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Debt | 12 Months Ended
--- | ---
Dec. 31, 2011
Debt | 7. Debt Debt consisted of the following:
|  | December 31, |
|  | 2011 |  |  | 2010 |
|  | (In thousands) |
Senior Credit Facility—term loan |  | $ | 10,000 |  |  | $ | — |
Total short-term debt |  | $ | 10,000 |  |  | $ | — |
Senior Credit Facility—term loan |  | $ | 30,000 |  |  | $ | — |
Senior Credit Facility—revolving credit facility |  |  | 28,000 |  |  |  | — |
12.25% Senior Secured PIK Election Notes |  |  | — |  |  |  | 107,575 |
Total long-term debt |  | $ | 58,000 |  |  | $ | 107,575 |
Senior Credit Facility On October 19, 2011, GSI US consummated the refinancing of all $73.1 million in aggregate principal amount of its outstanding 2014 Notes through the proceeds from a new $80.0 million senior secured credit agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent, Silicon Valley Bank, as Syndication Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Book Manager, and HSBC Bank USA N.A. and the other lenders from time to time party thereto. The Credit Agreement provides for a $40.0 million, 4-year, term loan facility due in quarterly installments of $2.5 million beginning in January 2012 and a $40.0 million, 4-year, revolving credit facility (collectively the “Senior Credit Facility”) that matures in 2015. The Credit Agreement also provides for an additional uncommitted $25.0 million incremental facility, subject to the satisfaction of certain customary covenants. The weighted average interest rate and interest rate for the term loan was 3.31% and 3.17%, respectively, at December 31, 2011. The interest rate on the revolving credit facility was 3.30% at December 31, 2011. We are required to pay a commitment fee on unused commitments ranging between 0.3% and 0.5% annually, based on the Company’s leverage ratio, as defined in the Credit Agreement. As of December 31, 2011, $12.0 million was available for borrowing on the revolving credit facility. Outstanding borrowings under the Senior Credit Facility initially bore interest at a rate per annum equal to Prime plus 175 basis points. Upon the execution of a conversion notice in October 2011, outstanding borrowings under the Senior Credit Facility now bears interest at a rate per annum equal to LIBOR plus initial spread of 275 basis points through March 31, 2012, subject to adjustment thereafter based on the Company’s consolidated leverage ratio, payable in arrears on the last day of the applicable interest period but in no event less frequently than every three months. In addition, availability under the revolving credit facility will be subject to customary borrowing base limitations. In particular, amounts outstanding under the revolving credit facility may not exceed the borrowing base, an amount determined with reference to eligible inventory, eligible receivables and eligible cash. The borrowing base is also subject to customary reserves that may be set from time to time by the Administrative Agent under the Senior Credit Facility. The Credit Agreement contains various customary representations, warranties and covenants applicable to the Company and its subsidiaries, including, without limitation, (i) covenants regarding maximum leverage ratio, minimum EBITDA (as defined in the Credit Agreement), and minimum fixed charge coverage ratio; (ii) limitations on dividend payments and stock repurchases; (iii) limitations on fundamental changes involving the Company or its subsidiaries; (iv) limitations on the disposition of assets and; (v) limitations on indebtedness, investments, restricted payments and liens. In addition, the minimum EBITDA covenant and the borrowing base are in effect until December 31, 2012, subject to satisfaction of specific financial criteria. We are in compliance with these covenants as of December 31, 2011. The obligations of GSI US under the Senior Credit Facility are secured on a senior basis by a lien on substantially all of the assets of the Company and its material United States (“U.S.”) and United Kingdom (“U.K.”) subsidiaries and guaranteed by the Company and its material U.S. and U.K. subsidiaries, as discussed below. The Credit Agreement also contains customary events of default. The term loan facility requires amortization in the form of quarterly principal payments of $2.5 million beginning January 15, 2012. Subject to certain exceptions, GSI US will be required to prepay outstanding loans under the Credit Agreement with the net proceeds of certain asset dispositions and incurrences of certain debt. The Company may voluntarily prepay loans or reduce commitments under the Senior Credit Facility, in whole or in part, without premium or penalty, subject to minimum principal amounts. Concurrent with securing the Senior Credit Facility on October 19, 2011, GSI US provided formal notice that it had elected to optionally redeem all $73.1 million in aggregate principal amount of its outstanding 2014 Notes in accordance with the terms of the 2014 Indenture, pursuant to which the 2014 Notes were issued. In accordance with the 2014 Indenture, the redemption price for the 2014 Notes being redeemed is 100% of the principal amount, plus accrued and unpaid interest thereon, if any, from the last interest payment date to, but not including, November 18, 2011, the redemption date. As a result of the delivery of the notice of redemption, the Company’s obligation to repay the 2014 Notes was accelerated to November 18, 2011. Upon delivery of the notice of redemption, an amount sufficient to repay all of the obligations of the Company and its subsidiaries under the 2014 Notes was deposited with the trustee and the Company and its subsidiaries were discharged from the 2014 Indenture. Interest expense on the Senior Credit Facility for the year ended December 31, 2011 was $0.5 million. Guarantees Each Guarantor, as defined in the Credit Agreement establishing the Senior Credit Facility, jointly and severally, unconditionally guarantees the due and punctual payment of the principal, interest and fees on the Senior Credit Facility, when due and payable, whether at maturity, by required prepayment, by acceleration or otherwise. In addition, guarantors guarantee the due and punctual payment, fees and interest on the overdue principal of the Senior Credit Facility and the due and punctual performance of all obligations of the Company in accordance with the terms of the Credit Agreement. Furthermore, each Guarantor, jointly and severally, unconditionally guarantees that in the event of any extension, renewal, amendment, refinancing or modification of any of the Senior Credit Facility or any of such other Obligations, as defined in the Credit Agreement, amounts due will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. The obligations of each Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of the Company or such other Guarantor under its Guarantee, as defined in the Credit Agreement, or pursuant to its contribution obligations under the Credit Facility, result in the obligations of the Company or such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee is entitled to a contribution from each other Guarantor of its Pro Rata Share, as defined in the Credit Agreement, based on the adjusted net assets of each Guarantor. The Guarantees will continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the obligations of the Guarantors is rescinded or must otherwise be returned upon the insolvency, bankruptcy or reorganization of the Company, a Guarantor or otherwise, all as though such payment had not been made. Each Guarantor may be released from its obligations under its respective Guarantee and its obligations under the Credit Agreement upon the occurrence of certain events, including, but not limited to: (i) the Guarantor ceases to be a Subsidiary, as defined in the Credit Agreement and (ii) payment in full of the principal, accrued and unpaid interest on the Senior Credit Facility, and all other Obligations. As of December 31, 2011, the maximum potential amount of future payments the Guarantors could be required to make under the Guarantee is the principal amount of the Senior Credit Facility plus all unpaid but accrued interest thereon. However, as of December 31, 2011, the Guarantors are not expected to be required to perform under the Guarantee. Mortgages In connection with the Agreement and as required thereby, Quantronix Corporation (“Quantronix”), Synrad, Inc. (“Synrad”) and Control Laser Corporation (“Control Laser”), each a subsidiary of the Company, entered into an Open-End Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of October 19, 2011, in favor of or for the benefit of the Trustee, wherein Quantronix, Synrad and Control Laser mortgaged, granted, bargained, assigned, sold and conveyed their respective interest in the property located in East Setauket, New York; Mukilteo, Washington; and Orlando, Florida, respectively, to secure (a) the payment of all of the obligations of the Borrower and the Guarantors under the Credit Agreement, the respective mortgages and the other Security Documents (as defined in the respective mortgage), and (b) the performance of all terms, covenants, conditions, provisions, agreements and liabilities contained in the Credit Agreement, the respective mortgage and the other Security Documents. Loss on Extinguishment of Debt Upon the early redemption of the Company’s 2014 Notes in 2011, the Company recorded non-cash charges of $1.1 million, to write off the unamortized deferred financing costs included in other assets. The $1.1 million loss on the early extinguishment of debt is included in interest expense in the accompanying consolidated statements of operations for the year ended December 31, 2011. Deferred Financing Costs In connection with the execution of the Senior Credit Facility, the Company capitalized $3.0 million in deferred financing costs. The Company allocated these costs evenly between the two debt facilities and amortizes the costs using the effective interest method for the term loan facility (which requires quarterly principal repayments) and on a straight-line basis for the revolving credit facility, which is due at maturity in 2015. Non-cash interest expense related to the amortization of the deferred financing costs under the Senior Credit Facility for the year ended December 31, 2011 was $0.2 million. Unamortized deferred financing costs totaled $2.8 million, of which $0.3 million is included in prepaid expenses and other current assets and $2.5 million is included in other assets in the accompanying consolidated balance sheet as of December 31, 2011. 12.25% Senior Secured PIK Election Notes On July 23, 2010 (“the Effective Date”), GSI US issued $107.0 million in aggregate principal amount of Notes (“2014 Notes”). In 2011, the 2014 notes were extinguished. On August 17, 2011, GSI US optionally redeemed $35.0 million in aggregate principal amount (constituting 32% of the $108.1 million in aggregate principal amount) of its outstanding 2014 Notes, including PIK notes, in accordance with the terms of the 2014 Indenture, at the redemption price of 100% of the principal amount of such 2014 Notes, plus accrued and unpaid interest thereon, if any, to, but not including, August 17, 2011, the redemption date. The redemption was financed from a portion of the available cash and cash equivalents of the Company and its subsidiaries. The remaining 2014 Notes were extinguished in October 2011 as part of the debt refinancing. Interest accrued on the 2014 Notes at a rate of 12.25% per year, commencing on August 15, 2010. GSI US had the option to elect to pay the interest in cash, or, under certain conditions, by increasing the principal amount of the 2014 Notes or issuing additional notes on the same terms and conditions as the existing 2014 Notes (“PIK”). Furthermore, until the Company became current in its reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and until the Company’s common shares were listed on an Eligible Market (as defined in the Indenture), the rate of interest under the 2014 Notes was increased by an additional 2% per annum, payable by PIK beginning after August 15, 2010. Interest PIK notes issued and PIK payments in lieu of cash payments accrue interest at a rate of 13% per annum. The Company became current in its reporting obligations under the Exchange Act on December 13, 2010 with the filing of its Form 10-Q for the quarter ended October 1, 2010. On February 14, 2011, the Company’s common shares were listed on The NASDAQ Global Select Market under the trading symbol “GSIG”. Accordingly, as of February 14, 2011, the 2% per annum additional interest penalty ceased. Interest expense on the 2014 Notes for the years ended December 31, 2011 and 2010 was $10.9 million and $6.6 million, respectively. This includes PIK interest of $0.3 million and $0.8 million in 2011 and 2010, respectively. The PIK interest relates to the additional 2% assessment per annum as described above. As of December 31, 2010, accrued interest on the 2014 Notes totaled $1.9 million, of which $1.6 million is classified as other accrued expenses and $0.3 million (PIK) is classified as other liabilities in the accompanying consolidated balance sheet as of December 31, 2010. PIK notes totaling $0.5 million were issued in 2011 and 2010 and were classified as debt in the consolidated balance sheet. There was no accrued interest or additional PIK notes issued in 2011 as a result of the refinancing of the 2014 notes as described above. In connection with the issuance of the 2014 Notes, the Company capitalized $1.6 million in deferred financing costs which were included in other assets in the accompanying consolidated balance sheet as of December 31, 2010. These deferred financing costs were being amortized to interest expense on a straight-line basis over the four year contractual term of the 2014 Notes based on the principal balance outstanding. Non-cash interest expense related to the amortization of the deferred financing costs for the years ended December 31, 2011 and 2010 was $0.3 million and $0.2 million, respectively. The Company wrote off the remaining $1.1 million of unamortized deferred financing costs during the year ended December 31, 2011 in connection with the extinguishment of the 2014 Notes. 2008 Senior Notes On August 20, 2008 (the “Closing Date”), the Company issued $210.0 million of 11% unsecured senior notes due 2013 pursuant to the terms of an indenture (the “2008 Senior Note Indenture”), along with detachable warrants (the “Warrants”) for the purchase of 1,960,840 of the Company’s common shares, for collective net proceeds to the Company of $203.5 million. The proceeds were used to fund a portion of the Company’s acquisition of Excel, and the 2008 Senior Notes carried a fixed interest rate of 11.0%. The Warrants were net exercised by the holders in October 2008, in exchange for 1,952,832 common shares of the Company. The Company ascribed a fair value to the Warrants in the amount of $26.3 million as of the Closing Date and recognized this amount as debt discount that was being amortized over the term of the 2008 Senior Notes. The fair value was based upon the Black-Scholes option pricing model, assuming a risk-free interest rate of 3.0%, an expected term of 5.0 years, a volatility rate of 85.0% and a 0.0% dividend yield. In addition, the Company incurred $6.5 million in issuance fees. In accordance with the reclassification of the 2008 Senior Notes after the November 20, 2009 bankruptcy filing to liabilities subject to compromise, the Company recorded write-offs related to the remaining unamortized portion of the discount attributable to the Warrants and deferred debt financing costs in order to record the 2008 Senior Notes at the expected amount of the allowed claims. On November 20, 2009, the aggregate amount of the write-off related to the remaining unamortized portion of the discount attributable to the Warrants totaled $21.4 million, while the write-off related to the remaining unamortized portion of the deferred debt financing costs totaled $4.9 million. Both the write-off related to the remaining unamortized portion of the debt discount attributable to the Warrants and the write-off related to the deferred debt financing costs were recorded as reorganization items during the year ended December 31, 2009. For the years ended December 31, 2010 and 2009, the total amount recorded to interest expense related to the 2008 Senior Notes, including accretion of the debt discount attributable to the Warrants and amortization of the debt issuance costs, was $13.1 million and $27.7 million, respectively, with no comparable amount in 2011. During the third quarter of 2008, the Company failed to timely file its annual and quarterly reports. Pursuant to a Registration Rights Agreement (the “RRA”) with the Warrant holders, the Company notified the Warrant holders that it was indefinitely suspending its registration statement on Form S-3. Under the RRA, monetary penalties accrued and were payable to the Warrant holders for failure to maintain an effective registration statement, subject to certain terms and conditions more specifically set forth therein. The Company incurred penalties under the RRA beginning in the fourth quarter of 2008 through the date of the Company’s filing for Chapter 11 bankruptcy protection on November 20, 2009. Through November 20, 2009, the Company had accrued the maximum penalty due under the RRA of $3.8 million. However, as a result of the Company’s filing for Chapter 11 bankruptcy protection on November 20, 2009, the Company reversed the existing balance of the Warrant penalty accrual as part of its reclassification of the 2008 Senior Notes as liabilities subject to compromise. Pursuant to the Final Chapter 11 Plan, on July 23, 2010 upon emergence from bankruptcy, $74.9 million of the 2008 Senior Notes were repaid in cash, $28.1 million were exchanged for approximately 5.2 million common shares, and the remaining $107.0 million were cancelled and replaced by the 2014 Notes. In addition, the Company paid $21.7 million of accrued interest on the Effective Date, of which $6.0 million had been classified as a liability subject to compromise as of December 31, 2009 and $15.7 million had accrued from November 20, 2009 to July 23, 2010. Fair Value of Debt As of December 31, 2011, the outstanding balance of the Company’s term loan and revolving credit facility of $68.0 million approximated fair value based on current rates available to the Company for debt of the same maturity. As of December 31, 2010, the estimated fair value of the Company’s 2014 Notes approximated $113.4 million based on quoted market prices for comparable issues.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 + Details
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