Zultys Technologies

Situation

Zultys Technologies was a California-based developer and manufacturer of Voice-over-Internet-Protocol ("VoIP") products with over 4,000 end customers. The Company markets and distributes its products in over 115 countries and provides product support in 25 languages.In 2006, with the assistance of a bulge-bracket investment bank, Zultys was unable to attract investors through a preferred stock offering and found itself in dire need of working capital. With insufficient funds for its payroll, Zultys was forced to lay off their entire employee base of over 200 workers in late July.

Engagement

Gordian Group was engaged in August 2006 by the Board of Directors to replace the bulge-bracket investment bank and market and sell substantially all of the Company’s assets or securities at a time when Zultys had run out of liquidity. Despite the release of almost all employees, the continuing deterioration of asset value, and the expedited nature of the sale process, Gordian Group was able to establish a stalking-horse bidder and successfully sell the Company to a strategic investor through a spirited Chapter 11 363 auction within several months of being engaged.Gordian, in cooperation with counsel to the Official Committee of Unsecured Creditors, also advised Zultys on purchase price valuation, transaction structure, content of the asset purchase agreement, and strategy on "working the bidders" to maximize value.

Outcome

This engagement is a classic example of Gordian’s "Hail Mary" expertise. As a result of this competitive process, the ultimate purchase price ranged from 5.6x to greater than 20.0x the stalking-horse bid, on account of pro forma equity and future profit participation received. The senior secured creditors received a full recovery, and the unsecured creditors received a substantial recovery not anticipated at the time of the filing.