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PBSOQ - To Lift or Not to Lift (Automatic Stay) ?

|Includes: Point Blank Solutions, Inc. (PBSO)

Since my last write-up, dated May 10, 2010, a few noteworthy developments:

1. It is my understanding that many shareholders, large and small, have petitioned the U.S. Trustee to organize an Official Equity Committee. If allowed, many of the petitioners are willing to serve on such a Committee.

From my point of view, shareholder representation is essential in this case because

(a) Point Blank is not insolvent, given the dramatic increase in its revenues in 2010.

(b) there is a substantial likelihood of recovery for shareholders, potentially hundreds of millions, and

(c) the interests of shareholders are not adequately represented.

2. The appellant in the derivative law suit asked the Bankruptcy Court to lift the stay (see Doc # 162 "Motion of D. David Cohen for Relief from Automatic Stay")

In this motion, Mr. Cohen has asked the Bankruptcy Court to permit the Appeals Court to decide the matter. Mr. Cohen asserts that this would be in the best interest of Point Blank because

(a) If the Appeals Court upholds the Brooks Settlement, then the Company will be no worse than it is now and

(b) If the Appeals Court rules that the Brooks indemnification is illegal, then Point Blank will have the ability to accept the $186 mm Sarb-Ox claim, which the SEC is pursuing against Brooks.

3. Yesterday, Point Blank filed its response to Mr. Cohen's motion, and asked the Bankruptcy Court to deny Mr. Cohen motion (see Doc# 215).

In its response, the Debtor argues that it is unwise to allow the Appeals Court to rule on the Settlement before knowing the outcome of Brooks' criminal trial.

This is because if the settlement is broken up by the Appeals Court and Brooks is convicted in the criminal case, then the Debtor may not be able to get its hands on Brooks' frozen assets ($195 mm) because these assets will have been forfeited to the U.S. Government.

Furthermore, due to the broken settlement, the Debtor will be back to square-one in terms of resolving the Class Action claim.

On the other hand, the Debtor argues, if Brooks is not convicted in the criminal case, then it would be in the best interest of the Debtor to reject or subordinate the indemnification. This is because in such a scenario, Brooks will retain the $195 mm, thus improving Point Blank's chances of recovery.

The hearing to decide this matter is set for June 10.


Disclosure: Long PBSOQ

Disclosure: Long PBSOQ