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Webvan set to divvy up assets

The defunct online grocer has $25 million to spread among creditors. But that's only a fraction of the $1.2 billion that investors sank into the company.

After holding one of the biggest fire sales the Internet has seen, Webvan is divvying up the money it has left: $25 million.

The online grocery-delivery company, which closed its doors last July, said Friday that it has largely completed liquidating its assets. On Wednesday, Scott McNutt, counsel to the unsecured creditors, said the company will begin the process of distributing the proceeds, though it could take as long as a year.

The money represents only a fraction of the $1.2 billion that investors sank into the company, among the Web's costliest flameouts to date. Some of those walking away with nothing from Webvan's bankruptcy are Benchmark Capital, Softbank, Sequoia Capital and, through its HomeGrocer acquisition, Amazon.com and former Netscape Communications CEO Jim Barksdale of The Barksdale Group.

But ex-Webvan Chief Executive George Shaheen, who worked for the company for a little over a year, stands to walk away with a bundle.

That is because Shaheen is among the company's unsecured investors, businesses or people owed money by Webvan.

The first to get money back are secured creditors--usually a bank that has lent money to the company under terms that allow it to collect specific property should the company default on its loan.

There are few of these creditors in Webvan's case, McNutt said. That means there's enough money to distribute among the second priority of creditor, or anyone who lent the company money under less-secure terms. These creditors can include real estate companies, manufacturers or employees.

Mercedes Leasing, which provided delivery vans to Webvan, has filed a claim worth about $20 million, McNutt said. But he added that it is too early to know what percentage creditors can expect to receive.

A bankruptcy administrator is poring over claims to make sure they are consistent with what the defunct company agreed to. Eventually, the administrator will determine how much to pay each creditor.

In the company's bankruptcy filing, it listed assets of $1.2 billion and debts of $106 million.

In most dot-com bankruptcies, even secured creditors get only a fraction of the amount they seek, and unsecured creditors often get nothing, McNutt said.

"It's now up to the bankruptcy administrator," McNutt said.

Also left in the cold are individual investors, such as real estate agent Gus Milano, who bought Webvan stock two years ago thinking the idea of delivering groceries to people's homes was a surefire hit.

"I believed in the concept," Milano said. "I thought that most people today would consider using Webvan. I guess I was wrong."

Webvan has become a poster child for the boom-and-bust cycle of e-commerce. Founded by Louis Borders, who also founded Borders Books, Webvan attracted huge sums from investors and boasted a star-studded board of directors and management team, including former Andersen Consulting Chief Executive Shaheen.

In addition to spending lavishly on big executive salaries, the company dropped huge sums on highly automated warehouses and fleets of delivery vans.

But Webvan struggled with lower-than-expected demand and budget-busted operational costs, and it never posted a profit in any of the cities it operated in.

Borders coaxed Shaheen to Webvan by offering him more than a million shares of Webvan stock. Webvan also agreed to pay Shaheen $375,000 a year for life and to continue making the payments to Shaheen's wife in the event that he died before her, according to records.

Over a 20-year span, Shaheen would have collected more than $7 million. He has filed a claim with the bankruptcy administrator for $5 million.

After Shaheen resigned and the deal was made public in a report by CNET News.com, some stockholders were outraged. Some of them speculated that a bankruptcy judge would throw out the deal.

A claim can only be challenged if it conflicts with what the company agreed to pay or if it is damaging to the other creditors, McNutt said. For instance, one creditor can't expect to be paid all the assets available.

McNutt declined to discuss Shaheen's case specifically but said there is nothing in the law that allows a claim to be rejected because someone thinks the company made a bad deal.