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U.S. District Court Order in Favor of Ironridge Global IV, Ltd.

U.S. District Court Order in Favor of Ironridge Global IV, Ltd.

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Memorandum & Order of United States District Court, Southern District of New York, Case No. 14-CV-03945 (WHP), denying motion for preliminary injunction against Ironridge Global IV, Ltd. and dissolving temporary restraining order (TRO) of NewLead Holdings Ltd. (NEWL)
Memorandum & Order of United States District Court, Southern District of New York, Case No. 14-CV-03945 (WHP), denying motion for preliminary injunction against Ironridge Global IV, Ltd. and dissolving temporary restraining order (TRO) of NewLead Holdings Ltd. (NEWL)

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Published by: Ironridge Global Partners on Jun 11, 2014
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
X
NEWLEAD HOLDINGS LTD., Petitioner, -against-
IRONRIDGB GLOBAL
IV
LIMITE
D,
Respondent.
X
WILLIAM
H
PAULEY
ill,
Disuict Judge: 14cv3945
US
D SDNY
CUMENT
E
LE
 
TRONl
 
ALLY
F
IL
ED
C. _._
DATE
F
IL
E
D
/1
 1
MEMORANDUM
&
ORDER
Petitioner NewLeadHoldings Ltd. moves for a preliminary injunction enjoining Respondent Iromidge Global
IV
Limited ( Ironridge') from obtain
in
g additional common shares ofNewLead in satisfaction
of
certain
li
abilities. The motion is denied and the temporary restraining order is dissolved because this Court lacks personal jurisdiction over lronridge. Further, even
if
urisdiction existed, New Lead has not shown
it
is entitled
to
preliminary relief. BACKGROUND New Lead is an international shipping company that owns dry bulk carriers and minjng assets. Dec
l
of
Antorus Bertsos 44 (attached as
Ex
E
to
Decl.
of
Richard De
a
l
ma
(ECF No. 4)).
On
February 24, 2014, New Lead and lronridge entered into a tenn sheet contemplating that lronridge would invest
in
NewLead. Decl.
of
Brendan T. O'Ne
il
(ECF No.
13
)
16,
Ex
6.
On
March 4, 2014, NewLead and Ironridge signed a share sub
sc
ription agreement. Bertsos Decl. Ex.
H
Ironridge purchased 5.00 preference shares
in
NewLead for $2.5 million
in
cash a
nd
an
additiollal 2,250 preference shares for nine promissory notes worth $2.5 million each. Bertsos Decl. 62. lrom-idge may convert
th
e 500 preference shares
it
1
 
Case 1:14 cv 03945 WHP Document 19 Filed 06/1
 4
Page 2 of 15
bought for cash into common shares, and
it
may
co
nvert further tranches
of
250 preference shares each into common shares
on
full
payment
ofthe
potc corresponding to that tranche. The
agr
,eement prohibits Ironridge from short selling
New
Lead stock and imposes daily trading limits. Bertsos Decl. Ex. H §§
IV
.I, IV.M. On conversion
of
its preference shares, Ironridge is entitled to a set
num
b
er
of
common shares plus dividends. Bertsos Decl.
,1
68;
O'Ne
il
Dec .,
34,
Ex
15
l.G.2
,
l.C.I.
New
Lead may ele
ct
to
pay
dividends and defined
e
m
be
dded dividend liabilit
ies
" either
in
cash
r~
common shares,
with
the value
of
the common shares determined
by
a
fom1u
la in the agreement, but always below the value
at
wh
ich it
pub
licly trades. Bertsos D
ec
l. Ex. D §
I.
C.2.
The
parties entered into
an
i.ITevocable letter
of
instruction for the
NASDAQ
transfer agent for
New
Lead shares, which
pennits
Il·onridge to obtain common shares
ofNewLead
without NewLead's authorization. Bertsos
Decl
. 16-18, Ex.
C;
O'Neil
Dec
 .
,
32-33.
To prevent Ironridge from becoming an "affiliate"
ofNewLead
,
the
agreements bar Ironri
dge
from holding l
0% or
more
of
NewLead's
common shares at any ti
me.
O'Neil D
ec
l. 40. Iromi.dge issued conversion notices for 1 00 preference shares on Apr
il
10, 2014 and another 100 on April 17. Bertsos D
ec
l.
,
119
On
Ap
r
:il
l4,
it
rece
ived
its
first c01mnon shares.
Be
rt
sos
Decl. 40;
O'Neil Dec
l.
55
Because
of
the
way
embeaded dividend liabilities are measured,
if
they are paid
in
shares, as they were here, Ironridge is entitled to more and more shares i
fNew
Lead's stock price drops. Bertsos
Dec
l.
~
73, Ex. D §§ I.C.2,
I.
G.6.g. Almost every trading
day
since
Ap
r
il
14, lronridge has obtained and sold large numbers
ofNewLead
common shares. O'Neil Decl. Ex. 31. As of June 6, 2014, Ironridge
had
received over eight
million
common shares.
O'Nei
l Decl. 68.
2
 
Case 1:14 cv 03945 WHP Document 19 Filed 06/1
 4
Page 3 of 15
Ironridge's share subscription agreement is set against a prec:ipitous decline
in
NewL
ead s
share prices. Adjusting for stock splits,
in the
three mo
uth
s pt
ior
to Apri
 
,
20
14, the date of lroruidge
,
s first NewLe
ad
transaction, NewLead's share price fell
by
97.8%, from $225 to $17. O
 Ne
il
Decl. ,-71; June 9, 2014 Tr. 73:2-4.
In
the six months before April 14,
it
fe
 
99.2%, from $2,9
85
to
$17. O'Neil Decl.
71
; June 9, 2014 Tr. 72:23-74:1. The decline continued after lronridge began obtaining and selling shares.
By May
15, NewLead's share
price
had fallen to
39
cents. Bertsos Decl
11.
By early
Ma
y, the parties' relations
hip
had soured. Ir
onr
idge att
ri
butes
th
e· deterioration to t
he
fact that they were unable to come to terms
on
a favor to NewLead
in
whjch Ironridge would repay one of its notes prior to the time paym
en
t was
due
. O'Ne
il
Qecl. 42-47. But according to New Lead,
it
was because lronridge was engaging
in
death spiral frnancing by which it intentionally manipulated New Lead's share price downward. B
ertso.s
Decl.
11
-14. According
to
this
t11eory
, a financier purchases converti
bl
e stock which can
be
converted into common stock for less than its m
ar
ket value, artd the lower the stock price, the more common shares it receives. Bertsos Decl. 48-49. The financier short sells common stock to drive
down
the share price, converts its preference shares
in
to common shares at depressed prices, and uses those shares
to
cover its sho
rt
positions. Bertsos Decl. 50. New Lead accuses Ironridge
of
sh01t
se
lling shares because according to i
ts
ca
lcula
ti
ons,
i
t
was not using the shares it obtained
to
cover short positions, on April 16, 2014 h would have
had
10% or more o
fNewLead
s shares, in violation
of
the cap. Bertsos Decl. 90, Ex.
L.
Iromidge denies shmt
se
1Jing NewLead shares, asserts that NewLead's calculation
oftbe
-3-

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