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Item 1.01.
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Entry into a Material Definitive Agreement.
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On June 30, 2020, Workhorse Group Inc. (the
“Company”) entered into a securities purchase agreement (the “Purchase Agreement”), with HT Investments
MA LLC (the “Investor”) pursuant to which the Company agreed to issue and sell, in a registered public offering by
the Company directly to the Investor (the “Registered Direct Offering”), a senior secured convertible note for the
principal amount of $70,000,000 (the “Note”) that is convertible into shares of the Company's Common Stock, par value
of $0.001 per share (“Common Stock”).
The closing of the Registered Direct Offering
took place on July 16, 2020. The representations, warranties and covenants contained in the Purchase Agreement were made only for
purposes of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement and may be subject
to limitations agreed upon by the contracting parties.
The Company did not pay underwriting discounts
or commissions. However, after discounts the proceeds before expenses were $69,000,000. The Company expects to use the net proceeds
from this offering for working capital to finance the production of its trucks and for general corporate purposes.
The Note is a senior secured obligation of
the Company, ranks pari passu with the Company’s outstanding senior secured note and senior to all unsecured debt of the
Company, and will be due on July 1, 2023. The Note bears interest at 4.50% per annum, paid quarterly commencing October 1, 2020
in cash or, subject to certain conditions, freely saleable shares of Common Stock, at the Company’s option. Any shares issued
for such interest payment will be valued at the Market Stock Payment Price (as defined in the Purchase Agreement). The conversion
price is $19.00, subject to customary anti-dilution adjustments and adjustments for certain corporate events. If the Company elects
to repay principal on the Note for any reason, it will be required to pay 110% of the amount of principal repaid (the “Repayment
Price”). On the first day of each month beginning after October 1, 2020 (an “Early Redemption Date”), the Investor
may require us to redeem up to $3.5 million principal amount of the Note at the Repayment Price (each a “Redemption Payment”).
Any unused Redemption Payment capacity may be used by the Investor on any future Early Redemption Date. The Company can elect to
pay any Redemption Payment in cash or, subject to certain conditions, in freely saleable shares of Common Stock, or a combination
thereof. Any shares issued for such Redemption Payment will be valued at the Market Stock Payment Price. The Company may redeem
all (or any portion in excess of $8,000,000) of the Note at any time at the greater of (a) 115% of the conversion value, calculated
based on the highest VWAP during the period beginning 30 days prior to such redemption and ending the day prior to the redemption
date, 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 certain conditions, be paid in shares valued at the Market Stock Payment Price at the Company’s option.
The Registered Direct Offering was made pursuant
to the Company’s shelf registration statement on Form S-3 (Registration No. 333-237920),
which was declared effective by the Securities and Exchange Commission on May 8, 2020, including the prospectus contained therein,
as well as a prospectus supplement filed with the SEC in connection with the Registered Direct Offering.
Pursuant to the credit agreement entered
into between the Company and Marathon Asset Management, LP, on behalf of certain entities it manages (the “Marathon Lenders”),
dated December 31, 2018 (the “Marathon Agreement”), until December 31, 2020, the Company must issue additional warrants
to the Marathon Lenders when the Company makes certain equity issuances, in amount equal to approximately 1.88% of the Company’s
fully diluted equity interests, and on substantially the same terms and conditions of the initial warrants issued to the Marathon
Lenders, except that (i) the expiration date shall be five years from the issuance date, (ii) the exercise price shall
be equal to 110% of the issuance price per share in the relevant issuance, and (iii) the holder shall be entitled
to exercise the warrant on a cashless basis at any time. Accordingly, the Company issued the Marathon Lenders warrants to acquire
an aggregate of 409,356 shares of Common Stock exercisable at a price of $20.900 per share (the “Additional Warrants”).
The Marathon Agreement is described more fully in the Company’s Current Report on Form 8-K filed with the SEC on January
2, 2019. The Company’s obligations under the Marathon Agreement were paid off on December 9, 2019, which is described more
fully in the Company’s Current Report on Form 8-K filed with the SEC on December 9, 2019.
The description of the terms and conditions
of the Purchase Agreement does not purport to be complete and is qualified in its entirety by the full text of the Purchase Agreement,
which is an exhibit to this Form 8-K.
This Current Report on Form 8-K shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Note in any state or jurisdiction in
which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any
such state or jurisdiction.
The Additional
Warrants and the shares of Common Stock issuable upon exercise of the Additional Warrants (the “Underlying Shares”)
have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and were issued and sold
in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act and Rule 506 of Regulation
D promulgated thereunder. The Marathon Lenders acquired the securities for investment and acknowledged that each is an accredited
investor as defined by Rule 501 under the Securities Act. The Additional Warrants may not be offered or sold in the absence of
an effective registration statement or exemption from the registration requirements under the Securities Act.
Certain statements in this Current Report on
Form 8-K are forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements include
statements about the expected settlement of the sale and purchase of securities described herein and the Company’s receipt
of net proceeds therefrom. For such statements, the Company claims the protection of the Private Securities Litigation Reform Act
of 1995. Actual events or results may differ materially from the Company’s expectations. Factors that could cause actual
results to differ materially from the forward-looking statements include, but are not limited to, the Company’s ability to
satisfy applicable closing conditions under the Underwriting Agreement. Additional factors that could cause actual results to differ
materially from those stated or implied by the Company’s forward-looking statements are disclosed in the Prospectus Supplement
and accompanying prospectus and the Company’s reports filed with the Securities and Exchange Commission.