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Zoot’s layoffs symbol of financial trouble
Layoffs at Zoot Enterprises early this week may indicate more financial trouble for the company than executives at first acknowledged.
By KAYLEY MENDENHALL Chronicle Staff Writer
The company was involved in a civil lawsuit filed in U.S. District Court for the Northern District of Atlanta on Jan. 22, 2002, and is still dealing with ongoing mediation and arbitration in connection with the suit.
In addition, construction of a new campus near Four Corners cost closer to $20 million than the originally projected $10 million. Although Zoot received close to $11 million in loan guarantees through county and state programs, the company was still responsible for paying a large chunk up front.
"We had to put up 25 percent of the cash for the project," Chris Nelson, CEO of the high-tech company said Thursday morning.
The layoffs were, "simply so we could live within our means. Our expenses were exceeding our revenues and we have to balance that out. We’d squeezed everything as tight as we could."
Nelson said he has taken on some investors to help fund the housing project slated for land at the new Zoot headquarters.
Zoot, which does instant credit application approvals for financial institutions, let 12 employees go Tuesday afternoon, Nelson said. Four other employees located in North Carolina, New York and Portland, Ore., were also recently laid off.
Zoot executives came up with three criteria for keeping employees and Nelson said layoffs were not based on seniority. Employees who work directly with customers, those who are working on future projects and those who are integral to support of the company through customer and production support were retained.
"We didn’t let these people go because of performance issues," Nelson said. "Anyone else in the valley would be extremely lucky to hire them."
As for the lawsuit, which was filed by Equifax Information Services of Atlanta in January, Nelson said he could not comment.
However, according to court documents filed in Atlanta, Equifax entered into a "Master Agreement" with Zoot in 1999. Three years later, Equifax alleged Zoot had violated several terms of that agreement and misappropriated Equifax’s trade secrets.
Equifax claims it contracted with Zoot to develop an Equifax product. In the 1999 agreement, Zoot allegedly vowed to transfer ownership of that product to Equifax, not compete with Equifax and not solicit relationships with Equifax’s competitors.
Zoot then filed a counter claim. The two corporations agreed to dismiss the whole matter without prejudice in April, but remain in the midst of an arbitration and mediation process to settle the dispute.
Nelson did not blame the litigation for the company’s financial crunch, but said the capital investment made in the building — which was necessary to serve customers — helped put Zoot in this position.
Attorneys for both companies did not return phone calls this week.
Kayley Mendenhall is at [email protected]
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