CEO Alan Mulally is racing against time as Ford's sales collapse continues to consume cash.

Ford Motor Company (NYSE: F) announced late yesterday that it has agreed to sell 300 million shares of its common stock in a public offering at a price of $4.75 per share for total gross proceeds of about $1.4 billion. Ford also granted to the underwriters a 30-day option to purchase up to 45 million additional shares of common stock to cover over-allotments.  It is unknown if investors will buy all of the new shares of common stock in the offering.

The loss-making company also has a proposal pending at the annual meeting later this week for approval to issue additional shares of common stock in a transaction or series of related transactions in amounts equal to or in excess of 20% of the number of shares of common stock outstanding. Such a large issue requires shareholder approval. But with the Ford family holding 40% of the voting rights, it is likely to be approved, as the company continues to consume cash.

The latest stock issue of 345 million shares will dilute the amount of common shares outstanding by 11%, but in trading yesterday before the shares were priced investors sold off Ford and drove the price down 18% to $5.01. The one-year range on the shares is $1.01 to $8.37.

Ford lost $1.4 billion in the first quarter, after losing a record $14.7 billion in 2008, and decreased its cash from $28.7 billion in the first quarter of 2008 to $21.3 billion in cash for Q1 2009. In the first quarter the company also consumed $3.7 billion in cash. Production, sales, and market share are all declining.    

Net proceeds to Ford from the offering are expected to be used for general corporate purposes, including to fund with cash, instead of stock, a portion of the payments the company is required to make to the Voluntary Employee Beneficiary Association (VEBA) retiree health care trust with the United Auto Workers.

Under the previously announced agreement in principle with the UAW, Ford has the option to settle up to 50% of its obligations to the VEBA in shares of Ford common stock. That includes three separate payments of $610 million due in December 2009, June 2010 and June 2011.

If Ford were to elect to settle those obligations by issuing stock to the VEBA, the number of shares Ford would have to issue would be calculated at the following share prices: December 2009: $2.00; June 2010: $2.10; and June 2011: $2.20.

Alan Mulally, Ford president and CEO said, “By issuing equity now and potentially funding a larger portion of our future VEBA obligations with cash, we are able to further improve our balance sheet and significantly reduce the potential dilutive impact of the VEBA obligations on existing shareholders.”

Ford has not paid dividends on common stock or Class B stock since the third quarter of 2006. Furthermore, its senior secured credit facility contains a covenant restricting Ford from paying dividends (other than dividends payable solely in stock) on common stock and Class B stock.

Ford also announced on March 4, 2009, that it was deferring future interest payments on its 6.50% Junior Subordinated Convertible Debentures due January 15, 2032 beginning with the April 15, 2009 quarterly interest payment. The terms of those debentures prohibit Ford from paying dividends for common stock or Class B stock during such deferral period. As a result, it extremely unlikely that Ford will pay any dividends on in the foreseeable future.