May 1, 2023 – The Debtors requested Court authority to: (i) access $6.5mn in new money, debtor-in-possession (“DIP”) financing, including $2.0mn on an interim basis to be provided by Invictus Global Management, LLC ("Invictus," or the “DIP Agent”), (ii) roll-up $20.7mn of prepetition obligations (including $2.8mn of prepetition bridge loans) obligations on a dollar-for-dollar basis and (iii) use cash collateral [Docket No. 15, with attached DIP Term Sheet at Exhibit A (p. 111)].

The DIP financing is extremely expensive*, reflecting the difficult position faced by the Debtors as they deal with an uncertain future in the wake of an adverse holding in IP-related litigation with Carnival Corporation ("Carnival"). The "material overhang of uncertainty in connection with their ongoing litigation" relates more to whether or not the Debtors have ownership of the intellectual property that powers "guest engagement systems" (as it stands, a key patent, without which the Debtors simply do not have a business, has been invalidated) than it does with the $21.0mn that a Florida court says the David Debtors owe the Goliath Carnival.

* (i) DIP Term Loans shall bear interest at a rate per annum equal to (a) 15.00% if paid in cash or (b) 20% if paid in kind, (ii) the Bridge Loan Roll-Up shall bear PIK Interest at a rate per annum equal to 20% and (iii) the Prepetition Roll-Up shall bear PIK Interest at a rate per annum equal to 22.5%. Default interest would add another 5% to these frothy rates. On top of that, the DIP includes (i) an Exit Fee of $7.5mn, an (ii) Early Termination Fee of 10% of the amount of DIP Term Loans actually funded by the DIP Lenders and (iii) a Backstop Fee for DIP agent (and backstop provider) Invictus "equal to $4,500,000, payable in-kind as an increase of the principal amount of the Prepetition Roll-Up and earned upon entry of the Interim Order."

A declaration in support of first day filings [Docket No. 13] notes as to Carnival's (now Court-supported) allegations that "that DeCurtis technology misappropriates and infringes upon Carnival intellectual property" : "DeCurtis believes that those threats were an attempt to put it out of business and preclude it from selling its guest engagement systems and methods to other cruise line operators. And the threats to DeCurtis’s customers…had a significant impact on DeCurtis because Carnival is the largest cruise ship operator in the world, with nine different cruise lines and 45% of the market, while DeCurtis is a much smaller company….In the wake of Carnival’s threats to DeCurtis’s customers…certain of DeCurtis’s current and prospective customers ceased to do business with DeCurtis. As a result of Carnival’s threats, DeCurtis believes its reputation in the market was destroyed alongside its relationships with its actual and potential customers."

Case Evolution

On April 30, 2023, privately-held DeCurtis Holdings LLC and one affiliated debtor (together “DeCurtis” or the “Debtors”) filed for Chapter 11 protection with estimated assets between $10.0mn and $50.mn; and estimated liabilities between $50.0mn and $100.0mn ($43.5mn in funded debt). At filing, the Debtors, a "leader in transformational experience technology focused on cruise [experiences],*" cited an "unexpected," $21.0mn adverse ruling in IP-related litigation with Carnival Corporation.

* As noted below, the Debtors are majority owned by Shamrock Capital Growth Fund IV, L.P.

The DIP Motion

The Debtors' requesting motion [Docket No. 15] states, “the Debtors intend to expeditiously resolve any uncertainty generated by their outstanding litigation with Carnival and return to growing their business without the overhang from that litigation. Toward that end, the Debtors have entered into the DIP Facility, pursuant to which, subject to Court approval, the Debtors will receive a senior secured debtor-in-possession credit facility that should provide them with sufficient runway to operate the business and navigate through the chapter 11 process.The Debtors have an urgent and immediate need to obtain postpetition financing. Under the Debtors’ prepetition credit facility, the Debtors do not have sufficient funds on hand or generated from their business to fund operations. Without the postpetition financing and the use of cash collateral that will be provided under the DIP Term Sheet and the proposed DIP Orders, the Debtors would not be able to maintain operations through the pendency of the Cases.”

Marketing Efforts

In a declaration in support of the financing motion [Docket No. 16], Michael Atkinson, of financial advisor Province, LLC (“Province”), provides “[t]he Debtors experienced a liquidity crisis in the aftermath of the entry of Judgment in the Carnival Litigation that left them with insufficient cash to satisfy their ongoing expenses. After exploring strategic alternatives, the Debtors determined that the best and only way to preserve and maximize their value is by consummating a Section 363 sale of substantially all of their assets to certain of their first-lien lenders (the ‘Stalking Horse Bidder’) through a credit bid, subject to higher and better offers at an auction. The Debtors intend to expeditiously file a motion to approve bidding procedures and designate the Stalking Horse Bidder as the stalking-horse bidder for the sale of substantially all of their assets (the ‘Stalking Horse Bid’). The Debtors also intend to run an accelerated post-petition marketing process to solicit bids from potential strategic and financial acquirers.

…From the outset of Province’s engagement, it was clear, for several reasons, that any potential DIP Facility or third-party financing would likely only originate from the existing First Lien Lenders. Chief among those reasons is that the Debtors face a material overhang of uncertainty in connection with their ongoing litigation with Carnival Corporation, which they hope to address through these Chapter 11 Cases. Combined with the First Lien Lenders holding secured liens on substantially all of the Debtors’ assets, and a lack of significant physical and easily monetized hard assets, it is my assessment that no party outside of the Debtors’ current capital structure would be willing provide postpetition financing to the Debtors, and therefore running a marketing process focused on alternative debtor-in-possession financing sources would have been futile and wasteful of very limited estate resources, both in terms of time and money.

…The DIP Facility reflects the most favorable terms on which the DIP Lender was willing to offer financing. The DIP Facility is the only financing presently available to the Debtors. The DIP Facility will provide critically needed liquidity to the Debtors to maintain operations in order to run a going concern sale process that the Debtors and their advisors believe will maximize value and is on terms and conditions that, in my experience, are fair and reasonable and consistent with the market given the challenging circumstances of these cases.”

Key Terms of DIP Facility

• Borrowers: 
  1. DeCurtis Holdings LLC
  2. DeCurtis LLC
• DIP Lenders: First Lien Holders
• DIP Agent: Invictus Global Management, LLC
• DIP Facility: The DIP Lenders agree, severally and not jointly, to make senior secured super priority debtor-in-possession loans to the Borrowers consisting of (i) new money delayed draw term loans (the “DIP Term Loan”) to be made from time to time during the Availability Period (as defined in the DIP Term Sheet) in accordance with the Draw Schedule (as defined in the DIP Term Sheet) in an aggregate principal amount not to exceed at any time outstanding aggregate principal commitments of up to $6,511,083.73 (the “DIP Commitment”), of which (x) up to $2,000,000.00 of the DIP Commitment will be funded on the Interim Closing Date (the “Interim Order Commitment”), and (y) up to $4,511,083.73 of the DIP Commitment will be funded on or after the Final Closing Date (the “Final Order Commitment”), in each case, subject to the provisions of the DIP Term Sheet and for use strictly in accordance with the Approved Budget, (ii) a roll-up of up to $20,745,992.38 of Prepetition Obligations in the aggregate, consisting of (x) on the Interim Closing Date, a roll-up on a dollar-for-dollar basis of $2,856,609.49 of Emergency Rescue Loans held by each DIP Lender who has participated in the Interim Order Commitment (the “Emergency Rescue Loan Roll-Up”) and (y) on the Final Closing Date, a roll-up on a dollar-for-dollar basis of up to $17,889,382.89 of Prepetition Loans (other than Emergency Rescue Loans) held by each DIP Lender who has participated in the Final Order Commitment (the “Prepetition Roll-Up” and, together with the Bridge Loan Roll-Up, the “Roll-Up Loans”); provided that after giving effect to the principal balance of all DIP Term Loans, the aggregate principal balance of all DIP Term Loans shall not exceed the DIP Commitment; provided, further, that no DIP Lender shall be obligated to make DIP Term Loans in an amount in excess of the portion of the DIP Commitment set forth next to such DIP Lender’s name in the table set forth on Exhibit A of the DIP Term Sheet.
• New Money: $6,511,083.73 ($2.0mn on an interim basis)
• Roll Up: $20,745,992.38 (on interim basis roll-up on a dollar-for-dollar basis of $2,856,609.49 of Emergency Rescue Loans).
• Interest Rate: The unpaid principal amount of all (i) DIP Term Loans shall bear interest at a rate per annum equal to (a) 15.00% if paid in cash or (b) 20% if paid in kind by capitalizing and adding such interest to the outstanding principal amount of the DIP Term Loans (interest paid in kind by capitalizing and adding such interest to the outstanding principal amount of the applicable loans, “PIK Interest”), (ii) the Bridge Loan Roll-Up shall bear PIK Interest at a rate per annum equal to 20% and (iii) the Prepetition Roll-Up shall bear PIK Interest at a rate per annum equal to 22.5%, in each case, payable monthly on the first (1st) business day of each month (the “Interest Payment Date”) in arrears.
• Default Rate: 5.00% per annum above applicable rate.
• Fees: 
  • Exit Fee: $7,500,000 paid in cash (the “Exit Fee”), that shall be due and payable at the time that the DIP Credit Facility is repaid or prepaid or otherwise accelerated or matures pursuant to the terms hereof, which Exit Fee shall be waived in the event that Stalking Horse Bid is (i) the Successful Bid, (ii) approved by the Bankruptcy Court, and (iii) such Sale is in fact consummated.
  • Early Termination Fee: 10% of the amount of DIP Term Loans actually funded by the DIP Lenders as of such date (the “Early Termination Premium”).
  • Backstop Fee: in consideration of Invictus’s agreement to backstop the DIP Credit Facility, the Debtors shall pay to Invictus, in its capacity as backstop provider (the “Backstop Party”) a backstop fee equal to $4,500,000, payable in-kind as an increase of the principal amount of the Prepetition Roll-Up and earned upon entry of the Interim Order.
• Use of Proceeds: The DIP Loans will be used strictly in accordance with the Approved Budget (subject to the Permitted Variances), for (a) working capital and general corporate purposes of the Debtors, (b) for bankruptcy related costs and expenses, (c) to fund the Wind-Down Budget, (d) costs and expenses related to the DIP Credit Facility, and (e) any other purposes agreed upon in any Definitive Documents, in each case, solely in accordance with the Approved Budget.
• Maturity: The DIP Loans, together with all other DIP Obligations, shall mature and be due and payable in cash (or, as otherwise agreed by the DIP Lenders in connection with any confirmation order entered in the Cases (“Confirmation Order”)) on the earliest to occur of the following (such date, the “Maturity Date”):
  1. Ninety (90) calendar days after the Petition Date; 
  2. Thirty (30) calendar days after entry of the Interim Order if the Final Order has not been entered by the Bankruptcy Court on or before such date; 
  3. Forty-five (45) calendar days after the Petition Date if the Bankruptcy Court has not entered an order approving the Sale to the Stalking Horse Purchaser or any other alternative bid that either (x) is acceptable to the DIP Agent (at the direction of the Required DIP Lenders) or (y) results in the indefeasible payment in full in cash of the DIP Obligations, in each case, as of the closing of such alternative transaction;
  4. The date of the termination of the Stalking Horse Agreement for any reason, other than (x) as a result of the Debtors’ selection of an alternative bid that either has (1) the consent of the DIP Agent (at the direction of the Required DIP Lenders) or (2) results in the indefeasible payment in full in cash of the DIP Obligations as of the closing of such alternative transaction, or (y) a termination to pursue approval of a Sale or similar transaction that is materially inconsistent with or represents an alternative to the Sale contemplated by the Stalking Horse Agreement (an “Alternative Transaction”) that results in the indefeasible payment in full in cash of the DIP Obligations as of the closing of such Alternative Transaction (each of clauses (x) and (y) above, a “Permitted Termination”); 
  5. The date of consummation of any sale of all or substantially all of the assets of any of the Debtors pursuant to section 363 of the Bankruptcy Code; 
  6. The date of the entry of an order by any court of competent jurisdiction prohibiting or enjoining the Debtors’ use of the DeCurtis Experience Platform (“DXP”), except to the extent stayed or reversed within five (5) calendar days; 
  7. The date of the substantial consummation (as defined in section 1101 of the Bankruptcy Code and which for purposes hereof shall be no later than the “effective date” thereof) of a plan of reorganization filed in the Chapter 11 Cases that is confirmed pursuant to an order entered by the Bankruptcy Court; 
  8. The date of entry of an order by the Bankruptcy Court approving (A) a motion seeking conversion or dismissal of any or all of the Chapter 11 Cases or (B) a motion seeking the appointment or election of a trustee, a responsible officer or examiner with enlarged powers relating to the operation of the Debtors’ business,;
  9. The date, if any, on which the Bankruptcy Court orders the conversion of the bankruptcy case of any of the Debtors to a liquidation pursuant to Chapter 7 of the Bankruptcy Code; and a liquidation pursuant to Chapter 7 of the Bankruptcy Code; and
  10. The date of acceleration of all or any portion of the DIP Loans and the termination of the DIP Commitments in respect thereof, including, without limitation, as a result of the occurrence of an Event of Default.
• Milestones: 
  1. Commence the Chapter 11 Cases in the Bankruptcy Court and file a motion seeking approval of the transactions set forth in the DIP Term Sheet, a bidding procedures and sale motion seeking entry of the Bidding Procedures Order and Sale Order, and other “first day” motions, no later than April 30, 2023.
  2. Obtain entry by the Bankruptcy Court of the Interim Order and file a bidding procedures and sale motion seeking entry of the Bidding Procedures Order and Sale Order, no later than three (3) business days after the Petition Date.
  3. Entry into the Stalking Horse APA, in form and substance acceptable to the Required DIP Lenders in their sole and absolute discretion, no later than seven (7) calendar days after the Petition Date.
  4. Entry by the Bankruptcy Court of the Final Order, no later than twenty-five (25) calendar days after the entry of the Interim Order.
  5. Obtain entry by the Bankruptcy Court of an order approving the Bidding Procedures Motion, which order shall be in form and substance acceptable to the Required DIP Lenders as determined in their sole and absolute discretion (the “Bidding Procedures Order”), no later than thirty (30) calendar days after the Petition Date.
  6. Entry of an order (in form and substance acceptable to the Required DIP Lenders as determined in their sole and absolute discretion) approving the assumption of any executory contracts with Virgin Cruises Intermediate Limited or any affiliate entity as requested by the DIP Lenders, which order shall be expressly conditioned on the Debtors’ satisfying the DXP Condition by the Outside Closing Date (the “Virgin Assumption Order”), no later than thirty (30) calendar days after the Petition Date.
  7. Entry by the Debtors into applicable restructuring support agreements with key stakeholders (in form and substance acceptable to the Required DIP Lenders in their sole and absolute discretion), no later than thirty (30) calendar days after the Petition Date.
  8. Entry by the Bankruptcy Court of an order (in form and substance acceptable to the Required DIP Lenders) authorizing the Debtors’ retention of Groombridge, Wu, Baughman & Stone LLP as special patent counsel, no later than thirty (30) calendar days after the entry of the Interim Order.
  9. Submission of qualified bids pursuant to the Bidding Procedures Order (the “Bid Deadline”), no later than forty (40) calendar days after the Petition Date.
  10. Hold an auction for the sale of the Debtors’ assets pursuant to the Bidding Procedures Order, no later than forty-three (43) calendar days after the Petition Date.
  11. Entry by the Bankruptcy Court of a sale order, which order shall be in form and substance acceptable to the DIP Agent and Required DIP Lenders in their sole and absolute discretion (the “Sale Order”), no later than forty-five (45) calendar days after the Petition Date.
  12. Approval by the Bankruptcy Court of the consummation of a Sale in accordance with the Bidding Procedures Order, no later than sixty (60) calendar days after the Petition Date.

Prepetition Indebtedness

As of the Petition date, the Debtors had approximately $43.54mn in total funded debt obligations, consisting of: (a) approximately $20.74mn in aggregate principal amount outstanding under a prepetition senior convertible term loan facility (the “Senior Secured Credit Facility”); (b) approximately $13.0mn in aggregate principal amount outstanding under a junior term loan facility (the “CNB Credit Facility”); and (c) approximately $9.8mn in aggregate principal amount outstanding under a term loan facility issued in connection with the Main Street Lending Program established by the Board of Governors of the Federal Reserve System of the United States pursuant to Section 13(3) of the Federal Reserve Act with funds, in part, appropriated by the Secretary of the Treasury to the Exchange Stabilization Fund pursuant to Section 4027 of the CARES Act (the “Main Street New Loan Facility”). The following table summarizes DeCurtis’s prepetition capital structure:

As of the Petition Date, the Debtors estimate there are approximately $45.0mn in potential aggregate general unsecured claims, including the litigation related claims.

Proposed Budget

Petition Date Perspective

Filing Date Highlights

• Shamrock Capital-Controlled Provider of Indoor Cruise Experiences Files for Bankruptcy After "Unexpected" Adverse Holding in IP-Related Litigation with Carnival Corporation
• Enters Bankruptcy with $43.5mn of Funded Debt and $45.0mn of Unsecured Debt
• Will Pursue Asset Sale with First Lien Lenders Serving as Credit Bidding Stalking Horse
• Lines Up $6.5mn of DIP Financing from First Lien Lenders ($2.0mn Interim), with Those Lenders Having Provided $2.8mn of Bridge Financing

Goals of the Chapter 11 Filing

The Atkinson Declaration (defined below) provides: "DeCurtis’s goals in this case are to preserve its business as a going concern to maximize the value of its estate….After exploring strategic alternatives, the Debtors determined that the best and only way to preserve and maximize their value is by consummating a Section 363 sale of substantially all of their assets to certain of their first lien lenders (the 'Stalking Horse Bidder') through a credit bid, subject to higher and better offers at an auction.

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Atkinson Declaration), Michael Atkinson of Province (engaged for all of five day as at at filing) commented: “…in early 2020, DeCurtis was forced to initiate litigation against one of its prior clients, Carnival Corporation ('Carnival'), following Carnival’s interference with DeCurtis’s customer contracts with Carnival’s competitors. Specifically, it is my understanding that Carnival threatened those other cruise lines (DeCurtis’s customers) with litigation based on accusations that DeCurtis technology misappropriates and infringes upon Carnival intellectual property. DeCurtis believes that those threats were an attempt to put it out of business and preclude it from selling its guest engagement systems and methods to other cruise line operators. And the threats to DeCurtis’s customers, as I understand, had a significant impact on DeCurtis because Carnival is the largest cruise ship operator in the world, with nine different cruise lines and 45% of the market, while DeCurtis is a much smaller company.

In the wake of Carnival’s threats to DeCurtis’s customers, I understand that certain of DeCurtis’s current and prospective customers ceased to do business with DeCurtis. As a result of Carnival’s threats, DeCurtis believes its reputation in the market was destroyed alongside its relationships with its actual and potential customers. Carnival and DeCurtis subsequently became entangled in litigation in April 2020. During the litigation, DeCurtis continued business, to the extent it was able, with the cloud of Carnival’s accusations hanging over it and the financial pressures from the cruise industry shutting down due to the COVID-19 pandemic. In 2020, DeCurtis only generated approximately $7 million in revenue and had negative gross profits. However, in 2021, DeCurtis’s business began to recover, and DeCurtis generated revenue of approximately $15 million in fiscal year 2021, and $12 million in fiscal year 2022, with gross profits of approximately $7 million and $3 million, respectively.

This changed in early 2023 when the Carnival Litigation proceeded to trial. The Carnival Litigation unexpectedly resulted in an adverse jury verdict in favor of Carnival on Carnival’s patent infringement and breach of contract claims against DeCurtis that has been memorialized in a non-final judgment. I have been informed that Carnival’s counsel has also publicly threatened to seek entry of injunctive relief against DeCurtis and its customers in furtherance of the judgment.

….DeCurtis was compelled to file these cases because it lacks the liquidity to satisfy the judgment, post a supersedeas bond to halt execution of the judgment, or pay the associated legal expenses necessary to quickly challenge the judgment. Indeed, prior to filing these cases, DeCurtis entered into an emergency bridge loan with certain of its first lien lenders, absent which DeCurtis would have been unable to fund critical ongoing expenses, including payroll."

Key Prepetition Shareholders

As of the Petition Date, DeCurtis Holdings LLC’s voting membership interests are primarily held by affiliates of Shamrock Capital Growth Fund IV, L.P.  and DeCurtis Investments, Inc., an investment vehicle controlled by David DeCurtis. DeCurtis Holdings LLC also has certain non-voting employee holders and unallocated interests.

About the Debtors

According to the Debtors: “DeCurtis Corporation is the first choice for agile, product-focused SaaS software solutions powering any indoor, complex environment. We are the leader in transformational experience technology focused on cruise but applicable to restaurants, theme parks, and the extended hospitality industry. With a vast range of experience working with some of the world’s best, most-recognized brands, DeCurtis Corporation transforms existing client experiences to make them better, faster and stronger through creative application of the latest technology. Pairing deep industry knowledge with that technology, DeCurtis Corporation transforms day-to-day experiences for clients and their guests. “

The Atkinson Declaration adds: "DeCurtis provides guest experience and operational management product-focused SaaS software solutions designed to power any indoor, complex environment. DeCurtis is the industry leader in transformational experience technology focused on the cruise line industry, and DeCurtis makes software systems used for providing guests a seamless experience with cruise ship facilities through the use of wireless sensing technologies. Beyond the cruise line industry, DeCurtis’s products and services are also applicable to restaurants, theme parks, and the extended hospitality industry, with the potential to expand into healthcare and other settings."

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