Iain Milnes on the Zultys management buy out

Following is email correspondence from Iain Milnes, founder and president of Zultys to Technology & Business magazine.

“We ran out of money at the end of July and made the majority of staff in the US redundant without making payroll that was due at the end of that month. We tried to do a deal outside of bankruptcy but couldn’t. I took the company into Chapter 11 bankruptcy on 8 September. A sale of the company’s assets was originally scheduled for 11 October, and then it was pushed back to 23 October. At that hearing in the San Jose Bankruptcy Court the sale was postponed to 25 October and at that hearing it was postponed to 30 October.

I had tried to compete with a management buy out (MBO) but was unable to raise sufficient funds in the short time.

There were two other bidders. A consortium of US resellers led by Inpath and a newly formed company, Pivot VoIP, created by Avi Winerub and some former software engineers. Avi is the sole owner of Telrad Connegy, a company based in Israel with legacy PABX systems.

On Monday 30 October, the sale hearing concluded Monday at 22:10 [US time]. After approximately 30 rounds of bidding, Pivot was declared the successful bidder on the following terms:

* $2,650,000 cash

* $1,000,000 promissory note with interest at nine percent, secured by all assets (including after acquired assets) of the buyer, payable $300,000 principal plus interest on the first anniversary of the close, $300,000 principal plus interest paid quarterly during the second year and $400,000 principal plus interest paid quarterly during the third year.

*10 percent of the shares of the buyer, with anti-dilution protection comparable to that of the company’s owner.

*Profit participation of five percent of EBITDA for three years up to $10,000,000.

*Agreement to close no later than seven days after entry of the court orders approving the sale and the assumption and assignment of contracts.

The buyer has not expressed any interest in retaining the existing management, so I shall be leaving the company. I founded the company exactly five years previously and have subsequently put $67M USD of my own money into the company plus five years of real hard work. It is with sadness that I leave the company. The buyer has also expressed no interest in retaining the company’s sales offices around the world.”

Iain Milnes

President

Zultys Technologies