ExpressJet (XJT)

[downsideup]

If you have not, you need to read this document... all of it... carefully.

http://www.sec.gov/Archives/edgar/data/1144331/000119312508145970/dex99a1a.htm

My first reading revealed a couple of things that are not part of the public discussion as far as I can tell...

It does appear that there are perhaps interests in play that may have interests that are the opposite of what you might expect...

I'll mention a couple:

First, there are only 7 major note holders... and there isn't any information I know of related to their intent to tender notes at all. Their interest in doing so would be IF they found ownership of common stock more valuable to them than simply continuing to hold the notes... However, the expectation that a lower stock price, meaning a conversion into more shares, would be an advantage to note holders has a couple of limits.

One of those is that at a share price below $0.40, there aren't enough authorized shares to cover FULL conversion of all notes into shares... so, if ALL the notes are tendered for conversion, there is a risk not only of massive dilution, but a stated potential for BK as there is not enough shares and not enough cash to convert all of them. The BK potential is, in my estimation, a company threat, not real... as the company could mix shares and cash in any ratio they choose to as an alternative to share only or cash only conversions. That still suggests that note holders will be reluctant to seek converting ALL their notes... rather than a portion... in order to optimize their holdings potential value. If they get too greedy for shares, and the company converts ALL the notes AT exactly $0.40, there will be such a huge overhang of shares that the $0.40 share price will immediately become a fiction... and the note holders will lose their interest payments, and lose principal value due to the huge market surplus of shares... AND they will lose priority rights in bankruptcy if it were to occur.

Oddly, note holders will do BETTER if:

1. The share price at conversion is HIGHER... since that will reduce the market overhang in shares...

2. FEWER notes are tendered... as, with 1. above, there will be less dilution by and of the converted shares, AND less risk...

A second issue: It is also in the note holders interest to avoid having any of the anti-takeover provisions kick in... an issue which I've not seen discussed anywhere... but read the document...

I also note, in the "general provisions" section, that if the company doesn't see the tender offer working out in their interest, there are plenty enough limits in the rules that they can pretty much pull the plug on it if they want to... including that there might be fully justified legal action begun over the structure or conduct of the offering at the share prices we see now... as a number of the general provisions seem easily met, now, and a failure of management to protect shareholders interests while diluting from 55 million to over 300 million shares seems a clear problem in terms of fiduciary responsibilities. Note holders also have that problem... that if in converting, they may be seen as self dealing rather than protecting shareholders interests... with potential consequences not only in legal action, but in future governance... particularly if they convert and win control... but also if the management succeeds in pre-empting any such effort that is mounted... and management DOES have the tools to prevent that from happening... so if they fail to do that ????

There is a five day period prior to July 29 that will determine the conversion price... and there WILL be interesting market impacts in that period... with a market contest for control of the stock price, and for control of the company...

There is $0.40 "can't get there below that" marker down... and the company might WANT to trade below $0.40 as an easy excuse to avoid the dilution risk entirely...

There is a $0.55 marker set in the document linked here, as the number used in the pro-forma numbers.

There is another $1.10 marker laid down... the FUTURE share price necessary for the shares to continue trading on the NYSE. Reading carefully points out that the shares WERE removed from NYSE trading on June 20th... and need to trade above $1.10 to return to the NYSE...

So, those are the drivers, the targets and the interests...

I'd still like to know who the 7 note holders are... and know more about the strategies and tools available to the different sides... expecting that things will get interesting in the days leading up to and beyond July 29...