DEF: Nauticus Robotics Seeks Shareholder Nod for Dilutive Capital Raise

Nauticus Robotics seeks shareholder approval for common stock issuance tied to a $2.94 million convertible preferred stock offering, posing significant dilution risk.

Summary

• Nauticus Robotics is holding a Special Meeting of Stockholders on October 23, 2025, to vote on two proposals.
• Proposal 1 seeks approval, per Nasdaq Rule 5635, for the issuance of common stock upon conversion of Series B Convertible Preferred Stock, issued to ATW Special Situations II, LLC.
• The Company initially issued 3,000 shares of Series B Preferred Stock for $2,940,000 on August 8, 2025, with an option for the investor to purchase up to 5,000 additional shares for $4,900,000.
• The Series B Preferred Stock has an initial conversion price of $8.2629 per share (post-reverse split) and a floor price of $1.6524 per share (post-reverse split).
• Potential dilution from the initial 3,000 Series B shares ranges from 435,682 shares (at initial conversion price) to 1,815,541 shares (at floor price).
• Potential dilution from all 8,000 Series B shares (if additional shares are purchased) ranges from 968,183 shares (at initial conversion price) to 4,841,443 shares (at floor price).
• The Series B Preferred Stock carries a 10% per annum dividend, increasing to 18% upon a Triggering Event.
• Proposal 2 seeks approval to adjourn the Special Meeting if necessary to solicit additional proxies.
• Failure to approve Proposal 1 could prevent the Company from satisfying obligations under the Purchase Agreement, hinder future capital raising, and incur costs for repeated stockholder meetings.

Sentiment

Score: 4

Explanation: While the capital raise provides necessary funding, the terms of the convertible preferred stock, particularly the significant potential for dilution and restrictive covenants, are unfavorable for existing common stockholders. The need for such terms suggests underlying financial pressures.

Positives

• Secured $2,940,000 in capital through the initial private offering of Series B Convertible Preferred Stock.
• Potential to raise an additional $4,900,000 through the sale of up to 5,000 more Series B Preferred Stock shares.
• The capital raise provides necessary funding for the Company's operations.

Negatives

• Significant potential for dilution of existing common stockholders' ownership and voting rights upon conversion of Series B Preferred Stock.
• The conversion price of Series B Preferred Stock can be adjusted downwards, potentially increasing dilution, with a low floor price of $1.6524 per share.
• Failure to obtain stockholder approval for Proposal 1 could prevent future capital raising and result in ongoing costs for repeated stockholder meetings.
• The Series B Preferred Stock includes restrictive covenants and a high default dividend rate of 18% per annum upon a Triggering Event.

Risks

• Substantial dilution of common stock ownership and voting rights due to the conversion of Series B Preferred Stock, especially if the conversion price adjusts to the floor price.
• Risk of required cash repayment of Series B Preferred Stock if common stock is not listed or an event of default occurs, which could materially adversely affect financial condition and liquidity.
• Inability to obtain alternative financing if stockholder approval for Proposal 1 is not secured, potentially impacting the Company's ability to fund operations.
• The terms of the Series B Preferred Stock include various 'Triggering Events' (e.g., trading suspension, failure to pay dividends, default on $500,000+ indebtedness, bankruptcy) that could lead to increased dividend rates or mandatory cash redemption.
• The issuance of common stock upon conversion could have an anti-takeover effect by increasing the number of shares entitled to vote and diluting the interest of a party attempting to obtain control.

Future Outlook

The Company anticipates potential future capital raises through the issuance of up to 5,000 additional shares of Series B Preferred Stock, subject to market conditions and stockholder approval. The Board believes obtaining stockholder approval for the current issuance provides flexibility for future capital needs.

Management Comments

• Our Board of Directors unanimously recommends that you vote FOR each of the proposals described in this Proxy Statement.
• The Board has determined that the Purchase Agreement, and the Common Stock that may be issued thereby, are in the best interests of the Company and its stockholders given the potential additional capital that may be obtained by the Company in the future.

Industry Context

The need for stockholder approval for a dilutive financing, coupled with a recent reverse stock split, suggests that Nauticus Robotics is a company in a capital-intensive phase or facing financial challenges, requiring external funding to support its operations. The terms of the convertible preferred stock, including variable conversion prices and a low floor, are often seen in situations where companies need to secure capital but have limited alternative financing options, potentially indicating a higher risk profile compared to more established industry players.

Comparison to Industry Standards

• The filing does not provide specific comparisons to industry benchmarks, comparable companies, projects, or results.

Corporate Governance

Related Party Transactions

• ATW Special Situations II, LLC, the investor in the Series B Convertible Preferred Stock, is an existing stockholder of Nauticus Robotics.
• Adam Sharkawy, a director of Nauticus Robotics, is a founder and managing partner at Material Impact Fund II, L.P., which is a significant beneficial owner of the Company's common stock and Series A Preferred Stock.

Stakeholder Impact

• **Shareholders:** Face significant potential dilution of their ownership percentage and voting rights due to the conversion of Series B Preferred Stock, especially if the conversion price adjusts downwards. The value of their holdings could be adversely affected.
• **Company:** Gains access to crucial capital for operations and strategic initiatives, but at the cost of potentially substantial dilution and restrictive covenants that limit financial and operational flexibility.
• **Series B Preferred Stock Holders (ATW Special Situations II, LLC):** Obtain a senior position in the capital structure, a 10% dividend rate (18% on default), and significant influence through conversion rights and protective covenants, positioning them for potential substantial returns.
• **Employees, Customers, Suppliers, Creditors:** The capital infusion could stabilize the Company's financial position, potentially ensuring continued operations, job security, and ability to meet obligations, which is generally positive for these stakeholders.

Next Steps

• Hold the Special Meeting of Stockholders on October 23, 2025, to vote on the proposals.
• File a Current Report on Form 8-K to publish the final voting results within four business days after the Special Meeting.
• If Proposal 1 (Nasdaq Stock Issuance Proposal) is not approved, the Company must include it in subsequent stockholder meetings every sixty calendar days thereafter until approval is obtained.

Key Dates

Recommendation

The Company has secured a necessary capital infusion through the Series B Convertible Preferred Stock offering, which is crucial for its operations. However, the terms of this financing present significant risks to existing common stockholders, primarily through substantial potential dilution due to the variable conversion price and low floor price. The restrictive covenants and high default dividend rate also add layers of risk. While the capital raise prevents immediate liquidity issues, the long-term impact on common equity value is uncertain and potentially negative, warranting a cautious 'hold' stance for investors to monitor the conversion activity and the Company's operational performance.

Keywords

Nauticus Robotics, Convertible Preferred Stock, Series B Preferred Stock, Nasdaq Rule 5635, Stockholder Approval, Dilution, Capital Raise, Proxy Statement, Corporate Governance, Reverse Stock Split, ATW Special Situations II, LLC