GSI agrees with 11% noteholders and equity committee on plan changes

By Caroline Salls

Pittsburgh, May 11 - GSI Group Inc. has reached an agreement with representatives of the key stakeholders involved in its Chapter 11 bankruptcy case that provides for changes to its plan of reorganization, including a proposed rights offering fully backstopped by some noteholders, according to a company news release.

With this agreement, GSI said it is on track to emerge from bankruptcy this summer.

The company said it expects to complete its financial restructuring with a stronger balance sheet and enhanced liquidity that will position it for future growth.

According to the release, GSI has reached an agreement on a term sheet with the holders of more than 88% of the outstanding total principal amount of its 11% senior notes due 2013 and the company's official equity committee.

The term sheet allows for a new plan support agreement and changes to some of the terms of the plan filed with the U.S. Bankruptcy Court for the District of Delaware on April 9.

CRO hiring

To help lead the company through the final phase of its restructuring, GSI has appointed Michael E. Katzenstein as chief restructuring officer, effective May 5. Katzenstein is a senior managing director in the corporate finance practice of FTI Consulting, Inc. The company has also hired FTI Consulting to provide support services.

"We are very pleased to have reached agreement with a substantial majority of the noteholders and the equity committee on the term sheet for a plan support agreement that resolves all major outstanding issues related to confirmation of GSI's plan of reorganization and paves the way for the company to emerge from Chapter 11 in summer 2010," Katzenstein said in the release.

Equity committee chairman Stephen Bershad said in the release, "With a strengthened balance sheet, GSI will emerge from the restructuring process in an excellent financial position to grow its business and take advantage of improving market conditions."

Plan changes

Under the proposed plan changes:

• The company's existing shareholders, including those shareholders who may also be noteholders, would retain an ownership of between 48.9% and 87.3% of the company's post-reorganization common stock, subject to the release and distribution of new common shares placed in reserve until resolution of pending litigation and depending on the level of shareholder participation in the proposed rights offering;

• Under a proposed rights offering, the company's shareholders would have a right to buy up to $85 million of new common shares of the reorganized company for a purchase price of $1.80 per share;

• The proceeds from the rights offering, together with about $10 million of the company's cash, would be used for partial satisfaction of the notes;

• Notes in the principal amount of $5 million would also be exchanged for additional common shares of the reorganized company at $1.80 per share, and those noteholders, who have agreed to backstop the entire rights offering would exchange a minimum of $20 million of notes for new common shares at $1.80 per share, regardless of the number of shares purchased by shareholders in the rights offering;

• The principal amount of notes remaining after these various exchanges then would be exchanged for new senior secured notes; and

• Noteholders will receive payment in cash of all pre-bankruptcy and post-bankruptcy interest.

In addition, GSI said the consenting noteholders who have agreed to backstop the rights offering will receive a cash backstop fee equal to 5% of the maximum rights offering proceeds, and all noteholders will be entitled to their share of an alternate transaction fee of 2% of the principal amount of the notes if another transaction is completed before the rights offering.

As under the previous plan, the company's GSI Group Ltd. subsidiary would, on account of its unsecured note, share in the distributions to the noteholders.

Board make-up

Under the amended plan, the reorganized company's board of directors would be comprised of seven directors. It would include two directors selected by the required noteholders, two directors with industry expertise selected by the equity committee, one director selected by mutual agreement between the required noteholders and the equity committee, one director to be selected from the company's current board of directors and the chief executive officer of the reorganized company.

According to the release, the noteholder backstop parties include Liberty Harbor, LLC, Tennenbaum Capital Partners, LLC, Highbridge Capital Management, LLC, Hale Capital Partners, LP and Tinicum, Inc. and/or their affiliated or managed funds.

Bedford, Mass.-based GSI makes precision motion component products, lasers and laser-based manufacturing systems. The company filed for bankruptcy on Nov. 20. Its Chapter 11 case number is 09-14109.

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