| Saturday, January 26, 2008
| Xyience Files for Bankruptcy
|We take a break from our regular programming to bring you the following bulletin:
Xyience, the heavyweight sponsor of UFC and maker of Xenergy energy drink, has finally filed for bankruptcy. I've been following this one for months and the scandal has gotten tastier than the drink, which I have not yet gotten to sample. And probably will never get to. It is a tale ripe with fraud (1/25/08), death threats, dropped sponsorships by some of the biggest names in mixed martial arts, and likened to the scams of Enron -- the biggest scandal of this generation.
Even during some of my research before the filing, I found that results had been censored. Interesting, no?
Mr. Rich Bergeron, blogger who had been following this from the beginning and has a lawsuit against him by the big boys because of his MySpace page, wrote the following original story warning of the great fall. It has been wiped from the Internet as of my last Googling, so here is the cached version:
Xyience Bankruptcy Imminent
Date submitted: 06 December 2007
Author: Rich Bergeron
This story is too huge to keep to myself. It is dubbed the Enron of MMA for a reason, because it really is.
Right under the very noses of the fans who tuned in faithfully for every big show, right behind the backs of the fighters who put their safety on the line for the cash and the bragging rights of fighting in the "octagon", and right past federal regulators behind the curve, the latest Xyience backers have been feeding a chain of lies to investors and the public, and for a long time they were able to fly under the radar and avoid detection.
All the while, the UFC has found a way of representing themselves as having this great, exclusive sponsor, but it’s not really all that great.
Some fans might have heard that the UFC (AKA Zuffa, LLC) took out a $325 million loan not too long ago. In June 2007 Zuffa, LLC, the parent company of the UFC, borrowed $325 million through a Senior Secured Credit Facilities Term Loan due 6/18/15. This debt instrument was placed with Oppenheimer Funds, Franklin Templeton Funds, Fidelity Funds and others.
Evidently the Fertittas spent most of the proceeds on the purchase of Pride and on a dividend for themselves and Dana White. The provisions of the loan are as follows: The loan is a pledge of the entire Zuffa assets and revenues, including the UFC, and a stated amount of revenue must come from sponsorships. The new UFC Xyience contract, which newly-crowned co-CEOs Adam Frank and Kirk Sanford negotiated with John Mulkey, the CFO of Zuffa LLC, calls for $9 million the first year, $11 million the second year and $12.14 million the third year. And Xyience will reportedly not be in the center of the mat after March. In other words: The Fertitta funding and new UFC contract with Xyience appears to be a sham for the auditors of Zuffa and the UFC to cover-up the fact that a key covenant in their $325 million loan was in breach.
They were allowed to obtain this loan by representing the sponsors they have are all above board, successful companies. Once Zuffa had secured and collected on their own loan, Fertitta Enterprises and a few other outside investors gave Xyience financing in a deal that shareholders were told would directly benefit the company and provide operating funds for an expansion of the brand. The alternative would be to bankrupt the company. The scare tactic worked. The new investment group now plans to do what they said they were trying to avoid all along, all in order to truly capitalize for themselves on their investment.
Instead of providing bridge financing for an IPO of Xyience stock (as some investors were told the Fertitta funding would facilitate) or funds to pay off a host of other vendor fees Xyience has accrued, the Fertitta loan barely made a dent in Xyience's extensive debt.
Fertitta Enterprises entered into financing Xyience primarily to pay off the company's UFC debt. Almost immediately after the Fertitta money came in, Xyience reportedly forked out over $6.5 million in past due sponsorship fees that had been accrued by Xyience and were owed to the UFC. The company also extended their UFC sponsorship contract right after the Fertitta Enterprises deal became official. The Fertittas and a few other investors basically funded a company on the verge of bankruptcy to provide capital for themselves. So, the Fertittas and a few friends paid the debts owed to the UFC by Xyience while also propping Xyience up as a valid, viable company. Any way you slice it, it's a scam perpetrated by misdirection and manipulation. Xyience has been insolvent for months now, yet the folks at Fertitta Enterprises used Xyience as a significant reference to get their hands on $325 million for Zuffa, LLC, and the entire business’ assets are riding as collateral on that loan. Read the MMA Payout article, and you see where the money went. Zuffa made a heavy investment in PRIDE, took some dividend money, gave a significant bailout loan to Xyience through Fertitta Enterprises, and extended the Xyience endorsement contract for three years. Xyience is still in the middle of the mat at every UFC event despite what’s been reported about the company’s troubles and struggles.
Sales under the new Xyience regime are suffering amid the clamoring MMA mainstream press eager to print explosive evidence, like the report that a supplement Sean Sherk was taking had tested positive for a banned substance. There were also reports of fighters getting stiffed on contract money, and months after I reported it on my site the Liddell/Xyience issue was finally brought to light and confirmed.
Those who once saw me as a conspiracy theorist had to open their eyes, look twice, and say, “Jesus, the kid was right all along.”
At this point I know almost all there is to know about Xyience. So, let’s get to it: Xyience is no better now than it was when it was freshly stolen from John Scott, the Current Owner of John Scott’s Nitro. If you don’t know a thing about the man, please read this story.
Xyience is a wreck. They have been lying about their growth and placement in the marketplace for far too long. Xenergy is not the fastest growing and selling energy drink. Kirk Sanford and Adam Frank are leading the company into what they describe as a situation where they simply must bankrupt it once and for all. This revelation is coming just mere weeks after they purported to save it from that same exact scenario with the Fertitta deal.
The company has already had one round of layoffs and faces another one soon as the prospect of bankruptcy comes into focus.
For some reason it didn’t surprise me when I found out that Kirk Sanford’s old company Global Cash Acess Holdings had a very significant account with Station Casinos. The Fertitta Brothers through Fertitta Enterprises have been able to hijack Xyience without inspiring any sort of outrage from the MMA fans or the fighters who might have appreciated that $12 million investment being put back into the UFC and spread out through contracts.
Lobbying against Fertitta Enterprises and Frank and Sanford are an estimated 340 investors. The offer tentatively on the table, according to inside reports, is to give the existing investors a 5 percent interest in the new company if they are willing to cooperate.
The company is fraught with liability and debt. Bankruptcy may be the only way out, but why do those 340 shareholders have to be left holding the bag if they don't pledge allegiance to the new regime? Why should the folks who put in early get screwed? Why should they be forced to support a group who only seems to be furthering and complicating the fraud at Xyience instead of alleviating it?
It's pretty clear something has to be done to permanently prove the company is in good hands and has begun moving in a better direction to regain loyal customers and cleanse the name of the institution. This company has been bought and sold over and over again, six ways to Sunday, and around the world in 80 days.
Once the Fertitta deal separated Pike and his close associates from voting rights, a new group of movers and shakers in the shady business world came in and began to pick the remaining post-Pike assets apart. They are taking everything of value and dismantling it all, pulling off a massive scam, all under the veil of an association with the Ultimate Fighting Championships, A.K.A. Zuffa. Layoffs at Xyience to move closer to bankruptcy will leave all those employees out of work for the holiday season, and many have already jumped the gun and put their resumes up on www.monster.com.
The resulting fallout unfolding here reminds me of the words of one of my early sources: “Xyience isn’t a sponsor of the UFC, the UFC is a sponsor of Xyience.” Nothing could be more true right now.
The UFC became its own sponsor when the Fertittas bought into Xyience. Their $325 million loan terms require them to have strong sponsor partnerships, so it was not merely a factor of being guilty by association. There was more to it than that. They had overextended themselves, they needed a loan, and they needed their main sponsors to stay strong and look the part. Not too long ago Dana White was screaming from the rooftops about how the UFC didn’t need a Coke or Pepsi level sponsor.
“I don’t f**king need Coke to keep doing what we’re doing, man. Believe me, the big time sponsors if they come on, of course that’d be fantastic. I don’t need ‘em. 18-to-34 year old males, they’re here hanging out with me. If Coke wants them, Coke needs to come to us,” White proclaimed. Turns out Coke didn't need White, either.
In the end he was stuck with the option of having nobody come knocking, and Xyience had to stay on point somehow. If the company went under, everything would go wrong for the UFC. It would be the second straight sponsor bailing out from on-the-mat advertising due to bankruptcy.
In an interview recently on CNBC with former Disney Head Honcho Michael Eisner, White promised the UFC would be announcing some brand new corporate sponsors within the next few months. Perhaps it is these sponsors who will finally bump Xyience from the middle of the mat next March.
Xyience is still bankrupt for all intents and purposes. They cannot serve their debt under current arrangements. It’s only a matter of time before they have to admit their plan to take the company under. Someone will end up foreclosing, and it appears the most likely scenario is the Fertitta Enterprises group gaining control over the bulk of the company’s interests and assets in the advent of any insolvency. Then they will have to change the name and reconstitute the business.
“We look forward to our future endeavors together as both of our companies continue their explosive growth,” Dana White said back when Xyience and the UFC extended their sponsorship. Xyience was on its way to bankruptcy and just received a huge infusion of capital to keep it from going under, yet White calls this condition "explosive growth?"
If you could know what I know, you’d completely understand. Let me slow down and get to the point at the same time. What has befallen this company under Russell Pike has been written to death. This is the new chapter, the unfolding of everything, the great reveal. The new players are some richly people to say the least. For research purposes, here’s a list to familiarize yourself with: Adam Frank, Kirk Sanford, Omer Sattar, Bill Bullard, Kathryn Lever, Patrick Braukman, Adam Roseman, Bill Underhill, Michael Eisner, Karim Maskatiya, Jeff Dash. Xyience is now on a collision course for bankruptcy while a group of shareholders are threatening a class action suit. Even some of the recently burned employees are considering joining the class action suit. I have personally spoken to lawyers already regarding a possible case.
Kirk Sanford's sudden departure from Global Cash Access and the stock's nosedive in mid-November leave more questions than answers, and now Sanford is at Xyience with all the players he was closest to at GCA. GCA's operation in Macau was allegedly set up to create kick-backs for Karim Maskatiya. He is the person who insiders say put Kirk, Kathryn Lever and Omer, his nephew, into management at Xyience. Maskatiya also reportedly put $5 million of his own money into Xyience. About half of the board of directors for Xyience now has some connection to the casino industry.
On top of everything, the Fertittas’ Station Casinos is one of GCA’s most significant accounts. Station Casinos also endorsed Judge Timothy Williams for his campaign to get a district court bench. Williams just happens to be the judge overseeing Xyience's $25 million case against me in Clark County, Nevada. Williams also coincidentally oversaw the case of Fishman Companies vs. Dream Stage Entertainment (DSE). Just before the Fertittas could be deposed in the case, it was settled. Soon after that settlement, the UFC'S purchase of DSE (PRIDE) became official.
While Williams has been quick to act and set hearings for the Xyience motions on the docket and graciously approved the other side's proposed orders, my own motion to dismiss has been sitting on the docket for longer than a month now. I recently submitted an order to end the case based on the rules of procedure for the district, and nothing has been recorded as of yet. The order was supposed to take effect Monday, December 3rd, but there is nothing reflected on the docket to show I even submitted anything. Even in the face of Xyience's lawyer withdrawing from the case, the judge refuses to acknowledge that the whole $25 million litigation is a farce. The same judge is now overseeing the case Xyience Founder Russell Pike has filed against Kirk Sanford and Adam Frank.
To get a better understanding of what has been happening to the company and the shareholders, you have to understand the relationship with the legal counsel of Xyience: Eisner and Frank.
Michael Eisner of Eisner and Frank was brought to Xyience in December of 2006 by Adam Roseman, the CEO of ARC Investment Partners and Jeff Dash, the Xyience CFO at that time. ARC Investment Partners and Eisner and Frank are both based in Beverly Hills, CA.
In November of 2006, Roseman, who was introduced to Xyience by Jeff Dash, introduced Patrick Brauckmann to Xyience. Roseman reportedly told management that he and Brauckmann would be able to raise $25 million in order to capitalize the company and retire the defaulted $10 million Brush Monroe note and buy back the 7 million shares of Xyience stock held by the AA Capital receiver.
Reports say in January of 2007, Roseman insisted on becoming CEO and Chairman of the Board of Xyience and appointed Adam Frank to the board stating that he needed the executive positions and Frank to help raise the $25 million. Adam Frank also reportedly promised to invest $1 million into Xyience.
At the end of January 2007 members of the board of directors of Xyience consisted of: Adam Frank; Adam Roseman; Russell Pike; Peter Rinato; and Michael Clark. By February of 2007 the Brush Monroe note, held by the AA Capital receiver, was convertible into 16 million shares of Xyience stock. With the 7 million shares already held by the receiver.
So, whoever purchased the receiver’s position would get 23 million shares of stock.
CORPORATE RAIDERS OF THE LOST "ARC"
Eisner and Frank, Jeff Dash, Adam Roseman and Adam Frank, along with Patrick Brauckmann, allegedly put together an intricate scam where they went behind the backs of Russell Pike, Peter Rinato and Michael Clark, and the majority on the board of directors, to purchase the Brush Monroe note and the stock from the AA Capital receiver in February. They then reportedly sold Xyience stock to investors for $2.50 a share, stock that they did not have, telling the investors that the money was going into the company. Actually, they were putting the money into Key Management, an entity set up by Brauckmann, to buy the note and stock from the receiver for $10 million for themselves.
They would get 23 million shares from the receiver and give the people they sold the stock to 4 million shares, while keeping 19 million shares of Xyience stock for themselves.
The receiver entered into negotiations with Brauckmann to sell the note to Brauckmann’s Key Management in January. The other Xyience board members: Pike, Rinato and Clark, found out about the court hearing and sale the day before the hearing and tried to stop the sale. But as Dash, Frank, Roseman and Brauckmann had starved the company of funds, the company had no money to buy the note and stock from the receiver.
After two hearings and a compromise, the judge let the sale go through when Brauckmann stated that he would fund Xyience with $20 million. Brauckmann later reportedly never put up that promised money.
The compromise gave Jeff Dash, Adam Frank, Adam Roseman and Patrick Brauckmann over 10 million shares of stock and stock options and a $5 million note at no cost to themselves.
Not only did Eisner and Frank not appear in court to try to stop this scam, they also tried to stop legal counsel hired by Peter Rinato from representing the shareholders and the company at the court hearings. This scam effectively diluted the shareholders’ stock by almost 30 percent. The lack of funding grinded production to a halt and made sales in February of 2007 the worst in almost a year. This all happened while Xyience was publicly making sales claims their own analytics firm questioned.
After the compromise, Adam Roseman resigned from the board and Adam Frank stayed on the board. Karim Maskatiya, a large shareholder of Xyience, founder and chairman of the board of Global Cash Access, was given authority to appoint two people to the board. By the end of May, Karim had appointed Kirk Sanford and Kathryn Lever to the board.
Michael Kurdziel, manager of Adam Roseman’s ARC Investment Partners, represented Roseman’s and Brauckmann’s interests, and only Bill Underhill represented the shareholders. Arc Investment Partners later sued Brauckmann for problems related to another deal they corroborated on.
THE LAST HURRAH
After having the wool pulled over their eyes by Brauckmann and company, the good people left at Xyience were put in the hands of yet another abuser to be victimized yet again. The new regime hopes this third try to get something of value out of the mess Xyience has become will be an unqualified success. Yet, to obtain that goal the new powers that be will have to alienate the shareholders that put Xyience on the map with their early funding. There will be layoffs and auctions, misery and loss. Kirk Sanford likes to call this approach "Scorched Earth."
From June 2007 on, Kirk Sanford and Adam Frank controlled the company, and it seemed apparent to insiders that these men would not raise any capital. They, with Kurdziel and Lever, controlled the board. It was up to them to save the company while they still could.
Adam and Kirk reportedly gave themselves 600,000 shares of stock each and 3 million stock options for themselves and their new Xyience team. Yet, they thwarted every attempt by Bill Underhill to bring in financing. They postponed the June scheduled shareholders meeting until the third quarter. On July 11 and 12 Adam and Kirk had six investor conferences in two days and stated at these conferences that they would “establish robust reporting to shareholders” and that “material strategic and financing decisions must have complete visibility.”
Reports confirm Sanford and Frank have not called a complete shareholder meeting recently (although one is scheduled for December 15), and they refuse to give any disclosure to shareholders. I sent Sanford a list of questions recently, and he refused to provide answers publicly. "You had some good questions," he wrote in response. "But, we decided it would be better if we communicated directly to the shareholders ourselves first. Once we've done that, I am sure they will send you a copy (like they always do)."
By the middle of summer, once again, production was halted because of lack of funding, and sales suffered. This cost the company millions of dollars in sales and earnings. Kirk and Adam still did not seem eager to pursue any funding of Xyience, except with Bill Bullard, President of Fertitta Enterprises.
Insiders say the co-CEOs ignored all other funding opportunities and even allegedly spoke disparagingly about the company to other potential investors. By the beginning of October Kirk and Adam were threatening bankruptcy. If the major shareholders did not give in and authorize the Fertitta funding that Bill Bullard, Adam Frank and Kirk Sanford had put together, Adam and Kirk said they would put the company into bankruptcy.
Adam Frank even sent out a cessation of operations e-mail without calling a board meeting. By this time they also had crammed down all vendor payments by threatening bankruptcy. What they proposed was a $12 million one year 15% senior note from Fertitta Enterprises. But, the funding did not sustain the company at all. What it did was make the entire arrears payment to the UFC of $6.5 million, paid off a note to Fertitta Enterprises for $1 million, paid Adam and Kirk $500,000.00 for their notes, paid Fertitta Enterprises an initiation fee of $240,000.00 and paid Eisner and Frank-Rosemann’s lawyers that helped orchestrate the February scam--almost $300,000.00.
All these were paid while note holders, who had notes that were past due and payable, had received nothing or just partial payments. Other legal fees and payables also remained outstanding. Xyience's case against me has not even been funded. In addition, 7.3 million stock options were attached to the funding for Adam and Kirk, and Fertitta Enterprises received 10% of all Xyience stock outstanding in warrants for one cent a share.
Another and even more incredible provision was that Fertitta Enterprises would receive default warrants for another 100 million shares for one cent a share if the shareholders voted to change the board of directors.
In other words, Fertitta Enterprises would pay themselves and the UFC and receive 60% of Xyience. Frank and Sandford were rewarded for lying to shareholders by promoting a deal for the Fertittas to help save Xyience when all along the deal only served to destroy the company.
On October 2, 2007 Frank and Sanford informed Russell Pike, William Pike and Michael Clark, shareholders who represented 25% of the shares outstanding, that if they did not sign the funding consent form for the Fertitta funding and give up their voting rights, Adam and Kirk would put the company into bankruptcy. On October 3, under duress, the Pikes, Clark and other major shareholders signed the consent forms.
Only eleven shareholders, who represent over 50% of the shares outstanding, ever saw the funding agreement. Over 300 shareholders are reportedly still being kept in the dark by Adam Frank and Kirk Sanford as to their investment. So, the UFC, Fertitta Enterprises, Adam Frank, Kirk Sanford and Eisner and Frank were paid in full, and Fertitta Enterprises, Adam Frank, Kirk Sanford, Karim Maskatiya and Patrick Brauckmann were given total control of the company--all while sales and relationships with major customers were reportedly destroyed.
The scam can only ultimately be pulled off if the Fertittas remain virtually invisible. This is why there has been no press release. You won't see Lorenzo Fertitta at any podium proclaiming the UFC now has an indirect financial interest in one of their main sponsors. The situation screams conflict of interest. They have instead left it up to Adam Frank and Kirk Sanford to sink the ship and command the expedition to salvage the wreckage.
There is one glaring commonality between the UFC and Xyience. On paper both companies are losing money on a grand scale. The UFC's losses have been estimated to be at least $44 million since the Fertittas and Dana White took over. Xyience lost $56 million in 2006 according to their profit and loss statement for that year. Vegas is supposed to be the place where big gambles pay off. Yet, no matter how much money is thrown at these two companies, they still can't overtake their losses. They can't generate their own surplus of capital. Instead, Zuffa had to bail Xyience out indirectly and rely on a $325 million loan to provide any profit-sharing opportunities for the principals. They basically just put a second mortgage on their whole company. The question that remains is simple:
How much can you really do with $325 million, minus of course what ZUFFA paid for PRIDE? Can you resuscitate a dead company? Can you right a wrong? Can you erase the past? Only time will tell.
Labels: business, fraud, scandals, Xyience
|posted by Sara @ 8:06 PM
Home: gypsy wanderer, United States
About Me: Those who know me find me stubborn, opinionated, open-minded, strong-willed, of some intelligence, and yet they still hang around.
See my complete profile
Love God. Love all. Serve both.
There is wisdom in turning as often as possible from the familiar to the unfamiliar: it keeps the mind nimble, it kills prejudice, and it fosters humor.
-George Santayana, philosopher (1863-1952)