GSI shareholder Levenson offers alternative to noteholder proposal

By Lisa Kerner

Charlotte, N.C., April 29 - GSI Group, Inc. shareholder Ryan Levenson of Privet Fund LP wrote a letter to the company's management expressing disappointment in actions by management and the board of directors that led to GSI's "unnecessary bankruptcy filing."

Levenson disapproves of management's "repeated attempts to facilitate the value-destroying takeover of the company by the noteholders" and demanded that management and the board engage in discussions with credible strategic buyers.

As previously reported, shareholders Privet and Levenson filed an objection to the confirmation of the company's third modified joint plan of reorganization.

Privet owns 660,900 shares and Levenson owns 113,700 shares of GSI.

As previously reported, GSI management currently owns approximately 746,000 shares or 1.6% of the pre-petition equity. Under GSI's proposed reorganization plan, management will end up with 8% of the company valued at approximately $21 million. Noteholders would own a majority of the common equity and control the company.

According to Levenson's letter to GSI on Wednesday, the company "has been and continues to remain financially solvent" and has the ability to service its debt in full.

Levenson blames GSI's forced Chapter 11 filing on "the technical default resulting from the inability to file financial statements."

The "campaign of equity destruction" began, said Levenson, when it became clear that GSI's largest shareholder Stephen Bershad may have had an interest in proposing his own slate of directors at the next shareholder meeting.

Updated plan needed

Since GSI filed its first modified plan of reorganization in June 2009, "the state of the world has changed dramatically," resulting in increased orders for the components that GSI produces, Levenson said.

The shareholder believes GSI's financial condition "is materially better than has been reported up to this point," citing the increase of GSI's cash balance to $79 million, from $63 million.

On Thursday, the official committee of equity security holders filed a supplement to its objection to GSI's confirmation that included a detailed term sheet for a $70 million rights offering to be backstopped by committee members.

Under the plan, the $70 million raised in the rights offering and $10 million from the sale of the auction-rate securities would be used to pay down the existing $210 million in principal amount of the debt to $130 million. At $130 million, GSI could comply with the covenants in the existing indenture. Cash on hand would be used to pay all amounts owed on the notes other than principal.

"This outcome would be greatly preferred as it improves the recovery to shareholders by nearly 25%," said Levenson.

"We see no reason for the board of GSI to not move forward with the proposal as it leaves the noteholders unimpaired, improves the recovery for equity holders and, given the backstop by Bershad and JEC II [Associates, LLC], holds as high a degree of certainty to close as the current noteholder proposal," Levenson said.

Bedford, Mass.-based GSI makes precision motion component products, lasers and laser-based manufacturing systems. The company filed for bankruptcy on Nov. 20 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 09-14109.

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