Jan. 22, 2008
Copyright Las Vegas Review-Journal

UFC sponsor files for bankruptcy

By JOHN G. EDWARDS
REVIEW-JOURNAL
The Las Vegas manufacturer and distributor of energy drink Xenergy, which sponsors the Ultimate Fighting Championship, has filed for bankruptcy protection amid claims of intimidation and death threats.

Xyience Inc., the energy drink company headquartered at 4572 Hacienda Ave., reported $42.3 million in liabilities and $5.3 million in assets. Xyience sells its energy drink through 230 convenience and grocery stores, mostly in the Southwest.

The voluntary bankruptcy petition, filed on Friday, follows an involuntary petition that was filed Jan. 3 by founder and former CEO Russell Pike and others. The involuntary petition remains pending.

The bankruptcy petitions for Xyience were filed under Chapter 11, which provides protection from creditors while the company reorganizes.

Despite the ominous circumstances, Xyience President Omer Sattar expressed optimism.

"We're excited about the opportunity (to reorganize the company), " he said. "Xyience has a great brand name and has a strong affiliation with the UFC."

The UFC holds mixed martial arts fights. According to bankruptcy papers, UFC is the largest mixed martial arts organization, and mixed martial arts are the second-most popular sporting event for men ages 18 to 34, following the NFL.

A representative for UFC President Dana White declined to make White available for comment and declined comment on behalf of the UFC.

Frank and Lorenzo Fertitta, members of the family that founded Station Casinos, own UFC. They also are creditors of Xyience with $12.5 million in unsecured claims and $5.3 million in secured claims, according to the bankruptcy filing. Attempts to reach the Fertittas on Monday were unsuccessful.

Sattar said the company would have filed for liquidation under Chapter 7 had not it not enjoyed the continued support of the Fertittas. Sattar said Xyience continues as a key UFC sponsor. Xyience signed a $15 million sponsorship agreement with the UFC for 2007.

Sattar said the bankruptcy became necessary when the company was unable to raise $7.5 million more from shareholders.

"Those negotiations, however, were derailed by a campaign of intimidations and threats led by company founder and former CEO Mr. Pike, Terry Cardenas, Ronald Solomon and Rick Klingenberg," he said.

"Associates of Mr. Pike and Mr. Klingenberg made threats of physical violence against Xyience management and board members and, on at least one occasion, showed up uninvited at the home of one member of management," Sattar said in bankruptcy court filings.

"Mr. Klingenberg and his brother David Bergstrom stormed into the Xyience office, cornering (Chief Financial Officer) Michael Levy in an office and refusing to allow Mr. Levy to depart until their demands were met," according to Sattar's filing.

If their mother wasn't paid, Klingenberg and Bergstrom said "somebody was going to ... get killed," Sattar said.

They demanded $20,000 "or else they would return the next day with guys who had a 100 percent collection rate," according to Sattar's filing.

Attempts to reach Pike, Bergstrom and Klingenberg for comment Monday failed.

Xyience was founded in 2004. Sales grew to $20.4 million in 2006, from $109,000 in its first year.

Sattar's filing says the company had difficulty raising money to pay for expansion.

When Pike resigned and tried to sell Xyience stock in California, the state's Department of Corporations issued a desist and refrain order against Xyience, according to court papers.

Sattar said the company has obtained postbankruptcy financing enabling it to pay for a backlog of drinks being kept by the drink maker, Cott Corp. The financing will enable Xyience to avoid losing shelf space to competitors, which would be difficult to regain, he said.

Sattar said Xyience encountered financial difficulties because it spent large sums of money on advertising and promotion but couldn't get the drink distributed in many stores. He hopes to revitalize the company by expanding its distribution to other convenience and grocery stores and by giving away samples at sporting events in hopes of developing new customers.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or (702) 383-0420.