Orckit Communications Ltd. (Nasdaq: ORCT; TASE: ORCT) has sold patents to Hudson Bay Capital Management unit Networks3 Inc. for $5 million. Networks3 also bought 4.7 million new Orckit shares, 13.3% of its share capital, for $2.5 million, and a $500,000 three-year unsecured subordinated note, bearing 1% a year, and secured by Orckit's wholly-owned subsidiary Orckit-Corrigent Ltd. Orckit will use $5 million of the proceeds to repay its bonds, and use $3 million to finance operations.
Today's agreement comes nine months after Orckit reached a debt settlement to reschedule payments to bondholders without a write-off. The communications equipment maker, run by CEO Itzik Tamir, has suffered from falling revenue and rising losses for years. It posted a net loss of $6.2 million on $8.9 million revenue in 2012, and its shareholders' equity deficit was $8.2 million at the end of the year.
Orckit will receive 10% of Networks3, and the right to receive a percentage of Networks3's future profits, if any, from third parties for past and future use of Orckit's patents. Orckit's share will start at 25% of aggregate profits above $7.5 million and will gradually decrease to 5% of profits in excess of $250 million.
The agreement is subject to approval by the Office of the Chief Scientist of the sale of the patents at terms acceptable to Networks3 at its sole discretion, and the retirement of Orckit's two bonds.
Orckit has failed to secure new orders for two years, with the result that it could not pay its NIS 80 million bond payment in full in March 2012. The outstanding debt on both bonds was NIS 108 million at the time. Under the company's debt settlement, bondholders could convert debt into equity, but fewer than 10% did so, with the result that the company could not raise capital because investors did not want their investment to be used for bond payments. The company will have NIS 5 million in cash after its next NIS 6 million bond payment, and the outstanding debt, which matures in July 2014, is NIS 50 million.
If Orckit's bondholders, the largest of which are Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) and Yelin Lapidot Investment House Ltd., approve the deal with Networks3, they will face a 30% write-off on the original debt and a 66% write-off on the balance of the current debt. The bonds' current prices on the TASE indicate that the bondholders do not expect to see the debt repaid in full. The bondholders have until June 30, when the agreement with Networks3 expires, to either accept it as the lesser of two evils, or to bet that a better deal can be found by July 2014.
Published by Globes [online], Israel business news - www.globes-online.com - on March 13, 2013
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