Earlier this week, court filings revealed that Drawbridge Investments (DBI) and DBI Lease Buyback Servicing, an affiliate of DBI, had filed a complaint against Mullen Automotive (NASDAQ:MULN) 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.
Let’s take a closer look at the details of the complaint against Mullen.
MULN Stock: Drawbridge Files Complaint Against Mullen
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.
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.
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.