The door that kicked Commerce One on executive's way out
**NOTE: Here's a photo of the house: pruweb.com
Tech firm is stuck with a huge home it lent a vice chairman millions to buy
By Jessica Guynn
CONTRA COSTA TIMES
Commerce One Inc., already soaked in red ink, has taken a nearly $1 million bath for a home loan to a former top executive because the beleaguered software maker is having trouble unloading the executive's Pleasanton estate even after slashing the asking price.
Commerce One assumed the obligation to repay $3.5 million in loans for Dennis Jones, a former FedEx Corp. bigwig recruited in June 2001 to help turn around the company. Jones had taken out the loans to buy an exclusive Moller Ranch Estates home.
At the time, hiring Jones, an Old Economy veteran widely credited with turning FedEx into an aggressive technology company, was considered a coup. Commerce One, which skyrocketed during the dot-com boom, had been grounded by the economic slowdown and a falloff in technology spending.
By the time Jones and Commerce One agreed to part ways a year later in June, the company had fallen on even harder times. Commerce One's sales had plummeted as its software that allows companies to buy and sell goods over the Web failed to attract buyers.
It laid off a huge chunk of its work force and divulged ever-widening losses. Jones packed up, leaving Commerce One with the house and "related personal property" to cover the loans.
Jones negotiated a sweet deal to join Commerce One as its vice chairman and chief operating officer: $300,000 in
salary, a $15,000 bonus and the option to buy 2 million shares of Commerce One stock at a discount. Then in August of last year, Commerce One gave Jones an interest-free bridge loan in two installments for a total of $2,379,967.15 so that he could buy a home.
Later that same month, Commerce One helped Jones secure a loan from Bank of America for $3.5 million to repay the loan from the company and to pay for furnishings, landscaping and relocation expenses.
Chief Executive Officer Mark Hoffman refused to comment. Jones, who has set up a consulting business and a nonprofit foundation near Memphis, Tenn., said the loan agreement was structured to "avoid cash coming off the balance sheet by Commerce One buying the house or making the direct loan to me."
When Jones resigned, "the loan was basically changed from his hands to ours," said Commerce One's corporate
treasurer, John Biestman.
Commerce One's timing couldn't have been worse. The struggling software maker got stuck with selling a
multimillion-dollar house just as demand in the high-end market softened. The four-bedroom, 21/2-bath,
4,900-square-foot house, which features hardwood and marble floors, a spiral staircase, three fireplaces, a gourmet kitchen and a four-car garage, has been on the market since June. Because of the house's drop in the value, Commerce One took a $977,000 charge in the second quarter, Biestman said.
Loaning wealthy executives money to buy homes has come under fire in the wake of WorldCom, Enron and other corporate accounting scandals that have exposed how shareholders have been left holding the bag for exorbitant pay packages.
Hundreds of publicly held companies have made or guaranteed loans for top executives. These deals usually only draw scrutiny when a company hits tough times.
Company loans are now restricted under legislation passed by Congress last month and signed into law by President Bush. The Sarbanes-Oxley Act bans companies from forgiving outstanding loans.
This was not the first time Commerce One had loaned a substantial amount of money to an executive to buy a home.
Robert Kimmitt, former president of Commerce One, got a $5 million loan that AOL Time Warner Inc. reportedly repaid when it hired Kimmitt in June 2001. Jones took over as president when Kimmitt left the company. Commerce One outlined the loans to Kimmitt and Jones in statements to shareholders according to government disclosure rules.
Part of the problem Commerce One now faces is that it overpaid for the home, according to a real estate agent who reviewed the property for the Times.
The house originally listed for $2,998,000 before it was reduced to $2,488,800. Jones bought it for $2,425,000. A larger neighboring home sold for $1,998,000 a year earlier, after dropping its list price from $2,398,000.
Amarind Tan, one of the Prudential California Realty agents marketing the property, said the house at 8009 Horizons Court is just one of about 80 homes priced at $900,000 or more in Pleasanton. The glut of high-end homes has made it tougher to sell the house, which is one of the most expensive, if not the most expensive, on the market there.
Commerce One put the house on the market for $2,399,000. When it got no nibbles, it reduced the price to $2,149,990. Commerce One hopes to get an offer on the house this week, Tan said.
John Balen, a venture capitalist who sits on Commerce One's board of directors, defended the loan that the board
approved. "We needed a senior executive to bolster the management team," Balen said, and had to foot some of the bill for Jones' move to the costly Bay Area.
"At the time we didn't know what we know now," he said. "Companies will still have to subsidize these relocations. They will just have to figure out different ways of dealing with it." |
