August 5, 2020 – Prysm, Inc. (“Prysm” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11924. The Debtor, a Silicon Valley-headquartered company specializing in large-format displays and display solutions, is represented by Charles J Brown of Gellert Scali Busenkell & Brown, LLP. Further board-authorized engagements include Epiq Corporate Restructuring as claims agent.
The Debtor's petition notes between 100 and 200 creditors; estimated assets of $4,636,132 and estimated liabilities of $273,635,077 (funded debt of $265.8mn). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Divco West Real Estate ($2.8mn trade debt), (ii) Asia Optical Int'l, Ltd. ($1.9mn trade debt) and (iii) 11711 N. College LLC ($494k rent claim).
Overview of the Plan and RSA
The Disclosure Statement provides:
"To implement a comprehensive financial restructuring (the ‘Restructuring), the Debtor will, no later than August 5, 2020, commence a chapter 11 case…The proposed sponsor of the Plan is ESW Capital, LLC, which is also the Debtor’s DIP Lender. On August [ ], 2020, the Debtor, ESW, GII and certain of the Secured Noteholders entered into the restructuring support agreement (together with all exhibits thereto, and as amended, restated, and supplemented from time to time, the 'Restructuring Support Agreement'), the assumption of which is subject to a separate motion filed concurrently herewith, that sets forth the principal terms of the Restructuring and requires the parties thereto to support the Plan. As set forth in the Plan, the Restructuring contemplates a comprehensive in-court restructuring of Claims against and Equity 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. The Plan Sponsor has offered to acquire the Debtor and its collaboration software business. Generally, the Plan provides for the following:
(1) the reorganization of the Debtor into two separate businesses consisting of (i) a hardware display business focused on the development, marketing and sale of large format displays based on the Debtor’s proprietary LPD technology, and (ii) a software business focused on the development, marketing and sale of cloud-hosted collaboration software solutions,
(2) the transfer of the hardware business, including the assets and contracts of the hardware business, on the Effective Date to a newly formed company referred to herein as Hardware NewCo, which will be owned by the Secured Noteholders (and by GII if it exercises the GII Election Option),
(3) the funding of the Cash Consideration by the Plan Sponsor on the Effective Date in exchange for 100% of the new equity of the Reorganized Debtor,
(4) the distribution of the Cash Consideration and other Cash held by the Debtor on the Effective Date to Hardware NewCo, to GII and to a Distribution Trust to pay allowed administrative claims and the distributions to holders of Allowed Claims other than the Secured Noteholders and GII (including the $500,000 GUC Recovery to holders of General Unsecured Claims), all in accordance with the Plan; and
(5) the reorganization of the Debtor by retiring, cancelling, extinguishing and/or discharging the Debtor’s prepetition Equity Interests and issuing New Equity in the Reorganized Debtor to ESW, in its capacity as the Plan Sponsor or an affiliate and, to the extent that it exercises the Subscription Option, to ESW, in its capacity as the DIP Lender."
About ESW
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."
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."
We recently saw ESW acquire the software assets of e-commerce pioneer BroadVision, Inc. which emerged from bankruptcy on May 15, 2020.
The following is a summary of classes, claims, voting rights and expected recoveriesd (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“GII Senior Secured Claim”) is impaired and entitled to vote on the Plan. Expected recovery is 98.7%. The holder of the Class 1 claim will receive 100% of the principal amount of their loan with interest at the non- default rate of interest set forth in the Note and Warrant Purchase Agreement dated December 11, 2019; the holder of the Class 1 claim is entitled to interest at the default rate from August 1, 2020 forward but will not receive such default interest as part of its treatment under the Plan and, therefore, Class 1 is impaired.
- Class 2 (“Secured Noteholder Claims”) is impaired and entitled to vote on the Plan. Expected recovery is 5.96%.
- Class 3 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
- Class 4 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
- Class 5 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. Expected recovery is 6.01%.
- Class 6 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Expected recovery is 0%.
Net Operating Losses
Since its formation in 2005, the Debtor has invested in research and development, marketing, sales, service and support with the objective of making LPD displays a leader in the global market for large-format displays. To date, the Debtor has not achieved profitability on a GAAP or cashflow basis. As of the Petition Date, the Debtor estimates that it may possess federal net operating loss carryforwards in excess of $300 million; provided that these net operating loss carryforwards are subject to numerous limitations and restrictions that may limit or even eliminate their availability.
Prepetition Indebtedness
Since December 2015, the Debtor has financed its operations through the issuance of Senior Secured Promissory Notes. Senior Secured Promissory Notes (the “Secured Notes”) issued by the Debtor and outstanding as of June 30, 2020 are listed below.
|
Noteholder |
Principal Amount |
Accrued Interest |
Total Principal and Interest |
|
GII Prysm Investments |
3,000,000.00 |
81,484.84 |
3,081,484.84 |
|
Other Secured Noteholders |
$178,391,617 |
$84,308,243 |
$262,699,860 |
|
TOTAL |
$181,391,617 |
$84,389,728 |
$265,781,345 |
Events Leading to the Chapter 11 Filing
The Disclosure Statement provides a further example that often a field of dreams is simply not enough, that investors do not necessarily come. For this Debtor, an eye-catching suite of enormous interactive displays (eventually paired with a "collaboration software solution" for those displays) has never generated revenue or "any serious investment offers" (the latter clearly after years of scouring the globe), leaving the Debtors with a business that now has to be split along hardware/software lines and whose most important asset is likely to be a $300.0mn pile of net operating losses (NOLs). During the extended search period (2017-2020), the Debtors struggled to maintain whatever technological edge/lead they might have; insufficient funding leading to the closure of a global string of offices and a "significant reduction in product development, sales and business momentum." The end result being that they now find themselves seeking the embrace of reknowned bottom-feeder ESW.
The Disclosure Statement provides: “Since 2017, the Debtor has been actively seeking investments to continue operations and fund the expansion of its research and development, sales and marketing, customer support and customer success efforts. When the company’s internal efforts did not yield any serious investment offers, the Debtor engaged a global investment banking firm to lead a dual track process. This investment bank was engaged in July 2017 to simultaneously pursue both potential investors and potential acquirors for the company. After conducting an extensive search in 2017 and early 2018, this firm conducted a second search marketing the display business and the collaboration business as separate investment or acquisition opportunities. In December 2017, the Debtor engaged a second investment bank to conduct a more focused and directed search for potential investors and acquirors in the Greater China region. Search efforts continued throughout 2018 and 2019. Many prospects in China, the United States and Europe engaged in exploratory discussions and some prospects even proceeded to negotiate terms of a possible investment. However, these discussions did not result in any credible offers to invest in or acquire the Debtor, either in its current form or as a stand-alone hardware or software business.
During this search process, the Debtor was able to continue operations using funds raised through the issuance of additional Secured Promissory Notes in June 2017, March 2018, October 2018 and December 2019. However, these funds were not sufficient to maintain or grow the business as planned and the Debtor was forced to significantly reduce its headcount and operations in June 2017, January 2018 and again in February 2019. During this period, the Debtor permanently closed offices in Ghent, Belgium, London, England, Carmel, Indiana, New York, New York and Chicago, Illinois. These reductions in headcount, office closures and reductions in development, sales and marketing resources were done to conserve funds and better align operations with available budgets. However, these cost cutting efforts also resulted in a significant reduction in product development, sales and business momentum.
Ultimately, after three years of searching for acquirers and/or additional investors, the only credible offer received by the Debtor is that of ESW Capital LLC ('ESW'). ESW submitted a letter of intent on May 20, 2020 to acquire the Debtor and reorganize around its software business, while contributing the Debtor’s hardware business and certain related assets into a newly formed entity for the benefit of the Debtor’s secured lenders. The Debtor determined in its business judgment to proceed with a transaction with ESW, subject to agreement on definitive terms."
About the Debtors
According to the Debtors: "Prysm is a Silicon Valley-headquartered company delivering total display solutions that create unrivaled immersion and engagement. With its groundbreaking hardware and software, Prysm is revolutionizing the world of large-scale displays. Its Laser Phosphor Display (LPD) platform is a key foundational technology that makes breathtakingly beautiful, scalable, and versatile video walls possible. Prysm display solutions serve major brands around the world.Privately held, Prysm has a global sales and support network, with offices worldwide."
The Disclosure Statement adds: "The Debtor was formed in 2005 to develop, market and sell large-format displays using its proprietary Laser Phosphor Display or LPD technology. The Debtor introduced its first generation of tile-based LPD displays in 2010 and its second generation of single panel large-format displays in 2018. In 2014, the Debtor acquired the collaboration software business of Anacore, Inc. and began development of a collaboration software solution for large-format displays. From 2014 to 2018, the Debtor further developed the collaboration software and launched a cloud-based collaboration solution known as the Prysm Application Suite.
Since 2018, the Debtor has further developed and commercialized large-format displays known as the LPD 6K Series and the Prysm Application Suite. The LPD 6K displays and the PAS collaboration service are sold together as a complete solution and separately as individual offerings. Together the LPD 6K and PAS solution enable individuals and teams to see and interact with all their data, content and applications on displays of all sizes. Customers using the LPD 6K Series benefit from interactive large-format single panel displays that offer a panoramic image uninterrupted by seams or bezels. Customers using the Prysm Application Suite software benefit from an open, enterprise-grade collaboration solution that integrates with existing tools and scales to hundreds or thousands of users.
The Debtor is headquartered in Milpitas California where it conducts product development, testing, service, support, management and administrative operations. The Debtor has a manufacturing facility in Concord Massachusetts where it develops, tests and manufactures front panels for its LPD 6K displays for the worldwide market. The Debtor has a wholly-owned subsidiary based in Bangalore, India and this subsidiary provides research and development, sales and support services to the Debtor. The Debtor also has a wholly-owned subsidiary based in Dubai, UAE and this subsidiary provides sales and support services to the Debtor.
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