Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages
Alisa Greenstein, Hedge Fund Law Report, 27 August 2010
On August 9, 2010, the United States District Court for the Southern District of New York (Southern District) effectively ended the decade-long litigation between Internet Law Library, Inc. (INL), its executives and several of its shareholders, and Southridge Capital Management, LLC (Southridge), its principals and affiliates, including hedge fund Cootes Drive, LLC, and its broker, Thomson Kernaghan & Co., Ltd. (TK & Co.). The litigation arose out of a “floorless” or “toxic” convertible securities purchase agreement between INL and Cootes Drive.
The agreement allowed Cootes Drive to demand conversion of its INL preferred stock into common stock based on a floating conversion ratio tied to the common stock’s market price, and obligated Cootes Drive to float a $25 million line of equity, so long as INL common stock remained priced above a certain level. This arrangement arguably provided Cootes Drive and its affiliates with an incentive to aggressively short-sell INL common stock, because the further they decreased its price, the more common stock Cootes Drive could obtain on conversion (which it could use to cover its short positions and profit from the difference), and because that decrease would eliminate its obligation to provide a line of equity. The agreement proved disastrous for INL, just as it has for many other companies with similar financing arrangements. Continue reading “Article: Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages”
Internet Law Library, Inc. v. Southridge Capital Management, LLC
Smarter Legal Research, 02 February 2002
On January 12, 2001, Internet Law brought suit against Cootes Drive in the Southern District of Texas (the ” Internet Law action” ), the subject of which is a series of agreements including a Stock Purchase Agreement entered into by Cootes Drive with Internet Law and in which Cootes Drive agreed to provide capital to Internet Law through two vehicles, a $3 million convertible preferred stock purchase and a $25 million equity line agreement. The Stock Purchase Agreement specified New York as the exclusive forum for all litigation between the parties.
The gravamen of the complaint, later amended on February 12, 2001, was that Cootes Drive engaged in short-selling and market manipulation of Internet Law’s stock, artificially depressing the price of the stock to a level at which Cootes Drive would no longer be required to provide funding under the equity line pursuant to a provision in the Stock Purchase Agreement that conditioned funding on Internet Law’s stock trading above a specific price. As such, Internet Law alleges that Cootes Drive committed, inter alia, violations of securities laws, both federal and state, common law fraud and fraud in the inducement, and unlawful conspiracy. Continue reading “Article: Internet Law Library, Inc. v. Southridge Capital Management, LLC”
Internet law site sues old partners
Jenna Colley , 25 February 2001
Houston-based Internet Law Library Inc. is throwing the book at its former partners.
In a federal lawsuit filed Jan. 26, Internet Law Library accuses ex-investors of a slew of improprieties, alleging stock manipulation, securities and exchange violations and fraud.
Internet Law Library filed the suit in U.S. District Court in Houston against Southridge Capital Management LLC and its executives Steve Hicks, Dan Pickett and Christy Constabile. Also named are Canadian company Thomson Kernaghan & Co. and investor Cootes Drive LLC.
Internet Law Library, through several subsidiaries, operates various Internet sites containing databases for legal and other research.
According to the suit, Southridge agreed to a $3 million convertible preferred stock purchase and a $25 million line of equity. The company alleges that after agreeing to provide the $28 million in capital, Ridgefield, Conn.-based Southridge sold the company’s stock short. Continue reading “Article: Internet law site sues old partners”