'Standing Eight' Count Started As Gym Operator Gets Notice

WALL STREET WEST

Sports Club Co., operator of the high-end Sports Club/LA, is getting more pummeled than one of its punching bags.

The company last week announced it received a notice of default from U.S. Bank, trustee for the holders of its 11 3/8 percent senior secured notes due March 2006, because the gym hasn't filed the quarterly financial results.

In its letter, U.S. Bank gave Sports Club 30 days to file certified results or face being in default of the company's loans. Sports Club officials blame the delay on "complex issues" stemming from new accounting rules implemented by the Securities and Exchange Commission.

The company said in a statement earlier this month that it worked out a timeframe with the American Stock Exchange, where the stock is listed, for submitting the proper filings. Even after the threat of default, there was no word when those financials would be ready.

"While no assurances can be given as to the timing of the company's filing, the company continues to make satisfactory progress towards completion of its financial reports and expects to file within the allotted 20-day period, which would nullify (U.S. Bank's) notice," wrote Timothy M. O'Brien, Sports Club's chief financial officer in a statement.

Last month, preliminary results were filed for the three months ended March 31 that showed a loss of nearly $6 million on revenue of $37.2 million. In the year-ago first quarter, the loss was $3.7 million on revenue of $32.6 million.

Sports Club faces increased competition from operators of ritzy gyms, especially New York-based Equinox Holdings Inc., which is undergoing a national expansion and opening two new operations in Los Angeles.

The losses spurred Sports Club to sell off more shares two months ago in order to continue making debt payments. Sports Club sold $6.5 million shares in a private placement to its chief executive, Rex A. Licklider, and its primary investors, Kayne Anderson Capital Partners LP and Millennium Entertainment Partners LP.

"The proceeds of this offering are being used to make the $5.6 million interest payment on our senior secured notes, with the balance to be added to working capital," wrote Licklider.

The tumult comes on the heels of a shakeup in the company's executive suite. Sports Club founder D. Michael Talla relinquished his role as chairman and co-chief executive in March to Licklider so he could "focus more on outside real estate activities," according to a statement. Talla remains on the board.

Andy Fixmer

Bionic Deal

In the end, it was simply too good an offer to walk away from.

That's how biotech entrepreneur Alfred Mann categorized the $740 million cash sale last week of Advanced Bionics Corp. to Boston Scientific Corp., with earn-out provisions that could raise the total sale price to some $4 billion over the next decade.

The deal will allow Mann and Jeff Greiner, co-chief executives of the Valencia manufacturer of implanted hearing devices, to run the company as an autonomous business unit of the Natick, Mass. medical device maker. At the same time, Advanced Bionics will have access to $100 million in Boston Scientific funds over the next two years to help fund product development.

"How could you turn that down," said Mann, 78, who owns just under 50 percent of the company. "They came to us with an offer that gives us a large part of what we would get with being a public company."

Mann ran insulin pump maker MiniMed Inc. as a public company before selling it and a related business to Medtronic Inc. for $3.7 billion in 2001. He's now in the process of taking his other big company, MannKind Corp., public.

MannKind, which is developing a delivery system for inhaled insulin along with other products, filed an $86 million initial public offering last month but so far the date and share prices have not been set.

MannKind has had to spend $615,000 in accounting fees alone in preparation for its IPO, an amount that Mann termed "insane," especially since the legal fees are expected to be even higher.

Meanwhile, Mann said he plans to take the proceeds from the Advanced Bionics sales and put them into his ongoing philanthropic activities, including planned biomedical engineering institutes around the country and overseas.

Laurence Darmiento

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