Mullen Automotive (NASDAQ:MULN) stock opened lowered by more than 5% today after the electric vehicle (EV) company disclosed plans to resell up to 220.82 million shares. This news comes about a month after Mullen announced that it would resell up to 900 million shares.
Unlike last month’s resale, the current resale will only consist of notes that are convertible into shares of common stock. Mullen will not receive proceeds from the sale or conversion of these notes.
On Nov. 14, Mullen filed a third amendment to its securities purchase agreement (SPA). The SPA states that certain investors would pay $150 million to receive convertible notes instead of Series D preferred stock and warrants. The notes carry an annual interest rate of 15% and could be converted into common stock on Nov. 21 and at “at any time or times at the discretion of the holder.”
MULN Stock: Mullen Announces Plan to Resell Up to 220.82 Million Shares
The conversion price of these notes will be equal to the lower of:
- The closing price of MULN on Nov. 14, which was about 30 cents.
- If “mandatorily converted” on Nov. 21, the closing price on Nov. 18, which was 27 cents.
- If converted after Jan. 3, then the closing price of MULN stock on Jan. 3.
With that said, both the second and third options above are bound to a price floor of 1o cents.
Esousa Holdings is the largest eligible reseller and can resell up to 81.9 million shares of MULN stock. Acuitas Capital trails after and can resell up to 80.3 million shares, followed by Michael Friedlander who can resell up to 401,503 shares.
All in all, this is not good news for Mullen Automotive. It shows that Esousa and Acuitas, the two largest shareholders in the company, are willing to substantially reduce their positions. In addition, the conversion of notes will dilute existing shareholders. For every share of common stock received from the conversion of the notes, the holder will also receive “Warrants exercisable for 185% of the Common Stock at an exercise price equal to the conversion price applicable at the time of conversion of such Note.”
Mullen is well aware that the conversion of securities into common stock has a dilutive effect. The company warned in its filing:
“Our commitments to issue shares of Common Stock or securities that are convertible into shares of Common Stock may cause significant dilution to our stockholders.”
As of Nov. 17, there were a total of 1.43 billion shares of common stock outstanding. However, Mullen recently disclosed a proposal to increase authorized common stock outstanding from 1.75 billion to 5 billion. The issue will be voted on at the special meeting of stockholders on Dec. 23.
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On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.