Liberty Star Uranium & Metals Corp. Sept. 2 said two former lenders of the company, Platinum Long Term Growth VI LLC and Alpha Capital Anstalt, filed a lawsuit in the United States District Court against Liberty Star and its president and CEO James Briscoe.

The plaintiffs are seeking to require Liberty Star to honor outstanding warrants held by the plaintiffs at an exercise price of US0.2 cents per share and to issue ten times the number of warrants that the company has on record. The claim is based on a provision in the warrant agreements that would permit a “ratchet down” of price and a multiplication of number of warrants in the event of certain share issuances by Liberty Star Uranium & Metals Corp.

If the plaintiffs are successful in their lawsuit, a total of 589,177,000 warrants would be outstanding at an exercise price of US0.2 cents to all warrant holders who are former lenders to our company. These warrants all contain a cashless exercise feature, permitting issuance of shares without payment of any cash to the company. Currently, there are 434,784,657 common shares of Liberty Star outstanding. If the warrant holders are successful in their lawsuit, they and other warrant holders could exercise warrants for over 55 percent of the company’s equity. However, Liberty Star said, there are contractual limits on the percentage of the company’s outstanding common shares which any warrant holder can hold at the time of exercise (i.e. not more than 9.99 percent of the company’s outstanding shares), so individually none of them could control the company through the exercise of warrants. The plaintiffs are also claiming money damages for non-compliance with what they claim are the terms of the warrants, costs and attorney fees incurred in the action.

Liberty Star said it is vigorously defending against the lawsuit. The company’s defense is, in part, that no “ratchet down” provision is in effect. If we are successful on that defense alone that would leave all former lender warrant holders with 58,917,700 warrants exercisable at US2 cents per share.

Briscoe said, “This lawsuit makes no sense to me. Until this matter is settled or decided by a court, we won’t allow the exercise of any plaintiffs’ warrants. If the Plaintiffs eventually win, the dilutive effect on the company will likely seriously harm our share value, drastically reducing the value of the Plaintiffs’ warrants. We intend to use every defense possible to defeat these claims. ”

In July Liberty Star announced it has tendered into escrow full payout to its secured lenders under the convertible notes that had been declared in default.

In order to pay out its former lenders, Liberty Star sold 60.7 square kilometers, or 23.4 square miles out of its Big Chunk and Bonanza Hills property in consideration for both a US$1 million cash payment and a convertible loan from Northern Dynasty Minerals Ltd. in the amount of US$3 million.

According to Liberty Star, the sale represents about 13 percent of the properties. The purchase of the claims and the loan are interdependent. The loan is secured by the Big Chunk and Bonanza Hills properties in Alaska and accrues interest at 10 percent per annum. As part of the transaction, subject to negotiating and signing a definitive earn-in option and joint venture agreement, Northern Dynasty can earn a 60 percent interest in the Big Chunk and Bonanza Hills projects by spending C$10 million on those properties over six years. The borrowings from Northern Dynasty may be applied as part of Northern Dynasty’s earn-in requirements.