The "Insider Speaks"
Former Veteran Canadian Club Owner, John Cardillo, Salvages 17 Clubs from a Broken Deal!
Publisher's Note: First, let me mention that John Cardillo, the former owner of Premier Fitness Centers in Canada, has been suffering from cancer for the past three years. He's received extensive treatment and is hoping to recover and live on; however, there is no guarantee of such a positive outcome at this time. We wish John Cardillo God's speed in his recovery.
Over the past ten years, Club Insider has reported on self-induced problems that John Cardillo's Premier Fitness Center organization has been experiencing in the Ontario, Canada region with regard to their back office operations, and in particular, the offense of continued collections by his back office of funds after memberships have expired or were cancelled. We've chronicled, with support of several Canadian news agencies and TV stations, several incidents where Cardillo's Premier Fitness has been fined by the Canadian government for certain offenses. On December 12th of last year, Cardillo sold his 31-club Premier Fitness chain to Physiomed. Physiomed Fitness and Physiomed Health are organizations of chiropractors who run clinics throughout Ontario, and over the past 18 years, have been tenants within many Premier Fitness club facilities. This chain is owned and operated by Dr. Scott Wilson, DC. To say that the events since that sale are beyond bizarre, and speak to the total nastiness of some business deals, would be an understatement.
Without getting into further detail, we've published John Cardillo's writing below copied directly from a new website, www.premierfitness.ca, which he pointed out to us was a new website created specifically to "set the record straight." To further set the record straight, John Cardillo was completely forthcoming with information on all of these developments via a 30-minute phone call made to me before he told me about the new www.premierfitness.ca website.
In my opinion, after my conversation with John and reading his writing entitled, Dear Members, he's actually done a miraculous thing with the huge mess that ensued after Physiomed defaulted on the purchase. First, he got the 31 Premier Clubs back from Physiomed and tried his best to save all of them. But, certain unwilling landlords would not cooperate, thus those clubs could not be saved. So, the end result was that 17 of the 31 former Premier Fitness Clubs continue in operation today, and thanks to John's creativity, are now owned and operated individually by 17 of his former employees, under their own independent name brands chosen by them.
In the end, I say here today that John Cardillo produced a miraculous ending to an awfully nasty business dilemma, and he and his family should take great pride in the fact that he was able to salvage something from the terrible mess he inherited after the default on the deal by Physiomed's Dr. Scott Wilson.
DEAR MEMBERS OF THE FORMER PREMIER FITNESS
SETTING THE RECORD STRAIGHT – SECURING YOUR FITNESS FUTURE!
On December 12th, 2011 an agreement was made to sell the Premier Fitness clubs to Physiomed. Physiomed Fitness and Physiomed Health is an organization of chiropractors who run clinics throughout Ontario and over the past 18 years have been tenants within many Premier Fitness club facilities. DSM Leasing, the main lender to Premier Fitness, was required to transfer the business assets to Physiomed and entered into an agreement that simultaneously gave possession and control to Physiomed pending the completion of the documentation to implement the sale. Physiomed, as confirmed by court records, thereafter operated the facilities for its own account and undertook to pay all expenses from December 12, 2011 onward.
Physiomed had done 7 months of due diligence and negotiations CLICK HERE TO VIEW before taking over Premier Fitness.
On December 12, 2011 they took over all Premier Fitness bank accounts and all signing authorities. From December 12th onward membership fees, personal training payments etc were 100% in the sole control of and for the benefit of Physiomed Fitness. Premier Fitness as a business no longer operated after December 12th, 2011. As part of the purchase price, Physiomed assumed Premier's debt obligations to their main lender DSM Leasing and CRA which included significant disputed amounts which were under appeal. Therefore the DSM Leasing debt became the obligation of Physiomed CEO Dr. Scott Wilson, DC, his holding company - Physiomed Health Holdings Inc. (as evidenced by a General Security Agreement signed by Dr. Wilson and the registration by DSM Leasing against Dr. Wilson and his holding company Physiomed Health Holdings Inc. for $33 million dollars) and the individual chiropractors who became the owners of each former Premier Fitness location. Furthermore, each Physiomed Chiropractor signed their closing documents which were delivered by Physiomed to DSM's office in early January to complete the transaction. These documents were all part of the court submissions supporting the opposition to the receivership.
On December 21st and 22nd, 2011 over a 1000 former Premier Fitness staff attended a Phyisomed Fitness introduction/launch presentation conference at a Mississauga movie theatre where the CEO of Physiomed, Dr. Scott Wilson, DC, unveiled the plans for the new company. Shortly thereafter all staff were given new Physiomed employment contracts and Physiomed uniforms. CLICK HERE TO VIEW
As a member you will recall that, on or about December 23rd, 2011 a letter from Dr. Scott Wilson, DC was distributed to members at all clubs informing them of the acquisition of your club by Physiomed Fitness. CLICK HERE TO VIEW
Between December 24, 2011 and January 1st, 2012 all Premier Fitness signs came down and all clubs were rebranded by Physiomed with Physiomed Fitness signs across Ontario.CLICK HERE TO VIEW EXTERIOR AND INTERIOR PICTURES Physiomed spent over $300,000 for the replacing of Premier signs with Physiomed signs and another $50,000 to replace all interior club signs to Physiomed.
In the latter part of December the Premier Fitness website was taken down by Physiomed and redirected to the new Physiomed Fitness website which listed all the club locations as Physiomed Fitness locations. As part of their January promotion Physiomed launched their "30 Free" campaign CLICK HERE TO VIEW THE PROMO and sold all memberships on Physiomed Fitness membership contracts CLICK HERE TO VIEW. All sales, memberships, personal training, nutrition, guest fees, etc went into either Physiomed Health accounts CLICK HERE TO VIEW or the former Premier Fitness account now controlled solely by Physiomed for their benefit and which it was using on an interim basis while setting up its own new banking arrangements.
From the information received from the club managers, the Physiomed January advertising promotion was extremely weak in part due to the flyer not listing locations and containing a marketing call centre phone number that often went unanswered or to voicemail. The sales resulting from the Physiomed Fitness campaign in January were approximately 50% less than any other January in each of the clubs histories. From the start of January until mid February Physiomed, held 1pm daily conference calls with all Physiomed Fitness club managers for the purpose of reviewing sales results . All Physiomed Fitness clubs were totally under the management and control of Physiomed's Head Office at 80 Bloor Street West, Suite 1300, Toronto. CLICK HERE
Physiomed's lack of sales placed pressure on their ability to cover operating overhead, the cost of which they were fully aware of prior to the purchase of the business. Their reduced cash flow prompted Physiomed to approach the secured lender DSM Leasing for the purpose of borrowing additional funds to pay their bills. DSM Leasing refused to grant Physiomed any further financing.
Physiomed and DSM then decided that they could solve their problems by changing the original deal that they had made with each other and with Premier. To do this they took the position that the "Physiomed Fitness transaction had never closed" and decided that the former guarantees from the Premier Fitness operating companies could be called upon, thereafter allowing DSM Leasing to put most of the former Premier companies into receivership. This was done for the following purposes:
While the orchestration of the receivership was in fact a way for DSM Leasing and Physiomed to continue their control of the business and potentially avoid paying unsecured stake holders, landlords, suppliers, members and employees of closed clubs, the position taken in DSM's court material related to the receivership claimed the real reason for the receivership was simply to conclude the Physiomed deal as originally negotiated which they took the position had not technically closed.
The former owners fought the receivership and their lawyer argued that the receivership was, rather, a scheme to achieve the purposes set out above.
The Honourable Justice Spence appointed a receiver but severely limited its powers by in essence allowing the Receiver to preserve and protect the assets so that the deal could close as bargained. Specifically, no clubs could be closed or sold for 30 days, thus giving DSM the opportunity to close the deal with Physiomed. BDO was appointed by the court as Receiver.
During the week of February 13th BDO, the court appointed receiver, and DSM proposed to return to court immediately for the purpose of asking the court for permission to close down approximately 12 clubs. The former owners again fought this. At the same time DSM decide to refuse to fund the receivership any further which in turn forced the Receiver (BDO) to go back to court on February 17th, where they advised the court that after their review of the business and what they had learned over the 9 day receivership that the clubs should be returned to the former owners' control.
On February 17th, 2012 the court also ordered a 7 day Stay of Proceedings to facilitate for an orderly transition as the former owners took back control of the clubs.
What was learned was startling! Although Physiomed had been in total control of the business for almost two full months (prior to the appointment of the Receiver) in the best sales season and had had control of all the money coming in, there were nevertheless hundreds of thousands of dollars of unpaid obligations including payroll.
From February 17th at approximately 5pm onward the former owners took back control of the facilities and started paying all employees from that point going forward. They began the painful process of negotiating with landlords to get the unpaid rents settled. In some cases the landlords were terrific in working toward a positive outcome and others were unreasonable.
In many locations long time club managers stepped up and invested their personal fund and have taken ownership of their clubs.
With some landlords being unwilling to negotiate a feasible repayment plan of Physiomed's past due rents there was no choice but to close some locations. In these cases the members memberships are being honoured at nearby locations or arrangements were made with other local clubs who agreed to honour the memberships. In the case of facilities where there was no other clubs near by to accommodate members the operators have had staff on site giving members refunds for fees they had paid for prepaid time after which the club would be closed.
The facility operators would like to thank the dedicated and loyal members and staff who have so patiently stood by them during this most unusual and difficult time. Their commitment to you has never changed and they will continue to serve you for many years to come.