Mullen Automotive (NASDAQ:MULN) announced earlier this month that it was the subject of two putative stockholder class-action lawsuits. The lawsuits are titled Robbins v. Michery, et al. and Foley v. Michery, et al. The lawsuits allege, among other things, that there were a total of 477.51 million shares of issued and common stock outstanding as of the meeting record date for the 2022 annual meeting on July 26.
Based on this number of shares, the lawsuit notes that the proposal to increase authorized shares at the 2022 meeting should never have been approved. Since there was common stock outstanding, Delaware General Corporation Law (DGCL) stipulates that common stock holders must vote separately as a class to approve the proposal.
InvestorPlace obtained documents related to the lawsuits through File & Serve Xpress, a service available through the Delaware Court of Chancery. Let’s get into the details.
Dear MULN Stock Fans, Mark Your Calendars for Jan. 23
Today, on Jan. 23, Delaware’s Court of Chancery will consider whether it chooses to ratify and validate the move to increase authorized shares. Robbins, the plaintiff in one lawsuit, states that:
“When it came time to count votes, however, the Board inexplicably allowed 2,783,659 shares of common stock that were issued subsequent to the record date to be voted on the proposal to amend the Certificate. … Discounting these shares, which were ineligible to vote, the proposal to amend the Certificate did not pass. Mullen nonetheless filed the Certificate with the Delaware Secretary of State, and has since issued 1,159,097,754 unauthorized, putative shares of common stock, as of November 21, 2022.”
The Details on Robbins v. Michery, et al.
The complaint sheds light on Mullen’s now retracted proposal to change its state of incorporation to Maryland from Delaware. Mullen withdrew the proposal before its special meeting of stockholders. According to the lawsuit, the board attributed the move to Maryland as based on “broader exculpation of directors and officers from liability for money damages in lawsuits by stockholders or by or in the right of corporations … and … broader indemnification and reimbursement of litigation expenses.”
The complaint also highlights that CEO David Michery received a single share of Series AA preferred stock granting 1.3 billion votes. Robbins alleges this was related to a proposal to enact a reverse stock split. The lawsuit states “the practical effect of this issuance is to convert the ‘majority of the outstanding stock’ standard required by the DGCL to a more permissive ‘votes cast’ standard. To make matters worse, the Board misstated the voting standard applicable to these transformative proposals in the proxy statement concerning the Special Meeting.”
Without the intervention of the court, the plaintiff believes that the board is “poised” to violate DGCL policies twice. The plaintiff ultimately wants the Court of Chancery to declare that the July 26 vote to increase authorized shares was invalid and to find the defendants liable for breaching their fiduciary duties. If the action to increase authorized shares is deemed invalid, then the results at the recent special meeting of stockholders may be rendered invalid as well.
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.