Stonepath Group, Inc. (AMEX:STG) will face some shareholder opposition to its proposed restructuring plan after a group of shareholders owning a combined 32% of the company's outstanding shares voiced their concerns in a
Schedule 13D filing with the SEC. The hedge fund syndicate include Strategic Turnaround Equity Partners, Galloway Capital Management, Gary Herman and Bruce Galloway.
The company announced an agreement with Mass Financial in February
whereby they would acquire Stonepath's entire credit facility from
Laurus Master Fund, Ltd. and provide the company with a $20 million
line of credit. Shareholders are angry with this agreement for two reasons. First, Mass Financial had to purchase Stonepath's entire credit facility from Laurus Master Fund, to which Stonepath will be required to issue 3.5 million shares of common stock or 7.9% of the current number of shares outstanding! Secondly, under the terms of the agreement, the credit line will be convertible into Stonepath stock at a conversion price of 85% of its value. This would enable the finance company to purchase twice the Stonepath's current number outstanding shares at an 85% discount! Combined, this "hyper-dilution" of common stock could dramatically reduce share value, which is why the group of investors sent a letter to the Board of directors indicating their concern and urging them to explore a structure that is not as dilutive to common stock shareholders.
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