This DOESNT look good at ALL.

ARTICLE from dowjones.com

Pinnacle Airlines Corp. is accusing hedge fund and shareholder Meson Capital Partners LP of putting its reorganization at risk in order to squeeze value out of shares that are expected to be worthless.

Pinnacle is urging a bankruptcy judge to block Meson and fellow shareholder Wayne King from pursuing litigation to compel the regional airline to call a shareholder meeting to overhaul its board of directors. Pinnacle says it believes Meson and Mr. King would use the meeting to nominate themselves to serve as directors.

According to Pinnacle, the lawsuit is the latest in a string of actions showing that the out-of-the-money shareholders are willing to risk the company's survival, and thousands of jobs, for the chance of getting paid.
"These shareholders have consistently demonstrated their willingness to risk the debtors' entire reorganization---and the interests of all the debtors' constituencies---in an attempt to force the debtors to engage in a risky gamble to attempt to provide recoveries to equity holders," Pinnacle said Monday in a lawsuit it filed in bankruptcy court to enjoin the shareholders' litigation. Representatives of Meson and Mr. King couldn't immediately be reached for comment Tuesday.

Meson Capital, a hedge-fund manager that holds 894,000 shares of Pinnacle stock, and Mr. King, who holds 761,879 shares, on Aug. 1 sued Pinnacle in Delaware Chancery Court to compel it to hold a shareholder meeting for the purpose of electing new members to Pinnacle's board.
Meson and Mr. King for months have been urging Pinnacle to appoint shareholder representatives to its board. In March, just weeks before Pinnacle filed for bankruptcy protection, they wrote to shareholders to say that "there has never been more a critical time for Pinnacle stockholders to have proper representation."

However, Pinnacle says that without any economic stake in its restructuring, the shareholders don't have a legitimate interest in demanding board representation. "With no legitimate stake in the reorganization, defendants can have no intention but to wrest control of the restructuring away from the debtors and their creditors in an expensive and dangerous attempt to secure value for themselves," Pinnacle said. Pinnacle said the lawsuit is the latest of several actions by the shareholders to advance their interests without regard to those of the company or its creditors. For instance, Meson's managing partner fought Pinnacle's $74.3 million bankruptcy loan from key customer Delta Air Lines Inc., even though Pinnacle said the financing was the only option to save it from liquidation.

A bankruptcy judge approved the financing anyway, noting that the shareholders' willingness to gamble on Pinnacle's ability to secure alternate financing would also risk Pinnacle's demise. Mr. King and Meson most recently teamed up with other shareholders to seek more time to possibly sue Delta, accusing the airline of manipulating Pinnacle's bankruptcy for its own benefit. According to Pinnacle, that request shows that the shareholders would "abandon any prospect" of its reorganization for the chance to sue the regional airline's biggest customer in the hopes that litigation would yield enough cash to pay them.

Pinnacle says it hasn't given up hopes of reorganizing, despite a shift in Delta's strategy that is forcing Pinnacle to confront its own business plan, and warned that calling a shareholder meeting would be a dangerous distraction.

"The holding of the shareholders meeting would cause immediate and irreparable injury to the debtors' restructuring, and would impair the debtors' ability to maximize the value of their assets for the benefit of all their respective stakeholders and to present a successful plan or plans of reorganization that is fair and equitable to all parties," Pinnacle said.
The court will consider Pinnacle's request for a preliminary injunction at a Sept. 5 hearing, which is also when the court is slated to hear from the shareholders looking for more time to possibly sue Delta.

Based in Memphis, Tenn., Pinnacle operates flights between hubs and smaller cities for passengers who bought tickets from major carriers, counting Delta as its major customer. The company sought Chapter 11 protection on April 1.

Write to Jacqueline Palank at [email protected].