Funding for startups

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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manoflalambda 12/4/2012 | 11:14:51 PM
re: Did Founders Profit on Zhone Loans? green:
thought the details are sligtly different, the story has a interesting parallel to how the common share holders got hosed at Nishan systems


green et al,

I read this as well... One of the VCs involved, Lightspeed, aren't they associated with Lightreading? Or is it just similar names...

ThurstonHowell3rd 12/4/2012 | 11:14:44 PM
re: Did Founders Profit on Zhone Loans? "Capitalism seeks the least equity for the masses, and Democracy seeks the greatest equity for the masses. "

What does that mean? So the result of the most successful, wealthy, prosperous country of the modern age (i.e. the United States) is fundementally unstable?

No... I think you're wrong... the US does not need a cultural revolution... but you do need to step away from the keyboard...

Bottom line is Mory was always an opportunist... his claim to fame will be that he knew when to buy and sell Cascade and how to wear John Sidgmore's rear-end as a hat...
opticalwatcher 12/4/2012 | 11:14:43 PM
re: Did Founders Profit on Zhone Loans? I have to follow-up my last post. That shows that you shouldn't rush a post when you get excited. (Not to mention the grammer errors). I'd just read an article about VCs ripping off the shareholders (AND founders). In this case these guys were definitely crooks.

The Zhone founders are in a more hazy area. Certainly if you lend your own company money you are taking a risk. The ethics is in the details here.

Sorry for the rush post--I don't know the details here and don't think these guys are crooks.
opticalwatcher 12/4/2012 | 11:14:43 PM
re: Did Founders Profit on Zhone Loans? Even Adam Smith wrote that Capitalism doesn't work without ethics, and some kind of enforcement when the ethics goes awry. The 'Greed is good' statement in the movie "Wall Street" was meant to be sarcastic irony, yet everyone has taken it as a rallying cry. This is NOT what Capitalism is all about. This is anarchy, and everywhere it has been tried it has failed miserably. The US, Europe, and Japan have succeeded because they have avoided this anarchy.

These guys are crooks and I hope they go to jail.
whyiswhy 12/4/2012 | 11:14:42 PM
re: Did Founders Profit on Zhone Loans? Thurston:

Slow down, the Professor will have to increase your blood pressure meds again dear. You know he hates processing that fruit bat piss for Potassium, and when Gilligan upsets the colony, they poop on everything.

I never said the US was unstable, but I did say the end goals of Democracy and Capitalism are not intrinsically compatible.

Democracy is for Sale.

OK, so hard money results in hard time, but soft money provides soft times for politicians. When was the last time you saw a serious effort to ban soft money, and how far did it get?

So is your thesis is that because we punish petty graft, and we allow and encourage mega-graft, that makes the US better...or somehow stable? And we can spend $80B patching up Iraq so Halliburton can benefit?

And the other choice is send our engineering and manufacturing jobs overseas, or allow illegals in to take them?

Trickle down...like bat piss?

fw23 12/4/2012 | 11:14:21 PM
re: Did Founders Profit on Zhone Loans? >I don't think building a company is
>ever smooth sailing... At the time, everything >seems like a major hurdle... However, over time, >the history changes itself and in hindsight, it >was all smooth sailing.

There is wonderful irony in the phrase "history
changes itself".

>When I look at a lot of the people that I work >with or run into in business, there are just too >many differences between myself and them to >consider them role models

I can think of a few:

- Lucreza Borgia
- Jiang Qing (Mao's wife)
- Lynette "Squeaky" Fromme

>I think the best business advice I ever received >was probably to LISTEN -Sounds stupid - but as >we grow a company, it is really easy to begin to >believe that you know best... The most important >thing to remember is that all sorts of people >and other companies know more about what they do >than you do... Gotta listen to everyone....

That one kind of speaks for itself.

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