Drink-maker trustee sues Fertitta Enterprises affiliate

A trustee in charge of liquidating bankrupt energy-drink company Xyience Inc. is suing a company affiliated with Fertitta Enterprises and wants the court to seize the energy-drink company on behalf of the Xyience estate.

Zyen LLC, an affiliate that is managed by Fertitta Enterprises Inc., which is owned by the Fertitta family, took over Xyience in 2008.

In a lawsuit filed in bankruptcy court Tuesday, Xyience liquidating trustee David Herzog of Chicago accuses Fertitta Enterprises, whose family members own the Ultimate Fighting Championship and have a minority ownership in Station Casinos, and others of pursuing a "lend-to-own" strategy to gain control of Xyience, rather than buying out company shareholders.

Trustee attorney Jonathan Backman said the lawsuit spoke for itself.

Greg Garman, managing partner of Gordon Silver, which represented Fertitta Enterprises in the Xyience bankruptcy, disagreed with allegations in the lawsuit.

"We have reviewed the complaint," Garman said in an e-mail. "The (trustee) is new to the case and his factual conclusions are incorrect. These claims were previously brought by other parties and dismissed by the court."

Jennifer Wenk, UFC public relations director, referred a call for comment to Lori Nelson, spokeswoman for Station Casinos, which is also in bankruptcy. Nelson said she didn't represent Fertitta Enterprises.

Xyience, a privately held company with 380 shareholders, sold Xenergy energy drinks, fitness supplements and apparel, according to the lawsuit. In January 2007, Xyience agreed to sponsor UFC mixed-martial arts fights, through an agreement with Zuffa, which operates the UFC. Zuffa accepted Xyience stock as part of payments from Xyience for the sponsorship.

It became evident that Xyience's other creditors and stockholders "would render an ordinary takeover through stock acquisition too expensive," according to the lawsuit.

Then, William Bullard, a manager with Fertitta Enterprises, persuaded Xyience Chairman Adam Frank and board member Kirk Stanford to enable a takeover through a "lend-to-own strategy," according to the lawsuit. Bullard, Frank and Sanford are named as defendants, as is Fertitta Enterprises Inc.

Frank stopped pursuing negotiations for financing from other sources, the lawsuit said.

Fertitta Enterprises in July lent the debtor $1.5 million, according to the lawsuit. Frank notified some creditors and stockholders that he would shut down the company unless investors holding 70 percent of the stock and lenders agreed to be subordinated by a $12 million loan that Fertitta Enterprises directed Zyen LLC to make to Xyience.

Fertitta Enterprises manages Zyen.

Shutting down the company would have destroyed the value of Xyience, according to the lawsuit.

The other creditors and stockholders weren't told that Frank and Sanford would receive some of the $12 million loan, according to the lawsuit.

Xyience used the loan to pay $4.5 million to Zuffa, $1 million to Fertitta Enterprises, $257,000 to Frank and $257,000 to Sanford, according to the lawsuit.

Bullard became a director at Xyience, the lawsuit said. Bullard, Frank and Sanford met with representatives of Manchester Consolidated Corp. of Canada "to serve as a front for the transfer of assets following Zyen's foreclosure (of Xyience assets) or, if necessary, the forced asset sale during a bankruptcy case," the lawsuit said.

Xyience was sold to Manchester, and "Manchester, in accordance with the parties' agreement," defaulted on its obligations to Zyen and allowed Zyen to convert its debt into equity (in the energy drink company).

Zyen became the owner of Xyience as previously planned, the lawsuit said.

In the lawsuit, Herzog seeks a judgment for damages for the Xyience bankruptcy estate. He asked Judge Mike Nakagawa to consolidate Zyen with the Xyience estate with Zyen getting an equity interest or unsecured claim against the estate or both.

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