Tivus, Inc. (TIVU)

[RickKayne]

A portion of the best write up I have every seen on Toxic Death Spiral Financing. Aka Tivus lenders.

The devil is in the details. In a toxic convertible debenture, the debenture holder can convert the instrument for a larger number of shares if the underlying stock price declines after the financing. Theoretically, it's a n way of protecting the debenture buyer from market risk. But the caveat — sometimes called a "reset provision" — is the mechanism that triggers a death-spiral. If the underlying stock collapses, the debenture holder can obtain mind-boggling volumes of shares, which results in crippling dilution.
In fact, critics allege, death-spiral investors can benefit more if the stock tumbles. And should they be particularly Machiavellian, they can make sure it goes into a tailspin.
Houston lawyer Wes Christian believes he's figured out how death-spiral rings work. They scan for vulnerable public companies listed on small-cap bourses such as the American Stock Exchange and the Nasdaq Over-the-Counter Bulletin Board.
"They look at the float, they look at the liquidity in the stock, they look at how much they can pump it and how much they can dump it," he says. They approach prospective victims and tell them: "We like your company. We like your business plan. We like your management. We like your board. We'd like to make you a loan, or we'd like to invest equity in your company."
But while the financiers promise much-needed capital, others within the ring start short-selling the company's stock. Other potential investors are warded off by the tumbling share price, but the ring holds on. "They say, `We're gonna stick with you, buddy. We're in it for the long haul,'" Christian continues.

See the entire write up at:

http://www.investingadvisers.com/finance/articles/the_mysterious_world_of_death_spiral_finance.php