June 30, 2022 – Enjoy Technology, Inc. and two affiliated debtors (NASDAQ: ENJY; "Enjoy" or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 22-10580 (Judge TBA). The Debtors, who "provide a revolutionary commerce-at-home experience for consumers through the Debtors’ network of mobile retail stores [ie the "Mobile Store]*” are represented by Daniel J. DeFranceschi of Richards Layton & Finger, P.A. Further board-authorized engagements include: (i) Cooley LLP as general bankruptcy counsel, (ii) AP Services, LLC (“APS”), an affiliate of AlixPartners, LLP (collectively with APS, “AlixPartners”) to provide interim management resources and restructuring advisory services, (iii) Centerview Partners LLC as investment bankers and (iv) Stretto, Inc. as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets of $111.7mn; and estimated liabilities of $70.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Tangerine Promotions ($824k), (ii) TEG Staffing, Inc. ($781k) and (iii) [The Abernathy MacGregor Group, Inc. ($514k).
* 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."
Highlights
- "Commerce at Home" Retailer of Telecommunications and Technology Products Files for Chapter 11 with $70.0mn in Liabilities
- 2021 SPAC Transaction Had Raised $112.6mn
- Bankruptcy Shelter Necessitated by "Larger-than-Expected [SPAC/Merger] Redemptions;" Supply Chain Crisis and Tightening Equity Markets
- Asurion to Serve as Stalking Horse for In-Court Sale Process after Out-of-Court Efforts Fail
- Asurion to Follow Up on $2.5mn of Emergency Bridge Financing with $52.5mn of New Money DIP Financing
Prepetition Asset Sale Efforts and "Pivot" to In-Court Asurion Offer
The Boken Declaration (defined below) provides: "Starting in May 2022, the Debtors ran a targeted marketing process for a sale of substantially all of their assets.
The Debtors contacted approximately twenty-three (23) prospective buyers, executed non-disclosure agreements with five (5) parties, and received two (2) letters of intent, from Asurion, LLC ('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 that, if consummated, would have provided the Debtors with significant liquidity, avoided the need for a bankruptcy filing, transitioned the business to a licensing model where the counterparty owned and controlled the Debtors’ key assets, and preserved the Company’s status
as a public corporation.
However, on June 17, 2022, the counterparty informed the Debtors that it would not proceed with the transaction and withdrew its offer. The Debtors then pivoted to a proposal received from Asurion for a sale of substantially all of the Debtors’ U.S. assets through a chapter 11 proceeding, and signed a letter of intent with Asurion (the 'Asurion LOI') on June 19, 2022. The Debtors believed that the sale terms in the Asurion LOI represented a fair and compelling offer because, among other things, (1) Asurion intended to continue operating the Debtors’ core U.S. business as a going concern, retaining many of the Debtors’ employees, and (2) Asurion’s proposed purchase price would provide sufficient consideration to the Debtors to potentially pay the Debtors’ creditors in full and preserve some value for equity holders."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Boken Declaration”), John Boken of Alix Partners, serving as the Debtors’ "Senior Strategic Advisor," provides: "Since their inception, the Debtors have incurred losses and cash outflows from their operations. The Debtors have therefore been dependent on their ability to raise additional capital to develop their technology, achieve their business objectives, and maintain operations and liquidity. The Debtors historically financed their operations through the issuance and sale of redeemable convertible preferred stock, issuance of debt, and issuance of common stock in connection with the Merger Transaction. The Debtors’ ability to raise the necessary capital to fund their operations has become constrained due to a number of factors, including larger-than-expected redemptions under the Merger Transaction that reduced the Debtors’ net proceeds from that transaction, and a tightening of public equities markets.
The Debtors’ business has also been negatively impacted by the supply chain crisis and an inability to retain sufficient personnel. As economies around the world continue to recover, shortages in raw materials and inventory have become more widespread. During the second half of fiscal year 2021, the Debtors experienced shortages in their inventory of recently launched smartphones. Inventory shortages, and shortages of the raw materials used in the products that the Debtors sell, have contributed to delays in the supply chain. The Debtors and their business partners continue to experience logistic, supply chain, and manufacturing challenges that have continued during 2022. The Debtors have also had difficulty recruiting and retaining Experts as a result of macroeconomic factors. These issues had and continue to have a negative impact on the Debtors’ revenue.
In April 2022, the Debtors concluded that they lacked sufficient capital to satisfy their ongoing expenses and that restructuring initiatives were necessary to preserve their liquidity and maintain operations."
DIP Financing
The Debtors received $2.5mn of emergency bidge financing in the run-up to the Chapter 11 filings and will now turn to Asurion for further debtor-in-possession ("DIP") financing. More importantly, Asurion has agreed to provide a $55.0mn DIP facility, which includes approximately $52.5 million of new money and a roll-up of the $2.5mn bridge loan.
The Boken Declaration provides: "Asurion ultimately agreed to complete the funding necessary to bridge the Debtors’ operations through an organized bankruptcy sale process through a chapter 11 filing and debtor-in-possession facility ('DIP'). However, in order to allow the Debtors to cover necessary payments to protect their employees in advance of the Petition Date, Asurion agreed to provide a small prepetition short-term bridge loan of $2.5 million.
Notwithstanding the bridge loan from Asurion, the Debtors face a rapidly declining cash position that has rendered them unable to pay necessary operating expenses, including payroll. Accordingly, the Debtors commenced these cases and are seeking immediate approval of a DIP to be provided from Asurion, subject to the roll-up of the obligations under the bridge loan into the DIP, to fund the Debtors’ operating expenses and consummate an organized and valuemaximizing
sale process. Asurion ultimately agreed to complete the funding necessary to bridge the Debtors’ operations through an organized bankruptcy sale process
through a chapter 11 filing and debtor-in-possession facility ('DIP')."
2021 SPAC
In April 2021, the Company announced plans to become a publicly-traded corporation through a merger (the “Merger Transaction”) with a special purpose acquisition company. Marquee Raine Acquisition Corp. (“MRAC”), Enjoy Technology, Inc.’s predecessor, entered into an Agreement and Plan of Merger, dated as of April 28, 2021 and amended on July 23, 2021 and September 13, 2021 (the “Merger Agreement”), by and among MRAC, MRAC Merger Sub Corp., a Delaware corporation and a direct wholly owned subsidiary of MRAC (“Merger Sub”), and Enjoy Technology Inc. (n/k/a Enjoy Technology Operating Corp.) (“Legacy Enjoy”), a Delaware corporation. 21. On October 14, 2021, as contemplated by the Merger Agreement, MRAC filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which MRAC was domesticated and continues as a Delaware corporation, changing its name to “Enjoy Technology, Inc.” On October 15, 2021, Legacy Enjoy consummated the transactions with MRAC as contemplated by the Merger Agreement, and MRAC common stock and warrants began trading on the Nasdaq under the ticker symbols “ENJY” and ENJYW,” respectively.
As a result of the Merger Transaction, the Company raised net proceeds of $112.6 million after repayment of certain loans and transaction costs.
Significant Prepetition Shareholders
The Debtors list of 5% equity holders includes: King Street Capital Management, L.P., Entities affiliated with Riverwood Capital, LCH Enjoir, L.P., Marquee Raine Acquisition, Ronald Johnson and SCP Venture Fund I, L.P.
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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