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July 25, 2022 – The Debtors have filed an execution version of the stalking horse asset purchase agreement (the “APA”) entered into with Asurion, LLC (the “Stalking Horse Bidder,” $110.0mn opening bid) [Docket No. 191]. The eagerly awaited APA details an offer comprised of cash less what is outstanding under the Debtor's $55.0mn DIP (including $2.5mn roll-up) facility and provides Asurion with bidder protections including a $3% break-up fee and a $500k expense reimbursement.
Each of the Debtors’ Official Committee of Unsecured Creditors (the “Committee”) and the U.S. Trustee assigned to the Debtors’ cases (the “U.S. Trustee”) had earlier objected to the Debtors' bidding procedures motion arguing that the APA had to be finalized before they (and the Court) could be in a position to assess the appropriateness of the Asurion transaction and proposed bidder protections. The Committee and U.S. Trustee had similarly objected to the Debtors' proposed DIP financing and a lack of binding DIP documentation. On July 22nd, the Debtors filed a form of the Asurion DIP credit agreement [Docket No. 176] with a hearing on both DIP financing and bidding procedures now slated for July 26th.
The Committee and U.S. Trustee had also objected to the proposed auction/sale timetable which they argued was rushed and "serve[d] to advance the DIP Lender’s [ie Asurion] loan-to-own strategy to the potential detriment of creditors." As it stands, that timetable is unchanged and culminates in an August 9th auction and an August 12th sale hearing.
Key Terms of the Asurion APA
- Sellers: Enjoy Technology, Inc., a Delaware corporation (“Enjoy”), Enjoy Technology Operating Corp., a Delaware corporation (“Enjoy Operating”) and Enjoy Technology LLC, a Delaware limited liability company (“Enjoy LLC”)
- Buyer: Asurion, LLC, a Delaware limited liability company
- Assets: Substantially all of the Debtors' assets: "all of Sellers’ rights, title and interest in, to and under (i) the Sellers-Owned Intellectual Property, whether or not used in or held for use in the Business, and (ii) all other assets, properties and rights (contractual or otherwise) owned by Sellers and relating to, used in or held for use in connection with the Business, including supporting the performance of the AT&T Contract, excluding only the Excluded Assets (collectively, the 'Transferred Assets')."
- Purchase Price: Cash in the amount of $110.0mn…less the sum of (a) the Customer Holdback Amount (which shall be retained by Buyer and administered pursuant to Section 4.3), (b) the aggregate amount of any unpaid and outstanding under a $55.0mn (including rolled-up $2.5mn bridge financing) DIP Facility , (c) any fees, costs or expenses provided for under the Final DIP Financing Order (including those due upon Closing), (d) any portion of the HSR Filing Fee that remains unsatisfied by Sellers and (e) finalized cure costs.
- Bidder Protections: 3% break-up fee (of any third party purchase price) and $500k expense reimbursement:
Key Proposed Dates
- Sale Objection Deadline: July 26, 2022
- Bid Deadline: August 8, 2022
- Auction: August 9, 2022
- Sale Hearing: August 12, 2022
The Debtors' bidding procedures motion provides: "The Debtors file this Motion to approve the Bidding Procedures with the expectation that Asurion, LLC ('Asurion'), the Debtors’ DIP Lender, will serve as the Stalking Horse Bidder for the sale of substantially all of the Debtors’ U.S. assets. Pursuant to the Interim DIP Order, the Debtors shall file a Stalking Horse Agreement with Asurion on or before July 14, 2022, in which case, the Debtors would seek approval of the Stalking Horse Bid Protections and authority to enter into the Stalking Horse Agreement subject to higher and better bids and the Sale Hearing pursuant to the proposed Bidding Procedures. The Debtors expect that the postpetition sale and marketing process will build upon the prepetition marketing process overseen by Centerview. Pending the approval of a sale, the Debtors will continue to operate in the ordinary course of business and provide uninterrupted service."
Prepetition Marketing Efforts and Pivot to In-Court Asurion Offer
The mortion continues: "…in April 2022, the Debtors determined that strategic alternatives were necessary to preserve their liquidity and maintain ongoing operations. Starting in May 2022, the Debtors ran a targeted marketing process for a sale of substantially all of their assets. With the assistance of Centerview Partners, LLC ('Centerview'), the Debtors prepared a list of approximately twenty-three (23) potential acquirers that were considered the most likely participants in a sale process. Following the initial outreach to the identified twenty-three (23) parties, the Debtors provided certain information to these parties in order to gauge their interest prior to executing a non-disclosure agreement. Five (5) parties entered into non-disclosure agreements with the Debtors.
Following the execution of non-disclosure agreements, the Debtors received two (2) letters of intent, from Asurion and one other counterparty. On June 13, 2022, the Debtors executed a letter of intent with the non-Asurion counterparty to complete an out-of-court transaction. However, on June 17, 2022, that counterparty informed the Debtors that it would not proceed with the transaction and withdrew its offer. On June 19, 2022, the Debtors agreed to pursue a nonbinding proposal from Asurion for a sale of substantially all of the Debtors’ U.S. assets through a sale pursuant to section 363 of the Bankruptcy Code, and signed a letter of intent with Asurion on June 19, 2022, which was later revised and superseded by a letter of intent dated as of June 29, 2022 (the 'Asurion LOI')."
On June 30, 2022, Enjoy Technology, Inc. and two affiliated debtors (NASDAQ: ENJY; “Enjoy” or the “Debtors”) filed for Chapter 11 protection noting estimated assets of $111.7mn and estimated liabilities of $70.0mn. At filing, the Debtors cited "larger-than-expected [SPAC/Merger] redemptions," the supply chain crisis and tightening equity markets as compelling them to seek bankruptcy shelter.
* The Debtors’ most recent 10-K provides the following as to the business model/markets/key partnerships: “We have contractual partnerships, commercial relationships and/or authorized dealer agreements with leading telecommunications and technology companies (such arrangements, ‘Business Partnerships’), including AT&T in the US, BT-EE (British Telecom) in the UK, Rogers in Canada and Apple in select US cities (such companies, ‘Customers’ or ‘Business Partners’). We provide the commerce-at-home experience to our Business Partners’ Consumers. Enjoy delivers a broad assortment of telecommunications and technology products and accessories for our Business Partners. As of December 31, 2021, our top two Business Partners in the U.S. and the U.K. accounted for 62% and 15% of our revenue, respectively.”
Also on June 30th, the Debtors filed a DIP motion [Docket No. 11] requesting Court authority to enter into a $55.0mn of debtor-in-possession (“DIP”) financing facility to be provided by stalking horse Asurion, LLC ("Asurion" or the “DIP Lender”) and consisting of $52.5mn of new money and a roll-up of an emergency $2.5mn bridge loan made available by Asurion in the run up to the Petition date. $20.0mn of the new money was made available (and the roll-up occurred) upon issuance of July 1st interim DIP order.
On July 3rd, the Debtors filed a motion seeking approval for proposed bidding procedures in relation to the sale of substantially all of their assets; with the expectation that Asurion would serve as stalking horse** and that their sale process would conclude at an August 12th hearing [Docket No. 86]. That motion also sought bidder protections that included a 3.0% break-up fee and a 0.5% expense reimbursement.
** As at July 3rd, the Debtors had a non-binding letter of intent with Asurion and had flagged their expectation that an asset purchase agreement would be filed by July 14th. That did not happen.
The Commitee Objection
The Committee’s objection states, “[t]he Committee has been in existence for only eight (8) days, and the Committee’s proposed counsel and financial advisor, have been engaged for only five (5) and six (6) days, respectively. By contrast, many of the Debtors’ professionals have been involved in these matters for months. Against this backdrop, and for the reasons discussed herein, the Committee objects to the DIP Motion and the Bidding Procedures Motion because the terms, including proposed DIP milestones and sale timeline, are overly aggressive and potentially prejudicial to the estates, especially because an asset purchase agreement (‘APA’) is still being negotiated, and the Committee has not received a draft of a DIP Credit Agreement.
It is no secret that the success of these chapter 11 cases hinges on the sale of the Debtors’ assets. Indeed, the Debtors have advertised the expectation of a sale that pays creditors in full. However, the Debtors have yet to finalize an APA, and the delay associated with ongoing contract negotiations has further diminished the timeline for any type of competitive bidding process. In the meantime, the Debtors seek approval of a final DIP Order and bidding procedures that serve to advance the DIP Lender’s loan-to-own strategy to the potential detriment of creditors. In short, the APA must be finalized and the Court, the Committee, and other parties in interest must have a reasonable opportunity to review it before the Bidding Procedures can be approved. It is premature to seek bidding protections and set critical case milestones when the most critical first step of the process has not been completed.
The Committee requests that the Court adjourn the DIP Motion and the Bidding Procedures Motion until after the stalking horse APA is signed and filed with the Court. This adjournment will permit the Committee to engage in a meaningful dialogue with the Debtors and the DIP Lender regarding the relief requested in the DIP Motion and the Bidding Procedures Motion and, hopefully, reach a consensus on, among other major issues, the proposed case milestones, termination fee, and bid protections. The request for more time is not driven by a tactical desire to delay, but rather, a critical need to understand, investigate, and engage with the parties to reach a consensual resolution.”
U.S. Trustee Objection
The U.S. Trustee objection stated, “The Debtor should not be permitted to award bid protections to Asurion or any other potential stalking horse until a bona fide asset purchase agreement is finalized and signed and that fully-executed asset purchase agreement, memorializing the purchaser’s bid, is filed with the Court and a hearing to consider allowance of any proposed bid protections with the opportunity for parties in interest to object to same is set.
In addition, Asurion should not be awarded any bid protections or expense reimbursement for due diligence. The record in this case clearly indicates that Asurion performed its due diligence pre-petition in connection with its negotiations with the Debtors concerning the purchase of the Debtors’ assets.
The analysis of bid protections under Section 503(b) ‘must be made in reference to general administrative expense jurisprudence. In other words, the allowability of bid protections, like that of other administrative expenses, depends upon the requesting party’s ability to show that the fees were actually necessary to preserve the value of the estate.’
A break-up fee may provide a benefit to the estate where (1) assurance of the breakup fee promotes more competitive bidding, such as by inducing a bid that otherwise wouldn’t have been made, (2) availability of the break-up fee induces a buyer to perform diligence and set a floor price.
Even if a break-up fee would benefit the estate, the Court is not required to approve it…The Court must determine, based on the totality of the circumstances of the case, ‘whether the proposed fee’s potential benefits to the estate outweigh any potential harms, such that the fee is actually necessary to preserve the value of the estate.’ The party requesting bid protections has the burden of showing that the fee is actually necessary to preserve the value of the estate.
In sum, the Debtors’ request for authority to award bid protections should be denied as it undermines this Court’s control of administrative expenses.”
About the Debtors
According to the Debtors: “Enjoy is a technology-powered platform reinventing "Commerce at Home" to bring the best of the store directly to customers. Enjoy operates a Smart Last Mile™ solution, which includes a network of Mobile Stores with significant inventory and trained Experts that bring greater speed, convenience and personalized experiences to customers. Co-founded by Apple retail strategist Ron Johnson, Enjoy has pioneered a new retail channel that can do everything that a traditional retail experience offers, but better. Enjoy has formed multi-year partnerships with the world’s leading consumer brands to bring the products, services and subscriptions that customers love through the door of their homes with superior comfort and convenience. Headquartered in Palo Alto, CA, Enjoy currently operates in the United States, Canada and the United Kingdom. ”
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