Kit Menkin's Leasing News

      Wednesday, September 25, 2002

  Accurate, fair and unbiased news for the equipment Leasing Industry

     Monday's Leasing News posted  at 11:09am PDT


    e-Mail Removal Form:  \


Pictures from the Past   


Gail Whitehouse     

Trinity Capital,
San Francisco, California



Classified Ads----



" Sales: Atlanta ,Irvine, Portland, Scottsdale-   "UAEL"

Experienced sales personnel. Compensation is above industry average including strong health and dental benefits along with 401K participation. Resume to: with desired location.    


Sales: Fresno, CA  "NAELB"  "ELA "

Looking for leasing agents to cover territories.


Sales: Ft. Lauderdale, FL  "ELA"

Looking to expand our Southern CA office. Sales person with strong vendor development background. Salary + commission + benefits.




Sales: National "UAEL"

National company specializing in the medical & IT markets seeking a seasoned sales professional to join it's 7 offices. Location not important brains are.



Sales: San Juan Capistrano, CA "ELA"

Wanted experienced equipment leasing professional, with a minimum of 3+ years successful track record of achievement in vendor program development. Please forward resume:


Sales: Dallas, TX "UAEL"

Forum Financial Services,, 14 years in biz, seeks experienced self motivated sales/lease professional in Dallas. Excellent compensation package and work environment.    


  for full list, please go here:





  Fed holds interest rates steady over objections of two members who wanted cut


     Wednesday---Odds and Ends

      Netbank Goes After Subprime "Home Solutions"

        Equipment Leasing News Weekly News Summary

          Sysix Financial $10 Million in Leases 1st Year

            Cronos Group/ Major European Bank Container Program

              Bill Cuts Leave Amtrak Short $500 Million

                Tyco Took Profit on Bad Deal, Then Paid Bonuses to Executives

        Microfinancial/Leasecomm Stock Continues Dive/Insiders Sell Their Shares


### Denotes Press Release




Fed holds interest rates steady over objections of two members who wanted cut


WASHINGTON – Over the dissent of two of its members, the Federal Reserve on Tuesday held interest rates steady despite a wobbly economic recovery and worries about a possible war with Iraq. The dissenting pair favored a rate cut – the first of the year.


Economists said that the 10-2 vote among the members of the Federal Open Market Committee – the group responsible for setting interest-rate policy – shows the difficulty even among experts to divine where the economy is heading during these turbulent times.


Stock Market hits four year low. Nasdaq hits six year low. Looks like it won’t be a Merry Christmas

and Happy New Year.






"I've taken another close look at the budget, and I am sorry, I'm going to have to let two of you go."

We have been printing cartoons from time to time, especially if applicable

to our industry.   I am going to try to do this more often for the “on line”

version only ( we send in text ).  To see past cartoons, go to:


Wednesday---Odds and Ends


Eastern Association of Equipment Lessor Conference


It was late last night and my head is clearer now. We actually had

270 registrations and walk-in attendees yesterday.


In addition our Washington, D.C. conference is being held April 3 - 6,

2003, the peak Cherry Blossom weekend. Please let your readers know that

and to contact Alison Pryor at EAEL for more details.


Steven B. Geller, CLP

Leasing Solutions LLC

20 Dike Drive

Wesley Hills, New York 10952


fax 845-354-2803

cell 914-552-0842


(Great turn out. The UAEL San Diego was at last check 302  and they expect

more. I have asked ELA for a forecast of their turn-out.  I also think

the NAELB meeting in November will find a good number, too.

 A good sign. Editor )






The New Lease Study info was awesome.


Thank you for a very informative article and email today.


Keep fighting the good fight, your doing a service here.


 Ziya Arik


(Other leasing newsletters printed the press release, but not the report.

We were the only one to request it and make it available to readers:





European Accent descent Collection Calls



(I was solicited for a listing in some yellow pages and the accent of the

caller and the verifier were both Indian but both used western names----Didn't fool me, I can tell an Indian accent anyplace, especially after watching The Simpsons!)


I found Steve Geller's comment about Indian accents amusing, but Apu is

Pakistani, not Indian!


Barbara B. Low



P.O. Box 657

Lincoln, MA  01773

(781) 259-0524




Donald “Duck” Dunn.



As always, thanks for the "info" section at the end of Leasing News (a great

way to start a morning!).


Just a point of clarification: Reading through today's post, if I'm not

mistaken, Donald Dunn plays bass, vs. tenor sax?           Thanks again,



Bob Gash

Monahan Gash & Associates

770-516-9055 (direct)

770-592-1111 (main)




((Bob, you, of course, are talking about "The Day in American History."

"Blues Brothers" is my favorite musical movie ( really, I like

it better than the "Sound of Music.") I took my son to it when

it came out.  He said I looked like John Bulishi without my

glasses, so at skits I used to play him and he would be

Dan Akroyd.  I must have seen the movie with my son two or

three times, and many times when it went out in video, and when

I see it, I am reminded of the time my son and I had together (

He is in the US Navy, high alert, can't say more ).


(( You are right, he is a bass player.  I am also wrong, his birthday

is not September 24, but November 24.  I must have had too much

wine when I was putting this together, and evidently had another

"Blues Brother" musician in mind.


((Thank you for catching this.,%20Donald))







"BB" is one of our favorites also (they don't make them like that anymore!).


I'd kind of forgotten Duck Dunn (until reading your article).  Through his

career, he seems to have played with most major musicians over the years

(even played bass with Wilson Pickett on "Midnight Hour").


I guess that's one of the reasons I enjoy your articles - they not only

provide enjoyable new facts, but help me to remember forgotten information

about interesting people and events.



---- --


Ken Greene Picture


Nice photo!. I look like I just got off the boat from Transylvania. I miss

Ray and Trish. Seems that Ray's unfortunate departure marked the beginning of

the end of UAEL.


Oh well. There's always the ELA.




Law Offices of Kenneth C. Greene

938 B Street

San Rafael, CA  94901

Tel:     415  721 7900

Fax:     415  256 9922



((Thank you.  I have been asking both readers and leasing associations to send

in pictures to post---I will return pictures. We also have started a file

of the pictures we have posted.  The tool bar is above “Top Stories:”


((Your picture  was  unique because you not only appeared very tall, but all in

the picture are no longer members of UAEL, meaning Total Funding, Ken Greene

& Associates (past board member, too ) and of course Dr. and Mrs. Williams.

Send me in a picture you like, Ken, and I will post it.  Perhaps playing the piano

with your jazz group. Editor ))




                        New Mail Server Status:


Second day and it is looking great. MAPS also said they testing our

site and we are not doing an “open relay”, so they will notify their

carriers to accept our e-mail.  We have re-configured our second firewall,

for our new mail server software, Sun Cobalt, running on Unix, along with a Linus.  It is ironic as we move toward the switch, that after two weeks

the services to the ISP have realized they have made a mistake and

are correcting it. Perhaps by the end of the week all our 5,000 readers

will again be receiving Leasing News...and we will have two systems.



Football Teams: Which is the most profitable or has the highest net worth,

you might be surprised with this public filing with the football commissioner

(sent in by a reader who did not want to be named):




Top Gun Sergeant-at-Arms


Okay the secret is out.  Bob Rodi, CLP, president of LeaseNow, former president

of UAEL, will be our Sergeant-at-Arms for the two “Top Gun” Leasing

Workshops at the San Diego Conference.  What you don’t know about

Rodi is he is an ex-cop.


“I spent 4.5 years with the Baltimore PD.  I started out as a uniform

officer in the 7th district, working post 735.  My main corner was North

Ave, and Pennsylvania Ave.”  He then became a “suit” and was about

to join the homicide department, when he decided equipment leasing

was for him. 


We’ll make an official announcement about his role at the two




Attached is a revised agenda for the Streamlined Sales Tax Project meeting

in Milwaukee.




Dennis Brown








Home ownership today is at a national high of 67 percent but minority home

ownership continues to lag at 44 percent,, according to the Department of

Housing and Urban Development, NetBank's new private sector mortgage

program, Home Solutions, is designed to ease barriers to minority home

ownership by providing low- to moderate-income families access to more

competitively priced loans in 27 markets (Atlanta; Baltimore; Birmingham;

Boston; Charlotte; Chicago; Cleveland; Dallas; Detroit; Ft. Lauderdale;

Houston; Jacksonville; Los Angeles; Memphis; Miami; New Orleans; New York;

Newark; Norfolk; Oakland; Orlando; Philadelphia; Raleigh; Richmond; St.

Louis; Tampa; and Washington, D.C.). The Home Solutions program is offered

through RBMG, Inc., the bank's business-to-business mortgage lending

subsidiary that provides funding to community-based wholesale and

correspondent lenders. NetBank and Market Street Mortgage Corporation, the

bank's retail mortgage lending subsidiary, are scheduled to add the Home

Solutions program to their product menu later this year.




Equipment Leasing News Weekly News Summary


In addition to their Thursday newsletter, ELA now does a weekly

wrap-up on Tuesday---here are excerpts from this excellent report

by Amy Miller and her staff.



Computerworld (09/23/02) P. 14; Hoffman, Thomas


The internal rate of return, one of three financial calculations

that can be used for IT projects, expresses the dollar return

expected from a project as an interest rate.  After the rate has

been established, one can compare it with rates that can be

earned by investing in other projects.  Another financial metric

used by senior management is net present value, which refers to

the future net cash flow that a project is expected to

deliver--minus the investment.  This calculation defines the

value of a project in "today's dollar."  A third financial

calculation used for IT projects is called discounted cash flow,

which, in say a server leasing agreement, is calculated by adding

the initial cash down payment to the monthly leasing payments. 

The value of a high-priced item over time can then be determined

by subtracting that sum from what it would have cost to buy the

servers at the outset.



"Web Site Flourishes by Leasing Combines"

Wichita Eagle (09/22/02) P. C1; Griekspoor, Phyllis Jacobs


Six-year-old, an Internet-based business that

helps farmers find machinery for sale, share, or lease, has grown

from a spare bedroom in Kingman County, Kan., farmer Dave

Govert's house to a storefront with 15 full-time employees, 35

combines ready to lease, and 19,000 pieces of used equipment for

sale.  Machinery Link provides farmers with combines for

harvesting anywhere in the country, operates a repair hotline,

and contacts local dealers that will supply parts and repair

right on the farm.  Govert, in an attempt to help farmers save

even more money, is considering expanding his leasing operations

from just combines to include other expensive farming equipment

as well.  Govert does not understand paying $250,000 for a piece

of farm equipment and then only using it a few weeks per year,

and leasing the equipment through a network of farmers and

dealers is the most logical way for farmers to access machines

without paying the cost to actually purchase the equipment.



"Goodwill as a Banker's Weapon"

Wall Street Journal (09/23/02) P. C1; Rapoport, Michael; Weil,



Upcoming write-downs of goodwill assets by several big companies

may provide bankers with the ammunition they need to demand

higher interest rates and fees from borrowers.  Although none of

the companies that expect to take goodwill charges are in danger

of defaulting on their debt, each does apparently run the risk of

violating their credit agreement.  AOL Time Warner, Corning,

Solectron, and Sanmina-SCI are on a short list of businesses that

are in jeopardy of breaching their debt covenants. 

Traditionally, companies in this predicament go to the

negotiating table with lenders to try to amend the credit

agreements or obtain a waiver on the contract; however, these

solutions often come at a tall price.


"Xerox Faces Criminal Inquiry Tied to Financial Restatement"

Wall Street Journal (09/24/02) P. A1; Bandler, James


Federal authorities are deciding whether to file criminal charges

related to Xerox's huge misstatement of earnings, and the

Securities and Exchange Commission apparently says that various

individuals involved could face civil charges, though the SEC's

case has been settled.  Xerox's restatement earlier this year,

which dealt with earnings back to 1997, showed that the company

had misbooked $6.4 billion in equipment revenue and overstated

its pretax income by $1.41 billion.  Xerox says it will cooperate

with the U.S. Attorney's office.  Various entities, including the

SEC, say that Xerox wrongly booked long-term copier leasing

contracts to get more revenue and profits earlier than it should

have, and that it used reserves earmarked for merger costs to

meet earnings expectations instead.  The SEC also says that the

former Xerox accountant, KPMG, and various KPMG and Xerox current

and former employees, that they may still face civil charges, but

the SEC case is separate from the criminal investigation.  KPMG

claims that it has done nothing wrong.



"In Focus: Lenders' Bankruptcy Status Holds--For Now"

American Banker (09/20/02); Julavits, Robert


The financial services industry has actively lobbied against a

bankruptcy bill sponsored by Sen. Richard Durbin (D-Ill.) and

convinced the senator to alter language that previously would

have allowed bankruptcy courts to allocate bankrupt companies'

assets toward funding employee pension funds instead of paying

off the companies' secured lenders.  Financial services

representatives say the original bill, which was meant to prevent

the abuse of employee retirement funds by bankrupt companies, had

the potential to completely tear apart the system of secured

lending and provoke bankruptcy for hundreds of companies. 

Lenders are safe for now, but industry representatives say the

issue is sure to resurface, perhaps as part of a broader pension

overhaul bill, when the Congress reconvenes in 2003.


"In Brief: Huntington Buys Equipment Leasing Firm"

American Banker (09/20/02); Mandaro, Laura


Huntington Bancshares has purchased LeaseNet Group, a privately

held leasing company that focuses on high-tech equipment. 

LeaseNet leases network server class equipment for its 300

commercial business clients, and will operate as a wholly owned

subsidiary of Huntington.  Huntington says LeaseNet will add

sales representatives in several Huntington markets.



To update your current ELA member profile information, please visit:


To unsubscribe or change your subscription, please use the form in ELA Online's Email Discussions section:


If you have other questions or comments relating to Industry News Weekly,

please email Amy J. Miller, Vice-President of Communications, at


Industry News Weekly is free to ELA members.

Copyright 2002 by the Equipment Leasing Association

Phone: 703/527-8655 Fax: 703/527-2649


(Note: The above are excerpts.  Members get the full group, perhaps

the best equipment leasing news wrap-up on line today. Counting their

list serve, two news wrap-up, and industrial news on line---often

ahead of even us on major stories---worth the dues to join ELA.

And they have more to  editor )



#### ########################################### ##################


Sysix Financial, LLC Announces $10 Million in Leases in First Year; New Suite of Financial Solutions on Horizon



Growing Base of Sysix Customers in Manufacturing, Education and Financial    Services Industries Select Leasing to Finance Tech Solutions That Reduce 


Bottom Line Costs


LOS ANGELES,  -- Sysix Financial, LLC, the leasing and financial division of the Sysix Companies, a national provider of IT business solutions spanning infrastructure, consulting and financing, announced today that it has generated more than $10 million in lease originations to companies implementing technology solutions since the company launched its operations just over a year ago.  Sysix Financial also announced plans to unveil a new suite of Web-enabled leasing solutions for asset tracking and management, online leasing applications and approval notification, and software-only leasing services.  The new leasing products will be available beginning in early 2003.  The announcements were made at the HP World Conference in Los Angeles.


Leasing options are a key component of Sysix "bundled" solutions offerings which combine infrastructure from leaders such as Hewlett-Packard, IBM, Sun, JANDX, EMC and others, with consulting services and support.  Sysix leasing solutions are designed to facilitate the rapid and cost-effective implementation of business solutions and enable customers to reduce the total cost of ownership by minimizing upfront purchase costs, freeing up working capital and optimizing tax benefits. In addition, Sysix leasing solutions can protect users from technology obsolescence by allowing users to add or upgrade equipment at anytime during the lease term.


A sampling of customers utilizing Sysix Financial's solutions includes: ABN AMRO Services Company, Moody Bible Institute, Ungaretti & Harris Law Firm, Washington State Community College, Dana Corp., Goodrich Corp., Tenneco Automotive, as well as others.


According to Ned Covic, president of Sysix Financial, "In today's tough economic climate we see leasing as an area of growing need for our customers. We work with companies across all industries that must continually acquire and refresh technology to sustain their businesses, yet are often faced with budget limitations. The wide array of leasing options we bring to market offers our customers greater financial flexibility and a better return from technology investments."


Web-Enabled Products Planned for Sysix Financial Portfolio 


In the coming year, Sysix Financial plans to introduce several new products and services including Web-enabled asset tracking and management and online lease application and approvals for general leases under $50,000. The company will also offer software-only financing solutions in addition to its current set of financing for hardware, implementation and support.


"In the asset management area, we are developing new financial products to address our customers' need to help manage their IT assets and maintain accountability within their organizations," adds Covic. "In the wake of many recent and well publicized accounting scandals, organizations are requiring a more critical eye on managing internal assets. Our new offerings will be a natural extension of our leasing expertise and will be designed to assist those customers seeking a qualified external partner to assist in the process of tracking infrastructure within the enterprise, for cost center bill backs, lease termination management, etc. The new asset management services will include Web-based reporting, tracking and databases, to bring maximum access and ease of use to our clients."


About Sysix: 


The Sysix Companies: Sysix Technologies, LLC; Sysix Consulting, LLC; and Sysix Financial, LLC provide mission-critical business technology solutions including infrastructure, consulting and financial solutions. Headquartered outside of Chicago, Sysix also maintains a strong local presence in Milwaukee, Indianapolis, Los Angeles, New York, Phoenix and Minneapolis. For more information, visit the Sysix Web site: .


SOURCE  Sysix Companies 


CO:  Sysix Companies; Sysix Financial, LLC; Sysix Technologies, LLC; Sysix      Consulting, LLC


############  ###########################################


The Cronos Group and Major European Bank in Joint Venture Container Purchase Program



SAN FRANCISCO----The Cronos Group (NASDAQ:CRNS) announced today the establishment of a joint venture container purchase program with a major European bank. The purpose of the program is to acquire marine cargo containers, which will be leased to third parties by a Cronos affiliate.


The formation of the joint venture will provide Cronos with the opportunity to expand its managed container fleet, primarily in the long-term lease market. Container acquisitions will be funded 20% by equal equity contributions from both parties to the joint venture and 80% by debt financing.


Cronos is one of the world's leading lessors of intermodal containers, owning and managing a fleet of 390,000 TEU (twenty-foot equivalent units). The diversified Cronos fleet of dry cargo, refrigerated and other specialized containers is leased to a customer base of approximately 450 ocean carriers and transport operators around the world. Cronos provides container-leasing services through an integrated network of offices using state-of-the-art information technology.


This release discusses certain forward-looking matters that involve risks and uncertainties that could cause actual results to vary materially from estimates. Risks and uncertainties include, among other things, that the joint venture partners may not be able to attract additional lenders to participate in the program and, therefore, that the program will not achieve its targeted volume of container purchases; fluctuations in the demand for leased containers; the risk of disruption to international trade caused by war or terrorist operations; and fluctuations in world trade. For a further discussion of the risk factors attendant to an investment in Cronos' Common shares, see the Introductory Note in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, which was filed with the SEC on March 26, 2002.


Cronos will file with the SEC a forthcoming 8-K report providing further details on the establishment of the joint venture container purchase program.


This press release and other information concerning Cronos can be viewed on Cronos' website at




The Cronos Group


Elinor Wexler, 415/677-8990 (Investor Relations)


SOURCE: The Cronos Group


############### ############################################



Bill Cuts Leave Amtrak Short $500 Million


By Michael Barbaro and Don Phillips


Washington Post Staff Writers


Republicans on the House Appropriations Committee have drafted a bill that would leave Amtrak with $500 million less than it says it needs next fiscal year and could require the shutdown of six long-distance routes, according to a copy of the legislation circulating among committee members.


The bill, scheduled to be considered by the full committee tomorrow, would give Amtrak $760 million, although the railroad has asked for $1.2 billion to stabilize service while it undertakes a major reorganization. The 31-year-old passenger railroad, which has never turned a profit and nearly ran out of money this summer, plans to cut personnel and end its costly express freight service even if it gets the full amount.


"Anything less than $1.2 billion will take us straight back to the crisis of this past summer," said Bill Schulz, an Amtrak spokesman.


The legislation also requires states to help subsidize some of Amtrak's long- distance routes, which could jeopardize almost all passenger service in at least five states: Arizona, New Mexico, Texas, Kansas and Arkansas.


Amtrak has called for the eventual end to state-subsidized trains unless the states agree to cover all of their operating losses. But the House bill would shift even more responsibility for Amtrak funding.


The GOP language, which is not included in the Senate Appropriations Committee bill, is certain to be modified or deleted in an eventual compromise bill. Nonetheless, political insiders expressed surprise that the Republicans would take such an action before the November elections. The six trains pass through the districts of several key Republicans who are in tight races.


If approved, the legislation would terminate federal funding in July to routes where Amtrak loses more than $200 per passenger on a normal run, unless states pick up the costs above that amount, according to the draft bill. The long- distance routes include the Texas Eagle, which runs between Chicago and San Antonio; Three Rivers, between New York City and Chicago; the Southwest Chief, between Chicago and Los Angeles; the Sunset Limited, between Orlando and Los Angeles; the Kentucky Cardinal, between Chicago and Louisville; and the Pennsylvanian, between Philadelphia and Chicago.


Though the trains in question carry only about 3 percent of Amtrak's annual 23 million riders, their shutdown would paralyze intercity rail service in many states, said Ross Capon, executive director of the National Association of Railroad Passengers.


But Rep. Harold Rogers (R-Ky.) said the bill would hold Amtrak routes to the same financial standard as federally subsidized airline routes. "If the railroad is to remain a viable entity, rather than one that lurches from crisis to crisis, serious reforms are required and cost sharing is essential," he said in a statement.


The potential political complications illustrate why it has been so difficult to abandon train routes over the past three decades.


Rep. John L. Mica of Florida, a senior Republican, is in a fight for his political life in a state where the passenger train and high-speed rail have become an issue. His district would lose the Sunset Limited.


Louisville would lose the Kentucky Cardinal just months after Kentucky politicians talked Amtrak into extending the train across the Ohio River from its former terminal in Jeffersonville, Ind. The congresswoman for Louisville is Republican Anne M. Northup, who is in a tough reelection battle.


In Fort Worth, which would lose the Texas Eagle, the city recently dedicated a $4 million refurbished station for Amtrak, the Trinity Rail commuter service and other local transportation. Amtrak paid $1 million of the cost.


Texas would lose almost all Amtrak service, a particular blow to Sen. Kay Bailey Hutchison (R), who has been a champion of Amtrak. Hutchison gave the keynote address at the opening of a remodeled Marshall, Tex., station where volunteers raised $1.4 million to match federal funds. That station would lose its only train.


"You can't tie Amtrak's arm behind their back and expect them to succeed," Hutchison said yesterday, adding that she would "fight this all the way" if it reached the Senate.




Tyco Took Profit on Bad Deal, Then Paid Bonuses to Executives


By FLOYD NORRIS  New York Times


Tyco International claimed a profit on an investment even as the company


lost money on it, a review of the transaction shows. Tyco then used that profit as an excuse to pay almost $24 million in bonuses to top managers.


Most of that went to L. Dennis Kozlowski, the former chief executive, and Mark H. Swartz, the former chief financial officer.


Details of the transaction, which occurred 15 months ago, have emerged only in recent days and are raising questions about the accuracy of the company's profit reports, in the opinion of some accountants.


The transaction appears to have provided a clear economic loss for Tyco,


which was forced to pay an above-market price for an 11 percent stake in a small company called Flag Telecom that has since gone bankrupt.


But Tyco disclosed last week that the company had managed to claim a profit of $79.4 million on the transaction, and that this profit was used to justify the bonuses.


Mr. Kozlowski and Mr. Swartz have been indicted for what the prosecutors say was the looting of Tyco by paying multimillion-dollar bonuses to themselves without the board's authorization.


The Securities and Exchange Commission has asserted that the tactics involved the hiding of the bonus expenses in certain nonoperating accounts, thus overstating the company's operating profits. But it has not said that net income was exaggerated.


The Flag transaction, however, may indicate that the company reported profits improperly, or at least in a way that bore no resemblance to economic reality, and that the executives collected bonuses based on those so-called profits.


To justify the profits reported, Tyco apparently assumed that stock it obtained was worth what it had paid — something that was clearly not the case at the time — and then exaggerated that value by using outdated valuation figures. A result was that Flag's value was overstated by 53 percent when the transaction closed.


While the existence of the Flag transaction has been known since it occurred in June 2001, some details necessary to evaluate it were not disclosed until Tyco's report last week by David Boies, the lawyer whose firm was hired to review what had happened at the company. Other details were provided yesterday by Verizon Communications, which was on the other side of the transaction and profited from it, and by a person close to Tyco.


Flag was a company with audacious plans to build an international fiber optic network. It hired Tycom, a Tyco subsidiary that was publicly traded, to lay its cable under the Pacific Ocean.


Under the transaction, announced on June 20, 2001, Verizon sold 15 million shares in Flag, worth $74.4 million when the deal closed on June 22, to Tyco.


Tyco paid $11.4 million in cash and 5.6 million shares of TyCom. At the June 22 price, those shares were worth $89.3 million, for a total compensation of $100.7 million. A simple subtraction of the two values would indicate that, economically, Tyco had a loss of $26.3 million — hardly a reason to grant bonuses.


The sale was made under an agreement negotiated the preceding April, providing for what was supposed to be an equal exchange of value, based on trading prices over the five days before Verizon forced the sale to be made.


Because Verizon had the discretion to decide when the deal closed, it could choose a date on which the movement of the shares gave it an advantage, and it did so.


Under accounting rules, Tyco could claim a profit because its cost of the TyCom shares was less than their market value at the time.


What Tyco did was to assume that the TyCom shares it gave up were worth $16.38 each, according to a person close to Tyco, and to assume that the Flag stock it bought was worth as much as it was giving up. That person said that Tyco used a 10-day moving average price of TyCom shares, but said he did not know what period was used. It appears that it was the period ending June 14 — well before the actual transaction took place. By the time the deal happened, values had fallen. The person close to Tyco said the profit was proper.


Accounting rules permit a company to base the value of a deal on the value of either what was paid or what was received, depending on which is ascertainable. In this case, both were, but Tyco chose to use the value of what it gave up, even though the structure of the transaction — with Verizon having the ability to choose a time opportune for it — had made it all but certain that that figure was likely to be higher than the value Tyco received. Some accountants say the value should have been set based on prices when the deal closed, not weeks earlier.


In Tyco's financial statements for the quarter ended last June, the company disclosed a profit of $64.1 million on the sale of stock in an unnamed subsidiary, which Tyco officials confirmed yesterday was TyCom. The Boies report said the company actually computed a profit of $79.4 million. It appears the difference related to hiding the value of $15.4 million in compensation expenses reflected in the bonuses the executives were paid. By reducing the stated profit, the company could also avoid reporting the compensation costs without affecting the reported income numbers.


In fact, a a person close to Tyco said, the bonuses paid were substantially more than $15.4 million, although that fact is not reported in the Boies report. That is because the bonuses to Mr. Kozlowski and Mr. Swartz were "grossed up" to cover taxes on them — something not done for the other five executives, who got smaller bonuses. It is not clear where the value of the additional compensation was reported.


On paper, those bonuses were paid when the company gave stock to the executives and then bought it back from them. The Boies report said most of the sales were made on June 20, the day the Flag deal was announced and two days before it closed, so eager were the executives to get their cash. The remaining sales of stock by Mr. Kozlowski and Mr. Swartz were made two weeks later. All told, their bonuses on the deal totaled $20.4 million.


A lawyer for Mr. Kozlowski dismissed as ridiculous the reported timing, which showed that the stock sale was made before the profit justifying the issuance of the stock was recorded. "It makes no sense for him to sell stock before he received it," said Steve Kaufman, the lawyer. Scott Tagliarino, a spokesman for Mr. Swartz, declined to discuss the timing. But the reports the two executives filed with the S.E.C. many months later confirmed the dates of the sales.


Tyco's board, according to the Boies report, was kept in the dark for many months about those bonuses. On Oct. 1, the board's compensation committee did approve them. But the report complained that no one told the board that by Oct. 1, the Flag stock had declined sharply in value, "thus undermining the basis" for the bonuses.


But if the board did not know of Flag's problems by then, it evidently was not paying much attention. For those problems had had a significant and well publicized effect on TyCom. On Aug. 6, Flag announced it was unable to raise money to pay for the Pacific cable it had hired TyCom to install, and TyCom said it would go ahead with the project on its own. Flag stock was down to $2.63 and Jack B. Grubman, the Salomon Smith Barney analyst who had been a strong supporter of Flag, removed his buy recommendation.


In the end, Flag went bankrupt and Tyco wrote off its entire investment, which it valued at $114 million — a value of $7.60 per share of Flag stock. But Flag shares were worth only $4.61 on June 20, when the deal was announced, and $4.96 on the day it closed. Had either of those values been used, Tyco's reported profits would have been far lower.


The deal was a fiasco for Tyco. Flag shares would never again trade for as much as $6 a share, and yesterday, with the company in bankruptcy proceedings that are expected to end with the shares worthless, they closed at two-tenths of a penny.


Verizon did better on the deal. The TyCom shares it received were later converted into Tyco shares, when Tyco reacquired the company. Verizon sold some of the Tyco shares at relatively high prices, in January, and the rest in July, at much lower prices. It received about $45 million for the stock, plus the $11.4 million it got in the original transaction.


But if Tyco suffered from the transaction, it was just one more bonanza for Mr. Kozlowski and Mr. Swartz, who were able to get millions in a way that would not be reported as compensation.


(Wait until they finish about the purchase of CIT Group, $20 million "finders fee" and hen $4 billion loss in the sale of CIT Group--It isn't Monopoly money, but real cash, ldies and gentlemen. Editor )



        Microfinancial/Leasecomm Stock Continues Dive/Insiders Sell Their Shares



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