Did Founders Profit on Zhone Loans?

Zhone's founders made high-interest loans to their own company

November 14, 2003

1 Min Read
Did Founders Profit on Zhone Loans?

File this tidbit under: "It's good to be the king."

When the merger between Zhone Technologies Inc. and Tellium Inc. was finalized today (see Zhone Gets a Symbol (and Layoffs)), Zhone's founders, Mory Ejabat and Jeanette Symons may have collected on some high-interest short-term loans they made to their own company.

Ejabat and Symons loaned Zhone a total of $4 million between July and August 2003, according to Zhone's SEC filings. The loans were made presumably to help the company's cash position. In the end, though, the loans could have ended up helping Symons and Ejabat's cash position, too.

Each loan carried an interest rate of 12 percent a year, at a time when short-term rates are at historic lows. The loans were to mature on either December 31 or on the day that Zhone closed its merger with Tellium, whichever came first. The way the loan was structured, Ejabat and Symons both participated in the first $2 million installment and Symons loaned the second $2 million.

It's not clear exactly how much Symons and Ejabat made on interest from the loans. Assuming the 12 percent annual interest was paid for the period they held the loan -- about 4 months -- they could have earned about $160,000 in interest between them. The information on how much interest they have been paid on the loans has not yet been disclosed.

Zhone declined to comment beyond what was already disclosed in the SEC filings.

— Phil Harvey, Senior Editor, Light Reading

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