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Indicted Nikola founder votes against proposal that could dilute his stake

Company has to cajole other shareholders to vote for the proposal

Nikola founder Trevor Milton. (Photo: Nikola)

Nikola Corp. founder Trevor Milton voted against the electric truck manufacturer’s proposal to shareholders to increase its authorized shares, at least temporarily limiting the startup’s ability to borrow money to scale the business.

A shortfall in shareholder proxy votes for the proposal led Nikola (NASDAQ: NKLA) to adjourn its annual meeting until June 30.

FreightWaves learned that Milton, who is scheduled for trial on federal fraud charges in July, cast his 11% of shares against the proposal to approve an increase in authorized shares from 600 million to 800 million.  

The value of existing shares falls as new shares are registered. 

2 kinds of dilution

“There are two kinds of dilution that you can suffer when a company issues more stock,” said Jay Kesten, associate professor of law at Florida State University. “The first is voting dilution and for most retail investors, they don’t care about that because they went from being 0.001% shareholders to being slightly less than that.

“However, to a founder who owns 11% of the stock, that voting dilution might be meaningful because at the moment, his one no vote can hold up a bunch of corporate activity even though he’s not a controller,” said Kesten, who specializes in corporate governance. “He would suffer meaningful dilution. It would take him below 10% [ownership] for sure.”


Milton has sold tens of millions of Nikola shares over the past year, becoming the company’s second-largest individual shareholder after CEO Mark Russell.

The other kind of dilution is economic, which applies when shares are sold below market price. Nikola is currently offering discounted shares in two cash-raising arrangements.

Issuing debt for cash

To foster growth, the company is using a shelf registration of currently authorized shares to pay for financial needs, of which Nikola has plenty.

It is expanding a plant in Coolidge, Arizona, and building out a hydrogen fueling infrastructure for fuel cell-powered Class 8 Tre models it plans to produce in 2023. Nikola is slowly ramping up battery-electric versions of the Tre and has begun shipping trucks to customers.

In early May, Nikola cut a deal for $200 million in cash with Antara Capital, offering convertible notes that can be paid off in cash or discounted shares. The company may sell up to $1.2 billion in stock through a shelf registration of currently authorized shares.

The Antara investment — the loan matures in 2026 and can be paid off at 8% interest in cash or 11% in discounted shares — is part of a strategy to strengthen Nikola’s base of institutional investors over the long term, Chief Financial Officer Kim Brady has said.

Also in May, Nikola tapped an equity line of credit with Tumim Stone Capital for an additional $196 million in exchange for about 28.8 million new shares of stock.  

“We have been clear about the fact that we’re going to continue to raise capital and we’re going to stay 12-plus months ahead of our spending,” Russell said in an interview with FreightWaves in late April.

Nikola vs. Milton

Milton resigned from Nikola in September 2020 following a blistering report by short seller Hindenburg Research that alleged Milton had lied about Nikola’s progress and technology prowess before and after it went public in a special purpose acquisition company merger with shell company VetcoIQ.

Milton was indicted on three counts of fraud last July following investigations by the Justice Department and the Securities and Exchange Commission. He faces trial in New York on July 18. Nikola agreed to pay the SEC a $125 million fine but admitted no wrongdoing. The company is trying to recoup from Milton the fine money it is paying over two years.

Nikola has distanced itself from Milton and unwound practically everything he supported, including an electric pickup truck called Badger and a motorsports business. It also dropped a patent infringement suit against rival Tesla.

More yes votes needed to increase share count

Ballot proposals for electing directors; a nonbinding advisory vote on continuing to pay certain senior executives $1 a year in salary in exchange for future stock awards based on Nikola’s share price hitting certain levels; and approval of a registered public accounting firm received sufficient votes to pass.

Milton was required under a previous agreement with Nikola to vote for directors the board endorsed.

The proposal to raise the number of authorized shares received yes votes from about 64% of proxies. Unlike other proposals that needed only a majority of votes cast to pass, the increased share authorization is a change to Nikola’s charter. Therefore, to pass, it needs a majority of all outstanding shares. 

Nikola said in a press release the total number of proxies cast on the share authorization was just 42% of outstanding shares. Owners of roughly 120 million shares did not return proxies.  Voting continues until 11:59 p.m. EDT on June 29.

“Retail shareholders, unless they own a really big stake, probably don’t care about this at all,” Kesten told FreightWaves.

”That’s just rational apathy as opposed to actively opposing this proposal. Now, [Nikola] has to pay a proxy solicitation firm to start reaching out directly to people and say, ‘Hey, this is in the best interest of the company. Could you please fill out a form for us?’”

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Click for more FreightWaves articles by Alan Adler.

Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.
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