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Zultys Auction to Resume Wednesday with Bidding at $1.55 Million
[October 24, 2006]

Zultys Auction to Resume Wednesday with Bidding at $1.55 Million

TMCnet Executive Editor

A federal bankruptcy judge plans to start the bidding of embattled VoIP supplier Zultys Technologies (News - Alert) at $1.55 million when the auction continues on Wednesday, TMCnet has learned.

At an all-day hearing on Monday in U.S. Bankruptcy Court, Northern District of California, in San Jose, Judge Arthur S. Weissbrodt adjudicated before the various parties in the case in an attempt to get them to agree on their own to the terms and conditions of the auction.

“The judge said people should find common ground themselves,” a person familiar with the situation told TMCnet.

In attendance at the hearing were Al Reis, the former EVP of operations at Zultys; Matt Ferro and Michael Yee representing Omaha, Neb.-based InPath Devices; lawyers representing Pivot, a newly created company backed by telecom equipment vendor Telrad Connegy of Israel; and lawyers representing underwriters and the creditors’ committee.

Ironically, Founder and President Iain Milnes wasn’t present at the hearing.

InPath officials initially started the bidding at $700,000 on Monday but then pushed to delay the auction until Wednesday in order to buy more time to consult with their venture capital backers, a source said. But the creditors committee strongly opposed any further delays. InPath also argued for the auction to be conducted via sealed bids but Pivot opposed the motion.

In a show of good faith, InPath subsequently increased its security deposit to $650,000 and pledged to start the bidding at $1.2 million. After Pivot announced its intentions to start the bidding at $1.5 million, InPath countered with a pledge of $1.55 million. The hearing is scheduled to continue before Judge Weissbrodt on Wednesday, at 11:30 am PT, according to the case docket.

InPath officials couldn’t be reached for comment. Milnes didn’t respond to telephone inquiries.

Vladimir Movshovich, the former vice president of technology at Zultys who was recently recruited to Pivot, argued that his new company – which consists mainly of a core set of former engineers – is the most logical candidate to acquire the acclaimed Zultys product portfolio.

“It's a chance for us to grow Pivot into a strong company. It's my belief that the core of the Zultys product is the engineering. I do believe that core knowledge is kept with engineers who came to Pivot,” Movshovich told TMCnet during a brief telephone interview.

The auction could be the final chapter in the saga of Zultys, which at the height of its success abruptly shuttered its doors last summer, fired most of its employees and left much of its reseller community in disarray amid a lack of funding. In the end, the company filed for Chapter 11 bankruptcy protection.

But it remains unclear how the auction will impact creditors and other existing obligations. Under Section 363 (f) of the Bankruptcy Code, petitioners can seek the sale of assets “free and clear of liens and encumbrances.” At the time of its Chapter 11 filing on September 8, Zultys had more than $45 million of liabilities on its balance sheet and assets of only $1.8 million. It owes $2.75 million of back wages and more than $41.8 million of unsecured creditor claims.

“As to the purchaser, it would be acquiring the assets free and clear of any liens, claims or interests asserted against the debtor, pursuant to Section 363 (f) of the Bankruptcy Code,” explained Jonathan Pasternak, a partner at Harrison, NY-based Rattet, Pasternak & Gordon Oliver.


Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page.

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