Thu 12/16/2021 16:17 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
Chapter 11 Plan
Disclosure Statement
DIP Financing Motion
First Day Hearing Agenda


 

















Summary
Vewd Software develops, customizes and sells proprietary software to facilitate the delivery of over-the-top streaming services on internet-enabled TV devices
Negotiated plan with prepetition lenders and other stakeholders that would deleverage the debtors’ capital structure and increase their liquidity and “should ensure the future viability of the Company”
Requesting $20 million of DIP financing from prepetition lenders, including $10 million of new money, which would roll into a $25 million exit facility

Vewd Software USA, which develops, customizes and sells proprietary software to facilitate the delivery of over-the-top streaming services on internet-enabled TV devices, such as smart TVs, set-top boxes, Blu-ray players and streaming dongles, filed for chapter 11 protection yesterday, Wednesday, Dec. 15, in the Bankruptcy Court for the Southern District of New York, along with affiliates Vewd Software AS and Last Lion Holdco AS.

“Despite its standing as a market leader” in over-the-top TV streaming, Vewd CEO Aneesh Rajaram says in the first day declaration, the company’s success has been disrupted by the Covid-19 pandemic, increased competition in the market, and fallout from an ongoing dispute between the company’s majority and minority shareholders. In the chapter 11 case, the debtors are pursuing a plan of reorganization negotiated with their prepetition lenders that provides for a “comprehensive recapitalization of the Prepetition Lenders’ claims arising under the Prepetition Credit Agreement and will substantially deleverage the Debtors’ capital structure, increase liquidity, and should ensure the future viability of the Company,” the debtors say.

The plan contemplates a conversion of the prepetition lenders’ outstanding prepetition debt arising under the prepetition credit agreement into the equity of reorganized holdco that would own 100% of the equity of Vewd Software AS. Holders of allowed general unsecured trade claims would continue to be paid by the debtors in the ordinary course, and holders of allowed general unsecured claims and subordinated claims would not receive any distribution. The prepetition lenders would also provide $20 million of DIP financing (consisting of $10 million in new money and a rollup of $10 million of prepetition superpriority claims), which would roll into a $25 million term loan exit facility pursuant to an exit facility term sheet under the proposed plan “in order to sustain the Debtors’ operations through these chapter 11 cases and beyond.”

In addition to the new-money portion of the DIP, the proposed plan contemplates up to $20 million of new money raised either through a delayed draw term loan or issuance of preferred equity at exit, funded by North Haven Credit Partners and open to other DIP lenders.

The company’s prepetition capital structure includes the following:

The prepetition credit agreement was entered into in 2016 with Wilmington Trust as prepetition agent. The agreement governs senior secured term loans, senior secured delayed draw term loans and prepetition superpriority term loans. The initial senior secured term loans and delayed draw term loans are pari passu in right of payment, and each are subordinated in right of payment to the prepetition superpriority term loans. The initial prepetition term loans were issued in an aggregate principal amount of $85 million, and the delayed draw term loans were issued in the aggregate principal amount of $9 million. Both loans provided for a maturity date of Dec. 19, 2021, and an interest rate of 12% PIK. After the loans were accelerated on July 8, all amounts under each facility were declared immediately due and payable, with incremental default interest of 2% added. As of the petition date, not less than $107.9 million in the aggregate amount of accelerated obligations remains outstanding.

In connection with forbearance agreements, the prepetition superpriority term loans were issued in August 2021 in an aggregate principal amount of $10.03 million, with a maturity date of Dec. 1, 2021. Interest on the prepetition superpriority term loans accrues at 12% per annum (8% payable in cash, 4% payable in kind).

The debtors have proposed to set the combined disclosure statement and plan confirmation hearing for Jan. 21, 2022.

The plan would also resolve “a number of disputed claims, causes of action, and other controversies” between the debtors and Martez Moore, chairman and CEO of Moore Fréres & Co., a majority shareholder of the debtors through its 70% shareholding in the debtors’ Welsh, nondebtor parent, and other related parties. Moore was removed from the board of directors of debtors Last Lion Holdco AS and Vewd Software AS in connection with certain rights and remedies exercised by the prepetition lenders in July following certain defaults by the debtors under the prepetition credit agreement.

The key terms of the Moore settlement are: (i) on the effective date of the plan, the reorganized debtors would enter into a consulting agreement with Moore pursuant to which the reorganized debtors would pay Moore a $4 million nonrefundable retainer on the effective date of the plan, plus $880,000 payable over 12 monthly installments, and Moore would provide consulting services as agreed to by the reorganized debtors and Moore for up to 15 hours per week and agree not to compete with the reorganized debtors on the terms set forth in the settlement; (ii) the debtors would continue to pay Moore’s health benefits through the expiration of the consulting agreement; (iii) the debtors would pay up to $100,000 of legal expenses of Moore; (iv) the debtors would reject Moore’s existing employment agreement on the effective date of the plan; and (v) the debtors would reject their lease in New York, which has been used by Moore and his associates, effective Dec. 31.

Vewd AS is a wholly owned subsidiary of debtor Last Lion Holdco AS, which is a wholly owned subsidiary of nondebtor Last Lion Holdings Ltd., or LTD. LTD has outstanding Series A ordinary shares, Series B preferred shares and Series B ordinary shares. As of the petition date, Moore Fréres & Co. is the single largest shareholder in LTD, with 100% of the Series A ordinary shares, which represents 63.16% of the outstanding shares in LTD. Otello Corp. ASA is the second largest shareholder in LTD, with 100% of the Series B preferred shares, which represents 27.07% of the outstanding rights in LTD. The remaining outstanding shares of LTD are held by current and former officers of the company.

The debtors’ organizational structure is HERE.

The debtors are represented by Ropes & Gray, Advokatfirmaet BAHR AS as Norwegian counsel, Jefferies as investment banker, and Ernst & Young as financial advisor. KCC is the claims agent. The case has been assigned to Judge Michael E. Wiles (case No. 21-12065)

The first day hearing is set for tomorrow, Friday, Dec. 17, at 12 p.m. ET.

Events Leading to the Bankruptcy Filing / Prepetition Restructuring Efforts

​​In October 2017, Moore, on behalf of Moore Fréres & Co., or MFC, began approaching parties to sell some of MFC’s shares in LTD as well as a portion of Otello’s minority interest. Shortly thereafter, MFC and Mercury Software Partners LLC initiated discussions regarding the sale of the MFC and Otello interests in LTD and negotiated a two-step transaction whereby MFC would purchase the Otello minority interest for $31 million and subsequently sell those interests to Mercury for $48 million. According to the debtors, “[D]espite representing that they spoke for Otello in the negotiations,” MFC never shared Mercury’s offers with Otello. MFC never consummated the proposed transactions.

In early 2018, Mercury and Otello negotiated a sale agreement independent of MFC whereby Mercury would acquire the Otello minority interest from Otello for $48 million. The parties submitted the transaction to the LTD for approval, but a special committee established by the LTD board to review the sale transaction recommended against approval of the sale. Otello retaliated by seeking an injunction in the English High Court, and the court ultimately ruled in favor of Otello and granted it injunctive relief requiring the LTD board to immediately approve Mercury as a potential transferee of Otello’s minority interest. After LTD and the MFC board failed to comply with multiple orders issued by the English High Court, Otello, MFC, and the debtors’ prepetition lenders agreed to the appointment of a special committee to the LTD board to pursue and approve the sale of the debtors’ assets or, alternatively, a recapitalization, provided that the proceeds of any sale or recapitalization would be used to first repay the prepetition lenders’ claims under the prepetition credit agreement in full and second pay the approximately $53 million in damages awarded to it by the English High Court.

In July 2021, events of default under the prepetition credit agreement spurred the acceleration of the debtors’ prepetition debt and the removal of Moore from the LTD board. The members of the special committee then resigned from the LTD board and accepted appointments as independent directors of the three debtor entities. Since Moore’s removal from the LTD board, Moore, on behalf of MFC, has asserted additional claims against the debtors totaling approximately $24.3 million plus interest allegedly arising under certain prepetition agreements between the debtors and MFC, Last Lion Management LLC, Moore and Moore’s late wife, Charlita Cardwell.

While marketing their assets for any potential bids with the assistance of Jefferies as investment banker, the debtors proactively engaged with their prepetition lenders regarding potential in- and out-of-court recapitalization transactions, including the sale of all or substantially all of the debtors’ assets to a third-party purchaser. To sustain constructive discussions between the parties, the prepetition lenders agreed to forbearance arrangements and to provide the debtors with $10 million in the form of superpriority term loans. “After lengthy negotiations,” the debtors and the prepetition lenders agreed on the terms of the debtors’ proposed plan.

Background

Vewd describes itself as a leading provider of over-the-top, or OTT, and hybrid television solutions. The company develops, customizes, sells and supports the proprietary software that facilitates the delivery of streaming content to internet-enabled TV devices, such as smart TVs, set-top boxes, Blu-ray players and streaming dongles. According to the company, Vewd has developed some of the first products for devices such as smart TVs, set-top boxes and other OTT devices. The company’s revenue is generated primarily through the licensing of its software to the manufacturers of internet-enabled TVs and other internet-connected devices. Vewd also generates revenue by offering software engineering, development, hosting, maintenance and other services for manufacturers. Today, Vewd serves consumers worldwide and enables OTT streaming on nearly 30 million devices each year.

The debtors have 70 employees and maintain offices in New York, California, Norway and Taiwan.

Debtor Vewd AS was founded in 2002 as Opera TV AS, a Norwegian company engaged in the development of internet browsers for connected devices. Opera TV AS operated as a singular division within Opera Software ASA, now Otello Corp. ASA. In December 2016, through a series of transactions, Moore Fréres & Co., a New York-based investment holding company, acquired a 70% interest in Last Lion Holdings Ltd., the nondebtor parent of the debtors. Upon the consummation of the 2016 transaction, Otello became, and today remains, a minority holder of the equity interests in the nondebtor parent, owning almost the entirety of the remaining issued and outstanding 30% of shares. Following the 2016 transaction, Opera TV AS changed its corporate name to Vewd Software AS in September 2017 “to reflect its expanding business strategy and diverse product offerings.”

The company’s key customers are television manufacturers in the United States, Asia-Pacific and Europe markets. Market leaders such as Sony, Amazon, Vestel, Verizon, Samsung, Hisense, TP Vision (Philips), Sagemcom “and many more” rely on Vewd AS products and services, the debtors say. As mentioned above, Vewd has three primary sources of revenue: (i) licenses and royalties (prepaid and postpaid), (ii) development fees and (iii) maintenance and support fees.

The debtors say that their suite of OTT products offers proven and flexible solutions for overcoming the difficult challenges and escalating costs associated with the rapidly evolving OTT industry. As experts in developing software solutions spanning client to cloud, the company provides its customers and partners the mission-critical products they need to connect consumers around the world to premium streaming content.

Vewd’s software products include:

  • Vewd OS, an entertainment operating system that optimizes the TV streaming experience by enabling high quality OTT streaming on connected devices, such as smart TVs;

  • Vewd Core, “the most deployed software development kit in the industry, leading the industry by shipping worldwide on nearly 50 million devices each year”;

  • Vewd Broadcast Plus, “a full set of customizable, certification-ready modules that minimize the effort needed by manufacturers when building stylish TV user experiences that meet the exacting standards of broadcast operators”;

  • Vewd OPX, which enables TV operators to provide traditional linear (live) TV and OTT content on the same device;

  • Vewd Atom, which enables set-top boxes to provide popular apps from premium video-on-demand providers, regional broadcasters, sports teams or branded apps, all through a consistent user interface that works across the entire device footprint;

  • Vewd Go, a turn-key platform that allows device operators to expand their customer reach with minimal acquisition costs;

  • Vewd Browser, which enables consumers to experience online content without leaving their TV screen by providing consumers with the ability to search the internet for their favorite content regardless of whether an app is available; and

  • Vewd App Store, which contains nearly 1,500 enabled apps, is the most-deployed TV app store for smart TVs and set-top boxes worldwide.


Revenue from licenses and royalties decreased by $12.7 million year over year from 2020 to 2021 primarily due to a reduction in revenue from prepaid customer contracts. Revenue from development fees decreased by $1.1 million year over year from 2020 primarily due to a decrease in customer utilization of customization services. Maintenance and support fee revenue decreased by $798,402 from 2020 primarily due to a decrease in support hours utilized by customers and customer subscription nonrenewals.


The debtors' largest unsecured creditors are listed below:






































Largest Unsecured Creditors
Name Location Claim Type Amount
Fountainhead SBF LLC Lake Mary, Fla. PPP Loan $   299,262
Last Lion Management LLC New York Disputed Contractual
Obligations
N/A
Quintus Partners LLC Palo Alto, Calif. Disputed Contractual
Obligations
N/A
Rai Amsterdam Amsterdam Trade 7,938

The case representatives are as follows:






























































































Case Representatives
Role Name Firm Location
Debtors' Counsel Gregg M. Galardi Ropes & Gray New York
Lucas W. Brown
Katharine E. Scott
Stephen Iacovo Chicago
Debtors' Norwegian
Counsel
N/A Advokatfirmaet
BAHR AS
N/A
Debtors' Investment
Banker
Richard Morgner Jefferies New York
Debtors' Financial
Advisor
N/A Ernst & Young N/A
Debtors' Claims Agent Evan Gershbein Kurtzman Carson
Consultants
El Segundo, Calif.
Counsel to
Wilmington Trust,
as Prepetition Agent
and DIP Agent
Alan Glantz Arnold & Porter
Kaye Scholer
New York
Lucas B. Barrett
Seth J. Kleinman Chicago
Counsel to North
Haven Credit Partners
II LP - a Prepetition
Lender and DIP Lender
Robert H. Trust Linklaters New York
Christopher J. Hunker
Counsel to Otello
Corp. SAS
Matthew Blower Dorsey & Whitney London
Counsel to the
Moore Parties
N/A Willkie Farr
& Gallagher
N/A
U.S. Trustee Shannon Scott Office of the U.S.
Trustee
New York

Plan / Disclosure Statement

Below is a chart of the plan’s classes, along with their impairment status and voting rights:

Treatment of Claims and Interests

The debtors’ plan sets forth the following classification of claims and proposed distributions to holders of allowed claims and interests, as well as estimated recoveries:






 


The terms of the plan broadly contemplates a conversion of the outstanding prepetition debt into the equity of the entity that will own 100% of the equity of reorganized debtor Vewd AS, subject to dilution by the management incentive plan (if any). Holders of allowed general unsecured trade claims would be unimpaired and would continue to either be paid by the debtors in the ordinary course of business or receive such distribution as necessary to render such claims unimpaired. General unsecured claims (other than trade claims), subordinated claims and the equity interests in the debtors would be canceled on the plan effective date; holders of such claims and interests would not receive any distributions. Upon emergence, the DIP facility would convert into an exit facility of at least $25 million. In addition, the plan contemplates up to $20 million of new money (whether as delayed-draw term loans or through the issuance of preferred stock, “at the option of the Required Consenting Lenders,” by the entity that will own 100% of the interests in Reorganized Vewd AS).

The debtors commenced solicitation of holders of Class 3 claims (prepetition credit agreement claims), the only class of claims entitled to vote on the plan, on Dec. 3, prior to the petition date. On Dec. 14, after agreement to the terms of the Moore settlement, the debtors distributed new solicitation packages to holders of Class 3 claims containing a revised plan and DS. According to a voting declaration filed by the debtors today, 100% of voting creditors voted in favor of the plan, representing $118 million of outstanding prepetition credit agreement claims.

Other Plan Provisions

The plan provides for releases of (a) each of the debtors; (b) each of the reorganized Debtors; (c) Martez R. Moore, the Cardwell Estate, MFC and LL Management, or the Moore parties; (d) each of the prepetition lenders; (e) each of the DIP Lenders; (f) the prepetition agent; (g) the DIP agent; (h) each of the exit facility lenders; (i) the exit facility agent; (j) the DIP lenders that elect to participate in the preferred stock issuance and (k) any family member of the Moore parties. The plan also has an exculpation provision in favor of (a) each of the debtors; (b) each of the reorganized debtors; (c) the Moore parties; (d) each of the prepetition lenders; (e) each of the DIP lenders; (f) the prepetition agent; (g) the DIP agent; (h) each of the exit facility lenders; (i) the exit facility agent and (j) the DIP lenders that elect to participate in the preferred stock issuance

The plan also provides for the adoption of a management incentive plan on or after the effective date by the new board that would reserve up to 10% of reorganized common stock on a fully diluted basis.

Financial Projections

The debtors provide financial projections in the DS through end-of-year 2026, as follows:

(Click HERE to enlarge.)

Liquidation Analysis

The DS includes a hypothetical liquidation analysis, as follows:

(Click HERE to enlarge.)

Valuation Analysis

The DS also includes a valuation analysis that estimates an enterprise value range of the reorganized debtors, collectively, as of an assumed effective date of Dec. 31, 2021, as approximately $98 million to approximately $119 million (with the midpoint of such range being approximately $109 million).

Exiting Financing

According to the exit facility term sheet attached to the disclosure statement, the exit financing would take the form of a $25 million senior secured term loan credit facility. The exit loan would bear interest at 11% per annum, which would (i) prior to the second anniversary, in the sole discretion of the borrower, be paid-in-kind and (ii) following the second anniversary, be paid in cash; “provided that, at the election of the Borrower, up to 5.00% may be PIK.” Two percent would be added for the default interest rate. The exit financing would mature four years from the plan effective date.

At the option of the required consenting lenders, additional liquidity would be provided in connection with either (i) the exit facility in the form of a senior secured delayed-draw term loan credit facility in an aggregate principal amount not to exceed $20 million provided by North Haven Credit Partners II LP (a prepetition lender and DIP lender) and the other DIP lenders that elect to participate or (ii) an issuance by reorganized holdco of senior redeemable preferred stock to North Haven and the other DIP lenders that elect to participate in an aggregate amount not to exceed $20 million. The first draw of the new-money delayed-draw term loans on the closing date would be in an aggregate principal amount of $8 million. There would be no more than three subsequent draws. The commitment under the new-money delayed-draw facility would expire 12 months prior to the maturity date.

The term sheet includes an exit fee equal to 3% of the aggregate principal amount of the exit term loans and new-money delayed-draw term loans, payable in cash upon prepayment, repayment or termination of the exit facility. With respect to the new-money delayed-draw loans, if applicable, the borrower would be required to pay (i) an upfront fee of 2% of the aggregate principal amount of the new-money delayed-draw term loans, which would be paid on the closing date in respect of the first draw and, thereafter, on each other subsequent draw; and (ii) an unused line fee of 0.25% of the average daily undrawn portion of the new-money delayed-draw loans, which would accrue from and after the closing date to but excluding the maturity date and be earned and payable in cash on the last business day of the month.

Obligations under the exit facility (including the new-money delayed-draw term loans, if applicable, would be secured by first priority perfected liens and security interests on all real and personal property of the borrower and the guarantors.

The preferred stock would carry a dividend rate of 5%. The redemption price would be the greater of a multiple of 1.55x invested capital and the amount needed to satisfy an internal rate of return for the purchasers of not less than 15%.

The motion to schedule a combined disclosure statement and plan confirmation hearing envisions the following timeline:


 

The DIP financing consists of a $20 million senior secured superpriority facility, of which $10 million is new money ($3 million of which would be available on an interim basis), a rollup of approximately $7.7 million of prepetition superpriority term loans and a rollup of $2.26 million of prepetition accelerated obligations. The DIP facility bears interest at 11% (with 3% to be paid-in-kind and capitalized), 13% for the default rate, and matures 120 days from the DIP facility’s closing date. In addition to the rollup of prepetition debt, the DIP proceeds may be used to pay certain costs, fees and expenses related to the chapter 11 cases and to fund the working capital needs and expenditures of the debtors during the chapter 11 cases. Debtor Vewd Software AS would be the borrower, and the remaining debtors would serve as guarantors. Certain of the debtors’ prepetition lenders would be the DIP lenders, and Wilmington Trust NA would be the DIP agent. The prepetition lenders have also consented to the use of their cash collateral.

To secure the DIP financing, the debtors propose to grant (i) first priority priming liens on all the debtors’ prepetition and postpetition property, (ii) junior liens on all the debtors’ prepetition and postpetition property and (iii) priority senior secured liens on all the debtors’ tangible and intangible unencumbered prepetition and postpetition property, including the proceeds of avoidance actions, but excluding the avoidance actions themselves.

The DIP facility includes an exit fee equal to 4% of the total principal amount and an unused line fee equal to the average daily balance of the undrawn portion of the DIP commitments multiplied by 0.25%.

The company proposes the following adequate protection to its prepetition lenders: replacement liens, allowed superpriority administrative expense claims, financial reporting requirements and payment of the ​​prepetition and postpetition fees and expenses of the prepetition agent and the prepetition lenders.

In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).

The carve-out for professional fees is $500,000.

The proposed budget for the use of the DIP facility is HERE.

The DIP financing is subject to the following milestones:

  • Dec. 18, 2021: Entry of interim DIP order

  • Dec. 20: Filing of plan and DS

  • Jan. 26, 2022: Entry of final DIP order

  • Feb. 13: Approval of DS

  • March 15: Confirmation of plan

  • March 22: Plan effective date


The lien challenge deadline is the earlier of: (i) (y) if a creditors’ committee has been appointed, within 60 calendar days after entry of the final DIP order and (z) if no creditors’ committee has been appointed, within 75 calendar days after entry of the final DIP order and (ii) the deadline for filing objections to confirmation of a chapter 11 plan.

The UCC lien investigation budget is $50,000.

The proposed confirmation timeline, with a combined hearing to approve the DS and confirm the plan set for Jan. 21, 2022, is as follows:


 
Other Motions

The debtors also filed various standard first day motions, including the following:

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