Moneybaggs:
As I have posted before, the following action — converting "principals" common stock to preferred — is, IMO a fraudulent action on the part of management and the Board. #reply-5794964
From the just released 10K:
On November 10, 1998, the Company cancelled the following shares of Common issued to the Principals (and related parties) and exchanged them for preferred voting only shares:
Name Number of Shares Exchanged
Michael A. Sylver 17,169,813
Gary Sylver 1,999,000
Morris Sylver 10,000,000
Darral Sylver 152,000
Phillip Sylver 152,000
Robert S. Qualey 5,222,000
Domingos Loricchio 7,110,000
Domingos Loricchio Jr. 5,500,000
Denise Loricchio 3,000,000
Roc and Sherri Pucci Jt Ten 1,814,300
Allan Sylver 305,000
Benita Sylver 371,000
----------
Total Shares Exchanged 52,795,113
The aforementioned common shares were cancelled in exchange for preferred voting only shares for the reason that the Principals of the Corporation, as previously arranged in early 1998, wished to decrease the number of outstanding common shares seeing that the principals have no intention of selling any of their shares.
The deduction of these 52,795,113 from the total outstanding shares leaves a total of outstanding common stock at 13,022,502.
The Company has inititated legal action in the federal courts in the seeking the cancellation of another 9,740,000 shares of common stock. #reply-6497855
First point, note that the common share counts still don't add up.
52,795,113
+ 13,022,502
65,817,615
On August 21, the TA reported in excess of 69 million outstanding.
exchange2000.com
Notwithstanding, for the company to take such a blatantly fraudulent action (without notification and offer to all common shareholders) evidences a total disregard for the rights of common equity holders.
What was the point of the preferred/common conversion? If insiders had no intention of selling this is window dressing for some other purpose.
We know the company wishes to create a short squeeze, via cancellation of common shares. Anyone with any familiarity with the legal process (or anyone who has read the transcript of the 10/2 hearing) knows that the Federal Court will do nothing to favor either side until the issue is fully-adjudicated, and even if the company was to win, it would still face appeals (defendents probably posting a bond -- not delivering stock).
Two hypotheses as to why the company did the preferred convert:
A.The company could declare Chap 11; re-org, extinguish the common, and come out with the exact same assets with the insiders holding 100% given their preferred position (I don't see how a Federal bankruptcy judge would go along but mgt may think they could pull this off -- they have shown -- up to now -- contempt for the judiciary's intelligence which is noteworthy by its irony.) (This scenario also costs money rather than making money.)
or
B: If they want the cash now, and since it is unlikely that the Company can get any near term satisfactions from the courts, AZNT could, simultaneously, drop the lawsuits and revese the outstanding common:
By doing so it gains the following:
1. It screws those holders of common that the company is currently in dispute with;
2. It momentarily drives up the price;
3. Moments after the split is announced, the company reconverts the preferred to common (after the split);
4. The non-insiders common in the float, as a percentage of the whole, is now signficantly reduced as is their proportion of all selling after the reverse takes effect. Consequently, their now vastly reduced holdings only allow them to capture a pittance of the temporarily inflated price;
5. The insiders have maintained the same number of shares, and can sell far fewer shares into the momentarily inflated price and generate the same profits.
6. After the selling is done, the insiders have profited, they own a larger share of the company (if not almost all -- depending on how outrageously they reverse the common), and the float is smaller than it is today.
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