Nikola Corp. will ask shareholders in June to double the number of shares to help it repay loans taken out by a hedge fund. (Photo: Alan Adler/FreightWaves)
The financially troubled Nikola Corp. will ask its shareholders in June to double the company’s 1.6 billion authorized shares. The maker of electric trucks and hydrogen said it had to repay loans from hedge funds.
The request, Proposal 2, is on the ballot for Nikola’s June 7 shareholder meeting. That’s three times the 33% stake authorization increase that took four attempts to pass in 2022. Current shareholders could end up seeing the value of their already depressed shares cut in half.
“Without an increase in the number of shares of common stock authorized, the company will be limited in its ability to raise capital to support our ongoing operations and business objectives,” Nicolas said in a preliminary proxy statement filed Thursday with the Securities and Exchange Commission.
Nikola’s precarious financial situation prompted a second measure by the shareholders. Proposal 3 would allow Nicolas to issue enough new shares to pay off Antara Capital. The hedge fund gave the company a $200 million loan in May 2022. Antara also bought about $75 million from a $100 million public offering of shares in Nikola earlier this month.
The financial risk will worsen if the proposals fail
If Proposition 2 fails, the result of Proposition 3 will not matter. Nicola said it did not have the cash to pay interest or principal on $200 million in convertible senior notes due 2026. Just over 130 million shares remain unvested from the 200 million share authorization increase approved in August.
Antara bonds have 8% interest payments in cash and 11% interest if paid in stock. As part of the share purchase, Antara asked Nikola to seek an increase in the share authorization. Nicola valued the offer at $1.12 per share. That was 19 cents below the closing price on April 4, the day of the offering.
Dilution to current shareholders has driven the price of Nikola’s shares below the offering price. Nicola’s shares closed Thursday at a record low of 96 cents.
With just $323 million in cash on hand at the end of 2022 and the ongoing costs of launching a fuel-cell electric truck and hydrogen-powered mobile trailers, Nikola continues to stretch its limited resources.
Nicola filed a going concern notice with the Securities and Exchange Commission as part of its 2022 annual 10-K filing.
“If capital is not available to the Company when and in the amounts required, the Company may be required to delay, reduce or abandon some or all of its development programs and operations, which could materially harm the Company’s business and financial condition and results of operations,” Nicola said in the filing.
Russell and two others will retire as directors
Separately, Nicola said on Thursday that three directors, including former chief executive Mark Russell, would step down from the board when their terms expire in June. Gerrit Marks, CEO of Nicola’s European manufacturing partner Iveco Group, and Lynn Forrester de Rothschild, co-founder of Inclusive Capital Partners, will also step down.
Russell’s departure may be related to his earlier-than-expected departure as CEO. The board was not happy that it created a standing order in September to exercise multiple 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] the price it’s at makes it a problem,” Russell said in an interview with FreightWaves in November. “It looks bad. I think being a sitting CEO helps that lens.”
Russell has not sold any of the 7.1% of the company’s shares he owns as of the end of 2022. He now holds voting rights over the 6.3% of the company’s shares he jointly owns with Nikola founder Trevor Milton.
The previous stock authorization failed three times, starting in June, because Milton voted his own shares and those he co-owns with Russell against increasing the stock authorization. Nicolas hired a proxy recruiting firm to gather enough votes to eventually pass the measure.
Although the increase in the stock authorization requested in June is much larger than a year ago, it may have a better chance of passing. Russell now controls 13.4% of the company’s stock. But his departure from the board, where he told FreightWaves in November he expected to stay, could influence his voting decision.
Related Articles:
How tight are electric truck maker Nikola’s finances?
Nicola’s language of “going concern” suggests a short track
Nicola finally gets the votes he needs to accept his share offer
Click for more FreightWaves articles by Alan Adler.