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  • Crisis investing - CYBEX International, Inc. - CYBI 3 comments
    Dec 13, 2010 9:23 PM | about stocks: CYBI, NLS
    Cybex International, Inc. develops, manufactures, and markets strength and cardiovascular fitness equipment for the commercial and consumer markets.

    On Wednesday December 8, 2010, the company issued a press release informing investors that a $66,000,000 jury verdict has been rendered against CYBEX in the product liability litigation lawsuit, Barnhard v. Cybex International, Inc.

    The plaintiff in Barnhard was rendered a quadriplegic after she pulled a CYBEX weight machine over on herself. CYBEX Chairman and CEO John Aglialoro stated: “..the plaintiff pulled over on herself a piece of CYBEX equipment produced in 1983. The particular piece of equipment has been used over a million times with no other similar incident and is still being used by the same facility in the same place today." 

    "The piece of equipment in question is a CYBEX leg extension that weighs a little over 600 lbs. It has a seat and is used by sitting on the seat and pushing the legs to strengthen them. Used in the manner intended, it is physically impossible to tip over – the plaintiff clearly understood how to use a leg extension as she was an employee in the facility where the accident occurred. This is not a design flaw – it is a terribly unfortunate result of plaintiff’s decision to use the leg extension in a manner which is still not clear and which had the disastrous result for which all of us feel great sympathy. The fact remains that this was not faulty equipment and not the responsibility of CYBEX. It is difficult to understand the jury’s decision regarding the amount of the verdict even if CYBEX were in some way responsible for the accident – which we are not."

    "We strongly believe that CYBEX was not negligent and is in no way responsible for this tragic accident. We will vigorously pursue all avenues to attain a reversal of this verdict.”

    CYBI, which was already trading at roughly 70% of tangible book value prior to the news, saw its share price drop from around $1.30 to today's close of $0.72.  Current valuation is around 35% of tangible book value.

    Only $4 million or so of CYBI's portion of the plantiff's award (75%) is covered by insurance.  Should the jury's award stand, the company will likely be forced into bankruptcy or liquidation.  Should the award be overturned, or significantly reduced, risk taking shareholders will likely see a sizable percentage rise in share price. 



    Disclosure: I am long CYBI.
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Comments (3)
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  • Andrew Schneck
    , contributor
    Comments (61) | Send Message
     
    I had similar thoughts on this.. been reading about it now for a day or so. Here's a site you may want to check out for their comments on the lawsuit:

     

    www.bostonherald.com/b...

     

    The article itself is 4 sentences or so... just click down to the commentary. They have some interesting points on both sides.

     

    It seems to me a little ridiculous that a 500+ lb machine could be manufactured in such a way as to be pulled over with less than 40 lbs, but apparently they proved it in the courtroom. Sure, it's not how the machine was intended to be used, but the way it was manufactured allowed it to be life-threatening in nature.

     

    I'm considering a small position, but it definitely shouldn't be considered an "investment". It's a speculative bet on a lawsuit where the downside is 100% & the upside is likely 400-500%.

     

    Did you check Barnhard's blog & website?

     

    With 75% responsibility, Cybex is liable for $49.5 MM, which is then $45.5 MM after the $4 MM insurance policy. They don't have the assets to cover it.. it really is an all-or-nothing coin flip with odds impossible of a reasonable prediction.
    28 Jan 2011, 01:30 PM Reply Like
  • Lintoid
    , contributor
    Comments (51) | Send Message
     
    Thanks to the author for covering this case. I've been following it keenly for many months now.
    Cybex's appeal is scheduled for Oct 21, 2011 (with decision sometime in November, I believe).

     

    Definitely a binary, all-or-nothing, investment proposition. The judgment should be dismissed outright, IMO, as Cybex is not at fault in any way.

     

    p.s. Is there a way of reaching the author to discuss the case in person?
    4 Sep 2011, 10:10 PM Reply Like
  • Lintoid
    , contributor
    Comments (51) | Send Message
     
    The appeal date has been changed to Oct 26, in Rochester NY.
    14 Oct 2011, 08:53 AM Reply Like
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