Financially struggling Nikola Corp. will ask its shareholders in June to double to 1.6 billion the company’s authorized shares. The electric truck and hydrogen maker said it needs to repay hedge fund loans.
The request, Proposal 2, is on the ballot for Nikola’s June 7 shareholder meeting. It is three times larger than the 33% share authorization increase that took four tries to pass in 2022. Current shareholders could ultimately see the value of their already depressed shares cut in half.
“Without an increase in the number of authorized shares of common stock, the company will be constrained in its ability to raise capital in order to support our ongoing operations and business objectives,” Nikola said in its preliminary proxy statement filed Thursday with the Securities and Exchange Commission.
Nikola’s precarious financial condition prompted a second shareholder measure. Proposal 3 would allow Nikola to issue enough new shares to pay off Antara Capital. The hedge fund loaned the company $200 million in May 2022. Antara also purchased about $75 million of a $100 million public stock offering in Nikola earlier this month.
Financial jeopardy would worsen if proposals fail
If Proposal 2 fails, the outcome of Proposal 3 won’t matter. Nikola said it lacks the cash to pay interest or the $200 million principal on convertible senior notes due in 2026. Just over 130 million shares remain uncommitted from the 200 million share authorization increase approved in August.
Antara’s notes have 8% cash interest payments and 11% interest if paid in stock. As part of its stock purchase, Antara demanded Nikola seek the share authorization increase. Nikola priced the offering at $1.12 a share. That was 19 cents below its closing price on April 4, the day of the offering.
Dilution to current shareholders has driven Nikola’s share price below the offering price. Nikola shares closed Thursday at an all-time low of 96 cents.
With just $323 million in cash at the end of 2022 and the ongoing expenses related to launching a fuel cell electric truck and mobile hydrogen fueling trailers, Nikola is continuing to burn through its limited resources.
Nikola filed a notice of going concern with the Securities and Exchange Commission as part of its annual 10-K filing for 2022.
“If capital is not available to the company when, and in the amounts needed, the company could be required to delay, scale back, or abandon some or all of its development programs and operations, which could materially harm the company’s business, financial condition and results of operations,” Nikola said in the filing.
Russell and two others will retire as directors
Separately, Nikola said Thursday that three directors, including former CEO Mark Russell, will retire from the board of directors when their terms end in June. Gerrit Marx, CEO of Nikola’s European manufacturing partner, Iveco Group, and Lynn Forester de Rothschild, a co-founder of Inclusive Capital Partners, also will step down.
Russell’s departure could be related to his earlier-than-expected departure as CEO. The board was unhappy that he created a standing order in September to cash out a trove of stock options. He bought and sold about 5.8 million options in 2022, netting nearly $11.7 million, according to the proxy.
“The [Nikola share] price where it’s at makes it an issue,” Russell said in an interview with FreightWaves in November. “It looks bad. Me no longer being the sitting CEO helps those optics, I think.”
Russell had not sold any of the 7.1% of company shares he owns as of the end of 2022. He now holds voting rights to 6.3% of company shares he jointly owns with Nikola founder Trevor Milton.
The previous share authorization failed three times starting in June because Milton voted his own shares and those held jointly with Russell against the share authorization increase. Nikola hired a proxy solicitation firm to chase down enough votes to ultimately pass the measure.
Though the share authorization increase being sought in June is much larger than a year ago, it may have a better chance of passing. Russell now controls 13.4% of company shares. But his retirement from the board, where he told FreightWaves in November that he expected to remain, might impact his voting decision.