<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Comdisco, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[logo of comdisco]
6111 North River Road
Rosemont, Illinois 60018
Nicholas K. Pontikes
President
and Chief Executive
Officer
March 20, 2000
Dear Fellow Stockholders:
On behalf of your board of directors and your management, I cordially invite
you to attend our special meeting of stockholders. It will be held on
Thursday, April 20, 2000, beginning at 10:00 a. m. (C.S.T.), at Comdisco's
corporate office located at 6111 North River Road, Rosemont, Illinois 60018.
At the special meeting you will be asked to consider and approve a proposal
that we refer to in the enclosed proxy statement as our "tracking stock
proposal." Under the tracking stock proposal, we would amend and restate our
current certificate of incorporation to:
. increase the number of our authorized shares of common stock,
. authorize Comdisco to issue our common stock in multiple series, and
. to initially designate two new series of common stock.
One new series of common stock, our Ventures Tracking Stock, is intended to
track the performance of Comdisco Ventures, our venture financing business,
through which we have provided equity-linked financing products to venture-
stage companies since 1987. Your existing common stock will be reclassified
into the other new series of common stock, our Comdisco Stock, that is
intended to track our other businesses, including our technology services
businesses and our global equipment leasing businesses that we refer to as
Comdisco Group. Also, as part of the tracking stock proposal you will be asked
to consider and approve the creation of a stock-based compensation plan for
management of Comdisco Ventures and the amendment and restatement of some of
our stock compensation plans to allow us to issue any designated series of
common stock under those plans.
The board of directors unanimously recommends that you adopt the tracking
stock proposal. The board of directors adopted the tracking stock proposal
following its review of various alternatives to support our strategic
objectives and to increase the overall return to stockholders. The board of
directors believes that the recent historical price performance of our
existing common stock has failed to adequately reflect the value of the
various businesses of Comdisco, including our venture financing business. The
board of directors believes that the tracking stock proposal will, among other
things:
. enable investors to review separate financial information about Comdisco
Ventures and separately value Ventures Tracking Stock. This should
encourage investors and analysts to focus more attention on Comdisco
Ventures and its contribution to the value of Comdisco.
. enable us to issue Ventures Tracking Stock in one or more private or
public financings, thus raising capital for Comdisco Group and/or
Comdisco Ventures.
. provide us with greater flexibility in responding to strategic
opportunities, such as acquisitions, by allowing us to issue either
Comdisco Stock or Ventures Tracking Stock, as appropriate under the
circumstances.
<PAGE>
. enable us to attract, retain and motivate the senior management and
employees of Comdisco Ventures through the issuance of stock-based
compensation tied to Ventures Tracking Stock.
. preserve the financial, tax, strategic and operational benefits of being
a single enterprise.
If you approve the tracking stock proposal, we currently plan to offer to the
public for cash, shares of Ventures Tracking Stock representing approximately
15% of the initial equity value of Comdisco Ventures, subject to market and
other conditions.
We expect that we will first issue Ventures Tracking Stock in our fiscal year
2000. Comdisco Group initially will hold the remaining equity value of
Comdisco Ventures that is not represented by issued Ventures Tracking Stock.
We currently intend to distribute Ventures Tracking Stock representing the
remainder of Comdisco's retained interest in Comdisco Ventures to the holders
of Comdisco Stock at some time in the future, although we will not be
obligated to do so.
We have included for your convenience, in "Q and A" format, a summary of
certain questions you may have about the special meeting and the tracking
stock proposal and our answers to these questions beginning on page 1 of the
proxy statement.
Please also see page 25 for a discussion of the material risk factors you
should consider relating to the tracking stock proposal.
The vote of each and every stockholder is most important to us. We are
grateful that so many of you have in the past exercised your right to vote
your shares.
Whether or not you plan to attend, please sign and return the enclosed proxy
in the accompanying envelope, vote via telephone, or vote via the Internet as
set forth in the proxy, as soon as possible so that your shares will be voted
at the meeting.
Please note that your completed proxy will not prevent you from attending the
meeting and voting in person should you so choose. We look forward to seeing
you at this meeting.
Thank you for your cooperation and continued support and interest in Comdisco.
Regards,
Nicholas K. Pontikes
This proxy statement is dated March 20, 2000 and was first mailed to Comdisco
stockholders on March 28, 2000.
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<PAGE>
6111 North River Road
Rosemont, Illinois 60018
Notice of Special Meeting of Stockholders To Be Held on Thursday, April 20,
2000
We will hold a special meeting of stockholders of Comdisco, Inc., a Delaware
corporation, at our corporate office at 6111 North River Road, Rosemont,
Illinois 60018 on Thursday, April 20, 2000, beginning at 10:00 a.m. (C.S.T.)
in the first floor auditorium.
The special meeting will be held to consider and vote upon our proposal that
would authorize Comdisco to:
(1)amend and restate Comdisco's certificate of incorporation to:
. designate two series of common stock of Comdisco, of which shares
initially would be designated as "Comdisco, Inc.--Comdisco Stock,"
and "Comdisco, Inc.--Ventures Tracking Stock;"
. reclassify each outstanding share of the existing common stock of
Comdisco as one share of Comdisco Stock;
. authorize the board of directors to create additional series of
common stock other than Comdisco Stock and Ventures Tracking Stock;
and
. increase the number of shares of common stock authorized for
issuance from 750,000,000 shares to 1,800,000,000 shares.
(2) establish the Comdisco Ventures Management Incentive Plan to allow us
to issue Ventures Tracking Stock to the senior management of Comdisco
Ventures.
(3) amend and restate the following stock based compensation plans to allow
us in the future to issue Comdisco Stock, Ventures Tracking Stock and
any other subsequently designated series of common stock under those
plans:
. 1998 Long-Term Stock Ownership Incentive Plan;
. 1999 Non-Employee Directors Stock Option Plan; and
. U.S. Employee Stock Purchase Plan.
A complete copy of our certificate of incorporation as proposed to be amended
and restated in accordance with the tracking stock proposal is attached as
Annex II to this proxy statement, and is referred to in this proxy statement
as our "restated charter." A copy of the Comdisco Ventures Management
Incentive Plan as proposed to be adopted is attached as Annex III. Copies of
the stock-based compensation plans as proposed to be amended and restated in
accordance with the tracking stock proposal are attached as Annexes IV, V and
VI to this proxy statement.
We refer to this proposal in this proxy statement as the "tracking stock
proposal." We describe the proposal in more detail in the accompanying proxy
statement, which you should read in its entirety before voting.
Only stockholders of record at the close of business on March 27, 2000, are
entitled to notice and to vote at the special meeting. For at least ten days
prior to the special meeting, a list of stockholders entitled to vote at the
special meeting will be available for examination by any stockholder, for any
purpose germane to the special meeting, during ordinary business hours at
Comdisco's corporate office.
[COMDISCO LOGO]
<PAGE>
Stockholders are cordially invited to attend the special meeting. However,
whether or not a stockholder plans to attend, each stockholder entitled to
vote is urged to vote by one of the following methods: (i) signing, dating and
promptly returning the enclosed proxy card in the accompanying envelope, (ii)
by using a toll-free telephone number as described on the enclosed proxy card
or (iii) by using the Internet address as described on the enclosed proxy
card.
The proxy statement and proxy card are enclosed with this notice.
By order of the Board of Directors
PHILIP A. HEWES
Secretary
New York, New York
March 20, 2000.
IMPORTANT
Please complete, sign and return the enclosed proxy card immediately or use
the telephone voting procedure or Internet voting procedure. A return
envelope, which requires no postage if mailed in the United States, is
enclosed.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND OUR TRACKING STOCK
PROPOSAL................................................................. 1
SUMMARY OF OUR TRACKING STOCK PROPOSAL.................................... 8
RISK FACTORS.............................................................. 25
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................. 31
INFORMATION ABOUT COMDISCO COMMON STOCK OWNERSHIP......................... 32
COMPENSATION COMMITTEE REPORT............................................. 34
COMDISCO EXECUTIVE OFFICER COMPENSATION AND BENEFITS...................... 36
COMDISCO STOCK PRICE PERFORMANCE GRAPH.................................... 39
COMMON STOCK PRICE RANGE.................................................. 40
THE TRACKING STOCK PROPOSAL............................................... 41
Amendment and Restatement of Our Current Certificate of Incorporation... 41
Background and Reasons for the Tracking Stock Proposal.................. 41
Increase in Authorized Common Stock..................................... 43
Initial Issuance of Ventures Tracking Stock............................. 44
Options, Awards and Rights to Purchase relating to Ventures Tracking
Stock.................................................................. 44
Subsequent Issuances of Ventures Tracking Stock......................... 45
Distribution of Comdisco Group's Retained Interest in Comdisco Ventures. 45
Description of Comdisco Stock and Ventures Tracking Stock............... 46
Authorized Stock and Designations of Series of Common Stock........... 46
Conversion and Redemption............................................. 47
Dividends............................................................. 47
Mandatory Dividend, Redemption or Conversion of Ventures Tracking
Stock................................................................ 48
Conversion of Ventures Tracking Stock at Option of Comdisco........... 50
Redemption of Ventures Tracking Stock in Exchange for Stock of
Subsidiary........................................................... 51
General Conversion and Redemption Provisions.......................... 51
Voting Rights......................................................... 52
Liquidation........................................................... 54
Retained Interest of Comdisco Group in Comdisco Ventures.............. 55
Effectiveness of Certain Terms........................................ 57
Determinations by the Board........................................... 57
Preemptive Rights..................................................... 58
Other Provisions of Our Charter, Bylaws and Delaware Law................ 58
Preferred Stock....................................................... 58
Amended and Restated Rights Agreement................................. 58
Authorized Shares..................................................... 60
Classified Board of Directors; Removal of Directors; Limitation on
Ability to Call Special Meetings..................................... 61
Business Combinations with Substantial Stockholders................... 61
Stockholder Proposals and Nominations................................. 62
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Restated Rights Agreement............................................. 62
Delaware Law.......................................................... 62
Stock Transfer Agent and Registrar...................................... 63
Stock Exchange Listings................................................. 63
No Dissenters' Rights................................................... 63
Certain Management and Allocation Policies.............................. 63
General............................................................... 63
Fiduciary and Management Responsibilities............................. 63
Preparation of Financial Statements................................... 63
Treasury Activities................................................... 64
Competition Between Groups............................................ 65
Transfers of Assets Between Groups.................................... 65
Review of Corporate Opportunities..................................... 65
Shared Services and Support Activities................................ 65
Taxes................................................................. 66
Dividend Policy....................................................... 66
Changes in Policies................................................... 66
Anti-takeover Considerations............................................ 67
Certain U.S. Federal Income Tax Considerations.......................... 67
Reclassification of Existing Common Stock............................. 68
Issuance of Ventures Tracking Stock................................... 68
Conversion of Ventures Tracking Stock into Comdisco Stock............. 69
Dividends............................................................. 69
Absence of Authority Regarding Tracking Stock; Possible Legislative,
Regulatory, or Other Changes......................................... 69
Certain U.S. Tax Consequences to Non-U.S. Holders..................... 70
Description of Comdisco Ventures Management Incentive Plan.............. 71
Description of Amended and Restated Stock Plans......................... 72
The Amended and Restated Incentive Plan............................... 73
The Amended and Restated Director Plan................................ 74
The Amended and Restated Stock Purchase Plan.......................... 75
Recommendation of the Board of Directors................................ 76
INDEPENDENT AUDITORS...................................................... 76
LEGAL MATTERS............................................................. 76
Annex I--Illustrations of Certain Terms
Annex II--Comdisco, Inc. Amended and Restated Certificate of Incorporation
Annex III--Comdisco Ventures Management Incentive Plan
Annex IV--Amended and Restated 1998 Long-Term Stock Ownership Incentive
Plan
Annex V--Amended and Restated 1999 Non-Employee Directors Stock Option
Plan
Annex VI--Amended and Restated U.S. Employee Stock Purchase Plan
Annex VII--Comdisco Group Description of Business and Financial
Information
Annex VIII--Comdisco Ventures Description of Business and Financial
Information
</TABLE>
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND OUR
TRACKING STOCK PROPOSAL
Time, Place And Date Of The Special Meeting
Why did I receive this proxy statement?
We sent you this proxy statement and the enclosed proxy card because
Comdisco's board of directors is soliciting your proxy to vote at the special
meeting of stockholders. The special meeting will be held on Thursday, April
20, 2000, beginning at 10:00 a.m. (C.S.T.) at our corporate office, 6111 North
River Road, Rosemont, Illinois 60018.
At this special meeting, we will ask you to consider and approve the tracking
stock proposal described in this proxy statement.
This proxy statement summarizes the information you need to know to vote on an
informed basis at the special meeting; however, you do not need to attend the
special meeting to vote your shares (under the section entitled "Special
Meeting Voting and Record Date", see "How do I vote by proxy?"). We began
sending this proxy statement, the attached notice of special meeting and the
enclosed proxy card on March 28, 2000, to all stockholders entitled to vote.
The Tracking Stock Proposal
What is the tracking stock proposal?
If you approve the tracking stock proposal we will be authorized to:
(1) amend and restate our current certificate of incorporation to:
. authorize the board of directors to issue common stock in multiple
series, with the initial two series of common stock expected to be
Comdisco Stock and Ventures Tracking Stock;
. re-classify each outstanding share of existing common stock as one share
of Comdisco Stock; and
. increase the total authorized shares of common stock from 750,000,000 to
1,800,000,000.
(2) establish the Comdisco Ventures Management Incentive Plan described in
this proxy statement.
(3) amend and restate our 1998 Long-Term Stock Ownership Incentive Plan, our
1999 Non-Employee Directors Stock Option Plan and our U.S. Employee Stock
Purchase Plan to allow us to issue Comdisco Stock, Ventures Tracking Stock
and any other series of common stock subsequently designated by the board
of directors under those plans.
What is "tracking stock"?
"Tracking stock," which people sometimes call "alphabet stock," "letter stock"
or "targeted stock," is a type of common stock that the issuing company
intends to reflect (or "track") the performance of a particular business.
Tracking stock is an equity interest in a corporation with rights determined
in part by reference to the performance of specific assets of the corporation.
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As mentioned above, we propose creating two new series of common stock, to be
designated as Comdisco Stock and Ventures Tracking Stock, in the form of
tracking stock.
. We intend Ventures Tracking Stock to reflect the performance of Comdisco
Ventures, our venture financing business.
. We intend Comdisco Stock to reflect the performance of our other
businesses, including our interest in Prism, and our retained interest
in Comdisco Ventures. We refer to these businesses and our retained
interest in Comdisco Ventures as Comdisco Group.
. We have allocated, for financial reporting purposes, all Comdisco's
consolidated assets, liabilities, revenue, expenses and cash flow
between Comdisco Group and Comdisco Ventures. More detailed descriptions
of these businesses, and their financial statements, are included as
annexes to this proxy statement. We encourage you to review this
information before you vote.
We can't assure you that the market values of Comdisco Stock and Ventures
Tracking Stock will in fact reflect the performance of Comdisco Group and
Comdisco Ventures as we intend. Holders of Comdisco Stock and Ventures
Tracking Stock will continue to be common stockholders of Comdisco and, as
such, will be subject to risks associated with an investment in Comdisco as a
whole and all of our businesses, assets and liabilities.
What happens to my existing common stock when you implement the tracking stock
proposal? Do I need to send in my certificates?
If we file our restated charter implementing the tracking stock proposal, that
filing will automatically re-classify each of your shares as one share of
Comdisco Stock and your existing stock certificate will automatically
represent the same number of shares of Comdisco Stock. Since the re-
classification is automatic, you do not need to send in your stock
certificates or make any notation reflecting the change.
How and when will you first issue Ventures Tracking Stock?
If you approve the tracking stock proposal and it is implemented by the board
of directors, we currently plan to offer to the public, for cash, subject to
market and other conditions at the time, shares of Ventures Tracking Stock
intended to represent approximately 15% of the equity value initially
attributed to Comdisco Ventures. We expect that this initial public offering
would occur some time in our fiscal year 2000. However, we could choose to
conduct the offering at a later time, or not to make the offering at all,
depending on circumstances at the time.
This would leave Comdisco Group with a retained interest intended to represent
the remaining equity value initially attributed to Comdisco Ventures that is
not represented by issued and outstanding Ventures Tracking Stock.
Instead of an initial public offering for cash, we may first issue Ventures
Tracking Stock through a distribution to, or by an offer of exchange with, the
holders of Comdisco Stock.
Why are you proposing the tracking stock proposal?
The board of directors believes that designating Comdisco Stock and Ventures
Tracking Stock as tracking stocks should:
. enable investors to review separate financial information about Comdisco
Ventures and separately value Ventures Tracking Stock. This should
encourage investors and analysts to focus more attention on Comdisco
Ventures and its contribution to the value of Comdisco.
. enable us to issue Ventures Tracking Stock in one or more private or
public financings, thus raising capital for Comdisco Group and/or
Comdisco Ventures.
. provide us with greater flexibility in responding to strategic
opportunities, such as acquisitions, by allowing us to issue either
Comdisco Stock or Ventures Tracking Stock as appropriate under the
circumstances.
. preserve the financial, tax, strategic and operational benefits of being
a single enterprise.
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The designation of the tracking stocks, together with the creation of the
Comdisco Ventures Management Incentive Plan and the amendments of the Comdisco
stock plans, will also enable us to issue stock-based compensation tied to
Ventures Tracking Stock, thereby providing more focused incentives to
management and employees of Comdisco Ventures.
The tracking stock proposal will also provide us with the additional
flexibility in the future to designate additional series of common stock with
respect to our other businesses, if similar considerations would warrant this
action.
Finally, the increase in our authorized common stock which is part of the
tracking stock proposal will ensure that Comdisco continues to have sufficient
common stock to meet its obligations under its rights plan and compensation
plans, while maintaining the ability to sell additional stock or effect stock
splits in the future.
Will Comdisco Stock be listed on the NYSE? What about Ventures Tracking Stock?
When we re-classify our existing common stock as Comdisco Stock, it will
continue to trade on the NYSE under the symbol "CDO". We currently intend to
apply to the NASDAQ National Market for listing of Ventures Tracking Stock.
What voting rights will I have?
On all matters as to which holders of Comdisco Stock and Ventures Tracking
Stock will vote together as a single class, and subject to some exceptions and
qualifications:
. each share of Comdisco Stock will entitle the holder to one vote;
. each share of Ventures Tracking Stock will entitle the holder, for any
particular vote, to one vote prior to the 31st trading day after the
effective date of our restated charter and after that date, to a number
of votes equal to the average market value of one share of Ventures
Tracking Stock divided by the average market value of one share of
Comdisco Stock over a specified 20 trading day period prior to the
record date of that vote; and
. in no event will Ventures Tracking Stock represent in excess of 35% of
the total voting power of all outstanding shares of the common stock of
Comdisco.
Do you intend to pay dividends?
We currently intend to retain all earnings of Comdisco Ventures to finance
operations and fund future growth for Comdisco Ventures. We do not expect to
pay any dividends on Ventures Tracking Stock for the foreseeable future. We do
not expect to change our dividend policy with respect to our currently
outstanding existing common stock (which will become Comdisco Stock) as a
result of the tracking stock proposal.
What kind of financial information will I receive in the future?
You will continue to receive consolidated financial information for Comdisco
as a whole. In addition, you will receive separate operating results and
business and financial information for Comdisco Group and Comdisco Ventures.
Will the tracking stock proposal result in a change of control of Comdisco?
No.
Will the tracking stock proposal result in a spin-off?
No. This proposal will not result in a distribution or spin-off of any of our
assets or liabilities and will not affect ownership of our assets or
responsibility for our liabilities. Holders of Comdisco Stock and Ventures
Tracking Stock will all be stockholders of the same company and subject to all
risks associated with an investment in Comdisco and all of our businesses,
assets and liabilities. These series of common stock do not represent
ownership interests in the assets of any business group and do not entitle
their holders to any special rights to receive specific assets of any business
group.
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If I hold my shares through a broker, how do I vote on the tracking stock
proposal?
You should contact your broker directly to determine the procedures through
which you can vote on the tracking stock proposal.
What are the consequences of my not voting on the tracking stock proposal?
Your failure to vote on the tracking stock proposal will have the same effect
as a vote against the proposal.
What are the tax consequences of the tracking stock proposal?
We believe that neither you nor Comdisco will recognize any income, gain or
loss for federal income tax purposes as a result of the re-classification of
existing common stock into Comdisco Stock. Moreover, we believe that, except
where cash is received in lieu of fractional shares, neither you nor Comdisco
will recognize any income, gain, or loss upon the distribution of a dividend
of Ventures Tracking Stock to the holders of Comdisco Stock, or upon the
exchange of Ventures Tracking Stock for Comdisco Stock, as we presently
contemplate such transactions would be carried out. There are, however, no
court decisions bearing directly on similar transactions, and the Internal
Revenue Service has announced that it will not issue advance rulings on the
federal income tax consequences of such transactions. Thus, you should consult
a tax advisor.
How does the board of directors recommend I vote on the tracking stock
proposal?
The board of directors recommends a vote FOR the tracking stock proposal.
Special Meeting Voting And Record Date
Who can vote?
You are entitled to vote if you owned our existing common stock at the close
of business on March 27, 2000. This is called the record date.
How many shares of voting stock are outstanding?
The existing common stock is our only class of voting stock as of the record
date. The existing common stock held by Comdisco in treasury is not eligible
to vote. On March 1, 2000, there were 152,183,133 shares of our existing
common stock outstanding.
How many votes do I have?
Each share of existing common stock that you own entitles you to one vote. The
proxy card indicates the number of shares of existing common stock that you
owned on the record date and are eligible to vote at the special meeting.
How do I vote in person?
If you owned existing common stock on the record date, you can attend the
special meeting. If you plan to attend the special meeting you may vote in
person. However, if your shares are held in the name of your broker, bank or
other nominee, you must bring an account statement or letter from the nominee
indicating that you are the beneficial owner of the shares on the record date.
How do I vote by proxy?
To vote by proxy, you should either:
. Complete, sign and date the enclosed proxy card and return it promptly,
to be received by Comdisco no later than April 19, 2000 at 3:00 p.m.
(C.S.T.) in the prepaid envelope provided;
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. Call the toll-free telephone number on the proxy card no later than
April 19, 2000 at 3:00 p.m. (C.S.T.) and follow the recorded
instructions; or
. Access ChaseMellon's website registration page through the Internet at
http://www.eproxy.com/cdo as identified on the proxy card no later than
April 19, 2000 at 3:00 p.m. (C.S.T.) and follow the instructions.
May I revoke my proxy?
If you give a proxy, you may revoke it at any time before it is voted on your
behalf. You may revoke your proxy in any one of three ways:
. You may deliver another proxy with a later date any time prior to April
19, 2000 at 3:00 p.m. (C.S.T.).
. You may notify Comdisco's Secretary, Philip A. Hewes, in writing before
the special meeting that you have revoked your proxy.
. You may vote in person at the special meeting.
If I plan to attend the special meeting, should I still vote by proxy?
Whether you plan to attend the special meeting or not, we urge you to vote by
proxy. Returning the proxy card, voting by telephone or voting through the
Internet will not affect your right to attend the special meeting and vote.
How will my proxy get voted?
If you properly fill in your proxy card and send it to us, deliver your proxy
by telephone, or deliver your proxy through the Internet, in each case in time
to vote no later than April 19, 2000 at 3:00 p.m. (C.S.T.), your "proxy" (one
of the individuals named on your proxy card) will vote your shares as you have
directed. If you sign the proxy card but do not make specific choices, your
proxy will vote your shares "FOR" the tracking stock proposal.
If you mark "abstain" on your proxy card, your shares will be counted as
present for purposes of determining the presence of a quorum. If necessary and
unless you have indicated on your proxy card that you wish to vote against the
tracking stock proposal, the individuals named on your proxy card may vote in
favor of a proposal to adjourn the special meeting to a later date in order to
solicit and obtain sufficient votes for the tracking stock proposal.
What does it mean if I get more than one proxy card?
If your shares are registered differently and are in more than one account,
you will receive more than one proxy card. Each proxy card will indicate the
number of shares you are entitled to vote on that particular card. Sign and
return all proxy cards to ensure that all your shares are voted.
Is voting confidential?
We keep all the proxies, ballots, telephone voting and voting tabulations
private as a matter of general practice. We only let our Inspector of
Elections, David J. Keenan, and certain employees of our independent
tabulating agent, ChaseMellon Shareholder Services, examine these documents.
We will not disclose your vote to management unless it is necessary to meet
legal requirements. We will, however, forward to management any written
comments you make on the proxy card or elsewhere.
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Quorum And Required Vote
What is a quorum and why is it necessary?
In order to carry on the business of the special meeting, we must have a
quorum. This means a majority of the votes eligible to be cast by holders of
our voting stock must be represented in person or by proxy at the special
meeting. Abstentions and broker non-votes will count for quorum purposes. If
you submit a properly executed proxy card, even if you abstain from voting,
you will be considered part of the quorum.
What is a broker non-vote?
Under the rules of the New York Stock Exchange, a "broker non-vote" occurs
when a broker returns a proxy but does not have authority to vote on a
particular proposal.
What vote is required to approve the tracking stock proposal?
The approval of this proposal will require the favorable vote of the holders
of a majority of Comdisco's outstanding existing common stock. For purposes of
this vote, abstentions and broker non-votes on the proposal will have the same
effect as votes against the proposal.
Our directors and executive officers beneficially owned approximately 30% of
the outstanding shares of our existing common stock as of March 1, 2000. They
have advised us that they will vote, or cause to be voted, all shares of
existing common stock that they beneficially own in favor of the tracking
stock proposal.
Cost Of Proxy Solicitation
What are the costs of soliciting these proxies and who pays them?
We will pay all the costs of soliciting these proxies, which includes
reimbursing banks, brokers and other institutions, nominees and fiduciaries
for expenses. Additionally, we have retained ChaseMellon Shareholder Services
to assist us in the distribution and solicitation of proxies (including
Internet voting) for an approximate fee of $11,500 and Proxy Services
Corporation to assist us with telephone proxy solicitation for an approximate
fee of $750, plus out-of-pocket expenses.
Additional Information And Stockholder Communication
Where can I find more information about Comdisco?
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference room.
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this proxy statement, and information that we file later
with the SEC will automatically update and supersede this information.
We incorporate by reference our documents listed below and any future filings
we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the special meeting:
. Annual Report of Comdisco on Form 10-K for the fiscal year ended
September 30, 1999, as amended by Form 10-K/A;
6
<PAGE>
. Quarterly Report of Comdisco on Form 10-Q for the quarter ended December
31, 1999, as amended by Form 10-Q/A; and
. Current Report of Comdisco on Form 8-K dated March 9, 2000.
You should rely only on the information incorporated by reference or provided
in this proxy statement. We have not authorized anyone else to provide you
with different information. You should not assume that the information in this
proxy statement is accurate as of any date other than the date on the front of
this document.
Can I get information on Comdisco's latest earnings, Form 10-K, Form 10-Q or
the Annual Report directly from Comdisco?
Yes.
. You can contact Comdisco Investor Relations at 847/518-5853.
. You can e-mail Comdisco Investor Relations at [email protected].
. You can visit Comdisco's website at www.comdisco.com.
. You can write to Comdisco at 6111 North River Road, Rosemont, Illinois
60018, Attention: Investor Relations
7
<PAGE>
SUMMARY OF OUR TRACKING STOCK PROPOSAL
This summary, together with the section "Questions and Answers About the
Special Meeting and Our Tracking Stock Proposal" on pages 1 through 7
highlights important selected information from this document. To understand
the tracking stock proposal fully and for a more complete description of the
legal terms of the tracking stock proposal, you should read carefully this
entire proxy statement and the documents referred to within this proxy
statement.
Comdisco, Comdisco Group And Comdisco Ventures
Comdisco
Comdisco provides global technology infrastructure solutions to help its
customers maximize their technology's reliability, efficiency and flexibility
to achieve exceptional business results. From an accounting standpoint, we
have separated Comdisco Ventures, our venture financing business, from the
rest of our businesses. We have allocated all of our consolidated assets,
liabilities, revenue, expenses and cash flow between Comdisco Group and
Comdisco Ventures. Our principal executive offices are located at 6111 N.
River Road, Rosemont, Illinois 60018. Our telephone number is (847) 698-3000.
Comdisco Group
Comdisco Group is:
. our technology services businesses, including: our continuity services;
managed network services and desktop management solutions;
. our global leasing and remarketing businesses in areas such as
electronics, communications, laboratory and scientific and industrial
automation equipment;
. our interest in Prism Communication Services, Inc., a majority-owned
subsidiary through which we provide integrated communications services;
and
. our retained interest in Comdisco Ventures.
We have included a more detailed description of the current business of
Comdisco Group, and related historical financial information, in Annex VII to
this proxy statement. You should review this information before you decide how
to vote on the tracking stock proposal.
Comdisco Ventures
Comdisco Ventures is a leading provider of venture lease, venture debt and
direct equity financing to venture capital-backed companies. Comdisco
Ventures' relationships with leading venture capital firms help it identify
what it believes are the best positioned companies in the most attractive high
growth industries. Comdisco Ventures offers a broad range of innovative
equity-linked financing products, which complement equity from venture capital
firms and debt from venture-oriented banks and asset-based lenders. Comdisco
Ventures was formed in 1987 and has been operated as a division of Comdisco
since that time. Comdisco Ventures' principal offices are located at 3000 Sand
Hill Road, Menlo Park, California.
We have included a more detailed description of the current business of
Comdisco Ventures, and related historical financial information, in Annex VIII
to this proxy statement. You should review this information before you decide
how to vote on the tracking stock proposal.
8
<PAGE>
The Tracking Stock Proposal
Amendment of Our Certificate of Incorporation and Designations of New Series
of Common Stock
You are being asked to consider and vote in favor of the tracking stock
proposal. If you approve the tracking stock proposal, we will file a restated
charter that will:
. authorize the board of directors to issue common stock in multiple
series, with the initial two series of common stock intended to be
designated as Comdisco Stock and Ventures Tracking Stock;
. re-classify each outstanding share of existing common stock as one a
share of Comdisco Stock; and
. increase the total authorized shares of common stock from 750,000,000 to
1,800,000,000.
Further, as part of the tracking stock proposal:
. We intend Ventures Tracking Stock to reflect the performance of Comdisco
Ventures.
. We intend Comdisco Stock to reflect the performance of Comdisco Group.
. We have allocated, for financial reporting purposes, all of Comdisco's
consolidated assets, liabilities, revenue, expenses and cash flow
between Comdisco Group and Comdisco Ventures.
. We will initially authorize 750,000,000 shares of Comdisco Stock and
750,000,000 shares of Ventures Tracking Stock.
If you approve the tracking stock proposal, we expect to file our restated
charter, establish the Comdisco Ventures Management Incentive Plan and amend
and restate the stock plans shortly before we issue Ventures Tracking Stock.
Our board of directors, in its sole discretion, may determine not to proceed
with the tracking stock proposal at any time prior to the effectiveness of the
restated charter, or may determine not to designate Ventures Tracking Stock in
the restated charter.
Initial Issuance of Ventures Tracking Stock
We currently plan to offer to the public, for cash, shares of Ventures
Tracking Stock intended to represent approximately 15% of the equity value
initially attributed to Comdisco Ventures. This will leave Comdisco Group with
a retained interest intended to represent the remainder of the equity value
initially attributable to Comdisco Ventures that is not represented by issued
and outstanding Ventures Tracking Stock.
We expect that this initial public offering would occur some time in our
fiscal year 2000. However, we could choose to conduct this offering at a later
time, or not to make any offering at all, depending on circumstances at the
time. Instead of an initial offering to the public, Comdisco may first issue
Ventures Tracking Stock:
. as a dividend to the holders of Comdisco Stock, or
. by an offer to exchange shares of Ventures Tracking Stock for shares of
Comdisco Stock.
We also currently plan to grant to senior management of Comdisco Ventures
under the Comdisco Ventures Management Incentive Plan, stock options to
purchase, or restricted stock awards of, Ventures Tracking Stock representing
approximately 15% of the total shares of Ventures Tracking Stock deemed
outstanding after we first issue Ventures Tracking Stock, assuming for this
purpose that Comdisco Group's retained interest in Comdisco Ventures is
represented by issued and outstanding shares of Ventures Tracking Stock.
The grant of these stock awards or exercise of these stock options would
reduce Comdisco Group's retained interest in Comdisco Ventures.
9
<PAGE>
Subsequent Issuances of Ventures Tracking Stock
After we first issue Ventures Tracking Stock, we may issue additional shares
of Ventures Tracking Stock from time to time and further reduce Comdisco
Group's retained interest in Comdisco Ventures by:
. distributing a dividend of Ventures Tracking Stock to the holders of
Comdisco Stock;
. selling Ventures Tracking Stock to the public for cash;
. offering to exchange Ventures Tracking Stock for Comdisco Stock;
. issuing Ventures Tracking Stock or options to purchase Ventures Tracking
Stock to employees under compensation arrangements;
. using Ventures Tracking Stock as consideration in an acquisition; or
. any combination of the above.
Authorized but unissued shares of Comdisco Stock, Ventures Tracking Stock and
any common stock not previously designated by the board of directors as
Comdisco Stock or Ventures Tracking Stock, will be available for issuance by
Comdisco from time to time at the discretion of the board of directors. The
board of directors could authorize issuance of the remaining shares for any
proper corporate purpose, such as raising capital, paying stock dividends,
providing compensation or benefits to employees or acquiring other companies
or businesses. Your approval is not necessary for the issuance of the
remaining authorized but unissued shares of common stock unless such approval
is required by the board of directors, Delaware law, or NYSE or NASDAQ rules.
Distribution of Retained Interest in Comdisco Ventures to Holders of Comdisco
Stock
We currently intend to distribute, by way of a dividend or offer to exchange
shares, the remainder of Comdisco's retained interest in Comdisco Ventures to
the holders of Comdisco Stock at some time in the future, subject to market
and other conditions at the time, although we will not be obligated to do so.
Risk Factors
When evaluating whether to vote in favor of the tracking stock proposal, you
should be aware that there are a number of risks relating to such proposal.
Some of the risks are set forth below:
. the market value of Comdisco Stock may be less than the market value of
the existing common stock after the reclassification;
. financial performance of one group could adversely affect the other;
. actions by directors and officers could favor the holders of one series
of common stock or one group over the other;
. the board of directors may pay more or less dividends on a series of
common stock than if the related group was a separate company;
. allocation of corporate opportunities could favor one group over the
other group;
. holders of a series of common stock may receive less consideration upon
a sale of assets than if the related group was a separate company;
. in circumstances where a separate series vote is required, a series of
common stock with less than a majority of the voting power may have
limited influence on stockholder votes; and
. the existence of a tracking stock structure could discourage a change of
control.
You should carefully consider these risks, described more fully in "Risk
Factors" beginning on page 25, as well as the other information and data
included in this proxy statement before you vote on the tracking stock
proposal.
10
<PAGE>
Net Proceeds
We currently plan to use the proceeds of any initial public offering of
Ventures Tracking Stock to repay outstanding loans due from Comdisco Ventures
to Comdisco and for Comdisco Ventures' general corporate purposes. Pending any
specific application, the net proceeds of any offering will be invested in
short-term, investment-grade securities. Although we currently have no plans
to sell additional Ventures Tracking Stock to the public, it is within the
sole discretion of the board of directors to do so.
Reasons for the Tracking Stock Proposal
The tracking stock proposal was adopted by our board of directors following
its review of various alternatives to enhance stockholder value and support
Comdisco's strategic objectives. The board of directors believes that the
recent historical price performance of the existing common stock has failed to
adequately reflect the value of the various businesses of Comdisco, including
Comdisco Ventures. The board of directors believes that proceeding with the
tracking stock proposal, and initially designating Comdisco Stock and Ventures
Tracking Stock as tracking stocks, will:
. enable investors to review separate financial information about Comdisco
Ventures and separately value Ventures Tracking Stock. This should
encourage investors and analysts to focus more attention on Comdisco
Ventures and its contribution to the value of Comdisco.
. enable us to issue Ventures Tracking Stock in one or more private or
public financings, thus raising capital for Comdisco Group or Comdisco
Ventures.
. provide us with greater flexibility in responding to strategic
opportunities, such as acquisitions, by allowing us to issue either
Comdisco Stock or Ventures Tracking Stock as appropriate under the
circumstances.
. enable us to attract, retain and motivate the senior management and
employees of Comdisco Ventures through the issuance of stock-based
compensation tied to Ventures Tracking Stock.
. preserve the financial, tax, strategic and operational benefits of being
a single enterprise.
The tracking stock proposal also gives the board of directors the flexibility
to use its authority to designate additional series of common stock to obtain
the benefits of the creation of tracking stock for Comdisco's other business
groups as it deems appropriate.
Finally, the increase in the number of authorized shares of common stock
contemplated by the tracking stock proposal will ensure that we have a
sufficient number of shares of common stock available to implement the
tracking stock proposal, provide additional common stock available for future
designation and issuance, fund our rights plan and stock compensation plan
obligations, provide for future stock splits and allow Comdisco to address any
future capital needs that may arise.
11
<PAGE>
SUMMARY COMPARISON OF EXISTING COMMON STOCK WITH TERMS OF
COMDISCO STOCK AND VENTURES TRACKING STOCK
<TABLE>
<CAPTION>
Existing Common Ventures Tracking
Stock Comdisco Stock Stock
--------------- -------------- -----------------
<S> <C> <C> <C>
Business: All businesses of Comdisco Group Comdisco Ventures
Comdisco consists of (1) our consists of
technology services Comdisco's venture
businesses, including financing businesses.
our continuity
services, our managed
network services and
our desktop
management solutions,
(2) our global
electronics,
communications,
laboratory and
scientific, and
industrial automation
equipment leasing and
remarketing
businesses, (3) our
interest in Prism,
our subsidiary
through which we
provide integrated
communications
services and (4) our
retained interest in
Comdisco Ventures.
We cannot assure you We cannot assure you
that the market value that the market value
of Comdisco Stock of Ventures Tracking
will in fact reflect Stock will in fact
the performance of reflect the
Comdisco Group as we performance of
intend. Holders of Comdisco Ventures as
Comdisco Stock will we intend. Holders of
continue to be common Ventures Tracking
stockholders of Stock will continue
Comdisco and, as to be common
such, will be subject stockholders of
to all of the risks Comdisco and, as
associated with an such, will be subject
investment in to all of the risks
Comdisco and all of associated with an
our businesses, investment in
assets and Comdisco and all of
liabilities. our businesses,
assets and
liabilities.
Issuance: Our existing common The restated charter We currently plan to
stock is already would re-classify offer to the public,
outstanding. each outstanding for cash, shares of
share of existing Ventures Tracking
common stock as one Stock intended to
share of Comdisco represent
Stock. approximately 15% of
the equity value
initially attributed
to Comdisco Ventures.
We expect that this
initial public
offering would occur
some time in our
fiscal year 2000.
However, we could
choose to conduct the
offering at a later
time, or not to make
the offering at all,
depending on
circumstances at the
time. Instead of this
initial public
offering, Comdisco
may first issue
Ventures Tracking
Stock as a dividend
to the holders of
Comdisco Stock, or by
an offer to exchange
shares of Ventures
Tracking Stock for
shares of Comdisco
Stock. Comdisco Group
would hold a retained
interest in Comdisco
Ventures intended to
represent
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Ventures Tracking
Existing Common Stock Comdisco Stock Stock
--------------------- -------------- -----------------
<S> <C> <C> <C>
the balance of the
equity value
initially
attributable to
Comdisco Ventures.
We also currently
plan to grant to
Comdisco Ventures
senior management
under the Comdisco
Management Incentive
Plan options to
purchase, or
restricted stock
awards of, Ventures
Tracking Stock
representing
approximately 15% of
the Ventures Tracking
Stock deemed
outstanding at the
time we first issue
Ventures Tracking
Stock (assuming, for
this purpose, that
Comdisco Group's
retained interest in
Comdisco Ventures is
represented by issued
and outstanding
shares of Ventures
Tracking Stock). The
exercise of these
stock options or
grant of stock awards
would reduce Comdisco
Group's retained
interest in Comdisco
Ventures.
After we first issue
Ventures Tracking
Stock, we may issue
additional shares of
Ventures Tracking
Stock, and further
reduce Comdisco
Group's retained
interest in Comdisco
Ventures by:
. distributing a
dividend of
Ventures Tracking
Stock to the
holders of
Comdisco Stock;
. selling Ventures
Tracking Stock to
the public for
cash;
. offering to
exchange Ventures
Tracking Stock for
Comdisco Stock;
. issuing Ventures
Tracking Stock or
options to
purchase Ventures
Tracking Stock to
employees under
compensation
arrangements;
. using Ventures
Tracking Stock as
consideration in
an acquisition; or
. any combination of
the above.
Finally, we currently
intend to distribute,
by way of a dividend
or offer to exchange
shares, the remainder
of Comdisco's
retained interest in
Comdisco Ventures to
the holders of
Comdisco Stock at
some time in the
future, subject to
market and
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Existing Common Ventures Tracking
Stock Comdisco Stock Stock
--------------- -------------- -----------------
<S> <C> <C> <C>
other conditions at
the time, although we
will not be obligated
to do so.
Retained N/A We would adjust the N/A
Interest: retained interest in
Comdisco Ventures of
Comdisco Group as
appropriate to
reflect issuances or
repurchases of
Ventures Tracking
Stock, capital
contributions to, or
returns of capital
from, Comdisco
Ventures and certain
other events.
Authorized We are currently The tracking stock The tracking stock
and authorized to issue proposal will proposal will
Outstanding only one series of authorize us to issue authorize us to issue
Common Stock: common stock. multiple series of multiple series of
common stock, and we common stock, and we
will initially will initially
designate two series designate two series
of common stock-- of common stock--
Comdisco Stock and Comdisco Stock and
Ventures Tracking Ventures Tracking
Stock. Stock.
We are currently The tracking stock The tracking stock
authorized to issue proposal will proposal will
up to 750,000,000 authorize us to authorize us to
shares of common increase the number increase the number
stock. of authorized shares of authorized shares
to 1,800,000,000 to 1,800,000,000
shares of common shares of common
stock. stock.
Approximately We will initially We will initially
152,183,133 shares authorize 750,000,000 authorize 750,000,000
of existing common shares of Comdisco shares of Ventures
stock were Stock. Authorized Tracking Stock.
outstanding on shares of Comdisco Authorized shares of
March 1, 2000. Stock, together with Ventures Tracking
These shares count the then authorized Stock, together with
against the total shares of Ventures the then authorized
number of shares we Tracking Stock, will shares of Comdisco
are authorized to count against the Stock, will count
issue. total number of against the total
shares of common number of shares of
stock we are common stock we are
authorized to issue. authorized to issue.
Immediately following After the tracking
the implementation of stock proposal is
the tracking stock implemented, we
proposal, expect to issue those
approximately shares of Ventures
152,183,133 shares of Tracking Stock
Comdisco Stock will described above in
be outstanding, based this table under
on the number of "Issuance."
shares of existing
common stock
outstanding on March
1, 2000.
Listing: NYSE under the Comdisco will apply Comdisco will apply
symbol "CDO." to the NYSE for the to the NASDAQ
redesignation of the National Market for
existing common stock the listing of
as Comdisco Stock, Ventures Tracking
which would continue Stock.
to trade under the
symbol "CDO."
Dividends: Comdisco has paid We do not expect to We currently intend
consecutive change our dividend to retain all of our
quarterly cash policy with respect earnings attributable
dividends on the to our existing to Comdisco Ventures
existing common common stock, which to finance its
stock for over 22 becomes Comdisco operations, repay its
years through Stock as a result of intercompany
fiscal 1999. the tracking stock indebtedness and fund
proposal. future growth. We do
not
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Existing Common Ventures Tracking
Stock Comdisco Stock Stock
--------------- -------------- -----------------
<S> <C> <C> <C>
expect to pay any
cash dividends on
Ventures Tracking
Stock in the
foreseeable future.
We are permitted to We will be permitted We will be permitted
pay dividends out to pay dividends out to pay dividends out
of the assets of of all funds of of all funds of
Comdisco legally Comdisco legally Comdisco legally
available for available for the available for the
dividends under payment of dividends payment of dividends
Delaware law. under Delaware law, under Delaware law,
but our restated but our restated
charter will provide charter will provide
that the total that the total
amounts paid as amounts paid as
dividends on Comdisco dividends on Ventures
Stock cannot exceed Tracking Stock cannot
the available exceed the available
dividend amount for dividend amount for
Comdisco Group. The Comdisco Ventures.
available dividend The available
amount for Comdisco dividend amount for
Group is based on the Comdisco Ventures is
amount that would be based on the amount
legally available for that would be legally
the payment of available for the
dividends under payment of dividends
Delaware law if under Delaware law if
Comdisco Group were a Comdisco Ventures
separate Delaware were a separate
corporation and Delaware corporation
certain other and certain other
assumptions were assumptions were
applied. applied.
Dividends on the The board of The board of
existing common directors, subject to directors, subject to
stock are payable the limitations set the limitations set
at the sole forth above, may, in forth above, may, in
discretion of the its sole discretion, its sole discretion,
board of directors declare and pay declare and pay
and are determined dividends on neither dividends on neither
after consideration series of common series of common
of various factors stock, on one, but stock, on one, but
including (without not both, series of not both, series of
limitation) the common stock, or on common stock, or on
earnings and both series of common both series of common
financial condition stock, in equal or stock, in equal or
of Comdisco and its unequal amounts. unequal amounts.
subsidiaries.
Voting Rights: One vote per share. Comdisco Stock will On all matters as to
have one which all series of
vote per share. our common stock vote
together as a single
class, each
outstanding share of
Ventures Tracking
Stock will have one
vote prior to the
31st trading day
after the effective
date of the restated
charter. For each
vote of stockholders
on or after that day,
each share of
Ventures Tracking
Stock will have a
number of votes equal
to the ratio of the
average market value
of one share of
Ventures Tracking
Stock to the average
market value of one
share of Comdisco
Stock over a
specified 20 trading
day period prior to
the record date of
that vote.
Outstanding Ventures
Tracking Stock will
in no event represent
in excess of 35% of
the total voting
power of all
outstanding shares of
all series of
Comdisco common
stock.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Existing Common Ventures Tracking
Stock Comdisco Stock Stock
--------------- -------------- -----------------
<S> <C> <C> <C>
Because each share of Because each share of
Ventures Tracking Ventures Tracking
Stock will have a Stock will have a
variable number of variable number of
votes, the relative votes, the relative
voting power of one voting power of one
share of Comdisco share of Comdisco
Stock and one share Stock and one share
of Ventures Tracking of Ventures Tracking
Stock will fluctuate Stock will fluctuate
as described more as described more
fully beginning on fully beginning on
page 52. page 52.
The holders of The holders of
Comdisco Stock and Comdisco Stock and
Ventures Tracking Ventures Tracking
Stock will vote Stock will vote
together as a single together as a single
class, except for class, except for
certain class votes certain class votes
as provided under as provided under
Delaware law or by Delaware law or by
NYSE or Nasdaq rules. NYSE or Nasdaq rules.
Rights on None. If we dispose of all If we dispose of all
Disposition: or substantially all or substantially all
of the assets of of the assets of
Comdisco Group, and Comdisco Ventures,
the disposition is and the disposition
not an exempt is not an exempt
disposition, as disposition, as
described on page 49, described on page 49,
we would be required we would be required
to choose one of the to choose one of the
following following
alternatives: alternatives:
. pay a dividend to . pay a dividend to
the holders of the holders of
Comdisco Stock in Ventures Tracking
an amount equal to Stock in an amount
the net proceeds equal to the net
of such proceeds of such
disposition;
. if the disposition disposition (net
involves all of of corresponding
the assets of amounts allocated
Comdisco Group, to Comdisco Group
redeem all in respect of its
outstanding shares retained interest
of Comdisco Stock in Comdisco
in exchange for an Ventures);
amount
equal to the net . if the disposition
proceeds of the involves all of
disposition; or the assets of
. if the disposition Comdisco Ventures,
involves redeem all
substantially all, outstanding shares
but not all, of of Ventures
the assets of Tracking Stock in
Comdisco Group, exchange for an
redeem a number of amount equal to
whole shares of the net proceeds
Comdisco Stock in of the disposition
exchange for an (net of
amount equal to corresponding
the net proceeds amounts allocated
of the to Comdisco Group
disposition. in respect of its
retained interest
in Comdisco
Ventures);
. if the disposition
involves
substantially all,
but not all, of
the assets of
Comdisco Ventures,
redeem a number of
whole shares of
Ventures Tracking
Stock in exchange
for an amount
equal to the net
proceeds
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Existing Common
Stock Comdisco Stock Ventures Tracking Stock
--------------- -------------- -----------------------
<S> <C> <C> <C>
of the disposition (net
of corresponding
amounts allocated to
Comdisco Group in
respect of its retained
interest in Comdisco
Ventures); or
. convert each share of
Ventures Tracking Stock
into a number of shares
of Comdisco Stock equal
to 115% of the ratio of
the average market
value of one share of
Ventures Tracking Stock
to the average market
value of one share of
Comdisco
Stock, calculated during a
specified 20-day
trading period prior to
the disposition.
Sales of Less None The proceeds from any The proceeds from any
than disposition of assets disposition of assets that
Substantially that do not comprise do not comprise all or
All of all or substantially substantially all of the
the Assets of all of the properties properties and assets
a Group: and assets attributed attributed to Comdisco
to Comdisco Group Ventures will be assets
will be assets attributed to Comdisco
attributed to Ventures and used for its
Comdisco Group and benefit, subject to the
used for its benefit, policies described under
subject to the "The Tracking Stock
policies described Proposal--Certain
under "The Tracking Management and Allocation
Stock Proposal-- Policies" beginning on
Certain Management page 63.
and Allocation
Policies" beginning
on page 63.
Conversion at None None We will have the right, at
Option any time, to convert
of Company: shares of Ventures
Tracking Stock into a
number of shares of
Comdisco Stock initially
equal to 125% of the ratio
of the average market
value of one share of
Ventures Tracking Stock to
the average market value
of one share of Comdisco
Stock over a 20-day
trading period ending on
the fifth trading day
prior to the mailing of
the conversion notice for
conversions occurring in
the first quarter after
the original issuance of
Ventures Tracking Stock.
The percentage applied to
the ratio of market values
will decline ratably each
quarter over a period of
ten quarters to 115%.
Notwithstanding the
conversion provisions
outlined above, in the
event that certain adverse
tax law changes were to
take place,
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Existing Common Ventures Tracking
Stock Comdisco Stock Stock
--------------- -------------- -----------------
<S> <C> <C> <C>
as further explained
on page 51, we will
have the right to
convert shares of
Ventures Tracking
Stock into a number
of shares of Comdisco
Stock equal to a
percentage, which
will not be more than
110% or less than
100% (as determined
by our board of
directors, at the
time the restated
charter is filed, to
be in the best
interests of our
stockholders),
applied to the ratio
of the average market
values of the
Ventures Tracking
Stock and the
Comdisco Stock
described above,
regardless of when
such adverse tax law
changes take place.
Liquidation: Upon liquidation of Upon liquidation of Upon liquidation of
Comdisco, holders Comdisco, holders of Comdisco, holders of
of existing common Comdisco Stock will Ventures Tracking
stock are entitled be entitled to Stock will be
to receive the net receive the net entitled to receive
assets of Comdisco, assets of Comdisco, the net assets of
if any, remaining if any, available for Comdisco, if any,
for distribution to distribution to available for
holders of existing stockholders (after distribution to
common stock in payment or provision stockholders (after
equal amounts per for all liabilities payment or provision
share. of Comdisco and for all liabilities
payment of the of Comdisco and
liquidation payment of the
preference payable to liquidation
any holders of preference payable to
preferred stock, if any holders of
any). Amounts due preferred stock, if
upon liquidation in any). Amounts due
respect of shares of upon liquidation in
Comdisco Stock and respect of shares of
Ventures Tracking Comdisco Stock and
Stock will be Ventures Tracking
distributed pro rata Stock will be
in accordance with distributed pro rata
the relative average in accordance with
market value of one the relative average
share of Comdisco market value of one
Stock and one share share of Comdisco
of Ventures Tracking Stock and one share
Stock over a of Ventures Tracking
specified 20- trading Stock over a
day period ending 300 specified 20- trading
days after the day period ending 300
implementation of the days after the
tracking stock implementation of the
proposal (or if the tracking stock
liquidation occurs proposal (or if the
prior to that date, liquidation occurs
the 20-trading day prior to that date,
period prior to the the 20-trading day
liquidation). In the period prior to the
absence of a public liquidation). In the
trading market for absence of a public
Ventures Tracking trading market for
Stock, market value Ventures Tracking
would be determined Stock, market value
in good faith by the would be determined
board of directors. in good faith by the
board of directors.
Certain N/A Because Comdisco Because Comdisco
Management Group and Comdisco Group and Comdisco
and Ventures are part of Ventures are part of
Allocation a single enterprise, a single enterprise,
Policies: we will establish we will establish
guidelines for guidelines for
allocation of allocation of
corporate costs and corporate costs and
charges among charges among
Comdisco, Comdisco Comdisco, Comdisco
Group and Comdisco Group and Comdisco
Ventures, including: Ventures, including:
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Existing Common Ventures Tracking
Stock Comdisco Stock Stock
--------------- -------------- -----------------
<S> <C> <C> <C>
. allocation of . allocation of
indebtedness of indebtedness of
Comdisco, Comdisco,
. accounting for . accounting for
transfers of cash transfers of cash
or property from or property from
one group to the one group to the
other, other,
. the allocation of . the allocation of
shared services shared services
and corporate and corporate
general and general and
administrative administrative
costs, costs,
. allocation of . allocation of
retirement plan retirement plan
costs and costs and
. the allocation of . the allocation of
taxes and tax taxes and tax
benefits. benefits.
We will also We will also
establish guidelines establish guidelines
to handle certain to handle certain
corporate opportunity corporate opportunity
and fiduciary duty and fiduciary duty
questions. questions.
Once adopted, the Once adopted, the
board of directors or board of directors or
management may modify management may modify
or rescind any of or rescind any of
these policies at any these policies at any
time, or may adopt time, or may adopt
additional policies, additional policies,
at any time, in its at any time, in its
or their sole or their sole
discretion, without discretion, without
stockholder approval. stockholder approval.
These policies are These policies are
described more fully described more fully
on pages 63 to 66. on pages 63 to 66.
Stockholders Holders of existing Holders of Comdisco Holders of Ventures
of One common stock are Stock will continue Tracking Stock will
Company: subject to the to be subject to the continue to be
risks associated risks associated with subject to the risks
with an investment an investment in associated with an
in Comdisco and all Comdisco and all of investment in
of its businesses, its businesses, Comdisco and all of
assets and assets and its businesses,
liabilities. liabilities. assets and
Financial effects liabilities.
arising from Comdisco Financial effects
Ventures that affect arising from Comdisco
Comdisco's overall Group that affect
results of operations Comdisco's overall
or financial results of operations
condition could, if or financial
significant, affect condition could, if
the results of significant, affect
operations or the results of
financial position of operations or
Comdisco Group or the financial position of
market price of Comdisco Ventures or
Comdisco Stock. Any the market price of
net losses of Ventures Tracking
Comdisco Group or Stock. Any net losses
Comdisco Ventures, of Comdisco Group
and dividends or or Comdisco Ventures,
distributions on, or and dividends or
repurchases of, distributions on, or
Comdisco Stock, repurchases of,
Ventures Tracking Comdisco Stock,
Stock, or any other Ventures Tracking
common stock or Stock, or any other
preferred stock, will common stock or
reduce the assets of preferred stock, will
Comdisco legally reduce the assets of
available for payment Comdisco legally
of future dividends available for payment
on Comdisco Stock and of future dividends
Ventures Tracking on Comdisco Stock and
Stock. Ventures Tracking
Stock.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Existing Common Ventures Tracking
Stock Comdisco Stock Stock
--------------- -------------- -----------------
<S> <C> <C> <C>
Redemption in None None Although we have no
Exchange for present intention to
Stock do so, our board of
of directors may in the
Subsidiary: future decide to
spin-off Comdisco
Ventures. To do so,
Comdisco may redeem
Ventures Tracking
Stock for a number of
shares of one or more
wholly owned
subsidiaries of
Comdisco then owning
all of the assets and
liabilities of
Comdisco Ventures.
</TABLE>
20
<PAGE>
No Dissenters' Rights
Under Delaware law, stockholders will not have appraisal rights in connection
with the tracking stock proposal.
U.S. Federal Income Tax Considerations
We have been advised by Hopkins & Sutter, our special tax counsel, that (i)
for U.S. Federal income tax purposes, Comdisco Stock and Ventures Tracking
Stock will be treated as stock of Comdisco; (ii) except where cash is received
in lieu of fractional shares, neither you nor Comdisco will recognize any
income, gain, or loss upon the reclassification of the existing stock, the
distribution of a dividend of Ventures Tracking Stock to the holders of
Comdisco Stock, or the exchange of Ventures Tracking Stock for Comdisco Stock,
as we presently contemplate such transactions would be carried out; and (iii)
the Ventures Tracking Stock so received will not be "section 306 stock" in
your hands. However, there are no court decisions or other authorities that
control the tax treatment of tracking stock, such as the Ventures Tracking
Stock. In addition, the Internal Revenue Service has announced that it will
not issue advance rulings on the classification of an instrument with
characteristics similar to those of Comdisco Stock and Ventures Tracking
Stock. The U.S. Federal income tax treatment of the tracking stock proposal is
therefore subject to some uncertainty. See "The Tracking Stock Proposal--
Certain U.S. Federal Income Tax Considerations" beginning on page 67.
Establishment of Comdisco Ventures Management Incentive Plan
As part of the tracking stock proposal, we will establish the Comdisco
Ventures Management Incentive Plan. Under this plan, we will grant to senior
management of Comdisco Ventures options to purchase, or restricted stock
awards of, Ventures Tracking Stock representing approximately 15% of the total
shares of Ventures Tracking Stock deemed outstanding after we first issue
Ventures Tracking Stock, assuming for this purpose that Comdisco Group's
retained interest in Comdisco Ventures is represented by issued and
outstanding shares of Ventures Tracking Stock. See Annex III for the complete
text of the plan as proposed.
Amendments to Stock Based Compensation Plans
As part of the tracking stock proposal, we will amend and restate each of
Comdisco's 1998 Long-Term Stock Ownership Incentive Plan, 1999 Non-Employee
Directors Stock Option Plan and U.S. Employee Stock Purchase Plan to authorize
the granting of awards of any designated series of common stock, including
Comdisco Stock and Ventures Tracking Stock, or any combination of common
stocks, and an increase in the number of shares of common stock to be reserved
for issuance under the plans. In order for the tracking stock proposal to be
successful, the board of directors believes that we must be able to use
Comdisco Stock, Ventures Tracking Stock or any subsequently designated series
of common stock, under our compensation plans to provide a more focused
incentive compensation for the management and employees of the business group
that is tracked by that series. We would also then be able to provide our
directors with incentive compensation based on Comdisco Stock, Ventures
Tracking Stock or any subsequently designated series of common stock, in order
to more directly align their interests with those of all Comdisco
stockholders. See Annexes IV, V and VI for the complete texts of the plans as
proposed to be amended and restated.
21
<PAGE>
COMDISCO--SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below as of September 30,
1999, and for each of the years in the three-year period ended September 30,
1999, were derived from Comdisco's consolidated financial statements, which
have been audited by KPMG LLP, independent auditors. The summary consolidated
financial data should be read in conjunction with the audited financial
information of Comdisco, Inc. provided in Comdisco's Form 10-K, as amended by
Form 10-K/A, for the 1999 fiscal year. The summary income statement data for
the three months ended December 31, 1999 and 1998 and the balance sheet data
as of December 31, 1999 and 1998 are derived from unaudited financial
statements of Comdisco, Inc. which are included in Comdisco's Form 10-Q, as
amended by Form 10-Q/A, for the quarter ended December 31, 1999. The unaudited
summary financial data reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for
a fair presentation of the results of the interim periods. The operating
results for the three months ended December 31, 1999 and 1998 are not
necessarily indicative of the results to be expected for any other interim
period or any other fiscal year.
COMDISCO, INC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(in millions, except share data)
<TABLE>
<CAPTION>
Three Months Ended
December 31, Years Ended September 30,
----------------------- ------------------------------------
1999 1998 1999 1998 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue:
Leasing............... $ 555 $ 732 $ 2,655 $ 2,435 $ 2,116
Sales................. 68 58 891 329 269
Technology services... 147 118 522 433 354
Other................. 107 13 91 46 80
----------- ----------- ----------- ----------- -----------
Total revenue....... 877 921 4,159 3,243 2,819
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Leasing............... 411 557 1,969 1,791 1,534
Sales................. 50 51 846 275 210
Technology services... 125 100 440 362 296
Selling, general &
administrative....... 115 69 306 249 244
Interest.............. 84 84 337 326 299
Prism Communication
Services............. 27 -- 36 -- --
Other................. -- -- 150 -- 25
----------- ----------- ----------- ----------- -----------
Total costs and
expenses........... 812 861 4,084 3,003 2,608
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes.................. 65 60 75 240 211
Income taxes............ 23 22 27 87 80
----------- ----------- ----------- ----------- -----------
Net earnings before
preferred dividends.... 42 38 48 153 131
Preferred dividends..... -- -- -- (2) (8)
----------- ----------- ----------- ----------- -----------
Net earnings to common
stockholders........... $ 42 $ 38 $ 48 $ 151 $ 123
=========== =========== =========== =========== ===========
Net earnings per common
share:
Earnings per common
share--basic......... $ .27 $ .25 $ .32 $ .99 $ .83
=========== =========== =========== =========== ===========
Earnings per common
share--diluted....... $ .26 $ .24 $ .30 $ .93 $ .78
=========== =========== =========== =========== ===========
Diluted shares
outstanding............ 162,338,000 161,389,000 161,787,000 162,770,000 157,589,000
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
------------- ---------------
1999 1998 1999 1998
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 291 $ 73 $ 387 $ 63
Receivables, net............................... 801 422 696 340
Net leased assets.............................. 5,778 6,022 5,623 5,900
Total assets................................... 8,433 7,337 7,807 7,063
Total debt..................................... 5,841 5,341 5,571 5,035
Total stockholders' equity..................... 1,228 1,001 1,060 979
</TABLE>
22
<PAGE>
COMDISCO GROUP--SUMMARY COMBINED FINANCIAL DATA
The summary financial data presented below as of September 30, 1999, and for
each of the years in the three-year period ended September 30, 1999, were
derived from Comdisco Group's financial statements set forth in Annex VII
hereto, which have been audited by KPMG LLP, independent auditors. As
discussed in the report of KPMG LLP, Comdisco Group has accounted for its
interest in Comdisco Ventures in a manner similar to the equity method of
accounting. Generally accepted accounting principles require that Comdisco
Ventures be consolidated with Comdisco Group. The summary financial data
should be read in conjunction with the financial information of Comdisco Group
in Annex VII as well as the audited financial information of Comdisco, Inc.
provided in Comdisco's Form 10-K, as amended by Form 10-K/A, for the 1999
fiscal year. The summary income statement data for the three months ended
December 31, 1999 and 1998 and the balance sheet data as of December 31, 1999
and 1998 are derived from unaudited financial statements of Comdisco Group
which are also included in Annex VII. The unaudited summary financial data
reflects all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the results of the interim periods. The operating results for the three months
ended December 31, 1999 and 1998 are not necessarily indicative of the results
to be expected for any other interim period or any other fiscal year.
COMDISCO GROUP
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
(in millions)
<TABLE>
<CAPTION>
Three Months
Ended
December 31, Years Ended September 30,
-------------- ---------------------------
1999 1998 1999 1998 1997
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue:
Leasing......................... $ 517 $ 704 $ 2,525 $ 2,343 $ 2,045
Sales........................... 66 57 885 322 262
Technology services............. 147 118 522 433 354
Other........................... 6 6 18 31 63
------ ------ -------- -------- --------
Total revenue................. 736 885 3,950 3,129 2,724
------ ------ -------- -------- --------
Costs and expenses:
Leasing......................... 383 539 1,881 1,731 1,488
Sales........................... 49 50 841 271 206
Technology services............. 125 100 440 362 296
Selling, general &
administrative................. 75 66 285 239 232
Interest........................ 73 80 313 315 291
Prism Communications Services... 27 -- 36 -- --
Other........................... -- -- 150 -- 25
------ ------ -------- -------- --------
Total costs and expenses...... 732 835 3,946 2,918 2,538
------ ------ -------- -------- --------
Earnings before income taxes and
retained interest in Comdisco
Ventures......................... 4 50 4 211 186
Provision (benefit) for income
taxes............................ (1) 18 (1) 75 70
------ ------ -------- -------- --------
Earnings before retained interest
in Ventures...................... 5 32 5 136 116
Net earnings of Ventures.......... 37 6 43 17 15
------ ------ -------- -------- --------
Net earnings...................... $ 42 $ 38 $ 48 $ 153 $ 131
====== ====== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
------------- -------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $ 291 $ 73 $ 387 $ 63
Receivables, net................................. 387 289 355 274
Net leased assets................................ 5,447 5,815 5,335 5,710
Total assets..................................... 8,232 7,311 7,694 7,042
Total debt....................................... 5,841 5,341 5,571 5,035
Total division equity............................ 1,228 1,001 1,060 979
</TABLE>
23
<PAGE>
COMDISCO VENTURES--SUMMARY FINANCIAL DATA
The summary financial data presented below as of September 30, 1999, and for
each of the years in the three-year period ended September 30, 1999, was
derived from Comdisco Ventures' financial statements set forth in Annex VIII
hereto, which have been audited by KPMG LLP, independent auditors. The summary
financial data should be read in conjunction with the financial information of
Comdisco Ventures in Annex VIII as well as the audited financial information
of Comdisco, Inc. provided in Comdisco's Form 10-K, as amended by Form 10-K/A,
for the 1999 fiscal year. The summary income statement data for the three
months ended December 31, 1999 and 1998 and the balance sheet data as of
December 31, 1999 and 1998 are derived from unaudited financial statements of
Comdisco Ventures which are also included in Annex VIII. The unaudited summary
financial data reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods. The operating results for
the three months ended December 31, 1999 and 1998 are not necessarily
indicative of the results to be expected for any other interim period or any
other fiscal year.
COMDISCO VENTURES
SUMMARY HISTORICAL FINANCIAL DATA
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
December 31, Years Ended September 30,
---------------- -------------------------
1999 1998 1999 1998 1997
-------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue:
Leasing......................... $ 37,993 $25,515 $118,403 $ 85,086 $68,620
Sales........................... 2,318 1,269 6,142 7,136 6,942
Interest income on notes........ 11,759 2,314 22,580 6,655 3,139
Warrant sale proceeds and
capital gains.................. 88,725 7,000 80,731 14,938 16,435
Other........................... 408 151 683 483 195
-------- ------- -------- -------- -------
Total revenue................. 141,203 36,249 228,539 114,298 95,331
-------- ------- -------- -------- -------
Costs and expenses:
Leasing......................... 28,294 18,405 88,114 60,363 46,355
Sales........................... 1,008 1,036 4,460 3,980 4,423
Selling, general &
administrative................. 18,422 1,562 18,166 5,793 5,436
Interest........................ 10,791 4,014 23,373 10,835 7,670
Bad debt expense................ 21,800 800 23,200 4,786 6,250
-------- ------- -------- -------- -------
Total costs and expenses...... 80,315 25,817 157,313 85,757 70,134
-------- ------- -------- -------- -------
Earnings before income taxes...... 60,888 10,432 71,226 28,541 25,197
Income taxes...................... 23,685 4,160 28,402 11,381 10,047
-------- ------- -------- -------- -------
Net earnings...................... $ 37,203 $ 6,272 $ 42,824 $ 17,160 $15,150
======== ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------ -----------------
1999 1998 1999 1998
---------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Equity securities........................ $ 423,280 $52,884 $197,335 $ 16,995
Receivables, net......................... 413,815 132,811 341,061 66,425
Net leased assets........................ 330,807 206,590 288,347 189,747
Total assets............................. 1,190,205 402,215 845,574 281,243
Inter-group payable...................... 638,299 282,353 533,297 189,281
Division equity.......................... 351,007 93,726 199,649 71,080
</TABLE>
24
<PAGE>
RISK FACTORS
You should carefully consider the risk factors described below, as well as the
other information included in this proxy statement, before you decide how to
vote on the proposals.
We cannot predict how the issuance of Ventures Tracking Stock will affect the
market price of Comdisco Stock
We cannot predict the price at which Comdisco Stock will trade following the
issuance of Ventures Tracking Stock. The market price of Comdisco Stock may
not equal or exceed the market price of our existing common stock. Some of the
terms of Comdisco Stock and Ventures Tracking Stock may adversely affect their
trading price. Examples include:
. the right of the Comdisco board of directors to convert Ventures
Tracking Stock into Comdisco Stock; and
. the discretion of Comdisco's board of directors in making various
determinations relating to (1) a variety of matters affecting the rights
of the holders of Comdisco Stock and Ventures Tracking Stock, such as
dividends and the allocation of merger proceeds, and (2) a variety of
cash management and allocation matters.
Holders of Comdisco Stock and Ventures Tracking Stock will be common
stockholders of Comdisco and will not have any legal rights relating to
specific assets of Comdisco
Holders of Comdisco Stock and Ventures Tracking Stock will be common
stockholders of the same company. Comdisco Group and Comdisco Ventures will
not be separate legal entities but rather parts of Comdisco. As a result,
stockholders will continue to be subject to all of the risks of an investment
in Comdisco and all of our businesses, assets and liabilities. The
reclassification of the existing common stock as Comdisco Stock and the
issuance of Ventures Tracking Stock, and the allocation of assets and
liabilities and stockholders' equity between Comdisco Group and Comdisco
Ventures will not result in a distribution or spin-off to stockholders of any
of our assets or liabilities and will not affect ownership of our assets or
responsibility for our liabilities or those of our subsidiaries. As a result,
the implementation of the tracking stock proposal will not affect the rights
of the holders of any debt of Comdisco or its subsidiaries. The assets we
attribute to one group will be subject to the liabilities of the other groups,
whether such liabilities arise from lawsuits, contracts or indebtedness that
we attribute to another group. If we are unable to satisfy one group's
liabilities out of the assets we attribute to it, we may be required to
satisfy those liabilities with assets we have attributed to another group.
Further, holders of Comdisco Stock and Ventures Tracking Stock will only have
the rights specified in our restated charter, and will not have any legal
rights related to specific assets of any specific group.
Financial performance of one group could adversely affect the other group
The financial performance of one group that affects our consolidated results
of operations or financial condition could, if significant, affect the results
of operations or financial condition of the other group and the market price
of the tracking stock relating to the other group. In addition, net losses of
either group and dividends and distributions on, or repurchases of, any series
of common stock or repurchases of preferred stock at a price per share greater
than par value will reduce the funds we can pay on each series of common stock
under Delaware law. For these reasons, you should read our consolidated
financial information in addition to the financial information we provide for
each group.
If Comdisco encounters financial difficulty, the value of a group's stock may
suffer for reasons unrelated to the prospects of that group
Financial results of each group will affect Comdisco's consolidated results of
operations, financial position and borrowing costs. This could affect the
results of operations or financial position of the other group or the market
price of the series of stock relating to the other group.
25
<PAGE>
Holders of Comdisco Stock and Ventures Tracking Stock will vote together as a
single class and will have limited separate voting rights
Holders of Comdisco Stock and Ventures Tracking Stock will vote together as a
single class, except in certain limited circumstances provided under Delaware
General Corporation Law or New York Stock Exchange or Nasdaq rules. In
addition to the approval of the holders of a majority of the voting power of
all shares of tracking stock voting together as a single class, the approval
of a majority of the outstanding shares of Comdisco Stock and Ventures
Tracking Stock, each voting as a separate class, would be required under
Delaware law to approve any amendment to our restated charter that would
change the par value of the shares of the series or alter or change the
powers, preferences or special rights of the shares of the series so as to
affect them adversely.
Limits exist on voting power of Ventures Tracking Stock, and as a result the
holders of Comdisco Stock will be able to control majority votes
Except for limited matters on which a separate class vote may be required,
holders of Comdisco Stock and Ventures Tracking Stock will vote together as a
single class on all matters requiring a stockholder vote. Matters on which the
Comdisco Stock and Ventures Tracking Stock will vote together may involve an
apparent or real divergence of interests between the holders of each series of
common stock in the aggregate. The aggregate voting power of all of the
outstanding shares of Ventures Tracking Stock at any time is limited to 35% of
the total voting power of all of the outstanding shares of all series of
Comdisco common stock. Consequently, the aggregate voting power of all of the
outstanding shares of Ventures Tracking Stock will not represent a majority of
the outstanding voting power of all of the outstanding shares of all series of
Comdisco common stock. Currently, if matters come before the stockholders of
Comdisco that require a majority vote, the holders of Comdisco Stock, if they
vote in a similar manner, will be able to control the vote. These matters may
include mergers or other extraordinary transactions. In addition, the issuance
or repurchase of shares of any series of common stock could cause changes in
the relative voting power of the groups, subject to the 35% limitation on the
voting power of the Ventures Tracking Stock described above.
In circumstances where a separate class vote is required, a series of common
stock with less than a majority of the total voting power can block action
If Delaware law, NYSE or NASDAQ rules or the board of directors requires a
separate vote on a matter by the holders of either Comdisco Stock or Ventures
Tracking Stock, those holders could prevent approval of the matter--even if
the holders of a majority of the total number of votes cast or entitled to be
cast, voting together as a class, were to vote in favor of it.
Existing stockholders of Comdisco will have a reduced interest in Comdisco
Ventures
Holders of Comdisco Stock initially will participate in the ownership of
Comdisco Ventures through Comdisco Group's retained interest in Comdisco
Ventures. Comdisco Group's retained interest in Comdisco Ventures will
decrease as a result of the issuance of additional shares of the series of
common stock that tracks Comdisco Ventures. After any issuance of Ventures
Tracking Stock, the existing stockholders of Comdisco will no longer share as
holders of Comdisco Stock in the gains or losses attributable to the portion
of that group that is represented by the outstanding shares of Ventures
Tracking Stock that are issued. The price at which any shares of Ventures
Tracking Stock may be sold in the future may not reflect accurately the value
of the series of common stock that is issued and thus holders of Comdisco
Stock may not appropriately benefit from such issuances. Existing stockholders
of Comdisco will not have any special rights to subscribe for Ventures
Tracking Stock.
The cost of maintaining separate businesses will likely exceed the costs
associated with operating Comdisco as a single entity
The costs associated with implementing the tracking stock proposal and the
ongoing costs of operating separate businesses will likely exceed the costs
associated with operating Comdisco as it currently exists. At a minimum, the
issuance of Ventures Tracking Stock will result in a complex capital structure
and additional reporting requirements with respect to Comdisco Ventures.
26
<PAGE>
Conversion of Ventures Tracking Stock into Comdisco Stock may adversely affect
the holders of Ventures Tracking Stock or the holders of Comdisco Stock
At any time, the board of directors, in its sole discretion and without
stockholder approval, could choose to convert shares of Ventures Tracking
Stock into shares of Comdisco Stock, including a conversion at a time when
either or both series of our common stock may be considered to be overvalued
or undervalued. Any conversion at a premium would dilute the interests of the
holders of Comdisco Stock in Comdisco. Any conversion would also preclude
holders of Ventures Tracking Stock from retaining their investment in a
security that is intended to reflect separately the performance of Comdisco
Ventures. It would also give holders of shares of Ventures Tracking Stock a
greater or lesser premium than any premium that might be paid by a third-party
buyer of all or substantially all of the assets of Comdisco Ventures.
Having multiple series of common stock could create conflicts between the
interests of the holders of each series, and our board of directors could
resolve those conflicts in a manner that adversely affects holders of one or
more groups
Having multiple series of common stock could give rise to occasions when the
interests of holders of one or more series might diverge or appear to diverge
from the interests of holders of the remaining series. In addition, given the
inter-group relationships between Comdisco Group and Comdisco Ventures, there
will likely be inherent conflicts of interest between the groups. Inter-group
issues that could give rise to conflicts of interest include:
. whether to allocate the proceeds of issuances (or the costs of
repurchases) of Ventures Tracking Stock to Comdisco Group in respect of
its retained interest in Comdisco Ventures, on the one hand, or to the
equity of Comdisco Ventures on the other;
. how to allocate consideration received in connection with a merger
involving Comdisco among holders of each series of common stock;
. whether and when to issue Comdisco Stock in exchange for Ventures
Tracking Stock;
. whether or when to approve dispositions of assets of any group;
. how to allocate available cash between Comdisco Group and Comdisco
Ventures and decisions as to whether and how to make transfers of funds
from one group to another;
. how to allocate assets and resources, such as distribution and
fulfillment services and management time, between the groups;
. how to allocate costs and expenses between the groups; and
. whether and to what extent the groups compete with each other and how
corporate opportunities are allocated between the groups.
Our board of directors intends to adopt certain policies relating to cash
management and allocations between Comdisco Ventures and Comdisco Group. For a
more comprehensive description of these policies, see "Cash Management and
Allocation Policies," beginning on page 63. We cannot assure you that the
policies determined by our board of directors are as favorable to the holders
of one series of common stock as policies that could be set by the related
business group if it were a separate company. Our board of directors will make
operational and financial decisions concerning the groups, and implement these
policies in a manner, that may affect these businesses differently,
potentially favoring one group at the expense of the other. Our board of
directors will be required to make any decision relating to these matters in
the good faith business judgment that the decision is in the best interests of
Comdisco and all of our stockholders as a whole. Although it has no present
intention to do so, the board of directors also may, in the exercise of its
business judgment in accordance with the directors' fiduciary duties to
Comdisco and our stockholders, modify, rescind or add to any of these
policies. A decision to modify or rescind these policies, or adopt additional
policies, could have different effects on the holders of Ventures Tracking
Stock or Comdisco Stock, or could adversely affect the holders of one series
of common stock compared to the other.
27
<PAGE>
If directors own disproportionate interests (in percentage or value terms) in
Comdisco Stock or Ventures Tracking Stock, that disparity could create, or
appear to create, potential conflicts of interest when those directors are
faced with decisions that could affect the holders of one series of common
stock differently than the holders of the other series.
Principles of Delaware law may protect decisions of our board of directors
that have a disparate impact upon holders of Comdisco Stock and Ventures
Tracking Stock
Delaware law provides that a board of directors owes an equal duty to all
stockholders regardless of class or series and does not have separate or
additional duties to the holders of any particular class or series of stock.
Recent cases in Delaware involving tracking stocks have established that
decisions by directors or officers involving differing treatment of tracking
stocks may be judged under the "business judgment rule." Under these
principles of Delaware law and the "business judgment rule," you may not be
able to challenge board of directors' decisions that have a disparate impact
upon holders of Comdisco Stock or Ventures Tracking Stock, if the board of
directors is adequately informed with respect to such decisions and acts in
good faith and in the honest belief that it is acting in the best interest of
our stockholders and does not have a conflict of interest.
Stockholders will not vote separately as a series on how to allocate
consideration received in connection with a merger of Comdisco between holders
of Comdisco Stock or Ventures Tracking Stock
Our restated charter will not contain any provisions governing how
consideration received in connection with a merger or consolidation involving
Comdisco is to be allocated among the holders of Comdisco Stock and Ventures
Tracking Stock. None of the holders of Comdisco Stock or Ventures Tracking
Stock will have a separate class vote in any merger or consolidation so long
as we divide the type and amount of consideration among these holders in a
manner we determine, in our sole discretion, to be fair. As a result, the
consideration to be received by holders of Comdisco Stock or Ventures Tracking
Stock in any such merger or consolidation may be materially less valuable than
the consideration they would have received if that group had been sold
separately or if a separate class vote on such merger or consolidation had
occurred.
We may dispose of assets of Comdisco Group or Comdisco Ventures without your
approval
Delaware law requires stockholder approval only for a sale or other
disposition of all or substantially all of the assets of Comdisco. Any
disposition requiring stockholder approval would require a vote of all
Comdisco stockholders voting together as a single class. As long as the assets
attributed to a group represent less than substantially all of our assets, we
may approve sales and other dispositions of any amount of the assets of that
group without any stockholder approval. If we dispose of all or substantially
all of the assets of any group, we would be required, if the disposition is
not an exempt disposition under the terms of our restated charter, to choose
one of the following three alternatives:
. declare and pay a dividend to the holders of the relevant series of
common stock;
. redeem shares of the relevant series of common stock; or
. if Comdisco Ventures' assets were sold, convert shares of Ventures
Tracking Stock into outstanding shares of Comdisco Stock.
Holders of any series of common stock may receive less value for their shares
than the value that a third-party buyer might pay for all or substantially all
of the assets of such group. The board of directors will decide, in its sole
discretion, how to proceed and is not required to select the option that would
result in the highest value to holders of Comdisco Stock or Ventures Tracking
Stock.
28
<PAGE>
Corporate-level income taxes may be incurred on a sale of a group that would
not be incurred if the group were a separate corporation
Comdisco may incur a tax liability upon a sale of the assets of a group, which
would be allocated to that group and reduce the amount available for
distribution to the holders of the tracking stock for that group. By contrast,
if the group were a separate corporation whose stock was held directly by such
holders, they could sell their stock directly to the buyer, in which case no
corporate-level tax would be incurred. Consequently, the holders of tracking
stock could receive less upon a disposition of a related group than they would
if they directly held stock of a separate corporation.
We do not intend to pay dividends on Ventures Tracking Stock, and even if we
decide to do so, we are not required to pay dividends equally on Comdisco
Stock and Ventures Tracking Stock
We do not intend to pay cash dividends in the foreseeable future on Ventures
Tracking Stock. We do not intend to change our current dividend policy with
respect to our existing common stock, which will become Comdisco Stock. Under
our restated charter, however, our board of directors could decide to pay
dividends on neither series of common stock, on one, but not both series of
common stock, or on both series of common stock, in equal or unequal amounts.
Such a decision would not necessarily have to reflect:
. the financial performance of any group;
. the amount of assets available for dividends on any series of common
stock; or
. the amount of prior dividends declared on any series of common stock.
Having multiple series of common stock may inhibit or prevent acquisition bids
for Comdisco, Comdisco Group or Comdisco Ventures
If Comdisco Group or Comdisco Ventures were separate companies, any person
interested in acquiring either of them without negotiating with management
could seek control of that entity by obtaining control of its outstanding
voting stock by means of a tender offer or proxy contest. Although we intend
Comdisco Stock and Ventures Tracking Stock to reflect the separate performance
of Comdisco Group and Comdisco Ventures, as appropriate, a person interested
in acquiring only one group without negotiation with Comdisco's management
could obtain control of that group only by obtaining control of the
outstanding voting stock of Comdisco.
The existence of multiple series of common stock could present complexities
and could in certain circumstances pose obstacles, financial and otherwise, to
an acquiring person. The existence of multiple series of common stock could,
under certain circumstances, prevent stockholders from profiting from an
increase in the market value of their shares as a result of a change in
control of Comdisco by delaying or preventing such a change in control.
In addition, some of the provisions of our restated charter, by-laws, and
Delaware law may inhibit changes of control not approved by the board of
directors. For additional anti-takeover constraints, see "The Tracking Stock
Proposal--Other Provisions of Our Charter, Bylaws and Delaware Law" beginning
on page 58.
The market prices of Comdisco Stock and Ventures Tracking Stock could decline
if we issue more common stock
Our restated charter will allow our board of directors, in its sole
discretion, to issue authorized but unissued shares of common stock in
multiple series. Our board of directors may issue Comdisco Stock or Ventures
Tracking Stock, or may designate and issue a new series of common stock, to,
among other things:
. raise capital;
. pay stock dividends or provide for stock splits;
. acquire companies or businesses; or
. provide compensation or benefits to employees.
29
<PAGE>
Under Delaware law, the board of directors would not need your approval for
these issuances. We do not intend to seek your approval for any such issuances
unless:
. stock exchange regulations or other applicable law require approval; or
. the board of directors deems it advisable.
These issuances could cause the market prices of the series of common stock
issued to decline as more stock became available.
We may not offer Ventures Tracking Stock at all
This proxy statement describes our current intentions regarding future
issuances of Ventures Tracking Stock. Because these issuances are subject to
various conditions and uncertainties, we cannot assure you that any issuances
will occur.
The IRS could assert that the receipt of tracking stock is taxable to you or
us or that the tracking stock is "section 306 stock"
We have been advised by our special tax counsel that unless you receive cash
in lieu of fractional shares, no income, gain or loss will be recognized by
you or Comdisco for U.S. Federal income tax purposes as a result of the
reclassification of the existing stock, the distribution of a dividend of
Ventures Tracking Stock to the holders of Comdisco Stock, or an exchange of
Ventures Tracking Stock for Comdisco Stock, as we presently contemplate such
transactions would be carried out. However, the IRS could disagree. There are
no court decisions or other authorities that control the tax treatment of
tracking stock such as Ventures Tracking Stock. In addition, the IRS has
announced that it will not issue rulings on the characterization of stock with
characteristics similar to Ventures Tracking Stock. It is possible, therefore,
that the IRS could successfully assert that the receipt of Ventures Tracking
Stock, as well as the subsequent conversion of Ventures Tracking Stock into
Comdisco Stock, or the sale of Ventures Tracking Stock by Comdisco, could be
taxable to Comdisco or you. In addition, it is possible that the IRS will
successfully assert that Ventures Tracking Stock is section 306 stock, with
the consequence that the sale price on a subsequent disposition of that stock
would be treated as ordinary income. See "The Tracking Stock Proposal--Certain
U.S. Federal Income Tax Considerations" beginning on page 67.
A recent Clinton Administration proposal, if enacted, could result in taxation
on issuances of tracking stock
In February 2000, the Clinton Administration proposed legislation that would
tax shareholders on the receipt of tracking stock as a distribution on or in
exchange for their existing stock, and grant the IRS authority to treat
tracking stock as nonstock or stock of another entity. This proposal, if
enacted, could impede Comdisco's ability to distribute or sell Ventures
Tracking Stock after it is enacted. The enactment of the Clinton
Administration proposal could be a "Tax Event" that would entitle us to
convert outstanding Ventures Tracking Stock into a number of shares of
Comdisco Stock equal to a factor, which will not be more than 110% or less
than 100% (as determined by our board of directors at the time the restated
charter is filed to be in the best interests of our stockholders), applied to
the ratio of the average market values of the Ventures Tracking Stock and the
Comdisco Stock over a specified trading period prior to that conversion. See
"The Tracking Stock Proposal--Description of Comdisco Stock and Ventures
Tracking Stock--Conversion of Ventures Tracking Stock at Option of Comdisco"
at page 50 and "--Certain U.S. Federal Income Tax Considerations," beginning
on page 67.
30
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement includes or incorporates forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. You can
identify these forward-looking statements by our use of words such as
"intend," "plan," "may," "will," "project," "estimate," "anticipate,"
"believe," "expect," "continue," "potential," "opportunity" and similar
expressions, whether in the negative or affirmative. We cannot guarantee that
we actually will achieve these plans, intentions or expectations. Actual
results or events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements we make. We have
included important factors in various cautionary statements herein,
particularly under the heading "Risk Factors", beginning on page 25, that we
believe could cause our actual results to differ materially from the forward-
looking statements that we make. The forward-looking statements do not reflect
the potential impact of any future acquisitions, mergers or dispositions. We
do not assume any obligation to update any forward-looking statement we make.
31
<PAGE>
INFORMATION ABOUT COMDISCO COMMON STOCK OWNERSHIP
Comdisco Common Stock Owned by Comdisco Directors and Executive Officers
This table shows the number of shares of our existing common stock
beneficially owned by the directors, named executive officers (named executive
officers are defined in the section entitled "Comdisco Executive Officer
Compensation and Benefits" on page 36), and all directors and executive
officers as a group, as of March 1, 2000.
<TABLE>
<CAPTION>
Shares Owned
Beneficially on % of
Name March 1, 2000 Class
---- --------------- -----
<S> <C> <C>
Nicholas K. Pontikes........................ 37,317,934(a)(b) 24%
Robert A. Bardagy........................... 514,892(b) *
C. Keith Hartley............................ 182,228(b)(c) *
Philip A. Hewes............................. 302,502(b)(c) *
Rick Kash................................... 230,289(b) *
Harry M. Jansen Kraemer, Jr................. 37,726(b) *
Carolyn L. Murphy........................... 58,326(b) *
Thomas H. Patrick........................... 231,450(b)(c) *
William N. Pontikes......................... 2,824,087(b)(c) 2%
James Voelker............................... 12,714(d) *
John J. Vosicky............................. 933,755(b)(c) *
John C. Kenning............................. 454,164(b) *
Thomas Flohr................................ 1,119,372(b) *
Jack Slevin................................. 343,954(b)(e) *
All directors and executive officers as a
group, including seven executive officers
not named above............................ 46,212,831(a)(b)(c) 30%
</TABLE>
* percentage of shares beneficially owned does not exceed 1% of the class of
outstanding.
(a) Includes shares over which N. Pontikes exercises sole or shared voting and
dispositive powers but with respect to which he disclaims any beneficial
interest (with the exception of a percentage of the shares owned by Ponfam
Corporation and Ponchil Limited Partnership equal to his proportionate
ownership interest in those entities), which shares are held of record as
follows: Pontikes Trust, 18,600,498 shares; Pontikes Nonexempt Marital
Trust, 5,901,622 shares; Pontikes Exempt Marital Trust, 268,154 shares;
Ponchil Limited Partnership, 9,818,506 shares; Ponfam Corporation, 288,062
shares; Pontikes Family Foundation, 165,120 shares; Nicholas K. Pontikes
SIP Trust, 600,000 shares (sole voting and sole dispositive powers);
Tenancy-For-Years and three family trusts as remaindermen, 852,000 shares
(sole voting and shared dispositive powers); and various family trusts,
106,380 shares (sole voting and dispositive powers).
(b) Includes shares obtainable upon exercise of stock options which are or
become exercisable prior to May 1, 2000 as follows: Mr. N. Pontikes,
555,359 shares; Mr. Bardagy, 164,160 shares; Mr. Flohr, 823,422 shares;
Mr. Hartley, 109,050 shares; Mr. Hewes, 123,341 shares; Mr. Kash, 118,050
shares; Mr. Kenning, 293,858 shares; Mr. Kraemer, 37,726 shares; Ms.
Murphy, 37,726 shares; Mr. W. Pontikes, 260,323 shares; Mr. Patrick,
118,050 shares; Mr. Slevin, 293,024 shares; Mr. Voelker, 2,714 shares; Mr.
Vosicky, 388,818 shares; and directors and executive officers as a group,
4,059,933 shares. The percentages set forth in the above table give effect
to the exercise of these options.
(c) Includes shares held by or for the benefit of the immediate families of
the above individuals and for which the named stockholders disclaim any
beneficial interest, as follows: Mr. W. Pontikes, 842,601 shares; Mr.
Vosicky, 7,000 shares; and directors and executive officers as a group,
849,601 shares.
32
<PAGE>
Also includes other shares held by or for the benefit of the immediate
families of the above individuals, over which such individuals hold no
voting or dispositive powers and for which the named stockholders disclaim
any beneficial interest, as follows: Mr. Hartley, 470 shares; Mr. Hewes,
6,386 shares; Mr. Patrick, 15,928 shares; Mr. W. Pontikes, 149,484 shares;
Mr. Vosicky, 12,152 shares; and directors and executive officers as a
group, 207,172 shares.
(d) Mr. Voelker was named a director of Comdisco on November 2, 1999.
(e) Mr. Slevin served as Chairman of the Board and Chief Executive Officer of
Comdisco until his resignation in January, 1999.
Stockholders Who Own at Least 5% of Comdisco Common Stock
This table shows as of March 1, 2000 all persons we know to be the beneficial
owners of more than 5% of Comdisco common stock.
<TABLE>
<CAPTION>
Number of
Name and Address Shares % of Class
---------------- ---------- ----------
<S> <C> <C>
Pontikes Trust* 18,600,498 12%
6111 N. River Road, Rosemont, IL 60018
Ponchil Limited Partnership* 9,818,506 6%
6111 N. River Road, Rosemont, IL 60018
Pontikes Family Trusts* 7,728,156 5%
6111 N. River Road, Rosemont, IL 60018
Iridian Asset Management 8,624,000** 6%
276 Post Road West, Westport, CT 06880
</TABLE>
* Mr. N. Pontikes may be deemed to be the beneficial owner of these
securities. See footnote (a) to the table on page 32.
** Estimated as of March 10, 2000, based on information provided by Iridian
Asset Management.
33
<PAGE>
COMPENSATION COMMITTEE REPORT
Role of the Committee
In 1993, the board of directors defined the scope of authority that would be
delegated to the non-employee directors who serve as members of the
Compensation Committee. Overall direction was given to this committee to
review and approve Comdisco's compensation policies to ensure that executive
officers are rewarded appropriately for their contributions to our growth and
profitability and to ensure that compensation policies support our business
objectives, organization structure, culture and stockholder interests.
Specific direction was given to determine the compensation of the Chief
Executive Officer and to review and approve the compensation of our executive
officers.
Consistent Compensation Strategy
Since its inception, the Compensation Committee has continued to evaluate
Comdisco's compensation plans in accordance with the committee's objectives of
linking compensation to profit measures and increasing stockholder value. The
senior management team continues to be compensated as originally suggested by
outside compensation consultants in 1994. The total compensation for the Chief
Executive Officer and certain executive officers is comprised of the following
components: (i) base salary, (ii) annual incentive (cash and stock options)
based on our pre-tax earnings objectives and (iii) long-term performance units
based on total shareholder return objectives. Each of these components
constituted approximately one-third of the executive's total compensation.
Therefore, approximately two-thirds of the executive's compensation is subject
to both our performance and stockholder returns.
A significant portion of the senior management team's compensation is directly
dependent upon Comdisco achieving a total shareholder return which exceeds the
60th percentile of the S&P 500. The Compensation Committee has been extremely
pleased with the fact that we have exceeded the performance objectives by
placing above the targeted percentile in total shareholder return for the each
of the three-year performance periods commencing with the initiation of the
performance unit plan in 1993. This is a clear reflection that senior
management has been able to consistently manage Comdisco in a manner that
directly correlates with stockholder interests.
Chief Executive Officer Compensation--1999 and 2000
1999 Fiscal Year. Nicholas Pontikes, who became Chief Executive Officer on
January 11, 1999, had a compensation package for fiscal 1999 which reflects
the Committee's strategy of placing a majority of the compensation at risk
subject to the attainment of pre-tax earnings goals and longer-term total
shareholder return goals. Comdisco had a compensation agreement with Mr.
Pontikes which provided for a base salary of $450,000 for fiscal 1999. Mr.
Pontikes was also eligible for annual cash incentive compensation based upon
meeting 1999 fiscal year pre-tax earnings targets. The amount of annual cash
incentive payments can be found in the Summary Compensation Table. Mr.
Pontikes was eligible for an annual stock option award which was based upon
the attainment of pre-tax earnings objectives for fiscal 1999. The pre-tax
earnings objectives were not met for this stock option, and therefore no
options were granted to Mr. Pontikes under this plan. For the Long-Term
perspective, Mr. Pontikes was granted 300 Performance Units under the
Comdisco, Inc. 1995 Long-Term Stock Ownership Incentive Plan. The performance
period and performance objectives are set forth in the "Long-Term Incentive
Plan (LTIP) Awards" section that follows on page 38. To further align Mr.
Pontikes' interests with those of Comdisco's stockholders, the Committee
offered Mr. Pontikes the right to forego cash compensation in exchange for
stock options. Under this "Cash-to-Option Alternative," Mr. Pontikes elected
to forego $375,000 in cash compensation. In return, Mr. Pontikes received a
stock option to acquire 150,000 shares at $14.56, the closing price of
Comdisco's existing common stock on the date that election was made.
34
<PAGE>
Jack Slevin, who resigned as the Chief Executive Officer on January 11, 1999,
had an employment agreement in place with Comdisco for fiscal 1999. The
employment agreement provided for an annual base salary of $600,000 for fiscal
1999. Mr. Slevin's base salary was paid through January 31, 1999. Comdisco did
not meet the 1999 pre-tax earnings objectives set up for Mr. Slevin and
therefore no annual cash incentive payments were made under this plan. Mr.
Slevin was eligible for an annual stock option award based upon the attainment
of pre-tax earnings objectives for fiscal 1999. The objectives were not met
and therefore no options were awarded under this plan. Mr. Slevin was granted
366 Performance Units under the Comdisco, Inc. 1995 Long-Term Stock Ownership
Incentive Plan. Since Mr. Slevin is no longer an employee of Comdisco, he will
not satisfy the three year employment condition to the award and therefore
will not be eligible for any payments under the performance unit award. Mr.
Slevin participated in the "Cash-to-Option Alternative" described above, and
elected to forego $150,000 in cash compensation. In return, Mr. Slevin
received a stock option to acquire 60,000 shares at $14.56, the closing price
of Comdisco's existing common stock on the date that election was made. As
part of his severance arrangement, that option and all previous option awards
granted to Mr. Slevin under previous years' "Cash-to-Option" programs will
continue to vest and will remain exercisable through November 1, 2001. For his
remaining stock options, all subsequent vesting ceased as of January 11, 1999,
but Mr. Slevin will be entitled to exercise any previously vested options
through November 1, 2001. Mr. Slevin also received a stock grant of 180,000
shares of Comdisco's existing common stock on January 26, 1999 pursuant to the
terms of an employment agreement dated October 20, 1994.
2000 Fiscal Year. Mr. Pontikes' base salary remained constant for the balance
of fiscal 1999, despite being named the Chief Executive Officer on January 11,
1999. Mr. Pontikes' base salary for fiscal 2000 has been increased to $600,000
in recognition of the increased responsibilities of serving as the Chief
Executive Officer. Mr. Pontikes will also be eligible to receive annual cash
incentive compensation of up to $600,000, provided that certain pre-tax
earnings objectives have been attained. Mr. Pontikes will also earn an annual
stock option award of 32,103 options if Comdisco attains certain pre-tax
earnings objectives for fiscal 2000. The exercise price of these options, if
earned, will be at the closing price of Comdisco's existing common stock on
September 30, 2000. For the long-term perspective, Mr. Pontikes was granted
400 Performance Units under the Comdisco, Inc. 1995 Long-Term Stock Ownership
Incentive Plan. The performance period and performance objectives are set
forth in the table in the "Long-Term Incentive Plan (LTIP) Awards" section
that follows on page 38. The Committee offered Mr. Pontikes the right to
forego cash compensation to be earned in 2000 in exchange for stock options.
Under this "Cash-to-Option Alternative," Mr. Pontikes elected to forego
$600,000 in cash compensation. In return, Mr. Pontikes received a stock option
to acquire 192,616 shares at $18.6875, the closing price of Comdisco's
existing common stock on the date that election was made.
1999 Executive Officer Compensation
During fiscal 1999, we entered into incentive compensation agreements with
certain of our executive officers. The agreements included the following
elements which are similar to the components discussed above for Mr. Nicholas
K. Pontikes: (i) base salary, (ii) annual incentive (cash and stock options)
based on our pre-tax earnings objectives and (iii) Long-Term performance units
based on total shareholder return objectives. These executive officers also
participated in the "Cash-to-Option Alternative" under which they had the
right to forego cash compensation in exchange for stock options.
This report has been provided by C. Keith Hartley, Rick Kash, Harry M. Jansen
Kraemer, Jr., and Carolyn Murphy, the members of the Compensation Committee.
Compensation Committee Interlocks and Insider Participation: There are none.
35
<PAGE>
COMDISCO EXECUTIVE OFFICER COMPENSATION AND BENEFITS
Summary Compensation Table
This table shows the compensation paid in fiscal 1999, 1998 and 1997 to (i)
Nicholas K. Pontikes, our President and Chief Executive Officer, (ii) our four
other most highly compensated executive officers serving on September 30, 1999
and (iii) Jack Slevin, who served as our Chairman and Chief Executive Officer
until his resignation, effective in January, 1999. The persons named in this
table and in this section are referred to as the "named executive officers."
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------- ----------------------------------------------
Awards Payouts
---------- -------------------------
Securities
Underlying Long-Term
Name and Principal Options Incentive All Other
Position Year Salary Bonus (shares) Payouts Compensation(a)
------------------ ---- -------- -------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nicholas K. Pontikes 1999 $450,000 $ 81,250 150,000 $170,129 $ 5,896
President and Chief 1998 325,000 325,000 687,210(b) 349,350 6,909
Executive Officer 1997 277,917 278,200 26,700 478,000 14,111
Thomas Flohr 1999 300,000 300,000 120,000 150,971 -0-
Senior Vice President 1998 300,000 300,000 323,530(b) -0- -0-
1997 300,000 300,000 21,400 -0- -0-
John C. Kenning 1999 267,000 133,500 39,600 226,485 5,896
Executive Vice President 1998 267,000 267,000 195,020(b) -0- 6,909
1997 268,808 286,200 24,970 -0- 14,111
William N. Pontikes 1999 255,000 63,750 24,500 265,129 5,896
Executive Vice President 1998 230,000 230,000 240,710(b) 339,350 6,909
1997 220,000 268,200 26,700 473,000 14,111
John J. Vosicky 1999 260,000 65,000 18,000 290,129 5,896
Executive Vice President 1998 240,000 215,000 101,700(b) 359,350 6,909
& Chief Financial
Officer 1997 240,000 218,200 26,700 483,000 14,411
Jack Slevin 1999 206,250 -0- 240,000 -0- 5,896
1998 550,000 475,000 306,220(b) 764,350 6,909
1997 550,000 444,000 58,850 831,000 14,111
</TABLE>
(a) Amounts of "All Other Compensation" are amounts contributed by Comdisco
under the Comdisco Retirement Plan Trust Agreement, effective April 1,
1998 (formerly known as the Comdisco Profit Sharing Plan and Trust).
(b) Amounts reflect options granted pursuant to Comdisco's Shared Investment
Plan (SIP) on Sunday, February 1, 1998 with a one-day term and an exercise
price based on the closing price of the New York Stock Exchange on Friday,
January 30, 1998. The options were exercised on the date of grant by the
named executive officers. Under the terms of the voluntary plan, the
participants took out personal full-recourse loans to fund their exercise
of the options to purchase Comdisco existing common stock at $17.3438 per
share, the closing price on January 30, 1998. The loans, borrowed from a
commercial bank, are the personal obligation of the participants. Comdisco
has agreed to guarantee repayment to the bank in the event of a default by
a participant. Pursuant to the SIP, Comdisco received approximately $109
million in cash from 106 members of Comdisco's senior management team who
collectively purchased over 6 million shares of Comdisco existing common
stock.
36
<PAGE>
Option Grants in Last Fiscal Year
This table presents additional information concerning the options shown in the
Summary Compensation Table for fiscal 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term
--------------------------------------------- -------------------------
Number of % of Total
Securities Options/
Underlying SARs Granted Exercise
Options/ to Employees or Base
SARs Granted in Fiscal Price Expiration
Name (#) 1999 ($/Sh) Date 0% 5% 10%
---- ------------ ------------ -------- ---------- --- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Nicholas K. Pontikes 150,000* 7.43 $14.5625 10/01/08 -0- $1,373,742 $3,481,331
Thomas Flohr 120,000* 5.94 14.5625 10/01/08 -0- 1,098,993 2,785,065
John C. Kenning 39,600* 1.96 14.5625 10/01/08 -0- 362,668 919,071
William N. Pontikes 24,000* 1.19 14.5625 10/01/08 -0- 219,799 557,013
John J. Vosicky 18,000* .89 14.5625 10/01/08 -0- 164,849 417,760
Jack Slevin 60,000* 2.97 14.5625 10/01/08 -0- 549,497 1,392,532
</TABLE>
*Reflects options issued in lieu of cash compensation pursuant to the "Cash-
to-Option Alternative" election referenced in the Compensation Committee
Report.
We have included amounts under the columns labeled "5%" and "10%" pursuant to
certain rules promulgated by the SEC and those amounts are not intended to
forecast future appreciation, if any, in the price of our existing common
stock. Such amounts are based on the assumption that the named executive
officers hold the options granted for their full term. The actual value of the
options will vary in accordance with the market price of our existing common
stock. The column headed "0%" is included to demonstrate that the options were
granted at fair market value and optionees will not recognize any gain without
an increase in the stock price, and any increase will benefit all stockholders
proportionately.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Value
This table contains information with respect to the named executive officers
concerning the exercise of options during fiscal 1999 and unexercised options
held as of the end of fiscal 1999.
<TABLE>
<CAPTION>
Number Total Number of Shares Total Value of
of Underlying Unexercised Unexercised In-the-Money
Shares Options Held at Options Held at September
Acquired September 30, 1999 30, 1999*
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas K. Pontikes -0- -0- 487,009 227,927 5,964,015 1,125,160
Thomas Flohr -0- -0- 746,725 214,835 8,507,341 924,466
John C. Kenning 53,842 1,162,978 208,550 164,936 1,968,322 1,346,843
William N. Pontikes -0- -0- 244,983 81,705 2,528,685 499,492
John J. Vosicky 34,286 874,893 379,148 57,472 4,813,915 307,429
Jack Slevin 950,000 16,013,536 400,774 123,926 5,823,115 756,811
</TABLE>
*Based on the closing price of our existing common stock, $19.3125, on
September 30, 1999.
37
<PAGE>
LONG-TERM INCENTIVE PLAN (LTIP) AWARDS
This table provides information on the Performance Unit Awards granted during
fiscal 1999 under our 1995 Long-Term Stock Ownership Incentive Plan to the
named executive officers.
<TABLE>
<CAPTION>
Estimated Future Payouts
Performance or under
Other Non-Stock Price-Based
Number Period Until Plans*
of Maturation ---------------------------
Name Units or Payout Threshold Target Maximum
---- ------ ------------------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
Nicholas K. Pontikes 300 September 30, 2001 $150,000 $300,000 $900,000
Thomas Flohr 133 September 30, 2001 66,500 133,000 399,000
John C. Kenning 166 September 30, 2001 83,000 166,000 488,000
William N. Pontikes 183 September 30, 2001 91,500 183,000 549,000
John J. Vosicky 183 September 30, 2001 91,500 183,000 549,000
</TABLE>
* The target performance objective is that our total shareholder return, the
sum of the stock price appreciation plus dividends (reinvested), be ranked
at or above the sixtieth percentile of the total shareholder return of all
companies in the S&P 500 for the period running from October 1, 1998
through September 30, 2001. The threshold performance objective is a
fiftieth percentile ranking. If the actual ranking is less than the
fiftieth percentile, no compensation will be paid under these awards. The
366 Performance Unit Awards granted to Mr. Slevin in fiscal 1999 terminated
on his resignation from Comdisco in January, 1999.
How We Compensate Our Directors
Employee directors receive no additional compensation for serving on the board
of directors or its committees. Non-employee directors are paid a quarterly
retainer of $6,000, a board meeting fee of $2,000 plus expenses, and a
committee meeting fee of $2,000 plus expenses if the committee meeting is not
held on the same day as a board of directors meeting. Directors are reimbursed
for customary and usual travel expenses.
Directors may elect, in advance, to defer all or part of their cash
compensation in either a restricted stock award or a stock option. The
restricted stock award would be issued under our Long-Term Stock Ownership
Incentive Plans and the number of shares of restricted stock received is
determined by using the following formula: $32,000 (traditional cash fee plus
meeting fees) multiplied by 1.5, then divided by the closing price of our
common stock on the first business day of the next fiscal year. The stock
options would be issued under our Outside Director Deferred Fee Option Plan
and the number of stock options received is determined by using the following
formula: $32,000 (traditional cash fee plus meeting fees) multiplied by 1.5,
then divided by the closing price of our common stock on the last day of the
fiscal year minus $1.00. The options have a ten year term, vest after six
months, and have an exercise price of $1.00. On October 1, 1998, Messrs.
Hartley, Kash, Kraemer, Murphy, and Patrick each received options to purchase
9,450 shares at $1.00 per share under our Outside Director Deferred Fee Option
Plan.
In addition, on October 1, 1999 and pursuant to our 1999 Non-Employee
Directors' Stock Option Plan, each non-employee director was granted an option
to acquire 9,450 shares of our existing common stock at $18.6875 per share,
the closing price on that date. These options have a ten year term and vest on
April 1, 2000.
38
<PAGE>
COMDISCO STOCK PRICE PERFORMANCE GRAPH
The following performance graph compares the performance of our existing
common stock for the last five fiscal years (October 1, 1994--September 30,
1999) to that of the Standard & Poor's 500 Stock Index and the Standard &
Poor's Midcap 400 Index. The S&P Midcap 400 Index, which includes Comdisco,
represents a comparison to companies with similar market capitalizations of
$200 million to $5 billion. Our most similar peers are divisions or
subsidiaries of large publicly-held companies. At this time, therefore, we
feel that the most appropriate comparison is to publicly-held companies with
similar market capitalizations.
[COMDISCO COMPARISON CHART]
This graph assumes you invested $100 in our existing common stock and each of
the indexes on September 30, 1994, and that all dividends were reinvested.
In accordance with SEC rules, the information included under captions
"Compensation Committee Report" and "Comdisco Stock Price Performance Graph"
will not be deemed to be filed or to be proxy soliciting material or
incorporated by reference in any prior or future filings by Comdisco under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
39
<PAGE>
COMMON STOCK PRICE RANGE
This table shows the quarterly price range of the existing common stock, as
traded on the NYSE, and cash dividends paid on our existing common stock for
fiscal 1999 and 1998 and the first quarter of fiscal 2000, adjusted for the
two-for-one stock split distributed in June, 1998.
<TABLE>
<CAPTION>
2000
-----------------------
Quarter High Low Dividends
------- ------ ------ ---------
<S> <C> <C> <C>
First............................................. $43.00 $17.45 $.025
<CAPTION>
1999
-----------------------
Quarter High Low Dividends
------- ------ ------ ---------
<S> <C> <C> <C>
First............................................. $19.44 $12.50 $.025
Second............................................ 17.88 10.75 .025
Third............................................. 30.88 15.81 .025
Fourth............................................ 26.94 17.50 .025
<CAPTION>
1998
-----------------------
Quarter High Low Dividends
------- ------ ------ ---------
<S> <C> <C> <C>
First............................................. $16.88 $14.16 $.025
Second............................................ 21.94 14.88 .025
Third............................................. 22.44 16.50 .025
Fourth............................................ 20.88 12.44 .025
</TABLE>
On December 21, 1999, the last full day the existing common stock traded
before the public announcement of the tracking stock proposal, the reported
closing sales price on the NYSE for the existing common stock was $36.00 per
share. On March 17, 2000, the last full day the existing common stock traded
before the printing of this proxy statement, the reported closing sales price
on the NYSE for the existing common stock was $47.4375 per share.
As of March 1, 2000 there were approximately 152,183,133 holders of record of
existing common stock.
We have paid consecutive quarterly cash dividends on the existing common stock
for over 22 years through the first quarter of fiscal 2000. For a description
of our intended dividend policy following implementation of the tracking stock
proposal, see "The Tracking Stock Proposal--Certain Management and Allocation
Policies--Dividend Policy" on page 66.
40
<PAGE>
THE TRACKING STOCK PROPOSAL
Amendment and Restatement of Our Current Certificate of Incorporation
You are being asked to consider and vote in favor of the tracking stock
proposal, which would authorize us to amend and restate our current
certificate of incorporation. We refer to our current certificate of
incorporation, as so amended and restated, as our "restated charter." The
restated charter would, among other things:
. authorize the board of directors to issue multiple series of common
stock, with two initial series of common stock designated as Comdisco
Stock and Ventures Tracking Stock;
. reclassify each share of existing common stock of Comdisco as one share
of Comdisco Stock;
. increase the authorized common stock of Comdisco from 750,000,000 to
1,800,000,000 shares; and
. initially authorize 750,000,000 shares of Comdisco Stock and 750,000,000
of Ventures Tracking Stock.
If you approve the proposals, we expect to file the restated charter and re-
classify your common stock shortly before we first issue Ventures Tracking
Stock. At that time, each holder of one share of the existing common stock
would become the holder of one share of Comdisco Stock. A copy of the proposed
restated charter, in substantially the same form in which it will be filed
with the Secretary of State of the State of Delaware, is attached to this
proxy statement as Annex II.
At any time prior to the effectiveness of the restated charter, the board of
directors may abandon the tracking stock proposal without further action by
the stockholders. If the tracking stock proposal is not approved by the
stockholders, the existing common stock will not be reclassified as Comdisco
Stock, and Ventures Tracking Stock will not be issued. After the restated
charter is effective, the board of directors may determine in its sole
discretion, not to proceed with the initial public offering of, or otherwise
issue, Ventures Tracking Stock.
Background and Reasons for the Tracking Stock Proposal
We continually review each of our businesses and Comdisco as a whole to
determine the best way to realize the inherent value of our business
operations. As a result of this review process, we recently began to evaluate
various alternatives to maximize stockholder value, including the creation of
a "tracking stock" intended to track the performance of Comdisco Ventures.
At board meetings on July 15, 1999, November 4, 1999, and December 15, 1999,
the board of directors met with management of Comdisco and discussed the
alternatives to achieve Comdisco's strategies and have Comdisco's equity
valuation more fully recognize the value of our venture financing business. In
these discussions, our board of directors evaluated the effect that each
alternative would have on our ability to:
. enhance stockholder value;
. raise funds in a cost-effective manner in the capital markets;
. create a more valuable currency for strategic acquisitions; and
. attract and retain key personnel.
The board of directors considered the following alternatives:
. the preservation of our current equity and operating structure;
. the operation of one or more of our businesses as stand-alone companies;
. one or more "spin-offs" of the businesses; and
. the tracking stock proposal.
41
<PAGE>
Our board of directors used several criteria to contrast the benefits and
drawbacks of these alternatives to our stockholders, including:
. the assessment of the capital markets acceptance of the alternatives and
the likelihood of success of the alternatives, based on its
understanding of these markets and consultations between members of the
board of directors and our financial advisors, independent accountants
and counsel;
. the flexibility to provide equity incentives to the employees of
Comdisco's separate businesses;
. the ability to raise equity capital to fund the specific need of
Comdisco's separate businesses in the future; and
. the regulatory and tax consequences to Comdisco and the separate
businesses of operating under the various alternatives.
Our board of directors concluded in its business judgment that the tracking
stock proposal would be most likely to enhance stockholder value and address
Comdisco's strategic objectives. The board of directors based its decision on
its belief that the proper valuation of certain of our businesses, including
our venture financing business, was not reflected in the current equity
structure and that there are synergies to be obtained in maintaining
Comdisco's current operating structure. In reaching its conclusion, our board
of directors consulted with Comdisco's financial advisors, legal counsel and
independent accountants. The board of directors considered various strategic,
financial, legal and tax implications of the tracking stock proposal and
considered the following principal potential advantages of the tracking stock
proposal:
. The initial designation of two series of common stock that would
separately track the businesses of Comdisco Group and Comdisco Ventures
could increase stockholder value by more specifically tracking the
earnings, growth and cash flows of each group;
. The initial public offering of Ventures Tracking Stock should increase
the coverage of the stock by financial analysts, which will help
investors to better understand Comdisco Group, Comdisco Ventures and
Comdisco as a whole;
. The expectation that different groups of investors will invest in
Ventures Tracking Stock who might otherwise not invest in the existing
common stock;
. Multiple series of common stock should provide Comdisco with additional
equity securities that can be used to raise capital and can be issued in
connection with acquisitions and investments;
. By remaining a single enterprise, Comdisco believes it will benefit from
synergies between its business groups and Comdisco will retain the
benefit of the oversight of certain key members of the current
management; and
. The creation of multiple series of common stock that track its different
businesses would provide Comdisco flexibility to link employee incentive
compensation plans with the performances of the different businesses.
The board of directors also considered the following potential disadvantages
of the tracking stock proposal:
. Comdisco will incur additional administrative costs in connection with
the creation and ongoing maintenance of multiple series of common stock;
. The tracking stock proposal could create diverging or conflicting
interests among tracked business groups and could pose potential
conflicts for the board of directors;
. The creation of multiple series of common stock increases the complexity
of Comdisco's capital structure, may not be well understood by
investors, and could inhibit the efficient valuation of one or more of
the series of common stock;
. The holders of each series of common stock would continue to be subject
to all the risks associated with investing in Comdisco as a whole; and
. There is no controlling precedent as to the tax treatment of tracking
stock, and an adverse change in the tax laws, or in the interpretations
of the tax laws, could require us to revise our capital structure.
42
<PAGE>
Additionally, creating the tracking stocks and establishing the Comdisco
Ventures Management Incentive Plan and amending and restating the stock plans
will enable us to issue stock-based compensation tied to the tracking stocks,
thereby providing more focused incentives to management and employees of the
tracked groups.
The tracking stock proposal also gives the board of directors the flexibility
to use its authority to designate additional series of common stock to obtain
the benefits of the creation of tracking stock for Comdisco's other business
groups as it deems appropriate.
Finally, the increase in the number of shares of authorized common stock
contemplated by the tracking stock proposal will ensure that we have a
sufficient number of shares of common stock available for:
. obligations we may have under our rights plan with respect to each
series of common stock;
. future stock splits or stock dividends;
. future designations of additional series of common stock;
. future sale or distribution of any series of common stock to the public;
and
. issuance of any series of common stock under our stock-based
compensation plans.
After considering these factors and others, based upon management's
recommendation and after extensive consultation with our financial and legal
advisors, the board of directors determined in its business judgment that on
balance the potential advantages of the tracking stock proposal outweighed its
potential disadvantages. The board of directors ultimately concluded that the
tracking stock proposal is advisable, in the best interests of the
stockholders and Comdisco and is the best means for achieving Comdisco's
strategic goals.
On December 15, 1999, the board of directors considered the tracking stock
proposal described in this proxy statement, determined that it is in the best
interests of Comdisco and its stockholders, unanimously approved it and
resolved to recommend that you vote for it.
Increase in Authorized Common Stock
As part of the tracking stock proposal, our restated charter will increase the
number of shares of common stock authorized for issuance from 750,000,000
shares of common stock to 1,800,000,000 shares of common stock.
We need the availability of the additional authorized shares of common stock
to successfully implement the tracking stock proposal. In addition to the
shares of Ventures Tracking Stock we currently plan to distribute or issue, we
must reserve additional Ventures Tracking Stock for distribution under our
amended and restated rights plan and in connection with our stock-based
compensation plans, as proposed to be established and amended.
Further, the additional authorized shares contemplated by this proposal will
facilitate our ability in the future to designate additional series of common
stock, or to use our common stock for financings, acquisitions or employee
compensation, or to implement stock splits and stock dividends, as we have
done in the past.
The additional authorized but unissued shares of common stock provided by the
restated charter would be available for issuance by Comdisco from time to time
at the discretion of the board of directors as Comdisco Stock, Ventures
Tracking Stock, or as additional series of common stock to be designated by
the board of directors. The board of directors could authorize issuance of the
authorized but unissued shares for any proper corporate purpose, such as
raising capital, paying stock dividends, effecting a stock split, providing
compensation or benefits to employees or acquiring other companies or
businesses. The further approval of the stockholders of Comdisco is not
necessary for the designation or issuance of the authorized but unissued
shares of common stock, unless such approval is required by Delaware law or
NYSE or NASDAQ rules.
43
<PAGE>
Other than the stock option grants and restricted stock awards we plan to
issue to employees of Comdisco Ventures, we have no present agreements or
understandings with respect to the issuance of any of the shares of common
stock that will be authorized for issuance. Although our board of directors
has no present intention to do so, the additional shares of common stock that
would be authorized if the tracking stock proposal is adopted by the
stockholders could be issued in one or more transactions (subject to
applicable law) that would make a takeover of Comdisco more difficult and less
likely to occur, even though such a takeover may be economically beneficial to
Comdisco and its stockholders. Our board of directors and our management have
no knowledge of any person or entity that intends to seek a controlling
interest in, or to make a takeover proposal with respect to, Comdisco.
Initial Issuance of Ventures Tracking Stock
We currently plan to offer to the public, for cash, subject to market and
other conditions shares of Ventures Tracking Stock intended to represent
approximately 15% of the equity value initially attributed to Comdisco
Ventures.
This would leave Comdisco Group with a retained interest intended to represent
the remaining equity value initially attributed to Comdisco Ventures that is
not represented by issued and outstanding Ventures Tracking Stock. Any
retained interest of Comdisco Group in Comdisco Ventures cannot be voted by
Comdisco Group or Comdisco.
We expect that the initial public offering of Ventures Tracking Stock would
occur some time in our fiscal 2000. However, we could choose to conduct the
offering at a later time, or not to make any offering at all, depending on
circumstances at the time.
Instead of an initial offering to the public, Comdisco may first issue
Ventures Tracking Stock as a dividend to the holders of Comdisco Stock, or by
an offer to exchange Ventures Tracking Stock for Comdisco Stock.
Comdisco currently plans to allocate the net proceeds of any initial public
offering of Ventures Tracking Stock to Comdisco Ventures. Those proceeds will
be used to repay intercompany loans due from Comdisco Ventures and for
Comdisco Ventures' general corporate purposes. Pending any specific
application of the net proceeds of the initial public offering, those proceeds
will be invested in short-term, investment-grade securities.
Options, Awards and rights to Purchase relating to Ventures Tracking Stock
After we first issue Ventures Tracking Stock, we currently plan to grant
options to purchase, or make restricted stock awards of, Ventures Tracking
Stock to senior management of Comdisco Ventures under the Comdisco Ventures
Management Incentive Plan, which is subject to your approval as part of the
tracking stock proposal. The aggregate amount of Ventures Tracking Stock
available for grant under the Comdisco Ventures Management Incentive Plan will
be limited to approximately 15% of the total number of shares of Ventures
Tracking Stock that would be deemed issued and outstanding at the time we
first issue Ventures Tracking Stock, assuming for this purpose that Comdisco
Group's retained interest is represented by issued and outstanding Ventures
Tracking Stock.
For example, if we first issue 15,000,000 shares of Ventures Tracking Stock
representing 15% of the initial equity value of Comdisco Ventures to the
public, Comdisco Group's 85% retained interest, if represented by issued and
outstanding Ventures Tracking Stock, would be 85,000,000 shares, for a deemed
total issued and outstanding 100,000,000 shares of Ventures Tracking Stock.
Using this example, we will grant options or restricted stock awards to
Comdisco Ventures employees for up to 15,000,000 shares of Ventures Tracking
Stock under the Comdisco Ventures Management Incentive Plan.
We have agreed with senior management of Comdisco Ventures that the exercise
price per share of the options to purchase Ventures Tracking Stock granted
under the Comdisco Ventures Management Incentive Plan will be based on the net
book value of the assets allocated to Comdisco Ventures as of the end of the
fiscal quarter immediately preceding the fiscal quarter in which we first
issue Ventures Tracking Stock in a public offering as follows:
44
<PAGE>
. if the Comdisco Ventures Option Value is equal to $800 million, the
exercise price per share shall be equal to the Aggregate Comdisco
Ventures Net Book Value divided by the Aggregate Ventures Tracking Stock
Outstanding at IPO;
. if the Comdisco Ventures Option Value is less than $800 million, the
price per share shall be equal to the aggregate Comdisco Ventures Net
Book Value less that difference divided by the Aggregate Ventures
Tracking Stock outstanding at IPO, but not less than zero;
. if the Comdisco Ventures Option Value exceeds $800 million, the exercise
price per share shall be equal to the Aggregate Comdisco Ventures Net
Book Value divided by the Aggregate Ventures Tracking Stock Outstanding
at IPO ; and
. if the Aggregate Comdisco Ventures IPO Value is less than $700 million
Comdisco will have no obligation to grant any options.
Where,
. ""Aggregate Comdisco Ventures IPO Value" is the aggregate market value of
the Aggregate Ventures Tracking Stock Outstanding at IPO reflected by the
IPO Price Per Share.
. ""Aggregate Comdisco Ventures Net Book Value" is the net book value of the
assets allocated to Comdisco Ventures, as of the quarter ended immediately
prior to the close of the initial public offering of Ventures Tracking
Stock.
. ""Aggregate Ventures Tracking Stock Outstanding at IPO" is the number of
shares of Ventures Tracking Stock issued in the initial public offering,
together with that number of shares of Ventures Tracking Stock that would
represent Comdisco's Group's retained interest if those shares were issued
and outstanding.
. ""Comdisco Ventures Option Value" is the Aggregate Comdisco Ventures IPO
Value less the Aggregate Comdisco Ventures Net Book Value.
. ""IPO Price Per Share" is the initial public offering price per share for
Ventures Tracking Stock in the initial public offering of Ventures Tracking
Stock.
Subsequent Issuances of Ventures Tracking Stock
After we first issue Ventures Tracking Stock, we may issue additional shares
of that stock, and further reduce Comdisco Group's retained interest in
Comdisco Ventures, from time to time by:
. distributing a dividend of Ventures Tracking Stock to the holders of
Comdisco Stock;
. selling Ventures Tracking Stock to the public;
. offering to exchange Ventures Tracking Stock for Comdisco Stock;
. issuing Ventures Tracking Stock or options to purchase Ventures Tracking
Stock to employees under compensation plans;
. using Ventures Tracking Stock as consideration in an acquisition; or
. any combination of the above.
Distribution of Comdisco Group's Retained Interest in Comdisco Ventures
We currently intend to distribute Ventures Tracking Stock representing the
remainder of Comdisco Group's retained interest in Comdisco Ventures to the
holders of Comdisco Stock, subject to market and other conditions, at some
time in the future, although we are not obligated to do so. There can be no
assurance as to whether or when this distribution will occur, or what the
value of the retained interest will be at the time of the distribution, if it
occurs. Even if we initially issue Ventures Tracking Stock, or make further
issuances or distributions of that stock, the board of directors, in its sole
discretion, may decide not to proceed with the distribution of the remainder
of Comdisco Group's retained interest in Comdisco Ventures.
45
<PAGE>
Description of Comdisco Stock and Ventures Tracking Stock
Authorized Stock and Designations of Series of Common Stock
Under our current certificate of incorporation, we are authorized to issue
850,000,000 shares of stock, consisting of 750,000,000 shares of common stock,
par value $0.10 per share, and 100,000,000 shares of preferred stock, $0.10
par value per share. As of March 1, 2000, approximately 152,183,133 shares of
existing common stock were issued and outstanding. Under our certificate, our
board of directors has the authority to designate the preferred stock in one
or more series, without stockholder approval. Currently, there exists one
series of preferred stock, the Series C Junior Participating Preferred Stock,
designated in connection with Comdisco's preferred stock purchase rights
described below.
Our restated charter will:
. authorize Comdisco to issue a total of 1,800,000,000 shares of common
stock in multiple series;
. designate two series of common stock, currently intended to be Comdisco
Stock and Ventures Tracking Stock;
. initially authorize Comdisco to issue 750,000,000 shares of Comdisco
Stock and 750,000,000 shares of Ventures Tracking Stock; and
. re-classify each share of existing common stock as one share of Comdisco
Stock.
We intend Ventures Tracking Stock to reflect the performance of Comdisco
Ventures, our venture financing business division.
We intend Comdisco Stock to reflect the performance of Comdisco Group, which
consists of our other businesses and our retained interest in Comdisco
Ventures.
We have allocated, for financial reporting purposes, all of Comdisco's
consolidated assets, liabilities, revenue, expenses and cash flow between
Comdisco Group and Comdisco Ventures. In the future, we will publish financial
statements for each of Comdisco Group and Comdisco Ventures, together with
consolidated financial statements of Comdisco covering all of Comdisco Group
and Comdisco Ventures.
Under our current certificate, to issue a new class or series of common stock
we must obtain stockholder approval. Under the restated charter, our board of
directors could, without the need to obtain stockholder approval:
. designate common stock not previously designated by the board of
directors, or previously designated but unissued common stock, into one
or more additional new series of common stock; or
. increase or decrease from time to time the total number of authorized
shares of each designated series of common stock.
However, the board of directors could not increase the number of shares of
authorized stock of a designated series above a number which, when added to
the number of authorized shares of all designated common stock, would exceed
the total number of authorized shares of common stock. In addition, the board
of directors could not decrease the number of shares authorized of any series
of common stock below the number of shares outstanding of such series and
shares reserved for options, warrants, the rights plan and, as applicable, any
retained interest of one group by another.
At the time it creates any new series of common stock, our board of directors
would be authorized to determine and designate the number of shares of each
new series and all rights and privileges of each new series, including
dividend rights, exchange or redemption provisions, rights upon liquidation or
merger, and voting rights.
46
<PAGE>
Authorized but unissued shares of Comdisco Stock and Ventures Tracking Stock
and previously undesignated common stock would be available for issuance by
Comdisco from time to time, as determined by the board of directors, for any
proper corporate purpose. These purposes could include raising capital, paying
stock dividends, effecting a stock split, providing compensation or benefits
to employees or acquiring other companies or businesses, or designating a new
series of common stock. Comdisco would not be required to solicit your
approval for any issuance described above, unless required by the Delaware law
or NYSE or NASDAQ Rules. The board of directors will continue to be able to
issue shares of preferred stock in series, without stockholder approval.
Conversion and Redemption
Our current certificate does not provide for either mandatory or optional
conversion or redemption of our existing common stock. The restated charter
will permit the conversion or redemption of Ventures Tracking Stock as
described below.
Dividends
We will be permitted to pay dividends on Comdisco Stock and Ventures Tracking
Stock out of assets of Comdisco legally available for the payment of dividends
under Delaware law. Our restated charter, however, will provide that the total
amounts paid as dividends on any of Comdisco Stock or Ventures Tracking Stock
cannot exceed the available dividend amount for each group.
The "available dividend amount" for Comdisco Group at any time is the amount
that would then be legally available for the payment of dividends on Comdisco
Stock under Delaware law if:
. Comdisco Group and Comdisco Ventures were each an independent Delaware
corporation,
. Comdisco Group had outstanding (1) a number of shares of common stock,
par value $0.10 per share, equal to the number of shares of Comdisco
Stock that are then outstanding and (2) a number of shares of preferred
stock, par value $0.10 per share, equal to the number of shares that
have been attributed to Comdisco Group and are then outstanding,
. the assumptions about Comdisco Ventures set forth in the following
paragraph were true, and
. Comdisco Group owned a number of shares of Ventures Tracking Stock equal
to the number of shares that would be issuable with respect to Comdisco
Group's retained interest in Ventures Tracking Stock.
Similarly, the "available dividend amount" for Comdisco Ventures at any time
is the amount that would then be legally available for the payment of
dividends under Delaware law on Ventures Tracking Stock if Comdisco Ventures
were an independent Delaware corporation having outstanding (1) a number of
shares of common stock, par value $0.10 per share, equal to the number of
shares of Ventures Tracking Stock that are then outstanding plus the number of
shares of Ventures Tracking Stock that would be issuable with respect to
Comdisco Group's retained interest in Comdisco Ventures and (2) a number of
shares of preferred stock, par value $0.10 per share, equal to the number of
shares that have been attributed to Comdisco Ventures and are then
outstanding.
The amount legally available for the payment of dividends on common stock of a
corporation under Delaware law is generally limited to:
. the total assets of the corporation
. less its total liabilities
. less the aggregate par value of the outstanding shares of its common and
preferred stock.
However, if that amount is not greater than zero, the corporation may also pay
dividends out of the net profits for the corporation for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. As mentioned
above, these restrictions will form the basis for calculating the available
dividend amounts for Comdisco Group and Comdisco Ventures. These restrictions
will also form the basis for calculating the aggregate amount of dividends
that Comdisco as a whole can pay on its common stock (regardless of series).
Thus, net losses of any business group, and any dividends and distributions
on, or repurchases of, any series of common stock, will reduce the assets
legally available for dividends on other series of common stock.
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Subject to the foregoing limitations (and to any other limitations set forth
in any future series of preferred stock or in any agreements binding on
Comdisco from time to time), we have the right to pay dividends on none, any
or all of the series of common stock, in equal or unequal amounts,
notwithstanding the performance of any business group, the amount of assets
available for dividends on any series, the amount of prior dividends declared
on any series or any other factor.
At the time of any dividend on the outstanding shares of Ventures Tracking
Stock (including any dividend required as a result of a disposition of all or
substantially all of the assets of Comdisco Ventures), we will credit to
Comdisco Group, and charge against Comdisco Ventures a corresponding amount in
respect of Comdisco Group's retained interest in that group for purposes of
calculating available dividend amounts for future dividends. Specifically, the
corresponding amount will equal (1) the aggregate amount of such dividend
times (2) a fraction, the numerator of which is the number of shares that
would be issuable with respect to Comdisco Group's retained interest in
Comdisco Ventures and the denominator of which is the number of shares of
Ventures Tracking Stock then outstanding.
Mandatory Dividend, Redemption or Conversion of Ventures Tracking Stock
If we sell or dispose of all or substantially all of the properties and assets
of Comdisco Ventures in a transaction other than one described below under "--
Exceptions to the Dividend, Redemption or Conversion Requirement if a
Disposition Occurs," we will:
. pay a dividend to the holders of Ventures Tracking Stock in cash and/or
securities or other property having a value equal to their proportionate
interest in the net proceeds of the disposition; or
. if the disposition involves all of the properties and assets, redeem all
outstanding shares of Ventures Tracking Stock in exchange for cash
and/or securities or other property having a value equal to the
proportionate interest the holders of Ventures Tracking Stock have in
the net proceeds of the disposition; or
. if the disposition involves substantially all, but not all, of the
properties and assets, redeem a number of whole shares of Ventures
Tracking Stock having an aggregate average market value, during the 20
trading day period beginning on the 16th trading day following
consummation of such transaction, equal to the proportionate interest
the holders of Ventures Tracking Stock have in the value of the net
proceeds of the disposition; or
. convert each outstanding share of the series of Ventures Tracking Stock
into a number of shares of Comdisco Stock equal to 115% of the ratio of
the average market value of one share of Ventures Tracking Stock to the
average market value of one share of Comdisco Stock during the 20-
trading day period ending on the fifth trading day prior to the first
public announcement of such disposition transaction.
We will determine the proportionate interest of the holders of Ventures
Tracking Stock in the net proceeds of a disposition by assuming that Comdisco
Group's retained interest in Comdisco Ventures is represented by issued and
outstanding shares of Ventures Tracking Stock.
We may only pay a dividend or redeem shares of a series class of common stock
if we have legally available funds under Delaware law. We will pay the
dividend or complete the redemption or conversion on or prior to the 90th
trading day following the disposition date.
For purposes of determining whether a disposition has occurred, "substantially
all of the properties and assets" attributed to a group means a portion of the
properties and assets that represents at least 80% of the value of the
properties and assets attributed to that group.
The "net proceeds" of a disposition means an amount equal to what remains of
the gross proceeds of the disposition after any payment of, or reasonable
provision is made as determined by our board of directors for:
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. any taxes payable by us, or which would have been payable but for the
utilization of tax benefits attributable to the groups not subject to
the disposition, in respect of the disposition or in respect of any
resulting dividend or redemption;
. any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses; and
. any liabilities of or attributed to the group whose assets are disposed,
including, without limitation, any liabilities for deferred taxes, any
indemnity or guarantee obligations incurred in connection with the
disposition or otherwise, any liabilities for future purchase price
adjustments and any preferential amounts plus any accumulated and unpaid
dividends in respect of the preferred stock attributed to that group.
We may elect to pay the dividend or redemption price either in the same form
as the proceeds of the disposition or in any other combination of cash,
securities or other property that our board of directors or, in the case of
securities that have not been publicly traded for a period of at least 15
months, an independent investment banking firm, determines will have an
aggregate market value of not less than the value of the net proceeds.
Exceptions to the Dividend, Redemption or Conversion Requirement if a
Disposition Occurs. We are not required to take any of the above actions for
any disposition of all or substantially all of the properties and assets
attributed to the group making such disposition in a transaction or series of
related transactions that results in our receiving for those properties and
assets primarily equity securities of any entity which:
. acquires those properties or assets or succeeds to the business
conducted with those properties or assets or controls such acquirer or
successor; and
. is primarily engaged or proposes to engage primarily in one or more
businesses similar or complementary to the businesses conducted by the
group making such disposition prior to the disposition, as determined by
our board of directors.
The purpose of this exception is to enable us technically to dispose of
properties or assets of a group to other entities engaged or proposing to
engage in businesses similar or complementary to those of that group without
requiring a dividend on, or a conversion or redemption of, the class of common
stock of that group, so long as we hold an equity interest in that entity. A
joint venture in which we own a direct or indirect equity interest is an
example of such an acquirer. We are not required to control that entity,
whether by ownership or contract provisions.
We are also not required to effect a dividend, redemption or conversion if:
. the disposition is of all or substantially all of our properties and
assets in one transaction or a series of related transactions in
connection with our dissolution, liquidation or winding up and the
distribution of our assets to stockholders;
. the disposition is on a pro rata basis, such as in a spin-off, to the
holders of all outstanding shares of the group;
. the disposition is made to any person or entity controlled by us, as
determined by the board of directors;
. the disposition is made at a time when only one series of common stock
is outstanding; or
. before the 30th trading day following the disposition, we have mailed a
notice stating that we are exercising our right to convert all of the
outstanding shares of Ventures Tracking Stock, as applicable, into newly
issued shares of Comdisco Stock as contemplated under "Conversion of
Common Stock at Option of Comdisco" below.
Sale of less than substantially all the assets of a group. The proceeds from
any disposition of assets that do not comprise all or substantially all of the
properties and assets attributed to a group will be allocated to that group
and used for its benefit, subject to the policies described under "--Certain
Management and Allocation Policies" beginning on page 63.
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Conversion of Ventures Tracking Stock at Option of Comdisco
We will have the right, at any time, to convert each share of Ventures
Tracking Stock into a number of shares of Comdisco Stock initially equal to
125% of the ratio of the average market value of one share of Ventures
Tracking Stock to the average market value of one share of Comdisco Stock over
a 20-day trading period ending on the fifth trading day prior to the mailing
of the conversion notice for conversions occurring in the first quarter after
the original issuance of Ventures Tracking Stock. The percentage applied to
the ratio of market values will decline ratably each quarter over a period of
ten quarters to 115%.
If, however, we convert Ventures Tracking Stock into Comdisco Stock as a
result of a tax event (as defined below), we will have the right to convert
shares of Ventures Tracking Stock into a number of shares of Comdisco Stock
equal to a percentage, which will not be more than 110% or less than 100% (as
determined by our board of directors, at the time the restated charter is
filed, to be in the best interests of our stockholders), applied to the ratio
of the average market values of the Ventures Tracking Stock and the Comdisco
Stock described above, regardless of when such adverse tax law changes take
place.
The conversion ratio that will result in the specified premium will be
calculated based on the average market value of one share of Ventures Tracking
Stock as compared to the average market value of one share of Comdisco Stock
during the 20 consecutive trading day period ending on, and including, the 5th
trading day immediately preceding the date on which we mail the notice of
conversion to holders of Ventures Tracking Stock.
"Tax event" means Comdisco's receipt of an opinion of our tax counsel that, as
a result of:
. any amendment to, or change in, the laws or regulations interpreting the
laws of the United States or any political subdivision or taxing
authority thereof or therein, including any announced proposed change in
such regulations by an administrative agency; or
. any official or administrative pronouncement, action or judicial
decision interpreting or applying those laws or regulations (regardless
of whether such pronouncement, action or judicial decision involves
Comdisco),
it is more likely than not that for U.S. Federal income tax purposes:
. Comdisco or our stockholders are, or at any time in the future will be,
subject to tax upon the issuance of shares of any of Comdisco Stock or
Ventures Tracking Stock, or
. any Comdisco Stock or Ventures Tracking Stock is not or at any time in
the future will not be treated solely as stock of Comdisco, or
. any Comdisco Stock or Ventures Tracking Stock is or will be treated as
section 306 stock under the Internal Revenue Code.
For purposes of rendering this opinion, tax counsel will assume that any
administrative proposals will be adopted as proposed. However, in the event of
an announced proposed legislative change, tax counsel shall render an opinion
only in the event of enactment.
These provisions allow us the flexibility to recapitalize our outstanding
series of common stocks into one class of common stock that would, after the
recapitalization, represent an equity interest in all of our businesses. The
optional conversion could be exercised at any future time if our board of
directors determines that, under the facts and circumstances then existing, an
equity structure consisting of multiple series of common stocks was no longer
in the best interests of all of our stockholders. A conversion could be
exercised, however, at a time that is disadvantageous to the holders of either
or both Comdisco Stock or Ventures Tracking Stock. For additional information
on the risks of a conversion and the limited remedies available to
stockholders, see "Risk Factors--Conversion of Ventures Tracking Stock into
Comdisco Stock may adversely affect the holders of Ventures Tracking Stock or
the holders of Comdisco Stock" on page 27.
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Conversion would be based upon the relative market values of Comdisco Stock,
on the one hand, and Ventures Tracking Stock, on the other. Many factors could
affect the market values of Comdisco Stock and Ventures Tracking Stock,
including our results of operations and those of each of the groups, trading
volume and general economic and market conditions. Market values could also be
affected by decisions by our board of directors or our management that
investors perceive to affect adversely one series of common stock compared to
the other. These decisions could include changes to our management and
allocation policies, transfers of assets between groups, allocations of
corporate opportunities and financing resources between the groups and changes
in dividend policies.
Redemption of Ventures Tracking Stock in Exchange for Stock of Subsidiary
Although it currently has no intention to do so, the board of directors may
redeem on a pro-rata basis all of the outstanding shares of Ventures Tracking
Stock for shares of the common stock of one or more of our wholly owned
subsidiaries which own all of the assets and liabilities attributed to
Comdisco Ventures (and no other assets or liabilities), as applicable. We may
redeem shares of Ventures Tracking Stock for subsidiary stock only if we have
legally available funds under Delaware law. In connection with any such
exchange, in the event that we have a retained interest in Comdisco Ventures,
we could retain any remaining shares of common stock of the subsidiary holding
Comdisco Ventures' assets or distribute those shares as a dividend on Comdisco
Stock.
As a result of a redemption in exchange for stock of a subsidiary, holders of
the series of common stock redeemed would hold securities of a separate legal
entity. This redemption could be authorized by the board of directors at any
time in the future if it determines that, under the facts and circumstances
then existing, an equity structure comprised of multiple series of common
stock designated as tracking stocks is no longer in the best interests of all
of our stockholders as a whole.
General Conversion and Redemption Provisions
Notices Upon Disposition of Group Assets. Not later than the 20th trading day
after the consummation of a sale of all or substantially all of the assets of
a group, we will announce publicly by press release:
. the estimated net proceeds of the disposition;
. the number of shares of the series of common stock outstanding that
tracks the group whose assets were disposed of;
. the number of shares of any series of common stock into which the series
of common stock that tracks the group whose assets were disposed of is
convertible and the conversion, exchange or exercise price of those
convertible securities; and
. if the group is not Comdisco Group, the number of shares issuable with
respect to Comdisco Group's retained interest in that group.
Not later than the 40th trading day after the consummation of the disposition,
we will announce publicly by press release whether we will:
. pay a dividend or redeem shares of the series of common stock that
tracks the group whose assets have been disposed with the net proceeds
of the disposition; or
. convert the shares of the series of common stock that tracks the group
whose assets are disposed into another series of common stock.
We will mail to each holder of shares of the series of common stock that
tracks the group whose assets were disposed any additional notices and other
information required by our restated charter.
Notice upon Optional Conversion or Redemption in Exchange for Stock of a
Subsidiary. If Comdisco determines to convert shares of Ventures Tracking
Stock into shares of Comdisco Stock or into shares of stock of a
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subsidiary as described above, Comdisco will send each holder of Ventures
Tracking Stock that is being converted or redeemed a notice not less than 30
nor more than 45 days prior to the conversion or redemption date. Such notice
will contain:
. a statement that all outstanding shares of Ventures Tracking Stock will
be converted or redeemed, as applicable;
. the conversion or redemption date;
. the number of shares of Comdisco Stock or the number of shares of stock
of the subsidiary, as the case may be, which each holder of Ventures
Tracking Stock will receive;
. the place or method for redemption or conversion; and
. any other information required by our restated charter.
Selection of Shares for Redemption. If less than all of the outstanding shares
of Ventures Tracking Stock are to be redeemed, we will redeem those shares
proportionately from among the holders of outstanding shares of Ventures
Tracking Stock or by such method as may be determined by our board of
directors to be equitable.
Fractional Interests; Transfer Taxes. We will not be required to issue
fractional shares of any capital stock or any fractional securities to any
holder of Ventures Tracking Stock upon any conversion, redemption, dividend or
other distribution described above. If a fraction is not issued to a holder,
we will pay cash instead of that fraction.
We will pay all documentary, stamp or similar issue or transfer taxes that may
be payable in respect of the issue or delivery of any shares of capital stock
and/or other securities on conversion or redemption of shares. We would not,
however, be required to pay any tax that might be payable in respect of any
transfer involved in the issue or delivery of any shares of capital stock
and/or other securities in a name other than that in which Ventures Tracking
Stock so exchanged or redeemed were registered, and no such issue or delivery
will be made unless and until the person requesting such issue pays to
Comdisco the amount of any such tax or establishes to our satisfaction that
such tax has been paid.
Stockholder Rights Upon Conversion or Redemption. If shares of Ventures
Tracking Stock are converted or redeemed as previously described, after such
conversion or redemption, all rights of a holder of shares of Ventures
Tracking Stock that were converted or redeemed will cease. The only right a
holder of shares of Ventures Tracking Stock converted or redeemed would have
at that time is the right to receive the cash and/or the certificates
representing shares of capital stock, securities or other property into which
Ventures Tracking Stock was converted or for which it was redeemed, together
with any payments for fractional shares or rights to dividends, as provided
above, without interest. No holder of a certificate that prior to the
conversion or redemption represented shares of Ventures Tracking Stock
converted or redeemed will be entitled to receive any dividends or other
distribution or interest payment with respect to shares of any kind of capital
stock into, or in exchange for which, shares of the Ventures Tracking Stock
were converted or redeemed until surrender of such holder's certificate in
exchange for a certificate(s) representing shares of such capital stock. Upon
the surrender of the holder's certificate, there will be paid to the holder
the amount of any dividends or other distributions (without interest) which
theretofore became payable with respect to a record date occurring after the
conversion, but which were not paid by reason of the foregoing, with respect
to the number of whole shares of capital stock represented by the certificate
or certificates issued upon such surrender. From and after a conversion,
Comdisco will, however, be entitled to treat the certificates for Ventures
Tracking Stock that have not yet been surrendered for conversion as being
evidence of the ownership of the number of whole shares of capital stock into
which the shares of Ventures Tracking Stock represented by those certificates
should have been converted, notwithstanding the failure to surrender such
certificates.
Voting Rights
Holders of Comdisco Stock and Ventures Tracking Stock will generally vote as a
single class on all matters requiring a stockholder vote.
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Until the 31st trading day following the effective date of the restated
charter, on all matters as to which all series of common stock will vote
together as a single class:
. each share of Comdisco Stock will have one vote; and
. each share of Ventures Tracking Stock will have one vote.
On and after that 31st trading day, at each vote of stockholders, the
aggregate voting power of the Comdisco Stock and Ventures Tracking Stock will
be adjusted as follows:
. each share of Comdisco Stock will have one vote; and
. each share of Ventures Tracking Stock will have a number of votes (or a
fraction of a vote) based on the ratio of the average market value of
one share of Ventures Tracking Stock to the average market value of one
share of Comdisco Stock during the 20 consecutive trading days ending on
(and including) the record date of the vote.
For example, if the average market value of one share of Ventures Tracking
Stock for the period specified above was $20.00, and the average market value
of one share of the Comdisco Stock for the period specified above was $40.00,
each share of Comdisco Stock would have one vote and each share of Ventures
Tracking Stock would have 0.5 votes based on the following calculation:
$20.00
---- = 0.5 votes per share
$40.00
However, in the event that the foregoing calculation results in the holders of
Ventures Tracking Stock holding in excess of 35% of the total voting power of
all outstanding shares of common stock, the vote of each share of Ventures
Tracking Stock that exceeds such amount will be reduced such that all of the
outstanding shares of Ventures Tracking Stock in the aggregate represent 35%
of the total voting power of all outstanding shares of Comdisco's common
stock.
The voting formula above is intended to equate the relative voting rights of
the series of common stock to their relative market capitalization at the time
of each adjustment. The periodic adjustments could influence an investor
interested in acquiring and maintaining a fixed percentage of the voting power
of Comdisco's outstanding stock to acquire that percentage of all series of
common stock, and would limit the ability of investors in one class to acquire
for the same consideration relatively more or less votes per share than
investors in the other series.
Because, of the limitations on the voting power of Ventures Tracking Stock,
when the holders of Comdisco Stock and Ventures Tracking Stock vote together
as a single class, the holders of Comdisco Stock will be in a position to
control the outcome of a majority vote even if the matter involves a conflict
of interest between the holders of Comdisco Stock and Ventures Tracking Stock.
If shares of only one series of common stock are outstanding, each share of
that series will have one vote. If any series of common stock is entitled to
vote as a separate class with respect to any matter, each share of that series
will, for purposes of such vote, have one vote on such matter.
If the tracking stock proposal is approved by our stockholders and implemented
by our board of directors, we would set forth the number of outstanding shares
of Comdisco Stock and Ventures Tracking Stock in our annual and quarterly
reports filed pursuant to the Exchange Act, and disclose in any proxy
statement for a stockholder meeting the number of outstanding shares and per
share voting rights of each of Comdisco Stock and Ventures Tracking Stock.
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The holders of Comdisco Stock and Ventures Tracking Stock will not have any
rights to vote separately as a class on any matter coming before our
stockholders, except for the limited class voting rights provided under
Delaware law described below or by NYSE or NASDAQ rules.
Liquidation
Currently, in the event of our liquidation, dissolution or winding up (whether
voluntary or involuntary), after payment, or provision for payment, of our
debts and other liabilities and the payment of full preferential amounts to
which the holders of any preferred stock are entitled, holders of existing
common stock are entitled to share equally in our remaining net assets.
Under the restated charter, in the event of our voluntary or involuntary
liquidation, dissolution or winding-up, the holders of Comdisco Stock and
Ventures Tracking Stock will be entitled to receive our assets, if any,
remaining for distribution to stockholders (after payment of or provision for
all liabilities, including contingent liabilities, and payment of the
liquidation preference payable to any holders of our preferred stock), on a
per share basis in proportion to the liquidation units per share of each
series. Each share of Comdisco Stock will have one liquidation unit. Each
share of Ventures Tracking Stock will have a number of liquidation units,
including a fraction of one liquidation unit, equal to the ratio of the
average market value of a share of Ventures Tracking Stock over the last 20
consecutive trading day period ending 300 days after the effective date of the
Comdisco restated charter, to the average market value of a share of Comdisco
Stock over the same period, expressed as a decimal fraction rounded to the
nearest five decimal places.
If the voluntary or involuntary liquidation, dissolution or winding-up of
Comdisco occurs prior to that 300th day, the average market value will be
determined based on:
(1) the 20 consecutive trading day period ending immediately prior to
the liquidation, dissolution or winding-up event, or
(2) the actual number of consecutive trading days prior to the
liquidation, dissolution or winding-up event if that event occurs prior
to the 21st trading day after the effective date of the Comdisco
restated charter.
After the number of liquidation units with respect to Ventures Tracking Stock
has been calculated in accordance with this formula, the number will not be
changed except as provided below. Thus, the liquidation rights of the holders
of the respective series may not bear any relationship to the relative market
values or the relative voting rights of the series.
The liquidation units of the Comdisco Stock and Ventures Tracking Stock were
determined by Comdisco in consultation with our financial advisors and are
based upon, among other factors, each group's initial level of debt and equity
capitalization, each group's recent historical financial performance, the
market prices of shares of comparable companies that are publicly traded and
the current state of the markets for public offerings and other stock
transactions.
After the number of liquidation units with respect to Ventures Tracking Stock
has been calculated as provided above, if Comdisco subdivides, by stock split,
reclassification or otherwise, or combines, by reverse stock split,
reclassification or otherwise, the outstanding shares of Comdisco Stock or
Ventures Tracking Stock, the number of liquidation units of the Comdisco Stock
or Ventures Tracking Stock, as applicable, shall be adjusted as determined by
the board of directors so as to avoid any dilution in the aggregate
liquidation rights of either series of common stock.
In the absence of a public trading market for the shares of Ventures Tracking
Stock, our board of directors will exercise its good faith judgment to
determine the market value of a share of that stock for purposes of this
formula.
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Comdisco considers that its complete liquidation is a remote contingency, and
its financial advisors believe that, in general, these liquidation provisions
are immaterial to the value of Comdisco Stock and Ventures Tracking Stock.
In the case of our dissolution, liquidation or winding up:
. no holder of Comdisco Stock will have any special right to receive
specific assets of Comdisco Group; and
. no holder of Ventures Tracking Stock will have any special right to
receive specific assets of Comdisco Ventures.
Neither a merger nor consolidation of Comdisco into or with any other
corporation, nor any sale, transfer or lease of all or any part of our assets,
will, alone, be deemed a liquidation or winding up of Comdisco, or cause the
dissolution of Comdisco, for purposes of these liquidation provisions.
Retained Interest of Comdisco Group in Comdisco Ventures
The number of shares of Ventures Tracking Stock that, if issued, would
initially represent 100% of the equity value of Comdisco Ventures will be
determined by the board of directors, following discussion with Comdisco's
independent financial advisors, based on:
. the historical and projected financial and operating information of
Comdisco Ventures;
. the market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of
Comdisco Ventures;
. prevailing equity market conditions; and
. the range of the initial public offering price of the Ventures Tracking
Stock to be issued.
The equity value of Comdisco Ventures remaining after we first sell or
otherwise distribute Ventures Tracking Stock initially will be held by
Comdisco Group. This retained interest, because it represents an interest
between two business groups within Comdisco, would not constitute outstanding
shares of common stock and, accordingly, would not be represented by shares of
Ventures Tracking Stock and would not be voted on any matter by the Comdisco
Group, including any matter requiring the vote of the holders of Ventures
Tracking Stock as a separate class. However, the market value attributable to
Comdisco Group's retained interest in Comdisco Ventures should be reflected in
the market value of the Comdisco Stock, which in turn would affect the
aggregate voting power represented by Comdisco Stock on any matter in which
holders of Comdisco Stock and Ventures Tracking Stock vote together as a
single class.
We will adjust Comdisco Group's retained interest in Comdisco Ventures to
reflect further issuances or repurchases of the stock that relates to that
group, capital contributions to, or returns of capital from, that group and
certain other events, including any distribution of that stock representing
all of our retained interest in that group to holders of Comdisco Stock.
In this proxy statement, we call the percentage interest in Comdisco Ventures
intended to be represented at any time by the outstanding shares of the series
of common stock that tracks that group the "Outstanding Interest Percentage,"
and we call the remaining percentage interest in Comdisco Ventures intended to
be represented at any time by Comdisco Group's retained interest in that group
the "Retained Interest Percentage." At any time, the Outstanding Interest
Percentage equals the number of shares outstanding of the series of common
stock that tracks a group divided by the total number of notional shares of
that series deemed outstanding (expressed as a percentage) and the Retained
Interest Percentage equals the number of shares of the series of common stock
that tracks that group issuable with respect to Comdisco Group's retained
interest in that group divided by the total number of notional shares of that
series deemed outstanding (expressed as a percentage). The sum of the
Outstanding Interest Percentage and the Retained Interest Percentage always
equals 100%.
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At the time that we file the restated charter for Comdisco Ventures, the
Retained Interest Percentage will be 100% and the Outstanding Interest
Percentage will be 0%.
Whenever we decide to issue shares of Ventures Tracking Stock, we would
determine, in our sole discretion, whether to attribute that issuance (and the
proceeds thereof) to Comdisco Group in respect of its retained interest in
Comdisco Ventures (in a manner analogous to a secondary offering of common
stock of a subsidiary owned by a corporate parent) or to Comdisco Ventures (in
a manner analogous to a primary offering of common stock). If we issue any
shares of Ventures Tracking Stock and attribute that issuance (and the
proceeds thereof) to Comdisco Group in respect of its retained interest in
Comdisco Ventures, the number of shares issuable with respect to Comdisco
Group's retained interest in Comdisco Ventures would be reduced by the number
of shares of that series we issue, the number of outstanding shares of
Ventures Tracking Stock would be increased by the same amount, the total
number of notional shares deemed outstanding of Ventures Tracking Stock would
remain unchanged, the Retained Interest Percentage would be reduced and the
Outstanding Interest Percentage would be correspondingly increased. If we
instead attribute that issuance (and the proceeds thereof) to Comdisco
Ventures, the number of shares issuable with respect to Comdisco Group's
retained interest in Comdisco Ventures would remain unchanged, the number of
outstanding shares of Ventures Tracking Stock and the total number of notional
shares deemed outstanding of Ventures Tracking Stock would be increased by the
number of shares we issue, the Retained Interest Percentage would be reduced
and the Outstanding Interest Percentage would be correspondingly increased.
We have the right to issue shares of Ventures Tracking Stock as a distribution
on Comdisco Stock. If we did so, we would attribute that distribution to
Comdisco Group in respect of its retained interest in Comdisco Ventures. As a
result, the number of shares of Ventures Tracking Stock issuable with respect
to Comdisco Group's retained interest in Comdisco Ventures would be reduced by
the number of shares so distributed, the number of outstanding shares of
Ventures Tracking Stock would be increased by the same amount, the total
number of notional shares deemed outstanding of Ventures Tracking Stock would
remain unchanged, the Retained Interest Percentage would be reduced and the
Outstanding Interest Percentage would be correspondingly increased. If instead
we issued shares of Ventures Tracking Stock as a distribution on outstanding
shares of Ventures Tracking Stock, we would attribute that distribution to
Comdisco Ventures, in which case we would proportionately increase the number
of shares of Ventures Tracking Stock issuable with respect to Comdisco Group's
retained interest in Comdisco Ventures. As a result, the number of shares of
Ventures Tracking Stock issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures and the total number of notional shares deemed
outstanding of Ventures Tracking Stock would each be increased by the same
percentage as the number of outstanding shares of Ventures Tracking Stock is
increased and the Retained Interest Percentage and Outstanding Interest
Percentage would remain unchanged.
At the time of any dividend on the outstanding shares of Ventures Tracking
Stock (including any dividend required as a result of a disposition of all or
substantially all of the assets of Comdisco Ventures, but excluding any
dividend payable in shares of Ventures Tracking Stock), we will credit to
Comdisco Group, and charge against Comdisco Ventures, a corresponding amount
in respect of Comdisco Group's retained interest in Comdisco Ventures.
Specifically, the corresponding amount will equal (1) the aggregate amount of
such dividend times (2) a fraction, the numerator of which is the number of
shares of Ventures Tracking Stock issuable with respect to Comdisco Group's
retained interest in Comdisco Ventures and the denominator of which is the
number of shares of Ventures Tracking Stock then outstanding.
If we decide to repurchase shares of Ventures Tracking Stock, we would
determine, in our sole discretion, whether to attribute that repurchase (and
the cost thereof) to Comdisco Group (in a manner analogous to a purchase of
common stock of a subsidiary by a corporate parent) or to Comdisco Ventures
(in a manner analogous to an issuer repurchase). If we repurchase shares of
Ventures Tracking Stock and attribute that repurchase (and the cost thereof)
to Comdisco Group, the number of shares of Ventures Tracking Stock issuable
with respect to Comdisco Group's retained interest in the Comdisco Ventures
would be increased by the number
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of shares so purchased, the number of outstanding shares of Ventures Tracking
Stock would be decreased by the same amount, the total number of notional
shares of Ventures Tracking Stock deemed outstanding would remain unchanged,
the Retained Interest Percentage would be increased and the Outstanding
Interest Percentage would be correspondingly decreased. If we instead
attribute that repurchase of Ventures Tracking Stock (and the cost thereof) to
Comdisco Ventures, the number of shares of Ventures Tracking Stock issuable
with respect to Comdisco Group's retained interest in the Comdisco Ventures
would remain unchanged, the number of outstanding shares of Ventures Tracking
Stock and the total number of notional shares of Ventures Tracking Stock
deemed outstanding would be decreased by the number of shares so repurchased,
the Retained Interest Percentage would be increased and the Outstanding
Interest Percentage would be correspondingly reduced.
We may, in our sole discretion, determine to transfer cash or other property
of Comdisco Ventures to Comdisco Group in return for a decrease in Comdisco
Group's retained interest in Comdisco Ventures (in a manner analogous to a
return of capital) or to transfer cash or other property of Comdisco Group to
Comdisco Ventures in return for an increase in Comdisco Group's retained
interest in Comdisco Ventures (in a manner analogous to a capital
contribution). If we determine to transfer cash or other property of Comdisco
Ventures to Comdisco Group in return for a decrease in Comdisco Group's
retained interest in Comdisco Ventures, the number of shares of Ventures
Tracking Stock issuable with respect to Comdisco Group's retained interest in
Comdisco Ventures and the total number of notional shares of Ventures Tracking
Stock deemed outstanding would each be decreased by an amount equal to the
fair value of such cash or other property divided by the market value of a
share of Ventures Tracking Stock on the day of transfer, the number of
outstanding shares of Ventures Tracking Stock would remain unchanged, the
Retained Interest Percentage would be decreased and the Outstanding Interest
Percentage would be correspondingly increased. If we instead determine to
transfer cash or other property of Comdisco Group to Comdisco Ventures in
return for an increase in Comdisco Group's retained interest in Comdisco
Ventures, the number of shares of Ventures Tracking Stock issuable with
respect to Comdisco Group's retained interest in Comdisco Ventures and the
total number of notional shares of Ventures Tracking Stock deemed outstanding
would each be increased by an amount equal to the fair value of such cash or
other property divided by the market value of a share of Ventures Tracking
Stock on the day of transfer, the number of outstanding shares of Ventures
Tracking Stock would remain unchanged, the Retained Interest Percentage would
be increased and the Outstanding Interest Percentage would be correspondingly
decreased.
We may not attribute issuances of Ventures Tracking Stock to Comdisco Group,
transfer cash or other property of Comdisco Ventures to Comdisco Group in
return for a decrease in Comdisco's retained interest in Comdisco Ventures or
take any other action to the extent that doing so would cause the number of
shares of Ventures Tracking Stock issuable with respect to Comdisco Group's
retained interest in Comdisco Ventures to decrease below zero.
For illustrations showing how to calculate the Retained Interest Percentage,
the Outstanding Interest Percentage, the number of shares of Ventures Tracking
Stock issuable with respect to Comdisco Group's retained interest in Comdisco
Ventures, and the total number of notional shares deemed outstanding of
Ventures Tracking Stock after giving effect to certain hypothetical dividends,
issuances, repurchases and transfers, see Annex I--"Illustrations of Certain
Terms."
Effectiveness of Certain Terms
The terms described under "--Dividends," "--Mandatory Dividend, Redemption Or
Conversion of Tracking Stock," "--Conversion of Ventures Tracking Stock at
Option of Comdisco," "--Redemption of Ventures Tracking Stock in Exchange for
Stock of a Subsidiary," "--General Conversion and Redemption Provisions," "--
Voting Rights," "--Liquidation" and "--Retained Interest of Comdisco Group in
Comdisco Ventures," above apply only when there is Ventures Tracking Stock
outstanding.
Determinations by the Board
Our restated charter will continue to provide that any determinations made by
our board of directors in good faith under our restated charter or in any
certificate of designation filed pursuant thereto would be final and binding
on all stockholders of Comdisco, subject to rights under applicable Delaware
law and under the federal securities laws.
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Preemptive Rights
Holders of Comdisco Stock and Ventures Tracking Stock will not have any
preemptive rights to subscribe for any additional shares of capital stock or
securities that we may issue in the future.
Other Provisions Of Our Charter, Bylaws And Delaware Law
Preferred Stock
We may issue preferred stock from time to time in one or more series and the
board of directors, without further approval of our stockholders, is
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights, liquidation preferences, sinking funds and any
other rights, preferences, privileges and restrictions applicable to each
series of preferred stock. The purpose of authorizing the board of directors
to determine such rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes, could, among other things, adversely affect the
voting power of holders of our common stock and make it more difficult for a
third party to gain control of Comdisco. There are no outstanding shares of
preferred stock and, other than the Series C junior participating preferred
stock discussed below, no designated series of preferred stock. We plan to
designate a new Series D junior participating preferred stock in connection
with the amendment of our existing rights plan, also as discussed below.
Amended and Restated Rights Agreement
We have issued existing preferred stock purchase rights to all holders of our
existing common stock under a rights agreement dated as of November 17, 1997,
between Comdisco and ChaseMellon Shareholder Services L.L.C., as rights agent.
Each existing right entitles the holder to purchase shares of Series C Junior
Participating Preferred Stock under conditions described in the existing
rights agreement. The existing rights expire on November 17, 2007.
In connection with the tracking stock proposal, our board of directors has
determined to amend and restate the existing rights agreement, effective as of
the implementation of the tracking stock proposal, to:
. provide that each existing right will be redesignated as a Comdisco
Stock right, which will continue to allow holders to purchase shares of
Series C Junior Participating Preferred Stock of Comdisco if a
distribution date occurs; and
. provide that for each share of Ventures Tracking Stock issued between
the date of the amended and restated rights agreement and the expiration
date of the rights there shall be issued one Comdisco Ventures Stock
right, which will allow holders to purchase shares of a newly designated
Series D Junior Participating Preferred Stock of Comdisco if a
distribution date occurs.
We refer to the Comdisco Stock rights, and the Comdisco Ventures Stock rights
as the "rights." The amended and restated rights agreement contains provisions
designed to, among other things:
. reflect our new equity structure; and
. reset the prices at which rights issued under the amended and restated
rights agreement may be exercised for shares of the applicable series of
junior participating preferred stock.
A "distribution date" will occur upon the earliest of:
. the tenth day (or a later day determined by our board of directors)
after a public announcement that a person or group of affiliated or
associated persons other than us, any subsidiary of Comdisco, or any of
our or our subsidiaries' employee benefit plans (an "acquiring person")
has acquired beneficial ownership of 15% or more of the voting power of
all the shares of our common stock; or
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. the tenth business day (or a later day determined by our board of
directors) following the commencement of or announcement of the
intention to commence a tender or exchange offer that would result in
such person or group beneficially owning 15% or more of the voting power
of all the shares of our common stock; or
. the tenth business day after our board of directors declares a person to
be an "adverse person."
An acquiring person does not include any person or group that beneficially
owned 20% or more of our outstanding common stock on November 17, 1997, until
that holder acquires beneficial ownership of 30% or more of the outstanding
common stock. An adverse person is a person or group (1) which beneficially
owns 10% or more of our outstanding common stock and (2) which our board of
directors has determined has interests adverse to ours based on requirements
set out in the amended and restated rights agreement.
Until the distribution date, the rights will not be represented by a separate
certificate and may be transferred only with their respective class of common
stock.
Following the distribution date, holders of rights will be entitled to
purchase from us:
. in the case of a Comdisco Stock right, one one-thousandth of a share of
Series C Junior Participating Preferred Stock at a designated purchase
price, subject to adjustment; and
. in the case of a Comdisco Ventures Stock right, one one-thousandth of a
share of Series D Junior Participating Preferred Stock at a designated
purchase price, subject to adjustment.
The purchase prices discussed above are referred to as the "Series C purchase
price" and the "Series D purchase price," and each shall be set by the board
of directors at the time of the effectiveness of the amended and restated
rights agreement.
Unless the rights are earlier redeemed, if any person or group becomes an
acquiring person:
. a Comdisco Stock right will entitle its holder other than any acquiring
person or adverse person (whose rights will thereupon become null and
void) to purchase, at the Series C purchase price, a number of one one-
thousandths of a share of Series C Junior Participating Preferred Stock
with a market value equal to twice such purchase price; and
. any Comdisco Ventures Stock right will entitle its holder other than any
acquiring person or adverse person (whose rights will thereupon become
null and void) to purchase, at the Series D purchase price, a number of
one one-thousandths of a share of Series D Junior Participating
Preferred Stock with a market value equal to twice such purchase price.
After the rights have been triggered, the board of directors may exchange the
rights, other than rights owned by an acquiring person or adverse person, at
an exchange ratio of:
. one share of Comdisco Stock per Comdisco Stock right, subject to
adjustment, and
. one share of Ventures Tracking Stock per Comdisco Ventures Stock right,
subject to adjustment.
Unless the rights are earlier redeemed, if, following the time a person
becomes an acquiring person or adverse person:
. Comdisco is acquired in a merger or other business combination
transaction and Comdisco is not the surviving corporation;
. any person consolidates or merges with Comdisco and all or part of the
common stock is converted or exchanged for securities, cash or property
of any other person or of Comdisco; or
. 50% or more of Comdisco's assets or earning power is sold or
transferred,
then, each right, will entitle its holder other than any acquiring person to
purchase, for the applicable purchase price, a number of shares of common
stock of the surviving entity in any such merger, consolidation or other
business combination of or the purchaser in any such sale or transfer with a
market value equal to twice the applicable purchase price.
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The rights will expire on November 17, 2007, unless we extend or terminate
them as described below.
At any time until the close of business on the tenth day following a public
announcement that an acquiring person has become such, our board of directors
may redeem all of the rights at a price of $0.005 per right. On the redemption
date, the right to exercise the rights will terminate and the only right of
the holders of rights will be to receive such redemption price.
So long as the rights are redeemable as described in the preceding paragraph,
the board of directors may, without the approval of any holders of rights,
supplement or amend any provision of the amended and restated rights agreement
in any manner, whether or not such supplement or amendment is adverse to any
holders of the rights. At such time as the rights are not redeemable, the
board of directors may, without the approval of any holders of rights,
supplement or amend the amended and restated rights agreement:
. to cure any ambiguity,
. to correct or supplement any provision that may be defective or
inconsistent with any other provision, or
. in any manner that it may deem necessary or desirable and which does not
materially adversely affect the interests of the holders of rights.
A holder of a right will not have any rights as a stockholder of Comdisco,
including the right to vote or to receive dividends, until a right is
exercised.
The amended and restated rights agreement contains provisions designed to
prevent the inadvertent triggering of the rights. A person will not be deemed
an acquiring person if the board of directors of Comdisco approved the
acquisition by such person of shares of common stock prior to such person
otherwise becoming an acquiring person. In addition, the amended and restated
rights agreement gives a person who has inadvertently acquired 15% or more of
the voting power of all the shares of our common stock and does not have any
intention of changing or influencing the control of Comdisco the opportunity
to sell a sufficient number of shares so that such acquisition would not
trigger the rights. In addition, the rights will not be triggered and a
divestiture of shares will not be required by our repurchase of shares of
common stock outstanding which could raise the proportion of voting power held
by a person to over the applicable 15% threshold. However, any person who
exceeds such threshold as a result of our stock repurchases will trigger the
rights if the person subsequently acquires an additional 1% of the voting
power of all the shares of common stock.
We will file the form of amended and restated rights agreement with the SEC as
an exhibit to the registration statement relating to the first of the initial
public offerings of Ventures Tracking Stock, if we do an initial public
offering. If not, we will file the amended and restated rights agreement on a
Current Report on Form 8-K. The form of amended and restated rights agreement
also will be available free of charge from Comdisco. We filed the form of the
existing rights agreement with the SEC as an exhibit to Comdisco's Current
Report on Form 8-K dated November 6, 1997. This description of the existing
rights agreement and restated rights agreement is not complete. You should
refer to the actual agreements for provisions which may be important to you.
Authorized Shares
Our restated charter will provide that we may from time to time designate and
issue shares of common stock or preferred stock in one or more series, the
terms of which will be determined by our board of directors, and authorize and
issue additional common stock of any previously designated series. We will not
solicit further approval of our stockholders to designate, authorize or issue
those shares unless our board of directors believes that approval is advisable
or is required by NYSE or NASDAQ rules or Delaware law. This could enable our
board of directors to issue shares to persons friendly to current management
which could render more difficult or discourage an attempt to obtain control
of Comdisco by means of a merger, tender offer, proxy contest or otherwise,
and protect the continuity of our management. These additional shares also
could be used to dilute the stock ownership of persons seeking to obtain
control of Comdisco.
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Classified Board of Directors; Removal of Directors; Limitation on Ability to
Call Special Meetings
Our restated charter will continue to provide that our board of directors
shall be divided into three classes and shall consist of such number of
directors as is set in our bylaws. The bylaws provide that the board of
directors will be divided into three classes of an approximately equal number
of directors with each class of directors having a three-year term of office.
Our restated charter also will continue to provide that a director may be
removed for cause only upon the vote of two-thirds of the voting stock of
Comdisco. These provisions in our restated charter and bylaws may only be
amended by a vote of two-thirds of the voting power of all series of common
stock of Comdisco voting together as a class.
Our bylaws will continue to provide that stockholders of Comdisco may not call
special meetings of the stockholders.
The provisions regarding classification of our board of directors, removal of
directors and the limitations on the stockholders' ability to call special
meetings may have the effect of discouraging anyone from attempting to acquire
control of Comdisco and thereby of discouraging open market purchases of any
series of common stock.
Business Combinations with Substantial Stockholders
Our restated charter will continue to provide that business combinations with
substantial stockholders will require the vote of two-thirds of the voting
stock of Comdisco to approve such transaction.
A "substantial stockholder" is defined as a person, other than a member of our
board of directors as of September 30, 1985 or any of our employee benefit
plans, who or which beneficially owns 10% or more of our outstanding shares of
common stock.
A "business combination" is defined to mean:
. a merger or consolidation of Comdisco with a substantial stockholder;
. a sale, lease, exchange, transfer or other disposition of all or any
substantial part of the assets of Comdisco or any subsidiary to a
substantial stockholder (defined as 10% of the total book value of the
assets);
. a merger or consolidation of a substantial stockholder with Comdisco or
any subsidiary;
. a sale, lease, exchange, transfer or other disposition of all or any
substantial part of the assets of a substantial stockholder to Comdisco
or a subsidiary;
. any re-classification of our common stock or any recapitalization of
Comdisco consummated within five years after a substantial stockholder
became a substantial stockholder;
. issuance of any securities of Comdisco or any subsidiary to a
substantial stockholder (except proportionately as a stockholder);
. acquisition by Comdisco or any subsidiary of securities of a substantial
stockholder; or
. any agreement providing for any of these types of transactions.
The business combination will not need to receive the two-thirds vote outlined
above if the consideration to be paid by the interested stockholder in the
business combination meets various tests set forth in our restated charter,
designed to ensure that the form and amount of consideration to be paid by the
interested stockholder is fair to the other holders of our common stock.
The business combination provisions outlined above may have the effect of
discouraging attempts to acquire control of Comdisco and thereby of
discouraging open market purchases of our common stock.
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Stockholder Proposals and Nominations
Our bylaws provide that to nominate directors, stockholders must submit a
written notice to our corporate secretary not less than 120 days nor more than
150 days before the first anniversary of the date of the mailing of the proxy
statement for our last annual meeting. The notice must include the name and
address of the stockholder and of the nominee, a description of any
arrangements between the stockholder and the nominee, information about the
nominee required by the SEC, the written consent of the nominee to serve as a
director and other information.
Similarly, to submit proposals at an annual meeting, stockholders must provide
our corporate secretary of notice of the proposal not less than 120 days nor
more than 150 days before the first anniversary of the date of the mailing of
the proxy statement for our last annual meeting. The notice must include:
. a description of the proposal;
. the reasons for presenting the proposal at the annual meeting;
. the text of any resolutions to be presented;
. the stockholder's name and address and number of shares held;
. any material interest of the stockholder in the proposal; and
. a representation that the stockholder intends to appear at the meeting,
in person or by proxy, to submit the proposals.
In addition, the bylaws provide that only the board of directors, chairman of
the board, chief executive officers or president of Comdisco can call special
meetings of stockholders and that the only business that may be brought before
a special meeting is such business specified in the notice of such meeting.
These procedural requirements could have the effect of delaying or preventing
the submission of matters proposed by any stockholder to a vote of the
stockholders.
Restated Rights Agreement
The restated rights agreement will permit disinterested stockholders to
acquire additional shares of our common stock or of an acquiring company at a
substantial discount in the event of certain described changes in control. The
restated rights agreement is intended to discourage anyone from buying shares
of common stock having more than 15% of the voting power of all series of our
common stock without prior approval by the board of directors. See "--Amended
and Restated Rights Agreement," above at page 58.
Delaware Law
Section 203 of the General Corporation Law of the State of Delaware applies to
Comdisco. Under certain circumstances, Section 203 limits the ability of an
"interested stockholder" to effect various business combinations with Comdisco
for a three-year period following the time that such stockholder became an
interested stockholder. An "interested stockholder" is defined as a holder of
15% or more of our outstanding voting stock.
An interested stockholder may engage in a business combination transaction
with Comdisco within the three-year period only if:
. our board of directors approved the transaction before the stockholder
became an interested stockholder or approved the transaction in which
the stockholder became an interested stockholder;
. the interested stockholder acquired at least 85% of our voting stock in
the transaction in which it became an interested stockholder; or
. our board of directors and the holders of shares entitled to cast two-
thirds of the votes entitled to be cast by all of our outstanding voting
shares held by all disinterested stockholders approve the transaction.
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Stock Transfer Agent and Registrar
ChaseMellon Shareholder Services L.L.C. will act as the registrar and transfer
agent for Comdisco Stock and Ventures Tracking Stock.
Stock Exchange Listings
The existing common stock is currently listed on the NYSE under the symbol
"CDO." Comdisco will apply to the NYSE for redesignation of the existing
common stock as Comdisco Stock, which would continue to trade under the symbol
"CDO." Comdisco will also apply to the NASDAQ National Market for the listing
of Ventures Tracking Stock.
No Dissenters' Rights
Under Delaware law, stockholders will not have appraisal rights in connection
with the tracking stock proposal.
Certain Management and Allocation Policies
General
A fundamental objective of our board of directors and management is to
highlight the separate performance of each of Comdisco Group and Comdisco
Ventures and to allow each group to focus on its own business strategy and
financial model. Because Comdisco Group and Comdisco Ventures will not be
separate legal entities, Comdisco has carefully considered a number of issues
with respect to the financing of each group, competition between groups,
inter-group business transactions, corporate opportunities and the allocation
of shared services expenses, corporate general and administrative expenses,
debt, interest, taxes, retirement benefit costs, and other support activities
between the groups. Following is a summary of policies and guidelines that we
plan to follow to help us to allocate costs and charges between the groups in
a manner that will ensure that transactions between the groups are made on a
basis that in management's judgment would be fair and equitable. We are not
requesting stockholder approval of these policies, and the policies may be
changed at any time without stockholder approval. We anticipate that the board
of directors will adopt a statement of policy reflecting these policies, and
may establish a committee of the board of directors to oversee the interaction
between Comdisco Group and Comdisco Ventures.
Fiduciary and Management Responsibilities
Our directors and officers will have the same fiduciary duties to holders of
Comdisco Stock and Ventures Tracking Stock that they currently have to the
holders of our existing common stock. Under Delaware law, absent an abuse of
discretion, a director or officer will be deemed to have satisfied his or her
fiduciary duties to Comdisco and our stockholders if that person is
disinterested and acts in accordance with his or her good faith business
judgment in the interests of Comdisco and all of our stockholders as a whole.
Our board of directors and our chief executive officer, in establishing
policies with regard to intracompany matters such as business transactions
between groups and allocations of assets, liabilities, debt, shared services
expenses, corporate general and administrative costs, taxes, interest,
retirement benefit costs, corporate opportunities and other matters, will
consider various factors and information which could benefit or cause
detriment to the stockholders of the respective groups and will make
determinations in the best interests of Comdisco and all of our stockholders
as a whole. Comdisco will adhere to the principle that transactions and
transfers between groups should be made on a basis that in management's
judgment would be fair and equitable.
Preparation of Financial Statements
If the tracking stock proposal is approved and implemented, we will prepare
financial statements in accordance with generally accepted accounting
principles, consistently applied, for Comdisco Group and Comdisco Ventures and
for Comdisco on a consolidated basis. The financial statements of Comdisco
Group and Comdisco Ventures taken together will comprise all the accounts
included in the corresponding consolidated financial statements of Comdisco.
The financial statements of each of Comdisco Group and Comdisco Ventures will
reflect the financial condition, results of operations and cash flows of the
businesses included in the corresponding group.
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The financial statements of each group will also include the allocated
portions of debt, interest, retirement benefit costs, shared services costs,
corporate general and administrative costs and taxes for each group. We will
make these allocations for the purposes of preparing the financial statements
of each group. However, the holders of Comdisco Stock and Ventures Tracking
Stock will still be subject to all of the risks associated with an investment
in Comdisco as a whole.
Treasury Activities
Comdisco plans to continue to manage most financial activities on a
centralized basis. These activities include the investment of surplus cash,
the issuance and repayment of short-term and long-term debt and the issuance
and repurchase of common stock. If we transfer cash or other property
allocated to one group to another group, we may account for that transfer in
one of the following ways:
. as an adjustment to allocated pooled debt, or as a short-term or long-
term loan between groups, or as a repayment of a previous borrowing, as
described under "Inter-group Loans" below; or
. as a sale of assets between groups; or
. as a reduction or increase in Comdisco Group's retained interest in
Comdisco Ventures.
Our board of directors has not adopted specific criteria to determine which of
the foregoing will be applied to a particular transfer of cash or property
from one group to another. Our board of directors and management will make
these determinations, either in specific instances or by setting generally
applicable policies, in the exercise of its business judgment. These
determinations will be based on all relevant circumstances, including the
financing needs and objectives of the receiving group, the investment
objectives of the transferring group, the availability, cost and time
associated with alternative financing sources, prevailing interest rates and
general economic conditions. We will make all transfers of assets from one
group to another on a fair and equitable basis for the foregoing purposes.
Although we may allocate our debt and preferred stock between groups, the debt
will remain the obligation of Comdisco as a whole and all of our stockholders
will be subject to the risks associated with those obligations.
Comdisco Debt and Preferred Stock. We may allocate our debt between the groups
or, if we so determine, in its entirety to a particular group, for example, in
the case of specific acquisition financing. We will allocate preferred stock,
if issued, in a similar manner. We refer to debt and preferred stock allocated
between groups as "pooled."
The portion of the pooled debt allocated to Comdisco Ventures will bear
interest for purposes of its financial statements at a rate to reflect the
board of directors' good faith determination as to the relative credit risks
of Comdisco Ventures, and applied to Comdisco Ventures' allocated portion of
the pooled debt balance at the beginning of each period for which interest
expense is calculable. The remainder of the interest expense on pooled debt
for such period will be allocated to Comdisco Group. Preferred stock, if
issued and if pooled in a manner similar to the pooled debt, will bear
dividends for group financial statement purposes at a rate based on the
weighted average dividend rate of the preferred stock similarly calculated and
applied. Any expense related to increases in pooled debt or preferred stock
will be reflected in the weighted average interest or dividend rate of such
pooled debt or preferred stock as a whole.
If we allocate debt for a particular financing in its entirety to one group,
that debt will bear interest for group financial statement purposes at the
rate applicable to such debt as determined by the board of directors as
provided above. If we allocate preferred stock in its entirety to one group,
we will charge the dividend cost to that group in a similar manner. Any
additional expenses related to debt or preferred stock that is allocated in
its entirety to a group will be allocated in whole to that group.
Inter-group Loans. Cash or other property that we allocate to one group that
is transferred to another group could be accounted for either as adjustments
to allocated pooled debt, or as a short-term loan or as a long-term loan. We
will establish guidelines for the terms on which loans between the groups will
be made, including the interest rates, amortization schedule, maturity and
redemption terms.
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Equity Issuances and Repurchases and Dividends. We will reflect all financial
effects of issuances and repurchases of shares of Comdisco Stock or Ventures
Tracking Stock entirely in the financial statements of that group. We will
reflect financial effects of dividends or other distributions on, and
purchases of, shares of Comdisco Stock or Ventures Tracking Stock entirely in
the respective financial statements of the related group.
Competition Between Groups
Although Comdisco Group and Comdisco Ventures are engaged in different
principal businesses, our board of directors and management recognize that the
two groups may engage in indirect competition from time to time. Our board of
directors and management expect such competition to continue and it may be
necessary, in appropriate circumstances, for the particular businesses that
the groups are engaged in, and hence for the benefit of stockholders, for such
competition to continue.
Transfers of Assets Between Groups
Our restated charter permits the transfer of assets between groups without
stockholder approval. Comdisco has established a policy that all such
transfers will be made on a fair and equitable basis, as determined in good
faith by our board of directors or management. The consideration for such
transfers may be paid by one group to another in cash or other consideration.
Sales of Products and Services Between Groups. The sale of products or
services between groups will be on a fair and equitable basis, as determined
in good faith by our board of directors or management.
Joint Transactions. Two or more groups may from time to time engage in
transactions jointly, including with third parties. Research and development
and other services performed by one group for a joint venture or other
collaborative arrangement will be charged on a fair and equitable basis.
Review of Corporate Opportunities
Our board of directors will review any significant matter which involves the
allocation of a corporate opportunity to either of Comdisco Group or Comdisco
Ventures in part to any combination of the groups. Delaware law requires our
board of directors to make its determination with regard to the allocation of
any such opportunity and the benefit of that opportunity in accordance with
their good faith business judgment of the best interests of Comdisco and all
of our stockholders as a whole. Among the factors that our board of directors
may consider in making this allocation is:
. whether a particular corporate opportunity is principally related to the
business of Comdisco Group or Comdisco Ventures;
. whether one group, because of its managerial or operational expertise,
will be better positioned to undertake the corporate opportunity; and
. existing contractual agreements and restrictions.
Shared Services and Support Activities
We will directly charge costs for certain shared services, including support
activities, to Comdisco Group and Comdisco Ventures based upon the respective
use of such services and activities and the good faith judgment of our board
of directors or management. Where determinations based on use alone are not
practical, we will use other methods and criteria to provide a reasonable
allocation of the cost of shared services, including support activities
attributable to the groups. Such allocated shared services, including support
activities, represent, among other things, financial and accounting services,
information systems services, certain selling and marketing activities,
executive management, human resources, corporate finance, legal and corporate
planning activities.
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Taxes
We will generally determine the income tax provisions of Comdisco and its
subsidiaries on a consolidated basis. We will allocate those consolidated
income tax provisions and related tax payments or refunds between the groups
based principally on the taxable income and tax credits directly attributable
to each group. These allocations will reflect each group's contribution,
whether positive or negative, to Comdisco's consolidated taxable income and
the consolidated tax liability and tax credit position. We will credit tax
benefits that cannot be used by the group generating those benefits but can be
used on a consolidated basis to the group that generated such benefits.
Current and deferred taxes and taxes payable or refundable allocated to each
group in its historical financial statements may differ from those that would
have been allocated to each group had they filed separate income tax returns.
Dividend Policy
The board of directors will retain the discretion whether or not to pay
dividends on any series of common stock.
We do not expect to change our current dividend policy for the outstanding
existing common stock (which will become Comdisco Stock). We do not expect to
pay dividends on Ventures Tracking Stock in the future.
While the board of directors does not currently plan to change the policy for
payment of dividends referred to above, the board of directors has the
discretion to change this policy at any time. The amount of funds legally
available for dividends will reflect the gains or losses of all groups, and
Comdisco may be unable to pay dividends on a series of common stock that
tracks a group regardless of the financial condition or results of operations
of that group. We cannot assure you that there will be amounts available for
payment of dividends on any series of common stock.
In addition, subject to the limitations described above, and the limitations
set forth generally in this section, the board of directors may in its sole
discretion declare and pay dividends on neither series of common stock, on one
but not both series of common stock or on both series of common stock. The
amount of any dividend may likewise vary between Comdisco Stock and Ventures
Tracking Stock in the sole discretion of the board of directors.
We will otherwise be permitted to pay dividends on Comdisco Group Stock out of
assets of Comdisco legally available for the payment of dividends under
Delaware law, but the total amounts paid as dividends on Comdisco Group Stock
cannot exceed the available dividend amount for Comdisco Group.
We will otherwise be permitted to pay dividends on Ventures Tracking Stock
(and transfer corresponding amounts to Comdisco Group in respect of its
retained interest in the relevant group), but the total of the amounts paid as
dividends on the shares of Ventures Tracking Stock and the corresponding
amounts transferred to Comdisco Group in respect of its retained interest in
the relevant group cannot exceed the available dividend amount for that group.
We expect that determinations to pay dividends on Comdisco Stock or Ventures
Tracking Stock would be based primarily upon the financial condition, results
of operations, capital requirements, any restrictions contained in our
financing or other agreements and such other factors as our board of directors
deems relevant.
Changes in Policies
Neither our board of directors nor management has any current plans to change
the above policies. However, these policies may be modified by the board of
directors or management in its or their sole discretion without the approval
of stockholders. Any modifications to the above policies will be made by the
board of directors or management in its or their good faith business judgment
of Comdisco's best interests, taking into consideration the interests of
Comdisco and all of Comdisco's stockholders.
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Anti-takeover Considerations
If Comdisco Group and Comdisco Ventures were separate companies and not part
of a single enterprise, any person interested in acquiring any group without
negotiating with management could seek control of that entity by obtaining
control of its outstanding voting stock by means of a tender offer or proxy
contest. Although we intend Comdisco Stock and Ventures Tracking Stock to
reflect the separate performance of Comdisco Group and Comdisco Ventures, a
person interested in acquiring any group without negotiation with Comdisco's
management could obtain control of that group only by obtaining control of our
outstanding voting stock.
The existence of multiple series of common stock could present complexities
and could in certain circumstances pose obstacles, financial and otherwise, to
an acquiring person. The existence of multiple series of common stock could,
under certain circumstances, prevent stockholders from profiting from an
increase in the market value of their shares as a result of a change in
control of Comdisco by delaying or preventing such a change in control.
If the tracking stock and stock plans proposal are implemented, there would be
an additional shares of common stock available for future
issuance without further stockholder approval. One of the effects of the
existence of authorized and unissued common stock and preferred stock could be
to enable the board to issue shares to persons friendly to current management
which could render more difficult or discourage an attempt to obtain control
of Comdisco by means of a merger, tender offer, proxy contest or otherwise,
and thereby protect the continuity of our management. Such additional shares
also could be used to dilute the stock ownership of persons seeking to obtain
control of Comdisco.
For additional anti-takeover considerations, see "--Other Provisions of Our
Charter, Bylaws and Delaware Law" beginning at page 58.
Certain U.S. Federal Income Tax Considerations
The following discussion summarizes the material United States federal income
tax consequences of the tracking stock proposal, based on the Internal Revenue
Code of 1986, as amended, Treasury Department regulations, published positions
of the IRS, and court decisions as of the date hereof, all of which are
subject to change (which may or may not be retroactive). See "Absence of
Authority Regarding Tracking Stock; Possible Legislative, Regulatory, or Other
Changes" below. This discussion is based on the opinion of Hopkins & Sutter,
our special tax counsel.
The discussion below is included for general information only. It does not
discuss all aspects of United States federal income taxation that may be
relevant to a particular shareholder, nor does it discuss state, local, and
foreign tax consequences. Rather, it addresses only federal income tax
considerations that may be relevant to United States shareholders who hold
their existing Comdisco common stock as capital assets within the meaning of
Section 1221 of the Code, and it may not apply to certain shareholders who are
subject to special treatment under the federal income tax laws, such as
insurance companies, corporations subject to the alternative minimum tax,
banks, dealers in securities, tax-exempt organizations, persons that hold
existing common stock as part of a straddle, hedging or conversion
transaction, persons whose functional currency is not the U.S. dollar, or
shareholders who acquired their stocks pursuant to the exercise of employee
stock options or otherwise as compensation. Certain U.S. federal income and
estate tax consequences to Non-U.S. shareholders are set forth further below.
Each Comdisco shareholder should consult his, her or its own tax advisor as to
the application of the Federal income tax laws to their particular situation,
as well as to the applicability and effect of any state, local, foreign or
other Federal tax laws.
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Reclassification of Existing Common Stock
If the tracking stock proposal is implemented, each share of existing common
stock will be reclassified as one share of Comdisco Stock (Reclassification).
In the opinion of Hopkins & Sutter, our special tax counsel, for United States
federal income tax purposes:
. Comdisco Stock will be treated as Comdisco stock, and will not
constitute "section 306 stock" within the meaning of Section 306(c) of
the Code or "nonqualified preferred stock" within the meaning of Section
351(g) of the Code.
. Neither you nor we will recognize income, gain, or loss as a result of
the Reclassification.
. You will have the same tax basis and holding period for the Comdisco
Stock as you have in your existing common stock.
. The amendment and restatement of the Rights Agreement will not result in
income, gain or loss to you.
While it is not clear whether the Reclassification even constitutes an
exchange of stock for federal income tax purposes, we intend to take the
position that it does and, as such, qualifies as a tax-free recapitalization
within the meaning of Section 368(a)(1)(E) of the Code. Stockholders who
exchange their stock in a recapitalization are required to attach an
information statement describing the exchange to their tax returns for the
year in which the exchange occurs. We intend to mail such a statement to you
for this purpose.
Issuance of Ventures Tracking Stock
After the Reclassification, we may sell shares of Ventures Tracking Stock,
distribute shares of Ventures Tracking Stock as a dividend on the Comdisco
Stock, or issue Ventures Tracking Stock in exchange for outstanding Comdisco
Stock. Based on the manner in which we expect to carry out these contemplated
transactions, it is the opinion of Hopkins & Sutter, our special tax counsel,
that for United States federal income tax purposes:
. The Ventures Tracking Stock will be treated as Comdisco stock, and will
not constitute "section 306 stock" within the meaning of Section 306(c)
of the Code or "nonqualified preferred stock" within the meaning of
Section 351(g) of the Code.
. Comdisco will not recognize income, gain, or loss on a sale,
distribution, or exchange of Ventures Tracking Stock.
. If we make a pro-rata dividend of Ventures Tracking Stock to all holders
of Comdisco Stock, you will not recognize any income, gain, or loss on
the receipt of such stock dividend (except where cash is received in
lieu of fractional shares). You will be required to allocate your tax
basis in the Comdisco Stock immediately before the distribution between
the Comdisco Stock and the Ventures Tracking Stock (including any
fractional share which is deemed received and sold for cash) in
proportion to their respective fair market values immediately after the
distribution. Your holding period for the Ventures Tracking Stock will
include the period for which you have held the Comdisco Stock.
. If we issue Ventures Tracking Stock to you in exchange for Comdisco
Stock, that exchange will be a tax-free recapitalization under Section
368(a)(1)(E) of the Code. You will not be required to recognize income,
gain, or loss upon that exchange Stock for Comdisco Stock held by you,
except to the extent that cash is received in lieu of fractional shares.
Your tax basis in the Ventures Tracking Stock received in such exchange
(including any fractional share which is deemed received and sold for
cash) will equal the tax basis in the Comdisco Stock you surrender in
the exchange. Your holding period for the Ventures Tracking Stock
received in the exchange will include the period for which you have held
the Comdisco Stock surrendered in the exchange.
Under certain circumstances, section 305 of the Code requires a stockholder to
include the value of stock received in a dividend or recapitalization in gross
income (subject to the intercorporate dividends-received deduction in the case
of corporate stockholders), if the effect of the stock dividend or
recapitalization, in conjunction with other distributions by the corporation,
is to cause (i) the receipt of property (other than stock)
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by some stockholders and (ii) an increase in the proportionate interest in the
assets or earnings and profits of the corporation by other stockholders. Based
on our plan for the distribution of Ventures Tracking Stock, it is Hopkins &
Sutter's opinion that this rule will not apply to any distribution of the
Ventures Tracking Stock.
Conversion of Ventures Tracking Stock into Comdisco Stock
Hopkins & Sutter has advised that, subject to unanticipated circumstances that
may exist at the time of conversion, if we exercise any of our options to
convert Ventures Tracking Stock into Comdisco Stock, that conversion will be
tax-free to you (except where cash is received in lieu of fractional shares).
Your tax basis in the shares you receive as a result of such conversion will
equal your adjusted tax basis in the shares you surrender (subject to
adjustment for fractional shares redeemed for cash), and your holding period
in the shares you receive will include the holding period of the shares you
surrender in the exchange.
Dividends
General. In general, stockholders of a corporation are taxed (subject to the
intercorporate dividends-received deduction in the case of corporate
stockholders) on the receipt of dividends. In addition, under certain
circumstances where some shareholders of a corporation receive cash or other
dividends from the corporation while other shareholders increase their
proportionate equity interest in the corporation, Section 305 of the Code can
tax a stockholder whose proportionate equity interest in the earnings and
profits or assets of the corporation is increased as if such stockholder
received a constructive dividend. Based on the terms and conditions of the
tracking stock proposal and other circumstances, we do not believe that this
rule will apply to you for the foreseeable future.
Backup withholding. Certain non-corporate holders of Comdisco Stock or
Ventures Tracking Stock might be subject to backup withholding at a rate of
31% on the payment of dividends on such stock. Backup withholding will apply
only if the shareholder (i) fails to furnish his, her or its Taxpayer
Identification Number, (ii) furnishes an incorrect Taxpayer Identification
Number, (iii) is notified by the IRS that he, she or it has failed properly to
report payments of interest or dividends, or (iv) under certain circumstances,
fails to certify, under penalties of perjury, that he, she or it has furnished
a correct Taxpayer Identification Number and has not been notified by the IRS
that he, she or it is subject to backup withholding for failure to report
payments of interest or dividends. Shareholders should consult their tax
advisors regarding their qualifications for a tax exemption from backup
withholding and the procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment of a dividend is allowed
as a credit against the shareholder's federal income tax liability and may
entitle such shareholder to a refund, provided that the required information
is furnished to the IRS.
Absence of Authority Regarding Tracking Stock; Possible Legislative,
Regulatory, or Other Changes
The tax treatment of tracking stock has not been authoritatively settled. The
IRS has announced that it will not issue advance rulings on the classification
of tracking stock, and there are no court decisions or other authorities that
control the tax treatment of tracking stock. Hopkins & Sutter's opinion is not
binding on the IRS or a court. It is possible, therefore, that the IRS could
assert that Comdisco Stock or Ventures Tracking Stock represents property
other than stock of Comdisco. In that event, we and/or you could be required
to recognize significant taxable income or gain on the sale or distribution of
Ventures Tracking Stock, and we might not be permitted to include the
operations of Comdisco Ventures in our consolidated federal income tax
returns. Alternatively, the IRS could contend that Ventures Tracking Stock
received as a dividend or in a recapitalization is section 306 stock, in which
case the proceeds from a sale of such stock would generally be taxable as
ordinary income. Hopkins & Sutter is of the opinion, however, that the IRS
would not prevail in those assertions under current law.
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It is also possible that Congress could enact legislation or the IRS could
promulgate regulations that would adversely affect the tax treatment of
tracking stock. During 1999, the Clinton Administration proposed legislation
to tax the issuing corporation on the issuance of tracking stock. Although
this proposal was not included in the major tax bill that Congress passed and
the President vetoed in 1999, it is possible that the Treasury Department will
resurrect this proposal in the future. In addition, the IRS could issue
regulations or other administrative guidance, including regulations issued
pursuant to its broad authority under Section 337(d) of the Code, or a court
could render a decision that changes current law or adversely affects existing
interpretations of current law affecting tracking stock. Any such change,
which may or may not be retroactive, could alter the tax consequences to us or
to our shareholders discussed herein. While it is likely that any such
legislative or regulatory change (unless interpretive of existing law) would
apply only to tracking stock issued after the effective date of the change,
that date could precede a planned sale or distribution of Ventures Tracking
Stock, in which case the change would apply to such sale or distribution. In
that event, we would have the right to convert all the outstanding shares of
Ventures Tracking Stock into a number of shares of Comdisco Stock equal to a
factor, which will not be more than 110% or less than 100% (as determined by
our board of directors at the time the restated charter is filed to be in the
best interests of our stockholders), applied to the ratio of the average
market values of the Ventures Tracking Stock and the Comdisco Stock described
above.
Certain U.S. Tax Consequences to Non-U.S. Holders
The following discussion applies to you if you are a (1) a nonresident alien
individual; (2) a foreign corporation, partnership or other entity; or (3) a
foreign estate or trust (Non-U.S. Holder).
Dividends. Dividends paid to a Non-U.S. Holder generally will be subject to
withholding of federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. However, if the dividend is
effectively connected with the conduct of a trade or business of the Non-U.S.
Holder within the United States, the dividend will instead be taxed at
ordinary federal income tax rates on a net income basis. Further, if the Non-
U.S. Holder is a corporation, this effectively connected dividend income may
also be subject to an additional branch profits tax.
Comdisco must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such investor and the amount, if any, of tax
withheld with respect to such dividends. This information may also be made
available to the tax authorities in the Non-U.S. Holder's country of
residence.
Sale or other Disposition of Comdisco Stock or Ventures Tracking Stock. A Non-
U.S. Holder generally will not be subject to federal income tax on any gain
recognized on the sale or other disposition of Comdisco Stock or Ventures
Tracking Stock, except in the following circumstances:
. The gain is effectively connected with a trade or business of the Non-
U.S. Holder within the United States.
. The Non-U.S. Holder is an individual who holds the Comdisco Stock or
Ventures Tracking Stock as a capital asset, is present in the United
States for 183 or more days in the taxable year of the sale or other
disposition, and either the individual has a "tax home" in the United
States for federal income tax purposes or the gain is attributable to an
office or other fixed place of business maintained by the individual in
the United States.
. The Non-U.S. Holder is subject to tax pursuant to the provisions of the
Internal Revenue Code applicable to certain United States expatriates.
. Comdisco is or has been during certain periods a "United States real
property holding corporation." Comdisco believes that it will not
constitute a United States real property holding corporation immediately
after the offering and does not expect to become a United States real
property holding corporation; however, no assurance can be given in this
regard.
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Backup withholding. Upon the sale or other disposition of Comdisco Stock or
Ventures Tracking Stock by a Non-U.S. Holder to or through a United States
office of a broker, such broker may be required to impose backup withholding
at a rate of 31% and report the sale to the IRS, unless the investor certifies
its foreign status under penalties of perjury or otherwise establishes an
exemption from backup withholding. Upon a sale or other disposition to or
through a foreign office of a United States broker or a foreign broker with
certain types of relationships with the United States, the broker is not
required to impose backup withholding. However, the broker is required to
report the sale or other disposition to the IRS, unless the broker has
documentary evidence in its files that the seller is a Non-U.S. Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption.
Amounts withheld under these backup withholding rules are generally allowable
as a refund or credit against the Non-U.S. Holder's federal income tax
liability, if any, provided that the required information is furnished to the
IRS in a timely manner.
Final United States Treasury regulations, effective for payments made after
December 31, 2001, will affect the procedures to be followed by a Non-U.S.
Holder in establishing such investor's foreign status for purposes of the
withholding, backup withholding, and information reporting rules described in
the preceding paragraphs. Prospective Non-U.S. Holders should consult their
tax advisors concerning such regulations.
Federal Estate Taxes. Comdisco Stock or Ventures Tracking Stock owned or
treated as owned by an individual who is not a citizen or a resident of the
United States at the time of death will be included in such individual's gross
estate for federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
Description of Comdisco Ventures Management Incentive Plan
By approving the tracking stock proposal you will be approving the adoption of
the Comdisco Ventures Management Incentive Plan. The following summary of the
Management Plan should be read with the full text of the proposed plan set
forth as Annex III.
Grants of Awards. We have agreed that if we issue Ventures Tracking Stock to
the public, we will grant options and restricted stock awards of Ventures
Tracking Stock to senior management of Comdisco Ventures under the Management
Plan.
Shares Available for Issuance under the Management Plan. Under the Management
Plan, the number of shares of Ventures Tracking Stock that will be available
for grant will be limited to approximately 15% of the total issued and
outstanding shares of Ventures Tracking Stock deemed issued and outstanding
after we first issue Ventures Tracking Stock, assuming for this purpose that
Comdisco Group's retained interest in Comdisco Ventures is represented by
issued and outstanding Ventures Tracking Stock. Shares subject to an award
that expires unexercised, are forfeited, or terminated, or settled in cash
instead of Ventures Tracking Stock, and shares tendered to pay for the
exercise of an option, will not be available for future grant under the
Management Plan.
Types of Awards Under the Management Plan. Once we first issue Ventures
Tracking Stock to the public, we have agreed to issue options to purchase, or
restricted stock awards of, Ventures Tracking Stock representing all of the
shares of Ventures Tracking Stock authorized under the Management Plan to the
current senior management of Comdisco Ventures. We will fix the exercise price
for these awards as described beginning on page 44. At the present, we do not
know the number of shares of Ventures Tracking Stock that will be subject to
award under the plan, or the dollar value attributable to those awards.
Federal Income Tax Consequences. The following is a brief description of the
federal income tax consequences generally arising with respect to awards under
the Management Plan.
The grant of an option will create no tax consequences for the participant or
Comdisco. A participant will not recognize taxable income upon exercising an
incentive stock option (within the meaning of Section 422 of the
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Code) (ISO) except that the alternative minimum tax may apply. Upon exercising
an option other than an ISO, the participant generally must recognize ordinary
income equal to the difference between the exercise price and fair market
value of the freely transferable and nonforfeitable shares acquired on the
date of exercise. In the case of an employee, withholding will apply to
amounts recognized as ordinary compensation income.
If the participant does not hold the common stock acquired upon exercise of an
ISO for at least one year from the date of exercise and two years from the
date of grant (the "ISO holding period"), the participant generally must
recognize ordinary income equal to the lesser of (1) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price or (2)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (including an ISO for which the ISO holding periods are
met) generally will result in capital gain or loss measured by the difference
between the sale price and the participant's tax basis in such shares (the tax
basis generally being the exercise price plus any amount recognized as
ordinary income in connection with the exercise of the option). The ISO
holding period for purposes of determining whether such capital gain or loss
is long-term or short-term does not begin until the option is exercised.
We generally will be entitled to a tax deduction equal to the amount
recognized as ordinary income by the participant in connection with an option.
We generally are not entitled to a tax deduction relating to amounts that
represent a capital gain to a participant. Accordingly, we will not be
entitled to any tax deduction with respect to an ISO if the participant holds
the shares for the ISO holding period prior to disposition of the shares.
With respect to awards of restricted stock, the participant generally must
recognize ordinary income equal to the fair market value of the shares at the
first time the shares become transferable or are not subject to a substantial
risk of forfeiture, whichever occurs earlier. We generally will be entitled to
a deduction in an amount equal to the ordinary income recognized by the
participant.
Description of Amended and Restated Stock Plans
By approving the tracking stock proposal you will also be approving the
adoption of:
. the amended and restated Comdisco 1998 Long-Term Stock Ownership
Incentive Plan (Incentive Plan);
. the amended and restated Comdisco 1999 Non-Employee Director Stock
Option Plan (Director Plan); and
. the amended and restated Comdisco U.S. Employee Stock Purchase Plan
(Stock Purchase Plan).
These plans have been amended and restated to (1) permit grants of awards
under each such plan to be made with respect to any designated series of
common stock of Comdisco, including Comdisco Stock and Ventures Tracking
Stock, and (2) increase the number of shares of common stock authorized for
issuance under each plan.
In order for the tracking stock proposal to be successful, the board of
directors believes that Comdisco must be able to use Comdisco Stock, Ventures
Tracking Stock and any future series of common stock designated by our board
of directors under our compensation plans to provide a more focused incentive
compensation for our management and employees. We would also then be able to
provide our directors with incentive compensation based on Comdisco Stock,
Ventures Tracking Stock and any future series of common stock designated by
our board of directors, in order to more directly align their interests with
those of all Comdisco stockholders.
We have not previously asked you to approve the Incentive Plan or Directors
Plan. Comdisco's stockholders did approve the Stock Purchase Plan at our
January, 1998 annual meeting. If the tracking stock proposal is not approved,
we will not amend and restate the plans.
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The Amended and Restated Incentive Plan
The amended and restated Incentive Plan will (1) clarify that grants of
options and other stock-based awards under the Incentive Plan may be made with
respect to any of Comdisco Stock, Ventures Tracking Stock or any future series
of common stock designated by our board of directors, in the same manner as
currently permitted with respect to existing common stock, and (2) increase
the number of shares of common stock, regardless of series, available for
issuance under the Incentive Plan. The following summary of the amended and
restated Incentive Plan should be read with the full proposed text of the plan
set forth as Annex IV.
Grants of Awards. Under the amended and restated Incentive Plan, grants of
options, stock appreciation rights, performance units and restricted stock
awards and other stock-based awards may be made with respect to any of
Comdisco Stock, Ventures Tracking Stock or any future series of common stock
designated by our board of directors. Directors, officers, employees and
consultants of Comdisco and its subsidiaries generally are eligible to be
granted awards under the Incentive Plan, however, executive officers are not
eligible to receive stock bonuses.
Shares Available for Issuance under the Amended and Restated Incentive Plan.
After the amended and restated Incentive Plan becomes effective, up to
15,000,000 shares of common stock (regardless of series) will be available for
issuance out of authorized and unissued or treasury shares, as Comdisco may
from time to time determine. The maximum number of shares with respect to
which awards may be granted to any one person under the Incentive Plan may not
exceed 600,000. Shares subject to an award that expires unexercised, are
forfeited, or terminated, or settled in cash instead of common stock, and
shares tendered to pay for the exercise of an option, will thereafter again be
available for grant under the Incentive Plan.
Types of Awards Under the Incentive Plan. Under the amended and restated
Incentive Plan, the incentive compensation plan committee will, in its
discretion, be able to grant awards under the amended and restated Incentive
Plan with respect to Comdisco Stock, Ventures Tracking Stock or any future
series of common stock designated by our board of directors in such amounts
and types as it determines in accordance with the terms of the amended and
restated Incentive Plan. In determining whether awards in respect of Comdisco
Stock, Ventures Tracking Stock or any future series of common stock designated
by our board of directors will be made to specific employees, it is
anticipated that the incentive compensation plan committee will consider,
among other things, the identity of the businesses of Comdisco to which such
employee provides services; provided, however, that nothing shall prohibit the
incentive compensation plan committee from granting awards with respect to
Comdisco Stock, Ventures Tracking Stock or any future series of common stock
designated by our board of directors to any participant in the amended and
restated Incentive Plan without regard to the businesses of Comdisco for which
the participant provides services.
Effect on Outstanding Awards. The approval of the amended and restated
Incentive Plan will not result in any adjustment to the outstanding awards
under the current Incentive Plan. Each outstanding option for existing common
stock under the Incentive Plan will become an option for Comdisco Stock if the
tracking stock proposal is approved and implemented.
Federal Income Tax Consequences. The following is a brief description of the
federal income tax consequences generally arising with respect to awards under
the amended and restated Incentive Plan.
The grant of an option or a stock appreciation right (SAR) will create no tax
consequences for the participant or Comdisco. A participant will not recognize
taxable income upon exercising an ISO except that the alternative minimum tax
may apply. Upon exercising an option other than an ISO, the participant
generally must recognize ordinary income equal to the difference between the
exercise price and fair market value of the freely transferable and
nonforfeitable shares acquired on the date of exercise. Upon exercising an
SAR, the participant generally must recognize ordinary income equal to the
cash or the fair market value of the freely transferable and nonforfeitable
shares received. In the case of an employee, withholding will apply to amounts
recognized as ordinary compensation income.
73
<PAGE>
If the participant does not hold the common stock acquired upon exercise of an
ISO for at least one year from the date of exercise and two years from the
date of grant, the participant generally must recognize ordinary income equal
to the lesser of (1) the fair market value of the shares at the date of
exercise of the ISO minus the exercise price or (2) the amount realized upon
the disposition of the ISO shares minus the exercise price. Otherwise, a
participant's disposition of shares acquired upon the exercise of an option
(including an ISO for which the ISO holding periods are met) or SAR generally
will result in capital gain or loss measured by the difference between the
sale price and the participant's tax basis in such shares (the tax basis
generally being the exercise price plus any amount recognized as ordinary
income in connection with the exercise of the option or SAR). The ISO holding
period for purposes of determining whether such capital gain or loss is long-
term or short-term does not begin until the option or SAR is exercised.
We generally will be entitled to a tax deduction equal to the amount
recognized as ordinary income by the participant in connection with an option
or SAR. We generally are not entitled to a tax deduction relating to amounts
that represent a capital gain to a participant. Accordingly, we will not be
entitled to any tax deduction with respect to an ISO if the participant holds
the shares for the ISO holding period prior to disposition of the shares.
With respect to awards granted under the Incentive Plan that result in the
payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant generally must recognize ordinary income equal to
the cash or the fair market value of shares or other property received. We
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.
With respect to awards involving the issuance of shares or other property that
is restricted as to transferability and subject to a substantial risk of
forfeiture (e.g., restricted stock), the participant generally must recognize
ordinary income equal to the fair market value of the shares or other property
at the first time the shares or other property becomes transferable or is not
subject to a substantial risk of forfeiture, whichever occurs earlier. We
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.
The Amended and Restated Director Plan
The amended and restated Director Plan will (1) clarify that grants of options
under the Director Plan may be made with respect to any of Comdisco Stock,
Ventures Tracking Stock or any future series of common stock designated by our
board of directors, in the same manner as currently permitted with respect to
existing common stock, and (2) increase the number of shares of common stock,
regardless of series, available for issuance under the Director Plan. The
following summary of the amended and restated Director Plan is not complete
and should be read with the full proposed text of the amended and restated
Director Plan as set forth in Annex V hereto.
Grants of Awards. Under the amended and restated Director Plan, grants of
options may be made, at the discretion of the board of directors, with respect
to any of Comdisco Stock, Ventures Tracking Stock or any future series of
common stock designated by our board of directors, in the same manner as
currently provided for with respect to existing common stock.
Shares Available for Issuance. After the amended and restated Director Plan
becomes effective, up to 1,200,000 shares of common stock, regardless of
series, will be available for grants or awards.
Types of Awards. Under the amended and restated Director Plan, each Non-
Employee Director automatically receives on the first business day after the
end of each Comdisco fiscal year a grant of options to purchase 9,450 shares
of common stock. These options will be allocated among Comdisco Stock and
Comdisco Ventures Stock by a committee of directors who are not eligible to
participate in the Plan, based on the relative market capitalizations of
Comdisco Group and Comdisco Ventures.
All stock options granted under the Director Plan are granted at an exercise
price equal to the fair market value of the common stock on the date of grant,
and generally become exercisable six months after the date of grant.
74
<PAGE>
Effect on Outstanding Awards. The approval of the amendments to the Director
Plan will not result in any adjustment to the outstanding options under the
Director Plan. Each outstanding option for existing common stock under the
Director Plan will become an option for Comdisco Stock if the tracking stock
proposal is approved and implemented.
Federal Income Tax Consequences. The following is a brief description of the
federal income tax consequences generally arising with respect to options
granted under the Director Plan.
The grant of an option will create no tax consequences for the Non-Employee
Director or Comdisco. Upon exercising an option, the Non-Employee Director
generally must recognize ordinary income equal to the difference between the
exercise price and fair market value of the shares acquired on the date of
exercise, and we generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant. The disposition of
shares acquired upon the exercise of an option generally will result in
capital gain or loss measured by the difference between the sale price and the
participant's tax basis in such shares (the tax basis generally being the
exercise price plus any amount recognized as ordinary income in connection
with the exercise of the option). The holding period for purposes of
determining whether such capital gain or loss is long-term or short-term
begins upon the exercise of the option.
The Amended and Restated Stock Purchase Plan
The amended and restated Stock Purchase Plan will clarify that grants of
options under the Stock Purchase Plan may be made with respect to any of
Comdisco Stock, Ventures Tracking Stock or any future series of common stock
designated by our board of directors, in the same manner as currently
permitted with respect to existing common stock. The following summary of the
amended and restated Stock Purchase Plan should be read with the full proposed
text of the amended and restated Stock Purchase Plan as set forth in Annex VI.
Eligibility. All employees of Comdisco and certain subsidiaries designated by
the board of directors are eligible to participate in the Stock Purchase Plan
if they have been U.S. residents for at least one year, have been employed at
least three months and are customarily employed for more than 20 hours a week
and more than five months a year.
Shares Subject to Purchase. Under the amended and restated Stock Purchase
Plan, participants may purchase common stock of any series that is authorized
for purchase by the committee that administers the Stock Purchase Plan, in its
discretion, in the same manner as currently permitted with respect to existing
common stock. The maximum number of shares of all series of common stock
available for sale under the Stock Purchase Plan and the companion plan
adopted to cover non-U.S. employees (the "International Plan") adjusts
annually. The original maximum number of shares on the Original Effective Date
was equal to three percent (3%) of the shares of all series of common stock
issued and outstanding on that date. The maximum number of shares of all
series of common stock that will be available for sale under the Stock
Purchase Plan and the International Plan increases on the first day of each
fiscal year by an amount equal to (x) 3% of the shares of all series of common
stock issued and outstanding on the last day of the immediately preceding
fiscal year less (y) the number of shares available for future option grants
under the Stock Purchase Plan and the International Plan on the last day of
the immediately preceding fiscal year, subject to adjustments in the event of
stock splits, stock dividends, recapitalizations and the like, and annual
adjustments.
Limitations on Shares Available for Purchase. Under the current Stock Purchase
Plan, a participant may not purchase:
. more than 2,500 shares of existing common stock in any year; or
. any shares of existing common stock if the participant has, or with that
purchase would have, more than 5% of the voting power of Comdisco's
common stock. Under the amended and restated Stock Purchase Plan, these
limitations would be determined with respect to all series of Comdisco's
common stock.
75
<PAGE>
Effect on Outstanding Options. The approval of the amended and restated Stock
Purchase Plan will not result in any adjustment to the outstanding options to
purchase common stock under the current Stock Purchase Plan. Each outstanding
option for existing common stock under the current Stock Purchase Plan will
become an option for Comdisco Stock if the tracking stock proposal is approved
and implemented.
Federal Income Tax Consequences. The following is a brief description of the
federal income tax consequences generally arising with respect to options
granted under the amended and restated Stock Purchase Plan.
An employee will not recognize ordinary compensation income upon the exercise
of the option granted under the amended and restated Stock Purchase Plan. If
an employee disposes of the common stock after the expiration of the
applicable holding period, the employee will recognize ordinary compensation
income in an amount equal to the lesser of:
(1) the excess of the fair market value of the common stock upon
disposition over the option price thereof; or
(2) the excess of the fair market value of the common stock at the time of
grant over the option price thereof.
Any additional gain upon the sale of the acquired common stock will be long-
term capital gain. We will not be entitled to a deduction for any income
recognized by the employee pursuant to either the exercise of options granted
under the amended and restated Stock Purchase Plan or the sale of the acquired
common stock.
If the employee disposes of the common stock acquired upon exercise of the
option prior to the end of the holding period, the employee will recognize
ordinary compensation income in the year of the disposition in an amount equal
to the difference between the fair market value of the common stock on the
date of exercise over the option price thereof. We will be entitled to an
income tax deduction equal to the amount of the ordinary compensation income
recognized by the employee. Any additional gain (or loss) on the sale of the
common stock by the employee will be taxed as capital gain (or loss). For this
purpose the holding period of this stock does not begin until the option is
exercised.
Recommendation of the Board of Directors
The board of directors has carefully considered the tracking stock proposal
and believes that its approval by the stockholders is in the best interests of
Comdisco and its stockholders and, accordingly, unanimously recommends that
stockholders vote for the approval of the tracking stock proposal.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR"
THE APPROVAL OF THE TRACKING STOCK PROPOSAL
INDEPENDENT AUDITORS
Representatives of KPMG LLP, Comdisco's independent auditors, will be present
at the special meeting. Such representatives will have the opportunity to make
a statement if they so desire and will be available to answer appropriate
questions at that time.
LEGAL MATTERS
McBride Baker & Coles, Chicago, Illinois, has served as special corporate and
securities counsel to Comdisco with respect to the matters described in this
proxy statement. Hopkins & Sutter will render an opinion to Comdisco with
respect to certain tax matters relating to the re-classification of the
existing common stock.
76
<PAGE>
ANNEX I
ILLUSTRATION OF TERMS OF VENTURES TRACKING STOCK
<PAGE>
ANNEX I
ILLUSTRATION OF TERMS OF VENTURES TRACKING STOCK
The following illustrations show how to calculate the:
. Retained Interest Percentage;
. Outstanding Interest Percentage;
. Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures; and
. Total number of notional shares deemed outstanding with respect to
Comdisco Ventures
after giving effect to certain hypothetical dividends, issuances, repurchases
and transfers, in each case based on the assumptions set forth herein.
In these illustrations, the number of shares issuable with respect to Comdisco
Group's retained interest in Comdisco Ventures is initially assumed to be 100.
Unless otherwise specified, each illustration below should be read
independently as if none of the other transactions referred to below had
occurred. Actual calculations may be slightly different due to rounding. The
illustrations are not intended to be complete and are qualified in their
entirety by the more detailed information contained in this document and the
annexes to this document. The following illustrations are purely hypothetical
and the numbers used herein, including assumptions of market values, were
chosen to simplify the calculations and are not intended to represent
estimates of actual numbers or values. Capitalized terms used but not
otherwise defined in this illustration of terms have the respective meanings
ascribed to them in this document.
"Total number of notional shares deemed outstanding with respect to Comdisco
Ventures" means the number of shares of Ventures Tracking Stock outstanding
plus the number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures.
At any given time, the percentage interest in Comdisco Ventures intended to be
represented by the outstanding shares of Ventures Tracking Stock--which we
call the Outstanding Interest Percentage--is equal to:
Number of outstanding shares of Ventures Tracking Stock
--------------------------------------------------------------
Total number of notional shares deemed outstanding with respect to Comdisco
Ventures
and the remaining percentage interest in Comdisco Ventures intended to be
represented by Comdisco Group's retained interest in Comdisco Ventures--which
we call the Retained Interest Percentage--is equal to:
Number of shares issuable with respect to Comdisco Group's retained interest
in Comdisco Ventures
-----------------------------------------------------------------------
Total number of notional shares deemed outstanding with respect to Comdisco
Ventures
The sum of the Outstanding Interest Percentage and the Retained Interest
Percentage would always equal 100%. In our example, before the first issuance
of shares of Ventures Tracking Stock the number of shares issuable with
respect to Comdisco Group's retained interest in Comdisco Ventures is equal to
100, the Retained Interest Percentage is 100% and the Outstanding Interest
Percentage is 0%.
Issuance of Tracking Stock
The following illustrations reflect an assumed issuance by Comdisco of 20
shares of Ventures Tracking Stock in the offering.
I-2
<PAGE>
Offering For Account of Comdisco Ventures
Assume the issuance is attributed to Comdisco Ventures as an increase in its
equity, with the net proceeds credited solely to Comdisco Ventures.
<TABLE>
<S> <C>
Shares previously issued and outstanding............................... 0
Newly issued shares for account of Comdisco Ventures................... 20
---
Total issued and outstanding after the offering.................... 20
===
</TABLE>
. The number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures (100) would remain unchanged.
. As a result, the issued and outstanding shares (20) would represent an
Outstanding Interest Percentage of approximately 17%, calculated as
follows:
20
------
20 + 100
The Retained Interest Percentage would accordingly be about 83%.
. In this case, in the event of any dividend or other distribution paid on
the outstanding shares of Ventures Tracking Stock (other than a dividend
or other distribution payable in shares of Comdisco Ventures Stock),
Comdisco Group would be credited, and Comdisco Ventures would be
charged, with an amount equal to 500% (representing the ratio of the
number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures (100) to the total number of shares of
Ventures Tracking Stock issued and outstanding following the offering
(20)) of the aggregate amount of such dividend or distribution.
Additional Issuance of Tracking Stock
The following illustrations reflect an assumed issuance of an additional 15
shares by Comdisco of Ventures Tracking Stock after the assumed initial
issuance of 20 shares attributed to Comdisco Ventures as an increase in its
equity.
Additional Offering for Account of Comdisco Group
Assume the issuance is attributed to Comdisco Group in respect of its retained
interest, with the net proceeds credited solely to Comdisco Group.
<TABLE>
<S> <C>
Shares previously issued and outstanding............................... 20
Newly issued shares for account of Comdisco Group...................... 15
---
Total issued and outstanding after additional offering............. 35
===
</TABLE>
. The number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures would decrease by the number of shares of
Ventures Tracking Stock issued for the account of Comdisco Group.
<TABLE>
<S> <C>
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures prior to the additional offering...... 100
Newly issued shares for account of Comdisco Group.................... 15
---
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures after the additional offering......... 85
===
</TABLE>
I-3
<PAGE>
. As a result, the total issued and outstanding shares (35) would in the
aggregate represent an Outstanding Interest Percentage of approximately
29%, calculated as follows:
35
-----
35 + 85
The Retained Interest Percentage would accordingly be reduced to approximately
71%.
. In this case, in the event of any dividend or other distribution paid on
Ventures Tracking Stock (other than a dividend or other distribution
payable in shares of Comdisco Ventures Stock), Comdisco Group would be
credited, and Comdisco Ventures would be charged, with an amount equal
to approximately 243% (representing the ratio of the number of shares
issuable with respect to Comdisco Group's retained interest in Comdisco
Ventures (85) to the total number of shares of Ventures Tracking Stock
issued and outstanding following the additional offering (35)) of the
aggregate amount of such dividend or distribution.
Additional Offering for Account of Tracked Group
Assume the issuance is attributed to Comdisco Ventures as an increase in its
equity, with the net proceeds credited solely to Comdisco Ventures.
<TABLE>
<S> <C>
Shares previously issued and outstanding............................... 20
Newly issued shares for account of Comdisco Ventures................... 15
---
Total issued and outstanding after the additional offering......... 35
===
</TABLE>
. The number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures (100) would remain unchanged.
. As a result, the total issued and outstanding shares (35) would in the
aggregate represent an Outstanding Interest Percentage of approximately
26%, calculated as follows:
35
------
35 + 100
The Retained Interest Percentage would accordingly be reduced to approximately
74%.
. In this case, in the event of any dividend or other distribution paid on
Ventures Tracking Stock (other than a dividend or the distribution
payable in shares of Comdisco Ventures stock), Comdisco Group would be
credited, and Comdisco Ventures would be charged, with an amount equal
to approximately 286% (representing the ratio of number of shares
issuable with respect to Comdisco Group's retained interest in Comdisco
Ventures (100) to the total number of shares of Ventures Tracking Stock
issued and outstanding following the additional offering (35)) of the
aggregate amount of such dividend or distribution.
Offerings of Convertible Securities
If Comdisco were to issue any securities convertible into or exercisable for
shares of Comdisco Ventures stock, the Outstanding Interest Fraction and the
Retained Interest Fraction would be unchanged at the time of such issuance. If
any shares of Ventures Tracking Stock were issued upon conversion or exercise
of such securities, however, then the Outstanding Interest Fraction and the
Retained Interest Fraction would be affected as shown above under "Additional
Offering for Account of Comdisco Group", if such securities were attributed to
Comdisco Group, or under "Additional Offering for Account of Comdisco
Ventures", if such securities were attributed to Comdisco Ventures.
I-4
<PAGE>
Repurchases of Comdisco Tracking Stock
The following illustrations reflect an assumed repurchase by Comdisco of 5
shares of Ventures Tracking Stock after the assumed initial issuance of 20
shares of Ventures Tracking Stock attributed to Comdisco Ventures as an
increase in its equity.
Repurchase for the Account of Comdisco Group
Assume the repurchase is attributed to Comdisco Group as an increase in its
retained interest in Comdisco Ventures, with the cost charged solely against
Comdisco Group.
<TABLE>
<S> <C>
Shares previously issued and outstanding............................... 20
Shares repurchased for account of Comdisco Group....................... 5
---
Total issued and outstanding after repurchase...................... 15
===
</TABLE>
. The Number of Shares Issuable with Respect to Comdisco Group's Retained
Interest in Comdisco Ventures would be increased by the number of any
shares of Ventures Tracking Stock repurchased for the account of
Comdisco Group.
<TABLE>
<S> <C>
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures prior to repurchase................... 100
Number of shares repurchased for the account of Comdisco Group....... 5
---
Number of shares Issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures after repurchase...................... 105
===
</TABLE>
. As a result, the total issued and outstanding shares (15) would in the
aggregate represent an Outstanding Interest Percentage of approximately
12.5%, calculated as follows:
15
------
15 + 105
The Retained Interest Percentage would accordingly be increased to
approximately 87.5%.
Repurchase for Account of Comdisco Ventures Without Participation by Comdisco
Group
Assume the repurchase is attributed to Comdisco Ventures, with the cost being
charged solely against Comdisco Ventures. Further assume that the board of
directors does not determine to transfer assets from Comdisco Ventures to
Comdisco Group to hold constant the Outstanding Interest Fraction and Retained
Interest Fraction.
<TABLE>
<S> <C>
Shares previously issued and outstanding............................... 20
Shares repurchased for account of Comdisco Ventures.................... 5
---
Total issued and outstanding after repurchase...................... 15
===
</TABLE>
. The number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures (100) would remain unchanged.
. As a result, the total issued and outstanding shares (15) would in the
aggregate represent an Outstanding Interest Percentage of approximately
13%, calculated as follows:
15
------
15 + 100
The Retained Interest Percentage would accordingly be increased to
approximately 87%.
I-5
<PAGE>
Repurchase for Account of Comdisco Ventures With Participation by Comdisco
Group
Assume the repurchase is attributed to Comdisco Ventures, with the cost being
charged solely against Comdisco Ventures. Further assume that the repurchase
is made in connection with a tender offer for 5, or 25%, of the then
outstanding shares at a price of $20 per share, and that the board of
directors determines to transfer cash or other assets from Comdisco Ventures
to Comdisco Group to hold constant the Outstanding Interest Fraction and
Retained Interest Fraction.
<TABLE>
<S> <C>
Shares previously issued and outstanding............................... 20
Shares repurchased for account of Comdisco Ventures.................... 5
---
Total issued and outstanding after repurchase...................... 15
===
</TABLE>
. In order to hold constant the Outstanding Interest Fraction and Retained
Interest Fraction, the board of directors determines that the market
value of a share of Ventures Tracking Stock in this context is $20 and
transfers from Comdisco Ventures to Comdisco Group an amount of cash or
other assets equal to about 500% (representing the ratio of the number
of shares issuable with respect to Comdisco Group's retained interest in
Comdisco Ventures (100) to the total number of shares of the Ventures
Tracking Stock issued and outstanding (20), in each case immediately
prior to the repurchase) of the aggregate amount of the cash paid in the
tender offer to holders of outstanding shares of the Ventures Tracking
Stock ($100), for a total of $500.
. In that case, the number of shares issuable with respect to Comdisco
Group's retained interest in Comdisco Ventures (100) would be decreased
to reflect the amount of cash so transferred ($500) divided by the
market value per share of the Ventures Tracking Stock ($20).
<TABLE>
<S> <C>
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures prior to transfer.................... 100
Adjustment in respect of Comdisco Group's retained interest to
reflect transfer to Comdisco Group of funds theretofore allocated
to Comdisco Ventures............................................... 25
---
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures after transfer....................... 75
===
</TABLE>
. As a result, the total issued and outstanding shares (15) would in the
aggregate continue to represent an Outstanding Interest Percentage of
approximately 17%, calculated as follows:
15
-----
15 + 75
The Retained Interest Percentage would accordingly continue to remain 83%.
. Assuming that the board of directors transferred only half of the $500
amount, or $250, from Comdisco Ventures to Comdisco Group, the number of
shares issuable with respect to Comdisco Group's retained interest in
Comdisco Ventures (100) would decrease by the amount of cash so
transferred ($250) divided by the market value per share of Ventures
Tracking Stock ($20).
<TABLE>
<S> <C>
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures prior to transfer................... 100
Adjustment in respect of Comdisco Group's retained interest to
reflect transfer to Comdisco Group of cash theretofore allocated
to Comdisco Ventures.............................................. 12.5
-----
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures after transfer...................... 87.5
=====
</TABLE>
I-6
<PAGE>
. In that case, as a result, the total issued and the outstanding shares
(15) would in the aggregate represent an Outstanding Interest Percentage
of a little less than 15%, calculated as follows:
15
------
15 + 87.5
The Retained Interest Percentage would accordingly be increased to a little
more than 85%.
Tracking Stock Dividends
The following illustrations reflect assumed dividends of Ventures Tracking
Stock on outstanding shares of Comdisco Stock and outstanding shares of the
Ventures Tracking Stock , respectively, after the assumed initial issuance of
20 shares of Ventures Tracking Stock attributed to Comdisco Ventures as an
increase in its equity.
Tracking Stock Dividend on Comdisco Stock
Assume 1,000 shares of Comdisco Stock are outstanding and Comdisco declares a
dividend of 1/20 of a share of Ventures Tracking Stock on each outstanding
share of Comdisco Stock.
<TABLE>
<S> <C>
Shares previously issued and outstanding................................ 20
Newly issued shares for account of Comdisco Group....................... 50
---
Total issued and outstanding after dividend......................... 70
===
</TABLE>
. Any dividend of shares of Ventures Tracking Stock to the holders of
shares of Comdisco Stock would be treated as a reduction in the number
of shares issuable with respect to Comdisco Group's retained interest in
Comdisco Ventures.
<TABLE>
<S> <C>
Number of shares issuable with respect to Comdisco Group's retained
interest in
Comdisco Ventures prior to dividend.................................. 100
Number of shares distributed on outstanding shares of Comdisco Stock
for account of Comdisco Group........................................ 50
---
Number of shares issuable with respect to Comdisco Group's retained
interest in
Comdisco Ventures after dividend..................................... 50
===
</TABLE>
. As a result, the total issued and outstanding shares (70) would in the
aggregate represent an Outstanding Interest Percentage of approximately
58%, calculated as follows:
70
-----
70 + 50
The Retained Interest Percentage would accordingly be reduced to approximately
42%. Note, however, that after the dividend, the holders of Comdisco Stock
would also hold 50 shares of the Ventures Tracking Stock, which would
represent half the value attributable to Comdisco Ventures originally held by
Comdisco Group.
Tracking Stock Dividend on the Tracked Stock
Assume Comdisco declares a dividend of 1/5 of a share of Ventures Tracking
Stock on each outstanding share of the Ventures Tracking Stock of the same
series.
<TABLE>
<S> <C>
Shares previously issued and outstanding.............................. 20
Newly issued shares for account of Comdisco Ventures.................. 4
---
Total issued and outstanding after dividend....................... 24
===
</TABLE>
I-7
<PAGE>
. The number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures would reflect the stock dividend payable
in shares of Ventures Tracking Stock to holders of shares of Comdisco
Ventures Stock. That is, the number of shares issuable with respect to
Comdisco Group's retained interest in Comdisco Ventures would be
increased by a number equal to 500% (representing the ratio of the
number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures (100) to the number of shares of Ventures
Tracking Stock issued and outstanding (20), in each case immediately
prior to such dividend) of the aggregate number of shares issued in
connection with such dividend (4), or 20.
<TABLE>
<S> <C>
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures prior to dividend.................... 100
Adjustment in respect of Comdisco Group's retained interest to
reflect shares distributed on outstanding shares of the Ventures
Tracking Stock..................................................... 20
---
Number of shares Issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures after dividend....................... 120
===
</TABLE>
. As a result, the total issued and outstanding shares (24) would in the
aggregate represent an Outstanding Interest Percentage of approximately
17%, calculated as follows:
24
------
24 + 120
The Retained Interest Percentage would accordingly remain approximately 83%.
Capital Transfers of Cash or Other Assets Between Comdisco Group and Tracked
Group
Capital Contribution of Cash or Other Assets From Comdisco Group To Tracked
Group
The following illustration reflects the assumed contribution by Comdisco Group
to Comdisco Ventures, after the assumed initial issuance of 20 shares of
Ventures Tracking Stock attributed to Comdisco Ventures as an increase in its
equity, of $100 of assets allocated to Comdisco Group at a time when the
market value of the Ventures Tracking Stock is $20 per share.
<TABLE>
<S> <C>
Shares previously issued and outstanding............................... 20
Newly issued shares.................................................... 0
---
Total issued and outstanding after contribution.................... 20
===
</TABLE>
. The number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures would increase to reflect the contribution
to Comdisco Ventures of assets theretofore allocated by Comdisco Group
by a number equal to the value of the assets contributed ($100) divided
by the market value of Ventures Tracking Stock at that time ($20), or 5
shares.
<TABLE>
<S> <C>
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures prior to contribution................. 100
Increase to reflect contribution to Comdisco Ventures of assets
allocated to Comdisco Group......................................... 5
---
Number of shares issuable with Respect to Comdisco Group's retained
interest in Comdisco Ventures after contribution.................... 105
===
</TABLE>
. As a result, the total issued and outstanding shares (20) would in the
aggregate represent an Outstanding Interest Percentage of 16%,
calculated as follows:
20
------
20 + 105
I-8
<PAGE>
The Retained Interest Percentage would accordingly increase to 84%.
Return of Capital Transfer of Cash or Other Assets from Comdisco Ventures To
Comdisco Group
The following illustration reflects the assumed transfer by Comdisco Ventures
to Comdisco Group, after the assumed initial issuance of 20 shares of Ventures
Tracking Stock attributed to Comdisco Ventures as an increase in its equity,
of $100 of assets allocated to Comdisco Ventures on a date on which the market
value of Ventures Tracking Stock is $20 per share.
<TABLE>
<S> <C>
Shares previously issued and outstanding............................... 20
Newly issued shares.................................................... 0
---
Total issued and outstanding after contribution.................... 20
===
</TABLE>
. The number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures would decrease to reflect the transfer to
Comdisco Group of assets theretofore allocated to Comdisco Ventures by a
number equal to the value of the assets transferred ($100) divided by
the market value of Ventures Tracking Stock at that time ($20), or 5
shares.
<TABLE>
<S> <C>
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures prior to contribution................. 100
Decrease to reflect transfer to Comdisco Group of assets allocated to
Comdisco Ventures................................................... 5
---
Number of shares issuable with respect to Comdisco Group's retained
interest in Comdisco Ventures after contribution.................... 95
===
</TABLE>
. As a result, the total issued and outstanding shares (20) would in the
aggregate represent an Outstanding Interest Percentage of approximately
17.4%, calculated as follows:
20
------
20 + 95
The Retained Interest Percentage would accordingly decrease to approximately
82.6%.
I-9
<PAGE>
ANNEX II
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMDISCO, INC.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMDISCO, INC.
Comdisco, Inc. (the "Corporation"), a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware
("DGCL"), certifies:
FIRST. That the name under which the Corporation was originally incorporated
was Comdisco, Inc. and the date of filing of its original certificate of
incorporation was June 28, 1971.
SECOND. That, pursuant to Sections 242 and 245 of the DGCL, the Corporation's
Board of Directors and shareholders duly adopted this Amended and Restated
Certificate of Incorporation.
THIRD. The text of the Corporation's amended and restated certificate of
incorporation is hereby further amended and restated to read in full as
follows:
1. The name of the Corporation is COMDISCO, INC.
2. The address of its registered office in the State of Delaware is No.
1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust
Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
To manufacture, purchase or otherwise acquire, invest in, own,
mortgage, pledge, sell, assign and transfer or otherwise dispose of,
trade, deal in and deal with goods, wares and merchandise and personal
property of every class and description.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to undertake
or assume the whole or any part of the obligations or liabilities of
any person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect
of, mortgage or otherwise dispose of letters patent of the United
States or any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, copyrights, trademarks and
trade names, relating to or useful in connection with any business of
this corporation.
To acquire by purchase, subscription or otherwise, and to receive,
hold, own, guarantee, sell, assign, exchange, transfer, mortgage,
pledge or otherwise dispose of or deal in and with any of the shares of
the capital stock, or any voting trust certificates in respect of the
shares of capital stock, scrip, warrants, rights, bonds, debentures,
notes, trust receipts, and other securities, obligations, choses in
action and evidences of indebtedness or interest issued or created by
any corporations, joint stock companies, syndicates, associations,
firms, trusts or persons, public or private, or by the government of
the United States of America, or by any foreign government, or by any
state, territory, province, municipality or other political subdivision
or by any governmental agency, and as owner thereof to possess and
exercise all the rights, powers and privileges of ownership, including
the right to execute consents and vote thereon, or to do any and all
acts and things necessary or advisable for the preservation,
protection, improvement and enhancement in value thereof.
To borrow or raise moneys for any of the purposes of the corporation
and, from time to time without limit as to amount, to draw, make,
accept, endorse, execute and issue promissory notes, drafts, bills of
exchange, warrants, bonds, debentures and other negotiable or non-
negotiable instruments and
II-1
<PAGE>
evidences of indebtedness, and to secure the payment of any thereof and
of the interest thereon by mortgage upon or pledge, conveyance or
assignment in trust of the whole or any part of the property of the
corporation, whether at the time owned or thereafter acquired, and to
sell, pledge or otherwise dispose of such bonds or other obligations of
the corporation for its corporate purposes.
To purchase, receive, take by grant, gift, devise, bequest or
otherwise, lease, or otherwise acquire, own, hold, improve, employ, use
and otherwise deal in and with real or personal property, or any
interest therein, wherever situated, and to sell, convey, lease,
exchange, transfer or otherwise dispose of, or mortgage or pledge, all
or any of the corporation's property, assets, or any interest therein,
wherever situated.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law
of Delaware or by this Amended and Restated Certificate of
Incorporation together with any powers incidental thereto, so far as
such powers and privileges are necessary or convenient to the conduct,
promotion or attainment of the business or purposes of the corporation.
The business and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
Amended and Restated Certificate of Incorporation, but the business and
purposes identified in each of the foregoing clauses of this article
shall be regarded as independent business and purposes.
4. Capital Stock. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 1,900,000,000 consisting
of (i) 1,800,000,000 shares of Common Stock, $0.10 par value per share
("Common Stock"), and (ii) 100,000,000 shares of Preferred Stock, $0.10 par
value per share ("Preferred Stock").
A. Common Stock.
1. Issuance of Common Stock in Series; Designation;
Reclassification.
Subject to the provisions of this Article 4(A) and provisions of
law, the Corporation shall have the authority to issue shares of
Common Stock in multiple series. One series of Common Stock
shall be designated as Comdisco Stock ("Comdisco Stock"). The
second series of Common Stock shall be designated as Comdisco
Ventures Stock ("Ventures Stock"). When the filing of this
Amended and Restated Certificate of Incorporation becomes
effective, each share of Common Stock outstanding immediately
prior thereto shall automatically be reclassified as one share
of Comdisco Stock (and outstanding certificates that had
theretofore represented shares of Common Stock shall thereupon
represent an equal number of shares of Comdisco Stock despite
the absence of any indication thereon to that effect).
The total number of shares of Comdisco Stock which the
Corporation shall have the authority to issue shall initially be
750,000,000, and the total number of shares of Ventures Stock
which the Corporation shall have the authority to issue shall
initially be 750,000,000. The Board of Directors (or such
committee of the Board of Directors as the Board of Directors
shall empower) is hereby empowered to authorize by resolution or
resolutions, an increase in the number of authorized shares of
Comdisco Stock or Ventures Stock in (but not above a number for
either series that, when added to the number of authorized
shares of all other designated series of Common Stock would
exceed the total number of authorized shares of Common Stock) or
a decrease in the number of authorized shares of Comdisco Stock
or Ventures Stock (but not below the number of shares then
outstanding). The Board of Directors shall have the authority to
designate, prior to the time of the first issuance of the
Ventures Stock, the number which, immediately prior to such
first issuance, will constitute the Number of Shares Issuable
with Respect to Comdisco Group's Retained Interest in Comdisco
Ventures and any other terms which are consistent with
applicable law and the provisions of this Article 4(A).
II-2
<PAGE>
The Board of Directors (or such committee of the Board of
Directors as the Board of Directors shall empower) is hereby
empowered to authorize by resolution or resolutions from time to
time the issuance of one or more additional series of Common
Stock and to fix the designations, powers, preferences and
relative, participating, optional or other rights, if any, and
the qualifications, limitations or restrictions thereof, if any,
with respect to each series of Common Stock and the number of
shares constituting each such series, and to increase or
decrease the number of shares of any such series to the extent
permitted by the DGCL, as amended from time to time.
2. Dividends.
(a) Dividends. Subject to the preferences and other terms of any
outstanding series of Preferred Stock, the holders of any series
of Common Stock shall be entitled to receive dividends on their
shares of Common Stock if, as, and when declared by the Board of
Directors out of the lesser of (i) the funds of the Corporation
legally available therefor or (ii) the Available Dividend Amount
for the Group to which such series of Common Stock relates.
(b) Discrimination Between or Among Series of Common Stock.
Subject to paragraph (a) of Section 2 of this Article 4(A) and
subject to the preferences and other terms of any outstanding
series of Preferred Stock, the Corporation shall have the
authority to declare and pay dividends on a single series of
Common Stock, or one or more series of Common Stock, in equal or
unequal amounts, notwithstanding the relative amounts of the
Available Dividend Amount with respect to any Group, the amount
of assets available for dividends on either series of Common
Stock, the amount of prior dividends paid on either series of
Common Stock, the respective voting rights of each series of
Common Stock or any other factor.
3. Mandatory Dividend, Redemption or Conversion on Disposition of
All or Substantially All of the Assets of a Group; Optional
Conversion of Comdisco Stock for Ventures Stock; Redemption of
Ventures Stock for Stock of a Subsidiary at the Corporation's
Option.
(a) Mandatory Dividend, Redemption or Conversion.
(i) In the event of a Disposition of All or Substantially All
of the Assets of a Group (other than an Exempt Disposition),
the Corporation shall, on or before the 90th Trading Day
after the Disposition Date, provided that the funds of the
Corporation are legally available therefor, either:
(x) declare and pay a dividend to holders of the series
of Common Stock that relates to that Group (in cash,
securities (other than Common Stock) or other property,
or a combination thereof), subject to the limitations on
dividends set forth under Section 2 of this Article 4(A),
in an aggregate amount having a Fair Value (determined as
of the Disposition Date) equal to the product of the
Outstanding Interest Fraction with respect to such Group
(determined as of the record date for such dividend) and
the Fair Value (determined as of the Disposition Date) of
the Net Proceeds of such Disposition;
(y) redeem from holders of the series of Common Stock
that relates to the Group that consummated such
Disposition, in exchange for cash, securities (other than
Common Stock) or other property (or a combination
thereof) in an amount equal to the product of the
Outstanding Interest Fraction with respect to such Group
(determined as of the redemption date) and the Fair Value
(determined as of the Disposition Date) of the Net
Proceeds of such Disposition, all of the outstanding
shares of such series of Common Stock, unless such
Disposition involves substantially all, but not all, of
the assets attributed to such Group, in which case, a
number of shares of such series of Common Stock (rounded,
if necessary, to the nearest whole number) having an
aggregate average Market Value, during the 20
II-3
<PAGE>
consecutive Trading Day period beginning on the 16th
Trading Day following the Disposition Date, equal to such
amount; or
(z) if that Disposition relates to Comdisco Ventures
convert each outstanding share of Ventures Stock into a
number of shares of Comdisco Stock (rounded, if
necessary, to the nearest whole number) equal to 115% of
the ratio of the average Market Value of one share of
Ventures Stock to the average Market Value of one share
of Comdisco Stock during the 20 consecutive Trading Day
period ending on (and including) the fifth trading day
prior to the first public announcement immediately
preceding the Disposition Date).
(ii) For purposes of this Section 3 of this Article 4(A), if
a Group consummates a Disposition in a series of related
transactions, such Disposition shall not be deemed to have
been completed until consummation of the last of such
transactions.
(b) Optional Conversion of Comdisco Stock for Ventures Stock.
(i) The Corporation may, at any time, convert each
outstanding share of Ventures Stock into a number of shares
of Comdisco Stock (rounded, if necessary, to the nearest
whole number) equal to that percentage of the ratio of the
average Market Value of one share of Ventures Stock to the
average Market Value of one share of Comdisco Stock (the
"Applicable Percentage") specified for the applicable
conversion date below. The average Market Value of a share of
each series of Common Stock shall be determined during the 20
consecutive Trading Day period ending on (and including) the
5th Trading Day immediately preceding the date on which the
Corporation mails the notice of conversion to holders of
Ventures Stock.
<TABLE>
<CAPTION>
If the Conversion Date Falls
During the The Applicable Percentage Will
Period Indicated be the Percentage Specified
Below for Such Period Below
---------------- ------------------------------
<S> <C>
First
Quarter 125%
Second
Quarter 124%
Third
Quarter 123%
Fourth
Quarter 122%
Fifth
Quarter 121%
Sixth
Quarter 120%
Seventh
Quarter 119%
Eighth
Quarter 118%
Ninth
Quarter 117%
Tenth
Quarter 116%
After
Tenth
Quarter 115%
</TABLE>
For purposes of the foregoing chart, (x) the first "Quarter"
is the period from and including the date of first issuance
of shares of Ventures Stock to but excluding the third month
anniversary of such date (provided that, if the date of first
issuance of shares of Ventures Stock is the 29th, 30th or
31st day of any month, the first "Quarter" will be the period
from and including such date of first issuance to but
excluding the third month anniversary of the first day of the
month immediately following the month in which such date of
first issuance falls) and (y) each subsequent "Quarter" is
the period from and including the day after the end of the
prior Quarter to but excluding the third month anniversary of
such day.
(ii) Notwithstanding the preceding paragraphs, if a Tax Event
has occurred, the Applicable Percentage shall equal %
irrespective of when the exchange occurs. "Tax Event" means
the receipt by the Corporation of an opinion of a tax advisor
II-4
<PAGE>
experienced in such matters, who shall not be an officer or
employee of the Corporation or any of its affiliates, to the
effect that, as a result of any amendment to, or change in,
the laws (or any regulations thereunder) of the United States
or any political subdivision or taxing authority thereof or
therein (including any proposed change in such regulations
announced by an administrative agency), or as a result of any
official or administrative pronouncement or action or
judicial decision interpreting or applying such laws or
regulations, it is more likely than not that for United
States federal income tax purposes (1) the Corporation, its
subsidiaries or affiliates or any of its successors or its
stockholders is or, at any time in the future, will be
subject to tax upon the issuance of shares of either Comdisco
Stock or Ventures Stock, (2) either Comdisco Stock or
Ventures Stock is not or, at any time in the future, will not
be treated solely as stock of the Corporation or (3) either
Comdisco Stock or Ventures Stock is or will be treated as
Section 306 stock under the Internal Revenue Code of 1986, as
amended. For purposes of rendering such opinion, a tax
advisor shall assume that any administrative proposals will
be adopted as proposed. However, in the event a change in law
is proposed, a tax advisor shall render an opinion only in
the event of enactment.
(c) Optional Redemption of Ventures Stock for Stock of a
Subsidiary.
At any time at which all of the assets and liabilities of
Comdisco Ventures (and no other assets or liabilities of the
Corporation or any subsidiary thereof) are held directly or
indirectly by one or more subsidiaries of the Corporation
(the "Group Subsidiaries"), the Board of Directors may,
provided that there are funds of the Corporation legally
available therefor, declare that all of the outstanding
shares of Ventures Stock shall be redeemed, as of the
exchange date described below, for the number of fully paid
and nonassessable shares of common stock of each of such
Group Subsidiaries as is equal to the product of the
Outstanding Interest Fraction with respect to Comdisco
Ventures (determined as of the redemption date) and the
number of shares of common stock of each such Group
Subsidiary held by Comdisco immediately before such exchange.
Such shares of common stock of such Group Subsidiaries may be
delivered directly or indirectly through the delivery of
shares of one or more of such Group Subsidiaries that own
directly or indirectly all of the other shares that are
deliverable pursuant to the preceding sentence.
(d) General Dividend, Conversion and Redemption Provisions.
(i) If the Corporation completes a Disposition of All or
Substantially All of the Assets of a Group (other than an
Exempt Disposition), the Corporation shall, not more than the
20 Trading Days after the consummation of such Disposition,
issue a press release specifying (w) the Net Proceeds of such
Disposition, (x) the number of shares of the series of Common
Stock related to such Group then outstanding, (y) the number
of shares of such series of Common Stock issuable upon
conversion, redemption or exercise of any convertible or
exchangeable securities, options or warrants and the
conversion, redemption or exercise prices thereof and (z) if
the Group is not Comdisco Group, the Number of Shares
Issuable with Respect to Comdisco Group's Retained Interest
in such Group. The Corporation shall, not more than 40
Trading Days after such consummation, announce by press
release which of the actions specified in Section 3(a)(i) of
this Article 4(A) it has determined to take, and upon making
that announcement, that determination will be irrevocable. In
addition, the Corporation shall, not more than 45 Trading
Days after such consummation and not less than 30 Trading
Days before the applicable payment date, redemption date or
conversion date, send a notice by first-class mail, postage
prepaid, to holders of the relevant series of Common Stock at
their addresses as they appear on the transfer books of the
Corporation, specifying:
(1) if the Corporation has determined to pay a special
dividend, (A) the record date for such dividend, (B) the
payment date of such dividend (which cannot be
II-5
<PAGE>
more than 90 Trading Days after such consummation) and
(C) the aggregate amount and type of property to be paid
in such dividend (and the approximate per share amount
thereof);
(2) if the Corporation has determined to undertake a
redemption, (A) the date of redemption (which cannot be
more than 90 Trading Days after such consummation), (B)
the aggregate amount and type of property to be paid as a
redemption price (and the approximate per share amount
thereof), (C) if less than all shares of the relevant
series of Common Stock are to be redeemed, the number of
shares to be redeemed and (D) the place or places where
certificates for shares of such series of Common Stock,
properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), should be
surrendered in return for delivery of the cash,
securities or other property to be paid by the
Corporation in such redemption; and
(3) if the Corporation has determined to undertake a
conversion, (A) the date of conversion (which cannot be
more than 90 Trading Days after such consummation), (B)
the number of shares of the other series of Common Stock
to be issued in the conversion for each outstanding share
of such series of Common Stock and (C) the place or
places where certificates for shares of such series of
Common Stock, properly endorsed or assigned for transfer
(unless the Corporation waives such requirement), should
be surrendered in return for delivery of the other series
of Common Stock to be issued by the Corporation in such
conversion.
(ii) If the Corporation has determined to complete any
conversion described in Section 3(b) or (c) of this Article
4(A), the Corporation shall, not less than 30 Trading Days
and not more than 45 Trading Days before the exchange date,
send a notice by first-class mail, postage prepaid, to
holders of the relevant series of Common Stock at their
addresses as they appear on the transfer books of the
Corporation, specifying (x) the conversion date and the other
terms of the conversion and (y) the place or places where
certificates for shares of such series of Common Stock,
properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), should be surrendered
for delivery of the stock to be issued or delivered by the
Corporation in such conversion.
(iii) Neither the failure to mail any notice required by this
Section 3(d) of this Article 4(A) to any particular holder
nor any defect therein would affect the sufficiency thereof
with respect to any other holder or the validity of any
dividend, redemption or conversion contemplated hereby.
(iv) If the Corporation is redeeming less than all of the
outstanding shares of a series of Common Stock pursuant to
Section 3(a)(i) of this Article 4(A), the Corporation shall
redeem such shares pro rata or by lot or by such other method
as the Board of Directors determines to be equitable.
(v) No holder of shares of a series of Common Stock being
converted or redeemed shall be entitled to receive any cash,
securities or other property to be distributed in such
conversion or redemption until such holder surrenders
certificates for such shares, properly endorsed or assigned
for transfer, at such place as the Corporation shall specify
(unless the Corporation waives such requirement). As soon as
practicable after the Corporation's receipt of certificates
for such shares, the Corporation shall deliver to the person
for whose account such shares were so surrendered, or to the
nominee or nominees of such person, the cash, securities or
other property to which such person
II-6
<PAGE>
shall be entitled, together with any fractional payment
referred to below, in each case without interest. If less
than all of the shares of Common Stock represented by any one
certificate is converted or redeemed, the Corporation shall
also issue and deliver a new certificate for the shares of
such Common Stock not converted or redeemed.
(vi) The Corporation shall not be required to issue or
deliver fractional shares of any capital stock or any other
fractional securities to any holder of Common Stock upon
conversion, redemption, dividend or other distribution
described above. If more than one share of Common Stock shall
be held at the same time by the same holder, the Corporation
may aggregate the number of shares of any capital stock that
would be issuable or any other securities that would be
distributable to such holder upon any such conversion,
redemption, dividend or other distribution. If there are
fractional shares of any capital stock or any other
fractional securities remaining to be issued or distributed
to any holder, the Corporation shall, if such fractional
shares or securities are not issued or distributed to such
holder, pay cash in respect of such fractional shares or
securities in an amount equal to the Fair Value thereof
(without interest).
(vii) From and after the date set for any conversion or
redemption contemplated by this Section 3 of this Article
4(A), all rights of a holder of shares of Common Stock being
converted or redeemed shall cease except for the right, upon
surrender of the certificates theretofore representing such
shares, to receive the cash, securities or other property for
which such shares were converted or redeemed, together with
any fractional payment as provided above, in each case
without interest (and, if such holder was a holder of record
as of the close of business on the record date for a dividend
not yet paid, the right to receive such dividend). A holder
of shares of Common Stock being converted shall not be
entitled to receive any dividend or other distribution with
respect to shares of the other series of Common Stock until
after certificates theretofore representing the shares being
converted are surrendered as contemplated above. Upon such
surrender, the Corporation shall pay to the holder the amount
of any dividends or other distributions (without interest)
which theretofore became payable with respect to a record
date occurring after the conversion, but which were not paid
by reason of the foregoing, with respect to the number of
whole shares of the other series of Common Stock represented
by the certificate or certificates issued upon such
surrender. From and after the date set for any conversion,
the Corporation shall, however, be entitled to treat the
certificates for shares of a series of Common Stock being
converted that were not yet surrendered for conversion as
evidencing the ownership of the number of whole shares of the
other series of Common Stock for which the shares of such
Common Stock should have been converted, notwithstanding the
failure to surrender such certificates.
(viii) The Corporation shall pay any and all documentary,
stamp or similar issue or transfer taxes that might be
payable in respect of the issue or delivery of any shares of
capital stock and/or other securities on any conversion or
redemption contemplated by this Section 3; provided, however,
that the Corporation shall not be required to pay any tax
that might be payable in respect of the issue or delivery of
any shares of capital stock and/or other securities on any
conversion or redemption contemplated by this Section 3;
provided, however, that the Corporation shall not be required
to pay any tax that might be payable in respect of any
transfer involved in the issue or delivery of any shares of
capital stock and/or other securities in a name other than
that in which the shares so converted or redeemed were
registered, and no such issue or delivery will be made unless
and until the person requesting such issue pays to the
Corporation the amount of any such tax, or establishes to the
satisfaction of the Corporation that such tax has been paid.
II-7
<PAGE>
(ix) The Corporation may, subject to applicable law,
establish such other rules, requirements and procedures to
facilitate any dividend, redemption or conversion
contemplated by this Section 3 as the Board of Directors may
determine to be appropriate under the circumstances.
4. Voting Rights.
At every meeting of stockholders, the holders of Comdisco Stock
and the holders of Ventures Stock shall vote together as a
single class on all matters as to which common stockholders
generally are entitled to vote, unless a separate vote is
required by applicable law. On all such matters for which no
separate vote is required, (a) holders of Comdisco Stock shall
be entitled to one vote per share of Comdisco Stock held and (b)
before the 31st Trading Day after the Effective Date, holders of
Ventures Stock shall be entitled to one vote per share of
Ventures Stock held. On and after the 31st Trading Day after the
Effective Date, holders of Ventures Stock shall be entitled to a
number of votes per share of Ventures Stock held (calculated to
the nearest five decimal places) equal to the Average Market
Value of one share of Ventures Stock divided by the Average
Market Value of one share of Comdisco Stock during the 20
Trading Day period ending on (and including) the applicable
record date; provided that, in no event, shall the total number
of votes of all outstanding Ventures Stock exceed 35% of the
total number of votes of all outstanding series of Common Stock.
5. Liquidation Rights.
In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, holders of each
series of Common Stock shall be entitled to receive their
proportionate interests in the net assets of the Corporation, if
any, remaining for distribution to stockholders, after payment
of or provision for all liabilities, including contingent
liabilities of the Corporation and payment of the liquidation
preference payable to any holders of the Corporation's Preferred
Stock, if any such stock is outstanding. Each share of each
series of Common Stock will be entitled to a share of net
liquidation proceeds in proportion to the respective liquidation
units per share of such class. Each share of Comdisco Stock
shall have one liquidation unit. Each share of the other series
of Common Stock shall have a number of liquidation units
(including a fraction of one liquidation unit) equal to the
quotient (rounded to the nearest five decimal places) of the
average Market Value of one share of such series of Common Stock
during the 20 consecutive Trading Day period ending on, and
including, the 300th day after the Effective Date, divided by
the average Market Value of one share of Comdisco Stock during
such 20 Trading Day period. If the liquidation, dissolution, or
winding-up of the Corporation occurs before such 300th day, the
average Market Value will be determined based on the 20
consecutive Trading Day period ending immediately before the
liquidation, dissolution, or winding-up event, or such lesser
number of consecutive Trading Days immediately prior to such
event if the liquidation, dissolution, or winding-up event
occurs prior to the 21st Trading Day after the Effective Date.
Neither the merger nor consolidation of the Corporation with any
other entity, nor a sale, transfer or lease of all or any part
of the assets of the Corporation, would, alone, be deemed a
liquidation, dissolution or winding-up for purposes of this
Section 5 of this Article 4(A).
6. Adjustments to Number of Shares Issuable with Respect to Comdisco
Group's Retained Interest in Any Group.
The Number of Shares Issuable with Respect to Comdisco Group's
Retained Interest in any Group, as in effect from time to time,
shall, automatically without action by the Board of Directors or
any other person, be:
(a) adjusted in proportion to any changes in the number of
outstanding shares of the series of Common Stock related to
such Group caused by subdivisions (by stock split,
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reclassification or otherwise) or combinations (by reverse
stock split, reclassification or otherwise) of shares of such
series of Common Stock or by dividends or other distributions
of shares of such series of Common Stock on shares of such
series of Common Stock (and, in each such case, rounded, if
necessary, to the nearest whole number);
(b) decreased by (i) if the Corporation issues any shares of
the series of Common Stock related to such Group and the
Board of Directors attributes that issuance (and the proceeds
thereof) to Comdisco Group, the number of shares of each
series of Common Stock so issued, and (ii) if the Board of
Directors reallocates to Comdisco Group any cash or other
assets theretofore allocated to such Group in connection with
a redemption of shares of the series of Common Stock related
to such Group (as required pursuant to clause (ii) of the
proviso to the definition of Comdisco Group below) or in
return for a decrease in the Number of Shares Issuable with
Respect to Comdisco Group's Retained Interest in such Group,
the number (rounded, if necessary, to the nearest whole
number) equal to (x) the aggregate Fair Value of such cash or
other assets divided by (y) the Market Value of one share of
the series of Common Stock related to such Group as of the
date of such reallocation; and
(c) increased by (i) if the Corporation repurchases any
shares of the series of Common Stock related to such Group
and the Board of Directors attributes that repurchase (and
the consideration therefor) to Comdisco Group, the number of
shares of such series of Common Stock so repurchased and (ii)
if the Board of Directors re-allocates to such Group any cash
or other assets theretofore allocated to Comdisco Group in
return for an increase in the Number of Shares Issuable with
Respect to Comdisco Group's Retained Interest in such Group,
the number (rounded, if necessary, to the nearest whole
number) equal to (x) the Fair Value of such cash or other
assets divided by (y) the Market Value of one share of the
series of Common Stock related to such Group as of the date
of such re-allocation.
Neither the Corporation nor the Board of Directors shall take
any action that would, as a result of any of the foregoing
adjustments, reduce the Number of Shares Issuable with Respect
to Comdisco Group's Retained Interest in any Group to below
zero. Subject to the preceding sentence, the Board of Directors
may attribute the issuance of any shares of any series of Common
Stock (and the proceeds here from) or the repurchase of any
series of Common Stock (and the consideration therefor) to
Comdisco Group and Delivery or to the Group to which such series
of Common Stock relates, as the Board of Directors determines in
its sole discretion; provided, however, that the Board of
Directors must attribute to Comdisco Group the issuance of any
shares of any series of Common Stock that are issued (1) as a
dividend or other distribution on, or as consideration for the
repurchase of, shares of Comdisco Stock or (2) as consideration
to acquire any assets or satisfy any liabilities attributed to
Comdisco Group.
7. Additional Definitions.
As used in this Article 4, the following terms shall have the
following meanings (with terms defined in singular having
comparable meaning when used in the plural and vice versa),
unless the context otherwise requires:
"ALL OR SUBSTANTIALLY ALL OF THE ASSETS" of any Group means a
portion of such assets that represents at least 80% of the then
current Fair Value of the assets of such Group.
"AVAILABLE DIVIDEND AMOUNT" for Comdisco Group, on any day on
which dividends are paid on shares of Comdisco Stock, is the
amount that would, immediately prior
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to the payment of such dividends, be legally available for the
payment of dividends on shares of Comdisco Stock under Delaware
law if (a) Comdisco Group and each other Group were each a
single, separate Delaware corporation, (b) Comdisco Group had
outstanding (i) a number of shares of common stock, par value
$0.10 per share, equal to the number of shares of Comdisco Stock
that are then outstanding and (ii) a number of shares of
preferred stock, par value $0.10 per share, equal to the number
of shares of Preferred Stock that have been attributed to
Comdisco Group and are then outstanding, (c) the assumptions
about each Group that is not Comdisco Group set forth in the
next sentence were true and (d) Comdisco Group owned a number of
shares of each series of Common Stock (other than Comdisco
Stock) equal to the Number of Shares Issuable with Respect to
Comdisco Group's Retained Interest in each Group to which each
such series of Common Stock relates.
"AVAILABLE DIVIDEND AMOUNT" for any Group other than Comdisco
Group, on any day on which dividends are paid on shares of the
series of Common Stock relating to such Group, is the amount
that would, immediately prior to the payment of such dividends,
be legally available for the payment of dividends on shares of
such series of Common Stock under Delaware law if such Group
were a single, separate Delaware corporation having outstanding
(a) a number of shares of common stock, par value $0.10 per
share, equal to the number of shares of such series of Common
Stock that are then outstanding plus the Number of Shares
Issuable with Respect to Comdisco Group's Retained Interest in
such Group and (b) a number of shares of preferred stock, par
value $0.10 per share, equal to the number of shares of
Preferred Stock that have been attributed to such Group and are
then outstanding.
"COMDISCO GROUP" means (a) all of the businesses, assets and
liabilities of the Corporation and its subsidiaries, other than
the businesses, assets and liabilities that are part of any
Group other than Comdisco Group, (b) the rights and obligations
of Comdisco Group under any inter-Group debt deemed to be owed
to or by Comdisco Group (as such rights and obligations are
defined in accordance with policies established from time to
time by the Board of Directors) and (c) a proportionate interest
in any Group other than Comdisco Group (after giving effect to
any options, Preferred Stock, other securities or debt issued or
incurred by the Corporation and attributed to any Group other
than Comdisco Group) equal to the Retained Interest Percentage;
provided, however, that: (i) the Corporation may re-allocate
assets from one Group to another Group in return for other
assets or services rendered by that other Group in the ordinary
course of business or in accordance with policies established by
the Board of Directors from time to time, and (ii) if the
Corporation transfers cash, other assets or securities to
holders of shares of a series of Common Stock other than
Comdisco Stock as a dividend or other distribution on shares of
such series of Common Stock (other than a dividend or
distribution payable in shares of such series of Common Stock),
or as payment in a redemption required by Section (3)(a) of this
Article 4(A), then the Board of Directors shall re-allocate from
such Group to Comdisco Group cash or other assets having a Fair
Value equal to the aggregate Fair Value of the cash, other
assets or securities so transferred times the Retained Interest
Amount with respect to such Group as of the record date for such
dividend or distribution, or on the date of such redemption, as
the case may be.
"COMDISCO VENTURES" means (a) the venture financing business
division of the Corporation; and all of the businesses, assets
and liabilities of the Corporation and its subsidiaries that the
Board of Directors has, as of the Effective Date, allocated to
Comdisco Ventures for accounting purposes, (b) any assets or
liabilities acquired or incurred by the Corporation or any of
its subsidiaries after the Effective Date in the ordinary course
of business and attributable to Comdisco Ventures, (c) any
businesses, assets or liabilities acquired or incurred by the
Corporation or any of its subsidiaries after the Effective Date
that the Board of Directors has specifically allocated to
Comdisco Ventures or that the
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<PAGE>
Corporation otherwise allocates to Comdisco Ventures in
accordance with policies established from time to time by the
Board of Directors and (d) the rights and obligations of
Comdisco Ventures under any inter-Group debt deemed to be owed
to or by Comdisco Ventures (as such rights and obligations are
defined in accordance with policies established from time to
time by the Board of Directors); provided, however, that:
(i) the Corporation may re-allocate assets from one Group to
another Group in return for other assets or services rendered
by that other Group in the ordinary course of business or in
accordance with policies established by the Board of
Directors from time to time, and (ii) if the Corporation
transfers cash, other assets or securities to holders of
shares of Ventures Stock as a dividend or other distribution
on shares of Ventures Stock (other than a dividend or
distribution payable in shares of Ventures Stock), or as
payment in a redemption of shares of Ventures Stock required
by Section 3(a) of this Article 4(A), then the Board of
Directors shall re-allocate from Comdisco Ventures to
Comdisco Group cash or other assets having a Fair Value equal
to the aggregate Fair Value of the cash, other assets or
securities so transferred multiplied by a fraction, the
numerator of which shall equal the Number of Shares Issuable
with Respect to Comdisco Group's Retained Interest in such
Group on the record date for such dividend or distribution,
or on the date of such redemption, and the denominator of
which shall equal the number of shares of such Group
outstanding on such date.
"DISPOSITION" means a sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or
otherwise) of All or Substantially All of the Assets of a Group
to one or more persons or entities, in one transaction or a
series of related transactions.
"DISPOSITION DATE" is the date of the consummation of a
Disposition.
"EFFECTIVE DATE" means the date on which this Amended and
Restated Certificate of Incorporation becomes effective under
Delaware law.
"EXEMPT DISPOSITION" means any of the following:
(a) Disposition in connection with the liquidation,
dissolution or winding-up of the Corporation and the
distribution of assets to stockholders, (b) a Disposition to
any person or entity controlled by the Corporation (as
determined by the Board of Directors in its sole discretion),
(c) a Disposition by any Group for which the Corporation
receives consideration primarily consisting of equity
securities (including, without limitation, capital stock of
any kind, interests in a general or limited partnership,
interests in a limited liability company or debt securities
convertible into or exchangeable for, or options or warrants
to acquire, any of the foregoing, in each case without regard
to the voting power or other management or governance rights
associated therewith) of an entity which is primarily engaged
or proposes to engage primarily in one or more businesses
similar or complementary to businesses conducted by such
Group prior to the Disposition, as determined by the Board of
Directors in its sole discretion, (d) a dividend, out of any
Group's assets, to holders of series of Common Stock related
to such Group and a re-allocation of a corresponding amount
of such Group's assets to Comdisco Group as required pursuant
to clause (ii) of the proviso to the definition of Comdisco
Group above, (e) a dividend, out of Comdisco Group's assets,
to holders of Comdisco Stock and (f) any other Disposition,
if (i) at the time of the Disposition there are no shares of
Comdisco Stock outstanding, (ii) at the time of the
Disposition there are no shares of the series of Common Stock
relating to the Group that consummated such Disposition
outstanding or (iii) before the 30th
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<PAGE>
Trading Day following the Disposition the Corporation has
mailed a notice stating that it is exercising its right to
exchange all of the outstanding shares of the series of
Common Stock relating to the Group that consummated such
Disposition for newly issued shares of Comdisco Stock as
contemplated under Section 3(b) of this Article 4(A).
"FAIR VALUE" means (a) in the case of cash, the amount thereof,
(b) in the case of capital stock that has been Publicly Traded
for a period of at least 15 months, the Market Value thereof and
(c) in the case of other assets or securities, the fair market
value thereof as the Board of Directors shall determine in good
faith (which determination shall be conclusive and binding on
all stockholders).
"GROUP" initially means Comdisco Group or Comdisco Ventures;
provided that if the Board of Directors authorizes the issuance
of shares of a series of Common Stock other than Comdisco Stock
or Ventures Stock, the Board of Directors shall designate the
assets and liabilities of Comdisco Group to which such series of
Common Stock relates, which assets and liabilities shall be an
additional "Group" for all purposes of this Article 4.
"MARKET VALUE" of a share of any class or series of capital
stock on any Trading Day means the average of the high and low
reported sales prices of such class or series on such Trading
Day or, in case no such reported sale takes place on such
Trading Day, the average of the reported closing bid and asked
prices regular way of a share of such class or series on such
Trading Day, in either case as reported on the New York Stock
Exchange ("NYSE") Composite Tape or, if the shares of such class
or series are not listed or admitted to trading on the NYSE on
such Trading Day, on the principal national securities exchange
on which the shares of such class or series are listed or
admitted to trading or, if not listed or admitted to trading on
any national securities exchange on such Trading Day, on The
Nasdaq National Market System of the Nasdaq Stock Market
("NASDAQ NMS") or, if the shares of such class or series are not
listed or admitted to trading on any national securities
exchange or quoted on the Nasdaq NMS on such Trading Day, the
average of the closing bid and asked prices of a share of such
class or series in the over-the-counter market on such Trading
Day as furnished by any NYSE member firm selected from time to
time by the Corporation or, if such closing bid and asked prices
are not made available by any such NYSE member firm on such
Trading Day, the fair market value of a share of such class or
series as the Board of Directors shall determine in good faith
(which determination shall be conclusive and binding on all
stockholders); provided, that, for purposes of determining the
average Market Value of a share of any class or series of
capital stock for any period, (a) the "Market Value" of a share
of any class or series of capital stock on any day prior to any
"ex-dividend" date or any similar date occurring during such
period for any dividend or distribution (other than any dividend
or distribution contemplated by clause (b)(ii) of this sentence)
paid or to be paid with respect to such capital stock shall be
reduced by the Fair Value of the per share amount of such
dividend or distribution and (b) the "Market Value" of a share
of any class or series of capital stock on any day prior to (i)
the effective date of any subdivision (by stock split or
otherwise) or combination (by reverse stock split or otherwise)
of outstanding shares of such class or series of capital stock
occurring during such period or (ii) any "ex-dividend" date or
any similar date occurring during such period for any dividend
or distribution with respect to such capital stock to be made in
shares of such class or series of capital stock shall be
appropriately adjusted, as determined by the Board of Directors,
to reflect such subdivision, combination, dividend or
distribution; and provided further, if (a) the Corporation
repurchases outstanding shares of any series Common Stock other
than Comdisco Stock and the Board of Directors attributes that
repurchase (and the consideration therefor) to the Group to
which such series of Common Stock relates and (b) the Board of
Directors determines to
II-12
<PAGE>
re-allocate to Comdisco Group cash or other assets theretofore
allocated to the Group to which such series of Common Stock
relates in order to avoid a change in the Retained Interest
Percentage, the "Market Value" of a share any series Common
Stock other than Comdisco Stock used to compute the
corresponding reduction in the Number of Shares Issuable with
Respect to Comdisco Group's Retained Interest in the Group to
which such series of Common Stock relates will equal the Fair
Value of the consideration paid per share of Common Stock so
repurchased; and provided further, if the Corporation redeems a
portion of the outstanding shares of any of series of Common
Stock other than Comdisco Stock (and the Board of Directors re-
allocates to Comdisco Group cash or other assets theretofore
allocated to the Group to which such series of Common Stock
relates in the manner required by clause (ii) of the proviso to
the definition of Comdisco Group above), the "Market Value" of a
share of such series of Common Stock used to compute the
corresponding reduction in the Number of Shares Issuable with
Respect to Comdisco Group's Retained Interest in the Group to
which such series of Common Stock relates will equal the Fair
Value of the consideration paid per share of such series of
Common Stock so redeemed.
"NET PROCEEDS" of a Disposition of any of the assets of a Group
means the positive amount, if any, remaining from the gross
proceeds of such Disposition after any payment of, or reasonable
provision (as determined in good faith by the Board of
Directors, which determination will be conclusive and binding on
all stockholders) for, (a) any taxes payable by the Corporation
or any subsidiary or affiliate thereof in respect of such
Disposition or which would have been payable but for the
utilization of tax benefits attributable to the Group not the
subject of the Disposition, (b) any taxes payable by the
Corporation in respect of any resulting dividend or redemption,
(c) any transaction costs, including, without limitation, any
legal, investment banking and accounting fees and expenses and
(d) any liabilities (contingent or otherwise) of, attributed to
or related to, such Group, including, without limitation, any
liabilities for deferred taxes or any indemnity or guarantee
obligations which are outstanding or incurred in connection with
the Disposition or otherwise, any liabilities for future
purchase price adjustments and any obligations with respect to
outstanding securities (other than Common Stock) attributed to
such Group as determined in good faith by the Board of
Directors.
"NUMBER OF SHARES ISSUABLE WITH RESPECT TO COMDISCO GROUP'S
RETAINED INTEREST" means, with respect to any Group, initially
the number the Board of Directors designates prior to the time
the Corporation first issues shares of the series of Common
Stock applicable to such Group as the number of shares of such
series of Common Stock that could be issued by the Corporation
for the account of Comdisco Group in respect of its retained
interest in such Group, as authorized by Section 1 of this
Article 4(A); provided, however, that such number as in effect
from time to time shall automatically be adjusted as required by
Section 6 of this Article 4(A).
"OUTSTANDING INTEREST FRACTION" means (i) with respect to
Comdisco Group, at any time of determination, and (ii) with
respect to any other Group, at any time of determination, a
fraction the numerator of which shall be the number of shares of
the series of Common Stock applicable to such Group outstanding
on such date and the denominator of which shall be the sum of
the number of shares of the series of Common Stock applicable to
such Group outstanding on such date and the Number of Shares
Issuable with Respect to Comdisco Group's Retained Interest in
such Group.
"PUBLICLY TRADED" with respect to any security means (a)
registered under Section 12 of the Securities Exchange Act of
1934, as amended (or any successor provision of law), and (b)
listed for trading on the NYSE (or any other national securities
exchange registered under
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<PAGE>
Section 7 of the Securities Exchange Act of 1934, as amended (or
any successor provision of law)) or listed on the Nasdaq NMS (or
any successor market system).
"RETAINED INTEREST" means with respect to any Group, other than
Comdisco Group, at any time of determination, a fraction the
numerator of which shall be the Number of Shares Issuable with
Respect to Comdisco Group's Retained Interest in such Group and
the denominator of which shall be the number of shares of the
series of common stock relating to such Group outstanding on
such date.
"RETAINED INTEREST PERCENTAGE" means (i) with respect to
Comdisco Group, at any time of determination, one (1) and (ii)
with respect to any Group that is not Comdisco Group, at any
time of determination, a fraction the numerator of which shall
be the Number of Shares Issuable with Respect to Comdisco
Group's Retained Interest in such Group and the denominator of
which shall be the sum of the number of shares of the series of
common stock applicable to such Group outstanding on such date
and the Number of Shares Issuable with Respect to Comdisco
Group's Retained Interest in such Group.
"TRADING DAY" means each weekday on which the relevant security
(or, if there are two relevant securities, each relevant
security) is traded on the principal national securities
exchange on which it is listed or admitted to trading or on the
Nasdaq NMS or, if such security is not listed or admitted to
trading on a national securities exchange or quoted on the
Nasdaq NMS, traded in the principal over-the-counter market in
which it trades.
8. Effectiveness of Sections 2 through 7 of This Article 4(A).
The terms of Sections 2 through 7, inclusive, of this Article 4
(A) shall apply only when there are shares of multiple series of
Common Stock outstanding.
9. Determinations by the Board of Directors.
Subject to applicable law, any determinations made by the Board
of Directors in good faith under this Amended and Restated
Certificate of Incorporation, as it may be amended from time to
time, including without limitation any such determinations with
respect to the businesses, assets and liabilities of either
Group, transactions between the Groups or the rights of holders
of any series of Common Stock or Preferred Stock made pursuant
to or in the furtherance hereof, shall be final and binding on
all stockholders of the Corporation. A record of all formal
determinations of the Board of Directors made as contemplated
hereby shall be filed with the records of the actions of the
Board of Directors.
B. Preferred Stock.
1. Designation. The Preferred Stock shall be designated and known as
"Preferred Stock." The number of shares constituting such Preferred
Stock shall be 100,000,000.
2. Rights and Preferences. Preferred Stock may be issued from time
to time in one or more series, each of such series to have such
terms as stated or expressed herein and in the resolution or
resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any
shares of Preferred Stock, which may be redeemed, purchased or
acquired by the Corporation, may be reissued except as otherwise
provided by law. Different series of Preferred Stock shall not be
construed to constitute different classes of shares for the purposes
of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and
in connection with the creation of any such series, by resolution or
resolutions providing for the issue of the shares thereof, to
determine and fix such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications,
limitations or restrictions
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<PAGE>
thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions,
all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of
Preferred Stock may provide that such series shall be superior or
rank equally or be junior to the Preferred Stock of any other series
to the extent permitted by law. Except as otherwise provided in this
Amended and Restated Certificate of Incorporation, no vote of the
holders of the Preferred Stock or Common Stock shall be a
prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the
conditions of this Amended and Restated Certificate of
Incorporation, the right to have such vote being expressly waived by
all present and future holders of the capital stock of the
Corporation.
C. Designation of Series C Junior Participating Preferred Stock
1. Designation and Amount. Two Hundred Thousand (200,000) of the
authorized and unissued shares of Preferred Stock are designated as
"Series C Junior Participating Preferred Stock." Such number of
shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of
shares of Series C Preferred Stock to a number less than the number
of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued
by the Corporation convertible into Series C Junior Participating
Preferred Stock.
2. Dividends and Distributions.
(a) The holders of shares of Series C Junior Participating
Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash
on the last day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or
fraction of a share of Series C Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (x) $1.00 or (y) subject to the
provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000
times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend
payable in shares of Comdisco Stock or a subdivision of the
outstanding shares of Comdisco Stock (by reclassification or
otherwise), declared on the Comdisco Stock of the Corporation
since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of
Series C Junior Participating Preferred Stock. In the event the
Corporation shall at any time after the date that these Restated
and Amended Articles of Incorporation become effective (the
"Rights Declaration Date") (i) declare any dividend on Comdisco
Stock payable in shares of Comdisco Stock, (ii) subdivide the
outstanding Comdisco Stock, or (iii) combine the outstanding
Comdisco Stock into a smaller number of shares, then in each
such case the amount to which holders of shares of Series C
Junior Participating Preferred Stock were entitled immediately
prior to such event under clause (y) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Comdisco Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Comdisco Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on
the Series C Junior Participating Preferred Stock as provided in
Paragraph (a) above immediately after it declares a dividend or
distribution on the Comdisco Stock (other than a dividend
payable in shares of Comdisco Stock); provided that, in the
event no dividend or distribution shall have
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<PAGE>
been declared on the Comdisco Stock during the period between
any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $0.01 per share
on the Series C Junior Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series C Junior Participating Preferred
Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Series C Junior
Participating Preferred Stock, unless the date of issue of such
shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders
of shares of Series C Junior Participating Preferred Stock
entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series
C Junior Participating Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination
of holders of shares of Series C Junior Participating Preferred
Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series C Junior
Participating Preferred Stock shall have the following voting
rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series C Junior Participating Preferred
Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on
Comdisco Stock payable in shares of Comdisco Stock, (ii)
subdivide the outstanding Comdisco Stock, or (iii) combine the
outstanding Comdisco Stock into a smaller number of shares, then
in each such case the number of votes per share to which holders
of shares of Series C Junior Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is
the number of shares of Comdisco Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Comdisco Stock that were outstanding immediately prior
to such event.
(b) Except as otherwise provided herein or by law, the holders
of shares of Series C Junior Participating Preferred Stock and
the holders of shares of Comdisco Stock shall vote together as
one class on all matters submitted to a vote of stockholders of
the Corporation.
(c) (i) If at any time dividends on any Series C Junior
Participating Preferred Stock shall be in arrears in an amount
equal to six (6) quarterly dividends thereon, the occurrence of
such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time
when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period
on all shares of Series C Junior Participating Preferred Stock
then outstanding shall have been declared and paid or set apart
for payment. During each default period, all holders of
Preferred Stock (including holders of the Series C Junior
Participating Preferred Stock) with dividends in arrears in an
amount equal to six (6) quarterly dividends thereon, voting as a
class, irrespective of series, shall have the right to elect two
(2) directors.
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<PAGE>
(ii) During any default period, such voting right of the holders
of Series C Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(c) of this Article 4(C) or
at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that such voting right shall
not be exercised unless the holders of ten percent (10%) in
number of shares of Preferred Stock outstanding shall be present
in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which
the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the
right, voting as a class, to elect directors to fill such
vacancies, if any, in the Board of Directors as may then exist
up to two (2) directors or, if such right is exercised at an
annual meeting, to elect two (2) directors. If the number which
may be so elected at any special meeting does not amount to the
required number, the holders of the Preferred Stock shall have
the right to make such increase in the number of directors as
shall be necessary to permit the election by them of the
required number. After the holders of the Preferred Stock shall
have exercised their right to elect directors in any default
period and during the continuance of such period, the number of
directors shall not be increased or decreased except by vote of
the holders of Preferred Stock as herein provided or pursuant to
the rights of any equity securities ranking senior to or pari
passu with the Series C Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right
to elect directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may
request, the calling of special meeting of the holders of
Preferred Stock, which meeting shall thereupon be called by the
President, a Vice-President or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this
subparagraph (iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him or her
at his or her last address as the same appears on the books of
the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order
or request or in default of the calling of such meeting within
60 days after such order or request, such meeting may be called
on similar notice by any stockholder or stockholders owning in
the aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding. Notwithstanding
the provisions of this subparagraph (iii), no such special
meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting
of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of directors
until the holders of Preferred Stock shall have exercised their
right to elect two (2) directors voting as a class, after the
exercise of which right (x) the directors so elected by the
holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in Paragraph (ii) of
this Section 3(c) of this Article 4(C)) be filled by vote of a
majority of the remaining directors theretofore elected by the
holders of the class of stock which elected the director whose
office shall have become vacant. References in this Paragraph
(c) to directors elected by the holders of a particular class of
stock shall include directors elected by such directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect
directors shall cease, (y) the term of any directors elected
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<PAGE>
by the holders of Preferred Stock as a class shall terminate,
and (z) the number of directors shall be such number as may be
provided for in the Amended and Restated Certificate of
Incorporation or by-laws irrespective of any increase made
pursuant to the provisions of Paragraph (c)(ii) of this Section
3 (such number being subject, however, to change thereafter in
any manner provided by law or in the Amended and Restated
Certificate of Incorporation or by-laws). Any vacancies in the
Board of Directors effected by the provisions of clauses (y) and
(z) in the preceding sentence may be filled by a majority of the
remaining directors.
(d) Except as set forth herein, holders of Series C Junior
Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series C Junior Participating
Preferred Stock as provided in Section 2 of this Article 4(C)
are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares
of Series C Junior Participating Preferred Stock outstanding
shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up)
to the Series C Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series C Junior Participating Preferred
Stock, except dividends paid ratably on the Series C Junior
Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding
up) with the Series C Junior Participating Preferred Stock,
provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series C Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series C Junior Participating Preferred Stock, or
any shares of stock ranking on a parity with the Series C
Junior Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective
series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series
or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under Paragraph (a) of this Section 4 of this Article
4(C), purchase or otherwise acquire such shares at such time and
in such manner.
5. Reacquired Shares. Any shares of Series C Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled
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<PAGE>
promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on
issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made
to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series C Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series C Junior Participating
Preferred Stock shall have received an amount equal to 1,000
times the Purchase Price, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series C Liquidation
Preference"). Following the payment of the full amount of the
Series C Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series C Junior
Participating Preferred Stock unless, prior thereto, the holders
of shares of Comdisco Stock shall have received an amount per
share (the "Comdisco Adjustment") equal to the quotient obtained
by dividing (i) the Series C Liquidation Preference by (ii)
1,000 (as appropriately adjusted as set forth in subparagraph
(C) below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Comdisco
Stock) (such number in clause (ii), the "Comdisco Adjustment
Number"). Following the payment of the full amount of the Series
C Liquidation Preference and the Comdisco Adjustment in respect
of all outstanding shares of Series C Junior Participating
Preferred Stock and Comdisco Stock, respectively, holders of
Series C Junior Participating Preferred Stock and holders of
shares of Comdisco Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in
the ratio of the Comdisco Adjustment Number to 1 with respect to
such Preferred Stock and Comdisco Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series C Liquidation
Preference and the liquidation preferences of all other series
of preferred stock, if any, which rank on a parity with the
Series C Junior Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the
Comdisco Adjustment, then such remaining assets shall be
distributed ratably to the holders of Comdisco Stock.
(c) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Comdisco
Stock payable in shares of Comdisco Stock, (ii) subdivide the
outstanding Comdisco Stock, or (iii) combine the outstanding
Comdisco Stock into a smaller number of shares, then in each
such case the Comdisco Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such
Comdisco Adjustment Number by a fraction the numerator of which
is the number of shares of Comdisco Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Comdisco Stock that were outstanding
immediately prior to such event.
7. Consolidation, Merger, etc. Notwithstanding anything to the
contrary contained herein, in case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which
the shares of Comdisco Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any
such case the shares of Series C Junior Participating Preferred
Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind),
as the case may be,
II-19
<PAGE>
into which or for which each share of Comdisco Stock is changed or
exchanged. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Comdisco Stock
payable in shares of Comdisco Stock, (ii) subdivide the outstanding
Comdisco Stock, or (iii) combine the outstanding Comdisco Stock into
a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or
change of shares of Series C Junior Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Comdisco Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Comdisco Stock that were
outstanding immediately prior to such event.
8. No Redemption. The shares of Series C Junior Participating
Preferred Stock shall not be redeemable.
9. Amendment. The Amended and Restated Certificate of Incorporation
of the Corporation shall not be further amended in any manner which
would materially alter or change the powers, preferences or special
rights of the Series C Junior Participating Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of
a majority or more of the outstanding shares of Series C Junior
Participating Preferred Stock, voting separately as a class.
10. Fractional Shares. Series C Junior Participating Preferred Stock
may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise
voting rights, receive dividends, participate in distributions and
to have the benefit of all other rights of holders of Series C
Junior Participating Preferred Stock.
D. Designation of Series D Junior Participating Preferred Stock
1. Designation and Amount. Two Hundred Thousand (200,000) of the
authorized and unissued shares of Preferred Stock are designated as
"Series D Junior Participating Preferred Stock." Such number of
shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of
shares of Series D Preferred Stock to a number less than the number
of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued
by the Corporation convertible into Series D Junior Participating
Preferred Stock.
2. Dividends and Distributions.
(a) The holders of shares of Series D Junior Participating
Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash
on the last day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or
fraction of a share of Series D Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (x) $1.00 or (y) subject to the
provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000
times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend
payable in shares of Ventures Stock or a subdivision of the
outstanding shares of Ventures Stock (by reclassification or
otherwise), declared on the Ventures Stock of the Corporation
since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of
Series D Junior Participating Preferred Stock. In the event the
Corporation shall at any time after the date that these Restated
and Amended Articles of Incorporation become effective (the
"Rights Declaration Date") (i) declare any dividend on Ventures
Stock payable in shares of Ventures Stock, (ii) subdivide the
outstanding Ventures Stock, or (iii) combine the outstanding
Ventures Stock into a smaller number of shares, then in each
such case the
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<PAGE>
amount to which holders of shares of Series D Junior
Participating Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Ventures Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Ventures Stock that were outstanding
immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on
the Series D Junior Participating Preferred Stock as provided in
Paragraph (y) above immediately after it declares a dividend or
distribution on the Ventures Stock (other than a dividend
payable in shares of Ventures Stock); provided that, in the
event no dividend or distribution shall have been declared on
the Ventures Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $0.01 per share on the Series D
Junior Participating Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series D Junior Participating Preferred
Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Series D Junior
Participating Preferred Stock, unless the date of issue of such
shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders
of shares of Series D Junior Participating Preferred Stock
entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series
D Junior Participating Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the
determination of holders of shares of Series D Junior
Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date
shall be no more than 30 days prior to the date fixed for the
payment thereof.
3. Voting Rights. The holders of shares of Series D Junior
Participating Preferred Stock shall have the following voting
rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series D Junior Participating Preferred
Stock shall entitle the holder thereof to the number of votes on
all matters submitted to a vote of the stockholders of the
Corporation equal to the product of (x) 1,000 and (y) the number
of votes then attributed to a share of Ventures Stock. In the
event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Ventures Stock
payable in shares of Ventures Stock, (ii) subdivide the
outstanding Ventures Stock, or (iii) combine the outstanding
Ventures Stock into a smaller number of shares, then in each
such case the number of votes per share to which holders of
shares of Series D Junior Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is
the number of shares of Ventures Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Ventures Stock that were outstanding immediately prior
to such event.
(b) Except as otherwise provided herein or by law, the holders
of shares of Series D Junior Participating Preferred Stock and
the holders of shares of Ventures Stock shall vote together as
one class on all matters submitted to a vote of stockholders of
the Corporation.
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<PAGE>
(c) (i) If at any time dividends on any Series D Junior
Participating Preferred Stock shall be in arrears in an amount
equal to six (6) quarterly dividends thereon, the occurrence of
such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time
when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period
on all shares of Series D Junior Participating Preferred Stock
then outstanding shall have been declared and paid or set apart
for payment. During each default period, all holders of
Preferred Stock (including holders of the Series D Junior
Participating Preferred Stock) with dividends in arrears in an
amount equal to six (6) quarterly dividends thereon, voting as a
class, irrespective of series, shall have the right to elect two
(2) directors.
(ii) During any default period, such voting right of the holders
of Series D Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(c) of this Article 4(C) or
at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that such voting right shall
not be exercised unless the holders of ten percent (10%) in
number of shares of Preferred Stock outstanding shall be present
in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which
the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the
right, voting as a class, to elect directors to fill such
vacancies, if any, in the Board of Directors as may then exist
up to two (2) directors or, if such right is exercised at an
annual meeting, to elect two (2) directors. If the number which
may be so elected at any special meeting does not amount to the
required number, the holders of the Preferred Stock shall have
the right to make such increase in the number of directors as
shall be necessary to permit the election by them of the
required number. After the holders of the Preferred Stock shall
have exercised their right to elect directors in any default
period and during the continuance of such period, the number of
directors shall not be increased or decreased except by vote of
the holders of Preferred Stock as herein provided or pursuant to
the rights of any equity securities ranking senior to or pari
passu with the Series D Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right
to elect directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may
request, the calling of special meeting of the holders of
Preferred Stock, which meeting shall thereupon be called by the
President, a Vice-President or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this
subparagraph (iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him or her
at his or her last address as the same appears on the books of
the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order
or request or in default of the calling of such meeting within
60 days after such order or request, such meeting may be called
on similar notice by any stockholder or stockholders owning in
the aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding. Notwithstanding
the provisions of this subparagraph (iii), no such special
meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting
of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of directors
until the holders of Preferred Stock shall have exercised their
right to elect two (2) directors voting as a class, after the
exercise of which right (x) the directors so elected by the
holders of Preferred Stock shall continue in office until their
successors shall have been elected by
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<PAGE>
such holders or until the expiration of the default period, and
(y) any vacancy in the Board of Directors may (except as
provided in Paragraph (ii) of this Section 3(c) of this Article
4(D)) be filled by vote of a majority of the remaining directors
theretofore elected by the holders of the class of stock which
elected the director whose office shall have become vacant.
References in this Paragraph (c) to directors elected by the
holders of a particular class of stock shall include directors
elected by such directors to fill vacancies as provided in
clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect
directors shall cease, (y) the term of any directors elected by
the holders of Preferred Stock as a class shall terminate, and
(z) the number of directors shall be such number as may be
provided for in the Amended and Restated Certificate of
Incorporation or by-laws irrespective of any increase made
pursuant to the provisions of Paragraph (ii) of this Section 3
of this Article 4(D) (such number being subject, however, to
change thereafter in any manner provided by law or in the
Amended and Restated Certificate of Incorporation or by-laws).
Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may
be filled by a majority of the remaining directors.
(d) Except as set forth herein, holders of Series D Junior
Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series D Junior Participating
Preferred Stock as provided in Section 2 of this Article 4(D)
are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares
of Series D Junior Participating Preferred Stock outstanding
shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up)
to the Series D Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series D Junior Participating Preferred
Stock, except dividends paid ratably on the Series D Junior
Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding
up) with the Series D Junior Participating Preferred Stock,
provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series D Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series D Junior Participating Preferred Stock, or
any shares of stock ranking on a parity with the Series D
Junior Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of
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<PAGE>
such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective
series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series
or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under Paragraph (a) of this Section 4 of this Article
4(D), purchase or otherwise acquire such shares at such time and
in such manner.
5. Reacquired Shares. Any shares of Series D Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance
set forth herein.
6. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made
to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series D Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series D Junior Participating
Preferred Stock shall have received an amount equal to 1,000
times the Purchase Price, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series D Liquidation
Preference"). Following the payment of the full amount of the
Series D Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series D Junior
Participating Preferred Stock unless, prior thereto, the holders
of shares of Ventures Stock shall have received an amount per
share (the "Ventures Adjustment") equal to the quotient obtained
by dividing (i) the Series D Liquidation Preference by (ii)
1,000 (as appropriately adjusted as set forth in subparagraph
(c) below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Ventures
Stock) (such number in clause (ii), the "Ventures Adjustment
Number"). Following the payment of the full amount of the Series
D Liquidation Preference and the Ventures Adjustment in respect
of all outstanding shares of Series D Junior Participating
Preferred Stock and Ventures Stock, respectively, holders of
Series D Junior Participating Preferred Stock and holders of
shares of Ventures Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in
the ratio of the Ventures Adjustment Number to 1 with respect to
such Preferred Stock and Ventures Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series D Liquidation
Preference and the liquidation preferences of all other series
of preferred stock, if any, which rank on a parity with the
Series D Junior Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the
Ventures Adjustment, then such remaining assets shall be
distributed ratably to the holders of Ventures Stock.
(c) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Ventures
Stock payable in shares of Ventures Stock, (ii) subdivide the
outstanding Ventures Stock, or (iii) combine the outstanding
Ventures Stock into a smaller number of shares, then in each
such case the Ventures Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such
Ventures Adjustment Number by a fraction the numerator of which
is the number of shares of Ventures Stock
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outstanding immediately after such event and the denominator of
which is the number of shares of Ventures Stock that were
outstanding immediately prior to such event.
7. Consolidation, Merger, etc. Notwithstanding anything to the
contrary contained herein, in case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which
the shares of Ventures Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any
such case the shares of Series D Junior Participating Preferred
Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Ventures
Stock is changed or exchanged. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any dividend
on Ventures Stock payable in shares of Ventures Stock, (ii)
subdivide the outstanding Ventures Stock, or (iii) combine the
outstanding Ventures Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series D Junior
Participating Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares
of Ventures Stock outstanding immediately after such event and the
denominator of which is the number of shares of Ventures Stock that
were outstanding immediately prior to such event.
8. No Redemption. The shares of Series D Junior Participating
Preferred Stock shall not be redeemable.
9. Amendment. The Amended and Restated Certificate of Incorporation
of the Corporation shall not be further amended in any manner which
would materially alter or change the powers, preferences or special
rights of the Series D Junior Participating Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of
a majority or more of the outstanding shares of Series D Junior
Participating Preferred Stock, voting separately as a class.
10. Fractional Shares. Series D Junior Participating Preferred Stock
may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise
voting rights, receive dividends, participate in distributions and
to have the benefit of all other rights of holders of Series D
Junior Participating Preferred Stock.
5. The name and mailing address of each incorporator is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
B.J. Consono 1209 Orange Street
Wilmington, Delaware 19899
F.J. Obara, Jr. 1209 Orange Street
Wilmington, Delaware 19899
J.L. Rivera 1209 Orange Street
Wilmington, Delaware 19899
</TABLE>
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the real
and personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created.
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<PAGE>
By a majority of the whole board, to designate one or more committees,
each committee to consist of one or more of the directors of the
Corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. The by-laws may provide that in
the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting
in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of
directors, or in the by-laws of the Corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority
in reference to amending the Amended and Restated Certificate of
Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the by-laws of the
Corporation; and, unless the resolution or by-laws expressly so
provide, no such committee shall have the power or authority to declare
a dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property and
assets of the Corporation, including its good will and its corporate
franchises, upon such terms and conditions and for such consideration,
which may consist in whole or in part of money or property including
shares of stock in, and/or other securities of, any other corporation
or corporations, as its board of directors shall deem expedient and for
the best interest of the Corporation.
8. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this corporation or of any creditor or stockholder
thereof, or on the application of any receiver or receivers appointed for
this corporation under the provisions of section 291 of Title 8 of the
General Corporation Law of the State of Delaware or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of section 279 of Title 8 of the General
Corporation Law of the State of Delaware order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of stockholders
of this Corporation, as the case may be, to be summoned in such manner as
the said court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the stockholders
or class of stockholders of this Corporation, as the case may be, agree to
any compromise or arrangement and to any reorganization of this Corporation
as a consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court
to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
9. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time
by the board of directors or in the by-laws of the corporation. Elections
of directors need not to be by written ballot unless the by-laws of the
corporation shall so provide.
10. Except as expressly provided in this Amended and Restated Articles of
Incorporation, the Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Amended and Restated Articles of
Incorporation, in the manner now or hereafter prescribed by statute, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
11. The number of directors which shall constitute the whole board shall be
not less than four nor more than fifteen, such number to be set by or in
accordance with the by-laws. Such by-law provision can only
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<PAGE>
be amended by the Board of Directors or by the affirmative vote of not less
than 66 2/3% of the stock then entitled to vote in an election of
directors. The directors shall be divided into three classes as nearly
equal in number as possible. At the 1986 annual meeting of stockholders,
one class of directors was elected for a one-year term, one class for a
two-year term and one class for a three-year term. At each succeeding
annual meeting of stockholders, successors to the class of directors whose
term expires in that year will be elected for a three-year term. A director
shall hold office until the annual meeting of stockholders for the year in
which his term expires or until his successor is elected and qualified.
Vacancies and newly created directorships within any class resulting from
any increase in the authorized number of directors may be filled by a
majority of directors then in office, though less than a quorum, and any
director so chosen shall hold office for a term which shall coincide with
the term of such class to which he is elected. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
The affirmative vote of the holders of at least 66 2/3% of the stock then
entitled to vote in an election of directors shall be required for the
approval of any proposal that (a) any director of the corporation be
removed from office for cause; or (b) this Article 11 of this Amended and
Restated Certificate of Incorporation be altered, amended or repealed.
12. A. In addition to the requirements of any applicable statute, the
affirmative vote of not less than 66 2/3% of the stock then entitled to
vote in an election of directors owned by persons other than a "substantial
stockholder" (as hereinafter defined), considered for purposes of this
Article 12 as one class, shall be required for the approval or
authorization of any "business combination" (as hereinafter defined)
between the corporation and any substantial stockholders provided, however,
that such additional voting requirement shall not be applicable if:
1. The business combination is solely between the Corporation and
another corporation, 50% or more of the voting stock of which is owned
by the Corporation and none of which is owned by a substantial
stockholder and each holder of common stock of the Corporation receives
the same type of consideration in proportion to his holdings; or
2. All the following conditions are satisfied: (a) the cash or fair
market value of the property, securities or "other consideration to be
received" (as hereinafter defined) per share in the business
combination by holders of the common stock of the corporation is not
less than the higher of (i) the highest price per share (including
brokerage commissions, soliciting dealers' fees and dealer-manager
compensation) paid by such substantial stockholder in acquiring any of
its holdings of the Corporation's common stock, or (ii) the highest per
share market price of common stock during the three-month period
immediately preceding the date of the proxy statement described in (c)
below or, if none, during the six-month period prior to the
consummation of the business combination; (b) after becoming a
substantial stockholder and prior to the consummation of such business
combination (i) such substantial stockholder shall not have acquired
any newly issued shares of capital stock, directly or indirectly, from
the Corporation (except upon conversion of convertible securities
acquired by it prior to becoming a substantial stockholder or upon
compliance with the provisions of this Article 12 or as a result of a
pro rata stock dividend or stock split), and (ii) such substantial
stockholder shall not have received the benefit, directly or indirectly
(except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or tax credits
provided by the Corporation, or made any major changes in the
Corporation's business or equity capital structure; and (c) if such
proposal otherwise requires stockholder approval, a proxy statement
responsive to the requirements of the Securities Exchange Act of 1934,
whether or not the Corporation is then subject to such requirements,
shall be mailed to the public stockholders of the Corporation for the
purpose of soliciting stockholder approval of such business
combination.
B. For the purposes of this Article 12:
1. The term "business combination" shall mean (a) any merger or
consolidation of the Corporation with or into a substantial
stockholder, (b) any sale, lease, exchange, transfer or other
disposition,
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<PAGE>
including, without limitation, a mortgage or any other security device,
of all, or any "substantial part" (as hereinafter defined) of the
assets of the Corporation including, without limitation, any voting
securities of a subsidiary) or of a subsidiary, to a substantial
stockholder, (c) any merger or consolidation of a substantial
stockholder with or into the Corporation or a subsidiary of the
Corporation, (d) any sale, lease, exchange, transfer or other
disposition of all or any substantial part of the assets of a
substantial stockholder to the Corporation or a subsidiary of the
Corporation, (e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a substantial stockholder (except
proportionately as a stockholder), (f) the acquisition by the
Corporation or a subsidiary of the Corporation of any securities of a
substantial stockholder (except proportionately as a stockholder), (g)
any reclassification of common stock of the Corporation, or any
recapitalization involving common stock of the Corporation, consummated
within five years after a substantial stockholder becomes a substantial
stockholder, and (h) any agreement, contract or other arrangement
providing for any of the transactions described in this definition of
business combination;
2. The term "substantial stockholder" shall mean and include any
individual, corporation, partnership, "group" or other person or entity
which, together with its "affiliates" and "associates", "beneficially"
owns (as those terms are defined on the date on which this provision
was adopted in Rules 12b-2, 13d-3 and 13d-5(b) of the General Rules and
Regulations under the Securities Exchange Act of 1934) in the aggregate
10% or more of the outstanding shares of common stock of the
Corporation, and any affiliate or associate of any such individual,
corporation, partnership, group or other person or entity excluding,
however, any incumbent members of the Board of Directors as of
September 30, 1985 and any employee benefit plan of the corporation or
its subsidiaries;
3. The term "substantial part" shall mean more than 10% of the total
book value of assets of the corporation in question, as of the end of
its most recent fiscal year ending prior to the time the determination
is being made;
4. Without limitation, any shares of common stock of the Corporation
which any substantial stockholder has the right to acquire at any time
pursuant to any agreement, or upon exercise of conversion rights,
warrants, options, or otherwise, shall be deemed outstanding and
beneficially owned by such substantial stockholder for purposes of this
Article 12 only; and
5. The phrase "other consideration to be received" shall include,
without limitation, common stock of the corporation retained by its
existing stockholders other than a substantial stockholder in the event
of a business combination with such substantial stockholder in which
the corporation is the surviving corporation.
C. The provisions set forth in this Article 12 may not be repealed or
amended in any respect or in any manner including through any merger or
consolidation of the corporation with any other corporation unless the
surviving corporation's Certificate of Incorporation contains an article to
the same effect as this Article 12, except by the affirmative vote of the
holders of not less than 66 2/3% of the stock then entitled to vote in an
election of directors, subject to the provisions of any series of preferred
stock which may at any time be outstanding; provided, however, that if
there is a substantial stockholder such action must be approved by not less
than 66 2/3% of the stock then entitled to vote in an election of directors
owned by persons other than the substantial stockholder.
13. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived any improper personal benefit. Any repeal or
modification hereof by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
II-28
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed as of this day of ,
2000.
Comdisco, Inc.
By: _________________________________
II-29
<PAGE>
ANNEX III
COMDISCO, INC.
COMDISCO VENTURES MANAGEMENT INCENTIVE PLAN
III-1
<PAGE>
Annex III
COMDISCO, INC.
COMDISCO VENTURES MANAGEMENT INCENTIVE PLAN
1. PURPOSE. The purposes of this plan (the "Plan") are to encourage selected
members of senior management of Comdisco Ventures, a division of the Company
who are capable of having an impact on the performance of the Comdisco
Ventures division ("Comdisco Ventures") of Comdisco, Inc., a Delaware
corporation (the "Company") to acquire a long term proprietary interest in the
growth and performance of the Company, to generate an increased incentive to
contribute to the Company's future success and prosperity (thus enhancing the
value of the Company for the benefit of its stockholders), and to enhance the
ability of the Company to attract and retain qualified individuals for the
Comdisco Ventures division upon whom the sustained progress, growth, and
liability profitability of the Company depend.
2. DEFINITIONS. As used in this Plan, terms defined immediately after their
use shall have the respective meanings provided by such definitions and the
terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under the 1934 Act.
(b) "Award" means options or shares of Restricted Stock granted under the
Plan.
(c) "Award Agreement" has the meaning specified in Section 4(c)(v).
(d) "Board" means the Board of Directors of Comdisco.
(e) "Cause" includes termination based on the commission of any act or acts
involving dishonesty, fraud, illegality or moral turpitude.
(f) "Code" means the Internal Revenue Code of 1986, as amended. References
to a particular section of the Code shall include references to successor
provisions.
(g) "Committee" means the committee of the Board appointed pursuant to
Section 4.
(h) "Disability" means a mental or physical condition which, in the opinion
of the Committee, renders a Grantee unable or incompetent to carry out the
job responsibilities which such Grantee held or the tasks to which such
Grantee was assigned at the time the disability was incurred, and which is
expected to be permanent or for an indefinite duration exceeding one year.
(i) "Effective Date" means , 2000 [Date of filing of
Restated Charter].
(j) "Fair Market Value" of any security of the Company means, as of any
applicable date, except as otherwise determined by the Committee, (i) if
such series of Stock is listed on The New York Stock Exchange the closing
sale price of the security on the immediately preceding date as reported on
The New York Stock Exchange Composite Tape, or if no such reported sale of
the security shall have occurred on such date, on the next preceding date
on which there was such a reported sale or (ii) if such series of Stock is
listed on the Nasdaq National Market the last reported sale price per share
of such series of Stock on the Nasdaq National Market, or, if no such
reported sale of the Stock shall have occurred on such date, on the next
preceding date in which there was such a reported sale. If such security
ceases to be listed on The New York Stock Exchange on the Nasdaq National
Market, as applicable, the Board shall designate an alternative method of
determining the Fair Market Value of the security.
(k) "Grant Date" means the date on which an Award shall be duly granted, as
determined in accordance with Section 6(a)(i).
(l) "Grantee" means an individual who has been granted an Award.
(m) "Including" or "includes" means "including, without limitation," or
"includes, without limitation."
(n) "1934 Act" means the Securities Exchange Act of 1934, as amended.
References to a particular section of, or rule under, the 1934 Act shall
include references to successor provisions.
III-2
<PAGE>
(o) "Option Price" means the per share purchase price of Stock subject to
an option.
(p) "Plan" has the meaning set forth in the introductory paragraph.
(q) "Restricted Period" shall mean in relation to Restricted Stock, the
period, beginning with the first day of the month in which Restricted Stock
is granted, during which restrictions on the transferability of the
Restricted Stock are in effect.
(r) "Retirement" means a termination of employment with the Company and its
Subsidiaries by a Grantee any time after attaining age 60.
(s) "SEC" means the Securities and Exchange Commission.
(t) "Section 16 Grantee" means a person subject to potential liability
under Section 16(b) of the 1934 Act with respect to transactions involving
equity securities of the Company.
(u) "Stock" means the Company's Ventures Tracking Stock, par value $0.10
per share.
(v) "Subsidiary" means any entity in which the Company directly or through
intervening subsidiaries owns at least a majority interest of the total
combined voting power or value of all classes of stock or, in the case of
an unincorporated entity, at least a majority in the capital and profits.
3. SCOPE OF THE PLAN.
(a) Subject to the provisions of Section 3(c) and Section 24, the maximum
number of shares of Stock that remain available and reserved for delivery
on account of the exercise of Awards and payments of benefits in connection
with Awards under this Plan is a total of [15% of the deemed outstanding
shares of Stock at time of the initial public offering of the stock] shares
of Stock.
Such shares may be treasury shares, newly issued shares, or shares
purchased on the open market (including private purchases) in accordance
with applicable securities laws, or any combination of the foregoing, as
may be determined from time to time by the Board or the Committee.
(b) If an Award shall be settled in cash instead of Stock or expire or
terminate for any reason without having been exercised in full (including a
cancellation and re-grant of an option pursuant to Section 17), or shall be
forfeited, without, in either case, the Grantee having enjoyed any of the
benefits of stock ownership (other than voting rights or dividends that are
also forfeited), the shares of Stock (including Restricted Stock)
associated with such Award shall not be available for other Awards.
(c) For purposes of this Section 3,
(i) if an Award (other than a Dividend Equivalent as defined in Section
4(c)(vii)) is denominated in shares of Stock, the number of shares
covered by such Award, or to which such Award relates, shall be counted
on the date of grant of such Award against the aggregate number of
shares of Stock available for granting Awards under this Plan; and
(ii) all outstanding shares of Stock issued under this Plan, even if
the Stock is subject to restrictions, shall be counted on the date of
grant of any Award against the aggregate number of shares of Stock
available for granting Awards under this Plan; and
(iii) the shares of Stock underlying outstanding options shall be
counted while the award is outstanding against the aggregate number of
shares of Stock available for granting Awards under this Plan; and
(iv) in the event of a stock-for-stock exercise of an option, the gross
number of shares of Stock subject to the option exercised, not the net
number of shares actually issued upon exercise shall be counted against
the aggregate number of shares of Stock available for granting Awards
under this Plan.
4. ADMINISTRATION. (a) Subject to Section 4(b), this Plan shall be
administered by a committee of the Board ("Committee") which shall consist of
not less than two persons who are directors of the Company. Membership on the
Committee may be subject to such limitations as the Board deems appropriate to
permit transactions in Stock pursuant to the Plan to (i) be exempt from
liability under Section 16(b) of the 1934 Act pursuant to Rule 16b-3
thereunder and (ii) satisfy the performance-based compensation exception to
the $1 million limit under Section 162(m) of the Code.
III-3
<PAGE>
(b) The Board may, in its discretion, reserve to itself or delegate to the
Chief Executive Officer of the Company or another committee of the Board, any
or all of the authority and responsibility of the Committee with respect to
Awards to Grantees who are not Section 16 Grantees at the time any such
delegated authority or responsibility is exercised. Such other committee may
consist of two or more directors who may, but need not be, officers or
employees of the Company or of any of its Subsidiaries. To the extent that the
Board has reserved to itself or delegated to the Chief Executive Officer or
such other committee the authority and responsibility of the Committee, all
references to the Committee in the Plan shall be to the Board, the Chief
Executive Officer or such other committee.
(c) The Committee shall have full and final authority, in its discretion, but
subject to the express provisions of this Plan, as follows:
(i) to grant Awards for Stock;
(ii) to determine (A) when Awards may be granted, and (B) whether or not
specific Awards shall be identified with other specific Awards, and if so,
whether they shall be exercisable cumulatively with or alternatively to
such other specific Awards;
(iii) to interpret this Plan and to make all determinations necessary or
advisable for the administration of this Plan;
(iv) to prescribe, amend, and rescind rules and regulations relating to
this Plan, including rules with respect to the exercisability and non-
forfeitability of Awards upon the termination of employment of a Grantee;
(v) to determine the terms and provisions and any restrictions or
conditions (including specifying such performance criteria as the Committee
deems appropriate, and imposing restrictions with respect to Stock acquired
upon exercise of an option, which restrictions may continue beyond the
Grantee's termination of employment) of the written agreements by which all
Awards shall be evidenced ("Award Agreements") which need not be identical
and, with the consent of the Grantee where required by contract law, to
modify any such Award Agreement at any time;
(vi) to impose, incidental to an Award, conditions with respect to
competitive employment or other activities, to the extent such conditions
do not conflict with this Plan;
(vii) to grant Awards under which the Grantee is entitled to receive
payments equivalent to dividends or interest ("Dividends Equivalents") with
respect to a number of shares of Stock determined by the Committee, and the
Committee may provide that such amount (if any) shall be deemed to have
been reinvested in additional shares of Stock or otherwise reinvested;
(viii) to cancel, with the consent of the Grantee, outstanding Awards and
to grant new Awards in substitution therefor;
(ix) to delegate its duties and responsibilities under this Plan and with
respect to such foreign Subsidiary plans, except its duties and
responsibilities with respect to Section 16 Grantees, and (A) the acts of
such delegates shall be treated hereunder as acts of the Committee, and (B)
such delegates shall report to the Committee regarding the delegated duties
and responsibilities;
(x)to accelerate the exercisability of, and to accelerate or waive any or
all of the restrictions and conditions applicable to, any Award, or any
group of Award for any reason;
(xi) subject to Section 6(a)(ii), to extend the time during which any Award
or group of Awards may be exercised;
(xii) to make such adjustments or modifications to Awards to Grantees
working outside the United States as are necessary and advisable to fulfill
the purposes of this Plan;
(xiii) to impose such additional conditions, restrictions, and limitations
upon the grant, exercise or retention of Awards as the Committee may,
before or concurrently with the grant thereof, deem appropriate, including
requiring simultaneous exercise of related identified Awards, and limiting
the percentage of Awards which may from time to time be exercised by a
Grantee;
III-4
<PAGE>
(xiv) to certify attainment of any performance criteria to which Awards are
subject, if any; and
(xv) to prescribe rules and regulations concerning the transferability of
any Awards.
The determination of the Committee on all matters relating to this Plan or any
Award Agreement shall be conclusive and final. No member of the Committee
shall be liable for any action or determination made in good faith with
respect to this Plan or any Award.
5. ELIGIBILITY. Awards may be granted to any member of the senior management
of Comdisco Ventures as determined by the Committee. In selecting the
individuals to whom Awards may be granted, as well as in determining the
number of shares of Stock subject to, and the other terms and conditions
applicable to, each Award, the Committee shall take into consideration such
factors as it deems relevant in promoting the purposes of this Plan.
6. CONDITIONS TO GRANTS. (a) General Conditions:
(i) The Grant Date of an Award shall be the date on which the Committee
grants the Award or such later date as specified in advance by the
Committee;
(ii) The term of each Award shall be a period of not more than 15 years
from the Grant Date, and shall be subject to earlier termination as herein
provided that the term of an incentive stock option (as defined in Section
6(b)) shall not exceed ten (10) years, except that the term of an incentive
stock option which is required to have an Option Price of at least 110% of
Fair Market Value, as provided in Section 6(b), shall not exceed five (5)
years; and
(iii) A Grantee may, if otherwise eligible, be granted additional Awards in
any combination.
(b) Grant of Options and Option Price.
(i) No later than the Grant Date of any option, the Committee shall
determine the Option Price of such option. Options granted under this
Section 6(b) may be either "incentive stock options" or "non-qualified
stock options" as determined in the discretion of the Board. An "incentive
stock option" is an option that is intended to satisfy the requirements
applicable to an "incentive stock option" described in section 422(b) of
the Code. A "non-qualified stock option" is an option that is not intended
to be an "incentive stock option" as that term is described in section
422(b) of the Code.
(A) The exercise price per share specified in the agreement relating to
each non-qualified stock option granted under the Plan may be less than
the Fair Market Value of the Stock on the Grant Date; provided that, in
no event shall such exercise price be less than the minimum legal
consideration required therefor under the laws of any jurisdiction in
which the Company or its successors in interest may be organized.
(B) The exercise price per share specified in the agreement relating to
each incentive stock option granted under the Plan shall not be less
than the Fair Market Value per share of Stock on the Grant Date. In the
case of an incentive stock option to be granted to an employee owning
stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Subsidiary,
the price per share specified in the agreement relating to such
incentive stock option shall not be less than one hundred ten percent
(110%) of the fair market value per share of Stock on the date of
grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply.
(C) Each eligible employee may be granted options treated as incentive
stock options only to the extent that, in the aggregate under this Plan
and all incentive stock option plans of the Company and any Subsidiary,
incentive stock options do not become exercisable for the first time by
such employee during any calendar year with respect to stock having a
Fair Market Value (determined at the time the
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<PAGE>
incentive stock options were granted) in excess of $100,000. The
Company intends to designate any options granted in excess of such
limitation as non-qualified stock options, and the Company shall issue
separate certificates to the optionee with respect to options that are
non-qualified stock options and options that are incentive stock
options.
(ii) The Award Agreement may provide that the option shall be exercisable
for Restricted Stock.
(iii) No incentive stock option shall be granted after , 2010
[tenth anniversary of Restatement Date].
(c) Grant of Shares of Restricted Stock.
(i) The Committee may, in its discretion grant shares of Restricted Stock
to any individual eligible under Section 5 to receive Awards.
(ii) The Committee shall, in its discretion, determine the amount, if any,
that a Grantee shall pay for shares of Restricted Stock. Awards shall be
granted for no cash consideration or for such minimal cash consideration as
may be required by applicable law. If any such cash consideration is
required, payment shall be made in full by the Grantee before the delivery
of the shares and in any event no later than 10 days after the Grant Date
for such shares. In the discretion of the Committee and to the extent
permitted by law, payment may also be made in accordance with Section 10.
(iii) The Committee may, but need not, provide that all or any portion of a
Grantee's Award of Restricted Stock, or Restricted Stock acquired upon
exercise of an option shall be forfeited:
(A) except as otherwise specified in the Award Agreement, upon the
Grantee's termination of employment for any reason specified in the
Award Agreement within a specified time period after the Grant Date, or
(B) if the Company or the Grantee does not achieve specified
performance objectives (if any) within a specified time period after
the Grant Date and before the Grantee's termination of employment, or
(C) upon failure to satisfy such other restrictions as the Committee
may specify in the Award Agreement; provided that, subject to Sections
4(c)(xi) and 14, in no case shall such Award become nonforfeitable
before the first anniversary of the Grant Date.
(iv) If a share of Restricted Stock is forfeited, then (A) if the Grantee
was required to pay for such share or acquired such Restricted Stock upon
the exercise of an option, the Grantee shall be deemed to have resold such
share of Restricted Stock to the Company at the lesser of (1) the amount
paid or, if the Restricted Stock was acquired on exercise of an option, the
Option Price paid by the Grantee for such share of Restricted Stock, or (2)
the Fair Market Value of a share of Stock on the date of such forfeiture;
(B) the Company shall pay to the Grantee the amount determined under clause
(A) of this sentence as soon as is administratively practical; and (C) such
share of Restricted Stock shall cease to be outstanding, and shall no
longer confer on the Grantee thereof any rights as a stockholder of the
Company, from and after the later of the date the event causing the
forfeiture occurred or the date of the Company's tender of the payment
specified in clause (B) of this sentence, whether or not such tender is
accepted by the Grantee.
(v) The Committee may provide that any share of Restricted Stock shall be
held (together with a stock power executed in blank by the Grantee) in
escrow by the Secretary of the Company until the expiration of the
Restricted Period and/or such shares become nonforfeitable or are
forfeited. Any share of Restricted Stock shall bear an appropriate legend
specifying that such share is non-transferable and subject to the
restrictions set forth in the Plan and the Award Agreement. If any shares
of Restricted Stock become nonforfeitable, and any applicable Restricted
Period has ended, the Company shall cause certificates for such shares to
be issued or reissued without such legend.
(vi) The Committee may provide one or more Restricted Periods applicable to
Restricted Stock, at its discretion. Such Restricted Period shall be
measured from the first day of the month in which Restricted Stock is
granted with respect to such Restricted Period.
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<PAGE>
(vii) Each grant of Restricted Stock shall be evidenced by a written
instrument stating the number of shares of Restricted Stock granted, the
Restriction Period, the restrictions applicable to such Restricted Stock,
the nature and terms of payment of consideration, if any, the consequences
of forfeiture that will apply to such Restricted Stock, and any other
terms, conditions and rights with respect to such grant.
(viii) Any other provision of this Plan to the contrary notwithstanding,
the Committee may at any time shorten any Restricted Period, if it
determines that conditions, including but not limited to, changes in the
economy, changes in competitive conditions, changes in laws or government
regulations, changes in generally accepted accounting principles, changes
in the Company's accounting policies, acquisitions or dispositions, or the
occurrence of other unusual, unforeseen, or extraordinary events, so
warrant.
7. GRANTEE'S AGREEMENT TO SERVE; OTHER CONDITIONS TO GRANTS OF AWARDS.
(a) Each Grantee who is granted an Award shall, by executing such Grantee's
Award Agreement, agree that such Grantee will remain in the employ of the
Company or any of its Subsidiaries for at least one year after the Grant Date.
No obligation of the Company or any of its Subsidiaries as to the length of
any Grantee's employment shall be implied by the terms of this Plan, any grant
of an Award hereunder or any Award Agreement. The Company and its Subsidiaries
reserve the same rights to terminate employment of any Grantee as existed
before the Effective Date.
(b) As a condition to the grant of an Award each Grantee will enter into a
management contract containing terms and conditions, including reasonable
noncompetition provisions, acceptable to the Company. A Grantee's failure to
comply with the terms of his or her management contract during the twelve
months after any exercise, payment or delivery pursuant to an Award shall
cause such exercise, payment or delivery to be rescinded. At the time Grantee
exercises any Award, or receives payment or delivery pursuant to any Award,
the Grantee shall certify to the Company in writing that Grantee is in
compliance with the provisions of the applicable management contract.
8. NON-TRANSFERABILITY. Except as otherwise provided by the Committee, each
Award (other than Restricted Stock) granted hereunder shall not be assignable
or transferable other than by will or the laws of descent and distribution;
provided, however, that a Grantee may in a manner specified by the Committee
and to the extent provided in this Plan (a) designate in writing a beneficiary
to exercise his/her Award after the Grantee's death and (b) transfer an option
to a revocable, inter vivos trust as to which the Grantee is both the settlor
and trustee and (c) if the Award Agreement expressly permits, transfer an
Award (other than Restricted Stock) for no consideration to any of the
following permissible transferees (each a "Permissible Transferee"): (x) any
member of the Immediate Family of the Grantee to whom such Award was granted,
(y) any trust solely for the benefit of members of the Grantee's Immediate
Family, or (z) any partnership whose only partners are members of the
Grantee's Immediate Family; and further provided that (i) the transferee shall
remain subject to all of the terms and conditions applicable to such Award
prior to such transfer; and (ii) any such transfer shall be subject to and in
accordance with the rules and regulations prescribed by the Committee in
accordance with Section 4(c). For purposes of this Section 8, "Immediate
Family" means, with respect to a particular Grantee, such Grantee's spouse,
children and grandchildren. Each share of Restricted Stock shall be
nontransferable until such share becomes nonforfeitable and the Restricted
Period, if any, lapses.
9. EXERCISE OF OPTIONS. Subject to Sections 4(c)(xi) and 14 and such terms and
conditions as the Committee may impose, each option shall be exercisable in
one or more installments.
Each option shall be exercised by delivery to the Company of written notice of
intent to purchase a specific number of shares of Stock subject to the option.
The Option Price of any shares of Stock or shares of Restricted Stock as to
which an option shall be exercised shall be paid in full at the time of the
exercise. Payment may, at the election of the Grantee, be made in any one or
any combination of the following:
(a) cash;
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<PAGE>
(b) Stock held by the Grantee for at least 6 months prior to exercise of
the option, valued at its Fair Market Value on the date of exercise;
(c) with the approval of the Committee, shares of Restricted Stock held by
the Grantee for at least 6 months prior to exercise of the option, each
valued at the Fair Market Value of a share of Stock on the date of
exercise; or
(d) by delivery of a properly executed exercise notice to the Company,
together with a copy of irrevocable instructions to a broker or lending
institution authorizing them to sell the Stock (or a sufficient portion
thereof) acquired upon exercise of an option, and assigning the delivery to
the Company of a sufficient amount of the sale proceeds to pay for all the
Stock acquired through such exercise and any tax withholding obligations
resulting from such exercise;
(e) in the discretion of the Committee and to the extent permitted by law,
payment may also be made in accordance with Section 10.
If Restricted Stock is used to pay the Option Price for Stock subject to an
option ("Tendered Restricted Stock"), then the Committee may, but need not,
specify that (i) all the shares of Stock acquired on exercise of the Option
shall be subject to the same restrictions as the Tendered Restricted Stock,
determined as of the date of exercise of the option, or (ii) a number of
shares of Stock acquired on exercise of the option equal to the number of
shares of Tendered Restricted Stock shall, unless the Committee provides
otherwise, be subject to the same restrictions as the Tendered Restricted
Stock, determined as of the date of exercise of the option.
10. LOANS AND GUARANTEES. The Committee may, in its discretion:
(a) allow a Grantee to defer payment to the Company of all or any portion
of (i) the Option Price of an option, (ii) the purchase price of a share of
Restricted Stock, or (iii) any taxes associated with a benefit hereunder
which is not a cash benefit at the time such benefit is so taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such Option Price,
purchase price, or any related taxes.
Any such payment, deferral or guarantee by the Company pursuant to this
Section 10 shall be on such terms and conditions as the Committee may
determine; provided that the interest rate applicable to any such payment
deferral shall not be more favorable to the Grantee than the terms applicable
to funds borrowed by the Company. Notwithstanding the foregoing, a Grantee
shall not be entitled to defer the payment of such Option Price, purchase
price or any related taxes unless the Grantee enters into a binding obligation
to pay the deferred amount. If the Committee has permitted a payment deferral
or caused the Company to guarantee a loan pursuant to this Section 10, then
the Committee may, in its discretion, require the immediate payment of such
deferred amount or the immediate release of such guarantee upon the Grantee's
termination of employment or if the Grantee sells or otherwise transfers the
Grantee's shares of Stock purchased pursuant to such deferral or guarantee.
11. NOTIFICATION UNDER CODE SECTION 83(b). The Committee may, on the Grant
Date or any later date, prohibit a Grantee from making the election described
below. If the Committee has not prohibited such Grantee from making such
election, and the Grantee shall, in connection with the exercise of any option
or the grant of any share of Restricted Stock make the election permitted
under Section 83(b) of the Code (i.e., an election to include in such
Grantee's gross income in the year of transfer the amounts specified in
Section 83(b) of the Code), such Grantee shall notify the Company of such
election within 10 days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant
to regulations issued under the authority of Section 83(b) of the Code.
12. MANDATORY WITHHOLDING OF TAXES. Whenever under this Plan, cash or shares
of Stock are to be delivered upon exercise or payment of an Award or upon a
share of Restricted Stock becoming nonforfeitable, or any other event occurs
which subjects the Grantee to income taxes with respect to rights and benefits
hereunder, the Company shall be entitled to require as a condition of delivery
(i) that the Grantee remit an amount sufficient to satisfy all federal, state,
and local withholding tax requirements related thereto, (ii) the withholding
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<PAGE>
of such sums from compensation otherwise due to the Grantee or from any shares
of Stock due to the Grantee under this Plan, or (iii) any combination of the
foregoing.
13. ELECTIVE SHARE WITHHOLDING.
(a) Subject to Section 13(b), a Grantee may elect the withholding ("Share
Withholding") by the Company of a portion of the shares of Stock otherwise
deliverable to such Grantee upon the exercise or payment of an Award or upon a
share of Restricted Stock becoming nonforfeitable (each a "Taxable Event")
having a Fair Market Value equal to:
(i) the minimum amount necessary to satisfy required federal, state, or
local withholding tax liability attributable to the Taxable Event; or
(ii) with the Committee's prior approval, a greater amount, not to exceed
the estimated total amount of such Grantee's tax liability with respect to
the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject to the
following restrictions:
(i) any Grantee's election shall be subject to the Committee's right to
revoke such election of Share Withholding by such Grantee at any time
before the Grantee's election if the Committee has reserved the right to do
so in the Award Agreement;
(ii) the Grantee's election must be made before the date (the "Tax Date")
on which the amount of tax to be withheld is determined;
(iii) the Grantee's election shall be irrevocable; and
(iv) no election to have shares of stock withheld from any Award shall be
effective with respect to an Award which was transferred by the Grantee in
accordance with this Plan.
14. TERMINATION OF EMPLOYMENT.
(a) For Cause. If a Grantee has a termination of employment for Cause,
(i) the Grantee's shares of Restricted Stock that are forfeitable shall
thereupon be forfeited, subject to the provisions of Section 6(c)(iv)
regarding repayment of certain amounts to the Grantee; and
(ii) any unexercised option shall thereupon terminate.
(b) On Account of Death or Disability. Except as may otherwise be provided in
the Award Agreement if the Grantee has a termination of employment:
(i) Restricted Stock.
(A) prior to the shares of Restricted Stock becoming non-forfeitable by
reason of:
(1)death, all Restricted Stock granted to such Grantee shall become
non-forfeitable.
(2)the Disability of Grantee, such termination shall not constitute
a termination of employment for purposes of Restricted Stock and
such Grantee shall not forfeit any Restricted Stock held by him/her,
provided that during the balance of the period in which the
Restricted Stock would otherwise remain forfeitable such Grantee
does not engage in or assist any business that the Company, in its
sole discretion, determines to be in competition with business
engaged in by it. A Grantee who does engage in or assist any
business that the Company, in its sole discretion, determines to be
in competition with business engaged in by it, shall be deemed to
have terminated employment.
(B)after the Restricted Stock is nonforfeitable but prior to the end of
Restricted Period, by reason of death or Disability all Restricted
Stock granted to such Grantee shall be immediately payable.
(ii) Options. By reason of death or Disability, any unexercised option to
the extent exercisable on the date of termination of employment upon death
or Disability, may be exercised, in whole or in part, at any time
III-9
<PAGE>
within five months after such termination of employment by the Grantee, the
Grantee's guardian, legal representative, or, after the Grantee's death, by
(A) his/her personal representative, executor, administrator, or by the
person to whom the option is transferred by will or the applicable laws of
descent and distribution, (B) the Grantee's beneficiary designated in
accordance with Section 8, or (C) the then-acting trustee of the trust
described in clause (b) of the first sentence of Section 8 (but only if the
condition set forth in such clause (b) has been satisfied); and
(c) On Account of Retirement.
(i)If a Grantee has a termination of employment on account of Retirement,
any unexercised option which is then exercisable, may be exercised, in
whole or in part, not later than the 30th day following the Grantee's
Retirement, provided that following Retirement, such Grantee does not
engage in or assist in any business that the Company, in its sole
discretion, determines to be in competition with the business engaged in by
it during such period; provided, however, that if such 30th day is not a
business day, such option may be exercised not later than the first
business day following such 30th day; and provided further, that if the
Grantee dies within such thirty-day period, then the exercisability of the
Grantee's options shall be determined under Section 14(b).
(ii)The non-forfeitability and exercisability of the Grantee's Restricted
Stock shall be determined under Section 14(d).
(d) Any Other Reason. If a Grantee has a termination of employment for a
reason other than for Cause, death of the Grantee, the Grantee's Disability,
and, with respect to options, the termination of employment is for reasons
other than the Grantee's Retirement,
(i)Restricted Stock. The Grantee's shares of Restricted Stock, to the
extent forfeitable on the date of the Grantee's termination of employment,
shall be forfeited on such date. If the termination of employment occurs
after the Restricted Stock becomes nonforfeitable but prior to the end of a
Restricted Period, such termination shall not have any effect on any
Restricted Period, unless the Committee, in its sole discretion, finds that
the circumstances so warrant and determines that the Restricted Period
shall end on an earlier date as determined by the Committee, and that
shares held by the Company shall be paid as soon as practicable following
such earlier date; and
(ii)Options. Any unexercised option, to the extent exercisable on the date
of the Grantee's termination of employment, may be exercised in whole or in
part, not later than the 30th day following the Grantee's termination of
employment; provided, however, that if such 30th day is not a business day,
such option may be exercised not later than the first business day
following such 30th day; and provided further, that if the Grantee dies
within such thirty-day period, then the exercisability of the Grantee's
options shall be determined under Section 14(b).
(e) Extension of Term. In the event of termination of employment other than
for Cause, the term of any Award which by its terms would otherwise expire
after the Grantee's termination of employment but prior to the end of the
period following the Grantee's termination of employment described in Sections
(b), (c), and (d) above for exercise of Awards shall be extended so as to
permit any unexercised portion thereof to be exercised at any time within such
period to the extent exercisable on the date of the Grantee's termination of
employment; provided, however, that in no event may the term of any Award
expire or be exercisable more than 15 years after the Grant Date of such
Award.
15. CHANGE IN CONTROL. Notwithstanding any other provision of this Plan to the
contrary, if, while any Awards remain outstanding under this Plan, a "Change
in Control" (as defined below) should occur, then (1) all options that are
outstanding at the time of such Change in Control shall become immediately
vested and exercisable in full; and (2) all restrictions with respect to
shares of Restricted Stock shall lapse, and such shares shall be fully vested
and nonforfeitable. A Change in Control shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have
been satisfied:
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<PAGE>
(i)any person (as defined in Section 3(a)(9) of the 1934 Act, as such term
is modified in Sections 13(d) and 14(d) of the 1934 Act), other than (1)
any employee plan established by the Company, any Affiliate, or any
Subsidiary (2) the Company, an Affiliate or Subsidiary, (3) an underwriter
temporarily holding securities pursuant to an offering of such securities,
or (4) a corporation owned, directly or indirectly, by stockholders of the
Company in substantially the same proportions as their ownership of the
Company, is or becomes the beneficial owner (within the meaning of Rule
13d-3 promulgated under the 1934 Act), directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such person any securities acquired directly from the Company, its
Subsidiaries or its Affiliates) representing 35% or more of the combined
voting power of the Company's then outstanding voting securities;
(ii)a majority of the members of the Board shall cease to be Continuing
Members. For this purpose, "Continuing Member" means a member of the Board
who either (i) was a member of the Board on the Effective Date hereof and
has been such continuously thereafter or (ii) became a member of such Board
after the Effective Date and whose election or nomination for election was
approved by a vote of at least two-thirds of the Continuing Members then
members of the Company's Board (other than a nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the members of the
Board, as such terms are used in Rule 14a-11 of Regulation 14A under the
1934 Act);
(iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (1) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the ownership
of any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Affiliate or Subsidiary, at least 75% of
the combined voting power of the voting securities of the Company or such
surviving entity or any parent thereof outstanding immediately after such
merger or consolidation, or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no person (determined pursuant to clause (i) above) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any
securities acquired directly from the Company, its Subsidiaries or its
Affiliates) representing 35% or more of the combined voting power of the
Company's then outstanding voting securities; or
(iv)the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to have
occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the
Company's then outstanding voting securities immediately prior to such
transaction or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns substantially all of
the assets of the Company immediately prior to such transaction or series
of transactions.
The Committee may also determine, in its discretion, that a sale or other
disposition of a substantial portion of the assets of Comdisco Ventures
constitutes a "Change of Control" with respect to Awards held by Grantees.
16. SUBSTITUTED AWARDS. If the Committee cancels any Award (granted under this
Plan or any plan of any entity acquired by the Company or any of its
Subsidiaries), and a new Award is substituted therefor, then the Committee
may, in its discretion, determine the terms and conditions of such new Award;
provided that (a) the Option Price of any new option shall not be less than
100% of the Fair Market Value of a share of Stock on the date of grant of the
new Award; and (b) no Award shall be canceled without the consent of Grantee
if the terms and conditions of the new Award to be substituted are not at
least as favorable as the terms and conditions of the Award to be canceled
(and the Grant Date of the new Award shall be the date on which such new Award
is granted).
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17. SECURITIES LAW MATTERS. (a) If the Committee deems it necessary to comply
with the Securities Act of 1933, the Committee may require a written
investment intent representation by the Grantee and may require that a
restrictive legend be affixed to certificates for shares of Stock.
(b) If, based upon the opinion of counsel for the Company, the Committee
determines that the exercise or non-forfeitability of, or delivery of benefits
pursuant to, any Award would violate any applicable provision of (i) federal
or state securities laws or (ii) the listing requirements of any national
securities exchange on which are listed any of the Company's equity
securities, then the Committee may postpone any such exercise, non-
forfeitability or delivery, as the case may be, but the Company shall use its
best efforts to cause such exercise, non-forfeitability or delivery to comply
with all such provisions at the earliest practicable date.
18. FUNDING. Benefits payable under the Plan to any person shall be paid
directly by the Company. The Company shall not be required to fund, or
otherwise segregate assets to be used for payment of, benefits under this
Plan.
19. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor the
granting of any Award shall be construed to (a) give any Grantee the right to
remain employed by the Company or any of its Subsidiaries or to any benefits
not specifically provided by the Plan or (b) in any manner modify the right of
the Company or any of its Subsidiaries to modify, amend, or terminate any of
its employee benefit plans. Further, the Company or Subsidiary may at any time
dismiss a Grantee from employment, free from any liability, or any claim under
the Plan, unless otherwise expressly provided in this Plan or in any Award
Agreement.
20. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of any Award
(other than Restricted Stock) have any right as a stockholder of the Company
with respect to the shares of Stock which may be deliverable upon exercise or
payment of such Award until such shares have been delivered to him. Shares of
Restricted Stock held by a Grantee or held in escrow by the Secretary of the
Company shall confer on the Grantee all rights of a stockholder of the
Company, except as otherwise provided in the Plan. The Committee, in its
discretion, at the time of grant of Restricted Stock, may permit or require
the payment of cash dividends thereon to be deferred and, if the Committee so
determines, reinvested in additional Restricted Stock to the extent shares are
available under Section 3 or otherwise reinvested. Stock dividends and
deferred cash dividends issued with respect to Restricted Stock shall be
treated as additional shares of Restricted Stock that are subject to the same
restrictions and other terms as apply to the shares with respect to which such
dividends are issued. The Committee may, in its discretion, provide for
crediting to and payment of interest on deferred cash dividends.
21. NATURE OF PAYMENTS. Any and all grants, payments of cash, or deliveries of
shares of Stock hereunder shall constitute special incentive payments to the
Grantee and shall not be taken into account in computing the amount of salary
or compensation of the Grantee for the purposes of determining any pension,
retirement, death or other benefits under (a) any pension, retirement, profit-
sharing, bonus, life insurance or other employee benefit plan of the company
or any of its Subsidiaries or (b) any agreement between the Company or any
Subsidiary, on the one hand, and the Grantee, on the other hand, except as
such plan or agreement shall otherwise expressly provide.
22. NON-UNIFORM DETERMINATIONS. Neither the Committee's nor the Board's
determinations under the Plan need be uniform and may be made by the Committee
or the Board selectively among persons who receive, or are eligible to
receive, Awards (whether or not such persons are similarly situated). Without
limiting the generality of the foregoing, the Committee shall be entitled,
among other things, to make non-uniform and selective determinations and to
enter into non-uniform and selective Award Agreements, as to (a) the identity
of the Grantees, (b) the terms and provisions of Awards, and (c) the
treatment, under Section 14, of terminations of employment. Notwithstanding
the foregoing, the Committee's interpretation of Plan provisions shall be
uniform as to similarly situated Grantees.
23. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION. The Committee shall make such
adjustment, as it shall deem equitable, to any or all of:
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(a) the aggregate numbers of shares of Stock and shares of Restricted Stock
available under Section 3(a);
(b) the number of shares of Stock or shares of Restricted Stock covered by
an outstanding Award;
(c) the Option Price; and
(d) any other terms or provisions of any outstanding grants of Stock
options or Restricted Stock;
to reflect a stock dividend, stock split, reverse stock split, share
combination, re-capitalization, merger, consolidation, acquisition of property
or shares, separation, spin-off, reorganization, stock rights offering,
liquidation or similar event, of or by the Company with respect to the Stock,
or, if deemed appropriate, the Committee may make provisions for a cash
payment to the holder of an outstanding Award; provided, however, in each
case, that the number of shares subject to any Award denominated in shares of
Stock shall always be a whole number. Notwithstanding any part of the
foregoing to the contrary, upon the approval by the stockholders of the
Company of a plan of liquidation for the Company, any unexercised options
previously granted become exercisable, and any shares of Restricted Stock that
have not become nonforfeitable shall become nonforfeitable.
24. AMENDMENT OR TERMINATION OF THE PLAN. The Board may amend or terminate
this Plan at any time; provided, however, that subject to Section 23, no
amendment or termination may, in the absence of written consent to the change
by the affected Grantee (or, if the Grantee is not then living, the affected
beneficiary), adversely affect the rights of any Grantee or beneficiary under
any Award granted under this Plan prior to the date such amendment is adopted
by the Board.
25. OTHER COMPENSATION PLANS. Nothing contained in this Plan shall prevent the
Company or any Affiliate from adopting or continuing in effect other or
additional compensation arrangements, and such arrangements may be either
generally applicable or applicable only in specific cases.
26. NO ILLEGAL TRANSACTIONS. This Plan and all Awards granted pursuant to it
are subject to all laws and regulations of any governmental authority which
may be applicable thereto; and notwithstanding any provision of this Plan or
any Award, Grantees shall not be entitled to exercise Awards or receive the
benefits thereof and the Company shall not be obligated to deliver any Stock
or pay any benefits to a Grantee if such exercise, delivery, receipt or
payment of benefits would constitute a violation by the Grantee or the Company
of any provision of any such law or regulation.
27. NO TRUST OR FUND CREATED. Neither this Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or Subsidiary and a Grantee or any other
person. To the extent that any person acquires a right to receive payments
from the Company or Subsidiary pursuant to an Award, such right shall be no
greater than the right of an unsecured general creditor of the Company or
Subsidiary.
28. CONTROLLING LAW. The law of the State of Illinois, except its law with
respect to choice of law and except as to matters relating to corporate law
(in which case the corporate law of the State of Delaware shall control),
shall be controlling in all matters relating to this Plan.
29. TAX LITIGATION. The Company shall have the right to contest, at its
expense, any tax ruling or decision, administrative or judicial, on any issue
that is related to this Plan and that the Company believes to be important to
Grantees and to conduct any such contest or any litigation arising therefrom
to a final decision.
30. SEVERABILITY. If all or any part of this Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Plan not declared
to be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner in which will
give effect to the terms of such Section or part of a Section to the fullest
extent possible while remaining lawful and valid.
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<PAGE>
31. INDEMNIFICATION. Each person who is or at any time serves as a member of
the Board or the Committee or otherwise acts with respect to this Plan
pursuant to authority delegated to him/her in accordance with this Plan shall
be indemnified and held harmless by the Company against and from: (i) any
loss, cost, liability or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim,
action, suit, or proceeding to which such person may be a party or in which
such person may be involved by reason of any action or failure to act under
this Plan; and (ii) any and all amounts paid by such person in satisfaction of
judgment in any such action, suit or proceeding relating to this Plan. Each
person covered by this indemnification shall give the Company an opportunity,
at its own expense, to handle and defend the same before such person
undertakes to handle and defend it on such person's own behalf. The foregoing
right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Bylaws of this
Company, as a matter of law, or otherwise, or any power that the Company may
have to indemnify such person or hold such person harmless.
32. RELIANCE ON REPORTS. Each member of the Board and the Committee shall be
fully justified in relying or acting in good faith upon any report made by the
independent public accountants of, or counsel for, this Company and upon any
other information furnished in connection with the Plan. In no event shall any
person who is or shall have been a member of the Board or the Committee be
liable for any determination made or other action taken or any omission to act
in reliance upon any such report or information or for any action taken,
including the furnishing of information, or failure to act, if in good faith.
33. EXPENSES. The Company shall bear all expenses of administering this Plan.
34. TITLES AND HEADINGS. The titles and headings of the sections in this Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
Adopted by the Board of
Directors
and Approved by the
Stockholders
of the Company as of April , 2000.
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<PAGE>
ANNEX IV
COMDISCO, INC.
AMENDED AND RESTATED
1998 LONG-TERM STOCK OWNERSHIP
INCENTIVE PLAN
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<PAGE>
ANNEX IV
COMDISCO, INC.
AMENDED AND RESTATED
1998 LONG-TERM STOCK OWNERSHIP INCENTIVE PLAN
1. PURPOSE. The purposes of this plan (the "Plan") are to encourage selected
employees, officers and Directors of Comdisco, Inc., a Delaware corporation
(the "Company"), and its Subsidiaries who are capable of having an impact on
the performance of the Company to acquire a long term proprietary interest in
the growth and performance of the Company, to generate an increased incentive
to contribute to the Company's future success and prosperity (thus enhancing
the value of the Company for the benefit of its stockholders), and to enhance
the ability of the Company and its Subsidiaries to attract and retain
qualified individuals upon whom the sustained progress, growth, and liability
profitability of the Company depend.
2. DEFINITIONS. As used in this Plan, terms defined immediately after their
use shall have the respective meanings provided by such definitions and the
terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under the 1934 Act.
(b) "Award" means options, shares of Restricted Stock, Stock Appreciation
Rights, Performance Units, or Stock Bonuses granted under the Plan.
(c) "Award Agreement" has the meaning specified in Section 4(c)(v).
(d) "Board" means the Board of Directors of Comdisco.
(e) "Cause" includes termination based on the commission of any act or acts
involving dishonesty, fraud, illegality or moral turpitude.
(f) "Code" means the Internal Revenue Code of 1986, as amended. References
to a particular section of the Code shall include references to successor
provisions.
(g) "Committee" means the committee of the Board appointed pursuant to
Section 4.
(h) "Disability" means a mental or physical condition which, in the opinion
of the Committee, renders a Grantee unable or incompetent to carry out the
job responsibilities which such Grantee held or the tasks to which such
Grantee was assigned at the time the disability was incurred, and which is
expected to be permanent or for an indefinite duration exceeding one year.
(i) "Original Effective Date" means January 30, 1998.
(j) "Fair Market Value" of any security of the Company means, as of any
applicable date, except as otherwise determined by the Committee, (i) if
the security is listed on The New York Stock Exchange the closing sale
price of the security on the immediately preceding date as reported on The
New York Stock Exchange Composite Tape, or if no such reported sale of the
security shall have occurred on such date, on the next preceding date on
which there was such a reported sale or (ii) if such series of Stock is
listed on the Nasdaq National Market the last reported sale price per share
of such series of Stock on the Nasdaq National Market, or, if no such
reported sale of the Stock shall have occurred on such date, on the next
preceding date in which there was such a reported sale. If such security
ceases to be listed on The New York Stock Exchange on the Nasdaq National
Market, as applicable, the Board shall designate an alternative method of
determining the Fair Market Value of the security.
(k) "Grant Date" means the date on which an Award shall be duly granted, as
determined in accordance with Section 6(a)(i).
(l)"Grantee" means an individual who has been granted an Award.
IV-2
<PAGE>
(m) "Including" or "includes" means "including, without limitation," or
"includes, without limitation."
(n) "1934 Act" means the Securities Exchange Act of 1934, as amended.
References to a particular section of, or rule under, the 1934 Act shall
include references to successor provisions.
(o) "Option Price" means the per share purchase price of Stock subject to
an option.
(p) "Performance Percentage" has the meaning specified in Section
6(e)(i)(C).
(q) "Performance Period" has the meaning specified in Section 6(e)(i)(B).
(r) "Plan" has the meaning set forth in the introductory paragraph.
(s) "Restatement Date" means , 2000 [date of filing of Restated
Charter].
(t) "Restricted Period" shall mean (i) in relation to shares of Stock
receivable in payment for Performance Units, the period beginning at the
end of the applicable performance period during which restrictions on the
transferability of such shares of Stock are in effect; and (ii) in relation
to Restricted Stock, the period, beginning with the first day of the month
in which Restricted Stock is granted, during which restrictions on the
transferability of the Restricted Stock are in effect.
(u) "Retirement" means a termination of employment with the Company and its
Subsidiaries by a Grantee any time after attaining age 60.
(v) "SEC" means the Securities and Exchange Commission.
(w) "Section 16 Grantee" means a person subject to potential liability
under Section 16(b) of the 1934 Act with respect to transactions involving
equity securities of the Company.
(x) "Stock" means any and all series of the Company's common stock
authorized by the Company's Amended and Restated Certificate of
Incorporation or designated by the Company's Board of Directors in
accordance with that certificate and Delaware law.
(y) "Subsidiary" means any entity in which the Company directly or through
intervening subsidiaries owns at least a majority interest of the total
combined voting power or value of all classes of stock or, in the case of
an unincorporated entity, at least a majority in the capital and profits.
3. SCOPE OF THE PLAN. (a) Subject to the provisions of Section 3(c) and
Section 24, the maximum number of shares of Stock that remain available and
reserved for delivery on account of the exercise of Awards and payments of
benefits in connection with Awards under this Plan as of the Restatement Date
is a total of 15,000,000 shares of Stock (regardless of series).
Such shares may be treasury shares, newly issued shares, or shares purchased
on the open market (including private purchases) in accordance with applicable
securities laws, or any combination of the foregoing, as may be determined
from time to time by the Board or the Committee.
(b) Subject to adjustment as provided in Section 24, following the Restatement
Date the maximum number of shares of Stock for which Awards may be granted to
any Grantee in any calendar year shall not exceed 600,000.
(c) To the extent an Award shall be settled in cash instead of Stock or expire
or terminate for any reason without having been exercised in full (including a
cancellation and re-grant of an option pursuant to Section 17), or shall be
forfeited, without, in either case, the Grantee having enjoyed any of the
benefits of stock ownership (other than voting rights or dividends that are
also forfeited), the shares of Stock (including Restricted Stock) associated
with such Award shall become available for other Awards.
(d) For purposes of this Section 3,
(i) if an Award (other than a Dividend Equivalent as defined in Section
4(c)(vii)) is denominated in shares of Stock, the number of shares covered
by such Award, or to which such Award relates, shall be counted on the date
of grant of such Award against the aggregate number of shares of Stock
available for granting Awards under this Plan; and
IV-3
<PAGE>
(ii) all outstanding shares of Stock issued under this Plan, even if the
Stock is subject to restrictions, shall be counted on the date of grant of
any Award against the aggregate number of shares of Stock available for
granting Awards under this Plan;
(iii) the shares of Stock underlying outstanding options, Stock
Appreciation Rights ("SARs"), and similar Awards shall be counted while the
award is outstanding against the aggregate number of shares of Stock
available for granting Awards under this Plan;
(iv) where SARs are exercised for cash, the shares of Stock subject to such
SARs shall become available for other Awards; and
(v) in the event of a stock-for-stock exercise of an option, the gross
number of shares of Stock subject to the option exercised, not the net
number of shares actually issued upon exercise shall be counted against the
aggregate number of shares of Stock available for granting Awards under
this Plan.
4. ADMINISTRATION. (a) Subject to Section 4(b), this Plan shall be
administered by a committee of the Board ("Committee") which shall consist of
not less than two persons who are directors of the Company. Membership on the
Committee may be subject to such limitations as the Board deems appropriate to
permit transactions in Stock pursuant to the Plan to (i) be exempt from
liability under Section 16(b) of the 1934 Act pursuant to Rule 16b-3
thereunder and (ii) satisfy the performance-based compensation exception to
the $1 million limit under Section 162(m) of the Code.
(b) The Board may, in its discretion, reserve to itself or delegate to the
Chief Executive Officer of the Company or another committee of the Board, any
or all of the authority and responsibility of the Committee with respect to
Awards to Grantees who are not Section 16 Grantees at the time any such
delegated authority or responsibility is exercised. Such other committee may
consist of two or more directors who may, but need not be, officers or
employees of the Company or of any of its Subsidiaries. To the extent that the
Board has reserved to itself or delegated to the Chief Executive Officer or
such other committee the authority and responsibility of the Committee, all
references to the Committee in the Plan shall be to the Board, the Chief
Executive Officer or such other committee.
(c) The Committee shall have full and final authority, in its discretion, but
subject to the express provisions of this Plan, as follows:
(i) to grant Awards in any series or in multiple series of common stock;
(ii) to determine (A) when Awards may be granted, and (B) whether or not
specific Awards shall be identified with other specific Awards, and if so,
whether they shall be exercisable cumulatively with or alternatively to
such other specific Awards;
(iii) to interpret this Plan and to make all determinations necessary or
advisable for the administration of this Plan;
(iv)to prescribe, amend, and rescind rules and regulations relating to this
Plan, including rules with respect to the exercisability and non-
forfeitability of Awards upon the termination of employment of a Grantee;
(v)to determine the terms and provisions and any restrictions or conditions
(including specifying such performance criteria as the Committee deems
appropriate, and imposing restrictions with respect to Stock acquired upon
exercise of an option, which restrictions may continue beyond the Grantee's
termination of employment) of the written agreements by which all Awards
shall be evidenced ("Award Agreements") which need not be identical and,
with the consent of the Grantee where required by contract law, to modify
any such Award Agreement at any time;
(vi)to impose, incidental to an Award, conditions with respect to
competitive employment or other activities, to the extent such conditions
do not conflict with this Plan;
IV-4
<PAGE>
(vii) to grant Awards under which the Grantee is entitled to receive
payments equivalent to dividends or interest ("Dividends Equivalents") with
respect to a number of shares of Stock determined by the Committee, and the
Committee may provide that such amount (if any) shall be deemed to have
been reinvested in additional shares of Stock or otherwise reinvested;
(viii) to cancel, with the consent of the Grantee, outstanding Awards and
to grant new Awards in substitution therefor;
(ix)to authorize foreign Subsidiaries to adopt plans as provided in Section
16;
(x)to delegate its duties and responsibilities under this Plan and with
respect to such foreign Subsidiary plans, except its duties and
responsibilities with respect to Section 16 Grantees, and (A) the acts of
such delegates shall be treated hereunder as acts of the Committee, and (B)
such delegates shall report to the Committee regarding the delegated duties
and responsibilities;
(xi)to accelerate the exercisability of, and to accelerate or waive any or
all of the restrictions and conditions applicable to, any Award, or any
group of Award for any reason;
(xii) subject to Section 6(a)(ii), to extend the time during which any
Award or group of Awards may be exercised;
(xiii) to make such adjustments or modifications to awards to Grantees
working outside the United States as are necessary and advisable to fulfill
the purposes of this Plan;
(xiv) to impose such additional conditions, restrictions, and limitations
upon the grant, exercise or retention of Awards as the Committee may,
before or concurrently with the grant thereof, deem appropriate, including
requiring simultaneous exercise of related identified Awards, and limiting
the percentage of Awards which may from time to time be exercised by a
Grantee;
(xv)to certify attainment of any performance criteria to which Awards are
subject, if any;
(xvi) to prescribe rules and regulations concerning the transferability of
any Awards granted on or after November 3, 1998.
The determination of the Committee on all matters relating to this Plan or any
Award Agreement shall be conclusive and final. No member of the Committee
shall be liable for any action or determination made in good faith with
respect to this Plan or any Award.
5. ELIGIBILITY. Awards may be granted to any director (including employee and
non-employee directors), officer or full-time employee of the Company or any
of its Subsidiaries. In selecting the individuals to whom Awards may be
granted, as well as in determining the number of shares of Stock subject to,
and the other terms and conditions applicable to, each Award, the Committee
shall take into consideration such factors as it deems relevant in promoting
the purposes of this Plan.
6. CONDITIONS TO GRANTS. (a) General Conditions:
(i) The Grant Date of an Award shall be the date on which the Committee
grants the Award or such later date as specified in advance by the
Committee;
(ii) The term of each Award shall be a period of not more than 15 years
from the Grant Date, and shall be subject to earlier termination as herein
provided that the term of an incentive stock option (as defined in Section
6(b)) shall not exceed ten (10) years, except that the term of an incentive
stock option which is required to have an Option Price of at least 110% of
Fair Market Value, as provided in Section 6(b), shall not exceed five (5)
years; and
(iii) A Grantee may, if otherwise eligible, be granted additional Awards in
any combination.
IV-5
<PAGE>
(b) Grant of Options and Option Price.
(i) No later than the Grant Date of any option, the Committee shall
determine the Option Price of such option. The Option Price of an option
shall not be less than 100% of the Fair Market Value of the Stock on the
Grant Date; provided that the Option Price of an incentive stock option
which is issued to a Grantee who holds 10% or more of the outstanding
voting securities of the Company on the Grant Date, shall not be less than
110% of the Fair Market Value of the Stock as the Grant Date; and provided
further however, that the Option Price of an option shall not be less than
120% of the Fair Market Value of the Stock on the Grant Date for an option
held by a Grantee that owns, or holds outstanding options or other rights
to purchase, stock possessing more than 20% of the voting power of any
series of Stock immediately prior to the exercise of such option or
immediately after the exercise of such option. Such price shall be subject
to adjustment as provided in Section 24.
(ii) The Award Agreement may provide that the option shall be exercisable
for Restricted Stock.
(iii) Each option awarded under this Plan prior to the Restatement Date
shall be a "non-qualified stock option" for tax purposes. Options granted
under this Section 6(b) on or after the Restatement Date may be either
"incentive stock options" or "non-qualified stock option" as determined in
the discretion of the Board. An "incentive stock option" is an option that
is intended to satisfy the requirements applicable to an "incentive stock
option" described in section 422(b) of the Code. A "non-qualified stock
option" is an option that is not intended to be an "incentive stock option"
as that term is described in section 422(b) of the Code.
(iv)No incentive stock option shall be granted after the tenth anniversary
of the Restatement Date.
(v) The Fair Market Value (determined at the time the option is granted) of
the Stock with respect to which incentive stock options are exercisable for
the first time by a Grantee during any calendar year (under the Plan and
under any other incentive stock options of the Company) shall not exceed
$100,000.
(c) Grant of Shares of Restricted Stock.
(i) The Committee may, in its discretion, grant shares of Restricted Stock
to any individual eligible under Section 5 to receive Awards.
(ii) The Committee shall, in its discretion, determine the amount, if any,
that a Grantee shall pay for shares of Restricted Stock. Awards shall be
granted for no cash consideration or for such minimal cash consideration as
may be required by applicable law. If any such cash consideration is
required, payment shall be made in full by the Grantee before the delivery
of the shares and in any event no later than 10 days after the Grant Date
for such shares. In the discretion of the Committee and to the extent
permitted by law, payment may also be made in accordance with Section 10.
(iii) The Committee may, but need not, provide that all or any portion of a
Grantee's Award of Restricted Stock, or Restricted Stock acquired upon
exercise of an option shall be forfeited:
(A) except as otherwise specified in the Award Agreement, upon the
Grantee's termination of employment for any reason specified in the
Award Agreement within a specified time period after the Grant Date, or
(B) if the Company or the Grantee does not achieve specified
performance objectives (if any) within a specified time period after
the Grant Date and before the Grantee's termination of employment, or
(C) upon failure to satisfy such other restrictions as the Committee
may specify in the Award Agreement; provided that, subject to Sections
4(c)(xi) and 14, in no case shall such Award become nonforfeitable
before the first anniversary of the Grant Date.
(iv) If a share of Restricted Stock is forfeited, then (A) if the Grantee
was required to pay for such share or acquired such Restricted Stock upon
the exercise of an option, the Grantee shall be deemed to have resold such
share of Restricted Stock to the Company at the lesser of (1) the amount
paid or, if the Restricted Stock was acquired on exercise of an option, the
Option Price paid by the Grantee for such share of Restricted Stock, or (2)
the Fair Market Value of a share of Stock on the date of such forfeiture;
(B) the
IV-6
<PAGE>
Company shall pay to the Grantee the amount determined under clause (A) of
this sentence as soon as is administratively practical; and (C) such share
of Restricted Stock shall cease to be outstanding, and shall no longer
confer on the Grantee thereof any rights as a stockholder of the Company,
from and after the later of the date the event causing the forfeiture
occurred or the date of the Company's tender of the payment specified in
clause (B) of this sentence, whether or not such tender is accepted by the
Grantee.
(v) The Committee may provide that any share of Restricted Stock shall be
held (together with a stock power executed in blank by the Grantee) in
escrow by the Secretary of the Company until the expiration of the
Restricted Period and/or such shares become nonforfeitable or are
forfeited. Any share of Restricted Stock shall bear an appropriate legend
specifying that such share is non-transferable and subject to the
restrictions set forth in the Plan and the Award Agreement. If any shares
of Restricted Stock become nonforfeitable, and any applicable Restricted
Period has ended, the Company shall cause certificates for such shares to
be issued or reissued without such legend.
(vi) The Committee may provide one or more Restricted Periods applicable to
Restricted Stock, at its discretion. Such Restricted Period shall be
measured from the first day of the month in which Restricted Stock is
granted with respect to such Restricted Period.
(vii) Each grant of Restricted Stock shall be evidenced by a written
instrument stating the number of shares of Restricted Stock granted, the
Restriction Period, the restrictions applicable to such Restricted Stock,
the nature and terms of payment of consideration, if any, the consequences
of forfeiture that will apply to such Restricted Stock, and any other
terms, conditions and rights with respect to such grant.
(viii) Any other provision of this Plan to the contrary notwithstanding,
the Committee may at any time shorten any Restricted Period, if it
determines that conditions, including but not limited to, changes in the
economy, changes in competitive conditions, changes in laws or government
regulations, changes in generally accepted accounting principles, changes
in the Company's accounting policies, acquisitions or dispositions, or the
occurrence of other unusual, unforeseen, or extraordinary events, so
warrant.
(ix) The Company may, in its sole discretion, offer a Grantee the right, by
execution of a written agreement, to defer receipt of all or a portion of
the payment, if any, for Restricted Stock. If such an election to defer is
made, the shares of Stock receivable in payment for Restricted Stock shall
be deferred as Performance Units equal in number to and exchangeable, at
the end of the deferral period, for the number of shares of Stock that
would have been paid to the Grantee ("Stock Units"). Such Stock Units shall
represent only a contractual right and shall not give the Grantee any
interest, right, or title to any shares of Stock during the deferral
period. Fractional shares receivable for Restricted Stock shall be deferred
as Performance Units payable in cash. Deferred Stock Units may be credited
annually with the appreciation factor contained in the deferred
compensation agreement, which may include Dividend Equivalents. All other
terms and conditions of deferred payments shall be as contained in the
written agreement.
(d) Grant of Stock Appreciation Rights. When granted, Stock Appreciation
Rights may, but need not, be identified with shares of Stock subject to a
specific option, specific shares of Restricted Stock, or specific Performance
Units of the Grantee (including any option, shares of Restricted Stock, or
Performance Units granted on or before the Grant Date of the Stock
Appreciation Rights) in a number equal to or different from the number of
Stock Appreciation Rights so granted. If Stock Appreciation Rights are
identified with shares of Stock subject to an option, with shares of
Restricted Stock, or with Performance Units, then, unless otherwise provided
in the applicable Award Agreement, the Grantee's associated Stock Appreciation
Rights shall terminate upon (i) the expiration, termination, forfeiture, or
cancellation of such option, shares of Restricted Stock, or Performance Units,
(ii) the exercise of such option or Performance Units, or (iii) the date such
shares of Restricted Stock become nonforfeitable.
(e) Grant of Performance Units.
(i) Before the grant of any Performance Unit, the Committee shall:
(A) determine performance objectives applicable to such grant;
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<PAGE>
(B) designate a period of not less than one year nor more than ten
years for the measurement of the extent to which performance objectives
are attained, which period may begin prior to the Grant Date (the
"Performance Period");
(C) assign a "Performance Percentage" to each level of attainment of
performance objectives goals during the Performance Period, with the
percentage applicable to minimum attainment being zero percent (0%) and
the percentage applicable to maximum attainment to be determined by the
Committee from time to time;
(D) determine the Restricted Period, if any; and
(E) determine whether the Performance Units shall, during the
Performance Period be paid Dividend Equivalents.
(ii) In establishing performance goals, the Committee may consider any
performance factor or factors it deems appropriate, including net income,
growth in net income, earnings per share, growth of earnings per share,
return on stockholder's equity or return on capital, employment for a
specified period, or any other factor measured internally or relative to
other organizations and before or after extraordinary items. Any such
factors, however, shall include all accruals for grants made under this
Plan for all other employee benefit plans of the Company. The performance
goals may be established for the Company as a whole or for only that part
of the Company in which a given Grantee is involved, or a combination
thereof. The Committee may, in its discretion, establish intermediate
levels at which given proportions of the Performance Units shall be
payable. The Committee may, at any time, in its discretion, modify
performance goals in order to facilitate their attainment for any reason,
including recognition of unusual or nonrecurring events affecting the
Company or a Subsidiary or changes in applicable laws, regulations or
accounting principles. If a Grantee is promoted, demoted or transferred to
a different business unit of the Company during a Performance Period, then,
to the extent the Committee determines the performance goals or Performance
Period are no longer appropriate, (A) the Committee may adjust, change or
eliminate the performance goals, the applicable Performance Period, or
Restricted Period, if any, as it deems appropriate in order to make them
appropriate and comparable to the initial performance goals or Performance
Period; or (B) make a cash payment to the Grantee in an amount determined
in accordance with the method described in Section 14(b)(iii), substituting
the effective date of such promotion, demotion or transfer for the
termination of employment referred to in Section 14(b)(iii).
(iii) When granted, Performance Units may, but need not, be identified with
shares of Stock subject to a specific option, specific shares of Restricted
Stock or specific Stock Appreciation Rights of the Grantee granted under
the Plan in a number equal to or different from the number of the
Performance Units so granted. If Performance Units are identified with
shares of Stock subject to an option, shares of Restricted Stock or Stock
Appreciation Rights, then, unless otherwise provided in the applicable
Award Agreement, the Grantee's associated Performance Units shall terminate
upon (A) the expiration, termination, forfeiture or cancellation of such
option, shares of Restricted Stock or Stock Appreciation Rights, (B) the
exercise of such option or Stock Appreciation Rights or (C) the date such
shares of Restricted Stock become nonforfeitable.
There shall be no limitation on the number of Performance Periods or
Restriction Periods established by the Committee, and more than one
Performance Period may encompass the same fiscal year.
(iv) Any provision of the Plan to the contrary notwithstanding, the
Committee may at any time adjust performance objectives (up or down) and
minimum or full performance levels (and any intermediate levels and
proportion of payments related thereto), adjust the way performance
objectives are measured, or shorten any Performance Period or Restricted
Period, if it determines that conditions, including but not limited to,
changes in the economy, changes in competitive conditions, changes in laws
or governmental regulations, changes in generally accepted accounting
principles, changes in the Company's accounting policies, acquisitions or
dispositions, or the occurrence of other unusual, unforeseen, or
extraordinary events, so warrant.
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<PAGE>
(f) Grant of Stock Bonuses. The Committee may, in its discretion, grant to any
individual eligible under Section 5 to receive Awards shares of Stock or such
other Awards that are denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to, shares of Stock (including,
without limitation, securities convertible into shares). Subject to the terms
of this Plan and any applicable Award Agreement, the Committee shall determine
the terms and conditions of such Awards.
7. GRANTEE'S AGREEMENT TO SERVE. Each Grantee who is granted an Award shall,
by executing such Grantee's Award Agreement, agree that such Grantee will
remain in the employ of the Company or any of its Subsidiaries for at least
one year after the Grant Date. No obligation of the Company or any of its
Subsidiaries as to the length of any Grantee's employment shall be implied by
the terms of this Plan, any grant of an Award hereunder or any Award
Agreement. The Company and its Subsidiaries reserve the same rights to
terminate employment of any Grantee as existed before the Original Effective
Date.
8. NON-TRANSFERABILITY. Except as otherwise provided by the Committee, each
Award (other than Restricted Stock) granted hereunder shall not be assignable
or transferable other than by will or the laws of descent and distribution;
provided, however, that a Grantee may in a manner specified by the Committee
and to the extent provided in this Plan (a) designate in writing a beneficiary
to exercise his/her Award after the Grantee's death and (b) transfer an
option, Stock Appreciation Right or Performance Unit to a revocable, inter
vivos trust as to which the Grantee is both the settlor and trustee and (c) if
the Award Agreement expressly permits, transfer an Award (other than
Restricted Stock) for no consideration to any of the following permissible
transferees (each a "Permissible Transferee"): (x) any member of the Immediate
Family of the Grantee to whom such Award was granted, (y) any trust solely for
the benefit of members of the Grantee's Immediate Family, or (z) any
partnership whose only partners are members of the Grantee's Immediate Family;
and further provided that (i) the transferee shall remain subject to all of
the terms and conditions applicable to such Award prior to such transfer; and
(ii) any such transfer shall be subject to and in accordance with the rules
and regulations prescribed by the Committee in accordance with Section 4(c).
For purposes of this Section 8, "Immediate Family" means, with respect to a
particular Grantee, such Grantee's spouse, children and grandchildren. Each
share of Restricted Stock shall be nontransferable until such share becomes
nonforfeitable and the Restricted Period, if any, lapses.
9. EXERCISE. (a) Exercise of options. Subject to Sections 4(c)(xi) and 14 and
such terms and conditions as the Committee may impose, each option shall be
exercisable in one or more installments.
Each option shall be exercised by delivery to the Company of written notice of
intent to purchase a specific number of shares of Stock subject to the option.
The Option Price of any shares of Stock or shares of Restricted Stock as to
which an option shall be exercised shall be paid in full at the time of the
exercise. Payment may, at the election of the Grantee, be made in any one or
any combination of the following:
(i) cash;
(ii) Stock held by the Grantee for at least 6 months prior to exercise of
the option, valued at its Fair Market Value on the date of exercise;
(iii) with the approval of the Committee, shares of Restricted Stock held
by the Grantee for at least 6 months prior to exercise of the option, each
valued at the Fair Market Value of a share of Stock on the date of
exercise; or
(iv) by delivery of a properly executed exercise notice to the Company,
together with a copy of irrevocable instructions to a broker or lending
institution authorizing them to sell the Stock (or a sufficient portion
thereof) acquired upon exercise of an option, and assigning the delivery to
the Company of a sufficient amount of the sale proceeds to pay for all the
Stock acquired through such exercise and any tax withholding obligations
resulting from such exercise;
(v) in the discretion of the Committee and to the extent permitted by law,
payment may also be made in accordance with Section 10.
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If Restricted Stock ("Tendered Restricted Stock") is used to pay the Option
Price for Stock subject to an option, then the Committee may, but need not,
specify that (i) all the shares of Stock acquired on exercise of the Option
shall be subject to the same restrictions as the Tendered Restricted Stock,
determined as of the date of exercise of the option, or (ii) a number of
shares of Stock acquired on exercise of the option equal to the number of
shares of Tendered Restricted Stock shall, unless the Committee provides
otherwise, be subject to the same restrictions as the Tendered Restricted
Stock, determined as of the date of exercise of the option.
(b) Exercise of Stock Appreciation Rights. Subject to Sections 4(c)(xi) and 14
and such terms and conditions as the Committee may impose, each Stock
Appreciation Right shall be exercisable not earlier than the first anniversary
of the Grant Date of such Stock Appreciation Right, to the extent the option
with which it is identified, if any, may be exercised, to the extent the
Restricted Stock with which it is identified, if any, is nonforfeitable and
the Restricted Period, if any, has lapsed, or to the extent the Performance
Unit with which it is identified, if any, may be exercised unless otherwise
provided by the Committee. Stock Appreciation Rights shall be exercised by
delivery to the Company of written notice of intent to exercise a specific
number of Stock Appreciation Rights. Unless otherwise provided in the
applicable Award Agreement, the exercise of Stock Appreciation Rights which
are identified with shares of Stock subject to an option, shares of Restricted
Stock or Performance Units shall result in the cancellation or forfeiture of
such option, shares of Restricted Stock or Performance Units, as the case may
be, to the extent of such exercise.
The benefit for each Stock Appreciation Right exercised shall be equal to:
(i) the Fair Market Value of a share of Stock on the date of such exercise
or, if the Committee shall so determine in the case of any such right, at
any time during a specified period before or after the date of exercise,
reduced by
(ii) an amount equal to:
(A) for any Stock Appreciation Right identified with shares of Stock
subject to an option, the Option Price of such option, unless the
Committee in the grant of the Stock Appreciation Right specified a
higher amount, or
(B) for any other Stock Appreciation Right, the Fair Market Value of a
share of Stock on the Grant Date of such Stock Appreciation Right,
unless the Committee in the grant of the Stock Appreciation Right
specified a higher amount; provided that the Committee, in its
discretion, may provide that the benefit for any Stock Appreciation
Right shall not exceed such percentage of the Fair Market Value of a
share of Stock on such Grant Date as the Committee shall specify.
The benefit upon the exercise of a Stock Appreciation Right shall be payable
in cash, except that the Committee, may, in its discretion, provide in the
Award Agreement that benefits, with respect to any particular exercise, may be
paid wholly or partly in Stock.
(c) Exercise of Performance Units.
(i) Subject to Section 14 and such terms and conditions as the Committee
may impose, if, with respect to any Performance Unit, the minimum
performance objectives have been achieved during the applicable Performance
Period, then such Performance Unit shall be exercisable commencing on the
later of (A) the first anniversary of the Grant Date or (B) the first day
after the end of the applicable Performance Period.
Performance Units shall be exercised by delivery to the Company of written
notice of intent to exercise a specific number of Performance Units;
provided, however, that Performance Units not identified with shares of
Stock subject to an option, shares of Restricted Stock or Stock
Appreciation Rights shall be deemed exercised on the date on which they
first become exercisable. Unless otherwise provided in the applicable Award
Agreement, the exercise of Performance Units which are identified with
shares of Stock subject to an option, shares of Restricted Stock or Stock
Appreciation Rights shall result in the cancellation or
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forfeiture of such shares of Stock subject to option, shares of Restricted
Stock or Stock Appreciation Rights, as the case may be, to the extent of
such exercise.
(ii) The benefit for each Performance Unit exercised shall be an amount
equal to the product of:
(A) the Unit Value (as defined below) multiplied by
(B)the Performance Percentage attained during the Performance Period
for such Performance Unit.
(iii) The Unit Value shall be, as specified by the Committee,
(A) a dollar amount, or
(B)an amount equal to the Fair Market Value of one share of Stock on
the exercise date of the Performance Unit, including, if so provided in
the Award Agreement, an amount ("Dividend Equivalent Amount") equal to
the value that would result if dividends paid on a share of Stock on or
after the Grant Date and on or before the exercise date were invested
in shares of Stock as of each respective dividend payment date, or
(C)an amount equal to the Fair Market Value of one share of Stock on
the Grant Date (plus, if so specified in the Award Agreement, a
Dividend Equivalent Amount), or
(D)an amount equal to the Fair Market Value of one share of Stock on
the exercise date of the Performance Unit (plus, if so specified in the
Award Agreement, a Dividend Equivalent Amount), reduced by the Fair
Market Value of a share of Stock on the Grant Date of the Performance
Unit, or
(E) a number of shares of Stock.
(iv) The benefit upon the exercise of a Performance Unit shall be payable
upon termination of the applicable Restricted Period as soon as is
administratively practicable after the later of (A) the date the Grantee
exercises or is deemed to exercise such Performance Unit, or (B) the date
(or dates in the event of installment payments) as provided in the
applicable Award Agreement.
Such benefit shall be payable in cash or wholly or partly in shares of
Stock. If a Restricted Period has been established in relation to a
Performance Unit payable, in whole or in part, in shares of Stock ("Stock
Performance Unit"), one or more certificates representing the number of
shares of Stock equal to the number of shares of Stock payable under the
Performance Units shall be registered in the name of the Grantee but shall
be held by the Company for the account of the Grantee. Such shares of Stock
will be nonforfeitable but restricted as to transferability during the
applicable Restricted Period. At the end of the Restricted Period all
restrictions applicable to the shares of Stock, and other securities or
property received with respect to the shares held by the Company for the
accounts of recipients of shares of Stock under Performance Units granted
in relation to such Restricted Period shall lapse, and one or more
certificates for such shares of Stock, free of the restrictions, shall be
delivered to the Grantee.
In the event the Award Agreement provides that the benefit may be paid
wholly in Stock, unless the Committee, in its discretion, specifies at the
time of exercise that the benefit shall be paid partly or wholly in cash,
the number of shares of Stock payable in lieu of cash shall be determined
by valuing the Stock at its Fair Market Value on the date such benefit is
to be paid.
(v) The Committee may, in its sole discretion, offer a Grantee the right,
by execution of a written agreement, to defer the receipt of all or any
portion of the payment, if any, of shares of Stock or cash due under a
Performance Unit. If such an election to defer is made, the Stock
receivable in payment for shares under a Performance Unit shall be deferred
as Stock Units equal in number to and exchangeable, at the end of the
deferral period, for the number of shares of Stock that should have been
paid to the Grantee. Such Stock Units shall represent only a contractual
right and shall not give the Grantee any interest, right or title to any
Stock during the deferral period. The cash or fractional shares receivable
in payment for Performance Units shall be deferred as cash units. Deferred
Stock Units and cash units may be credited annually with the appreciation
factor contained in the written agreement, which may include Dividend
Equivalents. All other terms and conditions of deferred payments shall be
as contained in the written agreement.
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<PAGE>
10. LOANS AND GUARANTEES. The Committee may, in its discretion:
(a) allow a Grantee to defer payment to the Company of all or any portion
of (i) the Option Price of an option, (ii) the purchase price of a share of
Restricted Stock, or (iii) any taxes associated with a benefit hereunder
which is not a cash benefit at the time such benefit is so taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such Option Price,
purchase price, or any related taxes.
Any such payment, deferral or guarantee by the Company pursuant to this
Section 10 shall be on such terms and conditions as the Committee may
determine; provided that the interest rate applicable to any such payment
deferral shall not be more favorable to the Grantee than the terms
applicable to funds borrowed by the Company. Notwithstanding the foregoing,
a Grantee shall not be entitled to defer the payment of such Option Price,
purchase price or any related taxes unless the Grantee enters into a
binding obligation to pay the deferred amount. If the Committee has
permitted a payment deferral or caused the Company to guarantee a loan
pursuant to this Section 10, then the Committee may, in its discretion,
require the immediate payment of such deferred amount or the immediate
release of such guarantee upon the Grantee's termination of employment or
if the Grantee sells or otherwise transfers the Grantee's shares of Stock
purchased pursuant to such deferral or guarantee.
11. NOTIFICATION UNDER CODE SECTION 83(b). The Committee may, on the Grant
Date or any later date, prohibit a Grantee from making the election described
below. If the Committee has not prohibited such Grantee from making such
election, and the Grantee shall, in connection with the exercise of any
option, the grant of any share of Restricted Stock, or the grant of a
Performance Unit for Stock, make the election permitted under Section 83(b) of
the Code (i.e., an election to include in such Grantee's gross income in the
year of transfer the amounts specified in Section 83(b) of the Code), such
Grantee shall notify the Company of such election within 10 days of filing
notice of the election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.
12. MANDATORY WITHHOLDING OF TAXES. Whenever under this Plan, cash or shares
of Stock are to be delivered upon exercise or payment of an Award or upon a
share of Restricted Stock becoming nonforfeitable, or any other event occurs
which subjects the Grantee to income taxes with respect to rights and benefits
hereunder, the Company shall be entitled to require as a condition of delivery
(i) that the Grantee remit an amount sufficient to satisfy all federal, state,
and local withholding tax requirements related thereto, (ii) the withholding
of such sums from compensation otherwise due to the Grantee or from any shares
of Stock due to the Grantee under this Plan, or (iii) any combination of the
foregoing.
13. ELECTIVE SHARE WITHHOLDING. (a) Subject to Section 13(b), a Grantee may
elect the withholding ("Share Withholding") by the Company of a portion of the
shares of Stock otherwise deliverable to such Grantee upon the exercise or
payment of an Award or upon a share of Restricted Stock becoming
nonforfeitable (each a "Taxable Event") having a Fair Market Value equal to:
(i) the minimum amount necessary to satisfy required federal, state, or
local withholding tax liability attributable to the Taxable Event; or
(ii) with the Committee's prior approval, a greater amount, not to exceed
the estimated total amount of such Grantee's tax liability with respect to
the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject to the
following restrictions:
(i) any Grantee's election shall be subject to the Committee's right to
revoke such election of Share Withholding by such Grantee at any time
before the Grantee's election if the Committee has reserved the right to do
so in the Award Agreement;
(ii) the Grantee's election must be made before the date (the "Tax Date")
on which the amount of tax to be withheld is determined;
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<PAGE>
(iii) the Grantee's election shall be irrevocable; and
(iv) no election to have shares of stock withheld from any Award shall be
effective with respect to an Award which was transferred by the Grantee in
accordance with this Plan.
14. TERMINATION OF EMPLOYMENT. (a) For Cause. If a Grantee has a termination
of employment for Cause,
(i) the Grantee's shares of Restricted Stock that are forfeitable shall
thereupon be forfeited, subject to the provisions of Section 6(c)(iv)
regarding repayment of certain amounts to the Grantee; and
(ii) any unexercised option, Stock Appreciation Right, or Performance Unit
shall thereupon terminate.
(b) On Account of Death or Disability. Except as may otherwise be provided in
the Award Agreement if the Grantee has a termination of employment:
(i) Restricted Stock.
(A) prior to the shares of Restricted Stock becoming non-forfeitable by
reason of:
(1) death, all Restricted Stock granted to such Grantee shall become
non-forfeitable.
(2) the Disability of Grantee, such termination shall not constitute
a termination of employment for purposes of Restricted Stock and
such Grantee shall not forfeit any Restricted Stock held by
him\/her, provided that during the balance of the period in which
the Restricted Stock would otherwise remain forfeitable such Grantee
does not engage in or assist any business that the Company, in its
sole discretion, determines to be in competition with business
engaged in by it. A Grantee who does engage in or assist any
business that the Company, in its sole discretion, determines to be
in competition with business engaged in by it, shall be deemed to
have terminated employment.
(B) after the Restricted Stock is nonforfeitable but prior to the end
of Restricted Period, by reason of death or Disability all Restricted
Stock granted to such Grantee shall be immediately payable.
(ii) Options/SARs. By reason of death or Disability, any unexercised option
or Stock Appreciation Right, to the extent exercisable on the date of
termination of employment upon death or Disability, may be exercised, in
whole or in part, at any time within five months after such termination of
employment by the Grantee, the Grantee's guardian, legal representative,
or, after the Grantee's death, by (A) his/her personal representative,
executor, administrator, or by the person to whom the option or Stock
Appreciation Right is transferred by will or the applicable laws of descent
and distribution, (B) the Grantee's beneficiary designated in accordance
with Section 8, or (C) the then-acting trustee of the trust described in
clause (b) of the first sentence of Section 8 (but only if the condition
set forth in such clause (b) has been satisfied); and
(iii) Performance Units. (A) By reason of death or Disability, any
unexercised Performance Unit, to the extent exercisable on the date of
termination of employment on account of the Grantee's death or Disability,
may be exercised in whole or in part, at any time within five months after
termination of employment by the Grantee, the Grantee's guardian, legal
representative, or after the Grantee's death, by (A) his/her personal
representative, executor, administrator, or by the person to whom the
Performance Unit is transferred by will or the applicable laws of descent
and distribution, (B) the Grantee's beneficiary designated in accordance
with Section 8, or (C) the then-serving trustee of the trust described in
clause (b) of the first sentence of Section 8 (but only if the condition
set forth in such clause (b) has been satisfied); provided that the benefit
payable with respect to any Performance Unit with respect to which the
Performance Period has not ended as of the date of such termination of
employment shall be equal to the product of the Unit Value multiplied
successively by each of the following:
(1) a fraction, the numerator of which is the number of months
(including as a whole month any partial month) that have elapsed since
the beginning of such Performance Period until the date of such
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<PAGE>
termination of employment and the denominator of which is the number of
months (including as a whole month any partial month) in the
Performance Period (the "Time Proration Factor"); and
(2) a percentage equal to the greater of the target percentage, if any,
specified in the applicable Award Agreement or the maximum percentage,
if any, that would be earned under the terms of the applicable Award
Agreement assuming that the rate at which the performance goals have
been achieved as of the date of such termination of employment would
continue until the end of the Performance Period (the "Performance
Percentage Factor"); and
provided further, that in the case of Disability and following Disability,
such Grantee does not engage in or assist in any business that the Company, in
its sole discretion, determines to be in competition with the business engaged
in by it during the remainder of the applicable Performance Period. A Grantee
who does engage in or assist any business that the Company, in its sole
discretion, determines to be in competition with the business engaged in by it
shall be deemed to have terminated employment.
(c) On Account of Retirement.
(i) If a Grantee has a termination of employment on account of Retirement,
any unexercised option or Stock Appreciation Right (other than a Stock
Appreciation Right identified with a share of Restricted Stock or a
Performance Unit) which is then exercisable, may be exercised, in whole or
in part, not later than the 30th day following the Grantee's Retirement,
provided that following Retirement, such Grantee does not engage in or
assist in any business that the Company, in its sole discretion, determines
to be in competition with the business engaged in by it during such period;
provided, however, that if such 30th day is not a business day, such option
or Stock Appreciation Right may be exercised not later than the first
business day following such 30th day; and provided further, that if the
Grantee dies within such thirty-day period, then the exercisability of the
Grantee's options and Stock Appreciation Rights shall be determined under
Section 14(b).
(ii) The non-forfeitability and exercisability of the Grantee's Restricted
Stock and Performance Units (and any Stock Appreciation Rights identified
therewith) shall be determined under Section 14(d).
(d) Any Other Reason. If a Grantee has a termination of employment for a
reason other than for Cause, death of the Grantee, the Grantee's Disability,
and, with respect to options and Stock Appreciation Rights (other than Stock
Appreciation Rights identified with a share of Restricted Stock or a
Performance Unit), the termination of employment is for reasons other than the
Grantee's Retirement,
(i) Restricted Stock. the Grantee's shares of Restricted Stock (and any
Stock Appreciation Rights identified therewith), to the extent forfeitable
on the date of the Grantee's termination of employment, shall be forfeited
on such date. If the termination of employment occurs after the Restricted
Stock becomes nonforfeitable but prior to the end of a Restricted Period,
such termination shall not have any effect on any Restricted Period, unless
the Committee, in its sole discretion, finds that the circumstances so
warrant and determines that the Restricted Period shall end on an earlier
date as determined by the Committee, and that shares held by the Company
shall be paid as soon as practicable following such earlier date;
(ii) Options. any unexercised option or Stock Appreciation Right (other
than a Stock Appreciation Right identified with a share of Restricted Stock
or Performance Unit) to the extent exercisable on the date of the Grantee's
termination of employment, may be exercised in whole or in part, not later
than the 30th day following the Grantee's termination of employment;
provided, however, that if such 30th day is not a business day, such option
or Stock Appreciation Right may be exercised not later than the first
business day following such 30th day; and provided further, that if the
Grantee dies within such thirty-day period, then the exercisability of the
Grantee's options and Stock Appreciation Rights shall be determined under
Section 14(b).
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<PAGE>
(iii) Performance Units. The Grantee's Performance Units (and any Stock
Appreciation Rights identified therewith) may become non-forfeitable and
may be exercised in whole or in part, but only if and to the extent
determined by the Committee in its sole discretion.
(e) Extension of Term. In the event of termination of employment other than
for Cause, the term of any Award which by its terms would otherwise expire
after the Grantee's termination of employment but prior to the end of the
period following the Grantee's termination of employment described in Sections
(b), (c), and (d) above for exercise of Awards shall be extended so as to
permit any unexercised portion thereof to be exercised at any time within such
period to the extent exercisable on the date of the Grantee's termination of
employment; provided, however, that in no event may the term of any Award
expire or be exercisable more than 15 years after the Grant Date of such
Award.
15. CHANGE IN CONTROL. Notwithstanding any other provision of this Plan to the
contrary, if, while any Awards remain outstanding under this Plan, a "Change
in Control" (as defined below) should occur, then (1) all options and
freestanding SARs that are outstanding at the time of such Change in Control
shall become immediately vested and exercisable in full; (2) all restrictions
with respect to shares of Restricted Stock shall lapse, and such shares shall
be fully vested and nonforfeitable; and (3) with respect to Awards of
Performance Units, all Performance Periods outstanding at the time of such
Change in Control shall be deemed to have been completed, the maximum level of
performance assigned to all Performance Percentages shall be deemed to have
been attained, all applicable Restricted Periods shall lapse and a pro rata
portion (based on the number of full and partial months which have elapsed
with respect to each Performance Period) of each such outstanding Award for
all outstanding Performance Periods shall become payable in cash to each
Grantee, with the remainder of each such outstanding Award being canceled for
no value. A Change in Control shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(i) any person (as defined in Section 3(a)(9) of the 1934 Act, as such term
is modified in Sections 13(d) and 14(d) of the 1934 Act), other than (1)
any employee plan established by the Company, any Affiliate, or any
Subsidiary (2) the Company, an Affiliate or Subsidiary, (3) an underwriter
temporarily holding securities pursuant to an offering of such securities,
or (4) a corporation owned, directly or indirectly, by stockholders of the
Company in substantially the same proportions as their ownership of the
Company, is or becomes the beneficial owner (within the meaning of Rule
13d-3 promulgated under the 1934 Act), directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such person any securities acquired directly from the Company, its
Subsidiaries or its Affiliates) representing 35% or more of either the then
outstanding shares of Stock or the combined voting power of the Company's
then outstanding voting securities;
(ii) a majority of the members of the Board shall cease to be Continuing
Members. For this purpose, "Continuing Member" means a member of the Board
who either (i) was a member of the Board on the Original Effective Date
hereof and has been such continuously thereafter or (ii) became a member of
such Board after the Original Effective Date and whose election or
nomination for election was approved by a vote of at least two-thirds of
the Continuing Members then members of the Company's Board (other than a
nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the members of the Board, as such terms are used in Rule 14a-11
of Regulation 14A under the 1934 Act);
(iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (1) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the ownership
of any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Affiliate or Subsidiary, at least 75% of
the combined voting power of the voting securities of the Company or such
surviving entity or any parent thereof outstanding immediately after such
merger or consolidation, or (2) a merger or consolidation effected to
implement a recapitalization of the Company
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<PAGE>
(or similar transaction) in which no person (determined pursuant to clause
(i) above) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such person any securities acquired directly from the Company, its
Subsidiaries or its Affiliates) representing 35% or more of either the then
outstanding shares of Stock or the combined voting power of the Company's
then outstanding voting securities; or
(iv) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to have
occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of Stock
immediately prior to such transaction or series of transactions continue to
have substantially the same proportionate ownership in an entity which owns
substantially all of the assets of the Company immediately prior to such
transaction or series of transactions.
The Committee may also determine, in its discretion, that a sale of a
substantial portion of the Company's assets or one of its businesses
constitutes a "Change of Control" with respect to Awards held by Grantees
employed in the affected operation.
16. EQUITY INCENTIVE PLANS OF FOREIGN SUBSIDIARIES. The Committee may
authorize any foreign Subsidiary to adopt a plan for granting Awards ("Foreign
Equity Incentive Plan"). All awards granted under such Foreign Equity
Incentive Plans shall be treated as grants under this Plan. Such Foreign
Equity Incentive Plans shall have such terms and provisions as the Committee
permits not inconsistent with the provisions of this Plan and which may be
more restrictive than those contained in this Plan. Awards granted under such
Foreign Equity Incentive Plans shall be governed by the terms of this Plan
except to the extent that the provisions of the Foreign Equity Incentive Plans
are more restrictive than the terms of the Plan, in which case such terms of
the Foreign Equity Incentive Plans shall control.
17. SUBSTITUTED AWARDS. If the Committee cancels any Award (granted under this
Plan or any plan of any entity acquired by the Company or any of its
Subsidiaries), and a new Award is substituted therefor, then the Committee
may, in its discretion, determine the terms and conditions of such new Award;
provided that (a) the Option Price of any new option shall not be less than
100% of the Fair Market Value of a share of Stock on the date of grant of the
new Award; and (b) no Award shall be canceled without the consent of Grantee
if the terms and conditions of the new Award to be substituted are not at
least as favorable as the terms and conditions of the Award to be canceled
(and the Grant Date of the new Award shall be the date on which such new Award
is granted).
18. SECURITIES LAW MATTERS. (a) If the Committee deems necessary to comply
with the Securities Act of 1933, the Committee may require a written
investment intent representation by the Grantee and may require that a
restrictive legend be affixed to certificates for shares of Stock.
(b) If, based upon the opinion of counsel for the Company, the Committee
determines that the exercise or non-forfeitability of, or delivery of benefits
pursuant to, any Award would violate any applicable provision of (i) federal
or state securities laws or (ii) the listing requirements of any national
securities exchange on which are listed any of the Company's equity
securities, then the Committee may postpone any such exercise, non-
forfeitability or delivery, as the case may be, but the Company shall use its
best efforts to cause such exercise, non-forfeitability or delivery to comply
with all such provisions at the earliest practicable date.
19. FUNDING. Benefits payable under the Plan to any person shall be paid
directly by the Company. The Company shall not be required to fund, or
otherwise segregate assets to be used for payment of, benefits under this
Plan.
20. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor the
granting of any Award shall be construed to (a) give any Grantee the right to
remain employed by the Company or any of its Subsidiaries or
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to any benefits not specifically provided by the Plan or (b) in any manner
modify the right of the Company or any of its Subsidiaries to modify, amend,
or terminate any of its employee benefit plans. Further, the Company or
Subsidiary may at any time dismiss a Grantee from employment, free from any
liability, or any claim under the plan, unless otherwise expressly provided in
this Plan or in any Award Agreement.
21. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of any Award
(other than Bonus Stock or Restricted Stock) have any right as a stockholder
of the Company with respect to the shares of Stock which may be deliverable
upon exercise or payment of such Award until such shares have been delivered
to him. Shares of Restricted Stock held by a Grantee or held in escrow by the
Secretary of the Company shall confer on the Grantee all rights of a
stockholder of the Company, except as otherwise provided in the Plan. The
Committee, in its discretion, at the time of grant of Restricted Stock, may
permit or require the payment of cash dividends thereon to be deferred and, if
the Committee so determines, reinvested in additional Restricted Stock to the
extent shares are available under Section 3 or otherwise reinvested. Stock
dividends and deferred cash dividends issued with respect to Restricted Stock
shall be treated as additional shares of Restricted Stock that are subject to
the same restrictions and other terms as apply to the shares with respect to
which such dividends are issued. The Committee may, in its discretion, provide
for crediting to and payment of interest on deferred cash dividends.
22. NATURE OF PAYMENTS. Any and all grants, payments of cash, or deliveries of
shares of Stock hereunder shall constitute special incentive payments to the
Grantee and shall not be taken into account in computing the amount of salary
or compensation of the Grantee for the purposes of determining any pension,
retirement, death or other benefits under (a) any pension, retirement, profit-
sharing, bonus, life insurance or other employee benefit plan of the company
or any of its Subsidiaries or (b) any agreement between the Company or any
Subsidiary, on the one hand, and the Grantee, on the other hand, except as
such plan or agreement shall otherwise expressly provide.
23. NON-UNIFORM DETERMINATIONS. Neither the Committee's nor the Board's
determinations under the Plan need be uniform and may be made by the Committee
or the Board selectively among persons who receive, or are eligible to
receive, Awards (whether or not such persons are similarly situated). Without
limiting the generality of the foregoing, the Committee shall be entitled,
among other things, to make non-uniform and selective determinations and to
enter into non-uniform and selective Award Agreements, as to (a) the identity
of the Grantees, (b) the terms and provisions of Awards, and (c) the
treatment, under Section 14, of terminations of employment. Notwithstanding
the foregoing, the Committee's interpretation of Plan provisions shall be
uniform as to similarly situated Grantees.
24. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION. The Committee shall make such
adjustment, as it shall deem equitable, to any or all of:
(a) the aggregate numbers of shares of Stock, shares of Restricted Stock,
and bonus stock available under Sections 3(a) and 3(b);
(b) the number of shares of Stock, shares of Restricted Stock, Stock
Appreciation Rights or Performance Units covered by an outstanding Award;
(c) the performance objectives for Performance Periods not yet completed,
including performance levels and the proportion of payments related
thereto;
(d) the Option Price;
(e) the Fair Market Value of Stock to be used to determine the amount of
the benefit payable under exercise of Stock Appreciation Rights or
Performance Units; and
(f) any other terms or provisions of any outstanding grants of stock
options, Restricted Stock, Performance Units or Stock Appreciation Rights:
IV-17
<PAGE>
to reflect a stock dividend, stock split, reverse stock split, share
combination, re-capitalization, merger, consolidation, acquisition of property
or shares, separation, spin-off, reorganization, stock rights offering,
liquidation or similar event, of or by the Company, or, if deemed appropriate,
the Committee may make provisions for a cash payment to the holder of an
outstanding Award; provided, however, in each case, that the number of shares
subject to any Award denominated in shares of Stock shall always be a whole
number. Notwithstanding any part of the foregoing to the contrary, upon the
approval by the stockholders of the Company of a plan of liquidation for the
Company, any unexercised options, Stock Appreciation Rights, and Performance
Units previously granted become exercisable, and any shares of Restricted
Stock that have not become nonforfeitable shall become nonforfeitable.
25. AMENDMENT OR TERMINATION OF THE PLAN. The Board may amend or terminate
this Plan at any time; provided, however, that subject to Section 24, no
amendment or termination may, in the absence of written consent to the change
by the affected Grantee (or, if the Grantee is not then living, the affected
beneficiary), adversely affect the rights of any Grantee or beneficiary under
any Award granted under this Plan prior to the date such amendment is adopted
by the Board.
26. OTHER COMPENSATION PLANS. Nothing contained in this Plan shall prevent the
Company or any Affiliate from adopting or continuing in effect other or
additional compensation arrangements, and such arrangements may be either
generally applicable or applicable only in specific cases.
27. NO ILLEGAL TRANSACTIONS. This Plan and all Awards granted pursuant to it
are subject to all laws and regulations of any governmental authority which
may be applicable thereto; and notwithstanding any provision of this Plan or
any Award, Grantees shall not be entitled to exercise Awards or receive the
benefits thereof and the Company shall not be obligated to deliver any Stock
or pay any benefits to a Grantee if such exercise, delivery, receipt or
payment of benefits would constitute a violation by the Grantee or the Company
of any provision of any such law or regulation.
28. NO TRUST OR FUND CREATED. Neither this Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or Subsidiary and a Grantee or any other
person. To the extent that any person acquires a right to receive payments
from the Company or Subsidiary pursuant to an Award, such right shall be no
greater than the right of an unsecured general creditor of the Company or
Subsidiary.
29. CONTROLLING LAW. The law of the State of Illinois, except its law with
respect to choice of law and except as to matters relating to corporate law
(in which case the corporate law of the State of Delaware shall control),
shall be controlling in all matters relating to this Plan.
30. TAX LITIGATION. The Company shall have the right to contest, at its
expense, any tax ruling or decision, administrative or judicial, on any issue
that is related to this Plan and that the Company believes to be important to
Grantees and to conduct any such contest or any litigation arising therefrom
to a final decision.
31. SEVERABILITY. If all or any part of this Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Plan not declared
to be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner in which will
give effect to the terms of such Section or part of a Section to the fullest
extent possible while remaining lawful and valid.
32. INDEMNIFICATION. Each person who is or at any time serves as a member of
the Board or the Committee or otherwise acts with respect to this Plan
pursuant to authority delegated to him/her in accordance with this Plan shall
be indemnified and held harmless by the Company against and from: (i) any
loss, cost, liability or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim,
action, suit, or proceeding to which such person may be a party or in which
such person
IV-18
<PAGE>
may be involved by reason of any action or failure to act under this Plan; and
(ii) any and all amounts paid by such person in satisfaction of judgment in
any such action, suit or proceeding relating to this Plan. Each person covered
by this indemnification shall give the Company an opportunity, at its own
expense, to handle and defend the same before such person undertakes to handle
and defend it on such person's own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the By-Laws of this Company, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify such person or hold such person harmless.
33. RELIANCE ON REPORTS. Each member of the Board and the Committee shall be
fully justified in relying or acting in good faith upon any report made by the
independent public accountants of, or counsel for, this Company and upon any
other information furnished in connection with the Plan. In no event shall any
person who is or shall have been a member of the Board or the Committee be
liable for any determination made or other action taken or any omission to act
in reliance upon any such report or information or for any action taken,
including the furnishing of information, or failure to act, if in good faith.
34. EXPENSES. The Company shall bear all expenses of administering this Plan.
35. TITLES AND HEADINGS. The titles and headings of the sections in this Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
Amended and Restated
by the Board of
Directors and
Approved by the
Stockholders of the
Company as of April ,
2000.
IV-19
<PAGE>
ANNEX V
COMDISCO, INC.
AMENDED AND RESTATED
1999 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
V-1
<PAGE>
ANNEX V
COMDISCO, INC.
AMENDED AND RESTATED
1999 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE. The purposes of this plan (the "Plan") are to encourage non-
employee Directors of Comdisco, Inc., a Delaware corporation (the "Company"),
to acquire a long term proprietary interest in the growth and performance of
the Company, to generate an increased incentive to contribute to the Company's
future success and prosperity (thus enhancing the value of the Company for the
benefit of its stockholder), and to enhance the ability of the Company to
attract and retain qualified directors upon whom the sustained progress,
growth, and liability profitability of the Company depend.
2. DEFINITIONS. As used in this Plan, terms defined immediately after their
use shall have the respective meanings provided by such definitions and the
terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
(a) "Award" means options granted under the Plan.
(b) "Board" means the Board of Directors of Comdisco.
(c) "Effective Date" means October 1, 1999.
(d) "Director" means an individual who is a member of the Board and who is
not an employee of the Company or any of its subsidiaries.
(e) "Fair Market Value" of the Stock of the Company means, as of any
applicable date, (i) if such series of Stock is listed on The New York
Stock Exchange, the closing sale price of the Stock on such date as
reported on The New York Stock Exchange Composite Tape, or if no such
reported sale of the Stock shall have occurred on such date, on the next
preceding date on which there was such a reported sale or (ii) if such
series of Stock is listed on the Nasdaq National Market the last reported
sale price per share of such series of Stock on the Nasdaq National Market,
or, if no such reported sale of the Stock shall have occurred on such date,
on the next preceding date on which there was such a reported sale. If such
series of Stock ceases to be listed on The New York Stock Exchange or the
Nasdaq National Market, as applicable, the Board shall designate an
alternative method of determining the Fair Market Value of the series of
common stock.
(f) "Grant Date" means the date on which an Award shall be duly granted.
(g) "Grantee" means an individual who has been granted an Award.
(h) "Including" or "includes" means "including, without limitation," or
"includes, without limitation."
(i) "Option Price" means the per share purchase price of Stock subject to
an option.
(j) "Plan" has the meaning set forth in the introductory paragraph.
(k) "Restatement Date" means , 2000 [date of filing of Restated
Charter].
(l) "SEC" means the Securities and Exchange Commission.
(m) "Stock" means any and all series of the Company's common stock,
authorized by the Company's Amended and Restated Certificate of
Incorporation or designated by the Company's Board of Directors in
accordance with that certificate and Delaware law.
3. SCOPE OF THE PLAN. (a) Subject to the provisions of Section 10, from and
after the Restatement Date, 1,200,000 shares of Stock, regardless of series,
shall remain available and reserved for delivery on account of the exercise of
Awards. All options granted under the Plans shall be granted with respect to
any series of Common Stock or any combination of series of Common Stock, as
determined in the sole discretion of the Board of Directors.
V-2
<PAGE>
Such shares may be treasury shares, newly issued shares, or shares purchased
on the open market (including private purchases) in accordance with applicable
securities laws, or any combination of the foregoing, as may be determined
from time to time by the Board.
(b) To the extent an Award shall expire or terminate for any reason without
having been exercised in whole by the Grantee, the shares of Stock associated
with such Award shall become available for other Awards.
4. PARTICIPATION IN THE PLAN. Following the Restatement Date, each individual
who is serving as a Director on each subsequent October 1st, or the next
business day if said date is not a business day, shall be automatically
granted an option for 9,450 shares of Stock (which amount may be adjusted in
accordance with Section 10), allocated among the outstanding series of the
Company's common stock in accordance with this section. As of each September
30 following the Restatement Date during the term of this Plan, a committee of
the Board of Directors comprised of two or more directors who are not eligible
to participate in this Plan shall allocate the total of 9,450 shares of Stock
subject to option among the various outstanding series of common stock of the
Company. This allocation will be made in accordance with the relative market
capitalizations of the business groups represented by those outstanding series
of common stock determined in good faith by that committee.
5. OPTION TERMS. (a) Option Price. The option price per share of Stock for
each option granted under this Plan shall be equal to the Fair Market Value of
the Stock on the date of its grant.
(b) Time for Exercising Options. The options shall not become exercisable
until six (6) months after the date of grant. Except as set forth in Section
6, any option granted must be exercised within not more than ten (10) years
from the date on which granted.
(c) Exercise of Options. Each option shall be exercised by delivery to the
Company of written notice of intent to purchase a specific number of shares of
Stock subject to the option. The Option Price of any shares of Stock as to
which an option shall be exercised shall be paid in full at the time of the
exercise. Payment may, at the election of the Grantee, be made in any one or
any combination of the following:
(i) cash;
(ii) Stock held by the Grantee for at least 6 months prior to exercise of
the option, valued at its Fair Market Value on the date of exercise;
(iii) by delivery of a properly executed exercise notice to the Company,
together with a copy of irrevocable instructions to a broker or lending
institution authorizing them to sell the Stock (or a sufficient portion
thereof) acquired upon exercise of an option, and assigning the delivery to
the Company of a sufficient amount of the sale proceeds to pay for all the
Stock acquired through such exercise and any tax withholding obligations
resulting from such exercise.
In the event the Grantee elects to make payments as provided in (ii) above,
delivery may be accomplished by means of an attestation by the Grantee, at
the time of exercise, as to the Grantee's ownership of the number of shares
of stock required to cover the total required-option-price of the option
being exercised and the Company may deliver the net amount of shares
covered by the option exercise after deducting the number of shares
required to cover the total option price.
6. TERMINATION OF DIRECTORSHIP OR DEATH. All rights to exercise options shall
continue for the period set forth in Section 5, notwithstanding the fact that
the Director may no longer be an active director of the Company. If a
Director's directorship terminates by reason of death, such Director's duly
appointed legal representative, or if none, the designated beneficiary of the
Director's estate, as the case may be, shall have the same right, during a six
(6) month period following the termination of the Director's service with the
Company by reason of said death, to exercise such option or options as the
Director could have exercised at the time of death.
V-3
<PAGE>
7. TRANSFERABILITY RESTRICTIONS. Each Award granted hereunder shall not be
assignable or transferable other than by will or the laws of descent and
distribution; provided, however, that a Grantee may (a) designate in writing a
beneficiary to exercise his/her Award after the Grantee's death, (b) transfer
an Award to a revocable, inter vivos trust as to which the Grantee is both the
settlor and trustee and (c) transfer an Award for no consideration to any of
the following permissible transferees (each a "Permissible Transferee"): (w)
any member of the Immediate Family of the Grantee to whom such Award was
granted, (x) any trust solely for the benefit of the Grantee and members of
the Grantee's Immediate Family, (y) any partnership or limited liability
company whose only partners or members are the Grantee and members of the
Grantee's Immediate Family, or (z) any other transferee approved by the Board
in advance of the transfer; and further provided that: (i) the transfer of any
Award shall not be effective on a date earlier than the date on which the
Award is first exercisable as set forth in this plan; (ii) any Permitted
Transferee to whom an Award is transferred by a Grantee shall not be entitled
to transfer the Award, other than to the Grantee or by will or the laws of
descent and distribution; and (iii) the Permitted Transferee shall remain
subject to all of the terms and conditions applicable to such Award prior to
such transfer. For purposes of this Section 7, "Immediate Family" means, with
respect to a particular Grantee, such Grantee's spouse, children,
stepchildren, grandchildren, parents, stepparents, grandparents, siblings,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, and
sister-in-law, and shall include relationships arising from legal adoption.
8. SECURITIES LAW MATTERS. Each Director electing to purchase shares pursuant
to an option shall be required, as a condition to such purchase, to represent
to the Company that the Director has access by reason of such Director's
service with the Company to sufficient information concerning the Company to
enable the Director to evaluate the merits and risks of the prospective
investment and has such knowledge and experience in financial and business
matters so that the Director is capable of evaluating such investment, and
that the Director is acquiring the shares solely for such Director's account
and will not sell the securities without registration under the Securities Act
of 1933 (which the Company is under no obligation to provide) or exemption
therefrom. Share certificates shall bear such legend as the Company may deem
necessary.
9. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of any Award have
any right as a stockholder of the Company with respect to the shares of Stock
which may be deliverable upon exercise until such shares have been delivered
to him or her.
10. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION. If prior to actual delivery of
certificates for the present Stock of the Company pursuant to any option
outstanding hereunder, the said stock shall be increased through stock
dividends or stock splits, or decreased by reverse stock splits or otherwise
reclassified, or the Company shall be reorganized, consolidated or merged with
one or more corporations, or if all or substantially all of the assets of the
Company shall be sold or exchanged, the Director, at the time he or she shall
be entitled to the delivery of a certificate pursuant to such option, shall
receive in place of the certificate or certificates for the present Stock of
the Company the same number and kind of shares or the same amount of other
property, cash or securities as the Director would have been entitled to
receive upon such increase, decrease, reclassification, reorganization,
consolidation, merger, sale or exchange, if the Director had been immediately
prior to such event the holder of the number of shares of the present Stock of
the Company (not previously delivered to the Director hereunder) which such
Director would otherwise have been entitled to receive pursuant hereto but for
such increase, decrease, reclassification, reorganization, consolidation,
merger, sale or exchange.
11. EFFECTIVE DATE, TERMINATION AND AMENDMENT. This Plan first became
effective on October 1, 1999, and subsequently was amended and restated as of
the Restatement Date. This Plan shall terminate at, and no grants of options
shall be made after, the close of business (5 P.M. Chicago, Illinois) on
September 30, 2009, unless terminated at an earlier date by action of the
Board, except that any options then outstanding shall remain in effect until
they have been fully exercised, are surrendered or expire. The Board may
amend, suspend, or terminate the Plan.
V-4
<PAGE>
12. NO TRUST OR FUND CREATED. Neither this Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a Grantee or any other person.
13. CONTROLLING LAW. The law of the State of Illinois, except its law with
respect to choice of law and except as to matters relating to corporate law
(in which case the corporate law of the State of Delaware shall control),
shall be controlling in all matters relating to this Plan.
14. SEVERABILITY. If all or any part of this Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Plan not declared
to be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner in which will
give effect to the terms of such Section or part of a Section to the fullest
extent possible while remaining lawful and valid.
15. TITLES AND HEADINGS. The titles and headings of the sections in this Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
Amended and Restated by the Board of Directors
and Approved by the Stockholders
of the
Company as of April , 2000.
V-5
<PAGE>
ANNEX VI
COMDISCO, INC.
AMENDED AND RESTATED
1998 EMPLOYEE STOCK PURCHASE PLAN
VI-1
<PAGE>
ANNEX VI
COMDISCO, INC.
AMENDED AND RESTATED
1998 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
The purpose of this Plan is to promote the interests of Comdisco, Inc. by
providing eligible employees in the United States with the opportunity to
share in the fortunes of the Corporation by acquiring a proprietary interest
in the Corporation through participation in a payroll deduction based employee
stock purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms in the
attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and construe any
provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. The Plan Administrator shall have authority
to delegate ministerial tasks related to the Plan to the Corporation's Human
Resources, Accounting, Tax and Payroll Departments. Decisions of the Plan
Administrator shall be final and binding on all parties having an interest in
the Plan. The Plan Administrator shall not be liable for any action or
determination made in good faith with respect to the Plan or any right granted
under it.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market, as determined by the Plan Administrator, in its
discretion, but subject to the express provisions of the Plan. Subject to the
provision for increase, the maximum number of shares of the Corporation's
Common Stock which shall be available for sale under the Plan and the
International Plan shall be 3% of the shares of the Corporation's Common
Stock, regardless of series, issued and outstanding on the Original Effective
Date. The maximum number of shares of the Corporation's Common Stock which
shall be available for sale under the Plan and the International Plan shall be
increased on the first day of each fiscal year beginning in the fiscal year
ended September 30, 1999, by an amount equal to (x) 3% of the shares of the
Corporation's Common Stock, regardless of series, issued and outstanding on
the last day of the immediately preceding fiscal year less (y) the number of
shares available for future option grants under the Plan and the International
Plan, regardless of series, on the last day of the immediately preceding
fiscal year.
B. Should any change be made to any series of Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a series
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable in
the aggregate under the Plan and the International Plan, (ii) the maximum
number and class of securities purchasable per Participant on any one Purchase
Date and (iii) the number and class of securities and the price per share in
effect under each outstanding purchase right in order to prevent the dilution
or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan through
a series of successive offering periods until such time as (i) the maximum
number of shares of Common Stock available for issuance in the aggregate under
the Plan and the International Plan shall have been purchased or (ii) the Plan
shall have been sooner terminated.
VI-2
<PAGE>
B. Each offering period shall be of such duration (not to exceed twenty-seven
(27) months) as determined by the Plan Administrator prior to the start date.
Semi-annual offering periods shall commence as of the first business day in
April and October, respectively, and terminate on the last business day in
March and September, respectively, of each calendar year, unless otherwise
designated by the Plan Administrator.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall be three-month periods
ending March 31, June 30, September 30 and December 31 of each year.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of any
offering period under the Plan may enter that offering period on such start
date provided he or she remains an Eligible Employee, by completing and
submitting the appropriate form at designated times. An employee may actively
participate in only one corporation sponsored stock purchase plan at a time.
B. The date an individual enters an offering period shall be designated his or
her Entry Date for purposes of that offering period.
C. To participate in the Plan for a particular offering period, the Eligible
Employee must complete the enrollment form(s) prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such form(s) with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date. In such forms, the
Eligible Employee must state the percentage of Base Salary or Base Salary and
Commission/Bonus Payments to be deducted from the Eligible Employee's
paycheck. Eligible Employees may enter the Plan only at the beginning of an
offering period (the first business day of April and October, respectively).
The Eligible Employee will be deemed to have elected to continue to
participate at the same contribution previously selected (subject to the
limitations in Article VI and VIII) and will automatically be enrolled in
subsequent offering periods at the same level unless the Eligible Employee
files a new enrollment form, withdraws, changes participation levels or
becomes ineligible.
VI. PAYMENT FOR THE SHARES
A. The Participant shall authorize the percentage of Base Salary or Base
Salary and Commission Bonus Payments which may be applied to the acquisition
of shares of Common Stock under the Purchase Plan during the offering period
by such Participant. Such Authorization shall be delivered to the Plan
Administrator (or its designate). Such percentage may be any multiple of one
percent (1%) of the Base Salary or Base Salary and Commission/Bonus Payments
paid to the Participant during each Purchase Interval within that offering
period, up to a maximum of ten percent (10%). Whenever an increase, decrease
or adjustment in a participating employee's Base Salary or Base Salary and
Commission/Bonus Payments is reflected on a pay day within a Purchase
Interval, the amount of said Participant's deductions will be automatically
adjusted to reflect such change, unless the Participant indicates otherwise.
B. The deduction percentage specified by the Participant shall continue in
effect throughout the offering period, the Participant may, at any time during
the offering period, reduce his or her rate of payroll deduction to become
effective on the next Purchase Interval after timely filing of the appropriate
form with the Plan Administrator. A Change Authorization must be received in
writing by the Plan Administrator (or its designate) at least 15 days before
the next Purchase Interval. The Participant may not, however, effect more than
one (1) such reduction per Purchase Interval.
C. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of the offering period. The payroll
deductions so collected shall be credited to the Participant's book account
under the Plan. Participants shall receive periodic statements detailing their
VI-3
<PAGE>
account balances. A Participant may not make any additional payments on such
account nor may payment for shares be made other than by payroll deductions.
The funds allocated to an employee's account shall remain the property of the
respective employee at all times. Except to the extent otherwise provided by
the Plan Administrator, no interest shall be paid on the balance from time to
time outstanding in such account and the amounts collected from the
Participant shall not be held in any segregated account or trust fund and may
be commingled with the general assets of the Corporation and used for general
corporate purposes.
D. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right (as set forth in Article VII (E) below) in
accordance with the provisions of the Plan.
E. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. As soon as practicable after the Corporation has
satisfied the requirements of the applicable federal and state securities laws
relating to the offer and sale of Common Stock to Eligible Employees pursuant
to this Plan, a Participant shall be granted a separate purchase right for
each offering period in which he or she participates. The purchase right shall
be granted on the Participant's Entry Date into the offering period and shall
provide the Participant with the right to purchase shares of Common Stock,
regardless of series but subject to Article III (A) hereof, in a series of
successive installments over the remainder of such offering period on the
condition that such employee remains eligible to participate in the Plan
throughout such offering period, upon the terms set forth below; provided
however, that any purchase rights or options outstanding on the Restatement
Date shall remain an option or right to purchase shares of Comdisco Stock and
shall not be exercisable for shares of any other series of common stock
designated on or after the Participant's Entry Date. The Participant shall
execute a stock purchase agreement embodying such terms and such other
provisions (not inconsistent with the Plan) as the Plan Administrator may deem
advisable.
Under no circumstances shall purchase rights be granted under the Plan to any
Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be automatically
exercised in installments on each successive Purchase Date within the offering
period, and shares of Common Stock shall accordingly be purchased on behalf of
each Participant (other than any Participant whose payroll deductions have
previously been refunded pursuant to the Termination of Purchase Right
provisions below) on such date. The purchase shall be effected by applying the
Participant's payroll deductions for the Purchase Interval ending on such
Purchase Date to the purchase of whole shares of Common Stock (subject to the
limitation on the maximum number of shares purchasable per Participant on any
one Purchase Date) at the purchase price in effect for the Participant for
that Purchase Date. If a Participant is not an Eligible Employee on the last
business day of a Purchase Interval, he or she shall not be entitled to
exercise his or her Purchase Right.
C. Purchase Price. The purchase price per share at which Common Stock will be
purchased on the Participant's behalf on each Purchase Date shall for each
offering period be established by the Plan Administrator, provided however,
that the purchase price shall not be less than eighty five percent (85%) of
the lower of (y) the Subscription Price relating to that offering period or
(z) Market Price. The initial purchase price for the initial and each
subsequent offering period, until changed by the Plan Administrator, shall be
the lesser of 90% (i) the Subscription Price or the (ii) the Market Price.
VI-4
<PAGE>
D. Number of Purchasable Shares. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date shall be the number of
whole or fractional shares obtained by dividing the amount collected from the
Participant through payroll deductions during the Purchase Interval ending
with that Purchase Date by the purchase price per share in effect for that
Purchase Date. However, the maximum number of shares of Common Stock
purchasable per participant in any one calendar year shall not exceed two
thousand five hundred (2,500) shares, subject to periodic adjustments in the
event of certain changes in the Corporation's capitalization.
E. Termination of Purchase Right. The following provisions shall govern the
termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled Purchase
Date in the offering period, terminate his or her outstanding purchase
right by filing the appropriate form with the Plan Administrator (or its
designate), and no further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right. Any payroll
deductions collected during the Purchase Interval in which such termination
occurs shall, at the Participant's election, be immediately refunded or
held for the purchase of shares on the next Purchase Date. If no such
election is made at the time such purchase right is terminated, then the
payroll deductions collected with respect to the terminated right shall be
refunded as soon as possible.
(ii) The termination of such purchase right shall be irrevocable, and the
Participant may not subsequently rejoin the offering period for which the
terminated purchase right was granted. In order to resume participation in
any subsequent offering period, such individual must re-enroll in the Plan
(by making a timely filing of the prescribed enrollment forms) on or before
his or her scheduled Entry Date into that offering period.
(iii) Should the Participant cease to remain an Eligible Employee for any
reason (including death, disability or change in status) while his or her
purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the Purchase Interval in which the purchase right so terminates shall be
immediately refunded. However, should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last business
day of the Purchase Interval in which such leave commences, to (a) withdraw
all of the payroll deductions collected to date on his or her behalf for
that Purchase Interval or (b) have such funds held for the purchase of
shares on his or her behalf on the next scheduled Purchase Date. In no
event, however, shall any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's return to
active service, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave began,
unless the Participant withdraws from the Plan prior to his or her return.
F. Transfer of Employment. In the event that an Eligible Employee of the
Corporation who is a participant in the Plan is transferred and becomes an
Eligible Employee of a Foreign Subsidiary during an offering period in effect
under the Plan, such individual shall automatically become a Participant under
the International Plan for the duration of the Purchase Interval in effect at
that time under the International Plan and shall continue to participate in
such plan unless otherwise terminated and the balance in such individual's
book account maintained under the Plan shall be transferred as a balance to a
book account opened for such individual under the International Plan. Such
balance, together with all other payroll deductions collected from such
individual by the Foreign Subsidiary for the remainder of the Purchase
Interval under the International Plan (as converted into U.S. Dollars), shall
be applied on the next Purchase Date to the purchase of Stock under the
International Plan.
G. Corporate Transaction. Each outstanding purchase right shall automatically
be exercised, immediately prior to the effective date of any Corporate
Transaction, by applying the payroll deductions of each Participant for the
Purchase Interval in which such Corporate Transaction occurs to the purchase
of whole or fractional shares of Common Stock at a purchase price per share
equal to that percentage then in effect under Article VII (C) (initially 90%)
of the lower of (i) the Subscription Price for the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective
VI-5
<PAGE>
date of such Corporate Transaction. However, the applicable limitation on the
number of shares of Common Stock purchasable per Participant shall continue to
apply to any such purchase.
The Corporation shall use its best efforts to provide at least ten (10) days
prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. Proration of Purchase Rights. If at the termination of any Purchase
Interval the total number of shares which would otherwise be subject to
options granted pursuant to Article VII (A) hereof exceeds the number of
shares then available under the Plan and the International Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Corporation shall promptly notify the Participants of the
Plan and the International Plan, and shall, in its sole discretion (i) make a
pro-rata allocation of the shares remaining available for option grant in as
uniform a manner as shall be practicable and as it shall determine to be
equitable, (ii) terminate the offering period without issuance of any shares
or (iii) obtain shareholder approval of an increase in the number of shares
authorized under the Plan and the International Plan such that all options
could be exercised in full.
The Corporation may delay determining which of (i), (ii) or (iii) above it
shall decide to effect, and may accordingly delay issuance of any shares under
the Plan and the International Plan, for such time as is necessary to attempt
to obtain shareholder approval of any increase in shares authorized under the
Plan and the International Plan. The Corporation shall promptly notify
Participants of its determination to effect (i), (ii) or (iii) above upon
making such decision. A Participant may withdraw all but not less than all
payroll deductions credited to his or her account under the Plan at any time
prior to such notification from the Corporation. In the event the Corporation
determines to effect (i) or (ii) above, it shall promptly upon such
determination return to each Participant all payroll deductions not applied
towards the purchase of shares.
I. Assignability. The purchase right shall be exercisable during the
Participant's lifetime only by the Participant and shall not be assignable or
transferable by the Participant other than by will or the laws of descent and
such right and interest shall not be liable for, or subject to, the debts,
contracts or liabilities of the employee. If any such action is taken by the
employee, or any claim is asserted by any other party in respect of such right
and interest whether by garnishment, levy, attachment or otherwise, such
action or claim will be treated as an election to withdraw funds in accordance
with Article VII (E).
J. Shareholder Rights. A Participant shall have no shareholder rights with
respect to the shares subject to his or her outstanding purchase right until
the shares are purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common Stock
pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share of such
stock on the date or dates such rights are granted) for each calendar year
such rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase rights
granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase right
shall accrue in a series of installments on each successive Purchase Date
during the offering period on which such right remains outstanding.
VI-6
<PAGE>
(ii) No right to acquire Common Stock under any outstanding purchase right
shall accrue to the extent the Participant has already accrued in the same
calendar year the right to acquire Common Stock under one (1) or more other
purchase rights in an amount equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value per share on the date or dates of grant) for each calendar year such
rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this Article
and one or more provisions of the Plan or any instrument issued thereunder,
the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE, RESTATEMENT DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on November 4, 1997 and became effective
on the Original Effective Date. The Plan was approved by the Corporation's
stockholders in January, 1998. The Plan was amended and restated as of the
Restatement Date, and, as amended and restated, was approved by the
Corporation's Stockholders in April, 2000.
B. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest to occur of (i) the last business day in December, 2008, (ii) the
date on which all shares available for issuance in the aggregate under the
Plan and the International Plan shall have been sold pursuant to purchase
rights exercised under such plans or (iii) the date on which all purchase
rights are exercised in connection with a Corporate Transaction. No further
purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. ISSUANCE OF STOCK
Upon purchase of one or more full or fractional shares by a Participant
hereunder, such purchase shall be recorded on the stock transfer records of
the Corporation in book entry form in the name of the Participant to reflect
the shares purchased at that time. Certificates shall be issued only upon the
Participant's request for full shares and also, when necessary to comply with
transaction requirements outside the United States. To request certificates,
Participant may call Merrill Lynch Service Center at 1-800-621-3777. In the
event a Participant terminates his or her account, any fractional share held
in the account will be paid to the Participant in cash. Participants shall
receive periodic statements detailing their account balances. A Participant
will receive Statements of Ownership for stock purchased under the Plan, or
may elect to receive stock certificates instead of Statements of Ownership.
Stock purchased under the Plan will be issued only in the name of the
Participant, or if his or her Authorization so specifies, in the name of the
Participant and another person of legal age as joint tenants with rights of
survivorship.
The Plan Administrator, at its sole discretion, may determine that the shares
shall be delivered by (1) issuing and delivering to the Participant a
certificate for the number of shares purchased by such Participant on an
exercise date; (2) issuing and delivering a certificate or certificates for
the number of shares purchased by all Participants on an exercise date to a
member firm of the New York Stock Exchange which is also a member of the
National Association of Securities Dealers, as selected by the Plan
Administrator from time to time, which shares shall be maintained by such
member firm in separate brokerage accounts for each Participant; or (3)
issuing and delivering a certificate or certificates for the number of shares
purchased by all Participants on an exercise date to a bank or trust company
or affiliate thereof, as selected by the Plan Administrator from time to time
which shares shall be maintained by such bank or trust company or affiliate in
separate accounts for each Participant. Each certificate or account, as the
case may be, may be in the name of the Participant, or, if the Participant
designates on the form prescribed by the Plan Administrator, in the
Participant's name jointly with another individual, with right of
survivorship.
VI-7
<PAGE>
XI. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any time to
become effective immediately following the close of any Purchase Interval.
However, certain amendments may require shareholder approval pursuant to
applicable laws or regulations.
Any such amendment or termination of the Plan shall not affect options already
granted hereunder and such options shall remain in full force and effect as if
this Plan had not been amended or terminated.
XII. NOTICES
All notices or other communications by a Participant to the Corporation under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Corporation at the location, or by the
person, designated by the Corporation for the receipt thereof. All notices or
other communications to a Participant by the Corporation shall be deemed to
have been duly given when sent by the Corporation by regular mail to the
address of the Participant on the human resources records of the Corporation
or when posted on any general electronic messaging and bulletin board system
utilized by the Corporation.
XIII. LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide Common Stock for investment and not for
resale. The Corporation does not, however, intend to restrict or influence any
employee in the conduct of his or her own affairs. Subject to the
Corporation's compliance with applicable federal and state securities laws,
Participant may, therefore, sell stock purchased under the Plan at any time he
or she chooses. The Participant assumes the risk of any market fluctuations in
the price of such stock.
XIV. GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of the Corporation's
Common Stock under this Plan is subject to the approval of any governmental
authority, domestic or foreign, required in connection with the authorization,
issuance or sale of such stock.
XV. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan shall be
paid by the Corporation, however, each Plan Participant shall bear all costs
and expenses incurred by such individual in the sale, other disposition or
transfer of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to continue
in the employ of the Corporation or any Corporate Affiliate for any period of
specific duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the State of
Illinois without resort to that State's conflict-of-laws rules.
D. As a condition to the exercise of an option, the Corporation may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Corporation, such a representation is required by
any of the aforementioned applicable provisions of law.
VI-8
<PAGE>
SCHEDULE A
CORPORATIONS PARTICIPATING IN
1998 EMPLOYEE STOCK PURCHASE PLAN
AS OF THE ORIGINAL EFFECTIVE DATE
A. General Operating Subsidiaries
CDC Realty, Inc.
CDS Foreign Holdings, Inc.
Comdisco Financial Services, Inc.
Comdisco Healthcare Group, Inc.
(f/k/a Comdisco Medical Equipment Group, Inc.
[f/k/a Comdisco Medical Leasing Group, Inc.])
Comdisco Investment Group, Inc.
Comdisco Maintenance Services, Inc.
Comdisco Medical Exchange, Inc.
Comdisco Network Services, Inc.
(f/k/a COM-L 1989-B Corporation)
Comdisco Systems, Inc.
Comdisco Trade, Inc.
Computer Discount Corporation
B. Specific Purpose Subsidiaries
CFS Railcar, Inc.
COM-L 1989-A Corporation
Comdisco Canada Finance, L.L.C. (Delaware Corp.)
Comdisco Receivables, Inc.
Commedco, Inc.
CDO RM, Inc.
CDO Capital, L.L.C.
VI-9
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. BASE SALARY shall mean the regular base salary paid to a Participant by
one or more Participating Companies during such individual's period of
participation in one or more offering periods under the Plan. The following
items of compensation shall NOT be included in Base Salary: (i) all
overtime payments, bonuses, commissions (other than those functioning as
base salary equivalents), profit-sharing distributions and other incentive-
type payments and (ii) any and all contributions made on the Participant's
behalf by the Corporation or any Corporate Affiliate under any employee
benefit or welfare plan now or hereafter established.
C. CODE shall mean the U.S. Internal Revenue Code of 1986, as amended.
D. COMMISSION/BONUS PAYMENTS shall mean all non-Base Salary cash payments
paid to a Participant by one or more participating companies during such
individuals period of participation in one or more offering periods under
the Plan. In addition to Base Salary, exclusions from Commission/Bonus
Payments shall include without limitation: (i) all overtime payments (other
than those functioning as base salary equivalents) reimbursement for
expenses and profit sharing distributions, and (ii) any and all
contributions made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or
hereafter established.
E. COMMON STOCK shall mean any and all series of the Corporation's common
stock authorized by the Corporation's Amended and Restated Certificate of
Incorporation, including Comdisco Stock or Comdisco Ventures Stock, or any
and all other series of the Corporation's common stock designated by the
Corporation's Board of Directors in accordance with that certificate and
Delaware law.
F. CORPORATE AFFILIATE shall mean any "parent" or "subsidiary" corporation
of the Corporation, whether now existing or subsequently established.
"Parent" and "subsidiary" shall be determined as follows:
(i)"parent" shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided
each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain, and
(ii)"subsidiary" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last
corporation) in the unbroken chain owns, at the time of determination,
stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations
in such chain.
G. CORPORATE TRANSACTION shall mean either of the following shareholder-
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
H. CORPORATION shall mean Comdisco, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting
stock of Comdisco, Inc. which shall by appropriate action adopt the Plan.
VI-10
<PAGE>
I. ELIGIBLE EMPLOYEE shall mean any person who is a resident in the United
States and who is employed and has been continuously employed for at least
one year as of the start date of an offering period by a Participating
Corporation on a basis under which he or she is regularly expected to
render more than twenty (20) hours of service per week for more than five
(5) months per calendar year for earnings considered wages under Code
Section 340 1(a), and who are not designated by the Corporation as officers
under Section 16 of the Securities Exchange Act of 1934, as amended.
J. ENTRY DATE shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Original Effective Date. Unless
otherwise provided by the Plan Administrator, all subsequent Entry Dates
shall be the first business day in April and October of each calendar year.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the NASDAQ National
Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the
NASDAQ National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing sale price per share of
Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common
Stock, such price is officially quoted in the composite tape of
transactions on such exchange. Initially the primary market is
designated to be the New York Stock Exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing sale price on the last preceding
date for which such quotation exists.
L. FOREIGN SUBSIDIARY shall mean any Corporate Affiliate which employs
Eligible Employees outside the United States and which may be authorized
from time to time by the Board to participate in the International Plan.
M. INTERNATIONAL PLAN shall mean the Corporation's 1998 International
Employee Stock Purchase Plan.
N. MARKET PRICE shall be the closing selling price of the Common Stock on
the New York Stock Exchange (or such other Stock Exchange designated as the
primary market by the Plan Administrator) on the day prior to the Purchase
Date or, if the Corporation purchases such Common Stock, the actual cost to
the Corporation per share (exclusive of brokerage fees and expenses) on the
Purchase Date.
O. 1933 ACT shall mean U.S. Securities Act of 1933, as amended.
P. ORIGINAL EFFECTIVE DATE shall mean the first business day in April,
1998. Any Corporate Affiliate which becomes a Participating Corporation
after such Original Effective Date shall designate a subsequent Effective
Date with respect to its employee-Participants.
Q. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
R. PARTICIPATING CORPORATION shall mean the Corporation and such Corporate
Affiliate or Affiliates as may be authorized form time to time by the Board
to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Original Effective Date
are listed in the attached Schedule A.
S. PLAN shall mean the Corporation's 1998 Employee Stock Purchase Plan, as
amended, as set forth in this document.
VI-11
<PAGE>
T. PLAN ADMINISTRATOR shall mean the committee of two (2) or more non-
employee Board members appointed by the Board to administer the Plan, none
of whom shall be eligible to participate in the Plan.
U. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be the last business day in June,
1998.
V. PURCHASE INTERVAL shall mean each successive three (3) month period
within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant. The initial Purchase
Interval, however, shall end on the last business day in June, 1998.
W. RESTATEMENT DATE shall mean April , 2000.
X. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
York Stock Exchange.
Y. SUBSCRIPTION PRICE shall mean (i) if the Common Stock is listed on a
Stock Exchange the closing price of the Common Stock on the New York Stock
Exchange (or such other Stock Exchange designated as the primary market by
the Plan Administrator) on the start date (the first business day of April
and October, respectively) of an offering period or (ii) if the Common
Stock is listed on the Nasdaq National Market, the last reported sales
price per share if such Common Stock on the Nasdaq National Market on the
start date (the first business day of April and October, respectively) of
an offering period.
Amended and Restated by the Board
of Directors and approved by the
Stockholders of the Company as of
April , 2000.
VI-12
<PAGE>
ANNEX VII
COMDISCO GROUP
DESCRIPTION OF BUSINESS AND
COMBINED FINANCIAL INFORMATION
VII-1
<PAGE>
COMDISCO GROUP
INDEX TO DESCRIPTION OF BUSINESS AND COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
------
<S> <C>
Description of Business................................................ VII-3
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... VII-10
Audited Financial Statements........................................... VII-20
Independent Auditors' Report........................................... VII-21
Combined Statements of Earnings--Fiscal years ended September 30, 1999,
1998 and 1997 and three months ended December 31, 1999 and 1998
(Unaudited)........................................................... VII-22
Combined Balance Sheets--September 30, 1999 and September 30, 1998 and
December 31, 1999 (Unaudited)......................................... VII-23
Combined Statements of Cash Flows--Fiscal years ended September 30,
1999, 1998 and 1997 and three months ended December 31, 1999 and 1998
(Unaudited)........................................................... VII-24
Combined Statements of Division Equity--Fiscal years ended September
30, 1999, 1998 and 1997 and three months ended December 31, 1999 and
1998 (Unaudited)...................................................... VII-25
Accumulated Other Comprehensive Income/(Loss)--Fiscal years ended
September 30, 1999, 1998 and 1997 and three months ended December 31,
1999 and 1998 (Unaudited)............................................. VII-26
Notes to Comdisco Group Combined Financial Statements.................. VII-27
</TABLE>
VII-2
<PAGE>
COMDISCO GROUP
DESCRIPTION OF BUSINESS
You should read this description together with the information provided with
respect to Comdisco Group in Comdisco's Form 10-K, as amended by Form 10-K/A,
for the 1999 fiscal year and the section entitled "Management Discussion and
Analysis of Financial Condition and Results of Operation" below at page VII-
12, including various risk factors identified in those documents with respect
to the business of Comdisco Group.
Overview
Comdisco provides global technology services to help its customers maximize
technology functionality, predictability and availability. Comdisco provides
equipment leasing, continuity, managed network services, and desktop
management solutions. These services are designed to provide integrated, long-
term, cost effective asset and technological planning as well as data and
voice availability and recovery to users of high technology equipment.
Comdisco also includes its subsidiary, Prism Communication Services, Inc. that
is developing a high-speed, always-on digital network, which we believe will
provide customers with leading-edge connectivity.
Comdisco Group is:
. our technology services businesses, including: our continuity services;
managed network services; and desktop management solutions;
. our global leasing and remarketing businesses in areas such as
electronics, communications, laboratory and scientific and industrial
automation equipment;
. Prism Communication Services, Inc., our majority-owned subsidiary,
through which we provide integrated communications services; and
. our retained interest in Comdisco Ventures.
The executive offices of Comdisco Group are located in the Chicago area, at
6111 North River Road, Rosemont, Illinois 60018, and its telephone number is
(847) 698-3000.
General Development Of Business
Comdisco was founded in 1969 and incorporated in Delaware in 1971. Since its
incorporation, Comdisco's business, its markets and the services it offers and
the way it conducts its business has changed significantly and is expected to
continue to change and evolve. These changes are primarily the result of rapid
changes in technology (including declining prices, manufacturer consolidations
and the rise of new industries such as telecommunications), the rise of new
dominant technologies (such as the Internet) and their related impact on
customers' needs and requirements. Initially, Comdisco was engaged primarily
in the procurement and placement of new and used computer equipment,
principally mainframe and related peripherals. Comdisco developed disaster
recovery and contingency planning services in 1980. In the mid-1980's Comdisco
expanded its operations to include the leasing of non-computer equipment
(office equipment, PBX, point-of-sale, and other high-technology equipment),
eventually adding healthcare, communications, semiconductor manufacturing and
other industry specific equipment leasing, remarketing and other services.
On March 24, 1999, Comdisco announced a major shift in its corporate strategy,
including its intent to focus on high-margin service businesses and shed low-
margin businesses, such as its mainframe leasing portfolio and medical
refurbishing business. In conjunction with its repositioning, Comdisco
recorded a one-time pre-tax charge of $150 million, $96 million after tax, or
approximately $0.59 per share, in the quarter ended March 31, 1999. The
components of this pretax charge include $100 million associated with
Comdisco's plans to exit the mainframe residual leasing business, $20 million
to exit the medical refurbishing business and $30 million associated with a
realignment of the service businesses. Comdisco completed the sale of its
mainframe computer leasing portfolio and the sale of the medical refurbishing
business in the fiscal quarter ended June 30, 1999. In addition to these
sales, Comdisco completed the sale of substantially its entire vendor lease
portfolio in September, 1999.
Comdisco finalized the acquisition of Prism during the quarter ended March 31,
1999.
VII-3
<PAGE>
The industry in which Comdisco operates is in a state of constant change, and,
as part of this environment, Comdisco Group's business is becoming more
service oriented, with the business driven by Comdisco Group's service
capabilities. Accordingly, Comdisco has realigned its businesses within
Comdisco Group to focus on technology services, Prism, and on global leasing
businesses in historically high-margin areas such as electronics,
communications, medical, laboratory and scientific.
Leasing, Services and Prism
Comdisco Group's operations are organized into three reportable groups of
businesses. These groups are Leasing, Services and Prism.
Leasing
General. Leasing and remarketing services for distributed computing systems--
servers, workstations, PCs, local area networks and other high technology
equipment; acquisition management; expenditures tracking; and other services
that facilitate equipment procurement and expense tracking.
Comdisco Group buys, sells and leases and remarkets PCs and workstations made
by most of the leading manufacturers. Comdisco Group's lease transactions also
include high-end servers, printers and other desktop related equipment.
Comdisco Group's strategy for the distributed systems market is to provide
financing, professional services and software tools (see "Services") to its
existing and prospective customers. Comdisco Group estimates that
approximately 34% of the cost of equipment placed on lease by Comdisco Group
(excluding International operations) in fiscal 1999 was distributed equipment.
Industry Specific. Leasing and remarketing, asset management and
reconditioning services for industry specific equipment, including
semiconductor manufacturers, communication and pharmaceutical companies.
Electronics Comdisco Group. Comdisco Group leases new and used electronic
manufacturing, testing and monitoring equipment, including semiconductor
production equipment, automated test equipment and assembly equipment.
Additionally, Comdisco Group maintains a dedicated refurbishing and sales
facility in the Silicon Valley area. The semiconductor manufacturing industry
is characterized by rapidly advancing technology, high capital outlays,
increased competition, and a growing concern over the total cost of ownership
in high technology equipment. Comdisco Group assists its customers in
developing an effective strategy for acquiring and managing its high-tech
assets.
Healthcare Comdisco Group. Through its healthcare subsidiaries, Comdisco Group
leases medical and other high technology equipment to healthcare providers,
including used, reconditioned medical equipment. Comdisco Group's portfolio
includes angiography, MRI systems, CT Scanners, nuclear imaging devices, test
equipment such as oscilloscopes, analyzers and testers and laboratory
equipment such as microscopes and centrifuges.
Laboratory and Scientific Comdisco Group. Comdisco Group's laboratory and
scientific group assists organizations in the pharmaceutical, chemical,
research, healthcare and biotechnology industries through the implementation
of an equipment life-cycle management strategy. Its marketing strategy
includes financing, technology risk management and remarketing.
Services
Continuity Services. These services include continuity services for large
central processing sites, client/server, workstation and PC environments,
local and wide area networks and voice availability and recovery capabilities,
as well as consulting services in continuity planning, network services and
data protection, and other related data processing services throughout the
United States, Canada and Europe. Comdisco Group provides backup capabilities
for, among others, Digital Equipment Corporation, Hitachi Data Systems, IBM,
Hewlett Packard,
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Sequent, Stratus, Sun Micro Systems, Tandem and Unisys equipment users.
Comdisco's services are designed to help customers avoid and minimize the
impact of a significant interruption to critical business functions as a
result of the inaccessibility to the customer's data processing facility,
communications network(s) or workstations.
Through its network and facilities strategy entitled CCS Net, Comdisco Group
offers customers access to its North American facilities, including a range of
data processing recovery services at hot sites, Customer Control Centers (CCC)
and shell sites. Hot sites are equipped computer facilities that include
central processing units, peripherals and communications equipment. A CCC
interfaces customers to geographically separated hot sites by means of
telecommunications lines. Most facilities also include workstation and/or
desktop recovery, voice, and network capabilities. Capabilities also include
client/server platforms and midrange systems. These facilities were also used
for Comdisco Group's Millennium Testing Services, which allowed customers to
test their Year 2000 conversion projects.
Of Comdisco Group's approximately forty continuity locations, nine serve as
data center recovery environments providing hot site and/or shell site
services. These nine regional recovery centers serve major commercial centers,
including New York, Chicago, Northern and Southern California, Texas, Georgia,
as well as a location in Southern New Jersey that serves the Mid-Atlantic
region and a center located in Toronto, Canada. Each recovery center has at
least one hot site or CCC and includes telecommunications capabilities,
conference rooms, office space, support areas, and appropriate on-site
technical personnel. Comdisco believes it operates one of the largest
communications networks in North America.
Managed Network Services. Comdisco Network Services offers network assessment,
design, implementation, help desk and professional management services
designed to reduce the total cost of network technology. Comdisco Group's
customer base is primarily North American-based enterprises as its monitoring
and on-site support capabilities are predominantly within the United States.
Desktop Management Solutions. Comdisco Group provides strategic solutions for
desktop management services to its customers to assist them in managing their
information technology assets with the objective of increasing productivity
and reducing technology cost and risk. These technology service solutions are
built around the collection, integration, and management of information on
enterprise assets through the implementation of an integrated database of
asset information. These solutions may also include improving, supporting, and
managing distributed systems and critical business processes through a single
point of contact. The services, which are designed to complement Comdisco
Group's leasing activities, include transitional strategies, integration
planning and implementation, financing (hardware and software), and continuity
planning. Comdisco Group's integrated desktop management software tools let
customers order, track and manage their inventory of distributed systems
equipment.
Prism
Overview. Prism intends to become a leading integrated communications carrier
by directly offering communications services that enhance productivity. Its
array of services will include high-speed data connectivity, local and long
distance voice, video conferencing, virtual private networks, business
continuity and teleworking solutions. Prism will provide these services over a
facilities-based network consisting of splitterless, integrated data and voice
line card technology from Nortel Networks(TM) (Nortel) and an optical backbone
that enables the Company to efficiently transport voice and data traffic from
network edge to the Internet, a LAN/WAN or other destinations. Prism intends
to build long-term relationships with target customers, which include small
and mid-sized businesses, teleworkers and residential power users, by
initially providing affordable, reliable data and voice services supported by
integrated, simple billing and excellent customer service. Prism intends to
build its brand, RED, because it believes a well-recognized brand can reduce
costs required to acquire new customers, lower customer turnover and serve as
a platform from which to sell additional, complementary business and
communications services. In the future, Prism plans to expand its applications
offerings, utilizing its customers' high-speed data connectivity to offer
broadband content and
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business-to-business services. Over time, Prism believes such applications
will increase in importance to its customers and business model. Through its
relationship with Comdisco Group, Prism plans to further extend its service
distribution by utilizing Comdisco's strong customer relationships among
larger corporations.
Prism Data Services. Prism offers three high-speed data services designed to
answer the needs of its various target market segments:
. RED HomeWork and RED PowerWork are applicable primarily for single users
in residential or small office settings requiring a dedicated, "always-
on" connection to the Internet and, in the future, a LAN/WAN, or other
destinations.
. RED NetWork serves the small to medium-sized business with capacity for
multiple users. Prism includes a router and multiple e-mail accounts
with each NetWork package, and customers have the option to support
their own Web and e-mail servers behind the router.
In addition to the services noted above, Prism is developing a new family of
higher-speed data and voice products, some of which Prism is testing in the
greater New York City metropolitan area. Prism plans to bundle together and
differentiate these services based on customers' preferences for transmission
speeds, security and flexibility to choose transmission paths. Prism
anticipates offering some of these services beginning in the second quarter of
calendar 2000.
Prism also offers standard 56k and ISDN dial-up services to those customers
who are not located in a high-speed service area or who do not wish to take
high-speed service. Prism prices such services as $8.00 and $19.95 per month
for unlimited use, respectively.
Prism Voice Services. Prism began offering voice services in the greater New
York City metropolitan area in the first quarter of calendar 2000 and expects
to make a similar offering in every market entered. Prism voice services
include local and local toll calling, long distance calling, and a bundle of
four features: three-way calling, call waiting, call forwarding and caller ID.
Additional Prism Services. Prism either offers or is planning to offer several
services to RED customers by the first quarter of calendar 2000, including
domain name hosting, on-line data back-up, web hosting, and, later in calendar
2000, virtual private network capability and broadband content such as media
and entertainment presentations.
Customer Service
Prism offers customers a single point of contact for implementation,
maintenance, and billing. Prism's network operations center in New York City
provides both proactive and customer initiated maintenance services 24 hours a
day, seven days a week.
Prism believes that "Hot Cut" provisioning will enable Prism to provision
voice and data customers faster than other companies that are required to
provide a new copper telephone line as part of the service. Hot Cut Provision
avoids the customer line installation process by simply re-terminating the
customer's existing local loop from the ILEC switch to Prism's switch within
the central office collocation space.
Network Architecture
Prism intends to deploy a national, facilities-based network utilizing
Nortel's high-speed digital modem technology. Prism is constructing a voice
network using Nortel DMS-500, Access Node Express, RSC, and multiple services
access shelf technology using the Universal Edge 9000 and Succession 9000
products. Prism is building its voice network to carrier-grade voice standards
found in many of today's copper-based voice networks. Prism's network is
designed to be highly secure between the subscriber's premise and the
integrated line card located in its collocation. Prism manages its network
from its network operations center located in New York City. Prism provides
end-to-end network management to its customers using advanced network
management tools on a 24-hour-a-day, seven-day-a-week basis. From its network
operations center, Prism can monitor its network, including the equipment and
circuits in its metropolitan area networks and central offices, and its
customers' networks, including individual end user lines and DSL modems.
VII-6
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Through its relationship with Nortel, Prism also has the monitoring and
diagnosis capabilities of its network management center. This facility
provides network surveillance and analysis to remotely address trouble reports
and establish preventative maintenance in advance of problems. In addition,
Nortel personnel are available for dispatch to assist us in the field.
Comdisco Group Operations
Comdisco Group's operations are conducted through its principal office in the
Chicago area and approximately one hundred offices in the United States,
Canada, Europe and the Pacific Rim. Subsidiaries in Europe and Canada offer
services similar to those offered in the United States.
Each business is directed by its own management team and has its own sales,
marketing, product development, operations and customer support personnel.
Overall corporate control and coordination are achieved through centralized
budgeting, financial and legal reporting, cash management, additional customer
support and strategic planning.
Comdisco Group may, from time-to time, enter into marketing relationships with
high technology equipment manufacturers and value-added resellers in order to
expand its customer base and name recognition. In its marketing operations,
Comdisco Group attempts to cross-sell services where and when appropriate.
Customers and Raw Materials
Comdisco Group's business is diversified by customer, customer type, equipment
segments, geographic location of its customers and maturity of its lease and
notes receivables. Comdisco Group's customers include "Fortune 1000"
corporations or companies of a similar size as well as smaller organizations,
including privately-held corporations. Comdisco Group's businesses are not
dependent on any single customer or on any single source for the purchasing,
selling or leasing of equipment, or in connection with its continuity
services.
Competition
Comdisco Group competes with different firms in each of its activities.
Leasing and Services
Comdisco Group's competition includes equipment manufacturers such as IBM,
Hewlett Packard (HP), Amdahl, Hitachi Data Systems, AT&T, Rolm, Hitachi
Medical Systems, Siemens Medical Systems and General Electric, other equipment
dealers, brokers and leasing companies (including captive or related leasing
companies of IBM, HP and General Electric and others) as well as financial
institutions, including commercial banks and investment banking firms. While
its competitive methodologies will differ, in general, Comdisco Group competes
mainly on the basis of its expertise in remarketing equipment, terms offered
in its transactions, its reliability in meeting its commitments, its
independence from the manufacturer and its ability to develop and offer
alternative solutions and options to high technology equipment users.
Primarily as a result of technological changes, competition has increased in
the leasing industry and the number of companies offering competitive
services, such as desktop management and other high technology equipment
leasing, has increased. Competitive alliances have also impacted the leasing
industry.
In PCs, workstations, electronics, healthcare and telecommunications, Comdisco
Group believes it competes with the manufacturers and their captive leasing
companies and approximately three significant leasing companies, as well as
banks and other lessors and financial and lending institutions throughout the
United States and Canada. In its other services, Comdisco Group competes with
manufacturers and other national and regional consulting and services
organizations.
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<PAGE>
In continuity services, Comdisco Group believes that its major domestic
competitors are IBM and SunGard Data Systems, Inc. Additionally, it competes
with regional firms in the domestic, Canadian and European marketplace, which
provide contract continuity services, and that it is the largest international
provider of such services.
In managed network services, Comdisco Group competes with telecommunications
firms, such as AT&T and MCI Communications, consulting organizations, such as
Andersen Consulting and EDS, and other local and regional providers.
In desktop management, Comdisco Group believes it competes with a number of
large general contractors such as AT&T, GE Capital ITS, Hewlett-Packard and
IBM, all companies with significant resources and with experience in leasing
and financing. In addition, other companies, such as Amdahl and Unisys--
companies that have traditionally focused on equipment break/fix and
maintenance services--have begun offering more comprehensive asset management
strategies.
Prism
Prism believes that its most direct competition for high-speed data
communications services will come from traditional telephone companies and
other major DSL providers operating in its target markets. However, Prism also
anticipates competition from service providers using other technologies.
Traditional Telephone Companies. Traditional telephone companies present in
its target markets are conducting technical and/or market trials or have
commenced commercial deployment of DSL-based services. Prism recognizes that
each traditional telephone company has the potential to quickly overcome many
of the obstacles that Prism believes have delayed widespread deployment of DSL
services by traditional telephone companies in the past.
Major DSL Providers. Other competitive telecommunications companies plan to
offer or have begun offering DSL-based access services in its targeted
markets, and others are likely to do so in the future. Competitive
telecommunications companies that provide DSL service include Covad
Communications Group, Inc., Rhythms NetConnections Inc., NorthPoint
Communications Group, Inc. and Network Access Solutions Corporation, but
currently, Prism believes such companies only provide data services.
Other Service Providers. Many of its competitors are offering, or may soon
offer, technologies and services that will compete with some or all of its
broadband service offerings. These technologies include T1, integrated
services digital network, satellite, cable modems and analog modems and could
be provided by Cable Modem Service Providers, Traditional Long Distance
Carriers, Interexchange Carriers, Internet Service Providers and Wireless and
Satellite Data Service Providers.
Voice Services. In each designated market area in which Prism introduces voice
services, it will face, and expect to continue to face, significant
competition from the traditional telephone companies, which currently dominate
their local telecommunications markets.
Prism will also face competition from other potential competitors with respect
to its local and long distance voice services. In addition to the traditional
telephone companies and competitive access providers, potential competitors
capable of offering switched local and long distance services include long
distance carriers such as AT&T Corp., MCI WorldCom and Sprint Corporation,
cable television companies, such as Tele-Communications, Inc. and Time Warner
Inc., electric utilities, microwave carriers, wireless telephone system
operators and private networks built by large end-users.
Prism also competes with long distance carriers in the provision of long
distance services. Although the long distance market is dominated by three
major competitors, AT&T, MCI WorldCom and Sprint, hundreds of other companies
also compete in the long distance marketplace.
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Other
Comdisco Group's continued ability to compete is also affected by its ability
to attract and retain well qualified personnel and the availability of
financing.
Comdisco Group does not own any patents, licenses, or franchises which it
considers to be material to Comdisco Group's businesses.
Comdisco Group's businesses are not seasonal, however, quarter-to-quarter
results from operations can vary significantly.
Comdisco Group currently believes that the amount of backlog orders is not
material to understanding Comdisco Group's business.
Because of the nature of Comdisco Group's business, Comdisco Group is not
required to carry significant amounts of inventory either for delivery
requirements or to assure continuous availability of goods from suppliers.
Employees
At September 30, 1999, Comdisco Group had approximately 3600 full-time
employees, including Prism employees. None of its employees are represented by
a labor union or are the subject of a collective bargaining agreement.
Comdisco Group has never experienced a work stoppage and believes that its
employee relations are good.
Government Regulation
The facilities and services that Prism obtains from traditional telephone
companies in order to provide its services are regulated extensively by the
FCC and state telecommunications regulatory agencies. To a lesser extent, the
FCC and state telecommunications regulators exercise direct regulatory control
over the terms under which Prism provides services to the public.
Municipalities also regulate limited aspects of the telecommunications
business by imposing zoning requirements, permit or right-of-way procedures or
fees, among other regulations. The FCC and state regulatory agencies generally
have the authority to condition, modify, cancel, terminate or revoke operating
authority for failure to comply with applicable laws, or rules, regulations or
policies. Fines or other penalties also may be imposed for these violations.
Prism cannot assure you that regulators or third parties would not raise
issues regarding its compliance or non-compliance with applicable laws and
regulations. Prism believes that it operates its business in compliance with
applicable laws and regulations of the various jurisdictions in which Prism
operate and that it possesses the approvals necessary to conduct its current
operations.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read along with the Comdisco Ventures financial
information contained in Annex VIII to this proxy statement. Historical
results and percentage relationships may not necessarily be indicative of
operating results for any future periods. The financial statements of Comdisco
Group include the balance sheets, statements of operation, cash flow and group
equity of the following businesses of Comdisco:
. Comdisco's technology services businesses, including: continuity
services; and managed network services and Comdisco's desktop management
solutions; and
. Comdisco's global leasing and remarketing businesses in areas such as
electronics, communications, laboratory and scientific and industrial
automation equipment.
. Comdisco's subsidiary Prism Communication Services, Inc. Prism is
developing a high-speed, always-on digital network, which will provide
customers with leading-edge connectivity.
The Comdisco Group financial statements also include its retained interest in
Comdisco Ventures, currently 100 percent.
The stockholders of Comdisco are scheduled to vote on a "tracking stock
proposal" to, among other things, amend Comdisco's certificate of
incorporation to:
. authorize Comdisco's board of directors to issue common stock in
multiple series, with the initial two series of common stock being
Comdisco Stock and Ventures Tracking Stock;
. re-classify each outstanding share of Comdisco's existing common stock
as one share of Comdisco Stock; and
. increase the total authorized shares of Comdisco's common stock from
750,000,000 to 1,800,000,000.
If the tracking stock proposal is approved by Comdisco's stockholders, the
filing of Comdisco's restated charter implementing the proposal will
automatically reclassify each share of existing common stock into one share of
Comdisco Stock. Subject to stockholder approval of the tracking stock
proposal, Comdisco expects to issue shares of Ventures Tracking Stock
representing approximately 15% of the equity value initially affiliated to
Comdisco Ventures in its fiscal 2000. The effect of any issuances of Ventures
Tracking Stock on the retained interest percentage and the outstanding
interest percentage would depend upon the number of shares of Ventures
Tracking Stock issued and whether Comdisco elects to attribute the net
proceeds of such financings to the equity of Ventures Tracking Stock or to
Comdisco Group in respect of its retained interest.
The Comdisco Group financial statements and Comdisco Ventures financial
statements comprise all of the accounts included in the consolidated financial
statements of Comdisco. The separate business financial statements give effect
to all allocation and related party transaction policies as adopted by the
board of directors of Comdisco. These policies are described in the Notes to
Consolidated Financial Statements to the Comdisco Group financial statements.
The Comdisco Group financial statements have been prepared in a manner which
management believes is reasonable and appropriate. Such financial statements
include (i) the financial position, results of operations and cash flows of
Comdisco Group, (ii) Comdisco's debt and the effects that such debt had on the
related Comdisco Group statements of income and cash flows, and (iii) the
effects of a 100 percent retained interest in Comdisco Ventures on the
statements of income and balance sheets.
If the tracking stock proposal is approved by Comdisco's stockholders,
Comdisco will provide to the holders of Comdisco Stock separate financial
statements, financial reviews, descriptions of the business, and other
relevant financial information for Comdisco Group and Comdisco Ventures as
well as consolidated financial information for Comdisco. Notwithstanding the
allocation of assets and liabilities, including contingent liabilities,
between Comdisco Group and Comdisco Ventures for the purposes of preparing
their respective financial statements, this
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<PAGE>
allocation and the change in the capital structure of Comdisco as a result of
the approval of the tracking stock proposal will not result in the
distribution or spin-off to stockholders of any of Comdisco's assets and
liabilities and will not affect ownership of its assets or responsibility for
its liabilities or those of its subsidiaries. Holders of Comdisco Stock will
remain common stockholders of Comdisco. The assets attributed to one business
will be subject to the liabilities of the other businesses, even if such
liabilities arise from lawsuits, contracts or indebtedness that are attributed
to the other businesses. If Comdisco is unable to satisfy one business's
liabilities out of the assets attributed to it, Comdisco may be required to
satisfy those liabilities with assets the Company has attributed to the other
businesses. Further, holders of Comdisco Stock and Ventures Tracking Stock
will not have any legal rights related to specific assets of either business.
Financial effects from one business that affect Comdisco's consolidated
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other business and the
market price of the stock relating to the other business. In addition, net
losses of either business and dividends and distribution on, or repurchases
of, either series of common stock or repurchases of preferred stock at a price
per share greater than par value will reduce the funds we can pay on each
class of common stock under Delaware law. Accordingly, the Comdisco Group
financial statements should be read in conjunction with Comdisco's audited
consolidated financial information and Annual Report on Form 10-K, as amended
by Form 10-K/A, and the financial information of Comdisco Ventures contained
in Annex VIII of this proxy statement.
Forward Looking Statements
Certain statements herein constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and the company intends that such forward-
looking statements be subject to the safe harbors created thereby. These
forward-looking statements are subject to many uncertainties and factors
relating to the company's operations and business environment which may cause
the actual results of the company to be materially different from any future
results expressed or implied by such forward-looking statements. Examples of
such uncertainties include, but are not limited to, those risk factors set
forth generally throughout this Management's Discussion and Analysis of
Financial Condition and Results of Operations and specifically under "Risk
Factors that May Affect Future Results" beginning at page VII-19 and in the
"Note on Forward-Looking Information" included in this annex.
Overview
Comdisco Group businesses are designed to bring solutions that reduce
technology cost and risk to the customer and in supporting the customer's
technology infrastructure. These businesses are: 1) Leasing, which includes
the leasing and remarketing of distributed systems (PCs, servers, workstations
and routers), communications equipment, equipment leasing and technology
lifecycle management services for the semiconductor manufacturing,
pharmaceutical and communications industries: 2) Technology services, which
includes business continuity services, desktop management services (marketed
under the company's IT CAP Solutions brand name), managed network services and
software tools to support these areas; and 3) Prism, which provides high
speed, leading-edge connectivity and other communications services.
Summary
Fiscal 1999 net earnings before the retained interest in Comdisco Ventures
(hereinafter referred to as "earnings") were $5 million compared to $136
million and $116 million in fiscal 1998 and 1997, respectively. The decrease
in earnings in fiscal 1999 compared to fiscal 1998 was due to $150 million of
pre-tax charges (the "Charge") related to the divestiture of low-margin
businesses and the realignment of Comdisco's service businesses (see
"Business" for a discussion of the Charge) which reduced earnings by $96
million and due to losses attributable to Prism which reduced earnings by
approximately $36 million ($23 million after-tax). Excluding the Charge and
Prism, earnings for the year ended September 30, 1999 were $124 million.
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Business
On March 24, 1999, Comdisco announced a major shift in its corporate strategy,
including focusing on high-margin service businesses and shedding low-margin
businesses, including its mainframe leasing portfolio and medical refurbishing
business.
Comdisco finalized the acquisition of Prism during the quarter ended March 31,
1999.
The industry in which Comdisco Group operates is evolving, and Comdisco
Group's business is becoming more service oriented, with the business driven
by Comdisco Group's service capabilities. Accordingly, Comdisco Group has
realigned to focus on technology services, Prism, and on its global leasing
businesses in historically high-margin areas such as electronics,
communications, medical, laboratory and scientific equipment.
In conjunction with its repositioning, Comdisco recorded a one-time pre-tax
charge of $150 million, $96 million after-tax, in the quarter ended March 31,
1999. The components of the Charge include $100 million associated with
Comdisco Group's plans to exit the mainframe residual leasing business, $20
million to exit the medical refurbishing business and $30 million associated
with a realignment of the service businesses. In the quarter ended June 30,
1999, Comdisco announced it had completed the sale of its mainframe computer
leasing portfolio (hereinafter referred to as the "Sale") and the sale of the
medical refurbishing business. Comdisco also completed the sale of a majority
of its vendor lease portfolio in September 1999.
Leasing volume decreased in fiscal 1999 as compared to fiscal 1998, primarily
as a result of Comdisco Group's decision to exit the mainframe leasing
business and its focus on technology services. Cost of equipment placed on
lease was $2.7 billion in fiscal 1999 compared to cost of equipment placed on
lease of $3.2 billion and $3.0 billion in fiscal 1998 and 1997, respectively.
In addition to originating new equipment lease financing, Comdisco Group
remarkets used equipment from its lease portfolio. Remarketing is the sale or
re-lease of equipment either at original lease termination or during the
original lease. These transactions may be with existing lessees or, when
equipment is returned, with new customers. Remarketing activities are
comprised of earnings from follow-on leases and gross profit on equipment
sales. Remarketing activity, an important contributor to earnings, was strong
throughout both fiscal 1999 and 1998 and was at record levels in fiscal 1999.
Remarketing activity will continue to be an important contributor to quarterly
earnings in the near and long term because of the size of Comdisco Group's
lease portfolio at September 30, 1999, and as a result of the residual leasing
business for communication, electronics, medical, laboratory and scientific
equipment. See "Risk Factors That May Affect Future Results" for a discussion
of the factors that may affect remarketing activities.
Comdisco Group's technology services attained record revenues in fiscal 1999,
however, higher costs, primarily associated with higher personnel costs and
continued investment in new service development, negatively impacted margins
on Comdisco Group's technology services business. Costs associated with the
development and implementation of Comdisco Group's network services
infrastructure had a negative impact on the network services earnings
contribution. Technology services had pre-tax earnings of $82 million,
excluding the pre-tax charge, compared to pre-tax earnings of $71 million and
$58 million in fiscal 1998 and 1997, respectively. Comdisco Group's network
services as well as its desktop management services had strong growth during
fiscal 1999 and should have a positive impact on Comdisco Group's pre-tax
earnings in fiscal 2000. Included in the Charge is $30 million associated with
the realignment of Comdisco Group's service businesses, including costs
associated with the relocation of its network management centers and
consolidation and reconfiguration of some of its continuity services
facilities worldwide. See "Risk Factors That May Affect Future Results" for a
discussion of the factors that may affect earnings contributions from
services.
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Financial Condition
Comdisco Group's operating activities during the year ended September 30,
1999, including capital expenditures for equipment facilities expansion and
other capital expenditures, were funded primarily by cash flow from operations
(primarily lease receipts), including the realization of residual values
through remarketing activities, and external financing. See Note 7 of Notes to
Consolidated Financial Statements for information on Comdisco Group's
interest-bearing liabilities, including average daily borrowings, effective
interest rates and maturities.
During the last five years, equipment purchased for leasing totaled $13
billion. Expenditures for equipment in fiscal 1999 totaled approximately $2.6
billion. Comdisco Group continued to invest additional capital to upgrade its
service capabilities and enhance future continuity services revenues. In
fiscal 1999, capital expenditures were $151 million, compared to $87 million
and $61 million in fiscal 1998 and 1997, respectively. This includes additions
in large systems, mid-range systems, network products and expansion of its
work areas, as well as continue investment in Advance Recovery Services
("ARS"). ARS is designed to reduce the risk of data loss as well as recovery
time across all market-leading platforms. Comdisco Group is also investing in
additional personnel to expand its other technology services offerings and to
ensure the quality of its services offerings.
During fiscal 1999, Comdisco Group invested approximately $136 million in
Prism, including $91 million in the development and expansion of this
business. Comdisco Group currently estimates that Prism capital expenditures
will be $400 million in fiscal 2000 and $250 million in fiscal 2001, including
capital expenditures for the expansion of Prism's network, costs associated
with the buildup phase in each metropolitan area (the procurement, design and
construction of central office cages, end-user digital subscriber line cards,
and expenditures for other elements of network design), and the improvement of
Prism's network management, billing and other back office systems.
Comdisco Group believes its existing financial resources are sufficient to
fund the expected Prism requirements. However, Comdisco Group is considering
alternative funding sources for Prism, including the sale of equity in the
public market. See "Risk Factors that May Affect Future Results" for a
discussion of Prism liquidity requirements.
Comdisco Group is the primary source of funds for Comdisco Ventures. Comdisco
Ventures provides venture debt and venture leasing to emerging technology
companies. At September 30, 1999, Comdisco Group had loans to Comdisco
Ventures totaling $533 million. The loans bear interest based on markets rates
plus a margin. Comdisco Group currently estimates that Comdisco Ventures
capital expenditures in fiscal 2000 will be approximately $500 million.
Comdisco Group believes its existing financial resources are sufficient to
fund the expected Comdisco Ventures' capital requirements. However, Comdisco
Group is considering alternative funding sources for Comdisco Ventures,
including, but not limited to, the establishment of a limited partnership and
the offering of partnership interests to a limited number of accredited
investors, including Comdisco. The limited partnership, or possibly
partnerships, would become the primary source of liquidity for Ventures for
fiscal 2000.
Comdisco Group believes that its estimated cash flow from operations and
current financial resources will be sufficient to fund anticipated future
growth and operating requirements. In addition, Comdisco Group expects to
continue to utilize a variety of financial instruments to fund its short- and
long-term needs.
Cash provided by operating activities: Net cash provided by operating
activities was $3.0 billion, $2.7 billion and $2.4 billion in fiscal 1999,
1998 and 1997, respectively. During the last five years, net cash provided by
operating activities totaled $12.2 billion.
As of September 30, 1999, Comdisco Group estimates that future contractual
cash flows from leasing and services could generate gross cash receipts of
approximately $6.0 billion, including $2.8 billion in fiscal 2000. Comdisco
Group's liquidity is has typically been augmented by the realization of cash
from the future remarketing of leased equipment. Assuming realization of
independent forecasts of equipment values at lease
VII-13
<PAGE>
termination and management estimates, the estimated gross cash receipts to be
provided from remarketing in future years totals $1.6 billion.
Credit Lines: At September 30, 1999, Comdisco Group had $1.6 billion of
available domestic and international borrowing capacity under various lines of
credit from commercial banks and commercial paper facilities, of which
approximately $801 million was unused. Comdisco Group had committed credit
lines of $1.3 billion established with twenty-nine banks at September 30,
1999.
Senior Notes: Comdisco issued $370 million of medium-term notes in fiscal 1999
pursuant to a registration statement filed in June 1997. In October, 1998,
Comdisco filed a registration statement on Form S-3 with the Securities and
Exchange Commission for a shelf offering of up to $1.5 billion of senior debt
securities with terms to be set at the time of each sale. Pursuant to the 1998
Shelf, Comdisco, in fiscal 1999 issued the following senior notes:
. $350 million of 6.00% Notes Due January 30, 2002
. $350 million of 5.95% Notes Due April 30, 2002
. $300 million of 7.25% Notes Due September 1, 2002
. $318 million of Medium-Term Notes
At September 30, 1999, an aggregate of $182 million of medium-term notes
remained available for issuance under the 1998 Shelf.
Subject to market conditions, Comdisco plans to continue to be active in
issuing senior debt during fiscal 2000, primarily to support the anticipated
growth of Comdisco Group's leased assets, services, and, where appropriate, to
refinance maturities of interest-bearing liabilities. On September 24, 1999
Comdisco filed a registration statement on Form S-3 with the SEC for a shelf
offering of up to $1.5 billion of senior debt securities on terms to be set at
the time of each sale. No senior debt has been sold pursuant to the 1999
Shelf. In September 1999, Comdisco established a 500 million Euro Medium Term
Note Program under which the company would issue Euro medium term notes. An
application has been made to list notes issued under the program on the
Luxembourg Stock Exchange and Comdisco may apply for listing on other stock
exchanges.
Secured Debt: Proceeds from the discounting of lease rentals were $341
million, $279 million and $430 million in fiscal 1999, 1998 and 1997,
respectively. Secured debt is currently utilized as a tool to manage credit
risk and concentration risk. However, Comdisco believes that in a changing
rate environment, secured debt may offer attractive financing rates during
fiscal 2000. Comdisco Group credit committee establishes concentration levels
by credit rating and customer.
Maturities: At September 30, 1999, Comdisco Group had debt of $2.5 billion
scheduled to mature in fiscal 1999, including $820 million of commercial paper
and short-term bank borrowings. At September 30, 1999, Comdisco Group had
expected future contractual cash flows from existing lease, and service
contracts of $2.8 billion in fiscal 2000. See Notes 6 and 7 of Notes to
Consolidated Financial Statements for information on contractual cash flows
and interest-bearing liabilities, respectively.
Ratios: The ratio of debt to total stockholders' equity was 5.3:1, 5.1:1 and
5.4:1 at September 30, 1999, 1998 and 1997, respectively. During fiscal 1998,
Comdisco redeemed its outstanding preferred stock, which reduced stockholders'
equity by $89 million. The 1998 ratio was positively impacted by Comdisco's
Shared Investment Plan, under which 106 senior managers of Comdisco purchased
over six million shares of Comdisco's existing common stock for approximately
$109 million.
VII-14
<PAGE>
Revenue
Total revenue of approximately $4.0 billion and $3.1 billion in fiscal 1999
and 1998 represented increases of 26% and 15% respectively, over the prior
year periods. The increase in fiscal 1999 compared to fiscal 1998 was
primarily due to the Sale, which increased sales revenue by $485 million, and
higher revenue from technology services. Total leasing revenue of $2.5 billion
for the year ended September 30, 1999 represented an increase of 8% compared
to the prior year. Sales-type revenue increased 45% in fiscal 1999 compared to
fiscal 1998, reflecting the company's emphasis on, and the importance of,
remarketing activities. Technology services revenue increased 21% in fiscal
1999 compared to fiscal 1998. See "Technology Services" for a discussion of
technology services revenue and margins and "Sales" for a discussion of sales
revenue and margins.
Leasing: Operating lease revenue minus operating lease costs was $346 million,
or 19.0% of operating lease revenue (the "Operating Lease Margin"), and $346
million, or 19.1% of operating lease revenue, in fiscal 1999 and 1998,
respectively. Comdisco Group expects the Operating Lease Margin to be at
approximately current levels throughout fiscal 2000, depending on the mix of
equipment leased and product announcements by manufacturers. See "Risk Factors
that May Affect Future Results" for a discussion of factors that could affect
the Operating Lease Margin. The Sales-type Lease Margin decreased in fiscal
1999 compared to the prior year primarily because of lower margins on
distributed and mainframe equipment remarketing.
Sales: Revenue from sales, which includes remarketing and buy/sell activities,
in fiscal 1999, 1998 and 1997, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
Revenue Expense Margin Revenue Expense Margin Revenue Expense Margin
------- ------- ------ ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $287 $245 15% $322 $271 16% $262 $206 21%
Sale of mainframe
portfolio.............. 485 485 -- -- -- -- -- -- --
Sale of vendor
portfolio.............. 95 93 2%
Sale of medical
refurbishment business. 18 18 -- -- -- -- -- -- --
---- ---- --- ---- ---- --- ---- ---- ---
$885 $841 5% $322 $271 16% $262 $206 21%
==== ==== === ==== ==== === ==== ==== ===
</TABLE>
Margins in fiscal 1997 were unusually high, primarily as a result of
significant sales of distributed systems equipment.
Technology services: Revenue from technology services was $522 million, $433
million and $354 million in fiscal 1999, 1998 and 1997, respectively. The
increases are primarily the result of the growth in products and services.
Revenue from continuity contracts, which is recognized monthly during the
noncancelable continuity contract and is therefore recurring and predictable,
was approximately $325 million, $298 million and $280 million during fiscal
1999, 1998 and 1997, respectively, representing approximately 62%, 69% and 79%
of technology services revenue.
Prism: Prism is a start up company, and, as such, has only recently began
developing a revenue base. Revenues were approximately $1 million in fiscal
1999.
Other revenue: Other revenue was $18 million, $31 million and $63 million in
fiscal 1999, 1998 and 1997, respectively. Fiscal 1998 and 1997 other revenue
includes $5 million and $4 million, respectively, of gains from the sale of
direct financing and sales-type receivables. Other revenue for fiscal 1997
includes a gain of $25 million ($16 million after-tax) resulting from the
receipt of amounts in settlement of litigation. In addition, fiscal 1997 other
revenue includes approximately $11 million of gains from the sale of other
investments owned by the company.
VII-15
<PAGE>
Costs and Expenses
Total costs and expenses were $3.9 billion and $2.9 billion in fiscal 1999 and
1998, respectively. The increase in fiscal 1999 compared to the prior year is
primarily due to the Sale and the Charge. Other factors contributing to the
higher costs and expenses in fiscal 1999 and 1998 compared to the prior years
were increased leasing costs related to increased operating lease revenue and,
in fiscal 1999, increased sales-type revenue, and increased costs associated
with the company's technology services.
Selling, General and Administrative: Selling, general and administrative
expenses totaled $285 million in fiscal 1999, $239 million in fiscal 1998, and
$232 million in fiscal 1997. The increase in fiscal 1999 compared to fiscal
1998 is primarily due to higher compensation and personnel costs. Despite the
level of growth in fiscal 1998, cost containment efforts begun in fiscal 1997
resulted in a modest increase in selling, general and administrative costs in
fiscal 1998 compared to fiscal 1997.
Interest: Interest expense for fiscal 1999 totaled $313 million in comparison
to $315 million in fiscal 1998 and $291 million in fiscal 1997, respectively.
In fiscal 1999, the Sale, as well as total net cash from operations, had a
positive impact on the company's average daily borrowings compared to the
prior year. In addition, the company's average interest rate on borrowings
declined in fiscal 1999 and 1998 as compared to the prior year.
Prism: Prism initially introduced its services, marketed under the REDSM brand
name, in Manhattan in January 1999 and has subsequently expanded its service
to the greater New York area, Newark, Jersey City and Rutherford. Comdisco
Group intends to continue Prism's network expansion into a total of 36 cities
throughout North America. Since January 1999, Prism's principal activities
have included:
. developing criteria for market selection and analyzing potential markets
against these criteria;
. obtaining required governmental authorizations;
. negotiating and entering into interconnection agreements with
traditional telephone companies;
. acquiring space in traditional telephone companies' central offices and
installing Prism's network equipment in those offices;
. launching service in target markets;
. selling and marketing to, and installing service for, customers in
markets where Prism has established service;
. hiring management and other personnel; and
. developing and implementing operations support systems and other
information systems.
Prism has incurred losses in every month since its inception and the company
expects to substantially increase its operating expenditures in an effort to
rapidly expand its network infrastructure and service areas. Prism expects to
incur substantial operating losses, net losses and net operating cash outflows
during its network build-out and during the initial penetration of each new
market. Its losses and net operating cash outflows are expected to continue
and to increase as it expands its operations.
Other: See "Business" for a discussion of the Charge recorded in the second
quarter of fiscal 1999.
In the second quarter of fiscal 1997, the company recorded a noncash, non-
operating charge of $25 million ($16 million after-tax) as an addition to its
equipment valuation allowance.
Income Taxes
The company's effective tax rate was a benefit of 25%, compared to a provision
of 36% and 38% in fiscal 1999, 1998 and 1997. Note 9 of Notes to Consolidated
Financial Statements provides details about the company's
VII-16
<PAGE>
income tax provision and effective tax rates. The primary reason for the
decrease in the effective tax rate in fiscal 1999 compared to fiscal 1998 is
the net operating loss of Prism.
International Operations
Comdisco Group operates principally in four geographic areas: the United
States, Europe, Canada and the Pacific Rim. In its operations, Comdisco Group
works with multinational corporations, and Comdisco Group provides global
solutions in its services.
Revenue from international operations, excluding export sales, was $905
million in fiscal 1999 compared to $659 million and $570 million in fiscal
1998 and 1997, respectively. International revenues represented 23% of
Comdisco Group's total revenue in fiscal 1999 and 21% in both fiscal 1998 and
fiscal 1997.
Geographic area data is included in Note 16 of Notes to Consolidated Financial
Statements.
Risk Factors That May Affect Future Results
This Annex contains forward-looking statements that involve risks and
uncertainties. Comdisco Group's actual revenues and results of operations
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Annex.
Potential Fluctuations in Operating Results: Comdisco Group's operating
results are subject to quarterly fluctuations resulting from a variety of
factors, including earnings contributions from remarketing activities and
services, product announcements by manufacturers, economic conditions and
variations in the financial mix of leases written. The financial mix of leases
written is a result of a combination of factors, including, but not limited
to, changes in customer demands and/or requirements, new product
announcements, price changes, changes in delivery dates, changes in
maintenance policies and the pricing policies of equipment manufacturers, and
price competition from other lessors and finance companies.
Earnings Contributions from Leasing: Lower margins on large systems
transactions (mainframes and related peripherals, including DASD and tape
drives) have resulted in lower margins on leasing. Although Comdisco Group has
sold its mainframe residual leasing business, which may have a positive impact
on leasing margins in future quarters, the market for leasing and services is
characterized by rapid technological developments, evolving customer demands
and frequent new product announcements and enhancements. Failure to anticipate
or adapt to new technological developments or to recognize changing market
conditions could adversely affect Comdisco Group's business, including its
lease volume, leasing revenue and earnings contributions from leasing.
Furthermore, notwithstanding the sale of the mainframe lease portfolio,
remarketing has been and will continue to be an important factor in
determining quarterly earnings. To meet earnings goals for fiscal 2000,
remarketing contributions, primarily for Comdisco Group's global equipment
leasing businesses, must be at or above the level achieved in fiscal 1999.
Quarterly operating results depend substantially upon the remarketing
transactions within the quarter, which are difficult to forecast accurately.
While Comdisco Group is devoting resources to its remarketing activities,
there can be no assurance that Comdisco Group will achieve the appropriate
level of activity necessary to meet or match Comdisco Group's prior and
desired operating results.
The emergence of the communications market--facilities-based broadband
communications companies, Internet Service Providers and other
telecommunications carriers--and the growth of broadband networks, provides
Comdisco Group with an industry in which leasing is an attractive alternative
to ownership. Comdisco Group's communications equipment customers are
generally companies with accumulated net deficits and extensive liquidity
requirements. To the extent that these companies are unable to meet their
business plans, or unable to
VII-17
<PAGE>
obtain funding or funding at reasonable rates to complete their business
plans, there could be an increase in Comdisco Group's credit losses above
historical levels.
Earnings Contributions from Services: As a result of the evolving nature of
its services business, particularly the emerging desktop management and
managed network services, Comdisco Group has limited meaningful historical
data in which to base its planned operating expenses. Accordingly, a
significant portion of Comdisco Group's expense levels (investment in
continuity facilities and hardware, consultants, experts and back office
personnel) are based in part on its expectations as to future services
revenues, and are, to a large extent, fixed. Conversely, Comdisco Group's
revenue base has become more diverse with the growth of other technology
services revenue, and therefore less recurring and less predictable than in
prior years. To attain its services earnings contribution goals for fiscal
2000, Comdisco Group must: meet its obligations under the agreements
underlying its transactions in process at September 30, 1999, (also referred
to by Comdisco Group as its "sales backlog"); expand its contract subscription
base (through new contract signings and contract renewals); increase its
revenues from other technology services, develop, promote and sell additional
service products, such as IT CAP Solutions, advanced recovery services,
availability options, remote computing services and web hosting; and contain
costs. Comdisco Group must also successfully compete with organizations
offering similar services. Comdisco Group's ability to obtain new business and
realize revenue on its sales backlog depends on its ability to anticipate
technological changes, develop services to meet customer requirements and
achieve delivery of services that meet customer requirements. In addition,
there can be no assurance that Comdisco Group will be able to maintain and/or
increase its margins on technology services in fiscal 2000.
One of the impacts of Comdisco Group's changing business model is the
lengthening of the sales cycle--the length of time between initial sales
contact and final delivery of contracts--as compared to its traditional
leasing business. This increase in sales cycle results in an increase in
negotiations in progress which ultimately impacts the timing of revenue,
earnings and volume recognition.
Prism: Prism is a start up company that has incurred operating losses since
inception and Comdisco Group expects that Prism's operating losses will
continue to increase as it introduces its services throughout New York City
and the Northeast corridor. In addition, Prism will require substantial
additional capital to support its data network, to expand its services, to
increase its sales and marketing efforts and to support its growth. To the
extent that revenues do not grow at anticipated rates or that increases in
such operating expenses precede or are not subsequently followed by
commensurate increases in revenues, or that Comdisco Group is unable to adjust
operating expense levels and/or capital expenditures of Prism accordingly,
Comdisco Group's business, results of operations and financial condition could
be significantly affected. There can be no assurance that in the future Prism
will be profitable on a quarterly or annual basis.
Prism operates in a highly regulated environment. Changes in regulatory
policies may adversely impact its ability to provide services and increase the
costs of providing those services.
Economic Conditions: With respect to economic conditions, a recession can
cause customers to put off new investments and increase Comdisco Group's bad
debt experience.
Other Factors: Other uncertainties include continued business conditions,
trend of movement to client/server environment, competition, including
competition from other technology service providers, reductions in technology
budgets and related spending plans, and price competition from other
technology service providers.
Due to all of the foregoing factors, in some future quarter Comdisco Group's
operating results may fall below the expectations of securities analysts and
investors. In such an event, the trading price of Comdisco Group's common
stock would likely be materially and adversely affected.
VII-18
<PAGE>
Comdisco Group undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, further
events or otherwise.
Other Matters
Qualitative information about market risk: Comdisco Group's primary market
risk exposure is interest rate risk, primarily related to Comdisco Group's
interest-bearing obligations. Generally, a changing interest rate environment
does not impact Comdisco Group's margins since the effects of higher or lower
borrowing costs would be reflected in the rates on newly leased assets. In
addition, Comdisco Group attempts to match the maturities of its borrowings
with the cash flows from its leased assets, thereby reducing Comdisco Group's
interest rate exposure.
Comdisco Group has an on-going program to manage its assets and liabilities.
This program includes establishing levels of fixed and floating rate debt,
liquidity and duration analysis, monitoring credit quality of the lease
portfolio and related account review procedures and oversight of interest rate
and foreign exchange hedging policies. This program includes the use of
derivatives in certain identifiable situations to manage risk. Comdisco Group
does not speculate on interest rates, but rather manages its portfolio of
assets and liabilities to mitigate the impact of interest rate fluctuations.
Comdisco Group does not use derivatives for trading purposes. See Note 7 of
Notes to Consolidated Financial Statements for information on Comdisco Group's
average daily borrowings, Comdisco Group's derivative financial instruments,
comprising interest rate swaps and foreign currency forward exchange
contracts, fair values and effective interest rates.
The table below presents principal (or notional) amounts and related weighted-
average interest rates by year of maturity for Comdisco Group's notes payable,
term notes and senior notes (in millions).
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 and after
---- ---- ------ ---- --------------
<S> <C> <C> <C> <C> <C>
Notes payable
Fixed rate........................ $820 $-- $ -- $-- $--
Average interest rate............. 4.87%
Term notes
Floating rate..................... 550 -- -- -- --
Average interest rate............. 5.25%
Senior notes
Fixed rate........................ 851 857 1,435 268 275
Average interest rate............. 6.69% 6.51% 6.42% 6.14% 6.13%
</TABLE>
As the above table incorporates only Comdisco Group's interest-bearing
obligations and not its lease portfolio, the information presented therein has
limited predictive value.
Recently Issued Professional Accounting Standards: Comdisco Group does not
believe that SFAS 133, Accounting for Derivative Instruments and Hedging
Activity, which will become effective in fiscal 2001, will have a material
impact on Comdisco Group's financial statements.
Euro Compliance: While Comdisco Group will continue to evaluate the impact of
the Euro introduction over time, based on currently available information,
management does not believe that the introduction of the Euro currency will
have a material adverse impact on Comdisco Group's financial condition or
overall trends in results of operations.
Inflation: Comdisco Group does not consider the present rate of inflation to
have a significant impact on the businesses in which it operates.
VII-19
<PAGE>
COMDISCO GROUP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(with Independent Auditors' Report thereon)
AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 and 1998
(unaudited)
VII-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors, Comdisco Inc.:
We have audited the accompanying combined balance sheets of Comdisco Group (a
division of Comdisco, Inc.) as of September 30, 1999 and 1998, and the related
combined statements of earnings, division equity, and cash flows for each of
the years in the three-year period ended September 30, 1999. These combined
financial statements are the responsibility of Comdisco Group's management.
Our responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, Comdisco Group is a
division of the Company; accordingly the financial statements of Comdisco
Group should be read in conjunction with the audited financial statements of
Comdisco, Inc.
Comdisco Group has accounted for its interest in Comdisco Ventures in a manner
similar to the equity method of accounting. Generally accepted accounting
principles require that Comdisco Ventures be consolidated with Comdisco Group.
In our opinion, except for the effects of not consolidating Comdisco Group and
Comdisco Ventures as discussed in the preceding paragraph, the combined
financial statements referred to above present fairly, in all material
respects, the financial position of Comdisco Group at September 30, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended September 30, 1999 in conformity with
generally accepted accounting principles.
Chicago, Illinois /s/ KPMG LLP
November 2, 1999
VII-21
<PAGE>
COMDISCO GROUP
COMBINED STATEMENTS OF EARNINGS
(in millions)
<TABLE>
<CAPTION>
Three
Months Ended Years Ended
December 31, September 30,
-------------- ---------------------
1999 1998 1999 1998 1997
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue
Leasing:
Operating............................... $396 $505 $1,821 $1,814 $1,574
Direct financing........................ 43 39 161 154 139
Sales-type.............................. 78 160 543 375 332
------ ------ ------ ------ ------
Total leasing......................... 517 704 2,525 2,343 2,045
Sales..................................... 66 57 885 322 262
Technology services....................... 147 118 522 433 354
Other..................................... 6 6 18 31 63
------ ------ ------ ------ ------
Total revenue............................. 736 885 3,950 3,129 2,724
------ ------ ------ ------ ------
Cost and expenses
Leasing:
Operating............................... 323 412 1,475 1,468 1,254
Sales-type.............................. 60 127 406 263 234
------ ------ ------ ------ ------
Total leasing......................... 383 539 1,881 1,731 1,488
Sales..................................... 49 50 841 271 206
Technology services....................... 125 100 440 362 296
Selling, general and administrative....... 75 66 285 239 232
Interest.................................. 73 80 313 315 291
Prism Communication Services, Inc......... 27 -- 36 -- --
Other..................................... -- -- 150 -- 25
------ ------ ------ ------ ------
Total costs and expenses................ 732 835 3,946 2,918 2,538
------ ------ ------ ------ ------
Earnings before income taxes and retained
interest in Comdisco Ventures............ 4 50 4 211 186
Provision (benefit) for income taxes...... (1) 18 (1) 75 70
------ ------ ------ ------ ------
Earnings before retained interest in
Comdisco Ventures........................ 5 32 5 136 116
Net earnings of Comdisco Ventures......... 37 6 43 17 15
------ ------ ------ ------ ------
Net earnings.............................. $ 42 $ 38 $ 48 $ 153 $ 131
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
VII-22
<PAGE>
COMDISCO GROUP
COMBINED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1999 1999 1998
------------ ------ ------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 291 $ 387 $ 63
Cash--legally restricted............................. 32 46 30
Receivables, net..................................... 387 355 274
Inter-group receivable............................... 638 533 189
Inventory of equipment............................... 136 113 164
Leased assets:
Direct financing and sales-type.................... 2,241 2,102 1,772
Operating (net of accumulated depreciation)........ 3,206 3,233 3,938
------ ------ ------
Net leased assets................................ 5,447 5,335 5,710
Buildings, furniture and other, net.................. 370 228 137
Retained interest in Ventures........................ 351 200 71
Other assets......................................... 580 497 404
------ ------ ------
$8,232 $7,694 $7,042
====== ====== ======
LIABILITIES AND DIVISION EQUITY
Notes payable........................................ $1,059 $ 820 $1,121
Term notes payable................................... 550 550 550
Senior notes......................................... 3,686 3,686 2,768
Accounts payable..................................... 219 262 307
Income taxes:
Current............................................ 36 15 14
Deferred........................................... 303 295 315
Other liabilities.................................... 605 491 392
Discounted lease rentals............................. 546 515 596
------ ------ ------
7,004 6,634 6,063
------ ------ ------
Division equity...................................... 1,228 1,060 979
------ ------ ------
$8,232 $7,694 $7,042
====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
VII-23
<PAGE>
COMDISCO GROUP
COMBINED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Three Months
Ended Years Ended
December 31, September 30,
-------------- ----------------------
1999 1998 1999 1998 1997
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Operating lease and other leasing
receipts............................. $ 432 $ 517 $1,884 $1,921 $1,659
Direct financing and sales-type
leasing receipts..................... 239 245 958 905 861
Sale of direct financing and sales-
type receivables..................... -- -- -- 125 81
Leasing costs, primarily rentals
paid................................. (5) (5) (14) (19) (32)
Sales................................. 99 93 811 329 258
Sales costs........................... (28) (50) (105) (68) (84)
Technology services receipts.......... 138 123 485 408 343
Technology services costs............. (114) (97) (390) (278) (204)
Other revenue......................... 29 9 7 22 36
Selling, general and administrative
expenses............................. (89) (77) (301) (242) (220)
Litigation settlement................. -- -- -- -- 25
Interest.............................. (73) (84) (338) (326) (291)
Income taxes.......................... (2) (3) (12) (34) (44)
------ ------ ------ ------ ------
Net cash provided by operating
activities....................... 626 671 2,985 2,743 2,388
------ ------ ------ ------ ------
Cash flows from investing activities:
Equipment purchased for leasing....... (745) (813) (2,632) (2,912) (2,848)
Investment in continuity and network
services facilities.................. (55) (36) (151) (87) (61)
Notes receivable...................... -- (4) -- -- 6
Acquisition and investment in Prism
Communication Services, Inc.......... (76) -- (136) (8) --
Other................................. (31) (16) 14 4 (31)
------ ------ ------ ------ ------
Net cash used in investing
activities....................... (907) (869) (2,905) (3,003) (2,934)
------ ------ ------ ------ ------
Cash flows from financing activities:
Discounted lease proceeds............. 118 133 341 279 430
Net increase (decrease) in notes
payable.............................. 239 33 (301) 97 (103)
Issuance of term notes and senior
notes................................ 25 351 1,842 1,017 1,151
Maturities of term notes and senior
notes................................ (25) (90) (924) (617) (378)
Principal payments on secured debt.... (87) (117) (322) (425) (469)
Decrease (increase) in legally
restricted cash...................... 14 (8) (16) 15 (18)
Decrease (increase) in inter-group
receivable........................... (64) (75) (296) (33) 2
Preferred stock purchased............. -- -- -- (89) --
Common stock purchased and placed in
treasury............................. (33) (10) (82) (88) (45)
Dividends paid on common stock........ (4) (4) (15) (15) (14)
Dividends paid on preferred stock..... -- -- -- (2) (8)
Shared Investment Program............. -- -- -- 109 --
Issuance of Prism Communication
Services, Inc. common stock.......... 10 -- -- -- --
Other................................. (8) (5) 17 38 6
------ ------ ------ ------ ------
Net cash provided by financing
activities....................... 185 208 244 286 554
------ ------ ------ ------ ------
Net increase (decrease) in cash and
cash equivalents...................... (96) 10 324 26 8
Cash and cash equivalents at beginning
of year............................... 387 63 63 37 29
------ ------ ------ ------ ------
Cash and cash equivalents at end of
year.................................. $ 291 $ 73 $ 387 $ 63 $ 37
====== ====== ====== ====== ======
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings.......................... $ 42 $ 38 $ 48 $ 153 $ 131
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Leasing costs, primarily
depreciation and amortization...... 378 534 1,867 1,712 1,456
Leasing revenue, primarily principal
portion of direct financing and
sales-type lease rentals........... 185 60 325 446 460
Sale of direct financing and sales-
type receivables................... -- -- -- 125 81
Cost of sales....................... 26 -- 637 190 122
Technology services costs, primarily
depreciation and amortization...... 11 3 50 84 92
Earnings from retained interest in
Ventures........................... (37) (6) (43) (17) (15)
Income taxes........................ (3) 16 (13) 34 26
Interest............................ -- (4) (23) (11) --
Other expense....................... -- -- 150 -- --
Other--net.......................... 24 30 (13) 27 35
------ ------ ------ ------ ------
Net cash provided by operating
activities $ 626 $ 671 $2,985 $2,743 $2,388
====== ====== ====== ====== ======
Supplemental schedule of noncash
financing activities:
Reduction of discounted lease rentals
in the lease
portfolio sale....................... $ -- $ -- $ 100 $ -- $ --
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
VII-24
<PAGE>
COMDISCO GROUP
COMBINED STATEMENTS OF DIVISION EQUITY
For the Years Ended September 30, 1999, 1998 and 1997
and for the Three Months Ended December 31, 1999
(in millions)
<TABLE>
<S> <C>
Balance at September 30, 1996........................................... $ 799
Net earnings............................................................ 131
Other comprehensive income.............................................. (25)
------
Total comprehensive income.............................................. 106
Dividends............................................................... (22)
Other equity changes, net............................................... (18)
------
Balance at September 30, 1997........................................... 865
Net earnings............................................................ 153
Other comprehensive income.............................................. 7
------
Total comprehensive income.............................................. 160
Dividends............................................................... (17)
Other equity changes, net............................................... (29)
------
Balance at September 30, 1998........................................... 979
Net earnings............................................................ 48
Other comprehensive income.............................................. 71
------
Total comprehensive income.............................................. 119
Dividends............................................................... (15)
Other equity changes, net............................................... (23)
------
Balance at September 30, 1999........................................... 1,060
Net earnings (unaudited)................................................ 42
Other comprehensive income (unaudited).................................. 124
------
Total comprehensive income.............................................. 166
Dividends (unaudited)................................................... (4)
Other equity changes, net (unaudited)................................... 6
------
Balance at December 31, 1999 (unaudited)................................ $1,228
======
</TABLE>
See accompanying notes to combined financial statements.
VII-25
<PAGE>
COMDISCO GROUP
COMBINED ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
For the Years Ended September 30, 1999, 1998 and 1997
and for the Three Months Ended December 31, 1999
(in millions)
<TABLE>
<CAPTION>
Net unrealized Total accumulated
change in Currency other
investment translation comprehensive
securities adjustments income/(loss)
-------------- ----------- -----------------
<S> <C> <C> <C>
September 30, 1996................. $-- $ 5 $ 5
Annual change...................... -- (25) (25)
---- ---- ----
September 30, 1997................. -- (20) (20)
Annual change...................... -- 7 7
---- ---- ----
September 30, 1998................. -- (13) (13)
Annual change...................... 92 (21) 71
---- ---- ----
September 30, 1999................. 92 (34) 58
Quarterly change (unaudited)....... 139 (15) 124
---- ---- ----
December 31, 1999 (unaudited)...... $231 $(49) $182
==== ==== ====
</TABLE>
Net unrealized changes in investment securities are shown net of deferred
taxes of $153 million (unaudited) as of December 31, 1999. A deferred tax
asset has not been established for currency translation adjustments. Total
comprehensive income was $119 million, $160 million and $106 million for 1999,
1998 and 1997, respectively, and $166 million (unaudited) for the three months
ended December 31, 1999.
See accompanying notes to combined financial statements.
VII-26
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Comdisco Group ("Group"), a division of Comdisco, Inc.,
is focused on providing global technology services to help its customers
maximize technology functionality, predictability and availability. Group
offers a complete suite of information technology services including business
continuity, managed network services, and desktop management solutions.
Through its subsidiary, Prism Communication Services, Inc., Group is
developing a high-speed, always-on digital network, which will provide
customers with leading-edge connectivity. Group also offers equipment services
to key vertical industries, including electronics, communications, laboratory
and scientific, and computer-integrated manufacturing.
Currently, Group provides all the funding for Comdisco Ventures ("Ventures").
Interest income on the inter-group receivable account, which amounted to $24
million, $11 million, and $8 million in the years ended September 30, 1999,
1998, and 1997, respectively, is reflected as a reduction of interest expense
in the accompanying financial statements.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF COMBINATION: The combined financial statements include the
accounts of Group. Intercompany accounts and transactions have been eliminated
in combination.
TRANSLATION ADJUSTMENTS: All assets and liabilities denominated in foreign
currencies are translated at the exchange rate on the balance sheet date.
Revenues, costs and expenses are translated at average rates of exchange
prevailing during the period. Translation adjustments are deferred as a
component of division equity. Gains and losses resulting from foreign currency
transactions are included in the combined statements of earnings.
INCOME TAXES: Group is included in the consolidated Federal and state income
tax returns of Comdisco, Inc. The income tax expense (benefit) for Group was
calculated as if Group filed its own income tax returns.
Group uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits of which future realization is
uncertain.
LEASE ACCOUNTING: See the "Leasing" section of the Notes to the Combined
Financial Statements for a description of lease accounting policies, lease
revenue recognition and related costs.
TECHNOLOGY SERVICES: Revenue from continuity contracts is recognized monthly
as subscription fees become due. Revenue from other technology services is
recognized over the terms of the related contracts or as the service is
provided.
CASH AND CASH EQUIVALENTS: Cash equivalents are comprised of highly liquid
debt instruments with original maturities of 90 days or less.
CASH--LEGALLY RESTRICTED: Legally restricted cash represents cash and cash
equivalents that are restricted solely for use as collateral in secured
borrowings and are not available to other creditors.
VII-27
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
INVENTORY OF EQUIPMENT: Inventory of equipment is stated at the lower of cost
or market by categories of similar equipment.
INVESTMENT IN EQUITY SECURITIES: Group determines the appropriate
classification of marketable securities at the time of purchase and
reevaluates such designation at each balance sheet date. Marketable securities
classified as available-for-sale are carried at fair value, based on quoted
market prices, net of market value discount to reflect any restrictions on
transferability, with unrealized gains and losses reported as a component of
division equity. Equity investments for which there is no readily determinable
fair value are carried at cost, less any appropriate valuation allowance.
INVESTMENT IN VENTURES: Group's retained interest in 100% of the division
equity of Ventures is reflected as "Retained interest in Ventures" in Group's
balance sheets. Similarly, Group's retained interest in 100% of the division
net earnings of Ventures is reflected as "Net earnings related to retained
interest in Ventures" in Group's combined statements of operations.
Comdisco, Inc. accounts for Group's retained interest in Ventures in a manner
similar to the method prescribed under APB No. 18, The Equity Method of
Accounting for Investments in Common Stock.
DERIVATIVES: Interest rate differentials on swaps are accrued as interest
rates change over the contract period. Amounts receivable under cap agreements
are accrued as a reduction of interest expense. Unrealized gains and losses on
forward contracts are deferred on the balance sheet until they are exercised.
See Note 7 of the Notes to Combined Financial Statements for financial
information concerning derivatives.
INTERIM FINANCIAL INFORMATION: The unaudited financial statements as of
December 31, 1999 and for the three month periods ended December 31, 1999 and
1998 include, in the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation of
Group's financial position, results of operations, and cash flows for such
periods.
NOTE 2--ACQUISITION AND SALE OF ASSETS
On February 28, 1999, Group completed the acquisition of Prism Communication
Services, Inc. ("Prism") for a cash purchase price of approximately $53
million, of which approximately $45 million was paid in fiscal 1999. Prism is
a provider of dedicated high-speed connectivity and other services to small
businesses, telecommuters and other power users.
The Prism acquisition has been accounted for by the purchase method of
accounting and, accordingly, the results of operations of Prism from February
28, 1999 are included in the accompanying combined financial statements.
Assets acquired and liabilities assumed have been recorded at their estimated
fair values, and are subject to adjustment when additional information
concerning asset and liability valuations is finalized.
The excess of cost over the estimated fair value of net assets acquired was
approximately $61 million and has been recorded as goodwill, which is being
amortized on a straight-line basis over 10 years. The following selected,
unaudited pro forma data is presented to provide a summary of the combined
results of Group and Prism as if the acquisition had been made as of the
beginning of fiscal 1999. The effect of the acquisition on the year ended
September 30, 1998 is not material and, accordingly, has been excluded from
the pro forma presentation (in millions except per share data):
<TABLE>
<CAPTION>
Year ended
September 30,
1999
-------------
<S> <C>
Total revenue............................................. $3,950
Net earnings.............................................. $ 35
</TABLE>
The selected, unaudited pro forma data is for informational purposes only and
may not necessarily reflect the results of operations had the companies
operated as one for the year ended September 30, 1999. No effect has been
given for synergies, if any, that may be realized through the acquisition. In
addition, Group expects to
VII-28
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
expand its network within existing and into new regions, which will require
significant capital expenditures as well as sales and marketing expenditures.
Accordingly, Group expects to incur substantial and increasing operating
expenses and net losses from Prism operations for at least the next few years.
On March 24, 1999, Group announced a major shift in corporate strategy,
including focusing on high-margin service businesses and shedding low-margin
businesses, including its mainframe leasing and vendor lease portfolios and
its medical refurbishing business. In conjunction with this repositioning,
Group recorded a pre-tax charge of $150 million, $96 million after-tax, in the
quarter ended March 31, 1999. The components of the pre-tax charge included
$100 million associated with Group's plans to exit the mainframe residual
leasing business, $20 million to exit the medical refurbishing business and
$30 million associated with the realignment of Group's services businesses. On
May 3, 1999, Group announced it had reached an agreement in principle to sell
its mainframe computer leasing portfolio. The sale of the mainframe portfolio
and the sale of the medical refurbishing business were both concluded in the
fiscal quarter ended June 30, 1999. The sale of a majority of the vendor lease
portfolio was completed in the quarter ended September 30, 1999.
LEASING
NOTE 3--LEASE ACCOUNTING POLICIES
FASB Statement of Financial Accounting Standards No. 13 requires that a lessor
account for each lease by either the direct financing, sales-type or operating
method.
Leased Assets:
. Direct financing and sales-type leased assets consist of the present
value of the future minimum lease payments plus the present value of the
residual (collectively referred to as the net investment). Residual is
the estimated fair market value at lease termination. In estimating the
equipment's fair value at lease termination, Group relies on historical
experience by equipment type and manufacturer and, where available,
valuations by independent appraisers, adjusted for known trends. Group's
estimates are reviewed continuously to ensure realization, however the
amounts Group will ultimately realize could differ from the estimated
amounts.
. Operating leased assets consist of the equipment cost, less the amount
depreciated to date.
Revenue, Costs and Expenses:
. Direct financing leases--Revenue consists of interest earned on the
present value of the lease payments and residual. Revenue is recognized
periodically over the lease term as a constant percentage return on the
net investment. There are no costs and expenses related to direct
financing leases since leasing revenue is recorded on a net basis.
. Sales-type leases--Revenue consists of the present value of the total
contractual lease payments which is recognized at lease inception. Costs
and expenses consist of the equipment's net book value at lease
inception, less the present value of the residual. Interest earned on
the present value of the lease payments and residual, which is
recognized periodically over the lease term as a constant percentage
return on the net investment, is included in direct financing lease
revenue in the statement of earnings.
. Operating leases--Revenue consists of the contractual lease payments and
is recognized on a straight-line basis over the lease term. Costs and
expenses are principally depreciation of the equipment. Depreciation is
recognized on a straight-line basis over the lease term to Group's
estimate of the equipment's fair market value at lease termination, also
commonly referred to as "residual" value. In
VII-29
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
estimating the equipment's fair value at lease termination, Group relies
on historical experience by equipment type and manufacturer and, where
available, valuations by independent appraisers, adjusted for known
trends. Group's estimates are reviewed continuously to ensure
realization, however the amounts Group will ultimately realize could
differ from the amounts assumed in determining depreciation on the
equipment in the operating lease portfolio at September 30, 1999.
. Initial direct costs related to operating and direct financing leases,
including salesperson's commissions, are capitalized and amortized over
the lease term.
NOTE 4--LEASED ASSETS
The components of the net investment in direct financing and sales-type leases
as of September 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C> <C>
Minimum lease payments receivable.................... $2,157 $1,782
Estimated residual values............................ 219 203
Less: unearned revenue............................... (274) (213)
------ ------
Net investment in direct financing and sales-type
leases.............................................. $2,102 $1,772
====== ======
</TABLE>
Unearned revenue is recorded as leasing revenue over the lease terms.
Operating leased assets include the following as of September 30:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C> <C>
Operating leased assets............................... $5,621 $6,508
Less: accumulated depreciation and amortization....... (2,388) (2,570)
------ ------
Net................................................... $3,233 $3,938
====== ======
</TABLE>
NOTE 5--LEASE PORTFOLIO INFORMATION
The size of Group's lease portfolio can be measured by the cost of leased
assets at the date of lease inception. Cost at lease inception represents
either the equipment's original cost or its net book value at termination of a
prior lease. The following table summarizes, by year of lease commencement and
by year of projected lease termination, the cost at lease inception for all
leased assets recorded at September 30, 1999 (in millions):
<TABLE>
<CAPTION>
Projected year of lease
Year Cost at termination
lease lease -------------------------------
commenced inception 2000 2001 2002 2003 2004+
--------- --------- ------ ------ ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
1995 and prior................. $ 844 $ 510 $ 185 $ 125 $ 18 $ 6
1996........................... 742 395 264 70 8 5
1997........................... 1,766 953 324 317 132 40
1998........................... 2,641 708 962 443 459 69
1999........................... 2,719 167 633 1,227 315 377
------ ------ ------ ------ ---- ----
$8,712 $2,733 $2,368 $2,182 $932 $497
====== ====== ====== ====== ==== ====
</TABLE>
VII-30
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the estimated net book value at lease
termination for all leased assets recorded at September 30, 1999. The table is
presented by year of lease commencement and by year of projected lease
termination (in millions):
<TABLE>
<CAPTION>
Net book Projected year of lease
value at termination
Year lease lease -------------------------
commenced termination 2000 2001 2002 2003 2004+
---------- ----------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
1995 and prior...................... $ 37 $ 30 $ 2 $ 5 $-- $--
1996................................ 80 39 39 2 -- --
1997................................ 215 143 40 31 1 --
1998................................ 424 117 166 63 75 3
1999................................ 440 51 100 196 57 36
------ ---- ---- ---- ---- ----
$1,196 $380 $347 $297 $133 $ 39
====== ==== ==== ==== ==== ====
</TABLE>
LIQUIDITY
NOTE 6--FUTURE CONTRACTUAL CASH FLOWS
Presented below is a summary of future noncancelable lease rentals on owned
equipment and future technology services revenue including noncancelable
continuity contracts (collectively, "cash in-flows").
The summary presents expected cash in-flows due in accordance with the
contractual terms in existence as of September 30, 1999.
<TABLE>
<CAPTION>
Years Ending September 30,
-----------------------------
2000 2001 2002 2003 2004+ Total
------ ------ ---- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Expected future cash in-flows:
Operating leases.................. $1,322 $ 803 $362 $ 96 $ 23 $2,606
Direct financing and sales-type
leases........................... 989 652 317 118 81 2,157
Technology services............... 483 353 232 131 45 1,244
------ ------ ---- ---- ---- ------
Total........................... $2,794 $1,808 $911 $345 $149 $6,007
====== ====== ==== ==== ==== ======
</TABLE>
FINANCING
NOTE 7--INTEREST-BEARING LIABILITIES
Interest-bearing liabilities include the following:
<TABLE>
<CAPTION>
At September 30, 1999 At September 30, 1998
--------------------------- ---------------------------
Average Average
------------- -------------
Balance Rate Balance Rate Balance Rate Balance Rate
------- ----- ------- ----- ------- ----- ------- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines and loan
participation
contracts............ $ 369 4.19% $ 593 5.04% $ 774 5.39% $ 541 6.20%
Commercial paper...... 451 5.42% 586 5.11% 347 5.21% 606 5.72%
Term notes.............. 550 5.25% 550 5.52% 550 5.52% 526 6.41%
Senior notes............ 3,686 6.45% 3,155 6.59% 2,768 6.47% 2,576 6.76%
Discounted lease
rentals................ 515 6.60% 576 6.76% 596 7.29% 676 7.32%
------ ----- ------ ----- ------ ----- ------ -----
$5,571 6.11% $5,460 6.17% $5,035 6.21% $4,925 6.62%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
VII-31
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The changes in financing activities for the years ended September 30 were as
follows (notes payable changes are shown net):
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------- ---------------------------------------------
Outstanding Maturities Outstanding Maturities
beginning and Outstanding beginning and Outstanding
of year Issuance repurchases Other end of year of year Issuances repurchases end of year
----------- -------- ----------- ----- ----------- ----------- --------- ----------- -----------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines and loan
participation
contracts........... $ 774 $ -- $ (405) $ -- $ 369 $ 505 $ 269 $ -- $ 774
Commercial paper...... 347 104 -- $ -- 451 519 -- (172) 347
Term notes............ 550 -- -- $ -- 550 497 100 (47) 550
Senior note........... 2,768 1,842 (924) $ -- 3,686 2,421 917 (570) 2,768
Discounted lease
rentals.............. 596 341 (322) (100) 515 742 279 (425) 596
------ ------ ------- ----- ------ ------ ------ ------- ------
$5,035 $2,287 $(1,651) $(100) $5,571 $4,684 $1,565 $(1,214) $5,035
====== ====== ======= ===== ====== ====== ====== ======= ======
</TABLE>
The annual maturities of all interest-bearing liabilities at September 30,
1999 are shown in the following table:
<TABLE>
<CAPTION>
Years Ending September 30,
------------------------------------
2000 2001 2002 2003 2004+ Total
------ ---- ------ ---- ----- ------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines and loan participation
contracts......................... $ 369 $-- $ -- $-- $-- $ 369
Commercial paper..................... 451 -- -- -- -- 451
Term notes........................... 550 -- -- -- -- 550
Senior notes......................... 851 857 1,435 268 275 3,686
Discounted lease rentals............. 303 139 51 19 3 515
------ ---- ------ ---- ---- ------
$2,524 $996 $1,486 $287 $278 $5,571
====== ==== ====== ==== ==== ======
</TABLE>
NOTES PAYABLE: Group had the following unsecured bank lines available in the
United States and foreign countries at September 30:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
Total credit lines:
Committed................................................ $1,312 $1,253
Uncommitted.............................................. 289 393
------ ------
$1,601 $1,646
====== ======
Utilized at September 30:
Committed................................................ $ 756 $ 644
Uncommitted.............................................. 44 149
------ ------
Total credit lines..................................... 800 793
Loan participation contracts............................. 20 328
------ ------
Total notes payable.................................... $ 820 $1,121
====== ======
Credit lines available at September 30..................... $ 801 $ 853
====== ======
Maximum amount outstanding at any month end................ $1,441 $1,304
====== ======
</TABLE>
VII-32
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
COMMITTED LINES: Group's committed lines have been established with twenty-
nine banks, six of which are U.S. banks. A majority of the banks are rated AA
or better by rating agencies. At September 30, 1999, Group had committed
domestic and foreign unsecured lines of credit as follows:
<TABLE>
<CAPTION>
Expiration
Facility Number of banks date
-------- --------------- --------------
<S> <C> <C>
Multi-Option Facilities.................... 11
$275 million facility.................... December, 2002
$275 million facility.................... December, 1999
Global Facilities.......................... 17
$275 million facility.................... December, 2002
$275 million facility.................... December, 1999
Other credit agreements:
$ 75 million--domestic and foreign....... 1 April, 2000
$137 million--foreign.................... 5 Various
</TABLE>
There are no compensating balance requirements on any of the committed lines.
At September 30, 1999, Group had $756 million outstanding under its committed
lines, including $451 million supporting Group's commercial paper program.
The multi-option revolving credit agreements and the global revolving credit
agreements (collectively, the "Facilities") permit Group to borrow in U.S.
dollars or in other currencies, on a revolving credit basis. Interest rates on
debt outstanding under the Facilities are negotiated at the time of the
borrowings based either on "bid rates" from the participating banks, LIBOR
plus twenty basis points or, for the two $275 million facilities expiring
December, 1999, twenty-two basis points, or at the banks' then current base
rates. The Facilities call for Group to pay a weighted-average annual fee of
nine basis points per annum on the total committed amount. The two $275
million facilities are renewable annually and should the banks decide not to
renew, include provisions to convert any amounts then outstanding to term
loans with a final maturity of December, 2000.
UNCOMMITTED LINES AND LOAN PARTICIPATION CONTRACTS: In addition to the
committed lines, Group maintains various domestic and international lines of
credit for short-term debt with banks, including approximately $289 million of
uncommitted lines of credit, under which Group can borrow on an unsecured
basis on such terms as Group and banks may mutually agree. The majority of
these arrangements do not have maturity dates, and can be withdrawn at the
banks' option. There are no fees or compensating balances associated with
either the uncommitted lines or the loan participation contracts.
COMMERCIAL PAPER: At September 30, 1999, Group had $900 million of commercial
paper facilities (of which $451 million was outstanding at September 30, 1999)
all of which are supported by its committed lines of credit. The facilities
were rated D-2 by Duff & Phelps, P-2 by Moody's and A-2 by Standard & Poor's.
TERM NOTES: At September 30, 1999, Group had $550 million of receivable backed
commercial paper. This floating rate term note is due during fiscal year 2000.
VII-33
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
SENIOR NOTES: Senior notes include the following at September 30:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
Medium term notes (5.75% to 9.95%)......................... $1,461 $1,200
7.750% Senior Notes due 1999............................... -- 89
6.500% Senior Notes due 1999............................... -- 250
6.500% Senior Notes due 2000............................... 200 200
5.750% Senior Notes due 2001............................... 250 250
6.375% Senior Notes due 2002............................... 250 250
6.000% Senior Notes due 2002............................... 350 --
5.950% Senior Notes due 2002............................... 350 --
7.250% Senior Notes due 2002(1)............................ 300 --
6.125% Senior Notes due 2003(2)............................ 250 250
6.130% Senior Notes due 2006............................... 275 279
------ ------
Total senior notes..................................... $3,686 $2,768
====== ======
</TABLE>
- --------
(1) Group had interest rate swap agreements at September 30, 1999 that
effectively converted $100 million of 7.250% Senior Notes to floating rate
obligations with an effective interest rate of 6.190%.
(2) Group had interest rate swap agreements at September 30, 1999 that
effectively converted $200 million of 6.125% Senior Notes to floating rate
obligations with an effective interest rate of 5.152%.
The average remaining terms of these swap agreements was greater than 2 years
at September 30, 1999.
There are no sinking fund requirements associated with any of Group's senior
notes.
DISCOUNTED LEASE RENTALS: Group utilizes its lease rentals receivable and
underlying equipment in leasing transactions as collateral to borrow from
financial institutions at fixed rates on a nonrecourse basis. In return for
this secured interest, Group receives a discounted cash payment. In the event
of a default by a lessee, the financial institution has a first lien on the
underlying leased equipment, with no further recourse against Group. Proceeds
from discounting are recorded on the balance sheet as discounted lease
rentals; as lessees make payments to financial institutions, lease revenue
(i.e., interest income on direct financing and sales-type leases and rental
revenue on operating leases) and interest expense are recorded. Discounted
lease rentals are reduced by the interest method.
Future minimum lease payments and interest expense on leases that have been
discounted as of September 30, 1999 are as follows (in millions):
<TABLE>
<CAPTION>
Rentals to
be
received by Discounted
financial lease Interest
institutions rentals expense
------------ ---------- --------
<S> <C> <C> <C>
Years Ending September 30,
2000................................. $331 $303 $28
2001................................. 150 139 11
2002................................. 54 51 3
2003................................. 20 19 1
2004................................. 3 3 --
---- ---- ---
$558 $515 $43
==== ==== ===
</TABLE>
VII-34
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Interest expense on discounted lease rentals was $38 million, $49 million, and
$55 million in fiscal 1999, 1998 and 1997, respectively.
INTEREST RATE SWAP AGREEMENTS AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS:
Group is a party to interest rate and cross-currency interest rate swap
agreements and other financial instruments in order to limit its exposure to a
loss resulting from adverse fluctuations in foreign currency exchange and
interest rates. Interest rate swap contracts generally represent the
contractual exchange of fixed and floating rate payments of a single currency.
Cross-currency interest rate swap contracts generally involve the exchange of
payments which are based on the interest reference rates available at the
inception of the contract on two different currency notional balances that are
exchanged. The principal balances are re-exchanged at an agreed upon rate at a
specified future date. Credit and market risk exist with respect to these
instruments.
The following table presents the contract or notional (face) amounts
outstanding and the fair value of the contracts based generally on their
termination values at September 30:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
Notional Fair Notional Fair
amount value amount value
-------- ----- -------- -----
(in millions)
<S> <C> <C> <C> <C>
Interest rate swap agreements.............. $820 $ 5 $460 $ 2
Cross-currency interest rate swap
agreements................................ 96 (6) 33 4
Forwards and futures....................... 86 6 65 (3)
</TABLE>
The impact of these contracts on interest expense for fiscal years 1999, 1998
and 1997 was immaterial. The average notional amount outstanding of the
floating rate to fixed rate contracts in fiscal 1999, including those noted in
the discussions above, was $234 million, with an average pay rate of 5.44% and
an average receive rate of 5.18%. The average notional amount outstanding of
the fixed rate to floating rate contracts in fiscal 1999 was $29 million, with
an average pay rate of 5.265% and an average receive rate of 6.384%. Group is
exposed to credit loss in the event of non-performance by the other parties to
the interest rate swap agreements. Although contract or notional amounts
provide one measure of the volume of these transactions, they do not represent
the amount of Group's exposure to credit risk. The amounts subject to credit
risk (arising from the possible inability of the counterparties to meet the
terms of their contracts) are generally limited to the amounts, if any, by
which the counterparties' obligation(s) exceed the obligation(s) of Group.
Group controls credit risk through credit approvals, limits and monitoring
procedures.
OTHER FINANCIAL INFORMATION
NOTE 8--RECEIVABLES
Receivables include the following as of September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in
millions)
<S> <C> <C>
Notes......................................................... $ 11 $ 10
Accounts...................................................... 289 211
Income taxes.................................................. 6 6
Other......................................................... 76 64
---- ----
Total receivables............................................. 382 291
Allowance for credit losses................................... (27) (17)
---- ----
Total..................................................... $355 $274
==== ====
</TABLE>
VII-35
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
ALLOWANCE: The allowance for credit loss includes management's estimate of the
amounts expected to be lost on specific accounts and for losses on other as of
yet unidentified accounts included in receivables at September 30, 1999,
including estimated losses on future noncancelable lease rentals and
subscription fees, net of estimated recoveries from remarketing of related
leased equipment. In estimating the reserve component for unidentified losses
within the receivables and lease portfolio, management relies on historical
experience, adjusted for any known trends, including industry trends, in the
portfolio.
NOTE 9--INCOME TAXES
The geographical sources of earnings before income taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
United States............................................. $(59) $154 $138
Outside United States..................................... 63 57 48
---- ---- ----
$ 4 $211 $186
==== ==== ====
</TABLE>
Cumulative unremitted earnings of foreign operations amounting to $179 million
after foreign taxes at September 30, 1999, were expected by management to be
reinvested. Accordingly, no provision has been made for additional U.S. taxes
which would be payable if such earnings were to be remitted to the parent
company as dividends. The amount of U.S. taxes, if any, are impracticable to
determine.
The components of the income tax provision (benefit) charged (credited) to
operations were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Current:
U.S. Federal........................................... $(17) $18 $20
U.S. state and local................................... -- -- 6
Outside United States.................................. 13 36 8
---- --- ---
(4) 54 34
==== === ===
Deferred:
U.S. Federal........................................... (2) 33 31
U.S. state and local................................... (4) 9 1
Outside United States.................................. 9 (21) 4
---- --- ---
3 21 36
---- --- ---
Total tax provision (benefit)........................ $ (1) $75 $70
==== === ===
</TABLE>
The reasons for the difference between the U.S. Federal income tax rate and
the effective income tax rate for earnings were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
U.S. Federal income tax rate....................... 35.0 % 35.0 % 35.0 %
Increase (reduction) resulting from:
State income taxes, net of U.S. Federal tax
benefit......................................... (63.6) 2.8 2.9
Foreign income tax rate differential............. 48.2 2.3 .9
Tax effect of foreign losses utilized............ (37.6) (4.6) (3.3)
Other, net....................................... (7.7) -- 2.2
----- ---- ----
(25.7)% 35.5 % 37.7 %
===== ==== ====
</TABLE>
VII-36
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities at September 30, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
(in
millions)
<S> <C> <C>
Deferred tax assets (liabilities):
Equity transactions...................................... $ 260 $ 264
Foreign loss carryforwards............................... 13 12
U.S. net operating loss carryforwards.................... 68 61
AMT credit carryforwards................................. 120 123
Deferred income.......................................... 47 32
Deferred expenses........................................ (20) 5
Other, net............................................... 95 77
Lease Accounting......................................... (821) (861)
Other comprehensive income............................... (3) --
Foreign.................................................. (26) (16)
----- -----
Gross deferred tax liabilities............................. (267) (303)
Less: valuation allowance.................................. (28) (12)
----- -----
Net deferred tax liabilities............................... $(295) $(315)
===== =====
</TABLE>
NOTE 10--COMPREHENSIVE INCOME
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130--Reporting Comprehensive Income, which requires presentation of
comprehensive earnings (net earnings (loss) plus all changes in net assets
from non-owner sources) and its components in the financial statements.
Components of other comprehensive earnings (loss) consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Foreign currency translation adjustments................ $(21) $ 7 $(25)
Change in net unrealized gains and losses on marketable
securities............................................. 152 -- --
Income tax.............................................. (60) -- --
---- ---- ----
Other comprehensive income/(loss)....................... 71 7 (25)
Net earnings............................................ 48 153 131
---- ---- ----
Total comprehensive income.......................... $119 $160 $106
==== ==== ====
</TABLE>
VII-37
<PAGE>
COMDISCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of Group's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------ -------- ------
(in millions)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............ $ 387 $ 387 $ 63 $ 63
Equity securities.................... 54 54 63 63
Notes receivable including noncurrent
portion............................. 11 11 10 10
Liabilities:
Notes payable and commercial paper... 820 820 1,121 1,121
Term notes, senior notes and
discounted lease rentals............ 4,751 4,681 3,914 3,729
Off-balance sheet financial
instruments:
Interest rate swap agreements........ -- 5 -- 2
Cross-currency interest rate swap
agreements.......................... -- (6) -- 4
Forwards and futures................. -- 6 -- (3)
</TABLE>
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, notes payable and
commercial paper approximates fair value because of the short-term maturity
of these instruments.
Equity instruments are based on quoted market prices for available-for-sale
securities, and, for non-quoted equity instruments, based on the lower of
management's estimates of fair value or cost. Group's investment in
warrants of public companies were valued at the bid quotation.
Notes receivable are estimated by discounting future cash flows using the
current rates at which similar loans would be made to borrowers with
similar business profiles.
The fair value of term notes, senior notes and discounted lease rentals was
estimated based generally on quoted market prices for the same or similar
instruments or on current rates offered Group for similar debt of the same
maturity.
Off-balance sheet financial instruments were estimated by obtaining quotes
from brokers.
VII-38
<PAGE>
ANNEX VIII
COMDISCO VENTURES
DESCRIPTION OF BUSINESS AND FINANCIAL INFORMATION
VIII-1
<PAGE>
COMDISCO VENTURES
INDEX TO DESCRIPTION OF BUSINESS AND
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Description of Business................................................ VIII-3
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... VIII-14
Audited Financial Statements........................................... VIII-20
Report of Independent Auditors......................................... VIII-21
Statements of Earnings and Division Equity--Years ended September 30,
1999, 1998 and 1997 and three months ended December 31, 1999 and 1998
(Unaudited)........................................................... VIII-22
Balance Sheets--September 30, 1999 and September 30, 1998 and December
31, 1999 (Unaudited).................................................. VIII-23
Statements of Cash Flows--Years ended September 30, 1999, 1998 and 1997
and three months ended December 31, 1999 and 1998 (Unaudited)......... VIII-24
Notes to Comdisco Ventures Financial Statements........................ VIII-25
</TABLE>
VIII-2
<PAGE>
COMDISCO VENTURES
DESCRIPTION OF BUSINESS
In this description, references to "we", "our", and "us" are to Comdisco
Ventures. You should read this description together with the information
provided with respect to Comdisco Ventures in Comdisco's Form 10-K, as amended
by Form 10-K/A, for fiscal 1999 and the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
below at page VIII-14, including the various risk factors identified in those
documents with respect to the business of Comdisco Ventures.
Overview
We are a leading provider of venture lease, venture debt and direct equity
financing to venture capital-backed companies. Our relationships with certain
leading venture capital firms help us to identify what we believe are the best
positioned companies in the most attractive high growth industries. We offer a
broad range of innovative equity-linked financing products that complement
equity from venture capital firms and debt from venture-oriented banks and
asset-based lenders. We also plan to offer a number of additional services to
our network of customers.
During the last two years, some of our most notable customers include Ariba
Technologies, Ask Jeeves, Be Free, Inc., Copper Mountain Networks, Critical
Path, e-Loan, e.Piphany, e-Toys, Extreme Networks, Flycast Communications,
Gadzoox, Inktomi, Next Card, Northpoint Communications, Siara Systems, and
Stratum One Communications.
We provide our customers with financing "commitments'--agreements to provide
up to a stated dollar amount of financing over a stated period of time.
Comdisco Ventures was formed in 1987, and since that time, we have committed
approximately $2 billion in venture debt, venture leasing and equity
financings, including $732 million in fiscal 1999 and $310 million in the
first quarter of fiscal 2000. Of the 740 companies we have helped finance,
over 170 have gone public and over 120 have been acquired.
Net earnings increased 149% to $42.8 million for fiscal 1999, as compared to
$17.2 million for fiscal 1998, and were $37.2 million in the first quarter of
fiscal 2000.
The Market for Venture Financing
The emergence of Internet-related, communications and other high-technology
businesses has been unprecedented in the last few years. The need for capital
to support the growth of these industries has likewise been unprecedented. Due
to changing dynamics in the marketplace, venture capital-backed companies are
currently facing substantial challenges in building their companies. Primary
among these challenges are:
. Compressed timeframes (6-24 months) within which to establish themselves
as a leader in a new category; and
. Increased capital requirements for expenditures such as product and
brand development, information technology infrastructure and sales force
expansion.
While the volume of venture capital activity has increased along with the
availability of venture capital funding, venture capital generally represents
the most dilutive and intrusive type of financing for start-up companies.
Venture capitalists generally require substantial ownership and exercise
substantial control when they make an investment in a company. Typically these
positions are reflected in significant equity holdings, contractual
shareholder rights and representation on the company's board of directors.
Start-up companies also turn to venture-oriented banks and asset-based lenders
for financing. While these financings do not dilute ownership of existing
equity holders, they typically involve high monthly cash costs, limitations on
the use of funds and adherence to restrictive financial covenants.
VIII-3
<PAGE>
These two primary sources of capital are not sufficient to meet the capital
needs of start-up companies in the current economic environment. Additionally,
their disadvantages highlight the need for cheaper, less intrusive, less
dilutive financing resources, creating opportunities for alternative capital
providers, like us, to fill those needs.
Our Solution
We believe we provide significant value to entrepreneurs and their venture
capital investors through flexible financing products and services which allow
them to build their companies quickly, while minimizing the dilution to their
equity ownership positions.
We have proven our ability to understand the capital needs of our customers
and to develop and customize attractive financings to meet those needs.
Currently our primary financing products are venture leases, venture debt and
equity financings where we purchase convertible preferred stock and common
stock of a customer directly. Venture leases are leases with warrants that
compensate venture lessors for providing the leases at more attractive
financing terms than leases without warrants. Venture debt is a high-risk loan
with warrants or a conversion-to-equity feature with more flexible terms and
security conditions than traditional senior secured financing. The warrants or
conversion feature of the loan generally give us the ability to buy equity at
a price based on the price paid by venture capitalists. The opportunity to
realize higher returns from the exercise of the warrants or from the
conversion feature enables us to offer these more flexible financing and
security terms.
Venture leases and venture debt can be utilized at various stages of a
company's development and for various purposes including the following:
. Early stage capital to supplement the initial venture capital raised and
support growth requirements;
. Expansion capital between venture capital rounds to enable an emerging
company to reach milestones and increase the prospect of raising future
capital at higher valuations; and
. Late stage capital to provide financial flexibility to deal with the
uncertainty of a liquidity event such as an initial public offering or
the sale of the company.
As a result of the specialized nature of venture leases and venture debt, we
must have expertise in technology-related industry sectors, access to capital,
the ability to assess risk, relationships with venture capital firms, access
to deal flow, and the ability to structure transactions appropriately.
In the future, we plan to offer a number of services to our network of
customers. These services will be designed to save our customers' time, effort
and money as they race to build their businesses.
Our Strategy
We intend to expand our position as a leading provider of venture leases and
venture debt to venture capital-backed companies. Our strategy is to continue
to leverage our management experience and resources to capitalize on the
growing demand for financing by venture capital-backed companies. Components
of our strategy include:
. Leveraging our relationships with leading venture capitalists;
. Providing capital through innovative products;
. Maintaining a diversified customer base;
. Expanding funding sources;
. Capitalizing on the Comdisco affiliation and resources; and
VIII-4
<PAGE>
. Developing complementary service offerings that respond to the changing
needs of venture capital-backed companies.
Leveraging our relationships with certain leading venture capitalists
We believe that, increasingly, the best deals are awarded to leading venture
capitalists. We have developed long-term strategic relationships with many of
these firms, which affords us access to the most attractive financing
opportunities. We believe that these venture capitalists view us as an
important financial partner for their customers, both at the initial and
subsequent stages of growth, due to our financial resources, innovative
financing products, and industry expertise.
Providing capital through innovative products
We currently offer a broad range of innovative financing alternatives. Our
success has been fueled, in part, by our ability to understand the capital
needs of our customers and to develop and customize attractive financings to
meet those needs. Currently, our primary financing products are venture
leases, venture debt and direct equity financings where we purchase
convertible preferred stock and common stock. See below, "Our Products."
Maintaining a diversified customer base
We provide financing products to customers diversified across many industry
sectors. The diversification reduces the impact to us should there be a
downturn in any sector. The following chart illustrates industry sector
diversification by aggregate commitments from October 1, 1996 through December
31, 1999.
[CHART]
We often provide financing to several venture capital-backed companies in a
specific industry sector in order to increase the likelihood of aligning
ourselves with the most successful companies within that sector. Because most
venture capitalists have significant equity ownership, board representation
and strategic alignment with management of the companies in which they invest,
they can be limited in their abilities to invest in multiple companies within
a single industry sector. With our limited ownership, control and strategic
involvement (e.g., typically no board representation) in our customers, we
generally avoid these kinds of conflict limitations. This allows us to
diversify our financings across several start-ups within an industry sector.
VIII-5
<PAGE>
Expanding our funding sources
Historically, we have funded our financing activities through cash flow from
operations, as well as intergroup borrowings from Comdisco. As demand for our
financing products has grown, we have explored possible additional sources of
funds for our financing activities. With this in mind, we formed a limited
partnership fund in October 1999 to offer our venture debt and direct equity
financing products. This Fund is in the process of obtaining capital
commitments, initially targeted at $750 million, to fund these activities. We
have committed to provide $250 million of these amounts as a limited partner.
The Fund began funding direct equity financing in the second quarter of fiscal
2000 and is expected to begin funding venture debt during the third quarter of
fiscal 2000. We expect to sell those venture debt transactions that we finance
during the second quarter of fiscal 2000 to the Fund when the Fund begins to
finance venture debt directly. Until the Fund has invested substantially all
of its committed capital, we intend to allocate all venture debt and direct
equity investment financing opportunities to the Fund. Once the Fund's capital
commitments have been fully invested, we may, depending on market conditions,
form additional funding vehicles similar to the Fund. For a more detailed
description of the Fund and its relationship to our business, see "Funding
Sources--the Fund", on page VIII-8.
Capitalizing on the Comdisco affiliation and resources
As a division of Comdisco, we are able to bring a number of benefits to our
customers:
. Equipment Procurement. As a result of Comdisco's experience in leasing
and remarketing equipment and its equipment purchasing power, we are
able to offer our customers an equipment procurement service designed to
save them time, effort and money.
. Technology Services. We offer a range of Comdisco's technology services
to our customers in order to help them build their businesses more
quickly. These services include continuity services, web availability
and other hosting services, and managed network services.
. Post-Venture Stage Services. We can also introduce Comdisco as a
potential customer for or partner to our customer as the customer grows
beyond the start-up stage.
Developing complementary service offerings to continue to attract the most
promising venture-stage companies
In addition to financing products, we intend to provide value-added services
to our network of customers in the future. These services will be designed to
save our customers' time, effort and money as they race to build their
businesses. These services will also be designed to allow our customers to
take advantage of opportunities provided by other members of our network of
customers.
Our Products
Typically, our products are structured as commitments to provide financing in
one or more advances during a specified period of time. The total commitment
made available to a customer may or may not be drawn upon and used by that
customer over the life of the commitment, although we generally must keep
those committed but undrawn amounts available for the customer. We also may
agree, as part of a commitment, to purchase a specific amount of equity in a
planned future equity round of our customer. We usually receive a fee for
providing our financing commitment based on the original amount committed. Our
commitment to finance is typically subject to the absence of any default or
material adverse change under the loan or lease and compliance by our
customers with other loan requirements.
We generally will receive warrants to purchase equity securities or the right
to convert some of our debt into equity securities of our customers in
connection with the commitment. Warrants typically represent less than 5% of
the customer's ownership at the date of origination. The terms of the warrants
or equity conversion, including the expiration date, exercise price and terms
of the equity security for which the warrant may be exercised, will be
negotiated individually with each customer, and will likely be affected by the
price and terms of securities issued by the customer to its venture
capitalists and other holders. Based upon our past experience, it is
anticipated that most warrants will be exercisable for a term of three to ten
years. The equity securities for which the warrant will be exercised generally
will be convertible preferred stock or common stock.
VIII-6
<PAGE>
Venture Lease
Our venture leasing activities consist primarily of the direct origination of
non-cancelable, full-payout leases. These leases cover a variety of equipment
including information technology, scientific hardware, facilities, software
and production equipment. The rental rate and all other transaction terms are
individually negotiated with our customers.
Substantially all equipment leases that we originate have specified non-
cancelable initial terms ranging from 2 to 5 years. The general terms and
conditions of all of our leases are substantially similar and are embodied in
a master lease agreement. For each lessee, the lease term, rent interval,
lease rate factor and other specific terms for each piece of leased equipment
are set forth on equipment schedules, which also incorporate the terms and
conditions of our master lease agreement. The lessee is also required to
provide to us monthly or quarterly and annual financial information.
During fiscal 1999 and 1998, we originated leases through approximately 230
and 180 separate transactions, respectively, representing total commitments of
$332 million and $221 million, respectively.
In the three months ended December 31, 1999, we originated leases through
approximately 80 separate transactions, representing total commitments of $136
million.
Venture Debt
Historically, we have originated our subordinated and other debt financings
directly with customers pursuant to subordinated, secured loan agreements. The
loans bear fixed interest rates over the prime rate and are generally repaid
in 36 monthly installments. Typically the customer makes several months of
interest-only payments, the balance being amortizing installments of principal
and interest. In addition, transaction fees may be paid to us at closing.
Our subordinated loans are typically secured by a lien on all of the
customer's assets, which, in most cases, is subordinated to the lien of the
customer's senior lenders. Our loan documents usually contain cross-default
provisions and may have specific provisions governing future financing or
pledging of assets.
It is anticipated that the limited partnership fund we established, will begin
funding these subordinated loan financings in the third fiscal quarter of
2000. We expect to sell those subordinated loan transactions that we finance
during the second quarter of fiscal 2000 to the Fund when it begins to finance
these transactions directly. Until the Fund's capital commitments are
substantially invested, we do not expect to offer these products for our own
account. Instead, we will participate in the returns generated by these
financings as a limited partner of the Fund and as a member of its general
partner. See below "Funding Sources--the Fund."
During fiscal 1999 and 1998, we originated subordinated loans through
approximately 145 and 30 separate transactions, respectively, representing
total commitments of $68 million and $367 million, respectively.
In the three months ended December 31, 1999, we originated subordinated loans
through approximately 45 separate transactions, representing total commitments
of $140 million.
Direct Equity Financings
Through December 31, 1999, we provided equity financing to our customers by
directly purchasing common or preferred convertible stock. We generally
purchase equity at a valuation based on the most recent previous financing
round to venture capitalists or, as applicable, a current or contemplated
financing round.
The Fund began funding direct equity financings in the second fiscal quarter
of 2000. Until the Fund's capital commitments are substantially invested, we
do not expect to make direct equity financings for our own account. Instead,
we will participate in the returns generated by these financings as a limited
partner of the Fund and as a member of its general partner. See below "Funding
Sources--the Fund."
VIII-7
<PAGE>
During fiscal 1999 and 1998, we made direct equity investments with 91 and 36
customers, representing $39 million and $7 million, respectively.
In the three months ended December 31, 1999, we made direct equity financings
with 60 customers, representing $36 million. As of December 31, 1999, we have
made total direct equity financings with an original investment value of $97
million.
Funding Sources
Since inception, we have funded our financing activities through cash flow
from operations and borrowings from Comdisco. To respond to the growing demand
for our financing products, and to reduce balance sheet risk to Comdisco's
stockholders, we have explored possible additional sources of funds for our
financing activities.
The Fund
We formed a Delaware limited partnership in October 1999 to originate venture
debt and direct equity financing products. The Fund is in the process of
obtaining capital commitments, targeted at $750 million to fund these
activities. We have committed the first $250 million of that amount as a
limited partner. We may also provide the Fund with short-term loans to
facilitate its initial operating activities. The Fund began funding direct
equity financings in the second quarter of fiscal 2000 and is expected to fund
venture debt beginning in the third quarter of fiscal 2000. We expect to sell
any venture debt we finance during the second quarter of fiscal 2000 to the
Fund when it begins to finance these transactions. Until the Fund has invested
substantially all of its committed capital, all of our venture debt and direct
equity financing opportunities will be for the account of the Fund. Once the
Fund's capital commitments have been fully invested, we may, depending on
market conditions, form additional funding vehicles similar to the Fund. The
financing products offered by the Fund are expected to be substantially the
same as the venture debt and direct equity financing products that we have
offered.
As a limited partner in the Fund and a non-managing member of its general
partner, we will participate in the profits and losses of the Fund. Items of
profit and loss of the Fund attributable to the short-term investment of idle
cash will be allocated among the partners of the Fund in proportion to their
respective capital commitments. All other items of net profit of the Fund will
be allocated among its partners as follows:
. First, 100% to all partners in proportion to their respective capital
commitments until each partner has been allocated net profits
representing an 8% priority return on its unreturned capital
contribution;
. Next, 100% to the general partner until cumulative allocations of net
profit over the term of the fund have been made;
(1) 80% to all partners in proportion to their respective capital
commitments; and
(2) 20% to the general partner as a carried interest;
. Next, 80% to all partners in proportion to their respective capital
commitments and 20% to the general partner as a carried interest.
Net losses of the Fund will be allocated first to reverse prior allocations of
net profits and thereafter to the partners in proportion to their respective
capital commitments.
Distributions by the Fund to its partners may be made in cash or in
securities.
The general partner of the Fund is a Delaware limited liability company. The
managing members of the general partner primarily responsible for the Fund's
investment activities initially will include our senior management. In
addition to its share of the Fund's profits and losses, the general partner
will receive an annual management fee equal to 2% of the aggregate capital
commitments of the Fund's partners. Beginning in 2005, this fee will be
VIII-8
<PAGE>
equal to 2% of the sum of (1) aggregate cost basis of securities held by the
Fund and (2) reasonable reserves for the payment of fund expenses and the
purchase of portfolio securities under pre-existing binding commitments. We
are a non-managing member of this general partner, and in that capacity
currently are entitled to 30% of the general partner's profits and losses, a
percentage that will increase to 49% upon the initial public offering of
Ventures Tracking Stock.
Finally, if Comdisco implements the tracking stock proposal, we will have the
right to the same share of any subsequent funds in which any of our current
senior management who are managing members of the general partner are
substantially involved, provided that Ventures Tracking Stock remains
outstanding and we commit to provide at least 25% of the committed capital of
any such subsequent funds.
Instead of receiving payments of principal and interest and loan fees
associated with venture debt and the payments of sales proceeds associated
with our direct equity financings, we will receive returns from venture debt
and direct equity financings originated by the Fund, through our limited
partnership interests in the Fund and membership interests in the general
partner.
Assuming the Fund raises and fully invests its targeted commitments, we
anticipate the amounts we will receive as a limited partner and member to be
substantially similar to the returns we would receive if we were to provide
our venture debt and equity investment financing products directly to our
customers.
We currently intend to continue to offer equipment financings directly to our
customers.
Overview of Our Financing Commitments and Equity Stakes
We believe we are one of the largest sources of venture debt and venture
leases in our market.
New Lease, Debt and Equity Commitments
This table shows total new lease, debt and equity commitments during each of
the last five fiscal years and the first quarter of fiscal 2000.
Total New Commitments By Fiscal Year
1995-Current
(Dollars in Millions)
<TABLE>
<CAPTION>
1st
Quarter
1995 1996 1997 1998 1999 2000
----- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Leases................................ $77.3 $103.5 $144.3 $220.6 $332.1 $135.8
Debt.................................. 2.5 7.5 19.5 67.7 367.1 139.5
Equity................................ 1.6 3.1 3.7 7.4 39.0 34.7
----- ------ ------ ------ ------ ------
Total............................. $81.4 $114.1 $167.5 $295.7 $738.2 $310.0
===== ====== ====== ====== ====== ======
</TABLE>
VIII-9
<PAGE>
The following table shows the 15 largest original commitments we have provided
through December 31, 1999.
15 Largest Commitments Provided through December 31, 1999
Acusphere, Inc.
Avici Systems, Inc.
Corio Inc.
CORVIS Corporation
Digital Generation Systems, Inc.
Equinix, Inc.
Flashcom, Inc.
HomeGrocer.com, Inc.
Impresse Corporation
living.com Inc.
New Edge Networks, Inc.
NextCard, Inc.
OurHouse.com
Silicon Access Technology, Inc.
Telocity, Inc.
We try to avoid concentrating our financing risks in a few customers. The
largest commitment we have made to any single customer is approximately $25
million. No commitment to any individual customer represents more than 3% of
the total of the net book value of our assets.
Equity Holdings
Liquidity Events. We have been successful in identifying companies that
ultimately proceed to a liquidity event, such as an initial public offering,
or IPO, or a merger with or sale to a public company. In addition to our
ability to identify these companies, we benefit from the IPO market's wide
acceptance of transactions representing venture capital-backed companies.
According to the National Venture Capital Association and Venture Economics,
approximately 50%, or 271, of the 544 companies that went public in 1999 were
venture capital-backed. These liquidity events give us the opportunity to sell
or otherwise dispose of our equity interests in those companies in an orderly
manner, subject to securities law and contractual lock-up agreements.
Public Equity Holdings. We direct the management of our public equity holdings
through a third party asset manager. Historically, our general policy has been
to sell our equity positions in an orderly manner as soon as reasonably
possible after a liquidity event. In most cases, securities law restrictions
on transfer and contractual lock-up provisions restrict our ability to sell
our equity position for several months after a liquidity event. Our management
consults with our outside manager on at least a quarterly basis and we have
adjusted our general policy on occasion to respond to market conditions.
However, our policy with respect to disposition of our equity holdings is not
intended to, and does not, assure that we will maximize our return on any
particular holdings. Going forward, we may review and change this policy.
Also, the Fund, while it currently intends to follow the same disposition
policy as we do with respect to its equity holdings, may not do so in the
future.
VIII-10
<PAGE>
As of December 31, 1999, our current public equity holdings had a market value
of $435 million and represented ownership in 71 companies. Our 10 largest
public equity holdings represented 64% of the total market value of our public
equity holdings on that date and are listed in the following table:
10 Largest Public Equity Stakes As of December 31, 1999
<TABLE>
<CAPTION>
Company Industry Sector
------- ---------------
<S> <C> <C> <C>
Agile Software
Corporation Software & Computer Services
Be Free, Inc. Internet
Cacheflow, Inc. Communications & Networking
Chemdex Corporation Internet
Critical Path, Inc. Software & Computer Services
E.Piphany, Inc. Software & Computer Services
FlyCast Communications
Corp. Internet
Keynote Systems, Inc. Software & Computer Services
OnDisplay, Inc. Internet
Vignette Corporation Internet
</TABLE>
The equity instruments we hold are generally subject to securities law
restrictions on transfer and contractual lock-ups restricting our ability to
sell them for up to approximately 180 days after an initial public offering or
longer. The public market for high-technology and other emerging growth
companies is extremely volatile. This volatility may adversely affect both our
ability to dispose of those equity securities and the value of those equity
securities on or prior to the dates on which they are disposed.
Private Equity Holdings. In addition to our public equity holdings, as of
December 31, 1999 we held warrants and other equity positions in approximately
345 companies that are still private.
Financing Procedures
The successful execution of our business and operating strategy is dependent
upon our underwriting and investment policies and procedures.
We review business plans generated by our referral network in order to
identify potential customers. After identifying potential customers that we
believe merit further investigation, we evaluate those potential customers in
more depth. This review process, described below, forms the basis of our
decision to fund or reject a lease, loan and/or direct equity financing.
Preliminary Evaluation
We meet with the potential customer's management and perform a preliminary
investigation of its management, business operations, and prospects. We
generally consult with and gather information from industry analysts and other
sources to assess the prospects of a potential customer and its industry. We
also review the commitments of the existing venture capitalists (including
their intention to participate in future financing rounds) and the potential
customer's capital structure. The customer also provides projected financial
statements, a description of its market and competitive landscape and a
description of operations (marketing and sales, research and development,
employee issues, and so forth). If we are satisfied with our preliminary
investigation of management, operations and prospects, we typically issue a
term sheet outlining a proposed transaction. After reaching an agreement on
the term sheet, we begin due diligence.
Due Diligence
Our due diligence may initially include on-site visits to the potential
customer's headquarters and other facilities, interviews with key management
and board members, references from senior management and discussions with
industry research analysts, other industry participants, customers and
suppliers, where appropriate. We may also review the potential customer's
charter, capital structure, subsidiaries, assets, liabilities, employee plans,
litigation, tax matters and other relevant legal documentation.
VIII-11
<PAGE>
Portfolio Monitoring and Risk Management
We have three primary tools to monitor the performance and quality of our
financings:
. We monitor the progress of product development, cash burn and overall
adherence to the business plan.
. We maintain regular contact with management teams to discuss business
environment, cash flow needs and potential financing and other capital
structure issues.
. Finally, we review various financial statements received from our
customers on a quarterly basis.
Workouts
All loans that are 60 days or more overdue are classified as a work-out
account. Whenever feasible, we attempt to use our position as a lender and
equity investor to work with other investors and lenders to rehabilitate,
rather than liquidate, defaulted loans. Our primary objective at this stage is
to minimize our loss.
Loss experience
Since the initiation of our financing activities, credit losses have been less
than 3% of our total commitments originated. This percentage does not reflect
any significant loss experience from our subordinated debt products, which
were only first introduced on a large scale in fiscal 1998.
We believe that our low level of credit losses are largely a result of our (1)
due diligence procedures specifically designed to analyze transactions with
emerging growth companies; (2) extensive monitoring and review of those
transactions; (3) corrective approach to addressing delinquency; and (4)
transaction structuring experience. Our loss experience has also benefitted
from the experience and diligence of those leading venture capital firms that
typically precede us into our financing relationships.
Competition
Our primary competitors include financial institutions, equipment lessors and
manufacturers, venture capital firms, and non-traditional lenders that provide
debt and/or equity financing to emerging, high technology companies. An
increasing number of public companies also provide substantial capital to
companies who might otherwise be candidates for our financing products. We
believe that we compete effectively with these competitors based on creative
and innovative deal structuring, flexibility, reputation, quality of service,
timely credit analysis, and decision-making.
Employees
As of December 31, 1999, we employed 41 people on a full time basis. 12
personnel were involved in marketing and sales, 26 were in processing,
servicing and administrative support and 3 were executive employees. No
employees are represented by a labor union.
Facilities
Our principal executive offices are located and our venture leasing and
venture debt activities are conducted at 3000 Sand Hill Road, Menlo Park,
California. We also lease office space in Palo Alto, California, Waltham,
Massachusetts and Rosemont, Illlinois.
VIII-12
<PAGE>
Regulation, Licenses And Qualifications, Federal And State
Because we are a non-bank, commercial lender, we are not subject to material
federal regulation. Nevertheless, under certain circumstances, we may be
required to comply with the Equal Credit Opportunity Act ("ECOA"). Under the
ECOA, we are required to give full credit applicants notice of the right to
receive a written statement of reasons an application for credit is denied,
unless the applicant has gross revenues exceeding $1 million during its last
fiscal year.
We are not subject to material regulation in most states, although some states
do require licensing for certain commercial financing activities. Most states'
usury laws, which limit the amount of interest charged on loans originated in
such state, either exempt commercial loans or do not extend the benefit of the
usury laws to corporate borrowers.
We believe we are currently in material compliance with any applicable state
usury laws as well as other applicable federal and state statutes and
regulations.
We believe existing federal and state laws and regulations have not had a
material adverse effect on our operations. There can, however, be no assurance
that future laws and regulatory changes will not occur and will not place
additional burdens on our operations.
Legal Proceedings
We are not currently a party to any material litigation.
VIII-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read along with the Comdisco Group financial
information contained in Annex VII to this proxy statement. Historical results
and percentage relationships may not necessarily be indicative of operating
results for any future periods. The financial statements of Comdisco Ventures
include the balance sheets, statements of operation, cash flow and group
equity of the venture financing business of Comdisco, Inc.
The stockholders are scheduled to vote on a tracking stock proposal to, among
other things, amend Comdisco's certificate of incorporation to:
. authorize Comdisco's board of directors to issue common stock in
multiple series, with the initial two series of common stock being
Comdisco Stock and Ventures Tracking Stock;
. re-classify each outstanding share of Comdisco's existing common stock
as one share of Comdisco Stock; and
. increase the total authorized shares of Comdisco's common stock from
750,000,000 to 1,800,000,000.
If the tracking stock proposal is approved by Comdisco's stockholders, the
filing of Comdisco's restated charter implementing the proposal will
automatically reclassify each share of existing common stock into one share of
Comdisco Stock. Subject to stockholder approval of the tracking stock
proposal, Comdisco expects to issue shares of Ventures Tracking Stock
representing approximately 15% of the equity value initially attributed to
Comdisco Ventures in its fiscal year 2000. The effect of any issuances of
Ventures Tracking Stock on the retained interest percentage and the
outstanding interest percentage would depend upon the number of shares of
Ventures Tracking Stock sold and whether Comdisco elects to attribute the net
proceeds of such to the equity of Comdisco Ventures or to Comdisco Group in
respect of its retained interest.
Comdisco Ventures' financial statements and Comdisco Group financial
statements comprise all of the accounts included in the consolidated financial
statements of Comdisco. The separate business financial statements give effect
to all allocation and related party transaction policies as adopted by the
board of directors of Comdisco. These policies are described in Notes to
Consolidated Financial Statements of Comdisco Ventures. Comdisco Ventures'
financial statements have been prepared in a manner which management believes
is reasonable and appropriate. Such financial statements include the financial
position, results of operations and cash flows of Comdisco Ventures, presented
to give effect to the accounting principles that will be applicable upon
implementation of the tracking stock proposal.
If the tracking stock proposal is approved by Comdisco's stockholders,
Comdisco will provide to the holders of Ventures Tracking Stock separate
financial statements, financial reviews, descriptions of the business, and
other relevant financial information for Comdisco Ventures and Comdisco Group
as well as consolidated financial information for Comdisco. Notwithstanding
the allocation of assets and liabilities, including contingent liabilities,
among Comdisco Ventures and Comdisco Group for the purposes of preparing their
respective financial statements, this allocation and the change in the capital
structure of Comdisco as a result of the approval of the tracking stock
proposal will not result in the distribution or spin-off to stockholders of
any of Comdisco's assets and liabilities and will not affect ownership of its
assets or responsibility for its liabilities or those of its subsidiaries.
Holders of Ventures Tracking Stock will remain common stockholders of
Comdisco. The assets attributed to one business will be subject to the
liabilities of the other businesses, even if such liabilities arise from
lawsuits, contracts or indebtedness that are attributed to the other
businesses. If Comdisco is unable to satisfy one business's liabilities out of
the assets attributed to it, Comdisco may be required to satisfy those
liabilities with assets Comdisco has attributed to the other businesses.
Further, holders of Ventures Tracking Stock and Comdisco Stock will not have
any legal rights related to specific assets of either business and in any
liquidation will receive a fixed share of the net assets of Comdisco, which
may not reflect the actual trading prices, if any, of the respective
businesses at such time.
VIII-14
<PAGE>
Financial effects from one business that affect Comdisco's consolidated
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other business and the
market price of the stock relating to the other business. In addition, net
losses of either business and dividends and distribution on, or repurchases
of, either series of common stock or repurchases of preferred stock at a price
per share greater than par value will reduce the funds we can pay on each
class of common stock under Delaware law. Accordingly, Comdisco Ventures'
financial statements should be read in conjunction with Comdisco's audited
consolidated financial information and Annual Report on Form 10-K, as amended
by Form 10-K/A, and the financial information of Comdisco Group contained in
Annex VII of this proxy statement.
Forward Looking Statements
Certain statements herein constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and Comdisco Ventures intends that such
forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements are subject to many uncertainties and factors
relating to Comdisco Ventures' operations and business environment which may
cause the actual results of the company to be materially different from any
future results expressed or implied by such forward-looking statements.
Examples of such uncertainties include, but are not limited to, those risk
factors set forth generally throughout this Management's Discussion and
Analysis of Financial Condition and Results of Operations and specifically
under "Risk Factors that May Affect Future Results" included at page VIII-18.
Overview
We provide capital to venture lease, venture debt and direct equity financing
and venture capital-backed companies. We identify potential customers through
our relationships with leading venture capital firms. We are a division of
Comdisco, Inc.
Recent Events
On October 15, 1999, we formed a limited partnership fund to act as a funding
vehicle for our venture debt and direct equity investment transactions. The
fund is in the process of obtaining capital commitments of up to $750 million.
We have committed the first $250 million of that amount as a limited partner.
In January 2000, the fund began making direct equity financings and expects to
begin making venture debt financings in the third quarter of fiscal 2000. The
general partner of the fund is entitled to be paid a management fee for
managing and investing the partnership funds and will participate in the
earnings of the partnership. We are a non-managing member of the general
partnership, and entitled to a portion of these amounts.
Revenue
Our revenues are derived primarily from leasing, interest income on notes
receivable and from the sale of public equity holdings.
. Leasing: We lease almost all types of equipment from all manufacturers.
Although these leases are "full payout" leases, we record these
transactions as operating leases in accordance with FAS 13, "Accounting
for Leases" which requires operating lease accounting where the
collectablity of the lease payments is not assured. As part of the lease
transaction, we receive warrants to purchase an equity interest in the
borrower at a price reflecting the customer's venture status.
. Notes receivable: Our loans are generally structured as equipment loans
or subordinated loans. The loans bear fixed interest rates over the
prime rate. In addition, fees may be paid to us at loan closing. As part
of the loan transaction, we receive warrants to purchase an equity
interest in the borrower at an exercise price based upon the price at
which the borrower most recently issued equity securities, or has agreed
to issue equity securities in the near future.
VIII-15
<PAGE>
. Sale of equity holdings: We also provide financing to our customers by
purchasing convertible preferred stock or other equity. We generate
capital gains when the equity is sold. In addition, we record the
proceeds from the sale of warrants received in conjunction with our
lease and loan transactions as income when received.
We also generate revenue from buy/sell activities and from selling equipment
at lease termination, generally to the original lessee.
We expect continued growth in all revenue sources in fiscal 2000. In addition,
the valuation of our warrant and equity holdings has increased significantly
during the last twelve months, primarily as a result of strong equity markets
for these securities. Accordingly, we expect, based on current stock market
valuations, an increase in revenue and earnings contributions from our equity
holdings in fiscal 2000.
Total revenue of approximately $228.5 million and $114.3 million represent
increases of 100% and 20%, respectively over the prior year periods. The
increases were due to higher total leasing revenue and interest income on
notes and, in fiscal 1999, higher revenue from the sale of equity investments.
Leasing: Total leasing revenue of $118.4 million for fiscal 1999 represented
an increase of 39% compared to the prior year. Total leasing revenue of $85.1
million in fiscal 1998 represented an increase of 25% over fiscal 1997 total
leasing revenue of $68.3 million.
Leasing volume increased in both fiscal 1999 and 1998 as compared to the prior
years. Lease volume in the current fiscal year was the highest annual volume
in our history. Cost of equipment placed on lease was $205.6 million in fiscal
1999 compared to cost of equipment placed on lease of $114.2 million and $91.3
million in fiscal 1998 and 1997, respectively.
Operating lease revenue minus operating lease costs was $28.8 million, or
24.7% of operating lease revenue (the "Operating Lease Margin") and $23.3
million, or 28.0% of operating lease revenue in fiscal 1999 and 1998,
respectively. We expect the Operating Lease Margin to remain at approximately
25% of operating lease revenue in fiscal 2000.
Notes receivable: Interest income on notes receivable was $22.6 million in
fiscal 1999 compared to $6.7 million and $3.1 million in fiscal 1998 and 1997,
respectively. During fiscal 1999, Comdisco Ventures originated loans totaling
$323.9 million, compared to $57.1 million in fiscal 1998 and $34.3 million in
fiscal 1997. See Note 3 of Notes to Financial Statements for information
concerning our notes receivable and "Risk Factors that May Effect Future
Results" for a discussion of factors that may affect earnings contributions
from notes receivable and financial condition.
Sale of equity holdings: Warrant sale proceeds and capital gains for fiscal
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Proceeds from sale of equity securities.............. $10.9 $ 2.0 $ 3.9
Less: Cost of equity securities...................... (5.7) (.6) (.5)
----- ----- -----
Capital gains........................................ 5.2 1.4 3.4
Warrant sale proceeds................................ 75.5 13.5 13.0
----- ----- -----
Total............................................ $80.7 $14.9 $16.4
===== ===== =====
</TABLE>
VIII-16
<PAGE>
Costs and Expenses
We incur costs and expenses in leasing, principally depreciation on equipment,
selling, general and administrative, interest and bad debt expense.
Leasing: Costs and expenses are principally depreciation of equipment.
Depreciation is recognized on a straight-line basis over the lease term to our
estimate of the equipment's fair market value at lease termination. In
addition to depreciation, initial direct costs related to operating leases,
primarily salesperson's commissions, are capitalized and amortized over the
lease term.
Selling, general and administrative: Our selling, general and administrative
expenses consist primarily of costs relating to management compensation,
personnel, customer service, finance, billing, administrative services,
recruiting, insurance, legal services and depreciation expense. Comdisco
provides us finance, billing, administrative services, insurance, budgeting,
legal services and other functions through a shared services program. In
connection with our business plan, we have hired and expect to continue to
hire additional employees. As a result, we expect these expenses to increase
as the number of employees increases.
Interest: We fund our business with loans from Comdisco. Interest on inter
group loans is computed monthly based on the ending balance.
Bad debt expense: We record an expense for credit losses based on management's
estimate of the amounts expected to be lost on specific accounts and for
losses on other as of yet unidentified accounts included in the lease and
notes receivable portfolio.
Total costs and expenses were $157.3 million, $85.8 million and $70.1 million
in fiscal 1999, 1998 and 1997, respectively. The increase in fiscal 1999 and
1998 compared to the prior years is primarily due to the growth in leasing
volume and loan originations including higher interest and bad debt expense
and increased leasing costs related to increased operating lease revenue.
Selling, general and administrative expenses: Selling, general and
administrative expenses totaled $18.2 million in fiscal 1999, $5.8 million in
fiscal 1998, and $5.4 million in fiscal 1997. Charges for shared services from
Comdisco were $3.0 million, $.5 million and $.5 million in fiscal 1999, 1998
and 1997. The primary reason for the increase in selling, general and
administrative expenses in fiscal 1999 compared to 1998 was higher
compensation costs. Management compensation is based upon our pretax earnings,
which increased 150% in fiscal 1999 compared to fiscal 1998. The increase in
fiscal 1998 compared to fiscal 1997 is primarily due to increased personnel
costs.
Interest: Interest expense for fiscal 1999 totaled $23.4 million in comparison
to $10.8 million in fiscal 1998 and $7.7 million in fiscal 1997. The increases
in fiscal 1999 and 1998 compared to the prior year is due to higher average
daily borrowings resulting from our increased investment in our lease and loan
portfolios. Interest rates on inter group loans from Comdisco were 7.5% in
fiscal 1999 and 7.0% in fiscal 1998 and 1997.
Bad debt expense: Bad debt expense for fiscal 1999 totaled $23.2 million
compared to $4.8 million in fiscal 1998 and $0.8 million in fiscal 1997. The
increase in fiscal 1999 compared to the prior year reflects the increase in
lease and loan volume.
Liquidity and Capital Resources
Our operating activities during fiscal 1999, including capital expenditures
for equipment and loan originations, were funded primarily by inter group
loans from Comdisco. Total net cash provided by Comdisco was
VIII-17
<PAGE>
$328.0 million in fiscal 1999, compared to $71.1 million and $42.7 million in
fiscal 1998 and 1997. The increase is primarily due to increased business
opportunities in leasing and loans. In order to continue to be able to pursue
these increased opportunities, we are examining alternative means of funding
our activities, including, but not limited to, the establishment of a limited
partnership and the offering of partnership interests to a limited number of
other investors, in addition to us. The limited partnership, or possibly
partnerships, would become a significant source of liquidity for us for fiscal
2000. See "Factors that May Affect Future Results" for a discussion of risk
factors relating to liquidity and "Recent Events" for a description of the
limited partnership.
As of September 30, 1999, we estimate that future contractual cash flows from
leasing and loans could generate gross cash receipts of approximately $724
million in the future, including approximately $262 million in fiscal 2000.
Our capital requirements may vary based upon the timing and the success of
implementation of our business plan and as a result of competitive
developments or if:
. demand for our services or our cash flow from operations is less than or
more than expected;
. development plans or projections change or prove to be inaccurate;
. we make any acquisitions or commitments in excess of the current plan;
or
. we accelerate or otherwise alter the schedule or targets of our business
plan implementation.
While Comdisco has been our primary source of funds, Comdisco has made no
formal commitments about its ability or willingness to continue to provide
funds beyond fiscal year 2000. There can be no assurance that we will be able
to establish an alternative funding source or that if established those
sources will provide adequate funds. Accordingly, we cannot offer assurance
that we will be able to raise sufficient debt or equity capital on terms that
it considers acceptable, if at all. If we are unable to obtain adequate funds
on acceptable terms, our ability to fund our expansion or respond to
competitive pressures would be significantly impaired.
Risk Factors that May Affect Future Results
We have made loans to and equity purchases from various privately held
companies. These companies typically are in an early stage of development and
may be expected to incur substantial losses. Accordingly, advances to these
companies may not result in any return and we may lose our entire investment
and/or principal balance.
Equity instruments we hold are subject to lockups restricting our ability to
sell until several months after an initial public offering. The public market
for high technology and other emerging growth companies is extremely volatile.
Such volatility may adversely affect our ability to dispose of the equity
securities and the value of those securities on the date of sale.
We have established working relationships with leading venture capital firms.
There can be no assurance that these relationships can be maintained or
sustained. To the extent that we are unable to maintain these relationships,
our ability to identify potential customers may be substantially impaired.
The current economic environment has been sustained over a number of years and
is currently the longest continuous period of economic growth in the last
thirty years. This environment has encouraged entrepreneurs to conceive,
develop and bring to market new products and services. We target these early-
stage companies for its services and products. A slow down in economic growth
could materially affect the market in which we operate. Furthermore, a slow
down would impact potential investors in any limited partnerships we may form,
and this in turn, would have a material impact on our liquidity and access to
funds.
Many of the companies to which we make loans or provide equity financing are
subject to regulatory authorities and requirements. These regulatory agencies
serve the public based on perceived needs and the then political environment.
These regulatory agencies also control the business environment for mergers
and acquisitions. A change in the administration or a tightening in regulatory
requirements and oversight would have a material impact on our customer base,
and, potentially, our loan collectability, as well as, the fair market value
of our equity holdings.
VIII-18
<PAGE>
Qualitative Information About Market Risk
Our primary market risk exposures are interest rate risk and market price
risk.
Our interest rate risk is primarily related to our interest-bearing
obligations to Comdisco. Our leased assets and notes receivable are at fixed
rates, whereas Comdisco's interest-bearing obligations are floating. For new
lease or loan transactions, the effects of higher or lower borrowing costs
would be reflected in the rates on these transactions. However, for the
existing lease and loan portfolio at September 30, 1999, a hypothetical
increase of 1% in prevailing interest rates would result in a decrease in net
earnings of approximately $3 million.
Our equity securities holdings are subject to market price risk. A 10%
decrease in market values would reduce the September 30, 1999 carrying value
of our publicly traded equity securities by $20 million. Many of these equity
securities are highly volatile stocks.
VIII-19
<PAGE>
COMDISCO VENTURES
FINANCIAL STATEMENTS
For the Years Ended September 30, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
and For the Three Months Ended December 31, 1999 and 1998 (Unaudited)
VIII-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Comdisco, Inc.:
We have audited the accompanying balance sheets of Comdisco Ventures (a
division of Comdisco, Inc., "the Company") as of September 30, 1999 and 1998,
and the related statements of earnings and division equity, and cash flows for
each of the years in the three-year period ended September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with general accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, Comdisco Ventures is a
division of Comdisco, Inc.; accordingly the financial statements of Comdisco
Ventures should be read in conjunction with the audited financial statements
of Comdisco, Inc.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Comdisco Ventures at
September 30, 1999 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended September 30, 1998
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
December 2, 1999
Chicago, Illinois
VIII-21
<PAGE>
COMDISCO VENTURES
STATEMENTS OF EARNINGS AND DIVISION EQUITY
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
December 31, Years Ended September 30,
---------------- ---------------------------
1999 1998 1999 1998 1997
-------- ------- --------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Leasing:
Operating................... $ 37,882 $25,326 $ 116,678 $ 83,147 $ 61,544
Direct financing............ 111 189 1,389 1,073 2,771
Sales-type.................. -- -- 336 866 4,305
-------- ------- --------- -------- --------
Total leasing............. 37,993 25,515 118,403 85,086 68,620
Sales......................... 2,318 1,269 6,142 7,136 6,942
Interest income on notes...... 11,759 2,314 22,580 6,655 3,139
Warrant sale proceeds and
capital gains................ 88,725 7,000 80,731 14,938 16,435
Other......................... 408 151 683 483 195
-------- ------- --------- -------- --------
Total revenue............... 141,203 36,249 228,539 114,298 95,331
-------- ------- --------- -------- --------
Cost and expenses
Leasing:
Operating................... 28,294 18,405 87,860 59,884 42,740
Sales-type.................. -- -- 254 479 3,615
-------- ------- --------- -------- --------
Total leasing............. 28,294 18,405 88,114 60,363 46,355
Sales......................... 1,008 1,036 4,460 3,980 4,423
Selling, general and
administrative............... 18,422 1,562 18,166 5,793 5,436
Interest...................... 10,791 4,014 23,373 10,835 7,670
Bad debt expense.............. 21,800 800 23,200 4,786 6,250
-------- ------- --------- -------- --------
Total costs and expenses.... 80,315 25,817 157,313 85,757 70,134
-------- ------- --------- -------- --------
Earnings before income taxes.. 60,888 10,432 71,226 28,541 25,197
Income taxes.................. 23,685 4,160 28,402 11,381 10,047
-------- ------- --------- -------- --------
Net earnings.................. $ 37,203 $ 6,272 $ 42,824 $ 17,160 $ 15,150
======== ======= ========= ======== ========
Division equity at beginning
of period.................... $199,649 $71,080 $ 71,080 $ 53,920 $ 38,770
Net earnings.................. 37,203 6,272 42,824 17,160 15,150
Other comprehensive income--
unrealized gains, net of tax. 114,155 16,374 85,745 -- --
-------- ------- --------- -------- --------
Total comprehensive
income................... 151,358 22,646 128,569 17,160 15,150
-------- ------- --------- -------- --------
Division equity at end of
period....................... $351,007 $93,726 $ 199,649 $ 71,080 $ 53,920
======== ======= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
VIII-22
<PAGE>
COMDISCO VENTURES
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30,
December 31, -----------------
1999 1999 1998
------------ -------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
Equity securities................................ $ 423,280 $197,335 $ 16,995
Receivables, net................................. 413,815 341,061 66,425
Inventory of equipment........................... 3,825 1,762 1,120
Leased assets:
Direct financing and sales-type................ 4,398 5,106 7,344
Operating (net of accumulated depreciation).... 326,409 283,241 182,403
---------- -------- --------
Net leased assets.............................. 330,807 288,347 189,747
Other assets..................................... 18,478 17,069 6,956
---------- -------- --------
$1,190,205 $845,574 $281,243
========== ======== ========
LIABILITIES AND DIVISION EQUITY
Inter-group payable.............................. $ 638,299 $533,297 $189,281
Accounts payable................................. 384 329 561
Deferred income taxes............................ 147,973 72,265 4,116
Other liabilities................................ 52,542 40,034 16,205
---------- -------- --------
839,198 645,925 210,163
---------- -------- --------
Division equity.................................. 351,007 199,649 71,080
---------- -------- --------
$1,190,205 $845,574 $281,243
========== ======== ========
</TABLE>
See accompanying notes to financial statements.
VIII-23
<PAGE>
COMDISCO VENTURES
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
December 31, Years Ended September 30,
------------------ -------------------------------
1999 1998 1999 1998 1997
-------- -------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Operating lease and
other leasing
receipts............. $ 40,486 $ 26,239 $ 117,504 $ 91,632 $ 80,051
Leasing costs,
primarily rentals
paid................. (193) (37) (90) (1,269) (111)
Sales................. 3,527 1,269 6,671 7,220 6,104
Cost of sales......... (1,007) (35) (113) (980) (423)
Warrant proceeds...... 92,044 7,000 80,731 14,938 16,435
Promissory note
receipts............. 51,240 8,288 66,912 32,685 15,753
Other revenue......... 1,172 150 15,231 6,883 3,334
Selling, general, and
administrative
expenses............. (9,009) (7,407) (7,546) (6,794) (5,435)
-------- -------- --------- --------- ---------
Net cash provided
by operating
activities....... 178,260 35,467 279,300 144,315 115,708
-------- -------- --------- --------- ---------
Cash flows from
investing activities:
Equipment purchased
for leasing.......... (79,447) (38,942) (205,624) (114,188) (91,297)
Purchase of property
and equipment........ (50) (2) (324) (140) (249)
Equity investments.... (36,210) (3,584) (39,641) (7,945) (4,294)
Issuance of promissory
notes................ (128,604) (67,420) (323,876) (57,213) (34,319)
Other................. 1,690 -- (5,558) 2,366 16,273
-------- -------- --------- --------- ---------
Net cash used in
investing
activities....... (242,621) (109,948) (575,023) (177,120) (113,886)
-------- -------- --------- --------- ---------
Cash flows from
financing activities:
Net change in inter-
group loans.......... 64,361 74,481 295,723 32,931 (1,948)
Principal payments on
nonrecourse debt..... -- -- -- (126) 126
-------- -------- --------- --------- ---------
Net cash provided
by financing
activities....... 64,361 74,481 295,723 32,805 (1,822)
-------- -------- --------- --------- ---------
Net increase in
cash and cash
equivalents...... -- -- -- -- --
Cash and cash
equivalents at
beginning of period.... -- -- -- -- --
-------- -------- --------- --------- ---------
Cash and cash
equivalents at end of
period................. $ -- $ -- $ -- $ -- $ --
======== ======== ========= ========= =========
Reconciliation of net
earnings to net cash
provided by operating
activities:
Net earnings.......... $ 37,203 $ 6,272 $ 42,824 $ 17,160 $ 15,150
Adjustments to
reconcile net
earnings to net cash
provided by operating
activities:
Leasing costs,
primarily
depreciation and
amortization....... 28,102 18,368 88,024 59,094 46,244
Leasing revenue..... 2,493 724 2,238 6,231 11,425
Principal portion of
promissory notes... 39,481 5,973 44,332 26,030 12,614
Cost of sales....... -- 1,001 4,347 3,000 4,000
Selling, general,
and administrative
expenses........... 31,213 (4,954) 33,820 3,785 6,251
Income taxes........ 23,685 4,069 28,402 11,381 10,047
Interest............ 10,791 4,014 23,373 10,835 7,670
Other--net.......... 5,292 -- 11,940 6,799 2,307
-------- -------- --------- --------- ---------
Net cash provided
by operating
activities....... $178,260 $ 35,467 $ 279,300 $ 144,315 $ 115,708
======== ======== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
VIII-24
<PAGE>
COMDISCO VENTURES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Nature of Operations
Formed in 1987 as a division of Comdisco, Inc., Comdisco Ventures (the
"Company") provides a wide variety of financing products to venture capital-
backed start-up companies. These include equipment leases and loans,
subordinated debt, receivables financing, and equity financing. Its principal
market is North America.
The Company's cash activity is reflected through the intracompany payable
account. Interest expense on each payable account, which amounted to $23,373,
$10,835, and $7,670 in the years ended September 30, 1999, 1998, and 1997,
respectively, is included in interest expense in the accompanying financial
statements.
The Company is allocated certain shared services and support activity of
Comdisco, Inc., consisting of, among other things, financial and accounting
services, information system services, certain selling and marketing
activities, executive management, human resources, corporate finance, legal
and corporate planning activities. Such allocated expenses amounted to $3,000
during the year ended September 30, 1999 and $1,000 in both of the years ended
September 30, 1998 and 1997. The Company was allocated such expenses based on
use and other criteria which management believes is reasonable.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
The Company is included in the consolidated Federal and state income tax
returns of Comdisco, Inc. Income tax expense has been computed as if the
Company filed its own income tax returns. Related current tax liabilities are
settled through the intracompany payable account.
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits of which future realization is
uncertain.
Lease Accounting
See Note 4 and 5 of Notes to Financial Statements for a description of lease
accounting policies, lease revenue recognition and related costs.
Inventory of Equipment
Inventory of equipment is stated at the lower of cost or market by categories
of similar equipment.
Furniture and Equipment
Furniture and equipment is carried at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets
ranging from three to five years. Furniture and equipment is included as a
component of other assets.
VIII-25
<PAGE>
COMDISCO VENTURES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Investments in Equity Securities
The Company determines the appropriate classification of marketable securities
at the time of purchase and reevaluates such designation at each balance sheet
date. Marketable securities classified as available-for-sale are carried at
fair value, based on quoted market prices, net of market value discount to
reflect any restrictions on transferability, with unrealized gains and losses
reported as a separate component of division equity. Equity investments for
which there is no readily determinable fair value are carried at cost, less
any appropriate valuation allowance.
Warrants
The Company's investments in warrants (received in connection with its lease
or other financings) are initially recorded at zero cost and carried in the
financial statements as follows:
. Warrants that meet the criteria for classification as available-for-sale
are carried at fair value based on quoted market prices with unrealized
gains and losses excluded from earnings and reported in other
comprehensive income.
.Warrants that do not meet the criteria for classification as available-
for-sale are carried at zero value.
The proceeds received from the sale or liquidation are recorded as earnings
when received.
Stock-Based Compensation
The Company utilizes the intrinsic value based method of accounting for its
stock-based compensation arrangements.
Interim Financial Information
The unaudited financial statements as of December 31, 1999 and for the three
month periods ended December 31, 1999 and 1998 include, in the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the Company's financial
position, results of operations, and cash flows for such periods.
(2) Equity Securities
The Company invests in equity instruments of privately-held companies in
networking, communications, software, Internet-based and other industries. For
equity instruments, which are non-quoted investments, the Company's policy is
to regularly review the assumptions underlying the operating performance and
cash flow forecasts in assessing the carrying values. The Company identifies
and records impairment losses on equity securities when events and
circumstances indicate that such assets might be impaired. During 1999 and
1998, certain of these investments in privately-held companies became
available-for-sale securities when the investees completed initial public
offerings.
Equity securities include the following as of September 30:
<TABLE>
<CAPTION>
1999 1998
-------- -------
(in thousands)
<S> <C> <C>
Available-for-sale-securities:
Cost.................................................. $ 7,735 $ 3,390
Unrealized gain....................................... 142,612 --
-------- -------
Market value.......................................... 150,347 3,390
-------- -------
Equity instruments (at cost less valuation adjustments). 46,988 13,605
-------- -------
Carrying value........................................ $197,335 $16,995
======== =======
</TABLE>
Realized gains or losses are recorded upon disposition of investments based
upon the difference between the proceeds and the cost basis determined using
the specific identification method. All other changes in the valuation
VIII-26
<PAGE>
COMDISCO VENTURES
NOTES TO FINANCIAL STATEMENTS--(Continued)
of portfolio investments are included as changes in the unrealized
appreciation or depreciation of investments in the other comprehensive income.
Net realized gains from the sales of equity investments were $5,161, $1,396,
and $3,425 in fiscal 1999, 1998 and 1997, respectively. Gross realized gains
from the sales of equity securities were $7,646 in fiscal 1999, $2,084 in
fiscal 1998, and $3,515 in fiscal 1997.
The Company records the proceeds received from the sale or liquidation of
warrants received in conjunction with its lease or other financings as income
when received. These proceeds were $75,570, $13,542 and $13,010 in fiscal
1999, 1998, and 1997, respectively.
(3) Receivables
Receivables include the following at September 30:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Equipment loans........................................ $ 85,088 $31,311
Subordinated loans..................................... 249,565 32,521
Receivable financing and other......................... 5,477 --
Nonperforming loans.................................... 2,975 1,487
-------- -------
Total notes receivable................................. 343,105 65,319
Accounts............................................... 7,148 3,325
Other.................................................. 7,321 3,781
-------- -------
Total receivables...................................... 357,574 72,425
Allowance for credit losses............................ (16,513) (6,000)
-------- -------
Total.............................................. $341,061 $66,425
======== =======
</TABLE>
The Company provides loans to early-stage high technology privately held
companies in networking, communications, software, and Internet-based and
other industries. The Company's loans are generally structured as equipment
loans or subordinated loans.
The amount of each loan varies, but generally does not exceed $10.0 million.
The loans bear fixed interest rates with coupons currently ranging from 8.0%
to 13.0% per annum. In addition, loan processing fees typically ranging from
0.75% to 1.5% of the principal amount of the loan may be paid at loan closing.
As part of the loan transaction, the Company receives warrants to purchase or
the right to convert into an equity interest in the borrower at a nominal
exercise price. The amount of the warrants received and the exercise price
varies based upon borrower-specific valuation factors. Loans provide current
income from interest and fees.
Contractual maturities of total notes receivables as of September 30, 1999,
were as follows: 2000--$130,000; 2001--$153,000; 2002--$107,000; 2003 and
thereafter--$13,000. Actual cash flows will vary from contractual maturities
due to prepayments and charge-offs
Changes in the allowance for credit losses (combined notes and accounts
receivables) for the years ended September 30 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Balance at beginning of year................... $ 6,000 $ 5,500 $ --
Provision for credit losses.................... 23,200 4,786 6,250
Net credit losses.............................. (12,687) (4,286) (750)
-------- ------- ------
Balance at end of year......................... $ 16,513 $ 6,000 $5,500
======== ======= ======
</TABLE>
VIII-27
<PAGE>
COMDISCO VENTURES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) Lease Accounting Policies
FASB Statement of Financial Accounting Standards No. 13 requires that a lessor
account for each lease by either the direct financing, sales-type or operating
method.
Leased Assets
. Direct financing and sales-type leased assets consist of the present
value of the future minimum lease payments plus the present value of the
residual (collectively referred to as the net investment). Residual is
the estimated fair market value at lease termination. In estimating the
equipment's fair value at lease termination, the Company relies on
historical experience by equipment type and manufacturer and, where
available, valuations by independent appraisers, adjusted for known
trends. The Company's estimates are reviewed continuously to ensure
realization, however the amounts the Company will ultimately realize
could differ from the estimated amounts.
. Operating leased assets consist of the equipment cost, less the amount
depreciated to date.
Revenue, Costs and Expenses
. Direct financing leases--Revenue consists of interest earned on the
present value of the lease payments and residual. Revenue is recognized
periodically over the lease term as a constant percentage return on the
net investment. There are no costs and expenses related to direct
financing leases since leasing revenue is recorded on a net basis.
. Sales-type leases--Revenue consists of the present value of the total
contractual lease payments which is recognized at lease inception. Costs
and expenses consist of the equipment's net book value at lease
inception, less the present value of the residual. Interest earned on
the present value of the lease payments and residual, which is
recognized periodically over the lease term as a constant percentage
return on the net investment, is included in direct financing lease
revenue in the statement of earnings.
Operating leases--Revenue consists of the contractual lease payments
and is recognized on a straight-line basis over the lease term. Costs
and expenses are principally depreciation of the equipment.
Depreciation is recognized on a straight-line basis over the lease term
to the Company's estimate of the equipment's fair market value at lease
termination, also commonly referred to as "residual" value. In
estimating the equipment's fair value at lease termination, the Company
relies on historical experience by equipment type and manufacturer and,
where available, valuations by independent appraisers, adjusted for
known trends. The Company's estimates are reviewed continuously to
ensure realization, however the amounts the Company will ultimately
realize could differ from the amounts assumed in determining
depreciation on the equipment in the operating lease portfolio at
September 30, 1999.
. Initial direct costs related to operating and direct financing leases,
including salesperson's commissions, are capitalized and amortized over
the lease term.
(5) Leased Assets
The components of the net investment in direct financing and sales-type leases
as of September 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Minimum lease payments
receivable............. $5,540 $7,876
Estimated residual
values................. 181 717
Less: unearned revenue.. (615) (1,249)
------ ------
Net investment in direct
financing and sales-
type leases............ $5,106 $7,344
====== ======
</TABLE>
VIII-28
<PAGE>
COMDISCO VENTURES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Unearned revenue is recorded as leasing revenue over the lease terms.
The following is a schedule of future minimum lease payments to be received
under direct financing and sales-type leases, based on contractual terms in
existence as of September 30, 1999:
<TABLE>
<CAPTION>
Minimum
payments
--------
<S> <C>
Years ending September 30,
2000.......................... $3,147
2001.......................... 1,954
2002.......................... 422
2003.......................... 17
2004.......................... --
------
$5,540
======
</TABLE>
Operating leased assets include the following as of September 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Operating leased assets............................... $432,862 $294,352
Less: accumulated depreciation
And amortization..................................... (149,621) (111,949)
-------- --------
Net................................................... $283,241 $182,403
======== ========
</TABLE>
The following is a schedule of future minimum rental payments to be received
under operating leases, based on contractual terms in existence as of
September 30, 1999:
<TABLE>
<CAPTION>
Minimum
payments
--------
<S> <C>
Years ending September 30,
2000.......................... $129,127
2001.......................... 109,085
2002.......................... 66,515
2003.......................... 10,565
2004.......................... --
--------
$315,292
========
</TABLE>
(6) Lease Portfolio Information
The size of the Company's lease portfolio can be measured by the cost of
leased assets at the date of lease inception. Cost at lease inception
represents either the equipment's original cost or its net book value at
termination of a prior lease. The following table summarizes, by year of lease
commencement and by year of projected lease termination, the cost at lease
inception for all leased assets recorded at September 30, 1999:
<TABLE>
<CAPTION>
Projected year of lease
Cost at termination
lease --------------------------------
Year lease Commenced inception 2000 2001 2002 2003
-------------------- --------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
1995 and prior................. $ 10,476 $10,156 $ 320 $ -- $ --
1996........................... 39,838 38,168 1,393 277 --
1997........................... 77,909 45,338 31,636 461 474
1998........................... 113,881 3,942 40,899 64,508 4,532
1999........................... 204,202 13 9,325 115,465 79,399
-------- ------- ------- -------- -------
$446,306 $97,617 $83,573 $180,711 $84,405
======== ======= ======= ======== =======
</TABLE>
VIII-29
<PAGE>
COMDISCO VENTURES
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes the estimated net book value at lease
termination for all leased assets recorded at September 30, 1999. The table is
presented by year of lease commencement and by year of projected lease
termination:
<TABLE>
<CAPTION>
Net book Projected year of lease
value at termination
lease -----------------------------
Year lease Commenced termination 2000 2001 2002 2003
-------------------- ----------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
1996............................ $ 3,625 $ 3,625 $ -- $ -- $ --
1997............................ 10,306 6,421 3,885 -- --
1998............................ 11,790 509 4,549 6,732 --
1999............................ 24,209 -- 636 13,710 9,863
------- ------- ------ ------- ------
$49,930 $10,555 $9,070 $20,442 $9,863
======= ======= ====== ======= ======
</TABLE>
(7) Income Taxes
The Company files its U.S. income tax return as part of the consolidated return
with its parent. In accordance with a tax sharing agreement, the Company
records its income tax liabilities on a separate return basis.
The components of the income tax provision (benefit) charged (credited) to
operations were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
U.S. Federal................................... $13,899 $ 9,280 $ 4,776
U.S. state and local........................... 3,220 2,150 1,106
------- ------- -------
17,119 11,430 5,882
------- ------- -------
Deferred:
U.S. Federal................................... 9,161 (40) 3,382
U.S. state and local........................... 2,122 (9) 783
------- ------- -------
11,283 (49) 4,165
------- ------- -------
Total tax provision.......................... $28,402 $11,381 $10,047
======= ======= =======
</TABLE>
The reasons for the difference between the U.S. Federal income tax rate and the
effective income tax rate for earnings were as follows:
<TABLE>
<CAPTION>
Percent of pre-
tax earnings
-----------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
U.S. Federal income tax rate........................... 35.0% 35.0% 35.0%
Increase resulting from-state income taxes, Net of U.S.
Federal tax benefit................................... 4.9% 4.9% 4.9%
----- ----- -----
39.9% 39.9% 39.9%
===== ===== =====
</TABLE>
VIII-30
<PAGE>
COMDISCO VENTURES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities at September 30, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets (liabilities):
Investments........................................ $ 3,504 $ 3,504
Accounts receivable................................ 1,968 848
Lease accounting................................... (18,411) (11,858)
Deferred income.................................... (2,450) 3,390
Accumulated other comprehensive income............. (56,867) --
-------- --------
Gross deferred tax assets (liabilities).............. (72,256) (4,116)
Less: valuation allowance........................ -- --
-------- --------
Net deferred tax assets (liabilities)................ $(72,256) $ (4,116)
======== ========
</TABLE>
(8) Commitments
The Company leases office spaces under operating leases that expire
periodically through February 29, 2004. Under the renewal options of the
agreement, the Company may extend the lease terms. Rent expense was $272, $198
and $161 in fiscal 1999, 1998 and 1997, respectively. Minimum lease payments
for the office spaces are as follows:
<TABLE>
<CAPTION>
Minimum lease
payments
-------------
<S> <C>
Years ending September 30,
2000..................... $214
2001..................... 218
2000..................... 25
2003..................... 25
2004 and thereafter...... 11
----
$493
====
</TABLE>
(9) Fair Value of financial instruments
The estimated fair value of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------- -------- ------
<S> <C> <C> <C> <C>
Assets:
Equity securities..................... 197,335 197,335 16,995 16,995
Notes receivable including noncurrent
portion.............................. 341,061 341,061 66,425 66,425
</TABLE>
Fair values were determined as follows:
. Equity instruments are based on quoted market prices for available-for-
sale securities, and, for non-quoted equity instruments, based on the
lower of management's estimates of fair value or cost. The Company's
investment in warrants of public companies were valued at the bid
quotation.
. Notes receivable are estimated by discounting future cash flows using
the current rates at which similar loans would be made to borrowers with
similar business profiles.
VIII-31
<PAGE>
COMDISCO VENTURES
NOTES TO FINANCIAL STATEMENTS--(Concluded)
(10) Comprehensive Income
Comprehensive income for the year ended September 30, 1999 is comprised as
follows:
<TABLE>
<S> <C>
Net income...................................................... $ 42,824
Other comprehensive income:
Unrealized gains on marketable equity securities.............. 142,612
Less income tax expense....................................... 56,867
--------
Total comprehensive income.................................. $128,569
========
</TABLE>
VIII-32
<PAGE>
- -------------------------------------------------------------------------------
PROXY
[LOGO OF COMDISCO]
This Proxy is Solicited by the Board of Directors in Connection With the
Special Meeting of Stockholders
10:00 A.M. (C.S.T.)
Thursday, April 20, 2000
PLACE: Comdisco, Inc.
6111 N. River Road
Rosemont, Illinois 60018
PROXY: NICHOLAS K. PONTIKES and PHILIP A. HEWES and each of them, are hereby
appointed by the undersigned as Proxies with full power of substitution, to
vote all the shares of common stock held of record by the undersigned on
Thursday, April 20, 2000 at the Special Meeting of Stockholders of Comdisco,
Inc. or at any adjournment(s) of the meeting, on each of the items on the
reverse side and in accordance with the directions given therein.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Call toll free 1-800-840-1208 on a touch-tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call;
or
2. Vote by Internet at http://www.eproxy.com/cdo; or
3. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
PLEASE VOTE
TO VIEW OUR PROXY STATEMENT ONLINE
GO TO: http://www.comdisco.com
<PAGE>
The Board of Directors recommends a vote FOR the approval of the tracking
stock proposal.
- -------------------------------------------------------------------------------
Please mark
your votes as [X]
indicated in
this example
1. The approval of the tracking stock proposal as described in the
accompanying proxy statement.
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment(s)
thereof.
For Against Abstain
[_] [_] [_]
I consent to future access to the Annual Reports and Proxy Statements
electronically via the Internet. I understand that the Company may no longer
distribute printed materials to me for any future shareholder meeting until
such consent is revoked. I understand that I may revoke my consent at any
time.
[_]
Date
----------------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature, if Jointly Held
Signature(s) should be exactly as name or
names appear on this proxy. If shares are
held jointly, each holder should sign. If
signing is by attorney, executor,
administrator, trustee or guardian, please
give full title.
*** IF YOU WISH TO VOTE BY TELEPHONE OR BY INTERNET, PLEASE READ THE
INSTRUCTIONS BELOW ***
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Your vote is important! . Vote 24 hours a day
It's your choice: fast, convenient--
and your vote is immediately confirmed and posted
[X] Vote by Telephone
Just follow these 4 easy steps:
1. Read the accompanying Proxy Statement. Keep this proxy card handy as a
reference while you vote.
2. Call the toll-free number 1-800-840-1208 on a touch-tone telephone anytime
prior to 3:00 p.m. (C.S.T.) on April 19, 2000. There is no charge for this
call.
3. Enter your Control Number located on the lower right-hand corner of this
proxy card.
4. Follow the recorded instructions.
or [X] Vote by Internet
Just follow these 4 easy steps:
1. Read the accompanying Proxy Statement. Keep this proxy card handy as a
reference while you vote.
2. Go to ChaseMellon's website regis-tration page at http://www.eproxy.com/cdo
anytime prior to 3:00 p.m. (C.S.T.) on April 19, 2000.
3. Enter your Control Number located on the lower right-hand corner of this
proxy card.
4. Follow the instructions at http://www.eproxy.com/cdo.
Your telephone or Internet vote authorizes the named Proxies to vote in the same
manner as if you marked, signed and returned your proxy card. It is not
necessary to return the printed proxy card if you vote by telephone or Internet.
<PAGE>
[LOGO OF COMDISCO]
VOTING INSTRUCTION STATEMENT
Special Meeting of Stockholders
10:00 A.M. (C.S.T.)
Thursday, April 20, 2000
PLACE: Comdisco, Inc.
6111 N. River Road
Rosemont, Illinois 60018
THIS VOTING INSTRUCTION STATEMENT IS CONTINUED ON THE REVERSE SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
The Board of Directors recommends a vote FOR the approval of the tracking
stock proposal.
- -------------------------------------------------------------------------------
Please mark
your votes as [X]
indicated in
this example
VOTING INSTRUCTION STATEMENT
I am a participant in Comdisco's Retirement Plan (the "Plan") which is
sponsored by Comdisco, Inc. (the "Company"). I have received and carefully
reviewed a copy of the Company's Notice of Special Meeting and Proxy Statement
dated March 20, 2000. I hereby instruct the Trustee of the Plan, Putnam
Investments ("Plan Trustee"), to vote all of the shares of the Company
allocated to my account under the Plan in accordance with the directions given
below. I understand that if I, the participant, do not direct the Plan
Trustee, my shares will not be voted.
1. The approval of the tracking stock proposal as described in the
accompanying proxy statement.
For Withhold Abstain
[_] [_] [_]
2. In its discretion, the Plan Trustee is authorized to vote upon such other
business as may properly come before the meeting and any adjournment(s)
thereof.
Shares allocated to my Plan account:
---------
Dated ,2000
----------------------------------
---------------------------------------------
Print Name
---------------------------------------------
Print Social Security Number
---------------------------------------------
Signature
*** IF YOU WISH TO VOTE BY TELEPHONE OR BY INTERNET, PLEASE READ THE
INSTRUCTIONS BELOW ***
================================================================================
FOLD AND DETACH HERE
<PAGE>
Your vote is important!
Instruct the Plan Trustee how to vote 24 hours a day
It's your choice: fast, convenient--and your instruction is
immediately confirmed and posted
[X] By Telephone
Just follow these 4 easy steps:
1. Read the accompanying Proxy Statement. Keep this voting instruction card
handy as a reference while you vote.
2. Call the toll-free number 1-800-840-1208 on a touch-tone telephone anytime
prior to 3:00 p.m. (C.S.T.) on April 19, 2000. There is no charge for this
call.
3. Enter your Control Number located on the lower right-hand corner of this
voting instruction card.
4. Follow the recorded instructions.
or [X] By Internet
Just follow these 4 easy steps:
1. Read the accompanying Proxy Statement. Keep this voting instruction card
handy as a reference while you vote.
2. Go to ChaseMellon's website registration page at http://www.eproxy.com/cdo
anytime prior to 3:00 p.m. (C.S.T.) on April 19, 2000.
3. Enter your Control Number located on the lower right-hand corner of this
voting instruction card.
4. Follow the instructions at http://www.eproxy.com/cdo.
Your telephone or Internet instruction authorizes the Plan Trustee to vote in
the same manner as if you marked, signed and returned your voting instruction
card. It is not necessary to return the printed voting instruction card if you
provide your instruction by telephone or Internet.
<PAGE>
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
PLAN PARTICIPANTS MAY INSTRUCT THE PLAN TRUSTEE HOW TO VOTE THE SHARES
ALLOCATED TO THEIR ACCOUNT IN ONE OF THREE WAYS:
1. Call toll free 1-800-840-1208 on a touch-tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call;
or
2. Vote by Internet at http://www.eproxy.com/cdo; or
3. Mark, sign and date your voting instruction statement and return it
promptly in the enclosed envelope.
PLEASE VOTE
TO VIEW OUR PROXY STATEMENT ONLINE
GO TO: http://www.comdisco.com
