MiddleBrook Pharmaceuticals, Inc (fka MBRKQ)

[Madclown]

I think the two things that will impact upon recovery to shareholders at this point are cash burn and any amounts awarded to PAR by the 3 member arbitration panel. The limitation of the PAR claim to a range of $0 to $3.5 million goes a long way to help ensure that equity will receive a distribution.

Remember that the Management Incentive Plan does not afford any payout unless there is at least $7.5 million available for distribution to equity. The amounts payable under the MIP will be deducted from the residual equity to determine final payout to equity. If you extract the $750,000 payable under the MIP from the 7.5 million minimum distribution you get a $6.75 million distribution to equity. This equates to about $0.078 on a per share basis.

I could be wrong in my thinking but I see this recovery as a worst case scenario because I just don't see management agreeing to any settlement that would put their MIP distribution in jeopardy.

The way this MIP was structured presents an interesting scenario in itself since it calls for hard dollar awards within a range as opposed to a percentage of the equity recovery. As an example, if there were only $7.45 million available for equity (before factoring in the MIP) then the MIP does not payout anything to management and the equity recovery is 700k more because equity value fell 50k short of the $7.5 million level. This same conundrum occurs at each of the various payout levels in $2.5 million increments all the way up to $25 million and it creates an incentive to potentially massage the settlements if they fall near one of the recovery thresholds. I am not leveling any accusations here, just making an observation.

There has been a bit of selling recently but there has also been someone sitting at just above $0.08 taking anything and everything offered at that price. Because of the lack of liquidity it is difficult to justify getting very big in the name but I am using it as a learning case study because the dynamics here are so different from the typical Chapter 11 case because it involves a liquidation scenario that includes an EC and an equity distribution. I just don't run across too many cases where liquidation and equity recovery can be uttered in the same breath. I also find it quite fascinating how "efficient" the pricing of this stock has been all along given the lack of coverage and lack of any apparent interest from retail, hedge or institutional players.