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BroadVision, Inc. – E-Commerce Pioneer Files Pre-Packaged Chapter 11, Intends Sale to Joseph Liemandt’s ESW Capital, LLC

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March 30, 2020 –  BroadVision, Inc. (“BroadVision” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-20-10701. The Debtor, an early pioneer in e-commerce platforms and solutions, is represented by R. Craig Martin of DLA Piper LLP (US). Further board-authorized engagements include Epiq Corporate  Restructuring, LLC as claims agent. 

The Debtors’ lead petition notes between 200 and 1,000 creditors, estimated assets between $4.5mn and estimated liabilities of $2.5mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Cooley Godward Kronish LLP ($139k professional services debt), (ii) Roseryan Inc. ($79k professional services debt) and (iii) Oum & Co. LLP ($24k professional services debt). The onetime e-commerce darling listed its 15th largest unsecured creditor as the State of New Jersey to whom it owes a $9.04 tax debt. Something of a change for a Debtor whose 10-K (year ended 1999) listed its market cap at $17.0bn.

In a press release announcing the filing, the Debtor advised that “it has taken the next step to implement the 'pre-packaged' plan to restructure the business and be acquired by ESW Capital, LLC, under its previously announced Restructuring Support Agreement (the 'RSA') [March 27th press release announcing RSA]. Under terms of the pre-packaged plan, which is subject to Court approval, all allowed claims will be paid in full, and holders of the Company’s common stock (other than ESW) are expected to receive $4.375 per common share (assuming no more than 5,142,333 shares are outstanding), plus their pro rata share of the Company’s cash on hand as of the effective date of the Plan (including proceeds from the sale of a block of IP addressed owned by the Company) after payment of certain case-related claims and expenses."

As noted below, the Debtor's founder Pehong Chen holds 27.3% of the Debtor's equity through Honu Holdings, LLC.

ESW Capital ("ESW"), owned by the famously low-profile Joseph Liemandt (see ESW's website for an indication of Liemandt's interest in attention), has built a portfolio of approximately 90 small-to-medium sized software companies and holds itself out as "interested in acquiring all types of business software and IT service companies, spanning the spectrum from SMB through Enterprise…even if they have unattractive growth rates and/or earnings history." The Debtor certainly has that, reliably losing money year-in and year-out on its way to an accumulated deficit of approximately $1.269bn.

An unflattering article in Forbes looks at ESW's reputation for offering business sellers quick cash payments that are followed by aggressive cost-cutting via offshore outsourcing and an aggressive approach to patent litigation and adds as to Liemandt: "His preference for anonymity is no surprise. Liemandt’s metamorphosis has transformed him from every dorm-room coder’s hero to an ominous force in tech as his expanding global cloud-force pushes down wages and turns computer programming into factory work."

There is no denying the Debtor's unattractive growth rate and earnings history. ESW's interest in the Debtor, however, seems to go beyond its standard modus operandi of spotting IT/software bargains and squeezing profits out of offshore coding sweatshops. Liemandt has been deeply interested in BroadVision for what appears to be the better part of a decade, filing his first Schedule 13G (an obligation for passing a 5% ownership threshold) in 2015 and making numerous further acquisitions of the Debtor's equity since then. In a January 2020 Schedule 13D, filed in respect of a further equity acquisition, Liemandt noted that in June of 2019, he contacted Pehong Chen to suggest that they together take the Debtor private. Chen rejected that offer and Liemandt rejected a counter-offer. Things became murkier when, in August 2019, a member the Debtor's Board contacted Liemandt suggesting that the Debtor itself might be willing to pursue a transaction on different terms than proposed by Mr. Chen (the Debtor's founder, Chairman and CEO). Mr. Liemandt declined to discuss this alternative transaction.

Overview of the Plan and Restructuring

The Debtor's Disclosure Statement provides: "The Restructuring contemplates a comprehensive in-court restructuring of Claims against and Interests in the Debtor that will preserve the going-concern value of the Debtor’s businesses, maximize recoveries available to all constituents, and provide for an equitable distribution to the Debtor’s stakeholders. Generally, the Plan provides for 

  1. the reorganization of the Debtor by retiring, cancelling, extinguishing and/or discharging all Interests; 
  2. the funding of the Cash Consideration by the Plan Sponsor, 
  3. the distribution of Available Cash to holders of Allowed Claims and Interests in accordance with the priority scheme established by the Bankruptcy Code or as otherwise agreed; and 
  4. the issuance of 100% of the New Equity in the Reorganized Debtor to ESW."

The ESW RSA is attached to this 8-K.

The following is a summary of classes, claims, voting rights, and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

  • Class 1 (“Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 3 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 4 (“Equity Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 5 (“Other Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Expected recovery is 0%.

The Debtor believes that all classes of claims and interests are either (i) unimpaired and deemed to accept; or (ii) impaired and deemed to reject; and therefore will not be soliciting votes.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Chen Declaration”) [Docket No. 2], Pehong Chen, the Debtor's President, Chief Executive Officer, Chairman and founder, detailed the events leading to BroadVisions Chapter 11 filing.

The Chen Declaration states: "Over the last decade, the Company’s cash position has decreased from approximately $45 million as of December 31, 2011 down to approximately $400,000 as of the Petition Date, and the Debtor has not generated positive net income since 2009. 

The Debtor and its consolidated subsidiaries generated net losses of approximately $9.9 million for the fiscal year ended December 31, 2017 (as reported on Form 10-K), and approximately $7.0 million for the fiscal year ended December 31, 2018 (as reported on Form 10-K). Further, the Debtor generated net losses of approximately $1.5 million for the fiscal year ended December 31, 2019 (draft, unaudited). 

From 2001 to date, the Debtor’s annual revenue has declined, and as of December 31, 2019, the Debtor had an accumulated deficit of approximately $1,269 million. The majority of this accumulated deficit to date has resulted from non-cash charges associated with the acquisition of Interleaf, Inc. in 2000, and restructuring charges related to long-term real estate lease obligations. 

The Debtor’s operations face two key challenges: (a) the maturity of its major revenue-generating legacy products, and (b) competing in a crowded ESN solution space. The Debtor has invested heavily in cloud-based, mobile, messaging, and collaboration technologies, while continuing to support its legacy product base. Unfortunately, as a result of its ongoing losses and required cost-cutting, the Debtor became hampered in its ability to execute on its business plan. Total revenues of approximately $1.588 million in the first half of 2019 declined from total revenues of $2.8 million for the first half of 2018, with the decrease mainly in legacy revenue. Total revenues of approximately $1.383 million for the first half of 2020 declined from total revenues of $1.588 million for the first half of 2019. The Debtor expects that the decline in legacy revenue, which is the majority of the Debtor’s revenue mix, will continue to dominate overall financial performance until a significant installed base of new product revenues is established."

Principal Shareholders

  • Honu Holdings, LLC: 27.30% (Honu Holdings is owned by Pehong Chen)
  • ESW Capital, LLC: 23.65%
  • Marlin Capital Investments 6.85%

About the Debtor

According to the Debtor it has been: "Driving innovation since 1993, BroadVision (Nasdaq: BVSN) provides e-business solutions that enable the enterprise and its employees, partners, and customers to stay actively engaged, socially connected, and universally organized to achieve greater business results.  BroadVision® solutions—including Vmoso for virtual, mobile, and social business collaboration, and Clearvale for enterprise social networking, both of which are now owned and being developed by Vmoso, Inc. (“VMSO”), a company in which BroadVision owns a 19.9% interest—are available globally in the cloud via the Web and mobile applications. Visit www.BroadVision.com for more details."

About ESW

According to ESW: "Based in Austin, Texas, the ESW Capital group specifically focuses on buying, strengthening, then growing mature business software companies. By taking advantage of its unique operating platform, ESW revitalizes its acquisitions for sustainable success while making customer satisfaction a top priority. ESW and its affiliated companies have been in the enterprise software space since 1988, and the group includes notable brands such as Aurea, Ignite Technologies, Trilogy, and Versata."

Read more Bankruptcy News

The post BroadVision, Inc. – E-Commerce Pioneer Files Pre-Packaged Chapter 11, Intends Sale to Joseph Liemandt’s ESW Capital, LLC appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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