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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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zipple 12/4/2012 | 11:15:17 PM
re: Did Founders Profit on Zhone Loans? > This is a non issue.

It depends on your definition of "issue". For instance, did they take actions as CEO/CTO that caused the financially dire circumstances requiring a bridge loan?

A situation where a CEO appears to benefit personally from prior bad decision-making sets an interesting precedent for a company.

Perhaps there is a good explanation, it would be useful for the stockholders to hear it.
fw23 12/4/2012 | 11:15:17 PM
re: Did Founders Profit on Zhone Loans? >This is a non issue. This is perfectly ethical >and legal. It is essentially a bridge loan and >given the circumstances, highly risky. 12% is >about the going rate. I earn 12% on loans with >less risk.

>Yes the did profit. Yes they should, it was a >risky bet....

Your logic would work but for the fact that
Morey and Janet are highly placed insiders in
a private company and exercise a great deal
of control over the company. They have
risk exposure in Zhone way beyond the bridge
loans.

It would have been better ethically if they
had done the loans interest free. The amount
of money (the interest) they made is nothing
as far as either of them are concerned. But
it could have kept one more person on the payroll
for another year potentially.

They were loaning the money, not as bankers
looking at risk from the outside, but as insiders
with huge existing investment exposure. They
were loaning the money to protect their
personal stake in Zhone.

But after all they have done, even mentioning
the word ethics in connection with Morey and
Jennette is wasted effort.

I would personally not be suprised if Jennette
is into cannabalism by now. Human Flesh and
spilled blood even years ago were the only
thing that seemed to give her any satisfaction.





xip42 12/4/2012 | 11:15:17 PM
re: Did Founders Profit on Zhone Loans? This is a non issue. This is perfectly ethical and legal. It is essentially a bridge loan and given the circumstances, highly risky. 12% is about the going rate. I earn 12% on loans with less risk.

Yes the did profit. Yes they should, it was a risky bet....

WiserNow 12/4/2012 | 11:15:14 PM
re: Did Founders Profit on Zhone Loans? Mory and Jeanette made a high stakes gamble that the bridge loan could help them close the Tellium deal. Without that deal, they would probably have lost most of their initial investment and the remaining Zhone employees would have lost their jobs.

The other investors would also have lost, but Zhone's initial investment was mostly bubble-hype cash, from the likes of Rich McGinn and the late Dave Boast.

So, Zhone is a throwback to the bubble. It will be fun to see the next chapter. Mory and Jeanette are players -- and it is fun to watch their game.

No, I'm not invested nor working for the company.

ps. I heard that Jeanette mellowed after adopting a couple toddlers. I suspect she outdid them in temper tantrums. I wonder who is raising whom?
router_tester 12/4/2012 | 11:15:11 PM
re: Did Founders Profit on Zhone Loans? > No, I'm not invested nor working for the company.

> ps. I heard that Jeanette mellowed after adopting a couple toddlers. I suspect she outdid them in temper tantrums. I wonder who is raising whom?

But you sure heard some interesting stories :-)
Lets see if they get lucky this time.
sevenbrooks 12/4/2012 | 11:15:10 PM
re: Did Founders Profit on Zhone Loans?
There is an issue here.

An alternative way to have gotten $4M into the company was to take an equity position for the $4M. That way Zhone would not have had to pay back the $4M and M/J could have had more upside.

There are the usual risk problems with this (i.e. if the company folds they lose their money). However, they can't really pitch that in the open. Also, they would likely be unhappy with the valuation of the stock as it would have to be valued at the last round (unless they were going to highly dilute the other shareholders). One can imagine that they are not too happy about that either.

So no matter how you look at it, shareholders should have issues with this transaction.

seven
techoriginol 12/4/2012 | 11:15:08 PM
re: Did Founders Profit on Zhone Loans? I pity those kids. If Mory and Jeanette can treat their employees, product lines, and investors like turds, while they persue their insatiable appetites to fatten their wallets then I pity those toddlers. Can you fire the kids if they don't deliver? After all what kind of return on investment or short term profit can the toddlers bring. What kind of morals do these people have? What kind of morale can the employees at Zhone have knowing that they are (1) displosable and (2) that they are affectively a skeleton crew just barely maintaining a line of dead or soon to be destroyed products. I guess many of these employees are hoping to cash in on their ZHNE stock options.

These are two people that have done nothing but bring on destruction. Companies have been destroyed, product lines eliminated, employees fired, and hundreds of millions of dollars in venture capital destroyed. It's lie a reverse "Midas touch". Everything they touch turns to crap. Do we really need companies like Zhone? Maybe India could better use such a company.

This is my humble opinion.
morye 12/4/2012 | 11:15:05 PM
re: Did Founders Profit on Zhone Loans? This the second article that you have written with convoluted facts and figures. Those loans were given prior to the merger, at a time that the merger was an uncertainty and naturally carried a higher risk and thus higher interest rate, which by no means is unreasonable.
BobbyMax 12/4/2012 | 11:15:05 PM
re: Did Founders Profit on Zhone Loans? In spite severe disruptions in the lives of the US engineers, they have not learnt the threats on theie lives and careers perpetuated by the large tech companies and thousands of start-ups. They have realized that only menial jobs are lefy for them and their children. The life of these engineers would never be the same. The greedy management of the US companies have perpetrated the biggest hoax and lives in the young life of our engineers. The CES of these companies rwegularly lie to the engineers while exporting jobs to India and China.

The upper tier management employees have become extremely rich than any other times in the US history.

No body realized how Mr. Ebjat, President and CEO, of Zhones had cheated Lucent for a sum of 24 Bilion of dollars. Lucent became so sik that is lying on the death bed with no recovery in site.

Zhones, given its history of loses, would never have gone public. In addition to going public, it stole over $150 million dollars in cache from Tellium. Insider trading and cheating are almost every day occurence. The US account audit companies is a big joke of the the century.
DCITDave 12/4/2012 | 11:15:04 PM
re: Did Founders Profit on Zhone Loans? morye --

re: "This the second article that you have written with convoluted facts and figures."

What figures were convoluted? Are the SEC filings are wrong?

re: "Those loans were given prior to the merger, at a time that the merger was an uncertainty and naturally carried a higher risk and thus higher interest rate, which by no means is unreasonable."

That's perfectly understandable -- high risk does require a high interest rate. It's a shame no one could talk about the topic with any authority when we phoned.

Anyway, executive dollars going to and from companies is always of interest to our readers, so it's quite normal for us to write about it.

ph
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