U.S. holder (as defined below) whose “functional currency”
is not the U.S. dollar). Also, it is not intended to be wholly applicable to all categories of investors, some of which may be
subject to special rules (such as partnerships and pass-through entities and investors in such entities, dealers in securities
or currencies, traders in securities that elect to use a mark-to-market method of accounting, banks, thrifts, regulated investment
companies, real estate investment trusts, insurance companies, tax-exempt entities, tax-deferred or other retirement accounts,
certain former citizens or residents of the United States, persons holding the Note or common stock as part of a hedging, conversion
or integrated transaction or a straddle, persons that own, or are deemed to own, more than 5% of our common stock, persons deemed
to sell the Note or common stock under the constructive sale provisions of the Code, or persons required under Section 451(b)
of the Code to conform the timing of income accruals with respect to the Note or common stock to their financial statements).
Finally, the summary does not address the potential application of the Medicare contribution tax on net investment income, the
effects of the U.S. federal estate and gift tax laws or any applicable non-U.S., state or local laws.
INVESTORS
CONSIDERING THE PURCHASE OF THE NOTE SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME
TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF U.S. FEDERAL ESTATE AND GIFT TAX LAWS, NON-U.S., STATE AND LOCAL
LAWS, AND TAX TREATIES.
As
used herein, the term “U.S. holder” means a beneficial owner of the Note or the common stock into which the Note may
be converted that, for U.S. federal income tax purposes is (1) an individual who is a citizen or resident of the United States,
(2) a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under
the laws of the United States or any state of the United States, or the District of Columbia, (3) an estate the income of which
is subject to U.S. federal income taxation regardless of its source, or (4) a trust if it (x) is subject to the primary supervision
of a U.S. court and one or more U.S. persons have the authority to control all substantial decisions of the trust or (y) has a
valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
If
a partnership (including an entity or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes)
is a beneficial owner of a note or common stock acquired upon conversion of a note, the tax treatment of a partner in the partnership
will depend upon the status of the partner and the activities of the partnership. A beneficial owner of a note or common stock
acquired upon conversion of a note that is a partnership, and partners in such partnership, should consult their own tax advisors
about the U.S. federal income tax consequences of purchasing, owning, disposing of, or converting such note and owning and disposing
of the common stock into which the note may be converted.
Taxation
of Interest
U.S.
holders will be required to recognize as ordinary income any stated interest paid or accrued on the Note, in accordance with their
regular method of tax accounting.
In
general, if the terms of a debt instrument entitle a holder to receive payments (other than certain fixed periodic interest payments)
that exceed the issue price of the instrument by more than a de minimis amount, the holder will be required to include
such excess in income as “original issue discount” over the term of the instrument on a constant yield to maturity
basis, irrespective of the holder’s regular method of tax accounting. We believe, and the rest of this discussion assumes,
that the Note will not be issued with original issue discount for U.S. federal income tax purposes.
Additional
Interest
We
may be required to make payments of additional interest to holders of the Note. We believe that there is only a remote possibility
that we would be required to pay additional interest, or that if such additional interest were required to be paid, it would be
an incidental amount, and therefore we intend to take the position that this possible payment of additional interest will not
subject the Note to the special rules governing certain contingent payment debt instruments (which, if applicable, would affect
the timing, amount and character of income with respect to the Note). Our determination in this regard, while not binding on the
IRS, is binding on U.S. holders unless they disclose their contrary position in the manner required by applicable Treasury regulations.
The remainder of this discussion assumes that the Note are not treated as contingent payment debt instruments. If, contrary to
our expectations, we pay additional interest, although it is not free from doubt, such additional interest should be taxable to
a U.S. holder as ordinary interest income at the time it accrues or is paid in accordance with the U.S. holder’s regular
method of tax accounting. In the event we pay additional interest on the Note, U.S. holders should consult their own tax advisors
regarding the treatment of such amounts.
Sale,
Exchange, Redemption or Other Taxable Disposition of Note
A
U.S. holder generally will recognize capital gain or loss if the holder disposes of a note in a sale, exchange, redemption or
other taxable disposition (other than conversion of a note into shares of our common stock or into a combination of cash and shares
of our common stock, the U.S. federal income tax consequences of which are described under “—U.S. Holders—Conversion
of Note” below). The U.S. holder’s gain or loss will equal the difference between the amount realized by the holder
(other than amounts attributable to accrued but unpaid interest) and the holder’s tax basis in the note. The amount realized
by the U.S. holder will include the amount of any cash and the fair market value of any other property received for the note.
The U.S. holder’s tax basis in the note generally will equal the amount the holder paid for the note. The portion of any
amount realized that is attributable to accrued interest will not be taken into account in computing the U.S. holder’s capital
gain or loss. Instead, that portion will be taxed as ordinary interest income as described above to the extent that the U.S. holder
has not previously included the accrued interest in income. The gain or loss recognized by the U.S. holder on the disposition
of the note generally will be long-term capital gain or loss if the holder held the note for more than one year, or short-term
capital gain or loss if the holder held the note for one year or less, at the time of the transaction. Long-term capital gains
of non-corporate taxpayers generally are taxed at reduced rates. Short-term capital gains are taxed at ordinary income rates.
The deductibility of capital losses is subject to limitations.
Exchange
in Lieu of Conversion
If
a U.S. holder surrenders Note for conversion, we direct the Note to be offered to a financial institution for exchange in lieu
of conversion, and the designated financial institution accepts the Note and delivers cash, shares of our common stock or a combination
of cash and shares of our common stock for the Note, the holder will be taxed on the exchange as a sale or exchange of the Note,
as described above under “U.S. Holders—Sale, Exchange, Redemption or Other Taxable Disposition of Note.” In
such case, a U.S. holder’s tax basis in any shares of our common stock received will equal the fair market value of the
stock on the date of the exchange, and the holder’s holding period in the shares of our common stock received will begin
the day after the date of the exchange.
Conversion
of Note
Upon
conversion of a note solely into cash, a U.S. holder generally will be subject to the rules described under “—U.S.
Holders—Sale, Exchange, Redemption or Other Taxable Disposition of Note” above, subject to the discussion under “—U.S.
Holders—Constructive Distributions” below regarding the possibility that certain adjustments to the conversion rate
of a note may be treated as a taxable dividend.
A
U.S. holder generally will not recognize any income, gain or loss on the conversion of a note solely into shares of our common
stock, except with respect to cash received in lieu of a fractional share of common stock and the fair market value of any common
stock attributable to accrued and unpaid interest, subject to the discussion under “U.S. Holders—Constructive Distributions”
below regarding the possibility that certain adjustments to the conversion rate of a note may be treated as a taxable dividend.
The U.S. holder’s aggregate tax basis in the common stock (including any fractional share for which cash is paid, but excluding
shares attributable to accrued and unpaid interest) will equal the U.S. holder’s tax basis in the note. The U.S. holder’s
holding period in the common stock (other than shares attributable to accrued and unpaid interest) will include the holding period
in the note.
The
tax consequences of the conversion of a note into a combination of cash and shares of our common stock are not entirely clear.
If the note constitutes a “security” for U.S. federal income tax purposes, a U.S. holder may be treated as exchanging
the note for our common stock and cash in a recapitalization for U.S. federal income tax purposes. The term “security”
is not defined in the Code or in the Treasury regulations, and has not been clearly defined by judicial decisions. An instrument
is a “security” for these purposes if, based on all the facts and circumstances, the instrument constitutes a meaningful
investment in the issuer of the instrument. Although there are a number of factors that may affect the determination of whether
a debt instrument is a “security,” one of the most important factors is the original term of the instrument, or the
length of time between the issuance of the instrument and its maturity. In general, instruments with an original term of more
than ten years are likely to be treated as “securities,” and instruments with an original term of less than five years
may not be treated as “securities.” In addition, the convertibility of a debt instrument into stock of the issuer
may weigh in favor of “security” treatment because of the possible equity participation in the issuer. We intend to
take the position that the Note are “securities” for U.S. federal income tax purposes, although there can be no assurance
in this regard.
If
the note is a security and the conversion is treated as a recapitalization for U.S. federal income tax purposes, the U.S. holder
would not be permitted to recognize loss, but would be required to recognize gain, if any. The amount of gain recognized by a
U.S. holder would equal the lesser of (i) the excess (if any) of (A) the amount of cash received (excluding any cash received
in lieu of a fractional share of our common stock and any cash received attributable to accrued and unpaid interest) plus the
fair market value of our common stock received (treating a fractional share of our common stock as issued and received for this
purpose and excluding any such common stock that is attributable to accrued and unpaid interest) upon conversion over (B) the
U.S. holder’s tax basis in the converted note, and (ii) the amount of cash received upon conversion (other than any cash
received in lieu of a fractional share of our common stock and any cash received attributable to accrued and unpaid interest).
Subject to the discussion under “—U.S. Holders—Constructive Distributions” below regarding the possibility
that certain adjustments to the conversion rate of a note may be treated as a taxable dividend, the gain recognized by a U.S.
holder upon conversion of a note generally will be long-term capital gain if the holder held the note for more than one year,
or short-term capital gain if the holder held the note for one year or less, at the time of the conversion. Long-term capital
gains of non-corporate taxpayers generally are taxed at reduced rates. Short-term capital gains are taxed at ordinary income rates.
The U.S. holder’s tax basis in the common stock received (including any fractional share for which cash is paid, but excluding
shares attributable to accrued and unpaid interest) generally would equal the tax basis of the converted note, decreased by the
amount of cash received (other than cash in lieu of a fractional share of common stock and any cash attributable to accrued and
unpaid interest), and increased by the amount of gain (if any) recognized upon conversion (other than any gain recognized as a
result of cash received in lieu of a fractional share of common stock). The U.S. holder’s holding period in the common stock
(other than shares attributable to accrued and unpaid interest) would include the holding period in the converted note.
Alternatively,
the conversion of a note into a combination of cash and shares of our common stock may be treated as in part a payment in redemption
for cash of a portion of the note and in part a conversion of a portion of the note into common stock. In such case, a U.S. holder’s
aggregate tax basis in the note should be allocated between the portion of the note treated as redeemed and the portion of the
note treated as converted into common stock on a pro rata basis (based on fair market value). The U.S. holder generally would
recognize capital gain or loss with respect to the portion of the note treated as redeemed equal to the difference between the
amount of cash received by the U.S. holder (other than amounts attributable to accrued and unpaid interest) and the U.S. holder’s
tax basis in the portion of the note treated as redeemed, subject to the discussion under “—U.S. Holders—Constructive
Distributions” below regarding the possibility that certain adjustments to the conversion rate of a note may be treated
as a taxable dividend. See “—U.S. Holders—Sale, Exchange, Redemption or Other Taxable Disposition of Note”
above. With respect to the portion of the note treated as converted, a U.S. holder generally would not recognize any gain or loss
(except with respect to cash received in lieu of a fractional share of common stock and common stock received attributable to
accrued and unpaid interest), subject to the discussion under “—U.S. Holders—Constructive Distributions”
below regarding the possibility that certain adjustments to the conversion rate of a note may be treated as a taxable dividend.
The tax basis allocated to the portion of the note treated as converted into common stock would be the U.S. holder’s tax
basis in the common stock received (including any fractional share for which cash is paid, but excluding shares attributable to
accrued and unpaid interest). The U.S. holder’s holding period in the common stock received (other than shares attributable
to accrued and unpaid interest) would include the holding period in the converted note.
With
respect to cash received in lieu of a fractional share of our common stock, a U.S. holder will be treated as if the fractional
share were issued and received and then immediately redeemed for cash. Accordingly, the U.S. holder generally will recognize gain
or loss equal to the difference between the cash received and that portion of the holder’s tax basis in the common stock
attributable to the fractional share on a proportionate basis in accordance with its relative fair market value. Any such gain
or loss generally would be capital gain or loss and would be long-term capital gain or loss if at the time of the conversion,
the Note have been held for more than one year.
Any
amounts received, including cash and the value of any portion of our common stock, attributable to accrued and unpaid interest
on the Note not yet included in income by a U.S. holder will be taxed as ordinary income. The basis in any shares of common stock
attributable to accrued and unpaid interest will equal the fair market value of such shares when received. The holding period
in any shares of common stock attributable to accrued and unpaid interest will begin on the day after the date of conversion.
A
U.S. holder that converts a note between a record date for an interest payment and the next interest payment date and consequently
receives a payment of cash interest should consult its own tax advisor concerning the appropriate treatment of such payment.
If
we undergo certain corporate transactions, the conversion obligation may be adjusted so that holders would be entitled to convert
the Note into the type of consideration that they would have been entitled to receive upon such corporate transaction had the
Note been converted into our common stock immediately prior to such corporate transaction, except that such holders will not be
entitled to receive additional shares unless such Note are converted in connection with a make whole fundamental change. Depending
on the facts and circumstances at the time of such corporate transaction, such adjustment may result in a deemed exchange of the
outstanding Note, which may be a taxable event for U.S. federal income tax purposes. Whether or not such an adjustment results
in a deemed exchange, a conversion of a note into such consideration might be a taxable event.
U.S.
holders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of such an adjustment upon
a corporate transaction.
Distributions
If,
after a U.S. holder acquires any of our common stock upon a conversion of a note, we make a distribution in respect of such common
stock from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), the distribution
generally will be treated as a dividend to the extent of such current or accumulated earnings and profits; and will be includible
in a U.S. holder’s income at the time such holder is treated as receiving such distribution for U.S. federal income tax
purposes. If the distribution exceeds our current and accumulated earnings and profits, the excess will be treated first as a
tax-free return of the U.S. holder’s investment, up to the U.S. holder’s tax basis in its common stock, and any remaining
excess will be treated as capital gain from the sale or exchange of the common stock (as described above under “—U.S.
Holders—Sale, Exchange, Redemption or Other Taxable Disposition of Note”). If the U.S. holder is a U.S. corporation,
it would generally be able to claim a dividends received deduction on a portion of any distribution taxed as a dividend, provided
that certain holding period and other requirements are satisfied. Subject to certain exceptions, dividends received by non-corporate
U.S. holders are taxed at the reduced rates applicable to long-term capital gains, provided that certain holding period requirements
are met.
Constructive
Distributions
The
terms of the Note allow for changes in the conversion rate of the Note under certain circumstances. A change in conversion rate
that allows holders of the Note to receive more shares of common stock on conversion may increase such holders’ proportionate
interests in our earnings and profits or assets. In that case, the holders of the Note may be treated as though they received
a taxable distribution. A taxable constructive distribution would result, for example, if the conversion rate is adjusted to compensate
holders of Note for distributions of cash or property to our stockholders. The adjustment to the conversion rate of Note converted
in connection with a make whole fundamental change also may be treated as a taxable distribution. If an event occurs that dilutes
the interests of stockholders or increases the interests of holders of the Note and the conversion rate of the Note is not adjusted
(or not adequately adjusted), this also could be treated as a taxable constructive distribution to holders of the Note. Conversely,
if an event occurs that dilutes the interests of holders of the Note and the conversion rate is not adjusted (or not adequately
adjusted), the resulting increase in the proportionate interests of our stockholders could be treated as a taxable constructive
distribution to the stockholders.
Not
all changes in the conversion rate that result in holders of Note receiving more common stock on conversion, however, increase
such holders’ proportionate interests in our earnings and profits or assets. For instance, a change in conversion rate could
simply prevent the dilution of the holders’ interests upon a stock split or other change in capital structure. Changes of
this type, if made pursuant to a bona fide reasonable adjustment formula, are not treated as taxable constructive stock distributions.
Any taxable constructive distribution resulting from a change to, or failure to change, the conversion rate would be treated for
U.S. federal income tax purposes in the same manner as an actual distribution on our common stock paid in cash or other property,
as described above under “—U.S. Holders—Distributions.” Generally, a U.S. holder’s adjusted tax
basis in a note will be increased to the extent of any such taxable constructive distribution that is treated as a dividend. U.S.
holders should consult their own tax advisors regarding whether any taxable constructive dividends would be eligible for the dividends
received deduction (for corporate holders) or the reduced rates described above under “—U.S. Holders—Distributions”
(for non-corporate holders), as the requisite applicable holding periods might not be considered to be satisfied.
We
are currently required to report the amount of any deemed distributions on our website or to the IRS and holders of Note not exempt
from reporting. On April 12, 2016, the IRS proposed regulations addressing the amount and timing of deemed distributions, obligations
of withholding agents and filing and notice obligations of issuers. If adopted as proposed, the regulations would generally provide
that (i) the amount of a deemed distribution is the excess of the fair market value of the right to acquire stock immediately
after the conversion rate adjustment over the fair market value of the right to acquire stock without the adjustment, (ii) the
deemed distribution occurs at the earlier of the date the adjustment occurs under the terms of the note and the date of the actual
distribution of cash or property that results in the deemed distribution, and (iii) we are required to report the amount of any
deemed distributions on our website or to the IRS and all holders of the Note (including holders of the Note that would otherwise
be exempt from information reporting). The final regulations will be effective for deemed distributions occurring on or after
the date of adoption, but holders of the Note and withholding agents may rely on the proposed regulations prior to that date under
certain circumstances.
Possible
Effect of a Consolidation or Merger
In
certain situations, we may consolidate or merge into another entity. Depending on the circumstances, a change in the obligor of
the Note as a result of the consolidation or merger could result in a deemed exchange of the outstanding Note, which may be a
taxable event for U.S. federal income tax purposes. U.S. holders are urged to consult their own tax advisors regarding the U.S.
federal income tax consequences of such a consolidation or merger.
Sale,
Exchange or Other Taxable Disposition of Common Stock
A
U.S. holder generally will recognize capital gain or loss on a sale, exchange or other taxable disposition of common stock. The
U.S. holder’s gain or loss will equal the difference between the proceeds received by the holder and the holder’s
tax basis in the stock. The proceeds received by the U.S. holder will include the amount of any cash and the fair market value
of any other property received for the stock. The gain or loss recognized by a U.S. holder on a sale, exchange or other taxable
disposition of common stock will be long-term capital gain or loss if the holder’s holding period in the common stock is
more than one year, or short-term capital gain or loss if the holder’s holding period in the common stock is one year or
less, at the time of the transaction. Long-term capital gains of non-corporate taxpayers generally are taxed at reduced rates.
Short-term capital gains are taxed at ordinary income rates. The deductibility of capital losses is subject to limitations.
EXPERTS
The
audited consolidated financial statements, and management’s assessment of the effectiveness of internal control over financial
reporting as of and for the years ended December 31, 2019 and 2018 incorporated by reference in this prospectus and elsewhere
in the registration statements have been so incorporated by reference in reliance upon the reports of Grant Thornton LLP, independent
registered public accountants, upon the authority of said firm as experts in accounting and auditing.
The
consolidated financial statements and financial statement schedules incorporated in this prospectus by reference from Workhorse
Group Inc.’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018, have been audited by Grant Thornton
LLP as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
SEC permits us to “incorporate by reference” the information and reports we file with it. This means that we can disclose
important information to you by referring to another document. The information that we incorporate by reference is considered
to be part of this prospectus supplement, and later information that we file with the SEC automatically updates and supersedes
this information. We incorporate by reference the documents listed below, except to the extent information in those documents
is different from the information contained in this prospectus supplement, and all future documents filed with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act (other than the portions thereof deemed to be furnished to the SEC pursuant to
Item 9 or Item 12) until we terminate the offering of these securities:
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The
Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2019, filed with the Commission on March 13, 2020.
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The
Registrant’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2020, filed with the Commission on May 6, 2020.
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The
description of the Registrant’s common stock included on Form
8-A12B, which was filed on January 5, 2016, and any amendments or reports filed for the purpose of updating this description.
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Any
future filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including those made after the
date of filing the initial registration statement and prior to effectiveness of the registration statement, until the termination
of the offerings under this prospectus; provided that this prospectus will not incorporate any information we may furnish to the
SEC under Item 2.02 or Item 7.01 of Form 8-K.
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To
the extent that any statement in this prospectus supplement is inconsistent with any statement that is incorporated by reference
and that was made on or before the date of this prospectus supplement, the statement in this prospectus supplement shall supersede
such incorporated statement. The incorporated statement shall not be deemed, except as modified or superseded, to constitute a
part of this prospectus supplement or the registration statement. Statements contained in this prospectus supplement as to the
contents of any contract or other document are not necessarily complete and, in each instance, we refer you to the copy of each
contract or document filed as an exhibit to our various filings made with the SEC.
Any
statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated herein by reference modifies or supersedes such earlier
statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part
of this Registration Statement.
You
may request a copy of these filings, at no cost, by writing or telephoning us at the following address or telephone number:
Workhorse
Group Inc.
100 Commerce Drive
Loveland, Ohio 45140
Attn: Steve Schrader, Chief Financial Officer
Telephone: 513-360-4704
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document
we file at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for more information about the operation of the Public Reference Room. The SEC maintains an internet website at http://www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC, including Workhorse. You may also access our reports and proxy statements free of charge at our website, http://www.workhorse.com.
The information contained in, or that can be accessed through, our website is not part of this prospectus supplement. The prospectus
included in this filing is part of a registration statement filed by us with the SEC. The full registration statement can be obtained
from the SEC, as indicated above, or from us.
PROSPECTUS
$250,000,000
Common Stock
Preferred Stock
Warrants
Debt Securities
Units
and up to 1,562,210 Shares of Common
Stock Underlying Stock Purchase Warrants
held by Selling Shareholders
We may offer and sell,
from time to time in one or more offerings, up to $250,000,000 in the aggregate of common stock, preferred stock, warrants to purchase
our common stock, debt securities or units, at prices and on terms that we will determine at the time of the offering. Preferred
Stock, warrants and debt securities may also be convertible into preferred stock or common stock.
In addition, the selling
shareholders may offer to sell up to up to 1,562,210 shares of common stock issuable upon exercise of Stock Purchase Warrants.
We will not receive any of the proceeds from the sale of shares of common stock by the selling shareholders but may receive proceeds
upon the exercise of the Stock Purchase Warrants.
This prospectus describes
some of the general terms that may apply to these securities. Each time we or a selling shareholder sell securities, to the extent
required by applicable law, we will provide a supplement to this prospectus that contains specific information about the offering
and the terms of the securities being offered. The supplement may also add, update or change information contained in this prospectus.
You should carefully
read this prospectus, all prospectus supplements and all other documents incorporated by reference in this prospectus before you
invest in our securities.
We and the selling
shareholders will offer the securities in amounts, at prices and on terms to be determined by market conditions at the time of
the offerings. The securities may be offered separately or together in any combination.
The securities may
be offered and sold on a delayed or continuous basis directly by us and the selling shareholders or through underwriters, agents
or dealers as designated from time to time, through a combination of these methods or any other method as provided in the applicable
prospectus supplement. The supplements to this prospectus will designate the terms of our plan of distribution. See the discussion
under the heading “Plan of Distribution” for more information on the topic.
Our common stock is
listed on The NASDAQ Capital Market under the symbol “WKHS.”
Investing in our securities
involves risks. You should carefully review the section captioned “Risk Factors” beginning on page 2
of this prospectus regarding information included and incorporated by reference in this prospectus and the applicable prospectus
supplement.
Neither the Securities
and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is May 8, 2020.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is
part of a registration statement that we filed with the Securities and Exchange Commission using a “shelf” registration
process. Using this process, we may sell any combination of the securities described in this prospectus in one or more offerings
up to a total dollar amount of $250,000,000 and the selling shareholders referred to in this prospectus and identified in supplements
to the prospectus may also offer and sell our shares of common stock under this prospectus.
This prospectus provides
you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will
provide a prospectus supplement that will describe the specific terms of the offering. The prospectus supplement may also add to
or update other information contained in this prospectus.
In making your investment
decision, you should rely only on the information contained or incorporated by reference in this prospectus and any prospectus
supplement we may authorize to be delivered to you. This prospectus incorporates important business and financial information about
us that is not included in or delivered with this prospectus. You may obtain a copy of this information, without charge, as described
in the “Where You Can Find More Information” section. We have not authorized anyone to provide you with any other information.
If you receive any other information, you should not rely on it.
You should not assume
that the information appearing in this prospectus is accurate as of any date other than the date on the front cover of this prospectus.
You should not assume that the information contained in the documents incorporated by reference in this prospectus is accurate
as of any date other than the respective dates of those documents. Our business, financial condition, results of operations, reserves
and prospects may have changed since that date.
We encourage you to
read this entire prospectus together with the documents incorporated by reference into this prospectus before making a decision
whether to invest in our securities.
ABOUT WORKHORSE GROUP INC.
We are a technology
company focused on providing sustainable and cost-effective solutions to the commercial transportation sector. As an American manufacturer,
we design and build high performance electric vehicles and aircraft that make movement of people and goods more efficient and less
harmful to the environment. As part of our solution, we also develop cloud-based, real-time telematics performance monitoring systems
that enable fleet operators to optimize energy and route efficiency. We are currently focused on our core competency of bringing
the C-Series electric delivery truck to market and fulfilling our existing backlog of orders.
We are a Nevada corporation. Our
principal executive offices are located at 100 Commerce Drive, Loveland, Ohio 45140, and our telephone number is 513-360-4704.
Unless otherwise stated
or the context requires otherwise, references to “we,” “us,” the “Company” and “Workhorse
Group” refer to Workhorse Group Inc. and unless otherwise differentiated, its wholly-owned subsidiaries, Workhorse Technologies
Inc., Workhorse Motor Works Inc., Workhorse Properties Inc. and Surefly, Inc.
RISK FACTORS
An investment in our
securities involves a high degree of risk. You should carefully consider the risk factors and all other information contained or
incorporated by reference in this prospectus, the applicable prospectus supplement and the documents incorporated by reference
herein and therein as set out in the section entitled “Incorporation of Certain Documents by Reference,” before deciding
to invest in our securities. If any of these risks were to occur, our business, financial condition or results of operations could
be adversely affected. In that case, the trading price of our common stock or other securities could decline and you could lose
all or part of your investment. When we offer and sell any securities pursuant to a prospectus supplement, we may include additional
risk factors relevant to such securities in the prospectus supplement.
FORWARD LOOKING STATEMENTS
This prospectus contains
forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements.
Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including
the reasons described in our “Prospectus Summary,” “Use of Proceeds,” “Risk Factors,” “Management
Discussion and Analysis of Financial Condition and Result of Operations,” and “Business” sections. In some cases,
you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,”
“could,” “depends,” “estimate,” “expects,” “intend,” “may,”
“ongoing,” “plan,” “potential,” “predict,” “project,” “should,”
“will,” “would” or the negative of those terms or other similar expressions, although not all forward-looking
statements contain those words.
We have based these
forward-looking statements largely on our current expectations and projections about future events and financial trends that we
believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking
statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the
section titled “Risk Factors” and elsewhere in this prospectus, regarding, among other things:
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market acceptance of our products;
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our ability to deliver on our existing orders including
the UPS order and further develop new orders;
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our ability to ultimately be awarded commercial or government
contracts;
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our ability to attract and retain customers for existing
and new products;
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our ability to effectively maintain and update our product
and service portfolio;
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our ability to continue as a going concern;
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our ability to raise capital under acceptable terms;
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our ability to effectively manage all warranty claims;
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our ability to enter long-term supply contracts including,
but not limited to the supply of lithium-ion battery cells and the battery packs incorporating such cells;
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our ability to maintain listing of our common stock on
the Nasdaq Capital Market;
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our ability to adequately protect our intellectual property,
or the loss of some of our intellectual property rights through costly litigation or administrative proceedings;
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legislation and government regulation; and
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general economic conditions, inflation and access to capital.
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These risks are not
exhaustive. Other sections of this prospectus may include additional factors that could adversely impact our business and financial
performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to
time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
contained in, or implied by, any forward-looking statements.
You should not rely
upon forward looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected
in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required
by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus
or to conform these statements to actual results or to changes in our expectations.
You should read this
prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which
this prospectus is a part with the understanding that our actual future results, levels of activity, performance and achievements
may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
OUR COMPANY
Overview and 2019 Highlights
We are a technology
company focused on providing sustainable and cost-effective solutions to the commercial transportation sector. As an American manufacturer,
we design and build high performance battery-electric vehicles and aircraft that make movement of people and goods more efficient
and less harmful to the environment. As part of our solution, we also develop cloud-based, real-time telematics performance monitoring
systems that enable fleet operators to optimize energy and route efficiency. We are currently focused on our core competency of
bringing the C-Series electric delivery truck to market and fulfilling our existing backlog of orders. We have licensed some of
our previously developed intellectual property to Lordstown Motors Corp. (“LMC”) and have sold our SureFly™ multicopter
business which were assets that are outside of our core focus.
Workhorse electric
delivery trucks are in use by our customers on U.S. roads. Our delivery customers include companies such as UPS, FedEx Express,
Alpha Baking and W.B. Mason. Data from our in-house developed telematics system demonstrates our vehicles on the road are averaging
approximately a 500% increase in fuel economy as compared to conventional gasoline-based trucks of the same size and duty cycle.
In addition to improved
fuel economy, we anticipate that the performance of our vehicles on-route will reduce long-term vehicle maintenance expense by
approximately 60% as compared to fossil-fueled trucks.
We are an OEM capable
of manufacturing Class 3-6 commercial-grade, medium-duty truck at our Union City, Indiana facility, marketed under the Workhorse®
brand. Workhorse last mile delivery trucks are assembled in the Union City assembly facility.
From our development
modeling and the existing performance of our electric vehicles on American roads, we estimate that our C-Series delivery trucks
will save over $170,000 in fuel and maintenance savings over the 20-year life of the vehicle. We expect that fleet buyers will
be able to achieve a three-year or better return-of-investment (without government incentives), which we believe justifies the
higher acquisition cost of our vehicles.
Our goal is to continue
to increase sales and production, while executing on our cost-down strategy to a point that will enable us to achieve gross margin
profitability of the last mile delivery truck platform. As a key strategy, we have developed the Workhorse C-Series platform, which
has been accelerated from our previous development efforts.
The Workhorse C-Series
electric delivery truck platform will be available in multiple size configurations, 450, 650 and 1,000 cubic feet. This ultra-low
floor platform incorporates state-of-the-art safety features, economy and performance. We expect these vehicles offer fleet operators
the most favorable total cost-of-ownership of any comparable vehicle available today. We believe we are the first American OEM
to market a U.S. built electric delivery truck, and early indications of fleet interest are significant. We expect the C-Series
trucks will be supported by our Ryder Systems partnership. Using C-Series light duty prototypes, we delivered over 100,000 packages
in San Francisco and Ohio during our testing. During the testing period we achieved 50 MPGe and successfully demonstrated the role
the vehicle can have in last mile delivery.
Our HorseFly™
delivery drone is a custom designed, purpose-built drone that is fully integrated in our electric trucks. HorseFly is designed
with a maximum gross weight of 30 lbs., a 10 lb. payload and a maximum air speed of 50 mph. It is designed and built to be rugged
and consisting of redundant systems to further meet the FAA’s required rules and regulations. As part of the divestiture
of SureFly, the Company formed a 50/50 joint venture to which we contributed our HorseFly technology.
SureFly
On November 27, 2019,
the Company completed the sale of SureFly for $4.0 million.
Hackney
On October 31, 2019,
the Company and ST Engineering Hackney, Inc. (“Seller”) entered into an Asset Purchase Agreement (the “Purchase
Agreement”) to purchase certain assets of Seller (the “Acquired Assets”) and assume certain liabilities of Seller.
The closing under the Purchase Agreement provides that the Company will be required to deliver shares of its common stock to the
Seller if it does not make the Second Payment (as defined below) on a timely basis. Accordingly, upon execution of the Purchase
Agreement, the Company deposited $1.0 million in cash and shares of its common stock having an aggregate value of $6.6 million
based on the closing price as of the day immediately preceding the date of the Purchase Agreement (the “Escrow Shares”)
into an escrow account (the “Escrow Account”). The number of Escrow Shares shall be subject to adjustment if the aggregate
value of the Escrow Shares is less than $5.28 million or greater than $7.92 million on certain dates.
The Company agreed
to pay $7.0 million for the purchase of the Acquired Assets, $1.0 million of which was paid from the Escrow Account in
January 2020 after satisfaction of certain conditions, and the remaining $6.0 million which (the “Second Payment”)
is payable in cash within 45 days if certain additional conditions are attained. The Purchase Agreement provides that the Company
shall make additional payments to Seller in the event the Second Payment is not made within 45 days of when such payment is due.
In the event the Second Payment is not made to Seller within 105 days after such payment is due, Seller may, at its option, require
that the Escrow Agent release to Seller Escrow Shares with a value (based on the then-current market price of the shares) equal
to $6,000,000 in satisfaction of the Second Payment.
LMC
On November 7, 2019,
the Company entered into a transaction with LMC pursuant to which the Company agreed to grant LMC a perpetual and worldwide license
to certain intellectual property relating to the Company’s W-15 electric pickup truck platform and its related technology
(the “Licensed Intellectual Property”) in exchange for royalties, equity interests in LMC, and other consideration
(the “LMC Transaction”). LMC was founded by Stephen S. Burns, a current stockholder and former Chief Executive Officer
and Director of the Company.
In connection with
the LMC Transaction, the following agreements (collectively, the “Agreements”) were entered into:
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Intellectual Property License Agreement between the Company
and LMC (the “License Agreement”);
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Subscription Agreement between the Company and LMC (the
“Subscription Agreement”);
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Voting and Registration Rights Agreement among the Company,
LMC, and certain LMC stockholders (the “Voting Agreement”); and
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Consent and Waiver to Credit Agreement among the Company,
Wilmington Trust, as agent, and the lenders under the Credit Agreement (defined below) (the “Consent and Waiver”).
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LMC will endeavor to,
among other things, raise sufficient third-party capital for the acquisition, retrofitting, and restart of the Lordstown Assembly
Complex, and the ongoing operating costs, of which are expected to be significant (the “Capital Raise”). The Agreements
provide that LMC would manufacture electric pickup trucks or similar vehicles under 10,001 gross vehicle weight (“GVW”)
using the Licensed Intellectual Property (the “Vehicles”).
Under the Agreements,
LMC has exclusive rights to the Licensed Intellectual Property from the date of the License Agreement until the earliest of: (i)
June 30, 2020, if the Capital Raise has not occurred; (ii) the second anniversary of the LMC Transaction, if LMC has not started
regularly manufacturing Vehicles; (iii) the third anniversary of the LMC Transaction; and (iv) the date that any third-party automotive
manufacturer acquires more than ten percent of LMC’s outstanding common stock. The Licensed Intellectual Property excludes
the Company’s intellectual property relating to delivery trucks for last mile delivery or commercial use. LMC will have the
right, with limited exceptions, to match the best competing offer as a subcontractor for the Company should need to engage a subcontractor
in connection with larger potential production contracts to assemble such vehicles utilizing its existing capabilities and technologies.
The limited exceptions include the event in which the Company elects to award a subcontract for the manufacturing or assembly to
a strategic partner owning in excess of 19% of the Company.
LMC must pay the Company
one percent of the aggregate debt and equity commitments funded to LMC upon completion of the Capital Raise (the “Royalty
Advance”). LMC must also pay a one percent royalty on the gross sales price of the first 200,000 Vehicles sold, but only
to the extent that the aggregate amount of such royalty fees exceed the amount paid as the Royalty Advance. Upon completion of
the Capital Raise, the Company intends to transfer its approximately 6,000 existing orders for Vehicles to LMC, subject to customer
consent. LMC will pay the Company a four percent commission on the gross sales price of any transferred existing orders fulfilled
by LMC. The success of the Capital Raise is not within the Company’s control, and it therefore cannot provide assurance that
it will receive the Royalty Advance or receive the projected underlying royalty from the production of Vehicles.
Under the Subscription
Agreement, LMC issued ten percent of its common stock to the Company in exchange for the Company’s obligations under the
License Agreement. The Subscription Agreement grants the Company anti-dilution rights for two years. The Company is subject to
certain restrictions on transferring LMC’s equity for this two-year period. Under the Voting Agreement, the Company has the
right to designate one director to LMC’s board of directors, subject to certain limitations.
USE OF PROCEEDS
Unless we indicate
otherwise in an accompanying prospectus supplement, we intend to use the net proceeds from the sale of our securities offered by
this prospectus for general corporate purposes, which may include, but not be limited to, working capital, capital expenditures,
acquisitions, refinancing of indebtedness and repurchases or redemptions of securities.
In the event a selling
shareholder exercises a Stock Purchase Warrant for cash, we will use the proceeds for general corporate purposes, which may include,
but not be limited to, working capital, capital expenditures, acquisitions, refinancing of indebtedness and repurchases or redemptions
of securities. We will not receive any proceeds from the sale of our common stock issued upon exercise of any Stock Purchase Warrants
by the selling shareholders.
SELLING SHAREHOLDERS
We have agreed to register
1,562,210 shares of common stock issuable upon exercise of Stock Purchase Warrants that are beneficially owned by the selling shareholders
identified below.
Other than as described
herein, the selling shareholders do not have, and within the past three years have not had, any position, office or material relationship
with us or any of our predecessors or affiliates.
The following table
sets forth the names of the selling shareholders, the numbers of shares of our common stock beneficially owned by such shareholders
as of April 27, 2020, and the numbers of shares that may be offered for resale by the selling shareholders from time to time as
described in the “Plan of Distribution.” The shares of common stock may also be sold by donees, pledgees, and other
transferees or successors in interest of the selling stockholders.
The selling shareholders may decide to sell all, some, or none of the shares of common stock. We currently have no agreements,
arrangements or understandings with any of the selling shareholders regarding the sale of the shares of common stock covered by
this prospectus. We cannot provide you with any estimate of the number of shares of our common stock that the selling shareholders
will hold in the future.
For purposes of this
table, beneficial ownership is determined in accordance with the Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and includes voting power and investment power with respect to such shares. In calculating
the percentage ownership or percent of equity vote for a given individual or group, the number of shares of common stock outstanding
for that individual or group includes unissued shares subject to options, warrants, rights or conversion privileges exercisable
within sixty days held by such individual or group, but are not deemed outstanding by any other person or group.
The applicable
percentage of ownership is based on an aggregate of 70,629,331 shares of our common stock issued and outstanding on April 27, 2020.
Name of Selling Shareholder
|
|
Number of Shares of Common Stock Owned Before the Offering
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|
|
Percent of Common Stock Owned Before the Offering
|
|
|
Shares Available for Sale Under this Prospectus (1)
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|
|
Number of Shares of Common Stock to be Owned After the Termination of the Offering (1)
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|
|
Percent of Common Stock to be Owned After Completion of the Offering (1)
|
|
Marathon Blue Grass Credit Fund, LP
|
|
|
2,162,929
|
|
|
|
2.97
|
%
|
|
|
293,785
|
|
|
|
1,869,144
|
|
|
|
2.58
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%
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Marathon Centre Street Partnership, LP
|
|
|
4,276,234
|
|
|
|
5.71
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%
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|
|
580,829
|
|
|
|
3,695,405
|
|
|
|
4.97
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%
|
Marathon Structured Product Strategies Fund, LP
|
|
|
3,286,127
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|
|
|
4.45
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%
|
|
|
446,346
|
|
|
|
2,839,781
|
|
|
|
3.87
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%
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TRS Credit Fund, LP
|
|
|
1,776,152
|
|
|
|
2.45
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%
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|
|
241,250
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|
|
|
1,534,902
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|
|
|
2.13
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%
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|
|
|
|
|
|
|
|
|
|
|
1,562,210
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|
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|
|
|
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(1)
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Because
(a) the selling shareholders may offer all, some or none of the shares covered by this prospectus, (b) the offering
of the selling shareholders’ shares is not being underwritten on a firm commitment basis, and (c) the selling shareholders
could purchase additional shares of our common stock from time to time, no estimate can be given as to the number of shares or
percent of our common stock that will be held by the selling shareholders upon termination of the offering. The fourth column
assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus. The fifth column lists
the percentage of common stock owned by the selling shareholders after completion of the offering, assuming the sale of all of
the shares offered by the selling shareholders pursuant to this prospectus.
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DESCRIPTION OF CAPITAL STOCK
Our articles of incorporation
provide that we are authorized to issue 250 million shares of common stock, par value $0.001 per share, and 75 million
shares of preferred stock, par value $0.001 per share.
Common Stock
Voting Rights
The holders of our
common stock are entitled to one vote per share on all matters to be voted upon by our shareholders, including the election of
directors. Cumulative voting is not permitted in the election of directors.
Dividend Rights
Subject to preferences
that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are
entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue
dividends and then only at the times and in the amounts that our board may determine.
Liquidation Rights
In the event of our
liquidation, dissolution, or winding up, our common shareholders will receive ratably any net assets that remain after the payment
of all of our debts and other liabilities, subject to the senior rights of any outstanding preferred stock.
Other
Our shares of common
stock are not convertible into any other security and do not have any preemptive rights, conversion rights, redemption rights or
sinking fund provisions. The rights, preferences and privileges, including voting rights, of holders of our common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of preferred stock that the board may designate and issue
in the future. There are currently no preferred shares outstanding.
Preferred Stock
We are authorized to
issue up to 75 million shares of preferred stock, in one or more series with such designations, relative rights, preferences,
voting rights, limitations, dividend rates, redemption prices, liquidation prices, conversion rights, sinking or purchase fund
rights, and other provisions as the board may fix or determine. Any series of preferred stock may have rights and privileges superior
to those of common stock.
Commencing May 31,
2019 through June 5, 2019, the Company entered into Subscription Agreements with institutional investors pursuant to which the
investors for an aggregate purchase price of $25,000,000 purchased 1,250,000 units consisting of (i) one newly-issued share
of Series B Preferred Stock, with a stated value of $20.00 per share (the “Stated Value”) and a par value of $0.001
per share (the “Preferred Stock”), and (ii) a common stock purchase warrant to purchase 7.41 shares of the common
stock, par value $0.001 per share, of the Company. (the “Warrants”). The closing with respect to approximately $15,000,000
occurred on May 31, 2019 and the balance of approximately $10,000,000 closed on June 5, 2019.
The rights, preferences,
privileges and limitations of the Preferred Stock are set forth in a certificate of designation filed by the Company with the Secretary
of State of the State of Nevada (the “Certificate of Designation”). The Preferred Stock ranks senior to the Company’s
common stock with respect to dividend rights and rights upon liquidation, winding-up or dissolution. The Preferred Stock is entitled
to annual dividends at a rate equal to 8.0% simple interest per annum on the Stated Value of the Preferred Stock. Accrued dividends
will be payable quarterly in shares of common stock of the Company based on a share price of $1.62, which was the average closing
price of the Company’s common stock on the five trading days immediately preceding May 31, 2019 and in excess of the closing
price of $1.60 on May 30, 2019.
The Preferred Stock
is not convertible and does not hold voting rights. Upon any liquidation, dissolution or winding up of the Company, liquidation
of the Company’s assets will be made in the following order of priority: (a) first, payment or provision for payment of debts
and other liabilities; (b) second, payment to the holders of the Preferred Stock an amount with respect to each share of the Preferred
Stock’s Stated Value plus any accrued but unpaid dividends thereon; and (c) third, payment to the holders of common stock.
On the fourth anniversary
of the Closing Date, the Company shall redeem all the outstanding shares of the Preferred Stock at the Stated Value, plus accrued
and unpaid dividends. At any time prior to such date, the Company subject to the repayment and retirement, in accordance with its
terms, of the 4.50% Senior Secured Convertible Note issued by the Company on December 9, 2019, the Company may, in its sole discretion,
redeem any outstanding shares of Preferred Stock at the Stated Value, plus accrued and unpaid dividends (“Optional Redemption”).
Notwithstanding the foregoing, the Company may effect an Optional Redemption prior to the fourth anniversary of the Closing Date
so long as it obtains from the lenders to the Credit Agreement their prior written consent to such Optional Redemption.
The Warrants have
an exercise price of $1.62 per share, which was in excess of the closing price of $1.60 on May 30, 2019, are immediately exercisable
and will expire seven years from the date of issuance.
Notwithstanding anything
herein to the contrary, the aggregate number of shares of common stock issued in payment of dividends on the Preferred Stock when
added to the number of shares of common stock issued upon exercise of any warrants shall not exceed 19.9% of either (a) the total
number of shares of common stock outstanding on the date hereof or (b) the total voting power of the Company’s securities
outstanding on the date hereof that are entitled to vote on a matter being voted on by holders of the common stock, unless and
until the Company obtains stockholder approval permitting such issuances in accordance with applicable rules of the NASDAQ Capital
Market.
Stock Purchase Warrants
On December 31, 2018,
the Company entered into a Credit Agreement (the “Credit Agreement”), with Marathon Asset Management, LP, on behalf
of certain entities it manages (collectively, the “Marathon Lenders”). The Credit Agreement provided the Company with
$10 million of term loans and $25 million of revolving term loans. The term loan and outstanding amounts under the revolving
term loans have been repaid in full and the revolving term loans has been cancelled. In conjunction with entering into the Credit
Agreement, the Company issued a Common Stock Purchase Warrant to purchase 8,053,390 shares of common stock at an exercise
price of $1.25 per share (the “Initial Warrants”). Until December 31, 2020 even after the payoff of the Loans,
the Company is required to issue additional Common Stock Purchase Warrants (the “Additional Warrants”) to the Lenders
equal to 10%, in the aggregate, of any additional issuance. The initial exercise price is 110% of the issuance price
of the applicable issuance. As a result of the above, the Company issued the Marathon Lenders warrants to acquire 358,450 shares
of common stock exercisable at a price of $1.039 per share on March 27, 2019, 1,481,825 shares of common stock exercisable at a
price of $1.4863 per share on June 30, 2019, 11,274 shares of common stock exercisable at a price of $1.782 per share on July 1,
2019, 34,293 shares of common stock exercisable at a price of $1.782 per share on October 1, 2019, 1,493,624 shares of common stock
exercisable at a price of $3.355 per share on December 4, 2019 and 34,293 shares of common stock exercisable at a price of $1.782
per share on January 1, 2020.
Anti-Takeover Provisions Under Nevada Law.
Combinations with
Interested Stockholder. Sections 78.411-78.444, inclusive, of the Nevada Revised Statutes (“NRS”) contain
provisions governing combinations with an interested stockholder. For purposes of the NRS, “combinations” include:
(i) any merger or consolidation with any interested stockholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition to any interested stockholder of corporate assets with an aggregate market value equal to 5% or more of the
aggregate market value of the corporation’s consolidated assets, 5% or more of the outstanding shares of the corporation
or 10% or more of the earning power or net income of the corporation, (iii) the issuance to any interested stockholder of
voting shares (except pursuant to a share dividend or similar proportionate distribution) with an aggregate market value equal
to 5% or more of the aggregate market value of all the outstanding shares of the corporation, (iv) the dissolution of the
corporation if proposed by or on behalf of any interested stockholder, (v) any reclassification of securities, recapitalization
or corporate reorganization that will have the effect of increasing the proportionate share of the corporation’s outstanding
voting shares held by any interested stockholder and (vi) any receipt by the interested stockholder of the benefit (except
proportionately as a stockholder) of any loan, advance, guarantee, pledge or other financial assistance. For purposes of the NRS,
an “interested stockholder” is defined to include any beneficial owner of more than 10% of any class of the voting
securities of a Nevada corporation and any person who is an affiliate or associate of the corporation and was at any time during
the preceding three years the beneficial owner or more than 10% of any class of the voting securities of the Nevada corporation.
Subject to certain
exceptions, the provisions of the NRS governing combinations with interested stockholders provide that a Nevada corporation may
not engage in a combination with an interested stockholder for two years after the date that the person first became an interested
stockholder unless the combination or the transaction by which the person first became an interested stockholder is approved by
the board of directors before the person first became an interested stockholder.
Control Share Acquisitions. The
NRS also contains a “control share acquisitions statute.” If applicable to a Nevada corporation this statute restricts
the voting rights of certain stockholders referred to as “acquiring persons,” that acquire or offer to acquire ownership
of a “controlling interest” in the outstanding voting stock of an “issuing corporation.” For purposes of
these provisions a “controlling interest” means with certain exceptions the ownership of outstanding voting stock sufficient
to enable the acquiring person to exercise one-fifth or more but less than one-third, one-third or more but less than a majority,
or a majority or more of all voting power in the election of directors and “issuing corporation” means a Nevada corporation
that has 200 or more stockholders of record, at least 100 of whom have addresses in Nevada appearing on the stock ledger of the
corporation, and which does business in Nevada directly or through an affiliated corporation. The voting rights of an acquiring
person in the affected shares will be restored only if such restoration is approved by the holders of a majority of the voting
power of the corporation. The NRS allows a corporation to “opt-out” of the control share acquisitions statute by providing
in such corporation’s articles of incorporation or bylaws that the control share acquisitions statute does not apply to the
corporation or to an acquisition of a controlling interest specifically by types of existing or future stockholders, whether or
not identified.
Articles of Incorporation and Bylaws
No Cumulative Voting. Where
cumulative voting is permitted in the election of directors, each share is entitled to as many votes as there are directors to
be elected and each shareholder may cast all of its votes for a single director nominee or distribute them among two or more director
nominees. Thus, cumulative voting makes it easier for a minority shareholder to elect a director. Our articles of incorporation
deny shareholders the right to vote cumulatively.
Authorized But Unissued Shares.
Our articles of incorporation permit the board to authorize the issuance of preferred stock, and to designate the rights
and preferences of our preferred stock, without obtaining shareholder approval. One of the effects of undesignated preferred stock
may be to enable the board to render more difficult or to discourage a third party’s attempt to obtain control of Workhorse
Group by means of a tender offer, proxy contest, merger, or otherwise. The issuance of shares of preferred stock also may discourage
a party from making a bid for the common stock because the issuance may adversely affect the rights of the holders of common stock.
For example, preferred stock that we issue may rank prior to the common stock as to dividend rights, liquidation preference, or
both, may have special voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares of
preferred stock may discourage bids for our common stock or may otherwise adversely affect the market price of our common stock.
Transfer Agent or Registrar
Empire Stock Transfer,
Inc. is the transfer agent and registrar of our common stock.
DESCRIPTION OF WARRANTS
We may issue warrants
for the purchase of common stock or preferred stock. Warrants may be issued independently or together with common stock or preferred
stock offered by any prospectus supplement and may be attached to or separate from any such offered securities. Series of warrants
may be issued under a separate warrant agreement entered into between us and a bank or trust company, as warrant agent, all as
will be set forth in the prospectus supplement relating to the particular issue of warrants. The warrant agent would act solely
as our agent in connection with the warrants and would not assume any obligation or relationship of agency or trust for or with
any holders of warrants or beneficial owners of warrants.
The following summary
of certain provisions of the warrants does not purport to be complete and is subject to, and is qualified in its entirety by reference
to, all provisions of the warrant agreements.
Reference is made to
the prospectus supplement relating to the particular issue of warrants offered pursuant to such prospectus supplement for the terms
of and information relating to such warrants, including, where applicable:
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●
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the number of shares of common stock or preferred stock purchasable upon the exercise of warrants to purchase common stock or preferred stock and the price at which such number of shares of common stock or preferred stock may be purchased upon such exercise;
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●
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the date on which the right to exercise such warrants shall commence and the date on which such right shall expire;
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●
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United States federal income tax consequences applicable to such warrants;
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●
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the amount of warrants outstanding as of the most recent practicable date; and
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●
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any other terms of such warrants.
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Warrants will be issued
in registered form only. The exercise price for warrants will be subject to adjustment in accordance with the applicable prospectus
supplement.
Each warrant will entitle
the holder thereof to purchase such number of shares of common stock or preferred stock at such exercise price as shall in each
case be set forth in, or calculable from, the prospectus supplement relating to the warrants, which exercise price may be subject
to adjustment upon the occurrence of certain events as set forth in such prospectus supplement. After the close of business on
the expiration date, or such later date to which such expiration date may be extended by us, unexercised warrants will become void.
The place or places where, and the manner in which, warrants may be exercised shall be specified in the prospectus supplement relating
to such warrants.
Prior to the exercise
of any warrants to purchase common stock or preferred stock, holders of such warrants will not have any of the rights of holders
of common stock or preferred stock, as the case may be, purchasable upon such exercise, including the right to receive payments
of dividends, if any, on the common stock purchasable upon such exercise, or to exercise any applicable right to vote.
DESCRIPTION OF DEBT SECURITIES
We may issue debt securities
together with other securities or separately, as described in the applicable prospectus supplement, under an indenture to be entered
into between our company and the trustee that meets certain requirements identified in the applicable prospectus supplement.
We may issue the debt
securities in one or more series with the same or various maturities, at par, at a premium, or at a discount. We will describe
the particular terms of each series of debt securities in a prospectus supplement relating to that series, which we will file with
the SEC.
The prospectus supplement
will set forth, to the extent required, the following terms of the debt securities in respect of which the prospectus supplement
is delivered:
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the title of the series;
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●
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the aggregate principal amount;
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●
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the issue price or prices, expressed as a percentage of the aggregate principal amount of the debt securities;
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●
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any limit on the aggregate principal amount;
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●
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the date or dates on which principal is payable;
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●
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the interest rate or rates (which may be fixed or variable) or, if applicable, the method used to determine such rate or rates;
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●
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the date or dates from which interest, if any, will be payable and any regular record date for the interest payable;
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the terms and conditions upon which we may, or the holders may require us to, redeem or repurchase the debt securities;
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●
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the denominations in which such debt securities may be issuable, if other than denominations of $1,000, or any integral multiple of that number;
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●
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whether the debt securities are to be issuable in the form of certificated debt securities or global debt securities;
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●
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the portion of principal amount that will be payable upon declaration of acceleration of the maturity date if other than the principal amount of the debt securities;
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if applicable, covenants affording holders of debt protection with respect to our operations, financial condition or transactions involving us;
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the designation of the currency, currencies or currency units in which payment of principal and, if applicable, premium and interest, will be made;
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if payments of principal and, if applicable, premium or interest, on the debt securities are to be made in one or more currencies or currency units other than the currency of denominations, the manner in which the exchange rate with respect to such payments will be determined;
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●
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if amounts of principal and, if applicable, premium and interest may be determined by reference to an index based on a currency or currencies, or by reference to a commodity, commodity index, stock exchange index, or financial index, then the manner in which such amounts will be determined;
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●
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the provisions, if any, relating to any collateral provided for such debt securities;
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any events of default;
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the terms and conditions, if any, for conversion into or exchange for common shares;
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●
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any depositaries, interest rate calculation agents, exchange rate calculation agents, or other agents; and
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●
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whether such debt securities
are senior securities or subordinated securities and the terms and conditions, if any, upon which the debt securities shall be
subordinated in right of payment to other indebtedness of our company.
|
One or more
debt securities may be sold at a substantial discount below their stated principal amount. We may also issue debt securities in
bearer form, with or without coupons. If we issue discount debt securities or debt securities in bearer form, we will describe
material U.S. federal income tax considerations and other material special considerations which apply to these debt securities
in the applicable prospectus supplement.
We may issue debt securities
denominated in or payable in a foreign currency or currencies or a foreign currency unit or units. If we do, we will describe the
restrictions, elections, and general tax considerations relating to the debt securities and the foreign currency or currencies
or foreign currency unit or units in the applicable prospectus supplement.
The debt securities
of a series may be issued in whole or in part in the form of one or more global securities that will be deposited with, or on behalf
of, a depositary identified in the prospectus supplement. Global securities will be issued in registered form and in either temporary
or definitive form. Unless and until it is exchanged in whole or in part for individual debt securities, a global security may
not be transferred except as a whole by the depositary for such global security to a nominee of such depositary or by a nominee
of such depositary to such depositary or another nominee of such depositary or by such depositary or any such nominee to a successor
of such depositary or a nominee of such successor. The specific terms of the depositary arrangement with respect to any debt securities
of a series and the rights of and limitations upon owners of beneficial interests in a global security will be described in the
applicable prospectus supplement.
DESCRIPTION OF UNITS
The following
description, together with the additional information we include in any applicable prospectus supplement, summarizes the general
features of the units that we may offer under this prospectus. We may issue units consisting of two or more other constituent securities.
These units may be issuable as, and for a specified period of time may be transferable only as a single security, rather than as
the separate constituent securities comprising such units. While the features we have summarized below will generally apply to
any units we may offer under this prospectus, we will describe the particular terms of any units that we may offer in more detail
in the applicable prospectus supplement. The specific terms of any units may differ from the description provided below as a result
of negotiations with third parties in connection with the issuance of those units, as well as for other reasons. Because the terms
of any units we offer under a prospectus supplement may differ from the terms we describe below, you should rely solely on information
in the applicable prospectus supplement if that summary is different from the summary in this prospectus.
We urge you to read the applicable
prospectus supplement related to the specific units being offered, as well as the complete instruments that contain the terms of
the securities that comprise those units. Certain of those instruments, or forms of those instruments, have been or will be filed
as exhibits to the registration statement of which this prospectus is a part, and supplements to those instruments or forms may
be incorporated by reference into the registration statement of which this prospectus is a part from reports we file with the Commission.
If we offer any units, certain terms
of that series of units will be described in the applicable prospectus supplement, including, without limitation, the following,
as applicable:
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the
title of the series of units;
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●
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identification
and description of the separate constituent securities comprising the units;
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●
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the
price or prices at which the units will be issued;
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the
date, if any, on and after which the constituent securities comprising the units will be separately transferable;
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●
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a
discussion of certain United States federal income tax considerations applicable to the units; and
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any
other terms of the units and their constituent securities.
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PLAN OF DISTRIBUTION
We and the selling
shareholders may sell securities in and outside the United States through underwriters or dealers, directly to purchasers or through
agents or in ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers. To the extent required
by applicable law, a prospectus supplement will include the following information:
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the terms of the offering;
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the names of any underwriters or agents;
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the names of the selling stockholders;
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the purchase price of the securities;
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the net proceeds to us from the sale of the securities;
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any delayed delivery arrangements;
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any underwriting discounts, commissions and other items constituting underwriters’ compensation;
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the initial public offering price;
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any discounts or concessions allowed or reallowed or paid to dealers; and
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any commissions paid to agents.
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Sale Through Underwriters or Dealers
If we or the selling
shareholders use underwriters in the sale of securities, the underwriters will acquire the securities for their own account. The
underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale. Underwriters may offer securities to the public either
through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters.
Unless we inform you otherwise in the prospectus supplement, the obligations of the underwriters to purchase the securities will
be subject to conditions, and the underwriters will be obligated to purchase all the securities if they purchase any securities.
The underwriters may change from time to time any initial public offering price and any discounts or concessions allowed or reallowed
or paid to dealers.
During and after an
offering through underwriters, the underwriters may purchase and sell the securities in the open market. These transactions may
include over allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with
the offering. The underwriters may also impose a penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers for the offered securities sold for their account may be reclaimed by the syndicate if such offered securities are
repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect
the market price of the offered securities, which may be higher than the price that might otherwise prevail in the open market.
If commenced, these activities may be discontinued at any time.
If we or the selling
shareholders use dealers in the sale of securities, we or the selling shareholders will sell the securities to them as principals.
They may then resell the securities to the public at varying prices determined by the dealers at the time of resale. The dealers
participating in any sale of the securities may be deemed to be underwriters within the meaning of the Securities Act with respect
to any sale of such securities. We will include in any prospectus supplement the names of the dealers and the terms of the transactions.
We will bear costs
relating to all of the securities being registered under this registration statement of which this prospectus forms a part.
Any broker-dealers
or other persons acting on our behalf or on behalf of a selling shareholder that participate in the distribution of the securities
may be deemed to be underwriters and any commissions received or profit realized by them on the resale of the securities may be
deemed to be underwriting discounts and commissions under the Securities Act. As of the date of this prospectus, we are not a party
to any agreement, arrangement or understanding between any broker or dealer and us with respect to the offer or sale of the securities
pursuant to this prospectus.
Pursuant to a requirement
by the Financial Industry Regulatory Authority, or FINRA, the maximum commission or discount to be received by any FINRA member
or independent broker/dealer may not be greater than eight percent (8%) of the gross proceeds received by us for the sale of any
securities being registered pursuant to SEC Rule 415 under the Securities Act. If more than 5% of the net proceeds of any
offering of securities made under this prospectus will be received by a FINRA member participating in the offering or its affiliates
or associated persons of such FINRA member, the offering will be conducted in accordance with FINRA Conduct Rule 5121.
Direct Sales and Sales Through Agents
We and the selling
shareholders may sell the securities directly. In that event, no underwriters or agents would be involved. We and the selling shareholders
may also sell the securities through agents we or they designate from time to time. In the prospectus supplement, we will name
any agent involved in the offer or sale of the securities, and we will describe any commissions payable by us to the agent. Unless
we inform you otherwise in the prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases
for the period of its appointment.
We or a selling shareholder
may sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any sale of the securities. We will describe the terms of any such sales in the prospectus supplement.
Delayed Delivery Contracts
If we so indicate in
the prospectus supplement, we may authorize agents, underwriters or dealers to solicit offers from certain types of institutions
to purchase securities from us at the public offering price under delayed delivery contracts. These contracts would provide for
payment and delivery on a specified date in the future. The contracts would be subject only to those conditions described in the
prospectus supplement. The prospectus supplement will describe the commission payable for solicitation of those contracts.
Subscription Offerings
We may also make direct
sales through subscription rights distributed to our existing stockholders on a pro rata basis, which may or may not be transferable.
In any distribution of subscription rights to our stockholders, if all of the underlying securities are not subscribed for, we
may then sell the unsubscribed securities directly to third parties or may engage the services of one or more underwriters, dealers
or agents, including standby underwriters, to sell the unsubscribed securities to third parties.
General Information
We may have agreements
with the agents, dealers and underwriters to indemnify them against civil liabilities, including liabilities under the Securities
Act, or to contribute with respect to payments that the agents, dealers or underwriters may be required to make. Agents, dealers
and underwriters may engage in transactions with us or perform services for us in the ordinary course of their businesses.
LEGAL MATTERS
Certain legal matters
with respect to the shares of our securities offered by this prospectus will be passed upon for us by Fleming PLLC New York, New
York. Any underwriters, dealers or agents will be advised about other issues relating to any transaction by their own legal counsel.
EXPERTS
The financial statements
and management’s assessment of the effectiveness of internal control over financial reporting incorporated by reference in
this prospectus and elsewhere in the registration statement have been so incorporated by reference in reliance upon the reports
of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and
auditing.
INFORMATION INCORPORATED BY REFERENCE
This prospectus is
part of a registration statement on Form S-3 filed by us with the SEC. This prospectus does not contain all of the information
included in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the
SEC.
The SEC allows us to
“incorporate by reference” certain documents that we file with the SEC, which means that we can disclose important
information to you by referring you to those documents that are considered part of this prospectus. The information incorporated
by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update
and supersede this information. We incorporate by reference into this prospectus the documents listed below:
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our Annual Report on Form 10-K for the year ended December 31, 2019 as filed on March 13, 2020 (File No. 001-37673),
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current report filed on March 17, 2020 (File No. 001-37673), and
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any future filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including those made after the date of filing the initial registration statement and prior to effectiveness of the registration statement, until the termination of the offerings under this prospectus; provided that this prospectus will not incorporate any information we may furnish to the SEC under Item 2.02 or Item 7.01 of Form 8-K.
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You may request copies of these filings,
at no cost, by writing or calling us at:
Workhorse Group Inc.
100 Commerce Drive
Loveland, Ohio 45140
513-360-4704
Attn: Chief Financial Officer
Telephone: 513-360-4704
Our SEC filings are
also available on our website at www.workhorse.com. The other information on our website is not, and you must not consider the
information to be, a part of this prospectus.
WHERE YOU CAN FIND MORE
INFORMATION
We file annual, quarterly
and current reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC
at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington, D.C., 20549. You can request copies of these documents
by contacting the SEC upon payment of fees prescribed by the SEC and paying a fee for the copying cost. Information on the operation
of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public
from the SEC’s website at www.sec.gov.
Senior Secured Convertible Note
PROSPECTUS SUPPLEMENT
June 30, 2020
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