Orckit proposes arrangement; noteholders nix involuntary liquidation

By Caroline Salls

Pittsburgh, May 1 - Orckit Communications Ltd. presented a final proposal arrangement to noteholders for the retirement in full of its series A and series B notes, according to a 6-K filed Wednesday with the Securities and Exchange Commission.

The company said the trustees of both series of notes support the appointment of an expert to consider the proposed arrangement.

In addition, Orckit said its series A noteholders did not approve a proposal to allow the trustee to initiate legal proceedings, including involuntary liquidation proceedings, against the company.

A proposal to request that Orckit redeem $5 million in secured notes held by two funds affiliated with Hudson Bay Capital was approved by the series A noteholders.

Arrangement details

Under the arrangement, in exchange for full retirement of the notes, noteholders would receive their portion of $7 million in cash, 10% of the shares of Networks3 Inc., which is the company that has agreed to purchase Orckit's patents under a strategic investment agreement, shares of Orckit and warrants to purchase shares of Orckit.

The company said $5 million of the proposed cash payment is the amount it is entitled to receive from Networks3 upon the closing of the patent sale, $1 million reflects the excess sum expected to be in Orckit's account on June 30 above the minimum balance that is required as a condition to the closing of the transaction with Networks3, and $1 million would be invested by an external investor as a condition to the arrangement.

If the external investment condition is not met, the arrangement would not have to be completed, but it would not constitute a breach by Orckit.

The company said the outstanding notes debt, after the payments, would be converted to ordinary shares of Orckit at a price of $0.52 per share, the same price per share at which Networks3 committed to invest $2.5 million in the company.

Each warrant would be exercisable for one ordinary share of Orckit at a price of $0.52 per share for four years, the 6-K said.

Orckit said it would not issue shares or any other securities exercisable for or convertible into shares at a price lower than $0.52 for four years.

The arrangement is subject to noteholder and shareholder approval, as well as the approval of the Israeli Securities Authority, the Tel Aviv Stock Exchange and the Tel Aviv District Court.

Orckit is a Tel-Aviv-based maker of broadband telecommunications equipment.

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