James Khatiblou, the proprietor and CEO of Onyx Motorbikes, was watching his e-bike startup disintegrate.
Onyx was being evicted from its warehouse in El Segundo, Los Angeles. The corporate’s unpaid payments have been stacking up. His chief working officer had abruptly resigned. A cargo of round 100 CTY2 filth bikes from Chinese language provider Suzhou Jindao was delayed, and prospects have been beginning to demand refunds – a serious downside contemplating Khatiblou already owed each lenders and shareholders some huge cash.
Khatiblou, recognized for his heat and outgoing persona, was fearful and burdened, in keeping with interviews with individuals who labored alongside him. Within the waning months of 2023, he was so distracted by the startup’s rising debt and authorized issues, he was unable to observe by on fundamental duties. On the similar time, his well being was deteriorating, in keeping with his mom, Diane Khatiblou. The colourful and energetic man with the toothy smile was having hassle respiratory and even strolling, she mentioned.
Then Onyx’s issues escalated in a approach no person anticipated.
At 37 years previous, Khatiblou – who cherished driving the halfpipe on the firm warehouse and touring the world – died unexpectedly. The Los Angeles County Coroner’s Workplace decided Khatiblou suffered a pulmonary embolism, itemizing deep vein thrombosis as a secondary trigger.
His loss of life on December 12, 2023 added a brand new layer of uncertainty to the way forward for Onyx and its belongings.
Khatiblou left behind no will and no succession plan — solely tens of millions of {dollars} in debt and questions from employees, collectors and prospects about find out how to proceed when the only proprietor of an organization dies.
At the moment, nobody owns Onyx Motorbikes, which suggests all operations – buyer deliveries, funds to suppliers and collectors – have floor to a halt. Oxygen Funding, an Orange County-based creditor to which Onyx owes round $2.2 million, is petitioning the Los Angeles County probate court docket to turn out to be the administrator of Khatiblou’s property.
“[Onyx] had such good prospects. It had such a loyal fan base and such an excellent product, and it was all simply mainly put in limbo the day James handed away,” Adam Lomax, chief govt officer of Oxygen Funding, informed TechCrunch. “And it has remained in limbo all the way in which as much as the purpose the place we are actually.”
As administrator, Oxygen might assist put some items collectively. However quite a few authorized wrinkles threaten to derail these plans.
A battle between Oxygen Funding, two former shareholders and Onyx’s Chinese language components provider is now raging over who controls Onyx’s remaining belongings – bikes, chargers and batteries – and who will get to be made entire first.
Primarily based on interviews with collectors, attorneys and a number of former workers at Onyx, the corporate’s story highlights how sophisticated issues can turn out to be if the only proprietor of a enterprise doesn’t make a plan for what occurs once they die.
A life modified by $1
Khatiblou didn’t create Onyx Motorbikes. Its founder is Tim Seward, who’s now VP of product and design at e-bike firm Ubco, and who initially simply needed to make a cool electrical moped to impress his associates.
“I grew up loving Volkswagens and classic automobiles and bikes,” Seward informed TechCrunch. “I cherished that fashion and needed to make an electrical moped model of that.”
Seward began constructing out what would turn out to be the prototype for Onyx’s well-liked RCR electrical filth bike in 2016 whereas a designer at LG Electronics, the place he labored alongside Khatiblou.
“The look of the bike is definitely an eagle with its wings folded collectively because it dive bombs,” Seward informed TechCrunch. “The 2 aspect panels are the wings. The wooden half is form of the physique or the torso, and the seat could be the tail of the eagle.”
As Seward drove his bike round San Francisco, individuals saved stopping him to ask the place they may get one. After saying, ‘It’s not on the market,’ sufficient instances, Seward lastly determined that perhaps it must be.
He launched an Indiegogo marketing campaign for Onyx Motorbikes in 2018, elevating almost $1 million. Onyx promised to ship American-made bikes, which Seward mentioned would assist the corporate keep higher high quality management, create native jobs, and keep away from import tariffs.
The bikes have been an immediate hit. Folks cherished the Nineteen Seventies and Nineteen Eighties enchantment of the design, the picket physique, the made-in-the-USA-style. And, most significantly, the bikes might shred.
Seward employed out a group of technicians to assist him fulfill his rising order rely. Khatiblou, who lived close to Onyx’s San Francisco store, would usually are available in after his new day job at Amazon to blow off steam. He even constructed his personal Onyx bike after shopping for one on Indiegogo, mentioned Seward, who shared a video that confirmed Khatiblou’s pleasure for his new toy.
By early 2019, Seward was getting burned out with the duties of working a enterprise. He needed to give attention to designing and constructing bikes, not take care of buying agreements and payroll. He began looking for a merger.
What he ended up getting was an acqui-hire deal from Fowl, the struggling shared e-scooter firm. As a substitute of buying Onyx and its belongings, Fowl paid Seward a lump sum within the tons of of hundreds to return and work for them full time. As a part of the deal, Seward needed to discover a substitute for himself at Onyx. He ended up touchdown on Khatiblou, who had supplied to give up his Amazon job and step up into the CEO position.
Keen to dump the enterprise duties of Onyx, Seward bought Khatiblou his firm in Might 2019 for $1.
“My tax advisor had mentioned to try this to keep away from paying taxes, or one thing like that, but in addition James didn’t have some huge cash on the time,” mentioned Seward. “Primarily, it was due to what Fowl was providing me, which greater than supplemented what I believed I ought to have been paid for the corporate.”
Khatiblou stumbled a bit when he took over the enterprise, says Seward. In any case, he had by no means run an organization or handled e-commerce earlier than. However it was clear he was devoted to working Onyx and getting cool bikes into the fingers of loyal prospects.
“He lived and breathed Onyx,” Diane Khatiblou informed TechCrunch. “It was all the things to him, and he put all the things into it.”
Whereas Seward had no official ties or claims to Onyx at this level, he continued to advise Khatiblou as a buddy and to provide content material for Onyx’s social media. That relationship continued till the 2 fell out over a dispute concerning new shareholders Khatiblou took on.
Per Seward’s retelling, Khatiblou had determined to deliver on backers who would make investments tens of millions within the enterprise. Regardless of the potential monetary upside of the association, Khatiblou wouldn’t cease complaining about how the deal would scale back his possession in Onyx. Seward – annoyed by his buddy’s doubts – took a step again from Khatiblou and Onyx, doubling down on his work at Fowl constructing new e-scooter and e-bike fashions.
An online of authorized and monetary troubles
As a first-time enterprise proprietor navigating the out of the blue scorching e-bike house, Khatiblou made some errors. He signed himself as the private guarantor for lending agreements; and he overspent on provide and accounting prices. And even towards the tip, because the enterprise spiraled, Khatiblou turned down what might have been a lifeline: a buyout supply from a competitor.
He additionally mismanaged the connection along with his two shareholders, who purchased into the enterprise and would finally sue him: Kenneth Ames, a former engineering and sourcing govt within the LED lighting enterprise based mostly in Simi Valley, and Troy Smith, a self-employed accountant based mostly in Carlsbad.
In September 2019, by a “shareholders settlement,” Ames bought 2.2 million shares of frequent inventory in Onyx Corp., and Smith purchased 800,000, leaving Khatiblou the remaining 5 million shares. TechCrunch was unable to study the unique greenback quantity of those fairness investments. Beneath an “working settlement,” Ames and Smith additionally collectively held a 37.5% proportion curiosity in Onyx LLC.
Onyx filed as a company in California and Delaware in 2018. The separate LLC entity was arrange in California a yr later, when Ames and Smith got here onboard. Usually, an organization will arrange a company along with an LLC to isolate liabilities, for extra versatile tax planning, to customise possession construction, or to guard belongings listed below the LLC.
TechCrunch was unable to acquire a duplicate of Onyx LLC’s working agreements with Ames and Smith, which could have given the shareholders the authority to take part in day-to-day administration and operation of the enterprise.
The 2 didn’t reply to repeated requests from TechCrunch for extra data, however it seems they did have a hand in firm affairs — at the very least, at first. Seward informed TechCrunch that, whereas he wasn’t conscious of Smith on the time, he had met Ames and thought he was “an excellent man.”
“He was good and knew enterprise and that’s what Onyx wanted,” mentioned Seward, noting that Ames helped improve the manufacturing course of he had began. “From my perspective, he was making Onyx wholesome.”
A month after signing the working settlement, Khatiblou signed a trademark project settlement, transferring possession of Onyx’s branding from Onyx Corp. to Onyx LLC.
Khatiblou couldn’t shake his distrust of his new enterprise companions, nevertheless, in keeping with the accounts of individuals near him on the time. Lower than a yr after Ames and Smith had turn out to be shareholders, Khatiblou took motion to remove their decision-making powers. In August 2020 and December 2020, Khatiblou unilaterally eliminated Ames and Smith, respectively, as officers, administrators and managers of the Onyx corporations.
Across the similar time, Oxygen Funding, an bill factoring firm that gives money flows to small- and medium-size companies, entered the image. Khatiblou and Oxygen signed a commerce payables settlement in December 2020. Beneath the settlement, which TechCrunch has seen, Oxygen purchases bikes and components instantly from suppliers and distributors on behalf of the e-bike firm, and Onyx pays it again plus varied charges.
Per the phrases of the settlement, Onyx’s provides and belongings could be held as collateral. Khatiblou was personally liable if Onyx did not make funds.
Will Drewery, founder and CEO of Diagon.ai, a startup constructing a platform for tools financing, informed TechCrunch that collectors’ charges are fairly customary within the business. Signing on as a private guarantor, nevertheless, just isn’t.
“It’s authorized to do it, however it’s dumb,” Drewery informed TechCrunch. “And locations like Y Combinator, Techstars, any advisor or investor will let you know, like, ‘Are you an fool? Why would you signal a private assure? Don’t ever try this.’”
Clara Brenner, co-founder and managing associate of VC agency City Innovation Fund, had the same sentiment.
“Private legal responsibility… is one thing you actively run from,” Brenner informed TechCrunch. “It’s one thing we strongly dissuade our founders from doing as a result of more often than not they’re not tremendous refined about these mechanisms, and it’s simply actually dangerous.”
Oxygen Funding’s Lomax, for his half, mentioned making the borrower a private guarantor is customary protocol when a enterprise doesn’t have sufficient belongings to again up the credit score line.
However now that Khatiblou has handed away, all Oxygen and different collectors can fall again on is no matter e-bike provide stays. Oxygen and Ames, along with Smith, are actually duking it out for entry to these belongings.
The CEO was slipping
Days earlier than Khatiblou died, Mig Cernicky, Onyx’s buying director, mentioned his CEO was slipping.
“A number of of us have been working intently with James to attempt to get him on the ball…and handle these eviction notices,” Cernicky informed TechCrunch. “At that time, his psychological capability had declined to the purpose that he was having a tough time even carrying on a easy dialog.”
Diane Khatiblou informed TechCrunch that along with stress, her son was additionally out and in of the hospital and was “very unwell for a few months earlier than he died.” He was initially recognized with pneumonia. It seems that it was a blood clot that precipitated Khatiblou hassle respiratory and issue strolling to the purpose that he began utilizing a cane, in keeping with Diane Khatiblou.
“I didn’t notice how a lot ache he was in as a result of, after all, he was making an attempt to tug himself up and never complain,” she mentioned.
Realizing that Khatiblou wasn’t in a match state to deal with the urgent issues at hand, Cernicky mentioned he began pressuring Onyx’s COO, Tay McDaniel, to step up – to which she replied with a resignation letter.
At a loss for what to do and determined to attempt to save Onyx, Cernicky drafted a doc on December 8 naming himself as president and COO of Onyx Motorbikes for Khatiblou to signal.
“It’s the final doc that James signed,” mentioned Cernicky.
Khatiblou died 4 days later, and Cernicky stepped in as appearing CEO to attempt to preserve Onyx alive.
Khatiblou was single and had no youngsters when he handed away, so his mom, Diane Khatiblou, turned his sole inheritor.
That didn’t imply she was routinely accountable for Khatiblou’s belongings, which incorporates Onyx — solely that she had first rights to them. In line with the California Probate Code, in instances like this, the court docket must appoint an administrator to resolve what to do with the corporate. After initially petitioning a Los Angeles probate court docket in March 2024 to step in as administrator of her son’s property, Khatiblou’s mom reversed course and withdrew her petition.
Now, Oxygen Funding is petitioning the court docket to turn out to be the administrator, its chief govt Lomax informed TechCrunch. That’s a method for the creditor to make sure that it will get its a reimbursement. Lomax wouldn’t affirm whether or not Oxygen would promote firm belongings to pay itself and different collectors again or discover another person to select up the items and preserve the corporate alive.
Collectors turn out to be secured collectors once they file a Uniform Business Code (UCC) kind. Oxygen filed certainly one of these with Delaware’s Secretary of State in December 2020, which the creditor says makes it first in line to be paid again its $2.2 million. There are different collectors ready in line too. JP Morgan Chase claims to be owed $43,323.29, in keeping with probate court docket paperwork. In mid-Might, a buyer who had bought an RCR filth bike and a few equipment again in November 2023 additionally filed as a creditor in probate court docket to get his $6,019.97 again. Sources say Shopify, the platform below which Onyx made its gross sales, can also be owed cash however has but to file a declare.
Ames and Smith are additionally claiming to be collectors. The pair filed UCC types in California for each Onyx Motorbikes Inc. and Onyx Motorbikes International Holdings LLC on Might 26, 2021 – the day after Khatiblou signed a settlement settlement that may see him shopping for again their shares for some $10,000 per 30 days over the span of 80 months.
By submitting these UCC types, Ames and Smith basically turned a share buyback right into a mortgage settlement – and they’re holding Onyx’s belongings, “tangible and intangible,” as collateral towards their safety pursuits.
Counsel for Ames and Smith informed TechCrunch that Onyx had breached its compensation settlement when Khatiblou handed away and will not proceed shopping for again shares.
“Accordingly, Mr. Ames and Mr. Smith, as secured collectors, are taking steps to foreclose on Onyx LLC’s belongings,” reads a press release from the lawyer.
The 2 shareholders earlier this month gave discover of a lien sale to Khatiblou’s property and appearing CEO Cernicky, in keeping with a number of individuals acquainted with the matter.
The discover advises that Ames and Smith plan to promote Onyx LLC’s collateral someday on or after Might 21. Within the discover, collateral is outlined as a basic all-assets description. On the time of publication, none of Onyx’s disputed belongings had been bought.
Along with Ames and Smith, their counsel didn’t reply to TechCrunch’s requests for extra data, like what belongings they’ve of their possession and plan to promote.
E-bikes caught in storage
Since there’s no cash in Onyx’s coffers, the one approach for Oxygen or anybody else to be made entire is to promote no matter belongings and provides stay. Oxygen posits that because it paid for Onyx’s provide and because the e-bike firm defaulted on its funds, it’s the rightful proprietor of any remaining belongings.
There’s only one downside. These belongings are being held break up between at the very least two events.
Oxygen is in possession of about 100 batteries and chargers in addition to 25 CTY bikes, confirmed Lomax. The remaining 74 bikes are in a warehouse utilized by Suzhou Jindao, the e-bike meeting producer in Suzhou that was Onyx’s provider. Suzhou Jindao is ready for a court docket order that directs the place the stock ought to go.
The Chinese language provider has additionally been pressured by Ames and Smith to carry onto the bikes and guarantee they don’t make it into Oxygen’s fingers. In an electronic mail that TechCrunch has seen, counsel for the 2 traders requested the provider to carry off on delivering the bikes “in gentle of the liens held by Troy Smith and Ken Ames.”
With belongings break up between two events and an online of authorized claims, it’s unclear precisely who would be the victor — or if Onyx will ever exist once more.
There are a number of prospects. Ames and Smith might use the trademark project to dam Oxygen and others from promoting Onyx-branded gear. The pair might use the tactic to not solely wrest management of the belongings however as a technique to deliver the Onyx model again.
To make issues extra tough, Ames and Smith – who declare to be collectors per the share buyback settlement – now seem to have regained full possession of their shares, making them energetic shareholders. It’s because their shares have been being held in escrow whereas Onyx was paying them again; when Khatiblou died and Onyx defaulted on funds, these shares moved out of escrow, which Smith has confirmed to TechCrunch.
“Both you’re an proprietor otherwise you’re not an proprietor,” mentioned Lomax. “Which is it? As a result of when you’re an proprietor, then we have to speak to you about how Oxygen Funding will get repaid.”
