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photonfred 12/4/2012 | 9:44:57 PM
re: Tellium Execs in Trouble? I think you may want to become more familiar with the difference between ISO (incentive) and NQO (non-qualified) options you described. A great book and a good reference site is http://www.fairmark.com/execco... .

BTW, Officers are not elegible to receive ISOs which are the only option class of the two open to immediate excercise. Also, the tax treatment of ISOs as capital gains only applies if you hold for the longer of 2 years from the grant date and 1 year from the excercise date, otherwise a disqualifying disposition occurs and they are treated as supplemental income taxed at 28% Fed just like NQO options.

Last, if any Tellium folks did receive ISOs which were immediately excercisable, they must be granted at the current fair market value of the stock (set by Board if still a private co). They could file a Section 83B election with the IRS within 30 days of exercise to pay fed tax on the bargain element (spread) then. Which likely would be zero since the grant and excercise price are the same.

So the bottom line is they likely have another form of option class covering restricted Class A shares for Officers which they immediatly excercised and have no tax obligation, only the loan obligation.

Since the board is made up of respective VCs with even larger stakes/warrants which are also under water, it makes sense to avoid the loan forgiveness and possibly even call in the loans in order to make an acquisition more attractive. But then, which of these Officers would be around after an acquisition anyway, so collect while you can. Then of course there's the old protection offered by Chapter 11.

If I had a loan like this and had to liquidate personal assets to cover it you can bet I'd "Thank Heaven for Chapter 11".

AAL5 12/4/2012 | 9:44:57 PM
re: Tellium Execs in Trouble? Bobbymax,

greed, corruption, soapbox rant, bla, bla, bla.......


kampar 12/4/2012 | 9:44:51 PM
re: Tellium Execs in Trouble?
Harry Carr was President and COO of Yurie Systems, a closely held private company acquired by Lucent for $1Bn cash in 1998. Then he was at Lucent for several years during the stock run-up... I suspect $16m, while a large sum, is not going to come close to bankrupting him personally. And before someone asks "why did he need a loan then if he has all that cash in the bank", if you were offered free money at little risk vs. having to stump up your own cash then you'd take the proferred loan too.

rafaelg 12/4/2012 | 9:44:51 PM
re: Tellium Execs in Trouble? "Bobbymax,

greed, corruption, soapbox rant, bla, bla, bla.......




rafaelg 12/4/2012 | 9:44:51 PM
re: Tellium Execs in Trouble? Just as stupid as taking a loan to gamble at Las Vegas, is taking a loan to buy stock. Only a greed driven moron would jeopardize his family for such a feat. They all deserve to be bankrupt.
History shows what can happen when stock is bought with no cash to show(The market collapse in the 20's?)
optigirl 12/4/2012 | 9:44:49 PM
re: Tellium Execs in Trouble? This seems like a great way to kick a company when it is down. Seems like common business practice to lend execs money so they can exercise options. Available to rank and file? Probably not in many cases but being at the top of the food chain has some perks. A more interesting story angle is in how badly the key people are going who exercised options that then sunk under water leaving them with fat AMTs.

No one cares about this stuff when the market is doing well..
rafaelg 12/4/2012 | 9:44:48 PM
re: Tellium Execs in Trouble? Optigirl,
"Available to rank and file? Probably not"

As an ordinary person (Rank and File, mere Mgr./Sr. Test Engineer, Sweat Hog, etc.), I don't know of anyone that was offered a loan to buy stocks; it was given with two or 3-year options.

"...being at the top of the food chain has some perks"

Agreed. However, there is a small difference between perks/benefits and bribes. Alternatively, is there a difference at all? Some of the perks given in this industry have proven to be embezzlements, frauds, etc. (TYCO, ENRON, WC, LUGǪ)

"No one cares about this stuff when the market is doing well.."

Wrong. I do, and many others.
That is why it is not public domain.
That is why one only finds out after the whistle blows from an insider.
That is why the perks are not on your benefit pkg.
Those perks are individually packaged. (See Enron, Tyco, Lucent, etc.)


You may have a nice heart but let them burn.
thecornercube 12/4/2012 | 9:44:43 PM
re: Tellium Execs in Trouble? > Yep this used to be a common thing in silicon
> valley, companies giving loans to exercise
> options.
> Those execs have made more than 25mil atleast
> selling pre-ipo stock. Now they have to pony
> up maybe 2-3 mil.

Plus, companies often "forgive" those loans, making the peanuts free. I could use a couple of those peanuts.....
jamesbond 12/4/2012 | 9:44:42 PM
re: Tellium Execs in Trouble? The fact that Ebbers owes WCOM $116 million isn't criminal, its just plain stupid that anyone would okay it to begin with.

The WCOM debacle is a completely different issue. Tellium execs took the carrot that was offered by the company and origionally approved by the board of directors. Improper, maybe. Criminal, no.


You mention "company" as if it were some living
thing that offered the execs this carrot. The
execs are the company and they offered themselves
this carrot. That is why it is criminal. CEO
is the chairman of the board, CTO is vice chairman
52372 12/4/2012 | 9:44:41 PM
re: Tellium Execs in Trouble? Optigirl wrote: "No one cares about this stuff when the market is doing well.."

I agree to a certain extent. When the market is doing well, I personally have a chance to do well, so I don't care (as much) when somebody at the CxO level also does well (although compensation packages are still more than they deserve - my opinion).

What bothers me is that when everything goes to hell in a handbasket, executives STILL do well. They're STILL paid multi-million dollar salaries and given all these perks. Let's face it, it's a lot easier to run a company into the ground than make it successful, so with multi-million dollar salaries and outrageous severance packages, just stick around for a couple years, run the company into the ground, collect whatever golden parachute you have, and move on to the next "opportunity." Seems wrong to me...

No, the risks of such a position should match the rewards. If a company is so poorly run it's in financial shambles and needs to lay off half its staff, perhaps some of the CxO staff should also be walked out the door. If there's illegal activity going on, then by all means, bust them and throw them in jail. I have no problem making an example of somebody that's been cooking the books - lock em up and throw away the key. Good incentive to everybody else not to do it if they see one of their own rotting away in prison (a real one, not one of those minimum security Club Feds).

I'm glad to see some of the changes in the marketplace, both by the SEC and boards of directors. It's about time we cleaned house.
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