Workhorse Group Inc., an American technology company focused on providing sustainable and cost-effective electric mobility solutions to the transportation sector, has announced its intention to spin off its aviation division, which includes its SureFly personal helicopter, into a separate publicly traded company named SureFly, Inc.
SureFly, Inc. will encompass all SureFly aerial technology and expertise, including property related to the personal helicopter, but it will not own the assets related to the package express-related HorseFly drone — which will be retained by Workhorse.
Workhorse expects to grant SureFly, Inc. a royalty-free, perpetual license to utilize the HorseFly drone except with respect to deliveries implemented from a ground-based vehicle focused on package express.
At the time of the spin off, Workhorse expects to enter into a transition services agreement with SureFly, Inc. to provide certain engineering and accounting services not anticipated to be provided immediately by employees of SureFly, Inc.
SureFly, Inc. is currently an indirect wholly owned subsidiary of Workhorse. In conjunction with the overall spin-off plan, Workhorse expects to retain a portion of SureFly, Inc. common stock and will distribute a portion of such common stock pursuant to a dividend to existing Workhorse shareholders. Third party investors, bringing new capital, will likely constitute the balance of the ownership of SureFly, Inc.
In connection with the anticipated spin off, Workhorse entered into a note purchase agreement with a group of existing, U.S.-based Workhorse investors. Under the terms of the note purchase agreement, Workhorse will issue notes with an aggregate principal amount of $5.75 million at a purchase price equal to $5 million.
The notes are non-convertible, but are expected to be exchanged, ultimately, into new convertible preferred stock, and warrants to purchase shares of common stock of SureFly, Inc. The preferred stock will be convertible into shares of SureFly, Inc. common stock based on a pre-money valuation of approximately $33 million. The warrants will be exercizable into a number of shares of common stock equal to 30 percent of the shares issuable upon conversion of the convertible preferred stock and have an exercise price equal to 125 percent of the conversion price on the convertible preferred stock.
“This agreement provides Workhorse with additional capital to bolster our balance sheet and, once the spin off is complete, will enable us to focus all of our resources on our core automotive business,” said company CEO Steve Burns. “SureFly has been one of the most exciting products we’ve ever developed and reflects the best representation of the versatility of our innovative platform technologies. And while this new business will likely command a meaningful valuation, we believe the decision to spin off SureFly into a separate entity will better facilitate the long-term growth of both companies. We have improved the operational focus and financial outlook for Workhorse’s core business while creating new opportunities for our SureFly business. This financing transaction is just the first step in the anticipated spin off process and furthers our long-standing goal of maximizing value for our shareholders.”
The anticipated spin-off transaction will be subject to the receipt of regulatory approvals, the execution of inter-company agreements, arrangement of adequate debt and equity financing, the effectiveness of a registration statement, final approval by Workhorse’s board of directors, and other customary conditions. The spin off will not require a shareholder vote and is expected to be completed by the end of 2018, but there can be no assurance regarding the ultimate timing of the spin off or that the spin off will ultimately occur.
All of the anticipated spin-off activities will be completed pursuant to regulations formulated by the Securities and Exchange Commission and will include the filing of a Form 10 registration statement.
