Mullen Automotive (NASDAQ:MULN) is facing a lawsuit after failing to distribute Series E preferred stock to its partners.
(BusinessWire) Drawbridge Investments and DBI Lease Buyback Servicing have filed a complaint against Mullen Automotive.
Earlier this week, court filings revealed that Drawbridge Investments and DBI Lease Buyback Servicing, an affiliate of DBI, had filed a complaint against Mullen Automotive in New York.
The two parties had helped finance Mullen and allege that Mullen has not fulfilled its obligations.
On June 17, 2022, Mullen entered into an agreement with the two parties that would see them receive a note with $28.86 million in outstanding principal and accrued interest.
Both Mullen and the parties agreed that in exchange for “waiving valuable default rights and accepting a $3.5 million discount on the Note prior to assignment,” Mullen would issue the parties an option to purchase $25 million of newly issued convertible Series E preferred stock.
The Series E preferred stock had several strings attached, such as providing three warrants to purchase stock per share.
Drawbridge Files Complaint Against Mullen Automotive
Following the agreement, Mullen should have delivered the Series E preferred stock by July 17, 2022.
On July 22, according to the complaint, Mullen sent the two parties a document that “lacked certain material terms previously agreed to.”
Then, on Aug. 12, the two parties communicated with Mullen the missing terms, which Mullen did not respond to.
While ghosting the parties, Mullen “acted in bad faith” by increasing authorized Series D preferred stock by 5x.
This reduced the max number of possible authorized Series E stock from several hundred million to less than 10.3 million.
On Feb. 14, 2023, Mullen further aggravated the two parties by announcing a resale of up to 2.5 billion shares.
Since there were already 1.7 billion shares outstanding, this meant that the two parties could only register 759.96 million shares for resale in connection to the Series E preferred stock and the associated warrants.
This has caused DBI to become “frustrated in its ability to receive and exercise its option, convert to common stock and to receive and exercise its warrants.”
As a result, it seeks several forms of relief.
What is Drawbridge Purposing Mullen Do?
The first is to receive the Series E preferred stock, which would only be possible if Mullen’s certificate of incorporation is amended to include these shares.
The two parties also seek to restrain Mullen from increasing authorized shares for any class of stock or to have Mullen agree to not issue or increase authorized preferred stock until it can deliver the Series E preferred stock and amend its certificate of incorporation.
If the court does not grant specific performance relief, the two parties seek damages of no less than $100 million.
We’re seeing something very similar happen to AMC Entertainment — a pension fund is suing the company and its board members including the CEO for issuing ape shares and wanting to convert the equity back into common shares of AMC stock.
The movie theatre chain company is also proposing a reverse stock split, similar to how Mullen Automotive might if the company cannot meet Nasdaq’s $1 bid per share by September 5th.
MULN stock just avoided getting delisted after failing to meet the $1 on March 6, 2023.
What is Happening with MULN Stock?
MULN stock is down -39% this year-to-date after analysts predicted the stock to rise more than 7,000% this year.
The company has been going through a rough first quarter as shares have fallen and negative press comes to light.
But Mullen Automotive has also had a lot of great news this year.
- Newgate Motor Group confirmed the delivery of new I-GO EVs.
- Mullen Automotive has supplied Menzies Aviation with Cargo Van EVs.
- Mullen Automotive received a $200 million purchase order for 6,000 Evs.
Will the company stock go up?
I expect MULN stock to make an effort to reach $1 by September before a reverse stock split being the ultimate resort.
But I’m curious to know what you think.
Leave your thoughts below.
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