Xyience Bankruptcy Proceeding Continues
Adam Swift Feb 12, 2008
Xyience's Chapter 11 bankruptcy proceedings continue Tuesday in
U.S. Bankruptcy Court in Las Vegas. Among the six motions on the
docket is a pair related to Zuffa and Zyen being contested by a
shareholder group.
The first motion is an emergency motion allowing Zyen to provide post-petition financing of up to $2,690,620.14 and to provide waiver and avoidance protection. The shareholders claim that the motion is "primarily for the benefit of Zyen and not Debtor's creditors."
The shareholder group's filing contains new details of the Zyen
financing agreement. As previously reported by Sherdog.com, Zyen is
controlled by Frank and Lorenzo Fertitta, majority owners of UFC's
parent company, Zuffa. The $12 million funding effort was announced
last October along with a new three-year extension of Xyience's
sponsorship agreement with the UFC.
According to the filing, the $12 million note carried a 15-percent interest rate and was repayable in one year. The note was collateralized by all of Xyience's assets. The terms also allegedly included warrants for 10 percent of capitalization of the company at one cent per share and 50 percent of the company's equity if Xyience failed to repay.
"A review of the $12 million pre-petition funding transaction shows that rather than being in the best interest of [Xyience], the transaction principally benefited Zuffa and Zyen," claims the shareholder group. "The funding was provided by a Fertitta entity that was formed three weeks prior to the funding and not-so-subtly named Zyen. A majority of the funds from the $12 million funding were immediately disbursed to another Fertitta entity, Zuffa.
"Thereafter, a month later [Xyience] failed to make the very first payment due Zyen in November. The Shareholder Group believes that this failure to pay was simply an orchestrated default. Consequently, Zyen issued its Notice of Strict Foreclosure, which gave it the right to foreclose under an agreement not approved by the shareholders nor in the best interest of [Xyience]. Pursuant to the notice, Zyen sought to foreclose on [Xyience's] assets, including the trade name Xyience and energy drinks under the trade name of, among other things, Xenergy drinks."
According to a filing in response by Zyen, because of the Xyience's significant debt and scant assets, the shareholders "have little, if anything, at stake in this bankruptcy case, yet the so-called Shareholder Group raises objections to how the pre-petition secured lender, Zyen, is attempting to provide emergency post-petition financing to the Debtor in an effort to market and sell its assets. It is apparently of no importance to the Shareholder Group whether they destroy [Xyience] in an apparent attempt to perpetuate their ‘direct' litigation claims in the State Court Litigation. The Shareholder Group's actions are not in the best interests of [Xyience], [Xyience's] estate and the creditors who actually have a stake in this bankruptcy case, and thus their Objection must be overruled."
Zyen's response also claims that the note was approved by more than 60 percent of the company's shareholders, including some of those now in opposition.
The second motion at issue is the final approval of a nonexclusive license agreement with Zuffa Marketing, a subsidiary of Zuffa. The agreement would allow Xyience to continue to use the UFC trademark on Xyience products.
The shareholder group claims the motion is "farcical because it seeks adequate protection for noncash collateral that apparently has no value and purports to provide a loan to [Xyience] when, in fact, no funds are being paid by Zuffa to [the company]. The primary motivation for the Zuffa motion appears to be providing waiver and releases to Zuffa from avoidance claims because Zuffa received a significant payment from [Xyience] on October 5, 2007."
The payment is listed later in the filing as approximately $6.5 million.
Zuffa's response echoes Zyen's, stating that "the Shareholder Group is hopelessly out of the money and simply does not have a stake in this bankruptcy case."
The filing goes on to state that "the Zuffa agreement gives [Xyience] the opportunity to generate more assets, to stay in business and the ability to sell itself as a going concern. Apparently the Shareholder Group would rather have the [company] destroy its inventory and shut its doors rather than maximize value for the estate."
According to Zuffa, Xyience stands to lose more than $8 million in revenue if the deal is not approved, including the value of the current inventory and lost potential revenue.
Judge Mike K. Nakagawa will hear the motions.
Adam Swift is the Editor of MMAPayout.com and a frequent contributor to Sherdog.com.
The first motion is an emergency motion allowing Zyen to provide post-petition financing of up to $2,690,620.14 and to provide waiver and avoidance protection. The shareholders claim that the motion is "primarily for the benefit of Zyen and not Debtor's creditors."
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According to the filing, the $12 million note carried a 15-percent interest rate and was repayable in one year. The note was collateralized by all of Xyience's assets. The terms also allegedly included warrants for 10 percent of capitalization of the company at one cent per share and 50 percent of the company's equity if Xyience failed to repay.
As a result, in the event of default, the Fertittas could purchase
60 percent of the company's stock for a nominal purchase price.
This default provision would also be triggered by the removal of
any members of the board of directors, according to the
shareholders' motion in opposition.
"A review of the $12 million pre-petition funding transaction shows that rather than being in the best interest of [Xyience], the transaction principally benefited Zuffa and Zyen," claims the shareholder group. "The funding was provided by a Fertitta entity that was formed three weeks prior to the funding and not-so-subtly named Zyen. A majority of the funds from the $12 million funding were immediately disbursed to another Fertitta entity, Zuffa.
"Thereafter, a month later [Xyience] failed to make the very first payment due Zyen in November. The Shareholder Group believes that this failure to pay was simply an orchestrated default. Consequently, Zyen issued its Notice of Strict Foreclosure, which gave it the right to foreclose under an agreement not approved by the shareholders nor in the best interest of [Xyience]. Pursuant to the notice, Zyen sought to foreclose on [Xyience's] assets, including the trade name Xyience and energy drinks under the trade name of, among other things, Xenergy drinks."
According to a filing in response by Zyen, because of the Xyience's significant debt and scant assets, the shareholders "have little, if anything, at stake in this bankruptcy case, yet the so-called Shareholder Group raises objections to how the pre-petition secured lender, Zyen, is attempting to provide emergency post-petition financing to the Debtor in an effort to market and sell its assets. It is apparently of no importance to the Shareholder Group whether they destroy [Xyience] in an apparent attempt to perpetuate their ‘direct' litigation claims in the State Court Litigation. The Shareholder Group's actions are not in the best interests of [Xyience], [Xyience's] estate and the creditors who actually have a stake in this bankruptcy case, and thus their Objection must be overruled."
Zyen's response also claims that the note was approved by more than 60 percent of the company's shareholders, including some of those now in opposition.
The second motion at issue is the final approval of a nonexclusive license agreement with Zuffa Marketing, a subsidiary of Zuffa. The agreement would allow Xyience to continue to use the UFC trademark on Xyience products.
The shareholder group claims the motion is "farcical because it seeks adequate protection for noncash collateral that apparently has no value and purports to provide a loan to [Xyience] when, in fact, no funds are being paid by Zuffa to [the company]. The primary motivation for the Zuffa motion appears to be providing waiver and releases to Zuffa from avoidance claims because Zuffa received a significant payment from [Xyience] on October 5, 2007."
The payment is listed later in the filing as approximately $6.5 million.
Zuffa's response echoes Zyen's, stating that "the Shareholder Group is hopelessly out of the money and simply does not have a stake in this bankruptcy case."
The filing goes on to state that "the Zuffa agreement gives [Xyience] the opportunity to generate more assets, to stay in business and the ability to sell itself as a going concern. Apparently the Shareholder Group would rather have the [company] destroy its inventory and shut its doors rather than maximize value for the estate."
According to Zuffa, Xyience stands to lose more than $8 million in revenue if the deal is not approved, including the value of the current inventory and lost potential revenue.
Judge Mike K. Nakagawa will hear the motions.
Adam Swift is the Editor of MMAPayout.com and a frequent contributor to Sherdog.com.
